Portuguese banks should take advantage of the benign economic and political environment to accelerate along this year the cleaning of the problematic assets still standing in their balance sheets, Fitch advises.

«2018 was another year of significant balance sheets’ cleaning for the largest Portuguese banks», underlines the rating agency Fitch, adding that its non-performing loan (NPL) ratio fell to 11% by the end of the last year, four percentage points below 2017.

Analysing the results of Portugal’s major banks – BPI, BCP, Banco Montepio, Caixa Geral de Depósitos, Novo Banco and Santander Totta -, Fitch explains this improvement in the NPL ratio was due to a «mix of credit cures, write-offs and active portfolio sales». According to the agency, these banks can benefit from the «benign economic and political environment in 2019 to accelerate their problematic assets’ reduction, including real estate assets and problematic estates».

By the end of September, the Portuguese banks held more than €30 billion in toxic assets in their balance sheets, according to data from Banco de Portugal (Portugal’s Central Bank).

Fitch also adds that the financial institutions provisioning efforts will continue along this year, «since Europe’s Central Bank (ECB) requires higher NPL coverage ratios». «This will hinder the sector’s already weak profitability», stresses the rating agency. «However, the Portuguese banks will have a relatively long transition period to improve their NPL coverage ratio» it says, adding that the sector’s coverage ratio stood above 50% in the end of 2018.

Original Story: ECO | Alberto Teixeira
Photo: FreeIamges.com/LotusHead
Edition & Translation:Prime Yield