Portuguese Banking
System
Recent Developments
Updated: 3rd quarter 2014
Prepared with data available up to 5 December 2014
Outline
• Portuguese Banking System at a Glance
• Recent Financial Stability Measures
• Macroeconomic and Financial Indicators
• Portuguese Banking System
•
•
•
•
•
2•
Balance Sheet
Liquidity & Funding
Asset Quality
Profitability
Solvency
The Portuguese Banking System –
main highlights
I.
Balance Sheet
• Bank assets remained broadly stable.
II.
Liquidity & Funding
• Deposits showed resilience;
• Eurosystem refinancing decreased in line with the trend evidenced in the former quarters;
• The loans to deposits ratio continued to decrease over the quarter.
III.
Asset/Credit Quality
• Generally, the non-performing loans ratio remained stable, despite a slight increase in the non-financial
corporation's segment.
IV.
Profitability
• On a year-on-year basis, profitability of the banking system improved over the third quarter of 2014.
V.
Solvency
• Solvency levels remained generally comfortable for most Portuguese banks.
3•
Recent financial stability measures
Topic
Institution
Latest measures (3rd quarter 2014)
Banco de
Portugal
Decision of the Banco de Portugal’s Board of Directors to disable the MMI platform/CG, with the adoption of the
Instruction of Banco de Portugal No 20/2014 of 15 September 2014, which revokes the Instruction No 8/2013 of 15
April 2013, on the regulation of the MMI/CG functioning.
Frequency change of the Governing Council monetary policy meetings from a four-week to a six-week cycle and
extension of the reserve maintenance periods accordingly. Additionally, ECB will publish accounts of its monetary
policy discussions from January 2015.
Solvency and liquidity
ECB
The Governing Council of the ECB, on 4 September 2014, decided to decrease:

the interest rate on the main refinancing operations of the Eurosystem by 10 basis points to 0.05%;

the interest rate on the marginal lending facility by 10 basis points to 0.30%;

the interest rate on the deposit facility by 10 basis points to -0.20%;
with effect from 10 September 2014.
Banco de
Portugal
Entry into force of Notice of Banco de Portugal No 5/2014 of 23 September, which regulates the exemption of “caixas
de crédito agrícola mútuo” belonging to the “sistema integrado de crédito agrícola mútuo” of several prudential
requirements established in Parts II to VIII of the Regulation (UE) No 575/2013, of the European Parliament and of the
Council of 26 June 2013.
Adoption of Ordinance No 140/2014 of 8 July, which defines the procedures necessary for the implementation of Law
63-A / 2008, with the wording introduced by Law No 1/2014, in capitalization operations of credit institutions using
public investment.
Legal framework
Portuguese
Government
4•
Approval of Decree-Law No 114-A/2014 and Decree-Law No 114-B/2014, which aimed to clarify and adjust the
Portuguese resolution legal framework through the approval of a set of individual amendments. Among those
amendments, the highlights are: (i) the no creditor worse off principle was expressly specified in Portuguese law,
according to which no creditor can incur greater losses than it would have incurred if the institution had been wound
up under normal insolvency proceedings; (ii) it was clarified that the Resolution Fund can be used in the context of the
application of a resolution measure to guarantee the assets or the liabilities of the institution under resolution; (iii)
the scope of the liabilities that can be transferred, when applying a resolution measure, was clarified; (iv) the methods
and conditions for the sale of the shares representing the share capital of a bridge bank or of its property were altered
so as to promote its sound and efficient management, thus facilitating market solutions that will maintain and
maximize its value.
Recent financial stability measures
Topic
Institution
Latest measures (3rd quarter 2014)
Approval of Law No 46/2014, of 28 July, which authorises the Government, as part of the transposition of Directive
2013/36 / EU of the European Parliament and of the Council of 26 June, to amend the Legal Framework of Credit
Institutions and Financial Companies, the Securities Code, the Laws No 25/2008 and 28/2009 and the Decree-Laws
No 260/94, 72/95, 171/95, 211/98, 357-B/2007, 357-C/2007, 317/2009 and 40/2014.
Portuguese
Parliament
Legal framework
Approval of Law No 58/2014, of 25 August, which amends the extraordinary framework to protect home loan
borrowers in serious economic difficulties created by Law No 58/2012.
Approval of Law No 61/2014, of 26 August, that approves the special regime applicable to deferred tax assets that
result from the non-deduction of expenses and negative equity changes due to impairment losses on loans and postemployment benefits or long-term employee benefits.
ECB
Banco de
Portugal
Other
The ECB publishes the Decision ECB/2014/34 of 29 July 2014, on measures relating to targeted longer-term
refinancing operations (TLTRO), which defines the conditions for participation in the TLTROs and other operational
aspects, as well as two annexes relating to the conduct of the TLTROs and to the guidelines for completing the
reporting template.
Amendment of Instruction No 54/2012 of BP (TARGET2-PT Regulation), according to the Guideline of the European
Central Bank ECB/2014/25, amending Guideline ECB/2012/27. On Annex II, two new definitions were added to
article 1, and article 12 (3) was replaced, establishing that “PM accounts and their sub-accounts shall either be
remunerated at zero per cent or the deposit facility rate, whichever is lower, unless they are used to hold required
minimum reserves”).
Amendment of No 8 of BP Instruction No 2/2009 (AGIL), that regulates the remuneration of accounts opened in the
AGIL- Aplicativo de Gestão Integrada de Liquidações (integrated settlement management application), establishing
that the accounts will be remunerated in accordance with the guidelines and decisions of the European Central Bank
and shall be specified in the contracts of the participants.
5•
Macroeconomic and Financial Indicators (I/IV)
GDP growth rate - Volume
3
1.9
2
%
1
0.3
0.3
0
 Over the third quarter of 2014,
GDP witnessed a positive quarter-onquarter rate of change, returning to a
recovery path.
//
-1
-2
-1.4
-1.8
-3
-4
2010
2011
-3.3
2012
Chart 1
2013
Q2 2014
Q3 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, %GDP
 Current account recorded a
surplus, reflecting the ongoing
process of adjustment of the
Portuguese economy’s external
imbalance over the recent years.
6
1
1.4
1.6
2.1
1.6
1.3
1.6
0.4
1.5
//
0.7
-4
-2.0
Capital Account
Current Account
-6.2
-9
-10.2
Chart 2
-14
2010
2011
2012
2013
Q2 2014
Q3 2014
Note: Quarterly figures are seasonally adjusted.
6•
Source: Banco de Portugal and INE
Macroeconomic and Financial Indicators (II/IV)
Unemployment rate, % of active population - Average value of period
18
16
14
12
10
8
6
4
2
0
16.2
15.5
14.1
11.8
12.7
 Despite remaining at a high level,
the unemployment rate kept on a
downward trend, having decreased
2.5 p.p. from the same period of the
previous year.
13.2
//
2010
2011
2012
2013
Q2 2014
Q3 2014
Chart 3
Fiscal deficit, % GDP
96.2
111.1
124.8
128.0
0
131.6
129.4
131.6
//
Public
Debt
(% GDP)
n.d.
-2
-4
-6
-5.5
-8
-4.9
-7.4
-5.7
-7.4
-10
-12
-11.2
2010
7•
2011
2012
2013
Q1 2014 Q2 2014 Q3 2014
Chart 4
Source: Banco de Portugal and INE
 Public debt as percentage of GDP
stood at 131.6% at the end of Q3
2014. However there is significant
amount of deposits from the General
Government, above 12% of GDP.
Macroeconomic and Financial Indicators (III/IV)
Net lending/borrowing of non-financial corporations, % GDP
118.2
2010
121.2
2011
125.8
2012
119.7 (2Q
2014)
124.2
Q3 2013
- Q2 2014
2013
0
NFC debt
(% GDP)
//
-1
-2
-4
-5
-1.7
-2.0
-3
-4.1
-3.5
-3.0
Chart 5
Net lending/borrowing of households, % GDP
92.9
92.5
92.4
6
4.6
5
4
90.3
87.3 (2Q 2014)
5.2
Households
debt (% GDP)
4.7
3.4
2.6
3
2
1
0
//
2010
8•
2011
2012
 Non-financial corporations’ financing needs recorded a small reduction
on a year-on-year basis. Despite
persisting on a high level, Nonfinancial corporations’ indebtedness
level continued a downward trend.
2013
Q3 2013 Q2 2014
Chart 6
Source: Banco de Portugal and INE
 Households’ financing capacity
remained positive over the second
quarter, recording a slight increase
on a year-on-year basis. The
households’ indebtedness level
continued to decline.
Macroeconomic and Financial Indicators (IV/IV)
Sovereign debt yields 10 Y
10
%
8
12
10
8
6
6
4
4
2
2
0
Jan-13
%
Portugal
Spain
Italy
Germany
Greece
12
 The Portuguese 10-year government bond yield rates continued to
decrease in the course of the first
nine months of the year (to 3.16%),
narrowing the spread vis-à-vis
comparable German sovereign bonds
(to 222 b.p.).
0
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Chart 7
Euribor and ECB main refinancing rate
2.00
Euribor 3M
1.75
1.50
2,4%
%
1.25
2,3%
Euribor 6M
1.00
ECB Main Refinancing Rate
0.75
0.50
0.25
0.00
Chart 8
9•
Source: Bloomberg and ECB
 At the beginning of September, the
ECB decreased the rate of main
refinancing operations by 10 basis
points, to 0.05%. Equal decreases
were decided on the deposit facility
rate (to -0.20%) and on the marginal
lending facility (to 0.30%).
Comment to accounting and prudential information
Due to the absence of accounting and prudential data for Novo Banco as of 30 September 2014, the
available data do not allow a full assessment of the Portuguese banking system.
Therefore, in order to grant information comparability, data referring to the second quarter of 2014 is
presented in two versions: one including Banco Espírito Santo (institution under the supervision of Banco de
Portugal as of 31 June 2014) and other excluding this institution.
Similarly, in order to allow information comparability between the third quarter of 2014 and the same
period of the previous year, data for the third quarter of 2013 is presented simultaneously including Espírito
Santo Financial Group (entity under the supervision of Banco de Portugal as of 30 September 2013) and excluding
this institution.
For the sake of the analysis, whenever convenient, graphs and comments refer this situation as “excluding
ESFG”, “excluding BES” or “excluding Novo Banco”, as applicable.
10 •
Balance Sheet
Assets (€Bn) – Value at end of period
3.0
600
532
2.9
2.9
513
496
500
2.7
2.6
460
2.2
2.2
449
 In the third quarter of 2014, bank
assets (excluding Novo Banco)
remained broadly stable.
Other Assets
375
400
Assets / GDP
374
Investment in Credit
Institutions
300
Capital Instruments
200
Debt Instruments
100
Credit
 When compared with the same
quarter of the previous year, there
was a significant decrease in total
assets, on the basis of the reduction
in credit.
//
0
2010
2011
2012
2013
2Q 2014 2Q 2014 3Q 2014
exc. BES exc. NB
Chart 9
Bank financing structure (€Bn) - Value at end of period
600
532
 Deposits showed resilience.
513
496
500
460
449
Capital & Others
375
400
374
Resources from Central
Banks
300
Interbank Market
200
Securities
100
Deposits
//
0
2010
11 •
2011
2012
2013
2Q 2014 2Q 2014 3Q 2014
exc. BES exc. NB
Chart 10
Source: Banco de Portugal
 Eurosystem refinancing decreased
to minimum levels from the
beginning of the Economic and
Financial Assistance Programme.
Liquidity & Funding (I/II)
Central Banks Financing (€Bn) - Value at end of period
60
3.4
50
40
8.3
3.1
 In the third quarter of 2014,
Eurosystem refinancing recorded a
decrease, in line with the trend
evidenced in the former quarters.
2.5
30
20
3.3
4.7
40.9
46.0
52.8
2.0
47.9
38.4
30.4
10
24.2
//
0
2010
2011
2012
2013
Monetary policy operations with Banco de Portugal
Other resources from central banks
2Q 2014 2Q 2014 3Q 2014
exc. BES exc. NB
Chart 11
Loan-To-Deposits ratio (%) - Value at end of period
200
 The loans to deposits
continued to decrease.
158
140
150
128
117
114
113
107
100
50
//
0
2010
2011
2012
2013
2Q 2014 2Q 2014 3Q 2014
exc. BES exc. NB
Chart 12
12 •
Source: Banco de Portugal
ratio
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 third quarter of 2014, the
commercial gap followed the
downward trend that started in
2010.
70
43
35
27
16
//
2010
2011
2012
2013
2Q 2014 2Q 2014 3Q 2014
exc. BES exc. NB
Chart 13
Liquidity gap in cumulative maturity ladders (% stable assets) - Value at
end of period
15
8.4
10
5.0
5
2,4%
2.2
-10
5.7
2.3
6.7
4.4
//
0
-5
4.2
2.2
9.1 8.6
8.5
7.1
6.2
-0.3
-7.3
-11.5
-15
Up to 3 months
-2.8
-3.9
2010
-6.3
-9.6
2011
Up to 6 months
Up to 1 year
2012
2013
2Q 2014 2Q 2014 3Q 2014
exc. BES exc. NB
Chart 14
13 •
Source: Banco de Portugal
 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.
Asset Quality
Credit at Risk ratio (% of gross credit) - Value at end of period
20
18
16
14
12
10
8
6
4
2
0
15.4
13.7
17.7
16.9
16.5
16.1
18.7
18.0
17.2
17.2
 Generally, the non-performing loans
ratio remained stable over the third
quarter of 2014, despite a slight
increase
on
the
non-financial
corporation's segment, justified mostly
by credit reduction − denominator
effect.
12.2
10.3
9.9
5.8
5.9
5.6
6.1
6.0
5.9
5.8
4.3
//
2010
Housing
2011
2012
2013
2Q 2014 2Q 2014 3Q 2014
exc. BES exc. NB
Consumption & other purposes
Non-financial corporations
Total
Chart 15
Credit Impairments as % of gross credit - Value at end of period
8
7
6
5
4
3
2
1
0
7.1
6.2
2,4%
4.2
6.4
 Similarly, the stock of impairments as
a percentage of gross loans recorded a
small increase.
6.8
5.5
3.2
//
2010
14 •
2011
2012
2013
2Q 2014 2Q 2014 3Q 2014
exc. BES exc. NB
Chart 16
Source: Banco de Portugal
Profitability (I/II)
ROA & ROE – Value in the period
30
15
2.0
0.5
1.2
2.2
7.7
-15
-6.3
-5.5
-0.4
-0.3
//
-11.6
-7.8
0.4
%
%
0
-0.5
0.2
-0.8
-0.4
-1.2
-30
-2.0
2010
2011
2012
Return on Equity (ROE)
2013
Return on Assets (ROA) - rhs
1Q-3Q
1Q-3Q
2013 exc. 2014 exc.
ESFG
NB
 In the third quarter of 2014, there
was an improvement of both return
on assets and return on equity of the
banking system (excluding Novo
Banco), when comparing with the
same period of the previous year
(when returns were negative).
Chart 17
Note: Annualized figures.
Return is measured by earnings before taxes and minority interests.
Income and costs as a % of gross income - Value in the period
100
Other income
60
Commissions
20
//
-20
Net interest income
-60
Impairments
-100
-140
2010
15 •
2011
2012
2013
1Q-3Q 1Q-3Q
2013
2014
exc. exc. NB
ESFG
Operational costs
Other costs
Chart 18
Source: Banco de Portugal
 The increase of gross income, the
decrease of the flow of impairments
and the reduction of operational
costs were the main drivers of the
improvement of banking returns.
Profitability (II/II)
Cost-to-Income (%), Operational Costs (€Bn) - Value in the period
80
70
60
50
40
30
20
10
0
€ mM
8
6
4
2
//
0
2010
2011
2012
Operational Costs
2013
 The reduction of the cost-to-income
ratio, on year-on-year basis, was
mainly driven by the increase of gross
income.
%
10
1Q-3Q
1Q-3Q
2013 exc. 2014 exc.
ESFG
NB
Cost-to-Income
Chart 19
Note: Annualized figures.
Banking interest rates (new business) - Average value of period
 Interest rates on new loans granted
to households (for housing purposes)
remained stable since the beginning
of 2013.
8
6
2,4%
4
 Regarding
the
non-financial
corporations’
segment,
when
comparing the values for the same
period of the previous year, the
difference between interest rates on
new loans and interest rates on new
deposits decreased, with the former
maintaining a downward trend.
2,3%
2
//
0
2010
2011
2012
2013
3Q 2013
Loans to non-financial corporations
Loans to households (housing)
Deposits of non-financial corporations
Deposits of households
3Q 2014
Chart 20
16 •
Source: Banco de Portugal
 On a year-on-year basis, the cost of
new
deposits
decreased
(for
households, the reduction was 50
b.p.).
Solvency
Tier 1 capital to Total Assets ratio - Value at end of period
7.0
8
7
6
5
4
3
2
1
0
6.5
7.6
7.1
 As of September 2014, the ratio
between Tier 1 capital and total
assets stood at 7.6%, increasing 0.3
p.p. vis-à-vis the previous quarter.
5.4
%
5.5
7.1
2010
2011
2012
2013
2Q 2014
2Q 2014
exc. BES
3Q 2014
exc. NB
Chart 21
 The CET 1 ratio reached 12.6% for
the Portuguese banking system
(excluding Novo Banco), in the
context of a regulatory minimum of
7%*.
Core Tier 1 ratio (until 2013) and CET 1 ratio (2014) - Value at end of
period
*
%
10.3%
14
12
10
8
6
4
2
0
9.8%
7.4
8.7
2010
2011
17 •
12.6%
13.3%
11.5
12.3
2012
2013
11,9%
13.6%
10.6
13.8%
12.3
Total
Solvency
Ratio
12.6
2Q 2014 2Q 2014 3Q 2014
exc. BES exc. NB
Chart 22
Source: Banco de Portugal
From January to November 2014 was in effect
the Notice of Banco de Portugal No 6/2013
which established a transitory regime of own
funds adequacy until the Directive 2013 / 36/EU
(or CRD IV - Capital Requirements Directive) was
transposed to the Portuguese legal framework.
Therefore, as of September 2014 the regulatory
regime in force established that credit
institutions and investment firms should
preserve a common equity tier 1 capital ratio
not below 7%.
Portuguese Banking System
Recent Developments – 3rd quarter 2014