Portuguese banks continue to show robust asset quality, even amid falling profitability and pressures on financial margins caused by interest rate cuts by the European Central Bank (ECB).

According to the Bank of Portugal report, cited by ECO, the non-performing loan (NPL) ratio remained stable at 2.3% in the second quarter of 2025, while the net impairment indicator slightly decreased to 1%, signaling an improvement in credit quality.

By segment, the NPL ratio for non-financial corporations remained at 4%, while housing and consumer loans saw small declines, to 1.1% and 6.1%, respectively. At the same time, impairment coverage strengthened: rising to 61.3% for non-financial corporations, 36.9% for housing loans, and 61.2% for consumer and other loans.

The cost of credit risk remained historically low at 0.1%, reflecting lower expected credit losses. Capital ratios also remained solid — 20.4% total and 17.9% CET1 — well above the minimum required by European regulations.

In summary, despite declining profitability and margin compression, the Portuguese banking sector maintains a high-quality asset base and comfortable capitalization levels, which, according to the Bank of Portugal, enhances the resilience of banks in the face of the new monetary cycle.

Original Story: ECO | Author: Luís Leitão
Edition and translation: Prime Yield