Central bank details key debt relief measures to ease coronavirus hit

Credit relief package includes debt restructuring measures aimed at easing impact on businesses and households

Workers on a construction project

The Bank of Uganda said that its package of measures to ease the economic impact of the Covid-19 coronavirus pandemic on the private sector, including households, will be effective for one year, starting 1 April.

The measures include the opportunity to pause loan repayments, the chance to extend maturity dates of loans, and other forms of debt restructuring set out by the law. It has also suspended the prepayment of loan arrears as a condition for debt restructuring.

The credit relief package is aimed at ensuring that financial institutions can continue lending during the pandemic and mitigating the adverse effects of the coronavirus on businesses and economic activity.

It was initially announced on 20 March, before Uganda confirmed its first positive coronavirus case, as the impact of the global pandemic on economic activity became more pronounced. The bank announced later expanded the measures while announcing its interest rate cut on 6 April.

In addition to reducing interest rates to their lowest ever levels — the CBR was cut to 8% — BoU suspended dividend payments and bonus payments by financial institutions for 90 days starting March, and offered “exceptional liquidity assistance” to distressed banks for up to a year.

The central bank added that it is expanding how long commercial banks can borrow from it through reverse repos, and announced a plan to purchase government securities held by microfinance deposit-taking institutions and credit institutions.

The measures announced today, in a statement signed by Adam Mugume, the bank’s director for research, set out the actions lenders supervised by BoU can undertake to help meet the needs of customers affected by the coronavirus. But they also include a number of caveats.

These debt relief measures “shall only be granted within the 12-month period with effect from 1 April, 2020,” said the statement. Granting debt relief is also at the sole discretion of lenders, the bank said.

In addition, a borrower’s credit status at the time they are granted a repayment holiday will remain unchanged for the duration of the deferment.

The bank said it “stands ready to issue additional measures as risks from the Covid-19 pandemic evolve.”