NPL&REO News

Portuguese banks’ NPL could reach 9% with end of moratoriums

Moody’s has a negative outlook on Portuguese banking. And it is concerned about the impact that the end of moratoria may have on asset quality. The rating agency anticipates an increase in non-performing loans this year and a fall in results due to the growth in provisions. And it warns that Novo Banco could be an additional burden.

“We have a negative outlook for the Portuguese banking sector, in line with several other European countries. What this negative outlook wants to reflect is the high uncertainty in the operating environment that could translate into weaker banking fundamentals,” explained Pepa Mori, vice president and senior credit officer for European banking at Moody’s, at a digital conference on Portugal organised by the agency on Wednesday.

“Our main concern regarding Portuguese banking is that the improvement in banks’ asset quality that took place in 2020 will suffer a sharp reversal as the government’s measures to support debtors – such as guaranteed credit lines or credit moratoria – start to disappear,” he warned.

Currently 22 per cent of financial institutions’ portfolios are under moratoria, a regime that is in force at least until September this year, with a further extension not ruled out. Only then will it be possible to see the impact of these measures on banking, but Moody’s estimates are that the non-performingloans (NPL) ratio will rise to 9% this year, from 5.5% at the end of last year.

In addition to the impact on asset quality, the worsening of non-performing loans will also force an increase in provisions to cover possible losses, which further reduces net income (already squeezed by the impact of the pandemic on financial margins).

On the one hand, Pepa Mori recalled that “Portuguese banks entered the crisis stronger than in the previous financial crisis”, which is “very important” in terms of capital and liquidity. “Portuguese banks compare positively with European ones,” he stresses.

Original Story: ECO | Leonor Mateus Ferreira
Photo: Photo by Ricardo Gurgel in FreeImages.com
Edition & Translation: Prime Yield

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