Popular Inc., parent company of Banco Popular, on Tuesday reported net income of $89 million for the quarter ended June 30, 2016, compared to net income of $85 million for the quarter ended March 31, 2016.
“We are pleased to report another solid quarter with strong net income, revenue and credit metrics. Also our U.S. operation delivered significant loan growth while maintaining strong credit quality. We are hopeful that recent legislative actions by the U.S. Congress will be a catalyst in revitalizing Puerto Rico’s economy,” Carrión said.
During a call with analysts, bank officials confirmed that Popular Inc. has an outstanding exposure to government credit of $582 million, up $17 million from the previous quarter and down $91 million from the same quarter last year. The majority of that is in loans to municipalities, not publicly traded securities of the central government or its public corporations, Carrión said.
“We derive comfort from our underwriting process, the structure, and the size of this exposure relative to our capital base. We will continue to monitor developments in this portfolio closely and make future adjustments as needed while selectively participating in funding the Puerto Rico government capital needs where we feel the risk reward is appropriate,” he said during the call transcribed by Seeking Alpha.
During the call, Carrión expressed confidence in what should develop from the passing of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) and the fiscal control board it will create in coming months.
“This legislation reduces uncertainty, which has had a meaningful impact on investor, business and consumer confidence in recent years. In the near term, the law provides a stay on litigation, allowing for more orderly debt restructuring process, particularly given recent defaults on several classes of Puerto Rico’s debt,” Carrión said.
“Over time, we believe the board and restructuring framework will impose fiscal discipline and transition towards a manageable debt load. However, given current imbalances, this will likely include a reduction of government spending in the short-term, which could negatively affect economic activity on the other,” he added.
Ultimately though, the federally-mandated act and board “will lay the foundation for sustainable economic growth,” he predicted.
He also listed the “critical items” that the Congressional Task Force on Economic Growth in Puerto Rico — also mandated by PROMESA — should consider: analyzing Puerto Rico’s equitable access to total healthcare programs; the impact of federal trade restrictions; and additional proposals focused on job creation and attracting investment.
“We see some near-term opportunities to offset potential government cost stemming from improved business and consumer confidence, energy infrastructure development and hopefully a pay down of balances owed to suppliers by the Puerto Rico government,” he said. “In sum, we believe this legislation and the actions that will follow are step in the right direction to restore the fiscal health of the Puerto Rico government and ultimately the Puerto Rico economy.”
“Though we do not expect, nor do we plan for meaningful economic growth on the island in the near term, we are hopeful over time for the prospect of a manageable debt load, balanced government budget and renewed economic growth,” Carrión said.