The projection that the Portuguese economy will slow in the coming years causes Moody & # 39; s to reduce Portuguese banks' prospects from "positive" to "stable" this Monday.
"Portugal's banking sector outlook has changed from positive to stable as the country's economic growth will slow in line with the euro area as a whole," the rating agency wrote, expecting 1.7% growth this year, contrasting with the European Commission forecast up 2% last week.
In a note published today, Maria Vinuella, senior analyst at Moody & # 39; s, expects capital, profitability and financing conditions to "remain unchanged for the next 12 to 18 months" and that bad credit (NPL) will continue to decline , which will also be aided by the sale of portfolios.
However, "the stock of distressed assets will remain high by European standards". Moody & # 39; s expects the outstanding loan ratio to drop to 8.1% by the end of 2020 for all Portuguese banks it monitors. Recent figures from the European Central Bank (ECB) show that the current level is 10.5%. The current average European NPL value is 3%.
"Profitability is likely to stay close to current low levels," Vinuella predicts, noting that cost-cutting initiatives "will largely offset" reduced "turnover. and "very low" interest rates.
Moody & # 39; s also warns of the "high volume" of deferred tax assets (DTAs), which he regards as "a form of low quality capital", "undermining the capital sustainability" of the Portuguese "Portuguese banks' capital is weaker than most of their European partners," says rating
The report maintains the government's "moderate likelihood" of having to help the two major Portuguese banks, CGD and BCP. For other banks, the likelihood is "low".
Net impact of ECB policies is positive
According to Moody & # 39; s, the Portuguese banks should thank the European Central Bank (ECB) for its expansionary monetary policy. The rating agency concludes in this report that so far the net impact has been "positive" for Portuguese banks, contributing to banks' liquidity.
"[As políticas do BCE] also reduced the burden of payments on the heavily indebted private sector, leading to lower loan losses. At the same time, the lower cost of financing helped to keep the net interest margins largely equal. lower interest rates, "explains Moody & # 39; s.
It is right for analysts of rating agencies that there will soon be no change in this unconventional monetary policy. Moody expects the ECB will not start raising interest rates before the first half of 2020 and "any increase should be very gradual."
For now, banks will be able to take advantage of the third round of long-term lending (TLTRO III), announced in September this year in the new stimulus package. Moody & # 39; s writes that while conditions are less favorable than previous rounds, "the program is likely to remain attractive to many banks", including the Portuguese, who may participate to "take advantage" of "relatively favorable" conditions for financing.
According to the rating agency, Portuguese banks will have to pay off cheap financing from previous TLTRO rounds between June 2020 and March 2021. This is the largest share of ECB lending to banks, which in the case of Portugal is 4, 7% of bank assets.
(News updated at 11:12 AM with more information)