COVID-19 Update: Regulatory updates concerning the banking sector 

COVID-19

20 Apr 2020

The European Central Bank (“ECB”), European Banking Authority (“EBA”) and the Malta Financial Services Authority (“MFSA”) have addressed certain matters of interest to banks, financial institutions and consumers concerning the economic impact of COVID-19 on the EU banking sector. Key regulatory updates have been highlighted below.

This piece forms part of a series of COVID-19 updates published by our firm in response to developments around the pandemic. For more on this series, please see here.

Moratorium on Credit Facilities in Exceptional Circumstances Regulations, 2020 (L.N. 142 of 2020) and Directive No. 18 (Central Bank of Malta)

On 13 April 2020, the Maltese Government published the Moratorium on Credit Facilities in Exceptional Circumstances Regulations, 2020 (“Regulations”) and the Central Bank of Malta issued Directive No 18 (“Directive”). These rules follow the publication of guidelines by the EBA earlier this month on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis (EBA/GL/2020/02) of 2 April 2020 (“Guidelines”) (we have written separately about these Guidelines here).

The Regulations set out a framework for the provision of moratoria by credit and financial institutions on credit facilities for those persons eligible for them. The payment moratoria are available to economically vulnerable persons who have been materially affected by the COVID-19 outbreak and who can prove that their income has been or will be materially affected by the pandemic. The eligibility criteria are set out in the Central Bank’s Directive.

The Regulations apply to:

  • Credit institutions licensed under the Banking Act (Chapter 371 of the Laws of Malta); and
  • Financial institutions licensed under the Financial Institutions Act (Chapter 376 of the Laws of Malta).

Borrowers which satisfy the eligibility criteria under the Directive may submit an application for a moratorium on their credit facility directly to their banking provider. These applications must be made by 30 June 2020, or any further date as may be stipulated by the Government.

The Regulations require credit and financial institutions to inform applicants on the outcome of their application for the moratorium within ten (10) working days from submission of the application.

Moratoria must be granted for a period of six (6) months, running from the date of the approval of the application by the credit or financial institution concerned. Credit and financial institutions are required by the Regulations to treat each application for a moratorium on a case-by-case basis.

The applicability of the moratorium will only alter the credit facility’s schedule of payments, so that the term is extended in line with the length of the moratorium. Moratoria will be granted on both capital and interest payments, unless the borrower, at their discretion, opts to continue to pay the relevant interest payments becoming due.

The Regulations also require credit and financial institutions to:

  • Not levy and fees or charges on customers making an application for a moratorium;
  • Ensure that applicants are aware of the terms and conditions applicable to the moratorium.

Credit or financial institutions are allowed to impose increased payments after the moratorium, so long as the borrower agrees to this condition. However, facilities advanced to natural persons (ie individuals) and which relate to consumer credit, credit for the purchase of real estate, or other forms of personal credit, then the increased payments must be spread evenly throughout the remaining term of the facility, where the duration of the facility coincides with the retirement age of the borrower.

Banking customers who are eligible for the payment moratoria include both retail and non-retail clients such as:

  • Non-financial corporates;
  • Micro, small and medium sized enterprises;
  • Self-employed persons;
  • Persons in employment;
  • Households.

Such persons must have a credit facility (ie a sum of money lent by way of an advance, overdraft, loan or any other line of credit including discounting bills of exchange and promissory notes, guarantees, indemnities, acceptances and bills of exchanges endorsed pour aval). Credit card payments are not subject to moratoria.

To be eligible for the moratorium, the borrower must have, prior to 1 March 2020:

  • Not entered into a forbearance arrangement, or, if so, they must have met all the terms and conditions agreed upon with the credit or financial institution;
  • Not been in arrears with the repayment of the credit facility.

The EBA has defined a forbearance arrangement as one which grants a concession to the borrower following an identification by the credit institution of a financial difficulty being experienced by the borrower which renders them likely to default on their payment obligation under the loan.

As mentioned above, borrowers must provide sufficient evidence to their bank that their income has or will be materially affected by the COVID-19 outbreak in such a way that adhering to the credit facility repayment commitment of capital and/or interest, in part or in full, will be or is already temporarily materially impaired.

The provisions of the Regulations and the Directive do not apply to:

  • Credit facilities made to other credit and financial institutions;
  • Credit facilities which are classified as non-performing or forborne within the meaning of the Capital Requirements Regulation, as at 29 February 2020;
  • Moratoria granted before 13 April 2020, without impeding the ability for borrowers to re-negotiate such moratoria in line with the conditions of the Directive;
  • Credit facilities sanctioned after 13 April 2020.

Credit and financial institutions are obliged to collect specific information which are set out in the Central Bank’s Directive. This information must be reported to the MFSA and includes the following items:

  • An identification of all borrowers and exposures to which the moratorium is offered;
  • An identification of all borrowers and exposures where the moratorium is applied;
  • The date on which the moratorium is applied to each borrower;
  • The amounts which were suspended or postponed as a result of the moratorium;
  • Any economic loss resulting from the application of the moratorium on individual exposures and the potential impact on the relevant financial or credit institution.

The MFSA may verify the accuracy of the information provided to it by requesting documentation to this effect and obtaining written or oral explanations from the credit or financial institution concerned.

Failures by credit or financial institutions to comply with any provision of the Regulations and/or the Directive may give rise to administrative penalties and other administrative measures being imposed by the Central Bank of Malta, in accordance with its legal powers.

The Regulations may be accessed here.

The Directive may be accessed here.

Should you require assistance in respect to the application of these new measures, please do not hesitate to reach out to your usual WH Partners contact or email us at covid19@whpartners.eu