Press Release of Banco de Portugal on the presentation of the Annual Report for 2017
Banco de Portugal releases today the Annual Report for 2017.
In 2017, as a member of the Eurosystem, the European monetary authority, Banco de Portugal implemented various monetary policy measures, helped develop the legal framework in the area of payments and was particularly active in its cash handling functions.
Participation in the single monetary policy decision-making and implementation
Banco de Portugal shares responsibilities over defining and implementing the euro area monetary policy. The accommodative monetary policy adopted by the Governing Council of the European Central Bank (ECB) greatly reduced fragmentation in the debt markets among the countries of the monetary union, provided favourable financing conditions for households and firms and contributed to the expansion of activity in the euro area, including Portugal. This policy thus helped keep the path of inflation in line with the price stability objective.
Aside from implementing standard monetary policy measures, Banco de Portugal also undertook non-standard transactions, including purchases under the Public Sector Purchase Programme (PSPP), which acquires public debt and debt from supranational entities, making around 1,000 transactions and buying Portuguese public debt securities worth €4.7 billion overall. At the end of 2017, the value of assets acquired under the purchase programmes recorded on Banco de Portugal's balance sheet came to €47 billion, with €41 billion relating to the public sector asset purchase programme.
Preparation of legislation in the payments systems area
In the payment systems area, 2017 was marked by the work towards implementation of the revised Directive on Payment Services in the internal market (PSD2). Also in 2017, preparations began on providing instant payment solutions for the Portuguese community.
Work validating banknotes increased following the fires
In cash handling, Banco de Portugal carried out important work in checking damaged banknotes as a result of the wildfires in Portugal in 2017. Over the year, Banco de Portugal checked the authenticity and quality of 647 million banknotes received from the general public and credit institutions, of which 141 million were considered unfit.
In the context of its mission to promote and safeguard financial stability, Banco de Portugal completed the sale process of Novo Banco, launched the new Portal do Cliente Bancário (Bank Customer Website) and was successful in the international assessment of the system for supervising prevention and combat of money laundering.
Banco de Portugal completed the Novo Banco sale process
Completion of the sale of Novo Banco was one of the milestones of Banco de Portugal's intervention in 2017. The end of this process eliminated the uncertainty affecting the external assessment of the Portuguese banking system. Banco de Portugal's active intervention was instrumental to the completion of this process on schedule, by assuming a proactive role that led to the SSM's approval of the operation.
In its capacity as prudential supervisory authority, Banco de Portugal also participated in Banco Popular Español’s pre-resolution process, which allowed for the normal functioning of its subsidiary in Portugal, through its protection under the resolution measure adopted.
As regards the business model of the supervised institutions, work was carried out in regard to non-performing loans (NPLs), by imposing and monitoring strategic plans to reduce them, which contributed to a considerable decrease of approximately €9,300 million in these loans on the banking system's balance sheet in 2017.
Number of customer complaints rose and new Portal do Cliente Bancário (Bank Customer Website) was launched
In banking conduct supervision, Banco de Portugal developed a series of regulatory initiatives, within the scope of the implementation of European Union legislative acts, which resulted in an increase and reinforcement of bank customer rights and the widening of the scope of banking conduct supervision. The new Portal do Cliente Bancário was also launched, reinforcing its role in promoting financial information and training for bank customers.
Supervision by Banco de Portugal intensified, with a rise in the number of complaints received (8.1% more than in 2016, totalling 15,282) and the issuing of 753 specific recommendations and determinations requiring the correction of the irregularities detected. It initiated 55 administrative proceedings to penalise serious breaches of the rules applicable to retail banking markets.
Model for preventing money laundering validated internationally
In terms of preventing and repressing illicit financial activity, Banco de Portugal conducted off-site and on-site inquiries in 193 proceedings. These led to the initiation of 14 administrative proceedings, 13 notifications to the Prosecutor General of the Portuguese Republic for signs of criminal offence, and public warnings on 30 entities not authorised to conduct financial activity. In total, Banco de Portugal initiated 154 administrative proceedings.
In terms of preventive supervision of money laundering and terrorist financing, Banco de Portugal successfully concluded its participation in the assessment of the national anti-money laundering and counter terrorist financing (ML/TF) system by the Financial Action Task Force (FATF), which recognised the effectiveness and sophistication of Banco de Portugal's supervisory model in this area.
In terms of economic advice and openness to society in 2017, Banco de Portugal adopted a research agenda for 2018-20 and strengthened statistical production and disclosure.
Banco de Portugal adopted a research agenda and strengthened the statistics area
In 2017 the Board of Directors approved Banco de Portugal’s research agenda for the duration of the Strategic Plan, which sets out three priority fields for in-house analysis and research up to 2020: new challenges facing monetary policy and financial stability, Portuguese economic growth within the euro area (constraints and sustainability), and the future of institutions and public policies in Portugal and in the European Union.
In 2017 Banco de Portugal’s Microdata Research Laboratory (BPLim) started to make granular information on the Portuguese economy available to in-house and external researchers. At the end of the year, BPLim was involved in 41 scientific projects, 7 of which were exclusively undertaken by external researchers.
In 2017 the Money Museum won various national and international awards. In terms of internal organisation, Banco de Portugal has created the Data Protection Office and adopted a new Strategic Plan
Money Museum recognised
In 2017 the Money Museum was named ‘Best Museum of the Year’ by the Portuguese Museology Association, and won the Acesso Cultura Award for ‘Integrated Accessibility’. Acesso Cultura gives this annual award to recognise projects or entities that stand apart for their promotion of physical, social and intellectual conditions in accessing cultural spaces and offerings in Portugal. The Money Museum was also a finalist in the European Museum Forum’s ‘European Museum of the Year Award’.
The renovation project of the former Church of São Julião with a view to housing the Money Museum was distinguished, also in 2017, with the 2014 Valmor and Municipal Architecture Award, presented by Lisbon’s City Council.
Banco de Portugal created the Data Protection Office
In terms of internal governance, the entry into force of the General Data Protection Regulation in May 2018 led Banco de Portugal to consider how this regulation should be applied to its activity, resulting in the creation of the Data Protection Office.
In order to assess and ensure the effectiveness of the governance, risk management and internal control processes, as well as the systems supporting Banco de Portugal’s operation, 33 audits were carried out, 28 of which were exclusively domestic and five related to systems and processes that are common or shared with the Eurosystem/ESCB.
Adoption of the new Strategic Plan up to 2020
In 2017 Banco de Portugal started the implementation of the Strategic Plan establishing the priorities for the four-year period 2017-2020, which derive from its mission to safeguard price stability and financial stability.
The balance sheet of Banco de Portugal increased €15 billion in 2017, to €153 billion.
The balance sheet of Banco de Portugal totalled €153 billion at the end of 2017, a €15 billion increase from 2016. A principal driver of this was the growth in monetary policy assets, as part of Banco de Portugal's participation in the asset purchase programme (APP), which reached €46,969 million (a €14,715 million increase from 2016).
In 2017 Banco de Portugal's foreign reserves and euro assets fell from their overall 2016 level of €3,505 million, with an offsetting fall essentially in intra-Eurosystem liabilities. Contributing to the fall in the overall value of these assets were the decreases in the trading portfolio denominated in foreign currency and the trading portfolio denominated in euro, which reflect Banco de Portugal's investment decisions within the flexibility allowed by the agreements established at Eurosystem level.
The decrease in the gold reserve of €198 million from 2016 arose exclusively from the negative valuation of the gold in euros. The volume of this reserve remained unchanged at 382.5 tonnes, valued at €13,305 million at the end of 2017. The increase in banknotes in circulation reflects the rise in circulation at Eurosystem level (increasing by €1,014 million to €26,675 million).
Net profit for 2017 came to €656 million
The main components of Banco de Portugal's net profit include (i) interest margin, the main component of the profit and loss account, which reached €1,010 million, representing growth of €164 million. The sharp increase in interest assets was driven by developments in the portfolio of securities held for monetary policy purposes, with particularly sharp growth in the governmental component of the public sector purchase programme (PSPP), as mentioned above; and, (ii) a combination of other factors, including the negative net result of financial operations and unrealised losses and the €520 million reduction in the general risk provision, arising from the reduction in medium/long term risk in the portfolio, which reflected the reduction in foreign reserves and euro assets and the increase in the rating on the Portuguese Republic's debt.
Administrative expenses came to €208 million, a €25 million increase, with a €10.5 million contribution from expenses related to early retirements, which were recognised in equity instead of income up to 2016, and a €7 million contribution from the legal and financial advice on the sale process of Novo Banco, and on the resolution measure applied to Banco Espírito Santo, largely resulting from the fact that Banco de Portugal began to bear in full these expenses in 2017.
The net profit enabled the distribution of dividends to the State to the amount of €525 million (€352 million in 2016). Total dividends and income tax for 2017 amounted to €797 million.