Borrowers can now breathe a sigh of relief after Bank of Uganda (BOU) passed guidelines for commercial banks to extend credit relief to their borrowers who have been affected by the on-going corona-virus pandemic. The move by the central bank is also aimed at minimising the adverse effects of the pandemic on the stability of the financial sector, thus ensuring that banking institutions continue to function smoothly during this pandemic period.
In a statement released on Friday 17th April 2020, BOU stated that all supervised financial institutions – commercial banks, credit institutions, and microfinance deposit-taking institutions – were encouraged to offer qualifying customers options to ease their debt burden. Therefore, banking institutions will now be allowed to offer their customers exceptional credit relief for a period of up to one year with effect from 1st April 2020, although the decision to approve or decline applications for this relief is at the discretion of the banks. Furthermore, lenders will consider only those loan facilities that were extended before 31st March 2020. Nonetheless, borrowers are still encouraged to apply for the relief programs being run by their banks.
So, as a borrower whose ability to make repayments to your loan may have been severely affected by the corona-virus pandemic, here are the key things you need to know as you approach your banker for assistance:
(i) The options for relief to be expected from your lender may include but are not limited to a repayment holiday of up to one year, an extension of your loan repayment period, and reduced interest rates on your existing loans.
(ii) All borrowers MUST explicitly consent to any credit relief provided to them, whatever the form or nature of this relief.
(iii) Borrowers will not be required to clear the arrears on their loans as a precondition for the loan to be restructured by their bank.
(iv) Under no circumstances shall a customer benefiting from the credit relief be compelled to make higher repayment instalments on their credit facility, than what was being paid prior to the credit relief, unless the customer agrees to pay higher instalments or decides to settle the credit facility earlier.
(v) Borrowers, whose facilities are restructured during the 12-month period, shall only be liable for stamp duty and any legal fees thereof. All other costs and fees associated with this credit relief program during the 12-month period shall not and cannot be passed on to borrowers. No penalty interest or fees shall be charged, accrued and/or earned on any existing credit facilities in the next 12 months
(vi) The restructuring of credit facilities adversely affected by the COVID-19 pandemic during the 12-month period shall not be treated as an adverse change in the credit risk profile of the borrower and shall not be reported to the Credit Reference Bureau (CRB).
(vii) The borrower’s credit status at the time of granting a repayment holiday shall remain unchanged for the duration of the said repayment holiday.
Bank of Uganda advised that, above all, consumer protection remains paramount, and that any credit relief offered must be in the best interest of customers and with full disclosure.
More details on the guidelines issued by Bank of Uganda can be found HERE on their website.