Bad bank for NPL? “Portugal cannot afford it”, states Mint
There is a 120 billion euros problem in Southern European banking. Mint states that transferring NPL to bad banks and hedge funds could be the solution, but Portugal cannot afford a bad bank.
The Portuguese Government has “little finance available for the state provision of a bad bank to take on the NPLs held by the nation’s banks”. This vehicle could be the solution for these toxic assets which weigh in on Southern European financial institutions’ profitability: according to Mint Partners, the burden is 120 billion euros. In Portugal, Novo Banco has the largest NPL ratio.
“As Portugal’s debt to GDP ratio is at 130%, the government’s ability to recapitalise and bail-out banks, as it did with Caixa Geral de Depositos at the end of last year, is limited”, according to a Mint report ECO accessed. The Portuguese Government has, therefore, “little finance available” to create a “bad bank”. António Costa had already denied this option, and presented a solution to banks which is still to be more detailed.
Bill Blain and Ben Stheeman from Mint, warn against the fact that non-performing loans are a burden that puts the European banking sector “in a precarious situation”. They add the solution is precisely to transfer those toxic assets from the bank’s balances to hedge funds or ‘bad banks’ financed by public funds. Recently, CGD sold an almost 500 million euros’ NPL portfolio to Bain Capital.
As Portugal’s debt to GDP ratio is at 130%, the government’s ability to recapitalise and bail-out banks, as it did with Caixa Geral de Depositos at the end of last year, is limited.
Nonetheless, experts warn this is not enough: “Action needs to be taken to reduce the load of NPLs weighing down banks, but it would be wrong to believe this would signal the end of Southern Europe’s NPL problem”, they state. “These NPLs will not be eliminated, only relocated. Such a strategy risks failing to account for these loans remaining in the financial sector”, state Mint’s experts.
“Resolving Europe’s NPL problem will require a change in policy”, those analysts state, warning that in addition to NPL, there are other issues to be solved in the Euro Area banking. They believe there are significant differences between European resolution rules and the individual action of each country. “In its current form, the ECB’s banking regulation will not suitably deal with a European banking crisis”.
