Portuguese Banking
System
Latest Developments
Updated: 1Q 2014
Prepared with data available up to 9 June 2014.
Outline
• Portuguese Banking System at a Glance
• Latest 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
•
Decrease in the credit portfolio as the main driver of the decrease in assets
II.
Liquidity & Funding
•
Stabilization of the loan-to-deposit ratio
III.
Asset/Credit Quality
•
Credit at risk ratio slightly increased
IV.
Profitability
•
Profitability remains under pressure, despite the slight recovery of the net interest margin
•
Flow of credit impairments stabilized, but still remains at historical highs
V.
Solvency
•
Sound solvency levels in the transition to the new prudential framework
3•
Latest financial stability measures
Topic
Institution
Latest measures (Q1 2014)
ECB Guideline, of 12 March 2014, with some measures to facilitate the mobilization of eligible marketable
assets on a cross-border basis:
- Removal of the repatriation requirement to the issuer Central Securities Depository (CSD), effective as of
26 May 2014; and
- Go-live of cross-border triparty collateral management services, as of 29 September 2014.
Solvency and
liquidity
ECB
Decision by the Governing Council of the ECB to re-map DRBS BBBL rating from Credit Quality Step
(CQS) 4 to CQS3 and also to re-map the short term ratings R1L (from CQS2 to CQS3) and R2L (from
CQS4 to CQS3). This decision was applicable from 1 of April 2014.
In January 2014, decision by the Governing Council of the ECB to cease to conduct the three-month US
dollar liquidity-providing operations as of April 2014 and to continue conducting the one-week US dollar
liquidity-providing operations at least until the 31st of July 2014..
Monitoring and
supervision
Banco de
Portugal
Approval of Circular Letter No 24/2014/DSC which indentifies best practice to be observed by credit
institutions to simplify and standardize the commissioning of deposit accounts. It entails Banco de
Portugal’s opinion that credit institutions should provide a standard deposit account including, in general,
the minimum banking services set out in Decree-Law No 27-C/2000 of 10 March, in the wording in force,
but without the access or commissioning restrictions set out in that Decree-Law.
Banco de
Portugal
Entry into force of Notice of Banco de Portugal No 5/2013 of 18 December, which regulates the conditions,
mechanisms and procedures needed for effective compliance with the anti-money laundering and terrorist
financing obligations, under the provision of financial services subject to the supervision of Banco de
Portugal.
ECB
On 24 February 2014 the Governing Council adopted Decision ECB/2014/6 on the organisation of
preparatory measures for the collection of granular credit data by the European System of Central. This
legal act relates to preparatory measures which are necessary to establish in a stepwise manner a longterm framework for the collection of granular credit data, i.e. about the credit exposures of credit institutions
or other loan-providing financial institutions vis-à-vis borrowers, provided on a borrower-by-borrower basis
or a loan-by-loan basis, based on harmonised ECB statistical reporting requirements.
Legal framework
Portuguese
Government
Other
4•
With the aim of diversifying funding alternatives to the corporate sector, as an alternative to bank credit, the
Law-Decree No 29/2014 of 25 February was approved. It revises the legal framework concerning the
commercial paper allowing a higher number of issuers particularly corporations with a smaller dimension of
using this financing modality.
Macroeconomic and Financial Indicators (I/IV)
GDP growth rate - Volume
3
1,9
2
0,5
1
//
%
0
-1
-0,6
-1,3
-2
-1,4
-3
-3,2
-4
2010
2011
2012
2013
Q4 2013
Q1 2014
Chart 1
Note: Quarterly figures correspond to q-o-q growth rates.
Current account and capital account, %GDP
1,2
1,1
2,4%
2,3%
-4
1,9
2,1
1,4
0,5
1,0
-0,5
-2,0
Capital Account
Current Account
-7,0
-9
-14
2,3
//
6
1
 In the first quarter of 2014, GDP
recorded a negative quarter-onquarter rate of change, following
positive changes from the second
to the fourth quarters of 2013.
-10,6
2010
2011
2012
2013
Q4 2013
Q1 2014
Chart 2
5•
Source: Banco de Portugal and INE.
 The current and capital account
remained in surplus, although at a
lower level than the observed in
the preceding quarter.
 In the first quarter of 2014 the
current account recorded a small
deficit, after exhibiting a surplus,
albeit reduced, in 2013.
Macroeconomic and Financial Indicators (II/IV)
Unemployment rate, % of active population
period
- Average value of
20
15,7
15
16,3
15,3
14,9
12,7
11,8
 In the first quarter of 2014 the
unemployment rate kept the
downward trend observed
throughout 2013, remaining,
nonetheless, at high levels.
10
5
//
0
2010
2011
2012
2013
Q4 2013
Q1 2014
Chart 3
Fiscal deficit, % GDP
94
108
124
129
Public Debt
(% GDP)
132
0
-2
2,4%
2,3%
n.a.
-4
-4,3
-6
-10
-12
-5,0
-6,5
-8
-9,9
2010
2011
2012
2013
Q1 2014
Chart 4
6•
Source: Banco de Portugal and INE.
 The ratio between public debt
and GDP increased. However,
when measured net of deposits of
the central government the ratio
remained stable.
Macroeconomic and Financial Indicators (III/IV)
Net lending/borrowing of non-financial corporations, % GDP
137
139
2010
0
-1
-2
-3
-4
-5
-6
-7
-8
143
2011
2012
NFC debt
(% GDP)
141
2013
 The indebtedness of nonfinancial corporation's declined
slightly in 2013, remaining
however at a high level. Financing
needs continued to decrease.
-2,1
-3,9
-5,6
-6,9
Chart 5
Net lending/borrowing of households, % GDP
102
101
100
8
6,4
2,4%
6
4,5
4,6
2010
2011
Households debt
(% GDP)
96
6,8
2,3%
4
2
0
2012
2013
Chart 6
7•
Source: Banco de Portugal and INE.
 The household debt declined
throughout 2013, having
increased its financing capacity.
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
Dez-10
Mar-11
Jun-11
Set-11
Dez-11
Mar-12
Jun-12
Set-12
Dez-12
Mar-13
Jun-13
Set-13
Dez-13
%
Portugal
Spain
Italy
Germany
Greece
18
0
Mar-14
Chart 7
Euribor and ECB main refinancing rate
2,00
1,50
%
Euribor 6M
2,3%
1,25
1,00
ECB Main Refinancing Rate
0,75
0,50
0,25
0,00
Dez-10
Mar-11
Jun-11
Set-11
Dez-11
Mar-12
Jun-12
Set-12
Dez-12
Mar-13
Jun-13
Set-13
Dez-13
Mar-14
Chart 8
8•
The interbank interest rates
remained relatively stable in early
2014, at a slightly higher level
than in the last quarter of 2013.
 The eurosystem main
refinancing operations rate
remained unchanged in the first
quarter of 2014.
Euribor 3M
1,75
The Portuguese sovereign yields
declined in the first quarter of
2014, decreasing the spread to
German yields.
Source: Bloomberg and ECB.
Balance Sheet
Assets (€Bn) - Value at end of period
3.1
3.0
532
600
3.0
513
496
500
2.8
460
2.8
Assets / GDP
457
Other Assets
400
300
Investment in Credit
Institutions
Capital Instruments
200
Debt Instruments
100
Credit
0
2010
2011
2012
2013
1Q 2014 Chart 9
Bank financing structure (€Bn) - Value at end of period
532
600
513
496
500
460
457
400
Capital & Others
300
Resources from
Central Banks
Interbank Market
200
Securities
100
Deposits
0
2010
2011
2012
2013
1Q 2014
Chart 10
9•
Source: Banco de Portugal.
 Total assets of the Portuguese
banking system reduced slightly in
the first quarter of 2014,
continuing the downward
trajectory observed since end2010.
 The reduction in credit to
customers and in investments in
credit institutions were the main
drivers of this evolution. In the
opposite direction, an increase in
the value of debt instruments held
was observed.
 Amid the gradual opening of
markets to Portuguese issuers, a
slight increase in the weight of
market-based financing sources
was observed. Conversely,
recourse to the Eurosystem and
customers’ deposits recorded
marginal reductions.
Liquidity & Funding (I/II)
Central Banks Financing (€Bn) - Value at end of period
60
3.4
50
8.3
40
4.7
30
20
40.9
46.0
2010
2011
3.3
3.2
52.8
47.9
45.0
2012
2013
1Q 2014
10
0
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
2,3% 128
117
117
2012
2013
1Q 2014
100
50
0
2010
2011
Chart 12
10 •
Source: Banco de Portugal.
 In the first 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
remained unchanged, as the
decrease of customers’ deposits
followed the reduction in the credit
portfolio.
Liquidity & Funding (II/II)
Commercial gap (€Bn) - Value at end of period
160
133
140
98
120
70
100
43
43
80
60
40
20
0
2010
2011
2012
2013
1Q 2014
Chart 13
 In the first quarter of 2014, the
commercial gap remained
unchanged, standing at a very a
very low level in historical terms.
Liquidity gap in cumulative maturity ladders (% stable assets)
- Value at end of period
 Liquidity gaps reduced but
remain at comfortable levels.
8.4
10
5.0
5
2.2
2,4%
6.8
6.2
2.2
5.0
1.4
0
-0.3
-5
-3.9
-7.3
-10
-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
Chart 14
11 •
Source: Banco de Portugal.
Asset Quality
Credit at Risk ratio (% of gross credit) - Value at end of period
20
15
13.7
12.2
10.3
16.6 16.9
16.5 16.1
15.4
 The credit at risk ratio kept the
upward trajectory in the first
quarter of 2014.
9.9
10
5.9
5
4.3
5.8
6.1
5.6
6.1
0
2010
Housing
2011
2012
Consumption & other purposes
2013
1Q 2014
Non-financial corporations
Total
Chart 15
Credit Impairments as % of gross credit - Value at end of period
7
6
6.2
6.4
2013
1Q 2014
5.5
5
2,4%
3.2
4
4.2
3
2
1
0
2010
2011
2012
Chart 16
12 •
Source: Banco de Portugal.
 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 impairment to gross credit
ratio has been trending upwards
since 2010, following the increase
in credit risk materialisation.
Profitability (I/II)
15
0.5
7.7
10
5
-3.9
%
0
-5
-10
-6.3
-5.5
-0.4
-0.3
-0.3
-11.6
-0.8
-15
2010
2011
2012
Return on Equity (ROE)
2013
1Q 2013
0.8
0.6
0.4
0.2
-0.4 0.0
-0.03 -0.2
-0.4
-0.6
-0.8
1Q 2014
Return on Assets (ROA) - rhs
* Annualized values.
100
Other income
60
Commissions
20
Net interest income
-20
Impairments
-60
Operational costs
-100
-140
13 •
2011
 In the first quarter of 2014 the
aggregate results of the
Portuguese banking system,
although negative, posted an
improvement compared to the
same period of 2013.
Chart 17
Income and costs as a % of gross income - Value at end of period
2010
%
ROA & ROE - Value at end of period
2012
2013
1Q 2013 1Q 2014
Other costs
Chart 18
Source: Banco de Portugal.
 An increase in the net interest
income and in profits from
financial operations and a
reduction in operating costs were
underlying this improvement. In
turn, a relative stabilization of the
impairment flow was observed.
Profitability (II/II)
Cost-to-Income (%), Operational Costs* (€Bn) - Value at end of
period
10
80
60
6
40
%
€Bn
8
4
 The improvement in the cost-toincome ratio was mainly due to
the increase of gross income.
20
2
0
0
2010
2011
2012
2013
Operational Costs
1Q 2013
1Q 2014
 Regarding operational costs, the
reduction recorded was mainly
driven by the decrease in
personnel costs.
Cost-to-Income
* Annualized values.
Chart 19
Banking interest rates (new business) - Average value of period
7
6
5
4
3
2
1
0
2,4%
Loans to nonfinancial
corporations
2,3%
%
Loans to
households
(housing)
Deposits of nonfinancial
corporations
2010
2011
2012
2013
Deposits of
households
1Q 2013 1Q 2014
Chart 20
14 •
Source: Banco de Portugal.
 In the first quarter of 2014,
interest rates on new operations
with customers stabilized.
Solvency
 The leverage of the banking
system, measured by the ratio
between capital tier I and total
assets, stood close to 7%, in the
end of the first quarter of 2014.
Tier 1 capital to Total Assets ratio - Value at end of period
8
7
5.5
6
7.0
7.1
6.9
5.4
%
5
 The CET 1 ratio reached 11% for
the Portuguese banks aggregate,
comfortably above the regulatory
minimum of 7%*.
4
3
2
1
0
2010
2011
2012
2013
1Q 2014
Chart 21
Core Tier 1 ratio (until 2013) and CET 1 ratio (1Q2014) - Value at
end of period
%
10.3%
14
12
10
8
6
4
2
0
9.8%
12.6 %
7.4
8.7
2010
2011
13.4 %
12.3 %
11.5
12.3
11.0
2012
2013
1Q 2014
Chart 22
15 •
Source: Banco de Portugal.
Total
Solvency
Ratio
*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
Latest Developments
Updated: 1Q 2014