Portuguese Banking
System
Latest Developments
Updated: 4Q 2013
Portuguese Banking System –
latest developments
• 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 is the main driver of the decrease in assets
II.
Liquidity & Funding
•
Steady decrease in the loan-to-deposit ratio
•
Increase in the weight of deposits in the funding structure
III.
Asset/Credit Quality
•
Credit at risk ratio increased in relation to previous year, although at a slower pace
•
Credit at risk coverage ratio increased
IV.
Profitability
•
Profitability remains under pressure, although net interest margin recovered throughout the year
•
Flow of credit impairments decreased, but continues at historical highs
V.
Solvency
•
Solvency levels strengthened due to asset reduction
The profitability of the Portuguese Banking System is under pressure.
At the end of 2013, liquidity and solvency were at comfortable levels.
3•
Latest financial stability measures
Topic
Institution
Latest measures (Q4 2013)
Banco de
Portugal
Approval of Notice No 6/2013, which establishes transitional arrangements
for own funds, under Regulation (EU) No 575/2013, and lays down measures
to preserve those funds, requiring in particular a minimum level of 4.5% for
the common equity Tier 1 capital ratio, applicable as of 1 January 2014, and
determining that credit institutions and investment firms preserve a common
equity Tier 1 capital ratio of no less than 7%.
ECB
In November 2013, decision by the Governing Council of the ECB to continue
conducting its refinancing operations as fixed rate tender procedures with full
allotment for as long as necessary, and at least until the first half of 2015.
Solvency
and liquidity
Undertaking a sectoral on-site inspection (ETRICC 12), entailing the
assessment of business forecasts for the largest 12 banks' counterparts, in
order to ensure appropriate amounts of impairment are included in the
accounts.
Monitoring
and
supervision
4•
Banco de
Portugal
Publication of Instruction No 32/2013 (revoking Instruction No 18/2012) which
relates to the identification and earmarking of restructured credit due to
customer's financial difficulties. This new Instruction revises the rules and
assumptions defined by the revoked Instruction and makes them consistent
with the EBA Implementing Technical Standards on Non-Performing
Exposures.
Undertaking an on-site inspection programme on the 8 largest banking
groups to assess institutions' internal processes related to the treatment of
problematic credit, from the viewpoint of maximising the capacity to recover
such credit.
Macroeconomic and Financial Indicators (I/IV)
GDP growth rate - Volume
3
1,9
2
1
0,6
0,3
%
0
In 2013, GDP growth rate was
negative in 1,4%. Nevertheless,
quarter-on-quarter growth has
been positive since Q2 2013.
-1
-1,3
-2
-1,4
-3
-3,2
-4
2010
2011
2012
2013
2013 Q3
2014 Q2
Chart 1
Note: Quarterly figures correspond to q-o-q growth rates.
Current account and capital account, %GDP
6
1
1,2
1,1
2,4%
2,1
2,0
1,9
0,5
2,3%
-4
1,2
-0,1
-2,0
Capital Account
Current Account
-7,0
-9
-14
2,3
-10,6
2010
2011
2012
2013
2013 Q3
2014 Q2
Chart 2
5•
Source: Banco de Portugal and INE.
The adjustment process of the
external balance has continued its
path, leading to a net lending
position of the Portuguese
economy.
In 2013 the current account
exhibited a surplus, though small.
Macroeconomic and Financial Indicators (II/IV)
Unemployment rate, % of active population
18
16
14
12
10
8
6
4
2
0
16,3
15,7
15,8
15,3
12,7
11,8
In 2013, the unemployment rate
remained high despite quarterly
figures have been decreasing
throughout the year.
2010
2011
2012
2013
2013 Q3
2014 Q2
The ratio between public debt
and GDP continued to increase,
but at a lower pace than in 2012.
Chart 3
Fiscal deficit, % GDP
94
108
124
128
Public Debt
/GDP
(% GDP)
0
2,4%
-2
2,3%
-4
-4,3
-6
-4,7
-6,5
-8
-10
-9,9
-12
2010
2011
2012
2013
Chart 4
6•
Source: Banco de Portugal and INE.
Fiscal deficit decreased in 2013,
in line with the effort of structural
consolidation of public finances.
Macroeconomic and Financial Indicators (III/IV)
Net lending/borrowing of non-financial corporations % GDP
137
2010
141 (1)
139
143
2011
2012
143 (1)
DPNFC debt
(% GDP)
1Q-3Q 2012 1Q-3Q 2013
0
-0,9
-2
-4
-3,8
-4,0
-6
-8
Financial leverage of the nonfinancial corporate sector remains
high. In turn, borrowing continued
to decrease.
-5,6
-6,9
Chart 5
Households debt continued to
decrease in 2013, accompanied
by an increase in the net lending
position.
Net lending/borrowing of households % GDP
102
101
100 (1)
100
98 (1)
Households
debt
D
P (% GDP)
8
2,4%
6
4,5
4,6
2010
2011
6,4
2,3%
5,8
3,9
4
2
0
2012
1Q-3Q 2012
1Q-3Q 2013
Chart 6
7•
Source: Banco de Portugal and INE. (1) September values.
Macroeconomic and Financial Indicators (IV/IV)
20
Portugal
40
18
Spain
35
Italy
30
Germany
25
16
14
%
12
10
20
Greece (RHS)
8
15
6
10
4
5
2
0
Dec-10
%
Sovereign debt yields 10 Y
After reporting some volatility in
the summer, Portuguese
sovereign debt yields exhibited a
decreasing trend since mid
September, decreasing the
spread to German yields.
0
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Chart 7
Euribor and ECB main refinancing rate
2,00
Euribor 3M
1,75
Euribor 6M
1,50
2,4%
ECB Main Refinancing
Rate
2,3%
%
1,25
1,00
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
Chart 8
8•
Source: Bloomberg and ECB.
Interbank rates have been
stable in 2013, having increased
in december following a review of
market expectations towards
central bank monetary stimulus.
The eurosystem main
refinancing operations rate was
cut by 25b.p. in May and in
November .
Balance Sheet
Assets (€Bn) - Value at end of period
3.1
3.0
3.0
2.8
Assets / GDP
2.8
600
500
Other Assets
400
300
Investment in Credit
Institutions
Capital Instruments
200
Debt Instruments
100
Credit
0
2010
2011
2012
3Q 2013
4Q 2013
Chart 9
Bank financing structure (€Bn) - Value at end of period
600
532
513
496
500
400
461
461
Capital & Others
300
Resources from
Central Banks
Interbank Market
200
Securities
2,4%
2,3%
100
Deposits
0
2010
2011
2012
3Q 2013
4Q 2013
Chart 10
9•
Source: Banco de Portugal.
Total assets remained stable in
the last quarter of 2013.
Nevertheless, from 2010 to 2013
assets decreased 13% mainly due
to a decrease in net credit.
The funding of the banking
system has been gradually
adjusting towards a higher
proportion of more stable funding
sources, notably deposits from
households.
The decrease of the weight of
securities issued and interbank
financing in the funding structure
reflects, amongst other, the
fragmentation of the European
wholesale debt market.
Liquidity & Funding (I/II)
Central Banks Financing (€Bn) - Value at end of period
60
3,4
50
8,3
40
30
20
3,5
4,7
40,9
46,0
2010
2011
52,8
51,8
3,3
47,9
10
0
2012
3Q 2013
Monetary policy operations with Banco de Portugal
Other resources from central banks
4Q 2013
Chart 11
Loan-To-Deposits ratio (%) - Value at end of period
200
158
140
150
2,4%
128
2,3%
121
117
3Q 2013
4Q 2013
100
50
0
2010
2011
2012
Chart 12
10 •
Dependence from the
Eurosystem funding decreased in
Q4 2014 both on a quarter-onquarter and on a year-on-year
basis.
Source: Banco de Portugal.
In 2013, the reduction of the
loan-to-deposits ratio resulted
from the reduction in net credit, as
the level of deposits has remained
stable on a year-on-year basis.
Liquidity & Funding (II/II)
Commercial gap (€Bn) - Value at end of period
160
133
140
98
120
70
100
52
43
80
60
40
20
0
2010
2011
2012
3Q 2013
4Q 2013
The continued reduction of the
commercial gap reinforces the
conclusion about the structural
adjustment of the banking sector.
Chart 13
Liquidity gap in cumulative maturity ladders (% stable assets)
- Value at end of period
10
6,6
5,0
5
2,2
2,3%
2,4%
8,4
6,2
5,2
2,0
2,2
%
0
-0,3
-5
-10
Up to 3 months
-2,8
-3,9
-7,3
-11,5
-15
2010
Up to 6 months
-6,3
Up to 1 year
-9,6
2011
2012
3Q 2013
4Q 2013
Chart 14
11 •
Source: Banco de Portugal.
Liquidity gaps improved
comparing to 2012, being this
improvement more pronounced in
the last quarter of 2013.
Asset Quality
Credit at Risk ratio (% of gross credit) - Value at end of period
20
17,0 17,1
16,5 16,1
15,4
13,7
15
12,2
10,3
9,9
10
5,9
5
5,8
4,3
The credit at risk ratio continued
to increase in 2013, although at a
slower pace.
6,1
6,0
5,6
0
2010
Housing
2011
2012
Consumption & other purposes
3Q 2013
4Q 2013
Non-financial corporations
Total
Chart 15
The deterioration of the credit at
risk ratio since 2010 results
mainly from the evolution of the
non-financial corporate sector.
Credit Impairments as % of gross credit - Value at end of period
7
6
5
6,1
6,2
3Q 2013
4Q 2013
5,5
4,2
2,4%
3,2
4
3
2,3%
2
1
0
2010
2011
2012
Chart 16
12 •
Source: Banco de Portugal.
The coverage of gross credit by
impairments has been increasing
since 2010. In the last quarter of
2013 this ratio remained stable.
Profitability (I/II)
15
0,5
7,7
10
5
%
0
-5
-10
-6,3
-5,5
-0,4
-0,3
-7,8
-0,5
-15
2010
2011
2012
Return on Equity (ROE)
3Q 2013
-11,5
-0,7
4Q 2013
0,8
0,6
0,4
0,2
0,0
-0,2
-0,4
-0,6
-0,8
Return on Assets (ROA) - rhs
Chart 17
%
ROA & ROE - Value at end of period
In 2013, the deterioration in
profitability resulted mainly from
the reduction of income from the
sale of financial assets and the
decrease in the net interest
margin, which were partially
outweighed by the reduction of
the impairments flow.
Income and costs as a % of gross income - Value at end of period
Other costs
100
Operational costs
60
20
2,4%
2,3%
Impairments
-20
Other financial
operations
-60
Commissions
-100
-140
Net interest income
2010
2011
2012
3T 2013
4T 2013
Chart 18
13 •
Source: Banco de Portugal.
Although there was a reduction
of the net interest margin in 2013
vis-a-vis 2012, there was a
gradual recovery of this aggregate
throughout 2013.
Profitability (II/II)
Cost-to-Income (%), Operational Costs* (€Bn) - Value at end of
period
10
80
60
6
40
%
€Bn
8
4
20
2
0
0
2010
2011
2012
Operational Costs
3Q 2013
4Q 2013
Cost-to-Income
* Annualized values.
Chart 19
Banking interest rates (new business) - Average value at end of
period
%
The deterioration of the cost-toincome ratio is mainly due to the
reduction of gross income.
7
6
5
4
3
2
1
0
Loans to nonfinancial
corporations
2,4%
Loans to
households
(housing)
2,3%
Deposits of nonfinancial
corporations
2010
2011
2012
2013
Deposits of
households
3Q 2013 4Q 2013
Chart 20
14 •
Source: Banco de Portugal.
Reduction in operational costs
was smaller than the decrease in
revenues. The restructuring plans
being implemented in some of the
largest banks should only produce
effects in the medium term
In 2013, the evolution of interest
rates had a negative contribution
to the evolution of the net interest
income.
Solvency
Core Tier 1 capital to Total Assets ratio - Value at end of period
8
6,7
7
6
4,5
7,2
6,9
The leverage of the banking
system, measured by the ratio of
capital core tier I and total assets,
remained stable in 2013, close to
7%.
5,2
%
5
4
3
2
1
Core Tier 1 ratio increased in
2013, standing above the 10%
minimum required by Banco de
Portugal.
0
2010
2011
2012
3Q 2013
4Q 2013
Chart 21
Core Tier 1 ratio - Value at end of period
10.3%
8,1
2,4%
9.8%
12.6 %
13.4 %
13.3 %
12,2
12,3
9,6
11,5
2,3%
3Q 2013
4Q 2013
%
14
12
10
8
6
4
2
0
2010
2011
2012
Chart 22
15 •
Source: Banco de Portugal.
Total
Solvency
Ratio
Unlike 2012, the strengthening
of solvency levels in 2013 resulted
from the reduction of assets and
not from the increase in own
funds.
Portuguese Banking
System
Latest Developments
Updated: 4Q 2013