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Portuguese banks’ results strong in Q1, but normalising
Portugal's largest banks posted another quarter of "solid profits" in the first three months of the year, helped by higher interest rates and a rapid repricing of their loan books, but the pace of growth is starting to normalise, according to an analysis by DBRS Morningstar.
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Economia DBRS
"The revenues generated by higher interest rates and the rapid repricing of loans continue to outpace the more modest increase in operating expenses. As a result, the sector’s aggregate net income increased by almost one-third year-over-year," the rating agency said in a commentary released today.
Although it remains very strong, DBRS notes that the growth rate of Portuguese banks’ profitability "is starting to normalise" and expects this deceleration trend to continue.
"The banking sector's reported net income attributable reached EUR 1,257 million in the first quarter of 2024, compared to EUR 288 million three years earlier. The 32% year-over-year growth in net income in Q1 2024, while still very strong, represents an expected slowdown from previous years," it explains.
In the analysis released today, the agency also states that Portuguese banks' results also benefited from "a return to more normal levels of provisioning and impairments, on the back of a better-than-expected macroeconomic environment".
"In addition, resilient asset quality and adequate capital and liquidity positions characterised the strong Q1 performance," it adds.
Thus, total provisions and impairments in the first quarter of this year amounted to EUR 271 million, compared to EUR 426 million in the same period of 2023, when the increase in provisions "reflected expectations that asset quality would deteriorate, due to rising interest rates and slowing economic output", something that "has yet to materialise".
According to DBRS, "Portugal’s relatively healthy economy is mitigating credit risk and asset quality deterioration".
This year, the agency considers it "likely" that Portuguese banks' net interest income will remain elevated, after increasing to EUR 2,497 million in the first quarter, compared to EUR 2,088 million in the same period of 2023.
The more than doubling (+102%) of interest income since the first quarter of 2022 "resulted from banks taking full advantage of the higher interest rate environment, the rapid repricing of the large stock of floating-rate loans, and the slower repricing of deposits".
DBRS's analysis incorporates the aggregated data from Caixa Geral de Depósitos (rated BBB (high) with a Positive trend), Banco Comercial Português (BBB, Stable), Novo Banco (BB (high), Stable), Caixa Económica Montepio (BB, Stable), Banco BPI and Banco Santander Totta.
Read Also: Are you going to make a bank transfer? This is what is different (Portuguese version)
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