Banco Comercial Portugues gets Moody's rating upgrade, outlook stable

Moody's upgraded Banco Comercial Portugues (BCP) and its Macao branch's long-term deposit ratings to A2 from A3, affirming BCP’s senior unsecured debt at Baa1, driven by improved asset-risk metrics, higher capital levels, and enhanced profitability; BCP reported a net profit of €1,000 million in 2024, a 5.6% increase year-over-year, with non-performing assets and loans ratios declining to 3.8% and 3.3%, respectively. The stable outlook reflects Moody's view that the bank's expected performance is already captured in the current ratings, while potential future upgrades hinge on further improvements in asset quality, capital, and profitability.

Analysis

Moody's recent upgrade of Banco Comercial Portugues's (BCP) long-term deposit ratings to A2 from A3, coupled with an upgrade of its Baseline Credit Assessment (BCA) to baa2 from baa3, underscores a significant enhancement in the bank's creditworthiness. This improvement is primarily driven by strengthened asset-risk metrics, as evidenced by the non-performing assets (NPA) ratio declining to 3.8% and the non-performing loans (NPL) ratio to 3.3% as of December 2024, compared to 4.3% and 3.5% a year earlier, respectively. BCP's profitability has also seen positive momentum, with a reported net profit of €1,000 million in 2024, marking a 5.6% increase from the €948 million recorded in the previous year. Furthermore, the bank's capital position has solidified, highlighted by a fully loaded CET1 ratio of 16.3% at year-end 2024—well above its 9.56% SREP requirement for 2025—and Moody's expectation for the adjusted tangible common equity (TCE) ratio to remain between 11% and 12%. While legal provisions tied to BCP's Polish subsidiary's legacy Swiss franc mortgage portfolio persist as a risk, Moody's anticipates the bank's sound funding and liquidity to remain intact. The outlook on both the long-term deposit ratings (changed to stable from positive) and the senior unsecured debt rating (remaining stable at Baa1) indicates Moody's view that BCP's anticipated performance over the next 12-18 months is already incorporated into the current ratings.

Key Decisions for Investors

• Investors should interpret Moody's upgrade as a strong validation of BCP's improved financial health, notably its enhanced asset quality, robust capitalization, and growing profitability, which could favorably impact the valuation of both its debt and equity securities.
• The stable outlook on BCP's key ratings suggests that the positive news is largely priced in by credit markets, implying that future upgrades would necessitate performance exceeding Moody's current expectations, particularly in further reducing problem assets or bolstering capital and profitability.
• Continuous monitoring of the financial implications and provisioning levels related to BCP's Polish subsidiary's Swiss franc mortgage portfolio is essential, as this represents a material risk factor that could influence future earnings and capital adequacy.
• Consider BCP's Baa1-rated senior unsecured debt, which benefits from the improved BCA, as a potentially more attractive investment-grade holding, while also noting that significant, sustained improvements in core metrics beyond current projections could trigger further positive BCA revisions.