EBA guidelines on payment moratoria to end
October 2020
The European Banking Authority (EBA) has stated that flexible conditions regarding the treatment of Covid-19 related payment deferrals will be over from October, despite these facilities still being provided to consumers by many banks and lessors.
EBA introduced flexibility for deferred payments
In the early phase of the Covid-19 pandemic, the European banking Authority (EBA) recognised that a flexible and pragmatic approach was required. In April, they published guidelines on legislative and non-legislative moratoria for national supervisors which clarified that, in the case of debt moratoria, there is no automatic classification of default, forborne, or IFRS9 status. When it became clear that debt moratoria were going to be with us for longer than originally anticipated, they extended the deadline for these guidelines to be in force until the end of September 2020. This extension demonstrated the importance of continued support for the measures taken by banks and lessors to extend loans in response to the extraordinary nature of the current situation.
Situation regarding national payment moratoria assessed
In early August, the EBA published a report on frequently asked questions related to the implementation of these guidelines. The implementation questions and technical clarifications were included in a newly added section 4 of the guidelines to assist supervisors and credit institutions in their implementation. In addition, the EBA prepared an Excel table including the various types of moratoria regimes introduced by the EU Members States, which is very useful to understand what measures have been taken at national level and how long they are expected to continue.
An end to flexibility for lessors and consumers?
Despite the fact that payment moratoria are still present in many EU countries until the end of the year, the EBA announced it will phase out its guidelines on legislative and non-legislative payment moratoria in accordance with the original end of September deadline. Any extended payment moratoria granted after 30 September 2020 should be classified on a case-by-case basis according to the usual prudential framework regarding forbearance and defaults. They stressed that the continued ability for banks to provide lending is of key importance and that they will keep monitoring the situation as needed, however this will clearly pose significant problems for banks and lessors wishing to continue providing delayed payment facilities to their customers. We understand that the banking sector is currently negotiating with the EBA on this matter.