The reclassification of loans with future Covid-related payment breaks as non-performing loans could have serious consequences. Will the Minister outline the effect this will have on the capitalisation requirements of the banks and, subsequently, their ability to lend money at competitive rates?

Payment breaks have provided substantial and rapid relief to allow homes and businesses to absorb the shock and impact of Covid-19. The expiry of the guidelines do not prevent banks from engaging with customers who continue to experience difficulty beyond the deadline and all applicable consumer protection remains in place. Borrowers who cannot return to full repayments following the conclusion of their payment break should engage with their lender as early as possible and the Central Bank expects lenders to take a consumer-focused approach at this worrying time.

The longer term impact of Covid-19 on bank capital levels will take some time to materialise. However, some increase in non-performing loans is to be expected. It is nonetheless important to note the efforts undertaken by the Central Bank of Ireland and the EU institutions to ensure banks can absorb losses and continue to lend into the economy. The Central Bank has reduced the countercyclical capital buffer from 1% to 0% and it estimates this will free approximately €940 million of capital across the Irish retail banks to facilitate lending or help banks absorb losses.

At an EU level, a number of support measures have already been put in place. The European Central Bank announced that banks can temporarily operate below the capital conservation buffer and member states also passed a package of temporary measures designed to reduce the economic consequences of Covid-19 on the banking system and ensure that banks have sufficient capacity to lend.

The matter raised by Deputy Ó Cuív is very important but measures have been taken to try to ensure banks have the ability to continue to lend across this very important time. Due to measures taken in the past to deal with or reduce non-performing loans, our banks have funding on their balance sheet to deal with the matter raised by the Deputy.

I thank the Minister for his reply. If the Minister had extended the payment break before 30 September for a further six months, would it have prevented the reclassification of these loans as non-performing loans under the rules? As a consequence, this may have avoided the capitalisation problems outlined by the Minister while still having all the EU and other money provided.

Will the Minister confirm if other EU countries extended the break for a further six months? Did the Minister examine the reasons they did so? I am interested to know what other countries in the EU extended these payment breaks.

The guidance from the European Banking Authority on the matter was that economy-wide payment breaks should not be extended. As of yet I am not aware if other governments or regulators have decided to extend further the measures they have in place. Comparing where we are versus other countries, those other countries have put in place very different arrangements. Superficially they may in some ways look more attractive but they are more limited and, in many cases, they have not seen the breadth of impact seen with the measures we introduced in Ireland.

Potential future capital consequences can be avoided on a bank-by-bank basis through engagement between customers and banks. One of the most important ways the issue the Deputy refers to can be avoided is for such engagement to take place, restructured loans to be agreed upon and those restructured loans to be honoured.

Can the Minister explain this to me? As I understand, these loans are to be reclassified as non-performing loans. When loans are classified as non-performing on a bank's balance sheet, the next temptation is to sell them off to vulture funds in tranches. We know the consequences of that. The Minister talks about the same conditions applying. Everybody who has dealt with people in the hands of vulture funds knows the consequences of having a loan transferred to one. Can the Minister confirm that the risk of such transfers is higher once loans become non-performing because borrowers have been made unemployed by the pandemic?

I was contacted by someone who told me that their monthly repayment has increased quite considerably because their loan is non-performing due to unemployment. This will have future consequences for them. It will mean an extra cost of about €10,000 over 20 years when compared to the effect of the previous arrangement, that is, the mortgage payment break. That is the difference between the original six-month arrangement and what the Minister has allowed to happen.

The Minister said the European Banking Authority guidelines suggest not extending a payment break. That is not what the guidelines allow for. In fact they allow for any extension to take place on the condition that it is announced and applied for before tomorrow. That is where the Minister has failed to deal with this issue. Deputy Ó Cuív is completely right. If this was done, banks would not have to hold additional capital and loans which cannot go back to full repayment of capital and interest would not be classified as non-performing. Crucially, the SMEs and mortgage holders in question would not be given a negative rating by the credit register. That rating will impact their terms of borrowing for the next several years. That is the consequence of the Minister's unfortunate inaction.

Deputy Doherty is referring to alleged inaction. As I pointed out to him earlier, payment breaks were made available in the first place because the Government took action. This has been a huge help to so many families and businesses at a time when it was needed. We have seen the number of people who need these payment breaks begin to decrease, quite considerably in the case of some banks. Engagement between borrowers and lenders is the key to reducing the risk of loans becoming non-performing in the future, leading to the kind of vista to which Deputy Ó Cuív has referred. I believe it will be possible for a restructured agreement to be put in place for many of the loans we are referring to, and I hope it will be possible for all of them. This issue is now developing in many countries, which points to the need for this to be dealt with in a co-ordinated way at European level to avoid creating a further risk in trying to get countries and people back to work in the coming months and next year.