Mario Centeno says banks should use profits to bolster “shock absorbers” against future crises

Bank of Portugal Governor Mário Centeno said this Thursday that banks should benefit from the current positive cycle of their activities to increase their “financial cushion” and thus be better prepared for future crises.

During a luncheon debate at the American Club of Lisbon, responding to a question from participants about the banking sector, Mario Centeno said that after a negative period, especially between 2010 and 2017, when banks suffered heavy losses, these institutions are now experiencing “a moment of good development.” cycle” in profits, but also in terms of capitalization levels (which increased) and problem loans (which decreased).

However, he said, the economy is made of cycles and banks must take advantage of the current moment to prepare for more difficult times in the future.

“It’s time to remake the “buffers” [amortecedores]create “buffers” because the cycle can change, it will change, we don’t know when, but we must be prepared,” said Centeno, believing that the biggest mistake of the Portuguese economy is not preparing for the next crisis.

The International Monetary Fund (IMF) this week advised Portuguese banks to avoid putting all their rising profits into dividends, asking instead to shore up capital reserves as a cushion in the face of a possible increase in bad debts and bankruptcy.

“There is a need to capitalize banks, including Portuguese banks, and we propose that banks at the current stage increase their own funds and their capital reserves and refrain, as far as possible, from paying out all increased profits through dividends. “said IMF Director for Europe Alfred Kammer at a meeting with European journalists in Brussels.

While banks such as BCP, Novobanco, Santander Totta and BPI collectively posted profits of €2,300 million between January and September, almost double the profits for the same period in 2022, the IMF’s regional head warns that “times will change.” become more complex,” requiring “additional shock absorbers.”

Prime Minister António Costa asked the President of the Republic to resign on Tuesday, and he accepted the offer.

Antonio Costa became the target of a Justice Department investigation in the Supreme Court after suspects in a lithium and hydrogen business case named him because he intervened to unblock procedures in the projects under investigation.

The president today convened the parties for a round of hearings at the Palacio de Belem in Lisbon and will meet with the Council of State on Thursday, the day he plans to address the country.

António Costa refused to commit “any illegal or reprehensible act” and expressed his full readiness to cooperate with the courts “in whatever he deems necessary.”