Covid-19: Deferment And Restructuring Of Loans And Islamic Financing Facilities
The Covid-19 outbreak has had an unprecedented effect on the lives and businesses of people around the world.
In an attempt to halt the spread of the disease, the Government of Malaysia has imposed a lockdown, whereby only essential services can be provided during the period from 18 March 2020 to 14 April 2020.
This has inevitably disrupted the lives of Malaysians, and prevented them from carrying on their businesses.
The inability to carry on business as usual means a reduction in revenue for businesses, which may flow down to employees of such businesses, and certainly adversely impacts individuals who are self-employed.
Bank Negara Malaysia Measures
On 25 March 2020, Bank Negara Malaysia (BNM) announced a number of regulatory and supervisory measures to support banks in assisting individuals, small and medium-sized enterprises (SMEs) and corporations to manage the impact of the Covid-19 outbreak. These include the deferment and restructuring of loans and Islamic financing facilities.
Financing for individuals and SMEs
Banks will automatically offer a deferment of all financing payments for a period of 6 months (Deferment Period), with effect from 1 April 2020. This offer is applicable to performing financing facilities, denominated in Malaysian Ringgit, that have not been in arrears for more than 90 days as at 1 April 2020. Customers can opt out, if they wish.
Deferment means that payments will be suspended during the Deferment Period, but interest/profit will continue to accrue on payments that are deferred. However, no late payment charges or penalties will be imposed on such deferred payments. Financing payment and interest/profit servicing resume after the Deferment Period.
The deferment would result in a longer financing tenure, or higher instalment payments after the Deferment Period if the original tenure is to be preserved. Customers may discuss with their respective banks on suitable alternative arrangements for payment of the deferred principal sum and the interest/profit accrued during the Deferment Period.
Various banks have subsequently announced that they will not compound interest on their conventional loan repayments that are deferred during the Deferment Period. As for Islamic financing, profit is not compounded under Shariah principles.
Customers whose financing facilities do not meet the specified criteria may nonetheless contact their banks directly to enquire regarding rescheduling and restructuring packages which such banks may offer to assist affected customers.
Credit card facilities
For credit card facilities, banks will offer to convert the outstanding balances into a 3-year term loan with reduced interest rates (not more than 13% p.a.) to help cardholders better manage their debt. This option will be available from 1 April 2020 to 31 December 2020.
If a cardholder has not paid the minimum monthly payment for 3 consecutive months, such conversion will be automatically carried out.
Once converted, a cardholder can apply for the deferment of the newly converted term loan for the Deferment Period.
Financing for corporations
There is no automatic deferment of financing payments for corporate customers. Corporations may discuss with their banks to defer or restructure their financing payments to enable the corporations to weather the current adverse conditions, preserve jobs and swiftly resume their businesses when conditions improve.
BNM has also assured customers that their records in the Central Credit Reference Information System (CCRIS) will not be affected during the Deferment Period. The status of such records as at March 2020 will remain throughout the Deferment Period. This is achieved by BNM providing flexibilities to the banks for reporting of deferred and/or restructured financing facilities in the CCRIS, in view of the temporary disruptions faced by customers.
Individuals, SMEs and corporations who are affected by the Covid-19 outbreak should consider taking advantage of the BNM measures to ease their financial strain during this challenging time, and reach out to their banks regarding their options for deferment or restructuring under such measures.
Please do not hesitate to contact us if you have any queries, or require any assistance.
|Khong Mei Lin
|Hoh Kiat Ching