Portuguese Bank Profits Supported by NII in 2022, Repricing Tailwinds Expected in 2023

This commentary analyses the 2022 results of the large Portuguese banks, and gives an outlook on expected drivers in 2023 for Portuguese banks.

Summary highlights from the commentary include:

• Total profits for FY 2022 were EUR 2,616 million, up from EUR 1,518 million in FY 2021, as results benefitted from stronger net interest income on the back of rising interest rates, and lower provisioning costs.
• For 2023, we expect profitability to benefit from higher interest rates given the large exposure of Portuguese banks to floating rate loans, although we expect an increase in funding costs.
• The stock of legacy assets has continued to decline with the aggregate gross NPL ratio falling to 3.4% in Q4 2022, however we expect some modest asset quality deterioration in the medium term.
• Funding and liquidity conditions remain adequate despite some challenges from rising interest rates.
• The capital position remained solid in 2022, with the average CET1 and Total Capital ratios reported at 14.9% and 18.1%, respectively at end 2022.

"Results benefitted from stronger net interest income on the back of rising interest rates and lower provisioning costs, reflecting successful execution of restructuring plans and improvements in credit quality,” said Nicola De Caro, Senior Vice President from DBRS Morningstar Global Financial Institutions team. “Overall banks are in a stronger position to face a more demanding environment.”