Even though the fact that Portuguese banks have shown “resilience” throughout the pandemic, in general, “it may take some time” before some credits that were under moratorium may go into default, warns DBRS.
According to the rating agency says, it is necessary to keep an eye on “post-Covid” impacts and monitor risks associated with rising interest rates, rising energy costs on businesses, difficulties in supply chains and developments in the conflict in Ukraine.
In a recent report, DBRS Morningstar points out that “even despite the pandemic, the stock of non-performing loans (NPL) continued to fall, thanks to continued sales of old problematic assets”. The (aggregate) NPL ratio in Portuguese banking fell, on average, to 4.7% at the end of 2021, down from 5.9% the previous year and below the important psychological threshold of 5%.
“At the same time, the end of most moratoria (in September 2021) has not resulted in a sharp increase in new non-performing loans,” says DBRS, stressing that this is an analysis that is valid “at least at this time”. DBRS’s caution is justified by the fact that there has been “an increase in the percentage of loans that are classified as Stage 2″ and were previously under moratorium.
At issue is the qualification that banks have to make, under the accounting rules in force, on each loan they grant and on the risk that each of these loans will suffer a default.
DBRS also notes that there has been an average increase of eight percentage points in the proportion of loans classified as stage 2, which justifies an “expectation of a moderate deterioration in asset quality in the medium term”. In other words, DBRS argues that the soundness of some of these loans could be in question, especially if economic conditions are not the most favourable.
There are some sectors, such as hotels and part of the manufacturing industry, that have not yet fully recovered,” DBRS says.
Original story: Observador | Edgar Caetano
Photo: Photo by Ricardo Gurgel on FreeImages
Translation and Edition: Prime Yield