KUALA LUMPUR – Waiving the accrued interest payment on all individual and business loans will have significant long-term consequences for banks, especially when the interest income accounts for 80% of banks’ revenues, Bank Negara Malaysia said.
Governor Datuk Nor Shamsiah Mohd Yunus said the total loans for individual and small and medium enterprises (SMEs) eligible for the automatic opt-in moratorium amount to about RM1.4 trillion – or 73% of the total bank system's loans.
She said there are serious implications if the banks are to waive accrued interests, given their critical role in the economy.
“First, banks will pull back on lending to conserve their buffers, especially with higher credit losses still expected to emerge.
“Secondly, banks’ owned credit ratings may be downgraded to reflect weaker future earnings capacity, and this will make it more expensive for banks to raise capital funding and the higher costs will be passed on to borrowers,” she told a press conference on the “Economic and Financial Developments in Malaysia in Q2 2021” report released today.
Thirdly, she said confidence in banks will be affected, which could trigger liquidity stress, and depositors may have concern for the safety of their deposits. This will also jeopardise depositors’ interests when bank earnings are adversely affected.
Fourthly, banks will not be able to pay dividends to their retail investors and institutional funds that hold public savings, such as the Employees Provident Fund, Retirement Fund (Incorporated), Permodalan Nasional Bhd, Armed Forces Fund Board, and Tabung Haji.
“This will result in lower returns to depositors and retirement savings. So when you take all these together, this would significantly hurt economic recovery and have longer-term implications for the economy and financial system.
“It is very critical that banks remain sound as this is what will enable them to provide the extensive repayment assistance that borrowers need at this time. To our knowledge, the repayment assistance offered by Malaysian banks has been the most extensive compared with any country in terms of scale and scope,” she said.
It is also to be noted that there are about 18.4 million individual depositors in the country, of which 15% are above the retirement age of 60, and many depend on the interest to partly sustain themselves.
The governor said the central bank is doing its part in getting through these difficult times.
Nor Shamsiah said monetary policy will remain accommodative given ascendancies, the future monetary policy stances will remain guided by new information, and the bank will take into account the overall outlook of inflations and domestic growth and implement appropriate policies.
On repayment assistance, she assured that the banks will continue to assist those who need it, and borrowers just need to choose the help they need.
Among the avenues available for them to manage their debt obligations is the Credit Counselling and Debt Management Agency, which can help borrowers, especially those with multiple bank loans, to further extend their loan moratoriums.
SMEs can obtain concessionary loans to enable them to pivot or enhance their business operations and improve their prospects.
At the beginning of the Covid-19 pandemic last year, a six-month blanket moratorium between April and September was announced benefitting both individuals and businesses affected by the pandemic.
Today, the central bank announced that the Malaysian economy grew by 16.1% in Q2 2021 year-on-year compared with -0.5% in the first quarter of the year, supported mainly by the improvement in domestic demand and continued robust exports performance.
This was against the -17.1% GDP growth recorded in the same period a year ago as it took the brunt of the lockdown measure as Covid-19 hit the country.
The central bank said the strong growth reflected the low base from the significant decline in activity during the second quarter of 2020. – Bernama, August 13, 2021
