The Impact of Loan Payment Deferral on Indebted Households and Financial Stability during the Covid-19 Pandemic: Survey Results from Slovakia

The Covid-19 pandemic led to a large set of actions taken by the governments in 2020. In this paper, we focus on the loan payment deferral in Slovakia, which allowed households to postpone their loan payments. As during the moratorium banks had no information about the financial situation of clients, this action raised financial stability concerns. Therefore, the National Bank of Slovakia launched a survey among indebted households to keep track of their economic situation during the deferral period. Based on the survey, many indebted households suffered negative income or employment shocks during the first months of the pandemic. The deferral of loan payments was mainly used at the beginning, and gradually households began to prefer individual arrangements with their banks. The Covid-19 crisis disproportionately affected indebted households with high debt service ratios already before the crisis, working in sensitive sectors, less educated, or with large drops in income. Most of the households asking for deferral reported a gradual improvement of their situation. The vast majority of surveyed households expected ability to repay their debt after the moratorium.