Families with variable credits and banks are at greater risk

noIn its report on the economic situation of the European Union and the Eurozone, released today, the Organization for Economic Co-operation and Development (OECD) finds that the increase in interest rates “exacerbates the financial vulnerability of households, especially in high-income countries.” of private debt and high percentages of variable interest loans.”

In Portugal, according to Bank of Portugal data, 90% of mortgage loans are contracted at a variable interest rate (Euribor).

So far, says the OECD, the increase in interest rates has led banks to increase their profits, but there is already a deterioration in credit portfolios (due to defaults by customers) which increases the risk of the loan.

Still due to higher interest rates, there was a “sharp drop in demand” due to higher interest rates and lower real incomes of households, arguing that the OECD may have a negative impact on investment in homes, which is also a risk to the bank.

In the first half, house prices remained “resilient”, but the OECD expects corrections in value, and if there is a decline in that, it would also mean a drop in the value of collateral for banks with mortgages and forcing them to provide mortgages. Make more judgments against losses, please let me know.

The OECD says the authorities should “carefully monitor” these risks and even take action, either on the part of customers, by restricting credit, or on the part of banks, by increasing capital reserves.

The Bank of Portugal on Monday released an analysis by Governor Mario Centeno on the current state of the economy, noting that at the end of this year, “about 70,000 households may incur the credit servicing expenses of the Central Bank of Portugal.” Permanent housing is greater than 50% of their net income,” doubled 36,000 at the end of 2021.

To prevent defaults on family loans, Centeno defended the role of public support and banking, along with savings.

Also in the report, the OECD finds that the European banking sector still suffers from weaknesses such as low efficiency, lack of diversification in revenues and too many institutions, bearing in mind that consolidation of banks between countries can “help increase profitability”.

“Compared to national mergers, cross-border mergers can enhance the effects of geographic diversification and encourage the emergence of larger European banks better equipped to compete with their international counterparts,” says the organization.

The Organization for Economic Co-operation and Development expects growth to slow to 0.9% in the eurozone this year, with private investment penalized by high interest rates but benefiting from lower energy prices and a recovery in private consumption, and for GDP to fall in 2024. Growing by 1.5% on annual basis.

Also read: Inflation in the Organization for Economic Cooperation and Development rose for the first time since October 2022 to 5.9%