On 10th April 2020, the Governing Council of the BNB approved the draft of the Order for Deferral and Settlement of Accounts Payable to Banks and Their Subsidiaries – Financial Institutions with Regard to the State of Emergency Adopted by the National Assembly on 13th March 2020, presented by the Banking Association of Bulgaria.
At a glance: Three standardized mechanisms are provided:
- Mechanism No. 1 – deferral of principal amount and interest for up to 6 months;
- Mechanism No. 2 – deferral of principal amount for up to 6 months;
- Mechanism No. 3 – applicable to revolving products.
Once approved, the document constitutes a private moratorium within the meaning of the European Banking Authority’s (EBA) Guidelines on legislative and private moratoriums on credit payments related to COVID-19 (EBA / GL / 2020/02). The EBA guidelines were adopted for compliance with a decision of the BNB Governing Council of 3rd April 2020 and published on the EBA website.
The private moratorium adopted provides an opportunity for amendments to the repayment schedule of principal amounts and/or interest rates, without changing key parameters of credit agreements, e.g. the interest rates already agreed. Debts may be deferred for up to 6 months, ending on 31st December 2020. Deferred payments must have been regularly serviced or with a default of no more than 90 days by 1st March 2020.
Customers should explicitly inform their servicing bank that they wish to benefit from the facilities offered.
The respective mechanism will be chosen by mutual agreement between the banks and their clients. The implementation of Mechanisms No. 1 and No. 2 requires the approval of a new repayment plan. As for Mechanism No. 3 – after the end of the moratorium the loan shall be serviced under the original terms agreed in the primary contract.
Banks may negotiate with their customers other individual deferral or allowance schemes other than those provided for in the Order. In such cases, banks will not be able to benefit from the temporary principle introduced by the approved moratorium and following the EBA guidelines that deferral or allowance does not lead to reclassification of exposures in the form of restructuring or non-performance.
Commercial banks, which have agreed to apply the debt deferral order adopted, will publicly announce the allowance offered on their website, in bank lounges and in any other appropriate manner.