Caixa Geral de Depositos SA (CGD) said just under 1% of clients at the Portuguese state-owned bank are significantly vulnerable to rising inflation and interest rates. 

“What we see is a little under 1% of our customer base where we do see significant vulnerabilities,” Chief Financial Officer Maria Joao Carioca said at the Bloomberg Portugal Capital Markets Forum in Lisbon.  It’s a “relatively comfortable” situation for Caixa Geral at this stage, she said. 

Portuguese lenders have been shedding assets and selling soured debt over recent years to reduce their bad loan ratios. The ratio of non-performing loans at Portuguese banks fell to 3.4% at the end of June, according to the Bank of Portugal.

The European Central Bank last week doubled its key interest rate to 1.5% — the highest level in more than a decade. Bank of Portugal Governor Mario Centeno said in February that the impact of a euro-zone interest-rate hike would be quickly felt by Portuguese companies and families as credit in the country is dominated by variable interest rates.

While most mortgages in Portugal are floating rate, “at least in the last periods, we were already originating close to 30% of mortgages with fixed rates,” Banco Comercial Portugues SA CFO Miguel Bragança said at the same event.

Fiscal Discipline

Carioca, who has served as a board member of Euronext NV, said Portugal should maintain a disciplined fiscal policy to ensure that the country’s bond yields remain in line with other major European economies. Portugal’s government forecasts the budget deficit will narrow to 1.9% of gross domestic product this year.

“It’s crucial that we do not see our spreads broadening a lot versus European cores,” said Carioca. “I think we are very well positioned to ensure that.”

Bragança said that Portugal’s ability to cut public debt and fiscal discipline has been crucial for the southern European country to keep borrowing costs low. 

“Being able to maintain this discipline will be very important,” he said.

Original Story: Bloomberg| Henrique Almeida and Zoe Schneeweiss 
Photo:Edificio sede da CGD
Edition: Prime Yield