10% of households with credit are in default

For the fourth month in a row there is an increase in the percentage of households in credit default situation, according to the latest data released by Portugal’s Central bank (BdP). And, in April about 10% of households with loans were unable to pay their instalments, the highest percentage since May 2018.

Overdue loans in consumer credit rose for the third consecutive month, to 6.8% from 6.7% in March. As for the mortgage loans, the default ratio stabilized at 4.4%.

The total amount of default credit by households fell in April to €2,429.8 mn, from the €2,445.7 mn in the previous month. 

The percentage of default is also increasing for nonperforming corporate credit. Withing the hospitality and F&B sector, 25% of the borrowers were in default in April, comparing with the 21,8% in March and the 21,3% recorded one year before. This increase corresponds to the forced lockout period due to the State of National Emergency established in March 18th and that last until May 2nd.. During that time, several companies closed – some of which permanently – and the unemployment rose, as well as the layoff. 

Before the pandemic crisis, the credit granted to households hit new records. During the first trimester of 2020, the credit applications rose to €4.9 billion. This increase was even felt in the consumer credit, which Portugal Central Bank has been struggling to brake with the reinforcement of limits for its concession.

Original Story: Dinheiro Vivo | Elizabete Tavares 
Photo: Photo by Hugo Humberto Plácido da Silva from
Translation & Edition: Prime Yield

Novo Banco’s operation in Spain up for sale

The US Fund Lone Star put the Novo Banco’s operation in Spain for sale, after the injection of €850 million by the Portuguese State into the bank, according to El Confidencial.

According to some sources close to the Spanish newspaper, the decision has even been communicated in recent days by the banks’ CEO António Ramalho to the employees of the Spanish subsidiary. And Novo Banco itself has already contacted investment banks to start the process of finding a buyer, which, if everything goes as planned, should start soon.

This decision comes after the injection of €850 million by the Portuguese State into the Novo Banco, which caused controversy among the political parties. In the market, says El Confidencial, it is still not clear whether this is a sale in block or some business.

The results of the Spanish subsidiary are not known, but sources said to the Spanish newspaper that it has hardly generated profits in recent years. The lack of a determined investment in Lisbon has led to a decrease in business over the last five years, with income from interest and commissions falling from €150 mn to €55 mn in 2019.

Original Story: Eco News | News 
Photo: Novo Banco Site
Edition: Prime Yield

Portuguese banks forced to make €200 million in provisions due to pandemic

Four of Portugal’s largest banks saw their profits halved in the first quarter of 2020 because of the provisions needed to deal with the pandemic crisis.

Caixa Geral de Depósitos (CGD), BCP, Santander and BPI have recorded generic provisions of €200.8 million to face the economic crisis caused by the pandemic, according to Jornal de Negócios. BCP was the bank that put most money aside: €78.8 mn, followed by CGD with €60 mn, while Santander and BPI set aside €30 mn, in what is a cautionary exercise from the banks before what they expect to be an increase in the number of defaults. 

Nevertheless, the effect of provisions on the results of the first quarter of Caixa Geral de Depósitos (CGD), BCP, Santander and BPI has already been felt with intensity: profits have fallen by half in relation to the same period of last year, from €466 mn euros to €246 mn.

Original Story: Eco | News 
Photo: Photo by Alfonso Romero for
Edition: Prime Yield

Millennium bcp Q1 net profits declines by 77%

Portuguese bank Millennium bcp reported a 77% decline in first-quarter net profit to €35.3 mn following its provisions to offset the economic impact of the novel coronavirus.

The outbreak is set to dent Portugal’s economy, with the International Monetary Fund expecting gross domestic product to contract by 8% this year, above the European Commission’s predictions of a 6.8% drop.

“Predictions (…) all show we are in a serious recession,” the bank’s chief executive Miguel Maya said. “We are at a time of many uncertainties; we are working with a lot of market volatility and pragmatism is required to ensure we are able to adapt our strategy.”

The provisions implemented by Portugal’s largest listed bank to cope with the impact of the coronavirus cost nearly €79 mn, it said in a statement without detailing the provisions.

Although the outbreak affected the bank’s net profit, its net interest income rose 6.3% to around €385 mn during the first three months of 2020, it said.

Millennium also operates in Poland, Angola and Mozambique.

Original Story: Reuters | Sérgio Gonçalves 
Photo: Millennium bcp site
Edition: Prime Yield

Portugal to extend loan moratorium to avoid jump in NPL

Portugal will extend its six-month suspension on debt repayments beyond September for as long as it takes to avoid jeopardising the banking system with a jump in bad loans when the measure is lifted, Finance Minister Mario Centeno said.

The suspension, in place since March, can be applied for on bank loans to companies and individuals, including on household mortgages.

Originally due to expire in September, the scheme has already led to the postponement of €12 bn in interest and capital payments, the Finance Ministry estimates.

Centeno said the indefinite extension was aimed at ensuring that any surge in bad loans «can occur at a time when the trajectory of the Portuguese economy, in the global context, is more certain».

“We are ensuring that we do not put banking institutions or their customers at risk,” he said.

The chief executives of Portugal’s five largest banks, which together make up 80% of the country’s banking system, had called for such an extension during parliamentary hearings last month.

“These moratoriums are crucial … and will have to be adapted over time, and extended. That’s exactly what we’re going to do,” Centeno said.

The country is expected to suffer an 8% blow to its GDP in 2020 due to coronavirus pandemic, according to the International Monetary Fund. The European Commission estimates a 6.8% contraction.

The country’s banking sector is still scarred from a debt crisis and spike in non-performing loans (NPLs) after the 2010-13 recession, which put great pressure on capital ratios and led to the collapse of banks such as Banif in 2015.

Portuguese banks have since battled to reduce NPLs, bringing them down to a total of €17.2 bn in December 2019, from a peak of €50 bn in June 2016.

Although the NPL ratio for Portugal’s banks dropped to 6.1% of total credit in December, from 17.9% in mid-2016, it is still about twice the European average.

Portugal’s banks have lifted their average common equity Tier 1 solvency ratio to 14.1% in 2019, from 7.8% in 2011.

Centeno said the recovery strategy for the Portuguese economy would need to be aligned with and coordinated at European level.

“We will not be able to recover our economy until the European single market, to which we export 75% of what we produce, recovers,” he said

Original Story: Reuters | Sérgio Gonçalves
Photo: Photo by Lotus Head for
Prime Yield

Portuguese companies have already applied for billions from Covid-19 credit lines

Struggling Portuguese firms have already applied for billions of euros in credit lines through a government scheme to help them through the coronavirus crisis, the government said on Tuesday.

Economy Minister Pedro Siza Vieira said applications so far amounted to just over three quarters of the of the €6.2 billion worth of credit lines on offer as part of a government package to help businesses weather the impact of the virus.

A survey of nearly 9,000 companies by the National Institute of Statistics (INE) and the Bank of Portugal, published on April 21st , showed that half say they cannot operate for longer than two more months without further liquidity support.

One in 10 firms say they cannot operate for more than one month.

Siza Vieira said there were around 21,000 requests made by companies for government credit lines, which were expanded earlier this month after a state aid package worth 13 billion euros from the European Commission helped shore up the country’s finances.

The government has approved around €558 million of the €4.8 billion requested but Siza Vieira said he expected more requests to be given the green light over the next few days.

Most non-essential services have been largely shut since Portugal declared a state of emergency on March 18, since renewed until May 2, and half of companies have laid off at least some of their workers.

Official data showed the number of those registered as unemployed jumped 9% in March compared to same period last year.

But companies have already been hard hit by the lockdown, with some firms in the accommodation and restaurant sector suffering more than a 75% drop in revenue.

Some are attempting to adjust to the change in demand, with one in three firms modifying or diversifying their services since the outbreak, the INE and the Bank of Portugal survey showed.

Still, the virus outbreak looks certain to push Portugal’s once-bailed out economy into recession. The International Monetary Fund expects the country’s gross domestic product to contract by 8% this year.

Original Story: Reuters | Catarina Demony and Victoria Waldersee 
Photo: Photo by Ricardo Gurgel /
Edition: Prime Yield

There’s high probability of losses within Portuguese banks this year, APB warns

There is a high probability of losses within Portugal’s banks this year, due do the Pandemic, the Portuguese Banking Association (APB) warns.

Fernando Faria de Oliveira, APB’s President, says the banks are being unfairly criticized. «They are doing everything in their power to help», he said in an interview with Radio Observador. In addition, the banking sector is also concerned about the impact of the crisis and is already anticipating losses. «The probability of banks turning negative already this year is high,» declared the president of APB.

«Everything indicates we will have the biggest recession probably since I’ve been alive. When there is a recession, the banking sector is deeply affected,» explained Fernando Faria de Oliveira.

«Each month in lockdown represents a huge decrease [in economic activity], and the probability that banks will return to negative results already this year is high,» stressed the APB president. «Banks will have to do everything to avoid complicated situations, but it will be very difficult,».

Faria de Oliveira explained the impact of the crisis on banks in this way: with more families and companies in difficulty, the level of default credit could increase considerably, leading to «a higher level of provisioning for banks». «What we have to admit is that banks need to manage their balance sheets very prudently,» he concluded.

Original Story: ECO News | News
Photo: Photo by Alfonso Romero /Free
Edition: Prime Yield

Portugal bank lobby calls state and EU action to avert bad loans

Portugal’s banking association (APB) is calling on the government and the European Union to stimulate the economy to prevent a sharp rise in bad loans as a result of the coronavirus crisis.

The country’s banking sector is still scarred from a debt crisis and spike in non-performing loans (NPLs) after a 2010-13 recession which led to the collapse of banks like Banif in 2015.

Portuguese banks have since battled to reduce NPLs, bringing them down to a total of €17.2 billion in December 2019, from a peak of €50 billion in June 2016.

«It is crucial to adopt measures to mitigate the effects of this public health situation on the ability of companies and families to continue to be able to guarantee the payment of their (credit) responsibilities,» Portuguese Banking Association head Fernando Faria de Oliveira told Reuters.

Portugal’s tourism-dependent, export-driven economy is wilting from the sudden drop in global demand, with more than 30,000 firms applying for government support to pay half a million workers as activities grind to a halt.     

Although the NPL ratio for Portugal’s banks dropped to 6.1% of total credit in December, from 17.9% in mid-2016, it is still about twice the European average.

«It is already widely recognised that we will have a recession in the economy, which will probably be quite severe,» Faria de Oliveira said, adding it was «premature» to give estimates on NPLs resulting from the coronavirus crisis.

The Bank of Portugal has forecast that the country’s economy will shrink between 3.7% and 5.7% in 2020, against growth of 2.2% in 2019, as the coronavirus pandemic hits private consumption and investment and exports collapse.    

Faria de Oliveira said the «response of the European Union (EU) will be absolutely critical to fight this pandemic, in the short term, and to relaunch economies afterwards».

«Much deeper, even radical, action is expected from the EU,» he added, in order to avoid serious damage to companies and high unemployment.

Portugal will boost its credit lines for businesses struggling with the coronavirus outbreak to €4.2 billion, after a state aid package from the European Commission helped shore up the country’s finances.

Portugal’s banking sector was committed to supporting the economy in line with government decisions, as long as it does not jeopardise financial stability, Faria de Oliveira said.

The Portuguese government has approved a 6-month moratorium on the payment of instalments by households and companies.

Lisbon also gave state guarantees to €3 billion of credit lines to support companies, with a further €10 billion in the pipeline.    

Portugal’s banks have lifted their average common equity Tier 1 solvency ratio to 14.1% in 2019, from 7.8% in 2011, Faria de Oliveira said.

But although they are stronger to face «adverse shocks», their profitability is below the cost of capital, he added.

Original Story: Market Screener | Sérgio Gonçalves (Reuters
Photo: CGD headquarters
Edition: Prime Yield

Portugal’s NPL stockpile shrank €4.5 billion in the fourth quarter of 2019

According to the latest data released by Portugal’s Central Bank (BdP), the nonperforming loans (NPL) stock within the country’s banking system fell €4.5 billion during the fourth quarter of 2019.

The data can be found in the «Portuguese banking system – recent development» report, according to which the national NPL ratio also reduced in the end of the year, from 7.7% in the third quarter to 6.1% in the quarter ended in December. 

The fall in NPL to non-financial companies was from €3.7 billion to 12.3% and from €400 million to 3.7% for individuals.

Due to the crisis caused by the Covid-19 pandemic, the government has created a law that allows families and companies to suspend credit payments until 30 September.

However, these moratoria do not mean default by customers, nor will such unpaid credit have automatic implications for the banks’ bad debts, according to the authorities’ decision.

Original Story: ECO News | Lusa 
Photo: Photo by Hugo Humberto Plácido da Silva /
Edition: Prime Yield

Coronavirus outbreak in Europe slowdowns collections on NPL securitizations

Measures to deal with the coronavirus outbreak in Europe will slow collections on non-performing loan (NPL) securitisations, according to a new report by Moody’s Investors Service. 

«Following the outbreak, investor sentiment is deteriorating, which will affect real estate prices, and courts are closed, which will delay collections, » said María Turbica Manrique, VP-senior credit officer at Moody’s. 

«These developments are negative for NPL transactions. » The Moody’s report shows that court appraisals, property inspections and auctions are frozen. Until courts return to normal activity, recoveries for NPL transactions will be delayed. 

«Real estate prices could deteriorate to a varying extent across jurisdictions, depending on the magnitude of the economic slowdown and the circumstances of the different property markets, » Turbica Manrique added. 

Italian issue NPL securitisations start from a weaker position in Italy, which had no house price inflation in 2019, compared with transactions in Ireland, Portugal and Spain, where house price inflation was in the 2.5%-5.0% range in 2019. Transactions’ cash flows depend on the timing and amount of collections, Moody’s notes.

«Measures imposed to contain the spread of the coronavirus are disrupting the operations of European judicial systems, which will delay NPL securitisations’ gross recoveries,» Turbica Manrique said. 

However, the report suggests that «the expected growth in NPLs in the wake of Covid-19 will reverse the previous trend». The stock of NPLs at a representative sample of European banks declined to €617.8 bn at the end of the third quarter of 2019 from €714.1 bn a year earlier. Within the sample of European banks, Italian institutions had the highest stock of NPLs at €127.1 bn, or 7.2% of their total loans. The NPL ratio for Greek institutions was also significant at 37.4%, with a stock of €74.5 bn.

Original Story: Property.EU | Isobel Lee
Photo: Photo by Vince Varga in
Edition: Prime Yield

Portuguese Government approved a 6-month moratorium on bank loan repayments

Portugal’s Council of Minister has approved a six-month moratorium on bank loan repayments for families and companies affected by the coronavirus outbreak.

The measure will remain in place until September 30, with the moratorium representing costing the Portuguese economy €20 billion.

It «forbids the revoking of the lines of credit that were agreed» as well as the «extension or suspension of the credit until the end of this period».

The moratorium is aimed at «people who are in particularly difficult situations, who are unemployed, who are affected by the simplified lay-off regime, who work in establishments that closed due to the state of emergency or a health authority order, people who are in isolation or sick, or who provide assistance to children or grandchildren».

As Economy Minister Siza Vieira said, anyone who faces economic difficulties can request a moratorium on existing loans, including mortgages.

Families with money issues will have to deliver a statement to their bank in order to benefit from the moratorium, the minister explained.

Rádio Renascença points out that many banks – including state bank CGD, Santander, BPI, Crédito Agrícola and Bankinter – had already announced moratoriums before the government’s decision, some of which last up to 12 months.

The government has also approved a draft law, still to be voted on by Parliament, which will create an «exceptional and temporary moratorium on the payment of housing and non-housing rents».

The idea is to give the Institute of Housing and Urban Rehabilitation (IHRU) the power to provide loans to tenants who have seen their income drop due to the pandemic.

The minister said that «establishments which have closed due to measures taken during the state of emergency may be free from paying rent while they are closed».

Original Story: Portugal Resident |Michael Bruxo 
Photo: Photo by Armindo Caetano |
Edition: Prime Yield

Montepio Bank looks forward to selling its stake in Brazil’s Monteiro Aranha group

Montepio Bank is keen to sell its stake in the Brazilian group Monteiro Aranha. According to ECO, at stake is a block of about 1.2 million shares valued at €40 million, which were inherited by the Portuguese bank following the collapse of the Espírito Santo Group in 2014.

The stake in the Monteiro Aranha Group, a century-old holding company with investments in Klabin (Pulp and Paper), Ultra (LPG and Oil Derivatives) and real estate, had been given by GES as collateral for a €50 million loan to Rioforte, according to information gathered by ECO. Rioforte was the industrial arm of GES, which went bankrupt six years ago.

In September, the Brazilian press had reported that a block of shares valued at R$ 200 million (about €40 million) was on the market, reporting rumours that it was Montepio Bank that was selling its position in the Brazilian group.

Montepio Bank is one of the biggest shareholders of Monteiro Aranha. Bradesco Seguros holds 12.75% of that holding company, while the remaining capital is in the hands of individual shareholders of several families that control the holding company.

Original Story: Eco News | News 
Photo: Banco Montepio site
Edition: Prime Yield

Novo Banco requested a further capital injection of €1.037 bn

Novo Banco requested a capital injection of €1.037bn in the beggining of March, much of which will be sourced from the Portuguese state. 

In the last week of February, Portuguese lender Novo Banco reported its 2019 year-end results, where it showed €1.067bn of losses, a 25% improvement on the previous year. That was the good news.

The bad news was that the bank said it would request €1.037bn from the Portuguese resolution fund (FdR), the country’s public body that supports resolution measures applied by the Bank of Portugal.

However, this was not the first time Novo Banco has asked for the resolution fund to help. The new request, if granted, would bring Novo’s total capital injections from the FdR to €2.978bn since 2017.

The reasons for the injections have their origins in the sale of a 75% stake in the bank to US private equity fund Loan Star in 2017.

Novo Banco was created in 2014, comprising the good bits of Banco Espírito Santo, which entered into resolution that year. The Portuguese state owned it all until Lone Star arrived, keeping 25% after the sale was completed.

A clause in the sale contained a contingent capitalisation agreement (CCA). The CCA would be triggered if certain ratios for the bank fell under particular thresholds, or if the bank registered losses across specified assets, forcing the FdR to inject capital to replenish the bank’s capital ratios. The agreement also stipulated a ceiling of €3.89bn of injections from the FdR.

Original Story: Global Capital |David Freitas 
Photo: Novo Banco site
Edition: Prime Yield

Iberian Property markets are stronger than before

With the market stronger than before, the current Iberian real estate cycle will be long term, says the Chief Economist at Spanish investment bank Arcano, Ignacio de la Torre. The reason? Because both countries are not relying on foreign loans.

The responsible was the keynote speaker of the panel «Why Portuguese and Spanish Real Estate Markets will keep rising» at an event organised by the Portuguese Association of Real Estate Investors and Developers (APPII). Dismissing fears of another looming recession or property bubble in the Iberian Peninsula, during its intervention, Ignacio de la Torre explained that both Portugal and Spain are now in a stronger, more balanced situation financially concerning their housing markets than many other countries worldwide.

Arcano’s Chief Economist says that when looking at both housing markeys, many people focus on the returns and how much property goes up. But, too often they forget about the associated risks with returns. 

«If you compare both markets before the crisis, house prices were rising sharply but didn’t factor in the risks. Both countries’ systems were servicing huge current account deficits and relied on a lot of debt versus GDP. When you rely on debt over GDP, sooner or later you will create a big problem», he explained.

Looking at both markets today, they are growing in line with available income. In Portugal, wages are growing at around 3% while in Spain at 2.2%, with employment growth at 1% in Portugal and 2% in Spain.

«Risks are critical. Both Portugal and Spain, for the first time in 40 years, are enjoying an equilibrium in their current account balances. We are not building houses relying on German loans. If you analyse how much the total debt-to-GDP growth ratio is, nominally speaking (families + corporations), we have healthy growth (above 1% is dangerous; both were at 3% by 2006). Today both Portugal and Spain have an intensity below 0% which is very healthy,» says the economist.

De la Torre stresses that people and investors are now looking to finance their investments from savings rather than relying on foreign funding. Looking at the private sector in both Spain and Portugal, both corporations and families are saving. The total amount of leverage is coming down, which is healthy.

Original Story: Portugal Resident | Chris Graeme
Photo: Photo by Alfonso Romero in
 Edition: Prime Yield

Portuguese lenders granted €10.63 Bn in new housing loans

In 2019 the Portuguese banks granted a total €10.63 billion in new housing loans, recording an 8.1% year-on-year growth, and corresponding to the maximum of the decade.

Commenting on the data released by the country’s central bank (BoP), the Association of Construction and Public Works Industries (AICCOPN), stressed that is necessary «to go back to 2008 to find a year with a greater volume of credit granted».

By the end of 2019, the total stock of mortgage credit within the Portuguese banks amounted €93.290 billion, showing a slight increase of 0.3% year-on-year.

In December, the average value of housing for bank valuation purposes was 1,321 €/sqm, an increase of 8.3% compared with the 1,220 €/sqm in the last month of 2018.

As for the of credit granted to construction and real estate companies, however, there was an annual reduction of 6.6%, with the new contracts totalling €16 billion in 2019. 

Original Story: Eco News | Lusa 
Photo: Photo by Svilen Milev for
Edition: Prime Yield

Spain’s Abanca to buy Portuguese EuroBic bank

Spanish lender Abanca informed it has agreed to buy 95% of the shares in Portugal’s EuroBic, in which Angolan billionaire Isabel dos Santos has been trying to sell a 42.5% stake, in a bid to boost revenues.

This is Abanca’s fifth acquisition since 2014 and its second in Portugal, and is conditional on the completion of due diligence, Abanca said in a statetement. Portugal’s central bank (BoP) had been informed of the deal, which now needs approval from both the European Central Bank and Bop. The price of the deal wasn’s disclosed. 

«We are betting on the Iberian Peninsula», Abanca Chairman Juan Carlos Escotet said in a statement sent by the lender. «This (deal)… allow us to significantly increase our business volumes by more than €11 billion».

By the end of December, EuroBic managed around €5.2 billion in credit as well as €6.15 billion in deposits, according to data provided by Abanca.

Beside Isabel dos Santos’ stake, the acquisition also includes a 37.5% stake in EuroBic belonging to Fernando Teles, the former chairman of Banco BIC Português, as the lender was previously known.

EuroBic has non-performing loan (NPL) ratio of 6.4%, below the average across Portuguese banks last year of 8.3%, and employs 1,482 people and has 184 branches.

Original Story: Reuters |Jesús Aguado and Catarina Demony
Photo: Site EuroBic
Edition: Prime Yield

Fidelidade completes the sale of Arya portfolio to US fund Cerberus

Cerberus is understood to have paid just below €125 million for a portfolio of five properties in Lisbon and Porto, including the current head of office of local insurer Fidelidade, which was the seller.

The portfolio consists of Fidelidade’s headquarters at Calhariz, with a total area of almost 20.000 sqm, Terminal K, at Santa Apolónia, with 6.600 sqm, the Marechal Saldanha building, with 2.300 sqm, the Malhoa 13 building, at Praça de Espanha, with 5.900 sqm, all in Lisbon and the Galeria de Paris, in Porto, with 12.800 sqm.

Fidelidade also has various central and subsidiary services installed in these buildings and it will remain its tenant until the construction works on its new headquarters at Entrecampos, in Lisbon are finished. This is where the company will concentrate all the services it has spread across Lisbon, «allowing it to consolidate the brand’s position through a new headquarters open to the community, designed with innovation in terms of environment, architecture, functionality and working conditions», explained the insurance company in a release.

Original Story: Property EU | Virna Asara
Photo: Property EU
Edition: Prime Yield

Cerberus buys Sertorius REO portfolio from Novo Banco

US based investor Cerberus has reinforced its presence within the Portuguese market, by taking the real estate portfolio «Sertorius» from Novo Banco for €450 million, 10% less than the amount initially demanded by the seller.

This portfolio includes more than 200 buildings located mainly in Lisbon and Setubal and also empty terrains and logistic, housing and commercial assets, most of them were inherited by the bank through distressed contracts.

Completed during the second semester of 2019, the deal was now announced by JLL, that acted as the seller’s advisor in a released recently issued, where the consultants pointed out «the growing dynamics in terms of trading large portfolios of real estate owned asset – REOs and non-performing loans- NPLs» over last year. 

The investment in this segment grew in line with the «strong» activity registered in 2018, and it should have amounted a total €6 Bn over in 2019, JLL says. The sale of Projecto Nata II, an NPL portfolio, to Davidson Kempner by Novo Banco for €3.3 Bn was a large contributor for this activity.

Original Story: Iberian Property | Vanessa Sousa 
Photo: Novo Banco
Edition: Prime Yield

Portuguese banks will keep reducing its NPL stock in 2020, S&P says

Portuguese banks will keep reducing their large stock of bad loans in 2020, as nonperforming loan (NPL) portfolios continue to interest investors seeking yield in a low interest rate environment, lenders write off loans and Portugal’s economic growth continues to outpace that of many of its European neighbors, S&P Global Market Intelligence analyists say.

However, the pace of decline will slow over the coming years as the size of the Portuguese market makes large ticket deals more complicated going forward, analysts said.

Portugal was bailed out to the tune of €78 Bn during the financial crisis, and while the banking sector was rescued through state intervention, it was burdened with one of the biggest bad debt piles in Europe. Despite banks’ combined gross NPL stock declining by about €9 Bn, or 32%, to €19 Bn in the first nine months of the year, according to DBRS Morningstar, Portugal still had one of the highest NPL ratios among European banks in the European Banking Authority’s latest transparency exercise.

S&P Global Market Intelligence data shows that NPL ratios at individual banks have been trending down over the past two years. Between the first half of 2017 and the first half of 2019, Millennium BCP’s almost halved to 5.74% from 11.02%, while that of Novo Banco, created from the “good bank” of the troubled Banco Espírito Santo group, fell to 24.96% from 39.86%. Caixa Geral de Depósitos, for which data was spottier, saw its ratio fall to 8.76% in the first half of 2019 from 13.19% in the second half of 2017. And Santander Totta was 5.60% in the second half of 2018, down from 8.18% in the same period of 2017. Banco BPI end-June 2019 ratio fell year over year to 4.52%, although it is up from the first half of 2017.

«In our view, NPLs will continue to fall in 2020,» DBRS Morningstar analyst Nicola de Caro said in an email. «Reducing NPLs and non-core assets remains a key priority for Portuguese banks, as the sector’s asset quality is still weaker compared to the European average

Banks such as Novo Banco have been selling off bad loan portfolios to foreign funds, who are seeking returns in the low interest rate environment.

«It is one of the positive impacts of the negative rate scenario that everyone is hunting for yield,» Tom Kinmonth, fixed-income strategist at ABN AMRO, said in an interview. «It is one of the few areas where we are seeing good returns,»he said.

One Portuguese analyst who declined to be named for compliance reasons said NPL deals had picked up «significantly» in 2018 and that demand was continuing in 2019 amid «growing appetite for these kind of assets

Rafael Quina, analyst at Fitch Ratings, said he expected the NPL ratio for the Portuguese banking sector to fall to about 7% by end-2020 from about 9% at the end of June, helped by NPL sales, recoveries and write-offs. In the next two to three years, the ratio will decline further to 5% to 6%, he said.

According to this specialist, Fitch is expecting some improvement in terms of asset quality, but a gradual slowdown in the pace of improvement compared to 2018 and 2019, which were years of «quite significant» progress, he said. The potential for large deals on the Portuguese market is limited, with most lenders selling off small to medium sized portfolios to foreign funds, he said.

In addition, banks are not keen on selling their bad residential mortgages to distressed debt investors because of reputational or litigation risk, limiting the amount of loans they can sell, he said.

Economic growth remains strong in Portugal, despite concerns of a slowdown in eurozone economies, and that should help support NPL sales going forward, analysts said. The Portuguese central bank expects the economy to grow by 1.7% in 2020, down from a projected 2% in 2019 and 2.4% in 2018.

«That is still pretty good on a European basis,» ABN AMRO’s Kinmonth said. «The banks have been restructured very well, lending is still deleveraging … and even just a benign year would be pretty positive for NPL development,» he said.

Portuguese companies are managing their debt positions in a more conservative way than in the past, the legal process for recovering loans has improved, and regulators are pushing for NPL declines, factors which should support Portuguese banks in reducing NPLs, Quina said.

Original Story: S&P Global Market Intelligence |  Jennifer Laidlaw and Mohammad Taqui 
Photo: Photo by Alfonso Romero for
Edition: Prime Yield

Bad debt reduction is still a key priority for Portuguese banks

The Canadian rating agency DBRS said in a note that the reduction of nonperforming loans (NPL)  and non-essential assets will continue to be a key priority for Portuguese banks, also warning about the quality of assets.

The Canadian rating agency attributes its position to asset quality ratios of the sector, which remain weaker compared to the European average.

Still, DBRS points to greater progress in asset quality in the first nine months of 2019 in Portuguese banking, with all banks reporting lower NPL ratios.

«Supported by a combination of sales, write-offs and recoveries, the combined stock of gross NPL, excluding off-balance sheet exposures, fell by around €9 Bn to €19 Bn in the first nine months of 2019, corresponding to a 32% year-on-year reduction,»  the agency said.

DBRS also noted that the gross ratio of non-performing loans fell to around 8% in the first nine months of 2019, which compares with 12% in the same period of 2018.

Original Story: The Portugal News | News 
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