The errors that the dealer cannot go back to commit – Watcher

the governor of The Bank of Portugal returned this Wednesday to ask for a solution for the assets do not generate income (in simple terms, non-performing loans). Carlos Costa says that this is a situation that "hangs" the banks and the credit to the economy, although the banks are, in its activity the appellant, in a situation much better than they were. But Carlos Costa, who criticized those who accuse the Bank of Portugal having been distracted, he decided to point the six errors that you can re-commit. Errors which, he emphasizes, were the responsibility of "past administrations".

The dealer needs a "clean sheet", but can not repeat the mistakes of the past, said Carlos Costa at the opening of a conference of the Journal of Economic, and PwC, in Lisbon. The governor of the Bank of Portugal, he faced up against those who "say that the program adjustment has failed, in respect to banking, is to show ignorance, if not illiteracy. It is an offence for the banks and the Bank of Portugal," said the governor, alluding to the increase of the capital ratios of the banks in recent years, among other positive indicators.

The banks absorbed the impairment, with implications for the profit and loss account and capital, an effort that has not been properly pointed out: but when the banks absorb the losses, the profit and loss account suffers — the results of a bank today, the results are recurring more impairments that come from a legacy that comes from the decisions of the past, that governments today are not responsible, but that have to manage".

According to data from the Bank of Portugal, the banker has impairments 21 billion, which are included in a total of 53 billion in assets do not generate income. "banks can digest this burden, slowly, without the ability to grant credit, because it is penalized in the capital," says the governor. But "the result is a bank partially anesthetized. Alternatively, you can take proactively, and to sell these assets to the market price," said Carlos Costa.

banks have to resolve a problem inherited from the past and a great set of assets that consume capital and take profitability to the banks, hindering the granting of credit".

But you need to have the capital to absorb the costs to get rid of these assets, recognize the governor of the Bank of Portugal. "A rational investor would have all the interest in affect the capital to resolve the problem. The problem is that anyone who bears the costs is not, necessarily, who benefits of the future results. So the temptation is to stay waiting for better times, but this constrains very much the granting of credit to the economy."

Asking for a solution to this problem, that there is much is expected, Carlos Costa left, however, a list of six problems and errors that can not be repeated — the errors that were committed between 2000 and 2010.

• shareholder structure of banks enhanced phenomena such as the excess credit risky, because in the sequence of the process for the privatisation was established mainly through credit, which was transformed into shareholding which was, in turn, warranty. "It is a ball of snow". In addition, there was "financing related parties through mechanisms opaque using non-cooperative jurisdictions", accuses Carlos Costa — "this has affected the real economy, because many of the shareholders were companies and have created a fiction of capitalization, which did not exist, and when the pulleys began to work again, there was the destructive effects to the capital".
• There was, also, a "euphoria that led to the awarding of credit for purchase of shares, a result of the substitution of real money that came from the stock market for credit. "This can’t happen again. A bank may not finance the acquisition of shareholdings and stay with them as a guarantee of own credit".
• in A context of euphoria, underestimated the risk of credit, and maximized the granting of credit to obtain results on a quarterly basis. "This was not after 2011, it was before 2011," says Carlos Costa.
• There was, also, a funding of the sectors that were dependent on the borrowing capacity of customers (the demand side). "On the day that the public debt to become unsustainable, it is obvious that the demand would fall. On the day that the families reached your limit, it is obvious that the demand was going to fall," explains Carlos Costa. "It is not surprising when you look at the weight that has the sector of construction and public works, the weight you have in the current situation". Here, says Carlos Costa, says that "the that failed was the economic policy, which cultivated the illusion that there was a worm in the matter of maintenance of the demand and of the credit". "When the Bank of Portugal required that the results for 2010 were not distributed (via dividends) have been criticized, by many of the same who today criticize us for not having been aware of". "We need to raise awareness that it is not possible to have policies unsustaina ble without that it will reflect in banks.
• There was too much funding the companies with low equity capital, assisted by the "goodness of the fiscal policy that continues to favour borrowing at the expense of application of equity".
• And there was too much credit to individuals with high exposure to the economic cycle.

Many of these issues are not only Portuguese, adds Carlos Costa, remembering that there was a "euphoria of the year 2000" and "removal of economic cycles". Now, "we have to rinse the problems of the past" and "this cannot repeat itself. If you repeat, this will be a huge loss for the public good. A bank is more than a paint factory or a pastry. When you come into difficulties, produces social costs enormous. All we notice from cases such as Northern Rock and Lehman Brothers, a bankruptcy does not release the market, it creates an infection is widespread"

we Cannot, in the light of past errors, leaving the system delivered itself," warned mr Costa.