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All things considered, Malaysians are very lucky when it comes to financial support amid the global battle against Covid-19.
Our government and Bank Negara have imposed helpful loan moratoriums to provide relief to families and individuals struggling with job losses and pay cuts.
Other countries have chosen not to or are not implementing it as well as Malaysia.
With that said, here are certain things that borrowers need to keep in mind.
Accrual of deferred interest and risk of extension
Since the Movement Control Order (MCO) went into effect, several financial institutions have offered a six-month deferral of loan repayments to eligible individuals and SME borrowers to ease their cash flow during the pandemic.
However, this move has its drawbacks.
Interest on deferred repayments will continue to accrue and borrowers will still have to honor these deferred repayments in the future.
Loan balances will also grow over time due to deferral, resulting in higher debt repayment. In other words, there will be an increase in the total costs of the loans.
Once the deferment period is over and full repayments resume, borrowers will feel the rush, as they would have to pay more monthly installments or extend the life of the loan.
For this reason, borrowers who can afford to resume monthly payments should do so after the moratorium ends for their own benefit.
Although the sixth-month moratorium ended on September 30, extending the moratorium to borrowers who can resume full or partial repayments could cause moral hazard by incentivizing them to use the additional cash for other purposes.
It would also delay the assessment of a borrower’s financial condition so that banking institutions offer suitable payment options to “serious borrowers.” It could even lead to the inadvertent greening of companies that are not viable.
Request for a specific extension payment moratorium
Some borrowers may continue to experience cash flow pressures amid the pandemic, especially during the third wave of the coronavirus outbreak in Malaysia.
Banking institutions and the Agency for Credit Counseling and Debt Management (AKPK) are offering specific extensions to the repayment moratorium, as well as other repayment flexibilities to grant to borrowers, based on their specific financial circumstances.
This specific approach will provide greater relief to households and SMEs facing financial constraints. It will also encourage them to resume loan repayments to the best of their ability and avoid accumulating too much debt.
This same approach also ensures that there will be more liquidity and resources available for financial institutions to continue providing assistance to other households and businesses, a crucial strategy to support the country’s economic recovery.
Borrowers who continue to experience financial difficulties can discuss alternative payment arrangements with their respective banks or even AKPK.
Your Central Credit Reference Information System (CCRIS) report will not be adversely affected if your loan or financing account is still 90 days or less behind at the time of the specific payment assistance request.
That said, directed payment assistance varies on a case-by-case basis.
For example, Mr. B is suffering a total loss of income with his business temporarily closed. Your moratorium agreement details that you will only be required to start paying interest three months after your application is approved, which is in January 2021.
This arrangement will continue for the next nine months before Mr. B is required to resume his original repayment with interest. In this way, Mr. B’s monthly repayment is reduced from RM 2,446 to RM 1,300.
conclusion
Those who can resume repaying their loans should do so for their own benefit. For those still experiencing financial pressure, it is never too late to seek help from their respective banks or AKPK.
John Chan Ninyii is a licensed financial advisor to YES Financial Sdn Bhd.
