February 28, 2020 / 4:00 PM / a month ago

UPDATE 1-Portugal may have posted fiscal surplus in 2019 - finance minister

* Portugal was expecting first surplus since 1974 next year

* Centeno says possible that surplus posted in 2019

* Says expects further banking consolidation in Portugal

* To carefully monitor dos Santos divestments in Portugal (Adds banks, dos Santos)

By Ingrid Melander and Sergio Goncalves

LISBON, Feb 28 (Reuters) - Portugal may have posted its first budget surplus in decades in 2019, a year earlier than forecast, after a strong fourth quarter for the economy, Finance Minister Mario Centeno said on Friday.

The Socialist government initially forecast a 0.2% deficit for 2019, recently trimmed to a 0.1% deficit, and had set itself the target of generating a surplus in 2020 - its first since the country’s return to democracy in 1974.

Official data are due to be published next month.

Asked in an interview with Reuters if the fact the economy grew 2.2% last year could mean that 2019 marked the first fiscal surplus, Centeno said: “It is possible.”

“In the fourth quarter the economy performed very, very well. There was a rebound in exports, investment also kept the momentum very high, the labour market keeps delivering great results,” he said.

“All these numbers add to a scenario that makes it (a surplus) possible.”

The government had forecast growth of 1.9% in 2019.

Centeno said the government intended to continue the process of cutting state debt with the key goal of cutting it to below 100% of GDP within two or three years’ time.

The debt/GDP rate stood at around 118% in 2019.

Centeno said he expected further consolidation in Portugal’s banking sector.

“Contrary to other, to most markets in Europe, our banking sector was able to attract cross border investment from many jurisdictions ... in the last couple of years”.

“For the future it (banking concentration) will continue to happen, it’s my opinion,” he said.

Analysts have speculated that Novo Banco, controlled by U.S. private equity fund Lone Star, could eventually be caught up in such a wave

Novo Banco, 75 percent owned by Lone Star since October 2017 and 25 percent by the Portuguese Resolution Fund, has been offloading bad loans, real estate and non-core assets under restructuring commitments agreed with Brussels.

Asked about this, Centeno praised a reduction in non-performing loans and said: “I think it is natural that the evaluation of the bank improves and the market feels some appetite for it.”

In an interview in July, Novo Banco’s chairman Byron Haynes emphasised the bank’s standalone business model.

“SERIOUS MATTER”

Centeno said Portugal was carefully monitoring and seeking to minimise fallout from the case of Angolan billionaire Isabel dos Santos, who is selling stakes in Portuguese companies following graft allegations against her.

Angola has named dos Santos, the daughter of its former president Jose Eduardo dos Santos, as a suspect over alleged mismanagement and misappropriation of funds while she was chairwoman of state oil firm Sonangol in 2016-2017. Dos Santos has denied any wrongdoing. (nL8N29S2TX)

Portugal’s market watchdog in January launched inquiries into various firms in which dos Santos holds stakes and into unspecified auditing firms.

“It is a very serious matter and we don’t want concerns over the financial sector in Portugal to be reopened after such a difficult period of time we went through quite recently,” Centeno said.

“I asked all the supervisors in Portugal to provide me with all the information, we are working together to make sure there were no failures in the process, in the Portuguese institutions, firms and financial sector. We will act accordingly, which involves of course a judicial dimension, if that is the case.”

Centeno, who is also the head of the Eurogroup of euro zone’s finance ministers, said he was “in principle” in favour of this position being for one term only.

However he had not yet decided if he would run for a second term. His 2-1/2-year mandate ends in July. (Reporting by Ingrid Melander and Sergio Goncalves; editing by John Stonestreet)

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