The central bank has instructed banks not to compound interest during the suspension of loan repayment brought in as part of series of measures to offset the economic fallout of the coronavirus lockdown.
A general implementation on loan repayments will not be considered as restructuring and the banks are not to assess a possible loss in the net present value of loans falling under the moratorium, the Central Bank of Cyprus (CBC) said in a circular to credit institutions.
The circular has been issued following new guidelines by the European Banking Authority (EBA) concerning the classification of loans falling under the repayment freeze.
The CBC said that that it had received clarifications directly both by the EBA and the Single Supervisory Mechanism on important issues concerning the prudential handling of general moratoriums.
Last week the Cyprus parliament approved a law on extraordinary measures in the financial sector while Finance Minister issued a decree calling on banks to implement a nine-month loan repayment suspension.
“The implementation of general moratoria does not constitute a restructuring. Therefore, credit institutions are not advised to assess the possibility of a reduction in the net present value of the credit facilities falling within of general moratoria for reasons of recognising new defaults,” the Central Bank said.
It adds that a recognition of a possible loss during this period is excluded from the regulations concerning the recognition of defaults.