Additional Moratorium Extension in Malaysia Not for All
As property investors making our journey through the Covid-19 recession, if there’s one thing we can all agree on, it’s been the moratorium granted by the banks, besides the OPR reduction of course. This wonderful 6 month loan repayment holiday which began from the month of April has been a boon for individuals and businesses alike, freeing up a lot of cashflow.
Following Prime Minister Tan Sri Muhyiddin Yassin’s announcement earlier today the moratorium would be extended for 3 more months… but only for those who have lost their job and have been unable to find new employment.
One other good thing, however, is that those who have also received pay cuts, will also be able to apply for their loan instalments reduced in accordance with their pay cut. These eligible will also be allowed to extend their loans past the 3 months depending on their situation.
I do wonder how the banks will deal with this and if they have even all been informed on how they will be processing these checks before granting these loans.
This goes on following Finance Minister Datuk Seri Tengku Zafrul, statement a few days ago that the banks were estimated to make a loss of more than RM1 billion ringgit each month during this 6-month period and that they would not be able to continue.
When the issue first arose there was a ton of debate about whether or not taking on this moratorium was the financially savvy thing to do, with many people scurrying around to do calculations to see if paying the additional interest would be worth it.
There were even questions about which banks were not charging interest and even which kinds of loans would be applicable for the moratorium. The banks finally settled on very similar terms across the board but you can see the difference – here.
It would seem that majority of individuals (93%) and businesses (95%) decided to go along with it and not reject the moratorium as it would mean freeing up a significant portion of their cash flow during this difficult period.
Our former Prime Minister Datuk Seri Najib Razak even spoke up on the matter saying that it was his recommendation that banks should extend the moratorium for the sake of borrowers as many borrowers and companies who are struggling may still not yet be financially stable by October.
Perhaps he has greater worries on his mind now, following his recent trial results which were announced yesterday.
I would say that I do not entirely agree with the Finance Minister’s statements that the banks are making a loss during this period.
This isn’t exactly the case as the banks technically aren’t losing this income but will face a delay in receiving it. Also breaking it down the banks will receive more during at the end of the loan period factoring the additional interest that would come into play due to the delay.
Based on my basic understanding of how banking works, the banks are only facing a temporary cashflow loss which I believe is not an overwhelming issue for them.
I would also think that if the Moratorium has been able to be extended for those who have lost their jobs that it would also be possible for it to have been extended for everyone.
Despite this not being the best outcome for everyone, I am glad that this provision has been made for those who need it the most.
It will certainly buy those who have lost their jobs some additional time to get back on their feet and find some new employment without their loan repayments burning an even deeper hole in their pocket.
Application for the Moratorium extension will begin next Friday from 7 Aug 2020 onwards.
Perhaps the Government will also look into issues such as the worsening property overhang situation with as much vigilance and consideration for everyone involved.
My thoughts go out to all those of whom this is a life saver to.