Portuguese banks are cleaning up balance sheets at a faster pace, says Moody’s

According to Moody’s latest report, released on Tuesday 23rdJanuary, the Portuguese banks are cleaning up their balance sheets at a faster pace, but also warned that the country   has a yet a poor performance compared to the European Union average.

Last year, non-performing loans (NPL) in the Portuguese financial system dropped markedly due to sound economic conditions, an increase in loans written off and the removal of assets from balance sheets, explained Moody’s president Pepa Mori.

The rating agency added that the fall accelerated in the fourth quarter, with some major banks selling high volumes of non-performing loans. It is the case of Novo Banco, which is putting for sale another more € 1 billion in NPL.

As of September 30, the Portuguese NPL ratio, which measures the weight of NPL in the total credit granted, stood at 12%, showing a drop of 3.2 p.p. from the 15.2% recorded in December 2017. Since its peak of June 2016 (20.1%), the country’s NPL stock has reduced by 25%.

Even though this positive evolution in cleaning up the balance sheets, Moody’s warns that the Portuguese banks’ NPL ratio is «still very poor when compared to the European Union average», which stood at 3.4% in September.

The rating agency points out that the main problem in the Portuguese banks bad debt relies in the credit granted to companies (22.1% ratio), while the problematic real estate assets continue to represent a constraint on the quality of banks’ assets.

Moody’s analysts expect the Portuguese economy to grow 1.7% this year and said they hoped the NPL stock would fall even further in 2019, since most banks had committed publicly to keep reducing them.

Original Story: Jornal de Negócios | Nuno Carregueiro
Edition and Translation:Prime Yield