Restructuring loans: Who will benefit?

Repayment holidays: Banks have offered repayment windows of between three to 12 months based on a case-by-case basis. FILE PHOTO  

By Christine Kasemiire

Certainly, there has been a lot of activity around the banking sector. Several statements have been
released, all pointing to plans to restructure loans.

On March 30, President Museveni, without going into details, said government would engage banks to restructure loan repayments because of constraints brought about by the lockdown.

In the same measure, the President yesterday stressed this further, saying: “We are going to discuss with the banks on how to help people with the loans. Not to pay the loans for them, because we don’t have that type of money. But I cannot support that banks confiscate their property. There should be a way of stretching out the time ...”

And as such, financial institutions, under the guidance of Bank of Uganda, have since last week, announced restructuring plans of loans on a “case-by-case basis”.

Stanbic, and other banks, have specifically offered loan holidays to customers, who have or will be impacted by Covid-19 effective April 1.

“For our corporate clients, we are engaging them to understand their needs and find appropriate solutions to ensure their business sustainability. In addition, our Small and Medium Enterprise customers whose incomes have been impacted ... can now apply for a payment holiday of up to 90 days,” Mr Anne Juuko, the Stanbic chief executive, said in a statement.

Equally, in a statement released yesterday, Mr Mumba Kalifungwa, the Absa managing director, indicated the bank had rolled out an extensive payment relief programme for customers directly or indirectly impacted.

“... currently some of the sectors that have been adversely impacted include hotels and restaurants, tourism and hospitality, wholesale and retail trade, transport and logistics among others ... customers will be offered payment holidays of up to six months with needs being determined on a case-by-case basis,” he said.

Of course, the holiday periods vary from bank-to-banks and it will be on the prerogative of the bank to consider who qualifies for the relief.

Who will benefit?
In an interview, Mr Wilbrod Owor, the Uganda Bankers Association executive director, said while certain sectors will be analysed, all loans across the board will be considered.

“People borrow on different terms, different loan structures and purposes. The first point of analysis, I think are the sectors, some sectors may be hit more than the others,” he said.

A number of sectors, such as tourism, hotel and hospitality and manufacturing, among others, have been affected by the lockdown and some banks, such as Absa, have indicated they will consider these as priority.

However, Mr Owor said, not all businesses, especially those that have not experienced cash flow problems, will be considered in the immediate term, noting the restructuring will either be in terms of a payment holiday or not categorising a loan as non-performing.

“When we categorise it as non-performing, it means we switch on certain recovery measures, which we may suspend for the time being maybe for three-or-four months. There are different combinations that we are working out with Bank of Uganda,” he said.

How long is the payment holiday
While the Central Bank has set a window for loan restructurings to at least 12 months, banks have set different periods.

For instance, while Stanbic’s holiday is spread through a three month window, Absa has offered up to six months while other banks are looking at four or more months.

However, according to Mr Owor, UBA has given guidelines depending on different sectors and performance with focus on how a customer has been repaying.

“In terms of considerations, these will vary from bank-to-bank and customer-to-customer,” he said.

Liquidity assurance
Banking is a sector that rides on customer deposits, which have been dealt a major blow during the Covid-19 period.

It is those same deposits that banks use to lend to customers with the hope of earning interest. To cushion banks from the effects of Covid-19, BoU suspended payment of dividends and bonuses.

“Capital reservation to support the real economy and absorbed losses should take priority over discretionary distributions like dividend [and] bonus payments. Therefore, all payments of discretionary distributions are deferred until further notice,” wrote Dr Tumubweine.
Twinemanzi, the BoU director supervision, in a March 24 circular. In addition to this, according to Mr Owor, other measures have been put in place to offset the imbalance that would arise from loans restructuring. “There are lines of emergency lending. We also agreed through BoU that government clears arrears to bring about more liquidity,” he said.

Private sector wants banks to prioritise landlords
Meanwhile, the private sector, under Private Sector Foundation Uganda and Kampala City Traders Association, has asked banks to consider landlords as a priority that should benefit from the current arrangement of loan restructuring.

This, they say, will allow landlords, many of who are servicing a number of obligations, key among them loans, to relax rent payments to a cross-section of tenants, whom are currently not working.

Speaking in an interview yesterday, Mr Gideon Badagawa, the PSFU executive eirector, told Daily Monitor that there must be a holistic arrangement that will lift pressure off landlords from meeting a number of obligations including loans.

“We need to look at all the sides to help each other. Real estate is facing challenges of loans. They have to service loans … banks should consider them under the loans restructuring plan as a priority,” he said, noting that this is one of the ways through which landlords will be able to relax rent payment.

While addressing the country recently, President Museveni cautioned landlords not to evict tenants until when business gets back to normal.

“Why should you evict people who are not working? You will get your money when people start to work. Uganda is not going anywhere,” he said.

However, landlords have questioned the measure, wondering how they will relax rent payments yet they have a number of obligations, key among them loans.

Last week, landlords under Kampala City Traders Association, asked government to think of putting in place holistic guidelines that would lift pressure off them thus relax rent payment.

“There is no clear directive to these commercial banks on the existing loan portfolios, which would then guide the landlords and other stakeholders, especially creditors on how to handle such situations,” Mr Isa Sekito, the Kacita spokesman, said last week, noting, landlords had not been left with any option but to transfer the same pressure to tenants.

Additional reporting by Ashita Chopra