Despite the progress in NPL reduction in Portugal, the country's bad debt level is still one of the highest in the Euro Zone. European Stability Mechanism (ESM) says it is crucial to reduce it.
The European Stability Mechanism noted this Thursday that despite the progress achieved by the Portuguese financial system, in terms of reducing NPL portfolio, the country still presents a very high level of non performing loans, indeed one of the highest in the eurozone, and said it is now vital for Portugal to work on enhancing asset quality.
Matjaž Sušec, the assistant director of the Strategy and Institutional Relations of the ESM, noted this Thursday, at a conference organized by Fitch in Lisbon, that the national banking sector is definitely more resilient, “but some of the challenges are still there”, reminding the audience of the steps that allowed for more financial stability to be reached.
Four recapitalizations allowed for the banking system to go through a major “clean-up” of its accounts, and NPL level is 1/3 below the peak recorded in 2016, and in 2018, the country’s banking system presented its best results since the crisis. However, regardless of these signs of progress “Portugal still presents very high levels of NPL, one of the highest in the Eurozone”, Sušec added.
For the ESM’s director, “enhancing asset quality a very important step if we want to improve the banking system’s resilience and its capacity to finance the economy”.
The specialist also noted that the debt pile of the country was still very high, but that the current recovery has allowed for the country to have a larger fiscal buffer, as fiscal revenue increases and debt progressively decreases.
During his speech, the ESM’s representant noted that Portugal has reinforced its status as a country which “successfully overcame the crisis” and that the country’s positive economic performance has opened the door to new financial markets, making it “less vulnerable to shocks”.
In his presentation, he noted how the country’s GDP had accelerated, reaching a 2.8% growth rate in 2017 and adding that the expected slowdown is deeply connected ” with the economic cycle lived in the Euro area”. He also noted that exports had a slightly negative contribution to economic growth, especially if we look at the weight of imports, which also softly outweighs that of exports — but, there was a considerably high increase in exports as well.
Exports are expected to continue presenting good results, but at a slower pace, given “the external market conditions and the moderate growth in tourism”.
Sušec also praised the results achieved in terms of the labour market conditions and the work that was done to improve the market access, alongside the improvements from all the main rating agencies.
As for future challenges, the director noted that there is a need to maintain the current trust from investors, continuing to pursue active reform policies. Also, productivity should increase, and become a driver for economic growth, Sušec noted.