EBA extends 30 June application deadline for guidelines on payment moratoriaTuesday, 23 June 2020
The European Banking Authority ("EBA") announced on 18 June 2020 that it was extending the application date of its guidelines on legislative and non-legislative moratoria (the “Guidelines”) to 30 September 2020. The granting of this extension will be welcomed by borrowers facing short-term liquidity issues by providing a further three months to avail of, and document, payment moratoria to address difficulties caused by the limited or suspended operation of businesses and individuals resulting from the impact of COVID-19.
The Guidelines, published in April, clarified the EBA requirements for public and private moratoria which, if fulfilled, would help avoid the classification of exposures under the definition of forbearance or as defaulted under distressed restructuring. They specify a number of conditions that the general legislative and non-legislative moratoria have to fulfil in order not to be considered forbearance, including:
- The moratorium must have been launched in response to the COVID-19 pandemic.
- The moratorium has to be broadly applied.
- The moratorium has to apply to a broad range of obligors.
- The same moratorium must offer the same conditions.
- The moratorium must change only the schedule of payments.
- The moratorium does not apply to new loans granted after the launch of the moratorium.
The Guidelines also highlight the need for credit institutions to assess and identify situations where obligors may face longer-term financial difficulties and to classify these exposures accordingly, in part to ensure that financial statements present accurate information as to the quality of the bank’s portfolios to market participants. The EBA notes in the Guidelines that institutions are expected to make use of the general payment moratoria in a transparent manner, collecting information and, where relevant, providing such information to their competent authorities.
The application of a payment moratorium is just one of a broad range of support measures implemented by the State in order to minimise the medium and long-term economic impacts of the efforts taken to contain the COVID-19 pandemic.