How does the BNM moratorium change impact me and what should I do?

This post is written by Aaron Kee, Chief of Staff at Carsome and was originally published on LinkedIn.

A little over a month ago, the Central Bank of Malaysia (BNM) announced something unprecedented – it ordered all banks in Malaysia to grant an automatic six-month moratorium (deferment) of all loans/financing repayments from 1 April 2020. This forms part of the broader Covid-19 stimulus package designed to cushion the economic fallout from the lockdown measures announced by the government since mid-March 2020.

It was a timely move, given that Malaysia has one of the highest household debt-to-GDP ratio (over 82%), which means most people stand to benefit immediately. All borrowers were given a 6-month period to get their finances right. While everyone lauded the move (me included), one has to wonder how would this impact the financial institutions?

As starters, banks will not have any cash inflow from loan repayments during the period, which causes a significant liquidity squeeze as loan growth (cash outflow) continues while operating expenses like payroll, rental and other costs have to be paid. It’s something like no salary for the banks for 6 months, which is bad. I suppose down the line someone actually realised that the potential systemic risk as part of the broader liquidity selloff is too big to ignore. Hence, effective from tomorrow, the moratorium now comes with a few less-than-friendly T&Cs.

So, what changed?

First thing first, the moratorium is no longer automatic. That is, if you wish to continue the moratorium, you MUST NOTIFY the bank. If you do not notify, the banks will bill you like usual. But this is only applicable for hire purchase (cars) loans, and Islamic financing, due to the fact that both are fixed-rate instruments, unlike your housing loans which are mostly variable.

Secondly, if you wish to continue the moratorium (after notifying the banks), you will get 2 options:

• Option 1 – pay the 6 months deferred installments (from April to September) in your October 2020 installment. So all-in-all 7 months of total installment payments, which can be heavy on cash flow.

• Option 2 – extend your loan tenure by another 6 months (just like how the moratorium works previously) BUT interest will be accrued and payable for the 6 months installments that you miss. This means your monthly installment payments will increase to account for the interest charges. Unclear if this is compounded, but likely not since it’s a fixed-rate loan.

What should I do?

Clearly, this is a departure from what was a monumental decision announced just over a month ago, and to reverse it so soon might indicate that the potential opportunity costs to the banks and the economy are too big to swallow. Nonetheless, this is a good move as it encourages fiscal responsibility. After all, Lannister always pays his debt.

Here are some suggestions on what you can do:

• If cash flow is not an issue, do consider making timely payments to the banks. BNM has allowed for a 3-month deferment until 30 June 2020 without penalty for those who do not wish to take up the moratorium. So keep your monthly payment in an interest-bearing account for the next 2 months and pay the installments by the end of June. Might just pocket enough interest for a meal or two.
• If cash flow is an issue, do notify the banks on your intention to continue the moratorium and get ready for higher monthly installment payments beginning from October 2020. If your loan tenure still has some time to go, the increase will be largely minimal as it spreads over more months. But if your loan is expiring soon, the figures may just add up due to the smaller denominator.
• If cash flow is not an issue AND if you could stash the 6 months installments aside comfortably, do consider asking for the moratorium AND make full 7 months installments at one go in October 2020. Mind you this can get hefty but if you have excess cash, store it in an interest-bearing account and you can earn a week worth of groceries from the interests.

Whichever case it is, there’s enough flexibility for everyone and it’s a win-win situation to the lenders, borrowers and the regulators. This will also ensure enough liquidity flowing back to the banks which allows them to provide more loans back to those who really needed it.

What if I want to sell my car?

It’s no secret that cars are depreciating assets, and the depreciations are often more accelerated than your loan repayments. The longer the wait, the lower the realisable value of your car, compared to the nominal value of your loan. You might end up topping up on your loan just to get rid of your ride.

If you are intending to sell your car for quick cash, we can help you do it conveniently and fast! It is as fast as one hour from the time you accept Carsome’s on the spot offer! Don’t worry if you are still servicing your loan – we will help you manage that too!

The views and opinions expressed here are those of mine and do not necessarily reflect the official policy or position of Carsome. Any content provided here is of my opinion and is not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything.

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