The rating agency estimates that the financial margin of Portuguese banks will gradually decrease in a scenario in which interest rates are expected to be lowered by the European Central Bank.
Portuguese banks made record profits last year, in a trend that is unlikely to persist given the expected drop in interest rates, estimates DBRS in a note sent this Thursday.
“Portuguese banks had another strong year in 2023”, says the rating agency, pointing out that the profits generated from the rise in interest rates outweighed the slight increase in costs and provisions. As a result, he says, “the sector’s total net profit rose 71% year-on-year”.
Profitability improved due to a reinforcement of the financial margin, which, across the sector as a whole, increased to 9,682 million euros in 2023, compared to 5,777 million euros in 2022, notes DBRS.
On the other hand, provisions and impairments grew by 369 million euros in 2023, to 1,937 million euros, reflecting the expectation that there will be a deterioration in asset quality in a scenario of high interest rates and economic slowdown.
The rating agency highlights, however, that the “performance of Portuguese banks should have reached a peak last year, following the rise in interest rates”. This is because the “stabilization and likely decrease in interest rates means that the margin will gradually decrease”.
Even so, those responsible for DBRS estimate “that financial institutions maintain solid results at a time when rates remain at high levels”. Regarding the increase in non-performing loans, they state that banks will be able to manage any deterioration in asset quality at a time when the Portuguese economy remains solid and there is full employment.
