Observatory on crises warns of risks of the end of moratoriums

The Observatory on Crises and Alternatives predicts that companies and families will have difficulty in repaying their loans when the moratoriums end in September, jeopardizing the national banking sector and economic recovery, according to its Barometer published today.

The end of credit defaults next September, together with the end of other extraordinary measures to mitigate the effects of the pandemic, entails high risks. (…) Companies and families accumulate a greater volume of debt which, in a realistic scenario of only partial recovery of economic activity, will not be easy to pay, and which compromises the national banking sectorl”, according to the analysis performed.

According to the Crisis Barometer, from the Lisbon center of the Center for Social Studies (CES) of the University of Coimbra, the companies and families that most resorted to the credit moratorium correspond to the segments most affected by the pandemic, namely companies and workers in the sector. accommodation and catering.

“The recovery of its financial situation will depend on the recovery of economic activity in these sectors, which makes the economy once again dependent on a sector with low added value based on precarious work and low wages. Therefore, policies to support the most affected sectors should be accompanied by policies to stimulate sectors with the greatest economic knock-on effect”, defends the document.

The analysis made by researchers Catarina Frade, Ana Cordeiro Santos and Nuno Teles highlights that loans granted by banking institutions to families are concentrated in housing loans, which constitute about 80% of total loans granted.

But the distribution of loans by credit purpose is not proportionally mirrored in the composition of overdue loans.

In March 2021, home loans accounted for around 27% of total overdue loans, while loans for consumption and other purposes accounted for around 73% of these loans.

“By suspending the payment of bank installments, the credit moratorium was intended to ease liquidity needs and reduce the risk of default by companies and families. In the case of the sectors most affected by the pandemic, the credit moratorium made it possible to alleviate a little plus the pressure to extend maturities for 12 months, extending the payment of bank installments for another year. However, in the current context of crisis, the credit moratorium only postpones the payment of a growing debt”, alerts the Barometer.

The document cites an estimate by the Organization for Economic Cooperation and Development (OECD), which predicts that Portugal will be one of the countries that will take the longest to recover from the pandemic crisis.

“According to this organization, it will take two years and three quarters for the GDP [Produto Interno Bruto] Portuguese ‘per capita’ reaches the value of 2019. (…) Faced with a slow economic recovery, the solvency of companies and families is at risk”, he warns.

Taking into account the importance of moratoriums in Portugal, as well as the cessation of other measures within the same period, the Barometer states that “the lifting of the credit moratorium as of next October may be premature” and lead “to an abrupt increase in insolvencies and of the unemployment that was wanted to be avoided, compromising the economic recovery”.

“As it is still too early to assess the magnitude of the impact of the end of the moratoriums, it is foreseeable that the volume of overdue loans by companies and families will increase after September 2021, affecting the national financial system. This impact is already being generally anticipated. of national banks, admitting that the main risk they face in the short term is precisely the confrontation of losses with the end of the moratoriums”, says the analysis.

The Crisis Barometer also considers that the evolution of the financial situation of companies, families and banks will depend on the effectiveness of public policies to stimulate economic activity and support the most fragile sectors and families.

The credit moratorium is an exceptional measure of support for companies and families, aimed at mitigating the economic and financial impacts of the contraction in economic activity resulting from the pandemic.

At the end of April 2021, the total amount of loans covered by the moratorium was around 38 billion euros, corresponding to around 31% of the total amount of bank loans, with loans to companies representing around 61% and 39% of the total of these loans.

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