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Portugal Banks Told to Increase Provisions for Loan Losses

Portuguese banks needed to increase loan impairments by 596 million euros ($776 million) as of the end of June, according to a Bank of Portugal presentation.

The lenders’ loan books were audited as part of Portugal’s aid package. Banco Comercial Portugues SA, the country’s biggest non-state bank in terms of assets, said in a separate statement it found impairments need to increase 207 million euros, after charges of 174 million euros in the second half.

Banco Espirito Santo SA said it found impairments needed to rise 104 million euros, after it made an impairment charge of 21 million euros in September. Banco BPI SA has no need to increase impairments, it said in a regulatory filing.

Under Portugal’s 78 billion-euro aid plan, lenders are required to raise Core Tier 1 capital ratios to 9 percent by the end of the year and 10 percent by the end of 2012. According to European Banking Authority rules, they also need a 9 percent capital ratio by the end of June after marking their sovereign debt holdings to market prices.

The central bank said Dec. 8 that the country’s lenders needed to raise 6.95 billion euros in capital to meet the EBA target, which was calculated using figures from the end of September. Since then, Portuguese banks have carried out capital increases to reduce their shortfalls.

Recapitalization Fund

Banks that fail to raise the money from private sources will have to turn to their governments. Portugal’s banks can use a 12 billion-euro recapitalization facility set up as part of the bailout the country received from the European Union and the International Monetary Fund.

While banks are being told to increase their capital ratios, the government is also asking them to keep lending to the economy.

The European Central Bank’s financing to Portuguese lenders rose 0.3 percent to 45.69 billion euros in November. Portuguese lenders have turned to the ECB because the government’s struggle to narrow its budget deficit has restricted their ability to borrow.

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