Dáil Éireann Debate, Thursday - 16 July 2020
61. Deputy Martin Browne asked the Minister for Finance the consequences for banks found to be making additional profits from the Covid-19 crisis; if those banks have been informed of the sanctions they will be subject to; and the sanctions that have been implemented to date. [16413/20]
View answerIn order that the banking system can support the overall economy by providing credit to businesses and households on a prudent and sustainable basis, it is necessary for banks to be appropriately capitalised, profitable, well run and operate in a way that complies will all relevant prudential, macro prudential and consumer protection requirements. Within that framework, it is the responsibility of the boards and management of individual banks to operate and manage their business in a way that meets and appropriately balances the requirements of the various stakeholders of banks and other financial entities.
As independent regulator of the banking and wider regulated financial services sector, the Central Bank is working with financial service providers to ensure that households and firms are protected throughout this Covid-19 period. This is an active and ongoing engagement. For example, for existing borrowers who are impacted by Covid-19 payment breaks on mortgages and SME loans, and other similar temporary relief measures, allow households and businesses to absorb the shock of the crisis, so that as many as possible can recover once the virus is under control. They will help households and businesses to preserve their liquid reserves today, to the extent possible, at the cost of higher repayments (or longer repayment periods) in the future. However, these measures do not come without cost to the banking sector and these costs will also have to be managed in a way that protects their business and will be as fair as possible to the various stakeholders. However, as I have indicated to the banks, it will not be acceptable for banks to make excess profits from borrowers on payment breaks and it will be a matter for banks to demonstrate that situation will not arise.
Lenders, including banks, voluntarily put in place payment breaks in March 2020 to support those borrowers that were financially affected by the COVID-19 pandemic, and they are available for all those that need them and are a suitable solution for. Payment breaks are a widespread support being offered by lenders across the European Union and have been implemented on both a legislative and voluntary basis. The European Banking Authority (EBA) issued guidelines on their operation on 2 April 2020, with the aim of clarifying the regulatory treatment of payment moratoria across the EU prescribe the criteria which both voluntary and legislative moratoria must meet in order for relevant loans not to be classified as defaulted or otherwise forborne. Both interest accruing and interest not accruing are permissible under the guidelines and as a result the approach taken by Irish banks, whereby interest continues to accrue on exposures subject to the COVID-19 moratoria, is compliant with the EBA Guidelines. All lenders also have been required to develop strategies and operational capability to continue to support borrowers who cannot return to full capital and interest after the end of the payment break and this may include offering forbearance as required and restructuring of loans in the event of long-term affordability issues. In such a situation it should be noted that the provisions of the applicable Central Bank consumer protection codes and regulations will be available to borrowers in such a situation.
