Loan payment

Most SMEs in default of payment fail to return to initial conditions


According to banking industry data, less than half of small and medium-sized enterprises (SMEs) that benefited from payment interruptions during the coronavirus crisis repaid their original loan terms in full at the end of last month.

Banks granted 151,000 payment interruptions of up to six months to households and businesses during the economic shock, 94% of which expired in late November, according to the Banking & Payments Federation Ireland (BPFI).

While 84.7% of homeowner mortgages that were subject to payment holidays reverted to normal repayment schedules upon expiration of the breaks, only 48.8% of SME accounts did so. Some 5.7% of SME loans do not repay in full, while an additional 45.4% repay over an extended period, the data shows.

However, 84.7% of homeowner mortgage loans that received relief are repaid in accordance with their loan agreements. Some 10.9 percent do not pay in full, while 4.4 percent have received loan term extensions.

Deterioration

About 69% of all accounts with expired payment interruptions were repaid in full under existing terms again at the end of November, up from 76% a month earlier and 83% at the end of September, when banks stopped offering. global payment. breaks. The deterioration suggests that the period of level 5 restrictions between late October and 1 December had a negative effect on Irish borrowers.

The Republic re-entered Level 5 restrictions over the weekend through at least January 12, although unlike last time non-essential retail stores, gyms and leisure facilities may remain. open.

Almost 23 percent of loans to SMEs were subject to payment interruptions in early September, compared with 6 percent of homeowner mortgages. Businesses in the tourism and leisure sectors have been among the most affected by the crisis.

The state’s five retail banks – including the overseas-owned Ulster Bank and KBC Bank Ireland – made a total of € 2.6 billion in provisions in the first half of the year to absorb an expected increase in bad loan losses due to the economic shock caused by the pandemic.

Depreciation charges

Industry indications suggest that the five lenders will end up taking up to € 3.6 billion in depreciation charges for 2020 as a whole.

Banks have resumed offering solutions to forbear and restructure loans on a case-by-case basis to borrowers in financial difficulty since they stopped extending the payment breaks for the few questions asked at the end of September.

The central bank also said that financially distressed customers are now better served by banks offering tailor-made solutions. However, he wrote to managing directors of retail lenders in November to say that although “considerable efforts” have been made by the industry to introduce payment interruptions and to develop plans to support borrowers after the period ends. relief, the “heavy dependence of banks on temporary and very short-term abstention” was worrying.

The Central Bank also pointed out a “lack of innovation” in the range of forbearance options available to borrowers.