Covid-19 crisis triggers payment breaks on 28% of SME borrowing

Central Bank data shows almost 10% of Irish mortgage debt also subject to relief

More than a quarter of the €22 billion borrowed by small and medium-sized businesses in the Republic is now subject to payment breaks to help companies get through the Covid-19 economic crisis.

Companies in the accommodation and food sectors are the most likely to have tapped the temporary relief on loan repayments.

Figures published by the Central Bank on Thursday show that Irish households and businesses have secured 158,659 breaks from their lenders on servicing some €20.1 billion of loans. Borrowers accounting for 9.6 per cent of the total value of Irish mortgages, 6.6 per cent of personal lending and 17 per cent of corporate borrowings have had payment holidays approved since March.

Irish lenders, including credit unions, non-bank lenders and companies that service loans on behalf of overseas investment firms, had granted a total of 227,233 payment breaks as of the end of June, including for foreign borrowers. Bank of Ireland and AIB have sizeable operations in the UK.


"The Covid-19 pandemic has resulted in an unprecedented shock to Ireland's economy and has left thousands of households and businesses across the country on reduced incomes. In response to the pandemic, financial services firms in Ireland have made payment breaks available to household and business customers," said the Central Bank authors of the report.

“The significant scale of applications for payment breaks, across all major types of loans (including mortgages, personal and business loans), speaks to the unprecedented breadth of the shock triggered by the Covid-19 pandemic.”

Many of the borrowers are now moving from initial three-month breaks to longer relief of up to six months at a time when banks are insisting that interest must be applied to loans subject to payment breaks.

‘Moving target’

While the European Banking Authority confirmed this week that non-accrual of interest on loans subject to payment breaks would not tip such borrowings into default territory, Banking & Payments Federation Ireland claimed the European regulator was setting a "moving target" for Irish banks. The industry body for Ireland's lenders said applying interest was fair, consistent and in line with the authority's guidelines.

Banks are currently engaging with customers that have availed of payment breaks to assess how many will not be able to return to regular payments at the end of six months. Lenders are coming under pressure from the Central Bank to offer sustainable long-term solutions for such borrowers to try to avoid a repeat of the arrears crisis that followed the Celtic Tiger years.

Borrowers behind almost 70,300 Irish mortgages, mainly owner-occupier loans, had been granted payment breaks as of the end of June. This covered €11 billion, or 9.6 per cent, of the €114.7 million in mortgage lending outstanding across the State, according to the Central Bank data.

In the business sector, charts included in the report indicate that borrowers responsible for 60 per cent of loans to the accommodation and food services sectors have availed of payment relief, falling to about 30 per cent for wholesale and retail companies and a similar level for manufacturing businesses.

“Payment breaks are giving borrowers affected by Covid-19 the opportunity to postpone or substantially reduce their repayments at a time of severe financial stress,” the auditors of the report said.

“It is clear from the significant scale of payment breaks that it has been a very necessary relief for many borrowers to enable them to deal with the immediate shock that they are experiencing.”

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Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times