COVID-19 and the Banking Sector in Ireland

The Covid-19 pandemic brings uncertainty and financial obstacles both for businesses and consumers. In an effort to mitigate the economic maelstrom threatened by this global pandemic, the banking sector and financial institutions have responded rapidly by introducing a range of measures designed to help prevent the spread of the virus, provide a crutch to struggling businesses and also to protect consumers. Although the measures are intended to be temporary, this pandemic could bring about long term changes to the way the Irish banking sector operates.

Provisions for SMEs/businesses impacted by Covid-19

The Government has announced a further €1 billion in support to assist SMEs whose businesses have been affected by Covid-19. Measures introduced by the Strategic Banking Corporation of Ireland (SBCI) include:

• €450m expansion of two loan schemes;
• Future Growth Loan Scheme providing a further €200m in instalments in longer term loan supports to impacted businesses. As the monies will be released in tranches, this can provide longer terms loans to businesses affected by the Covid-19 pandemic; and
• €250 million Working Capital Loan Scheme which can provide liquidity support to businesses.[1]

The Government has also established an initiative to provide a €180m Sustaining Enterprise Fund through Enterprise Ireland to assist companies in the manufacturing and international services sectors that are vulnerable but viable. This is envisaged to be available to qualifying companies with over 10 staff members who are impacted by Covid-19.[2]

Banks are also offering a number of options to impacted businesses. Firstly, the option to agree a payment break of up to three months for those who are struggling to meet repayments. Secondly, the deferral of court proceedings. Thirdly, the provision of working capital support both for businesses and personal customers. [3]

Online banking and consumers

Due to the Covid-19 pandemic, more people are using online banking and shopping online. Unfortunately, one of the consequences of that additional use has been an increase in online fraud and cyber security threats. It has transpired that some of the new users of such online commerce are vulnerable to fraudulent emails from those posing as PPE retailers or officials requesting payment details or conducting health related research.[4]

Another issue facing the banking sector is the increased potential for banking fraud through abuse of trust where vulnerable people or those cocooning nominate an agent to help with their banking on a temporary basis. The Banking and Payments Federation of Ireland have published guidelines to assist customers who are cocooning to manage their banking in a safe manner.[5] Allied Irish Banks, Bank of Ireland, Ulster Bank Ireland DAC, KBC and Permanent TSB have all set up dedicated phone lines to assist those who wish to contact their bank while cocooning.

In order to encourage contactless payment, the majority of retail stores and pharmacies in Ireland have implemented the recently announced increase in the contactless payment limit from €30 to €50.[6] It is hoped that the use of contactless payments, rather than cash, will reduce human contact and the spread of the virus. Certain banks are deferring or waiving charges that apply to each contactless payment or are lifting the number of card transactions that will qualify for monthly rewards for use of this payment method.[7]

Changes to financial regulatory policies

Due to stringent capital requirements and liquidity capital ratio requirements implemented post-2008 Financial Crisis, banks are now better capitalised. However, recently there has been pressure on supervisor banks at European level to delay or to waive post-crisis capital and liquidity banking regulations in order to provide freed-up capital and more liquidity to businesses struggling to cope in the present economy. In particular, bank executives are lobbying for a delay to or substantial amendment of the stringent Basel IV international capital rules which will require banks to start building up capital levels by 2021 and a delayed introduction of IFRS9 (rigorous accounting standards which require banks to hold extra monies in regard to loans to distressed borrowers). Lenders fear that these onerous measures will impede banks in their ability to free up capital and provide loans to businesses struggling in the current economic climate. However, any relaxation of these measures is likely to be temporary, as the measures implemented post 2008 have ensured that Lenders are now better placed to assist struggling businesses[8]

The European Central Bank has implemented the following measures in response to the economic climate created by the Covid-19 pandemic:

• The ECB will allow banks to operate temporarily below the level of capital defined by the Pillar 2 Guidance, the capital conservation buffer and the liquidity coverage ratio.
• Banks will be allowed to partially use capital instruments that do not qualify as Common Equity Tier 1 capital, e.g. additional Tier 1 or Tier 2 instruments to meet the Pillar 2 Requirements – this brings forward a measure that was scheduled to come into effect in January 2021, as part of the latest revision of the Capital Requirements Directive.

The European Central Bank reminds Banks to continue to apply sound underwriting standards, pursue adequate policies regarding the recognition and coverage of non-performing exposures, and conduct solid capital and liquidity planning and robust risk management.[9] International co-operation and co-ordination of responses by lenders to the crisis, is key in taking banking decisions.

Banking sector landscape and Covid-19

The Banking sector has shown flexibility and adaptability in a time of economic uncertainty and change. Positive engagement such as the publication of banking guidelines to assist those who are cocooning is a welcome development, as is the increase in contactless payment limits. As the global economy deals with the impact of the Covid-19 pandemic, bankers and regulators must remain responsive and adaptable in such unprecedented times.