On April 10, 2020, the Managing Board of the Bulgarian National Bank approved the proposed by the Association of Banks in Bulgaria (ABB) draft of Rules for deferral and settlement of due obligations to banks and their subsidiaries – financial institutions in connection with the state of emergency declared by the National Assembly on March 13, 2020 („Deferral Rules“).
The Deferral Rules set forth the general rules, conditions and terms according to which the banks’ clients shall be able to apply for and obtain deferral of their obligations towards credit institutions.
The Deferral Rules provide for three mechanisms for deferral and rescheduling of obligations, as the banks may offer and negotiate with their clients other individual deferral or relief schemes as well, other than those provided for in the Deferral Rules.
The Deferral Rules shall also apply accordingly to financial institutions – subsidiaries of a bank.
1. Who has the right to apply for deferral and rescheduling of obligations?
The clients – borrowers (both natural persons and legal entities) of the banks who have or expect difficulties in repaying their obligations under the loan agreement concluded with the bank shall have the right to benefit from the reliefs. These difficulties must have arisen in connection with the COVID-19 pandemic and the restrictions imposed by the Act on Measures and Actions during the State of Emergency, declared by a decision of the National Assembly of 13 March 2020, and their consequences.
In addition, clients are required to have regularly paid their obligations up to 01.03.2020 or these obligations to be overdue by no more than 90 days. It should be also noted that the repayment and settlement mechanisms provided for in the Deferral Rules relate only to obligations arising from agreements concluded before 31.03.2020.
The Deferral Rules do not provide for and do not allow changes in the terms of the loan agreements with the clients which lead to a change in the agreed interest rate. Such alteration of the contractual terms is also not permitted under the European Banking Authority’s Guidelines on credit deferrals.
2. How may the clients apply for relief?
The client shall explicitly request (in writing, and some banks also provide an option by telephone) to benefit from reliefs offered by the bank no later than 22.06.2020. The bank shall resolve on the request in a term until 30.06.2020.
The deferral request may cover both instalments unpaid prior to the submission of the request, and instalments with upcoming due date.
3. For what period may the deferral of obligations be allowed?
Obligations may be deferred for a term (“Grace Period”) of up to 6 months, which shall expire no later than 31.12.2020, as the deferral may cover all amounts due or only the principal.
After the expiry of the Grace Period, the amounts not repaid on the originally agreed due dates shall be repaid in instalments, and the repayments shall be made in accordance with the applicable deferral mechanism (see below), unless otherwise provided for by the applicable mechanism.
The client also has the right to relinquish the Grace Period granted earlier than provided and to request preparation of a repayment schedule.
4. Deferral and rescheduling mechanisms
Three deferral and rescheduling mechanisms are provided for by the Deferral Rules, as the choice of a specific mechanism shall be made by mutual consent of the parties.
a) Deferral of principal and interest for a period of up to 6 months
This mechanism provides that the amounts due (principal and interest) shall be deferred for up to 6 months, but no later than 31.12.2020.
In this case, the principal unpaid during the Grace Period, together with the entire remaining balance of the loan, shall be repaid according to a new repayment schedule, the term of which shall expire no later than 6 months after the initially agreed term, depending on the number of instalments deferred.
The interest amount unpaid during the Grace Period shall be divided into equal instalments, which shall be added to each instalment under the repayment schedule until the expiry of the loan term (or another shorter period agreed between the parties).
b) Deferral of principal for a period of up to 6 months
Under this mechanism, the principal due shall be deferred for up to 6 months, but no later than 31.12.2020.
After the expiry of the Grace Period, a new repayment schedule shall be prepared, covering the principal unpaid during the Grace Period, together with the entire remaining balance of the loan. The term of the new repayment schedule shall be determined depending on the number of deferred instalments, as it shall not exceed the initially agreed term by more than 6 months.
The interest due during the Grace Period shall not be deferred and shall be paid in accordance with the loan agreement.
c) Special reliefs applicable to revolving products (credit line, credit card, overdraft)
Revolving of a credit line shall be allowed, even if the instalments due or part of them are not repaid. The repayment of the instalments shall be postponed by up to 6 months, but not later than 31.12.2020.
As of 01.02.2020 at the earliest, no minimum amount for revolving of a credit limit under credit card shall be formed for a period of up to 6 months (but no later than 31.12.2020). After the Grace Period has expired, the formation of a minimum amount shall be restored and the loan shall be repaid in line with the initial agreement.
For a term of up to 6 months, but not later than 31.12.2020, the due monthly interest on the overdraft loan shall be repaid at the expense of an unused limit or its payment shall be deferred for a period of up to 6 months after the Grace Period expiration.
The team of Dyulgerova and Penkova Law Firm