Debts in times of pandemic: Banks to offer more flexible conditions

Chile’s Financial Market Commission has announced measures to facilitate the flow of credit to individuals and companies and mitigate the pandemic’s effects on the financial system.

Credit is a key tool for helping companies and individuals to manage the economic consequences of the crisis. In Chile, the Financial Market Commission (CMF) - which regulates banks and other financial institutions - has announced a package of measures to facilitate the flow of credit and mitigate the pandemic’s effects on the financial system.

• For individuals

The CMF has introduced regulatory exceptions that will facilitate the deferral of up to three installments of mortgage repayments. This means that banks will not have to treat repayments delayed by a client until after the mortgage’s original maturity as a renegotiation for the purposes of establishing provisions. This special treatment targets mortgage holders who were up to date with repayments when the government declared a state of emergency.

• Individuals and SMEs

Similarly, in order to help individuals and SMEs, the CMF has modified regulation to allow banks to extend the maturity of consumer loans by up to six months, also without this being considered a renegotiation for the purposes of provisioning. In addition, in the case of SMEs, the CMF will make a further modification with a view to allowing them to use surplus mortgage collateral to guarantee other borrowing.

• Banks

Exceptionally, the CMF will authorize an 18-month extension of the period in which banks must sell goods received in lieu of loan repayment. This measure seeks to prevent them from having to sell at a time of economic contraction at prices that could be significantly lower than in periods of less uncertainty.

Finally, to alleviate the banking system’s situation as regards capital, the CMF and the Central Bank of Chile have decided to postpone for one year the implementation of Basel III, a set of international banking regulations that increases capital requirements and the provisions banks must establish.

Would you like to know how is the Central Bank of Chile dealing with the coronavirus crisis? check out the following article.