Portugal Delivers Grim Warning About Stability Of Its Own Banks, And Impact Of Austerity

It’s hard to have confidence in a country’s banking sector when its own government and central bank is warning about instability.

The Bank of Portugal just came out with its mid-year review, and it’s not pretty.

Here’s the intro:

The Portuguese financial system is facing several serious challenges, arising from the international financial instability, particularly marked in Europe during 2010, and worsened, in the Portuguese case, by the need of adjustment of structural imbalances, which are becoming more severe. The strong deterioration of the prospects of international financial markets players on the sustainability of the public finances situation in Portugal has been reflected in a strong increase in the risk premi- um on sovereign debt, which has had negative repercussions on the Portuguese banking system’s access and funding costs in the international wholesale debt markets. This increase in risk premium occurred against a background of a significant differentiation in sovereign risk assessment in the euro area. The imbalances of the Portuguese economy are not only associated with a worsening fiscal situation but also with a persistent and significant deterioration of the economy’s external position, against a background of high levels of private and public indebtedness and low economic growth over the course of the last decade.

Here’s the full report:

REF Overview Nov2010

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