Banks ordered to grant six-month moratorium on loan repayments for clients hit by COVID-19 crisis

The Central Bank of Malta has 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.

A moratorium is a temporary suspension of a borrower’s repayment obligations. Borrowers eligible for this moratorium will be permitted to postpone capital and interest repayments to a later date – without any penalties or administrative fees.

The directive has been sanctioned at law through a legal notice and applies to all bank clients who can demonstrate that they lost income because of the pandemic. To benefit from the terms of this arrangement, clients will have to apply until 30 June with their respective banks.

So far, the key commercial banks have all rolled out schemes to allow clients to apply for a moratorium on the repayment of loan capital. The legal notice formalises this process and makes it mandatory on banks to comply subject to clients fitting the eligibility criteria.

The moratorium announced today by the Central Bank applies to both capital and interest payments and the foregone payments will be repaid later, through a six-month extension of the loan. If the loan ends on retirement age, the outstanding amounts can be spread out over a period.

The legal notice was drafted by the Health Ministry together with the Finance Ministry. Credit and financial institutions licensed by the Malta Financial Services Authority have been directed by these regulations to offer a six-month moratorium on repayments on capital and interest for borrowers who have been negatively affected by COVID-19. 

Parliamentary Secretary for Financial Services and Digital Economy Clayton Bartolo emphasised that the government is committed to ease the financial burden especially on those who have been negatively impacted by this pandemic situation. 

“Our priority remains the health and wellbeing of all Maltese citizens. It is because of this that we strive on providing the much needed financial assistance to all those who, in some way or another, are experiencing a financial shortfall due to the COVID-19 crisis. Together with the Minister for Finance, Profs Edward Scicluna, we engaged in discussions with the banks licenced in Malta and agreed that this suspension on loan repayments is required to help businesses, families and and others.” 

Moratorium terms

The moratorium applies to loans which were sanctioned prior to 1 March 2020 – whether to individuals, households or businesses – and who can show that they have been negatively affected by the pandemic. 

Applications by borrowers are to be made with their respective credit or financial institutions until 30 June 2020. The Health Minister may, after consultation with the Finance Minister, decide to extend the duration of the moratorium and the duration of the application period.

The moratorium is not granted automatically and the borrower will need to apply for the moratorium to the respective credit or financial institution. The moratorium comes into effect once the application has been approved. Borrowers have until 30 June 2020 to apply. 

Borrowers who have already taken up a moratorium offered by their lender, but feel that the terms under the directive are more advantageous, can renegotiate the terms subject to agreement with the credit or financial institution.

Credit and financial institutions have a right to refuse the application as long as this is done within the terms of the directive. 

Notably, borrowers who have been in arrears prior to 1 March 2020 are not eligible for the moratorium.

Borrowers can apply to forego payments of both capital and interest completely for six months, and can also opt to continue to pay the interest but not the capital.

The payments missed during the moratorium will be paid during a six-month extension to the term of the credit facility. If the credit facility was due to mature at retirement age, the missed payments would be spread evenly throughout the remaining term of the credit facility after the end of the moratorium period.