Generic moratoriums by banks no longer desirable

Generic moratoriums by  banks no longer desirable

PHILIPSBURG--The Central Bank of Curaçao and St. Maarten (CBCS) said on Wednesday that banks offering a generic moratorium to their clients is no longer desirable in the interest of the financial stability of the financial institutions.

  With the aim of mitigating the direct financial impact of the coronavirus COVID-19 crisis on businesses and individuals, in March, CBCS gave its approval for commercial banks to offer three to six-month moratoriums to their customers.

  Banks were allowed to exempt their customers from making both principal and interest payments on their loans for a specific period, without this affecting the banks’ financial position. Additionally, banks were allowed to temporarily increase the maximum amount of credit to be extended to customers in proportion to their income – the debt-service ratio.

  “However, this concession made to customers is not without its consequences and risks for the commercial banks themselves, for their future financial position and therefore also for financial stability,” CBCS said in a press statement. “For these reasons, the CBCS is no longer allowing banks to generically grant moratoriums to their customers without this affecting the provisions to be made by the bank.”

  Nevertheless, on a case-by-case basis and subject to the applicable supervisory regulations, banks are still allowed to support any of their customers facing financial challenges, without this necessarily affecting the provisions to be made by the bank.

  Furthermore, CBCS said it has determined that when granting loans, the total debt-service ratio of 37 per cent may no longer be exceeded. In doing so, the CBCS aims to prevent excessive lending to consumers and to ensure prudent credit extension practices in Curaçao and St. Maarten.