Banco de Portugal releases today the Annual Report – Activities and Financial Statements 2014.

In 2014 Banco de Portugal carried out its activity in a particularly demanding national and international environment, which was marked by the conclusion of the Economic and Financial Assistance Programme to Portugal, the transition to a new banking supervisory model – the Single Supervisory Mechanism – and the process that led to the application of a resolution measure to Banco Espírito Santo, S.A..

I - ACTIVITIES

Following a three-year period of profound changes, the Bank completed its transition to the new banking supervisory model

After introducing profound changes in its structure and supervisory model, the Bank concluded in 2014 the cycle of cross-sectional inspections to major Portuguese financial institutions, which had started in 2011, and participated in the comprehensive assessment exercise to the largest euro area banks that preceded the introduction of the Single Supervisory Mechanism.

The Bank participated in the development and execution of the new supervisory model and the implementation of the regulatory and institutional framework of the Banking Union, which was also reflected in an in-depth revision of the Legal Framework of Credit Institutions and Financial Companies.

The Bank established intermediate goals and instruments to promote stability in the Portuguese financial system (macroprudential policy), worked on the identification of advanced risk indicators and monitored the financial position of households and non-financial corporations.

The application of a resolution measure to BES warranted unprecedented efforts to safeguard financial stability

The application of a resolution measure to Banco Espírito Santo in August put the Bank’s structures and teams to the test, which had to work in a highly complex and demanding environment, without the benefit of prior experience, to safeguard confidence in and stability of the Portuguese financial system.

The Bank acted to guarantee that information provided to bank customers as regards demand deposit accounts and consumer loans is transparent and accurate

To ensure a more balanced relationship between financial institutions and their customers, which is crucial for financial stability, the Bank set out good practices to simplify and standardise demand deposit accounts, and regulated the information that must be reported by institutions during the lifetime of consumer credit agreements. It monitored and assessed the implementation of default schemes and fostered minimum banking services.

The Bank also strengthened its commitment to the promotion of initiatives for the financial information and education of the Portuguese population, most notably in the context of the National Plan for Financial Education.

The Bank participated in the preparation and implementation of innovative monetary policy measures

In addition to standard measures, Banco de Portugal participated in the preparation and implementation of non-standard monetary policy measures adopted by the Governing Council of the ECB. It also participated in the preparatory works leading to the purchase programme for public sector securities, which was announced by the ECB in 2015.

To support a more influential intervention at Eurosystem level, the Bank drafted and published research on the Portuguese and euro area economy. It also started to set up a Microdata Research Laboratory (Laboratório de Investigação em Microdados) at the Porto Branch, and completed an in-depth methodological revision of the compilation and production of statistics to adapt them to the new international standards.

Migration to the Single Euro Payments Area was successfully concluded

As a result of the combined efforts of Banco de Portugal, payment service providers, firms and government bodies, migration to the Single Euro Payments Area (SEPA) was concluded. As such, Portugal is part of an area where consumers, firms and other economic agents can make and receive payments in euros under the same conditions, rights and basic obligations, regardless of their location.

With regard to the development of the second series of euro banknotes (Europa series), the Bank prepared the launch of the €10 banknote in Portugal, produced a share of the new €20 banknote and participated in the pilot project to produce the €50 banknote.

The number of staff members increased to accommodate its new regulatory and supervisory tasks, but staff costs declined

The number of employees increased by 2.5% to address new tasks in the regulation and supervision areas (1,776 employees at the end of 2014). By contrast, the number of seconded staff/staff on unpaid leave nearly doubled, following the move of staff to ECB teams in the context of the operation of the Single Supervisory Mechanism. Despite an increase in the number of employees, staff costs continued to follow a downward path as in previous years, as a result of an overall administrative cost-containment policy adopted as of 2010.

As a follow-up to recommendations by an independent evaluation commission, an area on financial intermediation and a new functional framework for economic research have been incorporated in the Economics and Research Department.

The Bank strengthened its commitment to the community

Reflecting its concern with the protection and promotion of the heritage and the urban regeneration of Lisbon’s Pombaline Downtown area, the Bank opened to the public its Interpretation Centre for King Dinis’ Wall, classified as National Monument. It also increased its social responsibility initiatives, most notably those aimed at fighting educational underachievement and supporting households in need that live near the Bank’s various buildings.

II - Banco de Portugal Accounts

At the end of 2014, the total balance sheet of Banco de Portugal amounted to €105,608 million (€111,592 million in 2013). The decrease from the total balance sheet amount recorded in 2013 was chiefly due to a significant decline in the amount of liquidity provided in the monetary policy operations (from €47,864 million in 2013 to €31,191 million in 2014), reflecting smaller refinancing needs of the national banking system with the Eurosystem. This effect was partially offset by an increase in Banco de Portugal’s foreign reserves and euro assets from €14,883 million in 2013 to €21,410 million in 2014, reflecting the Bank’s investment option, and by an increase in the market price of gold.
    
Net profit for 2014 stood at €304 million, i.e. increasing by €51 million from 2013. The amount of €245 million was deducted from net profit to increase the general risk provision (€130 million in 2013), against a background of strengthened own funds and the maintenance of financial autonomy levels suited to the Bank’s mission. The said increase in net profit was chiefly due to a rise in realised gains arising from financial operations and a reduction in unrealised losses. The net profit enabled the distribution of dividends to the State to the amount of €243 million (€202 million in 2013), subject to corporate income tax withholding at source, resulting in a net dividend of €191 million.

Lisbon, 5 May 2015