Russian Financials - Loan Payment Holidays Q&A

The "Law on Credit Payment Holidays" has been adopted, detailing the terms surrounding retail and SME payment holidays due to the Covid-19 pandemic. In this note, we provide a Q&A on the details. > Have there been any precedents for payment holidays in Russia in the recent past? No, this is the first time in which nationwide legislation on payment holidays has been adopted in Russia, so it is uncharted territory for the Russian banking system. We note that Russian banks weathered the 2013-14 cyclical downturn in retail lending without any concessions provided by the government or CBR to individual borrowers, with banks offering restructuring terms on an individual basis. Russia adopted a law on payment holidays on mortgage loans only recently (July 2019), which granted individual borrowers the right to apply for payment holidays of up to six months in the event of illness, accident, job loss, or a greater than 30% drop in income, albeit the law is not that straightforward. > What are the main parameters of the new law? The law obliges banks to approve valid applications for payment holidays to individual borrowers who provide evidence of a more than 30% drop in income compared to their 2019 average income and for SMEs operating in certain affected sectors of the economy. Struggling borrowers will have the right to suspend payments on their bank loans (including the principal repayment and the interest) for up to six months without receiving any penalties from the bank or having their credit score downgraded. The temporary relief will not come for free for borrowers, as interest will continue to be accrued during the payment holidays. The tenor of the restructured loans will be extended to smooth out loan repayments in the future.> What are the application requirements? An individual borrower can apply for a credit holiday through remote channels until September 30, 2020 if the following conditions are met: (1) the amount of the loan does not exceed the maximum size limit; (2) there has been a drop in the borrower's income for the month preceding the month of the request of more than 30% compared to the average monthly income of the borrower in 2019; and (3) the borrower does not already have a payment holiday on the loan (i.e. the loan has not been restructured). > A lender has the right to request documents confirming the drop in income from the borrower or state agencies. After receiving a borrower's application or the confirming documents, the lender is obliged to review it within five days and, if it meets the requirements, inform the borrower of a change in the terms of the loan agreement. If the lender requests additional documents, the borrower has 90 days to submit them. It remains to be seen the extent to which the need to produce formal evidence of the decline in income will impact applications. > If the lender does not request additional documents or does not reply to the borrower's request, the law grants payment holidays automatically.