Dagong assigns 1st credit rating to Portugal-based BES

The Milan-based European branch of Dagong Global Credit Rating Co., Ltd., China's rating agency, assigned its first credit rating to Portugal-based Banco Espirito Santo S.A. on Tuesday.

Dagong Europe Credit Rating assigned to Banco Espirito Santo S.A. (BES), the third largest retail and commercial bank in Portugal, and its subsidiaries a long term credit rating of BB and short term credit rating of B. The outlook was described as "stable."

The agency said in a statement that the rating reflected "BES' stable and strong franchise in its home market Portugal with 16-percent market share in terms of loans and deposits, adequate business diversification and growing international footprint."

"We consider BES' long term core profitability as moderate, temporarily affected by growing provisions due to the deteriorating loan portfolio," the statement said.

Dagong Europe said it expected BES' profitability to remain under pressure in the next 18 months, reach break-even in 2014 and recover closer to historical levels by the end of 2015, supported by the strengthening of export-oriented sectors and boosted domestic demand.

"We expect that any remaining negative effect on asset quality will be absorbed by BES' conservative loan loss reserves and earnings recovery expected by 2015," the statement added.

Established last year in the Italian business capital, Dagong Europe is the first Asian rating company operating in the European Union (EU).

The European branch was the result of a joint venture between Dagong Global Credit Rating in Beijing, one of the few notable non-U.S.-based credit rating agencies, and Milan-based Mandarin Capital Partners, a leading private equity fund by institutional investors from Europe and China.

Dagong Europe concentrates on corporate credit ratings, to be assigned to both financial and non-financial entities.

The agency's credit rating mechanism has introduced a new viewpoint into the current rating system within the EU, according to General Manager of Dagong Europe Mauro Alfonso.

Alfonso said the goal was to reach a European market share of around 5 percent within five years, with a turnover of around 10 million euros (more than 13 million U.S. dollars).

Dagong Europe features a team of professionals from various countries, which was expected to extend to some 50 employees.