PORTUGUESE BANKING SECTOR OVERVIEW
AGENDA I. Importance of the banking sector for the economy II. III. Credit activity Funding IV. Solvency V. State guarantee and recapitalisation schemes for credit institutions
PORTUGUESE BANKING SECTOR OVERVIEW I. Importance of the Banking Sector for the Economy
Contrary to what occurred in the Euro area, the 2008 financial crisis did not slow down the total assets growth of Portuguese banks. Index 170 160 150 140 Banking sector s total assets evolution (Dec. 2005=100) Average of the annual growth rates (YoY) Portugal = 9.5% Euro area = 11.1% Average of the annual growth rates (YoY) Portugal = 8.7% Euro area = 1.8% Average of the annual growth rates (YoY) Portugal = 1.7% Euro area = 3.2% 130 120 110 100 However, Portuguese banks started their deleveraging process after the Economic Adjustment Programme began. 90 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Source: ECB Portugal Euro area 4
The Portuguese banking sector plays an important role in the economy; nevertheless, its weight on the national GDP is still below Euro area s level. Banking sector s assets relative to GDP* for Portugal and Euro area 400% Euro area 300% Portugal 200% 100% 0% In spite of the deleveraging process that is driving Portuguese banks assets down, the decline of the Portuguese GDP in 2012 led to an increase of the Banking Assets over GDP Ratio. Therefore, the weight of banking assets in GDP in Portugal is now very close to the one observed in the Euro area. 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 * Nominal Gross Domestic Product. Source: ECB 5
In Portugal, the contribution of financial intermediation activities for the national Gross Value Added stays well above the one of the Euro area. Financial intermediation GVA relative to total GVA for Portugal and selected European Union countries (2008) Ireland United Kingdom Portugal Greece Spain Italy Euro area France Germany In Portugal, financial service activities (except insurance and pension funding and including the ones carried out by Banco de Portugal), contribute to approximately 6% of the national Gross Value Added. This weight is relatively high when compared to other euro area countries. Financial intermediation activities (except insurance and pension funding) Insurance, pension funding and activities auxiliary to financial intermediation 0% 2% 4% 6% 8% 10% 12% Source: Eurostat, Statistics Portugal (INE), Central Statistics Office Ireland 6
PORTUGUESE BANKING SECTOR OVERVIEW II. Credit Activity
For Portuguese banks, credit to customers absorbs almost 50% of total assets. Credit to customers* as a percentage of total assets (December 2012) 80% 70% 60% 50% 40% 30% 20% 10% 0% 46.6% 37.3% Comparing to most of their Euro area peers, Portuguese banks activity is mainly centered on credit to customers. * Loans to the non-monetary sector (gross outstanding amounts at the end of period). ** Aggregated data. Source: ECB 8
During the period that preceded the financial crisis, credit volumes followed a strong increasing trend, both in Portugal and in the Euro area. Index Trends in credit* in Portugal and in the Euro Area (Dec. 2005=100) 140 135 130 Portugal (100 = 253,683 M ) Euro area (100 = 13,678,287 M ) Average of the annual growth rates (YoY) Portugal = 1.5% Euro area = 0.6% Average of the annual growth rates (YoY) Portugal = -3.8% Euro area = 1.9% 125 120 115 110 105 100 95 In the summer of 2008, credit growth began to show signs of slowdown. In Portugal, credit volume has been decreasing since the 2 nd quarter of 2011, moving away from the trend registered in the Euro area. This is due to the deleveraging process followed by the sector. 90 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 * Loans to the monetary and non-monetary sectors (gross outstanding amounts at the end of period). Source: ECB 9
Despite the reduction in the Credit to GDP Ratio in 2012, the Portuguese economy still presents relatively high levels of bank debt when compared with the Euro area. % GDP** 250% 200% Credit to Customers* / GDP** Ratio At the end of 2012, credit to customers in Portugal represented around 156% of the nominal GDP. Since 2010 this ratio dropped by approximately 14 percentage points. The deleveraging process followed by Portuguese banks led to a decrease of almost 8 percentage points of the Credit to Customers/ GDP Ratio in 2012. 150% 100% 50% 0% Ireland Spain United Kingdom Portugal Euro area Italy Greece Germany France * Loans to the whole non-monetary sector (gross outstanding amounts at the end of period). ** Nominal Gross Domestic Product. Source: ECB, Eurostat 2007 2010 2011 2012 10
Stocks of credit to households and non-financial corporations reveal divergent trends than stocks of credit to the general government. Index 400 Trends in credit volumes* by institutional sector (Dec. 2005=100) 350 300 250 200 150 The agreement on a financial support programme for Greece in May 2010 seriously worsened the Portuguese Republic s conditions in obtaining financing through financial markets. In that period, the 10yr bond yield hit its maximum since Portugal adopted the euro, 6.29%, leading to the abrupt growth in credit to general government. General government** In April 2011, when Portugal asked for international financial assistance, credit volumes to general government hit its peak. Households 100 50 Non-financial corporations*** 0 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 * Gross outstanding amounts at the end of period. ** Only includes loans (does not include public debt securities). *** Includes state-owned non-financial corporations. Source: Banco de Portugal 11
The gap between interest rates on new loans to non-financial corporations in Portugal and the Euro area increased after the beginning of the sovereign crisis. Evolution of the interest rates on MFI loans to non-financial corporations (new businesses only) in Portugal and in the Euro area % 8 7 Portugal Euro area 6 5 4 3 2 1 0 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Source: ECB 12
In Portugal, the reliance on credit of households and nonfinancial corporations is considerably higher than in the Euro area. Weight of credit to households, non-financial corporations and general government in GDP*, in Portugal vs. selected European Union countries (December 2012) = 158.9% 150.1% 149.7% 118.7% 115.2% 112.0% 107.0% 103.9% 103.7% 10.9% 4.7% 20.7% 69.4% 64.3% 59.4% 5.0% 52.1% 12.1% 17.1% 47.8% 55.9% 10.3% 43.0% 0.5% 27.5% 14.4% 34.4% 78.6% 81.1% 69.6% 61.6% 55.3% 39.0% 53.7% 75.9% 54.9% Spain Portugal Ireland Greece Euro area Italy France United Kingdom Germany * Nominal Gross Domestic Product. ** Only includes loans (does not include public debt securities). *** Includes state-owned non-financial corporations. Source: Ameco, ECB General government** Non-financial corporations*** Households 13
However, state-owned entities account for almost 10% of the total debt of non-financial corporations to the resident financial sector. Credit to state-owned non-financial corporations in Portugal* 10.5% 9.8% 10.1% 5.7% 6.0% 6.6% 2007 2008 2009 2010 2011 2012 74.4% 63.1% In Portugal, credit to the State-Owned Enterprise Sector absorbs an important share of the total outstanding amount of credit to nonfinancial corporations. Moreover, it increased substantially from 2009 onwards. 25.6% 36.9% Loans Debt securities * As a percentage of the total amount of loans outstanding and debt securities owed by non-financial corporations to the resident financial sector. The concept of resident financial sector includes not only banks but also other financial institutions. Source: Banco de Portugal 14
Credit to households is primarily mortgages, whereas credit to NFC is mainly intended to construction and real estate. Credit to households Mortgages 82% Total credit* (December 2012) Consumer Credit 10% Others 8% Others 29% General Government 2% Households 39% Non-financial corporations 30% *Loans to the monetary and non-monetary sectors including non residents (gross outstanding amounts at the end of month). Source: Banco de Portugal Credit to non-financial corporations Agriculture, forestry and fishing 2% Others 35% Industry 13% Construction & real estate 33% Trade, accommodation and food services 17% 15
In Portugal, mortgages account for a bigger share on the outstanding amount of loans to households than in the Euro area. Portugal 10.1% 8.6% 8.2% 10.8% 10.9% 9.9% 79.1% 80.5% 81.9% Euro area 15.7% 15.9% 15.6% 12.9% 12.4% 11.5% 71.4% 71.7% 72.9% The weight of consumer credit on the stock of loans to households has decreased both in Portugal and in the Euro area. Nevertheless, this type if credit is still less relevant in Portugal than in the Euro area. 2007 2010 2012 2007 2010 2012 Source: ECB Others Consumption Mortgage 16
The trend of residential property prices in Portugal shows a more stable pattern than the one of other Euro area countries. Residential property prices in Portugal and selected Euro area countries (Mar. 2005=100) Index 140 130 120 110 100 90 80 70 60 50 Euro area Portugal Spain Ireland When the sub-prime crisis erupted, residential property prices in Portugal remained relatively constant. The real estate sector had not been influenced by a speculative boom, as happened in Spain or in Ireland. Source: ECB 17
Within the Euro area, the real estate sector absorbs the largest portion of the outstanding amount of loans to non-financial corporations. 45.6% Portugal 17.0% 19.3% 19.6% 23.8% 21.0% 19.0% 21.8% 20.2% 20.0% 18.1% Source: Banco de Portugal, ECB 18.3% 17.1% 19.3% 21.2% 24.3% 2007 2010 2012 39.0% Euro area 22.2% 22.3% 23.1% 9.7% 9.3% 9.1% 40.7% 43.7% 31.0% 33.2% 34.6% 15.0% 14.8% 15.1% 22.0% 20.4% 18.2% 2007 2010 Jun-12 In Portugal, the proportion of the construction and real estate sectors, in aggregated terms, has been decreasing since 2007. Contrarily, the weight of these sectors of activity on the total credit to non-financial corporations of the Euro area, increased because of the real estate sector. Agriculture & industry Construction Real estate, professional, technical and administrative activities Trade, accommodation and food service activities Others 18
NPLs grew since 2008 mainly in the corporate segment. Non-performing loans* as a percentage of the corresponding credit 12% 10% 8% 6% Non-financial corporations Mortgages Total Non-financial corporations NPLs started to grow rapidly especially at the end of 2008. They worsened even more since the beginning of the Economic Adjustment Programme (May 2011). Meanwhile, mortgages NPLs remained relatively stable. However, their growth rate is increasing. 4% 2% 0% * Overdue installments and other future installments of doubtful collection. Source: Banco de Portugal 19
PORTUGUESE BANKING SECTOR OVERVIEW III. Funding
Deposits from customers constitute the most important part of the financing structure of Portuguese banks. Financing structure of Portuguese and other European Union countries banks (December 2012) 14% 15% 15% 12% 9% 12% 30% 36% 33% 44% 25% 5% 32% 14% 41% 35% 20% 40% 40% 39% 36% 34% 31% 9% 24% 7% 40% 9% 25% 6% 44% 24% 38% 12% 32% 18% In the European context, the Portuguese banking system has one of the largest shares of deposits from customers in the financing structure. Compared to deposits from customers, wholesale funding plays a less important role. Spain Portugal Greece Germany Italy Euro area United Kingdom France Ireland Deposits Wholesale Capital Others* * Includes external liabilities, i.e., liabilities issued by non-residents in the Euro area, except in the UK where it refers to liabilities issued by non-residents in the country. Source: ECB 21
The trend followed by deposits from customers in Portugal reveals some differences compared with the Euro area. Evolution of deposits* in Portugal and in the Euro area (Dec. 2005=100) Index 180 Portugal (100 = 155,185 M ) Euro area (100 = 7,386,698 M ) 160 After mid-2010, deposits in Portugal began growing at a significantly higher rate than the ones of the Euro area. However they have recently started to decrease. More recently, their volume has been decreasing. 140 120 Average of the annual growth rates (YoY) Portugal = 2.7% Euro area = 2.2% 100 80 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 * Deposits from the non-monetary sector (outstanding amounts at the end of period). Source: ECB 22
The use of wholesale funding among Portuguese banks grew at a significantly higher rate when compared with the Euro area. Evolution of wholesale funding* in Portugal and in the Euro area (Dec. 2005=100) The growth of deposits in Portugal was not sufficient to compensate the growth of national banks assets, leading to a higher dependence on wholesale funding. Index 260 240 220 200 180 160 140 120 100 80 60 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 * Wholesale includes deposits from the monetary sector, debt securities issued and money market funds (outstanding amounts at the end of period). Source: ECB Portugal (100 = 83,887 M ) Euro area (100 = 9,382,724 M ) Average of the annual growth rates (YoY) Portugal = 14.7% Euro area = 9.2% 23
In Portugal, deposits are mainly held by households and their share has been consistently increasing. Evolution of deposits* in Portugal, by institutional sector M 300,000 General government 250,000 Non-monetary financial institutions Non-financial corporations Households 200,000 The share of the non-monetary financial institutions increased significantly in the second semester of 2010 and in 2011, but started to decline in 2012. 150,000 100,000 50,000 0 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 * Deposits from the non-monetary sector (outstanding amounts at the end of period). Source: Banco de Portugal 24
Deposits with maturities of less than one year are the most notable, in spite of the recent growth in the share of deposits with longer maturities. Evolution of deposits* in Portugal, by maturity M 300,000 250,000 200,000 Over 2 years From 1 to 2 years Up to 1 year Overnight deposits Reedemable at notice 150,000 100,000 50,000 0 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 * Deposits from the non-monetary sector (outstanding amounts at the end of period). Source: Banco de Portugal 25
The growth in deposits from households coincides with the decrease of their ownership of units issued by investment funds. Growth rates of households deposits, units issued by investment funds and savings certificates, in Portugal (YoY) 30% 20% 10% 0% Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12-10% -20% -30% Deposits -40% Units issued by investment funds -50% Saving certificates Source: Banco de Portugal This trend exposes a substitution effect between investment and savings products with different risk profiles, revealing a larger preference for less risky assets after the financial crisis. However, it is starting to show reverse signs. 26
The decrease of the Loan-to-Deposit Ratio reflects the deleverage of the Portuguese banking sector. Loan*-to-Deposit Ratio, on a consolidated basis 165% 155% 152.1% 160.1% 160.3% 161.5% 157.8% 145% 135% 125% 115% 115.3% 122.6% 130.7% 134.7% 136.5% 143.5% Due to the Economic Adjustment Programme (EAP) for Portugal, Banco de Portugal recommends the eight largest Portuguese banking groups to reduce this ratio to 120% by 2014. 139.9% 133.0% 105% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Sep-12 * Credit volumes net of impairments (includes securitized non derecognized credit). Outstanding amounts at the end of period. Source: Banco de Portugal 27
In Portugal as well as in the Euro area, deposits from the monetary sector are the main component of wholesale funding. Structure of wholesale funding, by type of instrument Portugal 0.3% 0.0% 0.7% 55.2% 49.9% 68.0% 44.7% 49.4% 31.7% 2007 2010 2012 Euro area 6.6% 5.5% 4.5% 53.1% 51.4% 53.4% 40.3% 43.1% 42.0% 2007 2010 2012 However, in Portugal, the importance of the market for debt securities increased compared to 2007. This source of funding is currently more important for Portuguese banks than for the Euro area. Source: ECB Money market funds Deposits from the monetary sector Debt securities 28
In Portugal as well as in the Euro area, debt securities issued by banks are mainly long-term. Structure of debt securities, by maturity at issue date (December 2012) Portugal Euro area 2% 3% 95% 4% 10% 86% Still, the issuance of short-term debt securities plays a more important role within the Euro area banking sector than in Portugal. Up to 1 year From 1 to 2 years Over 2 years Source: ECB 29
Over the past few years, covered bonds became an increasingly important funding source for Portuguese banks. Issuance and outstanding amounts of covered bonds in Portugal M 35,000 At the end of 2011, the outstanding amount of covered bonds represented approximately 5.9% of Portuguese banks funding. 30,000 25,000 20,000 Covered bonds by type of underlying asset (2011) 15,000 10,000 95.8% 5,000 0 2006 2007 2008 2009 2010 2011 Outstanding amounts at the end of period Issuance Source: European Covered Bond Council, Factbook, 2012 4.2% Public sector Mortgages 30
Restrictions of access to interbank financial markets led to a significant increase of Portuguese banks dependency on ECB. Liquidity-providing operations from the European Central Bank to Portuguese banks* M 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 * Outstanding amounts at the end of period. Source: Banco de Portugal 31
In percentage, the share of Portuguese banks on the total amount of the ECB s liquidity-providing operations also increased considerably. Share of Portuguese banks in the total amount of ECB s liquidity-providing operations* 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% However, Portuguese banks efforts to decrease their share on the total amount of ECB s liquidity-providing operations, have been successful. * Percentage of liquidity-providing operations to Portuguese banks from the total amount provided by the Eurosystem to Euro area countries (outstanding amounts at the end of period). Source: Banco de Portugal 32
PORTUGUESE BANKING SECTOR OVERVIEW IV. Solvency
Portuguese banks asset risk level has been decreasing over the past few years. Risk weighted assets as a percentage of total assets* 66.9% 66.8% 64.0% 61.4% 59.1% 58.9% The Risk Weighted Assets / Total Assets Ratio for Portuguese banks suffered a considerable decrease over the past years. This trend reflects a decline of the average risk level of the assets that constitute Portuguese banks balance sheet. 2007 2008 2009 2010 2011 Jun-2012 * Risk weighted assets include off-balance sheet items. Data for the Portuguese banking sector, on a consolidated basis which excludes insurance companies. Source: Banco de Portugal 34
Total assets have been showing higher growth rates compared to risk weighted assets. Trend in Portuguese banks risk weighted assets and total assets* (Dec. 2007=100) Index 125 120 Risk weighted assets Total assets 115 110 105 100 95 Growth rates Total assets = 7.5% Risk weighted assets = 7.3% 90 2007 2008 2009 2010 2011 Jun-2012 * Data for the Portuguese banking sector, on a consolidated basis which excludes insurance companies. Source: Banco de Portugal Growth rates Total assets = 11.5% Risk weighted assets = 2.4% 35
Portuguese bank s better quality capital, common equity Tier 1, increased significantly since 2009. Trend in Portuguese banks own funds* (Dec. 2009=100) Index 160 150 140 Core Tier 1 Tier 1 Total own funds 130 120 110 100 90 80 2009 2010 2011 Jun-2012 * Data for the Portuguese banking sector, on a consolidated basis which excludes insurance companies. Source: Banco de Portugal 36
Historically, the capital levels of Portuguese banks have stayed above the minimum legal requirements. 8.0 8.3 6.7 6.2 Tier 1 Ratio (%) 9.9 10.5 10.7 7.5 7.9 8.1 10.9 11.5 The Basel II Agreement requires financial institutions to maintain a Tier 1 Ratio equal or above 4% and an Overall Solvency Ratio not below 8%. 2007 2008 2009 2010 2011 Jun-2012 Overall Solvency Ratio (%) 13.2 13.6 10.3 11.7 10.2 9.1 10.4 10.2 9.5 13.5 14.1 12.3 Portugal EU 27 * Data for domestic banking groups and stand-alone banks, on a consolidated basis which excludes insurance companies. Source: ECB 2007 2008 2009 2010 2011 Jun-2012 37
Portuguese banks core Tier 1 Ratio has increased mainly through higher common equity Tier 1 capital. Evolution of core Tier 1 Ratio for the APB s Members* However, decreasing assets and a downward effect on their average risk level have helped to further increase this ratio. 12% 1.9% -0.1% 0.1% 11.4% 11% 10% 0.5% 0.1% 9.5% 9% 0.8% 8.1% 8% 7% Dec-2010 Core Tier 1 Ratio Core Tier 1 capital effect Total assets effect Average risk effect Dec-2011 Core Tier 1 Ratio Core Tier 1 capital effect Total assets effect Average risk effect Jun-2012 Core Tier 1 Ratio * Data refers to financial statements subject to prudential requirements. Source: APB 38
Portuguese banks faced new capital requirements within the scope of the Economic and Financial Assistance Program. Core Tier 1 Ratio requirements Besides the increase of the core Tier 1 Ratio that must be fulfilled, other factors contributed to augment the capital needs of the Portuguese banks, namely: Source: APB, Banco de Portugal 31.12.2011 9% 31.12.2012 10% Haircut on Greek debt Transfer of banks Pension Schemes to the Social Security These impacts were recognized for prudential purposes during the 1 st semester of 2012, and reflected in the core Tier 1 Ratio then. Impacts Additional impairments recognized on the loans portfolio Increase of the own funds requirements for credit risk Results of the Special Inspections Programme carried out in the 8 largest banking groups, in 2011 and 2012. This assessment aimed to validate the data that supports the calculation of the solvency position of the institutions. 39
Simultaneously, the EBA also imposed higher capital requirements for European banks to be fulfilled since June 2012. Core Tier 1 Ratio 9% Buffer sovereign debt exposures Additional capital needs In order to deal with the sovereign crisis that affects Europe, the European Banking Authority, together with other European entities, established several measures that aim to strengthen the banking sector resilience. New capital requirements were therefore introduced under two different measures, namely: Increase of the core Tier 1 Ratio from 4.5% to 9%; Establishment of a capital buffer for sovereign debt exposures as of 30 th September 2011. Source: EBA 40
Results of the EU Capital Exercise revealed capital shortfalls for banks in 12 European countries. FR 6.4% PT 6.1% AT 3.4% BE 5.5% CY 3.1% NO 1.3% SI NL 0.3% 0.1% GR 26.2% In December 2011, the European Banking Authority presented the results of the assessment made to the capital levels of the banking groups that were part of the stress-test, considering the market value of their sovereign exposures and capital as of 30 September 2011. DE 11.4% IT 13.4% = 114.685 Million EUR ES 22.8% The results of this exercise revealed that the additional core Tier 1 capital required to attain the 2 requirements imposed to all European banks was 114,685 million euro. For the Portuguese banks included in this exercise, the overall shortfall of core Tier 1 capital identified was approximately 6,950 million euro. Source: APB, EBA 41
Results of the EU Capital Exercise Core Tier 1 capital Capital shortfall Capital surplus Capital shortfall Core Tier 1 capital as of 30.09.2011 (milllion EUR) 26,170 85% Capital level needed to fulfill the requirements = 100% 20% 14% 6% 3% 29% 12% 15,366 13,107 80% 86% 94% 97% 71% 100% 100% 7,324 6,950 0 0 ES IT DE FR PT GB IE ES IT DE FR PT GB IE Source: APB, EBA 42
For Portuguese banks, the capital needs resulted from exposure to sovereign debt as well as the increase of the minimum ratio requirements. Drivers of the capital needs, by country, as of December 2011 = 26,170 15,366 13,107 7,324 6,950 6,313 3,923 3,531 1,520 320 159 19,610 6,561 5,692 9,674 5,544 7,563 1,539 3,812 3,232 3,512 3,718 4,774 3,812 1,075 2,457 1,520 317-24 112 0 4 183 Spain (ES) Italy (IT) Germany (DE) France (FR) Portugal (PT) Belgium (BE) Austria (AU) Cyprus (CY) Norway (NO) Slovenia (SI) Netherlands (NL) Establishment of the buffer for sovereign debt exposures Increase of the core Tier 1 ratio and change in the calculation of the risk weighted assets Source: APB, EBA 43
As a result of the recapitalisation exercise, Portuguese banks capital levels increased significantly, even compared to their European peers. Core Tier 1 Ratio as of 30.09.2011 Core Tier 1 Ratio as of 30.06.2012 18% 16% 14% 18% 16% 14% Sovereign buffer CT1 deducted from the sovereign buffer 12% 10% Minimum required until June 2012 Core Tier 1 Ratio = 9% 12% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% IE GB DE FR IT PT ES 0% IE PT GB DE IT FR ES Source: APB, EBA 44
The European-wide requirements came to exacerbate the capital needs meanwhile imposed by the national authorities. Breakdown of the capital needs for the 4 Portuguese banks that were part of the EBA exercise (as of December 2011) The European Banking Authority estimates did not include the impacts on core Tier 1 capital resulting from the events that occurred in 2011 and were only reflected on capital levels for prudential purposes in 2012, namely, the additional impairments on the loans portfolio, the change of the own funds requirements for credit risk, the haircut applied to Greek public debt imposed by Banco de Portugal and the transfer of the banks pension schemes to the social security. Therefore, the effective capital needs until June 2012 were higher than the ones calculated at the time of the EU Capital Exercise. Additionally, Portuguese banks had to fulfill, by December 2012, the increase of the core Tier 1 Ratio from 9% to 10%, which implied new capital needs. * Does not include the effect from the reduction of the risk weighted assets. Source: APB, EBA 45
Recent events and regulatory changes have severely affected the capital levels of the 4 largest Portuguese banking groups. December 2010 December 2011 June 2012 December 2012 Common equity Tier 1 EUR 17,606 M Haircut 50%-60% on Greek debt EUR 800 M Capital increase to comply with core Tier 1 Ratio 9% (EAP) EUR 19,561 M Transfer of pension funds to Social Security EUR 929 M Additional impairments on credit portfolio (SIP) EUR 318 M Buffer for exposure to sovereign debt (EBA) EUR 3,718 M CT1 capital increase EUR 6,650 M BdP EUR BdP 21,928 EUR M 19.406 M Buffer EBA EUR EBA 23.125 EUR M 3,226 M CT1 capital increase EUR 500 M BdP EUR BdP 21,394 EUR M 19.406 M Buffer EBA EUR EBA 23.125 EUR M 3,226 M RWAs EUR 233,732 M New rules on RWAs calculation (CRD 3) EUR -133 M EUR 216,593 M Increase of own funds requirements for credit risk (SIP) EUR 185 M EUR 217,940 M EUR 211,236 M 7.5 % 9.0 % 9.8 %* 10.1 %* 11.5 % 11.7 % * Core Tier 1 Ratio calculated by EBA s definition and deducted from the sovereign buffer is 9.6% and 9.2% as of June and December 2012, respectively. Source: APB, EBA 46
Portuguese banks were able to fulfill all the capital requirements imposed and therefore strengthen their solvency positions. Portuguese banking groups core Tier 1 Ratio (as of 31.12.2012) 16% 14% Banco de Portugal EBA (deducted from the sovereign buffer) Minimum required core Tier 1 ratio (9%) 12% 10% 8% 6% 4% 2% 0% CGD BCP ESFG Banco BPI TOTAL Source: APB, EBA 47
PORTUGUESE BANKING SECTOR OVERVIEW V. State Guarantee and Recapitalisation Schemes for Credit Institutions
Timeline of the Portuguese State guarantee and recapitalisation schemes for credit institutions Economic Adjustment Programme Oct. 2008 May 2009 Feb. 2010 Mar. 2010 Jul. 2010 Jan. 2011 Jun. 2011 Dec. 2011 May / Jun. 2012 Dec. 2012 Guarantee Scheme Scheme approved till Dec 2009 EUR 20 B Budget changed EUR 16 B Extension till Jun 2010 Budget changed EUR 9.15 B Extension till Dec 2010 Extension till Jun 2011 Extension Dec 2011 Budget changed EUR 35 B Extension till Jun 2012 Extension till Dec 2012 Extension 30 Jun 2013 Recapitalisation Scheme Scheme approved till Nov 2009 EUR 4 B Extension till Jun 2010 Budget changed EUR 3 B* Extension till Dec 2010 Extension till Jun 2011 Extension Dec 2011 Budget changed EUR 12 B Extension till Dec 2012 Extension 31 Dec 2013 Law nº 60-A/2008 Law nº 63-A/2008 Law nº 3-B/2010 Source: APB, European Commission DGCOMP, Portuguese Ministry of Finance (DGTF) Law nº 48/2011 Law nº 4/2012 * The usage of both schemes cannot exceed EUR 9.15 B. 49
Portuguese banks went through the financial crisis without any State support in terms of recapitalisation State Support Scheme used until end of June 2011 By the end of June 2011: EUR 3 billion EUR 9.15 billion Σ= EUR 4.95 B Not used* > EUR 1,000 M 3 operations in 2008 < EUR 1,000 M > EUR 100 M < EUR 100 M 2 operations in 2009 1 operation in 2008, 2 operations in 2009 6 banks (of which, CGD is State-owned) had used the State guarantee scheme; 2 operations that amounted to EUR 75 M were over (one in 2009 and the other in 2010); Outstanding guarantees totaled up to EUR 4,875 M, which corresponded to 53% of the budget. * Not used by privately owned banks. In December 2010, CGD increased its capital by EUR 550 M, from which EUR 56 M were from the scheme budget. Source: APB, European Commission DGCOMP, Portuguese Ministry of Finance (DGTF) 50
meanwhile, the public debt crisis lead to the increase in the usage of guarantees from the State. State Support Scheme used since July 2011 EUR 12 billion EUR 35 billion Σ= EUR 4.3 B Σ= EUR 16.5 B 2 operations* > EUR 1,000 M 10 new operations < EUR 1,000 M > EUR 100 M 3 new operations < EUR 100 M 3 new operations Since July 2011: 6 banks used the State guarantee scheme for new operations; New operations amounted to EUR 16,525 M, which corresponds to 47.2% of the budget. In June 2012, the guarantees in effect (accumulated from previous years) total up to EUR 16,525 M. * Does not include one operation that occurred in January 2013 and amounted to EUR 1.1 Billion. Source: APB, European Commission DGCOMP, Portuguese Ministry of Finance (DGTF) 51
Cost with commissions upon access of the State guarantee scheme Total cost of the guarantees issued in each year (EUR Million) 2008 118.0 2009 2010 2011 2012 17.9 0.0 186.2 485.3 The increase in commission costs results not only from the increment in the amount of guarantees issued in 2011 but also from a price effect since the commission fee has increased, on average, 39 basis points on the new operations. Total 807.4 Source: APB, Portuguese Ministry of Finance (DGTF) 52
Commissions paid and due upon access of the State guarantee scheme Annual commissions paid and due* (EUR Million) 2008 2009 0.0 11.2 2010 2011 45.3 56.6 2012 228.6 Cumulative paid until end 2012 341.7 2013 211.7 2014 2015 30.1 199.2 = EUR 807.4 Million 2016 19.2 2017 * Estimates. Source: APB, Portuguese Ministry of Finance (DGTF) 5.7 53
PORTUGUESE BANKING SECTOR OVERVIEW