Majority of food and accommodation SMEs secure payment breaks on loans

Borrowers behind 58.9 per cent of small businesses in the food and accommodation sector with loans secured payment breaks of up to six months from banks during the Covid-19 crisis, according to data published by the Central Bank on Tuesday.

Separately, research from the bank noted that Irish mortgages with a history of problems and bank forbearance were twice as likely to have entered payment holidays as those which have never had issues in the past.

Breaks

The figures are from the end of May, before borrowers came to the end of an initial three-month period of relief. Banking & Payments Federation Ireland has previously said that about half of 86,000 mortgage breaks extended by banks and non-bank lenders since March were active in late August, as many returned to making regular payments as they recovered from the economic shock.

Banking executives and regulators expect a significant amount of borrowers who availed of payment breaks will not be able to return to normal payments as the period of relief starts to come to an end in the coming weeks.

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Although there has been speculation in recent weeks that banks may offer an extension to payment breaks at industry-level for particularly vulnerable business sectors, this has gained little traction, according to sources.

Banks will be expected to offer extended breaks on a case-by-case basis, as they work through the best forbearance and restructuring solutions for borrowers that remain in distress.

The State's five retail banks - including AIB, Bank of Ireland, Permanent TSB and overseas-owned Ulster Bank and KBC Bank Ireland - set aside a combined €2.6 billion of provisions in the first half of this year to absorb an expected surge in bad loan losses as a result of the economic shock caused by the pandemic.

Lending

The Central Bank said on Tuesday that 23.8 per cent of all SME lending across AIB, Bank of Ireland and Ulster Bank secured payment breaks during the Covid-19 crisis. Almost 45 per cent of lending out to the arts, entertainment and recreation sectors needed relief, second only to accommodation and food, according to the data.

However, only 9.1 per cent of large corporate loans needed a payment freeze. This most likely reflects the fact that larger companies had more cash on hand and access to larger overdraft and revolving credit facilities heading into Covid-19 than smaller firms.

Meanwhile, the Central Bank confirmed that about 10 per cent of mortgages across the country’s five retail banks were subject to payment breaks at the end of May. About 40 per cent of these had previously been subject to lender forbearance – and roughly half of these were availing of some form of eased terms as coronavirus swept through the State.

More than 20 per cent of all Irish owner-occupier mortgages had a history of forbearance or modification prior to this crisis, according to the bank.

The data also showed that loans taken out before the 2008 financial crisis were more likely than average to have payment breaks.

Ratios

“Finally, there is a close relationship between payment breaks and high loan-to-income ratios at origination, especially among more recent vintages of lending,” the report said.

Counties Meath and Kerry have the highest shares of mortgage payment breaks, followed by Louth and Wicklow, then Donegal and Wexford, according to the figures. Meath, Louth and Wicklow are Dublin commuter counties with many "mid-2000s mortgages", the bank said.

“Kerry, Donegal and Wexford have large shares of employment in the ‘accommodation and food service’ industry sector, which was strongly affected by business closures due to Covid-19,” it said.