KUALA LUMPUR: Waiving the accrued interest payment on all individual and business loans will have significant long-term consequences for banks, especially when the interest income accounts for 80 per cent of banks’ revenues, Bank Negara Malaysia said.
Governor Datuk Nor Shamsiah Mohd Yunus said the total individual and small and medium enterprises (SMEs) loans that are eligible for automatic opt-in moratorium amounts to about RM1.4 trillion - or 73 per cent of the total bank system's loans.
She said there are serious implications if the banks were to waive accrued interests, given their critical role in the economy.
"First, banks will pull back on lending to conserve their buffers, especially with higher credit losses still expected to emerge.
"Secondly, banks’ owned credit ratings may be downgraded, to reflect weaker future earnings capacity and this will make it more expensive for banks to raise capital funding and the higher costs will be passed on to borrowers,” she told a press conference on the ‘Economic and Financial Developments in Malaysia in Q2 2021’ report released today.
Thirdly, she said confidence in banks will be affected and this could trigger liquidity stress and depositors may have concern for the safety of their deposits and this action will also jeopardise depositors’ interests when earnings of banks are adversely affected.
Fourthly, by doing this, banks will not be able to pay dividends to their retail investors and institutional funds that hold public savings and this include the Employees Provident Fund (EPF), Kumpulan Wang Persaraan (Diperbadankan) (KWAP), Permodalan Nasional Bhd (PNB), Armed Forces Fund Board (LTAT) and Tabung Haji.
"This will result in lower returns to depositors and retirement savings. So when you take all these together, this would significantly hurt the economic recovery and have longer-term implications for the economy and financial system.
"It is very critical for banks to remain sound as this is what will enable them to provide the extensive repayment assistance that borrowers need at this time and, to our knowledge, the repayment assistance offered by Malaysian banks have been the most extensive compared to any country in terms of scale and scope,” she stressed.
It is also to be noted that there are about 18.4 million individual depositors in the country and of which 15 per cent are above the retirement age of 60 and many depend on the interest to partly sustain themselves.
The governor said the central bank is doing its part in getting through these difficult times.
First, monetary policy will remain accommodative given the ascendancies the future monetary policy stances will remain guided by new information, and the bank will take into account the overall outlook of inflations and domestic growth and implement appropriate policies.
Second, on the repayment assistance, she assured that the banks will continue to assist those who need it and borrowers just need to choose the help they need.
Among the avenues available for them to manage their debt obligations are Credit Counselling and Debt Management Agency (AKPK), which can help borrowers especially those with multiple bank loans to further extend their loan moratoriums.
SMEs can obtain concessionary loans to enable them to pivot or enhance their business operations and improve their prospects.
At the beginning of the COVID-19 pandemic last year, a six-month blanket moratorium between April and September was announced benefitting both individuals and businesses affected by the pandemic.
Today, the central bank announced that the Malaysian economy grew by 16.1 per cent in the second quarter (Q2 2021) year-on-year compared with -0.5 per cent in the first quarter of the year, supported mainly by the improvement in domestic demand and continued robust exports performance.
This was against the -17.1 per cent GDP growth recorded in the same period a year ago as it took the brunt of the lockdown measure as COVID-19 hit the country.
The central bank said the strong growth reflected the low base from the significant decline in activity during the second quarter of 2020. - Bernama