European banks' high profits to continue until 2024 despite decline - DBRS.

According to DBRS Morningstar, European bank profits will remain strong next year, albeit below 2023 levels due to pressure on margins and slower loan demand. "We forecast bank profits to remain strong in 2024, albeit lower than in 2023, due to pressure on margins, slow loan growth, and rising costs and credit costs," the consultancy said in an analysis today.

The financial rating agency predicts a gradual deterioration in banks' asset quality as interest rates rise and European economies weaken, hurting loan portfolios. According to DBRS, companies may find it difficult to shift borrowing costs onto customers, while families may''experience difficulties with volatile interest rates, as is the case in Portugal.

A 12-country analysis shows that Portuguese banks are among the main beneficiaries of the European Central Bank's (ECB) key rate hikes, having the second highest average net interest margin after Greece in the first half of this year. The financial margin, which is the difference between interest on loans and interest on deposits, is one of the main sources of profit for Portuguese banks, due to the high proportion of variable-rate loans.

According to Portuguese Bank data for September 2023, 84.2% of total housing loans were at variable interest rates, while mixed and fixed rate''were 12.1 percent and 3.6 percent, respectively.

DBRS Morningstar notes that Portugal is currently introducing measures to protect families and is among countries such as Spain, Italy, Greece and the Netherlands that have introduced or are about to introduce any form of taxes or contributions on high profits in the banking sector.