Portuguese cbank warns over finances
LISBON: Portuguese banks will face an "unbearable" level of risk and find it difficult to refinance their debt if the country fails to implement credible measures to consolidate its public finances, the Bank of Portugal has warned.
The warning came as yields on Portuguese government bonds continued to rise at close to euro-era highs amid persistent investor fears that the country would be forced to follow Greece and Ireland in requesting an international financial bail-out. Risks to the Portuguese financial sector would "become unbearable if political measures to consolidate public finances are not implemented in a credible and sustained way", the report said, urging banks to increase provisions and strengthen their capital. Carlos Peixoto, a Lisbonbased analyst with Banco BPI, said: "The report outlines a difficult scenario for Portuguese banks. "We expect the sector to continue to be penalised by sovereign debt concerns".
Portugal has held up its "resilient and well-capitalised" banking sector as an asset that demarcates the country from Ireland, where large banking losses have been blamed for its sovereign debt crisis.
According to the central bank report, Portuguese banks face "no intrinsic profitability or solvency problems" and have shown "a notable capacity to resist and adapt".
But since a downgrading of Portugal's sovereign debt rating in April, its banks have been virtually frozen out of international capital markets, making them almost wholly reliant on ECB funding. The central bank said no Portuguese bank had succeeded in making an international debt issue since April, while net bond issues by banks in the first nine months of 2010 were negative - that is, insufficient to offset bonds maturing in the same period. -PB News