A sector-wide private moratorium on bank loan payments during the period of public emergency in Bulgaria stemming from the COVID-19 outbreak was approved on the 10 April by the Bulgarian National Bank (“BNB”), an unprecedented event in the post-war period (the “Moratorium”). The draft Moratorium was submitted through the Association of Banks in Bulgaria (“ABB”), the industry body of all credit institutions in Bulgaria.
The sector-wide private moratorium followed a resolution of the BNB from 3 April stating the National Bank’s position that it will comply with the Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis (“EBA Guidelines”) adopted by European Banking Authority (“EBA”).
The EBA Guidelines introduced a temporary principal that bank moratoriums (both public or private) on bank loan payments do not lead to a reclassification of exposures (and thus triggering higher regulatory capital requirements for the banks), provided that the payment moratorium meets certain EBA Guidelines criteria (e.g. changes to the schedule of payments only, no applicability to new loans post-moratorium, duration).
Based on the guidelines approved by EBA the BNB required commercial banks to propose, within 5 working days, a draft rule on a private (“non-legislative” under the language of the EBA Guidelines) moratorium on bank loan payments.
The Moratorium is applicable to all persons and legal entities (except credit institutions) which must apply before their bank in order to benefit from the Moratorium and meet the following minimal requirements:
- the persons and legal entities should have or expect to experience difficulties in servicing their liabilities stemming from the COVID-19 outbreak;
- the clients have serviced their debts regularly prior to 1 March 2020 or were in arrears not longer than 90 days as of the application date.
As outlined in the EBA Guidelines, the Moratorium provides the applying bank customers with the possibility to amend the repayment schedule of principal and/or interest under their exposure without the possibility to alter any other features of the financing agreement (including interest rate). The possibility to delay the payment of interest and/or principal shall not be longer than 6 months and shall not extend beyond 31 December 2020.
The approved Moratorium foresees three distinctive mechanisms for deferral of payments which must be agreed between the bank and the respective client:
- “Mechanism No.1” - deferral of principal and interest payment for up to 6 months;
- “Mechanism No.2” – deferral of interest payment for up to 6 months;
- “Mechanism No.3” – applicable for revolving credit products (including credit cards, overdrafts);
Each mechanism has specific requirements and features which must be met for it to be a qualifying mechanism under the Moratorium. These requirements are outlined in a specific “Procedure for the deferral and work-out of obligations to banks and their subsidiaries - financial institutions in relation to the state of emergency resulting from the COVID-19 pandemic introduced by the National Assembly on 13 March 2020” issued by the ABB.
Banks could agree to other individual deferral schemes with their clients. In such cases the banks can not use the regulatory treatment of the respective exposure under the EBA Guidelines.
We will keep you updated on the Moratorium. In the meantime, if you would like more information on COVID-19 or how the Moratorium may affect your company, please contact Elitsa Ivanova and Konstantin Stoyanov.