Lusa - Business News - Portugal: Third Novo Banco audit unveils poor assessment of debtor assets

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Lusa - Business News - Portugal: Third Novo Banco audit unveils poor assessment of debtor assets

Lisbon, July 5,2022(Lusa)- The report of the third special audit of Novo Banco found "limitations in the scope and timing of the search for the assets of debtors and revealed that the procedures for wealth search were not formally defined in regulations.
The audit report was carried out by Deloitte by order of the government following the payment made in June 2021 by the Resolution Fund, based on the 2020 financial year, in compliance with the terms of the Contingent Capitalisation Agreement ("CCA").
The process of searching the assets of debtors and guarantors may be carried out directly through the corporate credit recovery department (DRCE) or through recourse to an external entity.
In both cases, the objective is to identify if the debtors have real estate assets or shareholdings, among other assets, and in both situations, limitations were detected.
"We can see that the procedures carried out by an external entity are comprehensive, but do not apply to most debtors," the document said.
On the other hand, the report revealed, that "the procedures implemented at Novo Banco do not include research into all the types of assets of debtors and guarantors and are not carried out on a regular basis".
This way of working, it sad, did not allow the bank "to have up-to-date knowledge of all the assets of debtors and guarantors to ensure better decision-making by the bank, including in matters of defining the recovery strategy".
"Additionally, no concrete criteria are defined for the circumstances in which this asset search should be carried out for each debtor, taking into account their risk class, level of associated guarantees or recovery strategy", the document states.
In this context, some examples are presented, including that of a debtor - identified as 'Debtor 10', for which the auditors found that the search for assets was carried out internally by Novo Banco and was limited to real estate assets located in Portugal, despite the "economic activity of this debtor being concentrated outside Portugal".
At stake is a debtor that in 2020 generated losses of €40 million.
The report also highlighted the fact that no "evidence of the process of searching for assets of the debtors and/or guarantors" has been "obtained", with five of them - monitored by DRCE as mentioned aboveDRCE - generating losses of €51 million in 2020.
Regarding the other eight - which were monitored by the Department of Monitoring and Follow-up (DSAE) - there are two debtors that in 2020 generated losses of €6 million, having been disposed of in 2021 in the process of the aggregate sale of credits, called 'Wilkinson'.
"These debtors generated in 2021 a net loss on disposal of €4 million," the document sustains.
According to the report of this new special audit, the procedures for searching the assets of debtors "are not formally defined in internal regulations" of Novo Banco, being only "implemented for debtors that are under the sphere of responsibility in terms of follow-up and monitoring of the DRCE".
"In this sense, procedures of this type are not implemented when the debtors are under the remit of the DSAE or the commercial departments, even in operations that present indicators of increased risk," it said.
In April, the government sent parliament the report of this audit, which specifically targeted credit operations (including granting, guarantees, restructuring or forgiveness of debt, giving or foreclosing on guarantees, sale of credit portfolios or transfer to funds), investment, expansion or divestment decisions made in Portugal or abroad, as well as decisions to acquire and sell assets.
In 2021, the payment made by the Resolution Fund in respect of the accounts for 2020 amounted to €429 million.
LT/ADB // ADB.
Lusa

Agency : LUSA
Date : 2022-07-06 10:43:00

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