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Covid-19: Bank Negara expresses regrets but denies U-turn

The central bank has expressed regrets while denying a U-turn.

TheMole
Written by TheMole

KUALA LUMPUR — May 1, 2020: Bank Negara Malaysia has expressed regrets over the confusion and anxiety arising from its announcement yesterday on changes to the six-month moratorium for hire purchase loans and fixed-rate Islamic financing.

In a newly released frequently asked questions (FAQs) list, BNM also denies it had backpedalled on an earlier announcement.

Instead the central bank states that the payment deferment is still automatic for both segments, adding that what is required now is an additional step to comply with procedural requirements under the Hire-Purchase Act and Shariah.

“This additional step is unavoidable, and is required to incorporate the changes to the payment schedule and/or amounts as a result of the six-month payment deferment in loan/financing agreements.

“We sincerely regret any confusion and anxiety that this announcement may have caused. The deferment of loan repayments is meant to ease cash flows for borrowers/customers affected by the Covid-19 pandemic. This intent remains the same. The confusion arises because of the misperception that the repayment amounts for a HP loan cannot be changed,” it said.

According to BNM, the misperception arose due to an illustration provided in an initial version of the FAQs, where certain assumptions and caveats were made.

It said it later removed the example when banks provided their own illustrations.

“Our illustration was not intended to preclude interest charges accrued on the deferred loans. Borrowers/customers who have had their HP loans and fixed-rate Islamic financing accounts automatically deferred since April 1, 2020, will continue to benefit from the payment deferment until September 30,” it said, adding that HP loan and fixed-rate Islamic financing borrowers who initially accepted the moratorium but have since changed their mind can still opt out of the deferment.

Bank Negara has provided an example of a RM50,000 HP loan with a remaining tenure of five years and a fixed interest of 2.71 per cent (or an effective rate of 5.36 per cent) per annum:

Before the deferment, the monthly instalment was RM712.

But should the deferment option be accepted, based on this example, the monthly instalment is now RM731, or an increase of 2 per cent or RM19. Consequently, the total interest increase incurred is RM1,130.        

Several reports appeared yesterday citing the central bank’s press release, on a purported reversal from what was initially announced with regards to the deferment of HP loans and fixed-rate Islamic financing.

A report by financial website Ringgit Plus which was one of those widely-shared by those angered by the announcement said BNM had implied that from May 1 the moratorium will also no longer be an automatic opt-in.

Ringgit Plus cited the press release as stating that BNM required all borrowers are provided with clear information on the process and changes to the terms of their agreements, and that banking institutions provide borrowers with necessary steps that they need to take to complete the process of deferring their loan/financing payments.

This was seen as different from what was announced earlier, where borrowers were only asked to opt-out of the deferment should they want to continue servicing their loans with their banks, as otherwise, banks would grant an automatic deferment.

The confusion further escalated and caused widespread anger which caused the start of an online petition denouncing the move by BNM and demanding for zero per cent interest on the deferred instalment payments.

The Association of Banks also released a statement in which two points again caused alarm.

It said that HP loan customers who choose to take up the moratorium will have two options on repayment — either choose to pay the accumulated 6 months’ deferred instalments together with their October 2020 instalment without being charged additional interest or continue the repayment of the instalments post October through an extension of 6 months in repayment period after the original maturity date.

It further said that interest based on the contractual rate will be charged on the amount of the deferred instalments that remain outstanding until these instalments are fully repaid, which should be by the end of the extended 6-month tenure.

Last month, Prime Minister Tan Sri Muhyiddin Yassin announced the government’s move to freeze loan repayments for six months due to Covid-19, which he said will provide relief of RM100 billion to Malaysians.

According to Muhyiddin, the unprecedented move BNM announced on March 24 was the government’s response to public concern about the hardship endured due to the movement control order.

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