The current Covid-19 health crisis and the governments’ response to it has rapidly led towards economic turmoil. Population confinement and business closures created liquidity problems for individuals and companies alike, which in turn threatens to affect the stability of credit institutions and other lenders. Consequently, many countries around the globe and in the European Union, in particular, have sought to adopt some sort of relief measures in the form of various moratoria on loan payments.
For the European Union, such measures pose additional challenges in light of the integrity of its single market. Given that many credit institutions affected by the moratoria adopted by the EU’s member states offer services not only in their member state of origin but also in other member states, some degree of uniformity between such measures would be desirable. Therefore, the adoption by the European Banking Authority on 2 April 2020 of the “Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis” (the “Guidelines”) is a welcome measure.
The Guidelines focus on clarifying the requirements for both public and private moratoria, which if fulfilled, will help avoid the classification of exposures under the definition of forbearance or as defaulted under distressed restructuring. These requirements are the following:
- the moratorium was launched in response to the COVID-19 pandemic and was announced and applied before 30 June 2020 (this deadline may be revised in the future);
- the moratorium has to be broadly applied (either based on the applicable national law (legislative moratorium) or on a non-legislative payment relief initiative part of an industry- or sector-wide moratorium scheme agreed or coordinated within the banking industry or a material part thereof, possibly in collaboration with public authorities);
- the moratorium has to apply to a broad range of obligors predefined on the basis of broad criteria (e.g. the exposure or sub-exposure class, industry sector, product ranges or geographical location), without any new assessment of their creditworthiness; however, the moratorium may be limited only to performing obligors;
- the moratorium offers the same conditions for the changes of the payment schedules to all exposures subject to the moratorium; however, different moratoria with different conditions may apply, for instance, to private individuals and to SMEs or a separate moratorium could be launched for a specific range of products, such as mortgage loans;
- the moratorium changes only the schedule of payments; no other terms and conditions of the loans, such as the interest rate, should be changed;
- the moratorium does not apply to new loans granted after the date when the moratorium was announced.
However, the EBA highlights in its Guidelines that the application of such moratoria should not have any effect on the qualification of exposures already classified as forborne or defaulted under distressed restructuring, the classification of which should not change. Furthermore, credit institutions should continue to assess the credit quality of exposures benefiting from the moratorium and identify any situations in which borrowers are unlikely to pay for the purpose of the definition of default or as non-performing, based on any of the other applicable criteria for such classifications.
Member states must notify the EBA whether they comply or intend to comply with the Guidelines, or otherwise give their reasons for non-compliance, by 3 June 2020. Most member states, including Romania, have already adopted or are envisaging to adopt such moratoria on loan payments. The Guidelines should provide them with assistance in drafting or amending any such schemes.
Below we present some brief descriptions of the legislative or non-legislative moratoria which have been adopted or are being envisaged by some of the EU member states, to serve as guidance on how other jurisdictions have positioned themselves on the matter of loan payments moratoria. While the categories of debtors benefiting from such measures differ from one country to another and so does the moratoria/suspension period, the condition of having their the income/revenues affected as a result of the Covid-19 pandemic seems to be applicable in the majority of cases. Certain other member states either made no announcements with respect to the adoption of loan moratoria or such initiatives were taken only by certain lenders.
For details on the recommendations made by the National Bank of Romania on this matter, please refer to our material available at the following link [HERE] and for more details regarding the legislative measures taken in Romania for the suspension of loan payments, please refer to our material available at the following link [HERE].
Note that the information below merely provides a general overview of such measures and comes from public sources (press releases made by authorities, news articles etc.), but not necessarily official sources. Furthermore, these measures may suffer changes in light of the adoption of the Guidelines.