Financial rating agency Moody’s on Monday announced its outlook for the Portuguese banking system had increased from ‘stable’ to ‘positive’ reflecting an expected improvement in banks’ credibility over the next 12 to 18 months.
In the “Banking System Outlook, Portugal”, published on Monday, Moody’s said that the Portuguese banking industry had been “stable” since October 2017 and that it “expects banks to continue to reduce non-performing loans, while credit fundamentals, including credit and profitability, improvement and financing conditions remain stable.”
Moody’s expects Portugal’s economic growth to decrease to 2.1% in 2018 and 1.7% in 2019, after reaching the fastest pace in nearly two decades.
Credit conditions in Portugal have improved, although private sector borrowing remains relatively high and above the euro area average, Moody’s said, expecting “the quality of assets to improve when banks get rid of the problematic assets.”
The non-performing loans will continue to fall, although remaining high by European standards, it said.
Moody’s also said that “capital will improve, but remain relatively weak,” considering that “capitalisation is also retained by the modest internal capacity to generate capital.”
Moderate economic growth will withstand a stable operational environment, Moody’s said.