Portugal is experiencing a persistent banking crisis that translates into high levels of non-performing loans.

The causes of this crisis are now clear: the slow growth of the economy, the excessive weight of the State, the high levels of public debt, corporate debt and individuals’ debt, which began in the nineties and accelerated without control in the first decade of the new millennium.

These factors combined with the global financial crisis of 2008 triggered a serious financial and economic crisis, which would culminate in the request for international aid in 2011.

Following the sovereign debt crisis in 2010, the European banking authorities have imposed more stringent stress tests, the strengthening of the banks’ own funds and the contributions of shareholders and creditors for the recapitalisation of distressed banks.

However, the bank resolution mechanism, now in force in Europe, does not respond to the less critical situations where imbalances result from the difficulties in disposing of non-performing loans, which can become more serious when they reduce the liquidity of banking institutions and undermine the confidence of depositors.

Six years following the Troika intervention and three years after the end of the Portuguese bailout program, the banking crisis continues despite the concentration of banks and the reorganisation of the sector.

Public and private indebtedness remains high and banks accumulate non-performing loans in their balance sheets and in vehicles they indirectly control.

The Portuguese government and international institutions, like the IMF, the OECD, the European Commission, the EBA and the ECB recognize the problem and agree that banks should be freed of non-performing loans. However, they do not agree on the urgency of the problem and on whether State and/or European intervention are needed. While the EBA, the IMF and the OECD have been advocating the creation of an European mechanism for the disposal of bad loans, the EU Commission and the ECB prefer a softer approach.