Help with mortgage repayments must be ‘very focussed’

The governor of the Bank of Portugal said on Wednesday that measures for customers with difficulties in making loans payments should be “very focussed” and never general solutions that have the effect of storing up problems for the future.

Asked about how banks can help customers in difficulty and what monitoring the Bank of Portugal has undertaken, after Portugal’s president twice expressed concern about the difficulties of customers in paying home loans, the governor, Mário Centeno, said that lenders “have an obligation to monitor those who are in difficulty and find answers,” because they have a social function.

However, he said, any government measures should be “very focused on situations, in fact, of difficulty” and not applied to all customers, as this could lead to many exploiting these measures and so creating problems in the future, with people having to repay the full amount of bank instalments “at a time when the economic cycle cannot be better than today.”

Centeno made the remarks at a news conference to present the 2022 report of the central bank’s board of directors.

“The moratoria [of credits in the pandemic] were an excellent measure, contained in time and universal,” he said. “But we were left with instalments to pay later and interest rates were low. Now interest rates are high and what is the answer: to suspend payments?

“Do we suspend payments when rates are low?” he asked rhetorically.

Centeno, who before becoming governor served as finance minister in António Costa’s government and then president of the Eurogroup of euro-zone finance ministers, said that, in general, the Bank of Portugal would never advocate “postponing solutions for an economic cycle that cannot be better than it is today” and that while he did not foresee a recession, it is foreseeable that the economic cycle will slow down.

Centeno did not refer to particular measures. From the information provided by the banks, state savings bank Caixa Geral de Depósitos said that it was studying a freeze on instalments for customers in difficulty (in a similar amount to the first half of 2022), deferring the remaining amount until later, while at BPI, most restructurings involve a year-long pause on capital repayments, with customers only paying interest, so that they adapt their spending to the rapid increase in credit instalments.

This Tuesday, Portugal’s president said that he was “hopeful that the banks are awake to the problem” of borrowers struggling with repaying home loans, and “the Bank of Portugal too” – taking the view that in this area it is up to the government to act “on a smaller scale”.

The head of state cited the level of interest on home loans as a problem for which there is still “no way out … at the same time that what the bank is paying to those who use the bank is very little” – a reference to the low interest rates on offer to savers.

On the latter issue, Centeno said on Wednesday that the “loyalty of depositors is an asset that should not be squandered” by banks.

Also in a longer answer on this topic, Centeno said that the current economic moment means that there are “good conditions for families and companies to react to the shock” of the increase in interest rates and “face challenges” – and cited several reasons, including that the country is “at a high point of the economic cycle” and that “there has never been so much employment” as well as that the net debt of companies and households is today lower than in 2009, while average monthly mortgage repayments are similar, at €320, while households’ disposable income has increased by 30% since 2009.

Centeno also said that in the first quarter, early repayments of housing credit totalled €2.6 billion.

From the government’s point of view, Centeno said, what fiscal policy should do is “help the most vulnerable” without taking expansionary decisions.