NBB Circular NBB_2020_31: EBA Guidelines on Legislative and Non-Legislative Moratoria on Loan Repayments Applied Due to the COVID-19 Pandemic

NBB_2020_31 – 28 July 2020 Circular – Page 1/4 14 Berlaimont Boulevard – BE-1000 Brussels tel.: +32 2 221 24 33 company number: 0203.201.340 RPM Brussels www.bnb.be

Circular
Brussels, 28 July 2020
Reference: NBB_2020_31 your correspondent:
Lisanne Vanderstappen tel.: +32 2 221 41 97 lisanne.vanderstappen@nbb.be

EBA Guidelines on legislative and non-legislative moratoria on loan repayments applied due to the COVID-19 pandemic (consolidated version of 25 June 2020 of the EBA guidelines EBA/GL/2020/02 which incorporates the modifications resulting from the EBA guidelines EBA/GL/2020/08)

Scope
Belgian credit institutions and branches established in Belgium of credit institutions subject to the law of a non-EEA country, both on a consolidated and solo basis.

Summary/Objective
This circular replaces Circular NBB_2020_21 and integrates the consolidated version of 25 June 2020 of the EBA guidelines EBA/GL/2020/02 1 into the Bank's supervisory practice.

In response to the COVID-19 pandemic, initiatives and measures have been taken in several Member States by various bodies (supervisory authorities, public authorities and financial institutions) to assist borrowers who were sound and solvent before the outbreak of this pandemic in the event of possible temporary liquidity problems they may face due to confinement measures and their economic consequences. In Belgium as well, a non-legislative payment deferral (moratorium) for business loans 2 as well as legislative moratoria for mortgage loans 3 and for consumer loans 4 have been established.

In its publication of 25 March 2020, the European Banking Authority clarifies various aspects concerning the application of the prudential framework given the establishment of public and private moratoria (respectively called "legislative and non-legislative moratoria"). Given the different types of moratoria established in several jurisdictions in response to the COVID-19 pandemic, it also appeared desirable to proceed with a clarification and harmonisation regarding said moratoria: the European Banking Authority thus published "Guidelines on legislative and non-legislative moratoria on loan repayments applied due to the COVID-19 pandemic" (EBA/GL/2020/02). These guidelines also aim to clarify the consequences arising from these moratoria from a prudential point of view, in particular regarding the application of the definition of default and their classification [or not] as forbearance measures for exposures falling within the scope of a moratorium.

1 Consolidated version of 25 June 2020 of the EBA guidelines EBA/GL/2020/02 which incorporates the modifications resulting from the EBA guidelines EBA/GL/2020/08.
2 Business credit payment deferral charter.
3 Royal Decree No. 11 of 22 April 2020 relating to measures regarding the terms of mortgage credit in the context of the corona crisis.
Royal Decree No. 38 of 24 June 2020 amending Royal Decree No. 11 relating to measures regarding the terms of mortgage credit in the context of the corona crisis.
Private mortgage credit payment deferral charter.
4 Act of 27 May 2020 on consumer credit, aiming to help borrowers face the crisis caused by the coronavirus.

Circular – Page 2/4 NBB_2020_31 – 28 July 2020

Madam,
Sir,

By this circular, the National Bank of Belgium (hereinafter the "Bank") intends to indicate that the guidelines of the European Banking Authority (hereinafter the "EBA") on legislative and non-legislative moratoria on loan repayments applied due to the COVID-19 pandemic (consolidated version of 25 June 2020 of the EBA guidelines EBA/GL/2020/02 which incorporates the modifications resulting from the EBA guidelines EBA/GL/2020/08) have been integrated into its supervisory practice. This circular contains a brief summary of these guidelines, which can be consulted in the two national languages on the EBA website via the following link:
https://eba.europa.eu/regulation-and-policy/credit-risk/guidelines-legislative-and-non-legislative-moratoria-loan-repayments-applied-light-covid-19-crisis.

These guidelines aim to provide additional information and to strengthen the consistency of the prudential consequences arising from the establishment of moratoria on exposures falling within the scope of a moratorium in the context of the COVID-19 pandemic:
(i) they prescribe the criteria that legislative and non-legislative moratoria must meet so that they are not considered as forbearance measures; (ii) they clarify how the prudential framework should be applied to exposures benefiting from a payment deferral under a moratorium and aim to ensure consistent treatment of the calculation of capital requirements; (iii) they stipulate the expectations regarding information exchange and reporting requirements.

Criteria for the general payment moratorium and classification according to the definition of forbearance These EBA guidelines clarify on the basis of criteria which legislative and non-legislative moratoria are taken into account to be classified among general payment moratoria. The Bank is responsible for evaluating a moratorium to verify compliance with the criteria of a general payment moratorium within the meaning of the EBA guidelines.

The Bank considers that the Belgian moratoria, in particular the charters (individuals – businesses) and the moratorium applicable to consumer loans within the meaning of the Act of 27 May 2020, meet the criteria of a general payment moratorium and therefore should not be considered as forbearance measures. The moratorium must be granted before 30 September 2020 to be considered a general moratorium 5.

Credit institutions are however required to continue to verify whether exposures must be classified under the prudential framework as performing or non-performing. If the forbearance took place before the granting of the moratorium, the pre-existing classification as a forbearance measure cannot be modified.

Application of the definition of default to exposures benefiting from the general payment moratorium a) Assessment of the likelihood that the debtor has more than 90 days of arrears For the purposes of Article 47a(3)(c) and Article 178(1)(b) of Regulation (EU) No 575/2013 and in accordance with Article 178(2)(e) of the same Regulation, credit institutions must count the number of days of arrears according to the payment plan adapted by the moratorium.

b) Assessment of the probability of inability to meet credit obligations The Bank highlights the importance of continuing to identify, measure and declare all risks with truthfulness and accuracy. During the period covered by the moratorium, credit institutions must therefore continue to apply their internal policies and the prudential framework to assess credit quality and identify situations of probability of the debtor's inability to meet their credit obligations before declaring any default.

5 Cf. https://eba.europa.eu/eba-extends-deadline-application-its-guidelines-payment-moratoria-30-september.

Circular – Page 3/4 NBB_2020_31 – 28 July 2020

The guidelines specify that the assessment of the probability of the debtor's inability to meet their credit obligations must take place according to the payment plan adapted by the moratorium. Factors likely to influence the debtor's solvency, including support measures taken by public authorities in response to the COVID-19 pandemic, must be taken into account in the assessment of the probability of the debtor's inability to meet their credit obligations. On the other hand, credit risk mitigation techniques cannot be taken into account in this assessment and cannot influence it either.

Since the Belgian moratorium is not considered a forbearance measure, the guidelines provide that the moratorium cannot therefore lead to an urgent restructuring as defined in the EBA guidelines on the application of the definition of default, and therefore the calculation of the reduced financial obligation should not be performed.

Documentation and notifications
In order to be able to carry out an effective control of the consequences of the COVID-19 pandemic and the impact of the measures, it is necessary for credit institutions to collect information on the scope and impact of the moratoria. Payment moratoria must be applied transparently and the necessary information must be provided to the competent authority, namely the Bank 6. Specific public information obligations will be published later.

The consolidated English version of these EBA guidelines is attached to this circular. This annex can be consulted on the Bank's website.

A copy of this circular is sent to the commissioner(s), approved auditor(s) of your institution.

This circular enters into force on 28 July 2020 and replaces Circular NBB_2020_21.

Please accept, Madam, Sir, the assurance of my distinguished consideration.

Pierre Wunsch
Governor

The annexes (3) are available only at www.bnb.be:

• EBA statement on the application of the prudential framework regarding Default, Forbearance and IFRS9 in light of COVID-19 measures (of 25 March 2020)
• Consolidated version of the EBA guidelines on legislative and non-legislative moratoria on loan repayments applied due to the COVID-19 pandemic (of 25 June 2020)
• EBA guidelines amending the EBA/GL/2020/02 guidelines on legislative and non-legislative moratoria on loan repayments applied due to the COVID-19 pandemic

6 It is requested to provide this data via BECRIS.

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