THE GOVERNOR of the Bank of Portugal has admitted that Portuguese banks will need to raise capital if they are to stay within safe solvency limits.
Vítor Constâncio, who last week stated he was worried about the impact of the crisis in the financial sector, said that if the downward stock market tendency continued “capital increases would, without doubt, be necessary.”
Addressing the Parliamentary Budget and Finances Committee, the governor said that collapses on the stock market were affecting bank profits and increasing their negative financial exposure.
“This is eating up their capital and reducing their solvency ratios,” he said, adding, “If the share markets continue downwards the banks and their shareholders will have to carry out further financial operations in addition to measures already taken.”
In April BCP carried out its largest capital increase ever of 1.3 billion euros, while in June BPI raised its capital stake by 350 million euros.
“This is a situation that worried everybody given that the financial and banking sectors worldwide are under pressure. With downward changes in financial share prices the banks too are being affected and the markets are penalising us,” he said.
From a stock market index of 17 EU countries, Portugal fared the worst with 38.5 per cent being wiped off the value of its shares in six months. The United Kingdom lost 19.9 per cent while Norway, which resisted the best in a turbulent market, lost 14.4 per cent.
In June state-owned Caixa Geral de Depósitos admitted it would have to increase its capital share this year, without revealing by how much or when.
Banco Espírito Santo increased its capital in 2006 and said it would not need to do so again despite the difficult financial situation.
Apart from BCP and BPI, Banif recently increased its capital by 100 million euros to correct its capital ratios.
As the overall situation in Portugal’s banking sector, Vítor Constâncio said that “general indicators had not deteriorated a lot” in the first half of 2008.
Total unsecured credit had risen from 1.27 per cent in December to 1.31 per cent in March and had continued to gradually rise.
However that increase was light compared to the European average while personal credit loans had fallen from 9.9 per cent in December to 7.9 per cent in May.
A capital increase is a measure for financing a company by increasing equity by either issuing new shares, increasing equity through company assets (Bonds Shares) or calling on shareholders to liquidate a percentage of their participations or assets or deposit additional money and securities (Margin Calls).
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