Brussels’ go-ahead on CGD’s dividends is still missing

  • ECO News
  • 17 October 2018

For the first time since 2010, the State expects to get a reimbursement from the public bank. The Commission and ECB's go-ahead is missing, and their endorsement of the transaction is binding.

The Ministry of Finance is counting on €365m income from dividends for next year’s state budget, according to the documents delivered this Monday. This value is believed to be resulting from the reimbursement of dividends from the Bank of Portugal and Caixa Geral de Depósitos (CGD), as the OE2019’s report also showed. However, the papers haven’t shown exactly how much each institution is due to pay the State.

“CGD has returned to profitable levels, and it is not unusual that its major shareholder, in this case, the State, gets a contribution from the return to profitability,” a source close to Mário Centeno told ECO. The same source noted that “the payment of dividends is still subject to many requirements, among which, I highlight the required endorsement from the European Commission and The European Central Bank, whose auditors must give the go-ahead to the operation”.

With the increase in state revenue of about €326m, the state is looking at an overall amount of €741m this year. In 2018, the Portuguese State had already been reimbursed with €415m in dividends, but only from the central bank, BdP. As for 2019, the public bank CGD will also be reimbursing the state.

This measure was not unexpected, and it was seen positively by both parties, and the need for authorizations from other entities had been highlighted as a crucial part of the process. As the bank returned to profitability — in 2017 CGD presented profits of €52m, after a first semester with €194m in profit –, the reimbursement of the main shareholder had a high likelihood of being executed.

The approvals have to be given, and especially after the State re-capitalized CGD through the payment of €4bn, it has to guarantee that such cash outflow will not severely damage the bank’s sustainability.

ECB must give its go-ahead, considering all the criteria and specifications of the bank’s level of capital.

“The dividend payment is going to reflect upon the solidity of the bank. We will see whether the bank is apt to reimburse the government by looking close at its ratios. Caixa must be extremely cautious because, in the event that the bank faces any instability, it will not be possible to get more funds from the market” the president of the executive board of CGD told ECO, on the 24th of September.

ECO contacted an official source from the public bank, questioning them about the amount CGD is expecting to pay next year, but our question was considered premature, given that the bank hasn’t yet presented any results for their third trimester.

Dividends are one of the state’s major income sources, providing the government with a way to compensate some of the measures taken and contributing to the lowering of the deficit.