20th July, 2012

There are three types of constraint that have resulted in the reduction in loans: the need to deleverage the banks, the economic recession and the weakness of many companies' balance sheets.

In an adverse scenario with greater regulatory requirements, stricter risk management and a deterioration in operating conditions, the Portuguese banks are prepared to fund the economy and contribute to the system's stability and economic growth. They have improved their solvency, increased their capital ratios and given priority to provisions and the recording of impairments, and their liquidity has improved significantly.

It is often said that credit does not reach the economy. What happens in most cases is that companies' balance sheets are not adequate, they are unable to offer sufficient guarantees or they are undercapitalised and therefore do not pass the risk assessment. And this assessment must be strict, in correct management in view of the new supervision and regulation requirements.

Just like the banks, Portuguese companies, whose borrowing totals 128% of GDP, must endeavour to reduce it and recapitalise.

How can they recapitalise?

There are a number of alternatives if the shareholders are unable to do so:

  • New shareholders 
  • Partnerships with other companies that may serve to consolidate them 
  • Use of different forms of venture capital 
  • Use of innovative instruments and unusual ways of increasing capital, such as recapitalisation and restructuring funds 
  • Restructuring of loans with a possible transformation of part of the debt into capital, and improvement of their governance
  • Greater use of the capital market

Portuguese banks are going to be in the front line in supporting economic growth and acting as its driving force by supporting companies' current operation, investment in their modernisation and new investments, especially in the tradable goods sector. The grant of loans to companies with healthy balance sheets, competitive, innovative companies and businesses with good projects is one of the banks' main functions. But their contribution to the creation of company recapitalisation instruments, venture capital (seed, mezzanine or development capital), encouragement to access and use the capital market (e.g. issuing bonds) and particularly financial restructuring mechanisms will be extremely important in developing a new, healthy economic growth model. This depends on business capacity, innovation and efficiency leading to greater competitiveness. And of course on the economy's financial capacity.