The International Monetary Fund says there are some cases in the Portuguese banking system that require "corrective action."
A brief statement was issued in which the IMF acknowledged current problems in the banking sector in Portugal, mentioning no names but referring to Portugal’s second largest bank, BES and it parent the Espírito Santo Group.
The IMF said that it "does not comment on financial institutions in particular," but said the Bank of Portugal if necessary should start ‘corrective action’ and ‘intrusive supervision’ where necessary” in order to calm markets and international investors in Portuguese bonds.
The Portuguese banking system "was able to weather the financial crisis without significant disruptions," helped by substantial public support and extraordinary measures from the European Central Bank (ECB).
The European Commission said that it is not worried about BES, for now anyway, despite the volatility that the banking scandal has caused the markets in the past week.
"We fully trust in the supervisory framework in place and in the actions carried out by the Portuguese authorities, we see no cause for undue concern," said Simon O'Connor, the spokesman at the European Commission responsible for economic and monetary matters.
The spokesman said that the Portuguese financial system "has been significantly strengthened in recent years during the adjustment programme through recapitalisation, liquidity support from the ECB and enhanced supervision" and that "we are confident that any problems in the system will be managed in a timely and effective manner."
The issue of the governance of the Espírito Santo Group has been raised by Troika members with the Portuguese authorities and creditors have been pressing for towards greater simplicity and transparency.
The back stop is an unused €6.4 billion in bailout funds from Brussels earmarked for banking support which should cover even the worst black hole in Espírito Santo Group’s convoluted network of companies.
BES shares have recorded their worst week ever, sinking 36% due to the uncertainty regarding the financial situation of the Espírito Santo Group. Concerns led ratings agencies to downgrade the bank’s credit rating to a level not far above ‘junk’ status.
The Portuguese Prime Minister may yet regret his words in defence of BES, “a bank which has a solid capital and a comfortable margin to deal with any eventuality.”
