Interest on loans will still count during payment holiday – BOU

Kampala, Uganda |  THE INDEPENDENT |  Bank of Uganda has explained that interest on loans will still count even when you have been granted a loan payment holiday during the restructuring in the coronavirus crisis.

Speaking through a webinar with the Rotary Club of Kampala South on Monday evening, Dr Tumubwine Twinemanzi, the BOU executive director for supervision, said banks have to earn interest on that money they lent out even when payments are frozen during the coronavirus crisis.

He said, “borrowers will have to pay all the accrued interest but can be stretched for the remaining period of the loan.” This period starts after the holiday period the bank gave you. Twinemanzi argued that there are people who deposited their money in banks – which is in turn lent out – and expect to earn interest on it.

Last month, the Central Bank announced that banks can restructure loans to help borrowers go through the COVID-19 crisis. This means a borrower can be given a time when they don’t have to make payments until when their businesses are working again. 

However, this is still at the banks’ discretion – they can choose to give you a holiday or not. Twinemanzi said they left the banks to choose who to give a holiday because “it’s the bank that know you as their customer.”

“As BOU, our only visibility is to look at documents. Banks go to the field. We said “go ahead and do the accommodation but must do due diligence. Remember you’re lending other people’s money. That’s why we didn’t make it mandatory that banks must give everyone a holiday,” he said.

With businesses closed and jobs lost due to coronavirus crisis, it is expected that banks will suffer increased defaults and losses on the loans they gave out.

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