The flood disaster in some regions of Germany cost many people their lives and destroyed houses and livelihoods. The financial sector is also affected. Numerous bank customers have suffered enormous losses. For the institutes, the question arises as to how they should deal with customers who are temporarily unable to service their loans. In this context, the Federal Financial Supervisory Authority (BaFin) points out that there are legal options that can provide relief. Shortly after the outbreak of the COVID-19 pandemic, BaFin had already made it clear that banks can defer loans in individual cases – i.e. not within the framework of a general payment moratorium – without the debtor being deemed to have defaulted.
“The supervisory requirements give the banks sufficient room for maneuver that they can use in such a situation,” emphasizes Raimund Röseler, BaFin Executive Director of Banking Supervision. The prerequisite is that interest must be paid on the deferred amounts at the original effective interest rate. On the one hand, such a deferral ensures that the liability remains within the notified limit, so that no overdue material liability arises under the European Capital Adequacy Regulation (CRR). On the other hand, the debtor’s financial obligation is not considered to be reduced, so that there is no crisis-related restructuring. However, if the institution considers it unlikely that the debtor will settle its liabilities in full, it is still deemed to have defaulted. “As in the pandemic, we will continue to supervise with a sense of proportion after the flood disaster. Rules are not overridden, but used appropriately, ”says Röseler.
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