According to Monday's Financial Stability Report, the central bank said that the risks of default on moratoria were "more controlled" than expected.
The Bank of Portugal (BoP) said on Monday that the risks of default on moratoria were “more controlled” than expected. Still, there were “signs of deterioration” in the quality of credit, according to today’s Financial Stability Report.
According to the BoP, “in general, the individual sector has shown greater resilience, while in the case of companies, especially in the most vulnerable sectors, there may be more difficulties with the resumption of debt service.
However, the central bank added that “the available data does not yet allow us to determine the impact of the end of the moratorium on the quality of the banking system’s assets”.
“At the end of the first half of 2021, there were, however, some signs of deterioration in credit quality for some of the borrowers that benefited from the moratorium and for companies in more affected sectors,” the supervisor further adds.
Still, based on preliminary information for October 2021, the banking supervisor indicates that this “does not suggest a significant deterioration in the quality of loans that benefited from moratorium”.
“Credit risk monitoring requires a proactive approach by banks in defining viable borrower recovery solutions and, in situations of non-viability, the timely recognition of losses,” warned the institution led by Mário Centeno.
The BoP considered that these approaches “are fundamental for the efficient credit risk management”.
“In the case of viable but distressed borrowers, banks may have an essential role in their recovery through the timely renegotiation and restructuring of credit operations,” indicates the BoP.
The supervisor recalled that “banks have at their disposal instruments, with favourable conditions, that allow them to support the recovery of borrowers, such as the Retomar line of credit and credit lines guaranteed by the EGF [pan-European guarantee fund].
“However, improving the financial situation of companies should also be achieved by strengthening their capital,” suggests the BoP.