Banks Submit Counter Proposal To Government’s Interest Waiver Directive On Moratorium
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Malaysian banks have drafted a counter proposal in response to an earlier directive made by the government to waive the interest fee for selected borrowers tapping into the ongoing loan moratorium, according to a report by The Edge.

The report further adds that the proposal has been submitted to the relevant authorities. The executive director of the Association of Banks Malaysia (ABM), Kalpana Sambasivamurthy only said that the association is currently engaging and working with the relevant authorities. “Further communications will be issued in due course,” she said.

A banking analyst attached to a foreign research house commented that the proposal is an “interesting” development when contacted by the news site, adding that this indicates that banks are looking for a middle ground. “One of the issues during the implementation of the blanket loan moratorium last year were opportunistic borrowers. Should the interest waiver be given, banks will want to ensure they are assisting genuine borrowers who need it, rather than opportunistic ones,” said the analyst.

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Additionally, the analyst also suggested that instead of agreeing to offer a blanket waiver for a specific group (as recommended by the government), the banks may likely propose a waiver that is targeted at borrowers who can prove their genuine need for help. This includes enrolment in a system that supports their claims, such as through the Credit Counselling and Debt Management Agency (AKPK).

At present, the loan moratorium is not interest free, although compounded interest and penalty charges incurred are both exempted. If the government’s directive is carried out, this full waiver (of interest fee, along with compounded interest and penalty charges) will take place for a period of three months in the fourth quarter of 2021.

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Meanwhile, BNM itself had earlier cautioned that offering interest-free loan moratoriums could have long-term significant impact moving forward. Banks, for instance, will have to refrain from lending to conserve financial buffers, especially with higher credit losses still expected to emerge. Additionally, their credit ratings may also be downgraded to reflect weaker future earnings, making it more expensive for banks to raise capital. The higher cost, in turn, will be passed on to future customers.

(Source: The Edge Markets)

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