After Italy, Portugal: another ‘bad bank’ in Europe?

Banco Portugal

Bank of Portugal governor, Carlos Costa, believes that Portugal should find a systemic solution similar to that recently adopted in Italy to enable banks to reduce the weighting of non-performing assets.

The creation of an investment vehicle ( a bad bank) would mean Portugal lenders could reduce their large volume of doubtful assets, estimated at 33 billion euros (around 18% of GDP), which implies a non-performing loans ratio of 12%.

This kind of vehicle allows the banks to improve their profitability and solvency ratios. Bankinter highlights that the main difficulty is that for the European Commission (EC) not to consider this vehicle as state aid, there needs to be private sector participation as happened in Italy. There the banks, fund management companies and insurers all participate in the vehicle.

“The main problem here for the institutions who want to participate/invest is the valuation attached to the non-performing assets which are transferred from the banks’ balance sheets,” say Bankinter analysts.

*Image: Flickr / Filipe Garcia

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.