Portugal is unlikely to be able to stage a full return to bond markets in 2013 and may start with issuing debt only up to three-year maturity to rebuild confidence, the president of the country's banking association said in an interview. "No one is thinking that we will start issuing billions and billions in 10-year bonds and we won't, that would be unrealistic," Antonio de Sousa, a former Bank of Portugal governor, told Reuters.
"Portugal could start extending maturities, but it doesn't mean we'll be able to say that we are back in the market in a normal fashion." Since securing a 78 billion euro European Union/International Monetary Fund bailout last May, Portugal has withdrawn from the long-term debt market, but has been issuing T-bills with maturities of up to 12 months. It has recently said it may start issuing 18-month bills.
Under the bailout, the country is supposed to return to the bond market in September 2013. Many economists doubt it will be able to finance itself in the market by then and say the country, which is mired in a deep recession, may need additional bailout funds, if not a debt restructuring like Greece.
"But Portugal could start issuing 18-month debt, then two year- and three-year debt, which is what the country was doing when it had to gain market credibility in the 1980s and 1990s," de Sousa said, noting that the first 10-year bond issuance occurred in mid-1990s.
Although off January record highs of over 17 percent, Portugal's benchmark 10-year bond yields have remained stubbornly high even as Spanish and Italian bond yields have retreated. De Sousa backed the stance of Prime Minister Pedro Passos Coelho, saying the centre-right government should focus on meeting the fiscal targets in the EU/IMF bailout and not get involved in debates on whether it has sufficient rescue funds.
"Portugal is meeting the targets and has to continue meeting them instead of discussing if there is enough money. It has the conditions to meet the terms, while the question of its return to the markets depends more on what one thinks about European debt and the European project rather than just Portugal." Loans extended to companies fell 2.7 percent in January from a year earlier, according to Bank of Portugal data.
But de Sousa said that despite certain difficulties with the financing of the economy, there was no credit crunch and companies presenting adequate conditions for obtaining loans were getting financing from banks. He dismissed recent calls for banks to subsidise companies, saying lenders cannot risk the money of depositors.
De Sousa added that the latest assessment by the "troika" of European and IMF inspectors of Portugal's performance under the bailout made it very clear that banks should not lend to companies not meeting certain risk criteria. He suggested that shareholders in Portuguese companies inject capital where possible, or sell stakes to foreign companies or stronger local firms.
The most important thing, he said, is that the state pay what it owes to companies, thus helping to finance the economy. "The state as a whole is by far the biggest debtor to the economy and the most efficient and probably only way to help the financing of the economy is to find ways to pay the debts. I know that it's difficult, that the bailout imposes restrictions, but it's something that has to be done at some point." In terms of bad loans, he said Portugal was in a relatively strong position compared with other indebted European countries.