Press Release

DBRS Morningstar Confirms Novo Banco’s LT Issuer Rating at B (high), Trend now Stable

Banking Organizations
April 14, 2022

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of Novo Banco, S.A. (novobanco or the Bank), including the Long-Term Issuer Rating of B (high) and the Short-Term Issuer Rating of R-4. The Trend on all ratings is now Stable. The Bank’s Intrinsic Assessment (IA) is maintained at B (high) and the Support Assessment at SA3.

The Bank’s Deposit ratings were confirmed at BB (low)/R-4, one notch above the IA, reflecting the legal framework in place in Portugal which provides full depositor preference in bank insolvency and resolution proceedings. The BB (high)/R-3 Critical Obligations Ratings were also confirmed with a Stable trend. This reflects DBRS Morningstar’s expectation that, in the event of a resolution of the Bank, certain liabilities (such as payment and collection services, obligations under a covered bond program, payment and collection services, etc.) have a greater probability of avoiding being bailed-in and are likely to be included in a going-concern entity. A full list of rating actions is included at the end of this press release.


The confirmation of the ratings and the change of the Trend to Stable from Negative takes into account the improvements in the Bank’s profitability and asset quality. Overall, the Bank’s performance in 2021 was better than previously anticipated, and novobanco continued to execute its restructuring plan by reducing its stock of Non-Performing Loans (NPLs) and other legacy assets, as well as streamlining its operating structure. In addition, for the first time since its inception, the Bank was profitable in 2021. Nonetheless, the ratings continue to reflect the Bank’s the still large stock of non-performing loans (NPLs) and its modest regulatory capital ratios.


A rating upgrade would require a sustained improvement in profitability and a strengthening of the capital position.

A deterioration in the Bank’s capital position or a significant weakening in asset quality would lead to a downgrade of the ratings.


Franchise Combined Building Block (BB) Assessment: Moderate/Weak

The Bank maintains a relatively stable franchise as the fourth largest Corporate bank in Portugal. The restructuring plan approved by the European Commission (EC) under EU State Aid rules, was set to end in December 2021 and in line with this plan, the Bank has made further progress in de-risking its balance sheet in 2021.

In addition, the Bank has continued to streamline its operations through Corporate simplification and investments in digitalisation. As part of its strategic refocus on the core business in Portugal, novobanco completed the sale of its Spanish operations in H2 2021.

Earnings Combined Building Block (BB) Assessment: Weak/Very Weak

2021 was a turning point for novobanco’s profitability, as for the first time since its inception, the Bank reported four consecutive quarters of net profits. For FY 2021, novobanco posted a consolidated profit of EUR 184.5 million, compared to a net loss of EUR 1,329 million for FY 2020. The improvement, when compared with previous years, was mainly driven by higher operating income and a lower level of impairments and provisions. The Bank’s cost of risk decreased to 60 bps from over 200 bps a year prior, reflecting that 2020 was significantly impacted by credit provisions for COVID-19 as well as various restructuring charges. Operating costs were also down 5.4% YoY.

Risk Combined Building Block (BB) Assessment: Weak/Very Weak

Since 2017, novobanco has made significant progress in de-risking its balance sheet, with the provision of capital support through the Contingent Capital Agreement (CCA) from the Portuguese Resolution Fund playing a key role in this process. novobanco’s gross NPL stock decreased by 30% YoY in 2021 to EUR 1.7 billion (FY 2020: EUR 2.5 billion), mainly supported by disposals of legacy problem loans. At FY 2021 the Bank’s reported NPL ratio was 5.7%, down from 8.9% in 2020. Despite this, novobanco’s asset quality metrics continue to compare unfavourably with domestic and international peers. According to novobanco’s medium term targets, the Bank’s gross NPL ratio is expected to fall below 5%.

Asset quality risks stemming from the pandemic have decreased for the time being, and DBRS Morningstar notes that, so far, the withdrawal of the moratoria by September 2021 has not resulted in a spike of new NPLs. The Bank previously had EUR 6.9 billion of loans under moratoria (at FY 2020), representing around 27% of the gross loan book, and DBRS Morningstar notes that on these loans, however, there has been an increase in the proportion of Stage 2 loans where credit risk has increased significantly since initial recognition.

Funding and Liquidity Combined Building Block (BB) Assessment: Moderate

The Bank’s current funding structure depends largely on deposits and ECB funding. Total deposits were EUR 27 billion, representing 61% of total assets at FY 2021, of which the majority is from retail customers. novobanco’s gross exposure to the ECB increased to EUR 8 billion at FY 2021. This also led to an improvement in the Bank’s funding and liquidity ratios, with the NSFR and the LCR reported at 117% and 182%, respectively, at FY 2021. In 2021, novobanco returned to the wholesale market, with the issuance of two senior preferred bond issues for a total consideration of EUR 575 million. This allowed the Bank to comply with its MREL requirements as of 1 January 2022.

Capitalisation Combined Building Block (BB) Assessment: Very Weak

At FY 2021, novobanco reported its phased-in CET1 and total capital ratios at 11.1% and 13.1%, respectively, stable compared to FY 2020. The Bank is currently operating below its 13.5% total capital requirement under SREP, on the back of the extraordinary measures granted by the ECB to counter the COVID-19 emergency. However, at FY 2022 novobanco will need to meet a total capital ratio, including P2G and excluding relief measures, of 15%. The Bank expects to meet this through a combination of organic capital generation and further balance sheet deleveraging.

DBRS Morningstar notes that novobanco’s capital ratios at FY 2021 do not include the potential capital payment under the CCA scheme. For 2021, novobanco made a request of EUR 209 million to the Resolution Fund to meet a CET1 level of 12%. Up until 2020, the support from the CCA has been timely and aligned to Novo Banco’s requests. However, the capital paid to novobanco in 2021 was lower than the amount initially requested. This has caused an arbitration process with the Resolution Fund, and the outcome of this still remains unclear. Against this backdrop, similar disputes could occur in the future, notwithstanding the EUR 485 million of capital support potentially still available for novobanco.

Further details on the Scorecard Indicators and Building Block Assessments can be found at


The Corporate Governance subfactor remains relevant to the ratings and trends of Novo Banco. The bank has faced reputational risks that were mainly linked to past management and the failure of its predecessor bank Banco Espirito Santo (BES). The Bank is also subject to ongoing scrutiny by Portuguese and European authorities in relation to its restructuring plan. Political risk is also considered as relevant, reflecting the current disputes between the Bank and the Resolution Fund.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at

DBRS Morningstar notes that this Press Release was amended on 6th May 2022 to incorporate the disclosure that DBRS Morningstar does not independently audit the information received in connection with the rating process.

All figures are in EUR unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (19 July 2021) Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021) and the DBRS Morningstar Criteria: Guarantees and Other Forms of Support (4 April 2022)

The sources of information used for this rating include Morningstar Inc. and Company Documents, Novo Banco Press Release Q4 2021 Results, Novo Banco 2016-2020 Annual Reports. 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: DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage:

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

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Nicola De Caro, Senior Vice President, Global FIG
Rating Committee Chair: Ross Abercromby, Managing Director – Global FIG
Initial Rating Date: August 5, 2014
Last Rating Date: April 16, 2021

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