Bank Negara Malaysia (BNM) has announced a six-month automatic moratorium on loan repayments to small and medium enterprises (SMEs) and individuals.
However, parties that do tap into this deferment should take note of one thing: your interest will continue to accrue on the deferred loan/financing repayments, and for conventional loans, interest will be compounded as both principal and interest portions will be charged interest during the six-month deferment. Quoting BNM’s FAQ on the matter:
“For conventional loans, interest will continue to be charged on the outstanding balance comprising of both principal and interest portion (i.e. compounded) during the moratorium period.
For Islamic financing, profit will continue to accrue on the outstanding principal amount. Such profit however will not be compounded in line with Shariah principles.
Banks are however not allowed to impose late penalty charges on the deferred amount.
In other words, the loan/financing repayment is just deferred by 6 months.”
In other words, it is not waived, and you will still have to pay the accumulated interest in the future. According to BNM, this will result in either a higher monthly installment after the deferment period, or an extended repayment period – both options take into account the additional accumulated interest. The main difference is with Islamic financing – Shariah principles forbid “profit charged on profit”, and as such, profit will only accrue on the outstanding principal amount.
As such, do check with your banks the what happens after the deferment. In its press release, the central bank also advised that borrowers should discuss with their banks on the options available to resume any scheduled repayments after the deferment period.
BNM’s automatic moratorium, which is set to take effect from 1 April 2020, is meant to relieve the financial burden on those affected by the Covid-19 outbreak. It is automatically enabled for eligible individuals and SME loan financings, excluding credit cards.
Those of you who do not wish to take advantage of this measure will only need to continue with your current repayment, as per usual.