Portugal's BPI doesn't see end of loan freeze causing big problem

LISBON, Feb 4 (Reuters) - Portugal’s BPI does not see the end of a loan repayment freeze for pandemic-hit businesses and families leading to a big jump in bad debts for the country’s banking industry.

The freeze will be lifted on around a quarter of affected loans - mostly mortgages - in March, but will continue for the rest until September.

Chief Executive Joao Oliveira e Costa told an online news conference that BPI, owned by Spain’s Caixabank, had 97,500 customer contracts benefitting from the repayment freeze in December, 11,000 less than three months earlier.

Those loans are worth 5.6 billion euros ($6.7 billion), or 22% of the bank’s total loan portfolio.

“We are following these moratoriums very closely,” Oliveira e Costa said. “More than 98% of our customers who benefit from this moratoriums have not worsened their financial situation and for that reason we do not foresee a significant problem yet.”

“The same thing is happening in the other banks”, he said, adding Portuguese banks were well capitalised and had significantly reduced non-performing loans (NPLs) before the pandemic started.

“Right now, it’s premature to think about an alarming situation”, he said.

Portugal’s banks have suspended capital and interest repayments on 46 billion euros of corporate and household debt to avoid a jump in bad loans, according to latest Bank of Portugal data up to the end of September.

That comprised repayment freezes on 24.4 billion euros of corporate loans, equivalent to 32% of total credit to companies, and 21.6 billion of household loans, or 17% of the total.

Oliveira e Costa said BPI’s NPL ratio dropped by 1 percentage point to 2.1% of total loans in 2020 and 141% of the bad loans were covered by impairments and collateral assets.

BPI’s common equity Tier 1 capital ratio, a key measure of financial strength, was a “comfortable” 14.1%, he said.

$1 = 0.8363 euros Reporting by Sergio Goncalves. Editing by Catarina Demony and Mark Potter