Central Portuguese bank Banco de Portugal (BoP) has identified increased default on home loans as one of the main risks to financial stability, according to the Financial Stability Report published on Wednesday.

In the document, the BdP said that in recent months, “risks to financial stability have remained high” and amongst the main risks and vulnerabilities it noted the possibility of an increase in loan defaults, particularly on mortgages, “due to high inflation, a rise in short-term interest rates and a potential worsening of the unemployment rate.

In Portugal, the preponderance of variable interest rates on home loans means that recent and rapid rises in interest rates immediately increase the burden of debt, making it difficult for private banking clients to pay back loans.

The potential default of the most vulnerable companies is also a risk for Banco de Portugal, which considers that, “despite recent evidence of resilience of the sector, a more unfavourable economic and financial context, characterised by lower economic growth and higher interest rates, will increase the percentage of companies in vulnerability”.

Original Story : TSF /LUSA
Photo: Banco de Portugal
Translation: Prime Yield