Banks will not extend moratorium

However, an industry source said while the blanket moratorium would end, banks are open to assist borrowers to restructure and reschedule their loans in a more targeted manner.

“It is estimated that there will be three million borrowers who will take that offer up, ” the source told StarBiz.

Earlier, Bank Negara was quoted as saying that the banks stood ready to assist borrowers in a more targeted manner and have reached out to borrowers to offer various forms of repayment assistance including payment of interest only, lengthening of loan tenure and flexible repayments.

Sources said that among the reasons for a no automatic and blanket moratorium was because the banks wanted borrowers to approach financial institutions to renegotiate their loans.

“The banks will have until the middle of next year to restructure and reschedule their loans, ” a source said.

The six-month moratorium, announced by Prime Minister Tan Sri Muhyiddin Yassin in late March, ends on Sept 30.

The loan moratorium period is a duration a borrower is not obligated to make monthly debt repayments to the banks.

It was initiated to relieve the burden of those directly affected by the impact of the pandemic. It was also designed to keep cash with households, given the uncertainty at the start of the Covid-19 pandemic.

The loan moratorium was a feature from the first relief package during the movement control order by the government that saw business and consumer activity basically grind to a halt, except for essential services.

However, with the rate of unemployment creeping up and some sectors are still in standstill due to the Covid-19 fallout, some quarters are concerned over borrowers’ debt repayment capability and have pushed the government to extend the loan moratorium for another six months until March next year.

The unemployment rate crept up to 5.3% in May from 5% in April. Last year, the unemployment rate averaged just slightly over 3%.

MIDF Research head of research Imran Yassin Md Yusof (pic below) expects banks to see higher non-performing loans (NPLs) post the loan moratorium as troubled borrowers may not be able to start servicing loans when the grace period ends.

“Nevertheless, we expect the banks would have identified potential troubled borrowers and would have put a lot of effort in restructuring and rescheduling these potential troubled loans and this may moderate the level of NPLs, ” he told StarBiz.

The central bank had earlier acknowledged that the NPLs would “naturally” rise post-moratorium.

“What is more important is the ability of banks to absorb the impact, ” Bank Negara was quoted as saying in response to the potential impact on banks as the loan moratorium expires in September.

The central bank emphasised that the banks’ asset quality of overall loans was sound, given the prudent underwriting standards and risk management practices that have strengthened over the years.

In addition, adequate capital and liquidity buffers built up over the years are expected to help banks manage these current challenges.

“Borrowers are encouraged to approach their banks early to discuss suitable repayment plans based on their financial circumstances.

“Borrowers can also approach the Credit Counselling and Debt Management Agency and Small Debt Resolution Scheme, ” it added.

Commenting on the six-month loan moratorium that took effect in April, Bank Negara said the measure had provided a massive cash flow relief to businesses and households.

It has helped households and businesses to weather through the lockdown period at the peak of the pandemic, which could have otherwise caused defaults and “financial scarring” to even the viable borrowers.

The central bank said the focus moving forward is for banks to provide more targeted assistance to households and businesses based on their financial circumstances and challenges.