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
HKMA on Fintech Adoption and Innovation by Banks in Hong Kong
HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.
BIS on Impact of Increasing Use of Cloud Technology on Cyber Risk
BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.
ECB Consults on Guide for Managing Climate and Environmental Risks
ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.
ECB Issues Opinion on Revisions to CRR in Response to COVID Crisis
ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.
EBA Assesses Interlinkages Between Recovery and Resolution Planning
EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).
SRB Publishes Final MREL Policy Under the Banking Package
SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.
ECB Releases Results of March Survey on Credit Terms and Conditions
ECB published results of the March 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets.
FINMA Adjusts Deadlines for COVID-19 Relief Measures for Banks
FINMA published guidance (06/2020) on extending or discontinuing various exemptions that were granted due to the COVID-19 crisis.
SRB Consults on Standardized Data Set for Bank Valuation in Resolution
SRB launched a consultation on the minimum data needed for valuation of a bank in resolution.
EIOPA Changes Frequency of RFR and EDA Processes to Two Weeks
EIOPA announced a change in the frequency of current extraordinary processes for risk-free interest rate term structures (RFR) and symmetric adjustment to equity risk (EDA) from a weekly basis to every two weeks.
