By: CHRIS GRAEME
CREDIT WILL get costlier, savings interest rates will be lower and business will become more difficult to fund thanks to the worldwide sub-prime crisis claimed a leading banker.
This was the stark and sober warning from Barclays Bank (Portugal) Executive Commission President, Peter S. Mottek, to members of the British-Portuguese Chamber of Commerce on Friday.
Worldwide losses from risky mortgages could eventually cost financial lenders 300 billion dollars while a meltdown in the Spanish property development, housing market and construction industry could have a serious knock-on effect for Portuguese business and lending.
For too long interest savings rates had been artificially high while loans to business and mortgages had been too cheap. That, he said, would change as a consequence as banks became jittery about lending from their 10 per cent capital pots.
However, Peter Mottek did sound a note of optimism by adding that Portuguese banks and companies could “navigate the hot waters”. “True leaders are like tea bags, appreciated mostly for their content, especially when standing in a lot of hot water!” he joked.
This was certainly the case for today’s world leaders in the international banking industry. “History may eventually show that the financial crisis that we’ve been experiencing today across the globe is of possibly historic proportions, comparable with the depression of the 1930s, and certainly comparable to the inflationary times of the 1970s,” he warned.
While not felt directly here in Portugal yet, the level of uncertainty in the market today at a global level was “truly unprecedented”. To the chagrin of most bankers, the market in Portugal had been artificially inexpensive on loans and artificially robust on savings.
“Personal savings and business savings are earning much higher interest rates and customers are able to borrow money at artificially low levels,” explained Peter Mottek.
“We think this is going to change because we think the banks can no longer afford to lend to the market below the risk level that the market presents today,” he warned.
As to the near future: competition had been so heavy and so strong that the appetite for growth and new business has continued to be high. “We think in the near term clients can still enjoy getting loans at discount rates and getting savings at inflated rates – but it won’t last.”
Another issue was Spain: a real estate meltdown in Spain could have a knock-on effect but not necessarily as serious in Portugal, “because we haven’t had the ‘ramp-up’ on values that we have seen in the rest of Iberia,” he explained.
If a significant shift in home values is experienced in Spain that would impact on Portugal in three areas: second home sales would fall, new construction would go down, new financing would become more challenging, and there could be some impact on tourism.
Business and banks alike are facing a very challenging time ahead, as a result of this financial crisis, and it meant that leadership was “going to have to prevail”. The good news is that Portugal has outstanding leadership.
“As we (Barclays) begin our 23rd year in Portugal, I expect that we’ll be able to navigate these waters; we’ll still be able to continue to succeed, no matter how hot the water gets,” Peter S. Mottek concluded.
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