Banking system profitability to grow again in 2023 – BdP

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The profitability of the Portuguese banking system grew again in 2023, with the cost of credit risk also rising due to the increase in impairments, according to data from the Bank of Portugal (BdP) released today.

According to the banking regulator and supervisor’s quarterly analysis of the banking sector last year, profitability “continued its growth trajectory”, with return on equity (ROE) rising to 14.8% (up 6.14 percentage points) and return on assets (ROA) rising to 1.28% (up 0.59 points).

The rise in return on assets was due, said the BdP, above all to the increase in net interest income (the difference between what banks charged on loans and paid on deposits), although this was partially offset by the increase in provisions and impairments.

Several banks posted historic profits for 2023, even surprising analysts in a year marked by rising interest rates. The five largest banks operating in Portugal recorded aggregate profits of 4,444 million euros in 2023, 72.5% more than in 2022.

Caixa Geral de Depósitos (CGD, the state-owned bank) made the biggest profits, with 1,291 million euros. Santander Totta had profits of 1,030 million euros, BCP 856 million euros, Novo Banco 743.1 million euros and BPI 524 million euros.

Also in the analysis released today, the BdP says that in 2023, the cost of credit risk increased (0.16 percentage points) to 0.45%, which it justifies with the reinforcement of credit impairments (money that banks set aside to deal with possible defaults).

The efficiency ratio (costs against revenues) improved to 36.9%, reflecting an increase in operating income due to an improvement in net interest income.

Operating costs increased by 3.3% compared to 2022.

As for asset quality, in the last quarter of 2023, the gross non-performing loans (NPL) ratio fell by 0.2 percentage points to 2.7%, due to both the reduction in non-performing loans and the granting of more loans.

The non-performing loans ratio for companies continued to fall to 5.0% and the same ratio for households remained practically unchanged at 2.4% (+0.1 percentage points).

Finally, in terms of banks’ solvency indicators, both the total own funds ratio and the Common Equity Tier 1 (CET 1) ratio increased to 19.6% and 17.1%, respectively.

Hervé Hubert
Hervé Hubert
Hervé Hubert is a 55-year-old writer and journalist based in Porto, Portugal. Born in France, he brings a unique blend of French and Portuguese perspectives to his work. Education Hervé studied Journalism and Literature at the University of Lyon in France. After completing his studies, he gained valuable experience working with various French media outlets (Portugal France also). Career He worked for several years as a journalist in France before making the move to Portugal. In Porto, he joined the Portugal Pulse team as a staff writer. Skills Hervé specializes in storytelling, investigative journalism, and cultural commentary. He has a flair for capturing complex issues in a relatable way. Personal Life He currently resides in Porto and enjoys the city's rich culture, from Fado music to Francesinha cuisine. Hervé continues to maintain strong ties to his French heritage, often traveling back to France for family visits and cultural exploration. With his unique background and diverse skill set, Hervé Hubert adds a layered, multicultural lens to every story he covers.

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