European banking authority refuses to extend moratoriums approved by Portugal
EBA has closed the door on the extension of moratoriums approved by the Portuguese Parliament.
European Banking Authority (EBA) has closed the door on an extension of bank moratoriums, a measure that the Portuguese Parliament just approved less than a fortnight ago. The regulator says the benefits of having moratoriums for longer do not outweigh the risks for banks.
The EBA’s response is dated June 24, i.e. less than a week after MPs approved the extension of moratoriums until the end of the year for the sectors most affected by the Covid-19 pandemic. “While we fully recognise that the end of the guidelines [on moratoriums] has important implications for debtors and banks, at this current juncture, we believe that the potential risks of further extending this deadline do not outweigh the potential benefits and that the current framework already provides a high degree of flexibility,” EBA president José Manuel Campa replied in the letter sent to the president of the Portuguese Parliament, Ferro Rodrigues.
The EBA’s decision comes late to Parliament (almost a month later) and for those who wanted to benefit from an extension of the moratoriums after the end of the public scheme, planned for September 30 for most cases, it comes at a bad time, as it reduces the chances of remaining protected by this measure.
According to the bill approved by Parliament, it was intended to extend the public moratorium regime until the end of the year for the suspension of capital reimbursement, covering only the entities of the sectors most negatively affected by the pandemic, such as hotels and restaurants. But with an important condition that came to be introduced in the debate on the specifics: “The implementation of the measures established by this law shall be subject to the reactivation of the regulatory and supervisory framework established by the EBA guidelines on legislative and non-legislative moratoriums on loan payments applied in light of the Covid-19 crisis (EBA/GL/2020/02).”
In other words, the extension of the moratoriums depends on the guidelines of the EBA, which has not been inclined to extend the measure, a scenario that was already widely expected by the Bank of Portugal and the government. In fact, Mário Centeno warned of the danger of Portugal extending the moratoriums outside European rules, something that would be harmful to banks and to customers.
