Contact Us

+350 20079000

This data will only be used by Hassans for processing your query and for no other purpose. View our privacy policy
| 1 minute read

Loan repayment holidays: distinguishing between illiquid and insolvent borrowers

Property investors have been facing rent shortfalls and renegotiation of leases as a result of the pandemic.  Many other investors have seen their usual income streams squeezed too. 

Some measures introduced to assist those affected have been the suspension of debt obligations owed to banks and other financial institutions - aka debt ‘repayment holidays’.  In the UK, payment holidays are being offered for up to three months on loans under guidelines published by the Financial Conduct Authority. 

There is a growing fear that borrowers who requested capital repayment holidays may face higher interest rates or even be denied loans in the future.  However, there should not be an automatic assumption that borrowers who have been granted payment holidays have experienced credit deterioration.  

Banks and other lending institutions should differentiate between borrowers whose cash flow difficulties are considered temporary (i.e. they are solvent but temporarily illiquid) and those borrowers who may already have been struggling to meet their financial obligations before the onset of Covid-19.  

The Financial Stability Institute (part of the Bank of International Settlements) has recently published some guidance on how borrowers should be classified in the context of debt repayment holidays.

Distinguishing between illiquid and insolvent borrowers - amidst an uncertain outlook - should help guide banks' efforts to support viable borrowers, while preserving the integrity of their reported financial metrics.

Top-ranked in all practice areas in Legal 500 EMEA 2024

Hassans is pleased to announce that it has once again achieved top tier rankings in all areas covered by Legal 500 EMEA for Gibraltar....

Posted on
Read more

Latest Insights

Upcoming compulsory pensions deadlines for Medium, Small and Micro companies

As many employers will be aware, following the enactment of the Private Sector Pensions Act 2019 (“the Act”), which came into force in...

Posted on
Read more

Ethical Gambling Forum 2024

The Ethical Gambling Forum 2024 was held at the Sunborn Hotel, Gibraltar, last week attended by gambling operators and service providers...

Posted on
Read more

Insurance and Reinsurance Comparative Guide

Hassans' Head of Insurance Yvonne Chu has contributed to Lexology's most recent Panoramic Guide relating to Insurance and Reinsurance. ...

Posted on
Read more