Portugal’s banks clear €2.5Bn of bad loans

Portugal’s banking system has cleared €2.5Bn of bad loans from its books since the start of the year. However, Portugal’s banks still have a ratio of 8.3% in loan defaults, a reduction of 1.1% on December last year and must find a way of clearing out €23,000 million from its accounts.

The €2.5Bn of Non-Performing Loans need to be cleared to meet demands of EU regulators for a maximum ratio of 5% of NPLs.
The data was revealed on Wednesday by the Bank of Portugal in its quarterly report snapshot on the health of the country’s banking industry.
If the impairments that were included to balance out these toxic assets are discounted, the banking system would have €1.1Bn — or a ratio of 4.4% on total credit.
By definition credit default or a NPL arises when a bank client fails to meet the monthly installments on a loan and the bank has to class the credit as non-productive. This becomes a problem for the bank because it can lose part or all of the total loan, as well as the interest and commission on the loan.
On the other hand, regulators tend to demand more capital hedges from banks which have high levels of NPL.
In Portugal, NPLs continue to be one of the financial system’s biggest challenges. But the trend of stock and capital ratio reduction has become more than evident in recent years. After having reached a peak by the end of 2015 of €5Bn — 17.5% of all loans, the stock of NPLs has significantly reduced thanks to major bank restructuring by Portugal’s main banks: Novo Banco, Caixa Geral de Depósitos (CGD) and BCP.
Since then the volume of NPLs on the banks’ books has already fallen by more than €2.5Bn, in other words it has fallen by one half.
The authorities now demand a ratio of 5% in terms of the amount of NPLs compared to PLs.