BNM Loan Moratorium / Deferment : Should You Accept It?

To combat the economic effects of the COVID-19 pandemic, Bank Negera Malaysia just announced a six-month loan moratorium or deferment that will kick off in April 2020.

Should you accept the BNM loan moratorium / deferment, or should you continue to service your loans? It really depends…

 

BNM Loan Moratorium / Deferment : What Is It?

On 24 March 2020, Bank Negara Malaysia announced that they would be implementing additional measures to help borrowers during COVID-19 pandemic.

One of these measures is an automatic loan moratorium or deferment for six (6) months.

BNM Loan Moratorium / Deferment : Should You Accept It?

To ease the cash flow of small and medium-sized enterprises (SMEs) and individuals that are likely to be most affected by COVID-19, banking institutions will grant an automatic moratorium on all loan/financing repayments/payments, principal and interest, (except for credit card balances) by individuals and SME borrowers/customers for a period of 6 months from 1 April 2020. The automatic moratorium is applicable to loans/financing that are-

(a) not in arrears exceeding 90 days as at 1 April 2020; and
(b) denominated in Malaysian Ringgit.

 

BNM Loan Moratorium / Deferment : Not A Waiver

It is important to know that this loan moratorium is a deferment, not a waiver. Thanks, Jory!

The interest or profit on your loans will continue to accrue during the six-month loan moratorium.

The banks will offer options to restructure your loans to allow you to repay the accrued interest or profits after the loan deferment ends.

Here is a table summarising the key details :

Property
(Conventional)
Property
(Shariah)
Hire Purchase
Interest / Profit Continues Continues No Change
Compounding Of
Interest / Profit
Yes No No
Payment Of
Principal
No No No
Loan Tenure Increases By 6 Months
At End Of
Moratorium
Existing Loan
+ 6 Months
Compounded Interest
Existing Loan
+ 6 Months Profit
Existing Loan
(No Change)

 

BNM Loan Moratorium / Deferment : What About Credit Card Balances?

Bank Negara Malaysia has instructed banking institutions to offer customers the option to convert their outstanding credit card balances into a 3-year term loan with reduced interest rates.

 

BNM Loan Moratorium / Deferment : Is It Compulsory?

This loan moratorium / deferment will take place automatically, starting 1 April 2020. However, it is NOT compulsory.

You can inform your banks that you opt NOT to accept the automatic loan moratorium / deferment, and continue repaying your loans as usual.

 

BNM Loan Moratorium / Deferment : Should You Accept It?

Honestly, that very much depends on your cash flow situation for property loans, but hire purchase loans are more straightforward.

For Hire Purchase

Without a doubt, you should definitely accept a deferment of your hire purchase loans. You have nothing to lose because you do not pay extra interest on the loan deferment.

Recommended : BNM Hire Purchase Loan Deferment : Nothing To Lose!

BNM Hire Purchase Loan Deferment : Nothing To Lose!

You Are Cash Rich

If you are cash rich, and have more than enough cash to last a year or two, even if you lose your job / business, you should opt out and continue paying your loans.

This will save you interest, which would accrue over the next six months, and needs to be paid at the end of the loan deferment.

And remember – you will need to pay interest on the deferred interest, as it accrues (for conventional loans). There’s no free lunch, sadly.

You Have Sufficient Cash Flow

Even if you have sufficient cash flow to service your loans for the next six months, you might want to consider biting the bullet and paying the accrued interest.

For one thing, housing loan rates are relatively cheap, certainly much cheaper than credit card interest, personal loans, or commercial loans.

There is also the possibility that the COVID-19 crisis may last weeks or months. If that does come to pass, you will need every bit of liquidity you can get.

The deferment can help you build your cash reserves, so you can better withstand any emergency that may head your way in the next 6-12 months.

You Already Have Cash Flow Problems

If you have cash flow problems right now, or anticipate cash flow uncertainties, you should definitely accept the loan moratorium.

While you will end up paying extra interest at the end of the deferment, it buys you TIME to work things out.

In fact, you can use the money normally reserved for your housing loan payments towards more expensive obligations – like credit card payments. That would be a good use of the money.

And again, this is a good time to build up your cash reserves, to withstand any emergency during these uncertain times.

 

BNM Loan Moratorium / Deferment : Official FAQs

Here are the official FAQs issued by Bank Negara Malaysia on their loan moratorium / deferment measures :

1. What is deferment of loan or financing repayment?

It is a temporary deferment or suspension of loan/financing repayment obligation (principal and interest) for a limited period of time. During this period, borrowers/customers with loan/financing that meet the conditions do not need to make any repayment, and no late payment charges or penalties will be imposed.

Interest/profit will continue to accrue on loan/financing repayments that are deferred and borrowers/customers will need to honour the deferred repayments in the future. Loan/financing repayment resumes after the deferment period.

2. What is the objective of the deferment package?

The aim of this package is to provide some relief to individuals and businesses who face temporary financial constraints arising from the COVID-19 pandemic.

We hope that this will help individuals and businesses facing financial adversities to cope with challenges during this period. Loan/financing repayment resumes after the deferment period.

3. Which loan/financing qualifies for the deferment?

For individuals and small and medium enterprises (SMEs), the deferment in conventional loans or Islamic financing repayment obligations (except credit cards) are automatically effected by banks and development financial institutions (DFIs) if the loans/financing meet these criteria:

  • not in arrears exceeding 90 days as at 1 April 2020; and
  • denominated in Malaysian Ringgit.

Meanwhile, corporate borrowers/customers may request for a moratorium on loan/financing repayment from their respective banks.

4. Can I ask for more than 6 months deferment?

The deferment is only for 6 months. Please contact the bank if you require a longer deferment period.

5. If I opt for the deferment, will my CCRIS records be adversely affected?

No. However, interest/profit will continue to accrue on loan/financing repayments that are deferred and borrowers/customers will need to honour the deferred repayments in the future.

Borrowers/customers are advised to contact their banking institutions to discuss on the options available to resume repayments after the deferment period.

6. Do I need to apply?

No. All individual and SME loans/financing (excluding credit cards) that meet the criteria will automatically qualify for the deferment

7. My loan/financing is in default, can I qualify? Can loans under rescheduling and restructuring (R&R) program be eligible for the deferment package?

Loans/financing accounts that are already more than 90 days in arrears, will not qualify for the deferment.

Borrower/customers are advised to approach their banks to seek assistance. Loans/financing under R&R program is also eligible for the deferment subject to meeting the criteria.

8. How is the deferment package different from the other loan/financing moratoriums announced by banks recently?

Banks and development financial institutions (DFIs) have been proactive in responding to the needs of their borrowers/customers with various rescheduling and restructuring packages offered to assist affected borrowers/customers. Such efforts are welcomed and encouraged during these challenging times.

Borrowers/customers that have accepted assistance from banks and DFIs to reschedule and restructure their loans/financing can opt out of such arrangement, if they wish to do so.

9. Which banks offer this deferment package?

All licensed banks, licensed Islamic banks and prescribed development financial institutions (DFIs) regulated by BNM will offer this deferment flexibility. Borrowers/customers that meet the eligibility criteria can avail themselves to this flexibility automatically.

10. How do I know if my bank has enrolled my loan/financing into the deferment package? How do I know if I have qualified?

Banking institutions will provide individuals and SME borrowers/customers with adequate information that their loan/financing repayments have been deferred under this scheme.

Such information may be provided through a general advisory issued to borrowers/customers through appropriate channels, and/or published on banking institutions’ websites.

11. I want to continue with my loan/financing repayments. How do I opt-out of the automatic deferment package?

You should contact your bank if you wish to opt-out of the automatic deferment package, or continue to make timely and full repayment of your loan/financing.

12. I work in the tourism sector and have been badly affected by recent events, I have been struggling to meet my monthly mortgage payments since January and my savings are soon running dry. Do I qualify for the deferment package?

Yes, provided that your loan/financing is not in arrears for more than 90 days as at 1 April 2020.

13. I run a small business which has been severely affected by COVID-19, if business does not improve, I will soon be defaulting on my car and personal loans/financing? Do I qualify for the deferment package?

Yes, provided that your loans/financing are not in arrears for more than 90 days as at 1 April 2020.

14. Will I be charged additional interest on the repayment amount that is deferred by 6 months during the period?

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.

15. What would happen to my loan/financing repayments after the deferment package period? How does being in the deferment package affect my interest payments after the 6- month period? Is there an increase in monthly payments, or longer tenure?

Interest/profit will continue to accrue on loan/financing repayments that are deferred. This means accumulated repayment amount during the deferment of repayment period will be added to the outstanding loan/financing amount.

Borrowers/customers are advised to contact their banking institutions to discuss on the suitable workout plans to repay the principal and interest accrued during the deferment period. This may include higher subsequent instalment amount or an extension of the loan/financing tenure.

16. Does this deferment package apply to newly approved/ disbursed loans?

It applies to all loans/financing outstanding as at 1 April 2020.

17. Would my loans with other non-bank credit providers qualify for this deferment package?

No, this is only applicable to loans or financing offered by financial institutions regulated by Bank Negara Malaysia, namely banks and development financial institutions

18. If a corporate opts in for a loan or financing repayment deferment package, would it still be able to get new financing from banks?

Yes. The credit decisions of financial institutions are subject to their respective internal credit policies and assessment.

19. As a corporate, what would be the criteria to opt-in?

Unlike individuals and SME borrowers/customers, corporate borrowers/customers should refer to their banks for the deferment and rescheduling and restructuring of their loans/financing. In addition, these loans/financing must meet this criteria:

  • not in arrears exceeding 90 days as at 1 April 2020; and
  • denominated in Malaysian Ringgit.

20. I have a loan/financing which is automatically deducted from my salary. Do I qualify for the deferment?

Yes. Please inform your company to stop the salary deduction if you wish to have your loan/financing repayments deferred. You should also contact your bank to inform them accordingly.

21. How should I notify the bank that I wish to opt-out of the deferment offer?

Please respond to the notification sent by the bank and informed that you wish to opt-out of the automatic deferment package, or continue to make timely and full repayment of your loan/financing

22. Will the bank automatically stop the repayment requirement if I did not respond to their notification?

Yes.

 

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