Portugal's Novo Banco 2022 profit triples, could pave way for IPO

By Sergio Goncalves

LISBON (Reuters) -Portugal's fourth-largest bank, Novo Banco, announced on Thursday that profit tripled in 2022, boosted by higher interest rates and fewer non-performing assets, and said the strong results could pave the way for an eventual initial public offering.

The bank's consolidated net profit jumped to 561 million euros ($592 million) last year, from 184.5 million euros in 2021, it said in a statement.

Novo Banco, 75% owned by U.S. private equity fund Lone Star, will see pre-tax profit rise again this year, Chief Executive Mark Bourke told Reuters in a phone interview.

Recurring 'profit before taxes' is expected to rise above 600 million euros this year up from 407 million euro last year, he said.

The bank's solid performance in 2022, as it "booked eight consecutive quarterly profits", is positive for its plan to eventually list its shares on the stock market.

Analysts have speculated that Novo Banco could be merged with another lender looking to consolidate its position in Portugal, but Bourke sees the bank remaining independent, growing its business and performing well which will be key for an eventual IPO.

"The only thing we can aim at is an IPO," Bourke said.

The timing of the IPO would depend on market conditions and the bank "is not yet in that stage" of choosing a stock exchange to list its shares, appointing advisers or doing roadshows.

"The (banking) sector is finally starting to recover and that is obviously an important element," he said.

Since Lone Star bought its stake in 2017, Novo Banco has focused on reducing risk and closing subsidiaries abroad, as well as offloading bad loans and real estate under tough restructuring commitments agreed by Portugal with the EU. Portugal's Resolution Fund owns the remaining 25% stake.

The bank said its net interest income (NII), earnings on loans minus costs on deposits, rose 9.1% in 2022 to 625.5 million euros, thanks to rising interest rates following increases by the European Central Bank. The average rate of its NII improved to 1.47%, compared to 1.42% in 2021.

Its non-performing loans dropped to 4.3% of total loans in December versus 5.7% a year earlier and a ratio of 28% in 2017.

The bank sees its NII rate above 2.2% in 2023, a cost-to-income ratio of 40% and an NPL ratio of less than 4.5%.

Impairments and provisions dropped 69% in 2022 from the previous year to 111.2 million euros, while its cost of risk - which measures the cost of managing potential losses - fell to 45 basis points versus 70 bps in 2021.

Novo Banco's fully loaded Common Equity Tier 1 solvency ratio improved 300 basis points (bp) to 13.1% in December, "meeting all medium-term targets and positions the bank for its next stage of development", it said.

($1 = 0.9476 euros)

(Reporting by Sergio Goncalves Editing by Inti Landauro, Mark Potter and Susan Fenton)