The dividend that must be paid by the Bank of Portugal to the treasury, required as part of the 2017 State Budget, has been set sharply higher and already is causing tension between the bank’s governor, Carlos Costa and the socialist government.
The government has budgeted for a contribution of €450 million from the State bank, up €303 million from this year.
The demand clearly has taken the central bank by surprise and is viewed as ‘most unwelcome’ as the Bank of Portugal’s dividend “depends on profits and its provisions policy.”
This year the Bank of Portugal made a provision for general risks which limited the amount that could be passed to the treasury despite higher profits generated from the European Central Bank's debt purchase programme.
A source at the Bank of Portugal said that the dividend distribution demand was political in origin and that the bank should resist these sorts of pressures.
The malaise has even social networks. José Bracinha Vieira, a policy advisor to the Bank of Portugal’s governor, commented on Facebook, accusing the government of “looting €450 million in profits at the expense of creating provisions for Portugal’s public debt portfolio that, with the increase in interest rates this year, may see a devaluation of these securities."
According to Vieira, if Carlos Costa is forced to hand over €450 million next year, this may contribute to "the undercapitalisation of the central bank."
Cost cuts, the sale and leaseback of bank-owned properties, asset disposals and staff reductions seem not to be on the Bank of Portugal’s agenda for discussion but if the government demands €450 million, €450 million it shall have.
Carlos Costa no doubt will come up with dozens of reasons why the government’s demand is unfair but this budgeted contribution may at last put his self-proclaimed competence in the spotlight.
The failure by the Bank of Portugal in its regulatory role, leading to the collapse of BES and Banif, the lack of effort in resolving the plight of duped depositors, the waste of taxpayers’ money in supporting botched bank rescues and the push to set up a ‘coward’s way out’ bad bank to resolve the sector’s ills has left many commentators surprised that Carlos Costa is still at bank of Portugal the helm.
The two Costas fell out early on in the new government with Prime Minister António Costa commenting that it surely was not beyond the wit of man, but clearly beyond the ability of the Bank of Portugal's governor, to sort out a compensation scheme for those BES depositors that had been so blatantly shafted by Ricardo Salgado, the then Grupo Espírito Santo and BES chief.
It was hoped at that point that the Bank of Portugal's governor would be replaced but, alas, this was not to be with the new PM opting for mediocre.
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