Protective financial measures in the time of Covid-19 - Bahrain - UK - Malaysia
The 2020 coronavirus outbreak has put many businesses and consumers in affected areas under tremendous financial strains. Governments and banks globally have introduced temporary schemes to help alleviate cash flow pressure. This article outlines some of these measures undertaken by the Governments of Bahrain, the UK and Malaysia.
The government of Bahrain announced a BHD 4.3bn economic stimulus package to counter the effects of Covid-19 and directly support the country’s citizens and private sector.
In its circulars issued in March, the Central Bank of Bahrain mandated retail banks and financing institutions to offer borrowers and credit card holders a 6-month deferral of repayment instalments with no fees, interest or increase on interest. Retail banks and financing institutions were also ordered to relax their loan-to-value ratio for new residential mortgages for Bahrainis. For Bahrain based SMEs, risk weight for capital adequacy purposes is reduced from 75% to 25%.
Ministers have approved payment of all private-sector employee salaries and individuals’ and businesses’ Electricity and Water Authority utility bills for three months from April 2020. Ministers also put forward various relaxation policies, for a period of three months from April 2020, including exemption of municipal fees for all individuals and businesses, exemption of industrial land rental fees for all businesses and exemption of tourism levies for tourism-related industries.
As part of the national efforts, the Labour Market Regulatory Authority has announced the termination of monthly work fees and fees for issuing and renewing work permits for three months with effect from 1 April 2020.
For businesses, the UK government is offering income support for self-employed individuals for up to £2,500 a month. Businesses that are severely affected can also claim 80% of furloughed employees' monthly wage costs up to £2,500 a month, plus insurance and pension contributions. Retail, hospitality and leisure businesses in England can take advantage of cash grants and a business rates holiday for the 2020 to 2021 tax year. The Coronavirus Business Interruption Loan Scheme enables small businesses to borrow up to £5 million with the benefit of initial government financial support and a government guarantee of 80%. Large businesses are able to borrow up to £25 million with a government guarantee of 80%.
For consumers, FCA introduced temporary relief related to overdraft, credit cards, and personal loans. Under the overdraft rules that came into force on 6 April, firms can only charge a single annual interest rate for arranged and unarranged overdrafts, which reduces the cost of unarranged borrowing. Further, consumers with an existing arranged overdraft who have been impacted by coronavirus and require additional financial support will be able to request from their provider a sum of up to £500 at 0% for up to three months. Customers without an overdraft facility are able to request this facility. The FCA requested that firms should make sure that all customers are “no worse off” due to the changes of the overdraft rules, meaning some customers may revert to lower interest.
FCA also sanctioned a three-month payment freeze, or a nominal payment, on credit cards, store cards, catalogue credit and personal loans. However, firms are entitled to charge a reasonable rate of interest where a customer requests a temporary payment freeze. The FCA appealed to providers of consumer credit products to ensure that consumer credit ratings are unaffected by any of the measures.
The emergency legislation Coronavirus Act 2020 provides mechanisms designed to alleviate financial pressure faced by renters in social and private accommodation. Under this Act, most landlords will not be able to start possession proceedings unless they have given their tenants three months’ notice. The court service has also temporarily suspended all ongoing housing possession action – this means that no cases can progress to the stage where an eviction can take place.
In February, the Malaysian government announced its Economic Stimulus Package, which was supplemented by additional measures in March.
To support Malaysian citizens, persons in household of which the monthly income falls below a certain threshold, students of higher education institutions, taxi drivers, civil servants and government pensioners, as well as employees who are required to go on unpaid leave are entitled to a one-off cash assistance over the period of April and May, with the amount dependent on their circumstance.
To ease the cash flow of for individuals and SMEs, banking institutions will offer a deferment of loan/financing repayments, applicable to performing loans denominated in Malaysian Ringgit that have not been in arrears for more than 90 days, for 6 months with effect from 1 April 2020. The deferment for individuals and SMEs is automatically implemented by financial institutions. Corporate borrowers may make a similar deferment request from their banks. SMEs also benefit from financing assistance in the form of an RM2billion Special Relief facility by Bank Negara Malaysia at a 3.75% interest rate.
Other than encouraging domestic economic growth, the Economic Stimulus Package also reiterates commitments aimed at promoting investments including accelerated capital allowance for machinery and equipment, tax deduction on renovation and refurbishment costs and tax exemptions on machinery and equipment for port operators.
In these unprecedented times, government authorities worldwide have fast-tracked protective measures to support individuals and business. Implementation of these measures will in turn transfer the burden to financial institutions. Apart from freeing up capital buffers to boost lending capacity, it is expected that banks and financing companies will need to restructure their loans to ensure that facility agreements survive the immediate pandemic and remain enforceable.