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DBRS: Portuguese Banks’ Efforts to Return to Profitability are “Bearing Fruit”

14 May 2018

The rating agency stated that the risks to financial stability are gradually declining, and praised Portuguese banks’ efforts to return to profitability.

DBRS stated that the national banking sector’s efforts to return to profitability are close to bearing fruit, noting how the sector had returned to profitability (in the aggregate). The rating agency believes that the risks to financial stability are gradually declining in Portugal, at a time when banks are pursuing continued reductions in their levels of bad debts, strengthened capital ratios and improved performance in their domestic operations. However, the agency warned of the strong growth of new housing loans and rising house prices.

“The risks to financial stability in Portugal are gradually decreasing as the country shows progress in solving two critical problems,” DBRS was quoted as saying in a note. Firstly, “the high level of NPLs [Non-Performing Loans] has been falling,” though the firm stressed that more work needs to be done on that front. Second, ” after several years of negative performance, the national banking sector is now better placed.”

“The risks to financial stability in Portugal are gradually decreasing as the country shows progress in solving two critical problems.” – DBRS

The DBRS highlighted the improvement in domestic activity. “For the first time in years, all banks, except the Novo Banco, showed profits in 2017,” DBRS notes, adding that “positive results for the sector were mainly supported by the strengthening of domestic activity and significantly lower provisions year-on-year.”

Despite the praise, DBRS noted out that there are other risks, namely the rapid growth of new loans for home purchases. “Other potential risks to financial stability include the growth of new housing and consumer credit, as well as the strong, sustained increase in home prices,” noting that the Bank of Portugal has already taken several macroprudential measures to prevent a further easing of credit. The rating agency also stated that housing prices are recovering after a drop of 15% between 2010 and 2013.

Original Story: Economia Online – Rita Atalaia

Translation: Richard Turner