by ASILA JALIL/ pic by MUHD AMIN NAHARUL
Banks would suffer significant impacts if they waived the accrued payments to borrowers, said the Bank Negara Malaysia (BNM) Governor Datuk Nor Shamsiah Mohd Yunos.
She outlined that interest income accounts for 80% of banks’ revenue and total individual and small and medium enterprises (SMEs) loans eligible for the opt-in automatic moratorium account for close to RM1.4 trillion or 73% of banking system loans.
“There are serious ramifications if banks were to waive accrued interest given their critical role in the economy. Firstly, banks will pull back on lending to conserve buffers especially with higher credit losses still expected to emerge.
“Secondly, banks’ own credit ratings may be downgraded to reflect weaker future earnings capacity,” she said.
She added it would also affect confidence in banks which will trigger liquidity stress and depositors may have concerns about the safety of their deposits.
BNM came under fire in May, following certain “revisions” that were made on the six-month moratorium on loan and financing repayments, which was earlier announced to cushion consumers’ financial woes as a result of the global Covid-19 pandemic.
The announcement drew anger and confusion from the public who claimed that the central bank has back-pedalled from its first announcement on the moratorium, which was made on March 25, regarding accrued interest rates or profit.
Confusion arose as many thought they would not be charged with additional interest during the repayment period after the moratorium.
Following the backlash and claims on an alleged “U-turn”, BNM stressed that it has previously clarified that interest/profit will continue to accrue on loan/ financing repayments during the moratorium period.
Meanwhile, on the overnight policy rate, Nor Shamsiah said the monetary policy committee (MPC) is of the view that the current rate is appropriate and accommodation to support a sustainable economic recovery while ensuring price pressure remains manageable.
She said at a record low of 1.75%, the central bank still has policy space to respond if the MPC considers it necessary to lower the rate further.
When asked why there are accrued interest payments on loans that are under moratorium, she said