As a way of mitigating the disastrous effects of the Coronavirus (COVID-19) lockdown on the economy and several business ventures, the Bank of Uganda has directed all commercial banks and supervised financial institutions to suspend repayment of loans for 12 months.
The Central Bank announced credit relief measures to help mitigate the adverse effects of the COVID-19 pandemic on the economy, only two days after a three-week lockdown extension was announced by President Yoweri Museveni took effect.
In a statement issued by Acting Bank of Uganda (BoU) Deputy Governor Dr Adam Mugume, the Central Bank said all loan repayments would be extended for a period of 12 months as a way of “ensuring financial sector stability, and facilitating the financial intermediation process during this pandemic period.”
The measures include repayment holidays for a maximum of 12 months, loan tenor extensions, and any other forms of debt restructuring covered in existing regulations, read the statement in part.
“These credit reliefs shall only be granted within the 12-month period with effect from April 01, 2020,” said Dr Mugume.
However, he warned that the BoU guidelines to the commercial banks, credit institutions, and Microfinance Deposit Taking Institutions (MDIs) it has licensed and supervises “do not eliminate the debtor’s obligation to repay borrowed funds.”
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Borrowers with loans are now expected to write to the banks asking for a loan repayment extension. The banks reserve the right to deny or grant a loan reschedule request. But BoU doesn’t expect commercial banks to decline requests on the basis of one’s failure to clear loan arrears.
“The decision to offer a credit relief to a customer or decline a request for a credit relief from a customer is the responsibility of the Supervised Financial Institution (SFI). Borrowers are encouraged to request, and SFIs may offer, credit relief. In either case, the borrower must consent to any credit relief granted,” guided BoU.
“The prepayment of arrears as a condition for restructuring a credit facility is suspended for 12 months with effect from April 01, 2020. Consumer protection remains paramount, and any credit relief(s) offered must be in the best interest of customers, and with full disclosure.”
But financial experts have warned that Dr Mugume’s guidelines may not help since banks have kept powers to decide who gets an extension or not.
They hope that the Central Bank will swiftly revise this. For now, Dr Mugume concluded, “the application of these credit relief measures shall be monitored, and BoU stands ready to issue additional measures as risks from the COVID-19 pandemic evolve