Press Release

DBRS Morningstar Downgrades Montepio’s Long-Term Issuer Rating to B; Trend Remains Negative

Banking Organizations
July 15, 2020

DBRS Ratings GmbH (DBRS Morningstar) downgraded Caixa Económica Montepio Geral, S.A.’s (Banco Montepio, Montepio or the Bank) Long-Term Issuer Rating to B from BB, and its Long-Term Deposits rating to B (high) from BB (high). The subordinated debt was downgraded to CCC (high). The Bank’s Intrinsic Assessment (IA) was also lowered to B while the Support Assessment remains unchanged at SA3. The Trend on these ratings remains Negative.

The Bank’s B (high) Long-Term Deposits rating is one notch above the IA, reflecting the legal framework in place in Portugal which has full depositor preference in bank insolvency and resolution proceedings. The Bank’s Short-Term Deposits rating was downgraded to R-4 with a Stable Trend. See a full list of ratings at the end of this press release.


The downgrade of Montepio’s ratings takes into account the significant deterioration of the Bank’s capital position and its persistent weak profitability, which make the Bank particularly vulnerable in the worsening operating environment. The Bank’s capital ratios at end-Q1 2020 were 180 basis points (bps) lower than end-Q1 2019, thus reducing the Bank’s loss absorbing capacity and the ability to reduce the still high stock of Non-Performing Loans (NPLs). The Bank’s total capital ratio is currently below its total 2020 SREP requirement (including CCB and O-SII buffers), although recent regulatory changes mean the Bank is not in breach of its requirements. At the same time, the ratings consider the very weak contribution from retained earnings due to modest revenues and low efficiency levels, and the expectation of high provisioning costs. In addition, the Bank faces a growing number of issues with regards to alleged past failures in operational risk and internal controls, which pose additional risks to the Bank’s financial position and reputation.

The Negative Trend reflects the downside risks to the Bank’s capital, profitability and asset quality exacerbated by the deteriorating operating environment due to COVID-19.


Given the Negative Trend, an upgrade of the ratings is unlikely, although the Trend could change to Stable if the Bank strengthens its capital buffers. An upgrade would require an improvement in efficiency and some stabilisation in core revenues. The Bank will also need to demonstrate its ability to manage the asset quality impact from the current environment.

A downgrade could occur if the Bank fails to improve its capital position, or if there is a significant deterioration in asset quality amidst the COVID-19 operating environment. Further instability in the Bank’s corporate governance and/or a deterioration in the customer franchise could also contribute to downward rating pressure.


Banco Montepio is a small Portuguese retail and commercial bank with total assets of around EUR 17.5 billion at end-Q1 2020 and is majority owned by the Montepio Geral Associação Mutualista (MGAM). The Bank also has a small presence in some Portuguese speaking countries, such as Angola and Cape Verde. Over recent years, the Bank has experienced instability in corporate governance with high management turnover. In our view, this has contributed to a slowdown in the implementation of the actions needed to strengthen the Banks’ balance sheet and organisation. In January 2020, the Bank appointed a new CEO, and we anticipate that he will try to accelerate the process of digitalisation and corporate simplification to improve efficiency and productivity levels. Separately, we note that Montepio has been subject to several administrative procedures from supervisory authorities, in relation to allegations of past failures of duties concerning accounting standards and internal control systems. We expect the Bank to take further actions to strengthen risk management and controls

The Bank’s capital buffers deteriorated significantly over the past year. At end-Q1 2020, the Bank reported phased-in CET1 and total capital ratios of 11.7% and 13.2%, respectively, which are 180 bps lower YoY, or 70 bps QoQ. The capital erosion in Q1 2020 was mainly due the impact on the fair value reserve from the sovereign spread widening, as well as currency devaluation in Angola and Brazil amid worsening markets conditions due to COVID-19.

The Bank is currently operating below the total capital SREP requirement of 13.9% set in January 2020 which includes the capital conservation buffer (CCB) of 2.5% and the O-SII (other systemically important institutions) buffer of 0.188%. This means that the Bank is using the temporary capital relief allowed by the ECB and the national authorities in response to COVID-19.

In June, the Bank issued EUR 50 million of Tier 2 bonds that were placed with MGAM. Further capital relief might result from potential measures of RWAs optimisation. Nonetheless, the Bank’s capital position remains vulnerable and it will face additional pressure given the already weak profitability levels and expected adverse impact from COVID-19.

Banco Montepio’s net income in Q1 2020 was EUR 5.4 million, a 17% decline YoY, after reductions in net interest income and increases in both costs and impairments. The results did, however, continue to benefit from capital gains on the sale of sovereign securities. The reported core cost-to-income ratio increased to 70.9% from 68.1% in Q1 2019. At the same time, total loan impairments increased by 64% YoY to EUR 30.4 million, with EUR 15.5 million of the total attributed to the expected impact from COVID-19. The cost of risk was reported at 99 bps, up from the 58 bps in Q1 2019.

In DBRS Morningstar’s view, the economic and market disruption caused by COVID-19 will put additional pressure on the Bank’s revenues, cost of risk and profitability. We expect fees from payment systems to suffer from lower transaction volumes, while the challenging operating environment will result in higher provisioning costs. We understand that the COVID-19 related provisions reported in Q1 2020 are still based on very preliminary estimates and expect further provisions as the Bank’s macro-economic scenarios and credit models are updated. The sectors that are most vulnerable to the pandemic are those that are directly and indirectly linked to the tourism industry, which is a key contributor to the economy of Portugal. The exposure to high risk sectors, such as hotels & hospitality, food services and transportation, wholesale and retail trade, accounted for 12% of Banco Montepio’s gross loan book at YE 2019. We also expect rising risks in the manufacturing and real estate sectors.

Despite the expectation of some relief from debt moratorium programs and some government initiatives, including state guaranteed loans, we expect an increase in Stage 2 loans as well as higher NPE inflows when these measures have expired. In addition, the current environment creates additional risks to reduce existing NPEs. Any meaningful disposal of problem assets would likely face lower valuations in this environment. At end-Q1 2020, the Bank reported a gross NPE ratio of 12.1%, down from 14.3% at end-Q1 2019, and a coverage ratio of 53.5%. On a quarterly basis, the NPE ratio remained stable, though the gross stock slightly increased. In general, the pace of NPL reduction at the Bank has been slower than at many peers, and the future ability to reduce NPLs will be constrained by the weak capital buffers and weak profitability.

The Bank is largely funded by deposits, which accounted for around 70% of total funding sources at end-Q1 2020, however access to unsecured wholesale market remains more challenging and costly.

Corporate Governance is a material rating factor for the Bank and is reflected in the Risk and Franchise building blocks. The instability of the Bank’s corporate governance creates risks for the Bank’s balance sheet and reputation, as well as the execution of its strategic plan. DBRS Morningstar also notes that the Bank has received various notifications from the Central Bank of Portugal around past potential issues about accounting standards and internal controls.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at:

The Grid Summary Grades for Caixa Económica Montepio Geral, S.A. are as follows: Franchise Strength – Moderate/Weak; Earnings – Weak/Very Weak; Risk Profile – Weak; Funding & Liquidity – Moderate/Weak; Capitalisation – Weak/Very Weak.

All figures are in EUR unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 8 2020).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:

The sources of information used for this rating include Caixa Económica Montepio Geral, S.A. Press Release Q1 2020 Results, Caixa Económica Montepio Geral, S.A. 2016-2019 Annual Reports, 17 March 2020 Supplement to Base Prospectus, and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see:

The sensitivity analysis of the relevant key rating assumptions can be found at:

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Nicola De Caro, Senior Vice President – Global FIG
Rating Committee Chair: Elisabeth Rudman - Managing Director, Head of European FIG - Global FIG
Initial Rating Date: June 27, 2011
Last Rating Date: October 1, 2019

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