DBRS Expects No Significant Deterioration in Portuguese Bank Profits Amid Uncertainty
The rating agency Morningstar DBRS announced that it does not anticipate a “significant deterioration” in the profitability of Portuguese banks, despite prevailing global economic uncertainties. In a commentary reacting to the strong first-half earnings reports from the country's major financial institutions, the agency expressed confidence in the sector's resilience against headwinds from geopolitical conflicts and international trade tensions.
Jason Graham, a DBRS official, stated, “The largest Portuguese banks continued to present strong results in the first half of the year and we see no reason to expect any significant deterioration resulting from global economic uncertainty.” The agency projects that profitability will be sustained in the second half of the year, supported by several key factors. “Even with interest rates gradually falling, rates remain structurally at high levels. We expect that the reduction in financing costs with deposits, the high demand for credit from a healthy Portuguese economy, and the improvement in operational efficiency will sustain profitability,” Graham added.
The aggregated profits for Portugal's largest banks—Caixa Geral de Depósitos, Santander Portugal, BCP, Novobanco, BPI, and Banco Montepio—reached €1.43 billion in the second quarter. This result was up 14% from the previous quarter and was in line with the profits recorded in the same period of the prior year. Morningstar DBRS identified a stable net interest margin, despite a gradual reduction, as a core contributor to this performance.
Other contributing elements included the reversal of impairment losses and provisions, an increase in commission-based income, and effective operational cost control. The agency specifically pointed to the “significant” release of provisions as a reflection of improving asset quality within the banking system. “Non-performing loans at the largest Portuguese banks continue to fall and compare favorably with their Southern European peers,” the commentary underlined.
The report also highlighted the solid capital adequacy of the banks. DBRS recalled that the Portuguese institutions that participated in the most recent stress tests conducted by the European Banking Authority (EBA) delivered “strong performances,” demonstrating their capacity to withstand adverse economic shocks. This robust capitalization, combined with improving asset quality and sustained profitability, paints a stable picture for a sector that is critical to the financing of the broader economy, including the real estate market.
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