Here's What The New 6-Month Moratorium Means

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Beginning yesterday, 7 July, individual and enterprise borrowers (including small and medium businesses) who have been affected by the pandemic may start applying for a six-month bank loan moratorium, announced Bank Negara Malaysia (BNM).

A moratorium, which means a legal authorisation to debtors to postpone payment, was announced earlier by the government as part of Pemulih, a sweeping economic recovery package in response to the ongoing COVID-19 pandemic.

This moratorium, however, is different from the previous one announced last year, which had only been reserved for the B40 community.

The current moratorium is extended to all who apply, and will not affect a borrowers' Central Credit Reference Information System (CCRIS) credit score.

With this announcement, individual banks are now compelled to start deferring payments from their customers who seek to take up this facility.

The moratorium is expected to bring relief of up to RM80 billion to individual and business borrowers, said Finance Minister Tengku Zafrul Abdul Aziz in a statement.

In addition to the deferment, banks are also instructed to offer a reduction in instalments and other packages, as well as offering to reschedule and/or restructure financing to suit the financial circumstances of the borrowers.

According to the BNM directive, borrowers can opt in online through a web form or an auto-generated email that will be available on the individual banks' websites.

This is for borrowers to provide banks with their personal and financing details, which is the only documentation required to apply. BNM also assures that all applications will be approved automatically.

Alternatively, borrowers may also phone their banks for assistance, whereby a customer service officer will provide guidance.

If online channels are out of reach, people may also visit their bank branches to submit their moratorium request physically (subject to branch operating hours and movement restrictions).

Although the loan repayments are deferred, interest on the the payments owed will still be accrued, resulting in higher total loan amount repayable.

In layman's terms, this means that the total cost of borrowing will still go up, as compared to not opting in for the moratorium.

Relatedly, if you opt for loan restructuring, the loan tenure will be extended for a longer period if you seek to maintain the lower instalments after the moratorium period ends.

Banks are required by BNM to provide transparent information on how the instalment amounts and financing tenure will be affected, and are also prohibited from charging compounding interest (interest on interest) and any penalties associated.

Also, the repayment assistance is only available for financing approved before 1 July, and borrowers seeking to apply must not have missed loan payments for more than 90 days or be subject to bankruptcy or winding-up proceedings at the time the request is submitted.

According to Professor Russayani Ismail, the dean of Universiti Utara Malaysia's School of Economics, Finance, and Banking, the moratorium is a welcome relief.

"[The] automatic loan moratorium will definitely be a big help, especially for the M40 income group that is usually left out from receiving aid, unlike the B40 group," she shared with Bernama, adding, "As the moratorium is no longer a targeted one, and anyone can apply for it, the six months moratorium will be of great significance, especially for micro and small entrepreneurs that have more financial commitments."

However, Vincent Kwo Shih Kang, the president of the Malaysian Financial Planning Council, isn't as optimistic.

In a piece in the theSundaily, he said that it is best for borrowers to not apply for the moratorium unless they are adversely affected financially by the ongoing pandemic.

"Unless you have lost your job or your salary has been reduced, or your business is struggling to survive, it is best to continue your loan repayments under existing terms," he was quoted as saying.