On August 7, the Monetary Policy Committee of the Bank of Mongolia (BoM) held an unscheduled meeting and decided to prolong the implementation of restructuring and extending the maturity on consumer loans for lenders experiencing difficulties in their loan repayments due to the current economic circumstances, until December 31, 2020.
This is a continuation of the decision made by the Committee on April 13, 2020. Under this decision, lending contracts of around 76 thousand borrowers have been amended for issuance of consumer loans amounting to MNT 663 billion. This measure has been providing support to alleviate the extent of economic contraction by easing negative impact on household consumption and financial burden on borrowers related to the pandemic and ensuring stability of the banking system.
Director of the Monetary Policy Department of the BoM B.Bayardavaa provided an additional explanation on this decision. He said that loans worth MNT 5.6 trillion circulating on the banking system have been affected by the pandemic. And a study reveals that changes have not been made on the asset classification and lending contracts on 15 percent of them despite the difficulties the borrowers have been experiencing.
“Tendency to extend maturity on consumer loans has become relatively slow in June and July. Those lenders, who were in high-need of loan repayment deferral, had made amendments to their lending contracts by April and May of this year. In particular, 9,000 lenders have made changes to their lending contracts a week on average in April and May, while the number has decreased to 3,300 in June and around 1,800 in July.”
“In spite of the drop as such, the COVID-19 pandemic’ negative impact on the economy is predicted to continue for a particular amount of time in the future. As the situation is not expected to become stable in international countries as the virus continues to spread, this decision has been made in advance.” Bayardavaa explains.
The 76,000 borrowers, whose consumer loans amounting to MNT 663 billion, have extended terms on their consumer loan agreement by 6.4 months on average.
And the recent decision by the central bank will provide the following additional opportunities.
- It allows borrowers a chance to re-extend the term up to 12 months, if the borrower had extended the maturity for a period less than 12 months.
- To extend terms of loans for up to 12 months (instead of the initial 6-month deferral), if the borrower is truly in financial difficulties without extending maturity on their lending contract.
Thanks to the extension, it will prevent borrowers from facing financial burden amid COVID-19 pandemic, and place them on the bad debt holders’ list.