Azerbaijan's Central Bank Eases Criteria for Assessing Financial Difficulties on Daily Microcredits

Overdue payments on daily microcredits exceeding 90 days will no longer be assessed under the 20% criterion when determining a borrower's financial difficulties.

As FinFly.News reports, the corresponding decision was signed by the Chairman of the Central Bank of Azerbaijan, Taleh Kazimov.

The changes introduced to the "Rule on Credit Risk Management in Non-Bank Credit Organizations" came into force on October 10.

According to current legislation, one of the main criteria for determining a borrower's financial difficulties is the untimely fulfillment of credit obligations. In particular, based on credit bureau data, a delay of at least 20% of the borrower's total obligations for more than 90 days is considered one of the indicators of financial difficulties.

However, under the new decision, this criterion will not apply to daily loans. In other words, a delay in payments on daily loans exceeding 90 days will not be assessed under the criterion of overdue payments of at least 20% of the borrower's total obligations.

The emergence of financial difficulties for a borrower is understood as insufficient cash flows to fulfill obligations in accordance with the current terms of the contract, a delay of at least 20% of the total amount of the borrower's obligations for more than 90 days (except for daily loans) based on credit bureau data, or the likelihood of such cases occurring, etc.

A change in contract terms also includes the provision of a new or additional grace period (non-payment within a certain period or payment of only interest and/or other payments specified in the contract), except for daily loans.

In the case of a one-time restructuring of a loan, the borrower cannot be assigned to a classification category higher than the one in which they were at the time of restructuring. If a loan (except for daily loans) is restructured two or more times, it must be classified at least as a non-performing asset, and loans that were in the "substandard" category at the time of restructuring must be classified one notch below the existing category.

The total amount of all payments on a restructured loan must not exceed 100% of the principal debt.

Taking into account the requirements of the "Rule on Credit Risk Management in Non-Bank Credit Organizations," a loan is restructured only once for a maximum period of 45 days, provided that 20% of the remaining principal amount is paid. In this case, interest for delay or penalty (fines) are not applied.

Restructuring is understood as a change in contract terms due to the emergence of financial difficulties for the borrower in order to ensure the fulfillment of the debt obligation or its registration as a new debt obligation to be directed towards the fulfillment of existing debt obligations in the same non-bank credit organization.