Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I thank the Deputy for his good wishes on my new role. I look forward to working with Members of the Dáil and with finance Ministers across Europe over the next two and a half years.

To deal with the Deputy's question, the members of the Banking and Payments Federation of Ireland, BPFI, introduced a payment break for their customers on 18 March last. These payment breaks were agreed quickly to provide substantial and rapid relief to worried and anxious borrowers, including mortgage holders, in situations where income had been directly impacted by Covid and during a fast-moving and evolving public health crisis. At the end of June, almost 160,000 payment breaks had been approved for Irish borrowers, representing €20.1 billion of loans.

Two weeks later, on 2 April, the European Banking Authority, EBA, published guidelines which set out the criteria that payment moratoria must meet in order to benefit from supervisory flexibility and for them to not automatically lead to loans being classified as forborne. The key paragraph in relation to the charging of interest, paragraph 24, was interpreted in different ways across Europe. I will not read the entire paragraph but I note that it refers to only allowing changes to the schedule of payments. It goes on to state that moratoria, suspending, postponing or reducing payments, which could be principal, interest or both for a limited period of time, would clearly affect the whole schedule of payment and may lead to increased payments over the payment of the moratorium or an extended duration of the loan. It goes on to note that other conditions of the loan, in particular the interest rate, should not be effected, unless such change only serves for compensation to avoid losses, which would allow the impact of the net present value to be neutralised.

Given the pre-existing EBA guidelines on the classification of default, the BPFI and its members sought to ensure that its payment break would not lead to the classification of loans as being non-performing. Subsequently, in its letter to Deputy Doherty on 22 June, which was well after the meeting of 11 May, the Central Bank stated that the EBA was expected to provide further clarity on the specific issue of interest accrual and, I assume in light of the discussions then under way with the EBA, the Central Bank outlined that both the charging and non-charging of interest is acceptable under the guidelines.

The EBA duly provided clarification in its report of 7 July. It confirmed in relation to the net present value, NPV, of a loan that:

...there may be a decline in the NPV if [...] no interest is charged for the time covered by the moratorium. Alternatively, the moratorium may be NPV-neutral [...] if subsequently at least one of the instalments is adjusted upwards or added.

The EBA also confirmed that its guidelines on the classification of default did not apply to a loan and a payment break under a general moratorium. The moratorium of the BPFI and the banks in Ireland complies fully with the EBA guidelines.

The Tánaiste and I are meeting the CEOs of the three main banks this week. We are having our final meeting this afternoon and issues relating to the payment break will be discussed.

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