Search Articles

Find tips, tools and how-to guides on every aspect of property

Moratorium Malaysia disadvantages: What you should know before applying


Due to the ongoing Covid-19 outbreak, BNM has extended the loan moratorium facilities for individuals as well as SME borrowers for a period of six months from 7 July 2021. We take a look at whether or not the loan deferment programme being offered by most banks in Malaysia does more harm than good.

© imran kadir photography | Getty Images

According to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, the six-month loan moratorium announced under the RM150 billion PEMULIH stimulus package will not be interest-free. However, banks would waive compounded interest and penalty charges for borrowers who take up the loan moratorium. He clarified that the moratorium was put in place to assist borrowers in deferring their loan repayment to a later date and that the method of repayment, as well as interest charges, was “between the borrowers and the bank”.

What you should know about the moratorium?

This initiative to provide financial relief by deferring loan repayments by 6 months was initially commended by various parties. However, after further scrutiny, it does not seem to achieve its underlying original intent to help the rakyat who are struggling. After the moratorium period, the borrowers have to service the deferred instalments plus other additional interest/ profits as the loan moratorium is not ‘interest-free’. The moratorium is actually a deferred payment scheme for 6 months, whereby additional interest/ profit is added to that amount.

What is the meaning of a loan deferment?

A loan deferment as defined in the dictionary is a legal authorisation usually by a law passed in an emergency to delay payment of money due, by a bank or debtor nation. In the case of the moratoriums being offered in Malaysia since the start of Covid-19 in 2020 – a borrower’s loan payment, which includes both principal and interest is deferred for 3 or 6 months, as per BNM’s requirements. No penalty will be charged throughout this deferment – but it should be noted that borrowers will still need to pay the accrued interest after the 3/6 month period. Different banks will offer a few repayment options for borrowers to choose from, post moratorium.

Find out whether is there really such a thing as no interest on interest for the moratorium as claimed by banks?

What actually happened during the 2020 moratorium?

During the first moratorium introduced in 2020, many borrowers were caught off guard when at the end of the moratorium, the bank slapped them with additional interest accrued over the 6 months period, irrespective of whether they applied for the moratorium or not or even if one continued to duly service the regular loan repayment.

It was later unveiled that any loan repayment during the moratorium period was treated as an ‘overpayment’ of loan repayment and the amount ‘overpaid’ was not used to reduce the number of loan instalments during the moratorium period.

© chee gin tan | Getty Images

Automatically, the bank continued to charge interest on the cumulative loan repayment ‘suspended’ during the 6-months loan moratorium period, irrespective of ‘overpayment’. Furthermore, most banks require the borrower to make an application for the bank’s approval for such ’overpayment’ to be offset against the principal.

Instead of an interest-free loan moratorium (layman’s perspective), the moratorium appeared to not have benefited borrowers as banks had taken advantage of the situation by charging another round of interest, over and above the original loan sum which was deferred, hence worsening borrowers’ financial situation rather than alleviating their financial burden.

A majority were not aware as banks did not provide any notification or any options to the customers, leaving it entirely to individual’s awareness –this is also known as caveat emptor, which is a commercial principle where the buyer purchases at his own risk in the absence of an express warranty in the contract.

Similar to the 2021 moratorium, it did not reduce borrowers’ lending costs as it was not interest-free. Hence, interest continued to be charged during the moratorium period. Ultimately, borrowers ended up paying more to the banks after the loan moratorium period ended, leaving many feeling cheated and shortchanged.

CHECK OUT: What you need to know about the unconditional 6-month PEMULIH moratorium

What are the 2021 moratorium disadvantages?

The current moratorium is not automatic and requires an ‘opt-in’ instead. While this is commendable, the terms are not exactly clear especially with respect to interest charged and other conditions applicable, all of which should have been made transparent from the onset. The banks should be put under obligation to duly inform borrowers in writing to enable them to make an informed decision.

Superficial help

We just spoke to a friend who is a retired employee of Bank Negara Malaysia (BNM). This is what he had to say about the loan moratorium thingy, verbatim:

  • In a lot of ways, the banking industry is similar to the gambling industry.
  • The House will always win. Borrowers never stood a chance”.

While some of us knew this all along, it is no less shocking and heartbreaking to see how banks, unless proven otherwise, chose to treat their customers during their time of need, under the guise of helping them in their darkest hour.

Exploiting desperate borrowers in their time of need

An ex-CEO of a bank recently gave a talk on the loan moratorium issue. He clarified how there is no such thing as a ‘free lunch’ when banks (including Islamic banks) are involved. He further elaborated how the purported loan moratorium for hire purchase and mortgage loans will result in borrowers having to pay extra interest/ profit to the banks.

Stating the obvious, he advised distressed borrowers to think twice before opting in. He also commented that this time around, the banks have wisened up and hence, the hire purchase moratorium will now result in borrowers having to pay extra interest/ profit to the banks (unlike last year’s moratorium).

What is the key takeaway from all of this? I asked him? During good times, banks will make a profit out of their borrowers whereas during bad times, banks will make more profit out of their borrowers.

In the final analysis, it is best to avoid the loan moratorium for housing/ mortgage loans if you can afford it as:

  • Banks will continue to charge interest/ profit during the said 6 months period. The interest charged is not suspended.
  • Borrowers will end up worse off as they have to pay more interest/ profit to the banks (in addition to having to pay the 6 month repayments which are deferred).
  • Borrowers should ask their banks for a detailed computation/ illustration as to the ‘extra interest’ they have to stomach if they were to opt into the 6-month deferred payment scheme.

Let’s take a look at an example scenario:

Say Abd Latiff has a remaining RM300,000 for his Housing Loan which has an effective interest of RM3.25% per annum and a monthly instalment payment of  RM1,702. Assuming Latiff does not apply for the loan moratorium program, his remaining interest on the housing loan is RM108,331.

Latiff needs to be made aware of what is the additional interest that he will have to pay as a result of the loan moratorium as it was reported that normal interest will continue to accrue.  How is this normal accrued interest going to be calculated and what is the impact on Latiff’s monthly repayment? Based on the website of a leading bank, the impact to Latiff applying for the Loan Moratorium are as follows:

moratorium calculator malaysia

By opting for the moratorium, Latiff will incur additional interest charges of RM8,993 or approximately 8.3% over his original loan. This additional interest charge of 8.3% is excessive for a loan moratorium that is only 6 months long. This staggering sum warrants a clear explanation from the banks.

The bank has also illustrated the potential impact of the loan moratorium on a hire purchase loan with a monthly instalment of RM529 with a remaining principal amount of RM37,081. It has a remaining tenure of 84 months at an interest rate of 3.0% per annum.

moratorium calculator hire purchase
Hire purchase loan scenario. © CIMB

By applying for the moratorium, Latiff will incur additional interest charges of RM822 or approximately 6.76% over his original hire purchase loan. Similarly, this sum is excessive and must be justified/explained by the banks.

? Moratorium Malaysia is ending soon: What to do if I cannot afford my loan repayments?

? RPGT in Malaysia: A brief history, latest exemptions and calculation

Some suggestions for BNM to consider

bnm bank negara malaysia
© Abdul Razak Latif / 123rf

Tengku Zafrul, as reported, believes that the domestic financial system will be able to manage the impact of loan repayment deferment. While the banks will be affected by the loan moratorium, I think they will be in a position to support given the strong capital buffers that they have, he said.

Hence, may we humbly suggest that BNM consider the following:

1. Be transparent that interest will continue to accrue during the moratorium period

This means borrowers will end up paying more to the banks after the loan moratorium period ends. The banks should show their borrowers the computations/illustrations example like those on the reverse side of our credit card statements. It should be in simplified figures in the form of a table, to enable borrowers to understand better.

2. Tweak the moratorium scheme so that the moratorium period is really interest-free

This would mean that interest will not continue to be accrued – which means borrowers will pay the same amount of monthly repayments to the banks after the moratorium period ends. It has a negligible impact on banks’ earnings but will alleviate the financial burden of most borrowers.

3. Exercise some Corporate Social Responsibility towards the 8 million borrowers applying for the moratorium

Several banks are enjoying record profits despite the Covid-19 pandemic as evident from their first quarterly report profit after-tax. Acknowledge the fact that our fellow Malaysians are facing reduced or no income streams while many businesses are facing drastically reduced cash flow with permanent closures being a real threat.

4. Repackage existing loans

Banks should include loan rescheduling and restructuring options to suit the specific financial circumstances of the borrower in current hard times, without the need to provide supporting documents.

No matter what you call the borrowers, they are still your valued customers who have supported the banking industry in one way or another. Banks have spent millions of Ringgit in advertising and promoting their products to attract customers.

? Is it better to settle your housing loan or invest your extra cash?
? Here are 4 loan documents you need to prepare if you’re an employed person

While we understand the need for banks to cover their borrowing costs and generate satisfactory returns to their shareholders as they are commercial entities and are profit-oriented, it is not morally right that they are allowed to make a fortune from borrowers’ misfortune, amidst a global pandemic.

To borrowers opting into this moratorium exercise, HBA urges such borrowers to put the cash flow saved into good use and not to splurge on any unnecessary expenses as this is only a temporary measure and monthly instalments at a higher cost will commence after the expiry of such a moratorium or rather ‘deferred payment’ exercise.

This article is written by Datuk Chang Kim Loong, Hon. Sec-Gen of the National House Buyers Association (HBA), a non-political, not-for-profit Organisation manned wholly by volunteers.

Disclaimer: The information is provided for general information only. Malaysia Sdn Bhd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.

More Articles