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    CBM Issues Directive on Moratoria on Credit Facilities Amid Pandemic

    April 23, 2020

    CBM issued a Directive on moratoria on credit facilities to alleviate the challenges posed by COVID-19 pandemic. The Directive has been issued pursuant to the Moratorium on Credit Facilities Regulations issued by the Minister for Health, in consultation with the Minister for Finance and Financial Services. Under the Directive, credit and financial institutions have been directed to offer a six-month moratorium on repayments on capital and interest for borrowers that have been negatively affected by the pandemic. The Directive defines the eligibility for the moratorium and other conditions related to the implementation of the provisions of the Moratorium on Credit Facilities Regulations. Post this Directive, CBM also issued a clarification on the treatment of accrued interest during the moratorium period. Additionally, CBM has published frequently asked questions (FAQs) related to the Directive.

    The moratorium applies to credit facilities sanctioned prior to March 01, 2020—whether to individuals, households or businesses—and who have been negatively affected by the pandemic. The moratorium is not granted automatically, and the borrower will need to apply to the respective credit or financial institution. Applications by borrowers are to be made with their respective credit or financial institution until June 30, 2020. The six-month moratoria period will start with effect from the date of approval of the application. Some of the key points in the Directive include the following:

    • Credit and financial institutions have the right to refuse the application as long as this is done within the terms of the Directive. 
    • Borrowers can apply to forego payments of both capital and interest completely for six months, and can also opt to continue to pay the interest but not the capital.
    • The payments missed during the moratorium will be paid during a six-month extension to the term of the credit facility. If the credit facility was due to mature at retirement age, the missed payments would be spread evenly throughout the remaining term of the credit facility after the end of the moratorium period.

    It was also clarified that, during the course of the moratorium, interest is to be accrued but not capitalized, in other words no interest compounding is to occur during this period. This accrued interest would subsequently be recovered on a straight line basis (spread equally) across the remaining modified maturity term of the loan after the end of the moratorium period. 

     

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    Keywords: Europe, Malta, Banking, COVID-19, Loan Repayment, Loan Moratorium, Credit Risk, FAQ, CBM

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