Loan Moratorium Announcements and Stock Market Reaction: An Event Study Analysis

Abstract

Loan moratoriums have been a crucial lifeline defence for many borrowers during the unprecedented COVID-19 pandemic. Despite the massive amount of funds allocated to support affected borrowers, the impact on banks remains unexplored. This study aims to examine the impact of the loan moratorium announcements on Malaysian banks' stocks.Utilising an event study methodology, this study shows that bank investors reacted differently to different types of loan moratoriums. Bank investors positively valued moratoriums that did not waive accrued interest and covered a broader group of borrowers. This study suggests that while moratoriums must be given to borrowers during difficult times, the financial interests of banks should also be considered. Hence, loan moratoriums should feature accrued interest payments to ensure the banks' prospects remain stable from the investors' perspective.

The Role of Islamic Microfinance Institution in Women Micro-Entrepreneurs Sustainability during Covid-19 in Johor

“…To alleviate the financial burden of Malaysians, Bank Negara Malaysia has implemented a six-month automatic moratorium on all bank loans starting from April to September 2020 (Baharudin et al, 2021). In the financial industry, a moratorium is defined as a temporary delay or suspension of a particular activity or law (Johari, 2022). During the moratorium period, individuals and small to medium-sized entrepreneurs will be granted automatic moratorium on all repayments for their loans and financing, with the exception of credit card balances (Muhamad et al, 2022).…”