CNB regards loan moratorium as economically justified

The CNB regards the draft law on some measures in the area of loan repayment in connection with the COVID-19 pandemic (the loan moratorium), prepared by the Ministry of Finance and approved by the Czech government today, as economically justifiable. The draft law would prevent unnecessary and early insolvencies from being caused by a drop in the incomes of firms, the self-employed and households due to the coronavirus pandemic. Such insolvencies would cause irreparable damage to the Czech economy and, in turn, negatively affect the condition of banks and other financial institutions.

The approved approach requires customers to take an active step towards postponing their instalments. Once borrowers inform their lender about their intention to use the moratorium because they have suffered a negative economic impact from the COVID-19 pandemic, they can stop repaying for three or six months.

"We have tried to strike a balance between the needs of consumers and firms on the one hand and banks and non-bank lenders on the other, as both sides are important for maintaining financial stability," said Governor Jiří Rusnok commenting on the draft law. "It is a rescue measure that domestic banks should be able to absorb thanks to the sufficient reserves they set aside in good times," he added.

The moratorium will not only allow instalments to be postponed quickly and simply, but will also make it unnecessary for banks and credit unions to increase their provisions for such loans due to this postponement. The CNB will monitor how the moratorium affects banks' portfolios in practice and what impacts it has on their liquidity situation. After the moratorium expires, the CNB will focus intensely on assessing whether banks and credit unions categorise their loans appropriately and create sufficient provisions for them.

The loan moratorium law is the second legislative change to have been made during the coronavirus pandemic which affects the CNB and its legal duty to maintain financial stability. Next week, the Chamber of Deputies is also scheduled to discuss an amendment to the Act on the CNB which is important for ensuring sufficient liquidity in both the banking sector and the financial sector as a whole. The amendment would extend the range of CNB instruments and eligible counterparties for open market operations to include all financial instruments and all financial institutions. It is aimed, among other things, at enabling the CNB to stabilise financial markets and thus maintain the stability of the domestic financial sector even if some financial institutions were forced to start selling their assets on a large scale due to the economic impacts of the coronavirus crisis.

Markéta Fišerová 
Director of the Communications Division and CNB Spokesperson