This article first appeared in The Edge Financial Daily on March 26, 2020 - April 1, 2020

KUALA LUMPUR: Bank Negara Malaysia (BNM) announced yesterday relief measures in support of efforts by banking institutions to assist individuals, small and medium-sized enterprises (SMEs) and corporations to manage the impact of the Covid-19 outbreak, including a six-month deferment of all loan/financing repayments beginning next month.

This moratorium is applicable for all ringgit-denominated loans that have not been in arrears for more than 90 days as at April 1. “For credit card facilities, banking institutions will offer to convert the outstanding balances into a three-year term loan with reduced interest rates to help borrowers better manage their debt,” BNM said in a statement.

This confirms a story by The Edge Financial Daily published on the same day that BNM had written to inform all commercial banks of its decision to grant the automatic moratorium on loan repayments for SMEs and individuals, citing a document it sighted from the central bank.

For individuals and SMEs that do not wish or need to use these flexibilities, BNM said they can continue with their current repayment structures.

“It is important to note that the interest/profit will continue to accrue on loan/financing repayments that are deferred, and borrowers will need to honour the deferred repayments in the future.

“Borrowers should therefore ensure that they understand and discuss with their banking institutions on the options available to resume their scheduled repayments after the deferment period,” it said.

On loans for corporations, the central bank has provided appropriate time-bound flexibilities for banking institutions to report deferred/restructured facilities in the Central Credit Reference Information System, taking into account the temporary nature of disruptions faced by borrowers.

“Banking institutions will also facilitate requests by corporations to defer or restructure their loans/financing repayments in a way that will enable viable corporations to preserve jobs and swiftly resume economic activities when conditions improve.

“Corporations should approach their banking institutions to discuss their repayment plans and the restructuring of credit facilities,” it said.

The central bank also pointed to ample liquidity in the banking system to support the above financial intermediation activities.

This follows the recent reduction in statutory reserve requirement ratio, which has released approximately RM30 billion worth of liquidity on top of excess liquidity of RM160 billion.

“Of this, approximately RM100 billion placements with the bank under open market operations can also be used to meet the liquidity needs of the banking system,” it said.

BNM will also continue to supply daily ringgit liquidity to banks via various tools under its open market operations, including the outright purchase of government securities, foreign exchange swaps, reverse repos and the standing facility, it added.

Banks working out the details to roll out loan moratorium — ABM

Separately, the Association of Banks in Malaysia (ABM) said its member banks are currently working out the full details of the six-month moratorium on loan repayments to ensure they will be efficiently executed with minimum inconvenience to customers.

Applauding the central bank's announcement, ABM also said member banks are in full agreement of the intent of the moratorium, which it believes is a necessary solution at this point.

It said while interest will accrue during this moratorium period, there will be no payment of interest and principal required for credit facilities for the six-month period. As for segments other than these, it said the moratorium will apply on a case-to-case basis and customers should be in touch with their bankers to discuss the specific relief sought.

“Banks acknowledge the vast majority of customers act responsibly on repayments, and apart from adverse circumstances (eg: illness, marital status change, loss of jobs) we have no reason to believe there will be a change in this behaviour.

“The moratorium is the best measure to provide greatest assurance of job preservation in the midst of personal financial adjustment. It is also in the best interest of all that everyone is back to full employment. In this regard, we anticipate that any adverse asset quality issues will be relatively short-lived and temporary in nature,” ABM said in a statement.

In the meantime, ABM said it had presented a number of requests to BNM, specifically in respect of the recognition and classification of assets, policies regarding the Malaysian Financial Reporting Standard 9, liquidity and capital, as well as market behaviour concerning deposit taking activities.

While these are in discussion, ABM gave the assurance that these requests, if granted, will not pose undue risks to the financial industry in Malaysia, given that banks have been prudent in managing their capital levels beyond regulatory requirements.

ABM chairman Datuk Abdul Farid Alias said: “The measures announced have been designed not only to support customers in this highly unusual global environment, but also to ensure that banks can continue to play their role in sustaining the country’s economy.

“We hope it will provide customers some breathing space and allow them to focus on other critical aspects of their livelihoods at this time,” said Abdul Faid, who is also Maybank group president and chief executive officer.