Should the application of legislative moratoria fall within the definition of forbearance measures?
In accordance with article 47b of the Regulation (EU) No. 575/2013 as amended by Regulation (EU) No. 630/2019 (“CRR”), “forbearance measure is a concession by an institution towards an obligor that is experiencing or is likely to experience difficulties in meeting its financial commitments”. Letter a), first subparagraph of that article further specifies that “a concession shall refer to”, inter alia, “a modification of the terms and conditions of a debt obligation, where such modification would not have been granted had the obligor not experienced difficulties in meeting its financial commitments”.
The Eba addresses the topic with “EBA Guidelines on legislative and non-legislative moratoria on loan repayments applied in light of the COVID-19 crisis (EBA/GL/2020/02)” as amended by the EBA/GL/2020/08 on 26th June 2020 and by the EBA/GL/2020/15 on 2nd December 2020 (“GL”) and with the “EBA Report on the implementation of selected COVID-19 policies (EBA/REP/200/19)”.
The legislative moratoria schemes introduced in response to the COVID-19 pandemic have a generally preventative nature and are not borrower specific, as they aim to address systemic risks that may occur in the wider EU economy in the future. Their application does not fall under the definition of forbearance measures as laid down in the first subparagraph of article 47b of the CRR.
First, legislative moratoria apply compulsorily to all institutions within a jurisdiction. Their application does not constitute a “concession by an institution” because institutions are forced, by virtue of a State Law, to apply the legislative moratoria and consequently the moratorium is not granted because of institution’s free choice.
Moreover, the application of legislative moratoria does not envisage any assessment of the extent to which “an obligor […] is experiencing or is likely to experience difficulties in meeting its financial commitments”. It follows that Institutions are not able to assess if the payment moratoria “would not have been granted had the obligor not experienced difficulties in meeting its financial commitments”. On the contrary, before granting a forbearance measure, institutions should carry out an individual assessment of the repayment capacity of the borrower and grant forbearance measures tailored to the specific circumstances of the borrower in question.
It follows that the exposures that benefit from the application of legislative moratoria should not be classified as forborne in accordance with Article 47b of the CRR or treated as distressed restructuring in accordance with letter d), third subparagraph of article 178 of that Regulation.
This question has been rejected because the matter it refers to has been identified and will be addressed in the forthcoming release of the EBA Report on COVID-19 implementation policies.