CNB adjusts regulatory framework for liquidity maintenance of the economy and households during coronavirus pandemic crisis

Published: 20/3/2020

The CNB has adjusted its approach to supervision of credit institutions in order for banks to facilitate the ensuring of liquidity and thus supporting the maintenance of economic activity and safeguarding jobs

As a response to the disruption in the economy caused by the coronavirus pandemic, the CNB has adjusted its approach to the supervision of credit institutions in accordance with the positions of the European Banking Authority (EBA) and the European Central Bank (ECB). The CNB believes that banks should make an important contribution to the efforts to alleviate the social and economic consequences of the coronavirus pandemic. Therefore, the CNB has decided to take a flexible approach in applying the existing regulatory framework in these exceptional circumstances.

Thus, the CNB has postponed certain supervisory activities (stress-testing of credit institutions, direct supervisions of operations) and has instructed credit institutions on the use of liquidity reserves and the classification of the existing and the new exposures to regular debtors in the following period of one year. In addition, the CNB has expressed its readiness to consider and redefine the timeframe for meeting the previously imposed supervisory measures on an individual basis.

Classification of existing and new exposures

A credit institution may postpone payment obligations or in another way restructure credit liabilities and grant new loans for the existing and the new exposures towards its regular clients who were classified as A clients on 31 December 2019 – whose operation has already been affected or will be affected by the coronavirus pandemic, all with the objective to avoid further deterioration of the clients’ financial condition.

Within the above period, the credit institution may still classify such clients as A-clients and does not have to set aside provisions for them. A-clients account for over 90% of the total placements of credit institutions.

With the describe method of the classification of placements, the CNB enables credit institutions to take a decision according to which they will not initiate forced collection measures (foreclosures, instruments of collateral) for the collection of debt from their debtors who, in the period of three months, starting from April 2020, fail to settle three instalments of their credit liabilities. The measure applies to legal and natural persons employed at such entrepreneurs.

All of the above mentioned possibilities of the suspension of payment obligation, the restructuring of the credit liability or the granting of new loans for entrepreneurs and natural persons relate exclusively to the designated financing of the maintenance of the continuity of operations of clients and jobs, as well as the financing of contingent operating costs incurred due to the coronavirus pandemic and will last until 31 March 2021.

Use of liquidity reserves

the liquidity coverage requirement serves for safeguarding credit institutions under stressed conditions, in the period until 30 June 2021, credit institutions may temporarily use this liquidity buffer.

The CNB will also impose measures on credit institutions with regard to the retention of net income for 2019, and credit institutions are additionally expected to adjust the payment of variable remunerations (bonuses, severance payments, etc.).

Taking into consideration the high level of capitalisation and liquidity of credit institutions as a whole, the meeting of supervisory expectations should alleviate the negative impact of the coronavirus pandemic on economic activity in the Republic of Croatia.

The CNB will also continue to enable the safety and stability of operation of credit institutions in the Republic of Croatia by means of its monetary measures.