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Credit default in Portugal could skyrocket

By CHRIS GRAEME [email protected]

New accounting procedures for loan payments could reveal that the number of families and businesses in Portugal at risk of default are higher than at present.

The banks are being forced to change their accounting criteria for loans in line with new regulations imposed by the ‘Troika’.

According to an investigation, the current amount of credit default in Portugal is “strangely low for a country in recession and needing bailout funds from the IMF”.

That’s why the ‘memorandum of understanding’ between Portugal and the ‘Troika’ has made it clear that “information on credit defaults will have to be improved with the creation of a new ratio in line with best international practices”.

For example, under the current system if a customer owes €100,000 to a bank for a mortgage and has already failed to meet eight payment instalments of €500, the defaulted credit is calculated as €4,000.

But in Spain, the same situation would register the entire €100,000 capital in default regardless of the number of unpaid payments.

Less competitive

The Bank of Portugal has not issued a statement on the consequences of this accounting change imposed by the ‘Troika’ nor has it estimated the amount of defaulted credit in Portugal.

But other sources quoted to the business daily Negócios have estimated the current figure could double.

On Tuesday the President of the Confederation of Portuguese Industry (CIP), António Saraiva, warned that raising VAT to 25% could wreck the country’s competitiveness.

“Today we have told the new Minister for the Economy, Álvaro Santos Pereira that increasing VAT would result in the loss of competitiveness for our goods internationally, particularly against the Spanish,” he warned.

VAT could be set to increase to 25% as early as next month (July) according to some media sources.