Non-performing loans and COVID-19 related Moratoria

On the 6th April 2021, the Malta Financial Services Authority (“MFSA”) issued a publication predominantly directed to credit institutions, highlighting that due to the COVID-19 pandemic many businesses and households have experienced financial difficulties which may have resulted in lenders not being able to meet their debt obligations. In order to alleviate the burden, several public and private moratoria were put in place and offered by credit institutions.

In order to avoid a significant increase in non-performing loans, the European Banking Authority (“EBA”) issued Guidelines which enable banks to avoid treating exposures subject to moratoria granted due to the COVID-19 crisis, as forborne or defaulted.

As per the EBA guidelines, the MFSA notes that banks must ensure that the correct treatment is applied when classifying exposures in order to avoid any build-up of non-performing loans which may result from misclassifications or misreporting. Furthermore, the MFSA reminds banks that they must do their utmost to keep their non-performing loans levels low.

Failure to do so may result in the MFSA applying supervisory measures as required and permitted. In this context, banks should make reference to any publication issued by the Central Bank of Malta and the MFSA to ensure that the reporting levels are contained as required.

Should you require any further information on the above, please do not hesitate to contact us.