Use the latest browser recommended by Microsoft
Get speed, security and privacy with Microsoft Edge
The severity of the COVID-19 pandemic on businesses and households led financial institutions to implement relief measures for their customers. For instance, lenders offered borrowers cash flow relief through loan payment moratoria that allowed a deferral of loan payments while interest continued to accrue on outstanding balances.
The initial moratoria periods ranged from three to six months and were intended for customers who faced financial difficulty due to COVID-19 but who were previously in good standing. Loans subject to moratoria were not treated as non-performing during the deferral period. The approaches used by financial institutions varied. For example, some commercial banks rolled out their programmes via blanket deferrals, requiring borrowers to opt-out, while others adopted an opt-in approach, where customers were encouraged to request the moratoria if needed. All blanket deferrals ended during the third quarter of 2020, as institutions assisted financially challenged customers via loan restructuring, refinancing and moratoria on a case-by-case basis. Some borrowers, particularly tourism-related businesses, benefitted from extensions after the second wave of the virus in early 2021.
Given the opt-out approach adopted by some banks, at the end of April 2020, the value of loans under moratoria was its highest at $1.9 billion from 67,127 loan accounts, with individuals accounting for the largest share in both value and number of accounts at 77 percent and 98 percent, respectively. Given the loan restructuring efforts of banks and an improvement in the domestic labour market since the first half of 2020, only $211.7 million remained under moratorium at the end of March 2021. Of this $211.7 million, 95 percent were loans owed by non-financial corporations, mainly in the hospitality sector.
At end December, 5,915 credit union members held loans under moratoria. The majority of these loan accounts were in the personal (64.9 percent), followed by line of credit facilities (18.1 percent) and mortgages (14.4 percent). However, in terms of the total value of loans under moratoria, mortgages, personal and line of credit accounted for 55.5, 41 and 2.5 percent, respectively. The credit union moratoria programme represented 13.5 percent of the total value of loans owed to credit unions.
At end December, 5,915 credit union members held loans under moratoria. The majority of these loan accounts were in the personal (64.9 percent), followed by line of credit facilities (18.1 percent) and mortgages (14.4 percent). However, in terms of the total value of loans under moratoria, mortgages, personal and line of credit accounted for 55.5, 41 and 2.5 percent, respectively. The credit union moratoria programme represented 13.5 percent of the total value of loans owed to credit unions.
The total value under moratoria by deposit-taking finance and trust companies peaked in June 2020 at 35.3 percent of total loans, with household loans under moratoria almost twice that of non-financial private sector firms. By the end of the review period, moratoria loans had fallen to less than one percent of total loans extended by the subsector.
Based on evidence from around the world, loan payment moratoria have proven to be a very useful financial stability tool for abrupt crisis situations such as COVID-19. However, it is critical that they are not used to mask deteriorating credit quality, as this could undermine financial stability over the medium term.
Adapted from the 2020 Financial Stability Report.