Thursday, 26 November 2020
Department of Finance
Covid-19 Pandemic Supports
104. To ask the Minister for Finance the reason he did not push for the extension of loan and mortgage payment breaks of 12 months, as has been done in Germany, Italy, Spain and Portugal; and his views on whether this failure will have a damaging effect on SMEs and microbusinesses, as they now risk their loans falling into default and their credit rating being impaired. [30366/20]
On 18 March last the Banking and Payments Federation of Ireland (BPFI) announced a coordinated approach by banks and other lenders to help their customers who were economically impacted by the Covid-19 crisis. The measures included flexible loan repayment arrangements where needed, including loan payment breaks initially for a period up to three months and then subsequently extended for up to six months.
The European Banking Authority (EBA) also introduced COVID-19 guidelines in the spring with the objective of setting out the requirements for the public and private moratoria introduced across the European Union which, if fulfilled, would help avoid the classification of exposures as forborne or defaulted under distressed restructuring. Most EU Member States introduced payment breaks, some on a voluntary basis like Ireland, some on a legislative basis, and in several countries there was a mix with multiple schemes with varying eligibility requirements, conditions and timeframes. However, the overall key objective was to provide financial relief to borrowers by allowing a suspension or postponement of payments within a specified period. The moratorium introduced in Ireland complied with the EBA guidelines and was a welcome voluntary initiative that allowed necessary relief to be quickly and efficiently provided to borrowers.
While many borrowers who have finished a payment break have been able to return to full payments, it is also recognised that many borrowers, including mortgage borrowers, SMEs and microbusinesses, continue to be impacted by the economic consequences of Covid-19 and they may not be in a position to resume their loan repayment commitments when their payment break ends or may now be in difficulty for the first time. Borrowers have a suite of regulatory protections, such as the Central Bank's Code of Conduct on Mortgage Arrears, the Consumer Protection Code and the SME lending regulations, and lenders have specific obligations to support and work with borrowers who are continuing to experience loan difficulty because of Covid-19. These options could include additional flexibility, and this could be a short term arrangement such as additional periods without payments or interest-only repayments, or if appropriate more long term arrangements.
I will continue to work with the Central Bank, as regulator, to ensure that the Central Bank consumer protection and other applicable frameworks will be fully available to all borrowers that will still need support. The Central Bank has also confirmed that there is no regulatory impediment to lenders offering payment breaks to borrowers, providing they are appropriate for the individual borrower circumstance.
The Deputy may wish to note that the Central Bank recently wrote to all lenders indicating that lenders are to ensure that they have sufficient expert resources to assess individual borrower circumstances, and to offer appropriate and sustainable solutions to affected borrowers in a timely manner in line with regulatory requirements and Central Bank expectations. Regarding SMEs in particular, lenders are to provide appropriate supports to SME borrowers to help them to assess the longer-term effects on their businesses. While some enterprises will have had unsustainable business models notwithstanding COVID-19, measures which provide time for firms to adjust to COVID-19 conditions – or to assess whether their business models remain viable – are particularly useful during a period of substantial uncertainty and the Central Bank notes that they also allow lenders to make more informed decisions on a firm’s viability.
Regarding the Central Credit Register (CCR), it is important to note that the CCR does not produce credit ratings rather its purpose is to provide factual information to lenders and borrowers on a borrower’s credit record. The Central Bank has also advised lenders that in their reporting to the CCR, they will need to apply judgement around whether a restructure has been agreed in response to an identification of financial distress.