Struggling borrowers will be best served securing "individually tailored" easing of terms of their loans as the Republic faces into tighter Covid-19 restrictions, rather than banks offering blanket payment breaks again, Central Bank deputy governor Ed Sibley has said.
For some, fresh temporary payment holidays could be the right solution, but others will need different options, he said.
"The payment breaks gave breathing space to both the borrowers and the lenders. We've been making sure that lenders were very actively preparing for what was going to come next and be able to provide support to borrowers. That work, while not perfect, has been done," Mr Sibley told The Irish Times.
“We’re now seeing a subset of those sectors, businesses and borrowers that were affected by the first full lockdown are going to be affected by the new restrictions being put in place. There may be both short-term and longer-term effects there. That still leads us to thinking individually tailored solutions are better in the longer-term interest of the borrowers.”
Loan restructuring
Irish lenders granted more than 150,000 payment holidays of between three and six months to households and businesses in the Republic between March and the phasing out of European guidelines at the end of September. Since then, banks have returned to offering individual forbearance or loan restructuring solutions to borrowers unable to return to regular payments after the breaks, as well as customers that have run into fresh difficulties.
Banking & Payments Federation Ireland (BPFI), the industry representative body, said on Tuesday that lenders “recognise the financial challenges that moving to Level-5 poses for many people”.
"A wide range of solutions are being made available by lenders at this time and are being worked through with borrowers," said BPFI chief executive Brian Hayes. "We already have established structures in place for those customers who find themselves struggling to meet repayments. Lenders are using these established processes and are acutely focused on engagement, assessment, and solutions."
Mr Hayes urged borrowers facing financial difficulties to contact their lenders for support.
Still, some consumer advocates say the absence of industry-wide payment breaks as the Republic heads into Level 5 restrictions from midnight on Wednesday, resulting in the closure of non-essential retail for six weeks, will add to the stress of households.
‘Unnecessary decision’
David Hall of the Irish Mortgage Holders Association said it amounts to a "a cruel and unnecessary decision that will heap further pressure on to thousands of families who're already struggling to cope with the worst global health crisis in living memory".
Mr Sibley said lenders must “act at pace to continue to support those that have come off an early payment break and are now suffering from a second temporary income shock, as well as those experiencing more permanent shocks”.
“I think the most critical thing is that lenders are prepared for engagement and borrowers facing difficulties should be seeking to engage. This is necessary for the transition from a system-wide solution to individual ones,” Mr Sibley said.
Minister for Finance Paschal Donohoe told reporters that the "appropriate course for this point now is that it is handled on a case-by-case basis that meets the needs that different borrowers will have".
There have been concerns that individual payment breaks will affect borrowers’ credit ratings. BPFI has said that while the umbrella Covid-19 payment breaks were not reported on the Central Credit Register as “missed or past-due”, individual solutions that now involve a further payment break or any alternative arrangement are legally required to be recorded on the register.
However, Mr Sibley said that there is a general lack of understanding about how the Central Credit Register works.
“In the event of an agreed change in a payments schedule, such as an agreed payment break, it is recorded. If there was a missed payment, it is also recorded. It doesn’t produce a credit score or rating. Because this is such a seismic event, future lending decisions will have to take into account the scale of the event and how borrowers engaged,” he said.
