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Portugal’s banking sector: Facts & Figures

Updated December 2020 – For earlier editions of Facts & Figures click here

In 2019, the Portuguese economy grew by 2.2% (-0.4 percentage points year-on-year). Investment and public consumption accelerated, but private consumption rose less than in 2018 and domestic demand decreased its contribution to GDP growth. Net external demand also had a more negative contribution as the deceleration in exports of goods and services was higher than that of imports.

The progress made by the Portuguese banking sector, in the period that followed the sovereign debt crisis, has been significant. At the end of 2019, the sector showed considerable improvement, in terms of efficiency, liquidity, asset quality, profitability, and solvency.

At the end of 2019, the Portuguese banking system comprised 148 institutions, 60 of which were banks (including 32 branches of foreign banks), 85 mutual agricultural credit banks and three savings banks, with the five largest banks accounting for 77% of total assets. The number of bank employees stood at 46,444, equivalent to approximately 1% of the country’s total active workforce.

Solvency has been strongly reinforced: CET1 reached 14.3% in 2019 (versus Core Tier 1 of 7.4% in 2010); liquidity stood at comfortable levels (loan-to deposit ratio of 87.1% versus 158.7% in June 2010; liquidity coverage ratio at 218.5%); although still low, profitability improved (RoE reached 4.9%); non-performing loans (NPL) had an impressive development, falling by €33.3 billion since the maximum level attained in June 2016.

In terms of balance-sheet structure, on the asset side, it is worth highlighting the positive growth in the stock of loans to customers, which rose 1.8% year-on-year. Considering the domestic activity, loans to non-financial corporations (NFCs) fell 3.7% to €67.0 billion, which nonetheless rose 1.1%, adjusted for securitisation and liquidity providing operations. In Portugal, SMEs represent a fundamental part of the business economy: according to the latest data, SMEs account for: i) more than 99.9% of total NFCs, of which most are micro-enterprises (96.2%); ii) 59.9% of the overall value-added; and iii) 71.1% of the total labour force (paid jobs). In 2019, loans to SMEs, which correspond to 78.4% of total corporate loans, decreased 2.9% year-on-year to €52.5 billion.

Loans to households rose 3.0% (or 1.1% considering the adjusted annual growth rate).

Asset quality improved significantly. Ambitious strategies have been implemented to reduce NPL and remarkable progress has been achieved: since the peak reached in June 2016, NPL have decreased by €33.3 billion; the NPL ratio has decreased from 17.9%, in June 2016, and to 6.2%, in 2019, while the NPL coverage ratio increased from 43.2% to 51.3% in the same period. SMEs’ overdue credit dropped significantly (down 42.6% year-on-year or €2.2 billion), with the corresponding ratio standing at 5.5% (versus 8.8% in 2018), mostly fuelled by the performance of micro companies. Since the financial crisis, there has been an important reduction of the exposure of the banking sector in the construction and real estate sectors, which were the main sectors associated with non-performing loans.

Customer deposits rose by 4.0% year-on-year and reinforced the position as the main source of bank funding (75.5% in 2019 versus 73.8% in 2018).

The sector recorded an income of €1.9 billion (versus €1.3 billion in 2018) largely explained by the increase in the total operating income, net reversal of provisions, and the decrease in income taxes.

The digital transformation is a priority for the Portuguese banks and strong progress has been achieved on this front. Internet banking users have increased from 38,1% in 2010 to 55,7% in 2019. Moreover, 61% of internet banking customers use mobile networks and 67.3 % of current accounts have online access. The number of payment cards issued totalled 22.4 million and the amount of online purchases represented 7.5% of card purchases, which compares to 5.7% in 2018.

Portugal is strongly committed to promoting a more efficient, sustainable and inclusive economy. The Portuguese government set ambitious medium and long-term targets for energy consumption, renewable energy and carbon neutrality. The additional investment needed to achieve carbon neutrality by 2050 is estimated between €2.1 to €2.5 billion per year (around 1.2% of GDP).  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 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). Recently, the Portuguese government decided to make hydrogen a pillar of the country’s energy transition and approved the National Hydrogen Strategy (EN-H2), which foresees investments of €7 billion by 2030. In addition to public intervention, credit institutions are providing a complementary suite of financing options targeting energy efficiency, renewable energy, electric vehicles and other sustainable investments.

Contributor: Teresa Martinho teresa.martinho@apb.pt