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Portugal’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

In 2018, the Portuguese economy grew by 2.1% (0.7 percentage points less than in 2017). Private and public consumption rose more than in 2017, but domestic demand decreased its contribution to GDP due to a deceleration in investment. Net external demand had a more negative contribution as the deceleration in exports of goods and services was higher than that of imports. According to the 2019-2023 Stability Programme, GDP is expected to increase by 1.9% in 2019.

In the aftermath of the financial crisis and of the economic crisis that followed, the Portuguese financial system has undergone a very intense transformational process that resulted in significant achievements on all fronts: solvency, liquidity, asset quality and, more recently, profitability, as well as business model adjustments and governance improvements. The Portuguese banking sector is now more resilient and prepared to face potential adverse shocks. Core Equity Tier 1 capital (CET1) reached 13.2% in 2018 (versus CET1 of 7.4% in 2010). Liquidity stood at comfortable levels (loan-to deposit ratio of 88.9% versus 158.7% in June 2010; liquidity coverage ratio at 196.5%). Profitability improved (return on equity reached 7.1%) and non-performing loans (NPLs) fell by €24.6 billion since the peak in June 2016.

At the end of 2018, the Portuguese banking system comprised 150 institutions, 60 of which were banks (including 30 branches of foreign banks), 86 mutual agricultural credit banks and four savings banks. The number of bank employees stood at around 1% of the total active workforce, while the five largest banks accounted for 78% of total assets.

Total outstanding loans decreased 0.6% year-on-year, which may be an indication that deleveraging is nearing its end. Considering the domestic activity, loans to non-financial corporations (NFCs) fell 4.8% to €69.6 billion. In Portugal, SMEs represent a fundamental part of the business economy: according to the latest data, SMEs account for more than 90% of total NFCs and are mostly micro-enterprises (88.3%); they contribute 60.8% of the overall value added and 72.4% of the total labour force. In 2018, loans to SMEs, which correspond to 80.2% of total corporate loans, decreased 5.6% year-on-year to €55.4 billion. Furthermore, SMEs’ overdue credit dropped significantly (down 35.7% year-on-year or €3.2 billion), with the corresponding ratio standing at 10.4% (versus 15.2% in 2017), mostly fuelled by the performance of micro companies. Loans to households rose by 0.5%, with loans for consumption increasing by 10.5% and loans for house purchase decreasing by 0.2%.

However, the decline in the value of outstanding loans is strongly related to the sector efforts to reduce the high NPL stock, as the performing component of the loan portfolio has been increasing. In the case of loans to NFCs, the adjusted annual rate reached 1.71% at the end of 2018.

Ambitious strategies have been implemented to reduce NPLs and remarkable progress has been achieved: the NPL ratio has decreased significantly after reaching its peak level in June 2016 (from 17.9% to 9.4%), while the NPL coverage ratio increased from 43.2% to 51.9%.

Customer deposits rose by 3.3% year-on-year and reinforced their position as the main source of bank funding (73.8% in 2018 compared with 72.3% in 2017).

The sector recorded an income of €1.3 billion (versus €228 million in losses in 2017) largely explained by the substantial reduction in impairments.

Digital transformation is a priority for the Portuguese banks and strong progress has been achieved by the sector. Internet banking use has increased from 38% in 2010 to 52% in 2018. Moreover, 57% of internet banking customers use mobile networks and 65.3% of current accounts have online access. The number of payment cards issued totalled 21.7 million and the amount of online purchases represented 5.7% of card purchases, which compares to 5.9% in 2017.

Portugal is strongly committed to promoting a more efficient, sustainable and inclusive economy based on lower consumption of natural and energy resources. The Portuguese government set ambitious medium and long-term targets for energy consumption, renewable energy and carbon neutrality. Tax incentives, regulatory measures and special lines of financing are some of the measures that have been implemented. Some of the most important financing initiatives already in place are: Compete 2020 (Operational Competitiveness Programme), PO SEUR (Operational Programme for Sustainability and Efficient Use of Resources), PO Regionais (Regional Operational Programmes), IFRRU 2020 (Financial Instrument for Urban Rehabilitation and Revitalisation) and other lines of funding under Horizonte 2020 and LIFE (L’Instrument Financier pour l’Environment). In addition, credit institutions are providing financing solutions targeting energy efficiency, renewable energy, electric vehicles and other sustainable investments.

Contributor: Teresa Martinho teresa.martinho@apb.pt