THE PORTUGUESE banking system has given the government short shrift after the Finance Minister ordered it to start lending or face having credit guarantees withdrawn.
Finance Minister Fernando Teixeira dos Santos, under pressure from associations representing small and medium-sized businesses (SMEs), has told the banking system that with state guarantees underpinning bank-to-bank loans, Portuguese banks can now go and borrow capital to lend on the international money markets.
But despite not making any official statements, the banks aren’t budging after the European Central Bank downgraded the value of Portuguese government backing worth two billion euros on a key loan to Caixa Geral de Depósitos to only 1.2 billion euros.
In other words, the European Central Banks don’t believe that the Portuguese state is as financially sound as it claims it is.
Back in November, the Portuguese government pledged, in line with other European Union countries, to back bank credit loans on the international market for the nations banking system to the tune of 20 billion euros.
The government now says that with such backing, there is no reason why Portuguese banks can’t start lending to their clients at reasonable market rates again.
Instead, Portuguese banks are either charging exorbitant interest rates to lend or are only lending short-term – at a rate of days, weeks or a few months rather than years.
Now, the finance minister has admitted that the government may have to re-think its system of guarantees offered to the banking system, penalising those that don’t or won’t lend.
Officially, the line from the Portuguese Banking Association is that its members are not putting the brakes on loans to small and medium companies.
But according to anonymous banking sources quoted in the daily paper, Diário de Notícias, the comments by the Finance Minister on Tuesday evening can only be interpreted as a way of “encouraging SMEs to negotiate with the banks for credit lines to supply their businesses”.
According to business associations, some banks are using the government-backed credit lines to either shore up their own balance sheets or lend only to pre-existing clients, allowing those clients to liquidate their loans and take out new ones at new, harsher rates of up to 2.5 percentage points because of the dearth in liquidity and increased risk.
Up until now, only Caixa Geral de Depósitos (CGD) has used government-backed guarantees by issuing a 1.2 billion euro bond – the most it managed to borrow from the market.
Apart from the government-owned bank, both Millennium bcp and Banco Espírito Santo (BES) have now stated the intention to use the state-backed assurance to borrow on the open market, even though neither institution has yet done so in practice.
“The Finance Minister’s threats to remove guarantees for credit will only serve to create a negative financial image of Portugal on the international money markets,” said a senior banking source.
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