Portuguese Banking System:
latest developments
4th quarter 2017
Lisbon, 2018 • www.bportugal.pt
Prepared with data available up to 20th March of 2018.
Macroeconomic indicators and banking system data are quarterly and are presented until the last quarter
available, while financial market indicators, whose frequency is daily, are presented until the last day of available
information.
Portuguese Banking System: latest developments • Banco de Portugal Rua Castilho, 24 | 1250-069 Lisboa •
www.bportugal.pt • Edition Financial Stability Department • Design Communication and Museum Department | Design Unit
• ISSN 2183-9654 (online)
Contents
1 Portuguese Banking System – Main Highlights | 3
2 Macroeconomic and Financial Indicators | 4
3 Portuguese Banking System | 6
3.1 Balance sheet | 6
3.2 Liquidity and funding | 7
3.3 Asset quality | 9
3.4 Profitability | 10
3.5 Solvency | 12
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1 Portuguese Banking System
– Main Highlights Balance sheet
Banking system’s total assets decreased in the fourth quarter of 2017. This development reflects
a decrease in several items, in particular debt securities, and the increase in cash balances at
central banks. Loans to customers (net of impairments) remained virtually unchanged, despite
different developments in its components.
Liquidity and funding
The reduction of the central banks’ financing became more marked in the last quarter of 2017,
standing at the lowest level since the first quarter of 2010.
Liquidity indicators remained at high levels and, in general, have improved.
Asset quality
Asset quality improved in the fourth quarter of 2017, with a decline of the non-performing loans
(NPL) ratio. This development continued to reflect the decrease of the numerator (NPL stock), in
particular in the Non-financial corporations segment. Additionally, the NPL coverage ratio has
increased in the same period.
Profitability
Banking system profitability was positive in 2017, in contrast with the negative value in 2016.
Comparing to 2016, the improvement in profitability reflects a significant reduction in the flow of
impairments, particularly in the last quarter.
Solvency
Banking system’s own funds ratios increased in the last quarter of 2017 due to the increment of
capital.
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2 Macroeconomic and Financial
Indicators Chart 2.1 • GDP growth rate, in % | Volume
Source: INE.
Note: National Accounts figures are presented according to the rules of the European System of National and Regional Accounts (ESA 2010).
• In 2017, GDP grew by 2.7%, 1.1 p.p. above the figure for 2016.
• GDP year-on-year growth rate stood at 2.4%, similar to the previous quarter. GDP
quarter-on-quarter growth rate was 0.7%, a slight acceleration from 2017 Q3 (0.6%).
Chart 2.2 • Unemployment rate, % of active population
Sources: Banco de Portugal and INE.
Note: The unemployment rate corresponds to the figure of the central month of each quarter published by the National Statistical Institute,
seasonally adjusted.
• The unemployment rate stood at 8.1% in 2017 Q4, decreasing by 0.7 p.p. vis-à-vis the previous
quarter.
• In 2017, the unemployment rate was 9.0%, a decline of 2.2 p.p. from 2016.
-4.0
-1.1
0.9
1.81.6
2.7
0.0
2.4 2.4
0.6 0.7
-5
-4
-3
-2
-1
0
1
2
3
4
2012 2013 2014 2015 2016 2017 2017 Q3 2017 Q4 2017 Q3 2017 Q4
annual change yoy change qoq change
// //
15.816.4
14.1
12.6
11.2
9.0 8.88.1
0
2
4
6
8
10
12
14
16
18
2012 2013 2014 2015 2016 2017 2017 Q3 2017 Q4//
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Chart 2.3 • Sovereign debt yields 10Y, in %
Source: Thomson Reuters.
Note: The last observation is dated 19 March 2018. Daily data.
• The 10-year Portuguese sovereign bond yield dropped 42 basis points between 29 September
and 29 December of 2017. The spread vis-à-vis the 10-year German sovereign bond yield
decreased by 45 basis points in the same period.
• The downward trajectory of the 10-year Portuguese sovereign bond yield was maintained in the
beginning of 2018 and its level has stabilised below 2%. The disclosure of positive
macroeconomic and budget execution data might have contributed to this development.
Chart 2.4 • Euro area interest rates, in %
Source: European Central Bank.
Note: The last observation is dated 19 March 2018. Daily data. (a) Corresponds to the Eurosystem official interest rate on the main refinancing
operations (b) Corresponds to the Eurosystem official interest rate on the marginal lending facility (c) Corresponds to the Eurosystem official
interest rate on the deposit facility.
• European Central Bank (ECB) interest rates remained stable since March 2016: the deposit
facility interest rate at -0.40%, the main refinancing operations interest rate at 0% and the
marginal lending facility interest rate at 0.25%.
• In 2017, the euro area interbank market rates (EURIBOR) remained negative, reflecting the
banking systems’ favourable financing conditions in the context of ECB’s accommodative
monetary policy.
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan.16 Mar.16 May.16 Jul.16 Sep.16 Nov.16 Jan.17 Apr.17 Jun.17 Aug.17 Oct.17 Dec.17 Mar.18
Portugal Germany Spain Italy
-0.45
-0.30
-0.15
0.00
0.15
0.30
0.45
Jan.16 Mar.16 May.16 Jul.16 Sep.16 Nov.16 Jan.17 Apr.17 Jun.17 Aug.17 Oct.17 Dec.17 Mar.18
ECB - Main ref. Op. (a) ECB - Lend. Facility (b) Dep. Facility (c)
Euribor 3M Euribor 6M Euribor 12M
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3 Portuguese Banking System
3.1 Balance sheet
Chart 3.1 • Asset structure, in €Bn
Source: Banco de Portugal.
Note: The Other assets item includes cash and cash balances at central banks, cash balances at other credit institutions, derivatives, tangible
and intangible assets and other assets.
• Banking system’s total assets returned to a downward trajectory, decreasing by 1.1% in 2017 Q4
to 381 €Bn.
• In 2017 Q4, the development in total assets reflected the decline in several items, in particular
the reduction of the exposure to Portuguese public debt securities and the decrease in loans
to credit institutions. This was partly offset by a significant increase in cash balances at central
banks. Loans to customers (net of impairments) remained virtually unchanged, despite the
different developments of its components.
Chart 3.2 • Bank financing structure, in €Bn
Source: Banco de Portugal.
Note: The Other liabilities item includes derivatives, short positions and other liabilities.
• Deposits from other credit institutions declined in 2017 Q4 (and as a result net interbank
funding also decreased). Deposits from central banks and securities also diminished in this
period.
493457
426 408 386 385 381
0
200
400
600
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Sep. 17 Dec. 17
Thousands
Loans to credit institutions Debt securities Equity instruments Loans to customers Other assets
2.9 2.7 2.02.5 2.3 2.1 2.0
//
Total assets / nominal GDP
493457
426408
386 385 381
0
200
400
600
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Sep. 17 Dec. 17
Thousands
Deposits from central banks Deposits from other credit institutions Securities Deposits from customers Other liabilities Equity
//
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• Customer deposits increased sharply in 2017 Q4, reflecting the growth in the Non-financial
corporations and Households segments, which more than offset the decline in the public sector
deposits.
3.2 Liquidity and funding
Chart 3.3 • Central banks’ funding, in €Bn
Source: Banco de Portugal.
• Central bank’s funding declined further in 2017 Q4, albeit more sharply (-3.3%) than in the
previous two quarters, reaching its lowest level since 2010 Q1.
• Long-term refinancing operations (LTRO) have become more prevalent in relation to the main
refinancing operations (MRO) – which are very residual at this point – and to other type of
funding from central banks.
Chart 3.4 • Loan-to-deposit ratio, in %
Source: Banco de Portugal.
• The loan-to-deposit ratio declined slightly in 2017 Q4, mainly reflecting the growth in deposits.
52.847.9
31.226.2 22.4 22.7 22.1
3.4
3.3
2.5
2.42.3 1.9 1.8
0
20
40
60
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Sep. 17 Dec. 17
Thousands
Monetary policy operations with Banco de Portugal Other deposits from central banks
//
122.6
111.8102.1
96.1 95.3 94.0 92.6
0
30
60
90
120
150
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Sep. 17 Dec. 17//
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Chart 3.5 • Commercial gap, in €Bn
Source: Banco de Portugal.
• The commercial gap (loans subtracted from customer deposits) has become more negative, by
3 €Bn, in 2017 Q4.
Chart 3.6 • Liquidity gaps for domestic institutions(a) and Liquidity Coverage Ratio (LCR)(b),
in %
Source: Banco de Portugal.
Notes: a) The liquidity gap is defined as the difference between liquid assets and volatile liabilities in proportion of the difference between
total assets and liquid assets, for each cumulative maturity scale. An increase of this indicator reflects an improvement of banks’ liquidity
position; b) The liquidity coverage ratio is expressed as the ratio between the value of the stock of high quality liquid assets and the total net
cash outflows for a 30 calendar day liquidity stress scenario.
• Portuguese banking system's liquidity continued to stand at a comfortable level. Even though
the liquidity coverage ratio declined slightly in the last quarter of 2017, it remained at a level
higher than in the end of 2016, well above the 100% regulatory minimum required as from 1
January 2018.
• Liquidity gaps of domestic institutions increased for all maturity scales. In the shorter maturities,
this evolution mainly reflected the positive development of cash balances at central banks,
which more than offset the increase in volatile liabilities. In the remaining maturities (up to 6
months and up to 1 year), both the increase in liquid assets and the reduction in volatile
liabilities contributed to this indicator’s increase.
57
30
5
-10 -12-15
-18-30
-20
-10
0
10
20
30
40
50
60
70
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Sep. 17 Dec. 17
//
5.8
9.810.6
13.412.0
15.9
18.1
3.4
7.79.2
12.2
10.1
14.6
17.3
1.3
3.4
6.7
8.9 8.4
13.6
16.0
0
5
10
15
20
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Sep. 17 Dec. 17
Up to 3 months Up to 6 months Up to 1 year
//
174
Liquidity coverage ratio
177151
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3.3 Asset quality
Chart 3.7 • Non-performing loans ratio, in %
Source: Banco de Portugal.
Notes: The non-performing loans ratio is the amount of non-performing loans in relation to total loans, according to EBA’s ITS on Supervisory
Reporting. The non-financial private sector comprises the Non-financial corporations and Households.
• Non-performing loan (NPL) stock continued to decline in 2017 Q4. This 2.9 €Bn drop was the
largest quarterly reduction since the publication of this data series based on the EBA’s ITS
(December 2015). The NPL stock decreased by 9.3 €Bn vis-à-vis December 2016 and by 13.5
€Bn in comparison to its peak in June 2016.
• The NPL ratio decreased by 1.3 p.p. in this quarter, standing at 13.3%, which represents a 3.9
p.p. reduction in comparison to the end of 2016 and a 4.6 p.p. decline vis-à-vis June 2016. In
turn, the Non-financial private sector NPL ratio decreased by 1 p.p. compared to September
2017.
• Despite the positive contribution of all segments, the developments observed in 2017 Q4
mostly reflect a 1.6 €Bn decline in the NPL stock of Non-financial corporations. This stock
decreased by 5.9 €Bn and by 8.9 €Bn comparing to December and June 2016 respectively.
Chart 3.8 • Non-performing loans coverage ratios, in %
Source: Banco de Portugal.
Note: The coverage ratio is the percentage of non-performing loans that is covered by impairments.
7.2 7.2 7.1 7.0 6.7 6.5 6.2 5.7
13.5 12.4 12.410.8 10.0 9.6 9.0 7.9
28.330.3 30.1 29.5 29.0
27.5 26.625.2
17.5 17.9 17.6 17.2 16.4 15.5 14.613.3
17.9 18.5 18.3 17.5 17.116.2 15.6
14.6
0
5
10
15
20
25
30
35
Dec. 15 Jun. 16 Sep. 16 Dec. 16 Mar. 17 Jun. 17 Sep. 17 Dec. 17
Housing Consumption NFC Total Non-financial private sector
23.5 23.9 24.321.0 21.8 21.9 23.3 22.8
67.271.5
70.3 68.771.4 71.1 70.7
66.2
44.4 46.4 46.8 48.9 48.7 49.1 50.453.840.8
43.2 43.7 45.3 45.5 45.9 46.5 49.3
0
10
20
30
40
50
60
70
80
Dec. 15 Jun. 16 Sep. 16 Dec. 16 Mar. 17 Jun. 17 Sep. 17 Dec. 17
Housing Consumption NFC Total
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• In December 2017, the NPL coverage by impairments ratio stood at 49.3%, increasing 2.8 p.p.
vis-à-vis the previous quarter. This development was driven by a 3.4 p.p. increase of
Non-financial corporations’ coverage ratio. In turn, the NPL coverage ratio of the Non-financial
private sector increased by 2.4 p.p. compared to September 2017.
3.4 Profitability
Chart 3.9 • ROE and ROA, in %
Source: Banco de Portugal.
Note: Return is measured by profit or loss before tax.
• The return on equity and the return on assets were positive in 2017, in contrast with the
negative figures recorded in 2016. The return on equity rose by 10.8 p.p., while the return on
assets grew by 0.9 p.p.
• In 2017, the rise in profitability reflects, above all, a significant reduction in the flow of
impairments, due to the base effect related with the substantial increase in the flow of credit
impairments recorded at the end of 2016, as well as the increase in total operating income
(supported to a large extent by the triggering of the contingent capitalization scheme agreed
upon the sale of Novo Banco).
Chart 3.10 • Income and costs, in % of average total assets
Source: Banco de Portugal.
Note: Recurring operating result corresponds to the sum of net interest margin and net commissions minus operational costs, as a percentage
of average total assets.
-7.4
3.5
-0.6
0.3
-2.0
-1.5
-1.0
-0.5
0.0
0.5
-20
-15
-10
-5
0
5
2012 2013 2014 2015 2016 2017
Return on Equity (ROE) - lhs Return on Assets (ROA) - rhs
-5
-4
-3
-2
-1
0
1
2
3
2012 2013 2014 2015 2016 2017
Net interest income Net commissions Financial operations results
Other income Operational costs Impairments and provisions
Operating result (recurring) ROA
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• In 2017, net interest income contribution to ROA increased slightly vis-à-vis the previous year,
due not only to a higher decline in interest expenses than in interest income, but chiefly due to
the decline of total assets (denominator effect).
• The contribution of other operating income to ROA increased in 2017, largely as a result of the
triggering of the contingent capitalization scheme agreed upon the sale of Novo Banco.
• Operational costs remained virtually unchanged vis-à-vis 2016. It should be noted, however, an
increase in staff costs and a decrease in general and administrative expenses of the same order
of magnitude.
Chart 3.11 • Operational costs and Cost-to-income, in €Bn and in %
Source: Banco de Portugal.
• Cost-to-income ratio stood at 52.9% at the end of 2017, about 6 p.p. lower than in 2016. Given
the relative stabilisation of operational costs, this development was mainly driven by the growth
in total operating income (which in turn reflects the increase in other operating income).
• In 2017, staff costs continued to be negatively impacted by non-recurrent factors associated
with the restructuring processes carried out by some of the largest institutions. This year
profitability was also affected by the aforementioned triggering of the contingent capitalization
scheme agreed upon the sale of Novo Banco, which impacted other operating income (and,
therefore, total operating income). Excluding these non-recurrent factors, it is estimated that
cost-to-income ratio would stand at 54.4%.
0
20
40
60
80
0
2
4
6
8
2012 2013 2014 2015 2016 2017
Operational costs - lhs Cost-to-income ratio - rhs
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Chart 3.12 • Banking interest rates (new business), in % | Average value of the period
Source: Banco de Portugal.
• Interest rates on new loans to Non-financial corporations and to Households (housing) fell in
2017 Q4 (22 basis points and 4 basis points, respectively).
• The cost of new deposits decreased in both segments (4 basis points in the Non-financial
corporations segment and 2 basis points in the Households segment).
3.5 Solvency(a)
Chart 3.13 • Tier 1 capital to total assets ratio and Leverage ratio, in %
Source: Banco de Portugal.
Note: The Tier 1 capital to total assets ratio is a proxy for the leverage ratio, allowing for a more comprehensive period of analysis. The leverage
ratio is calculated as the capital measure (Tier 1 capital) divided by the total exposure, in accordance with the methodology set out in article
429 of the Regulation (EU) No 575/2013.
• The leverage ratio increased by 0.3 p.p. vis-à-vis the previous quarter, standing at 7.8%, well
above the minimum benchmark defined by the Basel Committee on Banking Supervision,
reflecting essentially an increment of the banking system’s capital position. In the same vein,
the ratio between Tier 1 capital and total assets increased by 0.3 p.p. to 8.1%.
(a) In 2014, the transition to a new prudential regime determined the existence of breaks in the series of solvency indicators justified by methodological
differences in the calculation of own funds components, affecting the comparability of ratios with previous years.
0
1
2
3
4
5
6
7
2012 2013 2014 2015 2016 2017 2017 Q3 2017 Q4
Loans to Non-financial corporations Loans to Households (Housing)Deposits of Non-financial corporations Deposits of Households
//
7.0 6.8 6.97.6
6.97.8 8.1
0
1
2
3
4
5
6
7
8
9
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Sep. 17 Dec. 17
7.8
//
Leverage ratio
7.56.6
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Chart 3.14 • Own funds ratios, in %
Source: Banco de Portugal.
• The total capital ratio stood at 15.2% in December 2017, increasing by 0.5 p.p. compared to
September 2017. The Common Equity Tier 1 (CET 1) ratio stood at 13.9%, an increase of 0.4 p.p.
vis-à-vis the previous quarter. These developments reflect solely an increment in the capital
position.
11.512.2
11.312.4
11.413.5 13.9
0
2
4
6
8
10
12
14
16
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Sep. 17 Dec. 17
Core Tier 1 ratio CET 1 ratio
//
Total Capital Ratio
12.6 13.4 14.712.3 13.3 12.3 15.2