PARIS (MNI) – Fitch ratings said today that Portuguese banks are
still on “shaky ground,” with liquidity pressures that make them highly
dependent on funding from the European Central Bank.
Their financial performance will depend on how deep the Portuguese
recession is and on broader developments in the Eurozone sovereign debt
crisis, Fitch said. Portugal’s banks are on “negative outlook,” in line
with Portugal’s sovereign rating, and would be downgraded if the
government in Lisbon suffers a further downgrade, the agency said.
The full text of Fitch’s press release follows:
“Fitch Ratings says that the major Portuguese banks’ capital, risk
profile and financial performance will be largely influenced by the
severity of the economic recession and developments of the sovereign
crisis in Portugal and ultimately in the eurozone.
Fitch believes that government and international (IMF/EU/ECB)
support, for both capital and liquidity, will continue to be made
available to Portuguese banks. This constitutes the main driver of Caixa
Geral de Depositos’ (CGD), Banco Comercial Portugues’ (Millenium bcp)
and Banco BPI’s Long-term Issuer Default Rating (IDR) of ‘BB+’ which is
currently on its Support Rating Floor. The Long-term IDR of Santander
Totta SGPS (Santander Totta) and its bank subsidiary of ‘BBB’ reflect a
high probability of support from its Spanish parent bank, Banco
Santander (‘A’/Negative).
However, all banks Long-term IDRs are on Negative Outlook in line
with the sovereign. Any further downgrade of Portugal’s sovereign rating
will be mirrored by the Long-term IDRs of these banks. At the same time,
Fitch sees downside rating risk on banks’ stand alone financial strength
as expressed by their Viability Ratings as they face a challenging 2012.
Fitch recognises Portuguese banks’ progress in 2011 in improving
capital and their retail funding structure with a greater proportion of
loans funded by deposits. However, liquidity pressures remained due to
continued restricted access to wholesale funding, resulting in sustained
high reliance on ECB funding. Also, banks’ asset quality deteriorated
further due to the country’s economic recession and sovereign exposure
to Portugal and Greece at some banks.
Portuguese banks will need to further improve capital in 2012 to
meet higher regulatory requirements and take account of their
deteriorating credit risk profiles and limited internal capital
generation. In the event banks fail to improve capital by private means,
they could recourse the EUR12bn capital backstop facility under the
IMF/EU support package, a possibility that cannot be disregarded at some
banks.
Portuguese banks also continue to face sizeable debt refinancing
needs in the next two years and this could prevent banks from reducing
their significant ECB exposure. However, liquidity pressures should be
manageable as long as deposits remain stable, as evidenced to date, and
the ECB continues to provide liquidity to the system.
Fitch expects banks to accelerate loan deleverage in 2012 in
comparison to 2011 to further improve their net loans/deposits ratio to
meet with the 120% regulatory requirement imposed by the Bank of
Portugal and the IMF/EU. While this should help banks’ retail funding
profiles, this will lead to lower business volumes, hence lower
revenues. This combined with continued margin pressure due to elevated
funding costs and sustained high loan impairment charges will weigh on
banks’ 2012 performance. Further loan repricing, cost control and some
non-recurrent gains could partly ease earnings pressure.
Finally, probably the greatest unknown factor in the equation is
the speed at which the banks’ asset quality will deteriorate in 2012, as
this will largely depend on the severity of the economic recession in
Portugal as well as banks’ loan mixes and risk management.”
–Paris newsroom, +331-42-71-55-40; paris@marketnews.com
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