Last week, Prime Minister Tan Sri Muhyiddin Yassin officially unveiled the government’s plans for what is in store once the current six-month bank loan moratorium ends on 30 September. While some parties had backed calls for the automatic blanket moratorium to be extended past the six-month period, the government announced that it would be focusing on a targeted-assistance approach instead.
However, while the announcement answers many questions, several others remain. In this article, we will discuss the key talking points from the upcoming extended moratorium and targeted assistance.
Your credit score will not be affected
According to Bank Negara Malaysia (BNM), the measures offered under the extended moratorium and targeted bank assistance will not negatively affect borrowers’ credit health – just like in the ongoing automatic moratorium. “In recognition of these exceptional circumstances, the flexibilities provided to borrowers during this period will not appear in the CCRIS reports of borrowers,” said BNM in a statement.
If you’re unfamiliar with the term, CCRIS or the Central Credit Reference Information System collects credit information on borrowers and supplies it to financial institutions so that they can evaluate the credit history of a potential borrower. If you miss a payment or default on a loan, this usually would leave a negative impact on your CCRIS report which will in turn affect your creditworthiness – that is to say, how likely banks are to accept your application for a loan or credit card.
Since accepting the moratorium or targeted assistance will not be reflected in CCRIS (and thus, will not affect your credit score), borrowers who need this assistance will not have to worry about this particular factor.
According to sources, this move is said to be a circumstantial one, which was only possible due to the huge impact Covid-19 left to the country’s economy and her people.
It is unclear whether interest will accrue in the extended moratorium
One of the key points of confusion in the first moratorium was in the matter of how interest would be charged during the six months. In the end, it was concluded that interest will only accrue for home loans during the moratorium, and that no interest will compound.
However, in both the Prime Minister’s speech as well as Bank Negara Malaysia’s statement, there was no mention of how interest would be treated during this extended moratorium period. This raises the same question: will interest accrue for all loans during the extended moratorium?
Sources in the banking industry did not provide a clear answer, but there seems to be a consensus that there will be “no free lunches” in this extended moratorium period. One of the main reasons was due to the fact that the original blanket moratorium had stressed the banking industry a lot more than it should have. In his speech, Tan Sri Muhyiddin Yassin revealed that the take-up rate was 93%, a clear indication that even those who did not need the moratorium had taken it. Imposing interest accrual, according to sources we spoke to, can act as a deterrent.
As the ministry found out, the blanket automatic loan moratorium had a significant spillover effect. Finance Minister Tan Sri Datuk Tengku Zafrul Abdul Aziz revealed in a Parliament session recently that the ongoing loan moratorium is expected to incur a loss of around RM6.4 billion, and is equivalent to the banking sector’s reduced capacity to issue new loans.
Therefore, for the extended moratorium, be prepared for interest to continue accruing on your outstanding balance. If you are financially able to, you should resume your monthly repayment from October onwards – you will pay less in interest in the long run and after all, the initiatives being offered are only meant for those who really need them.
Hire-purchase loans will be treated differently from personal loans/financing and home loans
In both the Prime Minister’s speech as well as the BNM statement, they specifically addressed hire purchase agreements as a separate entity to personal and home loans. What’s clear is that there will be no “moratorium” of car loans, but rather a revision of the borrower’s instalment schedules.
The details around this remain minimal for now – what we only know is that the revised schedules will be consistent with the Hire Purchase Act 1967. It is likely that this will come in some form of R&R (restructuring & rescheduling), which will mean borrowers who wish to revise their car loan terms will incur additional interest (due to an extension of the loan).
One example given was that banks would offer the option of extending the repayment tenure of the loan so that borrowers could pay a lower monthly instalment. Nonetheless, like all the other initiatives, this rescheduling aid will only be given where necessary to borrowers in need.
This is an “opt-in” programme
The ongoing six-month moratorium is a blanket automatic moratorium, which means it was offered to borrowers regardless of their financial situation and without the need for specific applications – you needed to explicitly inform the bank that you do not wish to opt in (either by continuing your monthly repayments as usual, or by contacting the bank). However, when it comes to the targeted moratorium coming in October 2020, you will need to make the necessary applications with your bank in order to qualify for them. Those with loans from multiple banks may also approach the Credit Counselling and Debt Management Agency (AKPK) for assistance.
The move to steer away from a blanket moratorium should not come as a surprise, given the government’s repeated messaging leading up to the announcement – the Finance Minister had pointed out that the targeted financial assistance solution was favoured over a blanket one as the economy had started reopening since May 2020.
Keep an eye out for more details
According to BNM, it has “communicated to the banks to deliver a simplified application and documentation process for borrowers”, so hopefully the process won’t be too tedious for borrowers in need. Applications for the targeted moratorium and additional financial assistance will be open from 7 August 2020 onwards, so that is when we can expect more details surrounding these flexibilities to be revealed.
While there is no deadline for the applications announced as of yet, it is likely that the banks will encourage those in need to make their necessary arrangements in advance to avoid scrambling for options at the end of the current moratorium. Indeed, all borrowers should use this time to take a look at their overall finances in order to determine whether or not they really need to take up the additional assistance once October arrives. As pointed out by the central bank, borrowers who do have the means to resume their repayments should do so as it will reduce their overall debt and borrowing costs.