The heads of the State’s five banks vowed in a meeting with the Minister for Finance on Wednesday to defer legal proceedings and repossessions against borrowers in default and extend payment holidays to homeowners and businesses hit by the economic crisis sparked by Covid-19.
Both industry-wide concessions will last for up to three months, and will be subject to ongoing reviews as the situation develops, Banking & Payments Federation Ireland (BPFI) said in a statement.
The lobby group said that it has also been in contact with non-bank lenders and firms that service tens of thousands of problem loans bought by overseas investment firms from mainstream banks. Both groups “are committed to working with the Government and industry to provide the flexibility that people need right now”, the BPFI said.
Bank of Ireland and Ulster Bank had said last week that they will offer up to three months of payment breaks or other flexible arrangements to affected customers, while AIB offered up to six months' relief to homeowners. KBC Bank Ireland and Permanent TSB had said up until now that they had a range of options for borrowers affected by the spread of coronavirus.
While Minister for Finance Paschal Donohoe said in an RTÉ Radio interview following the meeting that he did not expect interest to accrue on loans during forbearance periods, banking sources said that interest would continue to apply.
Mr Donohoe also said on Wednesday that residential landlords with tenants affected by the Covid-19 crisis will also be provided with flexibility, including an opportunity to seek a payment break of up to three months, “which will allow them to exercise due levels of forbearance to their tenants”.
Banks are working to ensure a wide range of credit, cash flow and supply chain supports are offered to businesses who are trying to manage the pressures arising from the crisis, Mr Donohoe added.
The banks are seeking to ensure that forbearance measures which they are prepared to offer households and businesses will not affect customers' credit ratings, though this will ultimately be dependent on the stance of regulators. The banks will press Central Bank officials on this when they meet on Thursday.
Meanwhile, the Minister for Finance has asked the financial services industry to increase to €50 from €30 the amount that can be spent through contactless cards in single transactions in outlets in the State, in order to reduce the risk of people contracting coronavirus by handling cash.
"This crisis is an opportunity for Irish banks to 'do the right thing', so expect to see priorities on flexibility with customers – and not charging them high interest rates in the process," said Goodbody analysts Eamonn Hughes and Barry Egan in a note to clients.
Irish banks, bailed out by taxpayer to the tune of €64 billion following the property crash, continue to have “double-digit percentages” of their staff working in loan restructuring and arrears management following the financial crash. This gives them “a bit of a head start versus other countries to deal with the borrowers facing financial difficulty”, the analysts said.
Up to 340,000 bar, restaurant and retail workers will have lost their jobs by the end of this week as a result of measures put in place to tackle the spread of coronavirus, according to estimates from industry representative bodies.
Rainy day funds
Meanwhile, the Central Bank announced on Wednesday afternoon that it was going to allow banks to dip into their rainy-day capital reserves – or what’s known as a counter-cyclical capital buffer – to keep lending flowing. Analysts had said that this buffer, which Irish banks have had to have in place since last July, could free up €10 billion of additional credit for households and businesses as they navigate the crisis.
The concern now is that temporary forbearance measures as a result of Covid-19 will lead to another spike in loans that will need to be classified as non-performing loans (NPLs) unless the European Central Bank (ECB) makes allowances.
There has been no clear guidance to date, other than the ECB saying last Thursday that supervisors have "sufficient flexibility to adjust to bank-specific circumstances". The European Banking Authority said that it was "crucial" that banks correctly classify "any deterioration of asset quality" accurately and in a timely manner.
Accounting rules introduced in response to the financial crisis force banks to set aside provisions on their balance sheets for expected losses in the future, rather than the old method of only taking bad-loan charges when loans have actually turned sour.