“Learning the lessons from the global financial crisis in addressing the distress arising from the pandemic” – Deputy Governor Ed Sibley

• System-wide payment breaks provided invaluable support to borrowers with many borrowers in a position to return to repayments
• Transition to individually tailored supports for borrowers experiencing continued difficulties is occurring which could include further payment breaks if appropriate to borrower circumstance
• Effective engagement between lenders and borrowers is critical

Today, 28 September, the Central Bank of Ireland jointly hosted a webinar on distressed debt with University College Limerick. The webinar, which was opened by Central Bank Deputy Governor, Ed Sibley, was chaired by Stephen Kinsella, Professor of Economics at the University of Limerick’s Kemmy Business School, and brought together a panel of experts on economics and financial issues to discuss distressed debt relevant for businesses and households.

During the webinar, Deputy Governor Sibley spoke about the importance of supporting borrowers whose income has been affected by Covid19.  “Recognising problems and finding the most appropriate treatment for borrowers who cannot return to their repayment schedule after a six month break is likely to lead to better outcomes for more borrowers than pretending that the problems do not exist.  There is no regulatory impediment to lenders offering further payment breaks to borrowers, providing they are appropriate for the individual borrower circumstance”.

As outlined in the Financial Stability Note, Resolving mortgage distress after COVID-19: some lessons from the last crisis, written by Fergal McCann and Terry O’Malley and also published today, Deputy Governor Sibley discussed how effective engagement between lenders and distressed borrowers is critical to preventing the build-up of arrears and successful restructuring of loans where the ability to pay the debt has been reduced. “In this context, it is important to apply the hard lessons of our collective experience of dealing with the debt crisis that Ireland experienced after 2008”.

The Central Bank also remains focused on those borrowers (primarily mortgage borrowers) who were in distress before the pandemic. “We are continuing to push all lenders to deliver sustainable restructuring where it is possible, and are also engaging with relevant stakeholders to explore whether there are other options or system-wide initiatives which will help.  We must also do all that we can to prevent the further build-up of this long term distress from the current crisis”.

Speaking on expectations of firms in dealing with customers experiencing distressed debt, he said “we have engaged intensively with lenders with the aim of ensuring that our expectations are met in relation to both the implementation of the initial system-wide response to support affected borrowers and to ensure lenders are prepared for what is coming next.  We will intensify this engagement still further to ensure that firms are engaging effectively and meaningfully and providing the appropriate support to borrowers who need it.”

In this context, it is important to note that there are extensive supports and protections in place for borrowers experiencing repayment difficulties.  These include the Code of Conduct on Mortgage Arrears, the Consumer Protection Code, and Regulations for firms lending to SMEs.  The aforementioned protections exist to help borrowers, and ensure they are treated fairly by their lender. Borrowers who have difficulty paying their mortgage due to COVID-19 – or any other reason – are encouraged to talk to their lender and get advice from the Money Advice and Budgeting Service.

Notes:

• Today’s webinar is an interactive panel discussion chaired by Professor Stephen Kinsella from the University of Limerick with contributions from Ed Sibley, Deputy Governor, Prudential Regulation, Central Bank of Ireland, Mascia Bedendo, Professor of Finance, Università di Bologna, Alexander Lehmann, Non-resident fellow, Bruegel. This event is an opportunity to discuss both the theory and policy relating to distressed debt for businesses and households.
• Today, the Central Bank has also published a Behind the Data “Understanding Long-term Mortgage Arrears in Ireland” written by David Duignan, Andrew Hopkins, Ciaran Meehan and Martina Sherman* which provides new data on long-term mortgage arrears reveals a significant number are more than ten years in arrears, with such cases dating back to the last financial crisis.
• The Central Bank has also published its Mortgage Arrears Statistics Release for Q2 2020