Payment standstill introduced by the Central Bank of Montenegro - what we know so far?

The Central Bank of Montenegro (CBM) enacted a decision on payment standstill on 17 March, which entered into force on 20 March 2020. The Decision on Temporary Measures for Facilitation of Coronavirus Negative Impact on the Financial System was published in the Official Gazette of Montenegro, no. 19/20.

Category of debtors and payment standstill beneficiaries

The payment standstill is offered to natural persons, entrepreneurs, legal entities and other loan users for all loans and leasing arrangements extended by the banks, leasing companies and microcredit financial institutions.

Scope of payment standstill

Banks and leasing companies were obliged to publish on their websites, by 30 March at the latest, an up-to-90-days payment standstill offer to debtors.

• The standstill captures all payments of one debtor - the bank is obliged to offer payment standstill to a debtor on all loans, credit cards or charges and similar exposures irrespective of their number within five days as of the day of offer being published on bank's website. The debtors have to request the payment standstill via phone, email or post and the bank is obliged to meet their request within five days as of the day of receipt of the request.
• The debtor is not prevented from using the payment standstill on later payments even if it initially did not request the use of the payment standstill.
• The bank will not calculate default interest during the payment standstill (even if the debtor was in payment default before the payment standstill) and will not initiate or continue any foreclosure actions against the debtors. The contractual interest will be calculated and distributed pro rata on all payments until the final repayment date. Final repayment date effectively will be prolonged for all debtors using the payment standstill for an additional 90 days or as long as the payment standstill is in place (the Decision obviously leaves the possibility for the payment standstill to be extended, but not beyond the validity of the Decision which can be abolished only by another CBM decision) without the need for the annexing of the loan agreement. The banks will merely send an amended repayment plan to the debtor extending the repayment period.
• The bank will not calculate days of payment delay during the payment standstill and the loans may not be reclassified in a lower category during this period (even if the debtor was in payment arrears before the payment standstill).
• If, during the payment standstill, the bank makes an approval to the existing debtor of one or more facilitatory measures envisaged in the Decision on Minimal Standards for Credit Risk Management in Banks (Official Gazette of Montenegro, nos. 22/12, 55/12, 57/13, 44/17, 82/17, 86/18, and 42/19), it can deem this existing loan as a newly approved loan (for the purpose of classification of active and reserves for credit losses) if the debtor may document or verify to the bank that his financial position is negatively impacted due to coronavirus, and the bank assesses that the debtor's creditworthiness will be improved after the restructuring.
• During the validity of the Decision, the banks may restructure and reclassify loans, which are subject to the Decision on Macroprudential Measures for Loans Approved by the Banks to Natural Persons (Official Gazette of Montenegro, no. 58/19), including extension of the repayment date for maximum of two years longer than envisaged under such decision even when the loan is not secured with collaterals referred to in the decision.
• Banks and leasing companies will not impose any additional charges on debtors for implementation of the payment standstill (including fees payable in connection with amendments of the security documents, if applicable) and will notify CBM on the 15th of each month for the preceding month about the implementation of payment standstill.

Cross-border financings

The Decision is silent in respect to cross-border arrangements. Given the nature of the payment standstill and the wording of the decisions, it can be assumed that it is addressed only to Montenegrin licensed banks, leasing companies, microcredit financial institutions extending loans or leasing arrangements to Montenegrin residents.

For more information, contact your regular CMS advisor or local CMS experts: Milica Popović and Ksenija Boreta.