EU Banks Gave €870B In Loan Payment Relief Amid COVID-19

By Lucia Osborne-Crowley
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Law360, London (November 23, 2020, 1:28 PM GMT) -- Europe's banking watchdog has said that €870 billion ($1 trillion) in loan repayment holidays had been granted to customers struggling to deal with the COVID-19 pandemic by the end of June, adding that it will watch the market for a surge in bad loans.

The European Banking Authority said on Friday that its survey of bank loans with fees or repayments that were paused during the economic downturn prompted by the coronavirus crisis showed that the $1 trillion total made up about 6% of the total of loans.

The figure accounted for almost 7.5% of total loans to households and businesses outside the finance sector.

"COVID-19-related moratoria on loan repayments provided breathing space to borrowers across many countries, with many banks reporting that loans under moratoria represented a significant share of their total loans," the EBA said.

The watchdog said it will monitor these loans amid concerns that many could turn into non-performing loans — debt that borrowers have failed to pay for more than 90 days — when the payment freezes come to an end.

Approximately half of the loans that have been paused or frozen were due to expire before September this year, the regulator said. Another 85% were due to expire before December.

The study showed that most loan holidays or breaks were given to small and midsized companies and commercial real estate borrowing. Mortgage holidays also made up a section of the moratoria in some countries, the banking authority added.

Some 16% of small and midsized loans were granted freezes, followed by 12% of commercial real estate loans and 7% of residential mortgage loans, the EBA said.

The watchdog said that some countries have extended their loan freezes amid a second wave of COVID-19 infections and that it will be watching these as they wind up.

The banking authority has already set out reporting requirements on repayment holidays that lenders must follow. The temporary reports to regulators are meant to ensure that banks spot gaps in the supervisory data that they discloses.

Banks will report information every three months to national regulators on their use of payment breaks and the quality of the credit that they hold. They must also report any new loans they approve that are guaranteed by the government of their member state.

The EBA encouraged lenders in July to collect information on the losses they have racked up from granting borrowers repayment breaks during the coronavirus crisis, even if the fall in profits does not mean they have to hold greater reserves of capital.

--Additional reporting by Najiyya Budaly. Editing by Ed Harris.

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