The Association of Banks in Malaysia
(updated 10 May 2021)
WHAT IS LOAN DEFERMENT?
Loan deferment is when a lender is allowed to temporarily halt making payments on their principal and interest of a loan for an agreed-upon time. Initially, the loan deferment introduced by the government in April 2020 allowed lenders to make a deferment on their payments for a period of 6 months.
WHAT DO I NEED TO KNOW?
The Malaysian banking sector continues to step up their measures to offer relief to help borrowers adversely affected by the COVID-19 pandemic, support economic recovery and safeguard the livelihood of Malaysians.
Here are the measures that have been implemented to-date since the Movement Control Order (MCO) in March 2020:
25 March 2020 – Bank Negara Malaysia (BNM) announced a number of regulatory and supervisory measures in support of efforts by banking institutions to assist individuals, small and medium-sized enterprises (SMEs) and corporations to manage the impact of the COVID-19 outbreak. These measures allowed banking institutions to remain focused on supporting the economy during these exceptional and unprecedented circumstances, by providing flexibilities for banking institutions to respond swiftly to the needs of their borrowers. Amongst others, the deferment of all loan repayments for a period of 6 months, with effect from 1 April 2020. This offer was applicable to performing loans, denominated in Malaysian Ringgit, that had not been in arrears for more than 90 days as at 1 April 2020.
For credit card facilities, banking institutions offered to convert the outstanding balances into a 3-year term loan with reduced interest rates to help borrowers better manage their debt1. The deferment targeted only deserving borrowers who were challenged financially in the short-term. Thus, the blanket moratorium granted was not for those who had already defaulted before the COVID-19 impact and took advantage of the same.
In context, it was a temporary deferment or suspension of loan payment obligation (principal and interest) for a limited period of time, not a waiver. During this period, borrowers with loan that met the eligibility conditions did not need to make any payment, and no late payment charges were imposed. Borrowers, however, needed to honour the deferred payments in the future as loan/financing repayment would resume after the deferment period.
The blanket moratorium was meant to ease cash flows for borrowers who were affected by the COVID-19 pandemic. It was to help individuals and businesses facing financial adversities cope with challenges during this period. As was highlighted in BNM’s announcement on 25 March, borrowers were advised that interest will continue to accrue on deferred payments and they should consider this when deciding whether they wish to take up the moratorium as borrowers would need to honour the deferred repayments in the future1. Borrowers were advised to ensure that they understood and discussed with their banking institutions on the options available to resume their scheduled repayments after the deferment period.
Malaysia has been the only country in the world to implement an automatic moratorium for 6 months from April 2020 for the benefit of individuals and SMEs during the enforcement of the MCO to combat the spread of COVID-192. For Malaysia, all individuals and SME/loan financing that meet the stipulated criteria will automatically qualify for the deferment. According to Moody’s Investors Service, Malaysia offered the most extensive loan moratorium in South-East Asia, covering about 80 per cent of total loans3. Under the 20th report by the Economic Stimulus Implementation & Coordination Unit Between National Agencies (LAKSANA), Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said that a total of 732,000 borrowers who took the automatic moratorium have resumed their monthly loan repayment instalments and under the 24th LAKSANA report he said that the value of the moratorium as of 25 September 2020 is estimated at RM97.26 billion. Out of this figure, a total of RM34.04 billion was utilised by the business sector while RM63.22 billion was utilised by the Rakyat4. Overall, the moratorium benefited more than 7.7 million Malaysians, comprising 93 per cent of individual borrowers as well as 243,000 businesses or 95 per cent SMEs5.
The blanket loan moratorium expired on 30 September 2020 and banks in Malaysia moved into the next phase by offering targeted repayment assistance. Banks in Malaysia continued to encourage affected borrowers to contact them to discuss financial assistance measures available to them. In addition, banks in Malaysia actively reached out to potential affected borrowers on the financial assistance that could be offered post 30 September 2020.
As the economy began to recover from the impact of the pandemic, banks in Malaysia focused on targeted assistance approach to households and businesses based on their financial circumstances and challenges.
During the Prime Minister’s announcement on 29 July 2020 regarding the extension of moratorium and banks’ targeted assistance, there was an increased number of individual borrowers who continued to repay loan installments and opt-out of the moratorium facility to 601,000 in July 2020 from 331,000 in April 2020 while the number of SME borrowers, who chose not to take this facility, increased to 13,000 in July 2020 from 5,000 in the same period1. It is worth to note that not everyone was affected by the resumption of loan repayments as most working Malaysians remain employed. This is further supported by the information obtained from the Department of Statistics Malaysia in which about 95.3 per cent of the total labour force was employed as of end July 2020, where 15.07 million persons were employed2.
30 July 2020 - As announced in the press release issued by ABM, repayment assistance was available for borrowers adversely affected by the COVID-19 pandemic upon the expiry of the blanket moratorium on 30 September 20203. Under the targeted repayment assistance measures, conventional banks were to provide additional assistance post 30 September, specifically for individual borrowers who had lost their jobs in 2020 and to those individual borrowers who were suffering from a drop in income due to the COVID-19 pandemic (collectively known as the “Severely Affected Categories”). The additional specific assistance provided was as follows:
- Individual borrowers who lost their jobs in 2020 and had yet to find a job could apply to their banks for an extension of the loan moratorium for a further 3 months; and
- Individual borrowers who were still in employment but whose income had been affected due to the COVID-19 pandemic (e.g. as a result of reduced working hours, pay cuts, etc.) could contact their banks to change the terms of their financing facility so that the monthly instalment would be commensurately reduced for at least 6 months from 1 October 2020, depending on the type of loan/financing.
For hire purchase financing, affected borrowers were offered revised instalment schedules that are consistent with the Hire Purchase Act 1967. In addition, assistance was also available for affected borrowers who did not fall within the Severely Affected Categories stated above.
In this regard, borrowers who required further assistance after the blanket moratorium ended were urged to contact their banks to discuss the repayment assistance options suited to their circumstances as early as possible. Banks were to assist affected borrowers in a more targeted, case-by-case approach to enable banks to focus on supporting those in real need of assistance whilst also supporting the country’s economic recovery. The affected borrowers may include, but were not limited to SMEs, corporates and other individuals, who were still facing difficulties with their loan/financing repayments and cash flow problems arising from the COVID-19 pandemic. Examples of such repayment assistance included payment of interest/profit only for selected products for a specified period, possible extension of the loan/financing tenure to enable lower monthly instalments and amending other terms and conditions of the loan/financing where appropriate.
9 September 2020 - BNM announced that it was conducting an online survey of applicants of targeted repayment assistance. The survey was to be used to inform its understanding of banking consumer experiences in discussing assistance needs during this challenging period. The survey was to be taken by individuals or SMEs, with the relevant links provided in BNM’s website4.
30 September 2020 - According to the ABM’s press release, in line with its commitment to support affected borrowers, the banking industry had adopted a simplified application and documentation process for targeted repayment assistance. The banking industry was cognizant that while the economy was recovering, many borrowers were still finding their footing and reorienting themselves amid new realities and uncertainties. If repayment obligations were to become a challenge in the coming months, borrowers were assured that the window to discuss alternative repayment arrangements would remain open6.
Individual banks directly engaged over 2 million borrowers through calls, emails and SMS to offer repayment assistance. According to BNM, there continued to be a steady increase in borrowers choosing to resume payment of their monthly instalments. BNM highlighted that applications for repayment assistance at any time before 30 June 2021 would not appear on a borrower’s CCRIS records7. Banks also assured borrowers that acceptance of the targeted extension of the moratorium and repayment flexibilities during the period would not appear in the CCRIS reports of individuals and SMEs.
19 October 2020 - BNM in its press release stated that borrowers who declined repayment assistance for now would still be able to apply for targeted assistance throughout 2020 and into 2021 if their financial circumstances changed in the future. BNM said that a targeted approach to repayment assistance extended relief measures more sustainably, while lending strength to the economic recovery. As banks have been entrusted by the public to manage their savings,the public, as depositors, expect that banks discharge their fiduciary obligation by managing these funds prudently and using them to provide loans to the economy for productive purposes. In addition, banks source capital from institutional funds, such as those managing the pensions, retirement funds and investments of Malaysians. It is therefore important to preserve a healthy credit culture where borrowers who can afford to repay do so8.
6 November 2020 - Following the announcement by the Finance Minister of Malaysia, YB Senator Tengku Dato’ Sri Zafrul Tengku Abdul Aziz during the 2021 Budget speech, BNM has issued a press release to provide additional details on the announced measures to households and businesses affected by COVID-19. The Finance Minister said that to-date, more than 650,000 applications for repayment assistance have been received, with a high approval rate of 98%1. The following measures are part of continuous efforts by the financial industry to support economic recovery, while also safeguarding the livelihoods of Malaysians2:-
- Enhanced targeted repayment assistance.
- Establish additional financing facilities to provide relief and support recovery for SMEs i.e. RM2 billion Targeted Relief and Recovery Facility (TRRF), RM500 million High Tech Facility (HTF) and RM110 million increase in allocation for the Micro Enterprises Facility (MEF).
- Other Initiatives such as the Expansion of iTEKAD programme and Perlindungan Tenang Protection for B40.
ABM in its press release dated 6 November 2020, also announced that the enhanced targeted repayment assistance will be available to B40 borrowers who are recipients of Bantuan Sara Hidup (BSH) / Bantuan Prihatin Rakyat (BPR) and microenterprises with loans where the original facility amount is up to RM150,000. Under this enhanced targeted repayment assistance, eligible borrowers will be offered two options to choose from, i.e. either a 3-month deferment of instalment or a 6-month reduction in instalments by 50%3.
Each eligible borrower can only take up one of the above options under this enhanced targeted repayment assistance for each loan, from 1 December 2020 until 30 June 2021. Only loans that were approved before 1 October 2020 and are not in arrears exceeding 90 days as at date of request by the borrower would be eligible for this enhanced targeted repayment assistance. For married couples who are eligible for BSH/BPR based on household income, both husband and wife would be eligible for this package if they have bank loans. This enhanced targeted repayment assistance will be available to eligible borrowers between 23 November 2020 and 30 June 2021. The enhanced targeted repayment assistance will be available for instalments due in December 2020 onwards, and will take effect at the next instalment following a borrower’s request and confirmation.
All borrowers, regardless of whether they are recipients of BSH/BPR, categorized as M40 who are registered in the BPN database or not, who wish to discuss their financial repayment options with their banks and obtain advice on the targeted repayment assistance options available to them are welcome to contact their banks at any time, via their banks’ various official channels (e.g. the banks’ websites, branches, customer service hotlines).
To request for this assistance, eligible borrowers will only need to confirm their repayment option with their bank. Additional documentation from borrowers is not required by banks to obtain repayment assistance.
26 November 2020 - During Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz’s winding-up speech on Budget 2021 in Parliament, he announced that more than 700,000 Malaysians had applied for the second moratorium phase, now under Budget 2021, with some 98% of applications approved. He added that the government will be consulting with banks moving forward, and that the government is committed to helping the people if the situation worsens due to the Covid-19 pandemic4.
1 December 2020 – BNM issued press release (New and enhanced financing facilities for SMEs affected by COVID-19) to provide further information on the implementation of two funds, namely TRRF and MEF, as announced in the Budget 2021 speech by the Minister of Finance5.
15 December 2020 – BNM issued press release (Establishment of RM1 billion High Tech Facility – National Investment Aspirations [HTF-NIA]) on the detail features of HTF-NIA to provide additional assistance for SMEs affected by COVID-19. This facility is aimed at supporting high-tech and innovation-driven SMEs affected by COVID-19 to recover and revitalise the nation’s innovation capacity. This is critical to strengthen Malaysia’s competitive positioning in global value chains, preserve the supply chain ecosystem and safeguard high-skilled jobs6.
17 January 2021 – ABM issued press release (Banks continue to offer repayment assistance to borrowers/customers) that the banking industry will continue to extend the targeted repayment assistance to individuals who have been affected by the current MCO in light of the reintroduction of the MCO in a number of states and Federal Territories7.
18 January 2021 – In the Prime Minister’s Special Announcement on "Perlindungan Ekonomi dan Rakyat Malaysia" (PERMAI) Assistance Package, Tan Sri Muhyiddin Yassin said that to-date, more than 1.3 million borrowers have applied for and received the repayment assistance, with an approval rate of 95 per cent for individual borrowers and 99 per cent for SME borrowers8.
5 February 2021- BNM announced in its press release an additional allocation of RM2 billion has been made for the Targeted Relief and Recovery Facility (TRRF) thereby increasing the total allocation of the facility to RM4 billion. TRRF will be available until 31 December 2021 or until full utilisation, whichever is earlier. SMEs that are recipients of the Special Relief Facility and PENJANA SME Financing are also now eligible to apply for TRRF, subject to a total financing limit not exceeding RM500,000. For SMEs in the tourism and tourism-related services subsectors, assistance remains available under the existing PENJANA Tourism Financing9.
Based on BNM’s website, as at 21 March 2021, 1.6 million applications have been received, with 95% of applications approved. 56% of the applicants approved were granted an extension on the moratorium and 46% received a reduction in their instalments10.
WHAT OTHER MEASURES HAVE BEEN TAKEN?
Apart from the measures and assistance being provided by the banking institutions, there are various other initiatives made by the Malaysian government, BNM and other industries to aid those who are financially affected by the COVID-19 pandemic.
The initial assistance given were the PRIHATIN and PENJANA economic stimulus package amounting to RM295 billion1 by the Malaysian government.
The Prime Minister had on 5 June 2020 announced that measures under PRIHATIN Rakyat Economic Stimulus Package have saved over 2.4 million jobs, while over 10 million people received assistance to ease their cash flow burden, and over 300,000 companies supported. Under PRIHATIN, RM7 billion in financing to help SMEs was provided through BNM and financial institutions. These include the following2:-
- Special Relief Facility (SRF);
- Agrofood Facility (AF);
- Automation and Digitalisation Facility (ADF); as well as
- Micro credit schemes.
Additionally, the Ministry of Tourism, Arts and Culture (MoTAC) had on 30 July 2020 announced the PENJANA Tourism Financing (PTF) Scheme to aid the tourism sector. According to the ABM’s press release dated 6 August 2020, the PTF which is offered by 12 participating banks in Malaysia, is aimed at supporting Malaysian micro, small and medium enterprises (MSMEs) in the tourism sector by preserving their capacity and assisting them to adjust and remain viable post COVID-19, can be utilised for working capital and capital expenditure to enhance their business models and deploy new practices3. Minister of MOTAC, Datuk Seri Nancy Shukri has urged tourism players to apply for the PTF worth RM1 billion to remain competitive in the new normal during the COVID-19 pandemic4. As of 23 April 2021, there were 644 applications for PTF, of which 321 applications had been approved with a total financing of RM63.9 million5. To support the tourism sector until 30 June 2021, service tax exemptions for hotels that have been utilised by accommodation premises operators has reached a value of RM1.37 billion. Other initiatives to support the tourism sector include individual income tax relief of up to RM1,000 on travel expenses, as well as full tourism tax exemption6.
As of 3 November 2020, a total of RM9.86 million people have benefited from RM4.5 billion channelled under the Bantuan Prihatin Nasional (BPN) 2.0, which includes 7 million from the B40 group and 2.86 million recipients from the M40 group7.
On 9 December 2020, Finance Minister said that various government agencies will continue to provide soft loans and grants, including through Budget 2021, to ensure that SMEs receive support, operate smoothly and grow. The government hopes that all this support will enable the SMEs to compete in the medium and long terms. Tengku Zafrul highlighted that about 1.4 million SMEs and micro-SMEs have already benefitted from the various assistance amounting to over RM24 billion under the stimulus packages8.
On 14 January 2021, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said that the government has disbursed a total of RM1.149 billion in financing to SMEs as of 1 January 2021, under the short-term National Economic Recovery Plan (PENJANA)9.
On 18 January 2021, Prime Minister Tan Sri Muhyiddin Yassin announced the "Perlindungan Ekonomi dan Rakyat Malaysia" (PERMAI) assistance package worth RM15 billion. In a special address, Prime Minister said a total of 22 initiatives will be implemented under PERMAI, anchored on three main objectives namely - Combating the Covid-19 outbreak, safeguarding the welfare of the people, and supporting the business continuity10.
BNM in its press release dated 17 March 2021 announced that an additional allocation of RM700 million has been provided for the SME ADF, bringing the facility’s total size to RM1 billion. The ADF, which was established in March 2020, aims to encourage SMEs across sectors to automate processes and digitalise operations to increase productivity and efficiency. The facility will be available until 31 December 2021 or full utilisation, whichever is earlier11.
For the SME Soft Loans Funds administered by BNM as at 9 April 2021, the total approved applications by local banks and accepted by SMEs is RM11.87 billion, which will benefit 25,289 SMEs; amount includes SRF (which has been fully utilized by 21,000 SMEs and has helped save over 400,000 jobs12), ADF, All-Economic Sector Facility and AF funds13. In supporting business continuity the TEKUN Business Recovery Scheme (TBRS), specifically for Micro SMEs has benefited 14,946 micro businesses, fully utilizing its RM100 million fund6. The government's allocation of RM2 billion under PENJANA SME Financing which prioritises SMEs that have never obtained any bank loans before has also disbursed as at 23 April 2021, a total of RM1.393 billion in financing to small and medium enterprises (SMEs) benefitting 7,424 applicants5.
In their continual support of the economic recovery process, the government launched the Strategic Programme to Empower the People and Economy or PEMERKASA worth RM20 billion, along with a new fiscal injection amounting to RM11 billion on Wednesday 17 March 2021. Prime Minister Tan Sri Muhyiddin Yassin said PEMERKASA would focus on 20 strategic initiatives to boost economic growth, support business, and continue targeted assistance to the people and sectors that are still affected. With the inclusion of PEMERKASA (RM20 billion), the total value of the government aid packages amounted to RM340 billion1.
As reported in the BNM’s Annual Report 2020 released on 31 March 2021, it has worked closely with Agensi Kaunseling dan Pengurusan Kredit (AKPK), the banking associations and banks to support the implementation of the automatic loan moratorium and the Targeted Repayment Assistance (TRA) programme by providing information and advice to affected borrowers. Engagements with stakeholders were key in implementing its policies to mitigate the wide-ranging effects of the pandemic. Hence BNM intensified its outreach efforts to members of the public, financial institutions, the business community and various stakeholders through virtual meetings, webinars, engagement sessions, print, digital and social media platforms. Through these, BNM was able to respond to the needs of the public for information, especially to help individuals and businesses manage their financial circumstances through a highly challenging period1.
The “Seek Help Early” campaign was launched to encourage affected borrowers to discuss their financial obligations with their financial service providers. In total, more than 150 awareness programmes were conducted on TRA that helped more than 1.2 million borrowers manage their loan repayments. According to BNM, print and electronic media played an important role in the dissemination of information on the automatic moratorium, TRA and the SME financing facilities. BNM spoke at more than 17 programmes on regional radio stations, reaching out to more than 400,000 listeners and worked with several television stations to run a series of public service announcements on the TRA. In addition, BNM worked with government agencies, regulators and telecommunication companies to create awareness and address the misconceptions on the moratorium and TRA via public service announcements (SMS blasts) to a total of 43 million subscribers1.
According to BNM in the same report, banks have adopted new approaches to render COVID-19 repayment assistance as efficiently as possible, without compromising on robust governance and risk management standards. Roughly eight million individual borrowers and 250,000 SMEs benefited from the 6 months automatic moratorium while the larger corporates receive supports via restructuring and rescheduling of their loans/financing. As for repayment assistance, 1.3 million applications were received and 95% of the same were approved and valued at RM204 billion. By 31 December 2020, 95% of retail borrowers and 85% of SME borrowers were able to resume their payments. This is due to the gradual resumption in economic activities where borrowers would have different financial needs and the targeted assistance enabled borrowers to receive continued help based on their specific financial circumstances. Borrowers that could afford to repay their loans/financing were encouraged to do so in order to reduce overall borrowing costs. At the same time, borrowers were also assured that if their financial circumstances change as a result of further shocks due to the pandemic, they could still seek help in future, without affecting their credit records in the CCRIS2.
An important focus during the year 2020 was ensuring continued access to finance for SMEs under highly challenging business conditions. To help SMEs to weather the pandemic, BNM significantly increased the allocation of financing assistance under BNM’s Fund for SMEs (BNM’s Fund) from RM9.1 billion to RM23.1 billion. Facilities under BNM’s Fund, channeled through the financial institutions, aimed to provide immediate cash relief to adversely affected SMEs, support recovery of hard-hit economic sectors and enhance innovative capacity of high-tech SMEs. BNM’s Fund complements the much larger provision of SME financing by the financial institutions, which disbursed a total of RM256.8 billion in loans/financing to SMEs in 2020, with more accounts approved compared to the previous year (2020: 145,993 accounts; 2019: 115,498 accounts). BNM’s Fund has helped to sustain businesses and safeguard jobs, with about RM6.0 billion worth of funds still available for new applications by SMEs as at mid-March 2021. Funds by BNM has benefitted more than 32,000 SMEs and supported around 596,600 jobs. Beyond the provision of funds, BNM also supported the availability of credit guarantee schemes to encourage continued bank lending in the heightened risk environment3.
HOW HAVE OTHER REGIONS BEEN IMPACTED?
Financial institutions (FIs) worldwide including Malaysia have been proactive in responding to the needs of their borrowers with various rescheduling and restructuring initiatives offered to assist affected borrowers. Such efforts are highly commended and encouraged to continue. These assistances would be subject to independent assessment by the banks on a case-to-case basis. The deferment package arising from the COVID-19 pandemic in Malaysia has been an extension of these measures across all FIs to widen access to short-term financial relief by households and businesses that need it the most in these challenging times.
In other countries, certain conditions have to be met first in order for the borrowers to qualify for the moratorium amid the coronavirus (COVID-19) crisis and a period of 6 months loan deferment is typical e.g. countries such as Australia, New Zealand and India have also granted 6 months loan deferment. BNP Paribas Asset Management Malaysia Sdn Bhd Chief Executive Officer (CEO) and Country Head, Angelia Chin-Sharpe said compared with regional peers, moratorium support offered by Thailand’s banks only covered 33 per cent of the country’s total loan book, followed by the Philippines (22 per cent), Indonesia (16 per cent), India (11 per cent) and Singapore (10 per cent) while Malaysian banks are the most committed to helping businesses and individuals wade through the COVID-19 crisis with up to 55 per cent of the total loan book for banks in the country are under moratorium1.
Despite the various measures offered, it is worth to note that according to Maybank Kim Eng Research, loan moratoriums and restructuring pose critical risks to the banking systems in ASEAN including Malaysia and need to be watched going forward because even if 10% of such loans are going bad, this could have a material impact on non-performing loans (NPLs) especially in Indonesia, Thailand and Malaysia, as well as in Singapore and the Philippines. As part of extraordinary Covid-19 relief measures, many regional banking systems have placed loans on moratoriums where interest and/or principal payments are paused. These loans are not classified as NPLs, hence leads to a shadow asset quality risk and muddied the waters on asset quality risks. The research house reiterated that this is a critical risk that needs to be closely watched2.
A brief overview on the banking assistance offered in other countries are listed as follows:
Australia will implement a new phase of support as borrowers approach the end of their 6 months loan repayment deferral period1. According to the Australian Banking Association (ABA), in the next phase, borrowers who can restart paying their loans will be required to do so at the end of their 6 months deferral period. In Australia, borrowers with reduced incomes and ongoing financial difficulty due to COVID-19 will be contacted as they approach the end of their deferral period, to ensure that wherever possible they can return to repayments through a restructure or variation to their loan. If these arrangements are not in place at the end of a 6 months deferral, borrowers will be eligible for an extension of their deferral for up to 4 months. A deferral extension of up to 4 months at the end of the sixth month loan repayment deferral period will not be automatic and be provided to those who genuinely need that extra2.According to ABA, the initial phase of the Scheme remains available for new loans issued by eligible lenders until 30 September 2020 and the second phase of the Scheme will start on 1 October 2020 and will be available until 30 June 2021.
According to ABA CEO Anna Bligh during her interview with Australian Broadcasting Corporation (ABC) Journalist David Speers on 2 November 2020, banks in Australia are seeing more people coming off their loan deferrals and going back into full payments after the mortgage holidays. For the remaining borrowers who are finding it hard to make their payments, the banks are working individually with every borrower to find the right solution. Some people are able, if they’re eligible and needed, to get a further extension of that deferral. Others are having their loans restructured. Similar to banks in Malaysia, banks in Australia have urged their borrowers to talk to their bank(s) if they are still struggling with finances, and not to wait further. Anna Bligh also added that banks are there to lend money into the economy but they are also there to make sure that they lend that money with the appropriate degree of risk and the ability to manage that risk. This is important because the banks are lending the customer’s money, the money out of customer’s deposit account3.
New data released by ABA on 17 November 2020 reveals the number of deferred loans has fallen below 300,000, a reduction of almost 70% since the peak in early 2020. ABA CEO said that Australian banks have played a major role in carrying the economic burden of the pandemic for their customers. The good news is that the majority are now bouncing back as they restart their loan repayments. The value of loans on deferral has now fallen to $86 billion, down from a peak of more than $250 billion back in June (i.e. 900,000 loans). This is a massive exposure for Australia’s seven biggest banks at a time when the official jobless rate was hurtling towards more than 10%, meaning that banks rather than households and businesses have absorbed the economic shock4.
During ABA CEO Anna Bligh’s interview with ABC NewsRadio about the continued support that banks offer to customers after the drop in loan deferral numbers, she said that the best thing for the borrowers is not to be on deferral for so long that they start to lose equity in their most valuable asset. For those sectors that are more impacted, the banks are continuing to work with those affected borrowers who took a deferral and are still not able to move back to full payments. The banks are working individually with those borrowers in devising what is right for every single customer, on an individual tailored basis with a proper assessment and this is the best thing for the borrowers3.
In a press release by ABA dated 17 February 2021, new data from Australia’s largest banks shows that 91% of deferred loans have resumed repayments. Just 5% of deferred business loans and 13% of deferred housing loans are yet to resume repayments. As deferrals and government support measures wind down, banks are reassuring their customers that continued tailored support is still available to those who are still struggling as Australian banks will continue to provide a fair and compassionate approach to those who cannot get back on their feet5. Australian banks will also be unveiling an industry-wide Financial Assistance Hub to continue helping customers in financial difficulty. The site aims to inform and assist bank customers so they know exactly where they stand, and the support their banks will provide them6.
In an interview on Money News with ABA CEO Anna Bligh on 11 March 2021, she explained that customers continue to come off deferrals and that out of six million people in Australia that have a mortgage,1% of them are experiencing some form of arrears. Anna Bligh reiterated that right at the height of COVID, when things were at their absolute worst, only 10% of Australian mortgage holders deferred the payments on those mortgages. 90% of those people are now back paying in full7.
In a press release dated 17 March 2021, Australia’s banks are marking one year since lockdown and loan deferrals began. The latest data shows that almost 97% of all deferred loans had resumed repayments by the end of February, almost one year on from the start of the key support measure to help Australians through the COVID-19 crisis8.
According to the New Zealand Bankers Association in its media release dated 17 August 2020, banks are offering options to borrowers financially affected by COVID-19. Borrowers may be eligible for a new loan deferral of up to six months or an extension to their current loan deferral. There are several options available to borrowers, depending on their circumstances. Options may include borrowers restarting their loan repayments, moving to interest-only repayments, or extending the term of the loan. Further options include applying for a loan repayment deferral or seeking an extension to an existing loan deferral. New and extended loan deferrals will expire on 31 March 2021. Any new or extended loan deferrals will not be automatic. They will be available to borrowers in genuine need for a period of up to 31 March. Affected borrowers may need less time than that to get back to normal repayments1.
New Zealand Bankers Association chief executive Roger Beaumont said that as of 30 November 2020, nearly 70% of deferred consumer and business loans are back to full repayments, while people who reduced their repayments to get through are also making good progress. This shows that people who took loan deferrals, or reduced their repayments, understand why it’s a good thing to restart repayments if they can. It also shows how banks are working proactively with affected customers to support them through tough times2.
He summarised in an opinion blog dated 23 February 2021, that last year working with the government, the Reserve Bank and credit reporting agencies, banks moved quickly to offer loan repayment deferrals and reduced loan repayments for customers financially affected by the pandemic, providing immediate relief for many. This resulted in around $70 billion in household and business loans having all their repayments deferred or reduced but most of those loans are now back to normal repayments, thanks to the ‘NZ Inc’ response to the pandemic and consequently better-than-expected economic conditions. He added that at the same time, banks proactively contacted business customers to ensure they had access to credit and other support. With the reduced loan repayments and full deferrals, it also included restructuring and consolidating loans, and providing short-term funding3.
Roger Beaumont stated in a press release dated 31 March 2021 that the number of deferred household and business loans have continued to decline through March. Hence this marks the end of the loan repayment deferral scheme introduced a year ago to help borrowers financially affected by the Covid-19 pandemic. At the end of February there were around 3000 household and business loans still deferred. Banks are working closely with the few affected customers who still need help to get back on track. Assistance for these customers will be tailored to their individual circumstances4.
So far as we can ascertain, India have extended their moratorium where the country originally granted 3 months and then extended for another 3 months until 31 August 2020, making a total of 6 months1.
In a speech given by Shri Shaktikanta Das, Governor of Reserve Bank of India on the 25 February 2021, he announced the Reserve Bank undertook several conventional and unconventional measures in the wake of COVID-19. Other than conventional measures, the RBI introduced long term repo operations (LTROs) and targeted long-term repo operations (TLTROs) to augment system as well as sector-specific liquidity to meet sectoral credit needs and alleviate stress. Special refinance facilities were also provided to select all India financial institutions (AIFIs), while a special liquidity facility for mutual funds (SLF-MF) was introduced to ease redemption pressures. As for the Micro, Small and Medium Enterprises (MSME) that have been rendered especially vulnerable by the pandemic, two major schemes, viz., the Emergency Credit Line Guarantee Scheme (ECLGS) and the Credit Guarantee Scheme for Subordinate Debt (CGSSD) were introduced by the Government. These have been duly supported by various monetary and regulatory measures by the Reserve Bank in the form of interest rate cuts, higher structural and durable liquidity, moratorium on debt servicing, asset classification standstill, loan restructuring package and CRR exemptions on credit disbursed to new MSME borrowers2.
In a speech made on 5 May 2021, the Governor of Reserve Bank of India, Shri Shaktikanta Das announced that in light of the situation that India is fighting a drastic rise in infections and mortalities, he outlined a number of additional measures to help alleviate the strain posed on the macroeconomic situation and financial market conditions due to the second wave of the pandemic. These include Special Long-Term Repo Operations (SLTRO) for Small Finance Banks (SFBs), Lending by SFBs to Micro-Finance Institutions (MFIs) for On-lending to be Classified as Priority Sector Lending and Credit to Micro, Small, and Medium Enterprise (MSME) Entrepreneurs3.
Singapore imposes the condition that borrowers need to apply on an opt-in basis to their banks for the deferment (i.e. not on a blanket approval basis), as each individual’s financial situation is different1. On 5 October 2020, the Monetary Authority of Singapore (MAS), together with the Association of Banks in Singapore (ABS) and the Finance Houses Association of Singapore (FHAS) announced an extension of support measures to help individuals and Small and Medium-sized Enterprises (SMEs) facing cashflow difficulties transition gradually to full loan repayments. These extended measures will progressively expire over 2021. According to Mr Samuel Tsien, Chairman of the ABS, ABS and the banks in Singapore have worked closely with MAS on a set of targeted measures to support the borrowers. With the economic impact of COVID-19 expected to carry over to 2021, the Extended Support Scheme is designed to assist individuals and SMEs who continue to face difficulties and are not able to immediately transition back to full loan repayments. Banks will work closely with those who need further support by offering other restructuring solutions2. ABS, with the support of the Finance Houses Association of Singapore, had on 1 November 2020 announced the launch of the Extended Support Scheme – Customised (ESS-C), the first industry programme to help SMEs restructure their credit facilities across multiple banks and finance companies3. ABS assures borrowers that banks will work closely with their affected borrowers to explore funding and refinancing solutions to help ease their near-term financial strain. Banks would continue to consider credit accommodations, including loan covenant revisions and waivers where relevant, and will take into account the current circumstances of borrowers in their deliberation. Borrowers that require additional help can also approach their bank or finance company for more customised restructuring arrangements4.
During the Parliament Sitting on 16 February 2021, Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS explained that upon the expiry of the relief packages offered by financial institutions for borrowers to overcome financial difficulties due to the COVID-19 pandemic at the end of last year, extended reliefs have been made available to individuals and SMEs facing continued cashflow challenges. MAS and the financial industry will continue to monitor the situation closely. According to Mr. Tharman, other than a few hard-hit sectors such as aviation, the economy is generally recovering, and there should be fewer cases of financial hardship as so far, only a small proportion who took up reliefs in 2020 have sought the extended reliefs5.
As for Thailand, Mrs Roong Mallikamas, Assistant Governor, Financial Stability and Corporate Strategy Group, Bank of Thailand (BOT) in the press release dated 16 October 2020, updated that BOT has opted for an approach away from a traditional and generic measure to a proactive and more targeted approach as loan payment holiday under the Emergency Decree on Financial Assistance to Small and Medium-sized Enterprises Affected by Coronavirus Pandemic B.E. 2563 (2020) will end on 22 October 2020. It was stated the measure on loan payment holiday also has long-term negative consequences due to the following1:
- The loan payment holiday measure merely applies to a deferral of debt payment whereas interest charges continue to accrue during the holiday period. This interest payment obligation is a burden for borrowers in the long run.
- The measure creates moral hazard for borrowers that are in a position to continue servicing the loans. These borrowers may opportunistically decide not to service the loans.
- Continuation of the payment holiday poses risks to the stability of the financial institution system as financial institutions will not be able to book the regular cash inflows.
BOT’s press release dated 29 January 2021 on the Economic and Monetary Conditions for December and the fourth quarter of 2020 stated that in December 2020, the Thai economy continued to recover but remained uneven. Private consumption indicators turned to expand, due to the gradual recovery in household purchasing power, supports from government stimulus measures, and temporary factor from additional special long holidays. However, the tourism sector continued to contract severely due to travel restrictions on foreign tourist arrivals2.
In a press release the following week dated 3 February 2021, the Monetary Policy Committee voted to maintain the policy rate at 0.50 percent to support the economic recovery which remained highly uncertain, in particular with low-income households and SMEs. The Committee was of the view that the continuity of government measures and policy coordination among government agencies would be critical to support the economic recovery going forward which meant monetary policy must remain accommodative3.
Ms. Suwannee Jatsadasak, Senior Director, Bank of Thailand, reported that the Thai banking system’s performance in 2020 remained resilient with high levels of capital fund, loan loss provision and liquidity to support economic recovery from the COVID-19 pandemic. This she said is due to credit assistance measures, coupled with revisions to rules on loan classification and provisioning supported bank loan expansion alleviated the deterioration of bank loan quality. As of 8 February 2021, the number of debtors under the soft loan scheme totaled 74,702 and the soft loan approval stood at 125,777 Million Baht (MB)4.
UK Finance, the collective voice for the banking and finance industry, representing more than 250 firms across the industry, had on 21 October 2020 announced that as the furlough scheme comes to an end on 31 October 2020, the banking and finance industry is committed to providing tailored support to borrowers facing financial difficulty. According to UK Finance, it is always in a borrower’s best interest to resume payments if they are able to do so. Evolving industry analysis suggests that over three quarters of mortgage, personal loan and credit card customers whose payment deferral has come to an end have now returned to making repayments. The banking and finance industry has reiterated its commitment to support mortgage, personal loan and credit card customers facing financial difficulty and provide unprecedented levels of support to help borrowers through the COVID-19 crisis. In supporting the households, all lenders will offer tailored options to support borrowers through payment difficulties resulting from COVID-19, taking into account their personal circumstances including any local restrictions that may be imposed. Support will be available both for those who have previously taken a payment deferral and those who are newly in financial difficulty. Figures from the British Business Bank have shown that support for businesses from the banking and finance industry has been spread across all areas of the country, with the UK’s worst-affected sectors continuing to receive the strongest support from lenders1. Banks in UK and building societies have agreed with regulators and HM Treasury to extend the provision of mortgage payment deferrals of up to a maximum of six months in the light of the tightened COVID-19 restrictions announced by the Prime Minister on 31 October 20202.
UK Finance and Building Societies Association (BSA) respond to announcement of Financial Conduct Authority (FCA) consultation on mortgage payment deferrals that they will continue to work with the regulator on measures to support mortgage borrowers impacted by COVID-19 as follows3:
- i. UK Finance - Lenders are continuing to provide unprecedented levels of support to help borrowers through the COVID-19 crisis and have been working closely with the FCA to ensure that borrowers impacted by the new lockdown measures will be able to access the assistance they need, including being able to defer payments on their mortgages where this can help.
- ii. BSA - For those with a mortgage, the best advice will always be to continue to pay if can, and to discuss any concerns early with the lender. For those who are having difficulties, a payment deferral for a total of 6 months followed by ongoing tailored support are available. Lenders are working hard to support their borrowers through this time.
Lenders have today committed to renewed support for mortgage customers facing financial difficulty as a result of the COVID-19 pandemic, as FCA confirms an extension to the mortgage payment deferral scheme until 31 July 2021, with final applications due by 31 March 2021. The extension gives access to customers who have not yet sought support, or who have had a payment deferral of less than six months. Consumers who have had a full six-month payment deferral on their mortgage but continue to experience financial difficulty are encouraged to contact their lender to discuss tailored support4.
On 4 December 2020, UK Finance updated that the number of payment deferrals across mortgages and consumer credit reduced in recent weeks as more customers returned to making repayments or sought alternative forms of tailored support from their lender. With continued economic uncertainty ahead, the banking and finance industry remains supportive and committed to providing help to those whose finances have been affected as a result of the pandemic, through payment deferrals and tailored support, as appropriate to the customers’ needs1.
UK Finance’s data published on 7 January 2021 reveals that gross lending to SMEs in the first three quarters of 2020 amounted to more than double the annual total for 2019, reaching £54 billion. The data, released as part of the quarterly Business Finance Review, shows that the UK banking and finance industry has delivered an unprecedented level of support to SMEs throughout 2020. Banking and finance industry support through government-backed coronavirus lending schemes, coupled with initiatives such as the Job Retention Scheme and the deferral of VAT payments, has significantly reduced SME outgoings in 2020, leading to a 20 per cent rise in business deposit holdings over the first three quarters of the year. SME finances have been further supported by the broader package provided by the industry, with businesses benefitting from a range of facilities provided by lenders, including extended overdrafts, invoice finance and capital repayment holidays. The industry is committed to continuing to work with the government in supporting business throughout the crisis and beyond as the UK recovers from the economic impact of the pandemic5.
Further to the FCA’s consultation announced on 13 January 2021, mortgage lenders support the further extension to the moratorium on possessions to 1 April 2021. The mortgage industry’s continued commitment to the possessions moratorium sits alongside payment deferrals and additional forbearance measures which lenders continue to provide to customers that are struggling with the financial impact of the pandemic. The extension will help provide reassurance to both residential and buy-to-let borrowers that they will not have their homes repossessed at this difficult time6.
On 20 January 2021, new figures published by UK Finance show there were 130,000 mortgage payment deferrals in place at the end of December 2020. With economic uncertainty continuing into the New Year and new national lockdown restrictions in place, the banking and finance industry in UK is reiterating that ongoing support is available for those who need it. Lenders have also announced their support for an extension of the moratorium on possessions until 1 April 2021, to provide reassurance to both residential and buy-to-let borrowers that they will not have their homes repossessed at this difficult time7.
According to Stephen Pegge, Managing Director of Commercial Finance at UK Finance, the UK’s banking and finance industry remains committed to helping businesses of all sizes through the crisis. With widespread restructuring and recovery situations expected, the finance sector and related professional services are focused on providing the capacity and expertise to help support the turnaround of companies where possible, while ensuring the sympathetic treatment of those businesses which are no longer viable8.
In a blog written by Eric Leenders of Personal Finance at UK Finance, he stated that the financial support introduced in response to Covid-19 is working as early arrears were lower at the end of 2020 than they were before the start of the pandemic. He continued that the majority of those that took out payment deferrals have now returned to full payments9.
In a press release dated 25 March 2021, figures published by HM Treasury revealed that the banking and finance industry has provided almost £75 billion in support to almost 1.6 million businesses through government-backed coronavirus lending schemes. In total, the UK banking and finance industry has supported around 27 per cent of British businesses through the government-backed coronavirus lending schemes, almost a year since the schemes were first put in place. These loans are just one part of the industry’s plan to support businesses across the UK as lenders continue to provide a range of additional measures, including working capital extensions, overdraft extensions and capital repayment holidays10. David Postings, Chief Executive of UK Finance added that with the current Government-backed schemes coming to a close, the industry welcomed the announcement of the new Recovery Loan Scheme to help businesses continue to rebuild and they will be working closely with the Government and lenders on delivering it11.
8 https://www.ukfinance.org.uk/press/press-releases/nearly-%C2%A371-billion-provided-over-15 million-businesses-lenders-through-covid-19-loan-schemes
HOW ARE BANKS IMPACTED?
According to a Joint IMF-World Bank Staff Position Note with an overview of measures taken across jurisdictions to date, in order to alleviate further operational pressure and burden on banks, many authorities have revised their enforcement approaches by putting on hold or postponed non-critical reporting and/or stress testing exercise1. However, banks are still required to implement enhanced credit monitoring approaches so that market discipline continues to play its critical role. Authorities have also recognized and exerted efforts to reduce moral hazard to promote transparency and risk disclosures by:
- making the measures time bound
- clearly defining the sectors and loans who are able to access these measures
- requiring additional reporting to facilitate banks in monitoring and assessment of the impact of the measures
By granting the moratorium, banks' liquidity coverage ratio (LCR) will decline more significantly as banks would still require working capital to continue paying for interest expense, meet deposit withdrawals, debt repayments and sustain its overheads. The loan deferment would also impact upon the banks’ cashflow as payments from their borrowers will not be forthcoming until 6 months later. However, if borrowers continue to face repayment/payment constraints after the 6 months blanket moratorium expires, higher default rates will start to show up on banks’ balance sheets and will be reflected as higher impaired loan provisions or credit cost.
In the Malaysia context, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said the banking sector is estimated to see losses of RM6.4 billion during the loan moratorium period, between April and September i.e. losses of approximately RM1.06 billion per month based on Malaysian Financial Reporting Standards (MFRS) 9. According to the Finance Minister, over the six-month blanket moratorium period, banks could incur RM79 billion loss in capacity to provide loans, otherwise known as “modification loss”2. “Modification loss” is the reduction in the banks’ capacity to disburse new loans worth RM79 billion to the borrowers i.e. individuals and businesses. This amount is the total that banks can lend individuals and businesses in a normal business situation over the six-month period.
According to BNM’s Financial Stability Review for First Half 2020, banks reported a marked decline in earnings from domestic banking activities during the first half of the year, weighed down by further margin compression and higher provision for credit losses. On a positive note, significant relief measures introduced have kept business loan impairment ratios low and stable at 2.5 per cent for overall non-financial corporates. Households continue to maintain comfortable levels of financial assets and liquid financial assets at 2.2 times and 1.4 times of debt, respectively, as relief measures introduced by the government and banks released extra cash to households. Business conditions are expected to improve in the second half of the year, in line with the gradual improvement in economic activity. The extension of targeted financial relief measures will continue to help support businesses alongside corporate and SMEs guarantee schemes as the recovery takes a stronger hold. Based on BNM’s statistics, since July, the number of businesses receiving repayment assistance from banks has increased seven-fold. In the first half of 2020, the banking system as a whole disbursed a total of RM120 billion in lending and financing to the SMEs with more accounts being approved in 2020 compared to the same period in previous years. BNM also revealed in its report that the local banks’ credit cost could rise to RM29 billion in 2020 and 2021 on the back of higher projected loan impairments3.
Overall, the local banking industry has experienced an extremely challenging year in 2020 as many banks are posting weaker performance to, among others, lower net interest income, significantly higher allowance for impaired loans amid a Covid-19 pandemic driven weaker economic outlook and the automatic loan modification loss.
According to BNM’s Governor Datuk Nor Shamsiah Mohd Yunus during the release of Malaysia’s fourth quarter gross domestic product results, for the first time since the COVID-19 outbreak, banks in Malaysia have been more willing to lend as the appetite for loans improved across household and businesses4. In the final quarter of 2020, business loan disbursements rose to RM206.2 billion, exceeding the 2017-2019 quarterly average of RM196.7 billion5.
In its base case, S&P Global Ratings expects that most banks in Asia-Pacific would absorb the hits from COVID-19, and start to recover by the end of 2021. Nevertheless, a more severe or prolonged hit to the economies than the current baseline would almost certainly push banks’ credit losses higher, drive their earnings lower and amplify other risks6. In a report on 6 Oct, Moody’s said it expect asset quality to deteriorate significantly in Asia-Pacific as economic conditions remain weak, while profitability will take a hit from rising credit costs and declining margins7.
According to Fitch Ratings report dated 7 January 2021, rating outlooks had turned negative for banks in most jurisdictions this year compared to 2020. This reflected downside risks to its baseline scenario from a potentially sluggish economic recovery following sharp deterioration in 2020 owing to the pandemic. Fitch said the rating outlook for Malaysian banks was "negative", while the sector outlook was "stable". The key issues for Malaysian banks were slow non-performing loan recognition, lower profitability and property market risks, it added8.
Analysts and economists said that the banks’ gross impaired loans (GIL) could weigh on the banking sector as how the asset quality of banks would evolve will depend on the duration of the MCO 2.0 that is implemented by the government beginning 13 January 2021 to curb the pandemic. Rising GILs have always been the key risk factor under the present scenario, as this ratio has been inching upwards from 1.38% in September 2020 to 1.41% and 1.53% in October and November 2020 respectively9.
For borrowers who are able to start repayments, this would be in their interest as resuming repayments would reduce the borrowers’ overall cost of borrowings. Any loan forbearance will still assume an eventual full repayment of arrears.
Borrowers are reminded that the decision made from the beginning to apply and obtain bank loans marks a specified term of commitment and represents a significant financial obligation for an individual or a particular business. Therefore, rigorous financial planning and the availability of sound financial buffers against unexpected events are critical. The banking industry welcomes the announcement from the Government to end the blanket moratorium and move towards a targeted assistance approach. In this regard, borrowers who are still facing financial hardship after the 6 months blanket moratorium will have to pro-actively reach out to their bank(s), for discussion on their options for further specific assistance. All other borrowers who have taken the blanket moratorium and now have the means are advised to resume repayment effective 1 October 2020 as it will reduce their overall debt and borrowing cost.
Alternatively, borrowers can also approach the relevant “one-stop” centre to work out an appropriate assistance package i.e. AKPK for individuals and Small Debt Resolution Scheme (SDRS) for SMEs (effective 1 September 2020, BNM has transferred the SDRS function to AKPK to help SMEs, including micro SMEs1). As at 31 January 2021, AKPK has helped 32,349 people to fully settle their debts totalling RM1.5 billion via its debt management programme (DMP). According to AKPK’s Chief Executive Officer Encik Azaddin Ngah Tasir, since AKPK’s inception in 2006, the agency had extended its financial advisory services to over 1.2 million people. He also said that in 2020 alone, AKPK has helped 33,356 individuals to restructure their debts and place them on stronger footing, giving them clarity and direction in laying out their financial plans. As for SMEs, 161 applications were approved by the agency for debt restructuring services with loan amounts totalling RM 151.8 million from September 2020 to February 20212.
It cannot be stressed how important it is that borrowers must practice financial discipline to repay the arrears owed to the banks and strive to cultivate a good record of loan repayment as the viability of a credit system depends on loans being repaid. As explained by a former specialist editor of The Star, despite banks remaining profitable, it does not mean that the financial institutions can afford another round of blanket moratorium on loan repayments as banks are providing more for impairment of loans. When loans are not serviced, banks have to start providing for it even though there may be recoveries after a year or two. When provisions start to rise, the risk profile rises as well, causing banks to stop giving out loans. Banks have to be profitable to continue to give out loans. If banks are not profitable, the wider economy will be impacted3.
It is important to note that should there be another round of blanket moratorium, there will be insufficient inflow of funds to support the outflow. In the current context, the outflows are mainly depositors who are affected by the COVID-19 pandemic who would withdraw their savings. Under such circumstances, the safety buffers that banks have built over the years would eventually be depleted as seen in previous crisis, for instance the failure of the first British bank, Northern Rock Bank (NRB) in 150 years as a result of a bank run during the global financial crisis 13 years ago. Also, the banks’ risk aversion will increase, similarly when people are more cautious in their spending when savings are at stake during such times. From a historical perspective, every time there is an economic crisis, the percentage of household debt increases every year. Malaysia’s household debt is one of the highest in the world at 90 per cent compared with more advanced economies such as follows:-
- Germany at 55 percent
- United States of America at 85 percent
- Hong Kong at 82.7 percent
- Singapore 65 percent.
It is also a fallacy to think that the blanket loan moratorium alone can help mend the economy. According to BNM governor Datuk Nor Shamsiah Mohd Yunus a targeted approach in loan repayment assistance is better as it puts the choice in the hands of the borrowers where they are able to obtain tailored assistance to meet their financial circumstances. BNM noted that borrowers are making informed choices in managing their debt based on what they can afford as many are not asking for moratorium and they do not want a one-size-fits-all solution4.
Banks’ primary role is to take in funds (in the form of deposits and shareholdings in the banks) from depositors, pool them, and lend them to those who need funds. In simple words, banks are intermediaries between depositors (who lend money to the bank) and borrowers (to whom the bank lends money). Ultimately it is our money in the form of deposits and our money in the form of shareholdings in the banks that is used to match up the creditors and borrowers. The performance of the credit sector plays an important role as a catalyst for economic growth today. Therefore, when the buffers deplete and loan demand weakens, banks would not be able to declare dividends as they will rely on retaining their earnings to strengthen their capital. With no dividends to be declared by the banks, it is not only the Top 20 per cent (T20) of the Malaysian population who will be affected, but Malaysians in general as well, who would receive less or even no benefits from their deposits which are in unit trust funds.
In view of the above implications, the right approach to address the current pandemic situation is having targeted repayment assistance, to be given in a transparent, fair and equitable manner to those in real need, be it in the form of a targeted extension of the moratorium or repayment flexibility options (i.e. reduced repayment, restructured loan). We must keep in mind that there is a need to maintain a sound financial system which is able to carry out a counter cyclical role to support the transformation of the economy5.
The banking industry has been actively reaching out to borrowers in various ways and has conducted more than 150 engagement sessions including repayment assistance campaigns across the country as well as direct engagements with various stakeholder groups, including SME associations. To ease the application process, banks have simplified the application process and enabled the entire process to be done online. Our member banks are sympathetic towards the plight of their borrowers who have been negatively affected by the COVID-19 pandemic and have been working closely with the regulator to ensure that assistance continues to be provided to affected borrowers. The banks have supported borrowers through the challenging economic environment since the start of the COVID-19 pandemic and remain determined to support borrowers, as well as the economy in general, navigate out of the pandemic.
Recently, there have been reports that fraud and scam cases in the country are getting more rampant. In this regard, members of the public and businesses are advised to be cautious against fraud syndicates which deploy scam tactics with the intention to deceive unsuspecting victims that may result in monetary losses as well as risk compromising their sensitive banking details and confidential information. Members of the public and businesses seeking repayment assistance from banks must get in touch with the banks directly in order to avoid being deceived by these unscrupulous syndicates/ fraudsters.