Pearse Doherty (Donegal, Sinn Fein)
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314. To ask the Minister for Finance if his attention has been drawn to the fact that the accrual and charging of interest accrued during the moratorium period for mortgage payment breaks issued in the context of Covid-19 was not required under EBA guidelines in advance of his meeting with an organisation (details supplied) and five retail banks on 11 May 2020; and if he will make a statement on the matter. [15900/20]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Members of the Banking and Payments Federation of Ireland introduced the payment break for their customers on 18 March last to provide relief for people whose income had been affected by the Covid-1 crisis.

The EBA guidelines of 2 April stated the following in paragraph 24:

"The moratorium changes only the schedule of payments. This condition is consistent with the objective of the moratorium to address the systemic short-term liquidity shortages. In order to achieve this objective, the moratoria suspend, postpone or reduce the payments (principal interest or both) within a limited period of time. This clearly affects the whole schedule of payment and may lead to increased payments after the period of the moratorium or an extended duration of the loan. However, the moratorium should not affect other conditions of the loan, in particular the interest rate, unless such change only serves for compensation to avoid losses which an institution otherwise would have due to the delayed payment schedule under the moratorium, which would allow the impact on the net present value to be neutralised."

Banks across Europe interpreted the above paragraph in different ways with the results that different schemes were introduced. Some countries provided for the accrual and capitalisation of the interest. Others provided for the non-accrual and a number provided for accrual of the interest but not its capitalisation.

Subsequently, in its letter to Deputy Doherty on 22 June last, the Central Bank stated that the EBA was expected to provide further clarity on the specific issue of interest accrual and it outlined that both net present value (NPV) neutral and NPV negative solutions are possible.

In its implementation report published on 7 July the EBA stated that the report "provides clarification on questions raised in the context of the EBA's monitoring of the implementation of Covid-19 policies".

A key clarification is that:

" There may be a decline in the NPV if the obligor makes use of the moratorium and postpones one or several payments and no interest is charged for the time covered by the moratorium. Alternatively, the moratorium may be NPV-neutral (i.e. no change in the NPV) if subsequently at least one of the instalments is adjusted upwards or added."

The Irish payment moratorium introduced by the Members of the BPFI complies fully with the EBA Guidelines because, as outlined above, it is NPV-neutral.

The payment moratorium introduced in Ireland by the members of the BPFI predated the EBA Guidelines of 2 April. The meeting on 11 May predated both the clarification provided to Deputy Doherty in late June and published by the EBA on 7 July.