Charts of the Week

The Portuguese banking system’s non-performing loan ratio continued to decline, to 11.7% as of Q2 2018 (and 11.3% as of Q3 2018), after peaking at 17.9% as of Q2 2016. This 6.2 percentage points contraction in the NPL ratio is mainly due to a nearly 40% reduction in non-performing loans outstanding amount, compared to a 2.1% decline in total loans outstanding amount.

According to the Bank of Portugal’s data, 42% of the decline in the NPL ratio is due to write-offs. Sales and securitisations accounted for 23% of the ratio’s decline. Nearly two thirds of the cleaning up of Portuguese bank balance sheets occurred via the removal of non-performing loans from the banking system.

Moreover, the reclassification of NPL as “performing loans” more than offset the flow of loans that turn non-performing. The net flow of non-performing loans contributed to a 24% reduction in the NPL ratio.

Denmark, a small, open economy, reported growth of only 1.2% in 2018, the lowest level since 2013. A patent export in first-quarter 2017, however, has sharply distorted Denmark’s GDP growth profile in 2017 and in 2018. GDP growth averaged 1.7% over the past two years, which provides a better picture of Denmark’s relatively strong growth momentum, buoyed by a favourable international environment and the strong growth of domestic demand.

Denmark will benefit from a relatively high growth carry-over in 2019. In contrast, it will be hit by slowing growth at its main trading partners in the quarters ahead. Yet the size of the slowdown will depend on the progression of protectionist policies and world trade. Similarly, Brexit, the terms of which must still be defined, creates a risk for the Danish economy due to the country’s close trading ties with the United Kingdom.

Thanks to the upturn in oil prices, the growth of private sector lending has accelerated since mid-2017 in the Gulf Cooperation Council (GCC) countries. Oil revenues are a key determinant of economic and banking activity.

Yet trends are mixed. The strong growth in lending in Qatar is due to the rebound in commercial activity 18 months after the embargo began. In Bahrain, the construction sector and households are fuelling lending. In contrast, lending has increased very feebly in Kuwait due to the lack of economic opportunities, while Oman has failed to restore its fiscal and external accounts. In Saudi Arabia, reforms are straining private sector activity, resulting in a small increase in lending. Lastly, in the United Arab Emirates, the real estate sector is hampering the banking business. In the short term, the limited risk of higher interest rates should support loan demand.

On the Same Theme

On track 7/11/2018
The economic upturn continues even though growth peaked in 2017 at the highest level in 15 years. Growth is still higher than its long-term potential, and is expected to hold above 2% in 2018. The labour market is very dynamic, although the size of job creations also reflects weak productivity gains. The banking and public finance situations are improving steadily. Under this environment, Portugal gradually regains favour with the main rating agencies. Compared to the first months of 2017, the easing of sovereign rates has been spectacular.
Portugal: Trend reversal for the nonperforming loans 10/4/2017
The recapitalization of Caixa Geral de Depósitos and Millennium-BCP as well as the partial rearrangement of Banco BPI’s portfolio exemplify the initiatives undertaken by Portuguese banks to clean up their balance sheet. The improvement in the quality of bank assets has also been stimulated by one of the strongest growths across the euro area and an unemployment rate cut by almost half over the past 4 years. After peaking at EUR 13.7 bn in August 2015, the outstanding amount of nonperforming loans (overdue loans of NFCs) dropped by 23% (EUR 3.2 bn) to stand at EUR 10.5 bn in July 2017. Yet, the ratio of nonperforming loans decreased more modestly from 16.12% to 14.01% over the same period of time due to a 12% decline in the outstanding amount of total loans. Real estate and retail/tourism still have the highest ratios of nonperforming loans by sector (respectively 29.48% and 10.11%).
Wind in its sails 7/11/2017
Growth has accelerated significantly over recent quarters, and has now reached the upper echelons of eurozone growth. Employment has recovered sharply, which has pushed the consumer confidence index to a record high. A sign of an economy now ready to take full advantage of favourable conditions, this trend should facilitate the continuation of adjustments that remain necessary. The fragilities of the Portuguese economy have not disappeared, but the conditions are now in place to reduce them. Having recently exited the excessive deficit procedure, the country will nevertheless need to ensure it puts its government debt on a clear downward path.
Portugal: Towards an increase in bank loans? 1/18/2017
The annual growth rate of outstanding Portuguese bank loans to the non-financial corporations and to the households of the Euro area is bouncing back since end 2012. In spite of a growth rate remaining in negative territory, a slowdown in the decline is noticeable between October 2012 and November 2016, increasing from -5.6% to -2.1% on an annual basis. This overall trend has been amplified by non-financial corporation loans. The latter is 12.5% more volatile than the growth rate of household loans (standard deviation of 2.5 against 2.8). After years of adjustments, Portuguese growth and inflation forecasts are oriented in a more favourable direction and might allow a pick-up in the growth rate of domestic bank loans.
The European Commission shows some flexibility 12/2/2016
The Portuguese government considers that it responds to the European commission requirements in its draft budgetary plan by aiming to reduce the budget deficit to 2.4% of GDP this year. Moreover the government is forecasting to reduce it to 1.6% of GDP in 2017.
Weak growth 10/13/2016
The Portuguese economy will suffer from weak growth among some of its main trading partners, particularly within the eurozone. Reduced job creation and higher inflation will drag down consumer spending, which had previously been the main growth driver from mid-2013. Portugal is likely to post growth of only around 1% in 2016 and 2017, and is facing a number of challenges including limited potential growth and the need to shore up its public finances. The government has managed to reduce the government deficit  substantially in the last few years, but it remains too high for the European Commission.
Still needs to prove its worth 2/12/2016
On 5 February, the European Commission accepted Portugal’s 2016 budget proposal after the government agreed to make changes. Even so, Portugal remains under tight surveillance.

ABOUT US Three teams of economists (OECD countries research, emerging economies and country risk, banking economics) make up BNP Paribas Economic Research Department.
This website presents their analyses.
The website contains 2062 articles and 568 videos