Moody’s maintains a stable outlook for the Portuguese banking system over the next 12 to 18 months, deeming it “globally resilient” in the current context of restrictive monetary policy.

The financial rating agency — which issues ratings for seven Portuguese banks (CGD, BCP, Santander Totta, Novo Banco, BPI, Caixa Central de Crédito Agrícola Mútuo and Montepio) — predicts that the bad debt of Portuguese banks “rises slightly as inflation erodes household and business budgets and higher interest rates increase debt service costs”.

On the other hand, it anticipates that the profitability of the banking system will increase, reflecting an increase in interest on loans greater than that of interest on deposits. “This will offset the increase in operating expenses and higher credit costs”.

Moody’s outlook also points to the maintenance of the stabilisation of Portuguese banking capital ratios, with the rise in risk-weighted assets and dividend payments to be offset by internal capital generation.

“The large and resilient deposit base and the considerable liquid assets will continue to support the liquidity and funding of banks, allowing a quick repayment of loans to the European Central Bank (ECB)”, he adds.