Tuesday, October 11, 2016

Banks have four billion euros that do not circulate in the economy – the Port Channel

The banker, in Portugal, has the four billion euros of reserves that are stopped. According to recent data from the European Central Bank (ECB), a value much higher than the minimum required does not circulate because there are currently fewer individuals and companies to ask for loans and when they ask the banks fear the sharing of money because many of the applications present a high risk.

In Portugal the dealer has the four billion euros of liquidity in excess. Which means that there is money to be stopped in a quantity greater than the minimum reserves that the European Central Bank (ECB) demands. These 4 billion are equivalent to 2% of the total value of the gross domestic product (GDP).

The Portuguese Banks Association (APB) is justified to say that the low credit demand and when this demand manifests itself entails a high risk.

The data of excess liquidity in the Portuguese banking system have been requested by the DN/Cash, to the Bank of Portugal. This information is on the 29 of July and indicates that the banks in the euro area had, to date, 913 thousand millions of money stopped. This value is mainly composed of customer deposits and savings deposited with the ECB. Two months later, the same data spiked to a historical value for the Eurosystem, a trillion euros.

"the existence of The liquidity in considerable volume and the policy of low interest rates from the ECB mean that the cost of credit is now low, seeking to encourage investment and consumption (…) For the Portuguese demand for bank finance is quite frankly below the supply capacity of banks. On the other hand, is a relatively low demand for credit that satisfies the criteria for the granting and management of risk the banks are obliged to comply with", explains to the Daily News Faria de Oliveira, chairman of the Portuguese Banks Association (BPA).

"As the capital levels of banks are not on an optimal level and the non-performing loans is still a large weight on the swings, it is natural that the banks are less likely to lend. Or gives another dilemma: the banker only wants to lend to good companies that do not intend to indebt itself, and not to those that seek the credit, which are the companies with the highest credit risk. How Portuguese households are the most indebted in the world, it is also understandable that many do not want to increase the credit. Thus the tendency to accumulate liquidity," says Rui Barbara, an economist with Banco Carregosa, to the DN.

“In Portugal, as in the rest of Europe, the new rules of Basel III have brought additional demands as to the cushions of liquidity that banks must hold and which exceed the minimum reserves that, historically, banking has always had to hold". With these latest charges at the european level, the intention "is to strengthen the soundness of the balance sheets of the institutions, and to justify also the excess liquidity existing in Europe", explains Faria de Oliveira to the DN.

For the APB, the most recent results of the Small Business Act of the European Commission, for Portugal, show that Portuguese banks have, on average, willingness to grant credit of which other banks of the European Union. This happens because a lower lending is not beneficial to the "banking sector, which has funding to individuals and companies in their activity core and its primary source of revenue, crucial to the recovery of profitability," argues Faria de Oliveira.


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