Insights

In this issue:

• Circular on the provision of services to the public by Credit Institutions during the COVID-19 period
• ECB Banking Supervision provides temporary relief for Capital Requirements for Market Risk
• New COVID-19 regulations on moratoria measures on credit facilities
• MFSA issues a Circular to Credit Institutions and Foreign Branches outlining COVID-19 measures on timing of Supervisory Reporting
• MDB to implement the Interest Rate Subsidy scheme complementing the COVID-19 Guarantee Scheme
• EBA Guidelines on legislative and non-legislative moratoria on loan payments applied in the light of the COVID-19 crisis
• New CBM Directive introducing business continuity measures

Circular on the provision of services to the public by Credit Institutions during the COVID-19 period

In a circular issued earlier this month, the MFSA noted that the COVID-19 outbreak has led a number of credit institutions to affect a number of changes to their operational modalities particularly to the branch network and opening hours. In agreement with the Authority, each credit institution is maintaining a minimum of 50% of its normal week-day branch capacity with 25% on Saturdays. Resources have been more focused on phone and digital banking services and in this regard, the Authority is urging customers to make use of these alternative service channels if possible. In the eventuality that a customer still needs to visit a branch, the MFSA suggests that visits to branches are done so on weekdays and that clients are to respect the social distancing measures recommended by the health authorities when queuing outside branches. The Malta Bankers’ Association issued a list of branches available for customers to be able to locate the nearest branch to their locality.

MFSA’s circular

ECB Banking Supervision provides temporary relief for Capital Requirements for Market Risk

On 16 April 2020, the European Central Bank (ECB) announced a temporary reduction in capital requirements for market risk, by allowing banks to adjust the supervisory component of these requirements. The main purpose of the temporary relief is to, apart from smoothing procyclicality, to preserve the banks’ ability to provide market liquidity and to continue market-making activities. Accordingly, the supervisory measure in relation to the qualitative market risk multiplier has been reduced by the ECB to counteract for the increase in the quantitative multiplier. The latter decision will be reviewed in six months’ time on the basis of observed volatility.

ECB’s press statement

New COVID-19 regulations on moratoria measures on credit facilities

In light of the COVID-19 outbreak, the Government of Malta issued on 13 April 2020, the Moratorium on Credit Facilities in Exceptional Circumstances Regulations (the “Regulations”) through Legal Notice 142 of 2020. The main scope of the Regulation is to regulate the provision of a moratorium by credit and financial institutions on credit facilities in order to mitigate systemic exposure to the Maltese economy by supporting economically vulnerable persons who have been materially affected by the COVID-19 pandemic.

The Regulations mandate credit and financial institutions, licensed under the Banking Act (Cap. 371 of the Laws of Malta) and under the Financial Institutions Act (Cap. 376 of the Laws of Malta) respectively, to grant a six-month moratorium on capital and interest for borrowers with respect to credit facilities satisfying the eligibility criteria established under Directive No. 18 issued by the Central Bank of Malta (the “Directive”), which Directive also delves into other conditions related to the implementation of the Regulations. Foreign banks do not fall within the scope of the Directive unless they have a branch, agency, or office in Malta. The six-month period will start with effect from the date of approval of the application and the moratorium does not affect other conditions of the credit facility, particularly the interest rate.

Legal Notice 142 of 2020

MFSA issues a Circular to Credit Institutions and Foreign Branches outlining COVID-19 measures on timing of Supervisory Reporting

On 15 April 2020, the Malta Financial Services Authority issued a Circular to all Maltese credit institutions and foreign branches situated in Malta outlining COVID-19 measures on the timing of Supervisory Reporting.

Measures relating to Significant Institutions (SIs) – The MFSA confirms in its Circular that euro area SIs falling under the direct supervision of the ECB are being granted a 1-month extension for the submission of the below data with remittance dates between March 2020 and May 2020:

1. Supervisory Reporting modules, with the exception of (a) LCR and ALMM modules, for which no extension is being granted; and (b) Funding Plans, for which a 2-month extension is being granted; and
2. ECB recurring data requests, with a few exceptions.

Measures relating to Less Significant Institutions (LSIs) – The MFSA also confirms in its Circular that it will be granting LSIs, a 1-month extension for the submission of Supervisory Reporting modules with remittance dates between March 2020 and May 2020, with the exception of (a) LCR and ALMM modules, for which no extension is being granted; and (b) Funding Plans, for which a 2-month extension is being granted where applicable.

Measures relating to Foreign Branches – Foreign branches will be granted a 1-month extension for the submission of Supervisory Reporting modules (FINREP, AE, and COREP OF) also with remittance dates between March 2020 and May 2020. In all cases, the MFSA is informing credit institutions and foreign branches situated in Malta that the above-mentioned extensions might be prolonged to other remittance dates if deemed necessary at a later date. Apart from the above measures, the Circular also includes additional information in relation to (i) ITS on Supervisory Reporting v2.9, whereby credit institutions and foreign branches are being informed that the framework still applies and are encouraged to refer to the MFSA’s Circular on the revised ITS on Supervisory Reporting on its application; (ii) Resubmissions of Supervisory Reporting modules, whereby credit institutions and foreign branches are being informed that the timeframe in relation to resubmissions will be assessed on a case-by-case basis and communicated bilaterally; and (iii) Invalid Submissions, whereby credit institutions are being informed that invalid submissions in terms of XBRL business validation rules will still be sent to the ECB by an MFSA official despite the failing business validation rules as part of the temporary COVID-19 measures. The MFSA continues to monitor the situation closely and will communicate to the market further guidance as things develop.

MDB to implement the Interest Rate Subsidy scheme complementing the COVID-19 Guarantee Scheme

Earlier this month the Malta Development Bank (“MDB”) has launched the EU Commission-approved MDB COVID-19 Guarantee Scheme (the “Guarantee Scheme”), which mainly provides guarantees to commercial banks to facilitate access to bank financing to businesses established and operating in Malta (both, SMEs having up to 250 employees, as well as large enterprises with more than 250 employees), who are facing liquidity and cashflow problems due to the pandemic. The Guarantee Scheme mainly entails a fund of €350 million for the guaranteeing of loans granted by banks, which banks would in turn be able to leverage the Government’s guarantees up to a total portfolio volume of €777.8 million to support all types of businesses.

To complement the Guarantee Scheme, the Government has just announced a second measure to further alleviate terms relating to working capital loans extended by banks under the same Scheme. Through the Interest Rate Subsidy scheme (“IR Scheme”), which is also targeted towards businesses facing unprecedented disruptions due to the COVID-19 outbreak, businesses may avail themselves from a subsidy of up to 2.5% on the interest rate charged by banks during the first two years of working capital loans guaranteed by the Guarantee Scheme. The Malta Development Bank, appointed as the implementing body of the IR Scheme, is currently setting up the operational modalities in collaboration with the commercial banks and is working on the list of accredited commercial banks admitted for participation in the Guarantee Scheme, which list will be available on the MDB website. MDB will shortly be providing more information on both schemes in an FAQ section which will be available on the MDB website. In the interim, interested businesses may contact MDB for further information via email on info-covid19@mdb.org.mt.

Link to guarantee scheme

EBA Guidelines on legislative and non-legislative moratoria on loan payments applied in the light of the COVID-19 crisis

The COVID-19 pandemic has triggered several response measures across the globe, which consequently ripple into considerable economic stress, particularly for small businesses and households that find themselves faced with liquidity struggles in paying their financial commitments on time. On the other side of the spectrum, credit defaults or payment delays may affect banks, which would in turn need to increase their own funds. In order to mitigate the credit and systematic risks caused by liquidity and operational difficulties being faced by borrowers, Member States have issued a wide number of support measures, including moratorium on payments of credit obligations.

In this respect, the European Banking Authority (“EBA”) has issued guidelines on legislative and non-legislative moratoria on loan payments (the “Guidelines”), primarily to clarify the following matters:

1. The criteria which moratoria must fulfil not to trigger forbearance classification under Regulation (EU) 575/2013 as amended by Regulation (EU) 2019/630 (collectively referred to as “CRR”);
2. The application of the prudential requirements in the context of loan moratoria; and
3. The importance of consistency in the treatment of moratorium measures in the calculation of own funds requirements.

New CBM Directive introducing business continuity measures

The Central Bank of Malta issued a new Directive No.17 applicable to credit and financial institutions and is aimed at introducing temporary business continuity measures so that banks would be able to continue serving the general public as smoothly as possible. The Directive particularly relates to the deposit and withdrawal of cash, the deposit, encashment and clearing of paper-based instruments (such as cheques, bank drafts and similar instruments) and relating to the provision of services through alternative delivery channels.

New CBM Directive