The loan moratorium should be interest-free if the lenders are sincere in helping those in need, as interest or profit will continue to accrue on deferred payments for the six-month period.
Gerakan Ekonomi Malaysia president Armin Baniaz Pahamin said it makes no sense for banks to impose interest on deferred payment considering the ones who may take up the moratorium are those who obviously in dire financial situation, such as micro-enterprises and small and medium enterprises (SMEs), are struggling to survive the pandemic.
“Although the moratorium in payment helps them ease cashflow during this crisis, they will have to carry a heavier burden of debts when the moratorium ends.
“At the end of the day, the bank is making more money because their profit is derived from the interest they charged from the money they lend and the moratorium enabled banks to improve their earnings. The moratorium will give banks an automatic profit,” he told The Malaysian Reserve (TMR).
The banking sector reported a healthy profit last year, despite the implementation of the automatic loan moratorium.
However, Bank Negara Malaysia (BNM) reminded borrowers that opting for repayment assistance will increase the overall cost of borrowing, as interest/profit will continue to accrue on deferred payments.
Armin said businesses affected by the pandemic may not be able to recuperate immediately after the moratorium period ended and will be burdened with heavier total debts.
SME Association of Malaysia national VP Chin Chee Seong stressed that the Ministry of Finance should instruct the banks to provide interest-free moratorium to help the industries.
“In this difficult period, many SMEs are on the edge of collapsing and now with another moratorium, it will surely give them a little breather.
“It will surely be beneficial to cash tight businesses that any delay of payment to the bank will be good, especially with lockdown that resulted in low to zero income. Unfortunately, BNM did not push the bank to provide interest-free for those taking up the moratorium offer,” he told TMR.
Research for Social Advancement communications director Raja Ahmad Iskandar Fareez believes the moratorium is insufficient for prolonged lockdown.
He said Malaysians have to depend on the loan moratorium because of the lack of fiscal measures throughout the various government stimulus packages.
“While it buys time and gives borrowers a bit of breathing space in the short run, this intervention is not sustainable in the long run.
“Much like the Employees Provident Fund withdrawal schemes via i-Sinar, i-Lestari and i-Citra, the cost for the moratorium will have to be borne by the recipients by sacrificing their future earnings,” he told TMR.
He said in a situation of prolonged lockdowns where the future is riddled with uncertainty and earning opportunities are greatly diminished, there is no guarantee that businesses and individuals will have the means to fork out the extra money to repay these loans along with the increased cost.
– Published in The Malaysian Reserve on 9 July 2021.