The day of reckoning is soon to arrive for Novo Banco, the US owned bank that has its losses covered by the Portuguese taxpayer in a deal thought by the Bank of Portugal’s president as perfectly acceptable.
Novo Banco owes the European Central Bank €6.5 billion and, unlike Caixa Geral de Depósitos, has not repaid any of the loan before its due date and certainly does not have the money to settle the bill.
The solution for Novo Banco is to borrow €6.5 billion from elsewhere in order to repay the ECB
A report by Moody’s focuses on the impact of the loans granted by the ECB to banks in the Iberian Peninsula.
The rating agency said that Novo Banco, led by António Ramalho is "heavily exposed the TLTRO (targeted longer-term refinancing operations) debt and owes €6.5 billion, or the equivalent to 12.6% of total assets at the end of June 2018."
The report also noted that "the bank has not yet publicly disclosed its ECB refinancing strategy," but, taking into account Novo Banco’s liquidity coverage ratio, "of 138%, it will have to use the markets to replace the TLTRO funds."
On the plus side, Caixa Geral de Depósitos is the only Iberian bank to have repaid the ECB in full, by €2 billion, before the due date."
The report looks at the impact of the date range between June 2020 and March 2021 when European banks have to repay the ECB and has concluded that banks’ profitability will be "moderately affected."
Since June, the ECB has allowed institutions to repay their loans before time, but with the exception of Caixa Geral de Depósitos, Moody's does not expect any more banks to do so.
At the end of September this year Portuguese and Spanish banks had received €192 billion in from the European Central Bank.
Moody's noted, however, that both Portuguese and Spanish banks continued to benefit from an unleveraged balance sheet and more stable deposits, which limits the impact on liquidity, despite higher financing costs outside the TLTRO framework.
At the end of June, banks already had been charging more fees and commissions - in Portugal’s case the increase has been 5%.
By 2019, the forecast is customers to pay even more for banking services to help pay these ECB loans.
