Fitch sees Portugal banks steadier, sector consolidation

LISBON, Jan 28 (Reuters) - The asset quality of Portugal’s banking sector is stabilising, and recent resolutions at two lenders - Novo Banco and Banif - have little spillover to other local banks, allowing Fitch Ratings to maintain the sector’s stable outlook.

Erwin Van Lumich, managing director for financial institutions in southern Europe, told Reuters on Thursday the still fragile sector would benefiit from consolidation, likely to be driven by the planned sale of Novo Banco, where Spanish banking giants Santander and Caixabank could play a key role.

“Our assumption is that this spillover effect (from bank resolutions) is relatively limited, because some of the other banks that have a rating, they are under very different dynamics, for example than those that Banif was undergoing,” he said.

He said Novo Banco itself may still suffer from some investor uncertainty, likely to be reflected in refinancing coming at a price.

Roger Turro, director of financial instiitutions at Fitch said the stable outlook, which did not change after the December resolutions “is driven by the recovery which we think will support an asset-quality stabilization, by reducing non-performing loan entries and by recoveries, also this stabilization has to support improvement in profitability.”

He said some recovery in profitability has already happened in 2015 after increased regulator scrutiny, which led to measures to improve management of bad loans and asset quality.

But he warned that more pronounced improvements on that front will depend on investors, who so far have shown only limited appetite for real estate in Portugal.

As for the Novo Banco sale, the analysts said that after the second resolution in December when 2 billion euros in senior debt were removed from its books, the operation has better prospects of being accomplished at a better price, reducing any potential loss for Portugal’s bank resolution fund.

“It might be fair to assume that it will have been positive for this gap, because ultimately you have 2 billion less of obligations,” he said. (Reporting By Andrei Khalip, editing by Axel Bugge)