COVID-19 - financial services measures in Ireland

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On 12 March, an Taoiseach, Leo Varadkar TD, announced the closure of schools, childcare facilities, colleges, and State-run cultural institutions, and recommended the cancellation of mass gatherings until 29 March.

On 15 March, the Government also recommended the closure of all pubs until the same date and emphasised the need for the continued use of social distancing. Many non-essential businesses have closed and this is expected to lead to a dramatic loss of jobs, particularly across the bar, restaurant, hospitality and retail sectors.

The Government, the Central Bank of Ireland (CBI), the Banking & Payments Federation Ireland and its members (BPFI) have agreed a number of measures to assist consumers, households and businesses during this unprecedented crisis. These are in addition to the steps that are being taken at an EU level. Further information in respect of those EU measures can be found here.

Central Bank of Ireland – shock absorption measures

The CBI released a statement on 18 March confirming that it has decided to reduce the Counter Cyclical Capital Buffer (CCyB), a time varying capital requirement applicable to banks and certain investment firms, in order to support the continued provision of credit by the Irish banking system to households and businesses during the COVID-19 pandemic.

The CCyB will be reduced from 1% to 0% no later than 2 April 2020 (subject to notification to the European Central Bank), in order to support the sustainable flow of credit to the Irish economy. This reduction will free up in excess of EUR1 billion of bank capital. In a recent statement, the Department of Finance indicated that this has the potential to support approximately EUR13 billion of restructured lending to bank customers. The CBI has indicated that it does not intend to increase the CCyB until the first quarter of 2021, at the earliest, and that any such increase would be contingent upon prevailing macroeconomic and financial conditions.

In another measure to help maintain liquidity, it has been announced by the Minister for Finance, Paschal Donohoe TD (Minister for Finance) that the introduction by Ireland of the Systemic Risk Buffer (SyRB), one of the four Capital Buffers provided for in the Capital Requirements Directive IV and which forms part of the Macroprudential Toolkit, will now be postponed.

It is hoped that these measures, together with those at an EU level (as mentioned above), will help ameliorate the current financial disturbance faced by SMEs and households.

Forbearance and support from the banks – exceptional measures for exceptional circumstances

The Minister for Finance met with the five Irish domestic retail banks and the BPFI in relation to the crisis on 18 March. They outlined a joint plan to support the thousands of businesses and employees across Ireland impacted by the COVID-19 pandemic. The measures agreed include the following:

  • the implementation of a payment break for up to three months for business and personal customers affected by COVID-19, to be followed by ongoing reviews depending on the scale and extent of the situation;
  • ensuring that any customer application for a payment break (and further reviews) will not adversely impact the customer’s credit record, and the reporting of these facilities, including on the Central Credit Register;
  • the deferral of court proceedings for three months;
  • support for buy-to-let customers of the banks with tenants affected by COVID-19 – allowing them to exercise due levels of forbearance to their impacted tenants; and
  • adopting a customer-focused approach to SMEs, with a wide variety of tailored supports, including extensions of credit lines, risk guarantees and trade finance.

On 19 March, the CEOs of Ireland’s five domestic retail banks (accompanied by a representative on behalf of international bank members of the BPFI), together with the BPFI, met with the CBI to discuss a range of issues, including the foregoing measures and their operational impact. Considerable further engagement is expected over the coming days and weeks to establish the key issues and challenges that are likely to arise in the medium to long term.

Credit servicing and retail credit firms – following the banks’ lead

Also on 19 March, the country’s main retail credit firms and credit servicing firms (which are regulated by the CBI), announced that they would follow the approach agreed to by the five main domestic retail banks. In a statement by the BPFI on behalf of these firms, they explained that they will need appropriate guidance from the CBI on a number of important practical matters, including customer documentation and certain processes, the operation of the Central Credit Register and possible impact on securitisations.

The CBI is also working with its EU colleagues to ensure that any forbearance measures do not result in the loans being classified as defaulting.

Government supports

On 10 March, the Minister for Business, Enterprise and Innovation, Heather Humphreys TD, announced details of the package of support measures that her department has put in place for businesses impacted by COVID-19. These measures include a EUR200 million Strategic Banking Corporation of Ireland Working Capital scheme, a EUR200 million Package for Enterprise Support (to include a Rescue and Restructuring Scheme available through Enterprise Ireland for vulnerable but viable firms that need to restructure or transform their business), an increase in the loan amounts available from MicroFinance Ireland, and the availability of the Credit Guarantee Scheme to COVID-19 impacted firms through the Pillar Banks.

What next?

As the situation in respect of COVID-19 continues to rapidly evolve, different countries are taking unprecedented measures to try to manage the economic impact. A number of countries, including the United Kingdom, Belgium, Denmark, Norway and Sweden have also announced reductions in CCyB. Other EU countries have taken further steps, including enacting legislation to suspend directors’ duties in relation to the filing for insolvency (where the insolvency can be linked to circumstances brought about by the pandemic) and announcing a blanket moratorium on all loan payments.

It is very likely that the above measures only represent the initial steps that we will see taken in Ireland to try to deal with the unprecedented challenges presented by the crisis and to mitigate the likely economic fallout. Legislators, regulators and industry stakeholders will all have to work together on an ongoing basis to navigate the issues as they arise.