The rating agency will maintain a stable outlook for the Portuguese banking. Banks are still fragile, but the modest economic recovery should help stabilize the system, the agency says.
Although the financial system is still “fragile”, Moody’s has kept a stable outlook for the evolution of Portuguese banks’ rating because they consider the “modest economic recovery will continue to support” national banks.
Portugal's banking system is still quite fragile, but the modest economic recovery will continue to support the stabilisation of the banks' credit fundamentals, albeit at very weak levels.
Moody’s predicts an economic growth of 1.1% in 2016 and of 1.3% in the following year – less optimistic than the Portuguese government’s forecast inscribed in the 2017 State Budget, pointing to an economic expansion of 1.2% and 1.5%, respectively.
The agency says the risk indicators for Portuguese banks have stabilized, even though nonperforming loans have reached 12% of assets. “But Moody’s expects the stock of problematic assets to remain high, given the modest economic growth prospects”, analysts emphasize.
Moreover, the economic recovery after the debt crisis has not been strong enough to push the Portuguese banking sector onto a “path of sustainable profitability”, which leads the agency to anticipate that “the lower cost of risk from the slowdown in the formation of problem loans may be offset by lower top-line earnings”.