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Capital Markets

Strong performers show their vulnerability

Portuguese banks got through last year's recession remarkably smoothly. But despite their strength, there's still talk of further consolidation. Quite how this would be achieved is not clear, particularly as the government is likely to resist further foreign involvement.

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THE DECLINE OF the Portuguese economy last year was as spectacular as the strong growth that it registered in the late 1990s. Recession hit with a vengeance – GDP and real per capita incomes each fell by one percentage point, the sharpest drop in the eurozone, as well as the worst performance of all OECD countries.

In this dire environment it might have been expected that the country's banks would follow the rest of the economy downhill. That's not the case – in fact four of the five banks that account for some 80% of the financial system in terms of lending, deposits and total assets, managed to grow their net income in last year's tough environment. In the case of Banco Português de Investimento (BPI), growth was an impressive 61% on the previous year.

"The leading Portuguese banks have proved very resilient despite the difficult operating environment and therefore there has been little impact of this on our ratings," says analyst Philip Smith at Fitch Ratings. "While the Portuguese economy has had a somewhat uncertain start to 2004, expectations are that positive GDP growth of around 1% to 1.5%

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