20 March 2020 – The Portuguese government is close to approving legislation to reduce the effects of the coronavirus crisis on non-performing loans (NPLs) in the country. The new regulations would postpone the European Central Bank’s requirements for lowered NPL ratios while simultaneously freezing interest payments on outstanding loans.
The freeze on loan payments to individuals and companies will continue until the end of the year if the legislation goes through in its current form. The aim is to help out individuals and small and medium-sized companies who are otherwise financially above water, and that, in any case, are not subject to tax enforcement processes of tax enforcement or hold existing overdue Social Security debts of over 90 days.
The Portuguese would also prevent the freeze on interest payments from negatively affecting the banks’ NPL, or bad debt, ratios.
The credit moratorium must, however, comply with European banking regulations. Therefore, the government must structure the measures in a way that avoids classifying the delayed payments as NPE – Non Performing Exposure.
In Spain, new measures are expected to classify the debt moratorium as a debt freeze with deferred maturity. Based on this, Spanish banks would not assume any losses on unpaid debts.
The impact of the measures has not yet been calculated, but 2020 is already considered a wash for recovering profitability and reducing the banks’ level of unproductive assets. The economic downturn is sure to reduce demand for the NPLs and REOs, while temporarily leading to new inflows of non-performing loans.
Original Story: Jornal Económico – Maria Teixeira Alves & António Vasconcelos Moreira
Translation/Summary: Richard D. Turner