European Commission warns of exposure of Portuguese banks to Angola

The European Commission alerted this Wednesday to the exposure of national banks to geographies that depend heavily on the prices of raw materials, namely the price of oil, which could have an impact on the credit quality of loans granted to these regions.

In the country-specific recommendations for the European semester, which are based on the analysis of the Portuguese Stability Program, the European Commission states that measures to mitigate the impacts of Covid-19 on the economy “must take the resilience of the banking sector into account ”.

The exposure of Portuguese banks to some geographies that are “highly” dependent on the evolution of raw material prices, “namely oil”, is one of the alerts identified by the European Commission.

Without ever mentioning the Angolan State specifically, the European institution led by Ursula von der Leyen says that “exposure to these geographies is sensitive to market risk, exchange rates and credit risk”, which may have an impact “on the quality of the credit of loans granted ”to these regions.

Angola is an oil producing and exporting country, through Sonangol. According to the local newspaper “Mercado”, based on data published by the Angolan Ministry of Finance, the African country exported 44,5 million in April at an average price of $ 26,75, well below the average price per barrel of 54,97 dollars registered in March.

Last month, Angolan oil production revenues even rose by around 10% compared to March to 432,5 billion kwanzas because Angola increased the production of barrels, from 38,8 million to 44,5 million.

Among the main Portuguese banks, many have a strong exposure to the Angolan market, through the banking operations they hold in Angola. BPI, 100% owned by Spanish CaixaBank, has a 48,1% stake in BFA. Caixa Geral de Depósitos, through Partang, which holds 100%, controls 51% of Caixa Geral Angola. Millennium bcp, through BCP África SGPS, holds a 22,52% stake in Millennium BCP Atlântico. Banco Montepio controls 51% of Finibanco Angola and Novo Banco holds 9,72% of Banco Económico.

NPL ratio in Portugal is double that of the European Union

The European Commission recalls the improvement of the sector in Portugal in recent years, referring that “the metrics of profits have improved” due to the increased efficiency of banks and the reduction of provisions and impairments, which allowed financial institutions to reinforce capital ratios .

However, he points out that "equity levels are still below the European Union (EU) average" and that "the NPL ratio remains double the EU ratio".

In addition, the Commission notes that the ability of national banks to generate revenue remains “difficult” in the context of interest rates and in a “heavily” indebted economy.

"More recently, the weakening of the economy, the Covid-19 crisis and low interest rates will create obstacles for the banking sector, which will be reflected in the credit quality of loans granted," says the institution chaired by Ursula von der Leyen .

One of the problems identified by the European Commission that weigh on the ability of banks to deal with non-performing loans is related to the slowness of insolvency proceedings. “It is one of the key factors that makes it impossible for banks to deal promptly with the existing stock of NPL ”, writes the European institution.

And he reinforces, referring that insolvency proceedings in Portugal have a “substantial influence on the prices of these assets in the secondary market”, since payments to creditors are “insufficient”.

At this point, the European Commission recommends more “adjustments”, “in particular on unjustified arrears”, which would benefit creditors and banks.

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