EU bank watchdog may need to revisit payment breaks

The European Banking Authority (EBA) may need to look again soon at reintroducing guidelines for blanket loan payment breaks if the economy deteriorates rapidly amid a second wave of Covid-19, according to the European Central Bank's (ECB) head of banking supervision, Andrea Enria.

The EBA set out industry-wide guidelines for payment breaks earlier this year, allowing lenders not to classify such loans as being subject to forbearance or restructuring. However, it phased out the rules at the end of September and called on banks to return to offering relief on a "case-by-case" basis, an approach that has been backed in Ireland by the Central Bank.

While the ECB’s single supervisory mechanism has been in charge of regulating banks in the euro zone since late 2014, the EBA, established in 2010, sets technical banking standards and rules for the wider EU. The ECB complies with these.

Responding to a question from Frances Fitzgerald MEP at a hearing of the European Parliament's economic and monetary affairs committee on Tuesday, Mr Enria, who is chairman of the single supervisory mechanism noted that the EBA said last month that it will continue to monitor the situation.

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Review of decision

Mr Enria said the authority would review its initial decision “if there were a significant deterioration in the situation”.

“That’s a point that might need to be considered in the coming weeks and months,” he said.

Irish lenders granted domestic households and businesses payment breaks on about 152,000 loans between March and September. The number of loans that remained subject to payment holidays at the start of October had fallen by 65 per cent to 54,000 as most borrowers returned to regular payments at the end of the relief period, the Central Bank said last week.

However, the introduction last week of heightened Covid-19 restrictions, including the closure of non-essential retail outlets for six weeks, is expected to result in thousands of borrowers experiencing fresh financial problems.

Restructuring solutions

Central Bank deputy governor Ed Sibley has said that banks have had enough time in the past six months to develop systems to offer "individually tailored" forbearance and restructuring solutions to borrowers affected by the economic crisis.

He said further payment breaks may be an appropriate interim arrangement for some borrowers as longer-term arrangements are being set up.

“This second wave of coronavirus is already taking its toll economically and there are mortgage holders up and down the country struggling to make monthly payments,” Ms Fitzgerald said in a press statement on Tuesday. “Banks must be accommodative and proactive to people’s needs and ability to make repayments.

“The EU must review the situation on a regular basis to determine whether a new moratoria on loan payments needs to be introduced to provide customers with the breathing space they need.”