The outlook for the Portuguese banking sector for 2017 is negative, reflecting intensified pressure on capital from weak profitability and asset quality amid a highly indebted economy with low growth prospects, according to Fitch Ratings.
The rating agency said Dec. 22 that it expects Portugal's GDP growth to slow to 1.2% in 2016 and 1.4% in 2017, which could add further pressure to the banking system's already weak asset quality.
"Changes in legislation that facilitate bankruptcy procedures and speed up court resolutions are key for banks to have the necessary tools to work out problem loans," Fitch said, noting, however, that the positive impact from any reform will only feed through in the medium term.
Meanwhile, Fitch said the outlook on banks' ratings is stable, reflecting capital increases, restructuring and weak but fairly stable asset quality indicators. The rating agency expects some sales of noncore assets to support banks' capital levels.