From October 1, 2021, Kazakhstan has a procedure for settling overdue debts of citizens are experiencing difficulties in repaying a loan. It applies to all credit organizations – banks and MFOs.

Alexander Terentyev, a director of the Financial Services Consumer Rights Protection Department of the Agency of the Republic of Kazakhstan for Regulations and Development of the Financial Market, told how this mechanism works.

Alexander Leonidovich, tells us more about the legislative amendments that are aimed at protecting borrowers who are in arrears on loans?

In May last year, the head of State signed the Law of the Republic of Kazakhstan “On amendments and additions to certain legislative acts of the Republic of Kazakhstan on the regulation of banking, MFO and collectionactivities in the Republic of Kazakhstan”. And some amendments were adopted regarding the introduction of a unified procedure for the settlement by banks and MFO of overdue debts of borrowers –individuals. Credit institutions previously considered citizens’ applications for restructuring overdue loans of 6 or more months. And the financial regulator received a lot of requests from borrowers on this issue. In this connection, the Agency initiated amendments to the legislation aimed at protecting the rights of borrowers. The law was adopted in May, but a unified legal mechanism for settling overdue debts came into effect on October 1, 2021. Citizens with a delay, thus, can resolve issues related to the restructuring of their loans or microloans directly with creditors, who are required to consider their applications within the time limits established by law.  

It turns out that more than a year has passed since the introduction of this order. How many citizens are applied to credit institutions?

According to the information provided to the Agency by second-tier banks, to date, about 296 thousand borrowers have applied for changing the terms of the concluded bank loan agreements. Lenders approved amendments to the terms of the bank loan agreement for 73% of applicants, or more than 216/7 thousand borrowers.

Applications are considered by MFO for 145.9 thousand borrowers, this is about 75 % of the total number of applicants, amendments were provided to the terms of the concluded microcredit agreements.

Borrowers should contact the bank of MFO themselves, if they have problems repaying the debt? Or does the lender have to report the delay?

The lender has to notify the borrower of the delay within 20 days from the date of its occurrence, in accordance with legislative requirements. Credit organizations inform citizens in the notice, that it is necessary to make payments on the loan and pay off the overdue debt, indicating its size, otherwise it threatens with unpleasant consequences for the borrower, and you can contact the lender on the issue of restructuring.

Borrowers, who have a delay must in turn, within 30 days from the date of its occurrence, and apply to a credit institution for restructuring loans. Cannot hide from the creditor in no case! A positive way of the situation is in the interests of not only the borrower, but also the credit institution. Therefore, the sooner measures are taken to resolve the debt, the sooner a mutually acceptable option for repaying the debt will be found.

The borrower’s application is subject to mandatory acceptance, registration, accounting and consideration by the bank and MFO. In this application, the debtor must indicate the reason for the delay, offer his options for possible restructuring and provide supporting documents indicating a decrease in income and the inability to pay for his obligations.

It is the borrower, who must provide the lender with information about his financial and social situation, document the fact of a decrease or lack of income, which does not allow him to fulfill his obligations in full. Grounds for leaving the borrower’s application without consideration is a failure to submit the requested documents.

How long average does an application take on?

The lender considers the application only after receiving a complete package of documents from the borrower. Such factors as solvency the social status of the borrower, and the conscientious fulfillment of loan obligations also takes into account. It must provide a response within 15 calendar days. The bank or MFO may agree accepting the amendments proposed by the borrower to the terms of the bank loan/ microcredit agreement, provide their proposals for changing the terms of the bank loan/ microcredit agreement, or refuse, but indicating a reasoned justification of the reasons.

What changes can be proposed by borrowers and lenders in the terms of contact?

The term of restructuring proposed by the borrower or lender may be in the form of: lowering the interest rate, deferring payment of the principal debt or interest, changing the repayment method, increasing the loan term, reducing the debt burden, for example, this is an overdue principal debt, interest, penalty and others types of payment and commissions. Independent sale of real estate that is the subject of a mortgage, or the provision of compensation by transferring collateral to the creditor, the sale of real estate, with the transfer of obligations to the buyer are another proposal.

The legislation provides for, among other things, the forgiveness of an overdue principal debt or remunerations, the abolition of a penalty (fine, penalty fee), commissions and other payments related to servicing a bank loan. However, this is a cardinal measure, which is applied by credit institutions in exceptional cases, when there is reliable evidence that the borrower has no income to repay loans. This decision is made by banks and MFOs on their own, without the intervention of the financial regulator, on an individual basis, based on the current life situation and the financial situation of the borrower.

I would like to add, that amendments are carried out within 15 calendar days to the terms of agreement from the date such a decision by the bank or MFO.

If the lender has proposed some changes, but the borrower does not agree with him, or vice versa?

If the borrower failed to reach an agreement with the lender on the terms of the loan restructuring, he has the right to apply to the Agency of the Republic of Kazakhstan for the regulation and development of the financial market. The borrower must provide confirmation of his application to the bank or MFO and failure to reach a mutually acceptable solution at the same time. In order to resolve disputes arising from a mortgage loan agreement, also borrowers can contact the banking ombudsman in accordance with the Banking Law.

On the basis of the applicant’s request within its powers, the agency initiates a documentary check against the creditor and, after the completion of the verification activities, will provide an assessment of the actions of the credit institution regarding the comprehensive consideration of the issue and the decision made by the creditor. The creditor does not have the right to start procedures for collecting the pledged property of debtors belonging to socially vulnerable segments of the population (SVSP), during this period. Let remind, that SVSP includes veterans of the Great Patriotic War and persons equated to them, veterans of military operations, disabled people of groups 1 and 2 families with/or raising disabled children left without parental care, kandas, persons who lost their homes, as a result of environmental disasters, natural and man-made emergencies, mothers with many children and families with many children, families of persons who perished (deceased) in the performance of state or public duties, military services.

The Agency, together with the Akimat of Almaty, the Banking Ombudsman, banks and public associations, are signed a Memorandum of Understanding and Cooperation in 2021. In accordance with the terms of the Memorandum, banks suspend filing lawsuits, contacting a notary to issue an executive inscription for debt collection, during the period of settlement of problem debts, as well as the sale of the only home of citizens related to the SVSP, including the bank accepted on the balance sheet, and the eviction of borrowers from housing, including the former owners of this property, which is on the bank’s balance sheet. At the moment, a work is underway to amend the Memorandum, in terms of extending its effect to low-income borrowers receiving targeted social assistance, as well as extending the term until 1^st October 2023.

What happens if the borrower does not apply to a credit institution?

The creditor has the right to take measures against the insolvent borrower, in this case. For example, to withdraw funds from the debtor’s account to repay the loan, with the exception of special accounts, or to transfer the debt for pre-trial collection and settlement to a collection agency, to assign the rights of claim to third parties.

The transfer of debt for pre-trial collection and settlement to a collection agency is allowed if the loan agreement contains the right of the credit institutions to engage a collection agency if the borrower delays in fulfilling obligations under the loan agreement.

Creditors can apply to the court for enforcement in addition. In this case, the court will take into account all the circumstances, including whether all measures have been taken to settle the debt by the creditor and the borrower.