CENTRAL BANK’S MEASURES FOR BORROWERS/CUSTOMERS AFFECTED BY COVID-19 OUTBREAK
On 24 March 2020, Central Bank of Malaysia (Bank Negara Malaysia) issued additional monetary measures (“BNM Measures”) to ease the financial burden caused by the COVID-19 pandemic. The BNM Measures serve as preparation for the possible economic recession that is expected to hit the global economy due to the systemic effect caused by the COVID-19 pandemic and to free up “cash-flow” during these times. In this regard, we have taken the liberty to summarise the BNM Measures (based on the information released to the public domain) as follows and for your ease of reference, we have summarise them based on different categories in A, B and C:
A. Small & Medium-sized Enterprises (SMEs) and Individuals (including personal, housing and car loan) Borrowers or Customers
Effective from 1 April 2020 until 30 September 2020, there is an Automatic Suspension of loan repayment for a period of 6 months.
The conditions for automatic suspension are firstly, the loan is not in arears for more than 90 days as at 1 April 2020. This means that there cannot be any unpaid or outstanding payment before 2 January 2020. Secondly, it is only applicable for loan/financing granted in Ringgit Malaysia.
There will not be late payment charges or penalty on the deferred amount during the 6 months period. The interest/profit will continue to accrue.
For conventional loans, the interest will continue to be charged on the outstanding balance comprising on both principal and interest portion during the 6 months period = compounded*.
For Islamic financing, the profit will continue to accrue on the outstanding principal amount = pursuant to Sharifah principles, profit will not be compounded.
*Nonetheless, as at 27 March 2020, on their own initiatives, some Banks have announced that interest on conventional loan/profit on Islamic financing will not be compounded. Therefore, do check with your Bank on the exact terms and discuss on a suitable workout plans for the deferred repayment/payment or if required, a longer deferment period.
The suspension may lead to higher subsequent instalment amount or an extension of the loan/financing repayment tenure. Repayment/payment of loan/financing will resumes on 1 October 2020.
For individuals/SMEs that wish to opt-out of the Automatic Suspension, the Bank may send you notifications or you may:
check the Bank’s websites;
contact your Bank to inform that you wish to opt-out; or
continue to make timely and full repayment of your loan/financing.
As part of the BNM Measures, the Borrowers/Customers can rest assured that their CCRS record will not be adversely affected by the deferment of loan under the automatic suspension.
B. Credit Card Balances
Conversion of credit card balances to Term Loan/Financing is available from 1 April 2020 until 31 December 2020. It may be automatic or optional depending on your circumstances.
If you have not met the minimum monthly repayment of your credit card for the last 3 months consecutively (i.e. in December 2019, January and February 2020), there will be Automatic Conversion by the Bank of your credit card balances to Term Loan/Financing.
The tenure of Term Loan/Financing is fixed at maximum of 3 years with interest/profit of not more than 13% per annum.
The converted Term Loan/Financing shall be treated as part of the credit card limit so Holders can still continue to use the credit card up to the remaining credit limit. The monthly Term Loan/Financing instalments shall form part of the minimum monthly repayment amount on the credit card.
For credit card Holders who does not satisfy requirement  above, such Holders may apply to the Bank for Optional Conversion within the availability period from 1 April 2020 until 31 December 2020.
Banks may decide to extend the option beyond 31 December 2020. Borrowers/Customers are advised to contact their respective Banks for more information and to discuss on the suitable credit card balances conversion plan.
C. Corporate Borrowers/Customers
There is no automatic suspension of loan repayments but Corporation will have at least three (3) options:
Option A: apply for Moratorium
Corporation may request for a Moratorium from Bank. This allows viable corporations to preserve jobs and swiftly resume business activities when conditions stabilise and improve.
Option B: apply for Additional Financing
Corporation may apply for additional financing to support immediate cash flows; or
Option C: apply for Rescheduling and Restructuring
Corporation may apply for Rescheduling and Restructuring of existing loan/financing for a reasonable time for business to recover from current disruption, including via the Small Debt Resolution Scheme (SDRS) and Corporate Debt Restructuring Committee (CDRC).
For Viable Corporations whose loan was granted in Ringgit Malaysia, loan is not outstanding for more than 90 days as at 1 April 2020 and the Bank has agreed on or before 31 December 2020 to grant you a Moratorium/ Restructuring/Rescheduling, such Corporations may enjoy the following regulatory flexibility:
The moratorium period be excluded in the determination of period in arrears for regulatory purpose and accounting classification; and
The Bank will not report the loan/financing as “rescheduled and restructured” (R&R) or classified as credit-impaired in CCRIS.
It is point worthy to note that:
It would appear that BNM Measures are applicable only to “viable corporations”.
There must be some evidence to show the viability of the corporation in order to be considered for the Moratorium/Restructuring/Rescheduling as without it, the Corporations would not be able “to preserve jobs and to swiftly resume economic activities”.
Central Bank did not elaborate on the definition of “viable corporation” but it is likely that the test to determine such would be the commercial insolvency test.
Corporation who are in arrears prior to the BNM Measures are unlikely able to meet the pre-conditions and hence unqualified to be considered for Moratorium/Restructuring/Rescheduling.
Finally, please note that the information contained herein is for the purpose of general guidance only. Borrowers/Customers are advised to discuss with respective Banks on the exact measures implemented. For further information, feel free to contact us.
Ramesh Sathasivam (Partner)
Melisa Tai (Partner)
Lew Chui Ying (Senior Associate)