Portugal’s banking sector downgraded.jpg

Portugal’s banking sector downgraded

By CHRIS GRAEME [email protected]

Financial ratings agency Moody’s has published a report downgrading most of Portugal’s banking sector because of the economic crisis.

According to the agency, the financial solidity of six Portuguese banks, including Caixa Geral de Depósitos (CGD), Millennium BCP, Banco Espírito Santo (BES), and Montepio have been downgraded because their capital assets are not sufficiently strong against their liabilities to merit their previous ratings.

For example, CGD was downgraded from C to C- while BCP went from C+ to D+ because of shaky investments and losses in Poland. BPI went from C to C- and Banif from A2 to Baa1.

Even BES, normally seen as the most solid of Portuguese banks, lost its A1 rating and was downgraded to A2.  

“Although the majority of banks in Portugal have reinforced their capital ratios or are currently doing so, in some cases this is not likely to be sufficient to absorb current losses to their credit reserves,” said the report.


Other banks including BPI, Santander and Banif have also seen their creditworthiness downgraded.

However, in the cases of CGD, BES, BCP and Montepio, Moody’s went further by also reducing its ratings for deposits and senior debts (debts that take priority over other unsecured debts owed by or to the issuer).

Lower profit levels, higher chance of debt default and deterioration in the quality of Portuguese bonds and shares within the context of severe economic recession were some of the reasons why Moody’s decided to downgrade Portuguese banks.

With the exception of BES and the ESFG Group (Espirito Santo Financial Group) all of the banks are likely to be awarded negative ratings.

The classification ratings are awarded according to a financial institution’s ability to fulfil its financial commitments

The lower the ratings, the greater the risk that a particular institution will default or meet its commitments and the more expensive it will be for it to gain credit on the international money markets.

Moody’s claims that its analysis shows the strong possibility of losses within various Portuguese banks from April in a similar pattern to what was seen recently in Spain where 27 financial institutions were downgraded between June and July.

In the report, published last week, the agency stated that macroeconomic indicators were revised downwards by both the Bank of Portugal and the IMF, which now anticipates GNP contractions of 3.5 and 4.0 per cent respectively and predicts an increase in defaults.

But BES, which recently concluded a 1.2 billion capital increase, considers Moody’s analysis to be “temporary” and “discretionary”.

The bank-s director Amílcar Pires stressed that in the case BES, the downward review was “incomprehensible” taking into account that today the bank’s core capital ratio was the highest of any bank on the Iberian peninsular and he accused Moody’s of having ignored OECD data that pointed to the economy bouncing back.

Do you have a view on this story? Email us at [email protected]