Portugal will probably need to tap a recapitalization fund for its banks a second time under a bailout plan because lenders’ asset quality is deteriorating, Moody’s Investors Service said.
“Despite the effort that has been made to improving the capital for banks, amid the deterioration of the economic environment, asset quality and profitability are going to continue to suffer.” Pepa Mori, an analyst at Moody’s, said in an interview in Lisbon today. In a January report, Moody’s estimated Portuguese banks’ needed about 8 billion euros ($10.5 billion) in capital, according to stress tests.
“This adverse scenario has become our central scenario for Portuguese banks,” Mori said. Portugal has already granted 5.6 billion euros in capital to banks that aren’t state-owned from a 12 billion-euro fund available under the country’s bailout plan.
In absolute numbers, capital has improved but looking at the “overall risk absorption capacity for banks” Moody’s sees “higher losses materializing and the deterioration of asset quality” affecting banks, Mori said. According to regulatory requirements, Portuguese banks were forced to raise their core Tier 1 capital ratios above 10 percent.
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