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Mortgage Lending

Dáil Éireann Debate, Thursday - 16 July 2020

Thursday, 16 July 2020

Ceisteanna (1)

Pearse Doherty

Ceist:

1. Deputy Pearse Doherty asked the Minister for Finance the measures he has taken and will take to prohibit the accrual of interest during the moratorium period for mortgage breaks taken in the context of Covid-19; his views on comments made with retail banks at a meeting held on 11 May 2020; and if he will make a statement on the matter. [16464/20]

Amharc ar fhreagra

Freagraí ó Béal (9 píosaí cainte)

Déanaim comhghairdeas leis an Aire ar son a cheapacháin arís mar Aire Airgeadais agus mar chathaoirleach ar an Eurogroup. Tá súil agam go mbeidh tairbhe ann dár Stát agus pléifimid sin níos moille. Ba mhaith liom ceist a chur ar an Aire ó thaobh an chruinnithe a bhí agaibh ar an 11 Meitheamh. The Minister, Deputy Donohoe, along with the then Taoiseach, Deputy Varadkar, and the then Minister for Business, Enterprise and Innovation, Deputy Humphreys, had a meeting on 11 May with CEOs of the retail banks. At that meeting, the banks claimed the accrual or charging of additional interest during mortgage breaks in the context of Covid-19 was required by the regulator. We know that was not true. How was it that this was the position relayed to the Minister, Deputy Donohoe, and his colleagues? How was it that they were misinformed on this? Did the Minister address the issue with the banks since? I understand he may have met with the retail banks yesterday. Did this issue arise? What actions does he propose to take to prohibit profiteering by the retail banks during this pandemic by charging additional interest during the mortgage break?

I thank the Deputy for his good wishes on my new role. I look forward to working with Members of the Dáil and with finance Ministers across Europe over the next two and a half years.

To deal with the Deputy's question, the members of the Banking and Payments Federation of Ireland, BPFI, introduced a payment break for their customers on 18 March last. These payment breaks were agreed quickly to provide substantial and rapid relief to worried and anxious borrowers, including mortgage holders, in situations where income had been directly impacted by Covid and during a fast-moving and evolving public health crisis. At the end of June, almost 160,000 payment breaks had been approved for Irish borrowers, representing €20.1 billion of loans.

Two weeks later, on 2 April, the European Banking Authority, EBA, published guidelines which set out the criteria that payment moratoria must meet in order to benefit from supervisory flexibility and for them to not automatically lead to loans being classified as forborne. The key paragraph in relation to the charging of interest, paragraph 24, was interpreted in different ways across Europe. I will not read the entire paragraph but I note that it refers to only allowing changes to the schedule of payments. It goes on to state that moratoria, suspending, postponing or reducing payments, which could be principal, interest or both for a limited period of time, would clearly affect the whole schedule of payment and may lead to increased payments over the payment of the moratorium or an extended duration of the loan. It goes on to note that other conditions of the loan, in particular the interest rate, should not be effected, unless such change only serves for compensation to avoid losses, which would allow the impact of the net present value to be neutralised.

Given the pre-existing EBA guidelines on the classification of default, the BPFI and its members sought to ensure that its payment break would not lead to the classification of loans as being non-performing. Subsequently, in its letter to Deputy Doherty on 22 June, which was well after the meeting of 11 May, the Central Bank stated that the EBA was expected to provide further clarity on the specific issue of interest accrual and, I assume in light of the discussions then under way with the EBA, the Central Bank outlined that both the charging and non-charging of interest is acceptable under the guidelines.

The EBA duly provided clarification in its report of 7 July. It confirmed in relation to the net present value, NPV, of a loan that:

...there may be a decline in the NPV if [...] no interest is charged for the time covered by the moratorium. Alternatively, the moratorium may be NPV-neutral [...] if subsequently at least one of the instalments is adjusted upwards or added.

The EBA also confirmed that its guidelines on the classification of default did not apply to a loan and a payment break under a general moratorium. The moratorium of the BPFI and the banks in Ireland complies fully with the EBA guidelines.

The Tánaiste and I are meeting the CEOs of the three main banks this week. We are having our final meeting this afternoon and issues relating to the payment break will be discussed.

There was only one set of guidelines. They have never changed. I hope the Minister accepts that. Clarification was provided during different periods. The Minister is right to say I wrote to the Central Bank on 11 June. I asked in my letter why Belgium and Spain were able to waive interest rates for consumers in those jurisdictions, while working to the same EBA guidelines. I knew the answer but I wanted it in writing so I could show the Minister and others that this did not need to happen. How did I know the answer? I knew it because I had engaged with the Central Bank before that. We have had conversations on this issue with the Governor of the Central Bank and we have looked at what has happened in other jurisdictions.

We have also looked at the EBA guidelines of 2 April, selections from which the Minister read out, and the guidance that was provided on this issue on 25 March by the European Securities and Markets Authority, ESMA, which included a clarification that it was not necessary for interest to accrue. The Minister knows that because his colleagues in Spain and Belgium do not require interest to be charged, particularly in Belgium, on low-interest loans.

What is the Minister's view of the fact that the CEO of KBC Bank sat at the meeting with the Minister and the Taoiseach where the chief executive officers of the main pillar banks said that interest must be charged, as required by the regulator? They said this approach was required to prevent a loan from being considered as going into default. The AIB representative said the risk was clear that if interest was not charged, there would be a default and there would be a credit rating on the customer. The CEO of KBC Bank sat at that meeting. KBC Bank operates in Belgium, where for low-interest customers with low incomes, interest is not charged during the payment breaks. That is done under the exact same guidance the Irish pillar banks received, namely, the EBA guidelines that were issued on 2 April and the clarification that was issued on 25 March by the ESMA. How can the Minister justify that? More important is the fact that Permanent TSB, a State-owned bank, has made it very clear that if a customer takes a six-month break on a €250,000 mortgage without an extension of the term, the bank will charge that customer an additional €6,300. How can the Minister for Finance, who holds the majority shareholding in that bank on behalf of the Irish people, tolerate such practice?

It was my job as this issue was developing to work with the banks to ensure provisions were put in place to allow payment breaks to be given to mortgage and loan holders at a time when they needed them the most. When we were facing into this period, we were looking at a public health crisis and an economic emergency. As a result of the work done by the Department of Finance and me and the work done by the Central Bank and the other banks, in recognition of the huge challenges people were facing, we were able to put in place payment breaks to meet those challenges.

When we are debating the payment breaks, let us take into account that 160,000 of them have been made available to those who needed and deserved them. Let us recognise that there are 70,000 payment breaks currently in place for mortgage and loan holders who need and deserve support. Deputy Doherty referred to what was done in Belgium but he did not say that people with savings of more than €25,000 are excluded from the payment break provisions that are available in that country. He has not touched on the fact that in Germany, the length of the payment break is three months. There are differences between what is happening in Ireland and what is happening in other parts of Europe. When we look at what is happening in Belgium, we see that many mortgage holders are excluded from being able to access the payment breaks. When we look at what is happening in Spain, we see that there are very strict criteria in place - understandable from the point of view of the authorities there - which limit the breaks to a certain group of people on the basis of their income. What we have done in Ireland is to make mortgage breaks broadly available to those who need them the most.

Deputy Doherty asked about the role of the regulator and how these matters were interpreted by central banks in different European countries. During this period, I was engaging at European level and making the point that we must do all we can to minimise the risk of a further non-performing loan difficulty later in the year. We needed to avoid a situation where we would again see people not able to pay their mortgages through no fault of their own and facing the kinds of difficulties we faced in the recent past. When the Deputy compares what we are doing here with what happens in other countries, he might consider that the type of system we have in place is also different in terms of its breadth.

We will move on to Question No. 2 in the name of Deputy Paul Murphy.

Am I not allowed to put another supplementary question to the Minister?

No, the Deputy has used up all his time. He went well over it in putting his initial question. There are four minutes overall for supplementary questions and we have exceeded that.

I understood that I would be allowed to ask a second supplementary question.

I clicked the bell at one minute when the Deputy was putting his supplementary question. He went well over two minutes and the Minister then had two minutes to respond. The Deputy has exhausted his time.

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