The changes implemented by Banco de Portugal to the macroprudential measure implemented in 2018, to include new limits on personal credit, had a positive impact on improving the risk profile of borrowers. According to the regulator, the average maturity in consumer credit operations decreased from 8 to 7 years, at the end of 2020, with the institutions adhering to the recommendation. Also in housing, more than 90% of credits comply with the limits recommended by the regulator.
As in 2019, in 2020, Banco de Portugal considers that credit institutions’ general compliance with the limits defined in the macroprudential recommendation continued to be observed, with measures reflecting a reduction in the risk profile of borrowers, refers the Follow-up report on the Macroprudential Recommendation released this morning by the regulator.
“Regarding consumer credit, there was a decrease in average maturity throughout 2020, from 7.9 years in January to 7.4 years in December. This evolution reflects the reduction in the maximum maturity limit for new credit operations 10 to 7 year olds in April 2020, with the exception of personal loans for education, health and renewable energies “, says the report from Banco de Portugal. Also according to the same document, “this change was implemented quickly and effectively by the institutions, since as of April 2020, the date on which the new limit came into force, the percentage of new personal credit operations with maturity over 7 years has become residual “.
In relation to mortgage loans, Banco de Portugal also makes a positive reading of the macroprudential measure. According to. According to the report, more than 90% of the credits granted for the purchase of a home finance up to 90% of the value of the property, while in 93% of contracts the effort rate is less than 50%.
“Almost all new credit operations for the acquisition of own and permanent housing had an LTV (loan-to-value) ratio lower than the limit of 90%, confirming what was already observed in 2019”, he indicates the Bank of Portugal.
In relation to the exceptions provided for by the regulator, which allow banks to grant a percentage of capital to borrowers at greatest risk, “only 5% of new operations are associated with borrowers with an STI ratio (stress rate) between 50 and 60% (a value well below the expected exceptions) and 2% of new credit operations were granted with an STI ratio greater than 60% (value within the expected 5% exception “.
Housing maturity increases
In relation to the average maturity in new mortgage loans, this increased during the pandemic, standing at 33 years.
“Regarding the evolution of the average maturity of new mortgage loans, despite the decrease from 33.5 years to 32.6 years, between July 2018 and December 2019, there was an upward trend in 2020. In the end from 2020 the average maturity was set at 33.2 years, a value higher than the 30-year threshold set for the end of 2022 “, says the document.
Mover 93% of new home loan operations had a maturity between 20 and 40 years, with 31% having a maturity between 20 and 30 years and about 69% between 30 and 40 years.
Despite the slight increase in average maturity in 2020, Banco de Portugal maintains the objective of an average maturity in 30 years for new operations, within one year.
“It should be remembered that the Recommendation foresees a gradual convergence of the average maturity of new mortgage loans to 30 years at the end of 2022”, concludes Banco de Portugal.