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CGD Announces That NPLs Fell to 9% of its Total Credit Portfolio
26 April 2018
“In 10 years, will the banks and fintechs be disputing who controls the last mile?” Nuno Sebastiao da Feedzai queried in a debate in the program Negócios da Semana. Paulo Macedo, Nuno Amado and Anónio Ramalho also participated in the forum.
Paulo Macedo stated at the SIC Notícias Negócios da Semana that Caixa Geral de Depósitos’s NPL (Non-Performing Loan) ratio has already reached 9% (at the end of 2017 it was 12.1%). The bank has managed to reduce its bad debts “well beyond [our] Strategic Plan,” the CEO of the state-owned bank stated.
Nevertheless, CGD’s ratio compares poorly with the European average of around 5%.
“The banks have been making very significant efforts,” the banker who recalled that “this was a decade of losses for the Portuguese banking sector,” explained.
Portuguese banks have clear targets for reducing their NPL ratios, “but we must strike the right balance between the selling the loans and protecting their value. Otherwise, we run the risk of crystallising our losses. Banks have to understand how to recover the loans,” Mr Macedo argued.
In the SIC Program, the debate was between Paulo Macedo (CGD); Nuno Amado (CEO of BCP); António Ramalho (CEO of Novo Banco) and Nuno Sebastião (CEO of the fintech Feedzai). Feedzai is a company that combats fraud in payment systems using artificial intelligence. It was created less than ten years ago and already has sales exceeding 35 million dollars. The company is headquartered in Coimbra, though its CEO, Nuno Sebastião, lives in the United States.
Regarding BCP’s bad debts, Nuno Amado said that “we have to strike a balance between reducing NPLs and defending the interests of the bank and the economy.”
While BCP decreased its outstanding NPLs by €1.8 billion, the bank’s bad debt ratio continues to be very elevated. “This year we have the objective of greatly reducing our NPLs, but we have to do it in an organised way so as not to transfer profits, capital gains and the shareholders’ capital to external investors,” Mr Amado stated.
BCP’s president said that delays in Portugal’s justice system “affect the NPLs.” “Recovery proceedings take a year to complete in the Netherlands, while the average for the European Union take two years, and, in Portugal, the proceedings take five years. Therefore, the NPL stock obviously stays higher in Portugal,” he said. Mr Amado added an appeal for the government to streamline judicial proceedings to support the economy and aid in the reduction of NPLs.
Meanwhile, António Ramalho stated that Portugal’s financial system has a level of NPLs that is more than the EU average. “At the end of 2017 the average ratio of Portuguese banks stood at 13.3%, well above the European average of 3.6% and the Spanish banks’ average of 4.8%,” Novo Banco’s president said.
Nevertheless, Mr Ramalho said, Novo Banco managed to reduce its stock of NPLs by €2.4 billion in 2017. However, the executive did not explain whether this reduction came through impairments, portfolio sales or recoveries.
“Portugal is one of the European countries that most reduced its NPLs,” Mr Ramalho said.
However, “we can not harm clients that are recoverable,” he said.
António Ramalho expects the banks to sell NPL. “There will come a time when NPL sales are needed to accelerate our alignment with the European average and accelerate the reduction of capital requirements for banks,” he stated. “This is especially the case, when I see that last year the three largest sellers of NPLs were Santander (15 billion euros), the United Kingdom’s state-owned vehicle which had absorbed the bad debts of the banks during interventions and BBVA, which sold NPL portfolios worth €13 billion,” he added.
The CEO of Novo Banco said that the sales are essential for banks to reduce their NPL ratios to the single digits, “which is the quality of the Portuguese loan portfolio that would lead local banks to have values that are equivalent to any other European bank,” he said.
Nuno Sebastião, in turn, said that US investors are reluctant to invest in Portugal because they fear that if something goes wrong, they will not be able to recover the money quickly because of the slow judicial system.
“For a fund that is raising funds, which is a three-week process in the United States, including due diligence and the formalisation of documents, takes three months in Portugal. After three months, the market has changed,” the CEO of Feedzai stated.
“In 10 years, will the banks and fintechs be disputing who controls the last mile?”
José Gomes Ferreira later spoke of the issue of competition between fintechs and banks.
Paulo Macedo repeated what he has also said several times. “All banks are fintechs” and “Fintechs avoid deposits because they require capital and incur regulation.”
“CGD is committed to increasing its digital customer base, and we want to reach 1.5 million euros soon,” he said.
Nuno Amado, in turn, guaranteed that BCP would invest in automation, digitisation and customer analysis, and spoke of the possibility of partnerships with traditional companies or even with fintechs.
However, ” in order to safeguard our customers, we will not provide data beyond what is legally required,” he said.
The CEO of Novo Banco pointed out that Portuguese banks have a long tradition in technology.
However, he also warned of a cultural issue and gave an example. While Europe raised 2.7 billion euros through crowdfunding last year, Asia raised 200.8 billion euros.
Nuno Sebastião explained that clients are the biggest customers of the banks and in 10 years the same thing will happen to them as happened to the telecoms. That is, the focus of competition will be to control the last mile, that is, direct contact with the client. “This is where the banks are threatened,” he said.
He then said that Starbucks is, in practice, “a bank that sells coffee.” This is because of the loans they grant to customers through their gift cards. “It has a larger balance sheet than most European or even US banks.”
“Who controls the contact with the customers? This is where the banks will be threatened,” the CEO of Feedzai stated. “Some banks are already retreating from direct contact with customers, falling back to contact through digital media, among others,” he said, adding that the banks will continue to be depositories for funds.”
Beyond these, other themes were also addressed, such as the question of public and private debt. Ramalho’s statements in that regard were of particular interest. The executive stated that “We are nearing the end of an interest rate cycle, which has benefited from both optimism about the Portuguese economy by rating agencies; and on the other hand, the monetary stimuli that allowed [the banks] to work with very low-interest rates.”
“This means that the direction of interest rates will soon change. It is therefore normal for risk premiums to be reassessed,” he warned.
“We have to take advantage of this moment, from a tactical point of view, to reduce our quality of life. For public debt can act as a contagion to the external debt. Moreover, the debt of individuals is still particularly high,” said Antonio Ramalho.
Paulo Macedo, on the other hand, pointed out that it is not possible to have a public spending levy without a high tax burden. However, he admitted that he believes that incentives are lacking for company investments.
Nuno Amado agreed that Portugal needs investment and that [the government] should reinforce the tax privileges of those who invest in creating wealth and employment.
On the same topic of fiscal competitiveness, António Ramalho recalled the tax burden for companies in Spain. “There is a difference of 2.9% in the tax burden between Portugal and Spain due mainly to indirect taxes (from 15% in Portugal to 11.6% in Spain). “We may have some diversion of wealth.”
Nuno Sebastião said that if Portugal wants to attract companies headquarters and not back offices of the same companies, it must improve the competitiveness of its taxes.
Original Story: Jornal Econômico – Maria Teixeira Alves
Photo: Cristina Bernardo
Translation: Richard Turner