The coronavirus pandemic has created a global framework in which governments can act in support of businesses and individuals. The wide-spread of COVID-19 has generated significant challenges for the society and higher risks for the economic outlook. Romania was in a nationwide lockdown from March 25 until May 15th, with strict measures of limitation of movement, especially for the most sensitive groups of citizens. The state of emergency was replaced with the state of alert since 15 May. The state of alert is less restrictive than the state of emergency. The Romanian government has implemented certain measures: furlough payments have been made, interest on loans for SMEs has been guaranteed or subsidised, and part of the expenses of parents forced to stay at home have been met. The deadline for the payment for certain local taxes has been extended, and discounts of 5-10 per cent granted to companies paying their taxes on time. Romania has so far managed to rustle up fiscal assistance worth just 3.5 per cent of GDP. But, a rather difficult period will follow for the Romanian consumers, not only for the one indebted to the banks. Even the support of daily living could be burdensome, especially since, anyway, in Romania, a fairly high percentage of the population (more than 25% of the population) was at risk of poverty or financial exclusion in 2019.
In Romania, many consumers are at risk of being directly impacted by the global economic downturn. Asociatia Consumers United/Consumatorii Uniti from the early stage of the Covid-19 crisis have called for government, banks and other financial institutions to introduce and extend the loan moratorium to protect consumers from potential over indebtedness[1].
- Deferral of Loan Payments
Under these circumstances, an emergency ordinance was passed on 26 March 2020 by the Government (the "Ordinance"), instituting a Moratorium of up to 9 months, available to virtually any type of borrower affected directly or indirectly by the COVID19 context (except for credit institutions), who do not register overdue payments/whose loan is not accelerated. For legal persons, there are two additional criteria to be met: (i) the entity's activity was curtailed (in full or in part) further to measures taken by competent authorities during the state of emergency or its March 2020 revenue has decreased by 25 % or more compared with the average income generated in January and February 2020 and (ii) the entity is not subject to insolvency.
- Which debtors may qualify for the GEO 37/2020[2] benefits?
Individuals; authorized individuals, individual enterprises, family enterprises, liberal professions and those exercised under special laws, irrespective of the professional form; legal entities under loan agreements and leasing agreements, except the credit institutions.
2. What type of credit facilities fall under the scope of the EGO?
A.
All types of credit facilities granted to the debtors appear to fall under the scope of the EGO, including consumers loans, mortgaged credit granted to consumers etc.
B. Lenders: credit institutions; non-banking financial institutions; branches of foreign credit institutions and financial nonbanking institutions which carry out their activities in Romania.
In case of natural persons
The postponement of the maturity date will depend on (i) the age of the client and (ii) on the type of financing.
In case of natural persons who would exceed the age limit for a credit facility, the loans will be restructured in order to fall within the age limit of the individual.
Under the Ordinance, the Moratorium is voluntary for eligible borrowers (opt-in), who will have to submit a request with their lender within 45 days as of publication of the Ordinance (which occurred on 30 March). Application norms detail the processing of such requests by lenders. Interest will accrue and be capitalised during the suspension period, to be repaid in equal instalments for the entire duration of the loan, after the Moratorium ceases. By way of exception, interest accruing on consumer mortgage loans will not be capitalised, but will be repaid in 60 equal monthly instalments, after the Moratorium ceases. The state also guarantees payment of interest on such mortgage loans via guarantees issued based on bilateral conventions entered into with the lenders. Under the Law, interest and other expenses will not be capitalised during the suspension period; there is no exception for consumer mortgage loans, the State does not guarantee the payment of interest for such loans and the Law does not establish a 45-days term for the borrower to submit a request with its lender requesting the Moratorium.
The Ordinance don’t mention if Moratorium is applied to local creditors only or does it also affect creditors that lend cross-border.
Romanian core principles – clarified by the National Bank of Romania Supervisory Committee clarifies the application of the prudential framework in COVID-19 context
- Payment delays derived from a general legislative measure or based on direct negotiations with clients granted in the context of COVID-19 should not be automatically considered as being in financial distress.
- Thus, loans should not be reclassified, and credit institutions should not set up provisions for loans, as a result of restructuring (such an operation is not considered a restructuring measure because it did not result from the borrower’s financial distress).
- However, the operations where banks negotiate a payment delay measure, on an individual basis, which is not linked to the COVID-19 pandemic, should be classified as restructuring.
- Since the banks built up capital buffers, the National Bank of Romania decided to allow the credit institutions to temporarily use these capital buffers up to a date that to be subsequently communicated, subject to complying with the relevant legal requirements.
- Fiscal measures
In response to the context created by the COVID-19 epidemic, two key tax measures have been adopted by the Romanian Government and enacted through GEO 29/2020[3].
1. All tax obligations which have their due date after 21 March 2020 and which are unpaid do not qualify as overdue, and therefore they are not subject to late payment interest and penalties.
2. All tax related foreclosure procedures involving garnishments are suspended by law.
Both measures cease to produce effect 30 days from the end of the state of emergency situation, declared by the Romanian state as of 16 March 2020.
The same ordinance provides for deferral of the payment deadline of local taxes such as taxes for buildings, land, and vehicles from 31 March 2020 to 30 June 2020, while the reduction of up to 10% for full payment granted by local councils is still applicable.
Forced execution measures are suspended or not started, except forced executions which are applied for the recovery of budgetary debts established by judicial decisions pronounced in penal matters. The measures are suspended by the effect of the law, and in this sense administrative procedures (requests or other types of applications) should not be carried out. This measure applies during the period of the state of emergency and for 30 days from the date of termination of the state of emergency.
- Social protection measures
Emergency Ordinance no. 32/2020 (GEO 32/2020[4]) clarifies the social protection measures adopted during the state of emergency regarding compensation payments from the unemployment insurance budget based on declarations of own responsibility, the indemnity amount and other details.
- The employer may grant paid days off for one of the parents of children aged up to 12 years (or up to 18 years for children with disabilities), during the temporary closure of the educational units, under certain conditions
- Employees will receive compensation of 75% of the basic salary corresponding to the workplace occupied, but not more than 75% of the average gross wage forecast for 2020 – respectively 5,429 lei.
- All the employers who reduce or interrupt activity, totally or partially, as a result of the effects of the coronavirus epidemic, but only during the state of emergency, can receive the state aid for the payment of the employees in technical unemployment.
- The employer may recover the amounts paid to the employees from the Guarantee Fund for Payment of Employees, based on a procedure approved by a government decision.
- Employers can, if the budget for the payment of personnel expenses allows, supplement the compensation of 75% borne by the unemployment insurance budget with amounts representing the difference of up to 75% of the base salary corresponding to the occupied job, according to the provisions Labour Code.
During the period of contract suspension, the employer does not owe insurance contributions for the work.
Other professionals, as regulated by art. 3 paragraph (2) of the Civil Code ([…] all those who operate a business), who interrupt the activity as a result of the effects of the SARS-CoV-2 coronavirus, during the state of emergency, but also the natural persons who obtain income exclusively from the rights of author and related rights, can benefit from the state budget, based on the affidavit on their own responsibility, of a monthly indemnity of 75% of the average gross salary.
- Romania impact of Covid-19 Facts and Figures
One in five individual debtors have invoked the moratorium on bank loan repayment that allows them to defer the payment of loan installments until the end of this year.
One in seven firms with bank loans have postponed their payments to banks as well.
The deadline for using the facility enacted by the emergency ordinance (OUG) 37/2020 was extended by one month to June 15.
The moratorium (grace period) can be asked by bank debtors, subject to the effects of the coronavirus epidemic, for one to nine months - but only for the remainder of this year. Approximately 317,000 bank debtors, namely 303,000 consumers and 14,000 companies, have submitted requests to suspend the payment of installments since March 30.
In Romania, at 22.05.2020, according to the Labor Ministry, the number of Romanians who have terminated or suspended employment contracts is close to one million. The latest data from Romania’s Labor and Social Protection Ministry show that over 580.000 labor contracts have been suspended and over 400.000 labor contracts have been terminated until May 22, 2020
There were 578,789 suspended employment contracts and 374,183 terminated contracts. In the case of those who have entered technical unemployment (furlough), most employees are from the manufacturing industry (154,639), retail trade and repair of motor vehicles and motorcycles ((96,995) hotels and restaurants (96,218).
With regard to terminated employment contracts, most are in the fields of retail trade and repair of motor vehicles and motorcycles (66,992), manufacturing (65,706) and construction (54,226).
These more than 900,000 people saw their contracts suspended, however, giving them the hope that their jobs will come back once the crisis is over.
In Romania, vulnerable people, forced to remain in self-isolation, were far from the government's vision and concerns, although the EU provided a fund for the most disadvantaged states. In this sense, the only measure - insufficient and uncorrelated with the realities of Romanian society - was limited to mobilizing 1,000 social workers to care for the elderly isolated more to help them with the supply than with more consistent care.
The education process was deeply disturbed in this health crisis, online teaching not being a real priority in the Romanian education system, especially in pre-university age groups. Children without access to IT tools, enrolled in underfunded schools, with disoriented teachers struggled to keep pace to finish subjects and graduate
While the business environment in Romania is asking the state for a massive economic stimulus package worth about EUR 30 billion to save the local economy from recession amid the Covid-19 crisis, the state should also direct resources to help consumers too.
Conclusions
After the period in which the debtors to banks and non-banking institutions (but also SMEs) have a moment of respite in the payment of installments through debt moratoria, if they resorted to the suspension of payments, there will be an explosion of insolvencies. For this reason Romania (and the MS, also) must be aware and to use this short time interval to have available and operational mechanisms to help consumers not to enter in financial distress and to avoid the increase in the volume of NPLs.
Following the global financial crisis of 2007, many countries have strengthened their institutional responses to over-indebtedness. Financial recovery measures by accessing the advice of financial advisers or resorting to personal insolvency have become available and accessible in several Member States. Rebalancing of budgets can be done through negotiations with creditors, as well, and the law of insolvency of individuals also exists in Romania.
It is important, however, that these emerging issues be addressed quickly, the social protection to be coordinated in all Member States, in order to avoid deepening the negative consequences for national economies but also for society. Otherwise, we will have at least a few years of poverty and mass economic and social exclusion, with an economy that will relaunch in a non-unitary way, only in the sectors that will prove to be the most flexible and innovative in the face of the effects of the pandemic[5].
[1] https://economie.hotnews.ro/stiri-finante_banci-23725369-pandemie-nu-trebuie-loveasca-drepturile-consumatorilor.htm
[2] http://ceccar.org/en/wp-content/uploads/2020/04/GEO-37-EN-revizuit.pdf
[3] https://static.anaf.ro/static/10/Anaf/Informatii_R/oug_29_21032020.pdf
[4] http://ceccar.org/en/wp-content/uploads/2020/04/GEO-32-EN-revizuit.pdf
[5] https://www.consumers-united.eu/index.php/noutati/rebuilding-the-future
