Banks should be “vigilant” with the possible increase in defaults by families and companies due to the current economic context of rising prices and rising interest rates, warned Rui Pinto, who was speaking in Parliament about his appointment as a director of the Bank of Portugal.

He explained that the rise in interest rates and inflation will reduce the income of families, which will consume less with companies.

In a scenario of cooling economic activity, which is already beginning to be felt, Pinto noted, this context would create “pressure on the ability of families and companies, particularly in economies with high levels of debt, to meet their debts.

This “will create some pressure on the evolution of default” in relation to which banks should be “vigilant”, said the current administrator of the Securities Market Commission (CMVM) in the Budget and Finance Committee.

Rui Pinto stressed two aspects: “We are not yet seeing a negative evolution” in defaults; on the other hand, banks have had a very significant reduction in non-performing loans in recent years, so the level of problematic credit “is now relatively low and in line with other jurisdictions”.

With the rise in interest rates, banks may benefit from an increase in financial margins, Pinto continued. But this increase in margin “may be offset by a need to increase impairments, as there may be pressure on credit quality,” he said, noting that “banks have profitability that is not yet desirable.

Rui Pinto was heard in parliament as part of his appointment by the Finance Ministry to the board of directors of the Bank of Portugal.

Original Story: ECO |Alberto Teixeira
Photo: Bank of Portugal
Edition and translation: Prime Yield