Grace periods are not an indefinite fix-all warns Bank of Portugal
The Vice-Governor of the Bank of Portugal has warned that the country must start to think about an exit strategy from the periods of grace on credit loans and that the economic recovery will not be at the same rate for all sectors.
Thousands of Portuguese companies and families have applied to the banks to suspend payments on the interest or capital and interest on their loans over the past few months.
The Bank of Portugal considers that the grace period on credit repayments was an important measure to absorb the immediate impact of the pandemic crisis, but it is not a universal fix, warned Luís Máximo dos Santos.
In other words, the moratorium was a useful instrument to buy time and better manage the immediate and pressing financial and economic situation, but “the time will come when this has to end” he warned in a Bank of Portugal Podcast.
“We must start thinking about an exit strategy, because the recovery of economic activity will probably not be painless. When the moratoria stop the credit repayments which were suspended will have to be paid back,” he said.
Máximo dos Santos says that even under the current moratorium, the banks are already seeing an increase in credit defaults from those companies and families who have not been included in the temporary suspension of bank loan repayments, which will last until September 2021.
According to the Bank of Portugal’s Synopsis of Behavioural Supervision, credit contracts with moratoria reached 726,966 by the end of August.