In the wake of its move to cut the sovereign ratings for Portugal to junk status, Fitch Ratings Friday slashed its ratings on several of the country’s banks.
Fitch said it has downgraded the ratings of several banks, and that the outlook for the banks is negative in line with that of the sovereign. Any further downgrade of Portugal’s sovereign rating would likely trigger further bank downgrades too, it says.
The rating agency says it believes that the banks need to strengthen their capitalization, but that their flexibility to do so is likely to become increasingly constrained, “particularly due to the weakening economic environment and likely worsening of earnings and asset quality.” It does note that there is a €12 billion capital support package available to the Portuguese banks as part of an IMF/EU support package.
Fitch also says the downgrades also reflect the extremely challenging funding environment, which is likely to increase pressure on these banks’ funding and liquidity profiles, despite recent success in improving the proportion of loans that are funded by deposits.