The forecast for the Portuguese economy to decline in the coming years leads Moody's to lower the outlook for Portuguese banks from "positive" to "stable" this Monday.
"The outlook for the banking sector in Portugal has changed from positive to stable as the country's economic growth will slow down in line with the euro area as a whole", writes the valuation firm and expects growth of 1.7% this year, which contrasts with The European Commission's forecast last week to 2%.
In a note published today Maria Vinuela, senior analyst Moody & # 39; s expects capital, profitability and financing terms "to remain unchanged for the next 12 to 18 months" and that bad credit (NPL) will continue to decrease, which will also be supported by the sale of portfolios.
But "the availability of problem assets will remain high by European standards." Moody's expects the NPL ratio to fall to 8.1% by the end of 2020 for all Portuguese banks it monitors. Data recently released by the European Central Bank (ECB) show that the current level is 10.5%. The current European average of NPLs is 3%.
"Profitability is likely to stay close to the current low levels," Vinuela predicts, noting that cost-cutting initiatives "largely" will offset the "reduced" turnover and the "very low" interest rate environment.
Moody's also warns of the "high volume" of deferred tax assets (DTAs), which it considers to be a "form of low-quality capital," "undermining the resilience of Portuguese banks "The capital of Portuguese banks is weaker than most of their European partners," says the credit rating agency.
The report maintains the government's "moderate probability" of having to help the two most important Portuguese banks, CGD and BCP. "low".
The net political impact of the ECB is positive
In Moody's view, Portuguese banks must thank the European Central Bank (E CB) for their expansionary monetary policy. In this report, the Assessment Agency concludes that the net effect has been "positive" for Portuguese banks "so far", which has contributed to the banks' liquidity.
"[As políticas do BCE] also reduced the repayment burden for the highly indebted private sector, which led to lower credit losses. At the same time, lower funding costs helped keep net interest margins roughly the same, despite lower interest rates," Moody's explains.
It is right for analyst analysts that there will be no reversal of this unconventional monetary policy anytime soon. Moody's expect that the ECB will not start raising interest rates before the first half of 2020 and "any increase should be very gradual."
At present, banks will be able to benefit from the third round of long-term lending (TLTRO III) announced in September this year in the new stimulus package. Moody's writes that although conditions are less favorable than previous rounds, "the program is likely to remain attractive to many banks", including the Portuguese who can participate to "benefit" from "relatively favorable" financing terms.
According to the credit rating agency, Portuguese banks will have to repay cheap funding from previous TLTRO rounds between June 2020 and March 2021. This is the largest proportion of ECB lending to banks, which, in the case of Portugal, represents 4.7% of bank assets .
(News updated 11h12 with more information)