The COVID-19 pandemic has left the world facing serious challenges, which required the implementation of unprecedented measures worldwide in order to combat the virus.
As we are witnessing companies struggling to continue their business and keep their employees, many businesses are already experiencing difficulties in fulfilling their monetary obligations, both to counterparties and credit institutions.
In view of this, governments and central banks across the globe and in the European Union have started adopting a package of measures aiming to minimize the short and long-term impacts on the COVID-19 outbreak on the economy, including by aiding individuals and private entities who have been experiencing difficulties in servicing of their obligations to credit institutions.
Below you may find an overview of some of the main incentives available to individuals and companies.
Moratoria on bank loan payments in relation to the COVID-19 situation
On 2 April 2020, the European Banking Authority (EBA) adopted Guidelines on the treatment of public and private Moratoria in light of COVID-19 measures (the “Guidelines”). The Guidelines set standards in policies of banking supervisory authorities with regard to the measures to be taken in view of COVID-19.
Following the Comply or explain principle, on 3 April 2020 the Governing Council of the Bulgarian National Bank (BNB) announced its decision to comply with the EBA Guidelines and required all Bulgarian commercial banks to prepare and submit a unified draft rules for a private Moratoria on bank loan payments in relation to the COVID-19 situation (the “Moratoria”), which would enable banks to offer flexibility and incentives for bank loan payments.
Today, 10 April 2020, the Moratoria prepared by the banks, was approved by the BNB.
What is a moratoria and for how long will it be effective?
The moratoria is an opportunity for borrowers to renegotiate the terms and conditions on their bank loans, related to the repayment schedules of the principal and / or interest under the loan. Borrowers who have experienced financial difficulties due to the influence of COVID-19 and are already experiencing or envisage to experience difficulties in payment of their obligations, will be able to agree with their servicing banks deferring the payment of the obligations under their bank loans for a period of up to six months, but no later than 31 December 2020. Subject to deferring may be all amounts due, or the principal only.
Which persons are entitled to apply for bank loan payment incentives?
The scope of the Moratoria covers the widest possible range of borrowers, both individuals and legal entities. The moratorium will apply to all bank loans concluded before 31 March 2020, regardless of their type, size, purpose, and established collaterals.
All borrowers who, until 1 March 2020, have fulfilled the obligations under their bank loans timely, may benefit from the incentives provided by the Moratoria, whereby banks have accepted that a maximum delay of up to 90 days from the due date shall be considered as “timely performance”.
Debtors with a bad credit history prior to the pandemic, on the other hand, will not be entitled to the incentives, provided for in the Moratoria. They, however, may agree with their servicing bank other debt restructuring methods, to be decided by the bank on a case by case basis.
Mechanisms for deferral of the payments
The Moratoria provides for three mechanisms for deferral of the payments, as follows:
The mechanism to be applied in each separate case shall be at the discretion of the respective borrower and their servicing bank.
How to apply for the incentives?
Currently, commercial banks are drafting the necessary internal rules and procedures, providing relevant training to employees and adjusting their banking systems to meet the requirements of the Moratoria, in order to be ready to start working on the measures envisaged thereto as soon as possible.
Any borrower who wants to take advantage of the measures provided for in the Moratoria must contact their servicing bank by 22 June 2020, in order to receive instructions on the procedure to be followed, the necessary documents to be provided, as well as the applicable terms.
Additional financing options
The state is currently committed to stimulate individuals and businesses by providing the Bulgarian Development Bank (BDB) with a resource of BGN 700 million to be used as a portfolio guarantee to commercial banks for the loans granted by them to individuals and legal entities.
Interest-free bank loans for individuals
Commercial banks may grant interest-free consumer loans of up to BGN 1,500, aiming to support individuals who are on unpaid leave due to the situation in Bulgaria. It is expected that these bank loans will be available for self-insured individuals as well.
Bank loans for legal entities
BGN 500 million is expected to be earmarked for business support through corporate loans of up to BGN 2 million to be granted by commercial banks. The financial resource will be directed mainly to the most affected sectors - retail, transport, hotel and restaurant business, tourism, pre-school education in the private sector, artistic and creative activity, sports, etc.
BDB structured programs
It is also envisaged that Micro financing institution JOBS EAD – the subsidiary of BDB, will grant working capital bank loans and credit lines with a maximum amount of BGN 48,800 and a grace period of up to two years. The repayment term of the bank loans will be up to 36 months for the working capital bank loans and up to 60 months for the credit lines.
How can we help
KPMG team remains at your disposal for any questions or assistance.
© 2020 KPMG Bulgaria EOOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.