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Portuguese Banking System:
latest developments
3rd quarter 2017
Lisbon, 2018 • www.bportugal.pt
Prepared with data available up to 18th December of 2017 for macroeconomic and financial market indicators,
and up to 14th December of 2017 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 | 1250-069 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 | 10
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 2017. 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 2017, standing at a level close
to that observed by end-2016.
Banking system’s liquidity indicators remained
at high levels, despite a slight decrease in the
quarter.
Asset quality
Asset quality improved in the third quarter of
2017, continuing to reflect, to a large extent,
positive developments in the Non-financial
corporations segment.
Profitability
The profitability of the banking system in the
first three quarters of 2017 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 2017 reflecting the growth
of own funds and the decrease of the
risk-weighted assets.
3rd quarter 2017 5
2. Macroeconomic and Financial Indicators
Chart 1 • GDP growth rate, in % | Volume
Source: INE.
Note: National Accounts figures are presented according to the rules of the European System of National and Regional Accounts (ESA 2010).
• In 2017 Q3, GDP grew 2.5% year-on-year, which compares to 3.0% in the previous quarter.
• GDP quarter-on-quarter growth stood at 0.5%, which represents an acceleration from the previous
quarter (0.3%).
Chart 2 • Unemployment rate, % of active population
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 2017 Q3, decreasing by 0.4 p.p. vis-à-vis the previous
quarter.
• On a year-on-year basis, the unemployment rate declined by 2.1 p.p.
-4.0
-1.1
0.9
1.81.5
3.02.5
0.3 0.5
-5
-4
-3
-2
-1
0
1
2
3
4
2012 2013 2014 2015 2016 2017 Q2 2017 Q3 2017 Q2 2017 Q3
annual change yoy change qoq change
// //
15.816.4
14.1
12.6
11.2
9.2 8.8
0
2
4
6
8
10
12
14
16
18
2012 2013 2014 2015 2016 2017 Q2 2017 Q3//
6 Banco de Portugal • Portuguese Banking System: latest developments
Chart 3 • Sovereign debt yields 10Y, in %
Source: Thomson Reuters.
Note: The last observation is dated 18 December 2017.
• The Portuguese 10-year government bond yield dropped by more than 60 basis points between 30
June 2017 and 29 September 2017, as well as the spread vis-à-vis the German 10-year government
bond yield.
• The downward movement of the Portuguese 10-year government bond has persisted throughout
the fourth quarter of 2017, as the yield declined by 62 basis points between 29 September 2017 and
18 December 2017. This latest development was supported, inter alia, by the increase to an
investment grade rating level by Standard & Poor's in mid-September 2017 and, in 15 December
2017, by FITCH (this agency upgraded the rating of the Portuguese Republic by two notches, from
BB+ to BBB).
Chart 4 • ECB rates, in %
Source: ECB.
Note: The last observation is dated 18 December 2017.
• ECB rates remain stable since March 2016: the deposit facility interest rate at -0.40%, the main
refinancing operations interest rate at 0% and the marginal lending facility interest rate at 0.25%.
• The levels of benchmark interbank interest rates continue to reflect the accommodative monetary
policy, namely the ECB's asset purchase programme.
-5
0
5
10
15
20
25
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
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)
-0.45
-0.30
-0.15
0.00
0.15
0.30
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
3rd quarter 2017 7
3. Portuguese Banking System
Balance sheet
Chart 5 • Asset structure, in €Bn
Source: Banco de Portugal.
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 0.3% in 2017 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 2017 Q3.
Chart 6 • Bank financing structure, in €Bn
Source: Banco de Portugal.
Note: The Other liabilities item includes derivatives, short positions and other liabilities.
• Net interbank funding grew in 2017 Q3 due to an increase in deposits from other credit institutions.
Equity and Other liabilities also increased.
493457
426 408 386 384 385
0
200
400
600
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Jun. 17 Sep. 17
Thousands
Loans to credit institutions Debt securities Equity instruments Loans to customers Other assets
2.9 2.7 2.02.5 2.3 2.1 2.0
//
Total assets / nominal GDP
493457
426408
386 384 385
0
200
400
600
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Jun. 17 Sep. 17
Deposits from central banks Deposits from other credit institutions Securities Deposits from customers Other liabilities Equity
//
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
Source: Banco de Portugal.
• Central bank’s funding decreased by 2.8% in 2017 Q3, standing at a level close to that observed by
end-2016. Vis-à-vis December 2016, 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 %
Source: Banco de Portugal.
• The loan-to-deposit ratio increased slightly in 2017 Q3.
52.847.9
31.226.2
22.4 23.2 22.7
3.4
3.3
2.5
2.42.3 2.2 1.9
0
20
40
60
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Jun. 17 Sep. 17
Thousands
Monetary policy operations with Banco de Portugal Other deposits from central banks
//
122.6
111.8102.1
96.1 95.3 93.6 94.0
0
20
40
60
80
100
120
140
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Jun. 17 Sep. 17//
3rd quarter 2017 9
Chart 9 • Commercial gap, in €Bn
Source: Banco de Portugal.
• The commercial gap (loans minus deposits) increased 1 €Bn in 2017 Q3.
Chart 10 • Liquidity gaps for domestic institutions(a) and Liquidity Coverage Ratio (LCR)(b),
in %
Source: Banco de Portugal.
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 30 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.
57
30
5
-10 -12-16 -15-20
-10
0
10
20
30
40
50
60
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Jun. 17 Sep. 17
//
5.8
9.810.6
13.412.0
16.0 15.9
3.4
7.79.2
12.2
10.1
14.9 14.6
1.3
3.4
6.7
8.9 8.4
12.9 13.6
0
5
10
15
20
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Jun. 17 Sep. 17
Up to 3 months Up to 6 months Up to 1 year
//
177
Liquidity coverage ratio
182151
10 Banco de Portugal • Portuguese Banking System: latest developments
Asset quality
Chart 11 • Non-performing loans ratio, in %
Source: Banco de Portugal.
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 2017 Q3, banking system’s non-performing loans remained on a downward trajectory, declining
2.3 €Bn vis-à-vis June 2017 and 10.5 €Bn vis-à-vis June 2016.
• 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 2017.
Chart 12 • Non-performing loans coverage ratios, in %
Source: Banco de Portugal.
Note: The coverage ratio is the percentage of non-performing loans that is covered by impairments.
• In September 2017, the non-performing loans coverage by impairments ratio stood at 47% as a result
of a 0.6 p.p. increase in the quarter. This development reflected a 1.2 p.p. increase of the
Non-financial corporations’ coverage ratio.
7.2 7.4 7.2 7.1 7.0 6.7 6.5 6.2
13.5 13.512.4 12.4
10.8 10.0 9.6 9.0
28.329.3
30.3 30.1 29.5 29.027.5
26.6
17.5 17.9 17.9 17.6 17.216.4 15.5 14.6
0
4
8
12
16
20
24
28
32
Dec. 15 Mar. 16 Jun. 16 Sep. 16 Dec. 16 Mar. 17 Jun. 17 Sep. 17
Housing Consumption NFC Total
23.5 23.3 23.9 24.321.0 21.8 21.9 23.3
67.2 66.471.5 70.3 68.7
71.4 71.1 70.7
44.4 45.4 46.4 46.8 48.9 48.7 49.2 50.4
0
10
20
30
40
50
60
70
80
Dec. 15 Mar. 16 Jun. 16 Sep. 16 Dec. 16 Mar. 17 Jun. 17 Sep. 17
Housing Consumption NFC Total
3rd quarter 2017 11
Profitability
Chart 13 • ROE and ROA, in %
Source: Banco de Portugal.
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 2017, on a
year-on-year basis. The return on equity grew by 3.7 p.p., whilst the return on assets increased by 0.3
p.p.
• The rise in profitability vis-à-vis the first three quarters of 2016 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
Source: Banco de Portugal.
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 2016, given
the year-on-year decrease in total assets.
• Operational costs remained virtually unchanged in the first three quarters of 2017 when compared
to the same period of 2016. 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.
-7.4
1.0
4.7
-0.6
0.1
0.4
-2.0
-1.5
-1.0
-0.5
0.0
0.5
-20
-15
-10
-5
0
5
2012 2013 2014 2015 2016 2016
Q1 to Q3
2017
Q1 to Q3
Return on Equity (ROE) - lhs Return on Assets (ROA) - rhs
//
-4
-3
-2
-1
0
1
2
3
2012 2013 2014 2015 2016 2016
Q1 to Q3
2017
Q1 to Q3
Net interest income Net commissions Financial operations resultsOther income Operational costs Impairments and provisionsOperating result (recurring) ROA
//
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 %
Source: Banco de Portugal.
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 2017, 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
Source: Banco de Portugal.
• 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.
0
20
40
60
80
100
0
2
4
6
8
2012 2013 2014 2015 2016 2016
Q1 to Q3
2017
Q1 to Q3
Operational costs - lhs Cost-to-income recurring ratio - rhs Cost-to-income ratio - rhs
//
0
1
2
3
4
5
6
7
2012 2013 2014 2015 2016 2017 Q2 2017 Q3
Loans to Non-financial corporations Loans to Households (Housing)Deposits of Non-financial corporations Deposits of Households
//
3rd quarter 2017 13
Solvency (a)
Chart 17 • Tier 1 capital to total assets ratio and Leverage ratio, in %
Source: Banco de Portugal.
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 575/2013.
• The ratio between Tier 1 capital and total assets recorded a marginal rise in 2017 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 %
Source: Banco de Portugal.
• The total solvency ratio stood at 14.7% in 2017 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 0.3 p.p. growth
vis-à-vis 2017 Q2, reflecting an increase in CET 1 capital and a decrease in risk-weighted assets.
(a) In 2014, 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.
7.0 7.1 6.97.6
6.9
7.7 7.8
0
1
2
3
4
5
6
7
8
9
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Jun. 17 Sep. 17
7.5
//
Leverage ratio
7.56.6
11.512.3
11.312.4
11.413.2 13.5
0
2
4
6
8
10
12
14
16
Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Jun. 17 Sep. 17
Core Tier 1 ratio CET 1 ratio
//
Total Solvency Ratio
12.6 13.3 14.412.3 13.3 12.3 14.7