30 July 2020 – Fitch published a report this week warning of a coming increase in bad debt levels in Portugal due to the Covid-19 pandemic. At the same time, however, the credit rating agency stressed that the country’s banking system is better prepared to face the crisis. It added that it does not expect any potential exposure to non-performing loans to reach the levels seen during the financial crisis at the beginning of the last decade.
The report on Portugal’s banking system went on to say that the rating agency expects to see a deterioration in asset quality from now until 2021 and does not expect profits to recover before 2022.
“Loans to small and medium-sized enterprises and unsecured consumer credit run the greatest risk of default during the economic downturn. Portuguese banks have significant exposure to the most affected sectors of activity, such as mining and manufacturing, non-food retail, transport, restaurants, hotels and leisure. This exposure accounts for approximately 47% of the total credit portfolio for non-financial companies, much higher than most northern European countries”, Fitch stated.
Banco Montepio is in the worst position to face the crisis, as it is furthest from the Tier 1 capital ratios required by EU regulatory authorities. Based on data from March 30th of this year, Banco Montepio has a CET1 of 11.7% and excess capital of 1.5%, below the total capital requirement of 13.9%.
Original Story: Jornal Económico – António Vasconcelos Moreira
Translation/Summary: Richard D. Turner