This issue features Luís Fernando de Mira Amaral, CEO of Banco BIC Português and former Minister of Labour and Social Security (1985-1987) and Minister of Industry and Energy (1987-1995) in Portugal. Minister Mira Amaral discusses the future of the Eurozone, why international investors should not confuse the situation in Portugal with that of Greece, business drivers for Portuguese banks and the appropriate mixture of leadership styles.
Minister Mira Amaral is the CEO of Banco BIC Português, a position he has held since 2008. Prior this role, he served as a CEO at several financial institutions in Portugal, Angola and Mozambique, most recently at Caixa Geral de Depósitos (the largest bank in Portugal), Banco de Fomento (in Mozambique) and Banco de Fomento (in Angola). He has also been President of the Portuguese Institute for Financial Management of Social Security. He started his professional career as an engineer at the global energy operator EDP.
Minister Mira Amaral has held academic positions in economics and management and continues to teach in his free time. He was the Chairman of the Nova Forum at Institute of Executive Training of Nova School of Business and Economics.
The Minister holds a degree in Electrical Engineering from Instituto Superior Técnico (IST) - Lisbon and a Masters Degree in Economics from the Nova School of Business and Economics. He has also completed several post-graduate programs in management, finance, banking and engineering from Stanford University’s Graduate School of Business, INSEAD, Manchester University and the Euromoney Training Center.
The Minister currently sits on the Board of Sociedade Portuguesa de Inovação, is a Member of Supervisory Board of Royal Lankhorst Euronete Group (Netherland) and the President of the Audit Committee for NOVABASE SGPS.
Boyden: Portugal is front and center in the news as many are concerned that contagion from the Greek debt crisis could spread to Portugal. How is Portugal different from Greece in terms of the economic situation?
Mira Amaral: I understand that the international financial markets think that Portugal is similar to Greece. It is not true. The situation of our public finances, banking sector, real economy and political system makes us very different. The thing we have in common with Greece is our low national savings rate which is around eight percent right now.
For example, Portugal has a big fiscal deficit but the Portuguese government is able to collect tax receipts. I am confident that the Portuguese government will be able to cut the deficit and to manage the public debt. The public finance system in Greece is a big mess.
There is also consensus in Portugal between the three main political parties regarding implementation of the economic program proposed by our troika of international lenders -- the European Commission, the International Monetary Fund and the European Central Bank (ECB). This is not the same in Greece where, as you know, there is major disagreement between the two main political parties.
We are also seeing in the real economy that a lot of Portuguese exporters are performing very well at the moment. This is not the case in Greece, where the main industries are tourism and shipping.
Boyden: Productivity and competitiveness will be a key driver for Portugal, and indeed Europe’s, future economic success. What are some of the areas where investment should be made to help future generations become more productive?
Mira Amaral: Obviously we have a productivity gap against our main European partners. But it is also important to emphasize that we have lower severance than in Central Europe. This means that the Portuguese export sector is able, with the lower severance, to accommodate the productivity gap and to perform well now.
We have several export sectors that are performing well. This includes the industrial sector, where we are exporting namely components for the automotive industry, electrical and non-electrical machines, footwear, textiles as well as paper and cork. Also in the tradable sector our tourism sector is performing very well.
There are also interesting developments in renewable energy and off-shoring opportunities in the information technology and telecommunication sectors. Finally, we have an opportunity on healthcare and tourism for older people.
Boyden: When you say health and tourism sectors, would that be similar to when people come to the US or other countries for high quality healthcare?
Mira Amaral: Yes. We are trying to develop a health sector linked to tourism for rich individuals from Central Europe who want to retire or live in Portugal. We have a well-developed healthcare infrastructure and a good quality of life. We need to combine our good weather, our good health structure and our quality of life to attract retirees from Central Europe. We think this is a good opportunity for Portugal.
Boyden: How different is the state of the Portuguese banking sector compared to Greece?
Mira Amaral: Regarding the banking systems, Portuguese banks have strong financial structures and maintain good capital ratios. The banking sector in Greece was completely contaminated by the public finance situation because the big banks bought a lot of Greek sovereign debt.
Portuguese banks are not as contaminated by the situation of Portuguese finance. Obviously they have now the difficulty in getting funding from the international financial markets because the foreign financial markets are closed to the Portuguese economy. But this is a different situation than that of Greece.
Boyden: What are banks, including Banco BIC Português, doing to shore up their balance sheets and diversify some of the risk associated with deterioration in the domestic market?
Mira Amaral: Most of the Portuguese banks have operations outside of Portugal. Some of them are working in Angola and Mozambique, which now have very strong economies as well as robust domestic markets. Other Portuguese banks are in eastern European countries such as Poland.
So, we are not only concentrating on our domestic market. Rather, we are also focusing on former Portuguese colonies and Eastern Europe which allows us to diversify from our domestic market. Thirty or 40 percent of the profits from Portuguese banks are coming out of Angola and Mozambique. This is an important contribution to overcoming the slowdown of the domestic market in our banking sector.
Boyden: How is Banco BIC structured?
Mira Amaral: At Banco BIC, we have two banks, one in Angola called Banco BIC and the other in Portugal called Banco BIC Português. Banco BIC is one of the biggest banks on Angola, with branches all over the country.
In Portugal, we began from scratch in 2008. We are a small bank with corporate, correspondent and private banking operations. Through our banks in Portugal and Angola, we work with Portuguese and Angolan companies to finance external trade between these two countries. This is our niche and our differentiator from the other Portuguese banks. We work through both our banks to develop joint operations to help Portuguese companies export, invest and operate in Angola.
We are a correspondent bank for four Angolan banks and have a private banking business in Portugal as well. We are very profitable. Last year, we had a return on equity of about 15 percent, which is very impressive for the Portuguese market.
Boyden: Would you consider expanding into the Brazilian market?
Mira Amaral: We are looking at Brazil
now but we are not thinking about any retail operations there. Why? That’s because the retail business in Brazil is an oligopoly among the three or four main banks. It is not easy to have access to a retail network, to scale and become profitable in this market.
For us, it is very interesting to build a small investment bank in Brazil to develop corporate finance and M&A businesses as well as generate prospects for investment between Brazilian, Portuguese and Angolan markets. This is a link we would like to create for business opportunities among these three markets.
Boyden: Will the acquisition of Banco Português de Negócios (BPN) bring additional growth opportunities?
Mira Amaral: Let me explain the rationale for the acquisition. As I mentioned, we have been a small bank working in three business lines: corporate banking, correspondent banking for Angolan banks and also in private banking. By buying BPN, we will acquire their retail network and become a retail bank in Portugal.
However, given the bad economic situation domestically, my shareholders know quite well that with the acquisition of BPN we will not be able to operate profitably for the next two or three years. The rationale to buy BPN was to create a big bank in Portugal, to wait for the economic recovery which we think will not happen now, but perhaps in the next three or four years. So it won’t be a short-term return.
Boyden: What other opportunities for growth do you see in the domestic market?
Mira Amaral: For my bank, if I have money to finance companies, I see very good opportunities in the Portuguese export sector. As I mentioned, there are a lot of companies that are performing very well in the external sector but they have problems because of the current liquidity shortage. If we have money to finance them, there are great opportunities with small and medium enterprise exporters that are performing very well.
We also don’t need physical branches now to be successful in some dynamic areas of Portugal. With our affluent customers we are able to develop a relationship through the Internet. Thus, I see the export sector and affluent individuals as two important areas of opportunity.
Boyden: What is the outlook in the next few years for European banking?
Mira Amaral: The outlook for the European banking sector is closely linked with the outlook for the European economy. Why? That’s because, as you know now, the ECB is injecting a lot of money into the European banking sector. This has helped us avoid the credit crunch and the serious liquidity problem in the European banking system.
However, this is not making an impact on the real economy. Banks are depositing money back at the ECB in the form of time deposits rather than lending to the companies in the real economy.
What we have in Europe is a serious problem of confidence in the future of the European economy as commercial banks are not lending to companies in the real economy. This problem, in my opinion, is a problem of the future for the outlook of the European economy. It’s not a liquidity problem at the moment.
Boyden: Many experts are predicting a longer haul for economic recovery in many European markets. What elements will be important to speed the recovery?
Mira Amaral: I don’t see a speedy recovery in Europe given the current economic slowdown. I am more optimistic about the American economy where I now see some kind of sustainable recovery in certain areas. In Europe, we need to stabilize the situation in Portugal, Spain, and Italy where there is problem of confidence and to solve the sovereign debt crisis in the Eurozone. I don’t see a strong recovery without these measures.
Boyden: What do you see as the future of the Eurozone?
Mira Amaral: I don’t think that we will have a Eurozone break up. I am also not sure that Greece will be able to remain a member of the Eurozone in the long-term because I believe that it will be hard for the country to recover from this very bad situation. They have a serious competitiveness gap and no ability to address the current financial situation.
I understand the political motivation for European leaders who are now paying Greece to avoid a Eurozone exit. If Greece leaves the Eurozone now, it will create a dynamic shock against Portugal, Spain and Italy. We need to stabilize these three countries. If we are able to do this, then I believe that the Eurozone will remain, with perhaps two or three more members joining it.
I was more pessimistic a year ago about the prospects of the Eurozone as I thought German leaders and German public opinion would not support Greece. But now it is clear to me that now they understand that the survival of the Eurozone is in their best interest.
Boyden: As a CEO, what do you look for in a successful management team?
Mira Amaral: I was in government for 10 years and so have political experience in addition to corporate experience. I know quite well that success is not just a question of having the best technologies. It is also how we motivate and choose the best people. This is not only true for leadership teams but also for staff.
A CEO must understand his/her staff and have a comprehensive approach that motivates the staff every day and allows them to participate in the company’s success. At Banco BIC Português, we have a fair approach of frank discussion and I have a very good relationship with my staff. It is an essential element of how we work in our company.
Boyden: How would you describe your leadership style?
Mira Amaral: I like to have a style that mixes a technocratic approach with a more social approach. As a former engineer, I need to have a lot of information, which I read and discuss. But I don’t forget the human side of the company. So, you can categorize my style as a combination of a heavy technological approach with a human approach.
Boyden: What is most important to you in recruiting executives?
Mira Amaral: If I am recruiting technical staff, obviously the technical knowledge is very important. If I am recruiting managers and top people, human skills are more important. I am very sensitive about the human dimension of the people that I am recruiting at the top level.
Boyden: You have held many leadership roles in government, business and academia. What has been your most important success in your career?
Mira Amaral: I would say that being Portugal’s Minister of Industry and Energy in the late eighties to mid-nineties is a very important milestone for me. Some reports say that I was the best industry and energy minister in the Portuguese democracy. This role has also helped me develop my career in management. I have been able to combine my technical knowledge of the general economy with the sociological and human dimensions that are very important for management at the top level.
Boyden: What is important to you outside the office?
Mira Amaral: I teach a course on management for engineers for two hours every week at IST - Lisbon. My friends like to play golf for pleasure, though I prefer to teach students. I also spend weekends in Cascais, which is a wonderful town on the coast where I bike and jog. At home, I like music and read a lot of newspapers and books, mainly related to economics and finance.
Boyden: You are always learning new things and teaching as well.
Mira Amaral: Yes, I am always reading and trying to learn about the evolution of economics and finance. For me, it is also a pleasure to teach young people about the economy and about financial management.
Boyden: What’s the greatest lesson you’ve learnt in business?
Mira Amaral: It is the understanding that success today is not a guarantee for success in the future. I see some managers who are arrogant when they have success. This is a very bad idea because we need to understand that we are human. If we have success today, we are not sure that we will be able to maintain it to build success tomorrow.
The idea of our limitations, the idea that we are not supermen even if we have success now, is very essential. Markets change every day. We need to be very flexible and learn every day how the markets behave, rather than being arrogant in our success.
Boyden: In Europe, the job market is particularly difficult for the younger generation. How do you see this impacting the way young people approach employment today?
Mira Amaral: I am afraid when we think about our young people in Portugal, we have what I would consider a dual situation. We have a lot of brilliant students in Portugal who understand that they need to think globally and build skills for the global markets. For these reasons, they are prepared for the global economy. I am very confident about the future of these students.
But, on the other hand, we also have a lot of young people who believe that the Portuguese taxpayers must give them jobs. They want to work in a big company or for the state their whole life. They are angry at the state, which they believe should solve their problem and give them job protection from competition. This kind of thinking concerns me. Young people need to understand that Portugal must compete in the global market. I am very worried about this other dimension.
Boyden: So human capital will be critical to the recovery?
Mira Amaral: I think that for Portugal to come out of this bad economic situation, we not only need leadership in the corporate sector but also strong political leadership to put us on the path to economic recovery. We have great new management in the corporate sector. However, I am concerned about the serious shortage of good talent in the political system in Portugal and also across Europe. It was an honor to work in government 30 years ago but now we are no longer attracting the best young people.
The views and opinions expressed here do not necessarily represent the views of Boyden: only those of Minister Mira Amaral.