Moratorium on Credit Facilities for Economically Vulnerable Persons

The COVID-19 outbreak has been formally recognised as a serious disturbance to the Maltese economy, within the meaning of article 107 of the Treaty on the Functioning of the European Union which as a consequence also seriously threatens financial stability in Malta.

Pursuant to article 107 of the Treaty on the Functioning of the European Union, a temporary moratorium has been established to be applied by credit and financial institutions on credit facilities, to support economically vulnerable persons who have been materially affected by the exceptional circumstances brought about byCOVID-19 outbreak.

• Credit and financial institutions shall grant a moratorium on capital and interest, unless the borrower decides to continue to pay the relevant interest, applicable to all credit facilities satisfying the eligibility criteria established under a directive issued by the Central Bank, with the exception of credit facilities to other credit and financial institutions.

• The duration of the moratorium shall be for a period of 6 months.

• Applications shall be made until 30^th June, 2020.

• Credit and financial institutions shall take all necessary measures to inform applicants on the decision on the application for the moratorium within 10 working days. The 6 month moratoria period will start with effect from the date of approval of the application.

• The moratorium changes only the schedule of payments, whereby the duration of the credit facility shall be extended according to the length of the moratorium period.

• Increased payments after the moratorium could be agreed between the credit or financial institution and the borrower. The suspended capital and/or interest payments during the period of the moratorium on a credit facility to natural persons for the purchase of real estate, consumer and other personal credit, shall be spread evenly throughout the remaining term of such credit facility after the end of the moratorium period in cases where the existing duration of the credit facility coincides with the retirement age of the applicant.

• The moratorium shall not affect other conditions of the credit facility, in particular the interest rate.

• Credit and financial institutions shall not levy any fees or charges on applicants for the moratorium.

• Credit and financial institutions shall ensure that applicants are aware of the conditions of the moratorium.

• The moratorium does not apply to new credit facilities sanctioned after the publication date of L.N. 142 and any new credit facility shall follow the practices of the credit or financial institutions based on the assessment of the creditworthiness of the borrowers.

Eligible applicants

The eligible applicants would be all retail and non-retail clients including non-financial corporates, micro, small and medium sized enterprises, self-employed, persons in employment and households, with a credit facility who were not in arrears and were meeting fully their commitments prior to 1 March 2020.

 Criteria

• not be in a forbearance arrangement or, if it is the case, have met all terms and conditions agreed upon with their credit or financial institution

• not be in arrears with the repayment of credit facility

• if, based on sufficient evidence, acceptable to their respective credit or financial institution, they can prove that their income has been or will be materially affected by the COVID-19 outbreak in such a way that adhering to the credit facility repayment commitment of both capital and/or interest in part or in full is temporarily materially impaired.
  
  • Credit and financial institutions shall treat applications on a case-by-case basis.
  • Credit and financial institutions should collect and have readily available, as a minimum, all of the following information:

1. clear identification of the exposures or borrowers for which the moratorium was offered;
2. clear identification of the exposures or borrowers to which the moratorium was applied;
3. the date on which the moratorium was applied to each borrower;
4. the amounts which were suspended or postponed because of the application of the moratorium;
5. any economic loss resulting from the application of the moratorium on individual exposures and the potential impact on financial statements of credit and financial institutions.

Not Eligible for the moratorium:

• Credit facilities classified as nonperforming or forborne in line with Article 47a (3) and Article 47 b (2) of Regulation (EU) No. 575/2013 (CRR) by the granting credit or financial institution, as at 29 February 2020

• Credit facilities advanced to other credit or financial institutions

• Moratoria granted prior to the date of L.N. 142. However, this does not preclude borrowers from re-negotiating the conditions of moratoria agreed prior to the date of L.N. 142 in line with the conditions stipulated under this Directive.

Where  any  credit  or  financial  institution  falling within  the  scope  of  these  regulations fails to comply with any provisions of such regulations, or to any directive issued thereunder, the Central Bank may, by notice in writing and without recourse to a court  hearing,  impose  on  such  credit  or  financial  institution  an administrative  penalty  and  other  administrative  measures  in accordance with the provisions of the Central Bank of Malta Act

A right of appeal to the Financial Services Tribunal shall lie from  the  decisions  which  the  Central  Bank  shall  take  under  these regulations and the provisions of articles 56 and 57 of the Central Bank of Malta Act shall apply mutatis mutandis.

Subsidy on interest rate

Businesses and self-employed works hit hard by the coronavirus pandemic are being offered a subsidy of up to 2.5% on the interest rate charged by banks, should they decided to take a loan to cover expenses.

Under this scheme, applicants would benefit from a subsidised interest rate for the first 2 years of the loan. The bank’s normal loan eligibility criteria still apply.

This is being offered by Bank of Valletta, HSBC, APS, BNF Bank, MeDirect, Lombard Bank, Izola Bank and FCM Bank.

Should you require any further information or assistance on the matter, please do not hesitate to reach out to Dr Sarah Mifsud personally on [email protected]

Disclaimer: The information provided does not, and is not intended to, constitute legal advice. All content available is for general informational purposes only.  This may also not constitute the most updated information and you are always advised to seek legal advice.