Portuguese Banking
System
Recent Developments
Updated: 4th quarter 2014
Prepared with data available up to 30 March 2015
Outline
• Portuguese Banking System at a Glance
• Macroeconomic and Financial Indicators
• Portuguese Banking System
•
•
•
•
•
Balance Sheet
Liquidity & Funding
Asset Quality
Profitability
Solvency
• Recent Measures with Impact on the Banking System
2•
The Portuguese Banking System –
main highlights
I.
Balance Sheet
•
Banking system total assets continued to gradually decrease.
II.
Liquidity & Funding
•
Deposits remained resilient over 2014;
•
Eurosystem refinancing decreased in line with the trend evidenced in the former quarters;
•
The downward trend of the loans to deposits ratio persisted over the quarter.
III.
Asset/Credit Quality
•
The credit at risk ratio remained virtually unchanged, while slightly differentiated trends were observed
across loan purposes.
IV.
Profitability
•
In 2014, profitability of the banking system improved (excluding BES and Novo Banco) remaining,
however, slightly negative in 2014;
•
The flow of credit impairments decreased, though remaining at a high level.
V.
Solvency
•
Solvency levels decreased slightly in the fourth quarter of 2014.
3•
Macroeconomic and Financial Indicators (I/IV)
%
GDP growth rate - Volume
3
2
1
0
-1
-2
-3
-4
-5
1.9
0.9
//
0.2
-1.6
-1.8
-4.0
2010
2011
 In 2014, year-on-year GDP growth
rate was positive for the first time
since 2010, after three successive
quarters of positive variation. In the
fourth quarter, quarter-on-quarter
growth rate has accelerated.
0.5
2012
2013
2014
Q3 2014 Q4 2014
Chart 1
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, % GDP
6
1
1.4
1.5
2.1
1.6
1.4
-4
0.6
1.6
1.7
0.8
0.6
 Current account recorded a
surplus, reflecting the ongoing
process of adjustment of the
Portuguese economy’s external
imbalance over the recent years.
//
-2.1
Capital Account
Current Account
-6.0
-9
-14
1.5
-10.1
2010
2011
2012
2013
2014
Q3 2014 Q4 2014
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
16.0
16
14
12
12.1
16.2
14.0
13.1
13.4
 The average annual rate of
unemployment was 2.2 p.p. below
the level recorded in 2013. In the
fourth quarter of 2014, it stood at
13.6%.
13.6
10
8
6
4
2
0
//
2010
2011
2012
2013
2014
Q3 2014 Q4 2014
Chart 3
Fiscal deficit, % GDP
96.2
111.1
125.8
129.7
130.2
132.2
130.2
-5.1
-4.5
//
-1
Public
Debt
(% GDP)
-3
-5
-5.6
-7
-4.8
-4.5
2013
2014
-7.4
-9
-11
-13
-11.2
2010
5•
2011
2012
Q3 2014 Q4 2014
Chart 4
Source: Banco de Portugal and INE
 Public debt as a percentage of GDP
stood at 130.2% at the end of 2014.
However, there is significant amount
of deposits from the General
Government (above 12 p.p. of GDP
by the end of 2014).
Macroeconomic and Financial Indicators (III/IV)
Net lending/borrowing of non-financial corporations, % GDP
118.2
121.2
125.8
124.2
2010
2011
2012
2013
120.0 (Q3
2014)
NFC debt
(% GDP)
Q4 2013 - Q3
2014
//
0
-1
-2
-4
-5
-1.9
-2.2
-3
-4.1
-3.5
-3.1
Chart 5
Net lending/borrowing of households, % GDP
92.9
92.5
85.2 (Q3
2014)
90.3
5.5
6
4
92.4
Households
debt (% GDP)
5.4
4.6
3.4
2
//
2010
6•
2011
2012
2013
Q4 2013 - Q3
2014
 Non-financial corporations’ cumulated
financing needs recorded a small
reduction compared to 2013.
 The households’ indebtedness level
continued to decline.
 Households’
financing
capacity
remained above 5% of GDP in the third
quarter.
2.6
0
 Non-financial corporations’ debt in
the third quarter of 2014 has
decreased by about 4 p.p. of GDP
when compared to 2013, despite the
residual increase from the previous
quarter
Chart 6
Source: Banco de Portugal and INE
Macroeconomic and Financial Indicators (IV/IV)
Sovereign debt yields 10 Y
Portugal
Spain
Italy
Germany
Greece
14
12
10
14
12
10
6
6
4
4
2
2
0
Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14
0
%
8
%
8
 The
Portuguese
10-year
government bond yield rates have
kept on a downward trend, achieving
a historical low (1.56%) in March
2015.
 The spread vis-à-vis comparable
German sovereign bonds continued
to decrease.
Chart 7
Euribor and ECB main refinancing rate
2.00
Euribor 3M
1.75
1.50
2,4%
%
1.25
1.00
2,3%
 During the fourth quarter of 2014,
the ECB kept unchanged the main
refinancing rate (0.05%), the deposit
facility rate (-0.20%) and the
marginal lending facility rate (0.30%).
Euribor 6M
ECB Main Refinancing Rate
0.75
0.50
0.25
0.00
Chart 8
7•
Source: Bloomberg and ECB
Portuguese Banking System
Comment on accounting and prudential information
The banking system data present a break in time series in the third quarter of 2014 due to the resolution
measure applied to Banco Espírito Santo (BES). The break in time series stems, in particular, 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 or 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 the fact that
the adjustments stemming from the resolution measure applied to BES were not considered.
In relation to profitability indicators, and in addition to the aggregate of the banking system, the figures for
Espírito Santo Financial Group (in 2013 and 2014 Q1), Banco Espírito Santo (in 2014 Q2) and Novo Banco (in 2014
Q3 and 2014 Q4) are also presented in order to allow a more thorough analysis of the performance of the
remaining institutions. Therefore, the graphs refer to this scenario as “excluding ESFG” and/or “excluding ESFG,
BES and NB”, as applicable.
8•
Balance Sheet
Assets (€Bn) – Value at end of period
600
3.0
2.9
2.9
532
513
496
500
2.7
460
2.5
2.5
436
430
400
Assets / GDP
Other Assets
300
Investment in Credit
Institutions
Capital Instruments
200
Debt Instruments
100
Credit
 In the fourth quarter of 2014, bank
assets recorded a slight decrease,
whereas its composition remained
broadly stable.
//
0
2010
2011
2012
2013
3Q 2014 4Q 2014
Chart 9
 Deposits remained resilient.
Bank financing structure (€Bn) - Value at end of period
 Eurosystem refinancing decreased
to minimum levels since the
beginning of the Economic and
Financial Assistance Programme.
600
500
Capital & Others
400
300
Resources from
Central Banks
Interbank Market
200
Securities
100
Deposits
//
0
2010
9•
2011
2012
2013
3Q 2014 4Q 2014
Chart 10
Source: Banco de Portugal
Liquidity & Funding (I/II)
Central Banks Financing (€Bn) - Value at end of period
60
3.4
50
8.3
40
4.7
30
40.9
20
46.0
52.8
3.3
4.9
2.5
33.5
31.2
3Q 2014
4Q 2014
 In the fourth quarter of 2014,
Eurosystem refinancing recorded a
decrease, in line with the trend
evidenced in the former quarters.
47.9
10
//
0
2010
2011
2012
2013
Monetary policy operations with Banco de Portugal
Other resources from central banks
Chart 11
Loan-To-Deposits ratio (%) - Value at end of period
180
160
140
120
100
80
60
40
20
0
158
140
128
117
112
107
3Q 2014
4Q 2014
 The loans to deposits ratio
continued to decrease, in line with
the deleverage process observed in
other sectors of the economy.
//
2010
10 •
2011
2012
2013
Chart 12
Source: Banco de Portugal
Liquidity & Funding (II/II)
Commercial gap (€Bn) – Value at end of period
160
140
120
100
80
60
40
20
0
133
98
 In the fourth quarter of 2014, the
commercial gap followed the
downward trend that started in
2010, reflecting the decrease in the
credit portfolio.
70
43
29
18
//
2010
2011
2012
2013
3Q 2014
4Q 2014
Chart 13
Liquidity gap in cumulative maturity ladders (% stable assets) - Value at
end of period
15
8.4
10
5.0
2,4%
5
2.2
0
-5
-10
-15
-7.3
-11.5
2010
11 •
2.2
-9.6
2012
6.3
Up to 3 months
Up to 6 months
Up to 1 year
-6.3
2011
3.6
 Liquidity gaps increased in all
maturities, especially in the 6 month
maturity ladder. The widespread
increase of liquidity gaps is due
essentially to the increase of liquid
assets.
//
-0.3
-2.8
-3.9
6.7 5.7
6.2
10.0
8.5
2013
3Q 2014
4Q 2014
Chart 14
Source: Banco de Portugal
Asset Quality
Credit at Risk ratio (% of gross credit) - Value at end of period
20
15
10
5
10.3
4.3
5.9
12.2
9.9
5.8
15.6
13.8
17.3
16.6 16.1
6.1
5.6
18.6
6.0
 The credit at risk ratio remained
stable over the fourth quarter of 2014,
stemming from the reduction of the
value of credit at risk, which
compensated the reduction in the
credit portfolio.
19.0
17.5
5.9
//
0
2010
Housing
2011
2012
2013
Consumption & other purposes
3Q 2014
4Q 2014
Non-financial corporations
Total
Chart 15
 Notwithstanding, slightly differentiated
trends were observed across loan
purposes.
Credit Impairments as % of gross credit - Value at end of period
9
8
7
6
5
4
3
2
1
0
2,4%
4.2
5.5
6.2
7.6
7.7
3Q 2014
4Q 2014
 The stock of impairments as a
percentage of gross loans recorded a
small increase when compared to the
third quarter.
3.2
//
2010
12 •
2011
2012
2013
Chart 16
Source: Banco de Portugal
Profitability (I/II)
ROA & ROE – Value in the period
30
%
15
0
 Excluding ESFG/BES/NB, there was
an improvement of both return on
assets and return on equity,
remaining, however, negative in
2014.
1.5
0.5
7.7
-15
-6.3
-0.4
-5.5
//
-11.6
-30
2011
2012
2013
0.5
%
-9.3
-0.1
-19.2
-0.3
-0.5
-0.5
-0.8
2010
-1.2
-1.3
-1.5
2014
2013 exc. 2014 exc.
ESFG ESFG, BES
& NB
Return on Equity (ROE)
Return on Assets (ROA) - rhs
Chart 17
Note: Return is measured by earnings before taxes and minority interests.
Income and costs as a % of gross income - Value in the period
130
 The increase of net interest income
and returns of financial operations
(included in other income), as well as
the reduction of the flow of
impairments, contributed to the
aforementioned improvement of
banking system returns.
Other
income
70
Commissions
10
//
Net interest
income
-50
Impairments
-110
Operational
costs
-170
2010
13 •
2011
2012
2013
2014
2013 exc. 2014 exc.
ESFG
ESFG,
BES & NB
Other costs
Chart 18
Source: Banco de Portugal
Profitability (II/II)
Cost-to-Income (%), Operational Costs (€Bn) - Value in the period
€ mM
8
6
4
2
0
2010
2011
Operational Costs
2012
2013
2014
80
70
60
50
40
30
20
10
0
%
10
 In 2014, the reduction of the costto-income ratio was mainly driven by
the increase of gross income when
compared to 2013. The operational
costs decreased marginally.
 In the last quarter of 2014, interest
rates on new loans remained stable
for the non-financial corporations’
segment.
Chart 19
Cost-to-Income - rhs
 Interest rates on new loans granted
to households (for housing purposes)
remained stable since the beginning
of 2013.
Banking interest rates (new business) - Average value of period (%)
8
6
2,4%
4
2,3%
2
//
0
2010
2011
2012
2013
2014
3Q 2014
Loans to non-financial corporations
Loans to households (housing)
Deposits of non-financial corporations
Deposits of households
14 •
4Q 2014
Chart 20
Source: Banco de Portugal
 The cost of new deposits kept a
downward trend, recording in the
fourth quarter a reduction of 12 b.p.
for the non-financial corporations’
segment and 19 b.p. for households’
segment.
Solvency
Tier 1 capital to Total Assets ratio - Value at end of period (%)
8
7
6
5
4
3
2
1
0
5.5
5.4
2010
2011
7.0
7.1
7.4
6.9
2012
2013
3Q 2014
4Q 2014
 The ratio between Tier 1 capital
and total assets stood at 6.9% at the
end of the fourth quarter of 2014
decreasing 0.5 p.p. vis-à-vis the
previous quarter.
Chart 21
Core Tier 1 ratio (until 2013) and CET 1 ratio (2014) - Value at end of
period (%)
10.3
9.8
14
11.5
12
10
8
12.6
7.4
13.3
13.0
12.3
12.0
12.3
Total
Solvency
Ratio (%)
11.3
8.7
 The decrease in capital ratios in the
fourth quarter resulted in part from
the revision of the actuarial
assumptions followed by some
banks’ pension funds.
6
4
2
0
2010
15 •
2011
 The CET 1 ratio reached 11.3% for
the aggregate of the Portuguese
banking system.
2012
2013
3Q 2014
4Q 2014
Chart 22
Source: Banco de Portugal
Recent Measures with Impact on the
Banking System (I/IV)
Topic
Institution
Latest measures (Q4 2014)
Entry into force of Notice No 24/2014 of Banco de Portugal that regulates FINREP on solo basis.
Banco de
Portugal
Monitoring and
Supervision
ECB
With the publication of an updated version of European Banking Authority’s (EBA) Implementing Technical
Standards (“ITS”) on Supervisory Reporting on a consolidated basis, the EBA is currently working on similar
reporting concerning solo basis. Meanwhile, Banco de Portugal concluded it was crucial to anticipate the
FINREP reporting on solo basis (on a simplified format) that allows the aggregation of data concerning every
institution of the Portuguese banking system for statistical purposes, until the ECB puts forward its own
FINREP reporting framework on solo basis, which may be more extensive.
Under Regulation 1024/2013, the European Central Bank (ECB) assumed, on 4 November, responsibility for
the supervision of Euro Area banks, following a year-long preparatory phase which included an in-depth
examination of the resilience and balance sheets of the biggest banks in the euro area (Comprehensive
Assessment), as well as the adoption of legal acts defining how the Single Supervisory Mechanism (SSM)
operates and the establishment of new governance structures at the ECB.
The ECB will directly supervise about 120 significant institutions/banking groups. For all other 3500 banks
the ECB will also set and monitor the supervisory standards and work closely with the national competent
authorities in the supervision of these banks.
ECB and
Banco de
Portugal
Comprehensive Assessment results were published on 26 October 2014. The Comprehensive Assessment
was a financial health check of the significant institutions/banking groups (including Lithuania), covering
approximately 82% of total bank assets. It was carried out by the ECB together with the national supervisors
between November 2013 and October 2014 in preparation for the Single Supervisory Mechanism to become
fully operational.
The Comprehensive Assessment concluded with an aggregate disclosure of the overall outcomes as well as
bank-level data, together with recommendations for supervisory measures.
16 •
Recent Measures with Impact on the
Banking System (II/IV)
Topic
Solvency and
liquidity
Institution
Latest measures (Q4 2014)
Banco de
Portugal
Decision of the Banco de Portugal’s Board of Directors of 1 December to deactivate the MMI/SG platform
from 1 July 2015.
ECB
Announcement by the Governing Council of the ECB, on 2 October 2014, of the operational details of the
two new asset purchase programmes, the Covered Bond Purchase Programme 3 (CBPP3) initiated on 20
October 2014 and the Asset-backed Securities Purchase Programme (ABSPP) initiated on 21 November
2014.
Publication of Notice No 11/2014, of 22 December, which regulates the application of prudential
requirements to certain types of Portuguese companies – “sociedades financeiras de crédito”, “sociedades
de investimentos”, “sociedades de locação financeira”, “sociedades de factoring”, “sociedades de garantia
mútua” and “IFD – Instituição Financeira de Desenvolvimento, S.A.”
Publication of Instruction No 25/2014 on 15 December (revoking Instruction No 12/2010), concerning
Monetary Financial Institutions Balance Sheet and Interest Rates Statistics. The new Instruction transposes
into the national legal framework the statistical reporting requirements to the ECB defined by the Regulations
(EU) No 1071/2013 (ECB/2013/33) and No 1072/2013 (ECB/2013/34) of the European Central Bank, both of
24 September 2013.
Legal framework
Banco de
Portugal
Publication of Notice of Banco de Portugal No 10/2014 on 3 December, on "Duties of information during the
lifetime of consumer credit agreements", that enters into force on 1 July 2015. This Notice requires
institutions to send their customers a regular statement on the evolution of the consumer credit agreements,
covering credit cards, personal credit and car credit. The Notice also establishes that customers have the
right to information on the situation of their credit in case of arrears, settlement of arrears or early repayment,
in part or in full, of the credit agreement. The Notice also sets out in detail the information to be included in
the statements.
Publication of Notice No 9/2014, of 3 November, which regulates certain options provided for in Regulation
(EU) No 575/2013 on prudential requirements for credit institutions and investment firms, whose exercise is
assigned to the competent authorities.
17 •
Recent Measures with Impact on the
Banking System (III/IV)
Topic
Instituition
ECB
Legal framework
Portuguese
Government
18 •
Latest measures (Q4 2014)
Publication of Regulation (EU) No 1333/2014 of the European Central Bank of 26 November 2014,
concerning statistics on the money markets (ECB/2014/48), which defines the reporting requirements to the
ECB of comprehensive, detailed and harmonised statistical information on the money markets in the euro
area. This report has a daily periodicity and it will be implemented in two phases: the first, from April 2016,
for the information related to the major banking institutions, in which Portugal won’t be, in principle,
represented; and the second, subject to a decision of the ECB Council, from 2018 onwards, in which all
Member-States will be represented by a minimum of three institutions.
Publication of Decree-Law No 157/2014 of 24 October 2014 that: (i) implements in Portuguese law a number
of options conferred on Member States by Regulation (EU) No 575/2013 of the European Parliament and of
the Council of 26 June 2013; (ii) transposes the Directive No 2013/36/EU 26 June which constitutes,
together with the Regulation (EU) No 575/2013, the basis of the European Union legal framework which
regulates the access to the activity of the credit institutions and the supervisory framework and prudential
rules applicable to the credit institutions and investment companies. This Decree-law amends: the Legal
Framework of Credit Institutions and Finance Companies, approved by the Decree-law No 298/92 of
December 31 (the "Banking Law"); the Securities Code; Laws Nos 25/2008 (establishing the preventive and
repressive measures for the combat against the laundering of benefits of illicit origin and terrorism financing)
and 28/2009 (reviews the legal framework for imposing penalties in the financial sector concerning criminal
and administrative penalties); and the Decree-laws Nos 260/94 (legal framework of investment companies),
72/95 (legal framework of financial leasing companies), 171/95 (legal framework of factoring companies and
factoring agreements), 211/98 (legal framework of mutual guarantee companies), 357-B/2007 (legal
framework applicable to companies whose exclusive object is to provide investment advice in financial
instruments and the reception and transmission of orders on behalf of a third party with respect to same),
357-C/2007 (legal framework applicable to management companies of regulated markets, management
companies of multilateral trading facilities, management companies of the clearing-house acting as a central
counterparty, management companies of the settlement system and management companies of the Central
Securities Depositary), 317/2009 (legal framework governing the taking up of the business of payment
institutions and the provision of payment services) and 40/2014 (implements Regulation (EU) no. 648/ 2012
of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and
trade repositories as well as Delegated and Implementing Acts related to such Regulation).
Recent Measures with Impact on the
Banking System (IV/IV)
Topic
Legal framework
Instituition
Latest measures (Q4 2014)
Publication of Decree-Law No 155/2014, on 21 october, under which is created the IFD – Instituição
Financeira de Desenvolvimento, S.A. and approved its by-laws.
Portuguese
Government
The IFD was set with the purpose of overcoming the market's shortfalls to funding viable SMEs by means of
(i) managing investment funds and other similar vehicles financed by public funds aimed at supporting the
economy; (ii) granting credit, collaterals and other tools, as necessary.
Amendment to Instruction of Banco de Portugal No 3/2009, in order to reschedule the clearing and
settlement times of the SEPA CORE and SEPA B2B Direct Debit subsystems.
Banco de
Portugal
Other
19 •
In addition, the text of the Instruction was updated following the completion of the migration to SEPA
occurred on 1 August 2014, in accordance with Regulation (EU) No 260/2012 of the European Parliament
and of the Council, of 14 March, establishing technical and business requirements for credit transfers and
direct debits in euro. Specifically, the references to the direct debits legacy subsystem were eliminated and
the references to the credit transfers legacy subsystem was replaced by the expression non-SEPA credit
transfers subsystem.
Portuguese Banking System
Recent Developments – 4th quarter 2014