The International Monetary Fund (IMF) is advising Portuguese banks to avoid ploughing all of their rising profits into dividends, instead calling for a strengthening of capital reserves as a “cushion” against a possible rise in bad debts and bankruptcies.
“Banks need to be capitalised, including Portuguese banks, and we suggest that in the current phase banks increase their own funds and capital reserves and refrain, as far as possible, from paying out all of the increase in profits in dividends,” said the IMF’s European director, Alfred Kammer, at a meeting with European journalists in Brussels.
At a time when banks such as BCP, Novobanco, Santander Totta and BPI have almost doubled their profits in the first nine months of the year compared to the same period last year, the IMF’s regional director warns that “times are going to get tougher” and that “additional buffers” are needed.
“As a result of the post-pandemic adjustment, we’re going to see an increase in bankruptcies, we’re going to see an increase in non-performing loans, and that’s all over Europe, it’s not a specific problem for Portugal,” he adds.
According to Alfred Kammer, this is a “normal” situation given the tight monetary policy with high interest rates, now stabilised by the European Central Bank, which is making access to finance more difficult and causing families and companies to pay more for their loans, especially housing loans.
“These upside risks are normal, […] but we also advise the Portuguese authorities to increase their systemic capital reserves to prepare for an increase in non-performing loans and bankruptcies,” he adds.
He warns that “as financial conditions tighten, financial tensions may emerge”, so “countries should closely monitor banks’ credit quality, leverage and liquidity risks, and increase capital reserves”.
The Regional Economic Outlook for Europe states that “although the European banking system has high levels of solvency and liquidity, banks in some countries hold substantial securities that could lead to a significant depletion of their own funds”.
This is the case in Portugal, which has one of the highest levels of variable-rate mortgages in Europe.
Nevertheless, Alfred Kammer is optimistic about the Portuguese economy, noting that “Portugal has had strong growth, reflecting the recovery in tourism” and also “efforts” to combat unemployment and invest in education.
“I think this is also reflected in our positive forecast for Portugal,” he adds, alluding to the fact that Portugal’s figures are better than those of the eurozone.
“Portugal has been very determined in the last three years to create buffers […] and that is certainly reflected in the positive assessment for Portugal and that makes us generally optimistic for growth in Portugal in the medium term, but of course in the short term it is suffering at the same time a slowdown in Europe […] and that is also reflected in our figures,” says Alfred Kammer.
The IMF expects the Portuguese economy to grow by 2.3 per cent this year and 1.5 per cent in 2024, with inflation falling to 5.3 per cent in 2023 and 3.4 per cent in 2024.
Original Story: CNN Portugal | Lusa /AM
Photo: IMF – Facebook
Translation and edition: Prime Yield