Interest on moratoriums disrupt bank accounts

Interest on moratoriums disrupt bank accounts
Interest on moratoriums disrupt bank accounts

Africa-Press – Cape verde. Profits recorded by commercial banks in 2021 can be misleading. It is that banks are “obliged” to account, in their balance sheets, the interest on loans in moratorium, enacted as a result of the covid-19 pandemic. In fact, it is only after the end of all the moratoriums, scheduled for September, that financial institutions will know for sure whether they will recover the entirety of 20 billion escudos in loans granted, many of them with the guarantee of the State.

With the publication, in issue 774 of this Journal, of the article on bank profits in 2021, there were those who were surprised by the volume of net results of financial institutions operating in the country. In other words, with all the difficulties that people have been going through, “the banks have been making a profit”.

However, a sector official, who prefers not to be identified, told A NAÇÃO that the banks profited “hypothetically”, this, because of the moratoriums and other financial mechanisms that leave them waiting for the “proof of the nine”.

“Of course, there is a gain to be recorded”, recognizes our interlocutor, recalling, however, that the entire economy in Cape Verde, in the period in question, “was based on credit”.

That is, many installments and many payments made of salaries, contributions, from Electra, were made using credit. “The bank also gave much more credit in this period. Banks stopped receiving and added more to the economy”, says our analyst.

Much of this credit was granted with State and Pro-Garante guarantees and, on the other hand, during the pandemic, many companies had to go into debt in order to continue to maintain their jobs.

And, with that, “the banks have not yet felt the impact of the pandemic”, highlights our source, who believes that this impact will only be felt on the day that all the moratoriums end”. “Then, yes”, she warns, “we will start to have complications”.

In other words, in fact, many credits that are in moratorium will have to renegotiate payment plans, when it is known that there is still no effective recovery of the economy. “There are some businesses linked to tourism, namely, on the island of Sal, which have not yet resumed and there are others that will not resume their activities”.

Faced with such a context, the entire framework linked to the moratoriums leaves financial institutions “weakened” in a certain way, and everything else is nothing more than projections and conjectures. “It is only from September onwards that we will know the real situation of the financial system”, he concludes.

real profits

Asked if it can be considered that bank profits in 2021 are fictitious because of the non-entry of interest on credits in defaults, our interlocutor rejects this thesis. “These profits are not fictitious because people are in debt. The fact that they do not pay does not prevent banks from recording that interest as a gain. To charge or not is another story.”

That is, the bad debt will be written off on the day the bank cannot collect it. And, with that too, “the positive result of one year can be reduced in the following years”. However, in the words of our interlocutor, banks have been reinforcing impairments to protect against future situations, given that “impairment is only recorded when the credit starts to default”.

In the last two years, mainly because of covid-19, several credits have gone into default and, being in this situation, even if there is no payment, commercial banks are “obliged” to account for interest in relation to these loans. In addition, interest, which has not been paid, is accounted for “as results”.

Because of this, according to another source, also linked to a financial institution, all banks recorded a considerable increase in results (profits), as the credit sotck, which was at a certain level, increased because of the covid-19 pandemic. 19 and “interest accumulates in results”.

However, with the end of the pandemic and, consequently, with the end of all moratoriums, scheduled for September, “there will certainly be many situations of default, which will result in losses that the bank will have to assume in its balance sheet”.

“Expressive” profits cause strangeness

On the other hand, an economist contacted by A NAÇÃO, considers that it is “a bit strange” that, in 2021, a year of crisis, banks present “so expressive” net results. Profits that exceeded PTE 3.5 billion may, however, be related to the fact that the Government created several lines of credit (covid lines) during the pandemic period, to support the credits in which the State assumes interest. .

The banks took advantage of this fact, as they are loans guaranteed by the State, which, in principle, “do not go to bad debt” and which also “do not imply the need to create any type of provision”. In other words, “it was at the expense of these types of loans that banks were able to achieve these results (profits)”.

The value of the moratoriums, according to our source, amounts to 22 billion escudos, which “is a lot”, as it constitutes more than 15% of the national GDP.

Are we, therefore, living in a financial bubble? Time will answer.

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