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Colombia

Law and regulation of Covid-19 loan moratoriums in Colombia

Table of contents
  1.  Description of the legislation
    1.  Is there a moratorium on loans legislation implemented in your jurisdiction?
    2. If no: Are there any ongoing discussions regarding a potential introduction of such measures?
    3.  What is the name of the relevant legislation (the “Relevant Act”)?
    4.  What is the duration of the measures (period of moratorium)?
    5. Does the legislation provide for an extension of the period of moratorium?
    6. Is the moratorium mandatory, or can each borrower opt out should they wish to simply continue payments, or opt in if they want to be protected by the moratorium?
  2. Parties and agreements affected by the Relevant Act
    1. Is the moratorium available for both corporate and consumer loans?
    2. Who are the affected Lenders?
    3.  Does it make a difference whether loans are granted by a foreign entity and governed by foreign law?
  3. Impact on the loan agreements
    1.  Is there a cut-off date with respect to loan agreements to which the Relevant Act will apply (e.g. not applicable to loan agreements entered into after the cut-off date)?
    2.  Does the moratorium apply to principal only, or also to interest and/or fees?
    3. Will the maturity of the loan automatically be extended by the moratorium period?
    4.  Are repayments and interest which have become due and payable under the contract before the Relevant Act has come into force covered by the moratorium?
    5. Will lenders be able to terminate a loan due to an event of default other than non-payment (e.g. breach of financial covenants)?
Colombia
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1. Description of the legislation

1.1 Is there a moratorium on loans legislation implemented in your jurisdiction?

Yes.

1.2 If no: Are there any ongoing discussions regarding a potential introduction of such measures?

Not applicable.

1.3 What is the name of the relevant legislation (the “Relevant Act”)?

Circular 007 of 2020 of the Financial Superintendence of Colombia (“Circular 007”): whereby prudential measures were issued to alleviate the financial burden on debtors of the effects of the economic market situation and health emergency situation, instructing credit institutions to establish effective mechanisms for individuals and legal entities to negotiate new conditions for their loans, including grace periods and increased payment terms . 

Decree 493 of 29 March 2020 (“Decree 493”): whereby the National Government sets out a transitional provision establishing that if credit institutions grant grace periods in application of Circular 007 to debtors of housing loans and financial housing lease agreements  benefited from interest rate coverage, this will not be construed as grounds for early termination of the coverage instrument.

1.4 What is the duration of the measures (period of moratorium)?

Measures are intended to be transitory until the economic and health emergency situation is overcome, but neither of the Relevant Acts include a fixed date/period. 

1.5 Does the legislation provide for an extension of the period of moratorium?

Circular 007: the period of these reliefs is 120 days. These are applicable to loans which, as of 29 February 2020, were not in default, and even if they were modified and/or restructured as a result of the economic situation. 

Decree 493: N/A

1.6 Is the moratorium mandatory, or can each borrower opt out should they wish to simply continue payments, or opt in if they want to be protected by the moratorium?

Circular 007: it is not mandatory for the debtor to accept/implement the terms of these Instructions.

Decree 493: if a credit institution opts to implement the mechanisms provided in Circular 007 to housing loans and financial housing lease agreements, it will need to construe the application of grace periods as provided in this Decree.

2. Parties and agreements affected by the Relevant Act

2.1 Is the moratorium available for both corporate and consumer loans?

Circular 007: redefinition of loan conditions and provisions included in these Instructions apply to commercial, micro, consumer, mortgage and housing loans, and financial housing lease agreements.  

Decree 493: no. 

2.2 Who are the affected Lenders?

Colombian credit institutions.

2.3 Does it make a difference whether loans are granted by a foreign entity and governed by foreign law?

N/A

3. Impact on the loan agreements

3.1 Is there a cut-off date with respect to loan agreements to which the Relevant Act will apply (e.g. not applicable to loan agreements entered into after the cut-off date)?

Circular 007: grace periods may be granted only for those credits which, as of 29 February 2020, do not have a default greater than or equal to 30 days, even if they were modified and/or restructured (prior to the COVID-19 situation).

3.2 Does the moratorium apply to principal only, or also to interest and/or fees?

Circular 007: grace periods may be established to address the client’s particular situation, but in these cases, the financial entity may continue causing interests during this period. 

3.3 Will the maturity of the loan automatically be extended by the moratorium period?

Circular 007: once the grace period expires, and in order to restore the financial viability of the debtor, the institutions may apply the mechanisms set out by Circular 026 of 2017 of the Financial Superintendence of Colombia which provides instructions to facilitate the process of redefining the conditions of the credits between the credit institutions and those debtors who have been affected in their payment capacity and the normal fulfilment of their obligation, as a result of the adjustments in the economy. 

3.4 Are repayments and interest which have become due and payable under the contract before the Relevant Act has come into force covered by the moratorium?

Circular 007: grace periods may only be granted for those credits which, as of 29 February 2020, do not have a default greater than or equal to 30 days, even if they were modified and/or restructured. 

3.5 Will lenders be able to terminate a loan due to an event of default other than non-payment (e.g. breach of financial covenants)?

Decree 493: section 1 of this Decree expressly provides that the granting of grace periods on payments of capital and interests of housing loans and financial housing lease agreements shall not be construed as grounds for early termination of the coverage instrument. However, there are no additional measures regarding early termination, so it can be considered that the causes of early termination, other than non-payment, set out in ordinary regulation continue to apply. 

Circular 007: N/A

Authors

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Portrait ofDaniel Rodríguez, LL.M.
Daniel Rodríguez, LL.M.
Partner
Bogotá
Portrait ofSergio Rodríguez-Azuero
Sergio Rodríguez Azuero
The Senior Partner
Bogotá