The much anticipated emergency government ordinance (GEO) regarding the facilities granted to certain categories of creditors by credit institutions and non-banking financial institutions, has been adopted by the Romanian Government in the 26th of March meeting. The measures anticipate that ONLY certain SMEs will be confronted with severe liquidity shortages, as well as individuals that will experience a reduction in their revenues. The analysis below was made based on the GEO’s text, available in press, as this has not been published in the Official Gazette yet.
The facility is addressed strictly: (i) to individuals that have consumer and mortgage loans, (ii) authorised persons, (iii) individual enterprises and (iv) family enterprises. Also, SMEs can benefit from the facility, to the extent these are eligible according to the GEO, under the conditions described below. Thus, on the other hand, the facility is not addressed to companies regarded as “large corporates”.
An interesting aspect is that non-banking financial institutions can benefit, without other conditions expressly being required, when these act as borrowers under a credit agreement.
The amenity envisages the postponement of payment term of credit instalments, representing capital, interest and fees. We note that the measure does not amount to debt forgiveness, neither with respect to interest, nor to instalments.
Thus, the interest related to the postponed credit instalments will be capitalised and added to the principal of the loan, and subsequently will be spread out during the rest of the term of the loan or for a period of maximum 5 years, in the case of mortgage agreement. This is a salutary short-term measure for those that no longer have the ability to pay during the next period, however in the end capitalizing interest will mean higher total costs on the respective loan.
The postponement can be for a period of maximum 9 months, but not later than 31 December 2020.
The state will guarantee 100% of the capitalized interest on postponed credit instalments. However, according to the legal provisions, this measure will only benefit loans granted to natural persons.
The beneficiaries of these measures are debtors whose revenues have been directly or indirectly affected by the serious situation generated by the COVID-19 pandemic. We note that the GEO does not clarify what are the criteria for determining debtors who fulfil this condition and we anticipate that this will be a topic subject to disputes in the absence of clarifications that will be useful to have by means of the application guidelines.
On the other, the GEO specifies who are the eligible SMEs. It refers to SMEs that are not in insolvency proceedings at the date of the request and which, as employers, can benefit from the technical unemployment indemnity provided under GEO no. 30/2020, namely:
The facilities apply only to loans that: (i) have not yet reached maturity or have not been declared due and payable and (ii) have not registered outstanding payments of credit, at the date the emergency period.
In this respect, the guidance issued by the National Bank of Romania on 24 March 2020 is also relevant, and states that renegotiation of loan terms (payment terms prolongation) by credit institutions and debtors, on an individual basis, and not connected to the COVID 19 pandemic, will represent credit restructuring. Consequently, these amenities will not be applicable to credits and debtors already in financial difficulty at the date of the emergency period.
Eligible persons will formulate a written demand to the credit institution, which will analyse fulfilment of the eligibility conditions and approve the request according to the guidelines to be adopted.
The request needs to be formulated at the latest before the end of the emergency period. The postponement of the contractual term of the loan will produce effects from the date the request is formulated to creditor, for the requests that are approved by the respective creditors.
It is important to note that the request does not need to come in written form. The request can be formulated verbally, by phone, at a dedicated contact number to be made public by each creditor on its internet page.
We also mention that the European Banking Authority called on commercial banks within the European Union to act in the interest of consumers, specifically regarding those who face financial difficulties. EBA pointed out the legal and reputational consequences of certain practices of increasing the costs or of adding new or additional charges and that the acceptance of temporary measures should not automatically lead to negative implications for the consumer’s credit rating.
We are keenly anticipating the entry into force of the GEO, after publication with the Official Journal, as well as publication of application guidelines in view of clarifying the practical aspects that potential beneficiaries and credit institutions will be confronted with, in the next period.