Portugal’s three biggest banks have come up with a plan of how to deal with corporate borrowers who owe them tens of billions of euros.
Deputy finance minister Ricardo Mourinho Félix told Reuters yesterday that the plan involves State bank Caixa Geral de Depósitos, Novo Banco and Millennium setting up what he described as a “private platform to manage loans” to the extent that borrowers could get back on their feet.
It’s a novel approach that “would avoid the need of a government backed ‘bad bank’ – a mechanism used by Spain and Ireland during Europe’s debt crisis at a heavy cost to taxpayers”, said Reuters.
The “bad loans” in question are “one of the biggest debt piles in European banking”.
Says Reuters, they amount to a “total of €25 – €30 billion”.
Analysts are hopeful but wary.
Said Filipe Garcia head of consultancy Informação de Mercados Financeiros: “An initial analysis is that this is positive because many bad loans are with the main banks and if this tool works, it could save viable companies and be crucial for the banks to continue cleaning their non-performing loans”.
But concerns persist that the banking sector has only provisioned for “about half of total bad loans”, says Reuters, in which case more “writedowns” (slightly different from a write off, but still not good in banking) “may still be needed”.
For now, Mourinho Félix’ news has not heralded any further explanation from the banks involved.
The deputy minister told Reuters that the ‘big three’ are preparing the necessary documents already, and the “new body should start operating by the year-end”, adding that “the government would not provide any guarantee for the loans to be jointly managed”.
This sounds positive, but CGD is not a private bank, it belongs to the State which is also the government.