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Portuguese Banking System: latest developments 2nd quarter 2017
Lisbon, 2017 • www.bportugal.pt
Prepared with data available up to 20th September of 2017.
Portuguese Banking System: latest developments • Banco de Portugal Rua Castilho, 24 | 1250-069 Lisboa •
www.bportugal.pt • Edition Financial Stability Department • Design Communication Directorate | Image and
Graphic Design Unit • ISSN 2183-9654 (online)
Contents 1. Banking System – Main Highlights | 4
2. Macroeconomic and Financial Indicators | 5
3. Portuguese Banking System | 7
Balance sheet | 7
Liquidity and funding | 8
Asset quality | 10
Profitability | 11
Solvency | 13
4 BANCO DE PORTUGAL • Portuguese Banking System: latest developments
1. Portuguese Banking System – Main Highlights
Balance sheet
In the second quarter of 2017, banking
system’s total assets decreased slightly vis-à-vis
the previous quarter.
The continued reduction of the loans to
customers’ portfolio was partially offset by the
increase in the sovereign debt securities’
portfolio. Customer deposits remained stable.
Liquidity and funding
Financing obtained from the Eurosystem
declined in the second quarter of 2017, in
contrast to the preceding quarter.
Banking system’s liquidity indicators improved,
in line with the latest quarters. The liquidity of
domestic institutions, measured by the liquidity
gaps, increased and remained at a comfortable
level.
Asset quality
The non-performing loans ratio decreased
again in the second quarter of 2017, reflecting
a greater reduction in non-performing loans
than the one observed in total loans. This
development was common to all segments
analysed.
Profitability
The profitability of the banking system was
positive in the first half of 2017, which
compares with the virtually nil figure observed
in the same period of the previous year.
The improvement in profitability vis-à-vis the
first half of 2016 was chiefly driven by a
significant reduction in the flow of impairments.
Solvency
Solvency levels increased in the second quarter
of 2017, due to the growth of the banking
system’s own funds and the reduction of the
risk-weighted assets.
2nd quarter 2017 5
2. Macroeconomic and Financial Indicators
Chart 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 Q2, year-on-year GDP growth stood at 2.9%, a slightly higher rate than the one observed in
the previous quarter (2.8%).
• GDP grew 0.3% quarter-on-quarter, which represents a slowdown from the previous quarter.
Chart 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 9.2% in 2017 Q2, falling by 0.7 p.p. vis-à-vis the previous quarter.
• On a year-on-year basis, the unemployment rate declined by 2.1 p.p.
-4.0
-1.1
0.9
1.61.4
0.0
2.8 2.9
1.00.3
-5
-4
-3
-2
-1
0
1
2
3
4
2012 2013 2014 2015 2016 2017 Q1 2017 Q2 2017 Q1 2017 Q2
annual change yoy change qoq change
// //
15.816.4
14.1
12.6
11.2
9.99.2
0
2
4
6
8
10
12
14
16
18
2012 2013 2014 2015 2016 2017 Q1 2017 Q2//
6 BANCO DE PORTUGAL • Portuguese Banking System: latest developments
Chart 3 • Sovereign debt yields 10Y, in %
Source: Thomson Reuters.
• The Portuguese 10-year government bond yield fell by more than 90 basis points between 31 March
2017 and 30 June 2017, while the spread vis-à-vis the German 10-year government bond yield
decreased by 108 basis points. This downward movement has persisted throughout the third quarter
of 2017, with the yield of the Portuguese 10-year government bond declining an additional 58 basis
points between 30 June 2017 and 19 September 2017. The Portuguese public debt outlook
improvement, from stable to positive, by Fitch and Moody's and, more recently, the increase to an
investment grade rating level by Standard & Poor's, should have contributed, inter alia, to this
development.
Chart 4 • ECB rates, in %
Source: ECB.
• ECB rates remain 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%.
• The accommodative monetary policy, including ECB's asset purchase programme, continues to be
reflected in the levels of benchmark interbank interest rates.
-2
0
2
4
6
8
10
12
14
16
18
20
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17
Portugal Spain Italy Germany Greece
-0.45
-0.30
-0.15
0.00
0.15
0.30
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17
Main refinancing rate Deposit facility rate Marginal lending facility rate
2nd quarter 2017 7
3. Portuguese Banking System
Balance sheet
Chart 5 • Asset structure, in €Bn | Value at end of period
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.
• In 2017 Q2, Portuguese banking system’s total assets diminished by 0.6% vis-à-vis the previous
quarter. This development mainly reflects a reduction in loans to customers and other assets, which
was partially offset by an increase in sovereign debt securities, including Portugal.
• The decline of the loans to customers’ portfolio reflects mainly a decrease in loans to Non-financial
corporations.
Chart 6 • Bank financing structure, in €Bn | Value at end of period
Source: Banco de Portugal.
• On the financing side, the stability of customer deposits in the quarter should be stressed. On the
contrary, deposits from other credit institutions decreased by 4.5% and its weight in total assets
decreased by 0.4 p.p. to 9.2%.
493457
426 407 386 386 384
0
200
400
600
2012 2013 2014 2015 2016 2017 Q1 2017 Q2
Thousands
Loans to credit institutions Debt securities Equity instruments Loans to customers Other assets
2.9 2.7 2.12.5 2.3 2.1 2.0
//
Total assets / nominal GDP
493457
426407
386 386 384
0
200
400
600
2012 2013 2014 2015 2016 2017 Q1 2017 Q2
Deposits from central banks Deposits from other credit institutions Securities Deposits from customers Other liabilities Equity
//
8 BANCO DE PORTUGAL • Portuguese Banking System: latest developments
Liquidity and funding
Chart 7 • Central banks’ funding, in €Bn | Value at end of period
Source: Banco de Portugal.
• Central bank’s funding decreased by 1.9% in 2017 Q2, reflecting a reduction of monetary policy
operations with Banco de Portugal. Central banks’ funding accounted for 6.6% of total assets, virtually
the same figure as in the previous quarter.
Chart 8 • Loan-to-deposit ratio, in % | Value at end of period
Source: Banco de Portugal.
• The loan-to-deposit ratio stood at 93% in 2017 Q2, decreasing about 1 p.p. from the previous quarter.
This development reflects a decrease in loans and a stabilisation of deposits.
52.847.9
31.226.2
22.4 23.7 23.2
3.4
3.3
2.5
2.42.3 2.2 2.2
0
20
40
60
2012 2013 2014 2015 2016 2017 Q1 2017 Q2
Thousands
Monetary policy operations with Banco de Portugal Other deposits from central banks
//
123
112102
96 95 94 93
0
20
40
60
80
100
120
140
2012 2013 2014 2015 2016 2017 Q1 2017 Q2//
2nd quarter 2017 9
Chart 9 • Commercial gap, in €Bn | Value at end of period
Source: Banco de Portugal.
• The commercial gap (loans minus deposits) diminished approximately 17.2% in 2017 Q2, standing at
-16 €Bn.
Chart 10 • Liquidity gaps for domestic institutions(a) and Liquidity Coverage Ratio (LCR)(b),
in % | Value at end of period
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 coverage ratio increased by 18 p.p. to 185%, due to an increase
in liquid assets held by institutions.
• Liquidity gaps for domestic institutions increased for all maturities, as in the previous quarter.
57
30
5
-10 -11-14
-16-20
-10
0
10
20
30
40
50
60
2012 2013 2014 2015 2016 2017 Q1 2017 Q2
//
5.8
9.810.6
13.412.0
13.6
16.0
3.4
7.79.2
12.2
10.1
13.214.9
1.3
3.4
6.7
8.9 8.4
10.8
12.9
0
5
10
15
20
2012 2013 2014 2015 2016 2017 Q1 2017 Q2
Up to 3 months Up to 6 months Up to 1 year
//
185
Liquidity coverage ratio
166154
10 BANCO DE PORTUGAL • Portuguese Banking System: latest developments
Asset quality
Chart 11 • Non-performing loans ratio, in % | Value at end of period
Source: Banco de Portugal.
Note: The non-performing loans ratio is the amount of loans non-performing in relation to total loans, according to EBA’s ITS on Supervisory
Reporting.
• The non-performing loans ratio stood at 15.5% in 2017 Q2, which represents a 0.9 p.p. reduction
vis-à-vis the previous quarter. The 6.1% decrease of non-performing loans (numerator effect) more
than offset the reduction in total loans (denominator effect). This decline of non-performing loans is
the largest since December 2015 and since June its value fell by 16.2%.
• The decrease of the total non-performing loans ratio in 2017 Q2 reflects positive developments in all
segments, but more significantly in the Non-financial corporations (NFC) segment. The 1.5 p.p. decline
observed in the NFC segment ratio reflects a non-performing loans reduction of 2.1 €Bn (7%) in 2017
Q2 (5.9 €Bn since June 2016, which amounts to an 18% fall).
Chart 12 • Non-performing loans coverage ratios, in % | Value at end of period
Source: Banco de Portugal.
Note: The coverage ratio is the percentage of non-performing loans that is covered by impairments.
• In 2017 Q2, the non-performing loans coverage by impairments stood at approximately 46%. The
Non-financial corporations’ coverage ratio increased slightly to 49.2%, due to the decline of
non-performing loans (denominator effect).
7.2 7.4 7.2 7.1 7.0 6.7 6.5
13.5 13.512.4 12.4
10.8 10.0 9.6
28.329.3 30.3 30.1 29.5 29.0
27.5
0
4
8
12
16
20
24
28
32
2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2
Housing Consumption NFC Total
23.5 23.3 23.9 24.321.0 21.8 21.9
67.2 66.471.5 70.3 68.7
71.4 71.1
44.4 45.4 46.4 46.8 48.9 48.7 49.2
0
10
20
30
40
50
60
70
80
2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2
Housing Consumption NFC Total
2nd quarter 2017 11
Profitability
Chart 13 • ROE and ROA, in % | Value in the period
Source: Banco de Portugal.
Note: Return is measured by profit or loss before tax. Intra-annual returns are annualised.
• The return on equity and the return on assets were positive in 2017 H1, which contrasts with the
virtually nil values observed in the same period of the previous year. On a year-on-year basis, the
return on equity grew by 3.9 p.p., whilst the return on assets increased by 0.3 p.p.
• In the context of a slight decrease in gross income, the rise in profitability vis-à-vis 2016 H1 reflects a
considerable decrease in the flow of impairments, especially for credit impairments.
Chart 14 • Income and costs, in % of average total assets | Value in the period
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.
• Net interest income remained virtually unchanged vis-à-vis 2016 H1, reflecting similar reductions in
interest income and in interest expenses. Notwithstanding, its contribution to ROA increased slightly
given the decrease in total assets.
-7.3-0.1
3.9
-0.6
0.0
0.3
-1.5
-1.0
-0.5
0.0
0.5
-25
-20
-15
-10
-5
0
5
10
2012 2013 2014 2015 2016 2016 H1 2017 H1
Return on Equity (ROE) - lhs Return on Assets (ROA) - rhs
//
-4
-3
-2
-1
0
1
2
3
2012 2013 2014 2015 2016 1S 2016 1S 2017
Net interest income Net commissions Financial operations results
Other income Operational costs Impairments and provisions
Operating result (recurring) ROA
//
12 BANCO DE PORTUGAL • Portuguese Banking System: latest developments
Chart 15 • Operational costs and Cost-to-income, in €Bn and in % | Value in the period
Source: Banco de Portugal.
Note: The recurring cost-to-income ratio corresponds to operational costs as a percentage of the sum of net interest income and net
commissions.
• The cost-to-income ratio stood at around 61% in 2017 H1, which represents a decrease of 1.4 p.p.
on a year-on-year basis. This development reflects a greater reduction in operating costs than in
gross income.
• In 2017 H1, the cost-to-income recurring ratio decreased approximately 3 p.p. on a year-on-year
basis, standing at about 65%. This decline chiefly reflects a reduction in operating costs.
Chart 16 • Banking interest rates (new business), in % | Average value of the period
Source: Banco de Portugal.
• As in the previous quarters, interest rates on new loans to Households (Housing) and to NFC
decreased in 2017 Q2. For Households (Housing) the interest rate decreased by 9 basis points and
for NFC the interest rate decreased by 13 basis points.
• The cost of new deposits decreased again in the quarter under review, by 3 basis points in the
Households segment and by 1 basis point in the Non-financial corporations segment, standing very
close to zero.
0
20
40
60
80
100
0
2
4
6
8
2012 2013 2014 2015 2016 2016 H1 2017 H1
Operational costs - lhs Cost-to-income recurring ratio - rhs Cost-to-income ratio - rhs
//
0
1
2
3
4
5
6
7
2012 2013 2014 2015 2016 2017 Q1 2017 Q2
Loans to Non-financial corporations Loans to Households (Housing)Deposits of Non-financial corporations Deposits of Households
//
2nd quarter 2017 13
Solvency (a)
Chart 17 • Tier 1 capital to total assets ratio and Leverage ratio, in % | Value at end of
period
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. The leverage ratio is calculated in accordance with the
methodology set out in article 429 of the Regulation (EU) No 575/2013.
• The ratio between Tier 1 capital and total assets rose by 0.2 p.p. in 2017 Q2, reflecting, above all, the
banking system’s capital increase.
• The leverage ratio grew by 0.3 p.p. to 7.5% in the quarter under review, mainly due to the
abovementioned capital increase.
Chart 18 • Own funds ratios, in % | Value at end of period
Source: Banco de Portugal.
• The total solvency ratio stood at 14.4% in 2017 Q2, representing an increase of 0.5 p.p. vis-à-vis the
previous quarter.
• The Common Equity Tier 1 ratio (CET 1) stood at 13.2%, which represents a 0.6 p.p. increase in the
quarter under analysis reflecting an increase in CET 1 capital and a reduction in risk-weighted assets.
(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.
7.0 7.1 6.97.6
6.97.5 7.7
0
1
2
3
4
5
6
7
8
9
2012 2013 2014 2015 2016 2017 Q1 2017 Q2
7.5
//
Leverage ratio
7.26.6
11.512.3
11.312.4
11.412.6 13.2
0
2
4
6
8
10
12
14
2012 2013 2014 2015 2016 2017 Q1 2017 Q2
Core Tier 1 ratio CET 1 ratio
//
Total Solvency Ratio
12.6 13.3 13.912.3 13.3 12.3 14.4
14 BANCO DE PORTUGAL • Portuguese Banking System: latest developments