DBRS gives Portugal BBB rating lifeline, ECB continues to buy debt

By Real GDPR

Canada’s Dominion Bond Rating Service (DBRS) has reaffirmed Portugal’s BBB (low) rating on its sovereign debt, meaning the European Central Bank can continue to buy debt from the country.

In DBRS’s view the recent measures taken by the Portuguese government to promote banking stability could partly remove some of the uncertainties and concerns that have been surrounding the Portuguese banking sector since the resolution of Banco Espírito Santo S.A. (BES).

Among other actions, the Portuguese government recently reached an agreement with the European Commission to recapitalise the country’s largest bank, Caixa Geral de Depósitos S.A. (CGD), and has also added clarity to the mechanics of the Portuguese Resolution Fund (PRF).

Despite these recent measures, DBRS sees the banks as still facing two main challenges. First, the Portuguese banks need to reduce their high stock of non‐performing loans (NPLs). Second, capital levels are pressured by the challenging operating environment characterized by low interest rates, sluggish economic prospects for Portugal and increasing regulation.

A summary of key points made by DBRS include:

  • Portuguese banks’ main challenges include the need to reduce high levels of nonperforming loans and reinforce capital levels while continuing to manage through the low interest rate environment
  • DBRS views positively the recent actions taken by the Portuguese government to improve financial stability and remove some of the uncertainties surrounding the Portuguese banking sector
  • A successful sale of Novo Banco remains an important step to boost confidence in Portuguese banks
  • Higher levels of capital are still required to accelerate the clean up of the bank’s balance sheet and most banks are currently focused on reinforcing capital.
     

DBRS is a credit ratings agency based in Toronto, holding just a two percent share in the global market. It will review its decision again in April.

Read the October 2016 issue of Business Review Europe magazine. 

Follow @BizReviewEurope

Share
Share

Featured Articles

Abu Dhabi Airports prepares for Terminal A opening

A decade in the making, Abu Dhabi International Airport welcomes 6,000 volunteers to test operational readiness of stunning new Terminal A building

Business Chief expands portfolio with new look and coverage

Business Chief Middle East & Africa launches with fresh new look and extended coverage of the region, with exclusive executive interviews and insights

How Octopus Energy grew to become an industry giant

Octopus Energy continues to grow after a deal was agreed to acquire Shell Energy in the UK and Germany, taking its customer base to almost seven million

Perkbox CEO: How to support employees through tough times

Human Capital

How Middle East is embracing the future of digital finance

Corporate Finance

UAE Lulu Group shifts business for global growth and IPO

Corporate Finance