* Angola admits "bad" loans in local unit's credit portfolio
* Opposition leader questions state guarantee for BESA loans
* BES Angola has links to ruling elite and leader's family
* Central banker denies any favouritism in BESA loans
By Shrikesh Laxmidas and Pascal Fletcher
LISBON/JOHANNESBURG, July 18 Angola has broken
its silence over its connection to Portugal's troubled Banco
Espirito Santo, but its admission of bad loans in the
local subsidiary focuses attention on a generous state guarantee
covering most of this flawed loan portfolio.
The crisis affecting one of Portugal's best-known banking
institutions had highlighted its exposure in
former colony Angola, where subsidiary BES Angola (BESA) is a
major financial player with links to the ruling elite and family
of President Jose Eduardo dos Santos.
After maintaining a conspicuous silence over the BES crisis,
Angolan central bank governor Jose de Lima Massano admitted to
parliament on Thursday there were problems with BESA's credit
portfolio, including operations he described as "bad" and "in an
irregular state". He provided no figures or ratios.
In his comments, which were only made available to media on
Friday, Massano sought to play down the impact of BES's problems
in Africa's No. 2 oil producer, saying BESA's problematic credit
portfolio posed no threat to Angola's financial stability.
But while saying customers' deposits with BESA were not at
risk, Massano made no mention of the guarantee extended by the
Angolan state in December, and reported by BES, to cover 70
percent of the loan portfolio of the Angolan affiliate.
In its 2013 accounts report published this week, BESA said
the Angolan state guarantee, granted on the last day of 2013 and
lasting 18 months, covered $5.7 billion of loans out of a total
of $8.1 billion.
Bank of Portugal Governor Carlos Costa said the Angolan
guarantee helped to eliminate uncertainty.
But Isaias Samakuva, leader of Angola's main opposition
party UNITA, asked President Dos Santos to explain why the
guarantee for BESA - which Samakuva said covered more than $5
billion in "bad credit" - was granted, arguing it may have
breached legal national budget limits for such guarantees.
"Yet in spite of this, we see roads halted, without repairs,
because the contractors say they haven't received money and some
have even withdrawn their machinery," he said, referring to
credit and cashflow problems experienced by some construction
and real estate firms in Angola as economic growth has slowed.
The IMF sees Angola's real GDP growth slowing this year to
3.9 percent from 4.1 percent in 2013 and 5.2 percent in 2012,
due to a temporary drop in oil production in the first half of
the year and slower agricultural output. But gross international
reserves were at a "comfortable" $31.2 billion at end-May.
UNITA's Samakuva said the national assembly should look into
the state guarantee for BESA, amid reports in the Portuguese and
Angolan private media that the Angolan bank lacked solid
information and documentation on billions of dollars of loans.
According to the BESA website, parent bank BES currently
holds a 55.71 percent stake in the Angolan affiliate.
When asked about the Angolan guarantee for BESA's loans, and
how it was granted, Angola's presidency spokesman Aldomiro Vaz
da Conceicao said: "No, no, I can't talk to you about this. You
have to speak to the governor of the central bank and the
Besides referring to Massano's comments in parliament,
neither the central bank, nor the finance ministry responded to
specific questions about the Angolan state guarantee.
BESA has links to the Angolan ruling elite.
The Angolan bank was set up in 2002. Two years later, BES
sold 19 percent of BESA to GENI, controlled by Isabel dos
Santos, the president's billionaire businesswoman daughter.
In 2009, it sold 24 percent of the Angolan unit to Portmill,
a company linked to Angolan Vice-President Manuel Vicente and
General Manuel Helder Vieira Dias Jr. "Kopelipa", a military
adviser to Dos Santos and powerful figure in Angolan politics.
Apparently seeking to deflect any suggestions that loans
conceded by BESA might have involved political favouritism,
Massano told parliament: "I can say we didn't identify elements
indicating any favouring of credit to specific citizens or
entities, ... We have debtors here from all levels".
Angola has rebuilt itself after a 27-year civil war ended in
2002, but analysts say the economy is too reliant on the state
and on oil production, which is Africa's highest after Nigeria.
Many of Angola's banks have been hit by a surge in bad loans
in the last two years as the oil-dependent economy cooled down
from double-digit growth posted up to 2009. In 2013 alone, bad
loans in the sector jumped 50 percent to around $3.35 billion.
In October at a banking conference, central bank governor
Massano warned about the risks of this and recommended more
careful lending practices by local banks.
"CAPITAL REINFORCEMENT" NEEDED
In December, Ricardo Salgado, then CEO of BES, met the
Angolan president and announced a capital increase of $500
million by the bank's Angolan subsidiary BESA to fund an
expansion of its branches across the southern African state.
Salgado later said the meeting also cemented the Angolan
state guarantee for 70 percent of BESA's loan portfolio.
In its 2013 results report, parent BES hailed the sovereign
guarantee for BESA as a vote of confidence in its Angolan
operation, which it said was playing a significant role in
financing non-oil private companies that were helping to advance
the government's 2013-2017 National Development Plan.
Six months after Salgado met Dos Santos, with questions
swirling about BES's exposure to dubious loans and with its
shares losing value, the Portuguese banker and other Espirito
Santo family members agreed to give up the bank's leadership.
Portuguese weekly Expresso reported last month that BESA did
not know to whom it had extended loans worth $5.7 billion -
around 80 percent of its debt portfolio - during the mandate of
previous CEO Alvaro Sobrinho, who left the post in October 2012.
The paper said BESA's new CEO Rui Guerra had informed
shareholders about the problem in November 2013.
Asked by Reuters about the Expresso article in June, Guerra
dismissed it. "As head of the bank I know the situation ... and
that type of article really does not make sense."
Central Bank Deputy Governor Ricardo Viegas D'Abreu was at
that time equally dismissive. "We don't launch investigations
based on things that appear in newspapers," he said.
But Banco Nacional de Angola is paying attention now.
"We're at this moment finishing off our evaluation work,"
Massano told parliament on Thursday, saying the situation at
BESA would require a "reinforcement of capital" by the bank.
(Writing by Pascal Fletcher; Editing by Will Waterman)