LISBON, April 26 (Xinhua) -- Weakness in the banking sector and excessive debt were the main reasons Moody's kept Portugal in the junk bracket, according to a report seen by the Jornal de Noticias newspaper on Thursday.
Moody's had been expected to upgrade Portugal's rating to investment grade last Friday, but failed to remove the junk label.
"The key constraints to unlocking Portuguese credit are related to very high levels of public debt and a weak banking sector," Moody's evidently surmised.
Moody's is now the only member of the "Big Three" ratings agencies to rank Portuguese debt as junk. Standard&Poor's returned Portugal to investment grade in September 2017 and Fitch followed suit in December.
Portugal exited the European Union Excessive Deficit Procedure program in May 2017 and has been widely praised for making robust economic progress since then.
But in March this year, the National Statistics Institute (INE) unexpectedly included the Portuguese state's 3.9 billion euros recapitalization of Caixa Geral de Depositos (CGD) bank in the 2017 deficit. Without the recapitalization, Portugal recorded a deficit of just 0.9 percent of GDP, a record low, but with it, the ratio leapt to 3 percent.
"We consider further state support for the banking sector to now be low," said Moody's latest report. But it added that "the sector continues to show comparatively poor returns and weak capital ratios, plus relatively high numbers of non-performing loans."
