DBRS fears increase in the NPL in the post-moratorium period

Even though the fact that Portuguese banks have shown “resilience” throughout the pandemic, in general, “it may take some time” before some credits that were under moratorium may go into default, warns DBRS.

According to the rating agency says, it is necessary to keep an eye on “post-Covid” impacts and monitor risks associated with rising interest rates, rising energy costs on businesses, difficulties in supply chains and developments in the conflict in Ukraine.

In a recent report, DBRS Morningstar points out that “even despite the pandemic, the stock of non-performing loans (NPL) continued to fall, thanks to continued sales of old problematic assets”. The (aggregate) NPL ratio in Portuguese banking fell, on average, to 4.7% at the end of 2021, down from 5.9% the previous year and below the important psychological threshold of 5%.

“At the same time, the end of most moratoria (in September 2021) has not resulted in a sharp increase in new non-performing loans,” says DBRS, stressing that this is an analysis that is valid “at least at this time”. DBRS’s caution is justified by the fact that there has been “an increase in the percentage of loans that are classified as Stage 2″ and were previously under moratorium.

At issue is the qualification that banks have to make, under the accounting rules in force, on each loan they grant and on the risk that each of these loans will suffer a default.

DBRS also notes that there has been an average increase of eight percentage points in the proportion of loans classified as stage 2, which justifies an “expectation of a moderate deterioration in asset quality in the medium term”. In other words, DBRS argues that the soundness of some of these loans could be in question, especially if economic conditions are not the most favourable.

There are some sectors, such as hotels and part of the manufacturing industry, that have not yet fully recovered,” DBRS says.

Original story: Observador | Edgar Caetano 
Photo: Photo by Ricardo Gurgel on FreeImages
Translation and Edition: Prime Yield

Spain to launch financial consumers’ protection authority

Spain is planning a consumer protection authority which aims to ensure banks and other financial institutions meet obligations towards customers, responding to complaints of unfair mortgage lending, and financial exclusion, particularly of the elderly.

Economy Minister Nadia Calvino acknowledged a shift towards online banking which accelerated during the pandemic had left part of the population more exposed to financial exclusion.

“(Financial services) is the area with the highest number of complaints from citizens, and one that has a very high degree of litigation,” Calvino told a media briefing.

The new authority, whose creation is set out in a draft bill, will bring together functions previously performed by the Bank of Spain, supervisor CNMV and the Directorate General for Insurance and Pension Funds.

It will take on those bodies’ responsibilities in the regulation of financial entities, investment companies, payment companies, and so-called fintechs or providers of cryptoassets.

In Spain, codes of good practice have had mixed success in the past, as in the case of mortgage contracts, where lenders were given room to directly renegotiate terms with clients. Mortgage complaints still account for the lion’s share of those filed with the Bank of Spain.

The independent financial customer ombudsman authority will fall under the umbrella of the Economy Ministry and will be free of charge for financial customers. It will be financed through a fee estimated at 250 euros, levied on the financial firm involved, for each accepted complaint.

Original story: Reuters | Staff 
Photo: Photo by Victor Iglesias on FreeImages
Edition: Prime Yield

Government’s stimulus will have positive impact on Brazil’s NPL

The government package that intends to inject up to R$165 billion in the Brazilian economy before the elections promises to be positive for banks and retailers, defend the analysts. Among the measures already announced are the anticipation of payment of the 13th salary for retirees and pensioners of Social Security and the possibility of drawing up to R$1,000  from Guarantee Fund of the Length of Service (FGTS), until December 15 this year.

For UBS, the Government stimulus should help reduce the volume of non-performing loans (NPL), improving the quality of the assets of financial institutions. “We see these measures as positive for the asset quality dynamics of Brazilian banks in the short term, as it helps postpone an expected increase in defaults,” wrote analysts Thiago Batista, Olavo Arthuzo and Kaio Prato.

These specialists point out that the deterioration in banks’ asset quality is currently the main issue raised by several investors and foresee that defaults tend to normalise during the year. UBS notes that the default rate had already ended Q4 2021 below the pre-Covid level of December 2019.

“The measures are particularly positive for banks with greater exposure to credit to households, especially consigned, and to low-income people,” the analysis says.

Original Story: Infomoney | Mitchel Diniz
Photo: Photo by Bruno Neves on FreeImages
Translation and edition: Prime-Yield