...Portuguese banks continued to reduce their large stocks of problem assets in 1H19. Fitch Ratings estimates that the average impaired loan (IFRS 9 Stage 3) ratio fell to about 9.6% at end-June 2019 for the six largest banks (11% at end-2018) owing to large sales, cures and write-offs. The problem asset ratio (including foreclosed assets and investment properties) was about 13%, which remains high relative to international peers. Operating profitability recovered further owing to adequate cost control, lower funding costs and declining loan impairment charges. However, given the weaker interest rate outlook, weak credit demand in Portugal and fierce competition, Fitch Ratings expects margins to squeeze at most banks. Capital buffers strengthened in 1H19 due to earnings generation, issuance of subordinated instruments and de-risking. This offset manageable pressure from revisions in banks' assumptions used to value defined-benefit pension plans (around -40bp impact on average). The gradual...
