,Governor Datuk Nor Shamsiah Mohd Yunus said the total individual and small and medium enterprises (SMEs) loans that are eligible for automatic opt-in moratorium amounts to about RM1.4 trillion – or 73% of the total banking system’s loans.
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KUALA LUMPUR: Waiving the accrued interest payment on all individual and business loans will have significant long-term consequences for banks, especially when the interest income accounts for 80% of banks’ revenues, says Bank Negara.
Governor Datuk Nor Shamsiah Mohd Yunus said the total individual and small and medium enterprises (SMEs) loans that are eligible for automatic opt-in moratorium amounts to about RM1.4 trillion – or 73% of the total banking system’s loans.
She said there are serious implications if the banks were to waive accrued interests, given their critical role in the economy.
“First, banks will pull back on lending to conserve their buffers, especially with higher credit losses still expected to emerge.
“Secondly, banks’ owned credit ratings may be downgraded to reflect weaker future earnings capacity and this will make it more expensive for banks to raise capital funding and the higher costs will be passed on to borrowers,” she said.
Nor Shamsiah was speaking at a press conference on the Economic and Financial Developments in Malaysia in Q2 2021 report released yesterday.
Thirdly, she said, confidence in banks will be affected and this could trigger liquidity stress and depositors may have concern for the safety of their deposits. This action will also jeopardise depositors’ interests when earnings of banks are adversely affected.
Fourthly, by doing this, banks will not be able to pay dividends to their retail investors and institutional funds that hold public savings and this include the Employees Provident Fund, Kumpulan Wang Persaraan (Diperbadankan), Permodalan Nasional Bhd, Armed Forces Fund Board and Tabung Haji.
“This will result in lower returns to depositors and retirement savings. So when you take all these together, this would significantly hurt the economic recovery and have longer-term implications for the economy and financial system.
“It is very critical for banks to remain sound as this is what will enable them to provide the extensive repayment assistance that borrowers need at this time and, to our knowledge, the repayment assistance offered by Malaysian banks have been the most extensive compared to any country in terms of scale and scope,” she stressed.
It is also to be noted that there are about 18.4 million individual depositors in the country, of which 15% are above the retirement age of 60 and many depend on the interest to partly sustain themselves.
The governor said the central bank is doing its part in getting through these difficult times.
First, monetary policy will remain accommodative given the ascendancies the future monetary policy stances will remain guided by new information, and the bank will take into account the overall outlook of inflations and domestic growth and implement appropriate policies.