Loan payments moratorium introduced by BNB – mechanisms and implementation
23 April 2020
The long-awaited loan payment moratorium is already a fact. The Bulgarian National Bank (BNB) has adopted a procedure for deferring payment of obligations to banks and financial institutions in relation to the state of emergency declared on March 12, 2020. The deferral scheme will only apply to obligations to banks and financial institutions which are subsidiariesof the banks. Companies that are bank subsidiaries and provide quick loans will also fall within this category.
The rules approved by the BNB constitute the so-called private moratorium on bank loan payments. This means that such rules are recommendable and any commercial bank in the country wishing to apply them shall explicitly state and announce it. Currently, most of these banks have published information on the moratorium on their websites and have also stated that they have adopted relief measures under the moratorium in order to facilitate their customers in view of the COVID-19 situation (exceptions are only ProCredit Bank, Municipal Bank and foreign banks branches).
The moratorium allows for amendments to the repayment schedules of the principal and/or of the interests under the loan, without changing the basic parameters of the loan agreement, such as the agreed interest rate.
It is important to note that such amendments to the repayment schedules would not be classified as any form of loan restructuring or default in terms of the customer’s credit history file. Additionally, the borrower may cancel the grace period earlier than initially provided for and request an update of the repayment schedule.
The procedure for deferring payment of obligations does not automatically apply to all users of credit services. Any borrower who wishes to benefit from the relief measures needs to file an application not later thanJune 22, 2020. The application may cover both outstanding matured instalments, as well as instalments which have not matured yet.
The grace period may not exceed six months and may not extend beyond December 31, 2020. The borrowers wishing to apply before their banks are subject to the followingcumulative conditions:
- Bank loan agreements have been concluded before March 31, 2020.
- Obligations have been regularly serviced (clear credit history) or with a default of no more than 90 days.
- Are already experiencing or expect to experience difficulties in repaying their obligations under the concluded agreement due to the COVID-19 pandemic and the limitations under the State of Emergency Measures and Actions Act.
The procedure for deferring payment of obligations allows for deferring both the agreed interest and the principal or the principal alone. It is a matter of negotiations between the creditor and the borrow and is dependent on each particular case.
Deferral of both the interest and the principal
- In this scenario, the borrower may defer the whole obligation, including the principal and the interest. To this end, a new repayment schedule is prepared, which is up to 6 months longer than the one initially agreed upon by the parties, by adding the unpaid interest for the time of the deferral to each instalment. It in fact means that at the end of the day the banks and the financial institutions will receive an interest higher than the initially agreed since the debtors will, on the one hand, pay the interest accrued during the grace period, and the interest on the principal for the period by which the repayment schedule is extended, on the other.
Deferral only of the principal
- The borrower will be able to defer only the principal by paying the interests due to the banks and the financial institutions under the repayment schedule applicable so far.
- The principal will be deferred under a new repayment schedule extended by the grace period.
Besides the moratorium rules, the option of negotiating individual deferral schemes still remains available.
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