Portuguese Banking
System
Recent Developments
Updated: 2Q 2014
Prepared with data available up to 16 September 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
•
The reduction in credit portfolio was the main contribution to the decrease in assets
II.
Liquidity & Funding
•
The loan-to-deposits ratio decreased
•
The recourse to the Eurosystem decreased considerably
III.
Asset/Credit Quality
•
The credit at risk ratio increased, despite the slowdown in the flow of new overdue and other doubtful loans
IV.
Profitability
•
Excluding BES, the banking system profitability was positive, although at a low level
•
The flow of credit impairments decreased but remains high
V.
Solvency
•
Solvency levels remained broadly robust in most Portuguese banks. Excluding BES, there was a slight increase in
average solvency ratios.
Note: The data for the banking system include the institution ESFG until March 2014 and BES, on a consolidated basis, for June 2014, which results
from the change in the entity subject to supervision by Banco de Portugal. This event, together with the substantial impairments that motivated the
adoption of the resolution measure by Banco de Portugal in the 3rd of August, has a non-negligible impact on banking system aggregate numbers. For
this reason, whenever relevant, it is presented, for the benefit of the analysis, the evolution of indicators excluding the group’s relevant institution
(ESFG until March 2014 and BES, on a consolidated basis, for June) from the aggregate, referred in the text as "excluding BES".
3•
Recent financial stability measures
Topic
Institution
Latest measures (Q2 2014)
On 5 June 2014 the Governing Council of the ECB decided to adopt further non-standard measures, notably:
Liquidity
ECB

To conduct a series of targeted longer-term refinancing operations (TLTROs) maturing in September with an
interest rate fixed over the life of each operation at the rate on the Eurosystem’s main refinancing operations
prevailing at the time of take-up, plus a fixed spread of 10 basis points;

To continue conducting the Eurosystem’s main and three-month longer-term refinancing operations as fixed
rate tender procedures with full allotment for as long as necessary, and at least until the end of the
Eurosystem’s reserve maintenance period ending in December 2016;

To discontinue the Eurosystem’s special-term refinancing operations with a maturity of one maintenance
period, following the operation to be allotted on 10 June 2014;

To suspend the weekly fine-tuning operation sterilising the liquidity injected under the Securities Markets
Programme, following the operation to be allotted on 10 June 2014;

To extend the existing eligibility of additional assets as collateral, notably under the additional credit claims
framework, at least until September 2018, in order to ensure sufficient collateral is available for banks to
participate in TLTROs.
On 5 June 2014, when deciding to lower the key ECB interest rates, the Governing Council of the ECB decided to
adopt a negative deposit facility interest rate of -0.10%, that also applies to average reserve holdings in excess of the
minimum reserve requirements and other deposits held with the Eurosystem.
This decision materialized in the adoption of the Decision ECB/2014/23, of June 5, 2014, which comes into effect on
11 June 2014, together with the changes to the key ECB interest rates.
Legal framework
4•
Banco de
Portugal
Publication of Notice No 2/2014 which amends Notice No 9/2012 on the information requirements in the field of
money laundering and terrorist financing risk management, to be periodically reported to Banco de Portugal by
entities subject to its supervision or providing financial services related to matters under its supervision.
Macroeconomic and Financial Indicators (I/IV)
GDP growth rate - Volume
3
2
1.9
1
0.3
//
%
0
-1
-0.5
-2
-1.4
-1.8
-3
-3.3
2012
-4
2010
2011
2013
Q1 2014
Q2 2014
Note: Quarterly figures correspond to q-on-q rates of change.
The series presented is based on the level of GDP calculated in accordance with the new European System of
Accounts - ESA 2010. In the remaining series, in which GDP appears as the denominator, the basis remains SEC
1995 for consistency with the basis of the numerators (current and capital account , public debt, fiscal deficit ,
national financial accounts). These variables that were not reviewed yet by the competent authorities,
according to the ESA 2010.
Chart 1
Current account and capital account, %GDP
6
2
1.1
1.2
2.3
2.1
0
0.5
-2
1.4
1.8
-0.9
-0.2
//
4
-2.0
-4
Capital Account
-6
-8
Current Account
-7.0
-10
-12
-10.6
2010
2011
2012
Note: Quarterly figures are seasonally adjusted.
5•
2013
Q1 2014
Q2 2014
Chart 2
Source: Banco de Portugal and INE
 In the second quarter of 2014, GDP
recorded a positive quarter-onquarter rate of change, following a
negative change in the first quarter
of the year.
 The current and capital account
remained in surplus, at a higher level
than the observed in the preceding
quarter, while a small deficit was
recorded in the current account.
Macroeconomic and Financial Indicators (II/IV)
Unemployment rate, % of active population - Average value of period
20
15.5
15
11.8
12.7
2010
2011
16.2
14.9
14.1
 In the second quarter of 2014 the
unemployment rate kept the
downward trend observed since the
second quarter of 2013, remaining,
nonetheless, at high levels.
10
5
0
//
2012
2013
Q1 2014
Q2 2014
Chart 3
Fiscal deficit, % GDP
94.0
108.2
124.1
128.9
0
132.9
133.9
Public Debt
(% GDP)
//
-2
n.a.
-4
-4.3
-6
-8
-10
-12
-5.0
-6.5
-6.0
-9.9
2010
2011
2012
2013
Q1 2014
Q2 2014
Chart 4
6•
Source: Banco de Portugal and INE
 The fiscal deficit stood at 6% in the
first quarter of 2014, which
compares to the 10% figure recorded
in the first quarter of 2013. The ratio
between public debt and GDP
slightly increased.
Macroeconomic and Financial Indicators (III/IV)
Net lending/borrowing of non-financial corporations, % GDP
137.1
139.5
2010
2011
142.8
2012
140.8
140.3 (1Q 2014)
NFC debt
(% GDP)
Q2 2013 - Q1
2014
2013
//
0
 Financing needs of non-financial
corporations increased slightly in the
first quarter of 2014. The
indebtedness level decreased
slightly, remaining at high levels.
-2
-2.2
-4
-3.9
-6
-8
-2.4
-5.6
-6.9
Chart 5
Net lending/borrowing of households, % GDP
102.2
100.8
8
6
4.5
2,4%
100.2
95.5
6.4
6.8
2012
2013
94.3 (1Q2014)
Households debt
(% GDP)
6.1
4.6
4
2
//
0
2010
2011
Q2 2013 - Q1
2014
Chart 6
7•
Source: Banco de Portugal and INE
 Households’ financing capacity
remained significantly positive in the
first quarter of 2014. The
households’ indebtedness level
continued to decline.
Macroeconomic and Financial Indicators (IV/IV)
Sovereign debt yields 10 Y
16
14
%
12
18
16
14
12
10
10
8
8
6
6
4
4
2
2
0
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
%
Portugal
Spain
Italy
Germany
Greece
18
0
Jun-14
Chart 7
 The ECB decreased the rate on
main refinancing operations by 10
basis points in the beginning of June
to 0.15 per cent, along with a
decrease in the rate on the deposit
facility of the same magnitude to a
negative rate (-0.10 per cent).
Euribor and ECB main refinancing rate
2.00
Euribor 3M
1.75
1.50
Euribor 6M
2,3%
1.25
%
1.00
ECB Main Refinancing Rate
0.75
0.50
0.25
0.00
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Chart 8
8•
 The Portuguese sovereign yields
kept decreasing in the course of the
first semester of 2014, narrowing the
spread vis-à-vis comparable German
debt .
Source: Bloomberg and ECB
Balance Sheet
Assets (€Bn) - Value at end of period
600
3.1
3.0
3.0
532
513
496
500
2.8
2.7
2.7
460
456
449
400
Assets / GDP
Other Assets
300
Investment in Credit
Institutions
Capital Instruments
200
Debt Instruments
100
Credit
0
2010
2011
2012
2013
1Q 2014
2Q 2014
Note: Data reported by BES, with reference to June 2014, do not allow the usual
breakdown of total assets by major accounting headings.
Chart 9
Bank financing structure (€Bn) - Value at end of period
600
532
513
496
500
460
456
449
400
Capital & Others
300
Resources from
Central Banks
Interbank Market
200
Securities
100
Deposits
0
2010
2011
2012
2013
1Q 2014 2Q 2014
Chart 10
9•
Source: Banco de Portugal
 Total assets of the Portuguese
banking system reduced further in
the second quarter of 2014,
continuing the downward trajectory
observed since the end of 2010.
Excluding BES, total assets decreased
about 0.7%.
 The reduction in credit to
customers and the reduction in
investments in credit institutions
were the main drivers of this
evolution.
 Regarding the financing structure, a
considerable decrease in the
recourse to the Eurosystem was
observed. Customers’ deposits
recorded a slight increase.
Liquidity & Funding (I/II)
Central Banks Financing (€Bn) - Value at end of period
60
50
40
3.4
8.3
4.7
3.2
3.1
30
20
3.3
40.9
46.0
2010
2011
52.8
47.9
45.0
2013
1Q 2014
38.4
10
0
2012
2Q 2014
Monetary policy operations with Banco de Portugal
Other resources from central banks
Chart 11
Loan-To-Deposits ratio (%) - Value at end of period
200
158
150
140
128
117
117
114
2012
2013
1Q 2014
2Q 2014
100
50
0
2010
2011
Chart 12
10 •
Source: Banco de Portugal
 In the second quarter of 2014,
Central Banks’ financing, most
through the recourse to the
Eurosystem, decreased to minimum
levels since the beginning of the
Economic and Financial Assistance
Programme.
 The loan-to-deposits ratio resumed
the downward trend: roughly 2/3
due to the reduction in the credit
portfolio and 1/3 attributable to the
increase in customers’ deposits.
Liquidity & Funding (II/II)
Commercial gap (€Bn) - Value at end of period
160
140
133
120
98
100
70
80
60
43
43
35
40
 In the second quarter of 2014, the
commercial gap reduced further,
standing at a very low level in
historical terms.
20
0
2010
2011
2012
2013
1Q 2014
2Q 2014
Chart 13
Liquidity gap in cumulative maturity ladders (% stable assets) - Value at
end of period
8.4
10
5.0
5
2.2
2,4%
6.8
6.2
2.2
7.0
5.0
4.3
1.4
2.5
0
-0.3
-5
-10
-3.9
-7.3
-11.5
-15
Up to 3 months
-2.8
2010
Up to 6 months
-6.3
Up to 1 year
-9.6
2011
2012
2013
1Q 2014
2Q 2014
Chart 14
11 •
Source: Banco de Portugal
 Liquidity gaps remained broadly
unchanged, taking on positive
values ​in all maturities considered.
Asset Quality
Credit at Risk ratio (% of gross credit) - Value at end of period
20
15
15.4
13.7
12.2
10.3
(17.0)
(16.9)
16.6 16.9
(18.0)
(17.2)
9.9
10
5.9
5.8
(5.9)
6.1
6.1
5.6
4.3
5
16.5 16.1
(5.8)
0
2010
Housing
2011
2012
Consumption & other purposes
2013
 The credit at risk ratio kept the
upward trajectory in the second
quarter of 2014. This developments
are partially driven by a denominator
effect (deleverage) as the flow of
new overdue and other doubtful
loans has been decreasing since mid2012.
1Q 2014
2Q 2014
Non-financial corporations
Total
Chart 15
Note: The data for the 2Q2014 do not include BES, therefore appearing in brackets. Moreover, for March 2014,
the credit at risk ratios presented in brackets correspond to the aggregate banking system figures excluding ESFG,
to allow comparison.
 The worsening of the credit at risk
ratio since 2010 resulted mainly from
the deterioration of the quality of
credit granted to the non-financial
corporate sector. The above
mentioned denominator effect
represents about 50% of the increase
in the last semester.
Credit Impairments as % of gross credit - Value at end of period
8
7
6
5
4
3
2
1
0
4.2
6.2
6.4
2013
1Q 2014
7.1
5.5
3.2
2010
2011
2012
2Q 2014
Chart 16
12 •
Source: Banco de Portugal
 The impairment to gross credit
ratio has been trending upwards
since 2010, following the
materialisation of credit risk. The
considerable increase observed in
2Q2014 is mainly related to
developments in BES. Excluding this
institution, the ratio would have
increased slightly, from 6.3% to 6.4%.
Profitability (I/II)
ROA & ROE - Value in the period
0.5
1.0
7.7
0.5
-6.3
-5.5
-0.4
-0.3
0.0
-8.4
-11.6
-0.5
-0.5
-1.0
-0.8
-26.5
-1.8
2010
2011
2012
Return on Equity (ROE)
2013
%
%
15
10
5
0
-5
-10
-15
-20
-25
-30
1H 2013
-1.5
-2.0
1H 2014
Return on Assets (ROA) - rhs
Note: Annualized figures.
Return is measured by earnings before taxes and minority interests.
Chart 17
Income and costs as a % of gross income - Value in the period
100
Other income
60
Commissions
20
Net interest income
-20
Impairments
-60
Operational costs
-100
-140
2010
2011
2012
2013
1H 2013
1H 2014
Other costs
Chart 18
13 •
 In the first half of 2014 the
aggregate results of the Portuguese
banking system were completely
driven by the developments in BES,
on the account of significant
impairments and other provisions
included in the ‘Others costs’ item.
Source: Banco de Portugal
 Excluding BES, profitability would
be positive (ROA of 0.25% and ROE
of 3.8%). In the recent period,
reference should be made to the
positive dynamics in net interest
income, the increase in profits from
financial operations and the
reduction in operating costs. In turn,
a slight decrease of the impairment
flow was observed.
Profitability (II/II)
Cost-to-Income (%), Operational Costs (€Bn) - Value in the period
10
80
60
6
40
%
€Bn
8
4
20
2
0
0
2010
2011
2012
2013
Operational Costs
1H 2013
1H 2014
Cost-to-Income
Chart 19
Note: Annualized figures.
Banking interest rates (new business) - Average value of period
7
6
5
4
3
2
1
0
Loans to nonfinancial
corporations
%
Loans to
households
(housing)
Deposits of nonfinancial
corporations
2010
2011
2012
2013
Deposits of
households
2Q 2013 2Q 2014
Chart 20
14 •
Source: Banco de Portugal
 The reduction in the cost-to-income
ratio (CtI) was mainly due to the
increase of gross income. Excluding
BES this evolution would have been
more pronounced. The CtI ratio, with
reference to the first half of 2014,
would amount to 55%, about 10 p.p.
below the aggregate figure.
 In the second quarter of 2014,
interest rates on new loans to nonfinancial corporations decreased vis-àvis the homologous quarter,
maintaining the downward trend.
 Interest rates on new loans to
households have been stable since the
fourth quarter of 2012.
 Cost of new deposits continued the
decreasing trend. Interest rates are
now significantly below the ones
offered in 2011/2012, a period of
fierce competition for customers
resources.
Solvency
 As of June 2014, the leverage of the
banking system, measured by the
ratio between Tier 1 capital and total
assets stood at 6.6% (7.1% excluding
BES).
Tier 1 capital to Total Assets ratio - Value at end of period
8
7
5.5
6
7.0
7.1
7.0
6.6
5.4
%
5
 The CET 1 ratio reached 10.6% for
the Portuguese banks aggregate, in
the context of a regulatory minimum
of 7%*. BES has a considerable
impact on the average ratio and on
its evolution. Excluding this
institution, the average CET 1 ratio of
the banking system increased slightly,
from 12.2% to 12.3%.
4
3
2
1
0
2010
2011
2012
2013
1Q 2014
2Q 2014
Chart 21
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
15 •
12.6%
13.3%
12.4%
11.5
12.3
11.1
2012
2013
1Q 2014
11.9%
Total
Solvency
Ratio
10.6
2Q 2014
Chart 22
Source: Banco de Portugal
*Since 1 January 2014 is in effect the Notice of
Banco de Portugal 6/2013 which establishes a
new, transitory, regime of own funds adequacy.
The new regime establishes inter alia that credit
institutions and investment firms preserve a
common equity Tier 1 (CET 1 ratio) not below 7%
until the Directive 2013 / 36/UE (or CRD IV Capital Requirements Directive) is transposed to
the Portuguese legal framework.
Portuguese Banking System
Recent Developments – 2nd quarter 2014