Bank of Uganda Empowers Financial Institutions on 3rd Restructure for Credit Facilities

Bank of Uganda has approved requests by financial institutions and empowered them on a 3^rd restructure for credit facilities to customers who have been impacted by Covid-19

In a circular by Governor Emmanuel Tumusiime Mutebile to chief executives of Commercial banks, Credit facilities, Microfinance Deposit-taking Institutions, the Central Bank states:

“Reference is made to the Guidelines on Credit Relief and loan restructuring measures issued vied circular dated 14^th April 2020 Ref: DGV 121. Particular attention is drawn to the General Provision Section 1(a) second sentence that states as follows; Any SFI, may on application to BoU, request for further restructuring(s) during the credit relief period. Since March 2021, BoU has received several applications from SFIs seeking BoU’s no objection to grant 3^rd restructures to some of their customers, the Central bank says, adding that each individual institution is allowed to handle their customers for a 3^rd restructure under their credit relief guidelines.

“After careful review of the processes, procedures and risks associated with reviewing and approving additional requests, Bank of Uganda has decided to grant delegated authority to individual Supervised Financial Institutions (SFIs) to handle their customers,” Mutebile states in the circular.

Subsequently, the Bank amends General Provision Part 1(a) of the Credit Relief Guidelines issued on 14^th April 2020 vied circular dated 14^th April 2020 Ref: DGV 121 and subsequently extended in February 2021 as follows:

• The maximum numbers of allowable structures under the Credit Relief guidelines in the period between 1^st April 2020 and 30^th September 2021 is capped at three (03)
• Each SFIs shall, in accordance with its risk management policies or frameworks, review and approve or decline any application for 3^rd restructure from its customers
• Any 3^rd restructure approved by any SFIs must STRICTLY be in response to exceptional circumstances faced by a borrower.  The decision to grant a 3^rd restructure SHALL be informed by a forward looking prudential risk assessment and analysis of the benefiting borrower and granted to borrowers whose financial condition remains viable. As such, SFIs should prudently and proactively provision any borrowers who have benefited or will benefit from loan restructuring but whose financial condition remains depressed;
• The exceptional circumstances together with rationale supporting the grant of a third restructure by any SFI under the Credit Relief measures SHALL be properly documented, maintained and readily available for review by BOU.

“As part of its normal supervisory processes and activities, Bank of Uganda shall implement targeted and adhoc assessments on the efficacy of the Credit Relief Measures and compliance to the Credit Relief Measures by SFIs.

Credit Relief Measures

The allowable credit relief measures and terms issued on April 14^th 2020 included:-

1. Repayment holidays for a maximum of 12 months, loan tenor extensions, and any other forms of debt restructuring covered in existing Regulations.
2. These credit reliefs shall only be granted within the 12 month period with effect from April 01, 2020.
3. Consumer protection remains paramount, and any credit relief(s) offered must be in the best interest of customers, and with full disclosure.
4. 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).
5. Borrowers are encouraged to request, and SFIs may offer, credit relief. In either case, the borrower must consent to any credit relief granted.
6. The credit status at the time of granting a repayment holiday shall remain unchanged for the duration of the said repayment holiday.
7. The prepayment of arrears as a condition for restructuring a credit facility is suspended for 12 months with effect from April 01, 2020.