On June 19, 2020, the Nicaraguan Superintendence of Banks and Other Financial Institutions (“SIBOIF”) published a new regulation that allows an extension of payment terms and the modification of other credit conditions of credit agreements entered as of March 31, 2020. This new regulation was approved as a result of the negative effects of the international health emergency caused by the spread of Covid19.
This regulation allows that new credit terms are negotiated regarding credit card debtors, vehicle loans, personal loans, mortgage loans, micro loans, SMEs, agricultural, livestock, industrial and commercial loans, which as of March 31, 2020 are classified as A or B and which are registered as current, extended or restructured loans. The application for the negotiation with the respective financial institution may be submitted until December 31, 2020.
Additionally, in the case of credit cards, the cardholder may negotiate the balances of such card through a personal credit with more beneficial conditions.
Some of the benefits of this regulation are the following:
- The credits will maintain the accounting and risk classification they had as of March 31, 2020.
- No commissions will be applied to the modification of credits, except for legal, notary and registry expenses, among other payments to third parties.
- An update of the appraisal will not be required (if applicable).
A relevant aspect of the new regulation is the grace period that may be granted initially for up to 6 months, applied to principal and interest payments, which may be redistributed in 3 different ways: in the remaining term of the credit, in a different term or through a lump sum payment at the end of the original term of the credit (balloon payment). These alternatives will allow the debtor to negotiate the terms of the modifications to the original contract.
The regulation establishes certain requirements and restrictions regarding the modifications that can be requested, which are the following:
- May only apply for credits granted before March 31, 2020.}
- It will possible to benefit the debtor only once.
- The rule shall not apply to those credits in which there is evidence of diversion of funds and/or guarantees for other activities that were not the purpose of the credit.
- Temporary credit conditions may not be granted to credits between related parties.
According to the new regulation, Banks and Financial Institutions must use the provisions resulting in excess from the modification of these credits to create a special fund, which will be accounted for separately from the rest of the generic provisions and which may be used to grant new credits. In addition, they must create a Special Reserve with the accumulated profits audited as of December 31, 2019, which will be used in accordance with the guidelines issued by SIBOIF.
The financial institutions must also send to SIBOIF a report of the debtors that applied to the temporary conditions; this report must be informed within the first 5 days after the closing of each month.
We consider this new regulation is a positive measure, which will allow many debtors to negotiate better conditions that will enable them to fulfill their credit obligations and will contribute to the solvency of the national financial system.