Moody's outlook also points to the continued stabilisation of Portuguese banks' capital ratios.
Moody’s has maintained a stable outlook for the Portuguese banking system for the next 12 to 18 months, considering it “globally resilient” in the current context of restrictive monetary policy.
In a note published on Wednesday, the rating agency – which issues ratings for seven Portuguese banks (CGD, BCP, Santander Totta, Novo Banco, BPI, Caixa Central de Crédito Agrícola Mútuo and Montepio) – expects that non-performing loans in the Portuguese banking system, “will increase slightly, as inflation deteriorates the budgets of families and companies and higher interest rates increase the cost of debt service.
On the other hand, it anticipates that the profitability of the banking system will increase, reflecting a rise in interest on loans that is higher than interest on deposits.
“This will offset the increase in operating expenses and higher credit costs,” it said.
Moody’s outlook also points to the continued stabilisation of Portuguese banks’ capital ratios, with the rise in risk-weighted assets and dividend payments offsetting stronger internal capital generation.
“The large and resilient deposit base and considerable liquid assets will continue to support the liquidity and funding of banks, allowing for a rapid repayment of loans to the European Central Bank (ECB),” it added.
Regarding the possible need for public support, the rating agency continues “to assume a moderate probability of public support” for the two largest Portuguese banks – CGD and BCP: “The introduction of the European ‘Bank Recovery and Resolution Directive’ (BRRD) limits the possibilities for governments to support the banking sector, although it allows for extraordinary support to ensure financial stability in the event of a serious economic disruption,” it noted.