KUALA LUMPUR — March 26, 2020: Calling it proactive and pre-emptive, former minister Tan Sri Abdul Wahid Omar said the six-month loan repayment moratorium by the central bank will benefit wage earners and small businesses while allowing banks to focus on supporting the economy.
“(Firstly), it provides an automatic reprieve for borrowers from their monthly repayment obligations,” Wahid told The Mole.
“The moratorium will benefit individual borrowers and SME owners alike by enabling them to defer their repayment and interest servicing commitments by six months.
“This will ease the cashflow burden for borrowers whose income has been affected by the pandemic and movement control order (MCO),” he said.
The moratorium valued at RM100 billon was announced by Prime Minister Tan Sri Muhyiddin Yassin on Tuesday to lessen the financial burden of the people due to the outbreak.
It follows the MCO which was originally enforced from March 18 to 31 but now extended to April 14.
Wahid, who was a minister between 2013 and 2016 and was before that head of Maybank,, described the cashflow reprieve as quite significant.
For example, a borrower who bought a RM250,000 home with 90 per cent financing of RM225,000 for 25 years at 4.5 per cent interest will be paying monthly instalments of RM1,250.62.
A six-month moratorium will mean a total deferment of RM7,503.72 in repayments.
The borrower will still have to pay accrued interest on the deferred instalments but at the reasonable rate of 4.5 per cent per year.
Borrowers whose income or business are not affected by the MCO can opt out of the automatic moratorium by notifying the bank.
“However should they wish to enjoy the loan repayment moratorium to free up their cashflow for other purposes, they are effectively getting personal financing at a low interest rate of 4.5 per cent a year compared to normal personal loan effective interest rate of 8.0 per cent,” explained Wahid.
For car hire purchase financing, interest will not accrue on the six-month deferred monthly instalments.
Wahid gave an example of how someone who bought a Perodua Myvi with RM45,000 financing for five years at 3.0 per cent flat rate will be paying a monthly instalment of RM862.50.
“The six-month moratorium means a total of RM5,175.00 in total cashflow reprieve without any additional interest. This is fair because the bank would have benefited from the lower cost of funding arising from the lowering of overnight policy rate by 0.5 per cent in recent months,” he said.
For corporates, Wahid said they will benefit from these measures too albeit not automatically.
That is, they have to work out with the banks based on their individual circumstances.
Wahid considers the Bank Negara decision as beneficial for the banks too because this will minimise the incidence of loans turning into non performing/impaired loans.
He points out that there are other flexibilities given by BNM to banks to prepare them better to face the uncertain economic conditions in the coming months
This includes easing the banks’ Net Stable Funding Ratio from 100 per cent to 80 per cent until September 2021. All these are aimed at ensuring businesses and individuals continue to have access to financing and banks remain focused on supporting the economy during this difficult and uncertain period.
But Johor-based lawyer Norman Fernandez has criticised the government for what he deemed as ignoring the plight of the middle income group (M40) during the outbreak.
Fernandez, a former Johor DAP deputy chairman, said those in the M40 who are self employed and running businesses are also suffering, having to close their offices and businesses during the MCO and still paying staff salaries and other fixed expenses.
To help the group he suggests that the government allow employers to cut staff salaries of between 10 and 30 per cent for the next 12 months.
These employers should also in the interim 12 months be allowed to pay a lesser proportion of their contribution for the employees’ EPF.