New COVID-19 regulations on moratoria measures on credit facilities

In light of the COVID-19 outbreak, the Government of Malta issued on the 13th April 2020, the Moratorium on Credit Facilities in Exceptional Circumstances Regulations (the “Regulations”) through Legal Notice 142 of 2020. The main scope of the Regulation is to regulate the provision of a moratorium by credit and financial institutions on credit facilities in order to mitigate systemic exposure to the Maltese economy by supporting economically vulnerable persons who have been materially affected by the COVID-19 pandemic.

The Regulations mandate credit and financial institutions, licensed under the Banking Act (Cap. 371 of the Laws of Malta) and under the Financial Institutions Act (Cap. 376 of the Laws of Malta) respectively, to grant a six-month moratorium on capital and interest for borrowers with respect to credit facilities satisfying the eligibility criteria established under Directive No. 18 issued by the Central Bank of Malta (the “Directive”), which Directive also delves into other conditions related to the implementation of the Regulations. Foreign banks do not fall within the scope of the Directive unless they have a branch, agency or office in Malta. The six-month period will start with effect from the date of approval of the application and the moratorium does not affect other conditions of the credit facility, particularly the interest rate.

Other main takeaways from the Directive include:

a) In terms of eligibility, the Directive stipulates that its scope covers all retail and non-retail clients, including non-financial corporates, micro, small and medium-sized enterprises, self-employed, persons in employment and households, (but excluding other credit or financial institutions), who were not in arrears and were meeting fully their commitments prior to 1 March 2020;

b) Eligibility for the moratorium is not automatic but is contingent on the approval by the credit or financial institution of an application, to be voluntarily submitted by the applicants until the 30th June 2020 for the deferral of payments of capital and interest from their credit facilities. Furthermore, approval is subject to the following conditions, namely that:

a. eligible applicants must not be subject to a forbearance arrangement or, if they are, that they meet all terms and conditions thereof;
b. eligible applicants must not be in arrears with the repayment of the facility;
c. eligible applicants must produce evidence which is satisfactory to the respective institution that their earnings have been or will be materially distressed by the pandemic to the extent that in such a way that impairs their commitment to facility repayments;
d. the facility has not been sanctioned after the 13th April 2020; and

c) A credit or financial institution failing to abide by its obligations under the Regulations or to any directive issued thereunder, may be subject to an administrative penalty and other administrative measures by the Central Bank.

The Directive imposes an obligation on credit and financial institutions to try and inform applicants within ten working days with respect to their decision on the application. Once accepted, while the borrower may still opt to continue to pay the relevant interest, the suspended capital and interest payments with respect to credit facilities granted to individuals for real estate, consumer and other personal credit purposes, are to be evenly spread throughout the remaining term of the facility, in cases where the existing duration of the credit facility coincides with the retirement age of the applicant.