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Extension of moratoriums can lead to post challenges

As the initial six-month moratorium expires this month, customers still experiencing difficulties servicing   loans may be eligible to defer payments for up to 12 months, at the discretion of their financial institution. However, this can lead to one being stuck with a loan for a longer time.

The new moratorium arrangement was disclosed by Executive Director of the Grenada Authority for the Regulation of Financial Institutions (GARFIN), Denis Felix, during his presentation at the 73rd Annual General Meeting of Ariza Credit Union on Sept 24, 2020.

Stating that this was shared at the quarterly regulators meeting of the Eastern Caribbean Currency Union (ECCU) earlier that day, Felix said, “The ECCB (Eastern Caribbean Central Bank) supports the ECCU Bankers Association’s extension of the current moratorium to as much as 12 months where considered necessary.”

A moratorium is a legal authorisation to debtors to postpone payment for a specified period.

Felix advised in a joint statement, the ECCB and the ECCU Bankers Association agreed that, “Going forward the loan repayment deferral programme (moratorium) will be based on an assessment of the financial condition of customers. In their sole discretion, banks in the ECCU region will consider extension requests up to a maximum period of 12 months from October 01, 2020.  In addition to the deferral of loan repayments, a waiver of late fees and charges will be applicable to eligible customers during this period.”

In March of this year, member banks of the ECCU offered a six-month moratorium in response to the economic and social consequences from the COVID-19 pandemic, such as job losses and pay cuts.

However, in advice to customers who may be considering a further postponement of payments, Managing Director of the Grenada Cooperative Bank, Richard Duncan, advised, “If you can pay the interest, pay the interest. If you can pay the principal, pay the principal. If you can pay both, do not opt for the moratorium.”

He continued, “In fact, people who can pay when assessed, will not be allowed to have the moratorium. If you can pay, you will be asked and contracted to continue servicing your loan as arranged.”

Advising on the pitfalls in accepting a moratorium during this period, the Managing Director warned persons to be mindful of their age to retirement. He explained, “If you paid interest only, when the moratorium comes to an end, this will result in an increased loan and therefore for that loan to be affordable, you may have to extend the term/life of the loan. In which case, when that is done, you could find yourself retiring with a mortgage, which would call for resources from your pension to pay that monthly installment.”

Added to that, he noted that a pension can be as low as half of one’s current salary.

Further, Duncan pointed out that another pitfall surrounds an individual’s personal plans. Someone who intended to be debt free by a certain time to undertake other endeavours with their finances may be unable to follow through with their plan “because you are stuck with a loan for longer than you care to.”

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