With a view to the extraordinary circumstances prevailing on the markets in CEE/SEE due to the COVID-19 pandemic, governments, central banks or other regulators of the financial markets in most countries have adopted emergency measures protecting borrowers through payment moratoria or other forms of temporary relief. This document summarises those measures across 13 jurisdictions where Wolf Theiss is present.
*the entry on Romania was updated on 20.05.20 to reflect further developments
*the entry on the Czech Republic was updated on 09.04.20 to reflect further developments
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As part of the continued effort to help contain the impact of the COVID-19 pandemic, a series of measures have been implemented in Austria to help those in immediate financial need. Such measures currently include up to EUR 38 billion to support the liquidity of companies by the Republic of Austria. No statutory measures with respect to a moratorium permitting suspension of or delays in payments (of loans, credits or similar debt instrument) have been introduced in Austria so far.
The Austrian Financial Market Authority stated in its press release dated 25 March 2020 that it expressly supports measures proposed by the European Banking Authority (EBA) in the EBA's statement on the application of a prudential framework regarding default dated the same date. The EBA reiterated inter alia that granting of a moratorium on credit payments should not automatically lead to a credit being classified as in default, that loans can be renegotiated (bilaterally) in a way that the financial position of the lender does not diminish and that this type of restructuring should not be considered as a distressed restructuring.
As part of the measures adopted due to the state of emergency in Albania, starting as of 17 March 2020 the National Bank of Albania ordered all banks and other non-bank financial institutions incorporated in Albania to offer to borrowers the possibility of requesting a temporary relief from repayment of loans up until 31 May 2020.
The relief is applicable for all borrowers (private individuals, sole traders, as well as corporations) and it commences after three days from the borrower requesting the moratorium to apply.
Financial institutions lending cross border to Albania are not affected by this measure.
BOSNIA & HERZEGOVINA ⌃
On 20 March 2020 the relevant regulatory agencies in Bosnia and Herzegovina adopted certain voluntary measures which banks and other financial institutions may, but are not required to apply in respect of all classes of borrowers (private individuals, sole traders as well as corporations).
These voluntary measures include payment moratoria (principal and interest); grace periods up to six months; provision of additional funds in order to overcome liquidity shortages and other steps aimed at alleviating the settlement of the borrowers’ payment obligations and facilitate business continuity.
The duration of the extraordinary measures is not specified in the ordinances and they are expected to be applicable as long as the state of emergency promulgated in Bosnia and Herzegovina remains in force.
Financial institutions lending cross border to Bosnia are not affected by this measure.
As part of the state of emergency recently promulgated by the Bulgarian Parliament, a payment moratorium was approved on 23 March 2020 in respect of certain debt obligations and default interest, namely that default interest will not accrue during this period.
This measure mandatorily applies to all classes of borrowers (private individuals, sole traders, as well as corporations, but not public enterprises). Any borrower may, however, decide to continue paying such default interest.
The measure applies to all banks and financial institutions including those lending cross border to Bulgaria.
On 20 March 2020 the Croatian National Bank announced an adjustment to its regulatory framework in order to facilitate the implementation of standstill arrangements.
The announced measure should be in force until 21 March 2020 and should authorize credit institutions to agree to stay enforcement measures against debtors who are unable to service their debt in the period of three months from April 2020. The measure will not be of general application and it should be used only in order to preserve business continuity and the employment of workforce, as well as covering unexpected costs incurred due to the pandemic.
The implementation of the standstill measure requires amendments to the existing regulatory framework which should be discussed in the following days.
The Croatian Banking Association announced that banks are generally ready to support the measure and are already preparing their businesses for its implementation.
Several other measures have been announced with a view to mitigate the effects of the pandemic, such as facilitation of loan rescheduling and the provision of affordable liquidity facilities to borrowers affected by the pandemic.
CZECH REPUBLIC ⌃
On 7 April 2020, the Czech Chamber of Deputies approved a draft law on certain measures related to loan repayments and interest payments in connection with the Covid-19 epidemic (the "Loan Moratorium Act") which aims to provide for a "loan moratorium". The draft law is currently awaiting approval by the Senate (which is the upper chamber of Czech Parliament) and will most likely be discussed there on 9 April 2020. It is expected that it will come into force shortly after this date, if it is passed by the Senate and published in the official collection of laws.
The purpose of the Loan Moratorium Act is to provide debtors with a moratorium on their outstanding principal and, in relation to individuals/consumers, interest loan payments in order to prevent serious economic damage and maintain financial stability in the light of the ongoing Covid-19 epidemic.
The Loan Moratorium Act applies to all loans entered into and drawndownbefore 26 March 2020 and also undrawn loans entered into before 26 March 2020 which are:
- secured by real estate or rights in rem to real estate;
- related to specific purposes connected with real estate; or
- provided by building societies under the Building Savings Act.
The Loan Moratorium Act sets out a number of exemptions outlining cases where it does not apply, including the following:
- if a debtor was in default for more than 30 days prior to 26 March 2020 in respect of any payment under a loan;
- to facilities, which may be re-drawn after being fully or partially repaid (for example, revolving credits and overdrafts);
- to loans related to trading in investment instruments (such as bonds and derivatives);
- to an investment instrument, undertaking the subject matter of which is an investment instrument or undertaking from which a 'receivable of financial character' under the Financial Collateral Act comes into existence and which is secured by financial collateral;
- to financial guarantees (including bank guarantees);
- to operating leases or similar services;
- to loans provided to pension funds or regulated entities within the meaning of the Financial Conglomerates Act;
- to deferred payments, unless the deferral is subject to a charge and the length of a deferral is not contrary to standard commercial practice;
- to the continuous provision of services and goods of the same kind for which a debtor may pay in instalments (e.g. payments for energy or ICT services); or
- to loans for which a movable property is handed over to a creditor while the creditor does not have a right to cash repayment.
A debtor will be required to submit a notification to the creditor that he/she intends to make use of the moratorium. A notification would need to be submitted by the debtor for a period of either three (i.e. until 31 July 2020) or six months (i.e. until 31 October 2020).
During the moratorium period, a debtor which is a legal entity will not be obliged to make any principal repayments. The duration of the security established in respect of a provided loan will be extended with the moratorium period.
In relation to corporate loans, the interest rate agreed between the lender and the debtor would apply during the moratorium period, but no interest can accrue on any unpaid interest which is payable during the moratorium period. Unless agreed otherwise between the parties, the due interest will be payable during the moratorium period.
The creditor will not be allowed to request any payments (of fees, costs, etc.) from the debtor for the purposes of making use of the moratorium. Any agreements on such payments will not be valid under the Loan Moratorium Act.
The explanatory note which accompanies the draft Loan Moratorium Act states (without giving any further detail) that it is expected that the act should apply to loans provided in the territory of the Czech Republic (there is no guidance in the act or the explanatory note as to how this should be interpreted). This rule would apply regardless of the governing law of the relevant loan agreement and regardless of whether borrowers and/or lenders are Czech or non-Czech persons.
The question of course, is to what extent the foreign courts will take the Loan Moratorium Act into account as 'imperative' or 'public policy' law.
(1) Act No. 377/2005 Coll., on Supplementary Supervision of Banks, Savings and Cooperative Banks, Electronic Money Institutions, Insurance Companies and Securities Brokers in Financial Conglomerates and on Amendment to Certain Other Acts (Financial Conglomerates Act).
As part of the measures adopted due to the state of emergency in Hungary, as of 19 March 2020, the Hungarian government ordered a standstill relating to repayment of all loans (including principal, interest and any other fees, as well as financial leases) until 31 December 2020 (the date may be extended by the Hungarian government), and therefore the applicable final repayment dates will be automatically extended by a period equal in length to the mandatory standstill (257 days at the time of writing).
This measure mandatorily applies to all classes of borrowers (private individuals, sole traders, as well as corporations, but not public enterprises), any borrower may however decide to continue servicing the debt.
Although it is not explicitly stated in the relevant regulations, the measure applies to all banks and financial institutions, most probably those lending cross border to Hungary.
Currently, Poland does not contemplate introducing a general moratorium on bank claims.
However, on 16 March 2020, the Polish Bank Association issued a statement with regard to assistance measures to be taken by the banks in the context of the COVID-19 outbreak. The measures include deferral (suspension) of principal repayment and interest payments for a period of 3 months. It may result in relevant prolongation of the repayment term and duration of collateral for the repayment of the loan. The proposed measure will be available for individuals and entrepreneurs who can justify application for the deferral (suspension) of the loan repayment by demonstrating a financially unstable position due to the COVID-19 pandemic.
The Banks controlling a leasing or factoring company within their capital groups should make an effort to allow for deferral (suspension) of leasing payments for lessees and debts due to clients under the same conditions as loan instalments. Applications for deferral (suspension) of the loan instalments will be free of charge and can be filed electronically in a simplified way (without requirement to provide additional documents and certificates confirming the current financial standing of the applicant). The measures suggested by the Polish Bank Association are not binding. However, the banks will contact their commercial borrowers to propose deferral of principal repayment.
Moreover, the Polish government proposed a reduction of the maximum amount of non-interest costs for consumer loans with a term exceeding 30 days, to the total of 15% of the credit amount and 6% p.a. of total credit amount. For short-term loans (no longer that 30 days), the maximum amount of non-interest costs of the loan will amount to 5% of the credit amount. Furthermore, the non-interest costs of consumer loans shall not exceed 45% of the total credit amount.
On 30 March 2020, a payment moratorium was enacted by the Government Emergency Ordinance no. 37/30 March 2020, as subsequently amended (the "Ordinance"). Further application norms issued by the Government by way of the Government Decision no. 270/2020 entered into force on 6 April 2020.
Pursuant to the Ordinance, debtors (both retail and legal entities, except for credit institutions) who are unable to service their debt under loan and/or leasing agreements due to the pandemic may, upon request, obtain from creditors (i.e. banks and non-banking financial institutions) the suspension of their payment obligations (consisting of principal, interest, fees) for a period between one month and nine months but not beyond 31 December 2020. Various conditions apply depending on the category of debtors (retail and, respectively, legal entities).
In case of retail debtors, this benefit applies (a) to the loan / leasing agreements in respect of which (i) the loan was granted and has not matured prior to 30 March 2020; (ii) the lender has not accelerated the loan prior to 30 March 2020; (iii) the debtor was not in a non-payment default as of 16 March 2020 except where the debtor pays any due and unpaid amounts under that loan prior to filing with the creditor the request for the suspension of its payment obligations; (b) if the income of the relevant debtor has been affected, directly or indirectly, by the severe circumstances triggered by the COVID 19 pandemic (as such shall be detailed in the application norms); and (c) if the request for the suspension of the payment obligations is filed with the creditor within forty-five days as of 30 March 2020 (i.e. by 15 May 2020). Pursuant to an amendment to the Ordinance, the term at item (c) above has been prolonged and the Ordinance reads that the requests filed starting 14 May 2020 must be filed with the creditor at latest until 15 June 2020.
In case of legal entities debtors, the benefit under the Ordinance applies if (a) all above-mentioned requirements for retail debtors are met; (b) the legal entity has, partially or fully, ceased their activity as a result of the decisions made by the competent public authorities during the state of emergency; (c) the legal entity has obtained one of following: (i) a certificate of emergency issued by the Ministry of Economy, Energy and Business Environment; or (ii) a certificate of emergency issued based on the statement of the legal entity and attesting that (x) its revenues or collections have diminished by 25% in March 2020 by reference to the average recorded for January 2020 and February 2020; or that (y) a partial or total interruption of its activities as a result of the decisions issued by the competent authorities during the state of emergency has occurred; and (d) the legal entity is not declared insolvent at the date of filing the request regarding the suspension of payment obligations. Pursuant to an amendment to the Ordinance, revenues in April and May 2020 may be taken into consideration and the Ordinance reads that, as regards the requests filed starting 14 May 2020, the condition mentioned at item (c) (ii) (x) above shall refer to revenues or collections having diminished by 25% in March 2020, April 2020 or May 2020 by reference to the average recorded for January 2020 and February 2020.
The above-mentioned measures expressly apply to loans / leasing granted by credit institutions and non-banking financial institutions in Romania, including branches of foreign credit institutions and non-banking financial institutions which carry out activities in Romania. As it is not explicitly mentioned, it is under debate whether the Ordinance also applies to loans / leasing granted by financial institutions lending cross-border to Romania.
Separately, before the Ordinance, some banks had announced voluntary payment moratoria mainly for retail clients.
Although not implementing any payment moratorium in the strict sense, two communications of the National Bank of Romania (“NBR”) are particularly relevant in the constantly evolving situation around the pandemic.
On 18 March 2020, the NBR confirmed that it would act and support the banking system in any attempts aimed at helping retail and companies affected by the crisis by relaxing debt servicing obligations or facilitating access to new financing. So far, no draft regulation was published on the NBR website in this respect.
On 24 March 2020, the NBR provided guidance to the Romanian banking system as to how to apply certain existing regulations in the event that banks and non-banking financial institutions decide to grant a moratorium to their debtors. Thus, credit restructuring for those retail customers affected by the crisis would be possible without complying with certain regulatory requirements (level of indebtedness or the maximum duration of a consumer loan, for example).
In addition, a draft law adopted by the Parliament on 3 April 2020, providing for similar (but not identical) rules as the Ordinance regarding a mandatory moratorium on payments deriving from loan and leasing, was declared unconstitutional in its entirety by the Romanian Constitutional Court on 6 May 2020. This was mainly due to the fact that the draft law was deemed at variance with the principle of legal security in what concerns the requirements of predictability and clarity applicable to laws. Separately, the draft law approving and (significantly) amending the Ordinance (the "Approval Law") was adopted by the Parliament on 23 April 2020 and is subject to review of its constitutionality by the Constitutional Court scheduled on 27 May 2020.
As part of the measures adopted due to the state of emergency in Serbia, the National Bank of Serbia ordered effective as of 18 March 2020 a standstill relating to repayment of all loans for a period of at least 90 days (but in any event as long as the state of emergency is in force).
According to this measure, all banks and other non-bank financial institutions incorporated in Serbia are required to mandatorily offer to their borrowers the possibility to request a temporary relief from repayment of loans up until 31 May 2020.
The relief is applicable to all borrowers (private individuals, sole traders as well as corporations) and it commences after three days from the borrower requesting that the moratorium apply.
Financial institutions lending cross border to Serbia are not affected by this measure.
SLOVAK REPUBLIC ⌃
The Government of Slovakia declared a state of emergency as of 16 March.
The measures announced by the administration include initiating discussions with banks regarding a general standstill on debt obligations, however no particular steps have been taken in this regard.
Measures are expected to be put in place in respect of lease and rent payments as well, but no concrete information is available at the time of writing.
The Slovenian Parliament passed an act on 20 March 2020 pursuant to which any borrower (including private individuals) resident in Slovenia can apply for a deferral of their liabilities under loan agreements concluded with Slovenian banks or Slovenian branches of EU banks.
Banks are obliged to grant relief to borrowers who prove to the bank in their application that they suffer liquidity problems caused by the pandemic. Different criteria apply depending on the size of the borrower's business, and for private individuals. The term of such relief is at least 12 months, but this can be extended by agreement and therefore the final maturity of the loan is prolonged by the duration of the agreed moratorium.
The measures under this act apply for a period of 18 months after reasons for adoption of the Act cease to exist. A borrower wishing to use the relief must submit its application for relief to the bank no later than six months after the state of emergency declared on 12 March 2020 at 6 p.m. is cancelled by the Government.
It is to be noted that relief is only possible for liabilities that became due after the state of emergency has been declared, and the provisions also apply for loan agreements concluded after the date that the epidemic was declared. Unless otherwise agreed between the bank and the borrower, the payment deferral is granted for all liabilities of a borrower under a loan agreement. The relief may be discontinued by the bank if, based on the borrower’s regular reports, it finds that the position of the borrower has improved, or the information provided by the borrower was incorrect.
No general payment moratorium has been introduced in Ukraine.
However, Ukrainian law has been amended to provide for a “quarantine introduced by the Cabinet of Ministers of Ukraine” as a force majeure event. A nationwide quarantine in Ukraine was introduced by the Cabinet of Ministers of Ukraine with effect from 12 March 2020 until 3 April 2020 (it is expected that the quarantine period will be further extended). This amendment should not result in automatic release from contractual liabilities, but the Ukrainian Chamber of Commerce and Industry is now required to consider applications and issue certificates confirming a force-major event, if any. If introduced, this may have an effect on payment obligations.
In the context of financial services, the Parliament of Ukraine has adopted measures aimed at protecting private individuals who are borrowers under consumer loans. Specifically, in case of any delay by a consumer during the period between 1 March 2020 and 30 April 2020 in the performance of obligations under a consumer loan agreement, this consumer will be exempt from liability for such delay (including from payment of any contractual penalty or other amounts). The law also prohibits increasing interest rates in consumer loans during the period between 1 March 2020 and 31 May 2020 (this prohibition does not apply to floating rate loans).
Further, Parliament has instructed the Cabinet of Ministers of Ukraine to prepare draft laws and submit them for consideration by Parliament whereby “to suspend the performance of the principal obligation which is secured by mortgage and prevent enforcement of mortgage for the quarantine period or any related quarantine measures”. It is most likely that this new law should cover mortgages of residential property and other assets of individuals.