KUALA LUMPUR: Moratorium on loans for all micro, small and medium enterprises (MSMEs), households B40 and M40, while being targeted for others for at least three months or a 50% reduction in loan repayment for six months is necessary to ensure social and commercial safety nets.
According to Emir Research, the mass adoption and the benefits for the many in the face of potentially dire economic outlook suggests that the loan moratorium should be extended to a six-month automatic general loan moratorium.
“The aim is to provide a safety net for those at risk due to the closure of economic activities and prolonged unemployment,” the independent think tank said in its research note “Exit Strategy Building Blocks for Malaysia – Part 1 “.
He said that a true moratorium that helps borrowers should not allow the practice of charging borrowers additional interest for the moratorium period by re-amortizing the loan repayment schedule after the moratorium period ends.
Under this practice, the total amount of interest received or profit that banks forgo during the moratorium period are added to the opening balance and thus result in a higher monthly amount than before the moratorium. he declares.
“It must be emphasized again that the borrowers did not default on their payments – the payments were simply postponed – and, provided the borrowers resume and complete all payments on schedule, the banks would not lose their profits. real.
“Although banks would report simple accounting losses due to the revaluation of their outstanding loans,” Emir Research said.
Under International Financial Reporting Standards (IFRS 9), banks are required to report the fair value of loans on their books based on the present value (PV) formula.
Therefore, the fair value of outstanding loans will decrease due to the period newly extended by the moratorium and banks would lose in PV terms by deferring their collections to a later period.
Receiving repayment later than initially expected could affect the bank’s capital adequacy ratio, which must increase its provisioning for a possible default, which represents an opportunity cost for the bank.
âIn 2019, loan loss coverage was 90% and in 2020 it increased to 140%. However, this does not affect the profits in any way, âhe added.