Morningstar DBRS Upgrades CGD's Long-Term Issuer Rating to "A," Trend Changed to Stable
Banking OrganizationsDBRS Ratings GmbH (Morningstar DBRS) upgraded the Long-Term Issuer Rating of Caixa Geral de Depósitos (CGD or the Bank) to "A" and the Long-Term Deposit rating to A (high). The Bank's Long-Term Deposit rating remains one notch above the Intrinsic Assessment (IA) to reflect the legal framework in place in Portugal which has full depositor preference in bank insolvency and resolution proceedings. The trend on all Long-Term ratings is now Stable. Morningstar DBRS also confirmed the Short-Term Issuer Rating at R-1 (low) with a Stable Trend. CGD's IA was raised to "A" while the Support Assessment remains at SA3. See a full list of credit ratings at the end of this press release.
KEY CREDIT RATING CONSIDERATIONS
The upgrade of CGD's Long-Term credit ratings reflects the Bank's sustained improvement in earnings, the persistent reduction in non-performing loans (NPLs), and its large capital cushions over minimum regulatory requirements. Resilient economic performance in Portugal and higher interest rates have helped CGD's sustain healthy profits and further reduce the stock of nonperforming loans (NPLs). CGD's improved NPL ratio, that compares well with similarly rated European peers, best illustrates its effective restructuring and the de-risking of its balance sheet. Furthermore, the upgrade reflects the Bank's strong capitalisation. Capital buffers remain substantial, having recently benefitted from stronger internal capital generation and balance sheet de-risking, capital levels remain considerably above minimum requirements.
The Stable trend reflects our view that risks to the credit outlook are balanced. We expect the Bank's earnings to continue to benefit from favourable economic conditions in Portugal, a pickup in lending demand, and still strong net interest margins (NIM) despite lower interest rates. We also expect sound economic conditions and the gradual decline in interest rates to keep the Bank's gross NPL ratio low. Conversely, the macroeconomic environment is clouded by significant geopolitical uncertainty.
CGD's credit ratings reflect its leading banking franchise in Portugal and its robust capital position. Likewise, the ratings are underpinned by strong deposit funding and healthy liquidity. The ratings also reflect the limited size of the Portuguese market and the bank's modest scale and diversification.
The Bank's IA of "A" is at the low end of the IA range reflecting CGD's shorter track record of solid recurrent profitability and improved asset quality when compared with those of higher-rated peers.
CREDIT RATING DRIVERS
Morningstar DBRS would upgrade the credit ratings if the Bank demonstrates greater diversification of non-interest revenue sources, and a longer performance of sustained healthy profitability, underpinned by sound asset quality and risk management. Conversely, Morningstar DBRS would downgrade the credit ratings in the event of a material weakening of the Bank's asset quality or should profitability revert to materially weaker levels.
CREDIT RATING RATIONALE
Franchise Combined Building Block Assessment: Good
CGD is the largest banking group in Portugal where it is the market leader in several products and services in commercial and retail banking. The Bank's domestic franchise accounts for 18% of the market share for loans and 23% for deposits, as of the first quarter 2025. Exposure to countries with economic links and historical ties to Portugal, including Mozambique and Angola, provide the Bank with a small amount of geographical diversification. It also has a limited presence in France and Macau. CGD is entirely owned by the Portuguese State and completed the restructuring agreed with the European Commission (EC) following the State-backed recapitalisation in 2017. Since then, CGD has reduced its legacy stock of impaired assets, streamlined its operating structure, and downsized its operations outside Portugal. Healthy results allowed the Bank to pay out a total of EUR 850 million in dividends in 2024.
Earnings Combined Building Block Assessment: Good
CGD's profitability improvement is a key driver for the upgrade. Profitability has improved in recent years, primarily driven by the improved operating environment in Portugal and higher interest rates. In FY 2024, the Bank's net income reached EUR 1.74 billion, up 34% from the FY 2023 results and a nearly 200% increase since FY 2021. The multi-year improvement reflects the level shift in net interest income (NII) from higher interest rates whereas the improvement year over year (YOY) is largely supported by loan loss provision releases. Net income for 1Q 2025 was EUR 393 million, a roughly flat performance relative to a year earlier and representing a 15.3% return on equity (as reported). The strong performance was despite the 11% YOY decline in NII, stemming from the gradual decline in interest rates and the increase in deposit renumeration. The Bank's NIM narrowed to 2.53% in 1Q 2025, from 2.58% a year earlier, a level that compares well with international peers. Provisions and impairment for credit risk in 1Q 2025 was EUR -104 million, resulting in a cost of risk of -25 bps, largely driven by cures of stage 3 loans and the migration from stage 2 to stage 1 loans. The cost-to-income ratio (as reported) was 37% in 1Q 2025, up slightly from the 30% at end-2024, partly driven by a 3.3% increase in operating costs. The Bank's efficiency nonetheless compares well against domestic and European peers.
Risk Combined Building Block Assessment: Strong/Good
CGD has a moderate risk profile that has significantly improved in recent years. Though the bulk of CGD's loan portfolio is composed of floating rate loans, sound underwriting standards and solid macroeconomic fundamentals in Portugal have limited the deterioration in asset quality typically associated with the rapid rise in interest rates. NPLs totalled EUR 1.05 billion as of March 2025, down from EUR 1.09 billion reported at end-2024 and 1.90 billion at end-2022. The Bank reported that as of 1Q 2025, its NPL ratio declined to 1.4%, which compares well with domestic and peers and the European average. The NPL coverage ratio was 167% in 1Q 2025, placing the NPL ratio net of impairments at 0.0%. Moreover, the Bank has continued to reduce foreclosed assets. The stock of real estate assets was EUR 227 million in March 2025, down from EUR 299 million at end-2023. In our view, Portugal's strong labour markets and healthy private sector finances should contain any deterioration in asset quality in the face of general macroeconomic uncertainty.
Funding and Liquidity Combined Building Block Assessment: Strong/Good
CGD's funding profile is supported by its leading retail deposit franchise in Portugal, with 23.0% market share. Customer deposits increased by 8.1% in 1Q 2025 compared to a year earlier. The net loan to deposit ratio was 62.8% in 1Q 2025, up from 61.5% at end-2024. The Bank's debt portfolio and deposits at the central bank underpin its strong liquidity position. CGD reported High Quality Liquid Assets (HQLA) of EUR 40.0 billion in Q1 2025, of which EUR 17.3 billion is cash deposited at the ECB and EUR 22.6 billion of securities eligible as collateral for ECB funding. LCR was at 342% and the NSFR was 186% in the same period, both liquidity coverage ratios are well above the regulatory requirement of 100%. CGD has demonstrated access to wholesale funding market, principally to satisfy minimum requirements for own funds and eligible liabilities (MREL). The Bank does not regularly access wholesale capital markets, as it has a high level of coverage of its wholesale debt by cash and collateral.
Capitalisation Combined Building Block Assessment: Strong/Good
CGD's capital ratios - CET1 at 20.74% and Total capital at 20.95% in 1Q 2025 - have recently benefitted from improved retained earnings and compare favourably to the Portuguese and European averages. Both ratios are significantly above SREP minimum requirements of 8.869% and 13.200%. Morningstar DBRS does not expect CET1 ratio to drop below Q1 2025 level during 2025. The solid capital levels have been met after the EUR 525 million in dividend payment related to 2023 and the additional EUR 850 million paid in 2025. CGD has paid in dividends to its shareholder the Portuguese government EUR 3.35 billion since 2018, exceeding the EUR 2.5 billion public cash raised in 2017. Overall, the Bank generated EUR 6.5 billion of capital since 2017 exceeds the total EUR 3.9 billion of public investment in CGD's recapitalisation plan.
Further details on the Scorecard Indicators and Building Block Assessments can be found at :https://dbrs.morningstar.com/research/457714.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025) https://dbrs.morningstar.com/research/454196
Notes:
All figures are in euros unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (23 May 2025) https://dbrs.morningstar.com/research/454637 In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors.
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
The sources of information used for these credit ratings include Morningstar Inc. and company documents, including CGD 1Q 2025 earnings release and annual reports (2020-2024), European Banking Authority (EBA) and European Central Bank (ECB) data. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.
Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's trends and credit ratings are under regular surveillance.
For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.
The sensitivity analysis of the relevant key credit rating assumptions can be found at:https://dbrs.morningstar.com/research/457715.
These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Jason Graffam, Senior Vice President - Global Sovereign & Financial Institution Ratings
Rating Committee Chair: Marcos Alvarez, Managing Director - Global Financial Institution Ratings
Initial Rating Date: 23 December 2011
Last Rating Date: 30 October 2024
DBRS Ratings GmbH, Sucursal en España
Paseo de la Castellana 81, Plantas 26 & 27
28046 Madrid, Spain
Tel. +34 (91) 903 6500
DBRS Ratings GmbH
Neue Mainzer Straße 75
D-60311 Frankfurt am Main
Tel. +49 (69) 8088 3500
Geschäftsführung: Detlef Scholz, Marta Zurita Bermejo
Amtsgericht Frankfurt am Main, HRB 110259
For more information on this credit or on this industry, visit dbrs.morningstar.com.
Ratings
ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.