The Canadian rating agency attributes its position to asset quality ratios of the sector, which remain weaker compared to the European average.

DBRS points to greater progress in asset quality in the first nine months of 2019 in Portuguese banking, with all banks reporting lower non-performing loan ratios.

“Supported by a combination of sales, write-offs and recoveries, the combined stock of gross non-performing loans, excluding off-balance sheet exposures, fell by around €9 billion to €19 billion in the first nine months of 2019, corresponding to a 32 percent year-on-year reduction,” the Canadian company said.

DBRS also noted that the gross ratio of non-performing loans fell to around 8 percent in the first nine months of 2019, which compares with 12 percent in the same period of 2018.

Net results of Portuguese banks continued to be pressured by the environment of low-interest rates and significant competitive pressure, which has led some banks to charge on deposits from financial institutions.

“The results in 2019 in comparison with the first nine months of 2018 were largely impacted by extraordinary items. Results included the reversal of impairments of CGD [Caixa Geral de Depósitos] after the sale of some international subsidiaries in 2019,” the agency noted.

DBRS mentioned the acquisition of Euro Bank in Poland by BCP in 2019, as well as the change in accounting treatment by BPI of its stake in Banco de Fomento Angola as contributing to a positive aggregate result of €985 million in the first three quarters of 2019, a decrease of 16 percent from the same period of 2018.

In terms of capital ratios, DBRS denotes that common equity tier 1, CET1 improved, mainly driven by retained earnings, fewer risk assets and an improvement in value of fixed income securities portfolios.

The agency noted that banks continued to pursue cost and efficiency control measures through the rationalisation of traditional banking channels, corporate simplification and digitalisation.