Portuguese banks may need to halt loan repayments for longer than six months, say CEOs

By Victoria Waldersee

LISBON (Reuters) – Portugal’s biggest banks have suspended repayments on loans worth about 19 billion euros ($20.6 billion) for six months to help those hit by the coronavirus crisis and a further extension could prevent a jump in bad loans, chief executives said.

The six-month suspension applied to about 190,000 loans so far, the CEOs told parliament on Tuesday and Wednesday, in line with government policy. But concerns about the speed of any economic recovery justified further leniency, they said.

Economy Minister Pedro Siza Vieira announced last month that housing loans for people who had lost their jobs or been temporarily laid off due to the coronavirus outbreak, and loans to companies, would be suspended between April and September.

The policy could be applied to loans worth a total 20 billion euros.

On top of those loans, banks added a moratorium on credit payments for private consumption and rental payments for people who have suffered a loss of 20% or more in income.

But the CEOs from Caixa Geral de Depositos (CGD), Millennium-bcp , Novo Banco, BPI and Santander Totta told parliament they did not expect clients would be able to resume repayments by October, which could mean a jump in bad debts.

The five banks together account for 80% to 85% of the country’s banking system assets.

Portuguese banks have reduced non-performing loans to a total of 17.2 billion euros in December 2019 from a peak of 50 billion euros in June 2016. But Portugal’s ratio of bad loans to assets of 6.1% is still twice the European average.

Outstanding loans stood at 234 billion euros in 2019.

President Marcelo Rebelo de Sousa, opposition leader Rui Rio and other political leaders have called on banks to support the people through the crisis. Rio told parliament this month that banks should have “zero profits” in 2020 and 2021.

The CEOs said banks would register hefty impairments due to the crisis. Santander Totta President Pedro Castro e Almeida estimated such impairments could range from 2 billion to 6 billion euros.

“Banks will not profit from this crisis,” Castro e Almeida said. “On the contrary, they will be some of most strongly affected.”

The International Monetary Fund has predicted the Portugal could see economic output contract by 8% this year, although the economy minister said on Wednesday the country not yet seen a slowdown in foreign investment.

(Reporting by Victoria Waldersee; Editing by Andrei Khalip and Edmund Blair)