ECONOMIC ENVIRONMENT The consolidation of the economic recovery in the United States, the stabilisation of economic activity in the Eurozone, GDP

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1 ECONOMIC ENVIRONMENT The consolidation of the economic recovery in the United States, the stabilisation of economic activity in the Eurozone, GDP growth above expectations in Japan and the improvement of conditions in emerging economies all reflect the globally positive development of the international economic environment in the third quarter of The stabilisation of financial markets, benefiting from the decrease in uncertainty following the end of the war in Iraq and the expansionary macroeconomic policies pursued by leading industrialised countries have also contributed to raise confidence and expectations of economic recovery in the short term. Nevertheless, the persistence of risks, such as the structural unbalances of the US and Japanese economies, may hold back the strength and sustainability of the economic expansion in the medium term. While short-term interest rates in the USA and in the Eurozone remained relatively unchanged in the third quarter of 2003, long term yields saw an upward trend, only partially inverted in September, reflecting signs of economic recovery, the deterioration of budget deficits and the rebalance of investment portfolios towards more risky assets, hence favourably influencing developments in equity markets. During the third quarter of 2003, the Dow Jones index increased 3.2%, while the Eurostoxx50 index decreased 1%; in Portugal the PSI-20 index increased 5.4%, prompted by the banking and telecommunications sectors. After four consecutive quarters of economic deterioration, production in Portugal should have contracted again in the third quarter of 2003, albeit in a less intense way than in the first half of the year. Given the high degree of adjustment of household and corporate spending already made, which corrected the excesses seen at the end of the 90s, the expansionary nature of monetary policy, the improvement of economic agents confidence and the favourable developments in the international economic environment, the recovery of economic activity in Portugal should be imminent, and positive GDP growth rates are expected as from the beginning of In the third quarter of 2003, consumer prices continued on the deceleration first seen in March 2003, even if in September due to base effects linked with foodstuff prices, as well as with developments in transport and restaurant prices, the year-on-year inflation rate interrupted the downward trend, standing at 3.1%. Unemployment stood at 6.2% in the second quarter (against 5.1% in 2002), but wage moderation contributed to the slowdown in the number of newly unemployed. Government budget execution in the three first quarters of 2003 was unfavourable, reflecting the impact of the decrease in current revenues, hence necessitating extraordinary measures to ensure that the public sector deficit reaches the target of 2.9% of GDP in The State Budget for 2004 foresees a reduction of the public sector deficit in 2004 to 2.8% of GDP, already including the positive influences of non-recurring factors. According to the information available, total domestic credit grew 6% year-on-year in July 2003, showing a stable trend in the last quarter. The unfavourable economic environment continued to influence private sector demand for credit, albeit attenuated by the persistence of interest rates at historical lows, the widening of the maximum maturity limit of mortgage loans and the intensification of competition among credit institutions.

2 SIGNIFICANT DEVELOPMENTS The conclusion of the concentration of BCP share trading on Euronext, the promotion of a wide range of innovative commercial initiatives and the optimisation of the Group s corporate structure characterised the activity of the BCP Group in the third quarter of Amongst the most important developments it is worth mentioning: Concentration of trading in BCP s shares on Euronext and de-listing from the London Stock Exchange (LSE) and from Euronext Amsterdam. De-listing from Frankfurt is expected to take place in November BCP s American Depositary Shares were also de-listed from the New York Stock Exchange. These decisions are supported by, amongst other factors, the fact that most of the trading in BCP shares takes place in Euronext Lisbon and the likely significant increase in trading by international investors brought about by the full integration of the Lisbon and Oporto Stock Exchanges in the pan-european exchange Euronext N.V.; Continuation of the cycle of Encontros bcp conferences promoted in Portugal s leading towns. This initiative aims to promote meetings with regional clients to analyse the economic development of each region and its potential, and at the same time to present the Group s service offering; Banco Comercial Português awarded Best Bank in Portugal by Global Finance magazine for its performance over the year, reputation and management excellence; Approval of the merger by incorporation into Banco Comercial Português of the Group companies BCP Leasing and AF Investimentos, Gestão de Patrimónios. This decision is in line with ones already taken which aim to reinforce the core activities of the BCP Group, allowing a more efficient and rational exploitation of current capabilities both on commercial and operational levels; Launch of a new American Express Blue card, the first in Portugal to have a built-in chip. Over the next few years, this technology will replace current cards that operate with the traditional magnetic band. The new Blue card provides innovative services in a credit card, such as the ID Keeper with LockIt; a unique system that allows the storing and management of personal data, as website addresses and respective passwords, enabling fast, convenient Internet navigation, and making secure purchases that are protected against fraud in shops or on the Internet; Launch of the campaign Get Smart Online, consisting of an online auction, through the portal cidadebcp, of fifty Smart cars. With this initiative, cidadebcp reinforces its innovative image and offers further advantages to its clients. 10 Smart cars will be awarded on a monthly basis to the 10 highest bids, made exclusively through cidadebcp ; Cooperation agreement with the Social Services of Guarda Nacional Republicana (GNR), granting access to a large range of financial products at preferential rates by the beneficiaries that have a salary account in one of the networks of the BCP Group. This protocol between the BCP Group and GNR s Social Services grants the beneficiaries special access to different products such as Personal Credit or Mortgage Loans, Property Leasing or Equipment Leasing, Motor Solution (Leasing, LTR or Renting), Multi-risk Insurance, Médis Health Insurance, as well as debit and credit cards, among others; Launch of a Euro 1 billion issue in October 2003 of Residential Mortgage Backed Securities through a Special Purpose Vehicle named Magellan Mortgages Nº2, Plc. This

3 issue was backed by a mortgage loans portfolio managed by Banco Comercial Português and Banco de Investimento Imobiliário. As a result of the strong demand by international investors, the Class A tranche, amounting to Euro 930 million and rated AAA, was placed at 3 month Euribor +0.22%.

4 FINANCIAL REVIEW The consolidated net income of Banco Comercial Português amounted to Euro million in the first nine months of This figure is not directly comparable to the one for the same period of the previous year due to changes to the Group s structure: BCP s increased shareholding in Poland s Bank Millennium to 50.0% of its share capital at the end of 2002 led to Millennium being fully consolidated from 1 January 2003 (this investment was equity accounted until that date); Spain s Banco Sabadell ceased to be consolidated from 1 January 2003 and, following the realignment of BCP s strategic alliance with Eureko, BCP also ceased to consolidate its holding in this company from the beginning of the second half of 2002, having acquired the whole share capital of Seguros e Pensões, with this investment being reflected in BCP s consolidated financial statements from 31 March As a result of these changes, the following analysis is based on the quarterly evolution of BCP s consolidated financial statements. BCP s net income amounted to Euro million in the third quarter of 2003, compared to Euro million in the previous quarter. Net income for the second quarter of 2003 was boosted by the booking of annual dividends received as a result of BCP s holdings in EDP, Intesa and Friends Provident, amounting to Euro 17.0 million. Return on equity stood at 17.4%, with return on assets amounting to 0.7%. Net interest income for the first nine months of 2003 amounted to Euro 1,098.3 million. It totalled Euro million in the third quarter of 2003, roughly the same level seen in the previous quarter (Euro million). Increased activity, reflected in growing loans and customers funds, and a focus on maintaining adequate interest spreads, despite continuing strong competition, have contributed to limiting the impact of the continuing low market interest rates and of credit securitisation.

5 Average Balances (Euro million, except yields) Average Balance Interest Yield % Average Balance Interest Yield % Interest earning assets Deposits in banks (1) 4, , Securities 3, , Loans and advances to customers 48, , Total 56, , Fixed assets 1,396 1,446 Other non interest earning assets 8,216 8,405 Total assets 65,942 65,016 Interest bearing liabilities Amounts owed to credit instit. (1) 12, , Amounts owed to customers 29, , Debt securities 13, , Subordinated debt 2, , Total 58, , Non interest bearing liabilities 3,360 3,676 Total liabilities 61,836 60,991 Shareholders equity and minority int. 4,106 4,025 Liabilities, sh. equity and minority int. 65,942 65,016 Net interest income Net interest margin (2) (1) Includes interest related off-balance sheet operations. (2) Net interest income as a percentage of average interest earning assets. The Bank pursued a policy of prudent provisioning aimed at keeping adequate coverage of past due loans by provisions. Charges for provisions for loan losses totalled Euro million from January to September 2003, of which Euro million were charged in the second quarter and Euro million in the third quarter. Provisions charged from July to September were impacted by the new regulation (Regulation 8/2003 from the Bank of Portugal) that changed the definition and the provisioning requirements of doubtful loans. Income from securities stood at Euro 99.0 million in the first nine months of The fall in income from securities from Euro 65.5 million in the second quarter to Euro 21.8 million in the third quarter of 2003 was due to the booking of annual dividends received from April to June 2003 as a result of BCP s holdings in EDP, Intesa and Friends Provident, amounting to Euro 17.0 million in total. The contribution of the equity accounted Seguros e Pensões to BCP s consolidated earnings was positive, amounting to Euro 26.5 million in the third quarter of This reduction was due to lower investment income, which performed strongly in the second quarter of 2003 in line with capital markets. The decrease in investment income was partly compensated for by

6 a significant increase in insurance premiums to Euro million in the third quarter from Euro million in the second quarter of 2003, and by a significant improvement in efficiency, reflected in a decrease in operating costs to Euro 55.8 million from Euro 70.2 million over the same period. The solvency of Seguros e Pensões also improved to 135.5% at 30 September from 126.5% at the end of the second quarter of Net commissions amounted to Euro million in the first nine months of The benefits stemming from efforts to properly price the Group s services were reflected in the performance of commissions, up to Euro million in the third quarter of 2003 from Euro million in the previous quarter. The increase in fees and commissions related to cards and to asset management (the latter benefiting from the recovery in capital markets that continued in the third quarter) were paramount to the performance of net commissions. Net trading income totalled Euro million from January to September The rebound seen in capital markets contributed to the performance of this heading, up to Euro 42.6 million in the third quarter from Euro 37.1 million in the second quarter of Other net operating income amounted to Euro million in the first nine months of 2003, of which Euro million was booked in the third quarter and Euro 81.3 million in the second quarter. As a financial management measure in line with BCP s strategy of optimising capital allocation, some properties were sold to BCP s pension fund in the third quarter of 2003, thus fulfilling the requirements to fund pension liabilities. This transaction resulted in a capital gain of Euro 46.7 million. Credit recoveries increased to Euro 51.1 million in the third quarter. This performance was mainly attributable to the reengineering of processes and to the reinforcement of specialised teams and technical means assigned to the collection of past due loans. Other Income 3Q / 2Q 2Q / 1Q Net commissions % 5.5% Net trading income % 29.8% Other net operating income* % 9.0% Other income / Total income* 42.9% 41.6% 39.9% * Domestic activity. Excludes non-recurring transactions. Operating costs (staff costs, other administrative costs and depreciation) amounted to Euro 1,251.1 million in the first nine months of Operating costs decreased to Euro million in the third quarter from Euro million in the second quarter of 2003, benefiting from the implementation of the operating efficiency programme started in 2002, from staff downsizing measures and from outsourcing a part of the Group s IT infrastructure, as a result of a recent agreement. The good performance of domestic operating costs stood out, resulting in an improvement of the cost-to-income ratio to 57.6% in the third quarter from 58.8% in the second quarter of The expansion of the Group s activity abroad caused a similar increase in international operating costs.

7 Operating Costs 3Q / 2Q 2Q / 1Q Staff costs % -0.8% Of which: domestic activity % 2.3% Other Administrative Expenses % 0.7% Of which: domestic activity % 1.5% Depreciation % 0.7% Of which: domestic activity % 2.0% Operating Costs % 0.0% Of which: domestic activity % 2.0% Operating costs / Total income* 57.6% 58.8% 60.7% * Domestic activity. Excludes non-recurring transactions. Loans to customers stood at Euro 49,548 million at September 30, Mortgage loan performance was fundamental to the growth of loans to customers from Euro 48,526 million at the end of the first half of The BCP Group maintained its leadership of the domestic mortgage market in terms of new loans granted during the quarter. Mortgage loans amounted to Euro 13,377 million at the end of the third quarter of 2003, an increase on the Euro 12,573 million at June 30, The moderate growth of loans to companies was attributable to a strict selection of operations, aimed at reducing concentration and improving profitability.

8 Loans to customers 30 Sept. 30 June 31 Mar. Sept. 03 / Jun. 03 Jun. 03 / Mar. 03 Individuals Mortgage loans 13,377 12,573 11, % 4.9% Consumer loans 3,915 4,049 4, % -2.1% 17,292 16,622 16, % 3.1% Companies Services 8,796 9,144 9, % 1.5% Commerce 4,787 4,950 5, % -4.4% Other 19,400 18,443 18, % -0.9% 32,983 32,537 32, % -0.8% Specific provision (727) (633) (626) 15.0% 1.0% Total 49,548 48,526 48, % 0.5% Securitised loans 1,754 1,853 1, % -4.6% Credit quality continued to improve. Past due loans, including Millennium, stood at 1.9% of total loans, while provision coverage reached 126.3% (2.0% and 120.3%, respectively, at the end of the second quarter of 2003). Loans to individuals saw coverage of 153.5% and a ratio of past due loans to total loans of 1.5%, while loans to companies saw coverage of 116.6% and a ratio of past due loans to total loans of 2.1%, as a result of BCP s prudent provisioning policy. Past Due Loans and Provisions at 30 September 2003 Past due loans Provisions for loan losses Past due loans / Total loans Provision Coverage Individuals Mortgage loans % 214.6% Consumer loans % 115.3% % 153.5% Companies Services % 176.0% Commerce % 109.6% Construction % 83.8% Other international activities % 244.1% Other % 108.4% % 116.6% Total , % 126.3%

9 Total customers funds amounted to Euro 51,151 million, compared to Euro 50,399 million at 30 June The increase of balance sheet customers funds, to Euro 35,753 million at 30 September 2003 from Euro 34,636 million at the end of the second quarter of 2003, stood out, and was attributable to the performance of demand deposits, which increased to Euro 12,571 million at 30 September 2003 from Euro 11,918 million at end of June, and to time deposits, which increased to Euro 17,659 million from Euro 17,130 million in the same period. Regarding off-balance sheet customers funds, capitalisation insurance increased to Euro 6,854 million at 30 September from Euro 6,604 million at 30 June Total Customers Funds 30 Sept. 30 June 31 Mar. Sept. 03 / Jun. 03 Jun. 03 / Mar. 03 Balance sheet customers funds Repayable on demand 12,571 11,918 12, % -7.3% With agreed maturity date and CDs 17,659 17,130 17, % -1.3% Securities 5,523 5,588 4, % 14.5% 35,753 34,636 35, % -1.3% Off balance sheet customers funds Assets under management 8,544 9,159 9, % 1.3% Capitalisation insurance 6,854 6,604 6, % 1.0% 15,398 15,763 15, % 1.2% Total 51,151 50,399 50, % -0.5% Solvency maintained roughly the same levels seen at the end of the first half of The consolidated solvency ratio stood at 10.7% at 30 September 2003, according to the rules of the Bank of Portugal, and at 11.5% according to BIS principles (Tier One of 7.2%).

10 Solvency (BIS) 30 Sept. 30 June 31 Mar. Sept. 03 / Jun. 03 Jun. 03 / Mar. 03 Tier One Capital Core 2,684 2,669 2, % 0.1% Preference Shares 1,167 1,169 1, % -2.0% Total 3,851 3,838 3, % -0.5% Tier Two Capital Debt 2,914 2,960 3, % -2.7% Deductions (585) (599) (569) -2.2% 5.2% Total 2,329 2,361 2, % -4.6% Total Regulatory Capital 6,180 6,199 6, % -2.1% Risk Weighted Assets 53,879 53,632 53, % 1.1% Solvency Ratio Tier I 7.2% 7.2% 7.3% Tier II 4.3% 4.4% 4.6% Total 11.5% 11.6% 11.9% SEGMENTAL REPORTING BCP Group operates a large range of banking activities and financial services in Portugal and abroad. This section presents and discusses the performance of the Group s main business segments: retail banking in Portugal, private banking and asset management, commercial banking, investment banking and activities in foreign markets. Retail Banking in Portugal Retail banking in Portugal is the Group s main segment, both in terms of business volumes and contribution to results, and comprises the retail distribution networks in Portugal. The networks operate as distribution and marketing channels, responding to the specific financial needs of various market segments. The networks perform a critical role in the Group s crossselling strategy as they distribute financial products and services originating from most business segments of the Group.

11 Retail banking in Portugal 3Q / 2Q 2Q / 1Q Contribution (net) % -30.6% Allocated capital % 0.9% Return on allocated capital 18.3% 15.4% 22.7% Risk weighted assets 14,091 13,839 13, % 1.5% Cost to income ratio 58.6% 57.7% 56.5% Loans to customers 17,148 16,589 16, % 2.6% Total customers funds 27,812 27,419 27, % 0.0% The contribution to consolidated earnings of retail banking in Portugal reached Euro 96.6 million in the first nine months of On a quarterly basis, the contribution for the third quarter amounted to Euro 32.2 million, a positive development compared to the previous quarter (Euro 26.4 million). The increased contribution is evident in the increase of the return on allocated capital, from 15.4% in the second quarter to 18.3% in the third quarter of The increase in the contribution to consolidated earnings is explained by the maintenance of net interest income, benefiting from volume growth (in loans and customer funds), and by higher non-interest income, due to increased commissions, mostly driven by cards business. The loan growth in the Portuguese retail segment, up from Euro 16,589 million to Euro 17,148 million at September 30, 2003, has been primarily driven by mortgage loans. The BCP Group maintained market leadership in the domestic mortgage market in terms of quarterly new production. It is also worth noting that balance sheet customers funds have seen strong growth, increasing from Euro 14,968 million as at June 30 to Euro 15,574 million at September 30, Private Banking and Asset Management The wealth management activities of the BCP Group are carried out by the Private Banking network, dedicated to private clients with significant financial assets, and by AF Investimentos, a subsidiary specialising in asset management and which is the holding company for the investment fund management subsidiaries and the personal asset management business.

12 Private Banking and Asset Management 3Q / 2Q 2Q / 1Q Contribution (net) % -4.1% Allocated capital % -2.4% Return on allocated capital 22.8% 26.7% 27.4% Risk weighted assets 4,975 3,388 3, % -5.4% Cost to income ratio 36.7% 38.3% 39.7% Loans to customers 4,923 3,425 3, % -5.3% Assets under management 11,863 12,110 12, % -1.1% The contribution to consolidated earnings of Private Banking and Asset Management reached Euro 38.0 million in the first nine months of The contribution for the third quarter reached Euro 14.3 million, compared to Euro 11.6 million in the previous quarter. The international business of some companies was allocated to the Private Banking network in the third quarter of 2003, in accordance with the specialised competences and financial solutions of the Group s new commercial model. This transfer was the main reason behind the significant increase of loans to customers. Loans increased from Euro 3,425 million as at 30 June 2003 to Euro 4,923 million at 30 September Commercial Banking The corporate retail network, dedicated to corporate clients with annual turnover between Euro 7.5 million and Euro 100 million, carries out the commercial banking business of the BCP Group. Commercial Banking 3Q / 2Q 2Q / 1Q Contribution (net) % 8.6% Allocated capital % 1.8% Return on allocated capital 19.7% 14.7% 14.0% Risk weighted assets 8,861 8,647 8, % 1.4% Cost to income ratio 18.9% 21.1% 23.2% Loans to customers 7,300 7,102 6, % 1.8% Total customers funds 1,237 1,168 1, % -0.6% The contribution to consolidated earnings of Commercial Banking reached Euro 52.3 million in the first nine months of The growth seen in the network contribution, as it increased

13 to Euro 21.8 million in the third quarter from Euro 16.0 million in the second quarter, is largely explained by the increase in both net interest income, resulting from overall volume growth, and non-interest income. As a result, return on allocated capital increased to 19.7% from 14.7%. The marked improvement in efficiency, as seen in the improved cost to income ratio, down to 18.9% from 21.1% in the previous quarter, was another factor contributing to the improvement in profitability. Loans to customers of the corporate retail network increased to Euro 7,300 million as at 30 September from Euro 7,102 million as at 30 June, Total customers funds also saw strong growth, as they increased to Euro 1,237 million from Euro 1,168 million in the same period. Investment Banking BCP Investimento is the BCP Group s subsidiary carrying out its investment banking business. Investment Banking 3Q / 2Q 2Q / 1Q Contribution (net) % 24.5% Allocated capital % 1.0% Return on allocated capital 23.8% 21.8% 17.9% Risk weighted assets 14,473 15,066 15, % -0.2% Cost to income ratio 37.7% 38.6% 32.9% Loans to customers 7,151 7,571 7, % -0.9% Total customers funds 1,581 1,457 2, % -29.5% The increased contribution to consolidated earnings of this business segment was due to the very strong growth experienced in investment banking revenue. The contribution increased to Euro 44.2 million in the third quarter from Euro 41.0 million in the second, with a cumulative net contribution of Euro million for the first nine months of The increase in results and the contraction of the allocated capital were reflected in the improvement in returns, to 23.8% in the third quarter from 21.8% in the second. Tight control on operating expenses, combined with the strong growth in revenues explain the improvement in efficiency, with the relevant ratio decreasing from 38.6% to 37.7% in the same period. Activities in International Markets The activity of BCP Group in international markets is carried out by banking subsidiaries located in markets with historical Portuguese links and in other markets with high growth potential: Banco Comercial de Macau (China), Banco Internacional de Moçambique (Mozambique), Banque BCP (France and Luxembourg), Bank Millennium (Poland), NovaBank (Greece), BCPBank (USA and Canada), BankEuropa (Turkey) and Banque Privée BCP (Switzerland).

14 Activities in International Markets 3Q / 2Q 2Q / 1Q Contribution (net) (11.0) (18.3) (4.7) Allocated capital % -0.0% Return on allocated capital -5.8% -10.2% -2.6% Risk weighted assets 5,763 5,711 5, % 1.7% Cost to income ratio 103.1% 108.6% 99.6% Loans to customers 4,532 4,304 4, % 0.2% Total customers funds 8,825 9,316 8, % 9.6% The impact of recently launched projects and costs associated with the development of operations experiencing fast growth explain the negative contribution of the Group activities in international markets. This segment of activity showed an accumulated negative contribution to consolidated earnings of Euro 33.9 million in the first nine months of 2003, of which Euro 11.0 million and Euro 18.3 million came in the third and second quarters, respectively. SHARE PRICE INDICATORS 2003 Shares outstanding end of period (thousands) Shares outstanding average (thousands) Closing price (euros) (end of period) Book value per share* (end of period) 3,257,401 3,257,401 2,326,715 3,257,401 3,226,719 2,326, Earnings per share (euros) Return on equity (ROE) 17.4% 18.2% 17.9% * Adjusted by the impact of the share capital increase.

15 CONTACTS Corporate Communication and Institutional Relations Department Paulo Fidalgo Tel.: Investor Relations Department Miguel Magalhães Duarte Tel.: DISCLAIMER This document may include certain sections or statements, in particular relating to the Banco Comercial Português ( BCP ) Group, that are neither reported financial results nor other historical information. These statements, which may include, without limitation, targets, forecasts, projections, statements regarding the possible development or possible assumed future results of operations and any statement preceded by, followed by or that includes the words believes, expects, aims, intends, may, expect, estimate, project, anticipate, should, intend, plan, probability, risk, Value-at-Risk ( VaR ), target, goal, objective, will, endeavour, outlook, optimistic, prospects or similar expressions or negatives or combinations thereof are or may constitute forwardlooking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, regulations and case law, or other applicable laws and regulations. By their nature, forward-looking statements are inherently predictive, speculative and are subject to risk and uncertainty. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by forward-looking statements. These factors include, but are not limited to, changes in economic condition in individual countries in which the BCP Group conducts its business and internationally, fiscal or other policies adopted by various governments and regulatory authorities of Portugal and other jurisdictions, levels of competition from other banks and financial services companies as well as movements in securities markets, currency exchange rates and interest rates, monetary policies, inability to hedge certain risks economically; the adequacy of loss reserves; acquisitions or restructurings; technological changes; changes in consumer spending and saving habits, changes in financial position or credit worthiness of our customers, obligors and counterparties, and the success of the Group in managing the risk involved in the foregoing. BCP does not undertake to update or to release publicly any revision to any forward-looking statements included in this document, whether to reflect events, circumstances or unanticipated events occurring after the date hereof, or otherwise.