Coronavirus Response // Loan Restructuring & New Lending

This loan restructuring and new lending plan is the third in a series of posts detailing liwwa's response to the Coronavirus pandemic. Under the circumstances it’s imperative that we remain flexible and treat borrowers fairly, while honoring our fiduciary duty to retail investors and other stakeholders. To achieve this, we have established a framework for both restructuring and future lending policies that consider the five categories of businesses outlined in this previous post.

Payment Postponement and Loan Restructuring:

We have developed a framework to fairly and efficiently help our borrowers overcome the cashflow disruptions facing all Jordanian businesses. This framework is based on how we expect the crisis to impact demand for different types of goods and services.

For example, a Luxury Goods business such as a jewelry store, with an existing loan of 5000 JD outstanding (5 payments of 1000 JD), would be restructured to 10 payments of 500 JD starting on the 25th of June.

The following plan applies if the private sector reopens by Sunday, April 19th, 2020. If the shutdown is significantly extended, these terms will need to be revised based on an updated understanding of business and economic conditions.

Category Treatment Next Payment Date
Essential goods/services Postponement: 3 months June 25th
Normal goods/services Postponement: 3 months
Restructuring: 1.5X remaining tenor
June 25th
Luxury goods/services Postponement: 3 months
Restructuring: 2X remaining tenor
June 25th
Hospitality & Social Postponement: 4 months
Restructuring: 2X remaining tenor
July 25th
Tourism related Postponement: 6 months
Restructuring: 2X remaining tenor
Sept 25th

Postponement Parameters:

The majority of business owners in the Essential, Normal, and Luxury categories stated that they expect their business to recover within 2 months of the private sector reopening. Therefore, we incorporated the one-month shutdown plus the 2 months needed to recover to reach a 3-month postponement of loan payments.

We expect that Hospitality, Social and Tourism Related businesses will take longer to recover and are likely to face restrictions on operating for longer than the rest of the private sector. Therefore, these businesses will receive grace periods of 4-month and 6-month postponement respectively.

liwwa began postponing payments on March 25th with the closure of the private sector. This date is the basis for the calculation above, such that a postponement of 3 months yields a next payment date of June 25th.

Restructuring Parameters:

In regards to restructuring, loan installments will be reduced and the remaining loan tenors will be increased based on our estimates for the income elasticity of demand in each category. These estimates assume a drop in income and consumption given the potential for a global recession. Therefore, all business categories except for Essential goods/services will be offered a restructuring, based on the guidelines above.

Restructuring consists of extending the remaining tenor of the loan, and lowering the amount of each monthly payment. Restructuring requires that borrowers repay their loans in full, but over a longer timeframe given the prolonged reduction in cashflows that is expected.

New lending:

liwwa aspires to position itself as a leader with respect to the economic recovery of the country. To this end, we have evaluated and made adjustments to our existing products. To better serve our market at this time liwwa plans to be better positioned to offer quick, flexible liquidity to businesses when we resume lending.

liwwa seeks to maximize lending to businesses that provide “essential goods/services.” For other categories of businesses, liwwa will limit its exposure until there is more clarity about economic conditions.

Key product changes include:

  • Increased flexibility for liwwa’s Working Capital Term Loan
  • Introduction of “top-up” loans and loans for salary expenses
  • Flexible grace periods (1-3 months)
  • Increased options for loan tenors

We are coming into what are likely to be very challenging times and we will continue to monitor the situation over the next few weeks and months. We plan on taking a proactive approach with our borrowers and to continue to reach out to them as the situation develops. Other than working to manage our legacy portfolio, we are actively working to forge a new path for liwwa in the post-pandemic economy and believe that path includes being at the frontline of Jordan’s economic recovery.

The liwwa Team

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