CGD and other Portuguese banks must pay back millions in negative interest

Portuguese banks will have to pay back millions in negative mortgage interest to over 33,000 clients in Portugal because of the new Euribor law passed in the Portuguese parliament.

Montepio and Crédito Agrícola will also have to pay back customers on around 2,100 mortgage contracts.

Montepio has stated that 1,800 of its home loan contracts are affected by measure and say that the capital will be immediately dedicated from mortgage payments — a solution chosen by the vast majority of financial institutions.

The new law forces banks to reflect Euribor negative interest in home loan contracts. It was supported by all political parties in the country except the centre-right PSD which abstained.

The bill, which the banks and the Bank of Portugal tried to block, applies to all mortgages index-linked to Euribor rates.

Above all the law will benefit those with Euribor mortgages with very low spreads (commercial margins of banks), at around 0.30%.

The law allows for Euribor rates, currently in the negative across all terms, should be reflected in contracts, even after the cancelled spread, which implies a capital payout.

“It means complying with the law and giving customers the most advantageous and transparent option,” says a source at Montepio.

Paulo Macedo, President of Caixa Geral de Depósitos says that CGD has 18,000 contracts on which it must payback interest.

He said the measure to payback negative Euribor rates to customers will cost the bank €100,000 a month and €1.2 million per annum.