Payment breaks on loans get green light again from watchdog

Banks across Europe will be allowed offer payment breaks on mortgage, personal and business loans again after the European Banking Authority (EBA) on Wednesday revised its stance on the issue.

It said the reactivation of payment moratoriums was a recognition of the “exceptional circumstances” of the second wave of Covid-19 that has swept across Europe in recent weeks.

Lenders will now be allowed to offer breaks on repayments until the end of March.

The EBA guidelines mean banks can grant payment holidays to customers without adversely affecting customers’ credit rating or forcing the banks to consider the loans as in default, which would adversely affect their balance sheets.

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However, the EBA rules apply only to systemic payment breaks. As of now, Irish banks are not offering a system-wide right to payment moratoriums, although borrowers can be offered breaks according to their individual circumstances.

The Banking and Payments Federation of Ireland (BPFI) said late on Wednesday that Irish banks did not intend to avail of the relaxed rules, and would instead continue to use a “case-by-case approach to support those customers adversely impacted by the coronavirus pandemic”.

‘Low levels’

BPFI chief executive Brian Hayes said: “Customer requests for support have fallen to extremely low levels in Ireland, and the vast majority of customers have exited payment breaks and are back on full repayments. The situation is not what it was earlier in the year.”

That means any Irish borrowers seeking relief due to the economic impact of successive Covid lockdowns will have it default marked against their credit rating as a “missed or past-due payment”.

“With the continued unfolding of the Covid-19 pandemic, it is crucial that banks continue to provide lending to the real economy while recognising any solvency issues in order to ensure that problematic loans are well reflected in their balance sheets,” the EBA said in a statement released on Wednesday.

Under the now relaxed rules, borrowers would be able to secure a moratorium on loan repayments for up to nine months – including any payment breaks already enjoyed earlier this year.

Banks would be obliged to liaise with the Central Bank on how they would determine that borrowers would be able to meet their repayment obligations payments after any break.

“This reactivation will ensure that loans, which had previously not benefited from payment moratoria, can now also benefit from them,” the EBA said.