Portuguese Banking System: latest developments 3 rd quarter 217
Lisbon, 218 www.bportugal.pt Prepared with data available up to 18 th December of 217 for macroeconomic and financial market indicators, and up to 14 th December of 217 for the banking system data. Moreover, macroeconomic indicators and banking system data are quarterly and are presented until the last quarter available, while financial market indicators, whose frequency is daily, are presented until the last day of available information. Portuguese Banking System: latest developments Banco de Portugal Rua Castilho, 24 125-69 Lisboa www.bportugal.pt Edition Financial Stability Department Design Communication Directorate Image and Graphic Design Unit ISSN 2183-9654 (online)
Contents 1. Banking System: Main Highlights 4 2. Macroeconomic and Financial Indicators 5 3. Portuguese Banking System 7 Balance sheet 7 Liquidity and funding 8 Asset quality 1 Profitability 11 Solvency 13
4 Banco de Portugal Portuguese Banking System: latest developments 1. Portuguese Banking System: Main Highlights Balance sheet Banking system s total assets increased in the third quarter of 217. This development reflects an increase in cash balances at central banks and in loans to the general government, which was partially offset by the reduction in the sovereign debt securities portfolio. Liquidity and funding Financing from the Eurosystem declined in the third quarter of 217, standing at a level close to that observed by end-216. Banking system s liquidity indicators remained at high levels, despite a slight decrease in the quarter. Profitability The profitability of the banking system in the first three quarters of 217 was positive and higher than in the same period of the previous year. The improvement in profitability vis-à-vis the same period of the previous year was mainly driven by a substantial decline in the flow of credit impairments. Solvency Banking system s solvency levels increased in the third quarter of 217 reflecting the growth of own funds and the decrease of the risk-weighted assets. Asset quality Asset quality improved in the third quarter of 217, continuing to reflect, to a large extent, positive developments in the Non-financial corporations segment.
3 rd quarter 217 5 2. Macroeconomic and Financial Indicators Chart 1 GDP growth rate, in % Volume 4 3 2 1-1 -2-3 -4-5.9-1.1-4. 3. 2.5 1.8 1.5.3.5 annual change yoy change qoq change 212 213 214 215 216 217 Q2 217 Q3 217 Q2 217 Q3 Source: INE. Note: National Accounts figures are presented according to the rules of the European System of National and Regional Accounts (ESA 21). In 217 Q3, GDP grew 2.5% year-on-year, which compares to 3.% in the previous quarter. GDP quarter-on-quarter growth stood at.5%, which represents an acceleration from the previous quarter (.3%). Chart 2 Unemployment rate, % of active population 18 16 14 12 1 15.8 16.4 14.1 12.6 11.2 9.2 8.8 8 6 4 2 212 213 214 215 216 217 Q2 217 Q3 Sources: Banco de Portugal and INE. Note: The unemployment rate corresponds to the figure of the central month of each quarter published by the National Statistical Institute, seasonally adjusted. The unemployment rate stood at 8.8% in 217 Q3, decreasing by.4 p.p. vis-à-vis the previous quarter. On a year-on-year basis, the unemployment rate declined by 2.1 p.p.
6 Banco de Portugal Portuguese Banking System: latest developments Chart 3 Sovereign debt yields 1Y, in % 4.5 4. 3.5 3. 2.5 2. 1.5 1..5. -.5-5 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 May-16 Aug-16 Nov-16 Feb-17 Jun-17 Sep-17 Dec-17 Portugal Germany Spain Italy Greece (rhs) Source: Thomson Reuters. Note: The last observation is dated 18 December 217. 25 2 15 1 5 The Portuguese 1-year government bond yield dropped by more than 6 basis points between 3 June 217 and 29 September 217, as well as the spread vis-à-vis the German 1-year government bond yield. The downward movement of the Portuguese 1-year government bond has persisted throughout the fourth quarter of 217, as the yield declined by 62 basis points between 29 September 217 and 18 December 217. This latest development was supported, inter alia, by the increase to an investment grade rating level by Standard & Poor's in mid-september 217 and, in 15 December 217, by FITCH (this agency upgraded the rating of the Portuguese Republic by two notches, from BB+ to BBB). Chart 4 ECB rates, in %.3.15. -.15 -.3 -.45 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 May-16 Aug-16 Nov-16 Feb-17 Jun-17 Sep-17 Dec-17 Main refinancing rate Deposit facility rate Marginal lending facility rate Source: ECB. Note: The last observation is dated 18 December 217. ECB rates remain stable since March 216: the deposit facility interest rate at -.4%, the main refinancing operations interest rate at % and the marginal lending facility interest rate at.25%. The levels of benchmark interbank interest rates continue to reflect the accommodative monetary policy, namely the ECB's asset purchase programme.
3 rd quarter 217 7 3. Portuguese Banking System Balance sheet Chart 5 Asset structure, in Bn 6 4 Total assets / nominal GDP 2.9 2.7 2.5 2.3 2.1 2. 2. 493 457 426 48 386 384 385 2 Loans to credit institutions Debt securities Equity instruments Loans to customers Other assets Note: The Other assets item includes cash and cash balances at central banks, cash balances at other credit institutions, derivatives, tangible and intangible assets and other assets. Portuguese banking system s total assets increased by.3% in 217 Q3, standing at approximately 385 Bn. This increment in total assets reflects an increase in cash balances at central banks and in loans to customers (namely to the general government), which was partially offset by a decrease in sovereign debt securities held by the banking system. Loans to Non-financial corporations continued to decline, whilst loans to Households remained stable in 217 Q3. Chart 6 Bank financing structure, in Bn 6 4 493 457 426 48 386 384 385 2 Deposits from central banks Deposits from other credit institutions Securities Deposits from customers Other liabilities Equity Note: The Other liabilities item includes derivatives, short positions and other liabilities. Net interbank funding grew in 217 Q3 due to an increase in deposits from other credit institutions. Equity and Other liabilities also increased.
Thousands 8 Banco de Portugal Portuguese Banking System: latest developments Customer deposits diminished in the period, led by the domestic activity, chiefly reflecting the decrease of Household deposits, which was partially offset by an increase in Non-financial corporations deposits. Liquidity and funding Chart 7 Central banks funding, in Bn 6 3.4 3.3 4 2 52.8 47.9 2.5 31.2 2.4 26.2 2.3 2.2 1.9 22.4 23.2 22.7 Monetary policy operations with Banco de Portugal Other deposits from central banks Central bank s funding decreased by 2.8% in 217 Q3, standing at a level close to that observed by end-216. Vis-à-vis December 216, this funding source has a larger component of Long-term refinancing operations (LTRO), to the detriment of Main refinancing operations (MRO) and other type of funds from central banks. Chart 8 Loan-to-deposit ratio, in % 14 12 1 122.6 111.8 12.1 96.1 95.3 93.6 94. 8 6 4 2 The loan-to-deposit ratio increased slightly in 217 Q3.
3 rd quarter 217 9 Chart 9 Commercial gap, in Bn 6 57 5 4 3 3 2 1 5-1 -2-1 -12-16 -15 The commercial gap (loans minus deposits) increased 1 Bn in 217 Q3. Chart 1 Liquidity gaps for domestic institutions (a) and Liquidity Coverage Ratio (LCR) (b), in % Liquidity coverage ratio 2 15 1 5 5.8 3.4 1.3 9.8 7.7 3.4 1.6 9.2 6.7 151 13.4 12.2 12. 1.1 8.9 8.4 182 177 16. 15.9 14.9 14.6 12.9 13.6 Up to 3 months Up to 6 months Up to 1 year Notes: a) The liquidity gap is defined as the difference between liquid assets and volatile liabilities in proportion of the difference between total assets and liquid assets, for each cumulative maturity scale. An increase of this indicator reflects an improvement of banks liquidity position; b) The liquidity coverage ratio is expressed as the ratio between the value of the stock of high quality liquid assets and the total net cash outflows for a 3 calendar day liquidity stress scenario. Portuguese banking system's liquidity remained at comfortable levels, even with slight reductions in the liquidity coverage ratio (banking system) and in the liquidity gaps (domestic institutions), for two of the maturity scales. Liquid assets held by the banking system increased somewhat and are essentially comprised of sovereign debt securities, cash balances at central banks and cash.
1 Banco de Portugal Portuguese Banking System: latest developments Asset quality Chart 11 Non-performing loans ratio, in % 32 28 24 2 16 3.3 29.3 3.1 29.5 28.3 29. 27.5 17.5 17.9 17.9 17.6 17.2 16.4 15.5 14.6 26.6 12 8 4 13.5 13.5 12.4 12.4 1.8 1. 9.6 9. 7.2 7.4 7.2 7.1 7. 6.7 6.5 6.2 Dec. 15 Mar. 16 Jun. 16 Sep. 16 Dec. 16 Mar. 17 Jun. 17 Sep. 17 Housing Consumption NFC Total Note: The non-performing loans ratio is the amount of loans non-performing in relation to total loans, according to EBA s ITS on Supervisory Reporting. In 217 Q3, banking system s non-performing loans remained on a downward trajectory, declining 2.3 Bn vis-à-vis June 217 and 1.5 Bn vis-à-vis June 216. The non-performing loans ratio stood at 14.6% as a result of the above-mentioned decline in non-performing loans and, to a less extent, to an increase in total loans. In spite of the positive contributions of all segments, the developments observed in the quarter reflect mostly the decrease in the non-performing loans of Non-financial corporations, which decreased by 5.2% (1.4 Bn) comparing to June 217. Chart 12 Non-performing loans coverage ratios, in % 8 7 67.2 66.4 71.5 7.3 68.7 71.4 71.1 7.7 6 5 4 3 2 1 44.4 45.4 46.4 46.8 23.5 23.3 23.9 24.3 48.9 48.7 49.2 5.4 21. 21.8 21.9 23.3 Dec. 15 Mar. 16 Jun. 16 Sep. 16 Dec. 16 Mar. 17 Jun. 17 Sep. 17 Housing Consumption NFC Total Note: The coverage ratio is the percentage of non-performing loans that is covered by impairments. In September 217, the non-performing loans coverage by impairments ratio stood at 47% as a result of a.6 p.p. increase in the quarter. This development reflected a 1.2 p.p. increase of the Non-financial corporations coverage ratio.
3 rd quarter 217 11 Profitability Chart 13 ROE and ROA, in % 5 1..1 4.7.4.5. -5-1 -.6-7.4 -.5-1. -15-1.5-2 212 213 214 215 216 216 Q1 to Q3 Return on Equity (ROE) - lhs Return on Assets (ROA) - rhs 217 Q1 to Q3-2. Note: Return is measured by profit or loss before tax. Intra-annual returns are annualised. The return on equity and the return on assets increased in the first three quarters of 217, on a year-on-year basis. The return on equity grew by 3.7 p.p., whilst the return on assets increased by.3 p.p. The rise in profitability vis-à-vis the first three quarters of 216 reflects the growth in income from financial operations and, above all, a substantial decrease in the flow of impairments, especially of credit impairments. Chart 14 Income and costs, in % of average total assets 3 2 1-1 -2-3 -4 212 213 214 215 216 216 Q1 to Q3 217 Q1 to Q3 Net interest income Net commissions Financial operations results Other income Operational costs Impairments and provisions Operating result (recurring) ROA Note: Recurring operating result corresponds to the sum of net interest margin and net commissions minus operational costs, as a percentage of average total assets. In the context of a reduction in interest income and in interest expenses (by similar amounts), net interest income contribution to ROA increased slightly vis-à-vis the first three quarters of 216, given the year-on-year decrease in total assets. Operational costs remained virtually unchanged in the first three quarters of 217 when compared to the same period of 216. Nevertheless, in this period there was a significant but non-recurring increase in staff costs, which offset the substantial decrease in general and administrative expenses.
12 Banco de Portugal Portuguese Banking System: latest developments Staff costs have been negatively affected by the ongoing restructuring processes in some major institutions. Chart 15 Operational costs and Cost-to-income, in Bn and in % 8 1 6 4 2 8 6 4 2 212 213 214 215 216 216 Q1 to Q3 217 Q1 to Q3 Operational costs - lhs Cost-to-income recurring ratio - rhs Cost-to-income ratio - rhs Note: The recurring cost-to-income ratio corresponds to operational costs as a percentage of the sum of net interest income and net commissions. The cost-to-income ratio stood at 61% in the first three quarters of 217, remaining virtually unchanged compared to the same period of the previous year. This development reflects the relative stabilisation of operating costs given the non-recurrent increase in staff costs, incurred in the context of the ongoing restructuring processes in some of the largest institutions. Chart 16 Banking interest rates (new business), in % Average value of the period 7 6 5 4 3 2 1 212 213 214 215 216 217 Q2 217 Q3 Loans to Non-financial corporations Loans to Households (Housing) Deposits of Non-financial corporations Deposits of Households As in the previous quarters, interest rates on new loans to Households (Housing) and to Non-financial corporations diminished (11 basis points and 4 basis points, respectively). The cost of new deposits evolved in a distinct manner across segments in the quarter under review, increasing by 1 basis point in the Non-financial corporations segment and decreasing by 5 basis points in the Households segment.
3 rd quarter 217 13 Solvency (a) Chart 17 Tier 1 capital to total assets ratio and Leverage ratio, in % 9 8 7 6 5 4 3 2 1 Leverage ratio 6.6 7.5 7.5 7.6 7.7 7.8 7. 7.1 6.9 6.9 Note: The Tier 1 capital to total assets ratio is a proxy for the leverage ratio, allowing for a more comprehensive period of analysis. The leverage ratio is calculated as the capital measure (Tier 1 capital) divided by the total exposure, in accordance with the methodology set out in article 429 of the Regulation (EU) No 575/213. The ratio between Tier 1 capital and total assets recorded a marginal rise in 217 Q3, reflecting, essentially, a slight increase of the banking system s capital. The leverage ratio remained virtually unchanged vis-à-vis the previous quarter, standing at 7.5%. Chart 18 Own funds ratios, in % 16 14 12 1 8 6 4 2 11.5 12.3 11.3 Total Solvency Ratio 12.6 13.3 12.3 13.3 12.3 14.4 14.7 12.4 11.4 13.2 13.5 Core Tier 1 ratio CET 1 ratio The total solvency ratio stood at 14.7% in 217 Q3, representing a slight increase compared to the previous quarter. The Common Equity Tier 1 ratio (CET 1) stood at 13.5%, which corresponds to a.3 p.p. growth vis-à-vis 217 Q2, reflecting an increase in CET 1 capital and a decrease in risk-weighted assets. (a) In 214, the transition to a new prudential regime determined the existence of breaks in the series of solvency indicators justified by methodological differences in the calculation of own funds components, affecting the comparability of ratios with previous years.