Moratoria for loan repayments due to COVID-19
Consumer credits: In Austria loan repayments of consumer that have been affected by COVID-19 were deferred (in certain cases). These deferrals were prolonged several times and were applicable to instalments, that were due until 31 January 2021 and deferred instalments for up to 10 months. This could present itself as problematic from a prudential viewpoint, since the EBA Guidelines, that have provided prudential easements for granting banks, are only applicable to deferrals that have been stipulated after 30 September 2020 and before 31 March 2021 for 9 months.
1. “2. COVID-19-Justizbegleitgesetz”
With the Second Federal Act on accompanying measures to COVID-19 in the judiciary system (2. Bundesgesetz betreffend Begleitmaßnahmen zu COVID-19 in der Justiz - Second COVID-19-JuBG) the possibility of a moratorium for consumer loans and loans to micro enterprises (within the meaning of European Commission Recommendation 2003/361/EC) granted before 15 March 2020, was created. This only concerns loans agreements between consumers/micro enterprises and banks/credit institutions. With another Federal Act these moratoria were prolonged from seven (originally three) to ten months.
2. Requirements for the COVID-19 moratoria
Claims of the lender regarding repayment, interest or principal payments, that fell due between 1 April 2020 and 31 January 2021, were deferred for ten months from their falling due, i.e. suspended for ten months after the contractually stipulated date of payment. This under the requirement that (i) the borrower has had a loss of income due to the exceptional circumstances caused by COVID-19, that (ii) led to the situation that they cannot reasonably be expected to repay the loan. The law states – as an example for the element “cannot be reasonably expected” – that with repayment the reasonable livelihood of the borrower or one of his dependents would be threatened. The legislative notes make it clear that these new provisions are consistently linked to the COVID-19 pandemic and to a significant impairment of the borrower’s economic capacity as a consequence. In case of a deferral being claimed, the lender must provide the borrower with a confirmation of the deferral and the consequential contractual amendments on a permanent data carrier. Interest will also be deferred but will in our opinion still accrue.
3. Security provision
Provided securities will be extended, so that if they would not be able to be realized after the moratoria, the lender will have the same time available for the realization after the last maturity of a secured claim as was agreed before the moratorium.
For the moratoria there was an “Opt-Out”, i.e. the borrower could keep on repaying their loan, which led to the payments not being suspended. This possibility is welcome in our view, since (i) it could be avoided that the borrower that keeps repaying their loan, pays a “non-debt” (Nichtschuld), because of an automatic moratorium (since the respective amounts did not have to be paid) and (ii) no (probably very time consuming) registration was necessary for a moratorium.
5. Consequences of the COVID-19 moratoria
If the borrower made use of the moratorium, the lender will not be able to terminate the loan agreement due to non-payment, default or material deterioration in the financial position of the consumer until the end of the moratorium. This provision is mandatory.
Furthermore, it must be noted that the parties to the contract can deviate from the moratorium arrangements. The law specifically mentions agreements regarding possible partial payments, interest and repayment adjustments or debt restructuring. The lender has to offer the consumer a discussion about an amicable settlement and about possible support measures. Such an amicable settlement must be reached in particular for the period after 31 January 2021; if no such settlement exists, the term of the agreement is extended by ten months.
6. Prudential consequences
In general, the COVID-19 provisions relating to moratoria in Austria were welcomed, as clear provisions by the legislator are helpful against the background of avoiding defaults as well as flagging of forbearance in the sense of the Capital Requirements Regulation (CRR). EBA (European Banking Authority) had phased out its Guidelines in connection to this topic until 30 September 2020 but has reactivated those guidelines in view of a “second wave”. Therefore, general moratoria (the statutory Austrian moratoria fall under these) that have been stipulated until 31 March 2021 – whereas Austrian moratoria are only applicable to instalments that fall due until 31 January 2021 – are included. If those moratoria were stipulated after 30 September 2020 however, they may last no more than 9 months. The same goes for prolongations of moratoria in our view. In Austria this creates the problem that the last prolongation of the statutory moratoria was on 15 October 2020, so after 30 September 2020, and the duration of the moratoria was prolonged to 10 months. Such deferrals thus take one month "too long" according to the EBA guidelines. Those moratoria have to be approached on a case-by-case basis regarding, inter alia, Forbearance.