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Loans to SMEs become scarce as Troika squeezes bank credit

By CHRIS GRAEME [email protected]

Loans to struggling Small and Medium Enterprises (SMEs) in Portugal are set to get more difficult to obtain as the Troika tightens credit line rules to Portuguese banks.

Experts from the International Monetary Fund (IMF), European Central Bank (ECB) and European Commission (EC) are to make supervisory visits to Portugal’s main banks in September to analyse the loans that have been made and ensure that only worthwhile ones have been granted to companies.

It means that the lending criteria to both families and companies will become even more difficult than it already is as the Troika teams examine each and every loan made by the banks to ensure that no creative accounting tricks have been made to cover up defaulted loans.

If there is any doubt in terms of credit and liquidity provision to companies and private or public entities, then further guarantees will be insisted upon if the loan is not to be called in.

At the same time, less cash will be made available to loan out to any but the securest, sure-fire loan bets to companies.

There are already various technical experts from the Troika at all the nation’s main banks analysing their financial health in terms of assets, capital, liquidity and healthy and toxic loans.

Under the terms of the Memorandum of Understanding signed between the Portuguese State and the Troika three months ago, Portuguese banks have to beef up their capital ratios to nine per cent by the end of 2011.

That means, in simple terms, that for every €100 lent out, a bank must have around €9 of liquidity.

But according to some official sources, the Portuguese banking system will only be able to achieve those ratios with the help of €12 billion from the bailout package granted by the Troika.

The IMF is heading the team of financial wizards whose mission it is to define the rules for access to the recapitalisation fund lifeline for Portuguese banks which can no longer afford to borrow money on the international markets at favourable rates.

Even so, the country’s main banks – CGD, BES, Santander Totta, Millennium bcp, BPI and Montepio – did pass their stress tests earlier this year which evaluated the overall health of the banks to withstand a crisis.

But the official source admitted to several news sources over the weekend that not all Portuguese banks were in the same state and would not all have to submit to the same rules enshrined in the memorandum.

In July, the President of Banco Espírito Santo (BES), Ricardo Salgado, said that he hoped the Troika would not use “fundamentalist methods” to evaluate the nation’s banks.

According to information released by the Bank of Portugal (BdP) in June, the nation’s banks granted less than €338 million in loans to families and companies, particularly slashing mortgage lending.

In private, leading bankers are said to be critical of the recapitalisation fund and claim they would only use it if forced to because it could result in nationalisation or state interference and shareholders would suffer.

However, debts owed by the Portuguese banking sector to the European Central Bank (ECB) already top €50 billion and the country’s banks are still considered short of liquidity – a situation they have been suffering from since 2007.

Up until June, the ECB received credit requests from 78 European banks for record cash injections of between €123 and €200 billion.

When the requests for cash are met by the ECB, the institution charges a low interest rate of around 1.2%.