The advisory judge who reports on the audit report of the Court of Accounts (TdC) to the management of Novo Banco, José Quelhas, said this Tuesday that the scenario of new injections of public money to the NB is not far from being the case.
yes you can [ser mobilizado mais dinheiro público]”, said José Quelhas in response to the deputy of the Liberal Initiative Carla Castro who asked if there is a risk of new capital injections in Novo Banco.
The president of the Court of Auditors, José Tavares, and the rapporteur judge appear this Tuesday in Parliament, following a request from the PSD on the audit of the Court of Auditors (TdC) of public financing and the management of Novo Banco.
In his response, José Quelhas explained that new injections could take place if the ‘back-stop’ capital becomes necessary and if the litigation that takes place in court (namely, two in the arbitration court) and that opposes Novo Bank to the Resolution Fund (FdR) culminate in unfavorable decisions for the FdR.
In the report of this audit to Novo Banco, the TdC warned of the possible need for a new injection of capital to ensure the viability of Novo Banco, aggravated by the negative impact of the pandemic and the war in Ukraine, through the activation of the additional capital (‘backstop’ capital), up to 1,600 million euros, foreseen in the commitments assumed by the Portuguese State to ensure the viability of NB.
Last week, in a hearing in parliament, the Minister of Finance stated that “the State will not make new injections through the contingent capital mechanism”, in the way it is defined, and reiterated that, on this front, the “Novo Banco file is in process.” if it is closed”.
During this hearing, the rapporteur judge highlighted some of the conclusions of this audit, such as those that point to an inadequate accounting evaluation and valuation of assets, NB’s discretion in setting up a provision for losses, that NB’s management was aimed at maximizing public financing or regulatory and supervisory risks.
On this last point, he recalled that the action of the European Central Bank (ECB) has promoted the reinforcement of the coverage ratio of doubtful loans (NPL) due to impairments, in NB and comparable national entities, “which have been encouraged to carry out the maximum possible level of prudential provisions”, with supervisory recommendations that are not limited to accounting standards.
The message, he said, has been to “clean [os balanços de ativos tóxicos] and clean fast, the faster the better.”
The conclusion is that, respecting the applicable accounting standards, it is the responsibility of the management body of each institution to implement adequate policies and processes to identify, evaluate and monitor the risks incurred”, said José Quelhas, stressing that “this is a point that deserves a deep reflection, from a supervisory point of view, of financial regulation”.
Still on this issue, the advisory judge also affirmed that when the Contingent Capitalization Agreement (ACC) was negotiated, this context of rapid cleaning of deterioration should have been taken into account.
“This idea of cleaning up toxic assets systematically and quickly has led to a stimulus by the European central monetary authorities” in the sense that it is done quickly and robustly, which means that “when the ACC is negotiated , when it is achieved, we also have to be careful to do it in this context”, which is not only national, he said.
In the audit of Novo Banco’s management, published on July 12, the TdC concludes that the State and the Bank of Portugal (BdP) have not ensured “effective public control” in NB, failing to safeguard the “minimization of the use of public financial support” to the bank.
The Court also concludes that the management of Novo Banco with state financing “did not safeguard the public interest”, having identified “risks of conflict of interest” in the operations carried out and “avoidable practices” that weighed down public financing.
Source: Observadora
