Profitability of Portugal’s banks up 16.1% in 3Q

Portugal’s banking system continued to do well throughout 2024 according to the most recent data released on Thursday by the Bank of Portugal for the third quarter of 2024.

The institutions’ profitability, solvency and asset quality indicators showed a positive trend, reflecting the resilience of the banks in the face of economic challenges.

“Compared to the same period last year, the profitability of assets (ROA) and equity (ROE) increased by 0.21 percentage points (to 1.46%) and 1.47 pp (to 16.1%), respectively,” states the Bank of Portugal in the report, noting that this growth was mainly driven by a reduction of provisions and impairments of banks, as well as by increases in financial margins.

The cost of credit risk also improved, standing at the end of September at 0.09%, a reduction of 0.37 percentage points year-on-year. This evolution is justified by the “decrease in credit impairment losses”.

As for solvency levels, banks also maintain robust levels, although with a slight decrease. “In the 3rd quarter of 2024, the ratio of total own funds and the ratio of Common Equity Tier 1 (CET 1) decreased by 0.1 percentage points, to 20.4% and 17.7%, respectively,” reads the Bank of Portugal report. Despite this small reduction, levels remain comfortably above regulatory requirements.

The banks’ balance sheet structure also showed a positive evolution. “In the 3rd quarter of 2024, total assets increased by 0.6%,” said the regulator. This growth was mainly driven by the increase in loans to customers and cash and cash equivalents at central banks.

Also noteworthy is the maintenance of the transformation ratio at 75%, “reflecting increases in the same proportion of loans to customers and customer deposits”, with the weight of financing from central banks remaining “insignificant.”

The Bank of Portugal’s figures also note that asset quality remained stable in the third quarter, with gross and net NPL ratios remaining at 2.6% and 1.2%, respectively. This demonstrates that Portuguese banks continue to effectively manage their risk assets.

The liquidity coverage ratio (LCR) also improved, increasing 2.4 percentage points to 270%. This evolution “resulted from an increase in highly liquid assets (contribution of 2.9 pp), in particular “from the public administration”. (Caixa Geral de Depósitos – CGD is a public bank into which public administration salaries are paid).