Economists call for post-moratorium loan repayments adjustment plan

Portuguese economists, concerned that the end of periods of grace on repayments on loans and interest on loans could lead to a spike in credit defaults, are calling for a phased post-moratorium payment plan.

The ratings agency DBRS says that one of the main risks for Portugal in 2021 is that with the end of the State and bank-backed moratoria for loans to companies and families in September, credit defaults could cause the number of non-performing loans on bank books to skyrocket.
And while the banks would suffer, says online business source Dinheiro Vivo, the fact that many of these loans are temporarily State-backed could mean Portugal’s credit rating could suffer with an avalanche of NPLs.
According to DBRS, Portugal is the country in Europe with the most State-backed loans: 88% of the total, followed by Spain (71%), Sweden (67%) and Italy (66%).
As the second lockdown since the pandemic began decreed in January this year starts to bite, more companies may sign up to the moratoria regime.
“I don’t expect a second avalanche, but companies that are suffering now, but had not yet signed up to the regime may now do so,” said economist João Duque and professor at Lisbon’s ISEG.
The economist agues for the setting up of exemption support for those families and companies that need it when the moratoria come to an end.
“The end of the moratoria is expected in September. It will have an impact on families and companies that may not be able to return to normal in the first half,” says Pedro Lino, CEO of Optimise Investment Partners.
“It is vital to begin preparing for the adjustment phase and the return to paying off loans should be done in a phased or incremental percentage-based approach.”
Pedro Lino says that the solution could be payments in instalments by phases over the yearly quarters to follow, until the payments are back to 100% by the end of 2022”. On the other hand, he stresses “It is essential that those who are signed up for the moratoria understand that the (repayments) on the debt have been postponed but will have to be paid back over the years.
The European Central Bank is buying some years (in terms of borrowing) at negative interest rates which means the debt is served at zero interest, but the repayment of the principal will have to be made.
“A return to normality, after a period of falling revenues for many businesses will take years, which means that there should be tax incentives: a reduction in IRC and TSU and IRS for those whose revenue income has been badly affected,” he suggests.
The economist that advises the consumer watchdog Deco says that given the high take-up of moratoria, “The situation has to be treated carefully” since around “20% of all credit loans is covered by the moratoria and the debt “won’t just go away”.
The loans will accrue interest and become greater, and people and companies need to be aware of this,” he stresses. “There has to be a model created for the post-moratoria period.The regime cannot be extended for very much longer because putting off paying debts won’t solve the problem,” Nuno Rico adds.
Deco is preparing a number of advice packages on how to deal with the end of the moratoria to help families who have lost their income because of the crisis.