The Irish Central Bank on Friday wrote to the chief executives of the country’s lenders asking them to address “warning signs” apparent in their handling of borrowers in financial distress from the pandemic.
The letter outlined how the Central Bank expects borrowers will be appropriately protected through the crisis and lenders will avoid elements of past mistakes.
The Central Bank acknowledged that the banks have made considerable efforts this year to introduce loan payment breaks and subsequently develop plans for how they will support borrowers after the breaks expire, but it added that information on the supports being provided ”in most cases is not sufficiently granular” to allow for effective oversight by the lenders’ board and executives.
The letter also identified a “high reliance on temporary and very short term forbearance” and whilst it is “understandable” in light of the uncertainties about the timing of economic recovery, there are “early indications that some lenders are overly relying on short term arrangements”.
It noted some anecdotal evidence, particularly on SME lending that borrowers have “concerns regarding the rationale and judgement applied in arriving at credit decisions”. It also highlighted “lack of innovation” in the range of forbearance options being applied. It wants the banks to reply by December 18th on the necessary steps are being taken to ensure solutions appropriate to all circumstances will be put in place.
Goodbody Stockbrokers say the Central Bank is doing its job of keeping the banks “on their toes”. However, they say the banks have been noting a better than expected performance with more customers reverting to the original repayment schedules than previously anticipated, which is clearly helpful in relation to credit quality.
According to Goodbody Stockbrokers, "In one sense, we can understand the offer of shorter term forbearance measures as customers roll off payment breaks in the midst of elevated lockdowns, which may see stronger economic prospects literally in a matter of a few weeks, but clearly more sustainable solutions will need to be put in place in time. All the same, we believe the banks will be taking the necessary steps to comply with the requirements of the mid-December deadline and the banks do have the prior experience to enable them to do so."