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Portugal’s banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

The Portuguese economy has strengthened its recovery, having grown 2.7% in 2017 (versus 1.6% in 2016). It benefited from a higher contribution from domestic demand, mainly due to an acceleration in investment, and from exports of goods and services (up 7.8%). According to the 2018-2022 Stability Programme, GDP is expected to increase by 2.3% in 2018. Throughout 2017, there were upgrades to Portugal’s credit rating, which had a positive impact on the country’s government bond yields and market sentiment.

Several key events had a significant impact on strengthening the Portuguese banking system in 2017: the completion of the sale of Novo Banco, the conclusion of state-owned CGD’s recapitalisation process, the completion of the tender offer for Banco BPI by its majority shareholder Caixa Bank (reaching a 84.51% stake), capital increases by Millennium BCP and Montepio, the repayment of the remaining contingent convertible  bonds (CoCos) by Millennium BCP, the resolution and sale of Banco Popular to Santander in Spain (involving Banco Popular’s Portuguese subsidiary) and the extension of the maturity of the loans granted by the State to the national Resolution Fund.

At the end of 2017, the Portuguese banking system comprised 152 institutions, 61 of which were banks (including 29 branches of foreign banks), 87 mutual agricultural credit banks and four savings banks. The five largest banks accounted for around 79% of total assets. The number of bank employees stood at around 1% of the total active workforce.

The Portuguese banks have been evolving towards more digitally-oriented business models, including the launch of innovative tools in their digital channels. In 2017, the number of ATMs decreased by around 3% to 14.5 thousand mainly as a result of the 8.3% year-on-year reduction in branches. On the other hand, the number of POS terminals grew by 6% to 319,900. The number of payment cards issued totalled 21.2 million (up 3% year-on-year), with 19.1 million debit cards and 8.3 million credit cards. In both types, some of these cards double as debit and credit cards. Retail payments, processed by the SICOI (Sistema de Compensação Interbancária) retail payment system managed by the central bank, totalled €417 billion (up 8% year-on-year), of which credit transfers accounted for €222 billion (up 10.9% year-on-year), the Multibanco interbank card network €115 billion (up 8.5% year-on-year), direct debits €24.5 billion (up 16% year-on-year) and cheques €55 billion (down 6% year-on-year). The amount of online purchases represented 5.9% of card purchases made in 2017, which compares to 5.2% in 2016.

Portugal is strongly committed to promoting a more efficient, sustainable and inclusive economy based on lower consumption of natural and energy resources. 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).

The downward trend in total outstanding loans (down 1.1%) slowed significantly against previous years, which may be an indication that deleveraging is nearing its end. As far as domestic activity is concerned, loans to non-financial corporations fell 5.3% to €73 billion while loans to households fell 1% to €114.7 billion in the year. Loans to SMEs (80.9% of total corporate loans) decreased 4.7% year-on-year while credit to micro companies (39.6% of total SMEs loans) remained flat. One noteworthy fact was that SMEs’ overdue credit dropped significantly (down 17.5%), with the corresponding ratio standing at 15.2% (versus 17.6% in 2016), mostly fuelled by the performance of micro companies.

Against the backdrop of a reduction in total loans, the non-performing loan (NPL) ratio decreased significantly from 17.2% in 2016 to 13.3% in 2017, a €9.3 billion drop. This improvement showed across all segments, particularly in the NFC segment (down €5.9 billion), reflected mostly the banks’ own active NPL reduction programmes supported by positive developments in the Portuguese economy. The NPL coverage ratio increased from 45.3% in 2016 to 49.4% in 2017.

In 2017, new credit production increased 4.8% over 2016, driven by the household segment (up 26.1% year-on-year).

Customer deposits rose by 1.7% and reinforced their position as the main source of bank funding (72.3% in 2017 versus 69% in 2016). As a result, the loan-to-deposit ratio decreased by 3.0 percentage points to 92.5%. This contrasts with the June 2010 peak of 158.8%. ECB funding continued to decline gradually, representing 6.3% of total assets by the end of 2017.

Capital was reinforced as a result of capital increase operations undertaken by several banks. Consequently, solvency levels increased, with the Common Equity Tier 1 ratio for the industry standing at 13.9% (11.4% in 2016) and the Total Capital ratio at 15.1% (12.3% in 2016).

The sector recorded pre-tax income of €1.2 billion (versus €2.3 billion in losses in 2016) largely explained by the increase in gross income and a substantial reduction in impairments. Operating costs remained broadly flat. The sector’s cost-to-income ratio dropped by 6.5 percentage points to 52.9%.

Contributor: Teresa Martinho teresa.martinho@apb.pt

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