By: CHRIS GRAEME
NO PORTUGUESE banks are at risk of collapsing claimed the country’s four leading bankers on Monday evening.
In an unprecedented step, the presidents of Caixa Geral de Depósitos, Millennium bcp, BPI and Banco Espírito Santo appeared on national television to calm the general public’s nerves over the fate of their savings and pensions.
Appearing on RTP 1’s current affairs programme Prós & Contras (For & Against) all the bankers, Ricardo Salgado (BES), Fernando Ulrich (BPI), Faria de Oliveira (CGD) and Carlos Santos Ferreira (Millennium bcp), stressed that the problems in the Portuguese banking system resulted from a lack of confidence and liquidity and not because of risky investments.
The decision to put on a joint front, burying their bitter differences from failed mergers and financial scandals over the past 12 months, followed the Bank of Portugal’s decision to extend a line of credit backed by guarantees worth 20 billion euros in the medium term, representing 12 per cent of Portugal’s GNP, to get banks lending to one another.
Despite bankers maintaining that the Portuguese banking system was solid, the Portuguese central bank has taken two extraordinary measures.
Last week the Minister of Finance, Fernando Teixeira dos Santos, assured the Portuguese public that all their deposits in banks in Portugal were safe since the government would not allow a single Portuguese bank to collapse.
This was followed on Sunday, after a European Union wide strategy, by a guarantee to banks that they would get finance should they need it from a Recapitalisation Fund.
German banks got guarantees of up to 400 billion euros, with 80 billion worth of recapitalisation funds, Irish banks got 400 billion and 40 billion worth of funds, British banks were assured 350 billion, France 320 billion, Holland 200 billion, Spain 100 billion, and Austria 85 billion.
In a satellite broadcast speech shortly before the programme was aired, the President of the European Commission, José Manuel Durão Barroso, said the measures were designed not to “allow the financial markets, the economies and investment to go under”.
“Europe succeeded in responding relatively quickly to the crisis” but what had “clearly failed were the public supervision authorities in the United States and Europe. “We can’t just say that this was a United States error, it was Europe’s fault as well.”
“The government’s action was positive in that it is a commitment from the authorities to the economy and financial system and will be important if the markets continue to be shut down, in helping inject confidence into the system,” said Fernando Ulrich, the President of BPI, who added that “Portugal did not have a liquidity problem.”
He said that Portugal was far away from the hurricane and its banks had not invested significantly in high risk loans.
That was why, unlike what had happened in some European countries, the government’s offer to inject capital into the banks was not aimed at saving the system but keeping liquidity and credit lines open.
Ricardo Salgado (BES) said that the Portuguese had been sensible in their borrowing and went on to praise the Portuguese banking system in its lending behaviour and mortgage concessions adding that the banks had “played an excellent role.”
He said that only a small percentage of debt had been defaulted on and that the largest slice of debt in Portugal resulted from mortgages and personal loans rather than consumer spending and credit cards.
“We did not have a boil waiting to burst in the property area. Mortgage lending and property prices have been relatively stable in the last few years and the kind of sub-prime lending seen in the United States isn’t applicable here,” he stressed.
It was an opinion backed up by Fernando Ulrich, the President of BPI who said that the last two or three years had seen “fairly balanced credit growth for both mortgages and companies.”
But Faria de Oliveira (CGD) believed that even with the measures announced by European governments wouldn’t be sufficient to stave off “problems in liquidity and financing.”
“A lot will change in the financial system, particularly with regards to the risk model and criteria for obtaining credit,” he warned, admitting that the measures announced by European governments were “clear, coherent, and apparently effective.”
On criticisms over bank director fat cat salaries and bonuses, Ricardo Salgado, President of BES, said bonuses and salaries were well behind those in the United States which were “scandalous” and considerably lower than in Spain.
Following the decisions taken over the weekend by European Central Banks and the Bank of Portugal to provide lines of liquidity worth billions of Euros to the financial sector, the Lisbon Stock Market shot up 10.20 per cent at the close of business on Monday, while Euribor lending interest rates fell a welcome 6.4 points for a six month period – the timeframe most used for calculating mortgage interest rates in Portugal.
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