My colleague, Ed Sibley, and I welcome the opportunity to meet with the committee. In our opening statement, we sought to touch on the issues highlighted as of concern to the committee, including the effects of Covid-19 on borrowers and in insurance, wider developments in the banking sector in Ireland and, of course, the most recent outcome of an enforcement investigation into the Davy Group. We see our engagement with this committee as very important in informing how we deliver on our mandate and demonstrate accountability for the work we do in the public interest. We are always open to exploring how we can enhance our engagement with this committee.
In reference to Covid-19, I acknowledge that first and foremost it is a cause of human tragedy which has had a devastating impact on families and individuals. The necessary measures to address the health emergency have had a negative effect on many businesses and household incomes due to the associated economic disruption. At national and European levels, as part of the Eurosystem and Single Supervisory Mechanism, SSM, the Central Bank has taken action seeking to ensure that the financial system absorbs the shock and is better placed to support households and businesses in this crisis. The work over the last decade has sought to ensure banks and other firms are financially and operationally resilient. This has been important to allowing those firms to extend financial support and continue to lend when the shock hit.
During 2020, Covid-19 payment breaks supported a significant number of borrowers. Lenders granted payment breaks to more than 172,000 Irish accounts, representing more than €23 billion of lending. The majority of those payment breaks have ended, with approximately 90% of borrowers returning to full repayment on either existing or extended terms. The remaining 10% of borrowers have indicated they need further financial support. Support to borrowers continues now on a case-by-case basis and through more regular forbearance measures. Despite the reduction in distressed debt over the past decade, a sizeable number of borrowers were in distress before the onset of the pandemic. Therefore, distressed debt remains a key priority for us. Our focus is to ensure lenders have suitable supports in place to help borrowers. We are supervising lenders to ensure they have appropriate strategies, the necessary financial and operational resources and a suite of appropriate and sustainable solutions to resolve distressed debt, whether it arose before or as a result of the pandemic. We prioritise effective engagement between lenders and distressed borrowers, noting that such an approach will prevent the build-up of arrears and the successful restructuring of loans where debt-servicing capability has been reduced. In this context, it is important to apply the lessons of the last crisis. I refer the committee to the further details set out in the statement, to which I do not propose to refer now.
The Central Bank of Ireland has also prioritised the issue of business interruption insurance since the onset of the pandemic. We have conducted a system-wide examination. From the outset, we have been clear on expectations of firms that they treat their customers fairly and pay valid claims. We have been intrusive and assertive in our work for customers and this remains a key area of our focus. Through the examination, we have focused on identifying all groups of impacted policies where, in our view, the relevant contractual provisions provide cover for Covid-19 related interruption. Our aim is to drive a system-wide response so that all customers are identified and valid claims are paid. We have analysed more than 250 different policy types across more than 30 insurers, determined that they will meet their obligations to their customers. As a result of our supervisory interventions, a number of insurers had already accepted and commenced settling claims. This occurred before the recent High Court judgment, which is significant and welcome and reinforces our system-wide supervisory action. We can confirm to the committee that all firms in scope have accepted the outcome of the judgment and we, therefore, expect that all valid claims will be handled and paid by the firms in accordance with their claims handling obligations and in compliance with their legal and regulatory obligations. Where there is a wider impact of a court judgment to the benefit of customers, the Central Bank has instructed firms to re-review previously declined claims and to identify customers who have insurance policies with cover and who may have a valid claim and those who have not yet made a claim. We have instructed insurers to communicate with their customers to inform them of the insurer's updated position in relation to claims and to invite their customers to submit a claim if they have suffered losses due to Covid-19 related business interruptions.
We understand the concerns of customers, staff, committee members and others regarding NatWest Group’s decision to close Ulster Bank in the Republic of Ireland. There are clear implications for the competitiveness of the Irish banking market, particularly for business lending. We also understand the concerns regarding Bank of Ireland’s decision to close bank branches across Ireland, including societal concerns about the impacts and effects on rural communities. These decisions are being made in an environment of significant change in retail banking across Europe and beyond. New technology is having an effect, and I am sure these matters will be discussed further.
Banks will continue to have an important role in the functioning of the economy and the supply of credit and services to businesses and consumers, and that role is changing. It is important the discussion on the future of banking starts from the basis of the current and future financial services needs of businesses, households and individuals. In that way, the discussion will allow the role of other financial service providers, from payment institutions to credit unions, in meeting the needs of our community to be considered.
Decisions relating to the strategic direction and business models of firms are decisions for the boards of those firms. The Central Bank cannot require firms to keep operating in the State if they do not wish to do so. However, we can ensure that changes are done in an orderly manner, impact assessments are done in respect of the impact on customers, an appropriate level of care is taken and adherence to the consumer protection code provisions are complied with.
We have previously provided detailed responses to questions from the committee on bank capital. I will not detail that information again, but it is important to note that appropriately capitalised banks are fundamental to protecting consumers, maintaining the supply of credit to businesses and households and ensuring financial stability.
The reprimand and fine imposed on Davy reflect the serious regulatory breaches and aggravating factors in that investigation, including the firm’s lack of candour when first reporting the matter to the Central Bank. As we have detailed in the statement, Davy prioritised facilitating an opportunity for a consortium of 16 employees to make personal financial gain over ensuring it was complying with its regulatory obligations.
Enforcement action supports and runs alongside our supervisory interventions. This assists in driving remediation of risk and issues in governance, risk management and control frameworks of the firms we supervise. When the enforcement actions conclude, we insist on a detailed public statement because we believe sunlight is the best disinfectant and it is important to be transparent where we can. The Central Bank has a strong enforcement record, having concluded more than 140 enforcement actions and imposed financial penalties in excess of €128 million, with a number of individual disqualifications and prohibitions imposed.
Notwithstanding our strong enforcement powers, we believe the regulatory framework requires further strengthening with regard to individual accountability. We regard the individual accountability framework, including the introduction of conduct standards for individuals, and the senior executive accountability regime, SEAR, as a necessary enhancement.
I thank committee members for their attention. My colleague and I are happy to answer any questions they may have.