Moratorium: Win-win solution between banks and borrowers

KUALA LUMPUR: The six-month moratorium on bank loan repayments announced by Prime Minister Tan Sri Muhyiddin Yassin under the National People's Well-Being and Economic Recovery Package (PEMULIH) last Monday was expected to be the most awaited news, especially by borrowers whose income is affected by the implementation of the Movement Control Order (MCO) since March last year to curb the spread of COVID-19.

However, hardly 24 hours after the announcement, some quarters expressed their dissatisfaction and confusion on the matter, especially after Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz clarified that the moratorium would not be interest free.

However, he said banks would waive compounded interest and penalty charges on borrowers who take up the a moratorium and the deferment on their payment would be carried out based on the same concept as announced during MCO 1.0 last year.

For the record, Malaysia is among the first countries in the world to introduce the six-month automatic moratorium when it was implemented for the first time in April last year involving 7.7 million Malaysians or 93 per cent of individual borrowers.

The value of the loan moratorium on loan repayments to financial institutions which came into effect on April 1 until Aug 28, 2020 was estimated at RM81.9 billion, of which RM28.6 billion was utlised by the business sector and the remaining RM53.3 billion by individual borrowers.

Efforts to help the people and businesses during the challenging period due to the COVID-19 pandemic by implementing the moratorium has had a positive impact, especially in helping to provide excess cash flow to the people and traders to spend, especially on daily necessities and food.

The positive effect of the previous moratorium can also be seen through the gradual recovery of the country's economy, including its Gross Domestic Product (GDP) , which rebounded strongly in March 2021 to 6.0 percent.

It also succeeded in helping businesses and small and medium enterprises (SMEs) to continue to survive, besides reducing the unemployment rate from 5.3 per cent in May 2020 to 4.6 per cent in April 2021.

Considering the positive effects, the deferment of loan repayment or moratorium is an important approach in the PEMULIH package announced by the prime minister for individual borrowers in the B40, M40 and T20 groups, as well as the micro-entrepreneurs.

Among others, the application for the moratorium, which is opened from July 7, will be given automatic approval with the borrowers not requiring to send any documents.

Certainly, borrowers who are in dire financial problems are hoping for this moratorium to help them have extra cash for the next six months, especially with the uncertain pandemic situation and the movement control still being implemented across the country.

However, the current interest rate imposed by the bank during the loan deferment period should be reviewed to help borrowers.

A win-win solution should be considered by the banks so as not to burden the people, according to a lecturer at the School of Business and Economics, Universiti Putra Malaysia (UPM), Associate Prof Dr Anuar Shah Bali Mahomed.

"The interest rate during the moratorium should be based on the instalment payment after the moratorium until settlement of the loan.

"If the loan repayment is made accordingly with no arrears every month, the bank should be able to exempt interest rate during the moratorium, "he told Bernama.

This is because the bank has already made a profit from the instalment paid by borrowers, he said, adding that when the automatic moratorium was implemented last year some banks were making a net profit of more than RM6 billion.

"Although their profits dropped in 2020 compared to 2019, offering the six-month unconditional moratorium at a time when the people are pressed with financial problems, is the a best move by the government.

"For example, Malayan Banking Berhad (Maybank) and Public Bank Group, reported a net profit of RM6.48 billion and RM4.87 billion, respectively, for the financial year ending Dec 31, 2020, . So the banks should be able to consider it," he added.

Certainly, in a difficult time like this, the bank should jointly help by prioritising their customers' interests by exempting interest during the moratorium period, especially to those who are prompt in making their instalments after the moratorium ended until settlement of the loans.

According to Anuar, this will also indirectly encouraged borrowers to settle their monthly instalment payments consistently.

-- BERNAMA