Funding and Capital Plan

Transcription

1 Funding and Capital Plan th March 2017

2 Contents 1. Introduction Executive Summary Strategy and Future Development Perspective Activity Operational Efficiency Impairments of the Credit Portfolio Capital adequacy Financing and Liquidity Main Risk Factors

3 1. Introduction This report accompanies the financial projections of the Funding and Capital Plan ("FCP") drawn up by the Banco Português de Gestão ("BPG"), on individual basis, and in accordance with the requirements defined in instruction nº 18/2015 and Circular letter No. CC/2017/ of 02 February 2017 of the Banco de Portugal. The guidelines and instructions of the Banco de Portugal have been taken into consideration on the Funding and Capital Plan creation and the filling of the templates attached to the latter circular, assuming the following premises: Inclusion of historical character elements (until December 2016), in the light of the information submitted to the regulator under the "Finrep" and "Corep" reports and instruction nº 13/2009 of the Bank of Portugal; Macroeconomic scenario set by the Bank of Portugal to this Funding and Capital Plan exercise (attached to the information circular referred to previously); and Balance sheet, Income Statement, Capital and Liquidity projection, according with the 2017 Budget and the Business Plan approved in the BPG Board of Directors meeting in 09 March

4 2. Executive Summary The business plan is based on an asset sustained growth and a progressive improvement of the Banks profitability, as a result of the higher volume of activity and efficiency gains. The table below shows the scheduled evolution for the main items of the Balance Sheet and the Income Statement, and the main indicators of efficiency, activity, profitability, liquidity and solvency. Evolution of the main indicators Amounts in thousands of Euros dec/16 dec/17 dec/18 dec/19 Assets Own Capital Banking Product Cost-to-Income ratio 411,9% 65,6% 53,2% 45,7% Net Result ROA -6,3% 0,8% 1,3% 1,6% ROE -43,3% 5,2% 9,8% 12,5% Total Loans (Gross) Cost of risk 8,5% 0,5% 0,4% 0,4% Non-performing Loans/Total Loans 31,5% 29,5% 25,0% 21,7% Impairment of the Portfolio/Total Loans 27,9% 24,7% 20,6% 17,5% CET 1 21,61% 18,43% 16,41% 16,58% Total Capital ratio 22,26% 19,14% 17,38% 18,10% LCR 117,8% 128,2% 109,1% 100,9% NSFR 34,2% 35,6% 36,1% 35,9% 4

5 3. Strategy and Future Development Perspective Created in 2000 by a group of entities belonging to the Social Economy sector, having Fundação Oriente as major and reference investor, the Banco Português de Gestão, years after the beginning of its activity, continues to hold on the essential of its strategical line, then defined by its main promoters, mainly its focus on Social Economy. According to this approach, the main lines of business in the meantime developed were as follows: - Financial Services, with a special focus on strategic advice and subsequent Assembly of financial operations, investment, divestment, restructuring of liabilities and assets, reorganization, etc.; - Commercial banking, involving short and medium/long term loans, the provision of guarantees and the provision of various financial services inherent to the development of the current activity of the customers; - Asset management, namely of institutional clients; and, of course, the - Management of the Bank's own portfolio. Gradually, the selectivity imposed by prudential and risk diversification criteria determined that the Bank enhanced its activity with customers from other sectors (private, public and parapublic), with particular focus in SMEs / entities, namely acting in areas that highlight some social merit, which is the case of enterprises/entities that operate in sectors related to environmental preservation, new information technologies, urban and territorial planning and leisure industry. The Bank also progressively extended the scope of its activities to other financial intermediation operations, namely the investment banking, private banking and portfolio management. In the three-year period from 2017 to 2019, the Bank will continue, in essence, this strategic orientation, intensifying its focus on the significant expansion of its balance sheet, on returning to significantly positive and increasing net profit exercises, on a sustained and controlled manner, based on the improvement of their performance ratio, the reduction of risks arising from its activity and enhancing the quality of its internal organization, within the framework of sound and prudent management of strict regulatory obligations. 5

6 In general terms, for 2017, the perspective is that the Bank continue lending its activity in an extremely strict and judicious way, in order to increase the volume and return of your its portfolio, to improve the quality and expand the range of services provided to its customers, supported by staking on innovative scanning of its information systems. Loan granting will be targeted to the SMEs segment and will aim the reduction of concentration risk and improvement of the financial margin, and will target new customers with a good creit risk with significant potential for sustained growth. Deposit taking will remain a fundamental vector of commercial activity, bearing in mind not only the continuous improvement of the transformation ratio, but also the greater diversification of sources and funding deadlines. Also the credit recovery areas and properties appear as very relevant to the management goals set for the three-year period, from 2017 to 2019, given the volume of impairments already created, and the size of the property portfolio received in restitution. The management of its own equities portfolio, constituted mostly by obligations, should keep the Bank's sustained growth throughout the year of 2017 and following, affirming its significant contribution to the banking product development. The investment guidelines defined at the beginning of 2017 by the Investment Committee, point to a growth in the absolute size of the portfolio as a result of access to new sources of funding, and greater relative weight of shareholder component. The Bank will also aim to achieve a significant expression in new commission generating activities, both in credit operations, to provide services to investment banking and private banking, and in capital market operations and portfolio management. 6

7 4. Activity Taking as a starting point an asset value (in thousands of Euros) of 130,217 in late 2016, the evolution prediction of the total asset is 148,042, 184,355 and 199,805 to the end of 2017, 2018 and 2019, respectively. Loans and Advances to Other Entities The gross figures provided for the total amount of Loans and Advances to third parties (in thousands of Euros) are of 81,824, and 120, ,050 in December 2017, 2018 and 2019, respectively. Debt securities Held The evolution scheduled for the total of the debt securities (in thousands of Euros) points to 65,548 values, 83,465 and 83,465 in December 2017, 2018 and 2019, respectively (conservatively, assuming stability in the evolution of this portfolio amount between 2018 and 2019). Variable-yield Securities In what the shares portfolio is concerned, the scheduled evolution for the end of 2017, 2018 and 2019, is (in thousands of Euros) 20,053, 24,358 and 24,358 respectively (conservatively, one assumes stability in the evolution of this portfolio amount between 2018 and 2019). Customer Resources Regarding the Customer Resources (Deposits), the Business Plan forecasts values (in thousands of Euros) of 111,568, 130,000 and 150,000 by the end of 2017, 2018 and

8 5. Operational Efficiency It is expected for the next few years, a sustained improvement of the Bank's operating profitability, reflecting the growth of the various components of the Bank's Products, and a relative restraint of the Operating Costs. Financial Margin The financial margin should improve consistently throughout the period under review. The forecast evolution for 2017 naturally reflects the impact of the two capital injections from 2016 (in July and in October). The scheduled ascent for 2017 and subsequent years, also reflects the growth of credit and debt securities portfolio, as well as a reduction in the average cost of funding, a reflection of the greater weight the deposits in the financing structure foresaw. Net Commissions The projections presented to the committees reflect the orientation of strengthening service providing activities (consultancy), capital market operations and portfolio management. Result on Financial Operations The evolution outlined for this balance item reflects the projected growth for the Bank's own portfolio in the period under analysis and defined profitability objectives. Operating Expenses Personnel Costs should grow in 2017, reflecting the teams strengthening aiming the development and implementation of the Business Plan, a moderate growth in 2018 and a stabilization in

9 On the other hand, General and Administrative Expenses should decrease in 2017, reflecting not only the timely nature of certain costs incurred in 2016, but also the accomplishment of saving targets in 2017 and beyond. Evolution of operating results Amounts in thousands of Euros dec/16 dec/17 dec/18 dec/19 Financial Margin Income from Equity Instruments Net Commissions Result on Financial Operations Other Operating Results Banking Product Personnel Costs General and Administrative Expenses Depreciation and Amortization Operating Expenses Operational results

10 6. Impairments of the Credit Portfolio The Bank's Commercial Banking area should continue its credit granting activity wisely, pursuing sustained growth focused on medium-sized companies and social economy entities. After the increase of impairment in the credit portfolio carried out in 2015 and 2016, the values forecasted for 2017 and 2019 reflect the overall development of the portfolio. Evolution of the Credit Portfolio and Credit Impairments Amounts in thousands of Euros dec/16 dec/17 dec/18 dec/19 Performing portfolio (A) Non-performing portfolio (B) Total Loans (Gross) (C) = (A) + (B) Impairment of the portfolio (D) Portfolio performing / Total Loans = (A) / (C) 68,50% 70,50% 74,98% 78,26% Impairment of the portfolio / Total Loans = (D) / (C) 27,87% 24,69% 20,59% 17,49% 10

11 7. Capital adequacy Own Funds The expected evolution of Own Funds over the period reflects, essentially, the following factors: Percentages applicable to transitional provisions- in 2018, the components to be deducted to Own Funds shall be fully deducted from the Main Own Funds (CET1), ceasing compensation by virtue of the transitional provisions; Net income for the year; Assumption of no distribution of dividends; Risk-adjusted assets This section is divided into three main categories, according to the methodology followed in the Corep: Credit, Market and Operational. The estimation of credit-related component, results from applying a medium risk weight to the portfolio's scheduled evolution over the period under review. An evolution for the market risk associated component was made in consistency with the growth anticipated for the trading portfolio. As for the operational category, the increase scheduled for reflects the growth of the global activity of the Bank, using the Basic Indicator Approach (BIA). 11

12 Evolution of Capital Ratios Amounts in thousands of Euros dec/16 dec/17 dec/18 dec/19 Risk Weighted Assets Credit Market Operational Total Risk Weighted Assets Own Funds CET Tier Total Capital Ratios CET 1 Ratio 21,61% 18,43% 16,41% 16,58% Tier 1 Ratio 21,61% 18,43% 16,41% 16,58% Total Capital Ratio 22,26% 19,14% 17,38% 18,10% 12

13 8. Financing and Liquidity Central Banks Resources The projections presented are based on the assumption that the lines used at the end of 2016 will be maintained throughout the period under review, and that in March 2017 the Bank will have access to an additional amount of Eur 9.5 millions, made available by the European Central Bank under the TLTRO II program. Customer Resources The funding attraction activity, including deposits, should meet a strong impetus in 2017, reaching new customers and using new means, assuming an essential role in the allocation of the necessary resources to the growth of the activity. The value designed to the Customers Funds (Deposits) is (in thousands of Euros) 111,568, 130,000 and 150,000 for the years 2017, 2018 and 2019, respectively. Credit Institution Resources The decrease of Resources of Credit Institutions scheduled for 2017 translates not only the scheduled amortization of certain medium-term lines, but also the early repayment of more onerous rows and a reduced use of the stand-by line. The expected growth for the next few years reflects the goal of hiring new lines with new counter-parts, result of the effort to diversify funding sources. Debt Issued Given the absence of plans to issue debt in the future, we do not protrude variations under this heading of liabilities. 13

14 Evolution of Financing Structure Amounts in thousands of Euros dec/16 dec/17 dec/18 dec/19 Central Banks Deposits Credit Institutions Debt Issued Non subordinated Subordinated Own Capital Total

15 9. Main Risk Factors The Bank's activity is subjected to risks, which may affect its capacity to carry out the defined strategy, and, therefore, the accomplishment of the targets set. Risk factors can be divided into internal and external. Internal factors are, naturally, the strategy implementation risk, which can be unfold into the following main vectors: Business remodelling; Customers coverage; and Completion of target operations. External factors include, of course, major exogenous risk factors, in particular: Variation of interest rates and exchange rates; Development of the national economy; Behaviour of financial markets; Regulatory and legislative changes; Performance of markets and economies; and Financing or liquidity constraints. 15