Regulator seeks banks’ plans to handle borrowers hit by Covid-19

Central Bank expects lenders will need to provide ‘significantly more’ than €500m

  Central Bank deputy governor Ed Sibley expects a “minority” of banks’ customers will need forbearance arrangements once payment breaks expire. File photograph: Nick Bradshaw

Central Bank deputy governor Ed Sibley expects a “minority” of banks’ customers will need forbearance arrangements once payment breaks expire. File photograph: Nick Bradshaw

Your Web Browser may be out of date. If you are using Internet Explorer 9, 10 or 11 our Audio player will not work properly.
For a better experience use Google Chrome, Firefox or Microsoft Edge.


Ireland’s main retail banks will need to book “significantly more” provisions this year relating to the Covid-19 financial impact on their borrowers, the Central Bank expects.

Speaking to The Irish Times, Ed Sibley, the bank’s deputy governor and head of prudential regulation, said: “I would expect we would see significantly more provisions in Q2 and then potentially into the rest of the year depending on how the economy recovers from the lockdown.”

Mr Sibley said this would be an area that the Central Bank would be “very focused” on but declined to put a figure on the likely aggregate provisioning across the Irish banks this year.

“It’s very difficult to know how this will play through,” he said, noting the “swift and sudden” impact of Covid-19 on the economy.

Bank of Ireland, AIB and Ulster Bank booked more than €500 million of loan impairment charges between them for the first quarter, mainly due to the fact that they have large loan exposure to small and medium businesses that have been hit by the shutdown.

To date, some 140,000 payment breaks of up to six months have been granted to mortgage borrowers, business customers and for personal loans, according to data from the Banking & Payments Federation Ireland.

Mr Sibley expects a “minority” of those customers will not be able to return to their normal loan repayment schedule once the period of the break has expired, and will therefore require a forbearance arrangement.

The Central Bank wrote to bank chief executives on Monday to outline the regulator’s expectations around how the lenders deal with this crisis.

It has asked the banks to provide details of board-approved strategic plans to deliver an assessment of all customers on payment breaks to “ensure that appropriate and sustainable solutions are identified in a timely manner for those borrowers who are not able to return to paying full capital and interest at the expiry of the payment break”.


It also wants the banks to provide “granular-level” detail on customer contact plans, including timings; their proposed approach to the rollover of payment breaks; the customer pathways post-payment breaks; operational resources to support the delivery of the plan, including details on the internal redeployment of staff, new hires, and outsourcing; and a detailed projection of the full financial impact arising from payment breaks, both with respect to profitability and capital adequacy.

“The underlying assumptions to such projections are required to be clearly outlined,” the letter co-signed by Mr Sibley states.

The regulator has also written to credit unions about the payment breaks offered to their borrowers. To date, the reported level of forbearance requests from credit union customers represent about 5 per cent or €260 million of gross loans outstanding in the sector.

The letter from Patrick Casey, registrar of credit unions, says it has “never been more important to ensure that distress within individual credit union loan books is not underestimated through loan classification and provisioning assessments”.

He said the Central Bank expects credit unions to continue to apply a “conservative and comparable approach in the measurement of provisions, and to regularly assess loans for objective evidence of impairment”.

“It is fundamentally important that a prudent approach is maintained to all aspects of a credit union’s business, including lending, investments, liquidity and capital, as it will best serve the longer-term interests of credit unions and their members,” he adds.