The government has sweeping powers to instruct banks to allow a moratorium as well as interest waivers on loans, a lawyer has said in response to Finance Minister Tengku Zafrul Aziz’s statement that it cannot legally compel banks to do so.
Derek Fernandez said the government could employ a string of measures, from “politely” asking banks to voluntarily allow a moratorium to applying the force of law, including invoking its powers under the present state of emergency.
“There is tremendous power to get banks to voluntarily agree to an interest waiver or moratorium, and if not, to legally require or administratively force them to do so if there really is the political will to want the financial burden of Covid-19 to be shared by all, especially those who are actually still able to make big profits despite the Covid-19 situation.”
On Monday, Putrajaya said banks had agreed to a three-month moratorium on loans upon request by borrowers in the B40 group as well as those who had lost their income due to the pandemic.
The move was short of the blanket moratorium announced during the first movement control order (MCO) last year, when an automatic six-month freeze on repayments as well as an interest waiver were declared.
Yesterday, Zafrul said the government was powerless to compel banks to do the same this time.
“There is tremendous power to get banks to voluntarily agree to an interest waiver or moratorium and if not, to legally require or administratively force them to do so.”
But Fernandez said even without the Emergency (Essential Powers) Ordinance 2021 which gives the government sweeping powers to help contain the impact of the Covid-19 virus, the authorities are in a position to call the shots.
He said Sections 10 and 11 of the Financial Services Act 2013 (FSA) give the finance minister and Bank Negara Malaysia the power to renew a banking licence, as well as to impose conditions on existing licences with the aim of protecting national interests.
“Both sections allow Bank Negara or the minister to take into account any matter they feel is relevant.
“Emergency measures during a time of national suffering where the burden is being substantially felt and borne by the public and businesses will logically be such a matter,” Fernandez said.
Meanwhile, Section 13 of the same act allows the minister or Bank Negara to impose any new conditions on any existing financial institutions.
Fernandez said these powers put notice to banks which refuse the government’s request during a time of national crisis despite making record profits.
Politely or by force
He said the minister could “politely tell” banks to waive interests or grant a moratorium during the MCO.
“Maybe some of the banks will understand the situation, and that social justice requires them to equitably share the economic burden of the people in times of national suffering,” he added.
Failing this, he said, the government could bring back the Covid-19 Temporary Measures Act and enlarge it to cover financial institutions, or invoke its emergency powers, “but that may be unnecessary”, he added.
“All governments have the power to fully control financial institutions because banking and finance is a critical component of national and economic security.
“A banking licence is not a legal right but a privilege that comes with conditions the government can impose in national interests,” he said.