Waiving interest rates: imperative that short-term relief measures do not lead to long-term damage to the economy – BNM


KUALA LUMPUR (September 24): It is “imperative that short-term relief measures do not cause significant long-term damage to the economy,” said Bank Negara Malaysia (BNM).

The Central Bank was responding to The Edge’s questions about interest payment waivers for the bottom 50% group (B50) that hit the headlines last week.

BNM, in its response to The Edge, stressed that it is important to consider the effect of such a decision on future lending decisions of individual banks.

“If banks were to become more reluctant to lend to this segment of borrowers due to perceived high risks, that would be a concern,” the Central Bank added in its email response.

BNM Governor Nor Shamsiah Mohd Yunus spoke in August on the issue of waiving interest payments during the loan moratorium period at a press conference after the performance report was released Malaysia’s economy in the second quarter of 2021.

At that time, the governor explained that the profits from the interest are used to cover the cost of financing the banks. This would mean that a waiver of interest rates, where interest income represents 80% of a bank’s income, would have serious repercussions on the economy, as banks may have to cut their lending in order to keep buffers. , especially since higher credit losses are still expected.

One point to note is that the Governor was referring then to the waiver of interest payments as a whole and not specific to a segment currently under moratorium on loans today.

Under the current circumstances, analysts do not believe that banks would choose to suspend lending to this group of borrowers in the future.

“This is a one-off incident. As long as they (B50) are eligible, banks will continue to lend to this segment. In addition to this, banks will also continue to practice financial inclusion for ESG reasons, ”said Chan Jit Hoong, analyst at Hong Leong Investment Bank Research.

MIDF Research vice president Imran Yassin shares similar views, saying that banks may be more cautious about lending to this group in the future, but that they are unlikely to withhold their loans in the future. B50.

BNM said it will continue to closely monitor the implementation of repayment assistance by banks that are already in place for borrowers in need.

The regulator added that it is also working with the AKPK and the banks on additional arrangements to ensure borrowers will continue to be supported to cope with their loan repayments as they gradually resume repayments.

Bank boards and shareholders will have to make a business decision

It should also be noted that in BNM’s response, it also stated that the boards of directors and shareholders of banks will have to make a business decision on the interest exemption because “banks will be affected by the interest exemption. to varying degrees depending on their size and profile. borrowers ”.

“… all the more so as this can lead to operating losses for some banks and affect future distributions to shareholders,” added the regulator.

Contacted on this interest rate waiver issue, Kalpana Sambasivamurthy, executive director of the Association of Banks Malaysia (ABM), said: for the B50 group.

As October 1 approaches, details on interest payment waivers are still scarce. Banks appear to have been caught off guard by the announcement of the waiver of interest payments, with bankers still in talks with the government.

As a reminder, the Minister of Finance Tengku Datuk Seri Zafrul Abdul Aziz announced on September 14 that the ministry had asked the banks to work immediately on the exemption from interest payments for the beneficiaries of the moratorium on bank loans of the B50 category. for the fourth quarter of 2021.

Analysts do not believe that the waivers of interest payments will result in losses for the banks.

“I do not see any risk that the banks will incur losses because of the interest payment exemptions for the B50 group. The impact will be moderate but we do not anticipate losses as it will only be a three month waiver.

One possible impact is that banks will have to book higher allowances, but this will not be so large that it will result in losses for banks, as the B50 is only a small part of total bank loans, ”Imran said. .

In a September 14 report released by Maybank Investment Bank Research, it estimated a total change loss this year of about RM 1.42 billion for banks under its coverage, up from RM 1.35 billion in 2020. It also sees an average impact of 7% on profits. for banks because of the exemptions.

“One point to note is that the change loss is unique in nature and will be recouped in years to come, over the life of the loans. There is a lot of liquidity in the system and the banks are well capitalized. We expect earnings to rebound in 2022 in the absence of such modification losses, ”the research house added.

Likewise, HLIB’s Chan also does not see the waiver having a significant impact on the banks. He recalled that with the gradual opening of the economy, it would be positive for the sector.


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