Due to the spread of the coronavirus disease (COVID-19), many households and firms may be exposed to economic stress. Even if the crisis is expected to be temporary, its effects can be far-reaching. Banks and borrowers may agree to reduce or suspend amortisation payments temporarily given special grounds. FI considers the loss of income linked to COVID-19 to qualify as special grounds.
The amortisation requirement is designed so that, under normal economic conditions, highly indebted households amortise their debt and thus increase their resilience. The requirement has been designed in such a way that banks and borrowers can agree on an exemption from the requirement given special grounds. For example, households may find themselves in situations where their disposable income has unexpectedly decreased.
FI considers the loss of income associated with COVID-19 to qualify as special grounds that allow the bank and borrower to reach an agreement to reduce or suspend amortisation payments for a limited period of time. FI has communicated this view to the banks.
"The rules state that the banks may grant exemption from the amortisation requirement given special grounds. If the borrower loses income due to the spread of COVID-19, this qualifies as special grounds. This is FI's position, and we have made this clear to the banks. Due to the extraordinary circumstances, the banks may be generous in their application of the exemption," says FI's Director General Erik Thedéen.
It is up to the bank and the borrower to agree on the details of the exemption on a case-by-case basis. The banks know how the regulation is designed, and that it is possible to grant temporary exemption given special grounds. The exemption should then be evaluated on an ongoing basis. The exemption may be extended, depending on how the economy develops and the type of the event that affected the borrower. The exemption may apply for anywhere from 3 to 12 months, with the possibility of an extension.
It may be difficult to determine what can be considered a loss of income due to COVID-19, for example for the self-employed. FI takes the position that the banks should be generous in their application of the exemption due to the current economic situation.