Following engagement with Ireland's five retail banks, the Minister for Finance Paschal Donohoe TD has recently announced a range of measures designed to provide support for bank customers affected by the fallout from COVID-19.
AIB, Bank of Ireland, Permanent TSB, KBC and Ulster Bank, along with their representative body the Banking and Payments Federation Ireland (BPFI), met with the Minister for Finance on 18 March 2020 and, separately, the Central Bank of Ireland (CBI) on 19 March 2020 to discuss their proposals.
In addition, on 18 March 2020 the CBI announced a change to the capital requirements for Irish banks.
The measures are seen as building on the Government response, along with the European Central Bank’s monetary and regulatory policy measures, to deliver support to individuals and businesses facing COVID-19 related difficulties.
Support for bank borrowers
The following measures have been announced:
- flexible loan/mortgage repayment arrangements: including the possibility of a payment break of up to three months for mortgages and other loans - customers affected by COVID-19 would have to contact their bank to discuss the flexibility available to them
- buy-to-let bank customers support: flexible repayment arrangements to be made available to buy-to-let bank customers with tenants affected by COVID-19, including the opportunity to seek a payment break of up to three months
- SME customer supports: banks are working to ensure an extensive range of credit, cash flow and supply chain supports are offered to businesses who are trying to manage the pressures arising from COVID-19 - the deferral of up to three months on loan repayments will also be available to SMEs
- customer-focused tailored supports: banks will adopt a "customer-focused approach" to these businesses with a wide variety of tailored supports including extensions of credit lines, risk guarantees, and trade finance
CBI reaction and extension to non-bank lending and credit servicers
The CBI has announced that it is working constructively with all the sectors it regulates, recognising the challenges they face to maintain continuity of business and provision of service to customers. The Governor of the CBI, Gabriel Makhlouf, notes the CBI will also maintain appropriate regulatory oversight throughout this period and has emphasised the provisions of the existing consumer protection framework and the need for lenders to provide reasonable assistance to customers.
On the specific measures discussed with the banks and the BPFI, the CBI has agreed that there is no impediment to the banks introducing a three month COVID-19 payment break for those affected by the pandemic.
The CBI has further stated that it understands all BPFI members - including non-banks - will introduce this measure for affected customers. This has been subsequently clarified by the BPFI. In a statement, the BPFI confirmed that:
- the country’s main credit servicing firms and non-bank mortgage lenders, who are members of the BPFI, have confirmed their intention to support the range of measures announced by the country’s main retail banks
- given their focus on the mortgage market, those credit servicing firms and non-bank mortgage lenders plan to do this by way of a mortgage repayment break of up to three months and deferral of court proceedings for three months
- such firms are very conscious of the need for appropriate guidance from the CBI in respect of a number of important matters, including:
- customer documentation and process
- the operation of the Central Credit Register and
- possible impact on securitisation
- such firms will need adequate time to address a range of operational issues in order to be able to provide meaningful supports to customers as appropriate.
The CBI has said it expects all regulated firms, including banks, retail credit and credit servicing firms to take a consumer-focused approach and to act in their customers’ best interests. It has advised any customer facing potential difficulties in making loan repayments as a result of COVID-19 to contact their bank or credit servicer as early as possible, and notes that all of the existing consumer protection codes and conduct of business rules continue to apply.
It would appear therefore that the CBI is not currently envisaging any imminent new laws or regulations, rather it is acknowledging the BPFI proposals and confirming that the current regulatory position still applies.
Extended forbearance without default classification
The Minister for Finance has welcomed the fact that the CBI is working with European colleagues to ensure that bank customers, whether personal or business customers, impacted by COVID-19 are extended forbearance without their loans being classified as non-performing.
The BPFI stated that the banks want to ensure that any COVID-19 application for a payment break and further reviews will not adversely impact the customer’s credit record or the banks' reporting of these facilities for regulatory capital purposes. Banks were to discuss this with the CBI: any solution would still likely require banks to carry out careful analysis, classification and reporting of affected loans for regulatory purposes.
The CBI has noted subsequently that the Central Credit Register (CCR) simply records loan information that is submitted by lenders on a monthly basis; it does not produce a credit score. The CBI confirmed that it was working with lenders to develop practical measures, so that the credit record of those who avail of a payment break get an appropriate recording on the CCR.
The Government has likewise stated that it is seeking to ensure that forbearance measures will not affect credit ratings.
The CBI has since published (around 30 March 2020) some further information on this issue on the Covid-19 section of its Consumer Hub. It outlines how customers who agree a payment break with their lender as a response to Covid-19, including a break with no payments at all, will not have this break identified specially on their credit report and no ‘missed payments’ will be recorded on the CCR during this period. The outstanding balance will not decrease during the period of the payment break and may increase to take account of the payments not made during the payment break period. The CBI notes that customers may, in the circumstances, wish (i) to place an explanatory statement on their credit report to explain their current circumstances where their loans are concerned and/or (ii) separately, check with their lender to see if the lender submits information on their loan to any other credit bureaus, which may produce credit ratings or credit scores.
The BPFI has welcomed this confirmation from the CBI.
Enforcement proceedings deferred
The BPFI has announced that the banks will defer court proceedings for three months. As noted above, the BPFI has further confirmed, on behalf of its members who are credit servicing firms and non-bank mortgage lenders, that those firms will similarly defer such proceedings for the same timeframe.
Other Governmental supports for struggling firms
These measures will complement the range of Government financial supports available to businesses, including the following:
- a €200m package of business supports will be made available by Enterprise Ireland for struggling firms
- loans (up to €1.5m) will be provided by the Strategic Banking Corporation of Ireland’s COVID-19 Working Capital Scheme at reduced rates
- MicroFinance Ireland will increase their potential loan threshold from €25,000 to €50,000
- a credit guarantee scheme will be provided by the pillar banks to affected firms (loans of up to €1m will be available)
The Department of Business, Enterprise and Innovation has also published some advice for SMEs on the practical steps that they can take, including in relation to available Government supports for working capital.
In addition, the Government has published a summary of the principal measures and initiatives for businesses and enterprises that the Government is implementing in response to the COVID-19 crisis.
Systemic Risk Buffer deferred
The Minister for Finance has decided to defer the introduction of the Systemic Risk Buffer whilst the banking sector is working together to support customers.
CBI statement: regulatory buffer release
The CBI also announced on 18 March 2020 that it has decided to release a capital buffer that banks are required to hold, being 1% of their Irish risk-weighted exposures. This Countercyclical Capital Buffer will be reduced from 1% to 0% no later than 2 April 2020.
This decision is stated to free up in excess of €1bn of bank capital that can be used to support approximately €13bn of restructured lending to bank customers that need assistance. Combined with the relaxation of Pillar 2 guidance and the Capital Conservation Buffer by the European Central Bank, the reduction in this buffer is intended to assist banks in supporting borrowers.
Further landlord and tenant related measures – temporary evictions ban and rent increases pause
The Minister for Housing, Planning and Local Government Eoghan Murphy TD recently announced further measures to complement these banking sector initiatives, to protect both tenants and landlords in the current crisis. Such measures have since been enacted, including a moratorium on evictions and rent increases for an initial period of 3 months from 27 March 2020 (which period may be extended by the Government) (the emergency period). The notice period for tenancies of less than six months is also being increased to effectively stop the notice period running during the emergency period. The legislation to implement these measures, the Emergency Measures in the Public Interest (Covid-19) Act 2020, was signed into law by the President on Friday 27 March 2020 (the Act is not yet available).
Sector specific considerations
The impact on portfolios of loans that have been securitised or sold will need to be assessed in light of the pre-existing contractual frameworks.
Banks should also consider what disclosures they may need to make relating to these measures in any new debt programme or securitisation prospectuses issued or in updates to current prospectuses.
Credit servicing firms and non-bank mortgage lenders will need to consider a range of operational and contractual issues, and to engage with the CBI in relation to those, in order to support customers with these measures.
Implementation of these measures and further clarity awaited
These steps are a significant start in beginning to address some of the societal and economic challenges that Ireland now faces due to COVID-19. However, there remain some questions of implementation and an expectation of further measures to come.
For example:
- at this stage, there is still some uncertainty surrounding the form that some of these forbearance and liquidity supports will take, although it certainly appears that many are envisaged at present to be on a voluntary basis
- excluding those already legislated for, some of these measures would be complex and lengthy to legislate for in the current crisis: however, the CBI may provide some further guidance in relation to these financial supports in due course
- take up of the different measures is difficult to predict across the banking and non-banking sectors, and will require granular implementation by the respective lenders (albeit the BPFI is regularly releasing data in this regard on its website, and has recently confirmed that (i) 28,000 mortgage payment breaks have been processed or are in the middle of being processed, just over one week after the initiative had been announced, and (ii) between 8,000 and 10,000 payment breaks for SMEs were also granted or in the process of being granted to those impacted by Covid-19)
- we await the outcome of further discussions between the BPFI and the CBI, for example in relation to implementing actions to be taken by credit servicing firms and non-bank mortgage lenders
- further legislative and/or regulatory developments are to be expected
A&L Goodbody – Further Information
We will continue to monitor these developments and will communicate further in due course.
For more information on these issues, please contact any member of A&L Goodbody's Finance team or your usual Finance Department contact.
