Portugal’s “strong economy” leads Moody’s to improve ratings of seven Portuguese banks

The ratings agency Moody’s has improved the ratings of seven Portuguese banks because of “improved operational conditions” in Portugal which led to Portugal’s macroeconomic rating being raised to ‘Strong’.

“Operational conditions have improved as a result of stable economic growth in Portugal, with a projected real GDP growth of 1.8% for 2024 and 1.9% for 2025, well above the European average”, Moody’s states.

The agency recalled that credit conditions in Portugal had also improved significantly in recent years, with a significant reduction in private sector leverage (although still relatively high), strengthening banks’ lending capacity to the real economy.

The agency pointed out that Non-Performing Loans had fallen to 2.9% of all bank loans in June 2024, compared to 3.5% the year before, slightly above the EU average of 2.2%.

“Moreover, the quality of Portuguese bank credit is backed up by overall favourable financing conditions,, largely down to a stable client deposit base that covers most of the bank’s financing needs, and by strong liquidity indices, despite the repayment of loans under the European Central Bank’s targeted longer-term refinancing operations (TLTROs),” it stressed.

Moody’s said that the upgrade of Caixa Geral de Depósitos’ Baseline Credit Assessment (BCA) from ‘baa1’ to ‘a3’ reflects the improvement in the bank’s credit quality in a context of stronger operating conditions for Portuguese banks. “CGD’s BCA reflects the bank’s solid credit risk profile, namely the bank’s strong asset quality performance and excellent coverage levels (169% at the end of June 2024, compared to 134% in the previous year) and the bank’s very high capital ratios at the end of June, 2024. (Tangible Common Equity)

The agency places BCP and Novobanco at ‘baa3’ with both rising from ‘ba1’.

Regarding BCP, which is led by Miguel Maya, Moody’s took into account “the strengthening of the bank’s credit quality, in particular the improvement of its asset risk indicators as a result of a successful de-risking strategy implemented in Portugal in recent years, its higher capital levels” and the improvement, while still modest, in the profitability of the group’s results, which will continue to be pressured for the foreseeable future due to the considerable legal provisions from its mortgage portfolio in Swiss Francs at its Polish bank.

The increase in Novobanco’s rating, whose sale or floatation on the stock market by its main shareholder, the US fund Lone Star should take place in 2025, reflects the bank’s continued creditworthiness within a context of more favourable operating conditions for the Portuguese banks.

Novobanco’s credit profile has improved significantly in recent years as a result of the successful completion of a restructuring plan agreed with the European Commission.

Moody’s explained the upgrade of Banco Santander Totta and BPI’s ratings to ‘baa1’ from ‘baa2′, with the improvements in the groups’ credit profiles in the context of a stronger operating environment for Portuguese banks. The agency also raised the rating of Caixa Central do Crédito Agrícola from ‘baa3’ to ‘baa2’ and that of Banco Montepio from ‘ba2′ to ‘ba1’.