“Open door” profits in the banking sector and the pain of households with floating rate credit – Opinion – SAPO.pt

The year 2023 will go down in the history of Portuguese banking, not only because of the huge profits, but also because of the sharp contrast between the enrichment of the banks and the impoverishment of the families with mortgages linked to variable interest rates. The national banks posted record profits of 5.6 billion euros, the highest in the recent history of the sector. With profits exceeding 15 million euros per day, this figure looks like a fictional story, but it is real.

This situation is all the more alarming when compared to the situation of Portuguese families, many of whom are in an extremely fragile financial situation. DECO – The Consumer Protection Agency says it receives between 10 and 15 requests per day for help related to housing credit. Between January and September 2023, there were more than 20,000 requests for support, most of which came from families who, despite maintaining employment and income, could not meet their commitments, especially those related to the burden of monthly installments on mortgage credit.

These difficulties did not arise by accident. They were the result of a combination of factors, with 10 interest rate hikes in 15 months playing a leading role. Households with mortgages linked to variable rates found their already very limited incomes “eaten away” by excessive interest rates that directly generated huge profits for the banks. Given the scale and speed with which this happened, the process was, to say the least, highly controversial from an ethical perspective.

Meanwhile, we have recently seen another development involving the Banking Solidarity Grant. This additional tax was created to finance social security during the covid-19 pandemic, at a time when the Portuguese government is facing unprecedented financial challenges. However, the bank’s successive court victories put this tax at risk of disappearing. See Ecological Environment If the Constitutional Court issues another favorable ruling, the days of the Solidarity Plus may be numbered.

One cannot ignore the impact of this tax on the sustainability of our social security system, especially after a pandemic crisis that forced the state to expand social support and implement solutions such as layoffs. But similar to what we have seen in other countries such as Italy, where governments have tried to tax excess profits in the banking sector, the difficulty of implementing such measures is the greatest. European Central Bank President Christine Lagarde was quick to denounce the Italian government’s attempt to tax banks and warned of the risks it would pose to credit issuance and financial stability. Forced to make concessions, the Merloni government softened the proposal until it became an almost insignificant measure.

The question that arises in Portugal is: who pays for all this? The bottom line is that the quality of life of Portuguese households with floating rate mortgages has clearly deteriorated. Every month, meagre household budgets are left with hundreds of euros to spend, apparently without any real return, other than the notorious “open door” profits of the banks.

On the other hand, record high bank profits are also the result of the expansion of banks’ financial profit margins. The logic that follows seems simple: increase the interest charged on credit to households and businesses according to the ECB’s interest rate, but do not touch the interest associated with deposits. The result: an increase in bank net profits and profits.

The ECB should send a warning to the banks. If they raise the interest rate linked to deposits from the outset, it will stimulate savings. Savings are a fundamental tool to fight inflation. This is not an option for the banks.

It is true that more “social” taxes on the banking sector could have economic consequences. But we have to ask: to what extent is the suffering of households justified by the unprecedented growth of bank accounts?

When banks benefit from situations that are extremely harmful to households, they will inevitably be held accountable. Unless you want to continue living in a country where bank profits are out of reach, mortgage credit is tied to variable rates and households are paying the price of this crisis almost alone, with their dignity and well-being deteriorating.