The governor of the Bank of Portugal says that "robust or sustainable decisions" are crucial to financial stability, but these are not enough when there are situations of "market euphoria."
Carlos ‘Mr Magoo’ Costa does not like property prices rising, the volume of sales increasing and the banks lending money so people can buy a home rather than spend a lifetime renting.
Credit to households has exceeded €10 billion this year with house prices up an average of 11.2%.
Magoo was the opening speaker at the sell-out, Conference on Banking Supervision.
Referring to the importance of financial literacy, a topic with which he remains unfamiliar, the Governor of the Bank of Portugal said that sensible borrowing decisions are decisive for financial stability.
Costs then said that people do not take sensible decisions and this creates, systemic risk which does make him worry, especially those who buy houses to live in at the market price.
"This risk is particularly relevant when there are euphoric situations in the market, especially in the real estate and mortgage market," said Magoo, explaining patiently to his dozing audience that, "the intensity and spread of distorted asset valuation expectations are all the greater the lower the literacy and the financial experience of a given population."
This shameful opinion of Portugal struggling working classes, who have qualified for a mortgage with which to buy a home, epitomises the out-of-touch thinking for which he is renowned.
The governor of the Bank of Portugal stresses the need for, "measures to address negative systemic developments", but also "more prudential measures on the side of lending, or on the side of saving, to ensure financial stability."
The head of the banking regulator comes at a time when real estate prices have risen almost to pre-crisis levels with many now murmuring about a real estate bubble in Portugal and the increase in lending by Portugal’s naughty banks whose shareholders want them to make a profit.
This nonsense by Carlos Costa is in the same vein as his ‘set of recommendations’ to banks to limit lending to their customers. These have been ignored as nobody really takes much notice of him anymore, not since the collapse of Banif and BES, and the 'sale' of Novo Banco over which he presided as regulator.
Costa may be right about the next property slump, leaving banks exposed to customers that can not service their mortgages, but so it ever was. Portugal's banks will continue to listen politely to their regulator and carry on doing what they are doing.
Views from the banking sector are encapsulated in this article:
'Bank Executives Flatly Reject Existence of Real Estate Bubble and Risky Loans'
25 September 2018
The recent rise in prices in the real estate market corresponds to a normal market correction and is not the beginning of a speculative bubble, some of Portugal’s principal banking executives argue. Simultaneously, the governor of Portugal’s central bank warned against the risk of euphoria.
The current rise in real estate prices is the result of many years of weak investment in the sector and not the symptom of the formation of a speculative bubble. That belief was expounded by a group of bankers that met at a conference on the future of banking on Tuesday, which was held by the Jornal de Negócios in Lisbon.
The chief executive of BCP, Miguel Maya, stated that, after years in which Portugal’s banks had reduced lending for real estate development (Brussels had also barred BCP entirely from lending to the sector while it was benefiting from the injection of state funds), the current rise is a simple adjustment.
“I do not see that it is a major problem. The market has heated up,” Maya said, in a statement seconded by António Ramalho. “Portugal is no suffering from a housing bubble as yet because, until now, we have had almost 15 years of divestment from the real estate market and we had stopped building and licensing,” the chief executive of Novo Banco noted. Therefore, the current increases constitute “a manageable situation.”
Pablo Forero, of BPI, stated that he lived through the real estate bubble in Spain, and noted that in comparison, ” the situation in Portugal is quite reasonable.”
“Of course we have to avoid excesses, but the banks are doing serious and prudent work,” the bank’s president, which is owned by the Spanish group Caixabank, stated.
The president of BCP, Paulo Macedo, also noted that difference between the prices of “residential real estate in Lisbon and Porto and industrial real estate in those same areas, where prices are still depressed.”
The statements by the bank executives contrast with those of the governor of the Bank of Portugal, who, at a separate conference on behavioural supervision organised by the regulator, warned of euphoria in the real estate market.
Lending is under control
The recent pace in the growth of credit was also greeted with equanimity by the banks. When asked whether Portugal’s banks were returning to the aggressive lending practices of the past, the bankers at the Business Journal conference rejected the notion.
Miguel Maya (Millennium BCP) and Paulo Macedo (CGD) noted that “our risk modelling has improved and our governance is different than in the past”, which has led the banks to understand that “the degree of loans in default is not out of the norm.”
Paulo Macedo recalled that in the past, “the banks’ big exposures were the root of the problem, and these are clearly smaller today.”
Original Story: Jornal Expresso – Lusa
