The Canadian rating agency states that risks for financial stability are gradually decreasing. DBRS also compliments the efforts made by banks to return to profitability.
DBRS states that the results of the Portuguese banking efforts to return to stability are visible, pointing to profits obtained by the banking sector as a whole. The Canadian rating agency states that the risks for financial stability in Portugal are gradually decreasing, in a time where banks are betting on a decrease in non-performing loans (NPL), on the reinforcement of capital ratios and on the improvement of the performance of domestic activities. However, the agency highlights the strong growth of new home loans and the increase in house prices.
“DBRS considers that risks to financial stability in Portugal are gradually receding, as the country has shown progress in tackling two critical areas”, DBRS starts out by saying, in a press release. Firstly, ” high levels of both corporate debt and non-performing loans (NPLs) have been gradually declining” — although the agency highlights the need to keep reducing them. Secondly, “the Portuguese banking sector is now in a better position, after underperforming for several years”.
"DBRS considers that risks to financial stability in Portugal are gradually receding, as the country has shown progress in tackling two critical areas.”
Furthermore, DBRS highlights the improvement in domestic activity. “For the first time in many years, all banks, except for Novo Banco, presented profits in 2017”, DBRS states, adding that “positive results for the banking sector in 2017 were primarily supported by improved domestic activity and significantly lower loan loss provisions year-on-year”.
In spite of the compliments, DBRS recalls there are other risks, namely that of fast growth in new home loans. “Other potential risks to financial stability include sustained strong new lending for house purchases and consumer credit growth, as well as sustained strong increases in house prices”, recalling that the Bank of Portugal adopted some “macro-prudential measures in response to the strength in new lending for housing, growth in consumer credit and the acceleration in house prices over the past year”. Concerning home prices, they are recovering, DBRS highlights, after a 15% fall between 2010 and 2013.