Luís Máximo dos Santos: Opening address - Annual Conference of
the Association of Specialised Credit Institutions (ASFAC)
Opening address by Mr Luís Máximo dos Santos, Vice-Governor of the Bank of Portugal, at the
Annual Conference of the Association of Specialised Credit Institutions (ASFAC), Lisbon, 22
October 2018.
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1. Let me start with a word of thanks to all the members of the corporate bodies of the
Association of Specialised Credit Institutions (ASFAC), represented by António Menezes
Rodrigues, its Managing Director. I am also grateful to be joined by all the other speakers and
participants in this Conference.
Firstly I would like to congratulate António Menezes Rodrigues for his recent appointment to chair
the European Federation of Finance House Associations (EUROFINAS), and secondly ASFAC
for staging another of these Conferences.
The importance and significance of the appointment are obvious and so could not go
unacknowledged; regarding the Conference, it is a key date in the calendar for events relating to
the financial system and an excellent opportunity to identify trends in the consumer credit sector,
and share and discuss problems, fully justifying this word of appreciation.
Therefore it gives me great pleasure to take part in the Conference, with the importance attached
to it by Banco de Portugal shown by the presence of Lúcia Leitão, Head of the Banking Conduct
Supervision Department, and João Raposo, Head of the Legal Enforcement Department, as
speakers.
2. Since its creation in 1991, ASFAC has filled a significant space in a sector with unique
characteristics in the credit market, and with increasing importance due to social evolution and
market dynamics.
I see it as very important for the country and for the regulators and supervisors that the financial
corporations have a strong association behind them, equipped and empowered to achieve
critical mass.
We all have something to gain from this. In truth, the more complicated and dense the regulatory
framework, whether in banking conduct or in combating money laundering and terrorist financing,
the more intrusive and principle-based the supervision should be, and the more important the
dialogue with the sector's representatives.
It was exactly with this in mind that in 2011 Banco de Portugal created the Forum for Banking
Conduct Supervision, in which ASFAC has been an active participant from the start. The road
travelled since then has reinforced the wisdom of that decision.
But our view is not that the conversation should only take place through specific events, but
rather on a daily basis, as it is in this context that supervisors and supervised entities can extract
full benefit from it.
This availability of Banco de Portugal to talk to institutions on an ongoing basis, in strict
observance of the diversity of their respective roles, makes behaviours in contravention of the
regulatory framework even more unacceptable, an aspect that cannot be emphasised enough.
3. The publication of Decree-Law No 133/2009 of 2 June 2009, which transposed the second
European directive on consumer credit agreements, was a milestone for consumer rights in
Portugal.
We have come a long way since then. As a result of the consequences of the financial crisis and
the greater awareness of the specific practices that could be so harmful to consumers,
institutions and the financial system, the regulatory framework and banking conduct supervision
requirements have changed profoundly.
The impetus from Europe, through the publication of various directives, has been key. Ten years
after the financial crisis it may now be said that the retail banking markets are more transparent,
not least in the all-important consumer credit segment.
Consumers are more protected, in that they have more rights and some of their existing rights
have been broadened. The duties of information were made stronger; upper limits were
established for the annual percentage rate of charge (APRC) and the nominal interest rate in
consumer credit agreements; the duty of assessing creditworthiness was strengthened; the
consumer assistance obligation was created; certain banking fees were banned or limited, and,
where associated to payment accounts, became more comparable, above all after the format
given to the fee comparator launched on 1 October; a system was created for preventing and
managing arrears situations, to mention just a few examples.
Furthermore, recent changes to the Legal Framework of Credit Institutions and Financial
Companies place new obligations on institutions when setting their compensation and evaluation
policy for workers in contact with customers in the sale of retail banking products and services,
with a view to minimising the risk of conflicts of interest and avoiding potential harm to
customers.
The requirement was also established for institutions to introduce specific procedures for
governance and for monitoring credit products, to ensure that they are suited to consumers'
interests, goals and characteristics in terms of design and distribution.
Very important also is the fact that on 1 January of this year, the legal framework for credit
intermediaries came into force, with the aim of broadening the perimeter of banking conduct
supervision. Indeed, access to banking activity now requires the prior permission of Banco de
Portugal, which is also responsible for overseeing the conduct of this activity.
However, the legislator established a transitional period of one year, in which natural and legal
persons carrying out credit intermediary activity prior to the entry into force of the legal framework
may continue to do so without Banco de Portugal's authorisation.
We are well aware that the credit intermediary authorisation process is of great importance to the
specialised credit institutions sector, given the relevance of these entities for the distribution of
consumer credit products.
It is a challenge for the sector, but also for Banco de Portugal. The credit institutions play a key
role in this process, providing the necessary information and support to credit intermediaries with
which they have or intend to have binding agreements. The institutions must also ensure that the
activity undertaken by their partners observes the rules laid down by the legislator.
I would like to be clear that Banco de Portugal recognises the importance of the work that the
credit institutions and ASFAC have undertaken in this field.
We know that this is a transformation with multiple implications and considerable costs,
particularly at this point in the transition. But the final result of this process will without doubt be
the better operation of the market, which is a goal with benefits for all.
4. The specialisation of supply according to the needs of demand is a source of efficiency gains
and is also believed to boost consumer satisfaction. Specialised granting of credit is no different
from this rule. A focused business model can bring various advantages.
Society and consumer behaviour are changing rapidly. From millennials to Generation Z, the
specific behaviours of consumers are numerous and decisive. Firms in general need to
understand them well to be successful in the market. The financial sector is no exception to this
- far from it.
Aside from sector-level specifics, which undoubtedly exist, the most important current trend in
the area of specialised credit is in truth common to all entities in the financial sector: how to deal
with the challenge of the digital economy and society?
The generic name "the digital economy" covers various areas, which progress at different rates,
but all with profound consequences at several levels and a common theme between them: the
technological revolution in the production and consumption processes.
Monitoring the process of bringing consumer credit to market through digital channels is one of
Banco de Portugal's current challenges.
On 17 January of this year, Banco de Portugal issued a circular letter, which requested the
provision of information on credit products brought to market through digital channels from
beginning to end. The information obtained is key for monitoring and overseeing the practices of
the credit institutions in offering consumer credit through digital channels, namely apps and
online platforms. This process has been developed in strict cooperation with the credit
institutions, and is a good example of the dialogue between supervisors and supervised entities
that I have mentioned.
5. As has been publicised and featured in the news, consumer credit is growing rapidly in
Portugal, now at levels akin to those of before the financial crisis.
It is vital to avoid successive cycles of excessive and injudicious lending followed by a sharp and
lengthy slump. As is known, Banco de Portugal adopted a macroprudential measure aimed at
preventing the accumulation of excessive risk on the banks' balance sheets and ensuring that
households obtain sustainable financing, minimising the risk of arrears. Its purpose is to help
bring appropriate rigour to credit standards. Consumer credit agreements signed after 1 July
2018 fall under that measure, which will therefore have an impact on the consumer credit
market.
The terms in which consumer credit is sometimes debated seem to me to be a genuine paradox
for our time.
In truth, the development and expansion of consumer credit come as a direct consequence of
powerful trends, particularly the stagnation or reduction of salaries, the decline in saving and the
hyperdevelopment of the financial sector. Consumer credit is inseparably linked to a social model
that places consumption as a core value. It is a central element of what we might call the 'credit
society', and, despite what we might wish to think, is a phenomenon present, albeit to varying
degrees, in all the countries with developed financial systems.
When things go wrong and the dream becomes a nightmare, moral judgements appear in public
debate. While apparently uncontroversial in nature, in truth they are superficial judgements by
and large, as they do not pay due regard to the underlying causes fuelling indebtedness, and
ultimately abstract from the real roots of the issue, intentionally or otherwise.
In truth, as is clear, there is nothing intrinsically wrong with consumers taking on credit; on the
contrary, for a long time consumer credit has been an economic and social necessity. What
should not and must not happen is irresponsible lending, disrespecting consumers' rights, with
the intention of taking opportunistic economic advantage of bank customers' weaknesses and
insufficient knowledge.
So I end with a wish that should be well within our compass: for the benefit of bank customers,
financial institutions, the functioning of the economy and society, responsible credit cannot be a
mere objective - it has to be an ongoing action.
Thank you very much for your attention.