Lower provisions and a resurgent economy are helping Portuguese banks to become profitable again.

The €1.4bn capital shortfall uncovered by the European Central Bank in the November stress-test at Novo Banco might suggest that recovery is still some way off for the Portuguese banking sector, but results at other large banks in Portugal show the opposite.

Novo Banco, the so-called “good bank” salvaged from the break-up of Banco Espírito Santo last year, is still weighed down by the issue of legacy loans which are worryingly trending upwards. In the first six months of the year, non-performing loans (NPLs) at Novo Banco grew 3.4%, bringing the total stock of soured loans at the bank to 12.1%.

In the meantime, the other large banks in the country managed to move on. In the first three-quarters of the year, the four largest banks in the country by assets (excluding Novo Banco) together posted a hefty €595.6m in net profits, riding on the wave of rising net interest income and decreasing provisions (see chart one).

Chart one 2

The four banks also managed to contain their NPLs, as the ratio either stayed the same or declined at each bank.

The most impressive results were delivered by Millennium BCP, which posted a €264.5m net profit, opposed to a €109.5m loss in the same period last year. The growth was driven primarily by a substantial 20.9% rise in net interest income.

The rise in revenue was helped by declining provisions and costs. Provisions decreased 28.2% to €628m, while the operating costs dropped by a little over €32m to €825.4m. This happened as the bank trimmed down its balance sheet – total assets decreased by nearly €3bn.

The trend was similar at the three other banks. Banco Português de Investimento (BPI) recorded a net profit of €151m, versus a €114.3m loss in September 2014. The bank especially benefited from a recovery of its domestic unit, which posted a loss of nearly €200m for the same period last year.

BPI can also boast the best asset quality of the four banks. In September, only 3.7% of its loans were in arrears and trending downwards.

At Caixa Geral de Depositos (CGD), net profits actually decreased by one measure as the revenue at the bank was propped up by the sale of its insurance arm in 2014. This added €278.9m to the year’s income, leading to a €46.3m profit for September. Without it, the bank would have lost €232.6m in that period.

As for the other two banks, CGD benefited primarily from the rising net interest income, which grew by 8.6% to €806.6m and falling provisions which declined 15.2% to €492.7m.

Revenue was also up at Banco Santander Totta, one of the few banks that managed to stay profitable in the past few years. The bank grew its profits for the first three-quarters of the year to €176.7m, a 48.7% increase. Growth in net interest income was only 3.3%, much less than at the three other banks, but Santander benefited from falling provisions, which declined by 12.7% to €144.4m. This happened as the bank managed to keep its pile of bad debt about 4% since 2010, about half of what it was for two of its larger competitors, CGD and BCP.

Chart two 3

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