Banco de Portugal warns banks to keep restrictions on housing loans
The big economic news of the week in Portugal was certainly not the election of Finance Minister Mário Centeno as Eurogroup president, replacing Dutchman Jeroen Djisselbloem. Quite revered throughout Portuguese and European media, this could be a symbolic sign that austerity stage is over. However, the complying with Eurozone orthodoxy has been a hallmark of the current Portuguese government, so this is nothing substantially new or surprising.
More important has been the warning issued by the Banco de Portugal towards Portuguese banks, regarding the need to be more cautious regarding credits and loan, specifically regarding housing. The real estate market has seen a steady recovery over the last couple of years and banks are relaxing widely the criteria for giving loans for house buying. The Portuguese regulator stated that the level of debt is still high in the economy and that the banks should commit to a level of procedures. The Banco even stated that it might force the market to adopt some kind of minimum criteria for approving loans, shortly.
Banco de Portugal is shouting out loud
The Portuguese regulator has been heavily criticised over the last decade, due to its inaction in the face of sensible events in the Portuguese economy. The BPN scandal, immediately during the outbreak of the financial crisis of 2008 and before the bailout of 2011, prompted some questions. And the fall of the Banco Espírito Santo in 2014 was an even bigger event, drawing heavy criticism. Governor Carlos Costa defended himself, saying that the Banco had no legal powers to do more than strongly advise and warn when the policies were wrong. Basically, he could do no more than remind, Mr. Ricardo Salgado, that he was following a dangerous path.
Assuming this is right, one could say that Banco de Portugal is now doing everything it can to avoid the creation of a new real estate bubble. It’s good news for the Portuguese economy that this is coming to public discussion right now before things get worse of, before something in the Eurozone affects the national balance. It’s only unfortunate that Mr. Carlos Costa’s warning has received less media attention than Mr. Centeno’s appointment to the Eurogroup.