In an effort to ease the burden on citizens during COVID-19, President Dr Irfaan Ali has announced that his Government has reached agreements with the local banking sector to extend the moratorium on loan payments until this yearend, and to cut interest rates.
President Dr Irfaan Ali
President Ali made this announcement during an Address to the Nation on Wednesday, when he announced lowered interest rates and an extension of the moratorium on loan payments to help citizens during this pandemic.
This means that customers with mortgages and other loans will be spared the financial burden of servicing these loans during the pandemic. In addition, their loans will not be classified as non-performing, ensuring that they do not default.
“Commercial banks agreed to offer general concessional reductions of interest rates of one per cent and up to two per cent on customer loans below $10 Million until December 30, 2020. The existing lending rate ranges between 6.5 per cent and 16 per cent. Some commercial banks have agreed to apply special treatment to the interest accrued during the moratorium period,” he explained.
“Commercial banks have agreed to waive all bank charges, including ATM and Merchant Bank charges to encourage more out-of-bank transactions, as well as charges for transactions by senior citizens,” he said, adding that these measures will not impact the soundness of the banking sector.
Ali also announced that the Bank of Guyana will relax certain requirements that would allow Banks to cushion their losses and increase liquidity by $9.4 billion. These requirements are set out in the 13 guidelines that the Bank uses to regulate financial institutions.
The Bank of Guyana
He pointed out that the Bank of Guyana would relax sections 14 and 15 of the supervision guidelines, number five until December 2020. “Additionally, a waiver is being given to section 13 of supervision guideline number five. The relaxation of stringent statutory measures is intended to result in direct benefits for customers to banks, by giving the financial institutions the ability to operate with more flexibility.”
Section 13 states that “the hardcore of an overdraft facility shall be converted into a term loan, which specifies a fixed repayment programme. To facilitate review of overdraft facilities, a licensed financial institution shall maintain an analysis sheet for each account, showing monthly balances and a summary of movements, indicating the total amount and number of deposits and withdrawals, and the accruals and repayments of interest charges.”
Section 14 of supervisory guideline number five speaks to a renegotiated loan, which has been refinanced or rescheduled because of a borrower’s inability to repay. Among the stipulations in the section is that a commercial loan cannot be renegotiated more than twice over the life of the original loan, and that a mortgage cannot be renegotiated more than twice in five years.
Meanwhile, section 15 stipulates that an account shall be written off three months after it is classified as a loss, unless there is a significant improvement which shows that there can be a recovery within the next six months. It also sets out that a record of bad debts must be kept for monitoring purposes.
The President also announced that commercial banks agreed to continue supporting businesses with short-term capital needs. This will allow the businesses to meet payroll, remain open, and keep their staff employed during the tough economic times accompanying COVID-19.
It is also something the private sector had called for, since COVID-19 had resulted in reduced demand for certain goods and services.
Moreover, he announced that the Government is securing US$60M to fund various aspects of its response to COVID-19. The money is being sourced from the World Bank, OPEC Fund for International Development (OFID), Inter-American Development Bank (IDB), and the Islamic Development Bank. (G3)
