The much-anticipated Emergency Government Ordinance no. 37/2020 regarding the facilities granted to certain categories of creditors by credit institutions and non-banking financial institutions (“GEO”), has been adopted by the Romanian Government in the 26^th of March meeting and published on 30 March. The measures anticipate that economic agents will be confronted with severe liquidity shortages, and that individuals will experience a reduction in their revenues.

The published form of the GEO has taken into consideration some of the critics and expectations expressed publicly by economic analysts and the civil society, however it remains in the current form only a first step, albeit insufficient, in supporting economic agents.

1. Who is the GEO applicable to?

The facility is addressed to: (i) to individuals that have consumer and mortgage loans, (ii) authorised persons, (iii) individual enterprises and (iv) family enterprises, (iv) liberal professions, but also to (v) legal entities in general, to the extent that these fulfil certain eligibility conditions conditions, according to the GEO, as described below. The GEO refers to credit and leasing contracts concluded with credit institutions and non-banking financial institutions. In our opinion, the measures do not apply to loans granted to Romanian debtors, by credit institutions from other EU member states, which provide services directly in Romania.

2. Eligibility conditions

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,  expected to be provided by means of the application guidelines.

On the other, in case of debtors, other than natural persons, the GEO expressly specifies the eligibility conditions, namely entities:

• that have totally or partially ceased their activity based on the decisions of the public competent bodies, during the declared emergency period and that are in the possession of the emergency situations certificate, or
• that have registered a decrease in their the income as of March 2020 by at least 25% compared to the average of their income as for January and February 2020 or the partial or total interruption of the activity as a result of the decisions issued by the competent public authorities during the period of state emergency, or that have suspended their activity (totally or partially) following the decisions issued by the authorities during the state of emergency and have obtained the certificate for emergency situations.

The interpretation of the GEO should take into account the guidance issued by the National Bank of Romania on 24 March 2020 which 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.

The GEO provides that the measure applies only to loans that: (i) have not yet reached maturity or have not been declared due and payable and (ii) in case any outstanding amounts are registered under the loan, these have been settled before submitting the request for the postponement of payments. Although the measure of extending the facility also to persons registering outstanding payments at the date of the state of emergency is welcomed, it is questionable to what extent debtors in financial difficulty will have the capacity to pay all such outstanding amounts, in order to become eligible.

3. Postponement of payment term of credit instalments

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.

The postponement can be for a period of maximum 9 months, but not later than 31 December 2020. The credit payment terms will be extended automatically with the period of postponement of the loan 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. 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.

Exceptionally, in the case of mortgage loans granted to natural person, the interest due with respect to the principal amounts which has been postponed, will be spread out in 60 equal monthly instalments, starting with the moment when the postponement has ceased. The interest applied to these receivables will be 0%.

An aspect that is not clarified by the text of the GEO is the matter of the postponed bank fees owed on the loan. According to the GEO these will be object of the suspension of payments during the postponement period but are not expressly mentioned as being added to the principal and bearing interest.

4. State guarantee

The state will guarantee 100% of the capitalized interest on postponed credit instalments. However,  in the published form of the GEO, the measure will only benefit mortgage loans granted to natural persons.

We point out that the amounts guaranteed by the state, by means of letters of guarantee issues by the National Credit Guarantee Fund for SMEs (the “FNGCIMM”), will be recovered by the state from the beneficiary natural person, as budgetary debt of the state.

5. How to invoke the facilities?

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. Details on how to apply these provisions are expected in the upcoming application guidelines.

The request needs to be formulated by the debtor at the latest within 45 days from the entry into force of the GEO. 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.

The published form of the GEO brings an important clarification, in the sens that the amendment of the credit agreements will be automatic, as an effect of the law, without the need to conclude an amendment. Within 30 days from receiving a request from the debtor, the creditor has the obligation to notify the debtor of the amended contractual provisions.

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 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.