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S&P critical of Portugal's banks for paying dividends

novobancoshinylogoThe Standard & Poor's ratings agency says Portugal’s banks continue to face obstacles in generating profits and improving efficiency.

In a statement released last Friday, when Portugal's rating rose from 'BBB-' to 'BBB with a stable outlook,’ S & P commented on the country’s banking sector’s problems which included weak demand for credit.

According to the rating agency, banks' ability to generate profits remains, "under significant pressure" as interest rates remain very low, lowering interest income, balance sheet strength is weak and there remain problem loans relating to real estate.

In addition, says the agency, although banks have reduced their reliance on ECB funding, they find it difficult to find other sources of low-cost financing.

Lastly, S&P notes that the recent propensity of Portuguese banks to use profits to pay dividends to shareholders, rather than being used to improve provisions for bad debts, is hardly helpful.