NPL&REO News

Portuguese Banks promise to reduce NPL ratio from 22% to 10% by 2021

Regulators believe that plans presented by the major national Banks are “ambitious but realistic”. For the moment, the implementation is in line with the planning, although the impact on tackling NPL is still to be assessed.

The six Portuguese banks most affected by bad debt issues – including CGD, BCP and Novo Banco – have committed with regulators to reduce by more than 10 percentage points (pp) their Non-Performing Loans (NPL) ratio. “These banks had an average NPL ratio of 22% as of December 2016, and estimate to bring it down to 10% by 2021″, as stated in the Troika’s post-programme report disclosed by the European Commission this Friday, 19th January, and which is focused on the mission that took place in Portugal between 29th November and 6th December.

NPL ratio is one of the main issues concerning the Portuguese Banks, as it requires higher provisions (thus affecting capital solidity) and also because it hinders the use of resources that could go to productive loans. Therefore, Banks had to submit NPL reduction plans to both national and European regulators, namely Banco de Portugal and European Central Bank. As stated in the reported, such measures include the sale of NPLs portfolios – which is already taking place – and also via repossessions and foreclosures. Strategically, Banks are mainly focusing in tackling the sale of NPL originated in non-financial corporations.

“The Banco de Portugal and the Single Supervisory Mechanism (led by the European Central Bank) see the plans as ambitious, but realistic, and so far the implementation is well underway,” the European Commission stresses in the report.

One of the strategies pursued in this area was the creation of a joint NPL management platform between CGD, BCP and Novo Banco, the banks with the highest NPL volume, which were also available to receive other competitors. The management of the platform, which is yet to be implemented, is integrated, in order to allow these institutions to work together when dealing with common debtors. Nevertheless, the credits will remain on the Banks’ balance sheet, leading Brussels to consider that this platform will not be a significant driver for changing this situation. Portuguese banking system has been reducing bad debt, reaching a total NPL stock of €40 billion as of September 2017, after a fall of €10,5 billion. However, since the total granted loans have also been declining, the NPL ratio failed to decrease significantly, sitting at 14.6% – but this is a figure that referrers to the entire Banking system and not only to the major Banks.

European Commission considers that each Bank’s individual plans for reduce NPL, the legal Framework concerning Corporate insolvency and recovery, as well as the monitoring of Supervising authorities could help to boost the reduction of NPL. But “is yet to early for assessing the efficiency of NPL’s reduction strategy. This could only be done when all the measures are in the implementation phase and begin to take effect”, concludes the report.

Original Story: Jornal de Negócios (Diogo Cavaleiro/Miguel Baltazar)
Translation and Edition: Prime Yield

Top