The IMF recommends that Portuguese banks create a cushion for bad debts by increasing profits

The International Monetary Fund (IMF) is advising Portuguese banks to avoid channeling all their rising profits into dividends, instead asking them to shore up capital reserves as a cushion in the face of a possible increase in bad debts and bankruptcies. .

“There is a need to capitalize banks, including Portuguese banks, and we propose that banks at this stage increase their own funds and their capital reserves and refrain, as far as possible, from paying out all earnings gains through dividends,” said the IMF’s director of Europe Alfred Kammer at a meeting with European journalists in Brussels, including Lusa.

While banks such as BCP, Novobanco, Santander Totta and BPI report almost double profits in the first nine months of the year compared with the same period in 2022, the IMF’s regional head warns that “times will become more difficult.” , “additional shock absorbers” are required.

“As a result of the post-pandemic adjustment, we will see an increase in bankruptcies, we will see an increase in bad credit, and this is across Europe, this is not a specific problem for Portugal,” he adds in response to Lusa. , on the day the foundation disseminates Europe’s regional economic outlook, in the Belgian capital.

According to Alfred Kammer, this is a “normal” situation given the tight monetary policy with high interest rates, which have since been stabilized by the European Central Bank, creating more barriers to accessing finance and forcing families and companies to pay more for credit. your loans, especially for housing.

“These growth risks are normal. […] but we also advise the Portuguese authorities to increase system capital reserves to prepare for an increase in non-performing loans and bankruptcies,” he adds.

The official warns that “as financial conditions become tighter, financial strain may occur,” so “countries should closely monitor bank credit quality, leverage and liquidity risks, and increase their own credit reserves.”

The European Regional Economic Review, published this Wednesday, said that “while the European banking system exhibits high levels of solvency and liquidity, banks in some jurisdictions hold significant securities, which could lead to a significant depletion of their own funds.”

This situation occurs in Portugal because it is one of the European countries with the most variable rate mortgages.

However, Alfred Kammer is optimistic about Portugal’s economy, noting that “Portugal has seen strong growth, reflecting a recovery in tourism” as well as “efforts” to combat unemployment and invest in education.

“I think this is also reflected in our positive outlook for Portugal,” he adds, hinting that the figures presented for Portugal are better than for the eurozone.

“In the last three years, Portugal has been determined to create buffers. […] and this is certainly reflected in the positive assessment of Portugal and therefore makes us optimistic about Portugal’s growth in the medium term, but of course in the short term it is at the same time experiencing a slowdown in Europe […] and this is also reflected in our figures,” says Alfred Kammer.

The IMF forecasts Portugal’s economy to grow 2.3% this year and 1.5% in 2024, with inflation falling to 5.3% in 2023 and 3.4% in 2024.