European Banking Authority reverses earlier stance as Covid second wave sweeps continent

Banks will be allowed offer payment breaks to business and individual customers again after the European Banking Authority on Wednesday revised its stance on the issue.
Banks will now be allowed offer breaks on repayments until the end of March next year. However, borrowers will only be able to secure a moratorium on loan repayments for a maximum of nine months. That will include any payment breaks already enjoyed earlier this year. Banks had offered payment breaks for up to six months as Covid-19 led to a shutdown of the economy in March.
It was not immediately clear how Irish banks intend to respond to the new guidelines.
Banks will be obliged to liaise with the Central Bank on how they will determine that borrowers will be able to meet their repayment obligations payments after any break.
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.
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.
The EBA Guidelines mean banks can grant payment holidays to customers without adversely impacting customers credit rating or forcing the banks to consider the loans as in default which would adversely affect their balance sheets.
This reactivation will ensure that loans, which had previously not benefitted from payment moratoria, can now also benefit from them.
The banking watchdog had previously refused a plea from Irish MEP Frances Fitzgerald to reconsider the issue.
In response to a letter from Ms Fitzgerald, the head of the EBA said that its decision in September not to extend guidelines for blanket Covid-19 payment breaks was driven by a need to ensure banks accounts remain reliable.
At the time, EBA chairman, Jose Manuel Campahe resisted calls to revisit the matter amid a second wave the pandemic.
Banks across the EU were allowed by the EBA guidelines, issued as Covid-19 swept through Europe earlier this year, to not account for loans subject to short-term payment breaks between March and September as non-performing debt, which would otherwise require banks to set aside further loan-loss provisions.
One important element that has been taken into account in this discussion, and driving the EBA decision not to extend, is the need to ensure that the credibility of banks balance sheet data is not jeopardised.
At the time, Mr Campa said the EBA would continue to monitor the situation. Now it has acted.
As of the end of October, 85 per cent of 153,000 payment holidays extended to Irish households and businesses had expired.
More than 86 per cent of owner-occupier mortgage accounts within the group had returned to normal payments, with 10 per cent not repaying in full and 3.8 per cent repaying on an extended term, according to Banking & Payments Federation Ireland (BPFI) data.
Active payment breaks at the end of October stood at 1.9 per cent of all Irish owner-occupier mortgages. Still, they remained at 9 per cent for small- to medium-sized businesses.