Postponing solution for non-performing loans is a “risky strategy”

The OECD states that postponing a solution to solve NPL’s is a “risky strategy” which compromises investment, banks’ health and economic growth; the organizations urges authorities do more to solve the issue.

“Betting on time to solve the issue [NPL] is also a risky strategy, not only because it compromises the health of bank balance sheets, but also because investment and growth could be held hostage for years to come“, is stated in the OECD Economic Survey about Portugal, disclosed this Monday. The institution believes Portuguese authorities should “play an active role” to help banks clean up their balance sheets, but they acknowledge that state aid must be carefully balanced, due to the narrow budgetary margin for this kind of public intervention.

Aside from highlighting the fact that banking continues to be limited by weak profitability and the high level of non-performing loans, the OECD emphasizes that the fragility of the banking system needs to be solved “sooner rather than later to reduce fiscal risks and restore credit growth”. The OECD also states that successfully implementing “a more determined policy stance towards reducing corporate debt and repairing banks’balance sheets could restore confidence and allow more resources to flow into new productive investment”.

In their report, the OECD concluded that in the second quarter of 2016, out of a sample of 21 countries belonging to the organization, Portugal was the fourth country in which non-performing loans were more significant (around 13%) when compared to the loans granted — following Ireland (15%), Italy (37%) and Greece (37%).