By Chee Jo-Ey
IN line with measures to provide financial relief to businesses and individuals, more banks have come forward to say they will not be compounding interest on loans.
Under the instructions of Bank Negara, banking institutions will grant an automatic moratorium on all loans or financing, principal and interest except for credit card balances, by individuals and SMEs for six months from April 1 to ease the cash flow of those likely to be affected by the virus outbreak.
Maybank, Public Bank, CIMB, RHB, AmBank and Alliance Bank made announcements today that they will not compound interest on loans during the moratorium.
This means there will not be any additional interest charged on top of the interest on the loans. Borrowers can resume payments after the moratorium period paying the exact amount they would have paid during the moratorium without additional charges.
Maybank said the Covid-19 pandemic is an unfortunate situation and the bank is taking this opportunity to do the right thing in line with its mission of humanising financial services.
“The bank hopes that with this additional measure, it will be able to provide them further relief from their financing obligations for this period and help them weather the other challenges they may be facing,” it added.
RHB Group managing director Datuk Khairussaleh Ramli said these measures will help ease the cash flow of individuals and SMEs as well as provide the much-needed breathing space for customers to re-assess their financial positions, particularly those directly affected by Covid-19.
Meanwhile, Sunway University Business School economics professor Dr Yeah Kim Leng said: “The central bank has been silent on the matter. It should come up with a clear guidance as to whether the banking institutions can compound the interest or not. But as a relief measure, banks should forgo compounding.
“Banks have nothing to lose but just make less profit. It will not have significant impact on the banks if they don’t compound the interest given that the central bank has reduced statutory reserve requirement rates that would help the banks.”
He believes that through peer pressure and the sharing of the government’s aspiration to provide greater relief to businesses and households affected due to the coronavirus, other banks will not compound interest as well.
“By right, the banks should be compounding interest because they are receiving the monies later. Perhaps, some banks are trying to look better than their competitors or they may be feeling confident with their customers. Banks which aren’t compounding interest will see their net interest income decrease.
“They may either absorb this hopefully one-off shortfall for customer goodwill reasons. Or make it up through ramping up of other forms of revenue and/or reducing cost, “said University of Malaya department of finance and banking senior lecturer Dr Eric Koh. — March 27, 2020
