Banks urged to avoid ‘cliff-edge’ on loan payment breaks

Central Bank says borrowers may be still under pressure at end of six-month hiatus

The Central Bank will press lenders to use extended Covid-19 loan payment breaks to work on and offer longer-term restructuring solutions to borrowers who will still be under financial pressure at the end of the period.

While the payment breaks are giving banks and borrowers breathing space to deal with the economic shock caused by Covid-19, lenders will be expected to engage with borrowers who face longer-term issues and offer more sustainable solutions, according to Central Bank sources.

It is important that both sides avoid a “cliff-edge” at the end of six months in cases where households and businesses will not be in a position to resume payments, they said.

The State's banks and other lenders agreed on Thursday to extend payment breaks, originally unveiled last month for a three-month period, to six months. Borrowers behind more than 65,000 mortgages and 22,000 small- to medium-sized enterprise (SME) loans have availed of such relief to date, according to Banking & Payments Federation Ireland (BPFI).


"The existing public health measures put in place by Government, aimed at mitigating the impact of Covid-19, have been extended since the original BPFI announcement of payment breaks up to three months," said BPFI chief executive Brian Hayes.

“These measures may need to remain in operation for some time or may only be lifted gradually, with an unknown impact on the economy going forward. BPFI members strongly appreciate the severity of the impact on families, individuals and businesses, and it is for this reason that we believe an extension of the existing payment break beyond three months may be required by many customers.”

Signed up

Lenders that have signed up to offer payment breaks include the five main Irish retail banks, non-bank lenders such as Dilosk and Finance Ireland as well as a group of loan-servicing firms that manage loans on behalf of investment firms – or so-called vulture funds – that snapped up tens of thousands of distressed Irish loans in the wake of the financial crisis.

The Central Bank said that borrowers availing of extended breaks will not be classified as having missed payments on its Central Credit Register, while it is understood that the Irish Credit Bureau will adopt the same stance.

“At the end of the agreed payment break, the Central Bank expects borrowers who can return to full repayments to be given the option to either repay the loan within the remaining term or extend the term of the loan,” the organisation said.

However, banks will be expected to start assessing how parts of their loan books will ultimately become impaired as a result of the economic crisis and start taking loan loss provisions in their accounts. The Central Bank said that provisions do not need to be set at this stage against individual loans.

Almost 600,000 people are currently receiving special Covid-19 unemployment payments in the State, while nearly 350,000 workers are having their pay subsidised by a Government scheme aimed at helping companies that have been hit by the crisis as much of the economy has been put into lockdown.


BPFI said that banks will be “actively contacting” in the coming weeks and months with customers who have availed of the three-month payment, in order to offer possibility of extending their arrangements.

Payment breaks of up to six months will also be offered to borrowers affected by Covid-19 who have yet to apply for relief.

Meanwhile, European credit ratings firm Scope said in a report on Thursday that it expects some payment breaks to evolve into loans moving into default.

“We expect a rapid deterioration in mortgage defaults as household income significantly shrinks, especially among re-performing loans,” Scope said, referring to loans that had been restructured following the financial crisis and are where borrowers are meeting their new terms.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times