Grace period for loans

Bank Negara loans copy

PETALING JAYA: Bank Negara is granting an automatic moratorium on all loan or financing payments for individuals and small and medium-sized enterprise (SME) borrowers for six months beginning April 1.

This comes as part of the central bank’s new measures to assist borrowers experiencing temporary financial constraints due to the Covid-19 outbreak.

Bank Negara is said to be also working on measures for households and businesses to overcome challenges as a result of the pandemic.

Yesterday, in a letter to the heads of financial institutions, Bank Negara said the automatic moratorium is applicable to ringgit-denominated loans or financing that are not in arrears exceeding 90 days as at April 1,2020.

The moratorium does not apply to credit card balances.

The other measures to be implemented by Bank Negara are the liberalisation of lending or financing limits, drawdown of prudential buffers, as well as a review of its regulatory and supervisory activities in 2020 to ease compliance and operational burden on banking institutions.

“These measures aim to ensure that the financial intermediation function of the financial sector remains intact, access to financing continues to be available, and banking institutions remain focused on supporting the economy during these exceptional circumstances, ” said Bank Negara.

The central bank noted that for outstanding credit card balances, banking institutions should offer borrowers the option to convert their credit card balances into a term financing of not more than three years and an effective interest rate of not more than 13% per annum.

“For individuals who have demonstrated signs of repayment difficulty, such as not meeting the minimum monthly repayment for the last three consecutive months, banking institutions shall automatically convert their credit card balances into term loans.

“These requirements shall be observed by banking institutions from April 1 until Dec 31, ” said Bank Negara, adding that banking institutions may choose to continue extending these options beyond Dec 31, in the interest of the borrowers.

As for corporate borrowers, banking institutions are strongly encouraged to facilitate requests for a moratorium on loan repayment in a way that will enable viable corporations to preserve jobs and swiftly resume economic activities when conditions stabilise and improve.

This may also include the appropriate consideration of additional financing to support immediate cash flows and the rescheduling of existing facilities to allow reasonable time for businesses to fully recover from current disruptions.

Besides that, Bank Negara will continue to provide daily ringgit liquidity to banking institutions through its open market operations. This includes the central bank’s reverse repo and standing facilities to meet any liquidity shortfall during this period.

To further support lending and financing activities by banking institutions, the requirements on lending to the broad property sector, and for the purchase of shares and units of unit trust funds, shall be uplifted with immediate effect.

The limit for exposures to counterparties that are connected to Tenaga Nasional Bhd, Petroliam Nasional Bhd and Telekom (M) Bhd are temporarily increased from 25% to 35% of a banking institution’s total capital, subject to terms.

In terms of drawdown of prudential buffers, banking institutions are allowed during this period to draw down the capital conservation buffer of 2.5%.

They can operate below the minimum liquidity coverage ratio of 100% and reduce the regulatory reserves held against expected losses to 0%.

Meanwhile, banking institutions will be given reasonable time to rebuild their buffers after Dec 31.

Bank Negara expected the banking institutions to be in a position to restore their buffers to the minimum regulatory requirements by Sept 30,2021, and would review the timeline if the current expectations were to change materially.