Uzbekistan is set to implement stringent regulations governing the issuance of loans to its populace from July1. The decree, signed by Chairman of the Central Bank of Uzbekistan, Mamarizo Nurmuratov, on February 21.
Introducing the Debt Burden Indicator
A pivotal aspect of the new regulations is the introduction of the debt burden indicator, which serves as a gauge of borrowers' financial stability. This indicator, calculated by assessing the ratio of average loan payments to the borrower's average monthly income, aims to provide a comprehensive understanding of borrowers' debt obligations.
Central Bank of Uzbekistan states that a low debt burden value signifies manageable debt levels, while a high value indicates excessive debt, wherein borrowers may struggle to meet their repayment obligations.
Expansion of Debt Burden Requirement
Previously applicable solely to microloans at a rate of 50%, the debt burden requirement will now extend to all types of loans, including microloans.
Exceptions and Considerations
Recognizing the importance of maintaining access to credit, particularly for underserved segments of the population, the decree includes provisions allowing banks to issue loans without factoring in the debt burden for up to 15% of their loan portfolio. This exception seeks to strike a balance between ensuring lending accessibility and fostering prudent risk management practices.
Comprehensive Calculation of Income and Payments
Under the new regulations, banks are required to undertake a comprehensive assessment of borrowers' financial positions. This entails considering various sources of income, such as salary, pension, bank deposits, and other forms of revenue, over the preceding six months when calculating the borrower's income. Similarly, loan payments will encompass the full cost of the loan, including interest and other known payments at the time of contract finalization.
Impact on Borrowers and Lending Landscape
All individuals involved in the loan transaction, including co-borrowers and guarantors, will be subject to the debt burden calculation, ensuring a holistic evaluation of financial obligations. Moreover, for loans exceeding 36 months in duration, average monthly payments will be determined based on a 36-month period, while mortgage loans will utilize a 180-month period for calculation.
Despite the implementation of stricter regulations, the Central Bank of Uzbekistan remains optimistic about the lending landscape. Sanjar Nosirov, Head of the Department of Methodology for Regulating the Activities of Credit Institutions, emphasized the importance of responsible lending practices to mitigate the risk of loan default and ensure the stability of the financial system.
"We must be careful when we talk about a lending freeze. The reason is that the available [credit] resources need to be directed somewhere. Lending does not suddenly stop. The directions [of lending] may change or the requirements for borrowers may become more stringent. We strive to ensure that the bank does not lend to borrowers who cannot repay the loan. However, it is difficult for us to say that lending [due to the new requirements] will directly decrease," stated Sanjar Nosirov.
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