Moody’s: without selling portfolios, CGD may not be able to reduce NPLs

Caixa Geral de Depósitos (CGD) wants to reduce non-performing loans (NPL), within their strategic plan for 2017-2020. Nonetheless, it will not be an easy task, warns the rating agency Moody’s. While the State bank doesn’t sell its default loan portfolios, NPL will continue to weight in on the bank’s balance for at least one more year. Therefore, return to profit should only happen next year.

“In our view, CGD will be challenged to achieve a material reduction in its NPL ratio over the next 12 to 18 months“, explains Moody’s in a press release. The agency states this will happen if there is the “absence of any material sale of bad loans, given the country’s still modest growth economic prospects”.

In our view, CGD will be challenged to achieve a material reduction in its NPL ratio over the next 12 to 18 months in the absence of any material sale of bad loans, given the country’s still modest growth economic prospects.

By the end of March, CGD reported a 15.4% NPL ratio, in comparison to 15.8% in the end of 2016, which “compares unfavorably
with its large European peers”, Moody’s states.

This is a high percentage which weights in on the bank’s balance and postpones CGD‘s return to profit: “For the remainder of 2017, we do not expect a significant turnaround in the bank’s profitability, as we view that pressures from the operating environment, namely stemming from ongoing subdued business volumes and very low interest rates, will prevent to achieve material improvements in operating income”, the agency states.

This warning had already been given by Paulo Macedo. When presenting CGD‘s first quarter results, the CEO of the State bank stated that “if CGD does not make a profit, I will have a double problem”. A bank which does not generate capital must be shrunk; therefore, it is “crucial for CGD to make a profit”, highlighted Macedo.