The Coronavirus pandemic has had a significant impact on the health, environmental, and economic sectors. It is considered to be the most devastating global health calamity of the century.
Virtually every country, including Malaysia, is struggling due to the disruption caused by the virus. At the same time, many countries are introducing various initiatives and measures to restore the impact inflicted to their economies.
Fortunately for Malaysians, the government introduced several financial initiatives during the pandemic, one of which is a six-month loan moratorium
What is a Moratorium?
The moratorium is a temporary relief measure that allows for deferment of all loan/financing repayments from April 1 to September 30, 2020. This means that all banks in Malaysia have been ordered to extend loan repayment schedules.
In doing so, Malaysia became the first country to introduce a six-month moratorium. As the end of the moratorium is approaching, banks expect borrowers to reach out if they need extended support. They will help individuals and businesses by facilitating a suitable repayment Assistance package; however, this will lead to higher repayment amounts in the long-term.
On a side note, if you are a citizen of Malaysia or own a business here, you are entitled to benefit from the Financial Relief Scheme. For first-time homebuyers, a lower interest rate means it is the best time to check out new housing developments and buy a residential property
The Purpose of the Moratorium
The COVID-19 pandemic has triggered a lot of socio-economic and political crises in almost every part of the world. In Malaysia, the property market
has been seriously impacted by the pandemic.
As a result, the government announced a six-month moratorium for loan repayments to support individuals with personal, mortgage, and car loans as well as business loans. The moratorium started from the 1st of April 2020 and is expected to end on the 30th of September, 2020 with all repayments expected to resume in October 2020.
The government hopes this will relieve the monthly burden of individuals challenged by unemployment or salary reduction and businesses whose income has been affected by COVID-19.
What’s Next After the Moratorium Period is Over?
The moratorium is soon coming to an end
. So what will happen to your loans once the moratorium period is over? Currently, the suspension of repayments is scheduled to end on the 30th of September, 2020.
However, if the moratorium isn’t extended, then financial institutions may need to brace up for impact come October 2020 as many individuals and business owners will not have fully recovered from the impact of the pandemic.
After the moratorium expires, significant numbers of people will likely suffer from financial difficulties, and small and medium-sized enterprises (SMEs) may now be incapable of meeting their borrowing commitments. This is not good news for banks in Malaysia and it will have a devastating knock-on effect on the Malaysian economy.
As it stands, Restructure & Reschedule (R&R)
seems to be the answer. Speaking to your bank about an R&R on your loan is an ideal solution for distressed borrowers. However, this could be a challenge to implement for a number of reasons:
- The process may overwhelm financial institutions – unless the process is automated, negotiating with millions of borrows to do post-R&R is complex and will take time.
- Different methodologies from banks – different approaches from different banks may frustrate distressed borrowers.
From the lenders perspective, if 90% of borrowers are not able to resume payments, how will the banking system roll out new loans to customers? Even if they manage to, they might come with stricter terms which will not benefit those taking housing loans.
In a Nutshell
A 3-month opt-in moratorium seems like a better arrangement for both banks and borrowers. After September 30, anyone who needs the moratorium can opt-in.
Opting-in to the new moratorium will not require any discussion with lenders; a simple online opt-in form will save valuable time, resources, and also ensure compliance with social distancing. This short-term solution will do minimal damage to the banking sector. However, it appears to be a decisive step toward economic recovery