Donohoe to meet with bank chiefs as Covid-19 crisis worsens

Finance Minister Paschal Donohoe to hold meeting Wednesday afternoon with CEOs of banks on how the industry is responding to fallout from the Covid-19 crisis and an expected increase in bad debts as many companies go bankrupt and homeowners falling behind on mortgages. payments, according to sources.

The meeting was tentatively scheduled for 4 p.m. at the Ministry of Finance, with attendees including Banking & Payments Federation Ireland CEO Brian Hayes enforcing social distancing guidelines.

Banking sources say there has been an increase in calls from homeowners and small businesses in recent days seeking payment holiday periods, as estimates indicate that 340,000 employees in bars, restaurants and shops retailers will have lost their jobs within days by the end of this week due to measures put in place to combat the spread of the coronavirus.

The Minister will be briefed on measures taken by lenders over the past week to offer loan disruptions to crisis-hit households and businesses – with accrued interest added to the loan principal – as well as fund lines emergency turnover and trade finance, according to banking sources.

“Last week we received a number of exploratory calls from people looking at options they might have. It’s changed. There has been a significant increase in the number of borrowers seeking forbearance, ”said a source from one of the state’s five traditional banks.

Banks will also be asked how they can make it easier for struggling businesses to obtain overdrafts and short-term loans to make upfront payments to workers who have lost their jobs under an emergency program. , where the money paid will ultimately be repayable by the government.

Irish banks have lowered their NPL levels under pressure from regulators, from a peak of € 80 billion, or 32% of loans, in 2013 to around 5% thanks to the restructuring of loans to problems in a recovering economy and loan sales.

The concern now is that the temporary forbearance measures in the wake of Covid-19 will result in a further increase in loans which will have to be classified as NPL unless the European Central Bank (ECB) makes provisions for them.

There has been no clear indication so far, other than the ECB said last Thursday that supervisors have “sufficient flexibility to adapt to specific circumstances at the bank.” The European Banking Authority said it was “crucial” for banks to properly classify “any deterioration in asset quality” accurately and in a timely manner.

Borrowers whose loans eventually need to be classified as NPL risk being affected by their credit rating and applying higher “risk premium” rates to future loans.

Banking circles believe that an improved version of the small business credit guarantee scheme, initially launched by the government in 2012 and subsequently updated twice, could ease the flow of credit in the economy.

Meanwhile, the Central Bank of Ireland has so far resisted calls from analysts and economists to allow lenders to tap into capital reserves set aside for a rainy day so they can continue. to lend during the coronavirus crisis.

Goodbody Stockbrokers analyst Eamonn Hughes estimates that removing the 1% cushion Irish banks have been required to hold since last July could support around € 10 billion in additional lending in the economy.

Irish bank stocks fell sharply again on Tuesday as investors continued to worry about the economic impact of Covid-19 and an expected increase in bad debts. AIB was down 6.5% at 1:30 p.m., while Bank of Ireland lost 10.3%.

“This is a national emergency and our response will be as strong as possible – for our customers, our colleagues, the economy and society as a whole,” Bank of Ireland Managing Director Francesca said on Tuesday. McDonagh, in a statement. “We have a range of options in place for customers, and we will do more to find solutions during this very difficult time. “

Mr Donohoe said in an interview with RTÉ Radio’s Morning Ireland on Tuesday that the government, while seeking to tackle the public health crisis caused by Covid-19, is also planning ways to restart the economy afterwards. He said the aim is to “make the recovery as clean, swift and inclusive as possible”.

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