Goodbye Crisis as Bankers Start Lending in PortugalAnabela Reis
When Gilmar Padeiro welcomed a Deutsche Bank AG manager into his office in the Portuguese city of Santo Tirso in March, he knew something had changed.
The company that Padeiro runs, Copo Textil Portugal SA, makes fabrics for car interiors. It had never done business with the German bank, the chief executive officer said.
“It’s a very different reality,” Padeiro said. “It’s the banks themselves coming to us offering new products, new ways to help finance our projects.”
After a three-year drought, banks are lending again to small and medium-sized companies as Portugal emerges from its crisis. The businesses account for 78 percent of jobs not in the financial industry and their health and access to money is pivotal for the recovery to gain traction.
The country will exit its 78 billion-euro ($107 billion) international bailout plan on May 17 after the longest recession in at least 25 years ended in the second quarter of 2013. The economy, which unexpectedly shrank in the first quarter, is forecast to grow 1.2 percent this year by the European Commission and International Monetary Fund.
The cost of borrowing based on 10-year government bond yields sank to 3.44 percent on May 9, the lowest since January 2006, and down from more than 18 percent in January 2012. The extra yield over German bunds narrowed to less than 200 basis points on May 9 for the first time in four years. The 10-year bond yield was little changed at 3.5 percent today.
“Our appetite to give out credit has increased again,” Bernando Meyrelles do Souto, chief country officer for Deutsche Bank in Portugal, said in a telephone interview last month. The focus is on smaller companies focused on exports, he said. “There is competition among banks to finance these companies.”
Banco Comercial Portugues SA has been adding personnel to its sales ranks to target new clients such as exporters, Luis Pereira Coutinho, a board member at Portugal’s biggest non-state-owned bank, said on May 5.
Companies with a good risk profile “practically put themselves up for auction to see who offers them better conditions,” he said. “Conditions are indisputably better.”
Interest rates that banks in Portugal charge for new corporate loans of as much as 1 million euros dropped for a second straight month in March to 5.89 percent, according to Bank of Portugal statistics published on May 13. Interest rates for company loans are at the lowest in three years.
While the costs have declined, they are still more than for executives seeking money in other euro countries. Smaller companies in Portugal pay double compared with their rivals in Germany and France, 16 percent more than in Spain and 40 percent more than in Italy, European Central Bank data show.
As the market picks up, competition among banks for clients will help lower rates, according to Carlos Peixoto, an analyst at Oporto-based Banco BPI SA.
“We should see some competitive pressure here,” he said. “These are spreads that are higher, more profitable than mortgages, with shorter time limits, which enable a greater flexibility of the balance sheet.”
In a Bank of Portugal survey, most banks referred to increased pressure from rivals when it came to lending to small and medium-sized businesses. New loans to those companies in March rose 11.7 percent from the previous month. New company loans of more than 1 million euros dropped 28.5 percent in March compared with the previous month.
Executives are reporting a surge in the number of knocks at their doors from bankers.
In the last six months, “we’ve had almost all banks operating in Portugal here,” said Armando Torres Paulo, chairman of Frutus-Estacao Fruteira de Montejunto CRL, which exports apples and pears to England, Ireland and Brazil.
Oscar Meireles, a board member at Quinta da Lixa-Sociedade Agricola Lda, a winemaker in northern Portugal, said lending isn’t as free and easy as before the crisis and bankers require more guarantees that a business will succeed.
Quinta da Lixa is expanding to increase its vineyards as sales to the U.S. outpace Germany, its biggest export destination. The company, whose revenue now exceeds 5 million euros a year, plans to increase investment to 1.5 million euros this year from about 1 million euros in 2013.
“Now we have become more attractive,” Meireles said. “We already were a company that was growing but now we are able to give banks more guarantees of our success.”
Even as better loan conditions start to emerge, banks are constrained by rules on how much capital they must hold ahead of ECB stress tests on their financial health.
Loans to companies dropped 16 percent since the country requested aid in 2011 and debt of non-financial businesses in Portugal stood at 143 percent of gross domestic product at the end of the third quarter of 2013, figures from Bank of Portugal show. GDP contracted for the first time in a year in the three months through March as exports dropped. Economists had predicted a 0.1 percent increase.
In an ECB survey of 7,520 small and medium-sized businesses published in April, more than 40 percent of Portuguese companies mentioned “access to finance” as a problem.
“The market will discriminate more and more between companies,” Fernando Ulrich, CEO at Banco BPI, Portugal’s fourth-biggest bank by assets, said on April 24. “For companies with a good risk profile, the improvement is very significant. We are clearly at a turning point.”
Copo Textil sells its fabrics to clients including Volkswagen AG, Renault SA, Ford Motor Co. and Nissan Motor Co. and had about 20 million euros of revenue last year, CEO Padeiro said. The company is selling more this year and Padeiro aims to increase its market share in Europe to 20 percent in five years from between 12 and 15 percent now.
“After the crisis, the market for automobile components is going through a good phase and the companies that survived are stronger,” Padeiro said. “The banks know this.”