By Axel Bugge
LISBON, Jun 1 : Portugal’s banks are vulnerable to takeovers due to their low profitability, as they struggle to grow under the weight of large non-performing loans, Bank of Portugal governor Carlos Costa wrote today.
In an opinion piece published in business daily Jornal de Negocios, Costa said the banking system had no solvency problems but needed to return to growth to take part in European banking consolidation on a more equal footing.
Spain’s Caixabank launched a bid for Banco BPI, Portugal’s second largest listed bank, in an attempt to take over the 56 percent of the bank it does not already own.
He wrote that there is a risk that “we will have banks sufficiently capitalized for the volume of business they have, but with low profitability, and as a consequence incapable of growing.” “This reality penalises the price to book value, generating vulnerability to takeovers and a risk that the national banking system gets caught in a consolidation process at the European level at a high discount,” Costa wrote.
Portuguese banks have suffered in recent years, especially during the country’s 2011-2014 bailout. The sector’s total bad loans, or credit at risk, currently reaches 31 billion euros, representing 12 percent of total credit to the economy.
Spain’s Caixabank launched a bid for Banco BPI in April, Portugal’s second largest listed bank, in an attempt to take over the 56 percent of the bank it does not already own.
The country’s second largest listed bank at the time, Banco Espirito Santo, collapsed in 2014 and had to be rescued. The rescue led to the creation of ‘good bank’ Novo Banco, which the central bank is currently trying to sell.
In December, another bank – Madeira-based Banif – had to be rescued in a 2.2-billion-euro bailout.
Costa wrote that “one of the essential measures to return (banks) to profitability is to extract from the balance sheets non-productive assets through the sale or transfer to a vehicle that takes over the management and recovery of their value.” The government has also proposed the creation of a fund, or ‘bad bank’, to take on the banking sector’s non-performing loans.