The European Banking Authority (EBA) has today (2 December 2020) announced its decision to reactivate its guidelines on payment moratoria. The EBA is introducing a new end date of 31 March 2021 for these guidelines, replacing the previous date of 30 September 2020.
The EBA’s decision means that, for a limited period, where national payment moratoria meet the conditions of the EBA’s Guidelines, banks granting such payment breaks to customers do not have to automatically reclassify exposures as forborne or defaulted in line with the definition of distressed restructuring under the existing regulatory framework. The extension comes with stricter conditions than those accompanying the original guidelines; specifically:
- introducing a cap of nine months on the maximum duration of any individual payment break; and
- requiring banks to notify the relevant competent authority of their plan on how to assess the unlikeliness to pay for the exposures subject to the general payment moratoria.
As there is no open national general payment moratoria scheme currently operating in Ireland, this decision has no immediate effect for Irish borrowers.
The approach in Ireland is based on supporting borrowers on a case-by-case basis as appropriate to their individual circumstances. As acknowledged in the EBA’s decision, the longer that repayments are postponed, suspended or reduced, the more likely it is that the worst hit borrowers do not receive the immediate tailored financial advice or supports needed to address their specific circumstances.
Borrowers who are currently experiencing financial distress should engage with their lender at the earliest opportunity to receive an appropriate solution for their individual circumstances. Supports, including payment breaks, continue to be available to borrowers. There is no regulatory impediment to lenders offering further payment breaks to borrowers, providing they are appropriate for the individual borrower’s circumstances.
The Central Bank remains focused on ensuring that lenders are appropriately supporting borrowers whose incomes have been negatively affected by the pandemic. The Central Bank has outlined its expectations to all lenders on how they should be supporting borrowers who are experiencing financial distress arising from the Covid-19 pandemic, and is supervising lenders to ensure that these expectations are met.
There are extensive supports and protections in place for borrowers experiencing repayment difficulties. These include the Code of Conduct on Mortgage Arrears, the Consumer Protection Code, and Regulations for firms lending to SMEs. Further information, advice, and guidance for borrowers is available on our dedicated COVID-19 Hub.
Effective engagement between lenders and distressed borrowers is critical to preventing the build-up of arrears and successful restructuring of loans where debt-servicing capability has been reduced. Recognising problems and finding the most appropriate treatment for borrowers to pay what they can afford is likely to lead to better outcomes for borrowers than not assessing the borrowers’ underlying circumstances.
Since the onset of the pandemic, lenders have been building the capacity and capability to support borrowers affected by the pandemic on an individual, case by case basis.
Approximately 175,000 Irish loans have had an initial payment break, with approximately 40% going on to take a second payment break. The majority of these have now transitioned back to full repayments. Lenders are engaging with borrowers who require further support on a case-by-case basis and with those borrowers who remain on active payment breaks (c. 24,000 at end-October 2020, with the number falling further during November).