Moratorium on repayment of loans and reduction in overall economic activity will have negative impact on liquidity of banks and will reduce their net profit, said Central Bank representatives.
“Moratorium is a temporary suspension of all payments on loan basis (principal, interest, default interest, fee etc). In the liquidity part, that means banks will be denied money inflows for the period of three months. That accounts for a quarter of annual inflow on this basis, which is a negative influence on the liquidity of banks”, CB representatives say.
Strong liquid position of banks in the period before crisis will enable banks to overcome reduced profit for the time moratorium is in force.
“Banks are expected to continue with their activity with extensive restructuring, including grace periods, which will result in additional pressure on their liquid position”.
During the moratorium, banks will calculate interest, in line with defined conditions.
Of all costs, reservation costs for expected losses should be highlighted as they are in direct connection to the quality of assets.
“Higher level of non-performing loans corresponds with higher level of reservations, which results in smaller net profit of banks, and, in extreme cases, loss-making. Having regard to the reduction in employment, increase in unemployment and reduction in average earnings as consequence of the coronavirus epidemic, non-performing loans are expected to rise and will result in higher level of reservations”, CB said.
