Moody’s lowers outlook for Portuguese banks to “stable” due to economic slowdown

  • ECO News
  • 11 November 2019

The financial rating agency lowered the outlook for Portuguese banks from "positive" to "stable", due to the slowdown in the economy.

Moody’s lowered the outlook for the Portuguese banks’ rating from “positive” to “stable”, justifying the decision with the slowdown of the national economy. The rating agency considers that the “operating environment of the banks will remain stable” despite the economic slowdown.

“The outlook for the Portuguese banking system has changed from positive to stable with economic growth on the verge of decelerating in line with the Eurozone,” says Moody’s in a report published Monday.

Maria Vinuela, an analyst with the rating agency, points out, however, that “the capital, profitability and financing conditions of Portuguese banks will remain solid over the next 12 to 18 months, and will continue to reduce the volume of non-productive NPE assets”.

“Profitability is expected to remain close to current levels, with charges for lower provisions and cost-cutting initiatives offsetting moderate turnover and very low-interest rates,” explained Moody’s manager.

According to the rating agency, non-productive assets will continue to fall organically, with the trend also being helped by the sale of portfolios. But NPE levels will remain high by European standards, warns Moody’s, pointing out that Portuguese banks had a bad debt ratio of 8.9% at the end of June, which compares with the ratio of 3.0% of the European Union average. In relation to funding needs, they will remain low thanks to the deleveraging of the economy and the solid deposit base.

Moody’s sees the economy grow by 1.7% in 2019 and then converge to potential growth in the order of 1.5%. This is in a scenario in which, although the country’s credit conditions have improved, household indebtedness remains above the Eurozone average and is a factor of concern for the agency.