Finance minister asks banks to consider abolishing accrued interest on hire purchase loans, profits on fixed-rate Islamic financing during moratorium

KUALA LUMPUR, May 2 — Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz today requested that financial institutions consider abolishing the accrued interest on hire purchase (HP) loans, as well as profit from their fixed-rate Islamic financing, during the six-month moratorium period on loan repayments.

Taking to his Facebook page today, Zafrul said that though there are many banks that offer loan deferment without imposing the accrued or compounded interest, the leeway does not cover all loan products.

“Each bank, meanwhile, sets its own approach on matters related to interest imposition, during the moratorium.

“Taking into cognisance that there is a possibility that it can be implemented, and taking the people’s request into account, I would like to suggest that all financial institutions, especially those involved in this moratorium, to consider abolishing the accrued interest for hire purchase loans or profits for fixed-rate Islamic financing, for this six-month moratorium period,” Zafrul said.

He added that although the final say in the matter lies with Bank Negara Malaysia (BNM), the Ministry of Finance (MOF), however, has begun taking proactive steps to seek a solution to the issue, via discussions with BNM and banks, in the interests of the people.

“Given the challenging economic conditions caused by the Covid-19 outbreak, I sincerely hope that this view can be given due consideration by BNM and other financial institutions in the country. I believe this move will have a positive impact on our people,” he added.

BNM yesterday said that it regrets the “confusion and anxiety” stemming from its announcement on changes to the six-month moratorium for HP loans and fixed-rate Islamic financing, on March 30.

In a newly released frequently asked questions (FAQs) list yesterday, the central bank denied that it had also backpedalled on its initial announcement.

In its explainer, BNM stressed that the payment deferment is still automatic for HP and fixed rate Islamic financing, adding that what is required now is an additional step to comply with procedural requirements under the Hire-Purchase Act 1967 (HP Act) and Shariah.

“This additional step is unavoidable, and is required to incorporate the changes to the payment schedule and/or amounts as a result of the six-month payment deferment in loan/financing agreements.

“We sincerely regret any confusion and anxiety that this announcement may have caused. The deferment of loan repayments is meant to ease cash flows for borrowers/customers affected by the Covid-19 pandemic. This intent remains the same. The confusion arises because of the misperception that the repayment amounts for a HP loan cannot be changed,” it said.

BNM added that the misperception arose, due to an illustration provided in an initial version of the FAQs, “where certain assumptions and caveats were made.”

It said that it had later removed the example when banks provided their own illustrations.

BNM then provided an example of a RM50,000 HP loan with a remaining tenure of five years and a fixed interest of 2.71 per cent (or an effective rate of 5.36 per cent) per annum:

Before the deferment, the monthly instalment was RM712.

But should the deferment option be accepted, based on this example, the monthly instalment is now RM731, or an increase by 2 per cent or RM19. Consequently, the total interest increase incurred is RM1,130.      

Several reports emerged on the evening of April 30, citing a BNM press release, on a purported reversal from what was initially announced with regards to the interest payable on the deferred HP loans and profit on fixed-rate Islamic financing.

Financial website, Ringgit Plus, reported that the press release had “hinted of a big change that will affect millions of Malaysians currently servicing car loans or Islamic financing.”

The report, which was one of those widely shared by those angered by the announcement, reported that BNM had also implied that from May 1, 2020, the six-month moratorium will also no longer be an automatic opt-in for all customers.

Ringgit Plus reported that the press release further stated that BNM required that all borrowers “are provided with clear information on the process and changes to the terms of their agreements”, and that the banking institutions provide borrowers with “necessary steps that they need to take to complete the process of deferring their loan/financing payments”.

This was seen as a departure from what was announced initially, where customers are only asked to opt-out of the deferment, should they want to continue servicing their loans with their banks, as otherwise, banks would grant an automatic deferment.

BNM later said that any additional interest that some banks may charge on the deferred payment cannot be higher than the original hire-purchase contract signed.

The central bank reiterated that, as a regulator, it has from the very beginning, already indicated that there will be accrued interest or profit with regard to the six-month moratorium.

The announcement also saw social media users targeting Zafrul with criticisms coupled with the hashtag #bankerjagabanker.

The confusion further escalated and caused widespread anger; which even led to the start of an online petition denouncing the move by BNM and demanding for zero per cent interest on the deferred instalment payments.

Last month, Prime Minister Tan Sri Muhyiddin Yassin announced the government’s move to freeze loan repayments for six months due to the coronavirus disease, which he said will provide relief worth RM100 billion to Malaysians.

The prime minister said the unprecedented move BNM announced on March 24, was the government’s response to public concern about hardships they are enduring due to the movement control order (MCO).