LISBON, May 13 (Reuters) – Portugal will extend its six-month suspension of debt repayments beyond September for as long as necessary to avoid jeopardizing the banking system with an increase in bad debts when the measure will be lifted, Finance Minister Mario Centeno said on Wednesday.
The suspension, in force since March, can be requested on bank loans to businesses and individuals, including mortgage loans to households.
Initially expired in September, the device has already resulted in the postponement of 12 billion euros in interest and capital payments, estimates the Ministry of Finance.
Centeno said the indefinite extension was aimed at ensuring that any increase in bad debts “can occur at a time when the trajectory of the Portuguese economy, in the global context, is more certain”.
“We are careful not to endanger banking institutions or their customers,” he said.
The CEOs of Portugal’s five largest banks, which together account for 80% of the country’s banking system, called for such an extension during parliamentary hearings last month.
“These moratoriums are crucial (…) and will have to be adapted over time, and extended. That’s exactly what we’re going to do, ”Centeno said.
The country, which has around 28,000 confirmed cases of coronavirus and just under 1,200 deaths, is expected to suffer a 8% blow to its GDP in 2020, according to the International Monetary Fund. The European Commission estimates a contraction of 6.8%.
The country’s banking sector is still marred by a debt crisis and a surge in Nonperforming Loans (NPLs) after the 2010-13 recession, which put great pressure on capital ratios and led to the collapse of banks. such as Banif in 2015.
Portuguese banks have since fought to reduce NPLs, bringing them down to a total of 17.2 billion euros ($ 18.7 billion) in December 2019, from a peak of 50 billion euros in June 2016.
Although the NPL ratio of Portuguese banks fell to 6.1% of total credit in December, from 17.9% in mid-2016, it remains around double the European average.
Portuguese banks raised their average Tier 1 capital solvency ratio to 14.1% in 2019, from 7.8% in 2011.
Centeno said the strategy to relaunch the Portuguese economy should be aligned and coordinated at European level.
“We will not be able to recover our economy until the single European market, to which we export 75% of what we produce, is restored,” he said. (Reporting by Sérgio Gonçalves; Editing by Victoria Waldersee and Alison Williams)