Financial rating agency DBRS says that net interest income growth may have peaked in some Portuguese banks or be close to it, pointing out that it catapulted profits in the first half of the year.

The financial rating agency DBRS considers that net interest income growth may have reached its peak in some Portuguese banks or may be close to it in others, according to an analysis note.

In the note, which does not constitute a rating action, DBRS points out that the profits of the largest Portuguese banks – Caixa Geral de Depósitos (CGD), Millennium bcp, Novo Banco, Caixa Económica Montepio (Montepio), BPI and Santander Totta – in the first half of the year increased by around 50% year-on-year to €1.946 billion, sustained by growth in net interest income.

“In the future, we expect the results of Portuguese banks to remain solid, but some pressure may arise,” the note reads.

The analysts point out that, “given that most of the banks’ loan portfolios have been fully revalued”, net interest income growth “may have peaked for some banks or be close to peaking for others, due to a possible stabilisation of interest rates, a slowdown in new loan volumes and an increase in deposit remuneration in the coming quarters”.

DBRS recalls that net interest income grew by around 73% in the first half of the year compared to the first half of last year, the result of rising interest rates, as assets continued to be revalued at a faster rate compared to deposits.

The agency also notes that “over the last few months there has been a debate in Portugal about the possibility of introducing a tax” on extraordinary banking profits, but “it has been ruled out for the time being”.

However, it warns that recent developments in Italy, where on 7 August the government announced a tax along these lines, could reignite the debate in Portugal.

DBRS also points out that asset quality has remained resilient, with non-performing loans (NPLs) stable or even decreasing further in some banks, although it continues to “expect some deterioration in asset quality over the medium term”.

Original Story: Expresso/LUSA
Image: Caixa Geral de Depósitos headquarters
Edition and translation: Prime Yield