According to a report by idealista/news, the International Monetary Fund (IMF) suggests that the Bank of Portugal (BdP) consider a counter-cyclical capital reserve or a sectoral systemic risk reserve against potential risks of bank exposure to real estate.

“Once the recovery is well established, the BdP could consider introducing a positive-rated countercyclical capital buffer or a sectoral systemic risk buffer against potential macrofinancial risks from banks’ real estate exposures,” the IMF suggests in the annual report on Portugal.

In a press briefing, Rupa Duttagupta, who led the IMF mission to Portugal, stressed that the banking system has resisted “relatively well” to the two double shocks – pandemic and war – so far.

“Capital levels have increased in the past year, NPLs are decreasing and, in general, the profitability of banks is slightly higher. All of this is good news,” she said. However, she cautioned that "there are some domestic risks that fortunately have not materialised, but they have not disappeared."

Property prices must be "closely monitored"

In the conclusions of the assessment for Portugal, the IMF points out that the close monitoring of the credit quality of banks remains essential, warning that the impact of the end of the moratoriums and of new risks, including the real estate market, on the quality of credit should continue to be sources of uncertainty for some time.

“Prudential authorities are actively monitoring the credit quality of banks and confirm that the materialisation of credit risk, so far, has not been as significant as expected at the beginning of the pandemic. Strategies to reduce NPLs are bearing fruit, but some banks have not yet completed their adjustment processes”.

Even so, Rupa Duttagupta considered that Portugal should remain "aware" of the impact of the end of the moratoriums. The IMF considers that the risks of rising real estate prices, although contained, should also be “closely monitored”. Rupa Duttagupta added that “these risks are not high at the moment, but they could increase if house prices continue to rise”.

For the IMF official, to avoid these risks, it is necessary to “gradually build” capital 'buffers' (when, in the capital structure, the regulatory capital held is greater than the minimum required by the regulator) where they are smaller, but also to make the more resilient banking system.