Portugal’s banking sector: Facts & Figures
In 2016, the Portuguese economy maintained its recovery path, be it at a moderate rate, with 1.4% growth. Worth mentioning that in Q1 2017 the economy showed impressive growth acceleration, with GDP having an increase of 2.8% year-on-year. This is the highest value since the last quarter of 2007 (2.0% in Q4 2016), and was mostly supported by a solid performance of exports.
In June, Banco de Portugal raised its forecast for GDP growth over the 2017-2019 period, which is now expected to be 2.5% in 2017, 2% in 2018 and 1.8% in 2019.
The Portuguese banking system comprises 157 institutions, of which 65 are banks (31 being branches of foreign banks), 88 mutual agricultural credit banks and four savings banks. The five largest banks account for 70% of total assets. In 2016, the number of banking employees stood at 1% of total active labour force.
In 2016, there were 4,739 branches (-5.3% year-on-year), corresponding to around 2,180 inhabitants or ten employees per branch. ATMs stood at 15,336 units (674 inhabitants per ATM), and point-of-sale terminals reached 300,000 available for use with 14 million active debit and six million credit cards.
Retail payments processed through SICOI, the retail payment system managed by the central bank, amounted to €386 billion (+8% year-on-year), of which credit transfers were €201 billion, Multibanco interbank card network, €106 billion, cheques, €58.1 billion, and direct debits €21.1 billion. As for online transactions, card-based purchases amounted to €1.9 billion (+12% year-n-year).
Total assets continued their downward trend, decreasing by 5% in 2016 to €428 billion, mainly driven by a 5% fall in outstanding loans. As a result of the deleveraging process in place, the Portuguese banking system reduced its ratio to the country’s GDP from 310.6% in 2010 to 231.5% in 2016.
Outstanding loans represented 56% of total assets, the stock of loans to non-financial corporations (NFCs) and to households reaching €77 billion and €118 billion, respectively. The former decreased by 7% in the year whereas the latter by 1.8%. Overall the stock of loans to SMEs decreased in 2016. The loan stock to export companies rose however.
Credit supply conditions showed some improvements, translated into lower spreads, higher credit amounts, longer maturities and lower levels of guarantees demanded. Conversely, credit granting remained constrained, particularly in view of an NFC sector still highly indebted. Simultaneously, demand for credit by NFCs remained poor despite the low interest rate environment, and was mostly geared to funding working capital needs. Refusal rates remained stable.
The credit at risk ratio and the non-performing loans (NPL) ratios remained at high levels (11.8% and 17.2%, respectively), but declined slightly in 2016 (from 12.0% and 17.5%, respectively, in 2015), reflecting positive developments across all segments. NPL coverage ratio is broadly in line with the Euro Area average, having increased from 40% in 2015 to 45% in 2016.
On the liability side, deposits from customers fell by 1% but reinforced their position as the main source of bank funding (65% in 2016 vs. 63% in 2015). This solid deposit base has been decisive in achieving a stable funding structure for Portuguese banks. Dependency on ECB funding continued to decline gradually, representing 5% of total assets in 2016.
The loan to deposit ratio stood at 107% against the June 2010 peak of 167.8%.
Several initiatives intended to improve the resilience of the Portuguese banking system and the solvency of its largest players took place in 2016: the initiation of the negotiation process towards the sale of Novo Banco (expected to be concluded in 2017); the initiation of the state-owned CGD’s recapitalisation process; and the launch of a tender offer for BPI by its majority shareholder Caixa Bank. The investment by the Asian investment group Fosun in the Millennium BCP’s capital through a private offering was followed in 2017 by a new capital increase through a public offering whose proceedings allowed the bank to reimburse its last outstanding contingent convertible notes and conclude the state-aid programme initiated in 2012.
Solvency levels decreased however in 2016. Common Equity Tier 1 ratio stood at 11.4% (12.4% in 2015) and Total Capital ratio at 12.2% (13.3% in 2015).
Substantial impairments registered in Q4 2016 and the reduction in income from financial operations contributed to bank losses. Net interest income decreased slightly, versus 2015, as the reduction in interest income slightly surpassed the reduction in interest expenses. The cost-to-income ratio remained flat at 60%, as the decrease in operating costs compensated the decrease in net operating income.
Portuguese banks are subject to a levy on the banking sector, contributions to the National Resolution Fund and contributions to the Single Resolution Fund. In 2015, the average effective corporate income tax rate for companies in the financial and insurance sector was 22.5% above the national average of 20.9%.
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