Three-month loan moratorium extension for targeted groups

KUALA LUMPUR (July 29): Prime Minister Tan Sri Muhyiddin Yassin today announced that banks will offer a three-month loan moratorium extension and assistance to targeted groups in view of the current tough economic times.

The move is expected to benefit some three million individuals and businesses, particularly those who suffer pay cuts and are unemployed due to the Covid-19 pandemic, according to Muhyiddin, who had a live televised speech this afternoon.

Muhyiddin said the decision was made following a discussion with the finance minister and Bank Negara Malaysia on further measures to help borrowers that still need assistance when the six-month moratorium ends on Sept 30.

The Covid-19 lockdown measures enforced over the last few months have presented an unprecedented challenge for small businesses in Malaysia.

The blanket six-month moratorium was granted by banks in April.

"Individuals who have lost their jobs in 2020 and remain jobless are eligible for the targeted moratorium extension of three months. After three months, the moratorium could be extended further at the banks' discretion depending on the borrowers' situations.

"Those who are employed but have had their salaries reduced due to Covid-19 pandemic will be granted lower loan instalments in tandem, depending on the types of borrowings. For example, for home or personal loans, the monthly instalments will be reduced at the same rate as the salary reductions.

"This assistance is for a period of at least six months and an extension can be given subject to the current salary situations of the individuals concerned," Muhyiddin added.

Apart from the two groups, Muhyiddin said other affected borrowers including traders, hawkers, self-employed individuals and businesses could also make similar arrangements with their banks.

Banks, according to him, have expressed their commitments to helping all borrowers, both individuals and small and medium enterprises, who are affected by Covid-19 outbreak.

Muhyiddin revealed that banks may allow borrowers to make interest payments only for a period of time on a case-by-case basis.

Other options are to extend the loan tenures to reduce monthly repayments or provide other reliefs until the borrowers' financial positions are more stable.

"For hire purchase borrowers in need of assistance, financial institutions will offer appropriate instalment scheduling subject to the Hire Purchase Act. This includes extending the repayment period with a lower instalment amount," Muhyiddin said, adding that eligible borrowers can contact their respective banks to make an application starting from Aug 7.

Economists laud move to extend moratorium for targeted groups
MIDF Research economist Mazlina Abdul Rahman said the extension of the loan moratorium for targeted groups is a better option than to continue providing the moratorium on a blanket approach.

"It is because there could be many borrowers who are opting for moratorium not because they are in financial distress but simply [because they] want to use the opportunity to preserve capital or for investment purposes," she said when contacted.

Her sentiment was echoed by Hong Leong Investment Bank Bhd banking analyst Chan Jit Hoong, who said the quantum of new modification loss should be lower than the blanket automatic deferment as it is aimed at a smaller audience.

This initiative, he said, did not come as a surprise and is consistent with what banks have been mulling to do after the current six-month moratorium ends on Sept 30.

"We believe it is a more sustainable method to help the rakyat and also, restrain non-performing loans (NPLs) from ballooning out of control over the short term. However, it may hide actual damage and cause lag in NPL formation if the situation does not improve rapidly or an advent of [second-wave Covid-19] paralyses the country again," he said.

Bank Islam Malaysia Bhd chief economist Dr Afzanizam Abdul Rashid said the moratorium extension shows that the government is trying to strike a delicate balance between supporting the need of the affected groups and the health of banks' finances, which is also crucial to the Malaysian economy.

"It's going to be targeted and that is very reassuring and therefore, limited resources are not going to be wasted. What is more important now is to encourage borrowers who have lost their jobs or who have been experiencing reductions in their current pay and perhaps, those who have faced financial difficulties to come forward and have a frank discussion about their states of finance with the banks," he said.

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