Credit Relief: BoU Suspends Requirement to Pay Arrears as Condition for Loan Restructuring

Bank of Uganda headquarters in Kampala.

The Bank of Uganda has issued guidelines that will guide the implementation of credit relief and loan restructuring for bank customers affected by the ongoing coronavirus pandemic.

The circular provides guidelines to operationalize the credit relief and loan restructuring measures announced in the Monetary Policy Statement of April.

The guidelines took effect on April 1 and will last 12 months and shall only be applicable to credit facilities not classified as loss as at March 31. BOU says the guidelines are not applicable to any credit facility granted after April 1.

They (guidelines) are directed at all supervised financial institutions within the regulatory jurisdiction of Bank of Uganda.

“In the 12 month period with effect from April 1, a maximum of 2 restructurings is allowed for any credit facility irrespective of the number of times it has been restructured in the past,” the BoU guidelines state.

An institution may on application request for further restructuring during the designated period. A repayment moratorium is just one of many allowable types of restructuring.

Payment of arrears as a pre-condition for restructuring is temporarily suspended during this 12-month period. However, the Central Bank says financial institutions are allowed to capitalize and recover these unpaid arrears less any associated penal interest or fees as part of the credit facility restructuring.

A borrower whose credit facility benefits from a restructuring in this 12 months period, may be liable for only the legal fes and stamp duty associated with the restructuring. The institution must ensure and will be required to demonstrate that the associated legal fees are reasonable if charged.

“The event of restructuring of a credit facility arising from the direct or indirect impact of the Covid-19 pandemic, shall not be treated as an adverse change in the credit risk profile of the borrower nor shall it be reported to a credit Reference Bureau (CRB)”.

Financial institutions shall be required to assess the potential unlikeliness to pay off borrowers subject to any form of restructuring in accordance with the policies and practices that they usually apply to such assessments. The responsibility of evaluating and deciding appropriate restructuring of credit facilities during this pandemic, lies with the respective institution.

BOU says consumer protection remains a regulatory priority and the banks shall ensure full disclosure and act in the interest of customers, with no hidden charges. There shall be no automatic adverse impact on a customer’s credit ratings per status arising from the event of being granted any restructuring during the 12 month period.

“A borrow must consent and proof thereof be obtained by their bank, for any restructuring offer by the latter to the former,” the guidelines adds.

The guidelines allow borrowers to request their banks for a restructuring if they qualify. However it is allowed for banks to make unsolicited offers for a restructuring t their customers during the 12 months period.

Banks intending to provide credit relief under these guidelines must have in place a policy for the implementation of the said guidelines. In addition, banks are individually responsible for the decision on whether or not to extend the credit reliefs mentioned herein to the customers and similarly for compliance with these guidelines.

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