Finance Minister: ‘Doable’ for banks to abolish accrued interest on hire purchase loans, profits on fixed-rate Islamic financing

Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz during an interview in Putrajaya March 27, 2020. — Bernama pic
Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz during an interview in Putrajaya March 27, 2020. — Bernama pic

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KUALA LUMPUR, May 2 — Finance Minister Datuk Seri Tengku Zafrul Abdul Aziz today said that it is “doable” for banks to abolish the accrued interest on hire purchase (HP) loans profit from their fixed-rate Islamic financing during the six-month moratorium period on loan repayments.

In an interview with TV3 today, Zafrul leaned on his own experience as a banker for over 20 years to say that such a move would not have a major impact to financial institutions.

“Yes, I have been in the banking line for more than 20 years, so I feel that this is certainly doable, because this is a time when the people are in need of help. Like I said, this Covid-19 (outbreak) is unprecedented.

“So we, together with banks, all the industries together with the government must help the people. I feel it can be done,” Zafrul said.

He was responding to a question from host Norzie Pak Wan Chik on whether the move can be done with minimal impact to the banks.

Earlier today, Zafrul requested that financial institutions consider abolishing the two elements in HP loans and fixed-rate Islamic financing.

However, he said that while many banks have offered loan deferment without imposing the accrued or compounded interest, the leeway does not cover all loan products.

He added that while the final say was with Bank Negara Malaysia (BNM), the Ministry of Finance (MOF) has begun taking proactive steps to seek a solution to the issue through discussions with stakeholders.

“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 regretted 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.

The central bank reiterated that it had from the very beginning already indicated that there will be accrued interest or profit despite the six-month moratorium on repayments.  

The FAQ was released after public backlash, alleging that the government and BNM had backtracked in the matter.

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