Moody’s upgrades the ratings of Portugal’s main banks

Moody’s decided to upgrade the ratings of the main Portuguese banks: Caixa Geral de Depósitos (CGD), BCP, Santander Totta, BPI and Crédito Agrícola, while the Novo Banco’s rating remained unchanged. The rating actions were prompted by the upgrade of Portugal’s rating last week.

Over two years after the last decision, Moody’s finally upgraded Portugal’s rating to “Baa2”, and changed the outlook to “stable” from “positive”. The agency has the “expectation that Portugal will see improvements in its longer-term growth prospects due to utilization of NextGen EU funds and implementation of structural reforms,” and is confident that the public debt burden will be reduced in the coming years.

Moody’s noted that the Portuguese banks’ upgraded ratings also reflect a better performance in “creditworthiness achieved by some banks”. “However, some uncertainties remain as to the impact of the pandemic on Portuguese banks’ asset risk and profitability,” the US agency explains.

The rating agency points out that credit market conditions remain challenging, mainly because of “high levels of private sector debt – despite recent improvements – and the banks’ high exposures to corporate sector”. “Although banks have improved their funding and liquidity over recent years and also re-gained access to capital markets, Portuguese banks remain sensitive to changes in market sentiment and to market shocks,” it highlights.

In Caixa Geral de Depósitos’ case, the rating upgrade from “ba1” to “baa3” is justified by the “bank’s success in delivering on its 2017-2020 strategic plan, as reflected in its enhanced capital levels and improved asset-quality metrics”. The outlook remained “stable” with the rating agency expecting an improved performance for CGD’s credit profile over the next 12-18 months.

BCP’s rating was upgraded from “Baa3/Prime-3” to “Baa2/Prime-2”, reflecting “the bank’s improved asset-risk indicators, although still weak, and its modest capital levels”. Santander Portugal saw its rating being upgraded from “Baa1” to “A3”. The same happened to BPI.

At last, Novo Banco’s rating remained the same (B2), but the outlook was changed to “positive” and the agency now admits “that the current negative adjustment for corporate behaviour will be discontinued provided that Novo Banco continues to meet its financial targets, confirms its return to profitability and prove the existence of a sustainable franchise over the outlook period, while maintaining an enhanced visibility on its financial strategy.”