Banking to benefit from stronger real estate market in Portugal, says Moody's

The rating agency Moody's considers that Portuguese banking is one of the main beneficiaries of the "stronger" real estate market that currently exists and that it leads to a better bad credit situation.

Redação – The rating agency Moody’s considers that Portuguese banking is one of the main beneficiaries of the “stronger” real estate market that currently exists and that it leads to a better bad credit situation.

In a report on the state of the national real estate market, the company stresses that the “non performing loans” (NPL) ratios of Portuguese banks will continue to improve as house prices continue to rise and economy is strengthening, albeit at a more moderate pace. ”

Moody’s notes that “economic growth, higher credit recovery, amortization and sale of some NPLs” caused a decrease in the accumulation of these problematic credits in the Portuguese banks’ balance sheet, verified in 2017 in the first half of 2018 “. substantial form “.

Despite this, NPL ratios in Portugal (from 12.4 per cent at the end of June 2018) remain above the 4 per cent average of the European Union, Moody’s recalls. The agency points to corporate loans, with a NPL ratio of 22.3 per cent at the end of this year, compared to 4.9 per cent non-performing mortgage loans.

Still, housing lending levels rose only “slightly” on the banks, according to the agency, despite rising prices and lower interest rates.

Moody’s expects that house prices will continue to increase in the next 12 to 18 months and that this is a good thing for the agents in the sector. However, the agency warns of a “sharp acceleration” of prices in certain areas, notably in Lisbon and some areas of Porto “especially if there is no correspondence between income levels and price inflation.”

The company warns that the market may be “out of balance” if buyers “have unrealistic expectations of rising prices in these districts.”

For the agency, the price increase is also positive for the mortgage bond market and residential mortgage-backed securities (RMBS). In the image of NPLs, therefore, losses on loans in the event of default by debtors are limited, because the value of the properties that are then sold comes to cover a large part of the money lost.

Reducing unemployment also helps keep the real estate market high, with better financial conditions for borrowers, according to Moody’s.

The agency predicts an unemployment rate of 6.6 per cent by the end of 2018 and a growth of the Gross Domestic Product (GDP) of 1 per cent to 2 per cent in the next two to three years.

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