Fall in ECB interest rate should benefit borrowers, as Portuguese banks report improving conditions

Mortgages in Portugal could get even cheaper thanks to the European Central Bank (ECB) cutting its benchmark interest rate to a record low of 0.25 per cent from 0.5 per cent on 7th November.

ECB president Mario Draghi said the decision to cut rates reflected an outlook of low inflation and economic weakness across the Eurozone. Inflation in the Eurozone fell to 0.7 per cent in October – its lowest level since January 2010, raising concerns of deflation in some countries.

Meanwhile, latest statistics from the Bank of Portugal show that over the past three months the demand for housing loans has remained virtually unchanged. The main factors responsible for slightly reducing demand were consumer spending unrelated to house purchases by individuals and household savings. Credit demand for consumer credit and other purposes remained virtually unchanged.

For the next three months banks expect the demand for home loans and for consumption and for other purposes to remain broadly unchanged.

During the last quarter, banks reported that in general they have not changed the criteria for the approval of loans to households and for the next quarter, they anticipate the criteria for approval of loans to remain unchanged.

At the end of October, Governor of the Bank of Portugal Carlos de Silva Costa said at a speech in London that Portugal’s banks are in better shape today than they were when they were shut out of capital markets in 2010. Mr Costa added that Portugal’s banks have ample liquidity and finance their activities with more capital and deposits, and less debt, than they did in the past.

According to Mr Costa, banks still face a tough road ahead and their main challenge is rebuilding their profitability after suffering losses from bad loans.

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