On Monday, 30 March 2020, the Emergency Government Ordinance no. 37/2020 regarding the granting of certain facilities for loans granted by credit institutions and non-banking financial institutions in Romania to certain categories of debtors (the “GEO 37/2020”) has entered into force. The GEO 37/2020 was issued following the clarifications provided by the National Bank of Romania (the “NBR”) on 24 March 2020, according to which the postponement of payments related to the Covid-19 pandemic would not entail either the reclassification of the credit or the obligation of the banks or financial institutions to create the corresponding provisions with respect to the postponed amounts– for further details on the clarifications issued by the NBR, please refer to the following article: [HERE]
To whom does GEO 37/2020 apply?
The debtors which may benefit from the facilities granted under GEO 37/2020 are any natural person, authorized person, family or individual enterprise, persons exercising a liberal profession or other professions exercised according to a special law, as well as any legal entity, except for credit institutions, in all cases, subject to the fulfilment of certain requirements.
The main requirements which must be fulfilled by the debtors are:
- the existence of a credit agreement, respectively a leasing agreement, concluded with a creditor (as defined by the GEO 37/2020) under which a loan was granted by 30 March 2020, the date when the GEO 37/2020 has entered into force. Thus, all credit agreements which will be concluded after 30 March 2020 are excluded, the business generated by the banks and non-banking financial institutions after this date not being affected by this measure;
- the credit agreement has not reached its maturity and the creditor has not declared the anticipated maturity before 30 March 2020;
- there were no outstanding amounts under such loan on the date of the establishment of the state of emergency in Romania (16 March 2020) or any such outstanding amounts have been paid before submitting the request for the postponement of payments. Considering the context of the implementation of such ordinance, we understand that any amounts which become outstanding after the establishment of the state of emergency are acceptable and need not be paid before the submitting the request for the postponement of payments in order to the debtor to benefit from the facilities granted under this ordinance;
- their income has been affected either directly or indirectly following the situation generated by the Covid-19 pandemic. The manner in which the fulfilment of this requirement will be assessed will be detailed in the ordinance’s application norms which must be adopted by the Ministry of Public Finances within 15 days as of the date GEO 37/2020 has entered into force. The way in which the fulfilment of this condition will be evaluated is of interest, especially with respect to natural persons, considering that the possibility of obtaining a certificate for emergency situations has not been regulated in their case.
Furthermore, debtors which are legal entities, as well as the other categories of debtors, except for natural persons, must also fulfil the following conditions:
- they must not be in insolvency as of the date of requesting the postponement of payments; and
- they have suspended their activity (totally or partially) following the decisions issued by the authorities during the state of emergency and have obtained the certificate for emergency situations or have obtained the certificate for emergency situations which shows a decrease in their the income as of March 2020 by at least 25% compared to the average of their income as for January and February 2020 or the partial or total interruption of the activity as a result of the decisions issued by the competent public authorities during the period of state emergency.
We note that, according to the Order no. 791/2020 regarding the issuance of certificates for the emergency situations , the economic operators can obtain two types of such certificates from the Ministry of Economy, Energy and Business Environment – for further details you can consult this legal update: HERE.
Considering that the certificates for emergency situations can be issued only during the state of emergency and that the drafting of the application norms of GEO 37/2020 may take up to 15 days, in order to ensure the practical applicability of these benefits for debtors which are legal entities (as well as to the other categories of debtors, except for natural persons), it appears it may be necessary either to extend the duration of the state of emergency or the period during which the certificates for emergency situations can be issued.
From the perspective of the creditors to which the provisions of GEO 37/2020 are applicable, these are credit institutions and non-banking financial institutions, as well as the subsidiaries of these two categories of regulated entities.
To whom does GEO 37/2020 not apply?
GEO 37/2020 is not applicable to debtors which do not fulfil all the requirements to benefit from its provisions.
From the creditors’ perspective, GEO 37/2020 does not refer to and is not applicable to financial institutions from other member states of the European Union which perform lending activities in Romania directly according to the passporting rules, nor is it applicable to real estate developers which may grant loans to consumers in relation to real estate assets they develop in accordance with GEO 56/2016.
This aspect is relevant because there could be some debtors legal entities the activity of which was totally or partially interrupted as a result of the decisions issued by the authorities during the state of emergency or which have registered decreases in income reaching or exceeding the regulated threshold, but which have contracted financing agreements directly from credit or financial institutions from other member states of the European Union and, therefore, do not benefit from the measures imposed by GEO 37/2020.
What are the facilities being set up?
Debtors fulfilling the above-mentioned criteria have the right to request the creditors under the credit and leasing agreements the postponement of the payment of instalments, representing capital, interest and commissions, for a period ranging between 1 (one) and 9 (nine) months, but no later than 31 December 2020.
The period for which the postponement of payments is applied shall be added to the total duration of the credit, even if the maximum lending period stipulated by the creditor’s internal regulations is exceeded.
However, in case the maximum age limit of the debtor is exceeded (in most of the cases 60 or 65 years) as a result of the extension, the credit must be rescheduled in order to meet the age limit practiced by the creditor.
The procedure through which the debtors may benefit from these facilities
In order to benefit from the postponement of payments, the debtors fulfilling the above-mentioned conditions must request this facility from the creditor within 45 days from the entry into force of GEO 37/2020 (respectively, until 14 May 2020).
The request for the postponement of payments can be made (i) by letter – through post mail, (ii) by electronic post mail, or (iii) by telephone using a special number to be allocated by the creditors for this situation.
The creditor has the right to analyse the situation before approving the conditions of the postponement of payments. Although it is unclear the extent to which the creditor has a right of analysis or refusal, we understand that each creditor has the right to verify that the respective debtor meets the conditions required by GEO 37/2020, otherwise, being able to refuse the approval of the postponement.
From the perspective of the contractual documentation, it is not necessary to conclude an addendum to the credit agreement, the changes to the credit agreement operating under the law. However, the creditor notifies to the debtor within 30 days with respect to the contractual clauses modified in order to implement the provisions of GEO 37/2020. Thus, the contractual clauses that can be modified must be related to the implementation of the benefits of GEO 37/2020 and may refer to aspects such as the duration of the credit agreement, the repayment schedule.
Further information regarding the procedure for requesting and approving the postponement of payments is to be regulated by the application norms of the Ministry of Public Finance.
Will interest be capitalized or not?
The instalments for which the postponement of payment may be requested have three important components: the principal, the interest and the commissions.
The principal of the loan remains the same, but it will be further repaid starting with the moment when the period of the postponement of payments ceases – at the latest 1 January 2021.
The commissions applicable during the months of postponement will not be paid. GEO 37/2020 does not clearly regulate what happens to these commissions which would have been due during the suspension period, but according to the press releases from the Ministry of Public Finance, these will be a cost borne by the creditors affected by this ordinance.
The interest due for the principal amounts the payment of which has been postponed will be capitalized with respect to all types of loans, except for the mortgage loans granted to natural persons, therefore increasing the principal of the loan, to which interest will further be applied and paid gradually according to a new repayment schedule for the new duration of the loan.
The interest due with respect to the principal amounts related to mortgage loans granted to natural persons the payment of which has been postponed will be booked by banks separately for the months for which the postponement was made, it will not be capitalized and will result in an amount which the debtor will pay gradually within 60 months in equal instalments starting with the moment when the postponement has ceased.
The payment of the interest due with respect to mortgage loans by natural persons for the period during which the payment of instalments was postponed will be guaranteed by the Romanian state through the National Credit Guarantee Fund for SMEs (the “FNGCIMM”). Thus, the creditors and the FNGCIMM will conclude separate lending agreements, according to which the national guarantee fund will issue letters of guarantee regarding the payment by the borrowers under mortgage loans which are natural persons of the interest accumulated during the postponement of payments. If the debtors do not pay these amounts, these will be covered by the FNGCIMM, which will have the possibility to recover such amounts from the natural persons debtors, as a budgetary debt.
Potential difficulties in the application of GEO 37/2020
The provisions of GEO 37/2020 may be put to the test when being applied to the diversity of existing practical situations. Among the difficulties which banks or non-banking financial institutions may face in implementing this emergency ordinance we ca identify:
- the situation of the interest due on mortgage loans which must be booked as a debt separate from the initial loan with a separate repayment schedule;
- the situation of overdraft or revolving credit agreements which do not have a final term of the entire contract or monthly instalments;
- the situation of syndicated loans, especially those in which the bank syndicate is formed mainly of foreign banks which lend directly in Romania through the passporting rules, and which are not subject to these rules;
- the situation of credit agreements in relation to which the debtors were in a default, but the creditor did not accelerate the loan before the entry into force of GEO 37/2020.
Therefore, the application norms for the GEO 37/2020 continue to hold particular interest, thus we will be closely monitoring their publication and will revert with additional information once they will become available.
The aspects of this information are preliminary and will be detailed in subsequent communications.