Circular Letter No. CC/2021/00000001: Guidelines Amending Legislative and Non-Legislative Moratoria on Loan Repayments

Circular Letter No. CC/2021/00000001 Sent to: Credit Institutions and Financial Companies. Mod. 99999924/T – 01/14 Subject: Guidelines amending the Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis (EBA/GL/2020/15)

The European Banking Authority (EBA) published on April 2, 2020, the “Guidelines on legislative and non-legislative moratoria on loan payments applied in the light of the COVID-19 crisis” (EBA/GL/2020/02 – hereinafter referred to as “Guidelines”), which establish the terms and conditions under which the extension of payment deadlines inherent to credit operations, associated with a public or private moratorium (hereinafter referred to as “General Payment Moratoria”), must comply so as not to lead to the occurrence of a situation of default of the debtor, nor to the occurrence of the concept of a forbearance measure, limiting the prudential treatment provided for therein for General Payment Moratoria to those announced and applied before June 30, 2020.

On June 25, 2020, the EBA extended that date to September 30, 2020, in order to keep that measure available for borrowers who presented liquidity problems derived from the pandemic context.

However, in light of the recent evolution of the pandemic and the restrictions introduced by the governments of various countries in the European Union, many economic agents continue to be severely affected by the crisis.

In this context, and bearing in mind the objective of achieving a compromise between the purpose of mitigating possible short-term liquidity restrictions, originating from the pandemic context, and the need to avoid situations of non-identification of potential insolvency of borrowers in bank balance sheets, the EBA published, on December 2, 2020, the “Guidelines amending the EBA/GL/2020/02 Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis” (EBA/GL/2020/15), hereinafter referred to as Reactivated Guidelines.

The reactivation of EBA/GL/2020/02 allows for the extension of the deadline for adherence and application of General Payment Moratoria until March 31, 2021, but introduces two restrictions: (i) a maximum temporal limit for payment suspension, corresponding to 9 months, applicable to moratoria granted after September 30, 2020, and (ii) the introduction of mandatory documentation reporting requirements regarding the assessment of low probability of payment, requiring institutions to submit to the relevant competent authorities a plan describing the process, information sources, and responsibilities inherent to the assessment of potential “unlikeliness to pay” situations for exposures/borrowers subject to general payment moratoria. The Reactivated Guidelines also define conditions for the retroactive application of the Guidelines between October 1 and December 1, 2020.

This Circular Letter thus aims to update the deadline for adherence and application of General Payment Moratoria and implement the changes resulting from the reactivation of the Guidelines described in the previous paragraph, with all remaining content of Circular Letter CC/2020/00000022, which implemented the Guidelines, in its original version, remaining applicable.

Mod. 99999924/T – 01/14 Finally, it is further emphasized the clarification introduced by the EBA, in the Reactivated Guidelines, and for the purposes of their application, of what is understood by a new moratorium and what is understood by a modification of an existing moratorium.

EBA Guidelines EBA/GL/2020/15 (English version): https://eba.europa.eu/sites/default/documents/files/document_library/Publications/Guidelines/2020/GL%20amending%20EBA-GL-2020-02%20on%20payment%20moratoria/960347/EBA-GL-2020-15%20Amending%20Guidelines%20EBA%20GL%202020%2002%20on%20payment%20moratoria.pdf

EBA Guidelines EBA/GL/2020/02 (consolidated English version): https://eba.europa.eu/sites/default/documents/files/document_library/Publications/Guidelines/2020/GL%20amending%20EBA-GL-2020-02%20on%20payment%20moratoria/960349/Final%20report%20on%20EBA-GL-2020-02%20Guidelines%20on%20payment%20moratoria%20-%20consolidated%20version.pdf