"This time banks can be and will be…part of the solution rather than being the problem. The payment breaks are the most visual example of that, maybe, the most direct one."

The words of Peter Roebben, the chief executive of KBC Bank Ireland, this week, when I asked him whether he thought the Covid-19 crisis is a good test of whether claims of cultural change at Irish banks including his own are genuine, or have just been empty words.

The last financial crisis here was in large part caused by Irish banks.

They lent too much, to the wrong people, on foolish terms and the ultimate gross cost of their folly was a bailout bill of €64bn (€48bn net) paid by Irish taxpayers.

Their irresponsible actions, boosted by poor political leadership and coupled with a failure to regulate properly, laid the foundations for a decade of austerity and significant hardship for the Irish people.

So it is understandable that many here remain deeply suspicious of the Irish banks, cynical of their motives and skeptical about their claims that they have changed and reformed their culture.

This time though, the crisis cannot be blamed on any one person, any industry or any sector.

The virus is a freak of nature, it's spread the unavoidable consequence of the way we live.

But the question of whether the banking industry will be part of the solution to the financial turmoil that has accompanied the health emergency is an important one that will ultimately be answered by its actions in the months and years to come.

Credit where credit is due, the sector here was quick out of the blocks when the crisis began to unfold in the middle of March.

Around then, as the wave of infection spread and restrictions loomed, it quickly began to dawn on Irish bank bosses that in a matter of days, hundreds of thousands of people would lose their jobs and businesses would close.

That meant those customers wouldn't be able to service their mortgages and loans or pay their other bills.

But if adopted, the standard approach to arrears would only have resulted in their situation being made even worse and there was a realisation that this was not in anyone's interest, not least the banks.

Within days the industry had set aside its mutual suspicions and cut throat competitive interest and had agreed to implement a co-ordinated three month payment break for those who requested it and needed it.

Granted, the payment breaks aren’t perfect. They don’t represent debt forgiveness; just a holiday from repayments with the principal and interest rolling forward for repayment at a later date.

They are also a pragmatic response. The banks have learned that it is not good PR to be chasing down people for money when they don’t have it to give through no fault of their own.

But the collective action was a good start in proving lenders’ bona fides.

And it has been followed by other welcome moves. The payment breaks have been extended for an additional three months.

Court processes over unpaid debts have been suspended temporarily.

They’ve kept many or most branches open to help customers. They’ve also put measures in place to help older and vulnerable customers who can’t or don’t want to leave their homes.

Certain fees, like on contactless payments, have been waived temporarily and some banks have even given funding or staff time to charities and research.

Francesca McDonagh

But in many ways the litmus test of whether banks have really changed their ways is yet to come.

Both Bank of Ireland chief executive, Francesca McDonagh, and Peter Roebben, confirmed this week that they don't anticipate that the six month payment break facility will be extended further when it expires.

That means that borrowers will face the reality of having to resume repaying their loans, or face the consequences.

With 28% of workers currently unemployed, the chances of them all being able to meet their obligations in September are slim.

What will the banks do then?

The suggestion from most is that they will deal with struggling borrowers on a case by case basis, and engage with them to put in place bespoke loan servicing or restructuring arrangements prior to the payment breaks expiring.

But how they handle those customers after that will be hugely important and a real test of whether attitudes to dealing with those in financial stress have changed, or whether old habits die hard.

First quarter results from the main lenders last week indicated that the souring of loans has not yet officially got under way.

But few are in any doubt that the volume of bad loans will rise very significantly over the coming months as repayments resume and people don’t have the funds to meet them.

AIB has already set aside €210 million while Bank of Ireland has made a €266 million provision for the difficult days that lie ahead.

There is also a danger that the challenging circumstances will lead to banks turning off, rather than turning on the flow of new credit to households and businesses.

That was the experience during and after the last financial crisis as Irish lenders, out of favour with the international lending markets and suspicious of the creditworthiness of those seeking credit, retrenched to sort out their balance sheets.

This time though, the pillar banks are starting from a much stronger position, with capital reserves at or well above in some cases the pre-Covid minimum requirements set by regulators, which have since been relaxed.

The economy - made up of real people and real businesses - needs funding now more than ever, as restrictions are lifted and the reopening phases get under way.

The actions of the banks in that regards also has so far been relatively positive.

But only time will tell whether that trend continues.

On Thursday, the Central Bank said it is expected that credit standards for households will become more stringent and "close to levels observed at the height of the financial crisis".



The reason for this is a change in banks' perception of risk due to the general economic situation and borrowers' creditworthiness, the regulator said.

Everyone can understand banks need to be careful what they lend and who they lend it too.

After all it is in nobody’s interests for them to give loans to people who cannot pay them back.

But that must not be an excuse for a pulling up of the liquidity ladder when viable companies and normally creditworthy households need a leg up.

The Irish Banking Culture Board, led by Mr Justice John Hedigan, whose stated aim is to rebuild trust in the sector through demonstrating a change in behaviour and overall culture, will no doubt be watching developments closely.

Through its work it is aiming to promote ethical behaviour and advocate for humanity, decency and respect in the banking sector - qualities never before needed from the industry in this country as much as they are right now.

Political leaders will also be keeping a watchful eye - after all, the State remains a majority shareholder in three of the five main banks here.

Last Monday, the Taoiseach, Minister for Finance and Minister for Business met the CEOs of AIB, Bank of Ireland, Ulster Bank, Permanent TSB and KBC Ireland.

Afterwards a short but clear statement from the Government described how Mr Varadakar had emphasised during the meeting the important role of the banking sector in supporting the gradual reopening of the economy.

On the face of it at least, it seems the banks know what is now expected and needed from them.

"I am very mindful of the importance of how we act as an industry today," Francesca McDonagh, CEO of Bank of Ireland, told me on Monday.

"What happened in the financial crisis over ten years ago impacted the trust that people have in banks, our reputation, our financials for a number of years."

"And how we act today, tomorrow, next month will impact our reputation for the coming decade."

"And leaning in and supporting our customers, whether those are in households or in businesses right now is absolutely the priority."

While Peter Roebben thinks the sector is off to a good start.

"I think as an industry we are doing the very best we can," he said.

But many difficult days lie ahead.

And only when the pandemic dies down and life returns to relative normality, will history judge whether banks actions lived up to their rhetoric.