Portugal’s “rapidly increasing” private business debt is a “time-bomb”

“The problem is serious. It’s a time-bomb,” writes financial news portal Dinheiro Vivo.

What it is referring to is the increasing level of debt among Portuguese private business.

At last count, national banks were owed a stultifying €13 billion, with “a third of businesses in Portugal (with bank loans) behind on their repayments”.

It’s the “serious” problem that led finance minister Maria Luís Albuquerque to appeal to Central Bank boss Mario Draghi earlier this year to extend the powers of the Bank of Portugal’s so-called Credit Mediator – a body set up to restructure debts.

As DV explains up until now, the Credit Mediator has helped private debtors, but “few” businesses have had any success with it, and thus their firms have “failed, causing ricochets throughout the banking sector which do not recover the debts due”.

Now Draghi has responded to Albuquerque’s plea, saying “ideally” a Credit Mediator should be set up “outside the competences of the Bank of Portugal”.

“Outside” because “the bridge between banks and companies is, in Draghi’s opinion, a function of governmental character”.

It is certainly not the answer that Albuquerque wanted and as DV points out she has already alerted Draghi to the fact that business debt threatens to “contaminate the (country’s) banking sector”.

According to the IMF, the situation and “persistent disincentives” and delays in agreements being reached between debtors and creditors “could aggravate the viability of the companies that survive”.

By NATASHA DONN [email protected]