Lessons from the collapse of two banks in Portugal: Implications for banking management and regulation

Abstract

It is almost 10 years since one of Portugal’s five largest banks, BES, was subject to a bank resolution measure. In 2015, another large bank, BANIF, followed the same path. Now that some time has passed and the full consequences of the resolutions materialised, it is time to reflect on the causes of the crises at these two banks and to draw lessons for the future. In addition to looking into the relevant literature, official company reports, parliamentary inquiries, newspapers and other public information, we examine whether key financial ratios could have raised a red flag. We conclude that the collapses were explained by a mixture of macrostructural causes and above all bank-specific factors. The two cases are good illustrations of the negative effects of financialisation in the Portuguese economy. The key profitability and risk indicators provided some timely indications of the problems facing the two banks.