To waive or not to waive


  • Banking
  • Saturday, 09 May 2020

Rising personal debts: Back in 2018, Bank Negara pointed out in its Financial Stability Review that personal financing has been one of the major contributions of debt accumulation by civil servants and the growth level was about four times than that of the national level.



WHILE the whole issue of accrued interest for hire-purchase (HP) loans that will now be borne by banks is more or less settled, questions have now arisen if similar benefits would be extended to personal loans.

The principle is, after all, rather similar to HP loans.

Personal loans are mostly Islamic in nature where its profit rates are fixed.

Some bank officials said there will be a waiver but most banks are still in the dark as there is no guidance on this, be it from the Finance Ministry or Bank Negara or perhaps, not yet.

As of March, loans for personal use amounted to RM97.93bil, which is only 5.5% of the total loans of RM1.78 trillion in the conventional banking system.

On the Islamic banking front, personal financing stood at RM53.19bil as of March, which is 8.48% of the total financing of RM627.06bil in the Islamic banking system.

For comparison, loans for purchase of residential property amounted to RM612.95bil or 34.37% of the RM1.78 trillion, followed by working capital at RM404.65bil or 22.69% and non-residential property at RM225.62bil or 12.65%.

Loans for purchase of transport vehicles came in at RM 165.99bil as of March, out of which RM157.42bil is for purchase of passenger cars.

Industry observers said the personal loans and personal financing arrangements were mostly taken by civil servants.

The biggest lenders are Bank Kerjasama Rakyat Malaysia Bhd (Bank Rakyat), MBSB Bank Bhd, Bank Islam Malaysia Bhd and Malayan Banking Bhd (Maybank).

Back in 2018, Bank Negara pointed out in its Financial Stability Review that personal financing has been one of the major contributions of debt accumulation by civil servants and the growth level was about four times than that of the national level.

The central bank had noticed then that the civil servants’ share of personal financing to total debt has been on an increasing trend since 2012, in contrast to the declining trend at the national level.

“Based on anecdotal evidence, personal financing is commonly used to sustain the standard of living and lifestyle choices of borrowers and for small business use, ” Bank Negara wrote in that report.

As of the first half of 2018, personal financing made up 34% of the civil servants’ total debt. There were mixed views among industry observers on the need for the waiver on interest accrued for personal loans during the moratorium period.

Banking industry officials say there was a necessity for accrued interest to be waived on HP loans as most hirers, up to 70% of them, are in the B40 group, where Proton and Perodua marques make up the majority of their purchases.

“Whereas for those with personal loans, a larger majority of them are better off.

“Banks will definitely get hit harder if they have to waive this interest as well, ” a source says.

Asked if the banks would require any assistance from the government or Bank Negara to cushion the impact of the moratorium on loans, an analyst said while banks will definitely be facing the heat, it was unnecessary as banks in Malaysia are well capitalised.

Maybank Investment Bank Research highlighted recently that the impact of the waiver of additional interest on HP instalments was purely a one-off accounting impact to the financials.

It estimates that the one-off “Day One” provision, or modification loss under MFRS 9, could be about RM4.4bil.

The Finance Ministry announced on May 6 that an agreement was reached with the banks not to charge additional interest on HP instalments deferred over the six-month loan moratorium.

This came six days after the public alleged that the ministry and the central bank did an about-turn when Bank Negara announced on April 30 that borrowers have to sign new agreements for the loans with fixed interest rates and the options were to spread out the accrued interest over the period of the remaining tenure of loans or for it to be paid in the last six months.

When the government first announced the six-month moratorium, the impression was that borrowers would not be charged any additional interest.

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