Various efforts have been made by Financial Institutions such as Banks and Financing Companies to prevent bad loans, one of which is credit restructuring. Moreover, the Covid-19 pandemic has had a tremendous impact on financial industry players, including Financial Institutions that provide loans and debtors who have received loans. Debtors with non-permanent professions and those having small businesses are some examples of debtor groups affected by the Covid-19 pandemic. Termination of Employment Relationship (PHK), and a significant decrease in income are some of the causes of difficulty for them in paying loan installments per month. The Financial Services Authority (OJK), the Financial Institution that regulates and oversees activities in the Indonesian financial sector, provides solutions to relieve affected debtors by submitting credit restructuring. So, what exactly is credit restructuring? What are the requirements and how do I apply? Check out the full review in the article that the BFI Finance team has compiled below.
What is Credit Restructuring
Reporting from the official OJK page, credit restructuring is an effort given by financial institutions such as banks and financing companies to help relieve debtors who have the potential to experience difficulties in paying their installments for some reason. Certain reasons can be caused by the termination of employment, reduction in employee salaries, and others.
In this case, credit restructuring does not mean eradicating debts owned by debtors, but only transferring the debts through several methods, so that debtors can more easily pay their installments. The type of relief will be given to the debtor in accordance with the assessment and mutual agreement between the debtor and the creditor.
Types of Credit Restructuring
There are at least 6 types of credit restructuring that can be carried out by banks and financing companies, namely:
a. Decreasing Loan Interest Rates
Namely, creditors or lenders provide relief by lowering credit interest rates.
b. Extension of Term or Tenor
Namely, the creditor or lender provides an extension of the credit or financing period. Usually also accompanied by the provision of low-interest rates.
c. Interest Arrears Reduction
In this type of credit restructuring, the creditor or lender will provide a reduction in interest arrears or write off all arrears in-credit interest.
d. Reduction of Principal Arrears
Meanwhile, the type of credit restructuring by providing a reduction in the amount of arrears on credit is the maximum credit restructuring that can be granted by creditors to debtors, because reductions in loan principal are usually followed by the elimination of interest and penalties entirely.
e. Addition of Credit or Financing Facilities
This type of credit restructuring with the addition of credit facilities is carried out with the hope that the debtor's business will run again and develop so that it can generate income which is used to repay old debts and additional new loans. The provision of additional credit facilities must be carried out with a careful, accurate, and precise analysis of the debtor's business prospects because the debtor bears the old debt and the new debt.
f. Converting Credit or Financing to Temporary Equity Participation
This type of credit restructuring is intended for debtors who are legal entities or have the status of a Limited Liability Company. Conversion of credit into temporary equity participation means that the lender converts a certain amount of credit into shares in the debtor's company (debt-equity swap). Thus, the financial institution has a number of shares in the debtor's company and the debtor's debt is paid off.
Basically, the form of credit restructuring depends on the agreement between the creditor and the debtor in rearranging the debt repayment agreement. The simplest debt restructuring method that is usually carried out is the rescheduling or rescheduling method. Rescheduling means changing credit terms which only involve changing the payment term or tenor. With rescheduling, the lender will provide flexibility in installment payments from debtors that are past due by delaying the maturity date, then arrange an installment payment schedule according to the debtor's financial condition. For example, debtor A with a credit term of 24 (twenty-four) months, is extended to 36 (thirty-six) months.
Apart from rescheduling, another commonly used credit restructuring method is through reconditioning or reconditioning. Reconditioning means changing part or all of the terms of the credit agreement. The changes to the terms of the credit agreement are not limited to the tenor but include lowering interest rates, eliminating or reducing part of the interest, and reducing part of the loan principal. Changes to the terms of the credit agreement can be made as long as there is no additional credit or credit conversion of all or part of the credit into company equity. For example, debtor A with loan interest of 12% is given a reduction in the interest rate to 10%.
Lastly, apart from rescheduling and reconditioning, credit restructuring can generally be done by restructuring or restructuring. Restructuring means changing credit terms which include adding funds and converting all or part of the arrears of debt into new principal. For example, at the beginning of the loan, debtor A received a facility of Rp. 60 million, after the restructuring proposal was given an increase of Rp. 80 million.
Credit Restructuring Terms
Based on OJK and Article 52 of Bank Indonesia Regulation No. 14/15/PBI/2012, states that a Bank or Financing Company can restructure credit to debtors who meet the following criteria:
a. Debtors have difficulty paying the loan principal and/or interest on the loan.
b. Debtors have good business prospects and are able to meet their obligations after the loans are restructured.
How to Apply for Credit Restructuring
1. Submitting a Credit Restructuring Application to a Financial Institution
The first step in applying for credit restructuring is by visiting directly or communicating via digital channels such as email, telephone, or Whatsapp to financial institutions regarding the reasons for applying for restructuring. Tell honestly about your difficulties in paying the monthly loan installments. Furthermore, the Bank or Financing Company will ask about your financial condition and business conditions if you are an entrepreneur by profession. The lender will also provide a mandatory credit restructuring form along with other administrative requirements such as an ID card.
2. Eligibility Check by Creditors
After the creditor has received the most up-to-date information regarding your financial condition and other supporting requirements, the creditor will check the eligibility of your credit restructuring application. The lender will make an assessment regarding what type of restructuring is suitable for you, or you may not really need a restructuring because you are still considered capable of paying monthly installments. The length of the credit restructuring application process differs between Financial Institutions. Generally it does not take up to 1 month.
3. Submission of Assessment Results by Creditors
After the creditor has made an assessment, then the creditor will provide information online or through the PIC concerned whether your restructuring application is accepted or rejected.
Other Important Information
Through its official broadcast, OJK urges at least four important points that must be understood by financial institutions and the public before applying for credit restructuring or financing. The four points are:
- The granting of this relief is prioritized for small businesses that are directly affected by the Covid-19 pandemic with a financing value of below Rp 10 billion, especially MSMEs, daily workers, fishermen, online motorcycle taxis, and other small businesses that have difficulty paying loan installments.
- Debtors who still have the ability to pay loan installments every month are not recommended to apply for this credit restructuring and continue to pay installments according to their maturity.
- The bank or financing company will provide relief after assessing the financial condition and business of the affected debtor.
- All banks or financing companies can provide credit or financing relief.
Such is the understanding of credit restructuring that you need to know. Hopefully, this article is useful for all BFI friends. For BFI friends who want to apply for credit restructuring, try to understand thoroughly the requirements needed and the submission flow, OK!
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