At a European level, there is a debate ongoing within the European Banking Authority (EBA) about penalizing the banks with a NPL ratio above 5% which already led to opposition from the Portuguese Banking Association (PBA).
Last june, the association representing the Banks operating in Portugal stated that «there is no economic foundation» to distinguish banks with a NPL ratio bellow or above 5% from the total credit granted, arguing that «there is any study that determines that is from this level of NPL that there will be an impact on financial stability to finance the economy».
The PBA even queries the choose of the NPL as a «distinguishing factor», considering the need to «take into account other risk-mitigating factors» such as the default credit coverage levels and the collaterals values what, states the association, are of «particular importance» for the Portuguese banks.
“Besides, the option for the ratio penalizes those banks that have been making a deleveraging effort, such is the case of the Portuguese banking sector. The NPL amount reduction isn´t adequately reflected by the ratio when it occurs in a context of total credit reduction” said the entity led by Faria de Oliveira.
PBA also called for measures to be taken by the EBA to take into account the differences among the banking systems of each European Union country, whether or not there is a market that allows the sale of default credit portfolios.
Moreover, warned, the imposition of an accelerated reduction of bad debt would lead to the “sale of such assets to prices below their economic value», which would mean the destruction of capital and the transferring of that value to foreign investors”.

Original Story: Agência Lusa in Observador
Photo: FreeImages.com/Svilen Milev
Translation and Edition: Prime Yield