Portugal’s Novo Banco said on Wednesday it does not expect a turnaround until 2018, after new provisions for risky assets at the state-rescued lender turned a 2015 positive operating result into a 2015 net loss of 981 million euros ($1 billion).
The results are a setback for Lisbon, which is desperately trying to sell the “good bank” successor to Banco Espirito Santo, which crumbled in 2014 under its founding family’s debts and required a 4.9 billion-euro rescue of mainly public funds.
Novo Banco CEO Eduardo Stock da Cunha told reporters operating income should double this year to exceed 230 million euros, but that would still not be enough to post a net profit.
“We expect profit at the bank overall in 2018, with profit from the core banking activity already in 2017,” he said.
Novo Banco said it had to reinforce provisions by 1.06 billion euros last year, “influenced by losses related to assets transferred from BES,” in addition to coverage for bad loans as overdue loans surged by about 50 percent.
But it said that an operating profit of 125 million euros “demonstrates the capacity to generate positive results before impairments and provisions.” It also cut operating costs by nearly 13 percent to 755 million euros.
The bank, which had assets worth 57.5 billion euros, said its customer deposits, which had slumped before and shortly after the resolution, rose by 2.8 percent to 27.4 billion euros, while net loans fell by nearly 10 percent to 31.6 billion.
Stock da Cunha said he was targeting a 6 percent increase in deposits this year.
Novo Banco ended the year with common equity Tier 1 solvency ratio of 13.6 percent under phased-in criteria, and 11.5 percent fully-implemented, “one of the highest values in the Portuguese financial system,” Novo Banco said.
The solvency boost came after the central bank in late December took a controversial decision to transfer nearly 2 billion euros in bonds from Novo Banco back to “bad bank” Banco Espirito Santo, intended to plug a 1.4 billion euro capital shortfall identified by an ECB stress test on Novo Banco.
The Bank of Portugal is leading the state’s efforts to sell Novo Banco to recover the rescue funds. The first attempt failed last year as bids came in too low, but the sale was relaunched last month.