Bank profits up 33% to €1.2Bn in Q1

Portugal’s banks raked in 20% in interest revenues in the first quarter of the year.

However, the banks have admitted that the times of making hay while the sun of high interest rates shines could now be over.

Caixa, BCP, Santander, Novobanco and BPI made over €1.2Bn in the first three months, an increase of 33% on the same period of 2023.

And the wide financial margin the banks have amassed over the past few years may now start to be squeezed as the banks try to control rising costs as unions continue to push for higher salaries.

Nevertheless, with interest rates still relatively high on the main refinancing operations, and the interest rates on the marginal lending facility and the deposit facility remaining unchanged at 4.50%, 4.75% and 4.00% respectively… for now, banks will continue to make healthy returns on lending and capital reserves.

The banks’ financial margins rose 20% to €2.4Bn with bankers admitting that the peak in profits seen from high interest rates has probably already passed.

Revenues from bank charges levelled out in Q1 to €608 million with the end of some commissioning that parliament had approved in the middle of last year, such as mortgage payments processing fees.

And since revenues are levelling out, the banks will be looking at containing costs, particularly given the pressures from unions to raise salaries after the banks posted record profits for 2023, and are likely to post very good profits this year.

Operational costs have increased by 9% to €980 million, particularly for Novobanco, and BCP.

BCP CEO Miguel Maya said the bank would continue to “keep a tight control on costs” and that the banks was “running efficiently”.

Banking sector deposits grew 1% to €216Bn while own capital profitability (Return on Equity – ROE) stood at 15% on average with Santander enjoying the highest ROE at 27%.

As for lending, the banks’ credit portfolios grew by over 3% to €188.9Bn, although continuing high interest rates may constrain mortgage applications while families may continue to pay down their mortgages or even pay them off earlier.