Central Bank issues clarification over six-month moratorium on loan repayments

The Central Bank of Malta has issued a clarification over the six-month moratorium on loan repayment with respect to interest accrued during the moratorium period.

Earlier this month, the Central Bank issued a directive allowing borrowers who have experienced a negative impact on their income due to the COVID-19 pandemic to apply for a six-month moratorium on loan repayments.

The bank said that there were a number of queries by the general public and credit institutions which it was seeking to address.

It said that during the course of the moratorium, the interest was to be accrued but not capitalised – which meant that no compound interest is to be collected during this period.

The accrued interest would then be recovered on a straight-line basis, across the remaining modified maturity term of the loan after the end of the moratorium period, the bank explained.

It said that borrowers could also enter into mutual agreements with their credit or financial institutions for different repayment plans – this would include shorter terms and higher payments, as long as no compounding on the deferred interest was accrued during the moratorium period.

The six-month moratorium was issued due to the COVID-19 outbreak – which caused a serious disturbance in the Maltese economy and as a consequence seriously threatened the financial stability in Malta.

A moratorium is a temporary suspension of a borrower’s repayment obligations. Therefore, borrowers qualifying for this moratorium would be able to postpone to a later date their obligations in relation to their capital and/or interest repayments.