EBA Guidelines on Use of Payment Moratoria to Address Liquidity Issues
EBA published detailed guidance on the treatment of legislative and non-legislative moratoria on loan repayments to be applied before June 30, 2020, in light of the COVID-19 crisis. However, EBA may extend this time limit at a late stage, should this be considered necessary. The guidelines are intended to clarify the requirements for public and private moratoria, which, if fulfilled, will help avoid classification of exposures under the definition of forbearance or as defaulted under distressed restructuring. The guidelines apply from the date of translation of the guidelines into all EU languages. EBA also published a revised list of the institutions for supervisory reporting for 2020. The updated list is published around the first quarter of each year and these revisions constitute an annual exercise that is based on the institutions’ year-end data.
The guidelines have issued following the publication of the EBA statement on the application of the prudential framework regarding default, forbearance, and IFRS 9, in light of COVID-19 measures. The guidelines on legislative and non-legislative moratoria apply in relation to the application of the definition of default in accordance with Article 178 of the Capital Requirements Regulation (CRR) and classification of forbearance in accordance with Article 47b of CRR. These guidelines are addressed to competent authorities as defined in point (i) of Article 4(2) of EU Regulation No 1093/2010 and to credit institutions as defined in point (1) of Article 4(1) of CRR. These guidelines supplement the EBA guidelines on the application of the definition of default as regards the treatment of distressed restructuring.
EBA sees the payment moratoria as effective tools to address short-term liquidity difficulties caused by the limited or suspended operation of many businesses and individuals, resulting from the impact of COVID-19. In this context, the guidelines clarify that payment moratoria do not trigger classification as forbearance or distressed restructuring if the measures taken are based on the applicable national law, or on an industry or sector-wide private initiative agreed and applied broadly by the relevant credit institutions. In addition, the guidelines recall that institutions must continue to adequately identify the situations where borrowers may face longer-term financial difficulties and classify exposures in accordance with the existing regulation. The requirements for identification of forborne exposures and defaulted obligors remain in place.
The guidelines also state that, to allow effective monitoring of the effects of the COVID-19 pandemic and the application of response measures, it is necessary for institutions to collect information about the scope and effects of the use of the moratoria. Institutions are expected to make use of the general payment moratoria in a transparent manner, providing relevant information to their competent authorities, while specific disclosure requirements to the public will be published later.
Related Links
- Press Release Related to EBA Guideline
- EBA Guideline (PDF)
- Press Release Related to Reporting Institutions
- List of Reporting Institutions (XLSX)
Keywords: Europe, EU, Banking, COVID-19, Guideline, CRR, Reporting, Credit Risk, NPLs, IFRS 9, Loan Classification, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
Bundesbank Updates Derivation Rules for Bank ReportingRelated Articles
EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
FSB Sets Out Work Priorities for 2021
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU Publishes Corrigendum to Revised Capital Requirements Regulation
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs Issue Statement on Application of Sustainability Disclosures Rule
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC Consults on Crisis Management and Deposit Insurance Frameworks
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA Proposes Standards for Supervisory Cooperation Under IFD
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE Addresses Banks in Scope of First Resolvability Assessment
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.
