LISBON, June 5 (Reuters) - Portugal’s banking sector is overly exposed to domestic public debt and the real estate market, the Bank of Portugal warned on Wednesday.
In its financial stability report, the central bank said the country’s lenders as a whole had significantly reduced bad loans and their profitability was improving, but their exposures still represent an important fragility.
It said banks had 8.8% of their assets exposed to domestic public debt as of the end of last year, up from 8.3% a year earlier.
“This exposure (to public debt) is a vulnerability of the Portuguese banking system,” the bank said in the report, adding there is also evidence of the overvaluation of Portugal’s real estate market since the second half of 2017. (Reporting by Sergio Goncalves Writing by Catarina Demony Editing by Andrei Khalip)