LISBON, Nov 27 (Reuters) - Portuguese banks have accelerated their reduction of bad loans and are on course to solve the problem soon, even though their comparative NPL ratios still far exceed the European average and are higher than in Italy, the deputy head of the central bank said.
Banks have been able to cut about 10 billion euros ($11.30 billion) a year, slashing over a third of their non-performing loans since a 2016 peak, through write-downs, selling bad loan portfolios and agreements with debtors, and the trend is here to stay.
Bad loans have been a drag on the economy especially during Portugal’s sovereign debt crisis in 2011-14 and a cause of investor concern about its fragile banks.
“With the pressure we are exerting and the efforts by the banks, the NPL problem is contained, regulated, controlled and on a serious path towards its resolution,” Bank of Portugal Deputy Governor Elisa Ferreira told Reuters.
“We are sure that this issue will reach a conclusion in a relatively short period of time ... but the stockpile is still high,” she said without elaborating on the exact time.
Non-performing loans fell to 32.4 billion euros in June from 37 billion in December 2017, down from a peak of 50.5 billion in mid-2016. They made up 11.7 percent of all loans last June, down from 13.3 and 17.9 percent, respectively.
That was still well above an average of 4.4 percent for 120 banks monitored by Europe’s Single Supervisory Mechanism, higher than Italy’s nearly 10 percent and only exceeded by Greece and Cyprus - on 45 percent and 29 percent respectively.
“We are clearing up 4 to 5 billion euros every six months, which is quite significant,” Ferreira said. “The trend is firmly in place and I think it will continue.”
A platform created by the three largest domestic banks - Caixa Geral de Depositos (CGD), Millennium bcp and Novo Banco - to resolve NPLs jointly with common corporate debtors is yet to produce tangible results, she said, so the situation has room to improve further.
Thanks to economic growth, which last year reached 2.8 percent - the strongest since 2000 - various companies have been able to resume payments on loans considered non-performing. Despite a slowdown, the government expects economic growth to remain at above 2 percent in the next few years.
The NPL improvements were particularly notable considering the fact that by the time NPLs soared during Portugal’s bailout its banks could no longer use state support, from which lenders in countries like Spain and Ireland had benefited, without exposing their shareholders and bondholders to losses.
Moreover, the Portuguese banking system lacks sufficiently big banks with major international operations and partners who help them absorb NPLs, as is the case of Italy. ($1 = 0.8860 euros) (Writing by Andrei Khalip, editing by Axel Bugge and Adrian Croft)