The largest Portuguese financial institutions
are faced with a number of problems that may be "forming" a perfect storm,
warns the American newspaper, Wall Street Journal,
which analyzed the CGD, New Bank, BPI and BCP.
Tomorrow, July 29, the results of stress tests will be released
- that measure the resilience to adverse scenarios -
carried out by the ECB and the European Banking Authority (EBA).
All financial institutions of the European Union were evaluated,
but the EBA only reveal the results of the 51 largest banks in the EU
- covering 70% of the banking sector in the European bloc.
Portuguese banks are not included, in this public list.
However, the BCP decided it would voluntarily disclose the received classification
- the reason why the bank has postponed the presentation of its quarterly results.
It is in this context that The Wall Street Journal
focuses on the Portuguese banking sector.
The paper says that the fact that the results of the stress tests
of Portuguese banks are not disclosed
"does not mean that investors should not be concerned."
"A number of issues
concerning the largest financial institutions in the country
- from the capital requirements of Caixa Geral de Depósitos
to the difficulty in selling the 'good bank'
that resulted from the collapse of the Banco Espírito Santo
- raised fears that Portugal might soon be, once again in trouble",
notes the article of the American newspaper,
which is highlighted in their online page.
The WSJ recalls the Moody's report, ~
published on Wednesday, July 27,
in which the rating agency believes that the "stock"
of troubled assets on the balance sheets of Portuguese banks
are still too high which increases the risk of solvency of the national banks.
The agency also warned of the low profitability of the sector
and the risks this poses for the sovereign debt,
and also warned of the uncertainty surrounding the sale of the New Bank
and an urgent capital injection in the CGD.
The newspaper states that the problems in the Portuguese banking system
are not unique or surprising, "across Europe,
bank profits have been being challenged by low interest rates
and economic uncertainty, as well as by new technologies
- which are making the old banking model obsolete".
However, continuing with the analysis of banking in Portugal
it points out that since the country was rescued in 2011
- under the financial assistance of the troika with the amount of 78 billion euros,
in a program which lasted for three years -
two banks "collapsed": Banco Espírito Santo and Banif.
"In both cases, regulators concluded that there was granting of risk credit",
says the WSJ.
In addition, the article proceeds, the Portuguese government
is currently negotiating with the European Commission and the ECB
to inject capital in CGD, "the country's largest bank by assets."
"There are analysts who say the bank may need more than two billion euros,
and that, as the State will inject this money, the public debt
- now close to 130% of GDP - will further increase."
And Moody's has said, reminds the newspaper,
that any further increase in the debt
to finance the recapitalization of banks,
is negative for the 'rating' of the sovereign debt
- which is currently in the "garbage"
(speculative investment category).
"Meanwhile, the New Bank,
the 'good bank' created after the collapse of Banco Espírito Santo,
is to pose problems," says the WSJ.
"The NB received an injection of capital
amounting to 4.9 billion euros from the state
and national banks when it was created,
and should have been sold quickly last year for at least that amount".
That's not what happened.
"The sale, however, was postponed after the central bank
struggled to find good deals.
The bank also needed more capital and its non-performing loan portfolio
turned out to be higher than what was previously thought.
A second attempt is underway, to sell to four interested parties
which submitted their offers in the last month",
says the paper, noting that the Portuguese government
has said it expects to recover at least € 3.9 billion to inject in the NB",
which means probable losses, arising from its sale
will have to be shared among the national banks
- that are struggling themselves to become profitable".
Earlier this week, Fernando Ulrich, CEO of BPI
("one of the Portuguese banks are doing better," according to the US newspaper),
said that healthy banks, are being unfairly burdened by the mistakes of others.
BPI, recalls the WSJ, faces a turning point in its life,
after the ECB has said in late 2014,
that the bank had to make a 'prohibitive capital increase'
or give up its' highly profitable Angolan unit
'because of its exposure to that former portuguese colony,
exceeded the regulatory limits.
"The issue is still unresolved."
The WSJ also looks at the BCP,
noting that their stocks and shares have depreciated more than 60%
since the beginning of the year,
due to concerns that it will also need more capital.
"According to Barclays,
the BCP improve the core capital ratio Tier 1 to 11%
(it was 10.1% in the first quarter),
increasing the coverage of non-performing loans
and repaid the State 750 million euro which were still outstanding,
but it may need a capital increase of around two billion euros. "
With all the abovementioned facts,
a "perfect storm" may be brewing in the banking sector in Portugal,
concludes the newspaper,
while it now expects the results that the BCP will release,
of the analysis of EBA, to its resilience.
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