64
64

DBRS May Elevate BCP’s Rating Pending Further Reduction in NPLs

12 June 2018

The Canadian agency improved its outlook for BCP’s credit rating to “positive.” In other words, the rating may be raised shortly, but for that to happen, the bank must continue to reduce its exposure to NPLs.

DBRS is prepared to elevate BCP’S credit rating, removing it from ‘junk’ status. The Canadian agency improved its outlook for the bank, which is still led by Nuno Amado (pending the European Central Bank’s green light for Maya to take over), to “positive,” in the expectation that the financial institution will continue to reduce the burden of bad debts and risk on its balance sheet. This will allow the bank “to generate capital organically,” the agency stated.

“The positive trend reflects DBRS ‘expectation that, thanks to the benign economic conditions in Portugal, the bank’s strong position and improved risk management, BCP will continue to reduce NPL and the cost of risk. The latter will translate into a greater capacity to generate capital organically,” DBRS stated in an investment note.

DBRS argued that BCP has made significant progress in improving its risk profile and reducing non-performing loans over the past 15 months. “The reduction in NPLs accelerated in 2017, and this trend continued in the first quarter of 2018 thanks to the active management of their portfolio as well as benefits stemming from the improving Portuguese economy.”

While acknowledging the progress made in “clearing” its balance sheet, the agency believes that the bank’s efforts must continue. Therefore, it maintained BCP’s current rating of BB high (the level below the threshold for investment grade) and now that its outlook has been changed to “positive,” the rating can be increased at any time.” The rating continues to reflect the high level of NPL and the unprovisioned NPL ratio, which is higher than that at most European banks,” said DBRS, also warning of “modest capital cushions” relative to the minimum requirements.

“The rating can be improved if the bank continues to reduce NPLs at a significant pace and improve profitability in Portugal through revenue growth and a reduction in the cost of risk,” the rating agency stated. “The rating will be under pressure if there is a significant deterioration in the quality of assets and capital. Moreover, the trend may return to ‘stable’ if the bank is not able to meet the NPL reduction plans,” it concluded.

Original Story: Economia Online – Rita Atalaia

Translation: Richard Turner