Portuguese Banking
System
Recent Developments
Updated: 4th quarter 2015
Prepared with data available up to 14 March 2016
Outline
• Portuguese banking system – Main highlights
• Macroeconomic and financial indicators
• Portuguese banking system
•
•
•
•
•
Balance sheet
Liquidity & funding
Asset quality
Profitability
Solvency
• Recent measures with impact on the banking system
2•
Portuguese Banking System – Main Highlights
I.
Balance Sheet
•
In 2015, banking system total assets maintained a gradual downward trend.
II.
Liquidity & Funding
•
In 2015, deposits remained stable, which, given the decrease in credit, led to the reduction of the
Loan-to-Deposits ratio and the commercial gap.
•
Despite the increase recorded in the fourth quarter, Eurosystem financing declined in 2015.
•
During 2015, the banking system liquidity position improved in all maturity buckets (as assessed by the liquidity
gaps).
III.
Asset/Credit Quality
•
In 2015, the credit-at-risk ratio remained virtually unchanged, despite the decrease observed in the last quarter.
IV.
Profitability
•
Banking system profitability returned to positive values in 2015.
•
In 2015, impairment flows have decreased to approximately half of 2014 values, remaining however at high
levels.
V.
Solvency
•
Solvency improved in the fourth quarter of 2015, driven by decreasing Risk Weighted Assets and by the increase in
Own Funds of the banking system.
3•
Macroeconomic and Financial Indicators (I/IV)
GDP growth rate – Volume
1.9
0.9
1.5
0.1
%
3
2
1
0
-1
-2
-3
-4
-5
0.2
//
 In 2015Q4, the quarter-on-quarter
GDP growth rate was positive.
-1.1
-1.8
-4.0
2010
2011
2012
2013
2014
2015
3Q 2015 4Q 2015
Chart 1
 The year-on-year growth rate was
1.5% (0.9% in 2014).
Note: Quarterly figures correspond to q-on-q rates of change. National Accounts and Balance of Payments figures are
already presented according the rules of the European System of National and Regional Accounts (ESA 2010) and Balance
of Payments and International Investment Position Manual (BPM6).
Current account and capital account, % of GDP
6
1.4
1.5
2.1
1.6
1.5
1.3
0.1
0.5
1
-1.9
-4
1.5
//
0.9
1.7
1.5
1.0
 In 2015, the current and capital
accounts recorded a surplus of 1.7%
of GDP.
-6.0
-9
Capital Account
Current Account
-10.1
-14
2010
2011
2012
2013
2014
2015
3Q 2015 4Q 2015
Chart 2
Note: Quarterly figures are seasonally adjusted.
4•
Source: Banco de Portugal and INE
Macroeconomic and Financial Indicators (II/IV)
Unemployment rate, % of active population
18
15.8
15
12.0
16.4
14.1
12.9
12.6
12.3
12.2
 The unemployment rate was
12.2% in 2015Q4, close to levels
observed in 2010.
12
9
6
3
0
//
2010
2011
2012
2013
2014
2015
3Q 2015
4Q 2015
Chart 3
 The unemployment rate in 2015
was 1.5 p.p. lower than the 2014
level.
Fiscal Balance, % of GDP
96.2
111.4
126.2
129.0
130.2
128.8
2010
2011
2012
2013
2014
2015
Public
Debt
(% of GDP)
0
 At end-2015, the Public Debt (as
percentage of GDP) stood at 128.8%
and the General Government
deposits amounted to 10.6% of GDP.
-3
-6
-5.7
-7.4
-9
-12
-11.2
-4.4
-4.8
-7.2
Chart 4
Note: The unemployment rate corresponds to the figure of the central month of each quarter published by the National
Statistical Institute. The fiscal deficit of 2014 was revised in the context of the second notification of 2015 to Eurostat
related to the Excessive Deficit Procedure. The revision of the balance of 2014 reflects, mainly, the inclusion of 4.9 billion
Euros related to the capitalization of Novo Banco as a capital transfer.
Source: Banco de Portugal and INE
5•
Macroeconomic and Financial Indicators (III/IV)
Net lending/borrowing of non-financial corporations, % of GDP
118.2
2
1
0
-1
-2
-3
-4
-5
121.2
127.1
122.4
1.4
116.1
111.8
0.8
NFC debt
(% of GDP)
0.6
//
 In September 2015, NFC debt was
4.3 p.p. of GDP lower than in
December 2014.
-0.3
-4.1
2010
-3.5
2011
2012
2013
2014
4Q 2014-3Q
2015
Chart 5
 In the year ending in September
2015, net lending of non-financial
corporations stood at 0.6% of GDP,
which compares to 0.8% in
December of 2014.
Net lending/borrowing of households, % of GDP
92.9
92.6
93.7
89.8
86.8
83.9
6
4
Households
debt
(% of GDP)
 In September 2015, Households’
debt was 3 p.p. of GDP lower than in
December 2014.
3.6
3.4
2.6
2.9
2.8
2
1.3
0
//
2010
2011
2012
2013
2014
4Q 2014-3Q 2015
Chart 6
Note: National Sector Accounts were revised when Statistics Portugal released the Accounts for the fourth quarter of
2014. These revisions reflect changes introduced in detailed Annual National Accounts for 2012 (final results), with an
impact on subsequent years.
6•
Source: Banco de Portugal and INE
 In the year ending in September
2015, households’ net lending was
1.3% of GDP, which compares with
2.8% in 2014.
Macroeconomic and Financial Indicators (IV/IV)
20
18
20
18
16
16
14
14
12
12
10
8
10
8
6
6
4
4
2
0
2
0
Jan-13
Jun-13
Nov-13
Portugal
Apr-14
Spain
Sep-14
Italy
Feb-15
Jul-15
Germany
 The Portuguese 10-year government
bond yield recorded a slight increase in
2015Q4, though its value remained
below the end-2014’s level.
%
%
Sovereign debt yields 10 Y
Dec-15
Greece
Chart 7
ECB rates
Main Refinancing Rate
1,0
 In March 2016, the ECB released its
latest monetary policy decision,
including the decrease: i) of the
deposit facility interest rate by 10 basis
points (b.p.) to -0.40%, ii) of the main
refinancing operations interest rate
from 0.05% to 0%, and iii) of the
marginal lending facility interest rate
from 0.30% to 0.25%.
Deposit Facility Rate
0,8
0,6
%
0,4
0,2
0,0
-0,2
-0,4
Jan-13
Jun-13
Nov-13
Apr-14
Sep-14
Feb-15
Jul-15
Dec-15
Chart 8
7•
 In 2015Q4, the 6-month interbank
rate became negative, following what
was already observed in the 3-month
rate, reflecting the ECB nonconventional monetary policy. Similarly,
in February 2016, the 12-month rate
also became negative.
Source: Reuters and ECB
Portuguese Banking System
Comment on accounting and prudential information
The banking system data present the following breaks in time series:
• In the third quarter of 2014, resulting from the resolution measure applied to Banco Espírito Santo
(BES). In particular, the break in the time series arises from the fact that the assets/liabilities not
transferred to the balance sheet of Novo Banco (NB) are not considered in the aggregate of the
banking system from August 2014 onwards.
In the absence of accounting information for BES on a consolidated basis for the period from 30 June
2014 to the day of implementation of the resolution measure (closing balance sheet and statement of
profit and loss), the reporting of BES on individual basis, with reference to 31 July 2014, was considered
when determining the aggregate results of the banking system for the third quarter of 2014. However,
it must be stressed that the adjustments stemming from the resolution measure applied to BES were
not considered.
• In the fourth quarter of 2015, resulting from the resolution measure applied to BANIF – Banco
Internacional do Funchal (Banif). In particular, the break in the time series arises from the fact that the
assets/liabilities transferred to the financial vehicle – Oitante, S.A. – are not considered in the
aggregate of the banking system from 20 December 2015 onwards.
In the absence of accounting information for Banif on a consolidated basis for the period from 30
September 2015 to the day of implementation of the resolution measure (statement of profit and loss),
the reporting of Banif on individual basis, with reference to 30 November 2015, was considered when
determining the aggregate results of the banking system for the fourth quarter of 2015. However, it
must be stressed that the adjustments resulting from the resolution measure applied to Banif were not
considered.
8•
Balance Sheet
Assets (€Bn) – Value at end of period
600
3.0
2.9
2.9
532
513
496
2.7
460
2.5
2.4
430
415
2.3
Assets / GDP
413
Other Assets
400
Investment in Credit
Institutions
Capital Instruments
200
 In 2015Q4, banking system total
assets recorded a slight decrease, in
line with the previous years.
Debt Instruments
Credit
//
0
2010
2011
2012
2013
2014
Chart 9
3Q 2015 4Q 2015
Bank financing structure (€Bn) – Value at end of period
 Deposits
have
increased in 2015Q4.
600
Capital & Others
400
Resources from
Central Banks
Interbank Market
200
Securities
Deposits
//
0
2010
9•
2011
2012
2013
2014
Chart 10
3Q 2015 4Q 2015
Source: Banco de Portugal
marginally
 In the same period, securities
financing showed a significant
reduction, mostly reflecting the
(re)transfer of €Mn 1985 senior
bonds from Novo Banco to BES.
Liquidity & Funding (I/II)
Central Banks Financing (€Bn) – Value at end of period
60
3.4
40
8.3
3.3
4.7
2.5
20
40.9
46.0
52.8
47.9
31.2
2.6
2.1
25.1
26.2
3Q 2015
4Q 2015
//
0
2010
2011
2012
2013
2014
Monetary policy operations with Banco de Portugal
Other resources from central banks
 Central banks financing increased
slightly
over
the
quarter,
representing 6.8% of total assets.
Nonetheless, its value remains below
the level observed in 2014.
Chart 11
Loan-To-Deposits ratio (%) – Value at end of period
180
158
140
150
128
117
120
105
107
102
90
60
30
//
0
2010
2011
2012
2013
2014
3Q 2015
4Q 2015
Chart 12
10 •
Source: Banco de Portugal
 Loan-to-Deposits ratio continued to
decrease in 2015Q4, reflecting the
decline in credit.
Liquidity & Funding (II/II)
Commercial gap (€Bn) – Value at end of period
160
133
120
98
80
70
43
 In 2015Q4, the commercial gap
decreased considerably, mainly due
to credit tightening, in line with the
trend observed in the last quarters.
18
40
0
12
6
3Q 2015
4Q 2015
//
2010
2011
2012
2013
2014
Chart 13
Liquidity gap in cumulative maturity ladders (% of stable assets) – Value
at end of period
20
15
8.4
10
5.0
5
2.2
10.0
6.2
8.5
11.29.8
6.3
-10
-15
7.5
8.5
2.2
0
-5
14.0
11.9
//
-2.8
-3.9
-6.3
-7.3
-9.6
-11.5
2010
2011
-0.3
Chart 14
2012
Up to 3 months
11 •
2013
2014
Up to 6 months
3Q 2015
4Q 2015
Up to 1 year
Source: Banco de Portugal
 Liquidity gaps have improved in all
maturity buckets, benefiting from an
increase in liquid assets.
Asset Quality
Credit at Risk ratio (% of gross credit) – Value at end of period
25
21.6
15.6
13.8
13.4
15
10.5
6.1
4.3
17.0
16.6 16.1
16.7
14.2
9.7
10
5
19.8
19.0
20
5.0
6.1
5.6
6.1
5.9
6.0
//
0
2010
2011
Housing
2012
2013
2014
Consumption & other purposes
3Q 2015
4Q 2015
Non-financial corporations
Total
Chart 15
 The credit-at-risk ratio decreased
to 12% in 2015Q4, due to a larger
contribution of the decline in credit
at risk when compared to the
decrease observed in gross credit.
 This reduction was observed
across all segments of the private
sector, although more significantly in
the
non-financial
corporations’
segment.
Credit Impairments (% of gross credit) – Value at end of period
9
8.0
7.7
6
5.5
8.2
6.2
 Credit
impairments
as
a
percentage of gross credit increased
slightly in 2015Q4, reflecting mainly
the decrease in credit in the same
period.
4.2
3.2
3
0
//
2010
2011
2012
2013
2014
3Q 2015
4Q 2015
Chart 16
12 •
Source: Banco de Portugal
Profitability (I/II)
ROA & ROE – Value in the period
10
7.7
5
%
0
0.5
-0.4
-0.3
0.5
//
-1.1
-0.8
-5
-10
1
6.5
2.8
0.2
-0.1
-1.3
-5.5
-6.3
0.5
-15
0
%
-0.5
-1
-1.5
-11.7
-20
-2
-19.2
-25
2010
2011
2012
2013
2014
-2.5
2015
Return on Equity (ROE)
2014 exc. 2015 exc.
BES/NB BES/NB
 Both the return on equity and the
return
on
assets
improved
considerably in 2015, even when
excluding the impact of BES/Novo
Banco.
 This positive development in
profitability was mainly driven by a
significant reduction in the flow of
impairments.
Return on Assets (ROA) - rhs
Chart 17
Note: Return is measured by earnings before taxes and minority interests.
Income and costs (% of gross income) – Value in the period
120
 Despite the increase of the net
interest income, its weight in the
gross income remained stable in
2015.
Other income
80
Commissions
40
0
//
Net interest
income
-40
 In the same period, the weight of
financial
operations’
income
(included in the other income
category) increased.
Impairments
-80
-120
Operational
costs
-160
2010
13 •
2011
2012
2013
2014
2015
2014
2015
exc.
exc.
BES/NB BES/NB
Other costs
Chart 18
Source: Banco de Portugal
Profitability (II/II)
10
 The cost-to-income ratio decreased
5.8 p.p. in 2015 vis-à-vis the previous
year due to a rise in the gross income
and, to a smaller extent, a reduction
in the operating costs.
Chart 19
 In 2015Q4, interest rates on new
loans continued to decrease while
the cost of new deposits remained
stable.
80
8
€ Bn
%
Cost-to-Income (%), Operational Costs (€Bn) – Value in the period
60
6
40
4
20
2
0
0
2010
2011
2012
2013
Operational Costs
2014
2015
Cost-to-Income - rhs
Banking interest rates (new business) – Average value of period (%)
 In comparison with 2014, interest
rates on new loans for housing
purchase and to non-financial
corporations fell by 81 b.p. and 107
b.p. respectively.
8
6
4
2
//
0
2010
2011
2012
2013
Loans to non-financial corporations
Deposits of non-financial corporations
14 •
2014
2015
3Q 2015
4Q 2015
Loans to households (housing)
Chart 20
Deposits of households
Source: Banco de Portugal
 On the other hand, the cost of new
deposits decreased 50 b.p. for the
non-financial corporations’ segment
and 82 b.p. for the households’
segment.
Solvency
Tier 1 capital to Total Assets ratio – Value at end of period (%)
8
7.0
5.5
6
7.1
7.2
6.9
 In 2015Q4, the ratio between Tier
1 capital and total assets* increased
by 0.4 p.p. vis-à-vis the previous
quarter and by 0.7 p.p. vis-à-vis the
end-2014.
7.6
5.4
4
2
0
//
2010
2011
2012
2013
2014
3Q 2015
4Q 2015
Chart 21
Core Tier 1 ratio (until 2013) and CET 1 ratio (from 2014) – Value at end of
period (%)
10.3
9.8
12.6
14
11.5
12
12.3
12.6
11.3
11.6
12.3
13.3
Total
Solvency
Ratio (%)
12.4
8.7
10
8
13.3
 Both the CET 1 ratio and the Total
Solvency ratio improved in 2015Q4,
comparing favourably with end-2014
values. This was due to the decisions
that completed the resolution
measure applied to BES, which
resulted in an increase of Novo
Banco’s equity, in December 2015,
and in the reduction of the
risk-weighted assets in the banking
system.
7.4
(*) In 2014, the transition to a new
prudential regime determined the existence
of breaks in the series of solvency indicators
justified by methodological differences in
the calculation of own funds components,
affecting the comparability of ratios with
previous years.
6
4
2
0
//
2010
15 •
2011
2012
2013
2014
3Q 2015
4Q 2015
Chart 22
Source: Banco de Portugal
Recent Measures with Impact on the
Banking System (I/II)
Topic
Institution
Latest Measures (Q4 2015)
Notice of Banco de Portugal No 3/2015, of 10 November
Banco de
Portugal
Monitoring and
supervision
Solvency and
liquidity
Defines the procedures for the submission, maintenance and review of recovery plans, as well as other additional
rules necessary for the implementation of Article 116-D of the Legal Framework of Credit Institutions and
Financial Companies (Legal Framework), approved by Decree-Law No 298/92, of 31 December, defines the
procedures for determining simplified obligations in the preparation and reporting of the recovery plans and
exercises the option to waive from reporting the institutions covered by Article 116-E of the Legal Framework.
Were also integrated into the legal framework the following EBA guidelines: (i) "Guidelines on the range of
scenarios to be used in recovery plans" and (ii) "Guidelines on the minimum list of qualitative and quantitative
recovery plan indicators".
Circular-Letter of Banco de Portugal No 85/2015/DES dated 3 November.
Provides clarifications on the accounting treatment of contributions to the Resolution Fund.
European
Banking
Authority
(EBA)
Published on 24 November 2015, the Transparency Exercise by the European Banking Authority (EBA), providing
detailed bank-by-bank data on the capital positions, risk exposure amounts and asset quality on 105 European
banks, covering around 70% of the total European Union banking assets. CGD, BCP and BPI were the
Portuguese banks that participated in the exercise.
Single
Supervision
Mechanism
Comprehensive Assessment results were published on 14 November 2015, which was a financial health check
through a stress test of nine financial institutions of the euro area that had not been included in the same exercise
held in 2014, which includes, in the Portuguese case, Novo Banco. It was carried out by the Single Supervisory
Mechanism.
Banco de
Portugal
Press release dated 29 December informing on the decision of Banco de Portugal to set the countercyclical buffer
rate at 0% of the total risk exposure amount, with effect from 1 January 2016 and to prevail in the first quarter of
the year. This buffer applies to all credit exposures to the domestic private non-financial sector of credit institutions
and investments firms in Portugal subject to the supervision of Banco de Portugal or the European Central Bank
(Single Supervisory Mechanism), as applicable.
Press release dated 29 December releasing the names of the banking groups identified as O-SIIs in 2015 and the
respective capital buffers, as a percentage of the total risk exposure amount.
16 •
Recent Measures with Impact on the
Banking System(II/III)
Topic
Institution
Latest Measures (Q4 2015)
Notice of Banco de Portugal No 4/2015 of 14 December 2015
Banco de
Portugal
Establishes, according to the current legal framework set out in Articles 138-Q and 138-R of the Legal Framework
of Credit Institutions and Financial Companies, approved by Decree-Law No 298/92 of 31 December 1992, the
items to be disclosed by Banco de Portugal regarding the identification of other systemically important institutions
(O-SII), the capital buffer applicable to each of these institutions and the reporting frequency of that disclosure.
This Notice entered into force on 15 December 2015.
European
Commission
Commission Implementing Regulation (EU) No 2015/2326 of 27 November 2015, on the extension of the
transitional periods related to own funds requirements for exposures to central counterparties set out in
Regulation (EU) No 575/2013 and (EU) No 648/2012 of the European Parliament and of the Council.
This Regulation entered into force on 30 November 2015.
On 3 December 2015, the Governing Council of the ECB decided to decrease the interest rate on the deposit
facility by 10 basis points to -0.30%, with effect from 9 December 2015, keeping the interest rate on the main
refinancing operations and the interest rate on the marginal lending facility unchanged at 0.05% and 0.30%
respectively.
Solvency and
liquidity
On 3 December 2015, the Governing Council of the ECB decided to adopt further non-standard measures,
namely:
•
To continue conducting the Eurosystem’s main and three-month longer-term refinancing operations as fixed
rate tender procedures full allotment for as long as necessary, and at least until the end of the last reserve
maintenance period of 2017;
•
To extend the asset purchase programme (APP) until the end of March 2017, or beyond, if necessary;
•
To reinvest the principal payments on the securities purchased under the APP as they mature, for as long as
necessary;
•
To include, in the public sector purchase programme, euro-denominated marketable debt instruments issued
by regional and local governments located in the euro area in the list of assets that are eligible for regular
purchases by the respective national central banks.
ECB
17 •
Recent Measures with Impact on the
Banking System (III/III)
Topic
Institution
Latest Measures (Q4 2015)
Notice of Banco de Portugal No 5/2015 of 7 December 2015
Banco de
Portugal
Requires that all entities subject to Banco de Portugal supervision shall prepare their financial statements on an
individual and consolidated basis, where applicable, in conformity with the international accounting standards, and
establishes transitional provisions to be in force up to 31 December 2016 for those situations that are not subject
to the procedure laid down in Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19
July 2002.
This Notice entered into force on 8 December 2015.
Portuguese
Government
Legal framework
Executive Order No 362/2015, Ministry of Finance that amends Executive Order No 95/94 of 9 February 1994 on
the minimum capital requirements for Investment companies, financial leasing companies, credit financial
companies and savings banks and repeals the minimum capital requirements established for certain types of
companies, which, with Decree-Law No 157/2014 of 24 October 2014, no longer exist in Portuguese law.
This Executive Order entered into force on 16 October 2015.
European
Parliament
and Council
Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015, on payment
services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation
(EU) No 1093/2010, and repealing Directive 2007/64/EC.
European
Commission
Approval of the Commission Delegated Regulation (EU) 2015/2303 of 28 July 2015 that further develops Directive
2002/87/EC of the European Parliament and of the Council with regard to regulatory technical standards
specifying the definitions and coordinating the supplementary supervision of risk concentration and intra-group
transactions.
This Regulation entered into force on 31 December 2015.
Recommendation of the European Central Bank of 17 December 2015 (ECB/2015/49)
Other
ECB
Recommendation of the European Central Bank on dividend distribution policies. This recommendation is
addressed to significant supervised entities and significant supervised groups as defined in Article 2(16) and (22)
of Regulation (EU) No 468/2014 (ECB/2014/17).
This Recommendation was published on 30 December 2015.
18 •
Portuguese Banking System
Recent Developments – 4th quarter 2015