Central bank governor denies involvement in granting of controversial loans

The governor of the Bank of Portugal said on Wednesday that during his term as a director of state bank Caixa Geral de Depósitos (CGD) he was not involved in making decisions on loans that have caused it major losses and that he only helped draw up an outline agreement on possible loans to the Vale do Lobo resort in the Algarve.

“Of the 25 major loans that generated impairments for Caixa I did not participate in any broader credit board,” the governor, Carlos Costa, said in an interview with Portugal’s SIC television, saying that this “is demonstrated” in the audit released earlier this month.

It was decided [that CGD] would only participate if there were at least two [financing] banks and that all the conditions of the risk department would [have to] be respected; it was a decision of principle.

On the loan to Vale do Lobo, Costa said that he did not take part in the loan board at which it was approved, but did in a previous meeting in which the conditions under which the bank might lend money to a future investor in the venture were decided.

“It was decided [that CGD] would only participate if there were at least two [financing] banks and that all the conditions of the risk department would [have to] be respected; it was a decision of principle,” said the governor, reiterating that he was not present at the meeting at which the loan was approved and that this decision was not in line with the principles previously agreed.

Costa, who was a member of the CGD board between 2004 and 2006, added that in his years as a director he never took part in any decisions detrimental to the bank.

“Between 2004 and 2006 I never witnessed any attitude or any movement that might harm the interests of Caixa Geral de Depósitos,” he maintained.

On Armando Vara, another former CGD director who is currently in prison for crimes investigated as part of the Face Oculta corruption case, Costa said that he was not a friend of his and that he bought a property in the Alentejo from him because “Caixa services identified the opportunity” and that he later became aware after he had bought it for a price several thousand euros above what had been initially sought by the estate agent.

On the fact that he spent summer holidays in Vale do Lobo at a time when the developer had already defaulted on its loan from CGD – one week in 2013 and another in 2014 – Costa said that his rental of a house there was done “in market conditions” with the resort’s commercial department.

Between 2004 and 2006 I never witnessed any attitude or any movement that might harm the interests of Caixa Geral de Depósitos.

An auditors’ report on the management of CGD between 2000 and 2015 – which revealed that loans had been granted on unsubstantiated grounds, bonuses given to managers who had performed poorly in terms of financial results, state interference and the approval of loans after experts had warned against this or set strict conditions to be met that were not – has caught up Costa as the then director responsible for marketing and international affairs.

The Left Bloc (BE) party last week submitted a draft resolution calling for a review of the governor’s suitability to remain in his post. He is expected to be among the first people called by the recently constituted parliamentary committee of inquiry into CGD.