On March 19, 2020, the Central Bank of Montenegro (Montenegrin: Centralna banka Crne Gore – “CBCG”) adopted the Decision on interim measures to mitigate the adverse effects of the new coronavirus on the financial system imposing a minimum 90-day delay on bank loan repayments and which is applicable to all businesses.
The moratorium applies to those using all types of financial instruments and loans: cash loans, mortgage loans, investment loans, overdrafts and so forth.
Obligations of banks and debtors
In order for debtors to exercise their right to the moratorium on debt repayment, they must file a request for imposition of the moratorium. This request could be filed either by mail, telephone or e-mail. Banks will publish detailed instructions on how to proceed in the media or on their websites. After the request is filed, banks are obliged to ensure implementation of the moratorium within five working days of receipt of the request. Furthermore, no annexes to loan agreements will be required for the moratorium.
As a result, debtors will be exempt from repayments of their bank loan for a period of 90 days. However, debtors who are still willing to continue with repayment will not be barred from doing so.
In addition to these measures, banks are barred from initiating enforcement proceedings or taking other legal actions aimed at collecting claims during the moratorium. Banks are also barred from charging any administrative costs related to the moratorium.
What does the moratorium actually offer?
Although banks are prevented from calculating and collecting statutory interest on due debt for these 90 days, they are still entitled to apply and calculate contractual interest rate for the duration of the moratorium, which will be added to the debt principal and will be spread across the remaining period of time left for repayment.
In practice, this means that borrowers will not be obliged to pay any due debt for 90 days, but on the other hand, banks will continue to apply the contractual interest in that period. For instance, if a borrower, who has 100 more installments to repay, requests moratorium and does not pay three installments in 90 days, the contracted interest, in that case, could total, for example, € 600. That amount will be later added to the debt principal and allocated to 100 installments that are left to be repaid. This means that the total repayment period initially agreed will now be extended by three months, without amending the contractual terms.
Is moratorium (really) needed?
The main motive for granting the moratorium is to increase disposable income of citizens, especially in situations when there is high risk to citizens’ health.
Is it worthwhile to accept a moratorium? The answer depends on many factors. Certainly, it is more advantageous to accept it if the amount owed is lower because in that case, the contractual interest which continues to apply would be less than in case of higher debt amounts. In order to make the right decision for themselves, each borrower should consider the total size of their debt, how much of their debt is outstanding, length of the remaining repayment period, as well as other aspects of their financial agreement with the bank. Nevertheless, borrowers who lost their jobs due to the COVID-19 pandemic, or were sent on (un)paid leave, would be more then eager to accept the moratorium, to try to mitigate the financial impact on their home budgets and damages which could certainly financially devastate the families.
On the other hand, if a borrower decides to repay the debt, there are no restrictions to opt for accepting the moratorium at a later date. In any case, debtors should be informed so that they can make appropriate financial decisions, and avoid negative consequences that could occur during and after the end of the COVID-19 pandemic.
For more information, please contact us via covid19@geciclaw.com
