The Covid-19 pandemic took the world by surprise, and the response of the Banking & Finance sector was essential in dealing with the economic consequences of the crisis.
The lockdown measures have caused a series of widespread adverse economic effects of such intensity that states were forced to issue public loan moratoria to protect debtors facing difficulties as a result of the pandemic.
Despite the attempt of the European Banking Authority (EBA) to harmonize the approaches of the EU Member States through its April 2, 2020 “Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis,” European states have decided to pursue their own visions in addressing this common matter.
They took different approaches to various key areas, such as the kind of debtors able to benefit from these measures, the affected creditors, the binding or non-binding nature of the measures, the duration for which payment obligations are postponed, the fate of interest and fees during this period, and the resumption of payments and the existence of any state guarantee regarding the performance of suspended payment obligations by debtors. Nevertheless, in terms of loan classification and provisioning, the EBA Guidelines proved very useful in establishing certain requirements for both public and private moratoria which, if met, eliminated the need for a reclassification by credit institutions of the loans for which payment was postponed into defaulting loans (which would have triggered the need for the banks to establish financial provisions for them).
In Romania, aspects related to the postponement of repayment obligations under loan agreements were regulated on March 30, 2020, under Emergency Ordinance no. 37/2020 on the granting of certain facilities for the credits granted by credit institutions and non-banking financial institutions to certain categories of debtors, as amended by the corresponding law issued for its approval. Other legislative attempts on the same topic were also made, reflecting the differences of vision between the Romanian Government and the Romanian Parliament, and which were either rejected or declared unconstitutional.
The provisions of GEO 37/2020 were among those most beneficial for the debtors, including the wide range of debtors that were included (i.e. , all natural and legal persons that face economic problems in the context of the Covid-19 pandemic), the potentially long repayment suspension period (i.e., until the end of 2020), the relatively relaxed application criteria, and by its mandatory nature for the creditor, as long as the conditions for its application are met.
However, certain drafting technicalities made the provisions of GEO 37/2020, in some instances, unclear, which, coupled with a degree of uncertainty triggered by the above-mentioned differences of vision, at times generated difficulties putting them in place in practice.
Based on our experience, natural persons and small and medium enterprises were more inclined to access the benefits of GEO 37/2020, while the tendency for large corporates was more in the direction of adjusting financial arrangements with creditors on a bilateral basis, following negotiation. In either case, we have seen mature reactions from both lenders and borrowers and solution-oriented approaches, which allow us to say that our banking market has reached a new stage of evolution and maturity.
As the pandemic continues, there are discussions in the public space about potentially prolonging the suspension effects of GEO 37/2020, which are due to expire at the end of 2020. We also expect negotiations between banks and borrowers to continue and to lead to further rearrangements of existing financings, depending on the evolution of the overall economic context and the specific business at stake. While some of these businesses may not survive the crisis, it seems that various opportunities are arising in the banking market at an increased pace, but under prudent new lending conditions.
By Alexandra Manciulea, Partner, Filip & Company