Portuguese Banks' Results Hit by Bad Debt

07/30/2012| 03:32pm US/Eastern

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--Portuguese banks report rise in bad-debt charges

--BES reports 86% drop in net profit in the first half

--Deposits continue to increase, but lending falling

(Rewrites throughout.)

 
   By Patricia Kowsmann and Carla Canivete 
 

LISBON--Banco Espirito Santo SA (>> B.ESPIRITO SANTO) became the third Portuguese bank to report a continuing rise in bad-debt charges in the first six months of the year as the country struggles with a sharp economic contraction.

BES, Portugal's largest bank by market capitalization, said bad-debt charges for the period rose 15% to EUR352 million ($431.2 million) from a year ago, as Portugal's government continued to implement a slew of austerity measures connected to a EUR78 billion bailout program.

The bank said credit in risk rose to 7.9% of the total at June from 5.6% a year ago.

Banco BPI SA (>> BANCO BPI) and Banco Comercial Portugues SA's (>> B.COM.PORTUGUES) have also reported higher charges tied to souring loan books.

"BES Group's activity and results in the first half continued to be severely constrained by the uncertainty about the future of the euro zone as well as the financial adjustment program agreed by Portugal with the European Union, the International Monetary Fund and the European Central Bank," it said in a statement.

In a press conference, Chief Executive Officer Ricardo Salgado also warned that unless the ECB takes steps to control the crisis in the euro area, "it will be very difficult to avoid a rescue for Spain."

BES has a small unit in Spain that supports Portuguese companies doing business there. Its exposure to Spain's sovereign debt is only EUR32 million.

BES's loan losses in Portugal helped the lender post a 86% drop in net profit for the first six months of 2012 from a year ago.

Net profit stood at 25.5 million euros in the first half, sharply lower than the EUR178.6 million posted a year earlier but slightly above the EUR24.8 million estimated in a Dow Jones Newswires poll of four analysts.

Last year's figure included a EUR143.6 million capital gain from the sale of a 4.1% stake in Brazil's Banco Bradesco SA (>> Banco Bradesco SA) and EUR58.5 million in special dividends from Portugal Telecom SGPS SA (>> Portugal Telecom SGPS SA).

On the bright side, the bank said net interest income--the difference between interest paid on deposits and those charged on loans--rose 12% to EUR607.6 million, partly thanks to the make-up of its credit portfolio.

BES gives much of its loans to companies, which usually borrow short term, allowing it be more flexible in setting higher interest rates.

Like its peers, BES reported a fall in overall credit as the banks seek to meet a requirement under Portugal's bailout program to lower their loan-to-deposit ratios.

Gross loans fell 1% in the first half of the year, while deposits rose 2.5%.

BES, however, said it is starting to see clients shift to products yielding higher returns than deposits, signalling the rise seen in recent quarters could be short-lived.

The bank, along with BPI and BCP, said it has met capital requirements set by the European Banking Authority. Unlike BPI and BCP, however, BES hasn't requested state aid to do so.

Its Core Tier 1 capital ratio stood at 9.9% in June, after it raised EUR1 billion from a rights issue.

Write to Patricia Kowsmann at patricia.kowsmann@dowjones.com

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