By Hope Ekudu
As the COVID-19 pandemic evolves globally, disruptions in organisational operations, business and the social-economic status quo remain evident across different countries, organisations and entities. This has seen a number innovations by different organisations to offer solutions that meet their customers’ needs.
One of the solutions has been the restructuring of credit facilities by financial institutions. While a good number know what this stands for, other individuals may have a few questions in the same regard.
Housing Finance Bank’s Head Business and Institutional Banking, Ms. Hope Ekudu, takes time to answer some of the top 10 questions on loan restructuring:
- What does restructuring mean?
At times, customers may face difficulties in paying back their loans. When this occurs, the Bank and customer may agree to change the loan installment amount, length of the loan (tenure) and any other parameters. This is called restructuring the loan.
2. What does a moratorium or holiday mean?
A moratorium or holiday means that a customer is given a grace period during which their payments for loan principal or interest or both are pushed until a later date.
For example, if a loan holiday for principal payments is granted for three months, the customer will pay only interest for each of those three months however after the end of the holiday, they will start paying back both the interest and principal amount until the entire loan is completed including the principal amount for the three months.
If a loan holiday for principal and interest is granted for three months, the customer will not pay any installment for those three months however after the end of the holiday, they will start paying back both the interest and principal amount until the entire loan amount is completed including the amounts for the three month holiday.
This DOES NOT mean that the Bank has waived payment or that the customer will not ever pay the principal and or installment amount. It means that payment has been delayed but must be paid at a later agreed date or time.
3. What is the impact of a restructure or holiday?
If a customer is granted a holiday for example for three months, they will not pay their installment for those months however at the end of the three months, the delayed installments (including interest) will be added back to their loans and installments will start again. This will mean that there may be a slight change in the installment amount paid. The loan will also be extended by the period of the holiday.
If a customer’s loan is restructured then the installment amount and or the loan tenure will change according to the terms agreed between the customer and the Bank.
For the holiday and restructure period, the interest rate terms will remain the same as the original loan amount.
All loan information is submitted to the Credit Reference Bureau and customers are rated according to performance on their loan obligations. Normally a restructure would affect the customer’s credit rating negatively however for this period that is between April 1, 2020 and April 1, 2021, if a restructure or moratorium is granted, the customer’s records within the credit reference bureau will not be affected in line with guidance from Bank of Uganda.
4. Who is eligible for a restructure or holiday?
All customers who have been affected by the #Covid-19 Pandemic are eligible for restructures and holidays on a case by case basis. The Bank understands that customers may have been affected differently by this crisis and may have unique needs. In some cases, customers may actually want to pay back their loans early so as to remove this ‘burden’ on their revenues. It is therefore necessary to consider the impact of the virus and government restrictions such as the lockdown on each business before applying for a holiday or restructure.
5. How does one apply for a restructure or holiday?
The Bank is reaching out to various employers to establish the impact of the pandemic and agree on relief packages for their staff who have borrowed under a scheme arrangement.
Individual or personal customers can proactively reach out for support by sending a request for a restructure or holiday to the Bank specifying the impact of the virus on their ability to continue payment and attach evidence such as an E-mail or Letter clearly stating the impact of #COVID-19 as the reason for unpaid leave, termination or redundancy. These requests can be sent directly to firstname.lastname@example.org or email@example.com
Business loan customers should complete the request for restructure form available on our website and submit the same through their branch or directly to firstname.lastname@example.org
In terms of documentation, business customers should
- Provide management accounts for quarter 1 that will provide a view of their performance before #COVID-19.
2. Provide documentation that shows the impact of #COVID 19 on their business for example notices ( can be emails/letters ) of cancelled contracts, closures of their business, cancelled or delayed orders from/to suppliers, public notices that affected their ability to work or carry out business during the lockdown.
6. Which options are available in terms of length of holiday or postponement of payments?
Depending on the impact of the crisis, a customer may apply for a repayment holiday between 1 to 12 months effective April 1, 2020. It is necessary to do a proper analysis of the business to determine the best period for the holiday taking into account the need to show that there will be a sustainable source of income after the holiday period.
7. Are there fees involved for a restructure or holiday?
Normally yes but due to these unique circumstances, Bank fees have been waived for these restructures and holidays however third party fees such as stamp duty and legal fees will have to be paid.
8. From the guidelines and communications, a customer must prove the impact of COVID on their business. How do they show that?
Individual or personal customers can provide proof of impact by sharing communication from their employer such as an E-mail or Letter clearly stating the impact of #COVID-19 as the reason for unpaid leave, termination or redundancy.
Business customers should provide management accounts for quarter 1, 2020 that will provide a view of their performance before #COVID-19. In order to show the impact, there is need to show through a narrative or documentation e.g notices of cancelled contracts, closures of their business, cancelled orders, inability to work during the lock down etc.
The Bank will consider various public notifications from various ministries as well.
9. How long will it take for the customer to receive feedback?
The process of evaluation and approval will take an average of one week. After this, the customer will need to agree to the new terms before changes are complete
- Can a customer still get a new loan after a restructure or during the holiday period?
Customers can approach the Bank to request for new loans after a restructure or holiday and the Bank shall consider the unique circumstances before any final decisions are made.
The writer is Head Business and Institutional Banking
Housing Finance Bank