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Press release of the Banco de Portugal on the Annual Report – Activities and Financial Statements 2019

The Banco de Portugal releases today the Annual Report – Activities and Financial Statements 2019.


I. Activities

The Banco de Portugal took part in the discussions and preparatory work for monetary policy changes in the euro area, implemented monetary policy operations with resident credit institutions and purchased financial assets under the Eurosystem’s purchase programmes.

In 2019 the Governing Council of the European Central Bank (ECB), of which the Governor of the Banco de Portugal is a member, strengthened its monetary policy accommodative stance to preserve favourable financing conditions for the euro area economy. In March, it decided to introduce a third series of targeted longer-term refinancing operations (TLTRO-III) and, in September, to cut the deposit facility rate, introduce a system for exempting excess reserve holdings from negative remuneration and restart monthly net purchases under the asset purchase programme. The average balance, on the Banco de Portugal’s balance sheet, of monetary policy portfolios stemming from purchases under the asset purchase programme rose by 6% from 2018, to stand at €52,102 million.

The Banco de Portugal took part in the preparatory work for the first green bond fund created by the BIS and invested in units of this fund, thus becoming a pioneering central bank in this type of investment.

This measure was taken following a broader reflection on sustainability and sustainable finance, which led to the release in 2020 of the publication “Banco de Portugal's Commitment to Sustainability and Sustainable Finance”.

The Bank monitored banks and other payment service providers (PSPs) in the adoption of solutions that are compatible with the new European requirements on electronic payments, following the transposition of the revised Payment Services Directive (PSD2).

The Banco de Portugal supported PSPs to implement strong customer authentication and to put in place interfaces enabling secure communication with other PSPs, so that they can provide users with the new information services on payment initiation accounts. It also worked with the national banking community in the preparation for joining the TARGET Instant Payment Settlement (TIPS) and for another large-scale European project: the consolidation of TARGET2, the main platform for processing large-value payments, with T2S, the Eurosystem’s securities settlement platform.

Turning to cash issuance, the last denominations of the second series of euro banknotes were launched. The Bank also entered into two agreements with the Central Bank of Ireland, to produce banknotes for its production quota and to swap and deliver excess circulation coins.

The Banco de Portugal took part in the preparation and implementation of the decree-law that transferred the deposit guarantee function from the Mutual Agricultural Credit Guarantee Fund to the Deposit Guarantee Fund and which led to the uniformity of the rules applicable to the deposit guarantee schemes and, as such, the protection of depositors.

To safeguard financial stability, the Bank prioritised the monitoring of the macroprudential measure adopted in 2018 to mitigate the risks associated with new consumer loans; the strengthening of the banking sector in terms of governance and internal control, business model, asset quality and capital and liquidity positions; and the supervision of retail banking markets, the monitoring of the growing marketing of products and services in digital channels, and the completion of the inclusion of credit intermediaries in its supervisory perimeter. 

Banking system indicators showed positive developments. Following orders issued by the Banco de Portugal, institutions’ own funds were strengthened. The banking system’s liquidity coverage ratio increased, as did customer deposits. Non-performing loans decreased to €17.1 billion, totalling a €33 billion drop from the €50.5 billion peak recorded in June 2016.

In terms of preventive supervision of money laundering and terrorist financing, the Bank carried out 22 inspections, issued 340 supervisory measures, and assessed the implementation of 439 measures imposed following inspections carried out in previous years.

Following the supervisory work carried out on several fronts, it initiated 115 administrative offence proceedings and concluded 117.

With the purpose of preventing and repressing illicit financial activity, the Bank conducted inquiries in 253 proceedings and 11 inspections, following which it sent 35 notifications to the Prosecutor General of the Portuguese Republic for causes to suspect a criminal offence and issued public warnings on ten entities not authorised to conduct financial activities.

In 2019 in-house researchers, together with 120 external co-authors, worked on 194 studies on topics identified as a priority in the Bank’s research agenda, of which 57 were completed.

Through the Microdata Research Laboratory (BPLIM), the Bank provided access to its microdata sets on the Portuguese economy to in-house and external researchers. In 2019, 34 such projects were initiated, proposed by 162 researchers.

The Banco de Portugal released long series on the Portuguese banking system, published an e-book on economic growth in Portugal and launched a series called Cadernos Jurídicos (Legal Papers). It also launched a new statistical dissemination portal.

To fully implement the General Data Protection Regulation, the Bank put in place a data protection action plan.

Turning to ethics and business conduct, the Bank started to disclose on its institutional website the calendars of the members of the Board of Directors, which list all the meetings or events planned or organised with a working agenda or topic(s) for discussion. Staff in management positions are now subject to a cooling-off period between working for the Bank and working for entities subject to the Bank’s supervision. The internal policy on conflicts of interest prevention was also revised.


II. Financial Statements

The Banco de Portugal’s balance sheet totalled €160 billion at the end of 2019.

The balance sheet of the Banco de Portugal totalled €160 billion at the end of 2019, representing an increase of approximately €2 billion from 2018. Drivers of this included: 

  1. The 20.8% rise in the price of gold denominated in euro, which led to an increase in the valuation of the Banco de Portugal’s gold reserve of about €2.9 billion. The quantity of gold remained unchanged at 382.5 tonnes, valued at €16.7 billion at the end of 2019;
  2. The decrease, of around €0.8 billion, in volume of net foreign reserves and euro assets, mainly due to the reduction in the held-to-maturity securities portfolio, amid a context of unattractive interest rates in the type of instruments that make up the majority of it [1]. This decrease reflects the Banco de Portugal’s investment decisions within the limits set by the agreements established at Eurosystem level [2];
  3. In terms of monetary policy, the increase in the Bank’s stake in the public sector asset purchase programme (PSPP), in the Portuguese government debt component, which reached €34.8 billion (€4.1 billion increase), and the new series of targeted longer-term refinancing operations (TLTRO-III), with a year-end balance of €2.5 billion. This increase was partly offset by (i) the maturity of securities purchased under the securities market programme (SMP), closed to new purchases, and under the PSPP in its supranational component, amounting to €0.6 billion and €0.7 billion respectively, and by (ii) the maturity of TLTROs of the second series (TLTRO-II), totalling €5.1 billion;
  4. Slight decrease of €0.1 billion in banknotes in circulation, to stand at €28.0 billion, reflecting the effect of the increased circulation at Eurosystem level offset by the decrease in the Banco de Portugal's share in the ECB’s capital under the key adjustment of 1 January 2019.

Net profit for the year was €759 million in 2019.

The Banco de Portugal’s net profit for 2019 stood at €759 million, close to the amount recorded in 2018 (€806 million). 

The main components of the Banco de Portugal’s net profit include: 

  1. Net interest income, which came to €998 million, a year-on-year decrease of €67 million, in a context of decreasing interest rates, in terms of both asset management and monetary policy; 
  2. Net result of pooling of monetary income to the amount of €119 million, a €46 million increase from 2018, almost entirely due to the fact that 2018 recorded a negative impact from the adjustments made that year to the TLTRO-II interest rates for 2016 and 2017;
  3. Realised gains/ losses arising from financial operations and unrealised losses, which together totalled €45 million, €23 million down from 2018, a year in which the Banco de Portugal recorded significant gains following a strategic reduction in the Bank’s investments in foreign currency;
  4. Income from non-recurring items, specifically (i) gains from the return, by the Mutual Agricultural Credit Guarantee Fund (FGCAM), of contributions made by the Banco de Portugal to that Fund under the establishment of a single national deposit guarantee scheme, in accordance with Article 4 of Decree-Law No 106/2019 (€81 million) and (ii) the amount received in respect of the ECB’s liquid reserves under the five-yearly capital key adjustment (€26 million).

Administrative costs totalled €205 million, slightly lower than in 2018 (-€1 million). 

Among these, staff costs showed a slight increase (0.2%) compared to 2018 (€0.3 million), essentially due to an increase in supervisory staff. 

Supplies and services from third parties fell by €4 million from 2018 (-8%), mostly driven by a decrease in legal and financial advice expenses (-€1.4 million), a decrease in software development and information technology expenses (-€2 million) and the impact of the adoption of IFRS 16, as this aggregate no longer includes rents from lease agreements that are now recorded under Depreciation (€2.5 million).  

The Bank’s net profit permitted the distribution of €607 million in dividends to the State (€645 million in 2018). Total dividends and income tax for 2019 amounted to €956 million.

[1] Such as high-credit-quality sovereign debt.

[2] One of the agreements reached was the Agreement on Net Financial Assets (ANFA) between euro area NCBs and the ECB (SEC/GovC/16/420/07a.R), which sets rules and limits on the positions of Eurosystem central banks in regard to non-monetary policy holdings.