Lawyers: Minister wrong that govt can’t compel banks to provide loan moratorium

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A lawyer has disputed finance minister Tengku Zafrul Aziz’s statement that the government does not have any legal power over banks when it comes to imposing loan moratoriums.

Derek Fernandez said the minister actually has “tremendous power” to legally compel the banks to agree to provide the moratorium.

“All governments have the power to fully control financial institutions because banking and finance is a critical component of national and economic security,” he said.

He added that a banking licence is not a legal right, but a privilege, that comes with conditions that the government can and must impose for the good of the nation.

Fernandez said the government through the finance minister can re-enact the Covid-19 Temporary Measures Act and enlarge its scope to cover financial institutions and loan repayments, if polite appeals to the banks do not work.

The government may even widen the scope of the powers of the Emergency (Essential Powers) Ordinance 2021 to achieve the same result, albeit it may be unnecessary as there are other legal avenues, notably, the Financial Services Act (2013).

He added that the finance ministry, which is the issuer of banking licences under Section 10 of the Act, and also Bank Negara (which may also grant licences under Section 11) can decide not to renew or give further licence approvals to banks that do not cooperate with the government.

Section 13 of the Act also allows the minister or Bank Negara to impose new conditions on any financial institution.

Elaborating further, he said Section 11 and Section 13 of the Act allow national policy considerations to be taken into account when deciding whether or not to approve or renew a licence of financial institutions.

Lawyer Mohamed Haniff Khatri Abdulla also said that Tengku Zafrul was wrong to assert that the government has no legal power to compel banks to offer borrowers a blanket moratorium on loan repayments.

With the state of emergency still in force, Haniff said the government merely has to enact an emergency ordinance that would give it the power to enact the emergency ordinance.

He noted that by wielding its emergency powers, the government has already suspended parliamentary proceedings, approved expenditures without tabling them in Parliament and allowed itself to seize private property, if needed, to help control the Covid-19 pandemic.

“All these are allowed, even though they appear to be wrong. Of course, there is no check-and-balance, but these actions are allowed under the state of emergency.

“So, it is completely false for him (Tengku Zafrul) to say they don’t have power. I would stress it is false. It is a lie to the public,” Haniff told Malaysiakini yesterday.

Azhar Mahfof/The Star

He said the ordinance could be “one simple ordinance” that stipulates that all financial services of a certain amount are suspended in the repayment, late payment penalties and so on, for a specific period of time.

“In this way, the government can compel banks to grant a moratorium on loan repayments in whatever terms it sees fit, and this can be limited to certain facilities if needed,” Haniff added.

On May 31, on the eve of the total lockdown, Prime Minister Muhyiddin Yassin unveiled an RM40 billion economic aid dubbed Pemerkasa Plus, in which targeted loan moratorium was granted to the bottom 40 group as well as those who have lost their jobs and small businesses that cannot operate during the total lockdown.

This is different from the blanket moratorium on loans given to the general public when the country first entered the movement control order (MCO 1.0) in March 2020.

Umno leader Puad Zarkashi has questioned why the government did not provide a blanket loan moratorium as the total lockdown would impact everyone.

In his explanation yesterday, Tengku Zafrul said the targeted loan moratorium was the result of the discussion between the banks and Bank Negara Malaysia.

He claimed that the government has no legal ability to force banks to do so.