Portugal extends suspension of loan repayments until September 2021

LISBON, Sept 24 (Reuters) - Portugal will extend its suspension of loan repayments by another six months until September next year to avoid a jump in bad debt as a result of the coronavirus pandemic, Economy Minister Pedro Siza Vieira said on Thursday.

The suspension, which had been due to last until March 2021, can be applied on bank loans to companies and families, including on household mortgages.

Siza Vieira told a news conference the scheme had already led to the postponement of 10 billion euros ($11.6 billion) in interest and capital payments.

He said families and most companies will benefit from the non-payment of capital instalments on loans until September 2021, but they will have to start paying interest in March.

Sectors affected by the pandemic, including tourism, will also benefit from the suspension of interest payments, he said.

“(The) government’s assessment of the economic situation is that the pace of growth (recovery) is being very uncertain and it is not known how the market will behave,” he said.

Portugal, which has about 77,000 confirmed cases of coronavirus and 1,931 deaths, is expected to suffer a 9.5% blow to its economy this year, after growing 2.2% in 2019.

It was the second time the government extended the loan payment moratorium for another six months.

The bank sector is still scarred by a debt crisis and an increase in non-performing loans after a 2010-13 recession, which put great pressure on capital ratios and led to the collapse of banks such as Banif in 2015.

Since the last crisis, Portuguese banks have struggled to reduce bad loans, having reduced non-performing loans to 6% of total credit in June this year, against a 17.9% peak in mid-2016.

The current ratio is still twice the European average.

$1 = 0.8589 euros Reporting by Sérgio Gonçalves; Editing by Catarina Demony and Andrew Cawthorne