Portuguese banks’ Bad Debts “Causing Significant Unease Abroad”

18 May 2018

The chairman of Lloyds Bank praised Portuguese banks’ efforts to solve the problem of non-performing loans but warned that more needs to be done. The high level [of bad debts] creates “unease” [in external markets], he stated.

António Horta Osório acknowledged that the Portuguese banking sector has made significant strides. However, the president of Lloyds Bank believes that more needs to be done, including the continued reduction to the elevated levels of bad debts, which weigh on profitability in the banking sector, leading to “unease” outside [of the country].

Looking ahead, Horta Osorio warned that three issues need to be addressed: the country’s debt, demographic issues and the banking sector. “The industry has made significant progress strengthening capital and deleveraging, but improvements to asset quality are still needed,” the president of Lloyds Bank stated at the conference “Banking and Insurance: The Future of Money,” sponsored by TSF and Dinheiro Vivo.

The executive praised the banks’ efforts to reduce the level of toxic assets on their balance sheets while noting that this “cleanup” has been faster in other countries. “Spain has been resolving [the situation] more rapidly. Italy and Portugal are also down, which is a good thing,” Horta Osório said, noting, however, that “NPLs still account for 15% of total loans” in Portugal. That’s why more needs to be done.

“It is very relevant because it is causing significant unease abroad,” the executive warned, because if this issue is not resolved, it may lead to the need for additional provisioning. “It is very important to continue in this direction so that the banking sector is no longer exposed to external shocks that may lead to an increase in non-performing loans,” Horta Osório noted.

Costa managed to continue Passos Coelho’s reforms

The president of the British bank believes that what is “happening in macroeconomic terms is very important for the banking sector.” Moreover, in that area, there have been improvements. “Portugal had the best economic performance of the peripheral countries in the last ten years,” he says. “We have seen balanced external accounts for about five years,” the unemployment rate “is at levels lower than those at the beginning of the crisis,” and public debt is declining at the same time as the country is growing.

This trend “represents a very clear tribute to the actions taken by the government of Pedro Passos Coelho, which was able to take the necessary measures” and shows the “importance of António Costa’s government maintaining that trajectory.”

Original Story: Economia Online – Rita Atalaia

Translation: Richard Turner