Bank of portugal wants banks to securitise property loans

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LISBON Oct 23 The Bank of Portugal wants the country's banks to set up a fund where their shaky real estate loans would be securitised and sold in order to provide more financing to the recession-hit economy, the financial authority said on Tuesday. It said it had met representatives of the Portuguese Banking Association to present its initiative which had already been coordinated with the country's European and IMF lenders. Such a fund would increase the banking sector's "capacity to finance the economy, boost the prospects of longer-term profitability in the sector and reduce the levels of borrowing by the banking sector with the European Central Bank".

Portuguese banks have long been frozen out of the interbank funding market due to the country's debt crisis and relied heavily on ECB liquidity. Overall lending to the economy shrank by nearly 7 percent in August from a year earlier, to 311.3 billion euros, according to Bank of Portugal data.

The property market in Portugal has not been as hard-hit by the crisis as in Spain or Ireland, but the volume of overdue loans held by Portuguese firms has been rising, hitting record highs in June, as credit conditions tightened.

Bank of Portugal data show construction and real estate companies accounting for nearly 17 percent of all non-performing loans to businesses in the first half of the year. The share of bad loans to businesses in general increased to 8.8 percent of all loans in June from 5.6 percent a year ago. Housing loans to private individuals still have a fairly modest 2.2 percent share of overdue loans.