Fitch cuts six Portuguese banks’ ratings

The Fitch Ratings agency has downgraded six Portuguese banks’ viability ratings amidst deepening uncertainty caused by the eurozone crisis.

The downgraded banks are Caixa Geral de Depositos (CGD), Banco Comercial Portugues (Millennium BCP), Banco BPI, Caixa Economica Montepio Geral (Montepio Geral), Banif – Banco Internacional do Funchal (Banif) and Santander Totta (SantanderTotta,and its bank subsidiary Banco Santander Totta).

“The downgrades reflect the banks’ intensified funding and liquidity tensions and the deterioration in asset quality and profitability due to the deepening of the economic recession in Portugal,” the agency said in a statement. They also reflect capital and credit concerns as a result of heightened sovereign risks due to the eurozone debt crisis.

Portuguese banks remain reliant on wholesale funding, access to which remains closed, which combined with sizeable debt maturities until 2014 has increased funding and liquidity risks.

Montepio Geral, Millenium BCP and CGD face greater refinancing needs in the second half of this year and in 2012 than their peers, ranging between 6% and 9% of total assets at end-the first six months.

Fitch said the banks will continue to make use of the ECB liquidity facility to meet refinancing needs in the short to medium term, helped by increased liquidity buffers.

More positively, domestic deposits have been stable and the banks’ deleveraging efforts and deposit base improvements have resulted in better loans/deposits ratios in the first half of this year. However, further improvements are necessary, particularly for Santander Totta and Millenium BCP, the agency said.

Regulatory capital levels have improved for most banks, helped by capital increases and/or a reduction in risk-weighted assets.

By June, Santander Totta, Banco BPI and Montepio Geral had already reached the minimum 9% regulatory core capital ratio required by the Bank of Portugal by end of this year. CGD and Millenium BCP were close to reaching this level and both should benefit from a reduction in risk-weighted assets from the sale of non-core businesses.

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