Bank of Portugal governor expects banking M&A as natural step

LISBON (Reuters) – Mergers and acquisitions are a “natural” next step for Portuguese banks pressured by record low interest rates, Bank of Portugal Governor Mario Centeno said on Monday.

Portugal had arrived late to the process of banking sector restructuring that other European countries experienced while Portuguese banks were still desperately trying to cut bad loans and strengthen capital ratios, Centeno told Reuters.

Non-performing loans held by Portuguese banks have since fallen to 5% of all banking credit from a peak of 17% in 2016, accompanied by similar-sized cuts to branches and staff.

“Due to the need to do all these transformations, the issue of mergers was not a priority,” Centeno, who is also a European Central Bank Governing Council member, said in an interview.

“Now low interest rates are putting enormous pressure on banks’ profitability … I’m confident banks will perceive this challenge and will be ready to respond. So, I would expect mergers to come up as a natural market development,” he added.

Centeno said some banks or stakes were for sale, while others had converging strategies, which could drive deals.

Spanish lender Abanca gave up on buying a controlling stake in EuroBic, in which Angolan billionaire Isabel dos Santos has been trying to sell her 42.5% stake, in July but said it was still interested in Portugal.

Centeno said an end to a freeze on loan repayments, introduced last year to help the economy through the pandemic, should not cause a dramatic jump in bad loans.

“We don’t see any signs of this happening … I don’t see any reason for this to be more serious in Portugal than in other countries,” he said, adding that non-performing loans fell last year during the pandemic crisis.

Centeno said the central bank is closely monitoring all data on a weekly basis and it is too early to say if it will revise its 3.9% growth prediction, despite a first quarter affected by a new lockdown.

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