PORTUGAL Trends and Developments Contributed by: Rodrigo Formigal, João Diogo Barbosa and António Kreiseler de Albuquerque, Abreu Advogados
Abreu Advogados Av. Infante Dom Henrique 26 1149-096 Lisbon Portugal
Tel: +351 21 723 18 00 Fax: +351 21 723 18 99
Email: lisboa@abreuadvogados.com Web: www.abreuadvogados.com/en/
The Portuguese Market at a Glance Amidst a challenging backdrop, the Portuguese economy will reportedly grow by 1.6% in 2024 (and 2,1% in 2025), according to the Bank of Portugal’s forecast. This notable result within a depressed European context follows a slow - down in inflation and interest rates. Regardless, the banking market saw a year of borrowers’ increasing borrowing costs (as a result of the increase in their benchmark rates) and lenders tightening their documentation and loan approv - al criteria. Even so, the Portuguese banking sector con - tinues to show positive signs, notably in asset quality, returns and solvency ratios. The non- performing loans (NPLs) ratio published by the Bank of Portugal has showed a steady decrease in such liabilities for several years, remaining at 2.6% for Q2 2024, whilst the ratio of stage two loans for corporate borrowers experienced a 0.3% decrease in Q1 2024, compared to the previous quarter, also according to the Bank of Portugal’s data. Simultaneously, banks’ returns have improved both for assets and equity, increasing to 1.40% and 15.5%, respectively, in Q1 2024, accord - ing to the Bank of Portugal. In fact, Portuguese
banks have achieved levels of profits that had not been reached in recent years. Solvency, total own funds and common equity tier 1 (CET1) ratios remain in an upward trajectory and Q1 of 2024 witnessed a rise of value in total assets by 2.6%, mainly due to an increase in debt securi - ties held in portfolio, with sovereign debt having an important role. As the inflation curve begins to flatten, an uptick in confidence by market participants and a return in M&A activity in Portugal is widely expected. At the same time, Portuguese banks will likely con - tinue to exercise some restraint in future deals, making room for alternative and private credit lenders acting on a cross-border basis. Still, persistent inflation and interest rates (combined with factors such as high energy costs), are a significant source of risk for distressed debt. Debt restructuring, recovery and placement in the secondary market will remain a key chal - lenge for banks and borrowers throughout 2025. On the upside, digital and artificial intelligence- driven solutions are expected to continue to be strongly implemented by banks with a view to transforming and enhancing today’s banking services and keep up with new market entries from fintech players.
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