PORTUGAL Trends and Developments Contributed by: André Figueiredo and Hugo Nunes e Sá, PLMJ
Banking and Finance in Portugal in 2025: M&A Momentum, Regulation, Digital Transformation and the Resurgence of Project Finance Introduction Portugal’s banking and finance sector stands at a pivotal juncture, marked by a substantial rise in M&A activity, sweeping regulatory alignment with the EU, digital transformation and a revival of long-term pro- ject finance across strategic sectors. The sector is, however, entering 2025 with a mix of confidence and caution. On the one hand, the indus- try has enjoyed two years of strong profitability, with high interest rates boosting net interest margins and enabling banks to report some of their best results since the period before the financial crisis. On the other hand, the European Central Bank (ECB) has begun signalling a gradual easing cycle, meaning that the tailwinds that sustained earnings in 2023–24 are unlikely to persist. The sector is therefore seeking new avenues of growth, efficiency and capital optimisation. The macroeconomic backdrop is supportive, though not without risks. According to the Bank of Portugal’s Economic Bulletin (June 2025), GDP is projected to grow by 1.6% in 2025, 2.2% in 2026 and 1.7% in 2027, with inflation expected to average 1.9% in 2025, settling at 1.8% in both 2026 and 2027 – close to the ECB’s price stability target. These projections place Portugal slightly above the eurozone average for growth, with a more favourable inflation profile than many peers. The unemployment rate is at around 6.2%, and inward investment continues to flow, particularly in renewables, technology and infrastructure. However, the expected gradual easing of ECB rates will put downward pressure on banks’ net interest margins, encouraging consolidation, product diversification and operational efficiency. Banking market M&A momentum The BPCE–Novo Banco deal Perhaps the most visible trend in Portugal’s financial landscape over the past couple of years has been the revival of M&A activity among banking institutions. The most significant highlight in Portugal’s financial sector this year is the EUR6.4 billion acquisition of a
75% stake in Novo Banco by France’s BPCE Group, agreed with Lone Star in June 2025. This is one of the largest cross-border banking acquisitions in Europe in over a decade, giving the BPCE – the second-largest banking group in France – a direct foothold in the Por- tuguese market. The strategic rationale for BPCE is clear. Novo Banco has staged an impressive recovery in recent years, reporting a 17% increase in net profit year-on-year in the first quarter of 2025 and delivering a return on tan- gible equity above 22%. By acquiring an established retail and corporate bank with nationwide distribution and significant SME penetration, BPCE gains a ready- made platform in a euro-area economy with stable growth prospects and historical links to Lusophone Africa and Brazil. The deal also has domestic implications. With the Portuguese state and the Resolution Fund retaining 25%, questions remain as to whether BPCE will pur- sue full control in the coming years or whether a partial IPO will materialise. Either outcome would reshape competitive dynamics, potentially catalysing further consolidation among mid-sized players. Other strategic banking acquisitions Beyond Novo Banco, the market has seen a steady stream of smaller transactions. In 2024, Portugal recorded more than 500 M&A deals across sectors, with a combined value of EUR9.5 billion. While real estate and technology dominated in volume, bank- ing was notable for targeted acquisitions of smaller licensed entities. A Spanish mid-tier bank acquired a Portuguese trade finance specialist as a spring- board to Africa; a group of private investors took over a regional retail bank in the Azores; and fintech-led consortia purchased institutions with banking licences to accelerate EU market access from Lisbon. These transactions illustrate a wider European trend – M&A across Europe reached a nine-year high in 2024, with a 22% increase in deal numbers compared to the previous year. Portugal is very much part of this wave, with strategic and opportunistic deals reshaping the market.
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