International ratings agency Fitch has warned that Portugal’s banks will be unable to meet stiff new European Commission capital ratio rules requiring them to have up to 10% liquidity levels.
The United States based agency has calculated that the financial system will require capital support from the State worth €7 billion in order to meet the Troika requirements.
Another agency, Standards & Poor’s, also doubts the capacity of the banking institutions to meet the tough rules without a handout from the Portuguese State and by implication the bailout agreed from the IMF/EU/ECB.
Fitch, which has the State’s debt and the main banks under a negative review, believes that the banking sector’s risk profile increasingly depends on the performance of Portugal’s public debt.
In a report published last week, the ratings agency estimated that Portuguese banks would eventually need between €6.5 and€ 7 billion of cash to beef up their capital ratios.
Many Portuguese banks are being forced to deleverage because they borrowed so much money on the international markets to lend out to clients, yet only had a small capital ratio of between 4% and 8% to back up that lending risk.
Fitch believes, in line with the European Central Bank, that the country’s banking capital needs are the equivalent of 25% of the entire systems own funds.
In other words it needs to find an extra 25% in cash.
The main banks, BES, BPI, BCP, and Caixa Geral de Depósitos, all require around €3.2 billion to meet the new capital ratios of 10% by the end of next year.
