The European Banking Authority has confirmed that mortgage and loan payment breaks, offered to borrowers earlier this year, will be phased out from the end of this month as planned.

The EBA said it had made the decisions following close monitoring of developments resulting from the Covid-19 pandemic.

"These guidelines, which were published in the early phases of the Covid-19 pandemic, have provided the necessary flexibility as well as certainty on the regulatory framework, in light of significant number of actions taken by banks to support their customers as exceptional lock-down measures were put in place," it said.

"The continued ability for banks to provide lending is of key importance and the EBA will keep monitoring the situation as needed," the EBA said. 

The main lenders here all put in place the option of three-month payment breaks in the spring as the country entered a phase of severe restrictions aimed at preventing the spread of coronavirus. 

That was then extended for another three months. 

The EBA introduced guidelines on April 2 to ensure banks maintained a comparable approach across Europe so they could offer breaks without them becoming automatically classified as meeting the definition of forbearance or defaulted. 

However, the banks have stated that the scheme will not be extended further, despite calls from some sectors of the economy for a further three months leniency to be shown in order to protect businesses and jobs.

Instead, banks have said they will engage with customers on a case by case basis to figure out how they can best meet their commitments into the future.

"The payment moratoria have been an effective tool to address short-term liquidity challenges caused by the Covid-19 pandemic," the EBA said in a statement with the vast majority of banks in the EU taking part. 

"Moreover, depending on the duration of the payment extensions, which in Europe has been on average between six and 12 months, payment moratoria will continue producing their effects for a while," it said.

"However, the EBA does not consider adequate at this state the further extension of such an exceptional measure. It is opportune to return to the practice that any rescheduling of loans should follow a case-by-case approach," it added.

The EBA said the guidelines will continue to apply to payment breaks granted prior to September 30, and this will prevent a cliff edge risk of having to "reclassify existing loans abruptly at a later stage." 

Data from the Central Bank shows that by September 4, active payment breaks accounted for 8.6% of the loan book of the financial system, made up of 6.1% of all mortgages, 4.2% of consumer loans and 14.5% of SME and corporate loans.

According to analysts at stockbroker Goodbody the fourth quarter is likely to be a "hectic" one in the restructuring units of the banks.

"It also follows comments from the Central Bank Governor last week that we are now moving more into a world where lenders may need to restructure debts and it is becoming less likely lenders can simply postpone those decisions as to which businesses/customers are viable and which are not," wrote Eamonn Hughes and Barry Egan in a research note.