Eight Loan Restructuring Measures Extended to Mitigate the Impact of the Pandemic
Phase IV of the monetary measures will support eight different forms of loan restructuring options depending on the severity of the impact of the pandemic and the affordability of borrowers.
Measures include deferral of loan repayment, partial loan repayment, extension of term loan maturity period, change in repayment frequency, conversion of overdraft or working capital facility to term loan, splitting of loans, transfer of loans to a third party and extension of the gestation period.
The Royal Monetary Authority (RMA) on Thursday issued standard operating procedures (SOPs) of monetary measures to financial service providers (FSPs) which allow them one or more loan restructuring measures depending on the classification of risks and the affordability of borrowers.
Sectors have been categorized as high, medium and low risk.
Hotels and restaurants, both standard and budget, are categorized in the high-risk sector, would benefit from a loan repayment deferral of up to two years and a partial loan repayment option of 50% in installments up to two years.
Similarly, loan terms for hotels and restaurants under construction would be extended from 20 to 30 years, excluding the gestation period for existing and new loans.
In moderate risk sectors, construction (based on contracts), hospitality, entertainment and recreational services, mining and quarrying, manufacturing, crafts and textile production, trade (retail) , housing (commercial), home loans, personal loans (consumer and mortgage), transportation (commercial and non-commercial) and education loan would get a loan deferral of up to one year. These sectors would also have the option of partially repaying 50% of installments for up to one year.
High and moderate risk sectors can extend the maturity period of loan conditions up to three years in addition to the deferment period. This will allow a reduction in the amount of payments by spreading the repayments.
The support measures also allow sectors to change their repayment frequency to monthly, quarterly or semi-annually.
Sectors are also eligible to convert the overdraft working capital facility into term loans, which will allow borrowers to make payment in accordance with the agreed repayment schedule.
Additionally, loans can be split into multiple accounts to reduce equivalent monthly payments and can be used with other loan restructuring facilities such as repayment deferral or partial repayments.
Loans can also be transferred to a third party to an independent party wishing to purchase collateral.
For projects under construction, the gestation period can be extended up to two years depending on the progress of the project.
Meanwhile, low-risk sectors such as institutional or educational services, ICT, contracts (excluding construction), consulting services, health services and traditional medicines, wood-based products, energy renewables, hydropower, traditional and herbal medicines, (wholesale) trade, food crops, livestock, agro-industry, forestry, fixed deposit lending and others are eligible for extension from the gestation period up to two years depending on the progress of the project.
Interest accrued on deferred or partially repaid loans for the period from Phase I to Phase IV would be converted into a Fixed Equivalent Installment Facility (FEIF) account.
FEIF accounts are created for the transfer of accrued interest during the deferral period. Borrowers would be required to pay the amount in the FEIF account in equal installments over a period of up to five years.
Similarly, for flexible working loans ending the deferral or gestation period on June 30 this year, the FEIF would be open for transfer of accrued interest and commencement of repayment without interest charges.
However, the RMA said a separate guideline would be issued on the accounting treatment and other prudential requirements related to FEIF accounts.
According to the RMA, loans outstanding in the month of June with ongoing repayments are eligible for support.
However, loans to the State, loans to financial institutions, incentive loans and credit cards for staff, working capital or flexible working capital or bridging loans granted under the previous monetary measures, FEIF accounts and non-performing loans (NPLs), including suspended loans, subject to litigation or pending asset seizure are not eligible for the latest monetary measures.
The SOP states that NPLs would be resolved through the NPL resolution framework. The framework aims to support and rehabilitate viable PNPs through loan restructuring measures while resolving non-viable loans through various means of foreclosure such as in-court or out-of-court settlements.
“Extending the relief measures to NPLs without careful consideration would only temporarily postpone the issues without necessarily addressing the underlying issues. And in the process, borrowers are often burdened with mounting debt, which causes social problems,” the SOP said.
Currently, FSPs are in the process of developing their specific internal SOP for implementation.