COVID-19: Loan instalments and interest suspended for 9 months

The spread of COVID -19 has forced the government of the Republic of Cyprus to introduce aggressive and severe emergency measures and restrictions on movement for the public, through relevant Decrees issued by the Minister of Health, in an attempt to limit further spread of the pandemic, causing thus unprecedented and likely long-lasting socio-economic consequences. 
 
On 25/03/2020, the European Banking Authority (EBA), issued an announcement providing clarity to bank institutions and consumers on the application of the prudential framework in light of COVID-19 measures taken by EU member states. In particular, the EBA clarified that generalised payment delays due to legislative initiatives and addressed to all borrowers do not lead to any automatic classification in default, forborne or unlikeliness to pay.
 
To that extent, the House of Representatives approved and enacted the Taking of Emergency Measures taken by Financial Organizations and Supervisory Authorities Law of 2020 (Law 33(I)/2020) (hereinafter the «Law»). The Law authorizes the Council of Ministers of the Republic of Cyprus to take emergency measures aiming to safeguard the financial stability of the Republic. The Law vested the power on the Minister of Finance to issue relevant decrees for the better implementation of the provisions of the Law.
 
In light of the above, on 30/03/2020, the Minister of Finance issued a decree, suspending, upon application to the relevant financial institution, the obligation to pay loan instalments and interest deriving from loans and/or credit facilities granted and/or purchased and/or managed by financial institutions, for a period of 9 months, that is until 31/12/2020 (hereinafter the «Decree»).
 
According to the provisions of the Decree, those eligible to apply for the suspension of the obligation of payment of installments are individuals, public law entities, self-employed and companies, who or which as of 29/02/2020, do not present any arrears in the payment of instalments of more than 30 days from the date provided in the existing loan and/or credit facility agreement.
 
Provided that the above are satisfied, the financial institution is deprived of any ground to reject the application for suspension.  
 
Having said the above, it should be highlighted that the Decree, only suspends the payment of instalments and interest and does not by any means eliminates and/or erases the obligation for payment. The instalments and interests suspended are added to the balance of the amount owed under loan and/or credit facility and the corresponding terms of the loan and/or facility agreements are automatically extended to accommodate the above. For this reason, the Decree provides that the terms of the loan and/or credit facility agreements, other than the repayment terms thereof, as well as all relevant collateral agreements, continue to apply. 
 
Similarly, the recovering measures available to financial institutions for loans and/or credit facilities covered by the Decree are also being suspended by the Decree.  
 
In addition to the above, on 03/04/2020, the members of Association of Cyprus Banks (“ACB”) announced the suspension of the imposition of default interest rate during the period of suspension provided in the Decree. 
 
For more information and guidance, please contact us at info@frangoslaw.com
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