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Wall Street Journal Escreveu:Portugal Asks Banks to Halt Dividends

LISBON—Portugal's central bank has asked the country's banks to suspend paying dividends to conserve capital, as they prepare for tougher requirements under Basel III rules, a central-bank spokesman said.

Banco BPI SA—the first of Portugal's three largest lenders to report 2010 results—said Wednesday it has suspended paying dividends for the year. President Fernando Ulrich said the decision was based on the central bank's suggestion and the bank's own evaluation.

The bank doesn't have any other plans to boost capital, and it remains comfortable with its position, Mr. Ulrich added.

Peers Banco Espirito Santo SA and Banco Comercial Português SA report their annual results in the coming week. A BCP spokesman declined to comment, and BES couldn't be immediately reached for a comment.

Portuguese banks have weathered the crisis better than most European peers, mostly because the real-estate sector never experienced the boom and bust that occurred in some other countries, such as Ireland and Spain. The Portuguese banks' lending portfolios are also more diversified and are increasingly exposed to markets abroad where the banks operate, particularly in emerging economies in Africa.

Nonetheless, ongoing funding and liquidity constraints, and an expected slowdown in the Portuguese economy as the government imposes austerity measures to control public debt, will hit the banks' revenue and capital, analysts say.

"The key concern for the Portuguese banks is their ability to access wholesale markets, and while Portuguese banks have so far avoided solvency problems, a deteriorating growth outlook, liquidity constraints and rising risks from the macro situation could exert pressure on banks capital cushion," Nomura analyst Prathmesh Dave said.

In a report late last year, the Bank of Portugal warned the banks that they will have to strengthen their regulatory capital base, change their risk-management policy and set up liquidity buffers.

"Portuguese banks as a whole will be expected to reinforce their capital base, in line with most European banking groups," the Bank of Portugal said. It warned that with credit demand expected to decline, banks would have to strengthen their capital base through capital increases, retained earnings or a contraction of banking assets.

Indeed, signs of a slowdown in lending are already here. According to a survey of banks conducted by the central bank, demand for loans is falling, and should continue to drop in coming months. Banks are also imposing more stringent terms on loans.

Analysts say banks are likely to keep cutting lending and push for an increase in deposits to boost reserves and decrease their reliance on external finance.

At the end of November, Portuguese financial institutions' reliance on European Central Bank funding stood at €37.9 billion ($52 billion), compared with an average of €40 billion in previous months. Mr. Ulrich said his bank has been borrowing less—€1 billion as of the end of December—because of a resurgence in repo transactions. In addition, he said, institutions were more careful in using ECB lines amid a growing stigma attached to such emergency funding.

Interest rates charged for such funding are low, about 1%. Portuguese banks, in turn, were using the cheap funding to buy Portuguese debt, which is currently offering interest of around 7%. That debt, in return, can be used as collateral to borrow from the ECB.

Mr. Ulrich declined to say whether the bank intends to cut its ECB borrowing further, adding that it will depend on market conditions going forward. As for the wholesale market, the president said he expects it to remain shut in 2011.