Bank of Portugal chief says against extending loan repayments freeze

LISBON, March 30 (Reuters) - Bank of Portugal Governor Mario Centeno said on Tuesday he is against extending the loan repayments freeze aimed at helping businesses and individuals through the pandemic, and banks have to be prepared for the planned end of the scheme in September.

The volume of loan repayments suspended by Portuguese banks under the scheme slipped in January to 45.7 billion euros ($54 billion), further retreating from a peak in September.

The freeze, in part aimed at avoiding a jump in bad loans at banks that spent the past five years reducing their ratios of non-performing loans, will end on Sept. 30. Some loans, namely mortgage loans, will start paying interest as of April.

“Extending loan moratoriums would have a ricochet effect on bank customers and on banks themselves, which is not desirable,” Centeno told a parliament hearing, adding that Portugal was one of Europe’s countries with the highest total of suspended loans.

“Banks have to prepare themselves, in the coming months, in terms of capital and impairments” to face the end of the scheme, he said, pointing out that some European countries have already ended their loan moratoriums and “Portugal cannot be isolated in this dimension”.

He called for a comprehensive solution to the problem, involving maintaining public support to the most vulnerable sectors affected by the crisis, not necessarily the banks.

Centeno said that during 2020, Portugal’s banking sector increased impairments by 2 billion euros, or 44% more than in the previous year, which was already “a process of preparation for possible increases in bad loans”.

Portugal’s lenders have cut aggressively their average non-performing loan (NPL) ratio to around 5% of total credit, which compares with a record high of 17.9% in 2016 but is still almost twice the European average.

Reporting by Sergio Goncalves; Editing by Sonya Hepinstall