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Fitch: Portuguese Banks Outlook Negative as Capital Is Vulnerable
December 22, 2016 / 3:52 PM / in 10 months

Fitch: Portuguese Banks Outlook Negative as Capital Is Vulnerable

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 2017 Outlook: Portuguese Banks here BARCELONA/LONDON, December 22 (Fitch) The negative outlook for the Portuguese banking sector reflects the intensified pressure on capital from the weak profitability and asset quality, amid a highly indebted economy with low growth prospects, Fitch Ratings says. We believe the sector has to take important steps to underpin its solvency at a time when earnings are under pressure, affected by still high impairment charges and restructuring costs, and capital requirements are increasing. Fitch expects GDP growth to slow to 1.2% in 2016 and 1.4% in 2017, which, together with the highly indebted economy, poses additional risks to the system's already weak asset quality. We believe asset-quality indicators could deteriorate in 2017, as loan deleveraging will persist. Given the long recovery process of problematic assets, we also believe that changes in legislation that facilitate bankruptcy procedures and speed up court resolutions are key for banks to have the necessary tools to work out problem loans. However, the positive impact of any reform to the insolvency framework will only feed through in the medium term. Despite these challenges and negative outlook on the sector, the outlook on banks' ratings is stable reflecting capital increases, restructuring and weak but fairly stable asset-quality indicators. This is slowly reducing the high pressure on capitalisation from unreserved problem assets. We also expect some sales of non-core assets to support capital. Downside pressure on the banks' rating would mainly arise from an inability to generate earnings that support the build-up of capital internally. Upward rating potential would follow improvements in capital levels, a material reduction of problem assets and better core profitability. Further information about prospects for Portuguese banks is contained in our "2017 Outlook: Portuguese Banks" report, published today, and available by clicking on the link. Contact: Roger Turro Director +34 93 323 8406 Fitch Ratings Espana, S.A.U. Av. Diagonal, 601, 2nd Floor 08028 Barcelona Josu Fabo, CFA Director +34 93 494 3464 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available at www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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