Novo Banco loses €555M in first half of 2020
Novo Banco closed the first half of 2020 with losses of €555.3 million. In the first half of 2019 it lost €400 million.
The losses were essentially explained by the negative ‘legacy’ results from bad assets inherited from Banco Espírito Santo and means that the bank will have to ask for a cash injection of €176 million Capitalisation Contingency Mechanism transferred to the Resolution Fund.
The groups results were affected by four negative impacts, according to the bank. The worst were related to bad assets inherited by the bank from the collapse of BES in 2014: first, a negative impact of €260 million because of an “independent evaluation of restructuring funds”; second, €138.3 million in additional impairments related to credit risks from the Covid crisis; third, €78.7 million to do with public debt interest rate risk cover; and fourth, €26.9 million provision set aside for bolstering provisions for restructuring.
“Nevertheless, the results from the bank’s activities showed improvements when compared to the same period in 2019. Core operational results were up 3.2% as a result of an increase in financial margins (+3.2%) and a reduction in operational costs (-5.4%) and an increase in operational results (+10.5%) states Novo Banco who quotes its CEO António Ramalho saying that: “In addition to the restructuring of the bank in recent years, Novo Banco has continued to support Portuguese companies and families.”
As to the legacy assets inherited from BES, Novo Banco registered a negative result of €493.7 million in the first half of 2020 down to restructuring and deleveraging of the legacy.
Annual reduction of Legacy assets -17.4% (-€782 million), across all asset categories. Continuing to execute the strategy to reduce non-performing loans (NPL) that decreased by -€310 million in the 1st half to €3,120 million (- €3,148 million comparing to Jun.19), reflecting a decrease in NPL ratio from 11.8% in Dec.19 to 10.2% in Jun.20. The NPL ratio of the recurrent activity was 3.3% (Dec.19: 3.6%).
Novo Banco Group’s results and activity, in the 1st half of 2020, were impacted by the effects of the Covid19 pandemic as well as by the restructuring and Legacy deleveraging that presented a negative net income of -€493.7million. The resulting banking activity slowdown and market volatility led to an increase in the cost of risk, with impairments for credit risks being elevated by €138.3mn as a result. This elevated level of impairment is expected to continue in the coming quarters. In the 1 st half 2020, there were also extraordinary losses of €260.6mn in the restructuring funds, and a €26.9 million increase in provisions for restructuring.
As a result of the Legacy activity losses in the amount of -€493.7 million, which reflect the continuation of the deleveraging process of loans, real estate and other legacy exposures that were on the Bank’s balance sheet in 2016, NOVO BANCO estimates, at this date and for this period of six months, a receivable amount of €176 million under the Contingent Capital Agreement.
Overall, Portugal’s banks saw their combined profits shrink because of the Covid-10 pandemic and the €580 million set aside to cover the pandemic.
The country’s five main banks have already sent aside over €580 million in provisions and to cover impairments resulting from the crisis and which will cover eventual losses because of credit defaults expected to rise in the fourth and final quarter of the year.
Caixa Geral de Depósitos (CGD) set aside the most provisions: €156 million, followed by Novo Banco (€138 million), BCP (€109 million), Santander Totta (€101 million) and BPI (€83 million).
Impairments and provisions mean less profits. The net result of the five main banks was €-15 million, most down to the losses recorded by Novo Banco of €555 million.