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

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According to banking industry data, less than half of small and medium-sized enterprises (SMEs) that profited from payment interruptions during the coronavirus crisis resumed paying off 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, with 94% of them expiring 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 when the breaks expired, only 48.8% of SMB accounts did so. Some 5.7 percent of SME loans are not repaid in full, while an additional 45.4 percent repay over an extended period, the data shows.

However, 84.7% of homeowner mortgage loans who 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 percent of all accounts with expired payment interruptions had reverted to full repayment under existing terms by the end of November, compared to 76 percent a month earlier and 83 percent by the end of September, when banks ceased to operate. offer global payment. breaks. The deterioration suggests that the period of level 5 restrictions between the end of October and December 1 had a negative effect on Irish borrowers.

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

Almost 23 percent of loans to SMEs were subject to payment interruptions in early September, compared to 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 as a result of 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 the whole of 2020.

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 troubled 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 effort” has been made by the industry to introduce payment interruptions and to develop plans to support borrowers after the period is over. of relief, the “heavy dependence of banks on temporary and very short-term abstention” was worrying.

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

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