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CGD President Does Not Expect Banks Will Return to Loose Credit

20 December 2017

The executive-president of the Caixa Geral de Depósitos (CGD) said today that the Portuguese banking system will not return to conditions of loose credit, as has occurred in the past, stating that the analysis of debtors is now more rigorous, as are regulatory requirements.

“We will not go back to what happened,” Paulo Macedo said during the Tenth Fora da Caixa (Outside the Box) Meeting in Lisbon, answering a question by the moderator Ricardo Costa, who is a journalist and general information director of the Imprensa group (SIC, Expresso), about whether banking is on its way to repeating the excesses of the past.

The chairman of CGD said that the banks had changed a lot in ten years, both in the more rigorous analysis of potential loan recipients and the “capital requirements” made by regulators, since certain types of loans can penalise liquidity ratios.

Besides, he said, there is less risk of debtors being faced with payment difficulties these days since interest rates are at historically low levels, so even if rates go up (which analysts expect to take place in 2019 or 2020), families and businesses will still have the capacity to accommodate these increases.

Paulo Macedo also said that the changes that the banks have undergone are not just related to the banking environment of ten years ago. Much has changed in the banking industry compared to merely two years ago, giving as an example the demands that the European Central Bank places on bank administrators and the rules that credit committees are demanding vis-à-vis conflicts of interest are different from what they ever were in the past.

The Bank of Portugal asked banks to maintain vigilance with regards to lending, especially housing loans, warning that many families may not be able to repay their debts in the future, and even announced that it was considering adopting measures to restrict access to credit to heavily indebted borrowers.

The president of the bank was also questioned about the impact of ‘fintech’ (technological companies offering financial services) on the traditional banks, saying that CGD has been investing in digitisation and information analysis systems to create products that will be better adapted to the new environment.

However, Paulo Macedo stated that one must know how to evaluate the areas in which ‘fintech’ want to act, considering that they are mainly interested in entering the banks’ profitable lines of business, such as payment services and fast credit (e.g. consumer credit).

“The fintechs flee like the devil from the cross from the banks’ core areas of activity,” he said, referring to deposits (since they are highly regulated and involve large amounts of capital) and medium and long-term loans.

“The traditional banks have to pay more attention to security, deposits, and look towards building lasting relationships,” he said.

Original Story: Notícias ao Minuto / Lusa

Photo: Global Imagens

Translation: Richard Turner