The Central Bank of Malta clarified that during the six-month moratorium on bank loans announced earlier, interest accrues but is not capitalised.
The Central Bank of Malta has issued a clarification on the treatment of accrued interest during the six-month moratorium period referred to in Directive 18. This issue has been the subject of a number of queries raised by the general public and credit institutions since the publication of the announcement that credit and financial institutions shall grant such moratorium, upon request and subject to eligibility, on certain credit facilities advanced to borrowers that have been materially affected by the COVID-19 outbreak.
The clarification provides that:
During the course of the moratorium, interest is to be accrued but not capitalised, in other words no interest compounding is to occur during this period. This accrued interest would subsequently be recovered on a straight line basis (spread equally) across the remaining modified maturity term of the loan after the end of the moratorium period. Borrowers could enter into mutual agreements with their credit or financial institutions for different repayment plans - such as shorter terms and higher payments or vice versa - as long as no compounding on the deferred interest accrued during the moratorium occurs.
The Central Bank of Malta is mindful that the above may already be an adopted practice among credit and financial institutions offering the moratorium. However, the Central Bank of Malta felt that further clarification was in order, so as to ensure a harmonised approach.
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