The European Banking Authority (EBA) said an industry-wide offering of loan payment breaks by EU lenders since March should be phased out on schedule at the end of this month, and banks should return to offering relief on a “case-by-case” basis.

“The payment moratoria have been an effective tool to address short-term liquidity challenges caused by the Covid-19 pandemic,” the EBA said in a statement on Monday.

“However, the EBA does not consider adequate at this state the further extension of such an exceptional measure. It is opportune to return to the practice that any rescheduling of loans should follow a case-by-case approach.”

Banking & Payments Federation Ireland has said about half of 86,000 mortgage breaks extended by lenders since March were active in late August. This is because many did not avail of an option to extend the period of relief from three months to six, but returned to making regular payments as they recovered from the economic shock.

Yet banking executives and regulators expect that a significant number of borrowers who availed of payment breaks will not be able to return to normal payments as the period of relief starts to come to an end in the coming weeks.

Still, borrowers affected by Covid-19 in the Republic who have not yet availed of a payment break can still apply for relief for up to six months up until the end of September.

Although there had been speculation in recent weeks that banks may offer an extension to payment breaks at industry-level for particularly vulnerable business borrowers, this has gained little traction.

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“Lenders still have the discretion to extend payment breaks under their normal toolkit (for problem loans), but I think we’re now probably getting to the point where it’s starting to become more than a payment break,” Central Bank governor Gabriel Makhlouf told The Irish Times in an interview last week, adding that banks needed to focus now on restructuring problem loans that have little chance of returning to normal payments to “avoid repeating the problems of the past”.

The EBA guidelines have allowed for borrowings subject to Covid-19 payment breaks up until now to continue to be classified as “performing” loans during the period of relief.

It said lenders that offer extended payment breaks beyond the end of this month must consider the classification of these forborne loans on a “case-by-case basis” according to normal regulatory rules.



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