Key Takeaway on the Moratorium of Loan / Financing Repayment announced by BNM
As a measure to assist individuals and small and medium-sized enterprises (“SMEs”) who are financially affected by the Covid-19 pandemic, Bank Negara Malaysia (“BNM”) had on 24.3.2020 announced a 6-month moratorium on loan and financing repayments for individuals and SMEs.
We set out below 7 aspects of the moratorium which you need to know.
1) Automatic Moratorium
All eligible individuals and SME will be given a temporary suspension and deferment of all loans and/or financing repayments for a period from 1.4.2020 to 30.9.2020. The moratorium will come into force automatically and hence, no borrower / customer is required to submit any application for the same.
During the 6-month period, no payment is required to be made either for principal sum or interest payment (or profit for Islamic financing facilities). And no late payment charges or penalties will be incurred or payable.
For borrowers / customers who do not need the 6-month moratorium but wish to maintain their current repayment structures, they may choose to do so by taking a positive step of informing their respective banks and/or financiers accordingly.
2) Eligibility Criteria
The automatic moratorium is applicable to loans and financing facilities that are:-
(a) granted by banks and financial institutions regulated by BNM;
(b) denominated in Ringgit Malaysia;
(c) existing or outstanding as at 1.4.2020; and
(d) not in arrears exceeding 90 days as at 1.4.2020.
Loans and financing facilities under rescheduling and restructuring (R&R) program are also entitled to an automatic 6-month moratorium subject to meeting the aforesaid criteria.
3) Not An “Interest Holiday”
The moratorium merely allows borrowers / customers to defer payments and it does not discharge or affect their liability to pay interest (or profit for Islamic financing facilities) throughout the moratorium period.
For conventional loans, interest will continue to be charged on the outstanding balance comprising both the principal sum and interest payment (including compounded interest) during the moratorium period. In support of the BNM’s measure to aid individuals and SMEs through this challenging period, most of the banks and financial institutions have waived the charging of compounded interest (i.e. interest on interest).
For Islamic financing facilities, profit will continue to accrue on the outstanding principal amount. Such profit however will not be compounded in line with the Shariah principles.
As a result of the moratorium, the total principal sums and interest payments (or profit for Islamic financing facilities) will be accumulated and become due and payable after 30.9.2020. That may in turn lead to a higher subsequent monthly installment amount or a longer repayment tenure. Borrowers / customers should therefore discuss this with their respective banks and/or financial institutions as soon as possible to avoid any unnecessary argument or default of payment.
4) Limited Moratorium for 6 months only
One may ask, “what is going to happen if I am still not able to pay after the moratorium period?”
At this juncture, the automatic moratorium is only valid and effective for 6 months. Individuals and SMEs who require a longer moratorium period should make the necessary arrangements with their respective banks and/or financial institutions to avoid any default of payment and/or recovery action.
5) Credit Card
The outstanding credit card balances of credit card holders who are unable to pay the outstanding amount for more than 90 days will be converted into a term loan or financing for a period of not more than 3 years with the interest or profit rate capped at 13% per annum.
The converted loan will similarly be eligible for a 6-month automatic moratorium, where the monthly term loan installments will only commence or become payable after the expiry of the moratorium period.
After converting the outstanding credit card balances, the credit card holders can continue to use their credit card up to the remaining credit limit after taking into account of the balance converted into a term loan. The outstanding credit card balance which has been converted into the term loan will be treated as part of the credit card limit, while the monthly term loan installment will form part of the minimum monthly repayment amount.
6) Corporate Loans
Corporate borrowers / customers are not eligible for the automatic 6-month moratorium. However, BNM has encouraged banking and financial institutions to facilitate requests from corporate borrowers / customers for a moratorium on loan and/or financing repayment or a rescheduling and restructuring of their facilities to ease their financial burden in this unprecedented time.
Corporate borrowers / customers who require a moratorium on the repayment of their loan and/or financing would have to apply for such deferment with their respective banking institutions and applications will be evaluated on a case-by-case basis.
7) Central Credit Reference Information System (“CCRIS”) records
On the bright side, the automatic 6-month moratorium given to the eligible borrowers / customers will not have any adverse impact on their CCRIS records. Their credit information kept by CCRIS as at March 2020 shall remain the same throughout the moratorium period.
Lau Kee Sern
Hazel Lim Pey Tsyr
Messrs Kee Sern, Siu & Huey
2nd Floor, Block C, Rivercity Jalan Sultan Azlan Shah (Formerly Jalan Ipoh)
51200 Kuala Lumpur
Tel: +60(3) 9212 2688
Fax: +60(3) 4044 0448
All rights reserved. The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.