Ant\u00f3nio Guerreiro, Chairman of the Strategic Council of Banco Finantia, comments on the profound transformation of the Portuguese financial system since the last financial crisis in an article published in Cadernos de Economia, by the Portuguese Economists\u2019 Association.<\/p>\n
The Portuguese financial system has undergone a profound transformation since the last financial crisis. The profitability and solvency of institutions, which had fallen sharply, have already recovered to pre-crisis levels. <\/p>\n
Over the past ten years, outstanding credit, the number of branches and the number of employees in the sector have decreased by around 30% on average, and technological evolution has been dramatic.<\/p>\n
The sector currently faces new challenges, some unprecedented, such as negative interest rates, an excessive regulatory burden and competition from new operators, outsiders to the traditional financial system.<\/p>\n
The Banking Union is far from complete and the Single Market still presents serious shortcomings. As a result, there is no proper level playing field, and institutions based in countries with lower ratings (such as Portugal) are more constrained. <\/p>\n
Retail banking is expected to continue to be subject to strong technological momentum, impacting institutions\u2019 cost structures as well as the quality and speed of the banking services offered.<\/p>\n
Investment banking will continue to suffer from low transaction volumes, due to the reduced size of the national corporate fabric and limited appetite for capital markets activities. On the investor side, there is a significant aversion to risk and to low interest rates (on debt investments). <\/p>\n
The new rules introduced by MiFID (Markets in Financial Instruments Directive), tax framework instability and the lack of tax incentives have not contributed to an increase in domestic savings.<\/p>\n
Development banking was virtually abandoned in Portugal with the privatisation of BFE. Subsequent efforts aimed at recreating it have proven insufficient and, in practice, the State\u2019s presence in financing the economy and its own projects has been dispersed across several institutions and agencies, including CGD. <\/p>\n
It would be advisable to bring together state institutions and initiatives in this area in order to give greater focus to the State\u2019s role in the economy, as is the case in many other countries, such as Spain (ICO) and Brazil (BNDES).<\/p>\n
The current Government has already shown signs of moving towards rationalising its institutional intervention in the financing of the economy and foreign trade.<\/p>\n
The strong concentration of efforts on channelling specific European funds should not overshadow the need to address other realities, such as medium- and long-term financing needs and the capitalisation of companies. Let us wait and see! <\/p>\n
With regard to financial regulation, it has proven to be growing and relentless, a trend that is expected to continue in the near future. Sector players have reacted against excesses that lead to higher costs without tangible benefits for economic growth. <\/p>\n
Risk aversion has become widespread as a result of the new rules. The lack of proportionality in their application has inhibited the growth capacity and competitiveness of smaller institutions. <\/p>\n
Growth and profitability in European banking are now low when compared to the United States. There is a need to reflect on the impact of regulation on the competitiveness of European banks before continuing with the regulatory avalanche to which the sector has been subjected in recent years. Little or no reference is made to its impact on economic growth, despite the understandable pursuit of lasting financial stability. <\/p>\n
Regulators have suggested banking consolidation as a solution to overcome the low profitability of European banking, but so far few transactions have taken place in this regard. Sector players have doubts about its advantages, especially if they are cross-border. <\/p>\n
The exponential growth of financial operators outside the banking system, often with little or no regulation, has brought new challenges to the global financial system.<\/p>\n
What would be the impact of a potential liquidity crisis on the system, given that those operators are far removed from banking regulation (Basel Accords) and generally do not have access to liquidity facilities, as banks do? Hedge funds, for example, today control volumes of financial assets greater than those of the largest global banks, thus wielding enormous economic power and capacity to influence resource allocation. And they are little or not regulated at all! <\/p>\n
It is worth highlighting the growing importance of private equity in financing many companies undergoing growth or restructuring, with particular relevance across all segments of the new economy, renewable energy and infrastructure. Although domestic capital sources in this area have not yet reached the desired scale, due to a lack of incentives and appetite for the risks involved, their importance and growth are expected to increase in the coming years. <\/p>\n
The capital markets in Portugal have declined in importance, also affected by excessive legislation and by the increasingly smaller number of listed companies.<\/p>\n
This market needs more training and less regulation. It is difficult for SMEs to engage with the capital markets given the administrative burden involved. <\/p>\n
In this case, alternative institutional mechanisms are required to meet their needs.<\/p>\n
For the sake of a convenient simplification and a more concise approach, it can be said that the financial system is today divided along two major axes: (i) payment systems and related activities (volume and technology) and financial investments and asset management (risk and service), on the one hand; and (ii) highly regulated activities versus lightly regulated activities, on the other. <\/p>\n
Underlying the entire system, technology and artificial intelligence continue to evolve, sometimes independently and at other times in collaboration with the banking system.<\/p>\n
The privacy of financial clients themselves may often be at stake.<\/p>\n
External factors affecting the financial system also exert powerful influences: demographics, trade wars, and significant political and institutional instabilities at a global level all bring new risk factors and uncertainties for investors and companies.<\/p>\n
In light of this scenario, we need informed and consistent political and economic decision-makers to provide the confidence required by markets and economic agents. It is essential to promote medium- and long-term investment that creates the wealth needed to sustain the social and even civilisational systems to which we have become accustomed: education, healthcare, pensions, and others, with adequate quality and scale for all.<\/p>\n
NOTE<\/p>\n
(*) The opinions expressed in this article are the sole responsibility of the author and do not in any way reflect or bind Banco Finantia, S.A.<\/p>\n","protected":false},"excerpt":{"rendered":"
Ant\u00f3nio Guerreiro, Chairman of the Strategic Council of Banco Finantia, comments on the profound transformation of the Portuguese financial system since the last financial crisis in an article published in Cadernos de Economia, by the Portuguese Economists\u2019 Association. The Portuguese financial system has undergone a profound transformation since the last financial crisis. The profitability and […]<\/p>\n","protected":false},"author":7,"featured_media":7250,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[97],"tags":[103,92,105],"class_list":["post-7268","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-institutional","tag-investment","tag-markets"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.finantia.com\/en\/wp-json\/wp\/v2\/posts\/7268","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.finantia.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.finantia.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.finantia.com\/en\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/www.finantia.com\/en\/wp-json\/wp\/v2\/comments?post=7268"}],"version-history":[{"count":1,"href":"https:\/\/www.finantia.com\/en\/wp-json\/wp\/v2\/posts\/7268\/revisions"}],"predecessor-version":[{"id":11445,"href":"https:\/\/www.finantia.com\/en\/wp-json\/wp\/v2\/posts\/7268\/revisions\/11445"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.finantia.com\/en\/wp-json\/wp\/v2\/media\/7250"}],"wp:attachment":[{"href":"https:\/\/www.finantia.com\/en\/wp-json\/wp\/v2\/media?parent=7268"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.finantia.com\/en\/wp-json\/wp\/v2\/categories?post=7268"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.finantia.com\/en\/wp-json\/wp\/v2\/tags?post=7268"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}