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Clarification: Six-month moratorium on loan repayments

Clarification: Six-month moratorium on loan repayments

The Central Bank of Malta clarified that during the six-month moratorium on bank loans announced earlier, interest accrues but is not capitalised.

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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. 

Should you have any queries or wish to discuss further, please send an email to covid@kpmg.com.mt.

Clarification: Six-month moratorium on loan repayments

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2020 KPMG, a Maltese civil partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.


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