On Monday, the Bank of Portugal released the “Financial Stability Report.”
The removal of measures to support companies and households is one of the threats facing the Portuguese banking industry, because given the country’s high debt situation, this “intensifies the concretization of credit risk”.
This is one of the warnings contained in the “Financial Stability Report” issued by the Bank of Portugal on Monday.
“The prompt coordination of support measures prevented the spread of the crisis to the financial sector,” the director said in the report’s communiqué.
“However, the crisis interrupted the adjustment process of the Portuguese economy. The severity and continuity of the crisis, coupled with the dilution over time and the redistribution of pandemic costs between the private and public sectors, led to an increase in debt, Especially in the public administration departments and the departments of activities most severely affected by the crisis,” he recalled.
As a result of measures taken under the political strategy of managing the health crisis, Portugal has been experiencing one of the biggest economic crises in history.
The President of the Bank of Portugal, Mário Centeno, said at a report disclosure meeting in Lisbon this morning: “The country is facing an exit from the economic crisis and it must do this while maintaining financial stability.”
The measures taken in the context of the crisis resulted in credit defaults, which mostly ended at the end of September this year.
“We will face the end of the moratorium. (…) We must prepare for the post-September period that marks the end of the moratorium,” he added. Centeno argues that “for this, all economic sectors must initiate a deleveraging process”, which Portugal followed in the period before the 2020 crisis. “Everyone must participate,” he called.
According to the Bank of Portugal, “with high debt and still sluggish activity in certain industries, the cancellation of support measures will aggravate the concretization of credit risk”.
But the report pointed to other risks to the stability of the financial sector. This is “the price adjustment that may occur in the Portuguese residential real estate market, Among others, Non-residents’ demand for real estate may decrease, which is related to the deterioration of international financing conditions.”
In addition, “in the commercial real estate market, prices in certain market segments may fall further after 2020”, including retail and hotels.
There is also “the risk of international financial market adjustments, which may be amplified by high leverage, low credit quality assets and low liquidity in the investment portfolio of the non-bank financial sector in the euro zone.”
According to the report, another risk is that “the high debt of the general government and the increase in contingent liabilities constitute the vulnerability of the Portuguese economy”.
Updated at 11:50 AM with more information