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Loan Moratorium U-Turn: WTH is Bank Negara doing?!

Bank Negara Malaysia had announced yesterday that borrowers of hire purchase loans or fixed-rate Islamic financing would be required to perform additional steps to complete the process of deferring their loan payments under the recently announced moratorium. However, many were frustrated that the loan interest would now be accrued and accumulated during the 6-months moratorium.

BNM FAQ 27th March 2020

As highlighted by Kuching MP Kelvin Yii, Bank Negara had stated clearly on its FAQ dated 27th March, that there will be No additional interest/profit charged during deferment. In the example provided by the Central Bank, if you’re paying RM1,133 per month for your car loan, your monthly instalment will remain at RM1,133 /month if the tenure post-deferment is extended by 6 more months.

The original FAQ is no longer available but you can view the Google cache copy here. Alternative, you can view the saved PDF file here.

BNM FAQ 1st May 2020

BNM has just released a new FAQ dated 1st May 2020 and it denies reversing its decision to offer automatic 6-months payment deferment for hire-purchase and fixed-rate Islamic financing. In FAQ #2, it now states that interest/profit will also accrue over the deferment period for these loans and will also need to be repaid once payments resume post-deferment, which is completely opposite to what was mentioned in the earlier FAQ.

This means that borrowers will have to pay an increase in monthly instalments after the moratorium period. In the given example of a RM50,000 hire purchase loan with a fixed interest rate of 2.71% and a duration of 5 years, the customer will have to pay RM731/month instead of RM712/month after the deferment. The FAQ states that this is an increase of RM19/month and in total, the customer would be paying RM1,130 more for interest.

According to the Central Bank, they regret for any confusion and anxiety caused by the announcement and they said that the confusion arises because of the misperception that the repayment amounts for a hire purchase loan cannot be changed. It also says that the misperception also arose to some extent due to the illustration that was provided in the earlier FAQ where certain assumptions and caveats were made.

Bank Negara says that borrowers that don’t agree with the moratorium arrangement can still opt-out of the deferment by contacting their banks or financial institution. Should you decide to opt-out, BNM says there won’t be any late payment charges and that your CCRIS record will not be affected as long as it is settled within the repayment timeframe. Borrowers that require more time are also advised to contact their financial institutions to discuss a revised repayment timeframe.

To reiterate, the moratorium is still automatic for both hire purchase and fixed-rate Islamic banking. Those that have their loans automatically deferred will continue to get deferment until 30th September 2020.

Current options for Hire Purchase borrowers

According to a statement issued by the Association of Banks in Malaysia yesterday, hire purchase customers will be given the following options:

  1. Pay the accumulated 6 months’ deferred instalments together with their October 2020 instalment without being charged any additional interest.
  2. Continue the repayment of these instalments post-October 2020 through an extension of 6 months in the repayment period after the original maturity date. The interest based on the contractual rate will be charged on the amount of the deferred instalments that remains outstanding until these instalments are fully repaid, which should be by the end of the extended 6-month tenure.

The ABM added that hire purchase customers that do not formally confirm their acceptance of the moratorium upon the receipt of notification from their banks will be considered as not taking up the moratorium.

MTUC: Charging accrued interest is ‘inhumane’

Image source: @HXSM

Malaysian Trade Union Congress (MTUC) has accused the Central Bank of being inhumane for allowing banks to charge accrued interest during the moratorium. It says that the move is equivalent to ‘daylight robbery’ on borrowers whose finances are already stretched thin during the COVID-19 pandemic period. It added that BNM and the banks add insult to injury by stating that borrowers would not pay any interest if the deferred loan payments are settled in October at the end of the moratorium period.

The MTUC questioned BNM, how many people would be able to do so given the economic fallout and job retrenchments along with pay cuts that are taking place in Malaysia. MTUC secretary-general J. Solomon said that this is an inhumane move by BNM and banks to further squeeze consumers in every way possible without any regard for the welfare of the people.

MTUC has demanded BNM rescind the approval given to commercial banks to levy the interest on borrowers opting for the moratorium. They are urging the Prime Minister to summon the central bank governor to demand an explanation and to justify what is described as BNM conniving with accomplices to impose penalties on those who failed to settle the deferred payments after the moratorium ends.

BNM needs to improve its communication

After getting public backlash, Finance Minister, Senator Tengku Zafrul Tengku Abdul Aziz said the central bank needs to improve its communication with customers to avoid further confusion. He said that the misunderstanding came from the FAQ provided by BNM and the given illustration was also confusing. The Minister said that regardless, customers will have to pay for the interest after this, and it isn’t interest-free.

During an interview with Astro Awani on 27th of March, the Finance Minister had said the banks have announced that interest will not be compounded or accrued. At that time, he was responding to a question on how much Makcik Kiah would save under the Prihatin Package. You can watch the clip below from 6:30.

[ SOURCE , IMAGE SOURCE 2 ]

Alexander Wong