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High Levels of Competition Are Easing Access to Credit, Bank of Portugal Admits
11 October 2018
The Bank of Portugal warned that “pressures exerted by competition have contributed to attenuate, to a certain point, the effectiveness of tightened lending requirements for individuals.”
The Bank of Portugal (BdP) warned that “pressures exerted by competition have contributed to attenuate, to a certain point, the effectiveness of tightened lending requirements for individuals.” In other words, banks are becoming less demanding when evaluating potential loans, the Bank of Portugal warned. The institution’s analysis, which was published in Thursday’s Economic Bulletin, is based on the central bank’s latest survey of the country’s banks. In the survey, the central bank analysed lending standards with regards to mortgages and consumer lending.
According to data from the Bank of Portugal, Portugal’s banks granted 3.132 billion euros worth of new consumer loans between January and August – the highest figure in 14 years. In August alone, banks granted consumer loans in the amount of 404 million euros, the highest amount for that month since 2003.
Regarding mortgage lending, the Bank of Portugal reported on Tuesday that loans granted by banks for housing totalled 810 million euros in August. In July, the month in which the central bank’s recommendations came into force, the total had reached 919 million euros, suggesting that the measures have been unable to stanch the flow of credit.
In July, the BdP’s survey revealed that “one institution stated that the competitive pressures generated by other banking institutions have slightly contributed to lowering our criteria for the concession of housing loans. In the area of consumer credit and other purposes, one institution noted that the competitive pressures from other banking institutions and non-banking institutions, as well as the more favourable situation and overall economic outlook, have slightly contributed to a decrease in the restrictiveness of loans evaluations.”
The lower restrictiveness may already be more widespread than the BdP noted in July. In the report released on Thursday, the Bank of Portugal already referred to “surveyed banks”, in the plural, which “suggests that the pressures exerted by competition have contributed to attenuate, to a certain point, the effectiveness of tightened lending requirements for individuals.”
The BdP supplemented its report with an analysis of the interest rate benchmarks tied to the lending, with a “greater dynamism” in the concession of loans with variable interest rates and a term of less than one year.
The institution led by Carlos Costa stressed, however, that the ratio of new housing loans to the total amount of housing transactions for families in Portugal has increased compared to the minimum levels reached in 2015. “However, it remains at levels that are still much lower than those observed in 2010,” the institution emphasised.
The reduction in the total relevance of bank financing in transactions has occurred throughout the country, but its magnitude is greater in the Lisbon Metropolitan Area and in the Algarve, regions where foreign investment and corporate transactions may have a greater weight in the total number of transactions.
However, the Bank of Portugal warned the “dynamism in consumer lending for consumption has led to an increase in the ratio of consumption financed using debt, at levels that are above the levels observed in the second half of 2009.”
Original Story: Observador – Edgar Caetano
Photo: José Sena Goulão / Lusa
Translation: Richard Turner