KUALA LUMPUR: Waiving the accrued interest payment on loans during the current six-month moratorium will significantly impact banks and the country's long-term recovery from the Covid-19.
Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus said interest income accounts for 80 per cent of bank revenue, so banks must remain resilient to provide the financial assistance that borrowers require during this difficult time.
She said the total individual and small and medium enterprises (SMEs) loans eligible for auto moratorium account for close to RM1.4 trillion, or around 73 per cent of total banking system loans in the country.
"Waiving accrued interest payment on all individual and business loans under the moratorium will have significant long term consequences.
"So there are serious ramifications if banks were to waive accrued interest given their critical role in the economy," she told reporters at a virtual press conference today in conjunction with the announcement of Malaysia's economic data for the second quarter (Q2) of 2021.
Besides that, Nor Shamsiah said if the government instructs banks to offer interest-free loan-repayment moratorium to borrowers, banks will have to pull back on lending to conserve their buffers, especially with higher credit losses still expected to emerge.
Their own credit rating may be downgraded to reflect weaker future earning capacities and make it more expensive for banks to raise capital. This higher cost will be passed on to borrowers, said Nor Shamsiah.
"Confidence in banks will be affected, and this could trigger liquidity stress, and depositors may have concerns about the safety of their deposits, and this action will also jeopardise depositors' interest when the earnings of banks are adversely affected.
"Banks will also not be able to pay dividends to their retail investors and institutional funds that hold public savings, such as EPF (Employees Provident Fund), KWAP (Kumpulan Wang Persaraan Diperbadankan (KWAP), PNB (Permodalan Nasional Bhd), LTAT (Lembaga Tabung Angkatan Tentera) and Tabung Haji, and this will result in a lower return to depositors and retirement savings," she said.
Meanwhile, Nor Shamsiah said financial institutions would continue to help borrowers who face difficulties repaying their loans even after the moratorium period expires.
She said the repayment assistance offered by Malaysian banks is the most extensive in any country in scale and scope.