The Portuguese bank will be forced to increase capital by the end of September 2009, to succeed in the new requirements of the Bank of Portugal, which require banks to have a Tier I ratio of 8%. These requirements should compel the banks to an additional injection of 2.5 billion euros. This is one of the conclusions of the study "The banking Portuguese side to the new emerging economic and financial: the potential impact and solutions for the preservation of shareholder value and to strengthen the competitiveness", presented yesterday by consultants AT Kearney.
"It will be very difficult to escape the capital improvements," said Joao Rodrigues Pena, 'managing' director of AT Kearney Portugal, during the presentation of the study. For the consultant responsible for the reinforcements of capital should also precipitate changes in the shareholding structure of banks. This is a more likely scenario than a wave of mergers and acquisitions. "There is a risk of movement in the shareholding structure of institutions, as early as next year," said Joao Rodrigues Pena.
The need to generate liquidity and to meet the capital ratios of Tier I require not only the realization of capital increases, but especially the disposal of assets not 'core'. The study identifies four of these assets: high amount of financial holdings, business units of non-bank, credits earned and immovable assets.
Apart from issues related to compliance with the ratios, the current context of crisis is also entail an increase in bad debt costs, which have grown more than 40% over 2008 and, according to AT Kearney, could reach more than 8 billion euros at the end of 2009. That is, more than double the figure recorded at the end of 2007 and about 3% of the portfolio of credit.
Another consequence of financial crisis, coupled with the economic downturn, so the bank is in the ratio of credit on deposits. The study shows that the Portuguese banking model proves to be very dependent on 'wholesale-funding' more exposed to risks of liquidity and hardly sustainable in the future. The ratio 'loan to deposits' increased from 75% in 1990 to 152% in 2007.
The sudden cooling of the banking product, the rising cost of the structure, the exponential growth of bad debt costs and necessary capital improvements to meet the new solvency ratios required by the Bank of Portugal also imply a drop in return on equity (ROE) the banking domestic, traditionally levels above 15% for values close to 6-7% in 2009.
The study concluded that in the new context will emerge a growing distinction between 'players' of the sector: the survivors, the losers and winners. "The banks will be losers institutions that with the current shareholding structure, will not be able to stay," concluded the head of AT Kearney Portugal.
What will change in the national banking
1 - bad debt costs could double
The current crisis is having an impact on the failure of credit, which is visible to the growth this year. In 2008 the bad debt costs grew more than 40% and is expected to increase will not stop here. According to the study A.T. Kearney, released yesterday, the bad debt costs could rise to more than eight billion euros at the end of 2009, ie more than double the figure recorded at the end of last year and about 3% of the portfolio of credit granted. This is the highest percentage since the end of 1998.
2 - Risk of ROE reduction
The weakening of the banking product, the increase in bad debt costs and increases in capital will involve a reduction in return on equity (ROE) from levels above 15% to close to 6-7% by the end of 2009.
3 - Ratio of credit on deposits
In the last decade, the development of banking Portuguese relied largely on the growth of granting credit, and the ratio 'loan to deposits' (credit on deposits) went from 75% in 1990 to 152% in 2007. Since 1997 the average annual rate of growth of credit is about 1.8 times the level of deposits. The national bank has one of the highest ratios' loans to deposits' of the euro zone, showing the Portuguese banking model as dependent on 'wholesale funding, and thus more exposed to liquidity risk.
"It will be very difficult to escape the capital improvements," said Joao Rodrigues Pena, 'managing' director of AT Kearney Portugal, during the presentation of the study. For the consultant responsible for the reinforcements of capital should also precipitate changes in the shareholding structure of banks. This is a more likely scenario than a wave of mergers and acquisitions. "There is a risk of movement in the shareholding structure of institutions, as early as next year," said Joao Rodrigues Pena.
The need to generate liquidity and to meet the capital ratios of Tier I require not only the realization of capital increases, but especially the disposal of assets not 'core'. The study identifies four of these assets: high amount of financial holdings, business units of non-bank, credits earned and immovable assets.
Apart from issues related to compliance with the ratios, the current context of crisis is also entail an increase in bad debt costs, which have grown more than 40% over 2008 and, according to AT Kearney, could reach more than 8 billion euros at the end of 2009. That is, more than double the figure recorded at the end of 2007 and about 3% of the portfolio of credit.
Another consequence of financial crisis, coupled with the economic downturn, so the bank is in the ratio of credit on deposits. The study shows that the Portuguese banking model proves to be very dependent on 'wholesale-funding' more exposed to risks of liquidity and hardly sustainable in the future. The ratio 'loan to deposits' increased from 75% in 1990 to 152% in 2007.
The sudden cooling of the banking product, the rising cost of the structure, the exponential growth of bad debt costs and necessary capital improvements to meet the new solvency ratios required by the Bank of Portugal also imply a drop in return on equity (ROE) the banking domestic, traditionally levels above 15% for values close to 6-7% in 2009.
The study concluded that in the new context will emerge a growing distinction between 'players' of the sector: the survivors, the losers and winners. "The banks will be losers institutions that with the current shareholding structure, will not be able to stay," concluded the head of AT Kearney Portugal.
What will change in the national banking
1 - bad debt costs could double
The current crisis is having an impact on the failure of credit, which is visible to the growth this year. In 2008 the bad debt costs grew more than 40% and is expected to increase will not stop here. According to the study A.T. Kearney, released yesterday, the bad debt costs could rise to more than eight billion euros at the end of 2009, ie more than double the figure recorded at the end of last year and about 3% of the portfolio of credit granted. This is the highest percentage since the end of 1998.
2 - Risk of ROE reduction
The weakening of the banking product, the increase in bad debt costs and increases in capital will involve a reduction in return on equity (ROE) from levels above 15% to close to 6-7% by the end of 2009.
3 - Ratio of credit on deposits
In the last decade, the development of banking Portuguese relied largely on the growth of granting credit, and the ratio 'loan to deposits' (credit on deposits) went from 75% in 1990 to 152% in 2007. Since 1997 the average annual rate of growth of credit is about 1.8 times the level of deposits. The national bank has one of the highest ratios' loans to deposits' of the euro zone, showing the Portuguese banking model as dependent on 'wholesale funding, and thus more exposed to liquidity risk.
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