The Portuguese Banks have eliminated about one-fifth of bad debts from their balance sheets during 2017, reducing total Non-Performing Loans (NPLs) to €37 billion (bn), stated Banco de Portugal (the Portuguese Central Bank) in its latest Financial Stability Report (FSR), released earlier this month. According to the institution, it is a “very significant” reduction of this burden that penalizes the profitability of banks and is one of the most – if not the most – important risks to the stability of the financial system. Therefore, Banco de Portugal stresses that efforts for reduction must continue, taking advantage of the more favourable conditions generated by lower interest rates and booming foreign investment in Portugal.

Besides releasing the value of the NPL stock in Portugal – €37 bn as for the end of 2017 – Banco de Portugal also explains how the €9,3 bn reduction has been done. One of the main reasons was the volume of loan writte-offs (meaning, the use of capital to recognize losses), mainly possible due to the capital reinforcement in banks such as Caixa Geral de Depósitos, Millennium bcp or Montepio. Also strongly impacting was the sale of NPLs portfolios to other investors. In addition, national banks also managed to recover some values previously assumed as risk loans, but that were recovered – that being the case mainly in household segment.

Reflecting these effects, Portuguese banks have reduced NPL ratio to 13.3%, a level significantly lower than the 17.2% recorded by the end of 2016. “It’s essential that Portuguese banks continue to follow the plans for reducing NPLs that were submitted to the regulatory authorities. This will put them in a more favourable position when accessing the international financial markets”, highlights Banco de Portugal in this document.

Original Story: Observador (Edgar Caetano)
Photograph: Tiago Petinga/LUSA
Translation and Edition: Prime Yield