We do wonder if you’re right, Theodoros Pangalos.
The Greek deputy prime minister has (rather shamelessly) picked Portugal as the ‘next victim’ of Europe’s sovereign debt crisis, not long after the latter country received a Fitch downgrade. No one said its planned fiscal austerity measures would be easy.
Still, while Fitch taketh away, Fitch also giveth: in an optimistic note on the country’s biggest banks on Tuesday, the rating agency may not have offered upgrades, but it did suggest that Portugal’s problems remain fiscal – not financial.
According to Fitch’s analysts, the last year in Portuguese banking hasn’t been too bad:
The five leading Portuguese banks suffered a general decline in profitability and asset quality, from both their domestic and international activities, although they proved to be more resilient than many of their international peers.
…Fitch Ratings expects the leading Portuguese banks to be able to cope reasonably well with the challenging 2010 and maintain at least the same levels of profitability as in 2009.
As Fitch continues, loan health has remained robust for the likes of Santander Totta, Banco BPI and Banco Espirito Santo:
Impaired loans (loans overdue by more than 90 days) and loan impairment charges have increased gradually in 2009, reflecting the recession in Portugal and the rise in unemployment. However, despite the difficult global and domestic economic conditions, asset quality for the larger Portuguese banks remained healthy in 2009…
Foreclosed assets (mostly relating to residential mortgages) and write‐offs remain at reasonable levels, although they could potentially rise in 2010. Portugal has not experienced a property boom in the last decade and prices have only declined modestly since the beginning of the financial crisis.
Which, you could argue, compares somewhat favourably with Spanish banks’ need to restructure their exposure to Spain’s blown-up property bubble (a subject Fitch has also kept an eye on).
Funding and liquidity look OK for Portugal’s banks too, for now:
Since late 2008, the Portuguese government has made available a government guaranteed funding scheme totalling EUR20bn, to be used for medium‐term unsubordinated issuance by banks until end 2009. In comparison with many other European banks, the leading Portuguese banks have made only limited use of the Portuguese scheme…
Fitch views this as an indication that the major Portuguese banks’ access to capital markets for funding worked relatively well in 2009, including placing issues of covered bonds with investors.
As we said – for now. Portuguese banks may have avoided the market access problems currently faced by their Greek counterparts, but Fitch has variously maintained or revised outlooks to negative after Portugal’s downgrade:
Following the downgrade of the Republic of Portugal on 24 March 2010, CGD’s Long‐Term IDR was downgraded to ‘A+’ from ‘AA−’, with Negative Outlook, and its Short‐Term IDR to ‘F1’ from ‘F1+’. On 29 March 2010, Fitch maintained Banco BPI’s Long‐Term IDR on Negative Outlook and revised the Outlook on both Millennium bcp and BES to Negative from Stable to reflect Fitch’s concerns about the Portuguese government’s fiscal position, which is likely to mean that the operating environment in Portugal will remain challenging in the medium term.
It’s not great mood music, and it shows that while Portugal’s problem might be fiscal and not financial, it is still rather a large problem.
The downgrades Greek institutions received from Moody’s last week show how bad it could get for Portuguese banks if their country’s macro outlook worsens. Unless, that is, Portugal can pull off their planned fiscal reforms.
Oh, and survive any exogenous shocks to capital markets along the road, we should add.
Boa sorte, as they say.
Full Fitch report in the usual place.
Related links:
Portugal v Greece on sovereign risk – FT Alphaville
Mind the debt funding gap, banks – FT Alphaville
Handy sovereign risk table - FT Alphaville