Banks buying public debt alarm ‘Troika’

  • ECO News
  • 5 June 2019

Historically low interest rates on public debt are appealing to the banks, but not without warnings from the IMF, European Commission and ECB.

Pushed by an unprecedented monetary policy in the Eurozone, the major Portuguese banks are now feeling more comfortable to invest in government bonds. However, this unprecedented monetary policy has raised concerns with the International Monetary Fund (IMF), the European Commission (EC) and the European Central Bank (ECB). From their perspective, Portugal is still vulnerable and any sudden increase in these bonds’ interest rate would cause a banking crisis.

Last year, CGD, BCP, Santander Totta, Novo Banco and BPI expanded their government bonds’ portfolio by 30%, holding now more than 21Bn€ in public debt. More than the number itself, it is the tendency that is worrying those external authorities. The amount of public debt held by banks went from 1% in 2008 to almost 9% in 2018.

The Bank of Portugal has assured ECO that “the exposure of the Portuguese banks to the public debt is a theme that is being followed”. That authority has also confirmed the tendency that has been observed by the IMF, the ECB and the EC.