According to new data published by the Bank of Portugal this week, the amount of people seeking credit from banks has also risen considerably. These figures show the number of people who secured loans to buy cars in 2018, was up by 120,000.


In terms of credit cards, the increase of those in debt climbed by 43,000 with 2.29 million people currently using them to make purchases.


This is now the highest number of people in debt with their credit card companies since records were first taken by the Bank of Portugal in March 2009.


The amount of debt outstanding has also climbed strongly, and now sits at 3.25 billion euros, another new record.
The amount owed to financial institutions for vehicle credit has ballooned to a record high, and has reached 6.1 billion euros this year. Overall, 840,000 people are in debt with banks having secured credit to purchase a car.


The Bank of Portugal has warned of a steep increase in consumer credit, explaining that this is being driven by a reduction in the unemployment rate, and an increase in wages, though interest rates on these types of credits remain high.


The banking regulator however pointed to increased competition among financial institutions having resulted in them easing on the spreads levied on top of existing interest rates.


This follows after the general approval of loans in Portugal reached a 15-year high in 2018.


Figures indicate that a credit of 4.66 billion euros was issued, for an average of 12 million euros a day.


Despite concerns over the ballooning debt among consumers, the number of people unable to meet their monthly repayments actually dropped in 2018 to their lowest in almost a decade.


Nonetheless, 137,000 people are unable to pay the minimum monthly value demanded from their credit card companies, while 61,000 people have defaulted on their car repayments.


In terms of mortgages, the number of home owners who are unable to meet their repayments has fallen to below 100,000 for the first time since 2009.


But despite calls on banks to employ stricter rules in issuing mortgages, Portuguese were handed close to 10 billion euros to purchase real estate last year, which is up almost 20 percent on 2017.


The new norms came into effect last July, and saw families’ spending on bank loans limited to half of their income.
Bank regulator Bank of Portugal said the objective was to prevent banks from “taking excessive risks on new loans and for customers to have the ability to pay off debts”.


But as is illustrated by the latest report from the Bank of Portugal these are merely recommendations - although banks that do not comply with them will have to explain their thinking in issuing loans to people apparently unable to meet repayments.


In its guidelines, the banking regulator recommends allocating new credits only to customers who spend a maximum of half (50 percent) of their net income on the monthly installments of all loans held, including mortgages and personal loans.


The banking supervisor can make exceptions; allowing customers to exceed this effort rate limit by up to five percent of the total amount of credit each bank grants per year, and that one-fifth of the total amount of loans granted each year may have an effort rate of 60 percent.


The regulator also recommends that the ratio between the value of the loan and the value of the property pledged as collateral should be limited to 90 percent for loans for permanent housing. That is, in these cases, the money borrowed for the purchase of a house can be at most 90 percent of the value of the property given as collateral.


This ratio is calculated based on the lower value of the purchase price of the house and the evaluation value of the house.
For loans with other purposes, the maximum to lend corresponds to 80 percent of the value of the property.


And lastly, the Bank of Portugal recommends a maximum of 40 years as a limit on the duration of the loan for new housing loan agreements and mortgage-backed credit. It also calls for gradual convergence to an average maturity of 30 years until the end of 2022. New consumer loans should last for a maximum of 10 years.