Cambodia: New directive on loan restructuring during COVID-19 outbreak
On March 27, 2020, the National Bank of Cambodia (NBC) issued a guideline for all banks and inst …
On March 27, 2020, the National Bank of Cambodia (NBC) issued a directive for all banks and financial institutions to restructure lending in order to maintain financial stability, support economic activity and alleviate debt. Burden on Debtors Facing Declines in Income It is difficult to repay loans during the ongoing COVID-19 outbreak.
This directive requires banks and financial institutions to establish a policy and procedure on loan restructurings in the context of the COVID-19 epidemic, and to have it approved by the board of directors. Banks and financial institutions should also pay particular attention to customers, with particular attention paid to customers engaged in the following sectors:
- Tourism (hotels, guesthouses, restaurants and support services for these industries)
- Clothing (including employees of garment factories)
- Construction (only for the first housing or commercial construction loans and the first housing loans)
- Transport (especially taxi and tuk-tuk drivers) and logistics
The directive recommends that banks and financial institutions check that:
- clients experience financial difficulties before restructuring their loans;
- loans will be restructured if a customer’s interest or principal payments are no more than 90 days past due (that is, they are still a performing loan); and
- that the client expects this period of financial hardship to be only temporary.
When restructuring a loan, banks and financial institutions can:
- reduce the principal amount of the loan or the amount of the loan repayment in fine;
- interest rates lower than the initial contract rate;
- extend the period for payment of principal, interest or capitalization of interest;
- extend the repayment period of a loan in fine;
- add or change creditors or guarantors, as the case may be;
- converting the loan repayment in installments into a single interest repayment and a final repayment for the full amount of the loan principal;
- waive or reduce guarantees;
- reduce the terms of the contract; or
- provide for a grace period for non-repayment of up to six months from the date of entry into force of the new contract.
Banks and financial institutions are also required to closely monitor restructured loans and provide monthly reports to the BNC. Reports should include the following information:
- type of loan
- purpose of the loan
- gross loan amount
- loan repayments in fine
- Favorable conditions
- classification of loans
- date of restructured loan
- loan status (performing, non-performing or multiple restructuring)
The directive further requires that loan restructurings be carried out by a team separate from the service in charge of processing the loan. The team should regularly review client loan portfolios and their impact on clients’ financial position.
For more information on your loan portfolio compliance obligations, loan restructuring or any other aspect of banking and financial law in Cambodia, please contact Tilleke & Gibbins at [email protected]
This article was first published HERE.