Annual Report • Sep 29, 2017
Annual Report
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Pursuant to article 9 of Regulation 5/2008 of the CMVM, please find herein the transcription of the
BANCO COMERCIAL PORTUGUÊS, S.A.
Company open to public investment
Registered Office: Praça D. João I, 28, 4000-295 Porto - Share Capital 5,600,738,053.72 Euros Registered at Porto Commercial Registry, under the single registration and tax identification number 501 525 882
The First Half of 2017 Report and Accounts is a translation of the "Relatório e Contas do 1º Semestre de 2017", a document delivered by Banco Comercial Português, S.A. to the Portuguese Securities and Market Commission (CMVM), in accordance with Portuguese law.
The sole purpose of the English version is to facilitate consultation of the document by English-speaking Shareholders, Investors and other Stakeholders, and, in case of any doubt or contradiction between the documents, the Portuguese version of the "Relatório e Contas do 1º Semestre de 2017" prevails.
All mentions in this document to the application of any ruling mean the respective version currently in force.
| JOINT MESSAGE OF THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE CEO 4 | |
|---|---|
| JOINT MESSAGE OF THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE CEO 5 | |
| INFORMATION ON THE BCP GROUP 6 | |
| BCP IN THE FIRST HALF-YEAR OF 2017 7 MAIN INDICATORS 8 BCP GROUP 9 GOVERNANCE 10 MAIN EVENTS IN THE FIRST 6 MONTHS OF 2017 12 BCP SHARE 14 QUALIFIED HOLDINGS 19 |
|
| BUSINESS MODEL 20 | |
| REGULATORY, ECONOMIC AND OF THE FINANCIAL SYSTEM ENVIRONMENT 21 BUSINESS MODEL 24 PERFORMANCE VERSUS STRATEGIC PLAN 31 RESULTS AND BALANCE SHEET 32 BUSINESS AREAS 44 |
|
| STRATEGY 63 | |
| VISION, MISSION AND STRATEGY 64 STRATEGY 66 |
|
| RISKS AND OUTLOOK 69 | |
| MAIN RISKS AND UNCERTAINTIES 70 RISK MANAGEMENT 72 INTERNAL CONTROL SYSTEM 91 EXPOSURE TO ACTIVITIES AND PRODUCTS AFFECTED BY FINANCIAL CRISIS 93 LIQUIDITY AND FUNDING 94 BCP RATINGS 95 CAPITAL 96 PENSION FUND 97 INFORMATION ON TRENDS 99 |
|
| VALUE ADDED TO SOCIETY 102 | |
| INVOLVEMENT OF STAKEHOLDERS 103 VALUE ADDED TO EACH STAKEHOLDER GROUP 105 ENVIRONMENTAL IMPACT 115 |
|
| REGULATORY INFORMATION 117 | |
| CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST HALF-YEAR OF 2017 118 GLOSSARY OF THE PERFORMANCE ALTERNATIVE MEASURES 120 |
|
| CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE 1ST HALF-YEAR OF 2017 122 |
|
| DECLARATION OF COMPLIANCE 269 | |
| EXTERNAL AUDITORS' REPORT 271 |
The first six months of 2017 were marked by the acceleration of the economic recovery in Portugal, with several institutions revising upwards their economic growth projections. In these six months the exporting sectors, such as tourism, continued to increase their contribution to the improvement of the Portuguese economy, together with the recovery of investment.
The normalization of the activities carried out by domestic banks was evident in the first six months of 2017. The Banks operating in Portugal have defined their future and, at this moment, are applying strict restructuring efforts to adapt their business plan.
Millennium bcp, which completed its restructuring plan successfully, benefited from the improved prospects for the Portuguese economy, with the normalization of the activities of the Banks operating in Portugal and with the already proven capacity to generate operating gains in a consistent manner.
BCP's results in the first six months of 2017 amounted to 89.9 million Euros, which compares with a 197 million Euros loss in the same period of 2016. The results are characterized as being of a recurrent nature, generated by an increase in the net interest income and by the ongoing reductions of operating costs: core income (net interest income + fees – operating costs) grew 27.8%, reaching 559 million Euros, with a cost-to-core income of 44.6%. During these six months it was also possible to continue to reduce Non-Performing Exposures (NPEs) at a very good pace, which is crucial for the Bank's sustainability, with NPEs showing a decrease of over 700 million Euros during the first six months of 2017, with coverage rates above 100%.
The international operations, notwithstanding more moderate economic growth paces in Angola and Mozambique, are recording a very positive evolution. The contribution of the international operations to the Group amounted to 87.1 million Euros.
In Poland, Bank Millennium continues to invest in innovation and in an increasingly digital business model. The Bank posted earnings of 73.7 million Euros in the first half year of 2017. In Mozambique, Millennium bim' earnings increased 42.6% in local currency, amounting to 42.8 million Euros. In Angola, the first six months of 2017 were positive for Banco Millennium Atlântico, which contributed 15.8 million Euros to the results recorded by Millennium bcp. The Bank's business and number of Clients are growing in line with the business plan set forth on the occasion of the merger.
In terms of consolidated business, the first six months evolved favourably, particularly in what concerns new Clients. The number of Clients in the Group grew 4.4%, reaching more than 5.2 million. In Portugal, the Bank was able to attract more than 110 thousand new Clients, showing that it was able to recover its capacity to attract new business. The implementation of a strategy based on digital is also showing significant results: the number of digital Clients now surpasses 2.2 million, more than 700 thousand of which are Portugal, evidencing a 28% growth versus 2016. The Bank was recently considered by Global Finance magazine as the "Best Digital Bank" in Portugal and in Poland. Regarding awards, another highlight is the award for Millennium Bim as the "Best Bank in Mozambique" by Euromoney, the same publication which considered Bank Millennium as the "Best Bank in Social Responsibility" in Poland.
These first six months confirmed the Bank's capacity to generate business results, quarter after quarter. The evolution of the business indicators is positive and increases our trust in achieving the targets we set out for 2018. In general terms we are well aligned with the defined objectives.
Millennium bcp is in a unique position in the banking industry in Portugal and in the countries where it operates and, we reaffirm its support to society, families and companies.
Chief Executive Officer Chairman of the Board Vice-Chairman of the Board of Directors of Directors.
Nuno Amado António Monteiro
Report and Accounts for the first half-year of 2017
Individuals
*Core net income = net interest income + net fees and commission income - operating costs.
… READY FOR THE FUTURE!
| FINANCIAL HIGHLIGHTS | Euro million | ||
|---|---|---|---|
| 30 Jun. 17 | 30 Jun. 16 | Change 17/16 | |
| Balance sheet | |||
| Total assets | 73,024 | 73,068 | -0.1% |
| Loans to customers (gross) | 51,684 | 52,930 | -2.4% |
| Total customer funds | 66,070 | 62,823 | 5.2% |
| Balance sheet total customer funds | 52,228 | 50,500 | 3.4% |
| Resources from customers | 50,636 | 48,762 | 3.8% |
| Loans to customers, net / Resources from customers (1) | 95% | 102% | |
| Loans to customers, net / Balance sheet total customer funds | 92% | 97% | |
| Results | |||
| Net income | 89.9 | (197.3) | 145.6% |
| Net interest income | 678.5 | 600.8 | 12.9% |
| Net operating revenues | 1,048.8 | 1,059.4 | -1.0% |
| Operating costs | 450.2 | 484.1 | -7.0% |
| Loan impairment charges (net of recoveries) | 305.0 | 618.7 | -50.7% |
| Other impairment and provisions | 110.3 | 198.0 | -44.3% |
| Income taxes | |||
| Current | 54.5 | 56.4 | |
| Deferred | (11.1) | (134.7) | |
| Profitability | |||
| Net operating revenues / Average net assets (1) | 2.9% | 2.8% | |
| Return on average assets (ROA) (2) | 0.4% | -0.3% | |
| Income before tax and non-controlling interests / Average net assets (1) | 0.5% | -0.5% | |
| Return on average equity (ROE) | 3.3% | -8.8% | |
| Income before tax and non-controlling interests / Average equity (1) | 5.8% | -7.2% | |
| Credit quality | |||
| Overdue loans and doubtful loans / Total loans (1) | 8.1% | 9.7% | |
| Overdue loans and doubtful loans, net / Total loans, net (1) | 1.2% | 2.8% | |
| Credit at risk / Total loans (1) | 10.1% | 11.9% | |
| Credit at risk, net / Total loans, net (1) | 3.4% | 5.2% | |
| Impairment for loan losses / Overdue loans by more than 90 days | 110.1% | 93.9% | |
| Efficiency ratios (1) (3) | |||
| Operating costs / Net operating revenues | 45.2% | 45.6% | |
| Operating costs / Net operating revenues (Portugal activity) | 45.9% | 47.5% | |
| Staff costs / Net operating revenues | 25.3% | 25.7% | |
| Capital (4) | |||
| Common equity tier I phased-in | 13.0% | 12.3% | |
| Common equity tier I fully implemented | 11.3% | 9.7% | |
| Branches | |||
| Portugal activity | 596 | 646 | -7.7% |
| Foreign activity | 540 | 563 | -4.1% |
| Employees | |||
| Portugal activity | 7,303 | 7,402 | -1.3% |
| Foreign activity | 8,506 | 8,496 | 0.1% |
(1) According to Instruction from the Bank of Portugal no. 16/2004, as the currently existing version. Given the booking of Banco Millennium
Angola as a discontinued operation between March and May 2016, the consolidated balance sheet includes Banco Millennium Angola until its derecognition, determined by the completion of the merger with Banco Privado Atlântico, in May 2016, while the respective contribution to
consolidated result is reflected in income from discontinued operations and non-controlling interests during that period, not influencing the remaining items of the consolidated income statement.
(2) Considering net income before non-controlling interests.
(3) Excludes specific items: Euro 23.7 million profit in staff costs related to Collective Labour Agreement negotiation net of restructuring costs, in 2017, and Euro 1.2 million from restructuring costs in 2016.
(4) Including earnings for the first half of the year.
Banco Comercial Português, S.A. (BCP, Millennium bcp or Bank) is the largest Portuguese privatelyowned bank. The Bank, with its decision centre in Portugal, guides its action by the respect for people and institutions, by the focus on the Customer, by a mission of excellence, trust, ethics and responsibility, being a distinguished leader in various areas of financial business in the Portuguese market and a reference institution on an international level. The Bank also holds a prominent position in Africa through its banking operations in Mozambique (in Angola, Banco Millennium Angola merged with Banco Privado Atlântico), and in Europe through its banking operations in Poland and Switzerland. The Bank operates in Macau through a full branch since 2010, when a memorandum of understanding was signed with the Industrial and Commercial Bank of China with the objective of strengthening cooperation between the two banks, which is extended to other countries and regions beyond Portugal and China. In 2016, pursuant to a private placement Fosun became holder of 16.7% of the Bank's share capital having afterwards increased its holding to around 23.9% through the share capital increase completed in February 2017.
| Incorporation and organic growth to become a relevant player |
Development in Portugal through acquisitions and partnerships |
Internationalisation and creation of a single brand |
Restructuring Process involving the divesture in non-strategic assets |
|---|---|---|---|
| 1985: Incorporation 1989: Launch of NovaRede Up to 1994: Organic growth, reaching a market share of approximately 8% in loans and deposits in 1994 |
1995: Acquisition of Banco Português do Atlântico, S.A. 2000: Acquisition of Banco Pinto & Sotto Mayor from CGD and incorporation of José Mello Group (Banco Mello and Império) 2004: Agreement with CGD Group and Fortis (Ageas) for the insurance business |
1993: Beginning of the presence in the East 1995: Beginning of the presence in Mozambique 1998: Partnership agreement with BBG (Poland) 1999: Set up of a greenfield operation in Greece 2000: Integration of the insurance operation into Eureko 2003: - Banque Privée incorporation - Change of Poland operation's denomination to Bank Millennium 2006: Adoption of a single brand "Millennium" 2006: BMA incorporation 2007: Beginning of activity in Romania 2008: Strategic partnership agreement with Sonangol and BPA 2010: Transformation of Macau branch from off-shore to on-shore |
2005: - Sale of Crédilar - Sale of BCM and maintenance of an off-shore branch in Macao - Divesture in the insurance activity, following the partnership agreement with Ageas for the bancassurance activity 2006: - Sale of the financial holding of 50.001% in Interbanco - Conclusion of the sale of 80.1% of the share capital of the Banque BCP in France and Luxembourg 2010: - Sale of 95% of Millennium bank AS in Turkey and sale agreement for the entire branch network and the deposit basis of Millennium bcpbank in USA 2013: - Sale of the entire share capital of Millennium Bank Greece (MBG) to Piraeus Bank - Sale of 10% of the share capital of Banque BCP in Luxembourg - Sale of the full shareholding in Piraeus Bank 2014: - Sale of the entire share capital of Banca Millennium Romania (BMR) to OTP Bank - Sale of the entire share capital of 49% in the non-life insurance business, held in Ocidental and Médis 2015: - Sale of the entire share capital of Millennium bcp Gestão de Ativos - Sale of 15.41% of the share capital of Bank Millennium 2016: - Merger between Banco Millennium Angola and Banco Privado Atlântico |
Banco Comercial Português, S.A. has a one-tier management and supervision model, composed of a Board of Directors, which includes an Executive Committee and an Audit Committee composed only by non-executive directors. The Company also has a Remunerations and Welfare Board and an International Strategic Board.
In addition, the Group uses a Statutory Auditor and an external auditing firm to audit the individual and consolidated accounts of the Bank, whose appointment is resolved at the General Meeting.
The members of the governing bodies were elected at the General Meeting of Shareholders held on 11 May 2015 to perform duties for the three-year period 2015/2017.
The General Meeting is the highest governing body of the company, representing the entirety of the shareholders, and its resolutions are binding for all when adopted under the terms of law and the articles of association. The General Meeting is responsible for:
The Board of Directors (BD) is the governing body of the Bank with the most ample powers of management and representation, pursuant to the law and the articles of association.
Under the terms of the articles of association in effect, the Board of Directors is composed of a minimum of 17 and a maximum of 25 members with and without executive duties, elected by the General Meeting for a period of three years, who may be re-elected. The increase of the number of members of the Board of Directors to 25 was approved on 9 November 2016.
The Board of Directors in office, as at 30 June 2017, was composed of 19 permanent members, with 11 non-executive and 8 executive members.
The Board of Directors appointed an Executive Committee (EC) composed of 8 of its members, to which it delegates the day-to-day management of the Bank. During the first six months of 2017 the Executive Committee was assisted in its management functions by several commissions and sub-commissions which oversaw the monitoring of certain relevant issues.
The supervision of the company is made by an Audit Committee elected by the General Meeting of Shareholders and composed of 3 to 5 members, elected together with the majority of the remaining directors. The lists proposed for the Board of Directors should indicate the members to be part of the Audit Committee and indicate the respective Chairperson.
The Remuneration and Welfare Board is composed of 3 to 5 members, elected by the General Meeting, the majority of whom should be independent.
The Company Secretary and the Alternate Secretary are appointed by the Bank's Board of Directors, and their term-of-office matches that of the Board of Directors that appointed them.
| Board of | Executive | Audit | Remuneration and Welfare |
Board for International |
|
|---|---|---|---|---|---|
| Directors | Committee | Committee | Board | Strategy | |
| António Vitor Martins Monteiro (BD Chairman) | n | n | |||
| Carlos José da Silva (BD Vice-Chairman) | n | n | |||
| Nuno Manuel da Silva Amado (BD Vice-Chairman and CEO) | n | n | n | ||
| Álvaro Roque de Pinho Bissaia Barreto | n | ||||
| André Magalhães Luiz Gomes | n | ||||
| António Henriques de Pinho Cardão | n | ||||
| António Luís Guerra Nunes Mexia | n | ||||
| André Palma Mira David Nunes (*) | n | ||||
| Cidália Maria Mota Lopes | n | n | |||
| Jaime de Macedo Santos Bastos | n | n | |||
| João Manuel de Matos Loureiro (AC Chairman) | n | n | |||
| João Nuno de Oliveira Jorge Palma (**) | n | n | |||
| José Jacinto Iglésias Soares | n | n | |||
| José Miguel Bensliman Schorcht da Silva Pessanha | n | n | |||
| José Rodrigues de Jesus (*) | n | n | |||
| Lingjiang Xu (**) | n | ||||
| Maria da Conceição Mota Soares de Oliveira Callé Lucas | n | n | |||
| Miguel de Campos Pereira Bragança | n | n | |||
| Miguel Maya Dias Pinheiro | n | n | |||
| Raquel Rute da Costa David Vunge | n | ||||
| Rui Manuel da Silva Teixeira | n | n | |||
| José Gonçalo Ferreira Maury (Chariman of RWB) | n | ||||
| José Guilherme Xavier de Basto | n | ||||
| José Luciano Vaz Marcos | n | ||||
| Manuel Soares Pinto Barbosa | n | ||||
| Carlos Jorge Ramalho dos Santos Ferreira (Chairman of BIS) | n | ||||
| Francisco de Lemos José Maria | n | ||||
| Josep Oliu Creus | n |
(*) Members Appointed by the State for the period of enforcement of the public investment to strengthen the Bank's own funds.
(**) Pending authorization from BdP/ECB to exercise the respective functions
Millennium bcp renewed its subscription to Movement ECO - Empresas Contra os Fogos, (Companies Against Fires) a project that aims to contribute to the prevention of forest fires and increasing public awareness towards risk behaviours.
Millennium bcp participated, at a national level, in the food collection promoted by the Food Bank.
Resolution of the Board of Directors dated 28 June 2017 regarding the co-optation of three new non-executive directors: Gu Xiaoxu, Li Cheng and Zhihua Shen, thus increasing the number of Directors to 22, 14 of which are non-executive.
On September 1, 2017, Banco Comercial Português informed that, after having conveyed reservations regarding the contingent capitalization obligation by the Portuguese Resolution Fund (Fundo de Resolução) which was announced to be included in a sale agreement of Novo Banco, has decided, in light of the legal deadline and for caution, to request the respective appreciation through administrative legal proceedings. This diligence, which centers exclusively on the referred capitalization obligation, does not comprise the request by the Bank of, nor entail, the production of any suspending effects on the sale of Novo Banco, S.A. and, consequently, brings legally no impediment to such sale within the foreseen delays.
The first six months of 2017 were also globally positive for the stock markets. The presentation of robust activity indicators, in both industry and services, associated with a context featuring low interest rates, generated gains in the Euro area and in the USA. The reduction of the political risks in Europe was quite evident in the evolution shown by the Euro, which increased substantially versus currencies such as the USD (+8.2%). This reduction in risk encouraged consumers, analysts and investors, with impact on the economic performance where Portugal stood out, although the Euro appreciation has limited the income of exporting companies in the Euro area. On the other hand, in the USA, perception of political risk is on the rise and investors show some concern with the robustness of the Trump Administration, namely regarding its ability to implement its announced policies. The banking sector presented a good performance for the first six months of 2017 although conditioned by a context of low yields wherein the investors pay a higher price-to-book value ratio, however still below 1x PBV.
| Units | 1H17 | 1H16 | |
|---|---|---|---|
| Adjusted prices | |||
| Maximum price | (€) | 0.2429 | 0.6459 |
| Average price | (€) | 0.1880 | 0.4449 |
| Minimum price | (€) | 0.1383 | 0.2261 |
| Closing price | (€) | 0.2357 | 0.2351 |
| Shares and equity | |||
| Number of ordinary shares | (M) | 15,114 | 59,039 |
| Shareholder's Equity attributable to the group | (M€) | 5,948 | 4,159 |
| Shareholder's Equity attributable to ordinary shares (1) | (M€) | 5,888 | 4,099 |
| Value per share | |||
| Adjusted net income (EPS) (2) (3) | (€) | 0.015 | -0.329 |
| Book value (4) | (€) | 0.389 | 0.070 |
| Market indicators | |||
| Closing price to book value | (PBV) | 0.61 | 0.26 |
| Market capitalisation (closing price) | (M€) | 3,562 | 1,075 |
| Liquidity | |||
| Turnover | (M€) | 1,956 | 1,718 |
| Average daily turnover | (M€) | 15.4 | 13.5 |
| Volume (5) | (M) | 10,189 | 4,022 |
| Average daily volume (5) | (M) | 80.2 | 31.7 |
| Capital rotation (6) | (%) | 81.3% | 88.0% |
(2) Considering the average number of shares outstanding
(3) Ajusted by the share capital increase completed in February 2017.
(4) Considering the average number of shares minus the number of treasury shares in portfolio.
(5) Ajusted by the share capital increase completed in February 2017.
(6) Total number of shares traded divided by the half year average number of shares issued.
In the first six months of 2017, the BCP share increased 27.8%, exceeding the domestic reference index PSI 20, which registered gains of 10.1%, and the European banks index Eurostoxx 600 Banks, which recorded a 7.1% increase in value.
The BCP share started the year with losses, pursuant to the disclosure of the share capital increase amounting to 1.3 billion Euros in January 2017. However this trend was inverted and the BCP share began to recover after the completion of the share capital increase, the admission to trading of the new shares and the early repayment of the remaining value of capital hybrid instruments (700 million Euros).
Since 9 February, date of the admission to trading of the new shares, the BCP share price increased 60.7%, due to:
However, the performance of the BCP share may have been conditioned by the following:
| Index | 1H17 |
|---|---|
| Ação BCP | 27.8% |
| PSI Financials | 17.8% |
| PSI20 | 10.1% |
| IBEX 35 | 11.7% |
| CAC 40 | 5.3% |
| DAX | 7.4% |
| FTSE 100 | 2.4% |
| MIB FTSE | 7.0% |
| Eurostoxx 600 Banks | 7.1% |
| Dow Jones | 8.0% |
| Nasdaq 100 | 16.1% |
| S&P500 | 8.2% |
Source: Euronext, Reuters, Bloomberg.
During the first six months of 2017 a volume of approximately 1.96 billion Euros in BCP shares were traded, corresponding to an average daily turnover of 15.4 million Euros. During this period, approximately 10.19 billion shares were traded (volumes adjusted due to the share capital increase), corresponding to an average daily volume of 80.2 million shares. The capital rotation index stood at 81.3% of the six-month average number of shares issued.
The BCP share is part of more than 50 domestic and international stock exchange indexes among which we point out the Euronext PSI Financial, PSI 20, Euronext 150, and the NYSE Euronext Iberian.
| Indices weighting | |||
|---|---|---|---|
| Index | Weight | Bloomberg | Thomson Reuters |
| Iberian Index | 0.90% | NEIBI | .NEIBI |
| Euronext 150 | 1.39% | N150 | .N150 |
| PSI 20 | 15.90% | PSI20 | .PSI20 |
| PSI Geral | 5.87% | BVLX | .BVL |
| PSI Financials | 64.62% | PSIFIN | .PTFIP |
Source: Euronext, 30 June 2017
In addition, by the end of the first half of 2017, apart from these indexes, Millennium bcp was also part of the following sustainability indexes: Ethibel Excellence Europe, Ethibel EXCELLENCE Investment Register and Respect Index. BCP was also part of the first edition of the European Banks index, from the analyst Standard Ethics.
The following table summarizes the relevant facts directly related with Banco Comercial Português which occurred during the first six months of 2017, as well as the price variations occurred on the following day and on the 5 subsequent days and the relative evolution versus the main reference domestic index and European indexes during the mentioned periods of time.
| Nr. | Date | Material Events | Chg. +1D Chg. vs. PSI20 (1D) |
Chg. vs. DJS Banks (1D) |
Chg. +5D | Chg. vs PSI20 (5D) |
Chg. vs DJS Banks (5D) |
|
|---|---|---|---|---|---|---|---|---|
| 1 9/Jan | Board of Directors resolution | -11.3% | -10.1% | -11.2% | -22.9% | -20.7% | -22.5% | |
| 2 9/Jan | Approval of rights offering | -11.3% | -10.1% | -11.2% | -22.9% | -20.7% | -22.5% | |
| 3 11/Jan | Calendar of events for 2017 | -2.8% | -2.8% | -2.1% | 10.6% | 10.2% | 10.9% | |
| 4 12/Jan | Roadshow presentation of the rights issue | 5.7% | 5.2% | 3.7% | 0.8% | 1.1% | -0.1% | |
| 5 7/Feb | Registration of share capital increase | -7.0% | -6.9% | -6.2% | -7.6% | -8.5% | -9.2% | |
| 6 9/Feb | Repayment of hybrid capital instruments | 0.3% | 0.1% | 1.1% | 0.5% | -0.3% | -1.2% | |
| 7 10/Feb | Resignation of a member of the Board of Directors | -1.4% | -1.3% | -2.3% | 2.6% | 1.8% | 1.1% | |
| 8 23/Feb | Upgrade from SP | -1.9% | -1.5% | -0.5% | 4.9% | 3.3% | 3.5% | |
| 9 3/Mar | Bank Millennium results in 2016 | -0.3% | 0.2% | 0.9% | 0.6% | 1.4% | -0.6% | |
| 10 6/Mar | 2016 consolidated earnings | -3.2% | -3.1% | -2.9% | 1.2% | 1.5% | -1.3% | |
| 11 25/Apr | Bank Millennium Poland results in 1Q2017 | -1.1% | -1.3% | -1.3% | 4.1% | 2.1% | 3.6% | |
| 12 8/May | 1Q2017 Consolidated Earnings | 0.8% | 0.4% | 1.2% | -1.7% | -1.9% | -1.9% | |
| 13 10/May | Resolutions of the Annual General Meeting | -0.3% | 0.1% | 0.2% | -6.9% | -4.4% | -4.6% | |
| 14 23/May | New issue of covered mortgage bonds | 2.2% | 2.3% | 2.1% | 6.4% | 5.1% | 8.3% | |
| 15 28/Jun | Resolution of the Board of Directors | -2.0% | -1.1% | -2.6% | 1.7% | 1.4% | -0.4% |
The following graph illustrates the performance of BCP shares over the reference period:
Pursuant to the conditions of the issue of Core Tier I Capital Instruments underwritten by the State under Law number 63-A/2008 and Implementing Order number 150-A/2012, the Bank could not distribute dividends until the issue is fully reimbursed. This restriction was in effect during the financial years 2013 to 2016.
With the share capital increase concluded in February 2017, the Bank intends to meet the conditions to accelerate the return to normality, including the potential distribution of dividends, so as to be able to, from 2018 onwards, have a dividend pay-out policy not inferior to 40% of eventual distributable earnings, subject to regulatory requirements.
During the first six months of 2017, the Bank participated in several events, namely in 4 conferences and 4 road shows in Europe and in the USA where it made institutional presentations and held one-toone meetings with investors. More than 280 meetings were held with analysts and institutional investors, which continue to demonstrate significant interest in relation to the Bank.
Treasury shares held by entities included in the consolidation perimeter are held within the limits established by the bank's by-laws and by the Portuguese Companies Code.
As at 30 June 2017, Banco Comercial Português, S.A. did not hold any treasury shares and no treasury shares were purchased or sold during that period of time. However, the item "Treasury Stock" recorded 323,774 shares (31 December 2016: 2,689,098 shares) held by customers. Considering that for some of these customers there is evidence of impairment, the Bank's shares held by these customers were considered as treasury stock and, in accordance with the accounting policies, written off from equity.
Regarding treasury stock held by associate companies of the BCP Group, pursuant to the note to the financial statements number 49, as at 30 June 2017, the Millennium bcp Ageas Group holds 142,601,002 BCP shares (31 December 2016: 8,694,500 shares) amounting to 33,597,000 Euros (31 December 2016: Euros 9,312,000).
According to Interbolsa, on 30 June 2017, the number of Shareholders of Banco Comercial Português was of 173,642.
By the end of June 2017 there were five Shareholders with a qualifying shareholding, two of which held stakes above 5% of the Bank's share capital.
| Number of | ||
|---|---|---|
| Shareholder structure | Shareholders | % of share capital |
| Individual Shareholders | ||
| Group Employees | 2,945 | 0.25% |
| Other | 165,902 | 23.61% |
| Companies | ||
| Institutional | 328 | 30.86% |
| Other and Qualified Shareholders | 4,467 | 45.28% |
| Total | 173,642 | 100.00% |
Shareholders with more than 5 million shares represented 74.8% of the share capital. During the first six months of 2017, there was a significant increase in the percentage of capital held by foreign investors, mostly due to the Bank's share capital increase made in February 2017.
| Number of shares per Shareholder Number of Shareholders | % of share capital | |
|---|---|---|
| > 5,000,000 | 138 | 74.77% |
| 500,000 to 4,999,999 | 1,026 | 7.65% |
| 50,000 to 499,999 | 13,619 | 11.59% |
| 5,000 to 49,999 | 45,467 | 5.32% |
| < 5,000 | 113,392 | 0.67% |
| Total | 173,642 | 100% |
During the first six months of 2017, the relative weight of the Shareholders in Portugal decreased from 53% to 33%, especially due to the completion of the share capital increase operation.
| Nr. of Shares (%) | |
|---|---|
| Portugal | 33.3% |
| Africa | 15.5% |
| UK / USA | 11.9% |
| Other | 39.3% |
| Total | 100% |
On 30 June 2017, the following Shareholders held more than 2% of the share capital of Banco Comercial Português, S.A.:
| 30 June 2017 | |||
|---|---|---|---|
| Shareholder | Nr. of shares | % of share capital |
% of voting rights |
| Chiado (Luxembourg) S.a.r.l., an affiliate of Fosun, whose parent company is Fosun International Holdings Ltd |
3,738,412,411 | 24.73% | 24.73% |
| Total of Fosun Group | 3,738,412,411 | 24.73% | 24.73% |
| Sonangol - Sociedade Nacional de Combustíveis de Angola, EP, directly | 2,303,640,891 | 15.24% | 15.24% |
| Total of Sonangol Group | 2,303,640,891 | 15.24% | 15.24% |
| EDP Pensions Fund * | 319,113,690 | 2.11% | 2.11% |
| Total of EDP Group | 319,113,690 | 2.11% | 2.11% |
| Norges Bank, directly | 327,405,240 | 2.17% | 2.17% |
| Total of Norges Group | 327,405,240 | 2.17% | 2.17% |
| BlackRock** | 307,981,328 | 2.04% | 2.04% |
| Total of BlackRock*** | 307,981,328 | 2.04% | 2.04% |
| Total of Qualified Shareholders | 6,996,553,560 | 46.3% | 46.3% |
* Allocation in accordance with subparagraph f) of paragraph 1 Art. 20 of the Portuguese Securities Code.
** In accordance with the announcement on 5 April 2017.
The voting rights referred to above are the result of the direct and indirect stakes of Shareholders in the share capital of Banco Comercial Português. No other imputation of voting rights foreseen in article 20 of the Securities Code was communicated or calculated.
On 23 November 2016, the European Commission presented a set of measures with the purpose of mitigating the risk of the bank sector which are currently being appraised by the European authorities. One must point out the proposal for the review of the Capital Requirements Directive (CRD IV) of the Capital Requirements Regulation (CRR) and of the Bank Recovery and Resolution Directive (BRRD). These alterations relate mainly with the calibration and the establishment of the leverage ratio and of the Net Stable Funding Ratio (NFSR), the alterations to the estimation of the market risk requirements and of interest rates in the bank portfolio, the extension of the support for SMEs to larger companies, the definition of guidelines for the application of the capital requirements within the scope of Pillar 2 and the harmonization of the requirements for liabilities elegible for the purposes of being applied in resolution measures Minimum Requirement for own funds and Eligible Liabilities (MREL).
The Basel Committee is currently finalizing the alterations to the Basel III regime with the purpose of increasing the quality of the Bank's capital and reducing the variability of risk weighted assets.
The European Council for Economic and Financial Affairs recently approved a plan of action and a number of policies to reduce the volume of Non-Performing Loans (NPL), which comprises, among other, specific prudential supervision measures, the review of the insolvency legal framework and initiatives to foster the NPL secondary markets. The Union of Capital Markets continues to be a strategic priority of the European Commission, to improve the attractiveness of investment and facilitate companies's access to funding.
Currently, the transposition of the Markets in Financial Instruments Directive (MiFID II/RMIF) is being carried out, to enter into effect in 2018. This new regime extends the duties of transparency to a wider class of assets and derivatives agreements, together with the respective trading platforms, and establishes requirements related with automated high frequency algorithmic trading. This Directive also defines the requirements for the practice of financial consulting, the distribution and creation of new products and those relating the information to provide to the Client.
The purpose of the delegated regulation on the packages of retail investment products and of investment products based on insurance (PRIIP), which will enter into effect at the beginning of 2018, is to protect consumers and establish a common regulation for the fundamental information documents to be provided to the Clients.
In Portugal, we must point out, among the main measures adopted in the first six months of 2017 with impact on the Portuguese financial system, the following:
Lastly, it is important to mention the alterations introduced in the financial supervision model in Portugal which are currently under study, eventually by resorting to a public consultation. The Government foresees the creation of a new supervision entity with responsibilities within the scope of the macro prudential supervision and of the resolution of credit institutions.
The International Monetary Fund (IMF) projects an acceleration of the world economy in 2017 (3.5%), reflecting the recent improvement of the key activity indicators in most of the main economies. Nevertheless, the expansion pace of the developed countries should remain moderate, possibly due to the reduction of their potential growth. The IMF considers that its scenario is subject to a set of downside risks, specifically those derived from the possibility of intensification of international trade protectionism.
Despite the favourable evolution of the European economy and the stabilization of the euro against the major international currencies, the ECB decided not to modify the stance of monetary policy that was defined in March as it considers that the recovery of activity and inflation still lacks confirmation. In the US, dwindling growth and the stabilization of inflation have not precluded the continuation of the process of slow normalization of the Federal Reserve's monetary policy, which hiked its key rate in June, for the second time this year, to 1.25%.
The expectation of sustainable growth of the world economy, the dissipation of risks among the commodity-producing countries and the maintenance of extremely accommodative monetary conditions have contributed to create a favourable context for the financial markets, which translated into an appreciation of the majority of asset classes and in a fall of the volatility levels to the lowest values. Within the equity segment, it should be mentioned that all of the main US indices have reached historic highs. In the interest rates domain, the fact that oil prices have stabilized led to the mitigation of inflationary pressures, which in turn allowed for the stabilization of the government bond yields of the low-risk countries, such as Germany or the US, after the strong increases of the second half of 2016, especially for the longer maturities. Regarding the Euro money markets, the continuation of ECB's policy of generous liquidity provision has kept Euribor rates in negative territory for all maturities.
According to Statistics Portugal, Portugal's GDP rose by 2.8% annually during the first three months of 2017, clearly above the 2.0% observed in the previous quarter. The increase in the pace of economic activity stemmed from the strong acceleration of investment as well as a material rise in the contribution of net exports. The favourable evolution of these two components has more than compensated for the loss of vigour in consumption, both in the public and in the private sector. In this improved context, the IMF has revised upward its forecasts for Portugal's economic growth in 2017 to 2.5%, a value that significantly exceeds the one observed last year (1.4%). The unequivocal improvement of the economic outlook as well as the strong fiscal performance and the fading of the risks concerning the financial condition of the banking system, accompanied by a more stable climate in international financial markets, have contributed to the appreciation of the main domestic equity index by more than 10% in the first half and also a meaningful decline in public and private debt's risk premia.
During 2017's first quarter, the Polish economy expanded at the highest pace among the countries of the European Union, with an annual 4.0% growth rate. This performance benefited mainly from the acceleration of private consumption, stimulated by negative real interest rates and from the strong growth of households' disposable income. The investment in construction, partly co-financed by European funds, also contributed decisively to the expansion of activity. Despite the economy's dynamism and the rise in inflation associated to the recovery of international commodity prices, Poland's National Bank maintained its key rate at 1.50% and has not hinted at any change in the near future. The good macroeconomic performance and the reduced volatility in the global financial markets favoured the appreciation of the zloty against the main international currencies, including the euro and the dollar. After the steep deceleration of activity recorded in 2016, the Mozambican economy has been recovering, leading to the appreciation of the metical, the decline of the inflation rate and the return of foreign investment. In this context, Mozambique's central bank reduced the interest rate on the permanent lending facility from 23.25% to 22.75% in April. In Angola, the recovery of the oil price with respect to the previous year has contributed to a greater economic dynamism, despite the subsistence of financial frailties, namely at the level of the net international foreign reserves, which have continued to decline.
The first six months of 2017 were marked by the conclusion of the recapitalization processes of Caixa Geral de Depósito and of BCP, and by the deconsolidation of assets/liabilities within the scope of the partial sale of the stake of Banco BPI in its subsidiary company in Angola, and by the announcement made by the Banco de Portugal regarding the sale of Novo Banco to Lone Star (the conclusion of the operation is still subject to compliance with certain conditions).
We must also emphasize the approval by the Associação Mutualista Montepio Geral of the transformation of Caixa Económica Montepio Geral into a limited liability company and, in July 2017, the takeover bid made by the Associação Mutualista for the participation units not owned by it in Caixa Económica.
In the first half-year of 2017, core bank items continued to recover which, together with low levels of provisioning due to the reduction in non-performing loans, enabled the banking sector to achieve positive profitability levels.
The Group provides a wide variety of banking services and financial activities in Portugal and abroad, where it is present in the following markets: Poland, Switzerland, Mozambique, Angola (through its associate BMA) and China. All its banking operations develop their activity under the Millennium brand. The Group also ensures its presence in the five continents of the world through representation offices and/or commercial protocols.
The Bank offers a vast range of financial products and services: current accounts, payment systems, savings and investment products, private banking, asset management and investment banking, including mortgage loans, consumer credit, commercial banking, leasing, factoring and insurance, among others. The back-office operations for the distribution network are integrated to benefit from economies of scale.
In Portugal, Millennium bcp is focused on the retail market, providing services to its Customers in a segmented manner. The subsidiaries generally provide their products through the Bank's distribution networks, offering a wide range of products and services.
Millennium bcp is Portugal's largest privately-owned banking institution, with a position of leadership and particular strength in various financial products, services and market segments based on a modern branch network with good territorial cover at a national level.
The activity in the domestic market focuses on Retail Banking, which is segmented in order to best serve Customer interests, both through a value proposition based on innovation and speed targeted at Massmarket Customers, and through the innovation and personalised management of service for Prestige and Business Customers. Retail Banking also has a bank aimed specifically at Customers who are young in spirit, intensive users of new communication technologies and prefer a banking relationship based on simplicity and offering innovative products and services: ActivoBank.
The Bank also offers remote banking channels (banking service by telephone and online), which operate as distribution points for its financial products and services.
At the end of June of 2017, the Bank had 596 branches in Portugal, serving over 5.6 million Customers, and held the position of second bank (first privately-owned bank) in terms of market share for both loans to Customers (17.8%), and customer deposits (17.3%) in June 2017.
The resilience of the business model is primarily based on the Bank's concentration on retail banking, more stable and less volatile by nature, in relation to the lower weight of financial operations. The Bank adopted a new business model based on a new segmentation of its Customers, a review of the products and services that it offers and the adjustment of its back-office and branch network, as well as on the desire of becoming closer to its Customers, while at the same time reducing operating costs. The purpose of the Bank is to ensure sustainable profitability in the medium and long term, seeking to become the best in class in terms of operational efficiency, improving operating profit in a sustainable manner and maintaining a high level of control on credit risk, thus preserving its strategic position in the Portuguese retail and SME banking services market.
In the beginning of 2017 the Bank announced a share capital increase of 1.3 billion euros through the issue of subscription rights, plus the private placement of 175 million euros subscribed by a subsidiary company of Fosun Industrial Holdings Limited ("Fosun"), completed on 18 November, with the objective of speeding up the return of the Bank's activity to normalization, including the potential payment of dividends, instead of the phased approach used until then. The rights issue strengthened the goals of the strategic plan, consisting in the improvement of the profit and loss account induced by the increase of the financial margin (supported by the reduction in the cost of funding due to the repayment of the CoCos and re-pricing of deposits), by the control on costs and the normalization of the cost of risk in Portugal; and improvement of the balance sheet, improving the capital and risk positions, based on the ongoing reduction of non-performing exposures. Total demand recorded in the share capital increase represented around 122.9% of the offer amount. In February 2017, Banco Comercial Português carried out the early repayment to the Portuguese State of the remaining Core Tier 1 capital hybrid instruments
("CoCos"), amounting to 700 million euros. Together with the early repayment of the CoCos, the share capital increase intended to cancel the key restrictions related with the State aid, including the prohibition to distribute dividends, the potential risk of having to sell core businesses and the risk of the conversion of the CoCo bonds into a shareholding.
Since its incorporation, the Bank has built a reputation associated with innovation. The Bank was the first Bank in Portugal to introduce specific innovative concepts and products, including direct marketing methods, layouts based on customer profiles, salary accounts, simpler branches ("NovaRede"), telephone banking services, through Banco 7, which later became the first online banking services platform, health insurance (Médis) and direct insurance, and a website dedicated to individual Customers and corporate banking. The Bank was also a pioneer in the launching of a new Internet Banking concept, based on the ActivoBank platform, which provides a simplified service to the customer, including the opening of a current account using a tablet.
With the purpose of continuing to improve its information systems, the Bank developed, during this period of time, a number of structuring initiatives and projects, of which we highlight:
New tools were also made available, such as:
Within the context of operational improvements:
Finally, we must mention the launching of the "New Prevention Model" with integration of the tasks in Recovery Commercial Management, allowing prevention to achieve a greater efficiency in retail, as well as alterations in the workflow for the authorization of orders of Customers of the Private Banking network.
In the first six months of 2017, Millennium bcp continued to focus on a strategy based on the innovation and promotion of digital banking, reinforcing the offer of services through an omnichannel approach with automated processes and a customer-centric vision.
The online Customers of Millennium bcp increased by 28% and the number of transactions made rose around 23%. The main contributions for this growth were given by the performance of mobile banking which, in the Individuals solution, recorded a 50% increase in the number of users and 38% in the number of transactions. The number of users of the Companies Mobile platform increased 19% and the number of transactions increased 17%.
Examples of an increasing digital trend are the new products and services made available during the 1st six months of 2017, notably:
Reflecting the strategy for the Bank's digital channels' sale capacity, the new consumer loans simulator on the website and the possibility of making simulations and requests for consumer loans using the Millennium App and the Mobile web contributed to the 4% increase in the sale of consumer loans through digital platforms in 2016, to around 14% of the Bank's total sales in 2017. One expects that this growth will continue until the end of 2017.
Regarding the promotion of digital sales, we must emphasize the significant number of insurance products recorded in digital (around 30 times the figures in 2016), the creation of a new simulator and a request for a mortgage loan on the website/Mobile App, plus the creation of a term deposit exclusively for App users.
The use of Digital Marketing campaigns continues to efficiently contribute to the general increase recorded in 2017 in digital sales of products and services.
In the first half-year of 2017, the Communication of Millennium consolidated the positioning and values launched in 2016 based on the commitment – "Aqui Consigo," a play on words in Portuguese meaning both "always with you" and "here I can").
The beginning of the year represented a turning point in the Bank's history, due to the conclusion of the restructuring plan, and the Communication developed during the first six months of 2017 represents a renewed driving force and a new principle.
The Bank focused on a communication strategy based on several stages: an initial one focusing on the disclosure of the end of the State's aid, followed by the communication of the Share Capital Increase and, lastly, the launching of a new institutional campaign under the motto "Conseguimos Mais" ("We can do more").
The institutional campaign enabled Millennium to strengthen its commitment with the market and with its customers - expressed in the statement "Um Banco que esteve, está e sempre estará aqui consigo" (A bank that was, is, and will always be with you) - and two campaigns, with a specific offer addressed to new clients, were developed for the Individuals and Companies segments.
The communication actions undertaken and the commercial campaigns launched during the first half of 2017 continued to focus on the positioning of Millennium as a modern Bank, with a service of excellence and ongoing technological innovation.
This Communication strategy continues to rely on digital channels and on social networks (enabling Millennium to become leader in the bank industry regarding interactions with its users), together with a policy of sponsorship of events which guarantee a strong presence of the Bank near Clients and Non-Clients.
Highlights include the Millennium Estoril Open which takes place at the end of April/beginning of May, as well the Online Dance Company powered by Millennium, whose digital videos and entertaining live sessions enabled the Bank to considerably increase its relation with young people, translating into significant growth in the number of Customers in the Youth segment.
In the second half of 2017 the Bank will continue to carry out an intense communication effort, in the form of advertisements and sponsorships which will enable Millennium to consolidate its growth in terms of notoriety and satisfaction of its Clients.
In 2017, the Group's Banks received several awards, of which the following are noteworthy:
At the end of June 2017, Millennium bcp was the largest Portuguese privately-owned bank with a relevant position in the countries where it operates.
The Bank offers a wide range of banking products and financial services, directed at Individuals and Companies, has a leading position in the Portuguese financial market, and is positioned to benefit from the recovery of the Portuguese economy, mainly through the support that the Bank provides to Companies.
1 These awards are of the exclusive responsibility of the entities that awarded them.
Its mission of ensuring excellence, quality service and innovation reflects values which make the Bank distinctive and differentiated from the competition.
On 30 June 2017, operations in Portugal accounted for 73% of total assets, 75% of total loans to Customers (gross) and 74% of total customer funds. In June 2017, the Bank had over 2.3 million Customers in Portugal and market shares of 17.8% and 17.3% for loans to Customers and Customer deposits, respectively.
Millennium bcp is also present in the five continents of the world through its banking operations, representation offices and/or commercial protocols, serving over 5.6 million Customers, at the end of June 2017.
Concerning the operations in Africa, Millennium bcp operates through Millennium bim, a universal bank that has been active since 1995 in Mozambique, where it has over 1.7 million customers and is the leading bank, with 29.7% of loans and advances to Customers and 29.5% of deposits. Millennium bim is a highly reputed brand in the Mozambican market, associated with innovation, major penetration in terms of electronic banking and exceptional capacity to attract new Customers, as well as being a reference in terms of profitability.
The merger of Banco Millennium Angola, S.A. with Banco Privado Atlântico, S.A. was signed on 22 April 2016. The bank resulting from the merger is an associate of Banco Comercial Português.
In Poland, Bank Millennium has a well distributed network of branches, supported on a modern multichannel infrastructure, a benchmark service quality, high recognition of the brand, a robust capital base, comfortable liquidity and solid risk management and control. As at 30 June 2017, Bank Millennium had a market share of 4.4% in loans to Customers and of 5.2% in deposits.
The Group has operated in Switzerland since 2003, through a private banking platform offering personalised quality services to the Group's high net worth Customers, comprising asset management solutions based on rigorous research and profound knowledge of financial markets, underpinned by a robust commitment to risk management and an efficient IT platform.
The Group has also been present in Asia since 1993, but it was only in 2010 that the activity of the existing branch in Macau was expanded, through the attribution of a full license (onshore) aimed at establishing an international platform for business operations between Europe, China and Portuguesespeaking African countries.
The Bank also has 10 representation offices (1 in the United Kingdom, 2 in Germany, 3 in Switzerland, 2 in Brazil, 1 in Venezuela, 1 in China in Guangzhou and 1 in South Africa); 5 commercial protocols (Canada, USA, Spain, France and Luxembourg); and 1 commercial promoter (Australia).
| 2017 | 2016 | 2015 | Change % 17/16 |
|
|---|---|---|---|---|
| TOTAL IN PORTUGAL(7) | 596 | 618 | 671 | $-3.6%$ |
| Poland | 360 | 368 | 411 | $-2.2%$ |
| Switzerland | 1 | 1 | 1 | 0.0% |
| Mozambique | 179 | 176 | 169 | 1.7% |
| TOTAL OF INTERNATIONAL OPERATIONS |
540 | 545 | 581 | $-0.9%$ |
| TOTAL | 1,136 | 1,163 | 1.252 | $-2.3%$ |
| Internet | Call Centre |
Mobile Banking |
ATM (*) | POS (**) | 1.730 THOUSAND | |
|---|---|---|---|---|---|---|
| TOTAL IN PORTUGAL | 686.315 | 145.804 | 319,850 | 1.976 | 49.986 |
MOZAMBIQUE |
| Poland | 1,098,361 | 126,576 | 692,457 | 485 | ||
| Switzerland | 507 | |||||
| Mozambigue | 18,658 | 4.048 | 522.067 | 486 | 8.317 | 2 THOUSAND SWITZERLAND |
| TOTAL OF INTERNATIONAL OPERATIONS |
1.117.526 | 130.624 1.214.524 | 971 | 8.317 | ||
| TOTAL | 1,803,841 | 276,428 1,534,374 | 2.947 | 58,303 | ||
| 1564 THOUSAND |
On 12 January 2017, the Bank confirmed its financial and operational business goals2 for 2018 within the scope of the share capital increase operation concluded in February 2017, as follows:
| Goal | 1H2017 | 2018 |
|---|---|---|
| CT1 / CET13 | Phased-in 13.0% | ≈ 11% |
| Fully implemented: 11.3% | ||
| Loans -to-Deposits | 95% | <100% |
| Cost–Income | Stated: 42.9% | <43% |
| Excluding extraordinary items: 45.2% | ||
| Cost-Core Income 4 | Stated: 44.6% | <50% |
| Excluding extraordinary items: 47.0% | ||
| Cost of Risk | 118 bp | <75 bp |
| RO E | 3.3% | ≈ 10% Based on CET1 11% fully implemented |
On 30 June 2017, the regulatory capital ratio Common Equity Tier I (CET1), in accordance with the phased-in and fully implemented criteria stood at 13.0% and 11.3%, respectively, both above the target for 2018 of around 11%. The loan-to-deposits liquidity ratio stood at 95, complying with the objective defined for 2018 (<100%).
(Net income, cost-to-income ratios, and Cost-Core income stated (44.6%) and without extraordinary items (47.0%) are aligned with the target for 2018 (<50%). The Cost-to-Income ratio stated stood at 42.9%, during the first six months of 2017, below the 43% defined as the maximum threshold for 2018, however, if we exclude the extraordinary items, this ratio is still slightly above the target (45.2%).
The cost of risk is still above the objective set forth for 2018 (118 bp vs target of <75 pb), although it showed a favourable performance versus the same period of 2016 due to the relevant decrease in impairment and provisions.
The profitability of the average equity balance stood at 3.3%, below the objective of approximately 10% defined for 2018, but also evidencing a positive performance versus the same period of 2016.
2 The figures provided above are goals not forecasts. There is no guarantee that such goals can or will be achieved, as such they cannot be construed as forecasts or earnings' estimates.
3 Amounts estimated including the results of the 1st half-year.
4 Core income = net interest income + fees.
The consolidated Financial Statements are prepared under the terms of Regulation (EC) nº. 1606/2002, of 19 July, in accordance with the reporting model determined by the Banco de Portugal (Banco de Portugal Notice no. 5/2015), following the transposition into Portuguese law of Directive nº. 2003/51/EC, of 18 June, of the European Parliament and Council in the versions currently in force. The interim condensed financial statements, for the six month period ended 30 June 2017, were prepared in accordance with the IAS 34.
In the context of the Banco Millennium in Angola's merger process with Banco Privado Atlântico, the public deed of which was executed on 22 April 2016 and the granting of the necessary authorizations was concluded on 3 May 2016, Banco Millennium in Angola was considered as a discontinued operation in March 2016, and the impact of the results presented in a separate line item in the profit and loss account, defined as "income arising from discontinued operations" and the prior periods were restated. At the level of the consolidated balance sheet, the assets and liabilities of Banco Millennium Angola, S.A. continued to be consolidated by the full method of consolidation until April 2016.
After the completion of the merger, in May 2016, the assets and liabilities of Banco Millennium in Angola stopped being considered in the consolidated balance sheet and the investment of 22.5 % in Banco Millennium Atlântico, the new merged entity, started being consolidated using the equity method and its contribution to the Group's results have been recognized in the consolidated accounts from May 2016 onwards.
The core income5 of Millennium bcp amounted to Euro 558.6 million in the first half of 2017, increasing 27.8% from Euro 437.1 million posted in the first half of the previous year, reflecting not only the 12.9% growth in net interest income and the 3.1% growth in net fees and commissions income, but also the 7.0% decrease in operating costs. Excluding the effect of specific items (a Euro 23.7 million profit in 2017 including the negotiation of the Bank's Collective Labour Agreement net of restructuring costs and Euro 1.2 million in restructuring costs in 2016), core net income increased 22.0% from the first half of 2016, reaching Euro 534.9 million in the first half of 2017.
The performance of core net income benefited from both the performance of the activity in Portugal and the international activity, and reflected an improvement of operating efficiency, as shown by the decrease in thecost to core income6 ratio, excluding specific items, from 52.4% in the first half of 2016 to 47.0% in the first half of 2017.
Net income in the first half of 2017 totalled Euro 89.9 million, comparing very favourably to Euro -197.3 million posted in the first half of the previous year.
This performance was determined by the activity in Portugal, where net income increased by Euro 306.7 million compared to the first half of 2016, to Euro 1.6 million,
Income arising from discontinued operations Portugal
mainly induced by the growth of core net income and a noteworthy decrease in impairment and provisions, net of tax effects. The positive impact, net of tax, due to the above-mentioned specific items of 2017 reached Euro 16.7 million, comparing to Euro 20.9 million from the gain related to the purchase of Visa Europe by Visa Inc in the same period of 2016. Solvency ratio
In the international activity, net income stood at Euro 87.1 million in the first half of the year, comparing to Euro 99.4 million achieved in the first half of the previous year, mainly reflecting the lower contributions from the operations in Angola and especially Poland, the latter conditioned by both the gain booked in the first half of 2016 associated with the purchase of Visa Europe by Visa Inc (Euro 26.2 million) and by the penalising effect of the mandatory contributions, namely the recognition of the total annual cost of the contribution to the Resolution Fund in March 2017, which was accrued in 2016, and the new banking tax introduced in February 2016.
Bank Millennium in Poland reported a net profit of 73.7 million euros in the first six months of 2017, showing a 24.7 million euros decrease in comparison with the 98.4 million euros presented in the same period of 2016, determined by the gain of 52.4 million euros, after taxes, obtained in 2016 with the sale of Visa Europe shares and by the penalizing effect of mandatory contributions, notably the full recognition in the first half of 2017 of the annual cost of the Resolution Fund, which was accrued in 2016, and the beginning of the new banking tax in February 2016, despite the favourable performance of net interest income and net commissions.
Millennium bim in Mozambique posted a net income of 42.8 million euros, showing an increase of 16% compared to the 36.8 million euros recorded in the first half of 2016. Excluding the metical depreciation effect, net income would have increased by 43%, due to banking income growth, supported by increased net interest income, which benefitted from an increase in reference interest rates and in business volumes, only partially offset by higher operating costs, impairment and provisions.
Millennium Banque Privée in Switzerland registered a net income of 3.4 million euros in the first half of 2017, higher than the 2.6 million euros shown in the same period of 2016, due to banking income positive evolution, in commissions, notably from management activities, third parties' retrocession and guarantees, and in net interest income, benefitted by credit volume increase.
Millennium bcp Bank & Trust in the Cayman Islands, excluding the exchange effects not relevant for consolidated purposes, would have reported a positive net result of 2.5 million euros in the first half of 2017, higher than in the same period of last year, due to the favourable evolution of net interest income, operating costs and loan impairment.
5 Core net income = net interest income + net fees and commission income – operating costs.
6 Core income = net interest income + net fees and commission income.
Regarding the Angolan operation, net income from international operations includes 15.8 million euros related to Banco Millennium Atlântico's net income consolidated through the equity method in the first half of 2017, while in the first half of 2016 it included 21.4 million euros, of which 18.4 million euros related to net income of the former Banco Millennium Angola in the first four months of 2016 (correspondent to the consolidation of 50.1%) and 3.0 million euros referring to Banco Millennium Atlântico's results on the two following months consolidated through the equity method.
| INCOME STATEMENT | Euro million | ||
|---|---|---|---|
| 30 Jun. 17 | 30 Jun. 16 | Change 17/16 | |
| Net interest income | 678.5 | 600.8 | 12.9% |
| Other net income | |||
| Dividends from equity instruments | 1.6 | 5.8 | -72.3% |
| Net commissions | 330.3 | 320.3 | 3.1% |
| Net trading income | 89.9 | 182.8 | -50.8% |
| Other net operating income | (86.6) | (88.1) | 1.6% |
| Equity accounted earnings | 35.1 | 37.7 | -6.9% |
| 370.3 | 458.6 | -19.3% | |
| Operating costs | |||
| Staff costs | 241.5 | 273.7 | -11.8% |
| Other administrative costs | 182.6 | 184.9 | -1.2% |
| Depreciation | 26.1 | 25.5 | 2.5% |
| 450.2 | 484.2 | -7.0% | |
| Impairment | |||
| For loans (net of recoveries) | 305.0 | 618.7 | -50.7% |
| Other impairment and provisions | 110.3 | 198.0 | -44.3% |
| Income before income tax | 183.3 | (241.3) | 176.0% |
| Income tax | |||
| Current | 54.5 | 56.4 | -3.4% |
| Deferred | (11.1) | (134.7) | 91.8% |
| Income after income tax from continuing operations | 139.9 | (163.0) | 185.8% |
| Income arising from discontinued operations | 1.3 | 45.2 | -97.1% |
| Non-controlling interests | 51.2 | 79.5 | -35.6% |
| Net income attributable to shareholders of the Bank | 89.9 | (197.3) | 145.6% |
Net interest income rose 12.9% in the first half of 2017, reaching Euro 678.5 million comparing to Euro 600.8 million registered in the same period of previous year benefiting from the contribution of both Portugal and the international activity.
In the activity in Portugal, net interest income totalled Euro 390.2 million in the first half of 2017 showing an increase of 9.0% compared to the first half of the previous year, reflecting mainly the lower cost of funding largely justified by the positive impact of CoCos repayment and by the continued reduction of interest rates of term deposits, despite the lower gains in loans and the securities portfolio.
In the international activity, net interest income excluding exchange rate effects increased 23.0% in the first half of 2017, compared to the same period of previous year, reflecting the positive performance of all subsidiaries, in particular Mozambique and Poland.
Cost of hybrid financial instruments (CoCos) Net interest margin (excl. cost of CoCos)
Net interest margin stood at 2.18% in the first half of 2017, compared to 1.86% in the same period of the previous year. Excluding the impact from the cost of CoCos, net interest margin reached 2.20% in the first half of 2017 and 1.96% in the same period of 2016.
Other net income, which includes income from equity instruments, net commissions, net trading income, other net operating income and equity accounted earnings, totalled 370.3 million euros in the first half of 2017, which compares with 458.6 million euros in the same period of 2016, largely driven by the 91.0 million euros in gains with purchase by Visa Inc of the stakes held by the Bank in Portugal and by Bank Millennium in Poland in Visa Europe, in the second quarter of 2016.
| OTHER NET INCOME | Euro million | ||
|---|---|---|---|
| 30 Jun. 17 | 30 Jun. 16 | Change 17/16 | |
| Dividends from equity instruments | 1.6 | 5.8 | -72.3% |
| Net commissions | 330.3 | 320.3 | 3.1% |
| Net trading income | 89.9 | 182.8 | -50.8% |
| Other net operating income | (86.6) | (88.1) | 1.6% |
| Equity accounted earnings | 35.1 | 37.7 | -6.9% |
| Total other net income | 370.3 | 458.6 | -19.3% |
| Of which: | |||
| Portugal activity | 251.7 | 290.9 | -13.5% |
| Foreign activity | 118.6 | 167.7 | -29.3% |
Income from equity instruments comprises dividends and income from participation units received from investments in financial assets available for sale or held for trading, stood at 1.6 million euros in the first half of 2017, a 4.2 million euro decrease from the 5.8 million euros posted in the same period of 2016, mainly supported by the income associated with the Group's investments that incorporate its shares portfolio and the investment fund participation units.
Net commissions reached Euro 330.3 million in the first half of 2017, compared to Euro 320.3 million achieved in the same period of the previous year, benefiting from the performance of the international activity, namely in Poland, partially offset by the contribution of the activity in Portugal which reflects a higher one-off amount recorded in the first quarter of 2016 in banking commissions.
The performance of net commissions mainly reflects the increase in market commissions which grew 12.5% compared to the first half of 2016.
Market related commissions Banking commissions
| NET COMMISSIONS | Euro million | ||
|---|---|---|---|
| 30 Jun. 17 | 30 Jun. 16 | Change 17/16 | |
| Banking commissions | 265.9 | 263.1 | 1.1% |
| Cards | 75.2 | 71.1 | 5.8% |
| Credit and guarantees | 78.5 | 79.9 | -1.7% |
| Bancassurance | 47.5 | 43.6 | 8.9% |
| Current account related | 46.5 | 45.4 | 2.3% |
| Commissions related with the State guarantee | – | – | - |
| Other commissions | 18.3 | 23.1 | -21.1% |
| Market related commissions | 64.4 | 57.3 | 12.5% |
| Securities | 43.8 | 38.9 | 12.6% |
| Asset management | 20.6 | 18.3 | 12.5% |
| Total net commissions | 330.3 | 320.3 | 3.1% |
| Of which: | |||
| Portugal activity | 225.2 | 229.5 | -1.9% |
| Foreign activity | 105.1 | 90.9 | 15.7% |
35
Net trading income, which includes net gains from trading and hedging activities, from available for sale financial assets and from held to maturity financial assets, amounted to Euro 89.9 million in the first half of 2017, compared to Euro 182.8 million accounted in the same period of 2016, reflecting the gain of Euro 91.0 million related to the purchase, by Visa Inc., of the shareholdings held by the Bank in Portugal and Bank Millennium in Poland in Visa Europe in the second quarter of 2016.
| NET TRADING INCOME | Euro million | ||
|---|---|---|---|
| 30 Jun. 17 | 30 Jun. 16 | Change 17/16 | |
| Foreign exchange activity | 39.9 | 44.1 | -9.6% |
| Trading, derivative and other | 50.0 | 138.7 | -63.9% |
| Total net trading income | 89.9 | 182.8 | -50.8% |
| Of which: | |||
| Portugal activity | 59.0 | 75.9 | -22.2% |
| Foreign activity | 30.9 | 107.0 | -71.1% |
Other net operating income, which comprises other operating income, other income from non-banking activities and gains from the sale of subsidiaries and other assets, was negative by Euro 86.6 million in the first half of 2017, compared to the negative Euro 88.1 million posted in the same period of the previous year. This item includes the costs associated with mandatory contributions as well as with Resolution Fund, largely recognized in the second quarter of the year, both in Portugal and in the international activity.
The favourable performance of other net operating income was determined by the activity in Portugal, while the contribution of the international activity was in line with the first half of 2016 (having grown 3.9% excluding exchange rate effects).
The contribution from the international activity was hindered by both the accounting in the first half of 2017 of the estimated annual contribution for the Resolution Fund in Poland, which was accrued in 2016, and by the new tax on Polish banks, which was only introduced in February 2016.
Equity accounted earnings, which include the earnings appropriated by the Group associated with the consolidation of entities over which the Group, despite having significant influence, does not exercise control over their financial and operational policies, totalled 35.1 million euros in the first half of 2017, a 2.6 million euros decrease compared with the 37.7 million euros posted in the same period of 2016, conditioned by the positive impact on UNICRE's results of the sale of its stake in Visa Europe during the 1st half of 2016, despite the increase, in the 1st half of 2017, of the appropriation of profits from the stake in Banco Millennium Atlântico, the new entity resulting from the merger of Banco Millennium Angola with Banco Privado Atlântico, which took place in May 2016.
Operating costs, which aggregate staff costs, other administrative costs and depreciation for the period, excluding the effect of specific items (a Euro 23.7 million profit that includes gains from the Collective Labour Agreement negotiation and restructuring costs in 2017, and Euro 1.2 million from restructuring costs in 2016), totalled Euro 473.9 million in the first half of 2017, decreasing 1.8% from the Euro 482.8 million accounted in the first half of the previous year, due to the contribution of the activity in Portugal which reflects the cost saving initiatives that have been implemented.
Cost to income (excluding specific items)
In the activity in Portugal, operating costs, excluding the above-mentioned specific items, showed a decrease of 4.5% compared to the first half of 2016, mainly determined by the impact of the reduction in the number of employees on staff costs and also by other administrative costs savings, amounting to Euro 294.8 million in the first half of 2017.
In the international activity, operating costs increased 2.8% from the amount accounted in the first half of 2016 mainly influenced by the performance of the subsidiary in Poland. Excluding the exchange rate effect, operating costs increased 5.5%, induced by the performance of the subsidiary in Mozambique.
| OPERATING COSTS | Euro million | ||
|---|---|---|---|
| 30 Jun. 17 | 30 Jun. 16 | Change 17/16 | |
| Staff costs | 265.2 | 272.5 | -2.7% |
| Other administrative costs | 182.6 | 184.9 | -1.2% |
| Depreciation | 26.1 | 25.5 | 2.5% |
| Subtotal (1) | 473.9 | 482.8 | -1.8% |
| Specific items | |||
| Restructuring costs and Collect. Lab. Agreem. | |||
| Revision/negotiation | (23.7) | 1.2 | |
| Operating costs | 450.2 | 484.1 | -7.0% |
| Of which: | |||
| Portugal activity (1) | 294.8 | 308.6 | -4.5% |
| Foreign activity | 179.1 | 174.3 | 2.8% |
(1) Excludes the impact of specific items presented in the table.
Staff costs, excluding the impact of the above-mentioned specific items, amounted to Euro 265.2 million in the first half of 2017, showing a 2.7% reduction compared to Euro 272.5 million registered in the same period of the previous year, benefiting from the impact of the decrease of 99 employees in the activity in Portugal from the end of June 2016, while in the international activity, staff costs increased 6.5% excluding exchange rate effects determined by the operation in Poland and in Mozambique.
| STAFF COSTS | Euro million | ||
|---|---|---|---|
| 30 Jun. 17 | 30 Jun. 16 | Change 17/16 | |
| Salaries and remunerations | 210.5 | 205.6 | 2.4% |
| Social security charges and other staff costs | 54.7 | 66.9 | -18.2% |
| 265.2 | 272.5 | -2.7% |
Other administrative costs stood at Euro 182.6 million in the first half of 2017, decreasing 1.2% from the Euro 184.9 million registered in the same period of 2016, reflecting the performance of the activity in Portugal, namely the resizing of the distribution network related to the rationalisation and cost containment measures that have been implemented, which translated into a reduction of 50 branches from the end of June 2016 to 596 at the end of June 2017.
In the international activity, excluding exchange rate effects, there was a 5.8% increase in other administrative costs determined by the activity in Mozambique.
| OTHER ADMINISTRATIVE COSTS | Euro million | ||
|---|---|---|---|
| 30 Jun. 17 | 30 Jun. 16 | Change 17/16 | |
| Rents and leases | 48.0 | 50.0 | -4.0% |
| Outsourcing and independent labour | 38.2 | 37.0 | 3.3% |
| Advertising | 13.3 | 11.8 | 12.8% |
| Communications | 10.9 | 11.9 | -8.7% |
| Maintenance and related services | 8.6 | 9.6 | -10.1% |
| Information technology services | 8.6 | 9.4 | -8.8% |
| Water, electricity and fuel | 7.7 | 8.2 | -6.0% |
| Advisory services | 5.9 | 4.9 | 21.6% |
| Transportation | 3.8 | 4.2 | -9.5% |
| Travel, hotel and representation costs | 3.7 | 3.8 | -2.3% |
| Legal expenses | 3.6 | 3.1 | 15.3% |
| Consumables | 2.3 | 2.3 | -0.8% |
| Insurance | 2.3 | 2.2 | 3.7% |
| Credit cards and mortgage | 3.1 | 1.9 | 60.4% |
| Training costs | 0.9 | 0.6 | 37.4% |
| Other specialised services | 9.6 | 11.3 | -15.1% |
| Other supplies and services | 12.0 | 12.6 | -4.1% |
| 182.6 | 184.9 | -1.2% |
Depreciation costs totalled Euro 26.1 million in the first half of 2017, compared to Euro 25.5 million posted in the same period of 2016, determined by the performance of the activity in Portugal, namely by the higher IT equipment and software depreciation costs. In the international activity, excluding the exchange rate effect, depreciation costs decreased 4.4% compared to the amount registered in the first half of 2016.
Impairment for loan losses (net of recoveries) fell by 50.7% compared to Euro 618.7 million accounted in the first half of 2016, to stand at Euro 305.0 million in the first half of 2017, reflecting a trend towards normalization of the cost of risk in the activity in Portugal that allowed the improvement of the cost of risk for the group that decreased from 234 basis points in the first half of 2016 to 118 basis points in the same period of 2017.
Impairment charges (net of recoveries) as a % of total loans (gross)
| LOAN IMPAIRMENT CHARGES (NET OF RECOVERIES) | Euro million | ||
|---|---|---|---|
| 30 Jun. 17 | 30 Jun. 16 | Change 17/16 | |
| Loan impairment charges | 314.9 | 642.4 | -51.0% |
| Credit recoveries | 9.9 | 23.7 | -58.2% |
| 305.0 | 618.7 | -50.7% | |
| Cost of risk: | |||
| Impairment charges as a % of total loans | 122 b.p. | 243 b.p. | -121 b.p. |
| Impairment charges (net of recoveries) as a % of total loans 118 b.p. | 234 b.p. | -116 b.p. |
Note: cost of risk adjusted of discontinued operations.
Other impairment and provisions include impairment charges for other financial assets, for impairment of other assets, in particular repossessed assets arising from the termination of loan contracts with customers, for impairment of goodwill, as well as charges for other provisions.
Other impairment and provisions totalled Euro 110.3 million in the first half of 2017, decreasing 44.3% compared to Euro 198.0 million registered in the same period of the previous year, essentially reflecting the smallest provisioning reinforcement needs related to corporate restructuring funds and other debt instruments, despite the reinforcement that occurred in other assets.
Income tax (current and deferred) achieved Euro 43.4 million, in the first half of 2017, compared to Euro -78.3 million posted in the same period of the previous year.
These taxes include current tax costs of Euro 54.5 million (Euro 56.4 million in the first half of 2016), net of deferred tax income of Euro 11.1 million (Euro 134.7 million in the first half of 2016).
Non-controlling interests include the part attributable to third parties of the net income of the subsidiary companies consolidated under the full consolidation method in which the Group does not hold, directly or indirectly, the entirety of their share capital.
Non-controlling interests totalled 51.2 million euros in the first half of 2017, which compares with 79.5 million euros in the first half of 2016, essentially reflecting the net income attributable to third parties related to the shareholdings held in the share capital of Bank Millennium in Poland, Millennium bim in Mozambique, including non-controlling interests regarding SIM – Seguradora Internacional de Moçambique, S.A.R.L. The evolution of this item incorporates the effects resulting from the decrease in net earnings recorded by Bank Millennium in Poland, as well as a change, in May 2016, to the registry of the operation related to the 22.5% investment in Banco Millennium Atlântico.
Total assets stood at Euro 73,024 million as at 30 June 2017, comparing to Euro 73,068 million as at 30 June 2016, essentially reflecting the reduction of loans to customers and also deposits at central banks and loans and advances to credit institutions, partially offset by the increase in financial assets available for sale, deferred tax assets and other assets.
Loans to customers (gross) amounted to Euro 51,684 million as at 30 June 2017, compared to Euro 52,930 million recorded as at 30 June 2016, hindered by the decrease in the activity in Portugal, despite the increase showed by the international activity.
This performance was largely offset by the increase in the credit portfolio, which was set at 13,967 million Euros at the end of June 2017, versus 12,832 million Euros recorded on the same date last year, mainly translating the performance of the portfolio of the subsidiary in Poland.
Total liabilities amounted to 66,078 million Euros as at 30 June 2017, recording a 2.9% decrease, vs. 68,054 million Euros recorded on the same date in 2016, mainly portraying the reduction in deposits of Central Banks of subordinated debt and other debt securities issued, despite customer's deposits and other loans being on an upward trend.
Deposits of Central Banks fell 29.6% to 4,173 million Euros on 30 June 2017 (5,959 million Euros on 30 June 2016), influenced by the continuing trend in the activity in Portugal.
Subordinated liabilities totalled 851 million Euros as at 30 June 2017, 48.7% down versus 1,660 million Euros as at 30 June 2016, due to the reimbursement of the remaining CoCo bonds in this period (750 million Euros).
Likewise, other debt securities issued went down 22.3%, from 4,018 million Euros to 3,121 million Euros between 30 June 2016 and 2017, influenced to a certain degree by the gradual replacement, at maturity, of bonds placed with clients by deposits. Within the scope of this item, one must also underline that the remaining issue of mortgage bonds placed with the market, amortized in June, was refinanced by a new 1,000 million Euros mortgage bond issue with a five year maturity, marking the Bank's return to the medium to long term debt markets about three years after placing an MTN issue in the market, amortized in February 2017.
Customer funds and loans were up 1,874 million Euros, from 48,762 million Euros at the end of the first half of 2016 to 50,636 million Euros recorded at 30 June 2017, benefiting from the contributions of the operation in Portugal and of the operations abroad.
Total customer funds reached 66,070 million Euros as at 30 June 2017, climbing 5.2% versus the 62,823 million Euros recorded on 30 June 2016, due to the performance of the group in Portugal and abroad.
Total equity, including non-controlling interests, stood at 6,946 million euros as at 30 June 2017, which compares with 5,014 million euros posted on the same date of 2016. For further information and details on the composition and evolution of the equity please see the Consolidated Statement of Changes in Equity for the six months period ended 30 June, 2016 and 2015 in the Accounts and Notes to the Consolidated Accounts for the First Half of 2016.
| BALANCE SHEET AS AT 30 JUNE 2017 AND 2016 AND 31 DECEMBER 2016 | ||||
|---|---|---|---|---|
| 30 Jun. 17 | 31 Dec. 16 | 30 Jun. 16 | Change 17/16 |
|
| Assets | ||||
| Cash and deposits at central banks and loans and advances to credit institutions 3,038 | 3,079 | 3,983 | -23.7% | |
| Loans and advances to customers | 48,066 | 48,018 | 49,186 | -2.3% |
| Financial assets held for trading | 974 | 1,049 | 1,234 | -21.1% |
| Other financial assets held for trading | ||||
| at fair value through profit or loss | 142 | 147 | 145 | -2.1% |
| Financial assets available for sale | 12,385 | 10,596 | 11,023 | 12.3% |
| Financial assets held to maturity | 451 | 511 | 419 | 7.7% |
| Investments in associated companies | 596 | 599 | 559 | 6.7% |
| Non current assets held for sale | 2,224 | 2,250 | 1,906 | 16.7% |
| Other tangible assets, goodwill and intangible assets | 652 | 636 | 670 | -2.7% |
| Current and deferred tax assets | 3,173 | 3,202 | 2,804 | 13.2% |
| Other (1) | 1,323 | 1,178 | 1,139 | 16.2% |
| Total Assets | 73,024 | 71,265 | 73,068 | -0.1% |
| Liabilities | ||||
| Deposits from Central Banks and from other credit institutions | 9,373 | 9,938 | 11,229 | -16.5% |
| Deposits from customers | 50,636 | 48,798 | 48,762 | 3.8% |
| Debt securities issued | 3,121 | 3,513 | 4,018 | -22.3% |
| Financial liabilities held for trading | 476 | 548 | 614 | -22.4% |
| Subordinated debt | 851 | 1,545 | 1,660 | -48.7% |
| Other (2) | 1,621 | 1,659 | 1,771 | -8.5% |
| Total Liabilities | 66,078 | 66,000 | 68,054 | -2.9% |
| Equity | ||||
| Share capital | 5,601 | 4,269 | 4,094 | 36.8% |
| Treasury stock | - | (3) | (4) | 92.4% |
| Share premium | 16 | 16 | 16 | - |
| Preference shares | 60 | 60 | 60 | - |
| Other capital instruments | 3 | 3 | 3 | - |
| Fair values reserves | (23) | (131) | (52) | 55.4% |
| Reserves and retained earnings | 201 | 144 | 239 | -15.4% |
| Net income for the period attributable to shareholders | 90 | 24 | (197) | 145.6% |
| Total equity attributable to Shareholders of the bank | 5,948 | 4,382 | 4,159 | 43.0% |
| Non-controlling interests | 998 | 883 | 855 | 16.7% |
| Total Equity | 6,946 | 5,265 | 5,014 | 38.5% |
| Total Liabilities and Equity | 73,024 | 71,265 | 73,068 | -0.1% |
(1) Includes Assets with repurchase agreement, Hedging derivatives, Investment property and Other assets.
(2) Includes Hedging derivatives, Provisions for liabilities and charges, Current and deferred income tax liabilities and Other liabilities.
Loans to customers (gross) amounted to Euro 51,684 million as at 30 June 2017, compared to Euro 52,930 million recorded as at 30 June 2016, hindered by the decrease in the activity in Portugal, despite the increase showed by the international activity.
In the activity in Portugal, loans to customers decreased 4.9% from 30 June 2016, reflecting the aim of reducing NPEs, notwithstanding the initiatives focused on meeting the financing needs of companies and individuals. It is worth noting the stabilization of the performing loans portfolio in the first half of 2017, reflecting significant increases in loans to individuals and to companies.
The performance of loans to companies was also accompanied by a structural change in order to reduce the weight of construction and real estate activities and non-financial holding companies against exporting industries.
Loans to customers in the international activity increased 6.3% from 30 June 2016, mainly reflecting the growth of loans to companies in the operations in Poland and Mozambique. Excluding the exchange rate effects, loans to customers would have increased 1.2%.
The structure of the loans to customers' portfolio showed identical and stable levels of diversification between the end of June 2016 and June 2017, with loans to companies representing 47% of total loans to customers as at 30 June 2017.
| LOANS TO CUSTOMERS (GROSS) | Euro million | ||
|---|---|---|---|
| 30 Jun. 17 | 30 Jun. 16 | Change 17/16 | |
| Individuals | 27,468 | 28,413 | -3.3% |
| Mortgage | 23,678 | 24,494 | -3.3% |
| Consumer and others | 3,790 | 3,918 | -3.3% |
| Companies | 24,216 | 24,518 | -1.2% |
| Services | 9,277 | 9,686 | -4.2% |
| Commerce | 3,295 | 3,132 | 5.2% |
| Construction | 2,779 | 3,166 | -12.2% |
| Others | 8,865 | 8,534 | 3.9% |
| Total | 51,684 | 52,930 | -2.4% |
| Of which: | |||
| Portugal activity | 38,709 | 40,719 | -4.9% |
| Foreign activity | 12,975 | 12,211 | 6.3% |
Credit quality, determined by loans overdue by more than 90 days as a percentage of total loans, showed a favourable performance, dropping from 7.5%
as at 30 June 2016 to 6.4% as at 30 June 2017, while the corresponding coverage ratio for loans overdue by more than 90 days improved from 93.9% as at 30 June 2016 to 110.1% in the same date of 2017.
The credit at risk ratio reached 10.1% as at 30 June 2017, which compares favourably with 11.9% on the same date of the previous year. As at 30 June 2017, the restructured loans ratio stood at 9.6% of total loans, from 10.0% registered as at 30 June 2016, and the ratio of restructured loans not included in the credit at risk stood at 5.5% of total loans compared to 5.4% at the same date of 2016.
Coverage ratio Loans overdue by more than 90 days Loans overdue by more than 90 days / Total loans
Euro million
| Overdue loans by more than 90 days |
Impairment for loan losses |
Overdue loans by more than 90 days /Total loans |
Coverage ratio (Impairment/ Overdue >90 days) |
|
|---|---|---|---|---|
| Individuals | 686 | 716 | 2.5% | 104.4% |
| Mortgage | 256 | 324 | 1.1% | 126.6% |
| Consumer and others | 430 | 392 | 10.2% | 91.2% |
| Companies | 2,602 | 2,902 | 10.9% | 111.5% |
| Services | 965 | 1,564 | 10.9% | 162.1% |
| Commerce | 226 | 198 | 6.9% | 87.5% |
| Construction | 823 | 647 | 29.6% | 78.6% |
| Others | 587 | 493 | 6.6% | 84.0% |
| Total | 3,288 | 3,618 | 6.4% | 110.1% |
Total customer funds, reached Euro 66,070 million as at 30 June 2017, showing an increase of 5.2% compared to Euro 62,823 million as at 30 June 2016, supported by the performance of both the international and the activity in Portugal.
Total customers funds in the activity in Portugal, reached Euro 48,645 million as at 30 June 2017, increasing 3.0% compared to Euro 47,213 million at the same date of 2016, benefiting from both, the growth in off-balance sheet customer funds, which increased by Euro 1,272 million, and on balance sheet customer funds, highlighting the performance of resources from
customers, which increased by Euro 312 million from 30 June 2016.
In the international activity, total customer funds, totalled Euro 17,425 million as at 30 June 2017, increasing 11.6% from Euro 15,610 million as at 30 June 2016, highlighting the performance of the subsidiary in Poland, namely in what concerns to resources from customers. Excluding the exchange rate effects total customer funds of the international activity grew 6.5%.
As at 30 June 2017, balance sheet total customer funds represented 79% of total customer funds, with resources from customers representing 77% of total customer funds.
According to Bank of Portugal's Instruction no. 16/2004, the loan to deposits ratio improved from 102% as at 30 June 2016 to 95% as at 30 June 2017, benefiting from the Euro 3.0 billion reduction of the commercial gap. The same ratio, considering the total on-balance sheet customers' funds, stood at 92% (97% as at 30 June 2016).
| TOTAL CUSTOMER FUNDS | Euro million | ||
|---|---|---|---|
| 30 Jun. 17 | 30 Jun. 16 | Change 17/16 | |
| Balance sheet total customer funds | 52,228 | 50,500 | 3.4% |
| Resources from customers | 50,636 | 48,762 | 3.8% |
| Debt securities | 1,592 | 1,738 | -8.4% |
| Off-balance sheet customer funds | 13,842 | 12,323 | 12.3% |
| Assets under management | 4,461 | 3,847 | 16.0% |
| Capitalisation products | 9,382 | 8,476 | 10.7% |
| Total | 66,070 | 62,823 | 5.2% |
The securities portfolio, which includes financial assets held for trading, other financial assets held for trading at fair value through profit or loss, financial assets available for sale, assets with repurchase agreement and financial assets held to maturity, stood at Euro 13,967 million as at 30 June 2017, compared to Euro 12,832 million posted at the same date of the previous year, mainly reflecting the performance of the subsidiary in Poland, and representing 19.1% of total assets (17.6% as at 30 June 2016).
| SECURITIES PORTFOLIO | Euro million | ||
|---|---|---|---|
| 30 Jun. 17 | 30 Jun. 16 | Change 17/16 |
|
| Financial assets held for trading | 974 | 1,234 | -21.1% |
| Financial assets available for sale | 12,385 | 11,023 | 12.3% |
| Assets with repurchase agreement | 15 | 11 | 46.0% |
| Financial assets held to maturity | 451 | 419 | 7.7% |
| Other financial assets held for trading at fais value through profit or loss | 142 | 145 | -2.1% |
| Total | 13,967 | 12,832 | 8.8% |
Millennium bcp conducts a wide range of banking activities and financial services in Portugal and abroad, with special focus on Retail Banking, Companies Banking and the Private Banking business.
Following the commitment undertaken with the Directorate-General of the European Commission (DG Comp), an additional segment has been considered, the Non-Core Business Portfolio, in accordance with the criteria agreed therein.
| Business segment | Perimeter |
|---|---|
| Retail Banking | Retail Network of Millennium bcp (Portugal) |
| Retail Recovery Division | |
| Banco ActivoBank | |
| Companies, Corporate & Investment Banking | Companies Network of Millennium bcp (Portugal) |
| Specialised Recovery Division | |
| Real Estate Business Division | |
| Interfundos | |
| Corporate and Large Corporates Networks of Millennium bcp (Portugal) | |
| Specialised Monitoring Division | |
| Investment Banking | |
| Treasury and Markets International Division | |
| Private Banking | Private Banking Network of Millennium bcp (Portugal) |
| Millennium Banque Privée (Switzerland) (*) | |
| Millennium bcp Bank & Trust (Cayman Islands) (*) | |
| Non Core Business Portfolio | In accordance with the criteria agreed with DG Comp (**) |
| Foreign Business | Bank Millennium (Poland) |
| BIM - Banco Internacional de Moçambique | |
| Banco Millennium Atlântico (***) | |
| Millennium Banque Privée (Switzerland) (*) | |
| Millennium bcp Bank & Trust (Cayman Islands) (*) | |
| Other | Includes all other business and unallocated values in particular centralized management of financial investments, corporate activities and insurance activity. |
(*) For the purposes o f business segments, M illennium Banque Privée (Switzerland) and M illennium bcp Bank & Trust (Cayman Islands) are included in the Private Banking segment. In terms of geographic segments, both operations are considered Foreign Business.
(**) Loans Portfolios in Portugal to discontinue gradually under the commitments undertaken with the DG Comp.
Note: In December 2015, M illennium bcp Gestão de Activos is considered discontinued operation . (***) In the context o f the Banco M illennium in Angola merger process with Banco Privado Atlântico, Banco M illennium in Angola was considered as a discontinued operation in M arch 2016. After the completion of the merger, in M ay 2016, the new merged entity, Banco M illennium Atlântico, started being consolidated using the equity method.
The figures reported for each business segment resulted from aggregating the subsidiaries and business units integrated in each segment, also reflecting the impact from capital allocation and balancing process of each entity in the balance sheet and income statement, based on average figures. The balance sheet headings for each subsidiary and business unit were re-calculated, taking into account the replacement of the equity book values by the amounts attributed through the allocation process, based on the regulatory solvency criteria.
Thus, as the process of capital allocation complies with the regulatory criteria of solvency in force, the risk weighted assets, and consequently the capital allocated to the business segments, are determined in accordance with the Basel III framework, pursuant to the CRD IV/CRR. The capital allocated to each segment resulted from the application of 10% to the risks managed by each segment, reflecting the application of the Basel III methodologies. Each operation is balanced through internal transfers of funds, hence with no impact on consolidated accounts.
The net income of each segment includes the non-controlling interests, when applicable. Therefore, the values shown for the net income reflect the individual net income of the business units, regardless of the percentage stake held by the Group, and the impacts of the transfers of funds described above.
The operating costs allocated to the business segments do not include the profit related to the impacts from the Collective Labour Agreement negotiation and restructuring costs in the first half of 2017, nor the restructuring costs in the same half of 2016.
The information presented below is based on the financial statements prepared in accordance with the IFRS and organisation of the Group's business areas as at 30 June 2017.
| Million euros | |||
|---|---|---|---|
| Retail Banking | |||
| 30 Jun. 17 | 30 Jun. 16 | Chg. 17/16 | |
| Profit and loss account | |||
| Net interest income | 203.8 | 189.7 | 7.4% |
| Other net income | 192.5 | 181.2 | 6.2% |
| 396.3 | 370.9 | 6.8% | |
| Operating costs | 233.3 | 242.3 | -3.7% |
| Impairment | 36.4 | 36.9 | -1.6% |
| Net (loss) / income before income tax | 126.6 | 91.7 | 38.1% |
| Income taxes | 37.4 | 27.0 | 38.4% |
| Net (loss) / income after income tax | 89.2 | 64.7 | 38.0% |
| Summary of indicators | |||
| Allocated capital | 494 | 515 | -4.1% |
| Return on allocated capital | 36.9% | 25.2% | |
| Risk weighted assets | 4,420 | 5,036 | -12.2% |
| Cost to income ratio | 58.6% | 65.3% | |
| Loans to Customers | 16,820 | 17,361 | -3.1% |
| Total Customer funds | 33,250 | 32,897 | 1.1% |
N o tes :
Customer funds and Loans to customers (net of recoveries) figures are on average monthly balance.
A 54% growth in the number of Clients residing abroad since the beginning of the year supported by referral, communication and strengthening of the relation with the Clients in countries with the largest communities of emigrants and via protocols for the capture of Nonhabitual Residents and with individuals with Golden Residence Permits.
The exclusive partnership with NOS with the offer of a movie ticket with the purchase of one provided that the payment is made with a Millennium bcp credit card.
Launching of a new POS, Avançar, which gave a strong contribution to the growth recorded, with a more flexible pricing structure, better adjusted to the businesses; the retailer only pays for what they invoice, as long as they invoice at least 500 euros every month.
Net (loss)/income after income tax from continuing operations totalled 89,2 million Euros in the first half of 2017 (64.7 million Euros in the same half of 2016), mainly due to increase in the banking product and to the reduction in operating costs:
Impairment charges amounted to 36.3 million Euros in the first half of 2017, a slight improvement versus the 36.9 million Euros recorded in the first half of 2016.
In June 2017, loans to customers totalled 16,820 million Euros, decreasing from the 17,361 million Euros registered on the same period of 2016, despite the development of a range of products and services by the Bank, meant to meet the financial needs of families and small businesses.
| Million euros | |||
|---|---|---|---|
| Companies, Corporate & Investment Banking | |||
| 30 Jun. 17 | 30 Jun. 16 | Chg. 17/16 | |
| Profit and loss account | |||
| Net interest income | 135.8 | 141.0 | -3.6% |
| Other net income | 85.6 | 77.4 | 10.5% |
| 221.4 | 218.4 | 1.4% | |
| Operating costs | 44.4 | 48.1 | -7.7% |
| Impairment | 123.2 | 271.5 | -54.6% |
| Net (loss) / income before income tax | 53.8 | (101.2) | -153.2% |
| Impostos | 15.2 | (30.0) | -150.8% |
| Net (loss) / income after income tax | 38.6 | (71.2) | -154.2% |
| Summary of indicators | |||
| Allocated capital | 723 | 767 | -5.8% |
| Return on allocated capital | 10.8% | -18.7% | |
| Risk weighted assets | 7,009 | 7,154 | -2.0% |
| Cost to income ratio | 20.0% | 22.0% | |
| Loans to Customers | 10,847 | 10,880 | -0.3% |
| Total Customer funds | 10,983 | 9,894 | 11.0% |
N o tes :
Customer funds and Loans to customers (net of recoveries) figures are on average monthly balance.
In comparison with the same period of 2016, the factoring and confirming (reverse factoring) areas grew 33% and 37%, respectively, in terms of invoice financed and credit balance.
Reinforcement of the continuity and financial stability of the Organismos de Investimento Imobiliário (OII), undertakings for investment in real-estate, and the creation of liquidity conditions for the participants, together with the consolidation of its market leadership position.
The analysis, structuring, negotiating and setting up new funding operations in Portugal (recreation, construction, energy, industry, distribution, transportation, cement, etc.), Angola (energy, engineering and health) and Mozambique (food, construction, engineering and public sector), as well as several restructuring operations for large companies and economic groups in Portugal.
Contribution given by Millennium Investment Banking in the issue of OTRVs, the organization of issues from Saudaçor, of the Autonomous Regions of the Azores, and Madeira, and from Secil. At the same time, MIB continued to take part in the issues made by recurrent market issuers, such as EDP and Brisa.
million euros and the successful negotiations with the European Investment Fund for the renewal of a portfolio guarantee amounting to 200 million euros. Funding from the EIB to a project in Angola from a Client from the Corporate network was also achieved.
Net income after tax from continuing operations totalled 38.6 million euros in the first half of 2017, which compares to a loss of 71.2 million euros in the same half of 2016, caused mainly by the decrease in impairment charges:
| Million euros | |||
|---|---|---|---|
| Private Banking | |||
| 30 Jun. 17 | 30 Jun. 16 | Chg. 17/16 | |
| Profit and loss account | |||
| Net interest income | 7.9 | 7.5 | 5.4% |
| Other net income | 19.6 | 16.5 | 18.9% |
| 27.5 | 24.0 | 14.7% | |
| Operating costs | 7.4 | 7.5 | -1.5% |
| Impairment | 2.3 | 0.9 | 150.5% |
| Net (loss) / income before income tax | 17.8 | 15.6 | 14.4% |
| Income taxes | 5.1 | 4.6 | 11.0% |
| Net (loss) / income after income tax | 12.7 | 11.0 | 15.8% |
| Summary of indicators | |||
| Allocated capital | 12 | 10 | 13.3% |
| Return on allocated capital | 213.8% | 217.5% | |
| Risk weighted assets | 125 | 105 | 19.3% |
| Cost to income ratio | 28.8% | 31.3% | |
| Loans to Customers | 211 | 177 | 19.5% |
| Total Customer funds | 5,772 | 5,293 | 9.1% |
N o tes :
Customer funds and Loans to customers (net of recoveries) figures are on average monthly balance.
From a geographic segmentation standpoint, net income after income tax from continuing operations in the Private Banking area totalled 12.7 million euros in the first half of 2017 (11.0 million euros in the same half of 2016), mainly due to increase in the banking product and despite the increase in impairment:
| Million euros | |||
|---|---|---|---|
| Foreign Business | |||
| 30 Jun. 17 | 30 Jun. 16 | Chg. 17/16 | |
| Profit and loss account | |||
| Net interest income | 281.0 | 233.5 | 20.3% |
| Other net income (*) | 118.7 | 167.8 | -29.3% |
| of which: equity accounted earnings from BMA (*) | 15.8 | 3.0 | >200% |
| 399.7 | 401.3 | -0.4% | |
| Operating costs | 179.1 | 174.3 | 2.8% |
| Impairment | 45.3 | 43.7 | 3.6% |
| Net (loss) / income before income tax | 175.3 | 183.3 | -4.4% |
| Income taxes | 42.6 | 48.1 | -11.4% |
| Net (loss) / income after income tax from continuing operations | 132.7 | 135.2 | -1.9% |
| Net (loss) / income from discontinued operations (**) | - - |
36.8 | -100.0% |
| Net (loss) / income after income tax | 132.7 | 172.0 | -22.9% |
| Summary of indicators | |||
| Allocated capital | 1,279 | 1,207 | 6.0% |
| Return on allocated capital | 20.9% | 28.7% | |
| Risk weighted assets | 10,374 | 10,061 | 3.1% |
| Cost to income ratio | 44.8% | 43.4% | |
| Loans to Customers | 12,523 | 11,815 | 6.0% |
| Total Customer funds | 17,425 | 15,610 | 11.6% |
(*) Accounted earnings related to the investment in Banco M illennium Atlântico, the new merged entity resulted from the merger process of Banco M illennium Angola with Banco Privado Atlântico in M ay 2016. (**) Corresponds to total net income from Banco M illennium Angola (from the first four years of 2016).
By the end of June 2017, total customer funds amounted to 2,780 million euros, representing a 4.9% increase vs. June 2016.
Millennium bim opened 9 new branches and now has a total of 179 branches. The number of ATMs increased to 486 and of POSs to 8,317, 4% and 9% up vs the first six months of 2016, respectively. As a result of the bet on being closer to its Customers and keeping their trust, the Customer base grew 11.5% vs. the six months of 2016, reaching over 1.7 million.
In June 2017, Bank & Trust' customer funds stood at 347 million euros (-14.6%) and Bank & Trust' gross loans reached 39 million euros (-8.4%).
| 1H 2017 | 1H 2016 | Change % 17/16 | 1H 2016 | Change % 17/16 | |
|---|---|---|---|---|---|
| excluding FX effect | |||||
| Total assets | 16,446 | 15,034 | 9.4% | 15,785 | 4.2% |
| Loans to customers (gross) | 11,542 | 10,907 | 5.8% | 11,451 | 0.8% |
| Loans to customers (net) | 11,199 | 10,587 | 5.8% | 11,115 | 0.7% |
| Customer funds | 15,423 | 13,559 | 13.7% | 14,236 | 8.3% |
| Of which: on Balance Sheet | 13,589 | 12,125 | 12.1% | 12,731 | 6.7% |
| off Balance Sheet | 1,834 | 1,434 | 27.9% | 1,505 | 21.8% |
| Shareholders' equity | 1,737 | 1,515 | 14.6% | 1,591 | 9.2% |
| Net interest income | 191.1 | 167.6 | 14.1% | 172.2 | 11.0% |
| Other net income | 93.2 | 133.9 | -30.4% | 137.6 | -32.3% |
| Operating costs | 131.7 | 126.2 | 4.3% | 129.8 | 1.5% |
| Impairment and provisions | 28.8 | 24.2 | 18.9% | 24.9 | 15.7% |
| Net income | 73.7 | 98.4 | -25.1% | 101.2 | -27.1% |
| Number of customers (thousands) | 1,564 | 1,421 | 10.0% | ||
| Employees (number) (*) | 5,865 | 5,897 | -0.5% | ||
| Branches (number) | 360 | 392 | -8.2% | ||
| Market capitalisation | 2,139 | 1,280 | 67.1% | 1,344 | 59.2% |
| % of share capital held | 50.1% | 50.1% |
the purpose of consolidated financial statements, whenever available
| Source: Bank Millennium | |||
|---|---|---|---|
| FX rates: | |||
| Balance Sheet 1 euro = | 4.2252 | 4.4362 | zloties |
| Profit and Loss Account 1 euro = | 4.2604 | 4.3788 | zloties |
| (*) Number of employees according to Full Time Equivalent (FTE) criteria |
Million euros
| 1H 2017 | 1H 2016 | Change % 17/16 | 1H 2016 | Change % 17/16 | |
|---|---|---|---|---|---|
| excluding FX effect | |||||
| Total assets | 538 | 624 | -13.7% | 621 | -13.3% |
| Loans to customers (gross) | 237 | 217 | 8.9% | 216 | 9.4% |
| Loans to customers (net) | 234 | 216 | 8.4% | 215 | 8.9% |
| Customer funds | 2,780 | 2,665 | 4.3% | 2,652 | 4.9% |
| Of which: on Balance Sheet | 452 | 519 | -13.1% | 517 | -12.6% |
| off Balance Sheet | 2,329 | 2,146 | 8.5% | 2,135 | 9.1% |
| Shareholders' equity | 78 | 79 | -1.6% | 79 | -1.1% |
| Net interest income | 2.3 | 2.0 | 13.5% | 2.1 | 11.0% |
| Other net income | 13.2 | 12.2 | 8.6% | 12.5 | 6.1% |
| Operating costs | 10.9 | 10.8 | 1.6% | 11.0 | -0.7% |
| Impairment and provisions | 0.1 | 0.0 | > 200% | 0.0 | > 200% |
| Net income | 3.4 | 2.6 | 30.3% | 2.7 | 27.3% |
| Number of customers (thousands) | 1.9 | 1.7 | 13.4% | ||
| Employees (number) | 71 | 70 | 1.4% | ||
| Branches (number) | 1 | 1 | 0.0% | ||
| % of share capital held | 100% | 100% |
the purpose of consolidated financial statements, whenever available
| FX rates: | |||
|---|---|---|---|
| Balance Sheet 1 euro = | 1.0923 | 1.0867 | swiss francs |
| Profit and Loss Account 1 euro = | 1.0754 | 1.1004 | swiss francs |
| 1H 2017 | 1H 2016 | Change % 17/16 | 1H 2016 | Change % 17/16 | |
|---|---|---|---|---|---|
| excluding FX effect | |||||
| Total assets | 2,046 | 1,739 | 17.6% | 1,846 | 10.9% |
| Loans to customers (gross) | 1,157 | 1,044 | 10.9% | 1,108 | 4.5% |
| Loans to customers (net) | 1,052 | 974 | 8.0% | 1,034 | 1.8% |
| Customer funds | 1,518 | 1,290 | 17.7% | 1,369 | 10.9% |
| Of which: on Balance Sheet | 1,518 | 1,290 | 17.7% | 1,369 | 10.9% |
| Shareholders' equity | 364 | 291 | 24.8% | 309 | 17.6% |
| Net interest income | 91.3 | 70.4 | 29.7% | 57.4 | 59.0% |
| Other net income | 24.3 | 37.7 | -35.5% | 30.7 | -20.9% |
| Operating costs | 42.7 | 44.0 | -3.0% | 35.9 | 18.8% |
| Impairment and provisions | 14.9 | 12.2 | 22.4% | 9.9 | 50.0% |
| Net income | 42.8 | 36.8 | 16.3% | 30.0 | 42.6% |
| Number of customers (thousands) | 1,730 | 1,552 | 11.5% | ||
| Employees (number) | 2,563 | 2,520 | 1.7% | ||
| Branches (number) | 179 | 170 | 5.3% | ||
| % of share capital held | 66.7% | 66.7% |
the purpose of consolidated financial statements, whenever available
| FX rates: | |||
|---|---|---|---|
| Balance Sheet 1 euro = | 68.6870 | 72.8950 | meticais |
| Profit and Loss Account 1 euro = | 71.8837 | 58.6550 | meticais |
Net earnings amounted to 6.0 million Euros (-33.9% in MOP and -36.0% in euros), negatively influenced by the reduction in credit granted if compared with the same period of 2016.
| Million euros | |||
|---|---|---|---|
| 1H 2017 | 1H 2016 | Change % 17/16 | |
| Total assets | 659 | 713 | -7.5% |
| Loans to customers (gross) | 39 | 43 | -8.4% |
| Loans to customers (net) | 37 | 37 | -0.6% |
| Customer funds | 347 | 406 | -14.6% |
| Of which: on Balance Sheet | 336 | 394 | -14.7% |
| off Balance Sheet | 11 | 12 | -10.9% |
| Shareholders' equity | 318 | 313 | 1.6% |
| Net interest income | 3.5 | 2.7 | 31.2% |
| Other net income | -19.6 | 0.6 | < -200% |
| Operating costs | 0.9 | 1.2 | -24.5% |
| Impairment and provisions | 0.2 | 0.5 | -62.7% |
| Net income | -17.2 | 1.6 | < -200% |
| Number of customers (thousands) | 0.2 | 0.2 | -13.6% |
| Employees (number) | 7 | 9 | -22.2% |
| % of share capital held | 100% | 100% |
reported by the subsidiary for the purpose o f consolidated financial statements, whenever available
Bank & Trust's net earnings amounted to -17.2 million Euros, negatively influenced by net trading income.
The strategic agenda designed for Group Ocidental, denominated Vision 2020, is being swiftly implemented since its launch in 2016, enabling the consolidation of results and maintaining the bancassurance operation as a reference at an international level.
The Life insurance business, which produced 719.7 million Euros in the first six months of 2017, recorded an 11.8% increase versus 2016, against the market trend which recorded a 0.2% fall versus the same period in 2016.
This performance, exceeding the market, was due mainly to the performance of the Unit Linked and capitalization products / PPR which, versus the same period in 2016, increased 6.7% and 32.7%, respectively. Regarding Unit-linked products, the launching of new series of closed unit-linked products addressed to different segments was crucial, while in the savings solutions (capitalization and PPR) the excellent performance achieved is explained by the Bank's focus on the trading of retirement products. This way, the market share of insurance premiums increased to 22.3%, up 2.7 p.p. year on year, granting it the position as the 2nd largest Life insurance company.
The operating performance and technical solidity of the Life Insurance operation enabled the generation of a contribution of over 17.5 million euros of net income for Millennium bcp, 102% more than the same period in 2016.
In the Non-Life business, the strong focus of the commercial networks of Millennium bcp permitted a 7.9% increase in production if compared with the same period in 2016 and above that of the non-life market in the bancassurance channel with a market share of 6.5%. This performance was triggered by some commercial initiatives such as the multimedia campaign of Médis, and discount campaigns in car and fire insurance which contributed positively both in the Retail and Companies network which, versus the same period of 2016, grew 6.7% e 13.9%, respectively.
This result reinforced Millennium bcp's position as leader in the distribution of Non-Life Insurance in the bancassurance channel, with a market share of 36.2%, representing a 1.5 p.p. increase year on year.
The prospects for 2017 point towards a continued recovery of the Portuguese economy with expected growth of the Non-Life insurance market. Growth in Life Insurance is also expected, via the increase in
savings and investment insurance, taking into consideration the scenario of low interest rates and of risk insurance associated with the volume of credit granted.
| Key Indicators | June 17 | June 16 | Change |
|---|---|---|---|
| Market Share - Insurance Premiums | |||
| Life | 22.3% | 19.6% | +2.7 p.p. |
| Non-life | 7.2% | 7.0% | +0.2 p.p. |
| Market share - Bancassurance premiums | |||
| Life | 27.7% | 24.8% | +2.9 p.p. |
| Non-life | 36.2% | 34.7% | +1.5 p.p. |
(1) Ocidental Grupo Insurers
Report and Accounts for the first half-year of 2017
BCP's vision is to become the reference Bank in Customer service, based on innovative distribution platforms, where a relevant part of the resources will be allocated to Retail and Companies, in markets of high potential with excellent efficiency levels, translated into a commitment to an efficiency ratio placed at reference levels for the banking industry and with tighter discipline in capital, liquidity and cost management.
The Bank's mission is to create value for Customers through high quality banking and financial products and services, complying with rigorous and high standards of conduct and corporate responsibility, growing profitably and sustainably, so as to provide an attractive return for Shareholders, in a manner that supports and strengthens its strategic autonomy and corporate identity.
On 12 January 2017, the Bank confirmed its financial and operational business goals for 2018 pursuant to the recent share capital increase, as follows:
The figures provided above are goals not forecasts. There is no guarantee that such goals can or will be achieved, as such they cannot be construed as forecasts or earnings' estimates.
In the recent past, Millennium bcp overcame challenging and demanding times. Its Employees worked hard to turn the bank into a reference in commercial banking in Portugal.
The country went through a Financial Assistance Programme, showing a weakened economy and a financial system with its credibility damaged. Customers became increasingly demanding.
The contraction in banking activity was enormous, interest rates stood at historically low levels, banking supervision was transferred to the European Central Bank and the Supervisor became more demanding and distant. Our competitors are currently adjusting to this environment and the Employees of Millennium bcp worked daily to transform the bank in order to ensure its sustainability.
The Bank adapted to the changes in the world and responded with innovation and the capacity to adapt to a new reality, bearing in mind at all times the way it wishes to exercise banking.
Banking with values in the daily relations with Customer, Shareholders, Employees and remaining Stakeholders.
| Agile | Modern | Personal | Simple | Sustainable |
|---|---|---|---|---|
These are the principles defining how each Employee of Millennium bcp must act in their relations with other Employees, Customers, Shareholders, remaining Stakeholders and with the Community and the Surrounding Environment at large.
In September 2012, Millennium bcp presented a new 3-stage Strategic Plan, to be implemented by 2017 ("Strategic Plan"). The Strategic Plan was also updated in September 2013, following the approval of BCP's Restructuring Plan by the European Commission and in June 2013, after a share capital increase operation, its targets were also updated.
The three stages of the Strategic Plan are the following:
Stage 1 (2012 to 2013): Define the foundations for sustainable future development
During the first stage of the Strategic Plan, the key priority consisted in reinforcing the balance sheet by reducing the dependence on funding from the wholesale market and increasing regulatory capital ratios.
Stage 2 (2014 to 2015): Creation of conditions for growth and profitability
During the second stage of the Strategic Plan, the focus was on the recovery of profitability of the Bank's domestic operations, combined with the continued development of the international subsidiaries in Poland, Mozambique and in Angola. The improvement in domestic profitability was expected to be mainly driven by: i) the increase in net interest income by reducing the cost of deposits and changing the credit mix, with a focus on products with better margins; ii) the continued focus on the optimisation of operating costs by reducing the number of employees and eliminating administrative overlap; and iii) the adoption of rigorous credit risk limits thus reducing the need for provisions.
Stage 3 (2016 to 2017): Sustained growth
During the third phase, management is focused on achieving sustained growth of net income, benefiting from the successful implementation of the first two phases of the Strategic Plan, a better balance between the contributions of the domestic and international operations towards profitability and the conclusion of the winding down/divestment process of the Bank's non-core portfolio.
The main actions required to ensure a successful completion of the Strategic Plan are:
Consolidation of the Bank's leadership position in the private sector retail market and the SME/companies banking market: The Bank adopted a new business model based on a new Customer base segmentation, the review made to the products and services that it offers and on the adjustments to its backoffice units and branch network. This business model is being put into place with a view to expanding the Bank's territorial coverage, increasing the Customer base and sales capacity and simultaneously decreasing operating costs. For retail clients, the strategy is to re-balance the portfolio mix of less profitable mortgage loans with more profitable loans. In terms of SME/companies, the focus will be on exporting companies. The Bank intends to ensure that profits are sustainable in the medium to long-term, seeking to be the best in class in terms of operational efficiency, on account of both income generation and cost management, simultaneously keeping a high control of credit risk while preserving its strategic position in the Portuguese banking market for retail and SMEs.
International position: The Bank's international franchise is focused on the growing markets of Poland and Mozambique. In Poland, the Bank intends to continue to pursue customer acquisition, based on the existing branch network, on its comprehensive range of products and services and on the strength of the Bank's brand. Additionally, the Bank intends to continue to leverage its main franchise in the country by developing the branch network and offering new and innovative products and services to its customers.
For the 2016-2018 triennial, the Bank put in place a set of strategic priorities for the operation in Portugal aiming to build a sustainable Bank adapted to the new needs of the market and its Customers. In 2017, the Bank accelerated the implementation of strategic initiatives, focusing on innovation and customer experience.
The strategic agenda consists of 6 work fronts devoted to sales and 3 work fronts devoted to the organisation as a whole. Over 100 employees in total are involved in the execution of the various initiatives identified.
In relation to Millennium bcp's business model, 6 work fronts were adopted:
In order to transform the Bank into a healthier organisation and with greater involvement with the shareholders, there are three organisation-wide work fronts under way:
The new initiatives undertaken within the scope of the 2016-2018 Strategic Agenda can already be seen. Over 40% of Mass Market Branches and 60% of Prestige Branches had been redone by 30 June 2016. 35 branches have a new layout - the branch of the future, providing the perfect digital experience to customers and including the new Millennium Transaction Machines (MTM) that enable cashier transactions 24/7. In addition, the digital platforms have been improved and new tools were added, including online loan requests in the Millennium App, opening accounts online and a new app for company clients, helping them manage projects funded by EU grants. On the last Data E survey, Millennium bcp was considered the main Bank for Companies with funding from Portugal 2020.
Report and Accounts for the first half-year of 2017
| Risk | Sources of risk | Risk level | Trend | Interactions |
|---|---|---|---|---|
| ENVIRONMENT | ||||
| Re g ula tor y | More demanding capital and liquidity requirements Regulatory uncertainty associated with the implementation of MREL Single Supervisory Mechanism Single Resolution Mechanism Regular practice of conducting Stress Tests by the ECB Changes to accounting standards, namely IFRS 9, as of January 2018, which translates into a transition from an incurred loss model to an expected loss model the specific rules regarding the tax regime for credit impairment and guarantees for the tax periods beginning on or after 1 January 2017 are not defined |
Hi g h | Total CET1 requirements in 2017: 8.15% Disclosure of the LCR, NFSR and Leverage ratios that will have to exceed the regulatory minimum requirements IFRS9 implementation could result in a greater Income Statement volatility and in a greater loan granting pro-cyclicity |
|
| Sov er e i g n | Low potential growth Low interest rates and compression of the spread for active interest rates High indebtedness of the public sector and of the private sector Deceleration of the fall of public debt as a percentage of GDP Deceleration of the correction of the imbalances of the country's current account and capital account Regular access to international funding markets after Brexit Increase of economic protectionism at an international level Exposure to Portuguese sovereign debt Exposure to emerging countries strongly dependent on commodities Exposure to credits held by Mozambican entities |
Med i um | Recovery of profitability limited by the low nominal interest rates and by the low potential growth High levels of default from companies and families High funding costs Impact of an eventual increase in yields of sovereign debt on CET1 Profitability of the pension fund Increase in risk premiums may hinder future regulatory requirements, namely those related to the MREL Future regularization of the ECB's monetary policy leads to pressure on public debt yields but the increasing steepness of the interest rates curve favours the banks' profitability |
|
| FUNDING AND LIQUIDITY | ||||
| Acc ess t o WS F mar ke t s an d fu nd i n g str uc t ur e |
Irregular functioning of WSF/MMI markets Progressive replacement of the funding obtained from the ECB by funding obtained in the IMM/WSF Incentive to the placement of financial instruments with Retail investors Need to fulfil eventual gaps versus MREL requirements Continuation of the deleveraging process by the internal economic agents |
Med i um - lev el |
Increased weight of balance sheet customer deposits and funds in the funding structure Limited scope for decreasing cost of funding The credit portfolio may continue to contract and the commercial gap may continue to reduce and uncertainty as to the performance of NPE and coverage levels condition access to market funding The return to profitability in Portugal will not be made via volumes Need for access to the financial markets to meet MREL requirements, which may impact the banks' funding structure |
| Risk | Sources of risk | Risk level | Trend | Interactions |
|---|---|---|---|---|
| CAPITAL | ||||
| C r edi t r i s k | Still high level of NPE Continuing to execute the Plan for the Reduction of NPE Exposure to real estate assets, directly or by participating in real estate investment or restructuring funds Losses on the valuation of collaterals and real estate properties in the Bank's portfolios should real estate prices go down Exposure to Non-Core Assets Exposure to emerging countries strongly dependent on commodities |
Hi g h | Impact on SREP from high level of NPE Need to decrease the time recovery processes take, for both loans and/or companies Evolution of available income / evolution of unemployment rate / level of companies' default Need to decrease exposure to real estate risk, despite the positive trend in real estate prices generating a positive context for the resolution of the NPE stock in the bank's balance sheet, and to Non-Core Assets Deterioration of the quality of loans granted directly to emerging countries or to companies in those countries or to Portuguese companies with business relationships with those countries |
|
| Mar ke t r is k | Volatility in capital markets Adverse behaviour of the real estate market |
Med i um | Market uncertainty Monetary policies of the various Central Banks Profitability of the pension fund Smaller profits from trading |
|
| O per a t io nal r is k |
Inherent to the Group's business | Med i um | Streamlining processes Degrading controls Increased risk of fraud Business Continuity |
|
| In ter es t r a t e and con ce n tr a ti on r is k |
Interest rates at historically low levels High concentration of assets in sectorial, category and geographical terms. |
Med i um - lev el |
Low interest rates contribute to lower default but exert pressure on profitability Need to reduce the weight of the main Customers in the total credit portfolio |
|
| Re pu ta t io na l, le gal a n d com pl ia nc e r is k |
Inherent to the Group's business Incentives to place financial products that do not match the clients' risk profile or needs but that enable the recovery of profitability Reputational risk worsened by the recent resolutions of BES and Banif, after the problems with BPN and BPP |
Med i um | Negative public or industry opinion may hinder the ability to attract Clients (particularly depositors) Eventual complaints from Clients Eventual sanctions or other unfavourable procedures resulting from inspections Unstable regulatory framework applicable to financial activities AML and counter terrorism financing rules |
|
| Y iel d | Low interest rates in nominal terms More limited space to adjust spreads on term deposits in new production Regulatory pressures on fees Increase of the hedging of problematic assets by impairment Exposure to emerging market economies, including countries specifically affected by the fall in the commodities price |
Med i um - lev el |
Negative impact on the financial margin: price effect, volume effect and past due credit effect Need to continue to control operating costs Keeping adequate hedging of problematic assets by provisions Reformulation of the business model and digital transformation |
As part of the Group's Internal Control System - together with the Internal Audit and Compliance functions – the Risk Management System (RMS) effectively providesa solid control environment and limitation of risks which allows for the Group to develop its business activities in a sustainable way and in accordance with its Risk Appetite Statement (RAS).
In the first half of the year, the main activities and developments concerning the monitoring and controlling of the various risks to which the Group is exposed are summarized as follows:
The following chart illustrates the risk management governance, carried out by various bodies:
The competences and attributions of the bodies intervening in risk management governance (either in management or internal supervision), at Group level - except for the Board of Directors (BoD) and the Executive Committee (EC), are presented in the next sections.
The Risk Assessment Committee is composed of three non-executive members of the BoD(*) and has the following responsibilities:
The Risk Officer has functional reporting duties to this Committee and participates in its meetings, presenting the evolution of the key risk metrics and indicators and of the credit impairment, as well as all incidents, changes and evolutions relative to the Risk Management System.
The Audit Committee is composed of three non-executive members of the BoD(*) . Within the risk management governance, this body stands out for its corporate global monitoring and supervising capacities (e.g. in what concerns the follow-up of the risk levels), as well as for its capacities related with the Internal Control System:
The Risk Officer participates in this committee's regular meetings, reporting on the evolution of the main indicators and metrics concerning risks and credit impairment, as well as on the implementation status of the recommendations that concern the Risk Management System (within the scope of internal control or issued by the supervisory/regulatory authorities).
This commission is responsible, at an executive level, for the Group's risk management and control framework, establishing its respective principles, rules, limits and procedures for the Group's entities, in accordance with the defined risk limits.
The Risk Commission monitors the overall levels of credit, market, liquidity and operational risk, as well as all other risks considered materially relevant for the institution, ensuring that the risk levels are compatible with the objectives, available financial resources and strategies that have been approved for the development of the Group's activity. This commission also validates risk management's compliance with the applicable laws and regulations.
This commission is composed of all the members of the EC(**), the Risk Officer, the Compliance Officer and the Heads of the following Divisions: Internal Audit; International, Treasury and Markets; Research,
(*) As at 30/06/2017.
(*) As at 30/06/2017.
(**) With a minimum of three Executive Directors.
Planning and ALM; Credit; Rating.
This commission has the responsibility of monitoring the evolution of credit risk, under various aspects:
In the first half of 2017, this Committee maintained its monitoring of the process of NPE (Non Performing Exposures) reduction and the degree of fulfilment of the goals assumed vis-à-vis the supervisory entities and the market, as well as of the effectiveness of the measures adopted to achieve those goals.
This commission is composed of three EC members (responsible for the credit, financial and risk areas) and the Heads of the following Divisions: Credit; Risk Office; Rating; Specialised Recovery; Specialised Monitoring; Retail Recovery; Real Estate Business; Legal Advisory and Litigation; and Management Information.
The mission of this specialised commission is the monitoring of the performance and risk of the Pension Funds in Portugal.
This commission is composed of three members of the EC (one of these being the responsible for the insurance area), the Risk Officer, the head of Human Resources and of the Research, Planning and AML Divisions and, through invitation, the CEO of Millenniumbcp Ageas, the CEO of Ocidental SGFP and a representative of F&C.
The commission has the following responsibilities:
This commission is responsible for defining the operational risk management framework and its implementation in the Group's operations.
It is composed of three EC members, the Risk Officer, the Compliance Officer and the Heads of the Internal Audit, IT and Operations Divisions. Depending on the specific subjects concerning processes to be addressed by this commission, macro-process owners will participate in the meetings.
This commission monitors all matters related with internal control and operational risk.
This commission's functions are to assess and decide on loan granting to Customers of Banco Comercial Português, in accordance with the competences established by an internal regulation ('Credit Granting, Monitoring and Recovery'). This commission may also issue, when justifiable, advisory opinions on credit proposals from subsidiary Group entities.
There are two Credit Commissions with identical composition: one deciding on core business credit proposals, the other deciding on non-core business and non-performing exposures credit proposals.
The Credit Commission is composed of all of the EC members(*), the Risk Officer, the Compliance Officer, the Company Secretary, the Heads of the proponent areas, the 'Level 3' managers, the subsidiary entities' Credit Commission members (whenever there are proposals originated in those entities) and the Heads of commercial areas. The Heads of the following Divisions are also members of this commission: Credit; Specialised Monitoring; Legal Advisory and Litigation; Investment Banking; Real Estate Business; Rating; Specialised Recovery; Retail Recovery.
This body is responsible for the analysis, monitoring and planning of the activities to be developed in the various non-core business segments, as well as the definition of the high-level commercial strategy to be adopted for clients of these segments, and also the follow-up of the main non-core exposures, the decisions concerning non-core business (except for credit decisions) and the monitoring of the non-core business evolution in relation to the defined goals and the Bank's restructuring plan.
This Commission is composed of three EC members (responsible for the credit, financial and risk areas), the person responsible for the Non-Core Business Monitoring area of the Risk Office and the Heads of the following Divisions: Risk Office; Credit; Research, Planning and AML; Specialised Recovery; Specialised Monitoring; Real Estate Business; Management Information.
The Group CALCO is responsible for the management of the Group's overall capital, for assets and liabilities management and for the definition of liquidity management strategies at a consolidated level. Specifically, the Group CALCO (also referred to as the Capital, Assets and Liabilities Management Commission) is responsible for the structural management of interest rate and liquidity risks, including, among others, the following aspects:
The Group CALCO is composed of all the members of the EC(*) and the heads of the following Divisions: Research, Planning and ALM; Risk Office; Large Corporate; Companies and Corporate; Management Information; Companies Marketing; Retail Marketing; International, Treasury and Markets; Investment Banking; Business Development (upon invitation). Other people, according to the matters addressed, may be requested to participate in the Group CALCO.
The Head of the Risk Office is responsible for the risk control function for all Group entities, promoting the overall alignment of concepts and procedures concerning the risk monitoring and assessment. The Risk Officer is responsible for informing the Risk Commission on the general risk level and to propose measures to improve the control environment and to implement controls which assure compliance with the approved limits. The Risk Officer has veto power concerning any decision that is not subject to the approval of the BoD or EC and might have an impact on the Group's risk levels. These duties include:
(*) With a minimum of three Executive Directors and mandatory participation of the responsible for credit and the Directors from proponent areas (or the alternate Directors of credit and the proponent areas).
The Risk Officer is appointed by the BoD and supports the work of the Risk Commission, the Credit at Risk Monitoring Commission, the Pension Funds Risk Monitoring Commission and the Internal Control and Operational Risk Monitoring Commission. The Risk Officer reports to the Board of Directors and its Executive Committee, as well as, on a functional or close relationship basis, to the Risk Assessment Committee, the Audit Committee and the Chairman of the Board of Directors.
The materialisation of this risk arises from the losses occurred in the loan portfolio, due to the incapacity of borrowers (or their guarantors, when applicable), issuers of securities or contractual counterparts to comply with their credit obligations. This type of risk is very relevant and highly representative in terms of the Group's overall exposure to risk.
Control and mitigation of this risk are carried out, on the one hand, through a solid structure of risk analysis and assessment (using internal rating systems suited to the different business segments and a model for the early detection of potential default of the portfolio) and, on the other hand, through structural units that are exclusively dedicated to loan recovery, for the situations of default that have occurred.
The following chart shows the credit portfolio volumes evolution between 31st of December 2016 and 30th of June 2017, in terms of EAD (Exposure at Default), for the three main Group geographies - Portugal, Poland and Mozambique - which represented 99.1% of the Group's EAD by 30th of June 2017:
| (millions of Euros) | ||||
|---|---|---|---|---|
| Country | Jun 17 | Dec 16 | Change | |
| Amount | % | |||
| Portugal | 47,924 | 47,856 | 68 | 0.1% |
| Poland | 16,869 | 16,015 | 855 | 5.3% |
| Mozambique | 1,987 | 1,997 | -9 | -0.5% |
| PT+PL+MZ | 66,780 | 65,867 | 913 | 1.4% |
The portfolio registered a growth of 1.4%, in euros (EUR) in the first half of 2017, the increase of 855 million euros in Poland having decisively contributed for this growth. In Portugal, the growth of the credit portfolio was practically null (68 million euros, representing an increase of 0.1%) since the NPA Reduction Plan's effects continued to be present.
The Group's portfolio evolution in euros was influenced by the FX rate changes for the most representative currencies of the two main operations abroad – respectively, Zlotys (PLN) and Swiss Francs (CHF) in Poland and Meticais (MZN) and North-American dollars (USD) in Mozambique – in the first half of 2017, vis-à-vis the Euro: +4.4% for PLN, -1.7% for CHF, +9.6% for MZN and -7.6% for USD.
In original currencies, the growth of Poland's portfolio was of 6.8% in PLN and -3.6% in CHF. The combined effect of the FX rates changes and the portfolio variation in original currencies – namely, the progressive reduction of the mortgage portfolio denominated in CHF – has increased the weight of Poland's portfolio in PLN, from 68% by the end of 2016 to 72% by the end of June 2017, while the weight of the CHF denominated portfolio was reduced from 38% to 32% along the same period.
In Mozambique, growth of 6.9% was registered in the MZN-denominated portfolio (against growth of 17.2% in EUR) and a contraction of the USD-denominated portfolio of -27.2% (against a decrease of - 32.7% in EUR). Hence, in global terms and in euros, the weights of these two currencies in Mozambique's portfolio, from 31st of December 20176 to 30th of June 2017, went from 64% to 76% in MZN and from 55% to 32% in USD.
Therefore, the growth of Poland's portfolio in euros was favoured by the Zloty's appreciation towards the Euro, even if limited by the real decrease of the CHF-denominated portfolio (c. – 213 million EUR).
In Mozambique, despite the real growth of the local MZN-denominated portfolio and the Metical's appreciation in relation to the Euro, the real decrease in the USD-denominated portfolio, together with the devaluation of this currency towards the Euro, has resulted in a practically null change in this geography's portfolio(-9 million EUR, representing around -0.5%).
In what concerns the portfolios' breakdown by risk classes, these are illustrated – as at 30th of June 2017 - by the following graphs:
This portfolio breakdown for Portugal and Poland does not present relevant changes in relation to the portfolios' composition by the end of 2016. In what concerns Mozambique, there was an increase in the weight of the "Banks and Sovereigns" risk class, which represented 50.9% of the portfolio (EAD) by 31st of December 2016, with an equivalent decrease in the "Corporate" risk class while the weight of the "Retail" risk class remained practically unchanged.
The following chart presents the portfolio breakdown (EAD) in terms of the internal risk grades of the debtors, in Portugal and Poland, as at 30th of June 2017:
There was a positive evolution in the internal ratings towards the situation in December 2016: the weight of the EAD corresponding to the medium and high quality risk grades has increased for the 2 geographies, from 64.2% at 31st of December 2016 to 66.2% at 30th of June 2017. The basis for this favourable evolution was the growth of Portugal's EAD weight for high quality risk grades, from 43.1% by the end of 2016 to 45.4% by the end of June 2017.
EAD weight of clients with a procedural risk grade (including the non-performing portfolio) has also registered a positive evolution, going from 18.5% at 31st of December 2016 to 17.7% by the end of the first half of 2017 (changing, in Portugal, from 21.8% to 20.8% in the same period).
The following table illustrates the quarterly evolution of the main credit risk indicators between June 2016 and June 2017, for the Group and for the portfolios of Portugal, Poland and Mozambique:
| Jun 17 | Mar 17 | Dec 16 | Sep 16 | Jun 16 | |
|---|---|---|---|---|---|
| Group | |||||
| Non-performing Loans/Total Loans | 5.9% | 5.9% | 6.2% | 6.9% | 6.9% |
| Past due Loans (> 90 d)/Total Loans | 9.0% | 9.2% | 9.5% | 10.1% | 10.5% |
| NPE/Total Loans (*) | 16.9% | 17.9% | 18.5% | 19.1% | 19.6% |
| Impairment/Total Loans | 6.7% | 6.8% | 6.8% | 6.8% | 6.6% |
| Portugal | |||||
| Non-performing Loans/Total Loans | 7.0% | 7.1% | 7.4% | 7.9% | 8.3% |
| Past due Loans (> 90 d)/Total Loans | 10.7% | 11.1% | 11.5% | 12.2% | 12.8% |
| NPE/Total Loans (*) | 21.5% | 22.5% | 22.9% | 24.2% | 24.6% |
| Impairment/Total Loans | 7.7% | 7.8% | 7.9% | 7.8% | 7.6% |
| Poland | |||||
| Past due Loans (> 90 d)/Total Loans | 2.7% | 2.6% | 2.6% | 2.7% | 2.5% |
| Impairment/Total Loans | 3.0% | 2.9% | 2.8% | 2.9% | 2.9% |
| Mozambique | |||||
| Past due Loans (> 90 d)/Total Loans | 11.8% | 6.5% | 4.6% | 4.0% | 4.0% |
| Impairment/Total Loans | 7.9% | 7.2% | 6.1% | 5.6% | 5.5% |
In consolidated terms, the evolution of these risk indicators is globally positive over the last year of activity, with stability of the weight of impairment over total loans, as the result of a prudent provisioning policy.
Only in Mozambique, due to the worsening of the macro-economic conditions that has been registered in that geography, the evolution of the credit risk indicators was negative, with growing portfolio provisioning by impairment.
The Group's credit has a high level of NPE (non-performing exposures), especially in Portugal, as a result of a Legacy portfolio that the Bank is managing with the aim of reducing the weight of these assets in the Balance-Sheet. In the beginning of 2017, the Bank approved a revision of its NPE Reduction Plan, which has been successfully implemented.
In the first half of 2017, the NPE reduction in Portugal was of 721.7 million euros, to 7,816 million euros and the coverage of the assets marked as NPE by impairment, collateral and Expected Loss gap reached 105% by the 30th of June 2017.
The NPE reduction verified in the first semester is considered positive and allows to anticipate the fulfilment of the reduction goal that was announced to the market by the end of the exercise (less than 7.5 billion euros for the NPE portfolio in Portugal).
The following table presents the NPE evolution in terms of volumes and ratios, between June 2016 and June 2017 for the Group and Portugal:
| (millions of Euros) | |||||
|---|---|---|---|---|---|
| Jun 17 | Mar 17 | Dec 16 | Set 16 | Jun 16 | |
| Group | |||||
| NPE | 8,761 | 9,159 | 9,374 | 9,983 | 10,227 |
| NPE/Total credit (*) | 17.8% | 18.4% | 18.9% | 19.8% | 20.1% |
| Portugal | |||||
| NPE | 7,816 | 8,320 | 8,538 | 9,257 | 9,498 |
| NPE/Total credit (*) | 21.5% | 22.5% | 22.9% | 24.2% | 24.6% |
NPE = Non-performing exposures
(*) Direct credit to clients, excluding debt securities
The figures concerning credit concentration, as at 30th of June 2017, measured by the weight of the 20 largest exposures (EAD), excluding Banks and Sovereigns, in total exposure, are presented in the following chart:
| Customer Groups | EAD weight in total EAD |
|---|---|
| Group 1 | 1.5% |
| Group 2 | 0.7% |
| Group 3 | 0.7% |
| Group 4 | 0.7% |
| Group 5 | 0.6% |
| Group 6 | 0.5% |
| Group 7 | 0.5% |
| Group 8 | 0.5% |
| Group 9 | 0.4% |
| Group 10 | 0.4% |
| Group 11 | 0.4% |
| Group 12 | 0.4% |
| Group 13 | 0.4% |
| Group 14 | 0.4% |
| Group 15 | 0.4% |
| Group 16 | 0.4% |
| Group 17 | 0.3% |
| Group 18 | 0.3% |
| Group 19 | 0.3% |
| Group 20 | 0.3% |
| Total | 9.9% |
The weight of 9.9% compares with a weight of 10.5% by the end of 2016, so that there was a concentration decrease. In what concerns the global EAD amount for these 20 largest exposures, this reduced 268 million euros in the first half of the year, confirming the trend verified in 2016 (with a favourable decrease of 460 million euros).
The bank has specific goals for the reduction of credit concentration, materialized in RAS metrics.
Operational risk consists of the occurrence of losses as a result of failures or inadequacies of internal processes, systems or people, or as a result of external events.
In the management of this type of risk, the Group adopts duly documented principles and practices, which are expressed in control mechanisms subject to continuous improvement. This framework has a variety of features, such as: function segregation; lines of responsibility and respective authorisations; exposure definition and tolerance limits; ethical codes and codes of conduct; risks self-assessment (RSA) exercises; key risk indicators (KRI); access controls (physical and logical); reconciliation activities;
exception reports; contingency plans; contracting of insurance; internal training on processes, products and systems.
The operational risk management system is based on a structure of end-to-end processes, considering that a vision which is transversal to the functional units of the organisational structure is the most suitable approach for the perception of risks and to estimate the effects of the corrective measures introduced for their mitigation. Furthermore, this processes model also underlies other strategic initiatives related to the management of this risk such as the actions to improve operating efficiency and the management of business continuity.
Hence, all the Group's subsidiaries have their own processes structure, which is periodically adjusted according to business evolution, in order to ensure suitable coverage of the business activities (or business support activities) developed.
The responsibility for the processes management is entrusted to process owners (seconded by process managers), whose mission is to characterise the operational losses captured under their processes, to monitor the respective KRI, to perform the RSA exercises, as well as to identify and implement suitable actions to mitigate operational risk exposures, thus contributing to the strengthening of control mechanisms and the improvement of the internal control environment. The periodic revision of the main processes in each geography is ensured by local structure units.
Along the first semester of 2017, the various participants in the management of this risk carried out the usual tasks of operational risk management - aiming at an effective and systematic identification, mitigation and control of exposures - as well as the corresponding reporting duties, either to the Group's management bodies or within the regulatory sphere.
The objective of the RSA exercises is to promote the identification and mitigation (or elimination) of risks, either actual or potential, in each process, through the assessment of each of the 20 subtypes of operational risk considered. These assessments are positioned in a risk tolerance matrix, considering the worst case event that might occur in each process, for three different scenarios. This allows for:
The RSA exercises are based on workshops, attended by the Risk Office and with the participation of the process owners (and process managers), or performed through answers to questionnaires sent to the process owners, for a review of previous RSA results, according to predefined updating criteria.
The operational losses data capture (i.e. the identification, registration and characterisation) of operational losses and of the originating events aims at the strengthening of the the awareness of this risk and to provide relevant information to process owners, for incorporation within their process management. As such, it is an important instrument to quantify risk exposures and also for the backtesting of the RSA results, enabling the assessment of the evaluation/classification attributed to each risk subtype.
The detection and reporting of operational losses is a responsibility of all employees of the Group, the process owners playing a crucial role in the promotion of these procedures within the context of the processes for which they are responsible.
The identified events in which the losses, effective or potential, exceed the defined materiality limits (for each geographical area) are characterised by the process owners and process managers of processes to which the losses are related, including the description of the respective cause-effect and, when applicable, the valuation of the loss and the description of the improvement action identified to mitigate the risk (based on the analysis of the loss cause).
The profile of the losses captured in the database in the first half of the year is presented in the following graphs:
KRIs draw attention to changes in the profile of the operational risks or in the effectiveness of control, enabling the identification of the need to introduce corrective actions within the processes, so as to prevent potential risks from materialising into losses. The use of this management instrument has been significantly broadened in 2016, currently encompassing all of the processes in the main Group entities (Portugal, Poland and Mozambique).
Processes management also uses Key Performance Indicators and Key Control Indicators, the monitoring of which is essentially oriented to assess operative efficiency, but also allows for the detection of risks.
Scenario Analysis is an exercise for the assessment of potential risks of high severity, aimed at quantifying the impact of extreme events (low frequency/high severity) which would be relevant for the Bank, even if never registered in the past.
All Macro-Process Owners and other top managers from selected Divisions participated in this exercise, due to their knowledge and experience concerning the activities, which are essential for the description of this type of events' impacts and for the quantification of potential losses that could result from those events.
The results from the scenarios assessment were incorporated into the statistical model to determine the internal capital adequacy (ICAAP) and the information gathered also used for risk management and mitigation, thus contributing to the reinforcement of the internal control environment.
The management of business continuity covers two complementary components: the Business Continuity Plan relative to people, facilities and equipment, and the Technological Recovery Plan relative to information systems, applications and communications infrastructure.
Both of these plans are defined and implemented for a series of critical business processes, and are promoted and coordinated by a dedicated structural unit, whose methodology is based on a principle of continuous improvement, guided by international good practices and the recommendations of the
These continuity plans are regularly tested and updated, through exercises aimed at improving and deepening the coordination between emergency response, technological recovery, crisis management and business recovery.
The contracting of insurance for risks related to assets, persons or third party liability is another important instrument in the management of operational risk, where the objective is the transfer - total or partial - of risks.
The proposals for the contracting of new insurance are submitted by the process owners under their respective duties for the management of the operational risk inherent to their processes, or are presented by the head of area or organic unit, and then analysed by the Risk Commission and authorised by the EC.
Market risks consist of the potential losses that might occur in a given portfolio as a result of changes in interest or exchange rates and/or in the prices of the different financial instruments of the portfolio, considering not only the correlations that exist between those instruments but also their volatility.
For purposes of profitability analysis and market risks quantification and control, the following management areas are defined for each entity of the Group:
The definition of these areas allows for an effective management separation of the trading and banking books, as well as for the correct allocation of each operation to the most suitable management area, according to its respective context and strategy.
In order to ensure that the risk levels incurred in the different portfolios of the Group comply with the predefined levels of tolerance to risk, various market risks limits are established, at least yearly, being applicable to all portfolios of the risk management areas over which the risks are incident. These limits are monitored on a daily basis (or intra-daily, in the case of financial markets) by the Risk Office.
Stop Loss limits are also defined for the financial markets areas, based on multiples of the risk limits defined for those areas, aimed at limiting the maximum losses that might occur. When these limits are reached, a review of the strategy and of the assumptions relative to the management of the positions in question is mandatory.
The Group uses an integrated market risk measurement that allows for the monitoring all of the risk subtypes that are considered relevant. This measurement includes the assessment of the following types of risk: general risk, specific risk, non-linear risk and commodity risk. Each risk subtype is measured individually using an appropriate risk model and the integrated measurement is built from the measurements of each subtype without considering any kind of diversification between the four subtypes (worst-case scenario approach).
Positions allocated to the Trading Management Area (and not, specifically, to the accounting Trading Book).
For the daily measurement of general market risk (relative to interest rate risk, exchange rate risk, equity risk and price risk of credit default swaps) a VaR (value-at-risk) model is used, considering a time horizon of 10 business days and a significance level of 99%.
For non-linear risk, an internally-developed methodology is applied, replicating the effect that the main non-linear elements of options might have in P&L results of the different portfolios in which these are included, similarly to what is considered by the VaR methodology, using the same time horizon and significance level.
Specific and commodity risks are measured through standard methodologies defined in the applicable regulations, with an appropriate change of the time horizon considered.
The table below presents the amounts at risk for the trading book, between 31st of December 2016 and 3oth of June 2017 and measured by the methodologies referred to above, that registered moderate levels along this period of time.
| thousands of Euros | |||||
|---|---|---|---|---|---|
| Jun 17 | Avg | Max | Min | Dec 16 | |
| Generic risk (VaR) | 1,005.4 | 2,630.5 | 4,132.5 | 1,005.4 | 3,920.7 |
| Interest rate risk | 806.7 | 2,469.7 | 4,030.9 | 806.7 | 3,854.6 |
| FX risk | 454.1 | 826.8 | 551.3 | 454.1 | 354.0 |
| Equity risk | 26.2 | 269.1 | 47.2 | 26.2 | 37.0 |
| Diversification effects | 281.5 | 935.2 | 497.0 | 281.5 | 324.8 |
| Specific risk | 554.7 | 514.2 | 1,026.4 | 272.8 | 440.2 |
| Non-linear risk | 12.9 | 10.9 | 66.7 | 0.9 | 8.2 |
| Commodities risk | 17.1 | 18.6 | 24.1 | 14.9 | 16.0 |
| Global risk | 1,590.1 | 3,174.1 | 4,733.5 | 1,590.1 | 4,385.1 |
Notes:
Holding term of 10 days and 99% of confidence level.
Consolidated positions from Millennium bcp, Millennium bank (Poland) and Millennium BIM (Mozambique)
In order to check the appropriateness of the internal VaR model to the assessment of the risks involved in the positions held, several validations are conducted over time, of different scopes and frequency, which include back testing, the estimation of the effects of diversification and the analysis of the comprehensiveness of the risk factors.
As a complement to the VaR assessment, the Group continuously tests a broad range of stress scenarios analysing the respective results with a view to identifying risk concentrations that have not been captured by the VaR model and, also, to test for other possible dimensions of loss.
The results of these tests on the Group's trading book, as at 30th of June 2017, in terms of impacts over this portfolio's results, were the following:
| (millions of Euros) | ||
|---|---|---|
| Standard scenarios tested | Negative results scenario | Result |
| Parallel shift of the yield curve by +/- 100 bps | +100 bps | -3.3 |
| Change in the slope of the yield curve (for maturities from 2 to 10 years) by +/- 25 bps |
-25 bps | -0.6 |
| Combinations of the previous 2 scenarios | + 100 bps and + 25 bps + 100 bps and - 25 bps |
-2.8 -3.9 |
| Variation in the main stock market indices by +/- 30% | +30% | -0.1 |
| Variation in foreign exchange rates (against the euro) by +/- 10% for the main currencies and by +/- 25% for other currencies |
-10%, -25% | -5.9 |
| Variation in swap spreads by +/- 20 bps | + 20 bps | -0.02 |
| Non-standard scenarios tested | Negative results scenario/used scenario |
Result |
| Widening/narrowing of the bid-ask spread | Narrowing | -4.3 |
| Customized scenario (1) | -3.1 | |
| Historical scenarios (2) | 07/04/2011 22/09/2011 |
-1.1 -0.9 |
(1) The main historical risk factors (within a 3 year horizon) are applied as a simulation over the current portfolio, so that the potential impacts of those factors are measured.
(2) In these scenarios, past crisis market changes are applied over the current portfolio; in the cases at stake, there was great volatility of the portuguese public debt yields.
These results show that the exposure of the Group's trading book to the different risk factors considered is relatively limited, and that the main adverse scenario at stake refers to the FX risk.
The interest rate risk derived from Banking Book operations is assessed through a process of risk sensitivity analysis, undertaken every month, covering all the operations included in the Group's consolidated Balance Sheet and discriminated by exposure currency.
Variations of market interest rates influence the Group's net interest income, both in the short term and medium/long term, affecting its economic value in a long term perspective. The main risk factors arise from the repricing mismatch of portfolio positions (repricing risk) and from the risk of variation in market interest rates (yield curve risk). Besides this, but with less impact, there is the risk of unequal variations in different reference rates with the same repricing period (basis risk).
In order to identify the exposure of the Group's banking book to these risks, the monitoring of the interest rate risk takes into consideration the financial characteristics of each of the relevant contracts, with the respective expected cash-flows (principal and interest, without the spread component but including costs for liquidity, capital, operational and other) being projected according to the repricing dates, thus calculating the impact on economic value resulting from alternative scenarios of change of market interest rate curves.
This analysis, reported as at 30th of June 2017 and based on the calculation of the difference between the present value of the interest rate mismatch (discounted at market interest rates) and the value of this mismatch discounted at a level of rates with +100 basis points (for all periods) results in a positive impact of approximately 68 million euros (for the EUR-denominated positions). The following table shows the breakdown of this impact by each of the banking book's management areas and for the different residual terms of the positions in question.
(millions of Euros)
| Repricing gap in EUR | ||||||
|---|---|---|---|---|---|---|
| Repricing terms-to-maturity | ||||||
| < 1 Y | 1 - 3 Y | 3 - 5 Y | 5 - 7 Y | > 7 Y | Total | |
| Commercial area activity | 12,565.5 | 77,678.1 | 456,979.5 | -13,099.6 | -34,257.2 | 499,866.3 |
| Structural area activity | 73.2 | 6,924.5 | 5,814.1 | 601.6 | -6,948.7 | 6,464.7 |
| Subtotal | 12,638.7 | 84,602.6 | 462,793.6 | -12,498.0 | -41,205.9 506,331.0 | |
| Hedging | -31,570.8 | -147,161.3 | -368,395.2 | 5,620.7 | 40,884.0 | -500,622.6 |
| Commercial and Structural total | -18,932.1 | -62,558.7 | 94,398.5 | -6,877.2 | -322.0 | 5,708.5 |
| Funding and hedging | 12,447.0 | 8,382.9 | -4,290.7 | -67.4 | -19.7 | 16,452.1 |
| Investment portfolio | -18,034.4 | -1,048.4 | -2,317.0 | -612.7 | -8,090.6 | -30,103.1 |
| ALM | 46,595.6 | 56,737.6 | 111,891.9 | -114,041.5 | -24,775.7 | 76,407.9 |
| Banking Book total (Jun 2017) | 22,076.1 | 1,513.3 | 199,682.7 | -121,598.9 | -33,208.0 | 68,465.2 |
| Banking Book total (Dec 2016) | 27,783.4 | 16,989.4 | 80,759.0 | -15,955.3 | -30,195.8 | 9,865.4 |
| Impact of a -100 bps parallel shift of the yield curve (*) | ||||||
| Banking Book total (Jun 2017) | 4,792.6 | -3,000.3 | -91,040.9 | 42,190.0 | 37,849.5 | -9,209.1 |
(*) Scenario is limited to non-negative interest rates (implying effective chages smaller than 100 bps, particularly in the shorter terms).
The positions at risk which are not subject to specific market hedging operations are transferred internally to two market areas (Funding and ALM), thus becoming an integral part of the respective portfolios. As such, they are assessed daily based on the market risk control model for the trading book already identified (VaR).
The exchange rate risk of the banking book is transferred internally to the Trading area (Treasury), in accordance with the risk specialisation model followed by the Group for the management of the exchange rate risk of the Balance Sheet. The exposures to exchange rate risk that are not included in this transfer – the financial holdings in subsidiaries, in foreign currency - are hedged on a case-by-case basis through market operations.
As at 30th of June 2017, the Group's financial holdings in USD, CHF and PLN were fully hedged. On a consolidated basis, these hedges are identified, in accounting terms, as 'Net investment hedges', in accordance with the IFRS nomenclature. On an individual basis, for entities which have financial holdings with exchange rate risk, hedge accounting is also carried out, in this case through a 'Fair Value Hedge' methodology.
Regarding equity risk, the Group maintains a series of equity positions of a small size and low risk in the investment portfolio, which are not held for trading purposes. The management of these positions is carried out by a specific area of the Group, with the respective risk being controlled on a daily basis, through the indicators and limits defined for market risks.
Liquidity risk is the potential inability of the Group to meet its liabilities concerning funding repayment without incurring in significant losses, whether due to the deterioration of funding conditions (funding risk) or due to the sale of assets for amounts below market value (market liquidity risk).
The Group's Wholesale Funding (WSF) structure is defined for each annual period by the Liquidity Plan (which is an integral part of the budgeting process), formulated at consolidated level and for the main subsidiaries of the Group. The preparation of this plan is coordinated by the Group Treasurer and its implementation is monitored continuously throughout the year, being reviewed whenever necessary.
A decrease of 1,335 million euros in the WSF needs was registered in the first semester of 2017, at consolidated level. Both the capital increase in February 2017 and the commercial gap decrease in Portugal contributed to these lower WSF needs, practically to the same extent. This was partially offset by an increase in funding needs resulting from the growth of the Group's securities portfolios, during this period of time.
On the other hand, together with the decrease in funding needs, there were some movements in the first half of 2017 that have changed the funding structure in a relevant way:
The reduction of the collateralized funds taken from the European Central Bank (ECB), corresponding to the balance of the TLTRO (Targeted longer-term refinancing operations), of 870 million euros.
The table below shows the WSF structure, as at 31st of December 2016 and 30th of June 2017, in terms of the relative weight of each of the instruments used:
| Liquidity breakdown | |||
|---|---|---|---|
| (Wholesale funding) | |||
| Jun 17 | Dec 16 | Weight chg. | |
| M M |
3.6% | 4.1% | -0.5% |
| ECB | 39.6% | 42.6% | -3.0% |
| CoCo's | 0.0% | 6.1% | -6.1% |
| Commercial Paper | 0.7% | 1.6% | -0.9% |
| Repos | 30.3% | 20.3% | 10.1% |
| Loan agreements | 14.1% | 12.7% | 1.4% |
| Schuldschein | 0.0% | 0.2% | -0.2% |
| EMTN | 0.0% | 2.9% | -2.9% |
| Covered bonds | 9.9% | 8.0% | 1.9% |
| Subordinated debt | 1.8% | 1.6% | 0.2% |
| TOTAL | 100.0% | 100.0% |
The highlights concerning the evolution verified in this structure go to the end of the CoCo's as a funding source and the decrease in the weight of the ECB funding. These changes were compensated by a significant increase in the weight of short term instruments, mainly of Repos.
The strong decrease in the net funding at the Eurosystem has allowed for a reinforcement of the liquidity buffer at the ECB, which totalled 8,355 million Euros by the end of June 2017, against 7,614 million euros in December 2016.
The recent evolution of the ECB-discountable collateral is illustrated in the next graph.
(*) Global portfolio, including eligible assets mobilized and not mobilized for the ECB's monetary policy pool. The value in December 2016 includes, on a pro-forma basis, the collateral in excess of the covered bonds program which, under the form of an own issue to reinforce the collateral portfolio eligible to the ECB, would represent an amount never lower than € 1,500 M (after haircuts and assuming ECB assessments in line with those for the remaining retained emissions). In the same terms and also resulting from excess collateral affecting the mortgage bond program, the value in June 2017 includes € 1 000 M relating to a potential own issue to reinforce collateral eligible for discount with the ECB.
It should also be noted that, in addition to the eligible collateral graphically represented above (effective + pro-forma), the Group also had in its portfolio, at the 30th of June 2017, Treasury Bills (USA) in the amount of 600 million dollars (c. 521 million euros). Even if this asset is not eligible to collateralize funding at the ECB, it is highly liquid and should be considered in a broad sense a liquidity buffer. Hence, the safety margin provided by the liquidity buffer so considered rises to 9,876 million euros (762 million euros above the corresponding amount in December 2016).
For short term time horizons (up to 3 months), the control of the Group's liquidity risk is carried out daily based on two internally defined indicators: the immediate liquidity indicator and the quarterly liquidity indicator, which measure the maximum fund-taking requirements that could arise cumulatively over the respective time horizons, considering cash flow projections for periods of 3 days and of 3 months, respectively.
These indicators, as at 30 June 2017, showed a zero value in the Treasuries of Portugal and Poland, signifying surplus liquidity in these geographic regions, both in immediate terms and at 3 months, reflecting the prudent management of the different Treasuries of the Group towards this risk.
At the same time, the evolution of the Group's liquidity position is calculated on a regular basis identifying all the factors underlying the variations that have occurred.
The Group controls the structural liquidity profile through the regular monitoring of a set of indicators defined both internally and by the regulations, aimed at characterising liquidity risk, such as the loansto-deposits ratio (95.4% as at 30 June 2017), the regulatory ratios LCR (Liquidity coverage ratio) and NSFR (Net stable funding ratio) - respectively, 155% and 123% as at 30 June 2017 - and also the relative dimension of the excess of available collateral for discounting in UE central banks vis-à-vis the total clients' deposits.
This risk arises from the potential devaluation of the assets of the Defined Benefit Fund or from the reduction of their expected returns as well as from actuarial differences that may occur from the evolution of demographical factors, in relation to the actuarial assumptions considered. Confronted by such scenarios, the Group would have to make unplanned contributions in order to maintain the benefits defined by the Fund.
The monitoring of this risk and the follow-up of its management is a responsibility of the Pension Funds Risk Monitoring Commission.
In the first half of 2017 the Pension Fund registered a time-weighted rate of return (TWR), net of management and deposit fees, of 3.51%, a result that is clearly above the actuarial assumption. Although all of the asset classes have contributed for the performance of the first 6 months of 2017, a highlight should be made of the equity and the fixed-rate components – specifically, in what concerns Portuguese bonds, with a decrease in yields that brought quite a positive impact on the Fund's valuation. The favourable behaviour of the Real Estate and the Private Equity components during this time period should also be noted.
The Internal Capital Adequacy Assessment Process (ICAAP) is a key continuous process of the Group's risk management, aimed at identifying the Group's capital adequacy to cover the risks in which it incurs by developing its business strategy – both current and projected for the medium term. The chart below summarizes the process:
The ICAAP benefits from an internal governance model that ensures the involvement of the BoD and its Risk Assessment Committee, of the EC, of the Risk Commission and of the top management, along the various stages of the process.
The results of the ICAAP allow the Bank's management bodies – namely, the Board of Directors and the Executive Committee - to test if the Group's capitalization is appropriate for the risks stemming from its activities and if the strategic plan and budget are sustainable in the medium term and comply with the risk limits defined in the Risk Appetite Statement (RAS) approved for the Group.
The ICAAP is based on a prospective vision of the impact estimates concerning the occurrence of risks over the Bank's capital, considering their scale or dimension, complexity, frequency, probability and materiality, against a background consisting of the medium term (3 years) projection for the developments of the Group's activities, considering a base scenario and a stress scenario; the latter, with a severely negative evolution of macro-economic indicators in order to test the Group's resilience and the adequacy of the capital levels to cover the risks to which its activity may become subject.
The ICAAP's first stage is the identification of the material risks to which the Group's activity is subject. For this purpose, the Group uses a methodological approach based on an internal list of risks, covering more than 60 different risks, considering the relevancy of each one by taking into consideration its probability of occurrence and the magnitude of the impacts of its occurrence – either before or after the implementation of risk mitigation measures.
Beyond all risks considered to be material, the Group integrates in the ICAAP all of Basel's Pillar I risks, even if these do not attain levels that are considered to be material, at Group level.
The result of this stage is the list of risks to be incorporated in the ICAAP, which will also be helpful in defining the variables to be considered for the establishment of the base and the stressed scenarios, mentioned below. The approval of the results of the risks identification process is a capacity attributed to the Risks Assessment Committee.
In a second stage, the base and stressed scenarios that make the ICAAP's framework were defined. While the base scenario represents the Group's vision of the most probable evolution of the business constraints in the medium term, the stressed scenario incorporates extreme conditions, with low probability of occurrence but with severe impact over the Group's activity. The approval of the scenarios to be considered in the ICAAP is also a responsibility of the Risks Assessment Committee.
In the third stage of the ICAAP, the impact of the main risks is modelled for the reference date and the capital requirements are calculated for that date. This uses a set of methodologies and internal models, formally approved and audited, considering a significance level in line with the regulatory requirements (CRR or Solvency 2) and a time horizon of 1 year (which is lower for the trading portfolios, due to their nature).
For the prospective component, two scenarios are considered for the projection of the Group activity in a medium-term time horizon (3 years): a base scenario corresponding to the current vision of the Group's management and an adverse scenario that is extremely penalizing in terms of the macroeconomic indicators, in order to test the Group's resilience under extreme scenarios and if it has adequate capital levels to cover the risks to which its activity may be subject to.
Some risks are incorporated in this framework as a capital add-on (in particular those considered to be non-material), while other are considered in terms of their P&L impacts.
These risks are modelled or incorporated within the Group's stress testing methodology, producing estimated impacts over the capital levels, either through the impact on the P&L or through changes in RWA.
After the estimation of impacts of the risks over P&L and the Group's balance-sheet – especially, in what concerns the Own Funds – the adequacy of the Group's Risk Taking Capacity (RTC) can be assessed, vis-à-vis the expected profile of its activity.
The Group adopts a RTC that is aligned with the definitions of the regulatory capital ratios, pursuant to Directive 2013/36/EU and Regulation (EU) No 575/2013 (the CRR – Capital Requirements Regulation), corresponding to the CET1 (Common Equity Tier 1) ratio determined on a "fully implemented" basis, but adjusted from the Expected Loss Gap's impacts stemming from the internal assessment of the capital needs to cover credit risk and from the impacts on the eligibility of the minority interests of Bank Millennium in Poland (associated to the referred internal capital requirements assessment and to the usage of its minimum CET1 ratio).
The ICAAP results show that the current capitalisation levels are appropriate for a 3-year horizon, either under the base scenario or the stressed scenario.
Quarterly, the Bank reviews the ICAAP's assumptions, particularly the materiality of the risks that are considered as "non-material", the macroeconomic scenarios, the analysis of gaps in the business plans, the update of the assessment on the main ICAAP's material risks and the RTC calculation. The results are reported to the Bank's management bodies. Whenever there are significant changes in the Group's risk profile, the capital adequacy model is reviewed.
This function is assured by the Models Monitoring and Validation Office (GAVM), reporting to the Executive Committee member that is responsible for Risk management.
GAVM's scope of action encompasses the credit risk systems and models (rating systems) and the market risks models, as well as the ICAAP validation, Hence, GAVM interacts with the owners of risk models and systems, with the Validation Committees and with the Risk Commission.
Along the first half of 2017, several validation and monitoring works were carried out, either in relation to models already used or concerning the extensions and changes within the framework of the roll-out plan established for the Group for advanced models. These tasks aim at ensuring confidence regarding the models performance and their compliance with the regulatory provisions in force, as well as to reinforce the identification of changes to their predictive powers (and the reaction capabilities to those changes).
Within the scope of the models' monitoring, the Group regularly participates in the regulatory Benchmarking and the TRIM (Targeted Review of Internal Models) exercises.
In the beginning of June, a Model Risk management project was launched. This will endow the Bank with a management and assessment tool for model risk, based on a functional and approval workflow frame worked by internal documentation and fully aligned with applicable regulations and supervisory expectations.
Within the scope of the annual validation processes, the most significant advanced models for credit risk refer to the probability of default (PD) for the Small, Mid and Large Corporate segments (Corporate risk class), for the Real Estate promotion segment and for the Small Business and Mortgage Loan segments in (Retail risk class), as well as to the loss given default (LGD) models and credit conversion factors (CCF) models in the Retail and Corporate risk classes.
Complying with the applicable law - Directive 2014/59/EU and its transposition to the Regime Geral das Instituições de Crédito e Sociedades Financeiras (RGICSF) through Decree-Law 23-A/2015, from the 26th of March – the Group has drawn and annually revises a Recovery Plan for its business and activities, in which a large set of key indicators are defined; these are permanently monitored, allowing for immediate management action whenever there are deviations that exceed pre-defined thresholds (also defined in the Plan), which are mandatorily reported to the Group's management and supervision bodies.
In effect, from the strategic analysis and the establishment of possible scenarios for the business evolution and the external environment – in close connection with the Funding and Capital Plan (FCP) and stress testing exercises in which the Group has participated – and from the modelling of all variables, metrics and scenarios considered, the business evolution is permanently monitored within the scope of the Recovery Plan and its respective indicators.
The Recovery Plan is aligned with the Capital and Liquidity Contingency Plan (CLCP), which defines the priorities, responsibilities and specific measures to be taken in a liquidity contingency situation. It should be noted that the CLCP includes an Early Warning Signals (EWS) system, for the anticipation of the occurrence of possible capital and liquidity crisises.
The Recovery Plan is also aligned with the definition of the business continuity framework and its respective plans (see the Operation Risk section), the Communication Plan – towards the market and stakeholders (in contingency situations), Bank Millennium's Recovery Plan (Poland) and the results from the capital and liquidity adequacy assessment processes already mentioned (ICAAP e ILAAP).
The following diagram shows, in brief, the main components of the Recovery Plan:
The Internal Control System is defined as the set of principles, strategies, policies, systems, processes, rules and procedures established in the Group aimed at ensuring:
In order to achieve these objectives, the Internal Control System is based on the Compliance function, the Risk Management function and Internal Audit function, which are exercised by centralised divisions and operate transversally across the Group. The Heads of these three Divisions are appointed by the Bank's Board of Directors, with the favourable opinion of the Committee for Nominations and Remunerations which approves their technical and professional profiles as appropriate for the function in question.
The Internal Control System is based on:
The Internal Control System includes the following subsystems: the Risk Management System, the Information and Reporting System and the Internal Control Monitoring System.
The Risk Management System corresponds to the series of integrated and permanent processes which enable the identification, assessment, monitoring and control of all material risks, derived internally or externally, to which the Group's Institutions are exposed, in order to keep them at levels that are predefined by the management and supervisory bodies, and take into consideration risks related to credit, markets, interest rates, exchange rates, liquidity, compliance, operating, information systems, strategy and reputation, as well as all other risks which, in view of the specific situation of the Group's institutions, could become materially relevant.
This system is suitably planned, reviewed and documented and is supported by risk identification, assessment, monitoring and control processes, which include appropriate and clearly defined policies and procedures, aimed at ensuring that the objectives of the institution are achieved and that the necessary measures are taken to respond adequately to previously identified risks.
The Information and Reporting System ensures the existence of information which is substantive, up-todate, understandable, consistent, timely and reliable, so as to enable an overall and encompassing view of the financial situation, the development of the business, the achievement of the defined strategy and objectives, the risk profile of the institution and the behaviour and prospective evolution of relevant markets.
The financial information process is supported by the accounting and management support systems which record, classify, associate and archive, in a timely, systematic, reliable, complete and consistent manner, all the operations carried out by the institutions and its subsidiaries, in accordance with the rulings and policies issued by the Executive Board of Directors.
The Monitoring Process includes all the control and assessment actions developed with a view to ensure the effectiveness and adequacy of the internal control system, primarily through the identification of deficiencies in the system, either in terms of its design, implementation and/or use. The control and monitoring actions are implemented on a continuous basis and as an integral part of the Group's routines, being complemented with regular or exceptional autonomous assessments. Any deficiencies of material impact which might be detected through the control procedures are duly registered, documented and reported to the appropriate management and supervisory bodies.
Within this context, the Internal Audit Function is performed by the Audit Division on a permanent and independent basis, assessing, at all times and pursuant to the established plan, the adequacy and effectiveness of the different components of the internal control system as a whole, issuing recommendations based on the outcome of those assessments.
These subsystems of the Internal Control System are managed by the Risk Office and Compliance Office in terms of Risk Management and by the Planning and Control Department of the Planning, Research and ALM Division, the Accounts and Consolidation Division and the areas responsible for accounting in the different subsidiaries, for Information and Reporting.
The activity of the Risk Office is transversal across the Group and includes the coordination of the local risk management structures. The activity of the Compliance Office is also transversal to all Institutions of the Group, in terms of applicable compliance policies, with observance of the legal specificities of each jurisdiction. The Accounting and Consolidation Division and the Planning and Control Department of the Planning, Research and ALM Division receive and centralise the financial information of all the subsidiaries. The Audit Division is responsible for the on-site monitoring of the internal control system, performing this duty transversally.
The Risk Office, the Compliance Office, the Accounting and Consolidation Division, the Planning and Control Department of the Planning, Research and ALM Division and Audit Division ensure the implementation of the procedures and means required to obtain all the relevant information for the information consolidation process at Group level - both of accounting nature and relative to management support and risk monitoring and control - which should include:
The Group carries out transactions with derivatives mainly to hedge structured products for Customers (guaranteed capital and other products), risks stemming from the Bank's day-to-day business, including the hedging of interest rate risk and exchange rate risk. The trading activity of the Group's own portfolio in derivatives is immaterial insofar as Group profits or risk exposure are concerned.
Over the years, the Group has carried out securitisation operations based on loans to individuals (mortgage loans and consumer credit) and loans to companies (current accounts and leasing). Credit securitisation is used as a liquidity and capital management tool, aimed at financing the Group's business and, under certain circumstances, to release capital. The Group has a very limited exposure to Special Purpose Entities (SPE), apart from that arising from its own securitisations and normal credit business, as described in the Notes on Accounting Policies and on Loans to Customers of the Consolidated Financial Statements. Furthermore, the accounting policies relative to SPE and securitisations have not been altered over the past 12 months.
The international financial crisis revealed structural imbalances in State expenditure in many jurisdictions of the world, including Greece, Ireland and Portugal. As at 30 June 2017, the Group's net exposure to Portuguese sovereign debt was 5.1 billion euros, net exposure to Italian sovereign debt was 52 million euros and net exposure to Spanish sovereign debt was 38 million euros. Of the total consolidated public debt (9.9 billion euros), 292 million euros were recorded under the portfolio of financial assets held for trading and at fair value through profit or loss, 9.6 billion euros under the portfolio of financial assets available for sale and held to maturity. Further information on exposure to Mozambican sovereign debt is presented in Note 55 to the Consolidated Financial Statements. As of June 30, 2017, exposure to Mozambican sovereign debt was 379 million euros, of which 280 million euros in the portfolio of available-for-sale financial assets and 99 million euros in the portfolio of financial assets held to maturity.
The Group's accounting policies are described in Note 1 of the Notes to the Financial Statements, included in the Accounts and Notes to the Accounts of 2016. Further information on valuation of financial assets and risk management is presented in the Notes on Financial assets held for trading and available for sale; Hedge derivatives; Financial assets held to maturity; Fair value reserves, Other reserves and Retained earnings; Fair value and Risk Management in the Report referred to above.
During the first half of 2017 the consolidated wholesale funding needs of the bank decreased by approximately 1.3 billion euros, mainly due to the share capital increase of the Bank (1.3 billion euros) and to the reduction of the commercial gap in Portugal (-1.3 billion euros), which were partially offset by the increase of the sovereign debt and corporate portfolio by 1.4 billion euros.
The decrease of liquidity needs involved a change in the funding structure through the full repayment of CoCos (0.7 billion euros), the redemption of MTN (0.3 billion euros), the increased use of repos in Portugal (by 0.8 billion euros, to a balance of 3.1 billion euros) and the decrease of collateralized funding from the Eurosystem (by 0.9 billion euros, to 4.0 billion euros, which corresponds to the balance of the targeted long term refinancing operations named TLTRO). It should be highlighted that the remaining issue of covered bonds placed in the market was refinanced in June through a similar issue of 1.0 billion euros, with a five year maturity, marking the return of the bank to the medium-long term debt market, three years after the placement of an MTN, already amortized last February.
In net terms, the funding from Eurosystem decreased by 0.8 billion euros from December 2016, to 3.6 billion euros.
The significant decrease of the exposure to the Eurosystem allowed a reinforcement of the liquidity buffer with the ECB by 0.7 billion euros, facing December 2016 figures, to 8.4 billion euros. If on a pro forma basis the collateral currently allocated in excess to the covered bond program (which, under the form of an issue to be retained at the portfolio of ECB eligible assets, would allow its increase by an amount of at least 1.0 billion euros after haircuts, assuming the use of the valuation criteria of the ECB concerning the other retained issues), were added to the buffer, as well as a portfolio of Treasury Bills amounting to USD 0.6 billion, its value would increase 0.8 billion euros, facing the comparable figure of December 2016, to 9.9 billion euros.
In the first half of 2017, there was a significant improvement in the macroeconomic indicators for Portugal, with the public deficit at 2.0% of the GDP for 2016, a historically low figure that enabled Portugal to be released from the Excessive Deficits Procedure, and with the Banco de Portugal and the IMF revising their economic growth forecasts upwards for 2017-19. Rating agencies recognised the progress achieved, considering that there is room for an Outlook review, if not for an upgrade of the Portuguese Republic's rating, within one year.
The Portuguese banks continued to pursue their activities within a challenging context in the first half, with interest rates at rather low levels, which restricts financial margin and in turn profitability. However, the conditions for the Portuguese financial system to become more stable are improving.
The rating agencies main concerns are still the high amount of Non-Performing Exposures and the ability of Portuguese banks to return to profitability in a sustainable manner.
In the first six months of the year, all four agencies that rate the Bank confirmed their ratings, except for S&P, which revised BCP's rating upwards. The Outlook of all the rating agencies that cover the Bank is stable.
| Moody's | Standard & Poor's | ||
|---|---|---|---|
| Baseline Credit Assessment | b2 | Stand-alone credit profile (SACP) | bb |
| Adjusted Baseline Credit Assessment | B2 | ||
| Counterparty Credit Rating LT / ST | Ba2/NP | Counterparty Credit Rating LT / ST | BB-/B |
| Deposits LT / ST | B1/NP | Senior Secured LT / Unsecured LT / ST | BB-/B |
| Senior Unsecured LT / ST | B1/NP | Outlook | Stable |
| Outlook | Stable/ Negative | ||
| Subordinated Debt - MTN | (P) B3 | ||
| Preference Shares | Caa2 (hyb) | Subordinated Debt | B |
| Other short term debt | P (NP) | Preference Shares | D |
| Covered Bonds | A3 | ||
| Rating Actions | Rating Actions | ||
| 2 3 January 2017 - Confirmed BCP long-term deposit and senior debt |
2 3 February 2017 - Upgraded to 'BB-' from 'B+' the long-term |
||
| ratings at 'B1', as well as its long-term Counterparty Risk Assessment at | counterparty credit rating on BCP and affirmed 'B' short-term rating. S&P |
ratings at 'B1', as well as its long-term Counterparty Risk Assessment at 'Ba2' and upgraded the following ratings: (1) the Bank's Baseline Credit assessment (BCA) and adjusted BCA to 'b2' from 'b3'; (2) the bank's subordinated programme ratings to '(P) B3' from '(P) Caa1'; and (3) the bank's preference shares to 'Caa2 (hyb)' from 'Caa3 (hyb)'. The outlook on the long-term deposit ratings is stable and on the senior unsecured debt is negative.
| Fitch Ratings | DBRS | |
|---|---|---|
| Support Floor | No Floor | |
| Covered Bonds | BBB+ | |
| Rating Actions | Rating Actions | |
| 1 1 April 2017 - Reaffirmed the L T rating of Banco Comercial Português |
||
| at 'BB-', as well as the other BCP ratings. The Outlook is stable. |
| Moody's | Standard & Poor's | ||
|---|---|---|---|
| Baseline Credit Assessment | b2 | Stand-alone credit profile (SACP) | bb |
| Adjusted Baseline Credit Assessment | B2 | ||
| Counterparty Credit Rating LT / ST | Ba2/NP | Counterparty Credit Rating LT / ST | BB-/B |
| Deposits LT / ST | B1/NP | Senior Secured LT / Unsecured LT / ST | BB-/B |
| Senior Unsecured LT / ST | B1/NP | Outlook | Stable |
| Outlook | Stable/ Negative | ||
| Subordinated Debt - MTN | (P) B3 | ||
| Preference Shares | Caa2 (hyb) | Subordinated Debt | B |
| Other short term debt | P (NP) | Preference Shares | D |
| Covered Bonds | A3 | ||
| Rating Actions | Rating Actions | ||
| 2 3 January 2017 - Confirmed BCP long-term deposit and senior debt |
2 3 February 2017 - Upgraded to 'BB-' from 'B+' the long-term |
||
| ratings at 'B1', as well as its long-term Counterparty Risk Assessment at | counterparty credit rating on BCP and affirmed 'B' short-term rating. S&P |
counterparty credit rating on BCP and affirmed 'B' short-term rating. S&P also raised issue ratings on BCP's senior unsecured debt by one notch to 'BB-' from 'B+', and its subordinated debt by two notches to 'B-' from 'CCC'. The issue ratings of the preference shares remain at 'D' as BCP has not yet resumed the coupon payments on the preference shares. The outlook is stable.
| Fitch Ratings | DBRS | ||
|---|---|---|---|
| Viability Rating | bb- | Intrinsic Assessment (IA) | BB (high) |
| Support | 5 | Critical obligations | BBB/R-2(high) |
| Support Floor | No Floor | ||
| Deposits LT / ST | BB-/B | Short-Term Debt LT / ST | BB (high) / R-3 |
| Senior unsecured debt issues LT / ST | BB-/B | Deposit LT / ST | BB (high) / R-3 |
| Outlook | Stable | Trend | Stable |
| Subordinated Debt Lower Tier 2 | B+ | Dated Subordinated Notes | BB (low) |
| Preference Shares | B- | Covered Bonds | A |
1 5 June 2017 - Confirmed BCP ratings, including the Issuer Rating and Senior Long-Term Debt & Deposit Rating at 'BB (high)' and the Short Term Debt & Deposit rating at 'R-3', the subordinated debt rating of 'BB (low)' and the 'BBB/R-2 (high)' and assigned the Critical Obligations Ratings (COR). All ratings have a Stable Trend.
CRD IV/CRR7 establishes Pillar 1 capital requirements of 4.5%, 6% and 8% for CET1, Tier 1 and Total Capital, respectively. However, under SREP8 , the European Central Bank notified BCP about the need to comply with phased-in capital ratios, during 2017, of 8.15% (CET1), 9.65% (Tier 1) and 11.65% (Total), including 2.4% of additional Pillar 2 requirements and 1.25% of capital conservation buffer.
According to our interpretation of CRD IV/CRR to date, the CET1 estimated ratio as at 30 June 2017 stood at 13.0% and at 11.3% phased-in and fully implemented, respectively, showing a favourable evolution regarding the 12.4% and 9.7% presented as at 31 December 2017.
The CET1 performance, in the first semester of 2017, mainly reflects:
The capital increase operation performed in February 2017 and the full reimbursement of the remaining CoCo's, which determined a CET1 increase of 677 million euros and a 228 million euros increase of RWA (+166 basis points in CET1 phased-in ratio);
Despite the progression of the phase-in, which determined reductions of CET1 by 512 million euros, and RWA by 147 million euros as at 1 January 2016 (-127 basis points in CET1 phased-in ratio);
The positive net income and the favourable evolution of fair value reserves and foreign exchange reserves, as well as of RWA arising from the Group's business, also contributed to the capital ratio performance, despite the increases of both the gap of expected loss and RWA resulting from adjustments made to internal models in advance of TRIM (Targeted Review of Internal Models).
(EUR million)
| CAPITAL RATIOS (CRD IV/CRR) | ||||
|---|---|---|---|---|
| 30 Jun. 17 | 31 Dec. 16 | 30 Jun. 17 | 31 Dec. 16 | |
| Phased-in | Fully Implemented | |||
| OWN FUNDS | ||||
| COMMON EQUITY TIER 1 (CET1) | 4,953 | 4,874 | 4,275 | 3,730 |
| TIER 1 | 4,953 | 4,874 | 4,340 | 3,744 |
| TOTAL CAPITAL | 5,353 | 5,257 | 4,681 | 4,061 |
| RISK WEIGHTED ASSETS | 38,147 | 39,160 | 37,720 | 38,597 |
| CAPITAL RATIOS (*) | ||||
| CET1 | 13.0% | 12.4% | 11.3% | 9.7% |
| TIER 1 | 13.0% | 12.4% | 11.5% | 9.7% |
| TOTAL | 14.0% | 13.4% | 12.4% | 10.5% |
(*) Includes the cumulative net income recorded in each period.
7 Capital Requirements Directive IV / Capital Requirements Regulation (Directive 2013/36/EU and Regulation (EU) no. 575/2013)
8 Supervisory Review and Evaluation Process
The Group's responsibilities with pensions on retirement and other benefits stood at 3,056 million euros as at 30 June 2017, comparing with 3,093 million Euros as at 31 December 2016. These responsibilities are related with the payment to Employees of pensions on retirement or disability, and were fully funded and kept at a higher level than the minimum set by the Banco de Portugal, presenting a coverage rate of 115%, comparing with 112% at the end of 2016.
As of 30 June 2017 the Pension Fund's assets reached 3,187 million euros and a positive rate of return of 3.5%, which favourably compares to the assumed actuarial rate of 2.1%.
The main asset categories in the Pension Fund's portfolio, as of 30 June 2017 and at the end of 2016, were as follows:
The main actuarial assumptions used to determine the pension fund's liabilities in 2015, 2016 and first half of 2017 are shown below:
| Assumptions | ´15 | ´16 | 1H17 |
|---|---|---|---|
| Discount rate | 2.50% | 2.10% | 2.10% |
| Increase in future compensation levels | 0.75% until 2017 | 0.25% until 2019 | 0.25% until 2019 |
| 1% after 2017 | 0.75% after 2019 | 0.75% after 2019 | |
| Rate of pensions increase | 0% until 2017 | 0% until 2019 | 0% until 2019 |
| 0.5% after 2017 | 0.5% after 2019 | 0.5% after 2019 | |
| Projected rate of return on fund's assets Mortality tables |
2.50% | 2.10% | 2.10% |
| Men | TV 73/77 - 2 years | TV 88/90 | TV 88/90 |
| Women | TV 88/90 - 3 years | TV 88/90 - 3 years | TV 88/90 - 3 years |
| Disability rate | Not applicable | Not applicable | Not applicable |
| Turnover rate | Not applicable | Not applicable | Not applicable |
In first half of 2017 an amount of 46 million euros of positive actuarial deviations, before taxes, was recognized, of which 65 million euros referred to positive differences arising from the return on pension fund's assets.
At the 2016 year end the Collective Labour Agreement was revised and the respective impacts were recognized on the consolidated profit and loss account. The changes introduced in the Collective Labour Agreement were only formally accepted by the "Northern Trade Union" in April 2017 and therefore the respective impact was recognized in first half of 2017.
The main indicators of the Pension Fund as at the end of 2015, 2016 and 30 June 2017 are as follows:
| Main indicators | ´15 | ´16 | 1H17 |
|---|---|---|---|
| Liabilities with pensions | 3,136 | 3,093 | 3,056 |
| Value of the Pension Fund | 3,158 | 3,124 | 3,187 |
| Value of the Extra Fund | 312 | 324 | 316 |
| Coverage rate | 111% | 112% | 115% |
| Return on Pension Fund | -0.8% | -2.6% | 3.5% |
| Actuarial (gains) and losses | 111 | 303 | -46 |
During the first six months of 2017 the Portuguese banks continued to develop their activities within a challenging environment, in spite of the boost in economic growth. Banks are operating within a context of very low interest rates, exerting pressure on financial margins. Moreover, the Portuguese banks have a significant number of non-interest bearing assets on their balance sheets.
The Banco de Portugal's forecasts for the Portuguese economy in the 2017-19 time frame point towards the recovery of economic activity at a quicker pace than in the last few years. GDP is expected to grow on average 2.5% in 2017, 2.0% in 2018 and 1.8% in 2019. At the end of this period, GDP levels are expected to stand slightly above the figures recorded before the world financial crisis began in 2008. In addition, the growth rate throughout the forecast period should be higher than that of the euro area, according to the ECB's forecasts. It is expected that, in 2017-19, the contribution provided by investment and net exports will increase its importance in GDP growth. According to data disclosed by INE (Portuguese Statistics Institute), in March 2017, the public deficit stood at 2.0% of GDP in 2016, the lowest ever since joining the Euro Area and the first time it went below 3%. In addition, Portugal was released from the Excessive Deficits Procedure.
The four rating agencies that rate the Portuguese Republic confirmed their ratings and the Outlook as stable in the beginning of 2017.
In accordance with the Banco de Portugal, the funding operations made by the Portuguese banks with the ECB fell to 22.3 billion euros in June 2017, consistent with the general trend since the second half of 2013. These figures show an improvement in the liquidity position of the domestic banks which has benefited from a resilient performance from deposits, namely from individuals (-1.1% by the end of June 2017, compared with the same period of last year, with demand deposits up 12.4% and term deposits down 6.6%, also year on year).
Moreover, the deleveraging of the Portuguese financial sector continues and the total credit to individuals and to companies decreased 4.0% year on year, as of June 2017. The loan to deposit ratio of the banking sector in Portugal stood under 100% by the end of June 2017 versus 128% by the end of 2012 and 158% by the end of 2010.
Loans granted by Millennium bcp have continued to diminish, in a context of deleveraging of the nonfinancial sectors of the economy, resulting in a fall in demand for credit. At the same time, deposits also continued to grow despite the fact that the bank let go of some institutional deposits, requiring a larger remuneration, complying with a policy for the preservation of the financial margin. As the commercial gap closes, Millennium bcp has also been reducing its use of funding from the ECB, to 3.6 billion euros in June 2017. Over the upcoming months, the expectation is that these trends will continue, and it is highly likely that the credit/deposit ratio will continue to fall, together with the maintenance of funding from the ECB under 4 billion euros.
The maintenance of very low money market interest rates are contributing to the decrease of the spread on term deposits of the Portuguese banks, a trend that persisted in the first half of 2017, more than offsetting the lower spreads for credit.
The rates of the new term deposits reached, by June 2017, values near 25 basis points, and the portfolio's average rate should converge to these levels over the course of next year.
The price effect on the financial margin should continue to be globally positive, reflecting the improvement of the interest margin on operations with Customers (differential between the global loan rate and the global rate at which the banks remunerate deposits). Nevertheless, the continued reduction in credit granted (volume effect) will probably continue to condition the financial margin.
The profitability of the Portuguese banks is expected to continue to be conditioned by the prospects of low short term interest rates continuing to apply. Various institutions should continue to implement restructuring plans, to increase operating efficiency and the adjustment of business models, which translates into a decrease in the number of branches and employees and in the release of capital allocated to non-core activities. Profitability in the banking industry is still affected by a high level of NPEs. The profitability levels recorded by the banking system since the beginning of the financial crisis continue to limit the capacity to generate capital internally.
The Millennium bcp Group has a relevant exposure to Poland where there are risks due to legislative amendments that impact the Polish financial system. A proposal has been recently presented to solve the issue of the conversion of loans in Swiss francs in Poland and the Plan envisaged by the Polish President received the support from the Central Bank and the supervisor. This plan implies a quarterly contribution of up 0.5% (2% annually) on the mortgage loans in a foreign currency into a new restructuring fund for a long period of time. The objective is to promote the conversion of the loans into zloty.
There are still some risks connected with the economic context experienced by some African countries, with potential impact on the Group, particularly in Angola and in Mozambique, whose economic activity is decelerating and which faced a significant depreciation of their currencies in 2016.
The continuous improvement in core income as well as the continuation of the restructuring and reduction of costs should play a positive role and contribute to the improvement of the 2017 results, though conditioned by the economic picture.
Mangement is intensely focused on the stock of problematic assets and respective hedging levels, and measures should be adopted to reduce these assets, together with other preventive measures, to be applied within the scope of prudential supervision and targeted at new Non-Performing Loans (NPLs) so as to foster a more pro-active management of them, including measures to remove the blocking factors in legal, judicial and tax systems. The NPLs issue is particularly important within a European context, conditioning the profitability of European banks, namely Portuguese. The Bank has an ongoing plan for reducing Non-Performing Exposures (NPE) to around 7.5 billion euros at the end of 2017, which compares to 12.8 billion euros at the end of 2013.
It is not yet possible to determine what will be the final impact of the resolution of Banco Espirito Santo on Millennium bcp as an institution participating in the resolution fund created by Decree Law nr.31- A/2012, of 10 February (the "Resolution Fund"). In 2016, the contributions made by the Bank to the Resolution Fund consisted of 20% of the total contributions paid by the banking industry. The Resolution Fund, which in turn holds the entire share capital of Novo Banco, valued on 31 December 2015 at 4.9 billion euros (consisting of 3.9 billion euros financed by a State loan, plus 700 million euros obtained by loans granted by several banks, with the remainder funds that were already in the Resolution Fund).
In March 2017, the conditions for loans granted by the State to the Resolution Fund were altered. The maturity of the loans was revised to December 2046, so that the annual payment by the Banks is met by the income from the regular contribution charged to the banking sector, keeping the banks' contributions unaltered at their current level.
The revision of the loans enables the full payment of the liabilities of the Resolution Fund, as well as the respective remuneration, without the need to ask the banking sector for special contributions or any other type of extraordinary contribution.
The revision of the conditions of the State loan to the Resolution Fund, though it does not alter the banking sector's liabilities towards the Resolution Fund, represents yet another measure to ensure financial stability, after a deep recession, and to favour the reinforcement of the capitalisation of Portuguese banks, as well as the competitiveness of the Portuguese economy.
The European Commission agreed with the revision of the terms and conditions of the agreements and removes the uncertainty surrounding the future annual liabilities of banks, regardless of the contingencies that come to fall on the Resolution Fund.
After having conveyed reservations regarding the contingent capitalization obligation by the Portuguese Resolution Fund which was announced as part of the sale agreement for Novo Banco, Millennium bcp decided, in light of the legal deadline and as a precaution, to request the respective appreciation of this mechanism through administrative legal proceedings.
This diligence, which centers exclusively on the referred capitalization obligation, does not comprise the request by the Bank of, nor entail, the production of any suspending effects on the sale of Novo Banco and, consequently, brings no legal impediment to such sale within the foreseen delays.
The Directive nr. 2014/59/EU - the Bank Recovery and Resolution Directive (BRRD) - foresees a joint resolution regime in the European Union enabling the authorities to cope with the insolvency of bank institutions. The shareholders and creditors will have to internalize an important part of the costs associated with the insolvency of a bank, minimizing taxpayers' costs.
To prevent bank institutions from structuring their liabilities in a way which may compromise the efficiency of the bail-in or of other resolution tools and to avoid the contagion risk or a bank run, the Directive establishes that the institutions will have to comply with a minimum requirement for own funds and eligible liabilities (MREL).
This new regime (MREL), which became effective during 2016, involves a transition period and should have implications on the issue of debt by bank institutions, implying the introduction of alterations in the liability structure through the issue of new senior debt with some subordination structure or strengthening Tier 2.
The identification and the ongoing follow-up of the themes considered material by the Stakeholders of Millennium bcp enabled the Bank to know the areas that show better performances within the scope of Sustainability, and also enabled it to rapidly detect improvement opportunities representing a strong contribution for the adoption of an appropriate sustainability strategy adapted to new realities, challenges and requirements.
IMPACT LEVEL TO MILLENNIUM BCP
The Millennium bcp Group pursues dynamic strategies appropriate to the new challenges imposed by the different stakeholders with which it is related. The main objectives of the adopted sustainability policies, which foster a culture of Social Responsibility, have been to positively influence the organisation's value proposition in the long term, balanced with the well-being of the people, the company and communities in which it operates, while preserving natural resources, the climate and the environment.
Within this context, it is possible to divide the Bank's intervention into three major areas:
Thus, Millennium bcp assumes, as an integral part of its business model, the commitment to create social value, developing
actions for and with several groups of Stakeholders aiming to, directly and indirectly, contribute to the social development of the countries where it operates.
In the wake of the subscription in 2005 to the United Nations Global Compact Principles, Millennium bcp also commits to support these 10 Principles establishing a set of values regarding human rights, labour conditions, the environment and anti-corruption efforts. IN 2017 tyhe bank published the Communication on Progress (COP) in the GC Advanced Level.
The strategy of Millennium bcp is reflected in the Sustainability Plan (SP), commitments that aggregate a number of actions to be carried out by the Bank. The definition of the actions part of the SP is based on a balanced relation between the identified relevant material issues, the Bank's available resources and the economic and market framework existing at the time.
The Sustainability Plan 2014/17 which, through a close, transparent and consequent relation, intends to
face the main expectations identified during the regular surveys made of the Bank's main Stakeholders foresees, in its different aspects, the following initiatives and actions:
| Ethics and professional conduct |
Enhance the ties established between Employees and the Bank's Values Foster a culture of compliance and of strict management of risk Publish clear policies for the prevention of corruption, for health and safety issues, human rights and the protection of maternity |
|---|---|
| Service Quality | Implement and improve the satisfaction evaluation processes; Create mechanisms for the immediate detection and management of improvement opportunities in the services provided to Customers. |
| Accessibilities | Improve the implementation of differentiated working hours; Enhance and promote the accessibilities made available to individuals with special needs. |
| Proximity and reporting |
Enhance the proximity and involvement with the Bank's Shareholders; Improve the institutional report in the wake of Sustainability; Make a survey to identify the Stakeholders' expectations. |
| Management of expectations |
Consult the Bank's Stakeholders to understand and meet their expectations Collect and implement ideas suggested by the Employees on Sustainability issues. |
| Motivation | Identify best performances at the Customer Service level; Support the adoption of healthy lifestyles; Improve mechanisms to ensure greater proximity between the Employees and top managers. |
| Products and Services |
Consolidate the Bank's position in the microcredit market; Improve the negotiation and search for solutions able to meet the increasing financial difficulties of the Customers; Promote and launch products that observe social responsibility principles and cope with the new environmental challenges. |
| Share and promote awareness |
Institutionalize the donation of the Bank's furniture and IT equipment to institutions in need; Implement social and/or environmental awareness actions common to the entire Group; Launch a financial literacy programme transversal to the Bank. |
| Volunteer Actions |
Structure a volunteering programme for and with the participation of the Employees. |
| Partnerships | Develop campaigns together with non-governmental organizations and charitable institutions to foster a sustainable development. |
| Foundation Millennium bcp |
Strengthen the identity of the Millennium bcp Foundation |
| Social and environmental risk |
Promote climate change awareness with corporate clients developing their activities in sectors more exposed to risks and environmental regulations Identify and classify Corporate Clients with greater environmental and social risks Formalize compliance with social and environmental requisites in the relation established with Suppliers |
| Environmental performance |
Enhance the measures for the reduction of consumption Implement measures aimed at the reduction of waste and the creation of a formal recycling process Formalize and communicate Environmental Performance and quantitative objectives |
Sustainability Master Plan 2014 (SMP) - 2014/2017
In the first half of 2017, the Bank recorded earnings of 89.9 million euros, benefiting from the continuous expansion of core income, which amounted to 558.6 million euros, comparing to 437.1 million euros in the first half of 2016. Millennium bcp is one of the most efficient banks in the euro area, with cost-to-core income and cost-to-income ratios of 45% and 43%, respectively, in the first six months of the year. In this period of time, there was an improvement in profitability, with ROE at 3.3%.
A highlight is asset quality, reflected in the decrease in Non-Performing Exposures (NPE) in Portugal to 7.8 billion euros, as at 30 June 2017, which shows the fast descent since 2013 (1.4 billion euros a year on average), and the maintenance of a comfortable level of liquidity, seen in the loan-to-deposit ratio (95%) and in the balance sheet loans to funds ratio (92%). Common Equity Tier 1 ratios, according to the fully implemented and phased-in criteria, stood at 11.3% and 13.0%, respectively.
For the first six months of 2017, BCP's shares were up 27.8%, exceeding the performance of the domestic benchmark index PSI 20 (+10.1%) and the European Eurostoxx 600 Banks Index (+7.1%).
The Millennium bcp Group has been developing its activity in a responsible manner towards Employees, Customers, Shareholders, Suppliers and remaining Stakeholders, always guiding its performance by compliance with internal principles of rigour, the applicable legislation and the regulations issued by the supervision and regulatory authorities:
8.9%, showing an increase of the NPS from 62.7 to 64.9 (+2.2 points).
Mass Market
Negócios
"Mystery Client" Action with 561 visits to Mass Market Branches, evaluating an "Account Opening" scenario. Regarding the actions carried out in 2015 and 2016 on the same issue, the percentage of fulfilment of the service choreography remained stable, at 81%. The results, although positive, show room for improvement since the bank intends to achieve a global percentage of compliance with the service choreography above 85%.
In the first six months of 2017, the programme "#1 Customer Experience" continued to be in effect. Its main objective is to ensure the conditions for providing customers with distinctive and memorable experiences in all their interactions with the Bank.
This programme, which began as training on behaviour and commercial techniques for all the Employees of the commercial network, continues in effect through systematic training called "Training #1", carried out in the Branches every month. The branches that present more challenges regarding those matters are
monitored by the Commercial Managers and by "Ambassadors #1" (Employees who stood out in issues such as Customer service quality).
The CSI Banca index is a result of two indexes, one designed to evaluate the satisfaction of the Clients which prefer to use the Banks' branches (Index CSI Balcão) and another which intends the evaluate the satisfaction of the Clients who prefer to use internet banking solutions (CSI Internet Banking Index). In the CSI Balcão index, Millennium bcp is the only one of the five major banks to show a positive evolution, increasing the distance from the sector peers and reducing the distance versus the best ranked bank. In the CSI Internet Banking index the major Banks operating in Portugal are aligned. Four of the five largest banks got values between 70.0 and 70.9 (0.9 points is, thus, the value that separates these 4 banks, where Millennium bcp is included).
‐ The BFin, made by DataE, focuses on the characterization of the banking industry in Portugal, according to the companies' perspectives, relating to products and services made available by the Banks. In the 2017 study, Millennium bcp is the main Bank for medium and large companies (with more than 4 employees) and the third bank in the segment of micro-businesses, being also the main Bank for exporting companies. Millennium bcp stands out in this study once again as the most innovative Bank with products better adjusted to the companies and closer to the Clients.
The Bank produced and published the 2016 Sustainability Report, a document which provides
In the first six months of 2017 the Bank was included in the "European Banks Index" Sustainability index (Standard Ethics), and continued to be part of the indexes "Ethibel Excellence Europe" and "Ethibel EXCELLENCE Investment Register" (analyst Vigeo).
In order to respond to the challenges placed by the market and as a way to comply with the legal and regulatory demands, the Bank founded in January 2016 its in-house corporate school, the Millennium Banking Academy (MBA). This isthe first in-house academy of a Bank in Portugal, certified by the General-Directorate of Employment and Work Relations (DGERT).
Among the training actions launched in 2017, the courses on Protocol Credit, Factoring and Confirming, Trade Finance, Opening of a Company Account, Portugal 2020 App and Economic and Financial Analysis for Managers of Companies and Corporates (through a partnership established with INDEG and FEP) stand out for their significance in the affirmation of Millennium bcp as the reference bank in the support to companies. Currently, the Bank is preparing a workshop on Credit Decision.
Globally, in the first six months of 2017, the MBA produced 20,320 hours of training through attendance and 33,215 hours of e-learning training addressed to Employees of Millennium in Portugal.
Aware of the demands that being a parent implies, the Bank put into practice a Programme for the Protection of Parenting to create the necessary conditions to enable the Employees to achieve a better balance between work and family life.
This Programme, which already counts 335 Millennium Babies since its implementation in 2015, contemplates a number of advantages addressed to Employees and their families, including the possibility of having a free afternoon on the birthday of their children up to 12 years of age, a benefit that, until the end of June 2017, has already been experienced by 2,790 Employees.
The intention of the internal programme Mil Ideias is the generation of ideas based on the recognition of the creative force of the Employees capable of developing valuable ideas. 21 ideas were presented throughout the first six months of 2017.
The credit cards issued by Millennium bcp - Visa/Mastercard network and the Membership Rewards Programme of American Express - continue to foster social aid through loyalty programmes which enable the conversion of rebate card points into donations to Charitable institutions, namely to Cáritas Portuguesa, Liga Portuguesa Contra o Cancro, Unicef, Casa do Gaiato, Acreditar, Ajuda de Berço, Cerci and AMI (Reforestation of Portugal). In the first six months of 2017, 3,400 euros were donated, corresponding to 400 rebates.
Aiming to reduce the events which may foster social exclusion, Millennium bcp was one of the banking institutions that voluntarily provided the current account – Minimum Banking Services Account (SMB) - without associated costs. This account can be used with a debit card and through online banking. By the end of the first half-year of 2017, the total number of SMB accounts was 4,676.
For Entities of the social sector, Millennium bcp has kept the Non-Profit Associations Account, a current account with special conditions, which does not require a minimum opening amount and is exempt from maintenance and overdraft fees. By the end of the first half-year of 2017, there were 3,677 accounts with these characteristics.
During the first six months of 2017, Millennium bcp, as part of its Social Responsibility policy, strengthened its commitment to the microcredit activity. The current economic context continues to be perceived by the Bank as an opportunity to provide support to all those who have an entrepreneurial mind and a feasible business idea, providing them with help to create their own businesses.
Within this scope, the main strategic priorities of microcredit were based on the disclosure of this type of funding and on the promotion of an entrepreneurial spirit in the different regions of Portugal, in order to strengthen the leading position of Millennium bcp in this area.
For that purpose, the Bank carried out 39 informative sessions, participated in 13 Entrepreneurial Fairs and held 358 meetings with Municipalities, Parishes, CLDS 3G universities, professional schools and other entities that develop their activities near the target population. These initiatives, articulated with the Bank's retail network, enabled performance synergies. From these, highlights include:
Culturally speaking, highlights include the Festival ao Largo, which every year presents on stage at Largo de São Carlos a series of free shows with the best of opera, ballet and symphonic music. This action intends to take art to a wider public, thus contributing to the cultural enrichment of the country.
Millennium bcp has, for certain periods of time, provided a location in Tagus Park for charitable organisations to collect funds and promote their activties. In the first six months of 2017, an example of this practice is the CERCI Oeiras Pirilampo Mágico 2017 (for disabled children).
for Food 2017" campaign, the goal of which was to collect used paper in favour of the Food Bank. Some 3 tons of paper were collected.
The Bank continued its collaboration with Junior Achievement Portugal (JAP), initiated in 2005, regarding the development of programmes targeted at entrepreneurial spirit, taste for risk, creativity and innovation, through: i) the sponsorship by Fundação Millennium bcp for the StartUp Programme (9th Edition) for university students; and ii) of Millennium bcp, in the support for programmes for basic and secondary education.
During the 2016/2017 school year, 46 volunteers of Millennium bcp monitored more than 889 students from 38 schools in the various programmes of Junior Achievement Portugal, in a total of 491 hours of corporate volunteer work.
The Bank (Employees and their families) continued to participate in the regular collection of food for the Portuguese Food Bank. Together, about 80 volunteers, employees and their families, gave, in May 2017, their charitable contribution at 7 of the warehouses of the Food Bank in the country, weighting, separating and packing the donated goods.
The Millennium bcp Foundation provides financial aid to cultural, scientific and social initiatives which, in the scope of patronage and institutional social responsibility, are aligned with the values of Millennium bcp and simultaneously satisfy some of the major
needs identified in these three areas in Portugal and in other countries where Millennium bcp develops its activity.
Through June 2017, the Foundation supported several projects, from which we highlight, in the realm of Culture - the main vocation of the Foundation - particularly the preservation and disclosure of the Bank's art heritage, the following ones, which were free of charge:
(Brazil) and "Archivo Alexander Von Humboldt", by Fabiano Kueva (Equator), which received 456 visitors until the end of June.
‐ Museu Nacional de Arte Antiga (MNAA) support to the purchase of a multimedia table, for the Library, the Capela das Albertas and to the making of a light, sound and performance show, in collaboration with Chapitô, inspired by the fall of the sculpture of the Archangel S. Michael;
‐ National Coach Museum support to the Exhibit "300 anos Embaixada D. João V";
‐ Directorate-General for the Arts Portuguese Representation at the Venice Biennale 2017;
‐ Lisbon Architecture Triennale joining the Open House initiative, opening the Millennium bcp building at Rua Augusta for guided tours.
‐ Fundação Portuguesa de Cardiologia Support for the Month of the Heart which took place in May, this year under the theme "The heart in sports";
‐ Lar de Crianças Bom Samaritano Support for the programmes to provide therapeutic help in mental health for children and young people;
Within the scope of the energy management policy and of the programme for the rationalization of consumption in Portugal, we need to point out the good performance recorded in the first six months of 2017 in terms of optimization of the Bank's energy consumption – in line with the one recorded in the last few years, in terms of both office buildings and branches.
This improvement is visible in a slight decrease (1.03%) of the global energy consumption versus the same period of 2016 (the reduction goal for 2017 is 3%), corresponding to a 266 MWh decrease in the consumption of electricity and around 104 fewer tons of CO2.
This ongoing reduction, the tangible and measurable result of the improvement process the bank is pursuing, is based on a strategy targeted at sustainability and the adequate management of the resources available but also on the materialization of energy efficiency measures, of which are an example some of the actions currently under way or planned:
‐ Power Systems installation of capacitor banks in several branches to compensate the power factor. This measure, apart from the natural benefits in terms of the reduction of costs with reactive energy will provide an additional benefit from the improvement of the building's energy efficiency, since losses of active energy will be smaller in each one of the buildings intervened;
‐ Monitoring consumption, as a form of defining a stricter energy policy according to specific consumption profiles.
Millennium bcp thus continues to contribute to cutting the use and circulation of paper, on the one hand through
regular communication/information actions on the advantages of documental dematerialisation, and on the other hand, through the promotion and execution of programmes of migration to digital solutions.
It was within this context that Millennium bcp joined MUDA - Movimento pela Utilização Digital Ativa, with the objective of contributing for the increase use of digital by the Portuguese people within a joint effort that, in addition to the Portuguese State, also involves companies, associations and universities.
Condensed Consolidated Balance Sheet as at 30 June 2017 and 2016 and 31 December 2016
| 30 June | 31 December | 30 June | |
|---|---|---|---|
| 2017 | 2016 | 2016 | |
| (Thousands of Euros) | |||
| Assets | |||
| Cash and deposits at central banks | 1,650,857 | 1,573,912 | 2,178,315 |
| Loans and advances to credit institutions | |||
| Repayable on demand | 491,497 | 448,225 | 415,547 |
| Other loans and advances | 895,899 | 1,056,701 | 1,389,207 |
| Loans and advances to customers | 48,065,976 | 48,017,602 | 49,186,077 |
| Financial assets held for trading | 973,978 | 1,048,797 | 1,234,270 |
| Other financial assets held for trading | |||
| at fair value through profit or loss | 141,973 | 146,664 | 144,946 |
| Financial assets available for sale | 12,384,733 | 10,596,273 | 11,023,430 |
| Assets with repurchase agreement | 15,419 | 20,525 | 10,561 |
| Hedging derivatives | 113,860 | 57,038 | 115,022 |
| Financial assets held to maturity | 451,254 | 511,181 | 419,025 |
| Investments in associated companies | 596,005 | 598,866 | 558,736 |
| Non current assets held for sale | 2,223,967 | 2,250,159 | 1,906,134 |
| Investment property | 12,293 | 12,692 | 133,228 |
| Other tangible assets | 487,425 | 473,866 | 475,150 |
| Goodwill and intangible assets | 164,293 | 162,106 | 194,975 |
| Current tax assets | 7,576 | 17,465 | 36,113 |
| Deferred tax assets | 3,165,443 | 3,184,925 | 2,767,402 |
| Other assets | 1,181,290 | 1,087,814 | 879,395 |
| 73,023,738 | 71,264,811 | 73,067,533 | |
| Resources from credit institutions | 9,373,181 | 9,938,395 | 11,228,648 |
| Resources from customers | 50,635,749 | 48,797,647 | 48,762,037 |
| Debt securities issued | 3,121,425 | 3,512,820 | 4,018,060 |
| Provisions | 339,096 | 321,050 | 290,491 |
| Subordinated debt | 850,603 | 1,544,555 | 1,659,530 |
| Current tax liabilities | 8,912 | 35,367 | 18,151 |
| Deferred tax liabilities | 1,635 | 2,689 | 1,722 |
| Other liabilities | 981,941 | 915,528 | 977,325 |
| Total Liabilities | 66,078,026 | 65,999,630 | 68,053,888 |
| Share capital | 5,600,738 | 4,268,818 | 4,094,235 |
| Treasury shares | (279) | (2,880) | (3,671) |
| Share premium | 16,471 | 16,471 | 16,471 |
| Preference shares | 59,910 | 59,910 | 59,910 |
| Other capital instruments | 2,922 | 2,922 | 2,922 |
| Legal and statutory reserves | 252,806 | 245,875 | 245,875 |
| Fair value reserves | (23,262) | (130,632) | (52,122) |
| Reserves and retained earnings | (51,314) | (102,306) | (7,725) |
| Net income for the period attributable to Shareholders | 89,928 | 23,938 | (197,251) |
| Total Equity attributable to Shareholders of the Bank | 5,947,920 | 4,382,116 | 4,158,644 |
| Non-controlling interests | 997,792 | 883,065 | 855,001 |
| Total Equity | 6,945,712 | 5,265,181 | 5,013,645 |
| 73,023,738 | 71,264,811 | 73,067,533 | |
Interim Condensed Consolidated Income Statements for the six months periods ended 30 June 2017 and 2016
| 30 June 2017 |
30 June 2016 |
|
|---|---|---|
| (Thousands of Euros) | ||
| Interest and similar income | 956,582 | 965,476 |
| Interest expense and similar charges | (278,083) | (364,672) |
| Net interest income | 678,499 | 600,804 |
| Dividends from equity instruments | 1,605 | 5,804 |
| Net fees and commission income | 330,324 | 320,331 |
| Net gains / (losses) arising from trading and | ||
| hedging activities | 58,596 | 74,564 |
| Net gains / (losses) arising from available for | ||
| sale financial assets | 31,308 | 108,259 |
| Net gains from insurance activity | 2,713 | 2,748 |
| Other operating income / (costs) | (85,869) | (86,328) |
| Total operating income | 1,017,176 | 1,026,182 |
| Staff costs | 241,480 | 273,686 |
| Other administrative costs | 182,609 | 184,885 |
| Depreciation | 26,119 | 25,480 |
| Operating costs | 450,208 | 484,051 |
| Operating net income before provisions and impairments | 566,968 | 542,131 |
| Loans impairment | (304,990) | (618,678) |
| Other financial assets impairment | (31,926) | (171,996) |
| Other assets impairment | (61,267) | (13,971) |
| Goodwill impairment for subsidiaries | (4) | (2,512) |
| Goodwill impairment for associated companies | (9,006) | - |
| Other provisions | (8,109) | (9,472) |
| Operating net income | 151,666 | (274,498) |
| Share of profit of associates under the equity method | 35,104 | 37,716 |
| Gains / (losses) from the sale of subsidiaries and other assets | (3,466) | (4,480) |
| Net (loss) / income before income tax | 183,304 | (241,262) |
| Income tax Current |
(54,548) | (56,447) |
| Deferred | 11,109 | 134,748 |
| Net (loss) / income after income tax from continuing operations | 139,865 | (162,961) |
| Income arising from discontinued operations | 1,250 | 45,227 |
| Net income after income tax | 141,115 | (117,734) |
| Attributable to: | ||
| Shareholders of the Bank | 89,928 | (197,251) |
| Non-controlling interests | 51,187 | 79,517 |
| Net income for the period | 141,115 | (117,734) |
| Earnings per share (in euros) | ||
| Basic | 0.015 | (0.329) |
| Diluted | 0.015 | (0.329) |
Balance sheet total customer funds - debt securities and customer deposits.
Capitalisation products – includes unit linked saving products and retirement saving plans ("PPR", "PPE" and "PPR/E").
Commercial gap – total loans to customers net of BS impairments accumulated for risk of credit minus onbalance sheet total customer funds.
Core income - net interest income plus net fees and commission income.
Core net income - corresponding to net interest income plus net fees and commission income deducted from operating costs.
Cost of risk, gross (expressed in bp) - ratio of impairment charges accounted in the period to loans to customers (gross).
Cost of risk, net (expressed in bp) - ratio of impairment charges (net of recoveries) accounted in the period to loans to customers (gross).
Cost to core income - operating costs divided by core income (net interest income and net fees and commission income).
Cost to income – operating costs divided by net operating revenues.
Coverage of credit at risk by balance sheet impairments – total BS impairments accumulated for risks of credit divided by credit at risk (gross).
Coverage of credit at risk by balance sheet impairments and real and financial guarantees – total BS impairments accumulated for risks of credit plus real and financial guarantees divided by credit at risk (gross).
Coverage of non-performing loans by balance sheet impairments – total BS impairments accumulated for risks of credit divided by NPL.
Credit at risk – definition broader than the non-performing loans which includes also restructured loans whose changes from initial terms have resulted in the bank being in a higher risk position than previously; restructured loans which have resulted in the bank becoming in a lower risk position (e.g. reinforced collateral) are not included in credit at risk.
Credit at risk (net) – credit at risk deducted from BS impairments accumulated for risks of credit.
Credit at risk (net) ratio – credit at risk (net) divided by loans to customers deducted from total BS impairments accumulated for risks of credit.
Credit at risk ratio – credit at risk divided by loans to customers (gross).
Debt securities - debt securities issued by the Bank and placed with customers.
Dividends from equity instruments - dividends received from investments in financial assets held for trading and available for sale.
Equity accounted earnings - results appropriated by the Group related to the consolidation of entities where, despite having a significant influence, the Group does not control the financial and operational policies.
Loan to Deposits ratio (LTD) – Total loans to customers net of accumulated BS impairments for risks of credit divided by total customer deposits.
Loan to value ratio (LTV) – Mortgage amount divided by the appraised value of property.
Net interest margin (NIM) - net interest income for the period as a percentage of average interest earning assets.
Net operating revenues - net interest income, dividends from equity instruments, net commissions, net trading income, equity accounted earnings and other net operating income.
Net trading income - net gains/losses arising from trading and hedging activities, net gains/losses arising from available for sale financial assets, net gains/losses arising from financial assets held to maturity.
Non-performing exposures (NPE, according to EBA definition) – Non-performing loans and advances to customers more than 90 days past-due or unlikely to be paid without collateral realisation, even if they recognised as defaulted or impaired. Considers also all the exposures if the on-BS 90 days past due reaches 20% of the outstanding amount of total on-BS exposure of the debtor, even if no pull effect is used for default or impairment classification. Includes also the loans in quarantine period over which the debtor has to prove its ability to meet the restructured conditions, even if forbearance has led to the exit form default or impairments classes.
Non-performing loans (NPL) – Overdue loans more than 90 days including the non-overdue remaining principal of loans, i.e. portion in arrears, plus non-overdue remaining principal.
Non-performing loans ratio – Loans more than 90 days overdue and doubtful loans reclassified as overdue for provisioning purposes divided by total loans (gross).
Operating costs - staff costs, other administrative costs and depreciation.
Other impairment and provisions - other financial assets impairment, other assets impairment, in particular provision charges related to assets received as payment in kind not fully covered by collateral, goodwill impairment and other provisions.
Other net income – net commissions, net trading income, other net operating income, dividends from equity instruments and equity accounted earnings.
Other net operating income - other operating income, other net income from non-banking activities and gains from the sale of subsidiaries and other assets.
Overdue and doubtful loans - loans overdue by more than 90 days and the doubtful loans reclassified as overdue loans for provisioning purposes.
Overdue and doubtful loans (net) - overdue and doubtful loans deducted from BS impairments accumulated for risks of credit.
Overdue and doubtful loans (net) ratio - overdue loans and doubtful loans (net) divided by loans to customers deducted from total BS impairments accumulated for risks of credit.
Overdue and doubtful loans coverage by BS impairments - BS impairments accumulated for risks of credit divided by overdue loans and doubtful loans (gross).
Overdue and doubtful loans ratio - overdue and doubtful loans divided by loans to customers (gross).
Overdue loans - loans in arrears, not including the non-overdue remaining principal.
Overdue loans by more than 90 days coverage ratio - total BS impairments accumulated for risk of credit divided by total amount of loans overdue with instalments of capital and interest overdue more than 90 days.
Overdue loans coverage ratio – total BS impairments accumulated for risks of credit divided by total amount of overdue loans.
Return on average assets (Instruction from the Bank of Portugal no. 16/2004) – Net income (before tax) divided by the average total assets.
Return on average assets (ROA) – Net income (before minority interests) divided by the average total assets.
Return on equity (Instruction from the Bank of Portugal no. 16/2004) – Net income (before tax) divided by the average attributable equity + non-controlling interests.
Return on equity (ROE) – Net income (after minority interests) divided by the average attributable equity, deducted from preference shares and other capital instruments.
Securities portfolio - financial assets held for trading, financial assets available for sale, assets with repurchase agreement, financial assets held to maturity and other financial assets held for trading at fair value through net income.
Spread - increase (in percentage points) to the index used by the Bank in loans granting or fund raising.
Total customer funds - balance sheet customer funds, assets under management and capitalisation products.
Porto Salvo, 30 September 2017 The Board of Directors
| Notes | 30 June 2017 |
30 June 2016 |
|
|---|---|---|---|
| (Thousands of Euros) | |||
| Interest and similar income | 3 | 956,582 | 965,476 |
| Interest expense and similar charges | 3 | (278,083) | (364,672) |
| Net interest income | 678,499 | 600,804 | |
| Dividends from equity instruments | 4 | 1,605 | 5,804 |
| Net fees and commissions income | 5 | 330,324 | 320,331 |
| Net gains / (losses) arising from trading and hedging activities | 6 | 58,596 | 74,564 |
| Net gains / (losses) arising from financial assets available for sale | 7 | 31,308 | 108,259 |
| Net gains from insurance activity | 2,713 | 2,748 | |
| Other operating income / (costs) | 8 | (85,869) | (86,328) |
| Total operating income | 1,017,176 | 1,026,182 | |
| Staff costs | 9 | 241,480 | 273,686 |
| Other administrative costs | 10 | 182,609 | 184,885 |
| Amortizations and depreciations | 11 | 26,119 | 25,480 |
| Total operating expenses | 450,208 | 484,051 | |
| Operating net income before provisions and impairments | 566,968 | 542,131 | |
| Loans impairment | 12 | (304,990) | (618,678) |
| Other financial assets impairment | 13 | (31,926) | (171,996) |
| Other assets impairment | 27 and 32 | (61,267) | (13,971) |
| Goodwill impairment of subsidiaries | 30 | (4) | (2,512) |
| Goodwill impairment of associated companies | 26 | (9, 006) |
- |
| Other provisions | 14 | (8,109) | (9,472) |
| Net operating income / (loss) | 151,666 | (274,498) | |
| Share of profit / (loss) of associates under the equity method | 15 | 35,104 | 37,716 |
| Gains / (losses) arising from the sale of subsidiaries and | |||
| other assets | 16 | (3,466) | (4,480) |
| Net income / (loss) before income taxes | 183,304 | (241,262) | |
| Income taxes | |||
| Current | 31 | (54,548) | (56,447) |
| Deferred | 31 | 11,109 | 134,748 |
| Income / (loss) after income taxes from continuing operations | 139,865 | (162,961) | |
| Income arising from discontinued or discontinuing operations | 17 | 1,250 | 45,227 |
| Net income / (loss) after income taxes | 141,115 | (117,734) | |
| Net income / (loss) for the period attributable to: | |||
| Shareholders of the Bank | 89,928 | (197,251) | |
| Non-controlling interests | 44 | 51,187 | 79,517 |
| Net income / (loss) for the period | 141,115 | (117,734) | |
| Earnings per share (in Euros) | 18 | ||
| Basic | 0.015 | (0.329) | |
| Diluted | 0.015 | (0.329) |
CHIEF ACCOUNTANT THE EXECUTIVE COMMITTEE
| 30 June 2017 | (Thousands of Euros) | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Attributable to | |||||||||
| Continuing operations | Discontinued or discontinuing operations | Shareholders | Non controlling |
||||||
| Gross value | Taxes | Net value | Gross value | Taxes | Net value | Total | of the Bank | interests | |
| Net income / (loss) for the period | 183,304 | (43,439) | 139,865 | 1,250 | - | 1,250 | 141,115 | 89,928 | 51,187 |
| Items that may be reclassified to the income statement |
|||||||||
| Fair value reserves | 151,684 | (34,301) | 117,383 | - | - | - | 117,383 | 107,370 | 10,013 |
| Exchange differences arising on consolidation | 68,766 | - | 68,766 | - | - | - | 68,766 | 22,403 | 46,363 |
| 220,450 | (34,301) | 186,149 | - | - | - | 186,149 | 129,773 | 56,376 | |
| Items that will not be reclassified to the income statement |
|||||||||
| Actuarial gains for the period | |||||||||
| BCP Pensions Fund | 45,924 | (3,966) | 41,958 | - | - | - | 41,958 | 41,958 | - |
| Other subsidiaries and associated companies | (1,895 | - ) | (1,895) | - | - | - | (1,895) | (1,895) | - |
| 44,029 | (3,966) | 40,063 | - | - | - | 40,063 | 40,063 | - | |
| Other comprehensive income / (loss) for the period | 2 64,479 |
(38,267) | 226,212 | - | - | - | 226,212 | 169,836 | 56,376 |
| Total comprehensive income / (loss) for the period | 4 47,783 |
(81,706) | 366,077 | 1,250 | - | 1,250 | 367,327 | 259,764 | 107,563 |
| 30 June 2016 | (Thousands of Euros) | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Attributable to | |||||||||
| Continuing operations | Discontinued or discontinuing operations | Non | |||||||
| Gross value | Taxes | Net value | Gross value | Taxes | Net value | Total | Shareholders of the Bank |
controlling interests |
|
| Net income / (loss) for the period | (241,262) | 78,301 | (162,961) | 50,355 | (5,128) | 45,227 | (117,734) | (197,251) | 79,517 |
| Items that may be reclassified to the income statement |
|||||||||
| Fair value reserves | (119,920) | 29,333 | (90,587) | (4,902) | 1,471 | (3,431) | (94,018) | (75,372) | (18,646) |
| Exchange differences arising on consolidation | (160,0 42) |
- | (160,042) | 80,575 | - | 80,575 | (79,467) | (47,650) | (31,817) |
| (279,962) | 29,333 | (250,629) | 75,673 | 1,471 | 77,144 | (173,485) | (123,022) | (50,463) | |
| Items that will not be reclassified to the income statement |
|||||||||
| Actuarial losses for the period | |||||||||
| BCP Pensions Fund Other subsidiaries and associated companies |
(188,987) 223 |
46,916 - |
(142,071) 223 |
- - |
- - |
- - |
(142,071) 223 |
(142,071) 223 |
- - |
| (188,764) | 46,916 | (141,848) | - | - | - | (141,848) | (141,848) | - | |
| Other comprehensive income / (loss) for the period | ( 468,726) |
76,249 | (392,477) | 75,673 | 1,471 | 77,144 | (315,333) | (264,870) | (50,463) |
| Total comprehensive income / (loss) for the period | ( 709,988) |
154,550 | (555,438) | 126,028 | (3,657) | 122,371 | (433,067) | (462,121) | 29,054 |
| Second quarter 2017 |
Second quarter 2016 | |
|---|---|---|
| (Thousands of Euros) | ||
| Interest and similar income | 481,084 | 478,807 |
| Interest expense and similar charges | (134,912) | (170,362) |
| Net interest income | 346,172 | 308,445 |
| Dividends from equity instruments | 1,509 | 3,760 |
| Net fees and commissions income | 169,514 | 156,382 |
| Net gains / (losses) arising from trading and hedging activities | 29,464 | 58,987 |
| Net gains / (losses) arising from financial assets available for sale | 24,065 | 95,504 |
| Net gains from insurance activity | 1,973 | 786 |
| Other operating income / (costs) | (68,303) | (76,997) |
| Total operating income | 504,394 | 546,867 |
| Staff costs | 104,574 | 135,242 |
| Other administrative costs | 93,958 | 93,068 |
| Amortizations | 13,379 | 12,665 |
| Total operating expenses | 211,911 | 240,975 |
| Operating net income before provisions and impairments | 292,483 | 305,892 |
| Loans impairment | (156,099) | (458,021) |
| Other financial assets impairment | (11,262) | (155,755) |
| Other assets impairment | (35,629) | (8,529) |
| Goodwill impairment of subsidiaries | - | (2,512) |
| Goodwill impairment of associated companies | (9,006) | - |
| Other provisions | (82) | (15,802) |
| Operating net income / (loss) | 80,405 | (334,727) |
| Share of profit of associates under the equity method | 15,476 | 23,842 |
| Gains / (losses) arising from the sale of subsidiaries and | ||
| other assets | (5,103) | 566 |
| Net income / (loss) before income taxes Income taxes |
90,778 | (310,319) |
| Current | (26,620) | (31,893) |
| Deferred | 2,287 | 125,192 |
| Income / (loss) after income taxes from continuing operations | 66,445 | (217,020) |
| Income / (loss) arising from discontinued operations | 1,250 | 16,222 |
| Net income / (loss) after income taxes | 67,695 | (200,798) |
| Net income / (loss) for the period attributable to: | ||
| Shareholders of the Bank | 39,815 | (243,929) |
| Non-controlling interests | 27,880 | 43,131 |
| Net income / (loss) for the period | 67,695 | (200,798) |
| Second quarter 2017 | (Thousands Euros) | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Discontinued or discontinuing | Attributable to | ||||||||
| Continuing operations | operations | Non | |||||||
| Gross | Gross | Shareholders | controlling | ||||||
| value | Taxes | Net value | value | Taxes | Net value | Total | of the Bank | interests | |
| Net income / (loss) for the period | 90,778 | (24,333) | 66,445 | 1,250 | - | 1,250 | 67,695 | 39,815 | 27,880 |
| Items that may be reclassified to the income statement |
|||||||||
| Fair value reserves | 109,459 | (26,530) | 82,929 | - | - | - | 82,929 | 79,817 | 3,112 |
| Exchange differences arising on consolidation | 12,625 | - | 12,625 | - | - | - | 12,625 | 3,998 | 8,627 |
| 122,084 | (26,530) | 95,554 | - | - | - | 95,554 | 83,815 | 11,739 | |
| Items that will not be reclassified to the income statement |
|||||||||
| Actuarial gains for the period | |||||||||
| BCP Pensions Fund | 45,924 | (3,607) | 42,317 | - | - | - | 42,317 | 42,317 | - |
| Other subsidiaries and associated companies | - | - | - | - | - | - | - | - | - |
| 45,924 | (3,607) | 42,317 | - | - | - | 42,317 | 42,317 | - | |
| Other comprehensive income / (loss) for the period | 168,008 | (30,137) | 137,871 | - | - | - | 137,871 | 126,132 | 11,739 |
| Total comprehensive income / (loss) for the period | 258,786 | (54,470) | 204,316 | 1,250 | - | 1,250 | 205,566 | 165,947 | 39,619 |
| Second quarter 2016 | (Thousands Euros) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Discontinued or discontinuing | Attributable to | |||||||||
| Continuing operations | operations | Non | ||||||||
| Gross value |
Taxes | Net value | Gross value |
Taxes | Net value | Total | Shareholders of the Bank |
controlling interests |
||
| Net income / (loss) for the period | (310,319) | 93,299 | (217,020) | 18,373 | (2,151) | 16,222 | (200,798) | (243,929) | 43,131 | |
| Items that may be reclassified to the income statement |
||||||||||
| Fair value reserves | (118,524) | 27,717 | (90,807) | (5,462) | 1,639 | (3,823) | (94,630) | (67,663) | (26,967) | |
| Exchange differences arising on consolidation | (113,9 14) |
- | (113,914) | 146,669 | - | 146,669 | 32,755 | 16,488 | 16,267 | |
| (232,438) | 27,717 | (204,721) | 141,207 | 1,639 | 142,846 | (61,875) | (51,175) | (10,700) | ||
| Items that will not be reclassified to the income statement |
||||||||||
| Actuarial losses for the period | ||||||||||
| BCP Pensions Fund | (188,987) | 46,904 | (142,083) | - | - | - | (142,083) | (142,083) | - | |
| Other subsidiaries and associated companies | 223 | - | 223 | - | - | - | 223 | 223 | - | |
| (188,764) | 46,904 | (141,860) | - | - | - | (141,860) | (141,860) | - | ||
| Other comprehensive income / (loss) for the period | (421,202) | 74,621 | (346,581) | 141,207 | 1,639 | 142,846 | (203,735) | (193,035) | (10,700) | |
| Total comprehensive income / (loss) for the period | (731,521) | 167,920 | (563,601) | 159,580 | (512) | 159,068 | (404,533) | (436,964) | 32,431 |
| Notes | 30 June 2017 |
31 December 2016 |
|
|---|---|---|---|
| (Thousands of Euros) | |||
| Assets | |||
| Cash and deposits at Central Banks | 19 | 1,650,857 | 1,573,912 |
| Loans and advances to credit institutions | |||
| Repayable on demand | 20 | 491,497 | 448,225 |
| Other loans and advances | 21 | 895,899 | 1,056,701 |
| Loans and advances to customers | 22 | 48,065,976 | 48,017,602 |
| Financial assets held for trading | 23 | 973,978 | 1,048,797 |
| Other financial assets held for trading | |||
| at fair value through profit or loss | 23 | 141,973 | 146,664 |
| Financial assets available for sale | 23 | 12,384,733 | 10,596,273 |
| Assets with repurchase agreement | 15,419 | 20,525 | |
| Hedging derivatives | 24 | 113,860 | 57,038 |
| Financial assets held to maturity | 25 | 451,254 | 511,181 |
| Investments in associated companies | 26 | 596,005 | 598,866 |
| Non-current assets held for sale | 27 | 2,223,967 | 2,250,159 |
| Investment property | 28 | 12,293 | 12,692 |
| Other tangible assets | 29 | 487,425 | 473,866 |
| Goodwill and intangible assets | 30 | 164,293 | 162,106 |
| Current tax assets | 7,576 | 17,465 | |
| Deferred tax assets | 31 | 3,165,443 | 3,184,925 |
| Other assets | 32 | 1,181,290 | 1,087,814 |
| Total Assets | 73,023,738 | 71,264,811 | |
| Liabilities | |||
| Resources from credit institutions | 33 | 9,373,181 | 9,938,395 |
| Resources from customers | 34 | 50,635,749 | 48,797,647 |
| Debt securities issued | 35 | 3,121,425 | 3,512,820 |
| Financial liabilities held for trading | 36 | 476,192 | 547,587 |
| Hedging derivatives | 24 | 289,292 | 383,992 |
| Provisions | 37 | 339,096 | 321,050 |
| Subordinated debt | 38 | 850,603 | 1,544,555 |
| Current tax liabilities | 8,912 | 35,367 | |
| Deferred tax liabilities | 31 | 1,635 | 2,689 |
| Other liabilities | 39 | 981,941 | 915,528 |
| Total Liabilities | 66,078,026 | 65,999,630 | |
| Equity | |||
| Share capital | 40 | 5,600,738 | 4,268,818 |
| Share premium | 40 | 16,471 | 16,471 |
| Preference shares | 40 | 59,910 | 59,910 |
| Other equity instruments | 40 | 2,922 | 2,922 |
| Legal and statutory reserves | 41 | 252,806 | 245,875 |
| Treasury shares | 42 | (279) | (2,880) |
| Fair value reserves | 43 | (23,262) | (130,632) |
| Reserves and retained earnings | 43 | (51,314) | (102,306) |
| Net income for the period attributable to Shareholders | 89,928 | 23,938 | |
| Total Equity attributable to Shareholders of the Bank | 5,947,920 | 4,382,116 | |
| Non-controlling interests | 44 | 997,792 | 883,065 |
| Total Equity | 6,945,712 | 5,265,181 | |
| 73,023,738 | 71,264,811 |
CHIEF ACCOUNTANT THE EXECUTIVE COMMITTEE
| 30 June 2017 |
30 June 2016 |
|
|---|---|---|
| (Thousands of Euros) | ||
| Cash flows arising from operating activities | ||
| Interests received Commissions received |
854,097 412,116 |
910,360 385,021 |
| Fees received from services rendered | 70,795 | 34,509 |
| Interests paid | (284,597) | (372,880) |
| Commissions paid | (63,241) | (50,090) |
| Recoveries on loans previously written off | 9,896 | 23,671 |
| Net earned insurance premiums | 10,217 | 7,424 |
| Claims incurred of insurance activity | (5,807) | (3,991) |
| Payments to suppliers and employees Income taxes (paid) / received |
(557,250) (60,902) |
(609,422) (24,065) |
| 385,324 | 300,537 | |
| Decrease / (increase) in operating assets: | ||
| Receivables from / (Loans and advances to) credit institutions Deposits held with purpose of monetary control |
172,921 (12,493) |
(440,430) (450,918) |
| Loans and advances to customers receivable | (392,215) | 1,139,811 |
| Short term trading account securities | (897) | (162,015) |
| Increase / (decrease) in operating liabilities: | ||
| Deposits from credit institutions repayable on demand | 108,800 | 87,011 |
| Deposits from credit institutions with agreed maturity date | (670,773) | 2,601,383 |
| Deposits from clients repayable on demand | 2,182,594 | 291,976 |
| Deposits from clients with agreed maturity date | (256,160) | (1,366,515) |
| 1,517,101 | 2,000,840 | |
| Cash flows arising from investing activities Sale of shares in subsidiaries and associated companies |
||
| which results loss control | - | 15,758 |
| Acquisition of shares in subsidiaries and associated companies | (787) | - |
| Dividends received | 44,652 | 16,848 |
| Interest income from available for sale financial assets and | ||
| held to maturity financial assets | 119,805 | 106,489 |
| Sale of available for sale financial assets and | ||
| held to maturity financial assets Acquisition of available for sale financial assets and |
3,321,020 | 2,433,380 |
| held to maturity financial assets | (18,948,029) | (16,070,345) |
| Maturity of available for sale financial assets and | ||
| held to maturity financial assets | 14,246,615 | 12,163,836 |
| Acquisition of tangible and intangible assets | (38,130) | (27,194) |
| Sale of tangible and intangible assets | 4,729 | 4,889 |
| Decrease / (increase) in other sundry assets | (296,638) | 54,354 |
| (1,546,763) | (1,301,985) | |
| Cash flows arising from financing activities Issuance of subordinated debt |
5,122 | 1,587 |
| Reimbursement of subordinated debt | (702,314) | (277) |
| Issuance of debt securities | 1,278,370 | 94,144 |
| Reimbursement of debt securities | (1,737,844) | (851,093) |
| Issuance of commercial paper and other securities | 99,257 | 40,142 |
| Reimbursement of commercial paper and other securities | (6,900) | (21,595) |
| Share capital increase | 1,294,903 | - |
| Dividends paid to non-controlling interests | (7,787) | (20,907) |
| Increase / (decrease) in other sundry liabilities and non-controlling interests | (141,694) 81,113 |
115,743 (642,256) |
| Exchange differences effect on cash and equivalents | 68,766 | (79,467) |
| Net changes in cash and equivalents | 120,217 | (22,868) |
| Cash (note 19) | 540,290 | 625,311 |
| Deposits at Central Banks (note 19) | 1,033,622 | 1,215,006 |
| Loans and advances to credit institutions repayable on demand (note 20) | 448,225 | 776,413 |
| Cash and equivalents at the beginning of the year | 2,022,137 | 2,616,730 |
| Cash (note 19) | 505,563 | 469,952 |
| Deposits at Central Banks (note 19) | 1,145,294 | 1,708,363 |
| Loans and advances to credit institutions repayable on demand (note 20) | 491,497 | 415,547 |
| Cash and equivalents at the end of the period | 2,142,354 | 2,593,862 |
See accompanying notes to the interim condensed consolidated financial statements.
for the six months period ended 30 June 2017
(Thousands of Euros)
| Equity | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Reserves | attributable | Non | ||||||||||
| Other | Legal and | and | to the | -controlling | ||||||||
| Share | Share | Preference | equity | statutory | Treasury | Fair value | retained | Net (loss) / income for |
Shareholders | interests | Total | |
| capital | premium | shares | instruments | reserves | shares | reserves | earnings | the period | of the Bank | (note 44) | equity | |
| Balance as at 31 December 2016 | 4,268,818 | 16,471 | 59,910 | 2,922 | 245,875 | (2,880) | (130,632) | (102,306) | 23,938 | 4,382,116 | 883,065 | 5,265,181 |
| Net income for the period | - | - | - | - | - | - | - | - | 89,928 | 89,928 | 51,187 | 141,115 |
| Fair value reserves (note 43) | - | - | - | - | - | - | 107,370 | - | - | 107,370 | 10,013 | 117,383 |
| Actuarial gains | - - | - | - | - | - | - | 40,063 | - | 40,063 | - | 40,063 | |
| Exchange differences | ||||||||||||
| arising on consolidation | - | - | - | - | - | - | - | 22,403 | - | 22,403 | 46,363 | 68,766 |
| Total comprehensive income | - - | - | - | - | - | 107,370 | 62,466 | 89,928 | 259,764 | 107,563 | 367,327 | |
| Transfers to reserves: | ||||||||||||
| Legal reserve (note 42) | - | - | - | - | 6,931 | - | - | - | (6,931) | - | - | - |
| Results application | - | - | - | - | - | - | - | 17,007 | (17,007) | - | - | - |
| Share capital increase (note 40) | 1,331,920 | - | - | - | - | - | - | - | - | 1,331,920 | - | 1,331,920 |
| Costs related to the share capital increase | - | - | - | - | - | - | - | (37,017) | - | (37,017) | - | (37,017) |
| Tax related to costs arising from the | ||||||||||||
| share capital increase | - | - | - | - | - | - | - | 7,774 | - | 7,774 | - | 7,774 |
| Dividends (a) | - - | - | - | - | - | - | - | - | - | (7,787) | (7,787) | |
| Treasury shares (note 42) | - | - | - | - | - | 2,601 | - | 1,057 | - | 3,658 | - | 3,658 |
| Other reserves (note 43) | - | - | - | - | - | - | - | (295) | - | (295) | 14,951 | 14,656 |
| Balance as at 30 June 2017 | 5,600,738 | 16,471 | 59,910 | 2,922 | 252,806 | (279) | (23,262) | (51,314) | 89,928 | 5,947,920 | 997,792 | 6,945,712 |
(a) Dividends of BIM - Banco Internacional de Moçambique, S.A. and SIM - Seguradora Internacional de Moçambique, S.A.R.L.
(Thousands of Euros)
| Equity | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Reserves | attributable | Non | ||||||||||
| Other | Legal and | and | to the | -controlling | ||||||||
| Share | Share | Preference | equity | statutory | Treasury | Fair value | retained | Net (loss) / income for |
Shareholders | interests | Total | |
| capital | premium | shares | instruments | reserves | shares | reserves | earnings | the period | of the Bank | (note 44) | equity | |
| Balance as at 31 December 2015 | 4,094,235 | 16,471 | 59,910 | 2,922 | 223,270 | (1,187) | 23,250 | (31,046) | 235,344 | 4,623,169 | 1,057,402 | 5,680,571 |
| Net income for the period | - | - | - | - | - | - | - | - | (197,251) | (197,251) | 79,517 | (117,734) |
| Fair value reserves (note 43) | - | - | - | - | - | - | (73,653) | - | - | (73,653) | (16,934) | (90,587) |
| Actuarial losses | - - | - | - | - | - | - | (141,848) | - | (141,848) | - | (141,848) | |
| Efect in fair value reserves | ||||||||||||
| related to the merger (a) | - | - | - | - | - | - | (1,719) | - | - | (1,719) | (1,712) | (3,431) |
| Efect in reserves of the exchange | ||||||||||||
| differences arising on consolidation | ||||||||||||
| related to the merger (a) | - | - | - | - | - | - | - | 78,554 | - | 78,554 | 78,240 | 156,794 |
| Exchange differences | ||||||||||||
| arising on consolidation | - | - | - | - | - | - | - | (126,204) | - | (126,204) | (110,057) | (236,261) |
| Total comprehensive income | - - | - | - | - | - | (75,372) | (189,498) | (197,251) | (462,121) | 29,054 | (433,067) | |
| Transfers of reserves: | ||||||||||||
| Legal reserve (note 41) | - | - | - | - | 22,605 | - | - | - | (22,605) | - | - | - |
| Results application | - | - | - | - | - | - | - | 212,739 | (212,739) | - | - | - |
| Costs related to the share capital increase | - | - | - | - | - | - | - | 25 | - | 25 | - | 25 |
| Tax related to costs arising from the | ||||||||||||
| share capital increase | - | - | - | - | - | - | - | (5) | - | (5) | - | (5) |
| Merger of Banco Millennium Angola, S.A. | ||||||||||||
| with Banco Privado Atlântico, S.A. | - | - | - | - | - | - | - | - | - | - | (210,395) | (210,395) |
| Dividends (b) | - - | - | - | - | - | - | - | - | - | (20,907) | (20,907) | |
| Treasury shares (note 42) | - | - | - | - | - | (2,484) | - | 1 | - | (2,483) | - | (2,483) |
| Other reserves (note 43) | - | - | - | - | - | - | - | 59 | - | 59 | (153) | (94) |
| Balance as at 30 June 2016 | 4,094,235 | 16,471 | 59,910 | 2,922 | 245,875 | (3,671) | (52,122) | (7,725) | (197,251) | 4,158,644 | 855,001 | 5,013,645 |
| Net income for the period Fair value reserves (note 43) |
- - |
- - |
- - |
- - |
- - |
- - |
- (78,510) |
- - |
221,189 - |
221,189 (78,510) |
42,360 (8,977) |
263,549 (87,487) |
| Actuarial losses | - - | - | - | - | - | - | (92,287) | - | (92,287) | (341) | (92,628) | |
| Exchange differences | ||||||||||||
| arising on consolidation | - | - | - | - | - | - | - | 5,388 | - | 5,388 | 1,971 | 7,359 |
| Total comprehensive income | - - | - | - | - | - | (78,510) | (86,899) | 221,189 | 55,780 | 35,013 | 90,793 | |
| Increase in capital (note 40) | 174,583 | - | - | - | - | - | - | - | - | 174,583 | - | 174,583 |
| Regrouping of shares | - | - | - | - | - | - | - | (1,047) | - | (1,047) | - | (1,047) |
| Costs related to the share capital increase | - | - | - | - | - | - | - | (6,462) | - | (6,462) | - | (6,462) |
| Tax related to costs arising from the share capital increase |
- | - | - | - | - | - | - | 1,357 | - | 1,357 | - | 1,357 |
| Treasury shares (note 42) | - | - | - | - | - | 791 | - | - | - | 791 | - | 791 |
| Other reserves (note 43) | - | - | - | - | - | - | - | (1,530) | - | (1,530) | (6,949) | (8,479) |
| Balance as at 31 December 2016 | 4,268,818 | 16,471 | 59,910 | 2,922 | 245,875 | (2,880) | (130,632) | (102,306) | 23,938 | 4,382,116 | 883,065 | 5,265,181 |
(a) Under the scope of the merger of Banco Millennium Angola, S.A. with Banco Privado Atlântico, S.A.
(b) Dividends of Banco Millennium Angola S.A., BIM - Banco Internacional de Moçambique, S.A. and SIM - Seguradora Internacional de Moçambique, S.A.R.L.
Banco Comercial Português, S.A. Sociedade Aberta (the 'Bank') is a private capital bank, established in Portugal in 1985. It started operating on 5 May 1986, and these consolidated financial statements reflect the results of the operations of the Bank and all its subsidiaries (together referred to as the 'Group') and the Group's interest in associates, for the six months ended 30 June 2017 and 2016.
In accordance with Regulation (EC) no. 1606/2002 from the European Parliament and the Council, of 19 July 2002 and Bank of Portugal Notice no. 1/2005 (revoked by Bank of Portugal Notice no. 5/2015), the Group's consolidated financial statements are required to be prepared in accordance with International Financial Reporting Standards ('IFRS') as endorsed by the European Union ('EU') since 2005. IFRS comprise accounting standards issued by the International Accounting Standards Board ('IASB') as well as interpretations issued by the International Financial Reporting Interpretations Committee ('IFRIC') and their predecessor bodies. The consolidated financial statements presented were approved on 19 September 2017 by the Bank's Executive Committee. The financial statements are presented in thousands of Euros, rounded to the nearest thousand.
All the references in this document related to any normative always report to current version.
These interim condensed consolidated financial statements are a translation of financial statements originally issued in Portuguese. In the event of discrepancies, the Portuguese language version prevails.
The interim condensed consolidated financial statements, for the six month period ended 30 June 2017, were prepared in terms of recognition and measurement in accordance with the IAS 34 - Interim Financial Reporting adopted by the EU and therefore it does not include all the information required in accordance with IFRS adopted by the EU. Consequently, the adequate comprehension of the interim condensed consolidated financial statements requires that it should be reading with the consolidated financial statements with reference to 31 December 2016.
The Group has adopted IFRS and interpretations mandatory for accounting periods beginning on or after 1 January 2017. The accounting policies in this note were applied consistently to all entities of the Group and are consistent with those used in the preparation of the financial statements of the previous period.
The Group's financial statements are prepared under the historical cost convention, as modified by the application of fair value for derivative financial instruments, financial assets and liabilities at fair value through profit or loss and financial assets available for sale, except those for which a reliable measure of fair value is not available. Financial assets and liabilities that are covered under hedge accounting are stated at fair value in respect of the risk that is being hedged, if applicable. Other financial assets and liabilities and non-financial assets and liabilities are stated at amortised cost or historical cost. Non-current assets and disposal groups held for sale are stated at the lower of carrying amount or fair value less costs to sell. The liability for defined benefit obligations is recognised as the present value of the defined benefit obligation net of the value of the fund's assets.
The preparation of the financial statements in accordance with IFRS requires the Board of Directors, on the advice of the Executive Committee to make judgments, estimates and assumptions that affect the application of the accounting policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances and form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The issues involving a higher degree of judgment or complexity or for which assumptions and estimates are considered to be significant are presented in note 1 ad).
As from 1 January 2010, the Group applied IFRS 3 (revised) for the accounting of business combinations. The changes in the accounting policies resulting from the application of IFRS 3 (revised) are applied prospectively.
The consolidated financial statements now presented reflect the assets, liabilities, income and expenses of the Bank and its subsidiaries (the Group), and the results attributable to the Group financial investments in associates.
Subsidiaries are entities controlled by the Group (including structure entities and investment funds). The Group controls an entity when it holds the power to direct the relevant activities of the entity, and when it is exposed or has rights to variable returns from its involvement with the entity and is able to take possession of those results through the power it holds over the relevant activities of that entity (de facto control). The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
Accumulated losses are attributed to non-controlling interests in the respective proportion, implying that the Group can recognise negative noncontrolling interests.
On a step acquisition process resulting in the acquisition of control, the revaluation of any participation previously acquired, is booked against the profit and loss account when goodwill is calculated. On a partial disposal resulting in loss of control over a subsidiary, any participation retained is revaluated at market value on the sale date and the gain or loss resulting from this revaluation is booked against the income statement.
Investments in associated companies are consolidated by the equity method from the date that the Group acquires significant influence until the date it ceases to exist. Associates are those entities in which the Group has significant influence but not control over the financial and operating policy decisions of the investee. It is assumed that the Group has significant influence when it holds, directly or indirectly, more than 20% or of the voting rights of the investee. If the Group holds, directly or indirectly less than 20% of the voting rights of the investee, it is presumed that the Group does not have significant influence, unless such influence can be clearly demonstrated.
30 June 2017
The existence of significant influence by the Group is usually evidenced in one or more of the following ways:
The consolidated financial statements include the part that is attributable to the Group of the total reserves and results of associated companies accounted on an equity basis. When the Group's share of losses exceeds its interest in the associate, the carrying amount is reduced to zero and recognition of further losses is discontinued except to the extent that the Group has incurred in a legal obligation to assume those losses on behalf of an associate.
Business combinations are accounted under the purchase method. The acquisition cost corresponds to the fair value, determined at the acquisition date, of the assets given and liabilities incurred or assumed. Costs directly attributable to the acquisition of a subsidiary are booked directly in the income statement.
Positive goodwill arising from acquisitions is recognised as an asset carried at acquisition cost and is not subject to amortisation. Goodwill arising on the acquisition of subsidiaries and associates is defined as the difference between the cost of acquisition and the total or corresponding share of the fair value of the net assets and contingent liabilities acquired, depending on the option taken.
Negative goodwill arising on an acquisition is recognised directly in the income statement in the year the business combination occurs.
Goodwill is not adjusted due to changes in the initial estimate of the contingent purchase price and the difference is booked in the income statement, or in equity, when applicable.
The recoverable amount of the goodwill registered in the Group's asset is assessed annually in the preparation of the accounts with reference at the end of the year or whenever there are indications of eventual loss of value. Impairment losses are recognised in the income statement. The recoverable amount is determined based on the higher between the assets value in use and the market value deducted of selling costs, calculated using valuation methodologies supported by discounted cash flow techniques, considering market conditions, the time value of money and the business risks.
The acquisition of the non-controlling interests that does not impact the control position of a subsidiary is accounted as a transaction with shareholders and, therefore, is not recognised additional goodwill resulting from this transaction. The difference between the acquisition cost and the fair value of non-controlling interests acquired is recognised directly in reserves. On this basis, the gains and losses resulting from the sale of controlling interests, that does not impact the control position of a subsidiary, are always recognised against reserves.
The gains and losses resulting from the dilution or sale of a financial position in a subsidiary, with loss of control, are recognised by the Group in the income statement.
In the dilutions of controlling interests not resulting in a loss of control, the difference between the fair value of the non-controlling interests acquired and the acquisition value, is accounted against reserves.
The financial statements of the foreign subsidiaries and associates of the Group are prepared in their functional currency, defined as the currency of the primary economic environment in which they operate or the currency in which the subsidiaries obtain their income or finance their activity. In the consolidation process, assets and liabilities, including goodwill, of foreign subsidiaries are converted into euros at the official exchange rate at the balance sheet date. The exchange rates used by the Group are presented in note 51.
Regarding the investments in foreign operations that are consolidated under the full consolidation or equity methods, for exchange differences between the conversion to Euros of the opening equity at the beginning of the year and their value in Euros at the exchange rate ruling at the balance sheet date for consolidated accounts are charged against consolidated reserves - exchange differences. The exchange differences from hedging instruments related to foreign operations are registered in equity in item "Reserves and retained earnings". Whenever the hedge is not fully effective, the ineffective portion is accounted against profit and loss of the year.
The income and expenses of these subsidiaries are converted to Euros at an approximate rate of the rates ruling at the dates of the transactions, and it is used a monthly average taking into account the initial and final exchange rate of each month. Exchange differences from the conversion to Euros of the profits and losses for the reporting period, arising from the difference between the exchange rate used in the income statement and the exchange rate prevailing at the balance sheet date, are recognised in Reserves and retained earnings - exchange differences resulting from the consolidation of Group's companies.
On disposal of investments in foreign subsidiaries for which there is loss of control, exchange differences related to the investment in the foreign operation and to the associated hedge transaction previously recognised in reserves, are transferred to profit and loss as part of the gains or loss arising from the disposal.
The balances and transactions between Group's companies, or any unrealised gains and losses arising from these transactions, are eliminated in the preparation of the consolidated financial statements. Unrealised gains and losses arising from transactions with associates and jointly controlled entities are eliminated in the proportion of the Group's investment in those entities.
30 June 2017
Loans and advances to customers includes loans and advances originated by the Group which are not intended to be sold in the short term and are recognised when cash is advanced to customers.
The derecognition of these assets occurs in the following situations: (i) the contractual rights of the Group have expired; or (ii) the Group transferred substantially all the associated risks and rewards.
Loans and advances to customers are initially recognised at fair value plus any directly attributable transaction costs and fees and are subsequently measured at amortised cost using the effective interest method, being presented in the balance sheet net of impairment losses.
The Group's policy consists in a regular assessment of the existence of objective evidence of impairment in the loan portfolios. Impairment losses identified are charged against results and subsequently, if there is a reduction of the estimated impairment loss, the charge is reversed against results, in a subsequent period.
After the initial recognition, a loan or a loan portfolio, defined as a group of loans with similar credit risk characteristics, can be classified as impaired when there is an objective evidence of impairment as a result of one or more events and when these have an impact on the estimated future cash flows of the loan or of the loan portfolio that can be reliably estimated.
According to IAS 39, there are two methods of calculating impairment losses: (i) individually assessed loans; and (ii) collective assessment.
Impairment losses on individually assessed loans are determined by an evaluation of the exposures on a case-by-case basis. For each loan considered individually significant, the Group assesses, at each balance sheet date, the existence of any objective evidence of impairment. In determining such impairment losses on individually assessed loans, the following factors are considered:
Impairment losses are calculated by comparing the present value of the expected future cash flows, discounted at the original effective interest rate of the loan, with its current carrying value, being the amount of any loss charged in the income statement. The carrying amount of impaired loans is presented in the balance sheet net of impairment loss. For loans with a variable interest rate, the discount rate used corresponds to the effective annual interest rate, which was applicable in the period that the impairment was determined.
Loans that are not identified as having an objective evidence of impairment are grouped on the basis of similar credit risk characteristics, and assessed collectively.
Impairment losses are calculated on a collective basis under two different scenarios:
for homogeneous groups of loans that are not considered individually significant; or
losses which have been incurred but have not yet been reported (IBNR) on loans for which no objective evidence of impairment is identified (see last paragraph (i)).
The collective impairment loss is determined considering the following factors:
The methodology and assumptions used to estimate the future cash flows are reviewed regularly by the Group.
Loans, for which no evidence of impairment has been identified, are grouped together based on similar credit risk characteristics for calculating a collective impairment loss. This analysis allows the Group's recognition of losses whose identification in individual terms only occurs in future periods.
Loans and advances to customers are written-off when there is no realistic expectation, from an economic perspective, and for collateralised loans when the funds from the realization of the collateral have already been received, by the use of impairment losses when they correspond to 100% of the credits value considered as non-recoverable.
Notes to the Interim Condensed Consolidated Financial Statements
30 June 2017
(i) Classification, initial recognition and subsequent measurement
Financial assets are recognized on the trade date, thus, in the date that the Group commits to purchase the asset and are classified considering the intent behind them, according to the categories described below:
1) Financial assets and liabilities at fair value through profit and loss
The financial assets and liabilities acquired or issued with the purpose of sale or re-acquisition on the short term, namely bonds, treasury bills or shares, those which are part of a financial instruments portfolio and for which there is evidence of a recent pattern of short-term profit taking or that can be included in the definition of derivative (except in the case of a derivative classified as hedging) are classified as trading. The dividends associated to these portfolios are accounted in Net gains / (losses) arising on trading and hedging activities.
The interest from debt instruments is recognised as net interest income.
Trading derivatives with a positive fair value are included in Financial assets held for trading and the trading derivatives with negative fair value are included in Financial liabilities held for trading.
The Group has adopted the Fair Value Option for certain own bond issues, loans and time deposits that contain embedded derivatives or with related hedging derivatives. The variations of the Group's credit risk related to financial liabilities accounted under the Fair Value Option are disclosed in the note Net gains / (losses) arising from trading and hedging activities (note 6).
The designation of other financial assets and liabilities at fair value through profit and losses (Fair Value Option) may be performed whenever at least one of the following requirements is fulfilled:
Considering that the transactions carried out by the Group in the normal course of its business are in market conditions, the assets and liabilities financial instruments at fair value through profit or loss are recognised initially at their fair value, with the costs or income associated with the transactions recognised in results at the initial moment, with subsequent changes in fair value recognized in profit or loss. Patrimonial variations in the fair value are recorded in Net gains / (losses) arising from trading and hedging activities (note 6). The accrual of interest and the premium / discount (when applicable) is recognised in the Net interest income based on the effective interest rate of each transaction, as well as the accrual of interest from derivatives associated with financial instruments classified in this category.
Financial assets available for sale held with the purpose of being maintained by the Group, namely bonds, treasury bills or shares, are classified as available for sale, except if they are classified in another category of financial assets. The financial assets available for sale are initially accounted at fair value, including all expenses or income associated with the transactions. The financial assets available for sale are subsequently measured at fair value. The changes in fair value are accounted for against "Fair value reserves". On disposal of the financial assets available for sale or if impairment loss exists, the accumulated gains or losses recognised as fair value reserves are recognised under "Net gains / (losses) arising from available for sale financial assets" or "Impairment for other financial assets", in the income statement, respectively. Interest income from debt instruments is recognised in Net interest income based on the effective interest rate, including a premium or discount when applicable. Dividends are recognised in profit and losses when the right to receive the dividends is attributed.
The financial assets held-to-maturity include non-derivative financial assets with fixed or determinable payments and fixed maturity, for which the Group has the intention and ability to maintain until the maturity of the assets and that were not included in other categories of financial assets. These financial assets are initially recognised at fair value and subsequently measured at amortised cost. The interest is calculated using the effective interest rate method and recognised in Net interest income. The impairment losses are recognised in profit and loss when identified.
Any reclassification or disposal of financial assets included in this category that does not occur close to the maturity of the assets, or if it is not framed in the exceptions stated by the rules, will require the Group to reclassify the entire portfolio as Financial assets available for sale and the Group will not be allowed to classify any assets under this category for the following two years.
Non-derivative financial assets with fixed or determined payments, that are not quoted in a market and which the Group does not intend to sell immediately or in a near future, may be classified in this category.
In addition to loans granted, the Group recognises in this category unquoted bonds and commercial paper. The financial assets recognised in this category are initially accounted at fair value and subsequently at amortised cost net of impairment. The transaction costs are included in the effective interest rate for these financial instruments. The interest accounted based on the effective interest rate method are recognised in Net interest income.
The impairment losses are recognised in profit and loss when identified.
30 June 2017
The Other financial liabilities are all financial liabilities that are not recognised as financial liabilities at fair value through profit and loss. This category includes money market transactions, deposits from customers and from other financial institutions, issued debt, and other transactions.
These financial liabilities are initially recognised at fair value and subsequently at amortised cost. The related transaction costs are included in the effective interest rate. The interest calculated at the effective interest rate is recognised in Net interest income.
The financial gains or losses calculated at the time of repurchase of other financial liabilities are recognised as Net gains / (losses) from trading and hedging activities, when occurred.
At each balance sheet date, an assessment is made of the existence of objective evidence of impairment. A financial asset or group of financial assets are impaired when there is objective evidence of impairment resulting from one or more events that occurred after its initial recognition, such as: (i) for listed securities, a prolonged devaluation or a significant decrease in its quoted price, and (ii) for unlisted securities, when that event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be estimated reasonably. According to the Group's policies, 30% depreciation in the fair value of an equity instrument is considered a significant devaluation and the 1 year period is assumed to be a prolonged decrease in the fair value below the acquisition cost.
If an available for sale asset is determined to be impaired, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the profit or loss) is removed from fair value reserves and recognised in profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurred after the impairment loss was recognised in the profit or loss, the impairment loss is reversed through the income statement. Reversal of impairment losses on equity instruments, classified as financial assets available for sale, is recognised as a gain in fair value reserves when it occurs (there is no reversal in profit and losses).
Embedded derivatives should be accounted for separately as derivatives, if the economic risks and benefits of the embedded derivative are not closely related to the host contract, as long as the hybrid (combined) instrument is not initially measured at fair value with changes through profit and loss. Embedded derivatives are classified as trading and recognised at fair value with changes through profit and loss.
The Bank has four residential mortgage credit securitizations operations (Magellan Mortgages No.1, No.2, No.3 e No.4) which portfolios were accounted derecognized of the individual balance of the Bank, as the residual notes of the referred operations were sold to institutional investors and consequently, the risks and the benefits were substantially transferred.
As referred in note 22, with the purchase of a part of the residual note, the Group maintained the control of the assets and the liabilities of Magellan Mortgages No.2 e No.3, these Special Purpose Entities (SPE or SPV) are consolidated in the Group Financial Statements, in accordance with accounting policy referred in note 1 b).
The four operations are traditional securitizations, where each mortgage loan portfolio was sold to a Portuguese Loan Titularization Fund, which has financed this purchase through the sale of titularization units to an SPE with office in Ireland. At the same time this SPE issued and sold in the capital markets a group of different classes of bonds.
The Group has two synthetic operations. Caravela SME No.3, which operation started on 28 June 2013, based on a medium and long term loans portfolio of current accounts and authorized overdrafts granted by BCP, mainly to small and medium companies.
Caravela SME No.4 is a similar operation, initiated on 5 June 2014, which portfolio contains car, real estate and equipment leasing granted between the Bank and a group of clients that belong to the same segment (small and medium companies).
In both operations, the Bank hired a Credit Default Swap (CDS) with a Special Purpose Vehicle (SPV), buying by this way the protection for the total portfolio referred. Both cases, the synthetic securitizations, the same CDS, the risk of the respective portfolios were divided in 3 classes: senior, mezzanine and equity. The mezzanine and part of the equity (20%) were placed in the market through an SPV, and the subscription by investors, the Credit Linked Notes (CLNs). The Bank retained the senior risk and part of the equity remaining (80%). The product of the CLNs issue was invested by the SPV in a deposit which total collateral the responsibilities in the presence of the Bank, in accordance of the CDS.
The Group designates derivatives and other financial instruments to hedge its exposure to interest rate and foreign exchange risk, resulting from financing and investment activities. Derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
Derivative hedging instruments are stated at fair value and gains and losses on revaluation are recognised in accordance with the hedge accounting model adopted by the Group. A hedge relationship exists when:
at the inception of the hedge there is formal documentation of the hedge;
the hedge is expected to be highly effective;
the effectiveness of the hedge can be reliably measured;
the hedge is valuable in a continuous basis and highly effective throughout the reporting period; and
for hedges of a forecasted transaction, the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss.
When a derivative financial instrument is used to hedge foreign exchange variations arising from monetary assets or liabilities, no hedge accounting model is applied. Any gain or loss associated to the derivative is recognised through profit and loss, as well as changes in currency risk of the monetary items.
Changes in the fair value of derivatives that are designated and qualify as fair value hedge instruments are recognised in profit and loss, together with changes in the fair value attributable to the hedged risk of the asset or liability or group of assets and liabilities. If the hedge relationship no longer meets the criteria for hedge accounting, the cumulative gains and losses due to variations of hedged risk linked to the hedge item recognised until the discontinuance of the hedge accounting are amortised through profit and loss over the residual period of the hedged item.
In a hedge relationship, the effective portion of changes in fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity - cash flow hedge reserves in the effective part of the hedge relations. Any gain or loss relating to the ineffective portion of the hedge is immediately recognised in profit and loss when occurred.
Amounts accumulated in equity are reclassified to profit and loss in the periods in which the hedged item will affect profit or loss.
In case of hedging variability of cash-flows, when the hedge instrument expires or is disposed or when the hedging relationship no longer meets the criteria for hedge accounting, or when the hedge relation is revoked, the hedge relationship is discontinued on a prospective basis. Therefore, the fair value changes of the derivative accumulated in equity until the date of the discontinued hedge accounting can be:
In the case of a discontinued hedge of a forecast transaction, the change in fair value of the derivative recognised in equity at that time remains in equity until the forecasted transaction is ultimately recognised in the income statement. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to profit and loss.
For a hedge relationship to be classified as such according to IAS 39, effectiveness has to be demonstrated. As such, the Group performs prospective tests at the beginning date of the initial hedge, if applicable and retrospective tests in order to demonstrate at each reporting period the effectiveness of the hedging relationships, demonstrating that the variations in fair value of the hedging instrument are hedged by the fair value variations of the hedged item in the portion assigned to the risk covered. Any ineffectiveness is recognised immediately in profit and loss when incurred.
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any exchange gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity. The gain or loss relating to the ineffective portion is immediately recognised in profit and loss. Gains and losses accumulated in equity related to the investment in a foreign operation and to the associated hedge operation are recognised in equity are transferred to profit and loss, on the disposal of the foreign operation as part of the gain or loss from the disposal.
In October 2008, the IASB issued a change to IAS 39 – Reclassification of Financial Assets (Amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7: Financial Instruments Disclosures). This change allowed an entity to transfer financial assets from Financial assets at fair value through profit and loss – trading to Financial assets available for sale, to Loans and Receivables - Loans represented by securities or to Financial assets held-to-maturity, as long as the requirement referred in the standard namely when there is some event that is uncommon and highly improbable that will occur again in the short term, that is, the event can be classified as a rare circumstance. The Group adopted this possibility for a group of financial assets.
30 June 2017
Transfers of financial assets recognised in the category of Financial assets available-for-sale to Loans and receivables - Loans represented by securities and to Financial assets held-to-maturity are allowed, in determined and specific circumstances.
Transfers from and to Other financial assets and financial liabilities at fair value through profit and loss (Fair value option) are prohibited.
The analysis of the reclassifications is detailed in note 23 - Financial assets held for trading, Other financial assets held for trading at fair value through profit or loss and Financial assets available for sale.
The Group derecognises financial assets when all rights to future cash flows have expired. In a transfer of assets, derecognition can only occur either when risks and rewards have been substantially transferred or the Group does not maintain control over the assets.
The Group derecognises financial liabilities when these are cancelled or extinguished.
A financial instrument is an equity instrument only if (a) the instrument includes no contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity and (b) if the instrument will or may be settled in the issuer's own equity instruments, it is either a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments or a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments.
An equity instrument, independently from its legal form, evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Transaction costs directly attributable to an equity instruments' issuance are recognised in equity as a deduction to the amount issued. Amounts paid or received related to sales or acquisitions of equity instruments are recognised in equity, net of transaction costs.
Preference shares issued by the Group are considered as an equity instrument when redemption of the shares is solely at the discretion of the Group and dividends are paid at the discretion of the Group.
Income from equity instruments (dividends) are recognised when the right to receive this income is established and are deducted to equity.
Financial instruments that contain both a liability and an equity component (example: convertible bonds) are classified as compound financial instruments. For those instruments classified as compound financial instruments, the terms of its conversion to ordinary shares (number of shares) cannot change with changes in its fair value. The financial liability component corresponds to the present value of the future interest and principal payments, discounted at the market interest rate applicable to similar financial liabilities that do not have a conversion option. The equity component corresponds to the difference between the proceeds of the issue and the amount attributed to the financial liability. Financial liabilities are measured at amortised cost through the effective interest rate method. The interests are recognised in Net interest income.
Securities lent under securities lending arrangements continue to be recognised in the balance sheet and are measured in accordance with the applicable accounting policy. Cash collateral received in respect of securities lent is recognised as a financial liability. Securities borrowed under securities borrowing agreements are not recognised. Cash collateral placements in respect of securities borrowed are recognised under loans and advances to either banks or customers. Income and expenses arising from the securities borrowing and lending business are recognised on an accrual basis over the period of the transactions and are included in interest income or expense (net interest income).
The Group performs acquisition/sale of securities under reselling/repurchase agreements of securities substantially equivalent in a future date at a predetermined price ('repos'/'reverse repos'). The securities related to reselling agreements in a future date are not recognised on the balance sheet. The amounts paid are recognised in loans and advances to customers or loans and advances to credit institutions. The receivables are collateralised by the related securities. Securities sold through repurchase agreements continue to be recognised in the balance sheet and are revaluated in accordance with the applicable accounting policy. The amounts received from the proceeds of these securities are considered as deposits from customers and deposits from credit institutions. The difference between the acquisition/sale and reselling/repurchase conditions is recognised on an accrual basis over the period of the transaction and is included in interest income or expenses.
30 June 2017
Non-current assets, groups of non-current assets held for sale (groups of assets together with related liabilities that include at least a non current asset) and discontinued operations are classified as held for sale when it is intention to sell the referred assets and liabilities and when the referred assets or group of assets are available for immediate sale and its sale is highly probable. In order for the sale to be considered highly probable, the Group must be committed to a plan to sell the asset (or disposal group), and must have been initiated an active program to locate a buyer and complete the plan. In addition, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value. Furthermore, it should be expected the sale to qualify for recognition as a completed sale within one year from the date of classification, except as permitted by paragraph 9 of IFRS 5 and the actions required to complete the plan should indicate the improbability of significant changes in the plan or of the plan to be withdrawn.
The Group also classifies as non-current assets held for sale those non-current assets or groups of assets acquired exclusively with a view to its subsequent disposal, which are available for immediate sale and its sale is highly probable. Immediately before classification as held for sale, the measurement of the non-current assets or all assets and liabilities in a disposal group, is performed in accordance with the applicable IFRS. After their reclassification, these assets or disposal groups are measured at the lower of their cost and fair value less costs to sell.
Discontinued operations and the subsidiaries acquired exclusively with the purpose to sell in the short term are consolidated until the moment of its sale.
The Group also classifies as non-current assets held for sale, the investments arising from recovered loans that are measured initially by the lower of its fair value net of selling costs and the loan's carrying amount on the date that the recovery occurs or the judicial decision is formalised.
The fair value is determined based on the expected selling price estimated through periodic valuations performed by external valuation experts properly accredited, according to the periodicity defined in the Bank's regulations. The subsequent measurement of these assets is determined based on the lower of the carrying amount and the corresponding fair value less costs to sell, not subjected to depreciation. In case of unrealised losses, these should be recognised as impairment losses against results.
In accordance with IAS 17, the lease transactions are classified as financial whenever their terms transfer substantially all the risks and rewards associated with the ownership of the property to the lessee. The remaining leases are classified as operational. The classification of the leases is done according to the substance and not the form of the contract.
At the lessee's perspective, finance lease transactions are recorded at the beginning as an asset and liability at fair value of the leased asset, which is equivalent to the present value of the future lease payments. Lease rentals are a combination of the financial charge and the amortisation of the capital outstanding. The financial charge is allocated to the periods during the lease term to produce a constant periodic rate of interest on the remaining liability balance for each period.
At the lessor's perspective, assets held under finance leases are recorded in the balance sheet as a receivable at an amount equal to the net investment in the lease. Lease rentals are a combination of the financial income and amortization of the capital outstanding. Recognition of the financial result reflects a constant periodical return rate over the remaining net investment of the lessor.
Assets received arising from the resolution of leasing contracts and complying with the definition of assets held for sale classified in this category, are measured in accordance with the accounting policy defined in note 1k).
At the lessee's perspective, the Group has various operating leases for properties and vehicles. The payments under these leases are recognised in Other administrative costs during the life of the contract, and neither the asset nor the liability associated with the contract is evidenced in its balance sheet.
Interest income and expense for financial instruments measured at amortised cost are recognised in the interest income or expenses (net interest income) through the effective interest rate method. The interest related to financial assets available for sale calculated at the effective interest rate method are also recognised in net interest income as well as those from assets and liabilities at fair value through profit and loss.
The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument (or, when appropriate, for a shorter period), to the net carrying amount of the financial asset or financial liability.
For calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument (for example: early payment options) but without considering future impairment losses. The calculation includes all fees paid or received considered as included in the effective interest rate, transaction costs and all other premiums or discounts directly related to the transaction, except for assets and liabilities at fair value through profit and loss.
If a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised based on the interest rate used to discount the future cash flows for the purpose of measuring the impairment loss.
Specifically regarding the accounting policy for interest on overdue loans' portfolio, the following aspects are considered:
interest income for overdue loans with collaterals are accounted for as income, up to the limit of the valuation of the collateral on a prudent basis, in accordance with IAS 18, assuming that there is a reasonable probability of recoverability; and
the interests accrued and not paid for overdue loans for more than 90 days that are not covered by collaterals are written-off and are recognised only when received, in accordance with IAS 18, on the basis that its recoverability is considered to be remote.
30 June 2017
For derivative financial instruments, except those classified as hedging instruments of interest rate risk, the interest component is not separated from the changes in the fair value and is classified under Net gains / (losses) from trading and hedging activities. For hedging derivatives of interest rate risk and those related to financial assets or financial liabilities recognised in the Fair Value Option category, the interest component is recognised under interest income or expense (Net interest income).
n) Recognition of income from services and commissions
Income from services and commissions are recognised according to the following criteria:
Income from services and commissions, that are an integral part of the effective interest rate of a financial instrument, are recognised in net interest income.
o) Financial net gains / losses (Net gains / losses arising from trading and hedging activities, from financial assets available for sale and from financial assets held to maturity)
Financial net gains / losses includes gains and losses arising from financial assets and financial liabilities at fair value through profit and loss, that is, fair value changes and interest on trading derivatives and embedded derivatives, as well as the corresponding dividends received. This caption also includes the gains and losses arising from the sale of available for sale financial assets and financial assets held to maturity. The changes in fair value of hedging derivatives and hedged items, when fair value hedge is applicable, are also recognised in this caption.
Assets held in the scope of fiduciary activities are not recognised in the Group's consolidated financial statements. Fees and commissions arising from this activity are recognised in the income statement in the period in which they occur.
Other tangible assets are stated at acquisition cost less accumulated depreciation and impairment losses. Subsequent costs are recognised as a separate asset only when it is probable that future economic benefits will result for the Group. All other repairs and maintenance expenses are charged to the income statement during the financial period in which they are incurred.
Depreciation is calculated on a straight-line basis, over the following periods which correspond to their estimated useful life:
| Number of years | |
|---|---|
| Buildings | 50 |
| Expenditure on freehold and leasehold buildings | 10 |
| Equipment | 4 to 12 |
| Other tangible assets | 3 |
Whenever there is an indication that a fixed tangible asset might be impaired, its recoverable amount is estimated and an impairment loss shall be recognised if the net value of the asset exceeds its recoverable amount. The recoverable amount is determined as the highest between the fair value less costs to sell and its value in use calculated based on the present value of future cash-flows estimated to be obtained from the continued use of the asset and its sale at the end of the useful life.
The impairment losses of the fixed tangible assets are recognised in profit and loss for the period.
r) Investment property
Real estate properties owned by the investment funds consolidated in the Group, are recognised as Investment properties considering, that the main objective of these buildings is the capital appreciation on a long term basis and not its sale in a short term period, or its maintenance for own use.
These investments are initially recognised at its acquisition cost, including the transaction costs and subsequently revaluated at its fair value. The fair value of the investment property should reflect the market conditions at the balance sheet date. Changes in fair value are recognised in results as Other operating income / (costs) (note 8).
The experts responsible for the valuation of the assets are properly certified for that purpose, being registered in CMVM.
The Group does not capitalise any research and development costs. All expenses are recognised as costs in the period in which they occur.
The Group accounts, as intangible assets, the costs associated to software acquired from external entities and depreciates them on a straight line basis by an estimated lifetime of three years. The Group does not capitalise internal costs arising from software development.
Notes to the Interim Condensed Consolidated Financial Statements
30 June 2017
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months' maturity from the balance sheet date, including cash and deposits with Central Banks and loans and advances to credit institutions.
Financial assets and liabilities are offset and recognised at their net book value when: i) the Group has a legal right to offset the amounts recognised and transactions can be settled at their net value; and ii) the Group intends to settle on a net basis or perform the asset and settle the liability simultaneously. Considering the current operations of the Group, no compensation of material amount is made. In case of reclassifications of comparative amounts, the provisions of IAS 1.41 are disclosed: a) the nature of the reclassification; b) the amount of each item (or class of items) reclassified and c) the reason for the reclassification.
Transactions in foreign currencies are translated into the respective functional currency of the operation at the foreign exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the respective functional currency of the operation at the foreign exchange rate at the reporting date. Foreign exchange differences arising on translation are recognised in the profit and loss. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated into the respective functional currency of the operation at the foreign exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into the respective functional currency of the operation at the foreign exchange rate at the date that the fair value was determined against profit and loss, except for financial assets available-for-sale, for which the difference is recognised against equity.
The Group has the responsibility to pay to their employees' retirement pensions and widow and orphan benefits and permanent disability pensions, in accordance with the agreement entered with the two collective labour arrangements. These benefits are estimated in the pension's plans 'Plano ACT' and 'Plano ACTQ' of the Pension Plan of BCP Group.
Until 2011, along with the benefits provided in two planes above, the Group had assumed the responsibility, under certain conditions in each year, of assigning a complementary plan to the Group's employees hired before 21 September, 2006 (Complementary Plan). The Group at the end of 2012 decided to extinguish ("cut") the benefit of old age Complementary Plan. As at 14 December 2012, the ISP ("Instituto de Seguros de Portugal" - Portuguese Insurance Institute) formally approved this change to the benefit plan of the Group with effect from 1 January 2012. The cut of the plan was made, having been assigned to the employees, individual rights acquired. On that date, the Group also proceeded to the settlement of the related liability.
From 1 January 2011, banks' employees were integrated in the General Social Security Scheme which now covers their maternity, paternity, adoption and pension benefits. However, the Banks remain liable for those benefits as concern illness, disability and life insurance (Decree-Law no. 1-A/2011, of 3 January).
The contributory rate is 26.6% divided between 23.6% supported by the employer and 3% supported by the employees, replacing the Banking Social Healthcare System ('Caixa de Abono de Família dos Empregados Bancários') which was extinguished by the decree law referred above. As a consequence of this amendment the capability to receive pensions by the actual employees are covered by the General Social Security Scheme regime, considering the service period between 1 January 2011 and the retirement age. The Bank supports the remaining difference for the total pension assured in Collective Labor Agreement ('Acordo Colectivo de Trabalho').
Following the approval by the Government of the Decree-Law no. 127/2011, which was published on 31 December, was established an agreement between the Government, the Portuguese Banking Association and the Banking Labour Unions in order to transfer, to the Social Security, the liabilities related to pensions currently being paid to pensioners and retirees, as at 31 December 2011.
This agreement established that the responsibilities to be transferred related to the pensions in payment as at 31 December 2011 at fixed amounts (discount rate 0%) in the component established in the 'Instrumento de Regulação Colectiva de Trabalho (IRCT - Instrument of Collective Regulation of Work)' of the retirees and pensioners. The responsibilities related to the increase in pensions as well as any other complements namely, contributions to the Health System (SAMS), death benefit and death before retirement benefit continued to be under the responsibility of the Financial Institutions.
At the end of December 2016, a revision of the Collective Labour Agreement (ACT) was reached between the BCP Group and the two unions representive of the Group's employees, which introduced changes in the Social Security chapter and consequently in the pension plan financed by the BCP Group Pension Fund. The new ACT has already been published by the Ministry of Labor in Bulletin of Labor and Employment, and their effects were recorded in the financial statements of 31 December 2016, for employees associated with these two unions..
The negotiation with the " Sindicato dos Bancários do Norte"" ("SBN"), which was also involved in the negotiations of the new ACT, was concluded in April 2017 with the publication of the Bulletin of Labor and Employment, with the effects of this new ACT recorded in the financial statements as at 30 June 2017, for employees associates of SBN.
The most relevant changes occurred in the ACT were the change in the retirement age (presumed disability) that changed from 65 years to 66 years and two months in 2016, and the subsequent update of a further month for each year, at the beginning of each calendar year,and can not, in any case, be higher than which it is in force at any moment in the General Regime of Social Security, the change in the formula for determining the employer's contribution to the SAMS and a new benefit called the End of career premium that replaces the Seniority premium.
These changes described above were framed by the Group as a change to the pension plan under the terms of IAS 19, as such had an impact on the present value of the liabilities with services rendered and were recognised in the income statement for the year under "Staff costs ".
30 June 2017
The Group's net obligation in respect of pension plans (defined benefit pensions plan) is calculated on a half year basis at 31 December and 30 June of each year, and whenever there are significant market fluctuations or significant specific events, such as changes in the plan, curtailments or settlements since the last estimate. The responsibilities with past service are calculated using the Unit Credit Projected method and actuarial assumptions considered adequate.
Pension liabilities are calculated by the responsible actuary, who is certified by the Insurance Supervision Authority and Pension Fund (ASF).
The Group's net obligation in respect of defined benefit pension plans and other benefits is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. The benefit is discounted in order to determine its present value, using a discount rate determined by reference to interest rates of high-quality corporate bonds that have maturity dates approximating the terms of the Group's obligations. The net obligations are determined after the deduction of the fair value of the Pension Plan's assets.
Extra-fund liability refers to pension supplements allocated to various employees under the retirement's negotiation processes with the aim of encouraging them to join staff reduction programs.
The income / cost of interests with the pension plan is calculated, by the Group, multiplying the net asset / liability with retirement pension (liabilities less the fair value of the plan's assets) by the discount rate used in the determination of the retirement pension liabilities, mentioned before. On this basis, the income / cost net of interests includes the interest costs associated with retirement pension liabilities and the expected return of the plan's assets, both measured based on the discount rate used to calculate the liabilities.
Gains and losses from the re-measurement, namely (i) actuarial gains and losses resulting from differences between actuarial assumptions used and the amounts actually observed (experience gains and losses) and changes in actuarial assumptions and (ii) gains and losses arising from the difference between the expected return of the plan's assets and the amounts obtained, are recognised against equity under other comprehensive income.
The Group recognises in its income statement a net total amount that comprises (i) the current service cost, (ii) the income / cost net of interest with the pension plan, (iii) the effect of early retirement, (iv ) past service costs and (v) the effects of any settlement or curtailment occurred during the period. The net income / cost with the pension plan is recognised as interest and similar income or interest expense and similar costs depending on their nature. The costs of early retirements correspond to the increase in liabilities due to the employee's retirement before reaching the age of retirement.
Employee benefits, other than pension plans, namely post retirement health care benefits and benefits for the spouse and sons for death before retirement are also included in the benefit plan calculation.
The contributions to the funds are made annually by each Group company according to a certain plan contributions to ensure the solvency of the fund. The minimum level required for the funding is 100% regarding the pension payments and 95% regarding the past services of active employees.
For Defined Contribution Plan, the responsibilities related to the benefits attributed to the Group's employees are recognised as expenses when incurred.
As at 30 June 2017, the Group has two defined contribution plans. One plan covers employees who were hired before 1 July 2009. For this plan, called non-contributory, Group's contributions will be made annually and equal to 1% of the annual remuneration paid to employees in the previous year. Contributions shall only be made if the following requirements are met: (i) the Bank's ROE equals or exceeds the rate of government bonds of 10 years plus 5 percentage points, and (ii) distributable profits or reserves exist in the accounts of Banco Comercial Português.
The other plan covers employees who have been hired after 1 July 2009. For this plan, designated contributory, monthly contributions will be made equal to 1.5% of the monthly remuneration received by employees in the current month, either by themselves or by the Group and employees. This contribution has a mandatory character and is defined in the Collective Labor Agreement of the BCP Group, and does not have a performance criterion.
iii) Share based compensation plan
As at 30 June 2017 there are no share based compensation plans in force.
The Executive Committee decides on the most appropriate criteria of allocation among employees, whenever it is attributed. This variable remuneration is charged to income statement in the period to which it relates.
x) Income taxes
The Group is subject to the regime established by the Income Tax Code ("CIRC"). Additionally, deferred taxes resulting from the temporary differences between the accounting net income and the net income accepted by the Tax Authorities for Income Taxes calculation are accounted for, whenever there is a reasonable probability that those taxes will be paid or recovered in the future.
Income tax registered in net income for the year comprises current and deferred tax effects. Income tax is recognised in the income statement, except when related to items recognised directly in equity, which implies its recognition in equity. Deferred taxes arising from the revaluation of financial assets available for sale and cash flow hedging derivatives are recognised in shareholders' equity and are recognised after in the income statement at the moment the profit and loss that originated the deferred taxes are recognised.
30 June 2017
Current tax is the value that determines the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred taxes are calculated in accordance with the liability method based on the balance sheet, considering temporary differences, between the carrying amounts of assets and liabilities and the amounts used for taxation purposes using the tax rates approved or substantially approved at balance sheet date and that is expected to be applied when the temporary difference is reversed.
Deferred tax liabilities are recognised for all taxable temporary differences except for goodwill not deductible for tax purposes, differences arising on initial recognition of assets and liabilities that affect neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that probably they will not reverse in the foreseeable future.
Deferred taxes assets are recognised to the extent when it is probable that future taxable profits will be available to absorb deductible temporary differences for taxation purposes (including reportable taxable losses).
The Group, as established in IAS 12, paragraph 74, compensates the deferred tax assets and liabilities if, and only if: (i) has a legally enforceable right to set off current tax assets against current tax liabilities; and (ii) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
In 2016, a group of entities of the BCP Group adhered to the Special Regime for the Taxation of Groups of Companies ("RETGS") for the purposes of taxation of income tax.
Under the scope of taxation under this regime, the Group chose to consider that the effects of the determination of the taxable income according to RETGS are reflected in the tax calculation of each entity's fiscal year, which includes the effect on the current tax due to the use of tax loss carry forwards generated by another entity of the Group.
The Group adopted the IFRS 8 - Operating Segments for the purpose of disclosure financial information by operating and geographic segments. A business segment is a Group's component: (i) which develops business activities that can obtain revenues or expenses; (ii) whose operating results are regularly reviewed by the management with the aim of taking decisions about allocating resources to the segment and assess its performance, and (iii) for which separate financial information is available.
The Group controls its activity through the following major operating segments:
Portugal activity:
"Other" (Portugal activity) includes the activities that are not allocated to remaining segments namely centralized management of financial investments, corporate activities and insurance activity.
Foreign activity:
"Other" (foreign activity) includes the activity developed by subsidiaries in Switzerland and Cayman Islands and also the contribution of the participation in an associate in Angola.
In the context of the Banco Millennium in Angola merger process with Banco Privado Atlântico, which agreement occurred in 22 April 2016 and the conclusion of the process of the necessary authorizations in 3 May 2016, Banco Millennium Angola was considered as a discontinued operation in March 2016, with the impact of its results presented in the balance Income / (loss) arising from discontinued or discontinuing operations and restated for the previous periods. At the consolidated balance, the assets and liabilities of Banco Millennium Angola, S.A. continued to be consolidated by the purchase method till April 2016.
After the completion of the merger, in May 2016, the assets and liabilities of Banco Millennium in Angola stopped being considered in the consolidated balance sheet and the investment of 22.5 % in Banco Millennium Atlântico, the new merged entity, started being consolidated using the equity method and its contribution to the Group's results have been recognised in the consolidated accounts from May 2016 onwards, in the balance "Share of profit of associates under the equity method".
Provisions
Provisions are recognised when (i) the Group has a present obligation (legal or resulting from past practices or published policies that imply the recognition of certain responsibilities); (ii) it is probable that a payment will be required to settle (iii) a reliable estimate can be made of the amount of the obligation.
The measurement of provisions takes into account the principles set in IAS 37 regarding the best estimate of the expected cost, the most likely result of current actions and considering the risks and uncertainties inherent in the process result. On the cases that the discount effect is material, provision corresponds to the actual value of the expected future payments, discounted by a rate that considers the associated risk of the obligation.
30 June 2017
Provisions are reviewed at each balance sheet date and adjusted to reflect the best estimate, being reverted through profit and loss in the proportion of the payments that are probable.
The provisions are derecognised through their use for the obligations for which they were initially accounted or for the cases that the situations were not already observed.
Contingent liabilities are not recognised in the financial statements, being framed under IAS 37 whenever the possibility of an outflow of resources regarding economic benefits is not remote.
The group registers a contingent liability when:
(a) it is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group; or
(b) a present obligation that arises from past events but is not recognised because:
(i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or (ii) the amount of the obligation cannot be measured with sufficient reliability
The contingent liabilities identified are subject to disclosure, unless the possibility of an outflow of resources incorporating economic benefits is remote.
Contingent assets are not recognised in the financial statements and are disclosed when a future economic inflow of resources is probable.
Basic earnings per share are calculated by dividing net income attributable to shareholders of the Group by the weighted average number of ordinary shares outstanding, excluding the average number of ordinary shares purchased by the Group and held as treasury shares.
For the diluted earnings per share, the weighted average number of ordinary shares outstanding is adjusted to consider conversion of all dilutive potential ordinary shares. Potential or contingent share issues are treated as dilutive when their conversion to shares would decrease net earnings per share. If the earnings per share are changed as a result of an issue with premium or discount or other event that changed the potential number of ordinary shares or as a result of changes in the accounting policies, the earnings per share for all presented periods should be adjusted retrospectively.
The Group issues contracts that contain insurance risk, financial risk or a combination of both insurance and financial risk. A contract, under which the Group accepts significant insurance risk from another party, by agreeing to compensate that party on the occurrence of a specified uncertain future event, is classified as an insurance contract.
A contract issued by the Group without significant insurance risk, but on which financial risk is transferred with discretionary participating features is classified as an investment contract recognised and measured in accordance with the accounting policies applicable to insurance contracts. A contract issued by the Group that transfers only financial risk, without discretionary participating features, is accounted for as a financial instrument.
Premiums of life insurance and investment contracts with discretionary participating features, which are considered as long-term contracts are recognised as income when due from the policyholders. The benefits and other costs are recognised concurrently with the recognition of income over the life of the contracts. This specialization is achieved through the establishment of provisions / liabilities of insurance contracts and investment contracts with discretionary participating features.
The responsibilities correspond to the present value of future benefits payable, net of administrative expenses directly associated with the contracts, less the theoretical premiums that would be required to comply with the established benefits and related expenses. The liabilities are determined based on assumptions of mortality, costs of management or investment at the valuation date.
For contracts where the payment period is significantly shorter than the period of benefit, premiums are deferred and recognised as income in proportion to the duration period of risk coverage. Regarding short-term contracts, including contracts of non-life insurance, premiums are recorded at the time of issue. The award is recognised as income acquired in a pro-rata basis during the term of the contract. The provision for unearned premiums represents the amount of issued premiums on risks not occurred.
Gross premiums written are recognised for as income in the period to which they respect independently from the moment of payment or receivable, in accordance with the accrual accounting principle. Reinsurance premiums ceded are accounted for as expense in the period to which they respect in the same way as gross premiums written.
30 June 2017
The provision for unearned gross premiums is based on the evaluation of the premiums written before the end of the year but for which the risk period continues after the year end. This provision is calculated using the pro-rata temporis method applied to each contract in force.
At each reporting date, the Group evaluates the adequacy of liabilities arising from insurance contracts and investment contracts with discretionary participating features. The evaluation of the adequacy of responsibilities is made based on the projection of future cash flows associated with each contract, discounted at market interest rate without risk. This evaluation is done product by product or aggregate of products when the risks are similar or managed jointly. Any deficiency, if exists, is recorded in the Group's results as determined.
The Banco Comercial Português and Banco ActivoBank are entities authorized by the 'Autoridade de Supervisão de Seguros e Fundos de Pensões' (Portuguese Insurance Regulation) to practice the activity of insurance intermediation in the category of Online Insurance Broker, in accordance with Article 8., Paragraph a), point i) of Decree-Law n. º 144/2006, of July 31, developing the activity of insurance intermediation in life and nonlife.
Within the insurance intermediation services, these banks perform the sale of insurance contracts. As compensation for services rendered for insurance intermediation, they receive commissions for arranging contracts of insurance and investment contracts, which are defined in the agreements / protocols established with the Insurance Companies.
Commissions received by insurance intermediation are recognised in accordance with the accrual accounting principle, so the commissions which receipt occurs at different time period to which it relates are subject to registration as an amount receivable under Other Assets.
IFRS set forth a range of accounting treatments that requires that the Board of Directors, on the advice of the Executive Committee apply judgments and make estimates in deciding which treatment is most appropriate. The most significant of these accounting estimates and judgments used in the accounting principles application are discussed in this section in order to improve understanding of how their application affects the Group's reported results and related disclosure.
Considering that in some cases there are several alternatives to the accounting treatment chosen by the Board of Directors, on the advice of the Executive Committee, the Group's reported results would differ if a different treatment was chosen. The Board of Directors, on the advice of the Executive Committee believes that the choices made are appropriate and that the financial statements present the Group's financial position and results fairly in all material relevant aspects.
The alternative outcomes discussed below are presented solely to assist the reader in understanding the financial statements and are not intended to suggest that other alternatives or estimates would be more appropriate.
The Group reviews its loan portfolios to assess impairment losses on a regularly basis, as described in note 1 c). The evaluation process in determining whether an impairment loss should be recorded is subject to numerous estimates and judgments. The probability of default, risk ratings, value of associated collaterals recovery rates and the estimation of both the amount and timing of future cash flows received, among other things, are considered in making this evaluation.
Alternative methodologies and the use of different assumptions and estimates could result in a higher level of impairment losses recognised with a consequent impact in profit and loss of the Group.
The Group is subject to income taxes in numerous jurisdictions. Significant interpretations and estimates are required in determining the total amount for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Different interpretations and estimates would result in a different level of income taxes, current and deferred, recognised in the year.
This aspect assumes greater relevance for the purposes of the analysis of the recoverability of deferred taxes, in which the Group considers projections of future taxable income based on a set of assumptions, including the estimate of income before tax, adjustments to the taxable and the interpretation of the tax legislation. Thus, the recoverability of deferred tax assets depends on the implementation of the Bank's Board of Directors, namely the ability to generate estimated taxable income and the interpretation of the tax legislation.
The taxable profit or tax loss reported by the Bank or its subsidiaries located in Portugal can be corrected by the Portuguese tax authorities within four years except in the case it has been made any deduction or used tax credit, when the expiration date is the period of this right report. The Executive Committee believes that any corrections resulting mainly from differences in the interpretation of tax law will not have material effect on the financial statements.
Regarding the activity in Portugal, the specific rules regarding the tax regime for credit impairment and guarantees for the tax periods beginning on or after 1 January 2017 are not defined, since the reference to the Bank of Portugal Notice No. 3/95 was only applicable until 31 December 2016 and the regime that will be effective as at 1 January 2017 has not yet been defined. In this context, the Executive Committee is considering, for the purpose of calculating taxable income and the deferred tax recording with reference to 30 June 2017, that the impairment of the credit and guarantees recorded which is deductible for IRC purpose is limited to the amount of the deductible provisions that would have been verified if the Bank of Portugal Notice No. 3/95 still remained in force.
In the projections of future taxable income, the Executive Committee considered the approximation between the tax rules and the accounting rules underlying a draft bill amending the article 28-C of the IRC Code which was publicly referred to by the Secretary of State of Fiscal Issues in functions until 13 July 2017, under the terms described in note 31, since it is considered that a diploma is likely to be approved without substantial changes in relation to referred draft bill.
The properties registered in the portfolio of non-current assets held for sale are subject to periodic real estate valuations, carried out by independent experts registered at the CMVM, from their registration and until their derecognition, to be carried out on a property by property basis, according to the circumstances in which each property is and consistent with the disposal strategy. The preparation of these evaluations involves the use of several assumptions. Different assumptions or changes occurred in them may affect the recognised value of these assets.
Determining pension liabilities requires the use of assumptions and estimates, including the use of actuarial projections, estimated returns on investment, and other factors, such as discount rate, pensions and salary growth rate, mortality table, that could impact the cost and liability of the pension plan.
As defined by IAS 19, the discount rate used to update the responsibilities of the Bank's pension fund is based on an analysis performed over the market yield regarding a bond issues universe – with high quality (low risk), different maturities (appropriate to the period of liquidation of the fund's liabilities) and denominated in Euros - related to a diverse and representative range of issuers.
The Group determines that financial assets available for-sale are impaired when there has been a significant or prolonged decrease in the fair value. This determination of what is significant or prolonged requires judgment. In making this judgment, the Group evaluates among other factors, the volatility in the prices of the financial assets. According to the Group's policies, 30% of depreciation in the fair value of an equity instrument is considered a significant devaluation and the 1 year period is assumed to be a prolonged decrease in the fair value below the acquisition cost.
In addition, valuations are generally obtained through market quotation or valuation models that may require assumptions or judgment in making estimates of fair value.
Alternative methodologies and the use of different assumptions and estimates could result in a higher level of impairment losses recognised with a consequent impact in profit and loss of the Group.
Fair values are based on listed market prices if available, otherwise fair value is determined either by dealer price quotations (either for that transaction or for similar instruments traded) or by pricing models, based on net present value of estimated future cash flows which take into account market conditions for the underlying instruments, time value, yield curve and volatility factors. These pricing models may require assumptions or judgments in estimating their fair values. Consequently, the use of a different model or of different assumptions or judgments in applying a particular model could result in different results from the ones reported.
The Group follows the guidance of IAS 39 on classifying some of its non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgment.
In making this judgment, the Group evaluates its intention and ability to hold such investments to maturity. If the Group fails to keep these investments to maturity other than for the specific circumstances — for example, selling an insignificant amount close to maturity — it will be required to reclassify the entire class as available-for-sale with its consequently fair value measure and not at the amortization cost. The investments would therefore be measured at fair value instead of amortised cost. Held-to-maturity investments are subject to impairment tests made by the Group. The use of different assumptions and estimates could have an impact in profit and loss of the Group.
For the purposes of determining entities to include in the consolidation perimeter, the Group assess whether it is exposed to, or has rights to, the variable returns from its involvement with the entity and it is able to take possession of those results through the power it holds (de facto control). The decision if an entity needs to be consolidated by the Group requires the use of judgment, estimates and assumptions to determine what extend the Group is exposed to the variable returns and its ability to use its power to affect those returns. Different estimates and assumptions could lead the Group to a different scope of consolidation perimeter with a direct impact in consolidated income.
The recoverable amount of the goodwill recorded in the Group's asset is assessed annually in the preparation of accounts with reference to the end of the year or whenever there are indications of eventual loss of value. For this purpose, the carrying amount of the business units of the Group for which goodwill has been recognised is compared with the respective recoverable amount. A goodwill impairment loss is recognised when the carrying amount of the business unit exceeds the respective recoverable amount.
In the absence of an available market value, the recoverable amount is determined using cash flows predictions, applying a discount rate that includes a risk premium appropriated to the business unit being tested. Determining the cash flows to discount and the discount rate, involves judgment.
Events occurring after the date of the statement of financial position that provide information on situations occurring after that date, if significant, are disclosed in the notes to the consolidated financial statements.
30 June 2017
IFRS requires separate disclosure of net interest income and net gains arising from trading and hedging activities and from financial assets available for sale, as presented in notes 3, 6 and 7. A particular business activity can generate impact in each of these captions, whereby the disclosure requirement demonstrates the contribution of the different business activities for the net interest margin and net gains from trading and hedging and from financial assets available for sale.
The amount of this account is comprised of:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Net interest income (note 3) | 678,499 | 600,804 |
| Net gains from trading and hedging assets (note 6) | 58,596 | 74,564 |
| Net gains from financial assets available for sale (note 7) | 31,308 | 108,259 |
| 768,403 | 783,627 |
The amount of this account is comprised of:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Interest and similar income | ||
| Interest on loans | 768,125 | 782,808 |
| Interest on trading securities | 2,716 | 3,842 |
| Interest on other financial assets valued at fair | ||
| value through profit and loss account | 1,753 | 1,780 |
| Interest on available for sale financial assets | 10 9,713 |
100,720 |
| Interest on held to maturity financial assets | 9,30 1 |
4,531 |
| Interest on hedging derivatives | 43,982 | 50,835 |
| Interest on derivatives associated to financial | ||
| instruments through profit and loss account | 3,9 64 |
6,946 |
| Interest on deposits and other investments | 17,028 | 14,014 |
| 956,582 | 965,476 | |
| Interest expense and similar charges | ||
| Interest on deposits and other resources | 182,637 | 208,914 |
| Interest on securities issued | 48,322 | 78,760 |
| Interest on subordinated debt | ||
| Hybrid instruments eligible as core tier 1 (CoCos) | ||
| underwritten by the Portuguese State | 6,343 | 32,801 |
| Others | 28,298 | 28,888 |
| Interest on hedging derivatives | 9,968 | 7,805 |
| Interest on derivatives associated to financial | ||
| instruments through profit and loss account | 2,5 15 |
7,504 |
| 278,083 | 364,672 | |
| 678,499 | 600,804 |
The balance Interest on loans includes the amount of Euros 20,161,000 (30 June 2016: Euros 21,336,000) related to commissions and other gains accounted for in accordance with the effective interest method, as referred in the accounting policy described in note 1 m).
The balances Interest on securities issued and Interest on subordinated debt include the amount of Euros 22,694,000 (30 June 2016: Euros 39,628,000) related to commissions and other costs accounted for under the effective interest method, as referred in the accounting policy described in note 1 m).
The balance Interest and similar income includes, the amount of Euros 59,104,000 (30 June 2016: Euros 64,128,000) related to interest income arising from customers with signs of impairment (individual and collective analysis).
30 June 2017
| The amount of this account is comprised of: | Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|---|---|---|
| Dividends from financial assets available for sale | 1,604 | 5,804 |
| Dividends from financial assets held for trading | 1 | - |
| 1,605 | 5,804 |
The balance of Dividends from financial assets available for sale includes dividends and income from investment fund units received during the period.
The amount of this account is comprised of:
| Jun 2017 | Jun 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Fees and commissions received | ||
| From guarantees | 31,857 | 33,646 |
| From commitments | 2,013 | 2,034 |
| From banking services | 233,579 | 199,344 |
| From insurance activity commissions | 615 | 701 |
| From securities operations | 48,764 | 45,033 |
| From management and maintenance of accounts | 46, 474 |
45,412 |
| From fiduciary and trust activities | 416 | 421 |
| From other commissions | 20,648 | 43,112 |
| 384,366 | 369,703 | |
| Fees and commissions paid | ||
| From guarantees received provided by third parties | 2,819 | 2,409 |
| From banking services | 38,873 | 33,662 |
| From insurance activity commissions | 857 | 739 |
| From securities operations | 4,941 | 6,098 |
| From other commissions | 6,552 | 6,464 |
| 54,042 | 49,372 | |
| 330,324 | 320,331 |
The balance Fees and commissions received - From banking services includes the amount of Euros 39,275,000 (30 June 2016: Euros 39,065,000) related to insurance mediation commissions.
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Gains arising on trading and hedging activities | ||
| Foreign exchange activity | 907,919 | 995,878 |
| Transactions with financial instruments recognised | ||
| at fair value through profit and loss | ||
| Held for trading | ||
| Securities portfolio | ||
| Fixed income | 4,433 | 5,042 |
| Variable income | 401 | 23,716 |
| Certificates and structured securities issued | 30,659 | 46,076 |
| Derivatives associated to financial | ||
| instruments at fair value through profit and loss | 14,390 | 21,020 |
| Other financial instruments derivatives | 234, 028 |
218,086 |
| Other financial instruments at fair value | ||
| through profit and loss | ||
| Other financial instruments | 2,228 | 5,799 |
| Repurchase of own issues | 809 | 6,391 |
| Hedging accounting | ||
| Hedging derivatives | 67,579 | 32,882 |
| Hedged items | 37,978 | 112,183 |
| Credit sales | 13,531 | 26,523 |
| Other operations | 3,239 | 1,177 |
| 1,317,194 | 1,494,773 | |
| Losses arising on trading and hedging activities | ||
| Foreign exchange activity | 868,022 | 951,758 |
| Transactions with financial instruments recognised | ||
| at fair value through profit and loss | ||
| Held for trading | ||
| Securities portfolio | ||
| Fixed income | 2,680 | 4,607 |
| Variable income | 488 | 24,227 |
| Certificates and structured securities issued | 64,321 | 1,605 |
| Derivatives associated to financial | ||
| instruments through profit and loss | 7,504 | 18,536 |
| Other financial instruments derivatives | 184, 832 |
265,216 |
| Other financial instruments at fair value | ||
| through profit and loss | ||
| Securities portfolio | ||
| Fixed income | 1,647 | 4,036 |
| Other financial instruments | 8,603 | 6,163 |
| Repurchase of own issues | 353 | 5,557 |
| Hedging accounting | ||
| Hedging derivatives | 99,083 | 123,680 |
| Hedged items | 8,258 | 11,893 |
| Credit sales | 12,031 | 783 |
| Other operations | 776 1,258,598 |
2,148 1,420,209 |
| 58,596 | 74,564 | |
The balance Net gains arising from trading and hedging activities includes, as at 30 June 2017, for Deposits from customers - Deposits at fair value through profit and loss, a loss of Euros 227,000 (30 June 2016: gain of Euros 2,832,000) related to the fair value changes arising from changes in own credit risk (spread), as referred in note 34.
This balance also includes for Debt securities at fair value through profit and loss, a gain of Euros 392,000 (30 June 2016: loss of Euros 923,000) as referred in note 35, and for derivatives liabilities associated to financial instruments a gain of Euros 1,616,000 (30 June 2016: gain of Euros 8,730,000), related to the fair value changes arising from changes in own credit risk (spread).
The caption Transactions with financial instruments measured at fair value through profit and loss - Other financial instruments measured at fair value through profit and loss, did not present any material impact on differences in the initial recognition between fair value and transaction price of financial assets or financial liabilities at fair value through profit and loss (IAS 39 paragraphs 43A and AG76 and IFRS 7.28).
The result of repurchase of own issues is determined in accordance with the accounting policy described in note 1 d).
The amount of this account is comprised of:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Gains arising from financial assets available for sale | ||
| Fixed income | 18,069 | 17,703 |
| Variable income | 15,256 | 91,027 |
| Losses arising from financial assets available for sale | ||
| Fixed income | (2,007) | (470) |
| Variable income | (10) | (1) |
| 31,308 | 108,259 |
The balance Gains arising from financial assets available for sale - Fixed income - includes, as at 30 June 2017, the amount of Euros 4,787,000 (30 June 2016: Euros 246,000) related to gains resulting from the sale of Portuguese Treasury bonds.
On 21 June 2016, it was completed the purchase of Visa Europe Ltd by Visa Inc. Both Banco Comercial Português, S.A (BCP) and Bank Millennium S.A. (Poland), as a key member of Visa Europe Ltd benefited from this transaction, which resulted in the receipt for the sale of shareholdings in Visa Europe Ltd to Visa Inc., an up-front cash value and convertible preferred shares into common shares of Visa Inc. Class A and a deferred payment to 3 years.
The balance Gains arising from financial assets available for sale - Variable income included, as at 30 June 2016, the amount of Euros 90,992,000 (of which Euros 64,639,000 regards to Bank Millennium, S.A and Euros 26,353,000 to BCP) related to gains arising from the sale of the investment held in Visa Europe.
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Operating income | ||
| Income from services | 13,622 | 13,678 |
| Cheques and others | 6,466 | 6,637 |
| Gains on leasing operations | 5,043 | 1,669 |
| Rents | 1,181 | 1,429 |
| Other operating income | 6,911 | 4,520 |
| 33,223 | 27,933 | |
| Operating costs | ||
| Taxes | 10,542 | 11,839 |
| Donations and contributions | 1,847 | 2,519 |
| Contribution over the banking sector | 31,037 | 24,820 |
| Resolution Funds Contribution | 8,490 | 5,651 |
| Contribution for the Single Resolution Fund | 18,246 | 21,222 |
| Contributions to Deposit Guarantee Fund | 17,230 | 10,363 |
| Tax for the Polish banking sector | 21,989 | 18,393 |
| Losses on financial leasing operations | 64 | 433 |
| Other operating costs | 9,647 | 19,021 |
| 119,092 | 114,261 | |
| (85,869) | (86,328) |
The balance Contribution over the banking sector is estimated according to the terms of the Decree-Law no. 55-A/2010. The determination of the amount payable is based on: (i) the annual average liabilities deducted by core capital (Tier 1) and supplementary capital (Tier 2) and deposits covered by the Deposit Guarantee Fund, and (ii) notional amount of derivatives.
The balance Contribution to the Resolution Fund corresponds to the periodic contributions that must be paid to the Fund, as stipulated in Decree-Law No 24/2013. The periodic contributions are determined by a base rate, established by the Bank of Portugal through regulatory instruments, to be applied in each year and which may be adjusted to the credit institution's risk profile on the basis of the objective incidence of those contributions. The period contributions afect the liabilities of the credit institutions members of the Fund, as per the article 10 of the referred Decree-Law, deducted from the liability elements that are part of the core capital and supplementary and from the deposits covered by the Deposit Guarantee Fund.
The balance Contribution to the Single Resolution Fund ('SRF') corresponds to the Bank's annual ex-ante contribution to support the application of resolution measures at EU level. The SRF has been established by Regulation (EU) No 806/2014 (the "SRM Regulation"). The SRF is financed from ex-ante contributions paid annually at individual level by all credit institutions within the Banking Union. Contributions to the SRF take into account the annual target level as well as the size and the risk profile of institutions.
In calculating the ex-ante contributions, the SRF applies the methodology as set out in the Commission Delegated Regulation (EU) 2015/63 and European Parliament and of the Council Regulation (EU) 806/2014. The annual contribution to the Fund is based on the institution's liabilities excluding own funds and covered deposits considering adjustments due to derivatives and intra group liabilities and on a risk factor adjustment that depends on the risk profile of the institution.
In accordance with Article 67(4) of SRM Regulation and in accordance with the Intergovernmental Agreement on the transfer and mutualisation of contributions to the SRF, the ex-ante contributions are collected by national resolution authorities and transferred to the SRF by 30 June of each year.
During the first semester of 2017, the Group delivered the amount of Euros 18,246,000 (30 June 2016: Euros 21,222,000) to the Single Resolution Fund. The total value of the contribution attributable to the Group amounted to Euros 21,466,000 (30 June 2016: Euros 24,967,000) and the Group opted to constitute an irrevocable commitment, through a constitution of a bailment for this purpose, in the amount of Euros 3,220,000 (30 June 2016: Euros 3,745,000), not having this component been recognised as a cost, as defined by the Single Resolution Council in accordance with the methodology set out in Delegated Regulation (EU) No 2015/63 of the Commission of 21 October 2014 and with the conditions laid down in the Implementing Regulation (EU) 2015/81 of the Council of 19 December 2014.
The balance Contribution to Deposit Guarantee Fund includes, as at 30 June 2017 the amount of Euros 17,120,000 (30 June 2016: Euros 20,281,000) regarding obligatory contributions made by Bank Millennium, S.A to Poland's Bank Guarantee Fund (BFG). It was introduced an amendment to the BFG Act which changed the periodicity of calculation and payment of BFG contributions to the resolution fund (former prudential fee) from quarterly to yearly (as regards contribution to guarantee fund quarterly cycle of calculation has been maintained). In addition, the methodology for calculating of both contributions has been changed, the final amounts of fees in 2017 are calculated and reported to each Polish bank by BFG. As a consequence, according to requirements of IFRIC 21, the Bank Millennium, S.A. recognised on a one-off basis costs of the resolution fee (based on estimations), at the moment of recognition obligation to pay the contribution i.e. at 1 January, having been made an adjustment to the final value reported during the first semester of 2017.
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Remunerations | 205,574 | 207,865 |
| Mandatory social security charges | ||
| Post-employment benefits (note 48) | ||
| Service cost | (8,158) | (376) |
| Net interest cost / (income) in the liability coverage balance | 2,267 | 2,252 |
| Cost / (income) with early retirement programs | ||
| and mutually agreed terminations | 4,094 | (889) |
| Collective Labour Agreement | (39,997) | - |
| (41,794) | 987 | |
| Other mandatory social security charges | 62,413 | 50,196 |
| 20,619 | 51,183 | |
| Voluntary social security charges | 1,189 | 6,230 |
| Other staff costs | 14,098 | 8,408 |
| 241,480 | 273,686 |
The amount of this account is comprised of:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Rents and leases | 48,049 | 50,045 |
| Outsourcing and independent labour | 38,245 | 37,018 |
| Advertising | 13,340 | 11,826 |
| Communications | 10,864 | 11,895 |
| Maintenance and related services | 8,620 | 9,584 |
| Information technology services | 8,559 | 9,387 |
| Water, electricity and fuel | 7,738 | 8,232 |
| Advisory services | 5,896 | 4,850 |
| Transportation | 3,797 | 4,196 |
| Travel, hotel and representation costs | 3,737 | 3,825 |
| Legal expenses | 3,567 | 3,093 |
| Consumables | 2,285 | 2,303 |
| Insurance | 2,303 | 2,220 |
| Credit cards and mortgage | 3,115 | 1,942 |
| Training costs | 889 | 647 |
| Other specialised services | 9,566 | 11,269 |
| Other supplies and services | 12,039 | 12,553 |
| 182,609 | 184,885 |
The balance Rents and lease includes the amount of Euros 39,626,000 (30 June 2016: Euros 41,812,000) related to rents paid regarding buildings used by the Group as lessee.
In accordance with accounting policy 1l), under IAS 17, the Group has various operating leases for properties and vehicles. The payments under these leases are recognised in the profit and loss during the life of the contract. The minimum future payments relating to operating leases not revocable, by maturity, are as follows:
| Jun 2017 | ||||||
|---|---|---|---|---|---|---|
| Properties Euros '000 |
Vehicles Euros '000 |
Total Euros '000 |
Properties Euros '000 |
Vehicles Euros '000 |
Total Euros '000 |
|
| Until 1 year | 91,271 | 314 | 91,585 | 74,924 | 847 | 75,771 |
| 1 to 5 years | 77,531 | 266 | 77,797 | 80,734 | 625 | 81,359 |
| Over 5 years | 15,281 | - | 15,281 | 13,769 | 3 | 13,772 |
| 184,083 | 580 | 184,663 | 169,427 | 1,475 | 170,902 |
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Intangible assets amortizations (note 30): | ||
| Software | 5,236 | 5,167 |
| Other intangible assets | 357 | 215 |
| 5,593 | 5,382 | |
| Other tangible assets depreciations (note 29): | ||
| Properties | 9,718 | 10,122 |
| Equipment | ||
| Computer equipment | 4,414 | 3,774 |
| Motor vehicles | 2,207 | 2,219 |
| Interior installations | 978 | 936 |
| Furniture | 953 | 842 |
| Security equipment | 807 | 803 |
| Machinery | 325 | 348 |
| Other equipment | 1,124 | 1,054 |
| 20,526 | 20,098 | |
| 26,119 | 25,480 |
The amount of this account is comprised of:
| Jun 2017 | Jun 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Loans and advances to customers: | ||
| Impairment charge for the period | 551,222 | 734,889 |
| Write-back for the period | (236,336) | (92,538) |
| Recovery of loans and interest charged-off (note 22) | (9,896) | (23,671) |
| 304,990 | 618,680 | |
| Loans and advances to credit institutions: | ||
| Write-back for the period | - | (2) |
| 304,990 | 618,678 |
The balance Loans impairment is related to an estimate of the incurred losses determined according with the methodology for a regular evaluation of objective evidence of impairment, as referred in accounting policy described in note 1 c).
The amount of this account is comprised of:
| Jun 2017 | Jun 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Impairment of financial assets available for sale | ||
| Charge for the period (note 23) | 31,926 | 171,996 |
The balance Impairment of financial assets available for sale - Charge for the period includes the impairment losses on shares and on participation units held by the Group in the amount of Euros 31,917,000 (30 June 2016: Euros 133,144,000). This amount includes Euros 31,609,000 (30 June 2016: Euros 123,252,000) related to impairment losses on investments held in restructuring funds, as described in note 56.
| Jun 2017 | Jun 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Provision for guarantees and other commitments (note 37) | ||
| Charge for the period | 8,286 | 14,384 |
| Write-back for the period | (9,433) | (4,167) |
| (1,147) | 10,217 | |
| Other provisions for liabilities and charges (note 37) | ||
| Charge for the period | 9,748 | 7,083 |
| Write-back for the period | (492) | (7,828) |
| 9,256 | (745) | |
| 8,109 | 9,472 |
30 June 2017
The main contributions of the investments accounted for under the equity method are analysed as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Millenniumbcp Ageas Grupo Segurador, S.G.P.S., S.A. | 17,368 | 8,640 |
| Banco Millennium Atlântico, S.A. | 15,771 | 2,953 |
| Unicre - Instituição Financeira de Crédito, S.A. | 2,8 24 |
23,920 |
| Banque BCP, S.A.S. | 1,813 | 1,438 |
| SIBS, S.G.P.S, S.A. | 1,108 | 3,957 |
| Banque BCP (Luxembourg), S.A. | 8 | 40 |
| Other companies | (3,788) | (3,232) |
| 35,104 | 37,716 |
Banco Comercial Português, S.A. agreed to carry out a merger of Banco Millennium Angola, S.A. with Banco Privado Atlântico, S.A. in which in April 2016, the Group was entitled to hold 22.5% of the new entity, the Banco Millennium Atlântico, S.A., which started to be accounted by the equity method from May 2016. Thus, with reference to 30 June 2016, the contribution of Banco Millennium Atlântico, S.A is equivalent to 2 months. The main impacts of this transaction are detailed in note 57.
The amount of this account is comprised of:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Sale of 3.7% the investment held in Banque BCP, S.A (Luxembourg) | - | 465 |
| Liquidation of Propaço related to the 52.7% of investment held | (2) | - |
| Sale of 41.1% the investment held in Nanium | (3,821) | - |
| Other assets | 357 | (4,945) |
| (3,466) | (4,480) |
The caption Gains / (losses) arising from the sale of subsidiaries and other assets - Other assets corresponds, namely, to the losses arising from the sale of assets of the Group classified as non-current assets held for sale (note 27) as also the revaluations of investment properties (note 28).
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Appropriated net income / (loss) before income taxes | ||
| Net income before income taxes of Banco Millennium Angola, S.A. | - | 41,934 |
| Gains arising from the merger of Banco Millennium | ||
| Angola, S.A. and Banco Privado Atlântico, S.A. | - | 7,329 |
| Gains arising from the sale of Millennium bcp Gestão de Activos | ||
| - Sociedade Gestora de Fundos de Investimento, S.A. | 1,250 | 1,092 |
| 1,250 | 50,355 | |
| Taxes | ||
| Banco Millennium Angola, S.A. | - | (5,128) |
| 1,250 | 45,227 |
The earnings per share are calculated as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Continuing operations | ||
| Net income / (loss) | 139,865 | (162,961) |
| Non-controlling interests | (51,187) | (61,151) |
| Appropriated net income / (loss) | 88,678 | (224,112) |
| Discontinued or discontinuing operations | ||
| Net income / (loss) | 1,250 | 45,227 |
| Non-controlling interests | - | (18,366) |
| Appropriated net income / (loss) | 1,250 | 26,861 |
| Adjusted net income / (loss) | 89,928 | (197,251) |
| Average number of shares | 12,314,299,742 | 1,205,801,483 |
| Basic earnings per share (Euros): | ||
| from continuing operations | 0.015 | (0.374) |
| from discontinued or discontinuing operations | 0,0 00 |
0.045 |
| 0.015 | (0.329) | |
| Diluted earnings per share (Euros): | ||
| from continuing operations | 0.015 | (0.374) |
| from discontinued or discontinuing operations | 0,0 00 |
0.045 |
| 0.015 | (0.329) |
The Bank's share capital, as at 30 June 2017, amounts to Euros 5,600,738,053.72 and is represented by 15,113,989,952 ordinary, book-entry and nominats shares, without nominal value, which is fully paid.
During 2016, Banco Comercial Português proceeded with a reverse stock split, without decrease of the share capital, of the shares representing the Bank's share capital, by applying a regrouping ratio of 1:75, every 75 shares prior to the reverse split corresponding to 1 share thereafter, which is applicable to all the shares, in the same proportion.
In November 2016, and in accordance with the resolution of the General Meeting of Shareholders of 21 April 2016 to suppress the pre-emptive right of the shareholders, the Board of Directors of BCP has approved a resolution for the increase of BCP's share capital, from Euros 4,094,235,361.88 to Euros 4,268,817,689.20, by way of a private placement of 157,437,395 new shares offered for subscription by Chiado (Fosun Group) at a subscription price of Euros 1.1089 per new share.
As referred in note 46, the Board of Directors of BCP has resolved on 9 January 2017, to increase the share capital of BCP from Euros 4,268,817,689.20 to Euros 5,600,738,053.72, through an offering to existing holders of BCP's ordinary shares pursuant to their respective pre-emption rights, and other investors who acquire subscription rights, to subscribe for 14,169,365,580 new ordinary, book entry and registered shares, without nominal value. The resulting number of ordinary shares will be 15,113,989,952, with a price of Euros 0.0940 per share.
The average number of shares in 2016 was adjusted retrospectively by both the capital increase carried out in 2017 and the reverse stock split and by the increase in private subscription capital, both made in 2016, but after 30 June.
In June 2016 there were not considered in the calculation of diluted earnings per share, the qualifying hybrid instruments as common equity tier 1 issued in June 2012 and subscribed fully by the State (CoCos), due to the negative net losses for the period (there is no dilution effect). It should be noted that on 9 February 2017, BCP has reimbursed in advance to the Portuguese State, the remaining amount of these instruments (Euros 700 million).
There were not identified another dilution effects of the earnings per share as at 30 June 2017 and 2016, so the diluted result is equivalent to the basic result.
This balance is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Cash | 505,563 | 540,290 |
| Central Banks | ||
| Bank of Portugal | 373,717 | 433,534 |
| Central Banks abroad | 771,577 | 600,088 |
| 1,650,857 | 1,573,912 |
The balance Central Banks includes deposits with Central Banks of the countries where the Group operates in order to satisfy the legal requirements to maintain a cash reserve calculated based on the value of deposits and other effective liabilities. According to the European Central Bank System for Euro Zone, the cash reserve requirements establishes the maintenance of a deposit with the Central Bank equivalent to 1% of the average value of deposits and other liabilities, during each reserve requirement period. The rate is different for countries outside the Euro Zone.
This balance is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Credit institutions in Portugal | 5,785 | 659 |
| Credit institutions abroad | 365,530 | 232,152 |
| Amounts due for collection | 120,182 | 215,414 |
| 491,497 | 448,225 |
The balance Amounts due for collection represents essentially cheques due for collection on other financial institutions. These balances are settled in the first days of the following month.
This balance is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Other loans and advances to Central Banks abroad | 24,954 | 12,461 |
| Other loans and advances to credit institutions in Portugal | ||
| Loans | 37,138 | 15,586 |
| Other applications | 3,850 | 4,801 |
| 40,988 | 20,387 | |
| Other loans and advances to credit institutions abroad | ||
| Very short-term applications | 206,117 | 180,347 |
| Short-term applications | 292,124 | 548,564 |
| Loans | - | 4 |
| Other applications | 331,214 | 294,439 |
| 829,455 | 1,023,354 | |
| 895,397 | 1,056,202 | |
| Overdue loans - Over 90 days | 502 | 499 |
| 895,899 | 1,056,701 |
Under the scope of derivative financial instruments operations (IRS and CIRS) with institutional counterparties, and as defined in the respective contracts ("Cash collateral"), the caption Other loans and advances to credit institutions includes the amounts detailed below:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|---|---|
| 3,230 | 2,840 |
| 88,344 | 242,896 |
| 325,702 | 275,180 |
| 417,276 | 520,916 |
These deposits are held by the counterparties and are given as collateral of the referred operations (IRS and CIRS), whose revaluation is negative for the Bank.
The changes occurred in impairment for other loans and advances to credit institutions are analysed as follows:
| Jun 2017 | Jun 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Balance on 1 January | - | 2 |
| Write-back for the period | - | (2) |
| Balance on 30 June | - | - |
This balance is analysed as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Public sector | 961,975 | 1,041,191 |
| Asset-backed loans | 28,153,365 | 29,011,503 |
| Other guaranteed loans | 4,018,702 | 3,985,120 |
| Unsecured loans | 7,452,811 | 6,821,163 |
| Foreign loans | 1,956,319 | 2,099,860 |
| Factoring operations | 1,973,113 | 1,794,778 |
| Finance leases | 3,464,232 | 3,373,561 |
| 47,980,517 | 48,127,176 | |
| Overdue loans - less than 90 days | 415,933 | 134,934 |
| Overdue loans - Over 90 days | 3,287,692 | 3,496,343 |
| 51,684,142 | 51,758,453 | |
| Impairment for credit risk | (3,618,166) | (3,740,851) |
| 48,065,976 | 48,017,602 |
30 June 2017
As at 30 June 2017, the balance Loans and advances to customers includes the amount of Euros 12,273,768,000 (31 December 2016: Euros 12,027,960,000) regarding credits related to mortgage loans issued by the Group.
As referred in note 51, the Group, as part of the liquidity risk management, holds a pool of eligible assets that can serve as collateral in funding operations with the European Central Bank and other Central Banks in countries where the Group operates, which include loans and advances to customers.
As at 30 June 2017 and as referred in note 56, the Group performed a set of sales of loans and advances to customers for Specialized Loan Funds in the amount of Euros 1,586,114,000 (31 December 2016: Euros: 1,586,114,000). During the first semester of 2017, no credits have been sold to these funds.
As referred in note 49, the Group provides loans and/or guarantees to qualifying shareholders holding individually or together with their affiliates, 2% or more of the share capital, identified in the Board of Directors report and in note 40.
As at 30 June 2017, the Group granted credit to qualifying shareholders and entities controlled by them, in the amount of Euros 229,573,000 (31 December 2016: Euros 237,707,000), as referred in note 49 a). The amount of impairment recognised for these contracts amounts to Euros 187,000 (31 December 2016: Euros 130,000).
The business conducted between the company and qualifying shareholders or natural or legal persons related to them, pursuant to article 20 of the Securities Code, regardless of the amount, is always subject to appraisal and deliberation by the Board of Directors, through a proposal by the Credit Committee and the Executive Committee, supported by an analysis and technical opinion issued by the Internal Audit Division, and after a prior opinion has been obtained from the Audit Committee.
The analysis of loans and advances to customers, by type of credit, is as follows:
| 239,542 | 284,378 |
|---|---|
| 1,625,812 | |
| 1,511,423 | 1,339,874 |
| 13,292,340 | 13,689,736 |
| 23,558,583 | 23,952,257 |
| 1,973,113 | 1,794,778 |
| 3,464,232 | 3,373,561 |
| 45,698,392 | 46,060,396 |
| 2,007,070 | 1,843,345 |
| 275,055 | 223,435 |
| 2,282,125 | 2,066,780 |
| 47,980,517 | 48,127,176 |
| 415,933 | 134,934 |
| 3,287,692 | 3,496,343 |
| 51,684,142 | 51,758,453 |
| (3,618,166) | (3,740,851) |
| 48,065,976 | 48,017,602 |
| 1,659,159 |
The analysis of loans and advances to customers, by sector of activity, is as follows:
| Jun 2017 Dec 2016 |
||||
|---|---|---|---|---|
| Euros '000 | % | Euros '000 | % | |
| Agriculture and forestry | 333,590 | 0.65% | 340,577 | 0.66% |
| Fisheries | 53,861 | 0.10% | 53,382 | 0.10% |
| Mining | 99,671 | 0.19% | 102,242 | 0.20% |
| Food, beverage and tobacco | 624,449 | 1.21% | 604,397 | 1.17% |
| Textiles | 474,204 | 0.92% | 470,765 | 0.91% |
| Wood and cork | 243,474 | 0.47% | 222,993 | 0.43% |
| Paper, printing and publishing | 255,840 | 0.50% | 207,963 | 0.40% |
| Chemicals | 941,786 | 1.82% | 748,720 | 1.45% |
| Machinery, equipment and basic metallurgical | 1,121,8 99 |
2.17% | 1,061,729 | 2.05% |
| Electricity and gas | 626,241 | 1.21% | 578,499 | 1.12% |
| Water | 203,151 | 0.39% | 209,693 | 0.41% |
| Construction | 2,779,475 | 5.38% | 2,859,301 | 5.52% |
| Retail business | 1,302,170 | 2.52% | 1,272,782 | 2.46% |
| Wholesale business | 1,992,811 | 3.86% | 1,917,220 | 3.70% |
| Restaurants and hotels | 1,073,935 | 2.08% | 974,176 | 1.88% |
| Transports | 1,372,547 | 2.66% | 1,491,856 | 2.88% |
| Post offices | 6,199 | 0.01% | 6,340 | 0.01% |
| Telecommunications | 437,759 | 0.85% | 379,594 | 0.73% |
| Services | ||||
| Financial intermediation | 3,608,033 | 6.98% | 4,060,971 | 7.85% |
| Real estate activities | 1,425,560 | 2.76% | 1,485,709 | 2.87% |
| Consulting, scientific and technical activities | 1 ,186,255 |
2.30% | 894,047 | 1.73% |
| Administrative and support services activities | 49 0,422 |
0.95% | 497,982 | 0.96% |
| Public sector | 1,151,085 | 2.23% | 740,839 | 1.43% |
| Education | 126,765 | 0.25% | 125,974 | 0.24% |
| Health and collective service activities | 298,712 | 0.58% | 281,158 | 0.54% |
| Artistic, sports and recreational activities | 369, 072 |
0.71% | 381,572 | 0.74% |
| Other services | 620,866 | 1.20% | 635,861 | 1.23% |
| Consumer credit | 3,789,547 | 7.33% | 4,057,789 | 7.84% |
| Mortgage credit | 23,678,404 | 45.80% | 24,018,307 | 46.41% |
| Other domestic activities | 7,150 | 0.01% | 7,888 | 0.02% |
| Other international activities | 989,209 | 1.91% | 1,068,127 | 2.06% |
| 51,684,142 | 100.00% | 51,758,453 | 100.00% | |
| Impairment for credit risk | (3,618,166) | (3,740,851) | ||
| 48,065,976 | 48,017,602 |
The caption Loans and advances to customers includes the effect of traditional securitization transactions owned by Special Purpose Entities (SPEs) consolidated following the application of IFRS 10, in accordance with accounting policy 1 b) and synthetic securitization. The characterization of these operations is described in note 1 d) 6 ii).
Securitization transactions engaged by the Group refer to mortgage loans and are set through specifically created SPE. As at 30 June 2017, the loans and advances referred to these traditional securitization transactions amounts to Euros 497,617,000 (31 December 2016: Euros 527,924,000) As referred in accounting policy 1 b), when the substance of the relationships with the SPEs indicates that the Group holds control of its activities, the SPE are consolidated by the full method.
On 20 October 2003, the Group transferred a pool of mortgage loans owned by Banco Comercial Português, S.A. and by Banco de Investimento Imobiliário, S.A. to the SPE "Magellan Mortgages No. 2 PLC". Considering that, by having acquired the total subordinated tranches, the Group holds the control of the referred assets, the SPE is consolidated in the Group's Financial Statements, as established in the accounting policy 1 b). As at 30 June 2017, the SPE's credit portfolio associated with this operation amounts to Euros 131,777,000, and the bonds issued with different subordination levels amount to Euros 117,001,000 (this amount excludes bonds already acquired by the Group in the amount of Euros 14,661,000 and Euros 14,000,000 of the most subordinated tranche fully acquired).
On 24 June 2005, the Group transferred a pool of mortgage loans owned by Banco Comercial Português, S.A. to the SPE "Magellan Mortgages No. 3 PLC". Considering that, by having acquired part of the subordinated tranche, the Group holds the control of the referred assets, the SPE is consolidated in the Group's Financial Statements, as established in the accounting policy 1 b). As at 30 June 2017, the SPE's credit portfolio associated with this operation amounts to Euros 365,840,000, and bonds issued with different subordination levels amount to Euros 263,174,000 (this amount excludes bonds already acquired by the Group in the amount of Euros 118,446,000) and the most subordinated tranche amounts to Euros 44,000 (this amount excludes bonds already acquired by the Group in the amount Euros 206,000).
The Group has two operations in progress which form structures of synthetic securitization.
Caravela SME No.3, which operation started on 28 June 2013, based on a medium and long term loans portfolio of current accounts and authorized overdrafts granted by BCP, mainly to small and medium companies. The maturity date is 25 March of 2036 and as at 30 June 2017, the synthetic securitization "Caravela SME No.3" amounts to Euros 2,435,892,000. The fair value of swaps is recorded in the amount of Euros 185,639,000 and the associated cost in the first semester of 2017 amounts to Euros 9,196,000.
Caravela SME No.4 is a similar operation, initiated on 5 June 2014, which portfolio contains car, real estate and equipment leasing granted between the Bank and a group of clients that belong to the same segment (small and medium companies). The maturity date is 21 September of 2043 and as at 30 June 2017, the synthetic securitization "Caravela SME No.4" amounts to Euros 1,134,254,000. The fair value of swaps is recorded at the amount of Euros 56,525,000 and their associated cost in first semester of 2017 amounts to Euros 736,000.
In both operations, the Bank hired a Credit Default Swap (CDS) with a Special Purpose Vehicle (SPV), buying by this way the protection for the total portfolio referred. Both cases, the synthetic securitizations, the same CDS, the risk of the respective portfolios were divided in 3 classes: senior, mezzanine and equity. The mezzanine and part of the equity (20%) were placed in the market through an SPV, and the subscription by investors, the Credit Linked Notes (CLSs). The Bank retained the senior risk and part of the equity remaining (80%). The product of the CLNs issue was invested by the SPV in a deposit which total collateral the responsibilities in the presence of the Bank, in accordance of the CDS.
These operations involve the Bank's reduced exposure to the risks associated with the credit granted, but it did not transfer to all third parties the rights and obligations arising from the credits included in them, thus not meeting the criteria set out in paragraphs 16 and subsequent IAS 39 for derecognition.
The Group's credit portfolio, which includes further than loans and advances to customers, the guarantees granted and commitments to third parties, split between loans with or without signs of impairment is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Total loans | 56,176,392 | 56,594,498 |
| Loans and advances to customers with signs of impairment | ||
| Individually significant | ||
| Gross amount | 6,404,777 | 6,535,910 |
| Impairment | (2,643,729) | (2,587,273) |
| 3,761,048 | 3,948,637 | |
| Collective analysis | ||
| Gross amount | 3,314,604 | 3,829,973 |
| Impairment | (978,498) | (1,164,037) |
| 2,336,106 | 2,665,936 | |
| Loans and advances to customers without signs of impairment | 46,457,011 | 46,228,615 |
| Impairment (IBNR) | (123,152) | (117,597) |
| 52,431,013 | 52,725,591 |
The total loan portfolio presented in the table above includes loans and advances to customers in the amount of Euros 51,684,142,000 (31 December 2016: Euros: 51,758,453,000) and guarantees granted and commitments to third parties balance (see note 45), in the amount of Euros 4,492,250,000 (31 December 2016: Euros 4,836,045,000).
The balances Impairment and Impairment ('IBNR') were determined in accordance with the accounting policy described in note 1 c), including the provision for guarantees and other commitments to third parties (see note 37), in the amount of Euros 127,213,000 (31 December 2016: Euros 128,056,000).
The analysis of the exposure covered by collateral associated with loans and advances to customers' portfolio, considering its fair value, is as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Loans and advances to customers with impairment | ||
| Individually significant | ||
| Securities and other financial assets | 542,73 5 |
650,949 |
| Residential real estate | 459,714 | 498,915 |
| Other real estate | 1,366,206 | 1,385,860 |
| Other guarantees | 629,682 | 680,523 |
| 2,998,337 | 3,216,247 | |
| Collective analysis | ||
| Securities and other financial assets | 19,865 | 23,271 |
| Residential real estate | 1,599,029 | 1,783,311 |
| Other real estate | 256,405 | 296,815 |
| Other guarantees | 88,396 | 107,704 |
| 1,963,695 | 2,211,101 | |
| Loans and advances to customers without impairment | ||
| Securities and other financial assets | 2,156, 629 |
2,178,216 |
| Residential real estate | 21,289,797 | 20,972,631 |
| Other real estate | 3,319,490 | 3,174,211 |
| Other guarantees | 3,673,188 | 3,725,116 |
| 30,439,104 | 30,050,174 | |
| 35,401,136 | 35,477,522 |
The captions Other guarantees include debtors, assets subject to leasing transactions and personal guarantees, among others. Considering the policy of risk management of the Group (note 51), the amounts presented do not include the fair value of the personal guarantees provided by clients with lower risk rating. When considered, the fair value of the personal guarantees corresponds to the guaranteed amount.
The Group is applying physical collaterals and financial guarantees as instruments to mitigate the credit risk. The physical collaterals are mainly mortgages on residential buildings for the mortgage portfolio and other mortgages on other types of buildings related to other types of loans. In order to reflect the market value, these collaterals are regularly reviewed based on independent and certified valuation entities or through the application of revaluation coefficients that reflect the market trends for each specific type of building and geographical area. The financial guarantees are reviewed based on the market value of the respective assets, when available, with the subsequent application of haircuts that reflect the volatility of their prices. Considering the current real estate and financial markets conditions, the Group continued to negotiate additional physical and financial collaterals with its customers.
The balance Loans and advances to customers includes the following amounts related to finance leases contracts:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Amount of future minimum payments | 3,893,116 | 3,810,114 |
| Interest not yet due | (428,884) | (436,553) |
| Present value | 3,464,232 | 3,373,561 |
The analysis of financial lease contracts, by type of client, is presented as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Individuals | ||
| Home | 85,215 | 76,577 |
| Consumer | 30,856 | 25,712 |
| Others | 120,284 | 125,693 |
| 236,355 | 227,982 | |
| Companies | ||
| Equipment | 1,593,667 | 1,499,569 |
| Real estate | 1,634,210 | 1,646,010 |
| 3,227,877 | 3,145,579 | |
| 3,464,232 | 3,373,561 |
Regarding operational leasing, the Group does not present relevant contracts as leasor.
The loan to customers' portfolio includes contracts that resulted in a formal restructuring with the customers and the consequent establishment of a new funding to replace the previous. The restructuring may result in a reinforce of guarantees and / or liquidation of part of the credit and involve an extension of maturities or a different interest rate. The analysis of the non-performing restructured loans, by sector of activity, is as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Agriculture and forestry | 21,898 | 23,330 |
| Fisheries | 12,651 | 12,996 |
| Mining | 4,890 | 140 |
| Food, beverage and tobacco | 1,276 | 1,326 |
| Textiles | 567 | 694 |
| Wood and cork | 3,978 | 2,832 |
| Paper, printing and publishing | 439 | 1,899 |
| Chemicals | 3,664 | 4,277 |
| Machinery, equipment and basic metallurgical | 20,526 | 16,156 |
| Electricity and gas | 531 | 270 |
| Water | 151 | 98 |
| Construction | 30,780 | 34,029 |
| Retail business | 68,040 | 8,529 |
| Wholesale business | 10,876 | 8,928 |
| Restaurants and hotels | 11,904 | 12,822 |
| Transports | 5,705 | 9,656 |
| Post offices | 29 | 28 |
| Telecommunications | 22,257 | 238 |
| Services | ||
| Financial intermediation | 2,580 | 452 |
| Real estate activities | 11,032 | 6,760 |
| Consulting, scientific and technical activities | 3 ,223 |
1,866 |
| Administrative and support services activities | 1, 820 |
721 |
| Public sector | 97,229 | 746 |
| Education | 237 | 540 |
| Health and collective service activities | 563 | 54 |
| Artistic, sports and recreational activities | 424 | 399 |
| Other services | 1,136 | 1,626 |
| Consumer credit | 120,337 | 113,151 |
| Mortgage credit | 109,753 | 102,303 |
| Other international activities | 9,395 | 11,524 |
| 577,891 | 378,390 |
The restructured loans are subject to an impairment analysis resulting from the revaluation of expectation to meet new cash flows inherent to the new cont ract terms, discounted at the original effective interest rate and considering new collaterals.
Regarding the restructured loans, the impairment associated to these operations amounts to Euros 154,058,000 (31 December 2016: Euros 151,810,000).
The Group has implemented a process for marking operations restructured due to clients' financial difficulties. This marking is part of the credit analysis process, being in charge of the respective decision-making bodies, according to the corresponding competencies, established in the regulations in force.
Information on operations restructured due to financial difficulties is available in the Group's information systems, having a relevant role in the processes of credit analysis, in the marking of customers in default and in the process of determining impairment. In particular:
There are several default triggers related to restructurings due to financial difficulties (restructuring with loss of value, recidivism of restructuring, unproductive credit, default on customers with restructured operations);
in the process of individual impairment analysis, in addition to the existence of operations restructured due to financial difficulties, is a reason for customer selection, the loss inherent to the change in the conditions resulting from the restructuring is determined; With regard to collective analysis, and the existence of such operations leads to the integration of the client into a subpopulation with an aggravated impairment rate.
The demarcation of an operation can only take place at least 2 years after the date of marking, provided that a set of conditions exist that allow to conclude by the improvement of the financial condition of the client.
As mentioned in note 51, as at 30 June 2017, the total restructured loan amount to Euros 5,029,842,000 (31 December 2016: Euros 5,059,571,000).
The definition of Non Performing Loans for more than 90 days (NPL> 90) incorporates total credit (past due + outstanding) associated with past due operations for more than 90 days. As at 30 June 2017, the amount calculated is Euros 5,039,891,000 (31 December 2016: Euros 5,384,717,000).
30 June 2017
The definition of Non-Performing Exposure (NPE) is as follows:
a) Total exposure of defaulted customers;
b) Total exposure of customers with signs of impairment;
c) Total exposure of customers whose value of operations overdue for more than 90 days represents more than 20% of their total on-balance sheet exposure;
d) Total exposure of non-retail customers with at least one overdue operation for more than 90 days;
e) Retail operations overdue for more than 90 days;
f) Operations restructured due to financial difficulties overdue for more than 30 days.
As at 30 June 2017, the NPE amounts to Euros 9,194,472,000 (31 December 2016: Euros 9,815,724,000).
The analysis of overdue loans, by sector of activity, is as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Agriculture and forestry | 40,404 | 39,686 |
| Fisheries | 13,334 | 11,981 |
| Mining | 6,594 | 6,875 |
| Food, beverage and tobacco | 15,973 | 19,221 |
| Textiles | 26,217 | 26,075 |
| Wood and cork | 12,914 | 14,702 |
| Paper, printing and publishing | 6,785 | 10,010 |
| Chemicals | 64,486 | 66,517 |
| Machinery, equipment and basic metallurgical | 58,863 | 63,945 |
| Electricity and gas | 374 | 971 |
| Water | 3,862 | 3,884 |
| Construction | 852,567 | 826,013 |
| Retail business | 98,949 | 120,173 |
| Wholesale business | 135,432 | 153,696 |
| Restaurants and hotels | 98,438 | 117,557 |
| Transports | 34,186 | 72,317 |
| Post offices | 402 | 471 |
| Telecommunications | 104,812 | 106,998 |
| Services | ||
| Financial intermediation | 640,442 | 565,769 |
| Real estate activities | 273,408 | 344,475 |
| Consulting, scientific and technical activities | 4 3,405 |
42,432 |
| Administrative and support services activities | 29 ,921 |
38,371 |
| Public sector | 683 | 979 |
| Education | 2,883 | 3,388 |
| Health and collective service activities | 3,323 | 4,491 |
| Artistic, sports and recreational activities | 14,8 66 |
15,811 |
| Other services | 265,710 | 16,304 |
| Consumer credit | 465,918 | 538,843 |
| Mortgage credit | 279,922 | 308,450 |
| Other domestic activities | 7,145 | 7,879 |
| Other international activities | 101,407 | 82,993 |
| 3,703,625 | 3,631,277 |
The analysis of overdue loans, by type of credit, is as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Public sector | 570 | 27 |
| Asset-backed loans | 2,060,358 | 1,832,217 |
| Other guaranteed loans | 332,711 | 443,626 |
| Unsecured loans | 1,020,175 | 1,053,539 |
| Foreign loans | 140,800 | 128,959 |
| Factoring operations | 25,753 | 23,588 |
| Finance leases | 123,258 | 149,321 |
| 3,703,625 | 3,631,277 |
The changes occurred in impairment for credit risks are analysed as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Balance on 1 January | 3,740,851 | 3,468,084 |
| Transfers resulting from changes in the | ||
| Group's structure | - | (40,109) |
| Other transfers | 22 | 1,635 |
| Impairment charge for the period | 551,222 | 734,889 |
| Write-back for the period | (236,336) | (92,538) |
| Loans charged-off | (453,156) | (287,629) |
| Exchange rate differences | 15,563 | (40,034) |
| Balance on 30 June | 3,618,166 | 3,744,298 |
If the impairment loss decreases in a subsequent period to its initial accounting and this decrease can be objectively associated to an event that occurred after the recognition of the loss, the reduction of the impairment is reversed through profit and loss.
The analysis of impairment, by sector of activity, is as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Agriculture and forestry | 39,828 | 38,705 |
| Fisheries | 19,666 | 18,921 |
| Mining | 10,209 | 5,048 |
| Food, beverage and tobacco | 13,438 | 14,806 |
| Textiles | 24,684 | 26,595 |
| Wood and cork | 16,498 | 16,957 |
| Paper, printing and publishing | 12,144 | 14,694 |
| Chemicals | 60,436 | 55,849 |
| Machinery, equipment and basic metallurgical | 47,019 | 47,664 |
| Electricity and gas | 2,546 | 3,198 |
| Water | 12,306 | 9,937 |
| Construction | 646,891 | 614,394 |
| Retail business | 79,914 | 92,880 |
| Wholesale business | 117,987 | 127,132 |
| Restaurants and hotels | 105,675 | 113,459 |
| Transports | 35,773 | 119,507 |
| Post offices | 456 | 500 |
| Telecommunications | 18,548 | 19,591 |
| Services | ||
| Financial intermediation | 1,027,850 | 1,052,162 |
| Real estate activities | 189,265 | 208,729 |
| Consulting, scientific and technical activities | 1 08,253 |
60,709 |
| Administrative and support services activities | 33 ,991 |
33,880 |
| Public sector | 3,783 | 3,584 |
| Education | 6,913 | 7,438 |
| Health and collective service activities | 4,289 | 4,617 |
| Artistic, sports and recreational activities | 88,5 87 |
89,892 |
| Other services | 100,768 | 50,564 |
| Consumer credit | 391,952 | 473,800 |
| Mortgage credit | 324,389 | 316,087 |
| Other domestic activities | 484 | 555 |
| Other international activities | 73,624 | 98,997 |
| 3,618,166 | 3,740,851 |
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Public sector | 3,776 | 3,307 |
| Asset-backed loans | 2,320,964 | 2,296,551 |
| Other guaranteed loans | 427,988 | 460,856 |
| Unsecured loans | 577,859 | 652,206 |
| Foreign loans | 111,749 | 140,922 |
| Factoring operations | 34,959 | 30,789 |
| Finance leases | 140,871 | 156,220 |
| 3,618,166 | 3,740,851 |
The analysis of loans charged-off, by sector of activity, is as follows:
| Jun 2017 | Jun 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Agriculture and forestry | 1,642 | 6,366 |
| Fisheries | 242 | - |
| Mining | 803 | 135 |
| Food, beverage and tobacco | 3,323 | 588 |
| Textiles | 3,780 | 5,243 |
| Wood and cork | 1,459 | 421 |
| Paper, printing and publishing | 2,871 | 1,885 |
| Chemicals | 4,546 | 5,010 |
| Machinery, equipment and basic metallurgical | 8,849 | 6,149 |
| Electricity and gas | 20 | 40 |
| Water | 67 | 46 |
| Construction | 50,202 | 89,295 |
| Retail business | 24,176 | 21,399 |
| Wholesale business | 28,116 | 7,073 |
| Restaurants and hotels | 6,947 | 14,574 |
| Transports | 88,288 | 2,224 |
| Post offices | 118 | 21 |
| Telecommunications | 2,364 | 5,147 |
| Services | ||
| Financial intermediation | 20,339 | 25,191 |
| Real estate activities | 32,359 | 22,996 |
| Consulting, scientific and technical activities | 3 ,624 |
9,452 |
| Administrative and support services activities | 6, 556 |
1,630 |
| Public sector | - | 2 |
| Education | 526 | 56 |
| Health and collective service activities | 532 | 580 |
| Artistic, sports and recreational activities | 736 | 557 |
| Other services | 1,984 | 3,754 |
| Consumer credit | 133,631 | 47,131 |
| Mortgage credit | 7,851 | 9,014 |
| Other domestic activities | 13,530 | 244 |
| Other international activities | 3,675 | 1,406 |
| 453,156 | 287,629 |
In compliance with the accounting policy described in note 1 c), loans and advances to customers are charged-off when there are no feasible expectations, of recovering the loan amount and for collateralised loans, the charge-off occurs when the funds arising from the execution of the respective collaterals are effectively received. This charge-off is carried out by the utilization of impairment losses when they refer to 100% of the loans that are considered unrecoverable.
The analysis of loans charged-off, by type of credit, is as follows:
| Jun 2017 | Jun 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Asset-backed loans | 3,612 | 24,118 |
| Other guaranteed loans | 258 | 9,177 |
| Unsecured loans | 430,654 | 251,019 |
| Factoring operations | 1,500 | - |
| Finance leases | 17,132 | 3,315 |
| 453,156 | 287,629 |
The analysis of recovered loans and interest, during the first semester of 2017 and 2016, by sector of activity, is as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Agriculture and forestry | 49 | 33 |
| Fisheries | 42 | - |
| Mining | - | 182 |
| Food, beverage and tobacco | 179 | 72 |
| Textiles | 219 | 720 |
| Wood and cork | 214 | 162 |
| Paper, printing and publishing | 286 | 41 |
| Chemicals | 131 | 180 |
| Machinery, equipment and basic metallurgical | 177 | 93 |
| Electricity and gas | - | 13 |
| Construction | 2,170 | 15,741 |
| Retail business | 708 | 194 |
| Wholesale business | 1,947 | 714 |
| Restaurants and hotels | 107 | 61 |
| Transports | 355 | 27 |
| Telecommunications | 19 | 9 |
| Services | ||
| Financial intermediation | 19 | 58 |
| Real estate activities | 147 | 537 |
| Consulting, scientific and technical activities | 6 3 |
158 |
| Administrative and support services activities | 28 5 |
9 |
| Health and collective service activities | 10 | - |
| Artistic, sports and recreational activities | 6 | 2,170 |
| Other services | 4 | 87 |
| Consumer credit | 2,672 | 2,250 |
| Mortgage credit | 2 | 36 |
| Other domestic activities | 10 | 77 |
| Other international activities | 75 | 47 |
| 9,896 | 23,671 |
The analysis of recovered loans and interest during the first semester of 2017 and 2016, by type of credit, is as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
||
|---|---|---|---|
| Other guaranteed loans | 1,387 | 198 | |
| Unsecured loans | 8,289 | 23,300 | |
| Foreign loans | 67 | 158 | |
| Factoring operations | 74 | 3 | |
| Finance leases | 79 | 12 | |
| 9,896 | 23,671 |
Notes to the Interim Condensed Consolidated Financial Statements
30 June 2017
The balance Financial assets held for trading, Other financial assets held for trading at fair value through profit or loss and Financial assets available for sale is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Bonds and other fixed income securities | ||
| Issued by public entities | 9,776,998 | 7,612,491 |
| Issued by other entities | 1,798,541 | 2,099,070 |
| 11,575,539 | 9,711,561 | |
| Overdue securities | 3,723 | 18,022 |
| Impairment for overdue securities | (3,722) | (13,079) |
| 11,575,540 | 9,716,504 | |
| Shares and other variable income securities | 1,175, 858 |
1,226,456 |
| 12,751,398 | 10,942,960 | |
| Trading derivatives | 749,286 | 848,774 |
| 13,500,684 | 11,791,734 |
The caption Bonds and other fixed income securities - issue by public entities includes the amount of Euros 279,614,000 referring to Mozambican sovereign debt (31 December 2016: Euros 126,395,000), according to note 55. In the last quarter of 2016, the Group reclassified part of the Mozambican government bonds portfolio in the amount of Euros 99,982,000 of available-for-sale financial assets to financial assets held to maturity.
The balance Trading derivatives includes the valuation of the embedded derivatives separated in accordance with the accounting policy 1 d) in the amount of Euros 30,000 (31 December 2016: Euros 195,000).
The portfolio of Financial assets held for trading, Other financial assets held for trading at fair value through profit or loss and Financial assets available for sale securities, net of impairment, as at 30 June 2017, is analysed as follows:
| Jun 2017 | ||||
|---|---|---|---|---|
| Trading Euros '000 |
Other financial assets at fair value through profit or loss Euros '000 |
Available for sale Euros '000 |
Total Euros '000 |
|
| Fixed income: | ||||
| Bonds issued by public entities | ||||
| Portuguese issuers | 10,545 | 141,973 | 4,091,508 | 4,244,026 |
| Foreign issuers | 134,232 | - | 3,678,916 | 3,813,148 |
| Bonds issued by other entities | ||||
| Portuguese issuers | 8,930 | - | 1,216,617 | 1,225,547 |
| Foreign issuers | 62,491 | - | 514,226 | 576,717 |
| Treasury bills and other | ||||
| Government bonds | ||||
| Portuguese issuers | 5,000 | - | 839,963 | 844,963 |
| Foreign issuers | - | - | 874,861 | 874,861 |
| 221,198 | 141,973 | 11,216,091 | 11,579,262 | |
| Impairment for overdue securities | - | - | (3,722) | (3,722) |
| 221,198 | 141,973 | 11,212,369 | 11,575,540 | |
| Variable income: | ||||
| Shares in Portuguese companies | 2,110 | - | 31,601 | 33,711 |
| Shares in foreign companies | 31 | - | 16,237 | 16,268 |
| Investment fund units | 967 | - | 1,124,526 | 1,125,493 |
| Other securities | 386 | - | - | 386 |
| 3,494 | - | 1,172,364 | 1,175,858 | |
| Trading derivatives | 749,286 | - | - | 749,286 |
| 973,978 | 141,973 | 12,384,733 | 13,500,684 | |
| Level 1 | 228,298 | 141,973 | 10,187,522 | 10,557,793 |
| Level 2 | 151,764 | - | 963,574 | 1,115,338 |
| Level 3 | 593,916 | - | 1,233,637 | 1,827,553 |
30 June 2017
The trading and available for sale portfolios, are recorded at fair value in accordance with the accounting policy described in note 1 d).
As referred in the accounting policy presented in note 1 d), the available for sale securities are presented at market value with the respective fair value accounted against fair value reserves. As at 30 June 2017, the fair value reserves are negative in the amount of Euros 65,231,000 (31 December 2016: negative amount of Euros 233,799,000).
As at 30 June 2017, the balances Financial assets held for trading and Financial assets available for sale include bonds issued with different levels of subordination associated with the traditional securitization transactions Magellan Mortgages No.1 and No. 4, referred in note 1 d) 6) i), in the amount of Euros 1,160,000 (31 December 2016: Euros 1,379,000) and Euros 118,000 (31 December 2016: Euros 121,000), respectively.
The portfolio of Financial assets held for trading, Other financial assets held for trading at fair value through profit or loss and Financial assets available for sale securities, net of impairment, as at 31 December 2016, is analysed as follows:
| Other financial assets at fair value through Available Trading profit or loss for sale Euros '000 Euros '000 Euros '000 |
Total Euros '000 |
|---|---|
| Fixed income: | |
| Bonds issued by public entities | |
| Portuguese issuers 11,803 146,664 3,310,289 |
3,468,756 |
| Foreign issuers 108,010 - 3,290,307 |
3,398,317 |
| Bonds issued by other entities | |
| Portuguese issuers 13,491 - 1,292,207 |
1,305,698 |
| Foreign issuers 57,523 - 753,871 |
811,394 |
| Treasury bills and other | |
| Government bonds | |
| Portuguese issuers 5,642 - 649,286 |
654,928 |
| Foreign issuers - - 90,490 |
90,490 |
| 196,469 146,664 9,386,450 |
9,729,583 |
| Impairment for overdue securities - - (13,079) |
(13,079) |
| 196,469 146,664 9,373,371 |
9,716,504 |
| Variable income: | |
| Shares in Portuguese companies 2,083 - 40,333 |
42,416 |
| Shares in foreign companies 25 - 13,292 |
13,317 |
| Investment fund units 1,063 - 1,169,277 |
1,170,340 |
| Other securities 383 - - |
383 |
| 3,554 - 1,222,902 |
1,226,456 |
| Trading derivatives 848,774 - - |
848,774 |
| 1,048,797 146,664 10,596,273 |
11,791,734 |
| Level 1 194,943 146,664 8,239,244 |
8,580,851 |
| Level 2 239,634 - 1,060,858 |
1,300,492 |
| Level 3 614,220 - 1,296,171 |
1,910,391 |
30 June 2017
The portfolio of financial assets available for sale, as at 30 June 2017, is analysed as follows:
| Jun 2017 | ||||||
|---|---|---|---|---|---|---|
| Amortised cost Euros '000 |
Impairment Euros '000 |
Amortised cost net of impairment Euros '000 |
Fair value reserves Euros '000 |
Fair value hedge adjustments Euros '000 |
Total Euros '000 |
|
| Fixed income: | ||||||
| Bonds issued by public entities | ||||||
| Portuguese issuers | 4,111,461 | - | 4,111,461 | (149,459) | 129,506 | 4,091,508 |
| Foreign issuers | 3,675,969 | - | 3,675,969 | 2,947 | - | 3,678,916 |
| Bonds issued by other entities | ||||||
| Portuguese issuers | 1,249,677 | (87,357) | 1,162,320 | 53,815 | (3,240) | 1,212,895 |
| Foreign issuers | 507,767 | (1,494) | 506,273 | 8,658 | (705) | 514,226 |
| Treasury bills and other | ||||||
| Government bonds | ||||||
| Portuguese issuers | 840,211 | - | 840,211 | (248) | - | 839,963 |
| Foreign issuers | 875,027 | - | 875,027 | (166) | - | 874,861 |
| 11,260,112 | (88,851) | 11,171,261 | (84,453) | 125,561 | 11,212,369 | |
| Variable income: | ||||||
| Shares in Portuguese companies | 93,981 | (69,450) | 24,531 | 7,070 | - | 31,601 |
| Shares in foreign companies | 14,968 | (503) | 14,465 | 1,772 | - | 16,237 |
| Investment fund units | 1,506,572 | (392,426) | 1,114,146 | 10,380 | - | 1,124,526 |
| 1,615,521 | (462,379) | 1,153,142 | 19,222 | - | 1,172,364 | |
| 12,875,633 | (551,230) | 12,324,403 | (65,231) | 125,561 | 12,384,733 |
The portfolio of financial assets available for sale, as at 31 December 2016, is analysed as follows:
| Dec 2016 | ||||||
|---|---|---|---|---|---|---|
| Amortised cost Euros '000 |
Impairment Euros '000 |
Amortised cost net of impairment Euros '000 |
Fair value reserves Euros '000 |
Fair value hedge adjustments Euros '000 |
Total Euros '000 |
|
| Fixed income: | ||||||
| Bonds issued by public entities | ||||||
| Portuguese issuers | 3,527,771 | - | 3,527,771 | (295,463) | 77,981 | 3,310,289 |
| Foreign issuers | 3,295,644 | - | 3,295,644 | (5,337) | - | 3,290,307 |
| Bonds issued by other entities | ||||||
| Portuguese issuers | 1,379,626 | (130,588) | 1,249,038 | 31,032 | (942) | 1,279,128 |
| Foreign issuers | 747,833 | (1,582) | 746,251 | 7,830 | (210) | 753,871 |
| Treasury bills and other | ||||||
| Government bonds | ||||||
| Portuguese issuers | 649,256 | - | 649,256 | 30 | - | 649,286 |
| Foreign issuers | 90,490 | - | 90,490 | - | - | 90,490 |
| 9,690,620 | (132,170) | 9,558,450 | (261,908) | 76,829 | 9,373,371 | |
| Variable income: | ||||||
| Shares in Portuguese companies | 116,404 | (86,197) | 30,207 | 10,126 | - | 40,333 |
| Shares in foreign companies | 12,672 | (281) | 12,391 | 901 | - | 13,292 |
| Investment fund units | 1,506,136 | (353,941) | 1,152,195 | 17,082 | - | 1,169,277 |
| 1,635,212 | (440,419) | 1,194,793 | 28,109 | - | 1,222,902 | |
| 11,325,832 | (572,589) | 10,753,243 | (233,799) | 76,829 | 10,596,273 |
The portfolio of Financial assets held for trading, Other financial assets held for trading at fair value through profit or loss and Financial assets available for sale, net of impairment, as at 30 June 2017, by valuation levels, is analysed as follows:
| Valuation techniques | |||||
|---|---|---|---|---|---|
| Level 1 Euros '000 |
Level 2 Euros '000 |
Level 3 Euros '000 |
Total Euros '000 |
||
| Fixed income: | |||||
| Bonds issued by public entities | |||||
| Portuguese issuers | 4,115,773 | 128,253 | - | 4,244,026 | |
| Foreign issuers | 3,770,729 | - | 42,419 | 3,813,148 | |
| Bonds issued by other entities | |||||
| Portuguese issuers | 1,028,113 | 172,551 | 24,883 | 1,225,547 | |
| Foreign issuers | 151,141 | 425,575 | 1 | 576,717 | |
| Treasury bills and other Government bonds | |||||
| Portuguese issuers | 844,963 | - | - | 844,963 | |
| Foreign issuers | 625,388 | 237,195 | 12,278 | 874,861 | |
| 10,536,107 | 963,574 | 79,581 | 11,579,262 | ||
| Impairment for overdue securities | - | - | (3,722) | (3,722) | |
| 10,536,107 | 963,574 | 75,859 | 11,575,540 | ||
| Variable income: | |||||
| Shares in Portuguese companies | 10,653 | - | 23,058 | 33,711 | |
| Shares in foreign companies | 31 | - | 16,237 | 16,268 | |
| Investment fund units | 52 | - | 1,125,441 | 1,125,493 | |
| Other securities | - | - | 386 | 386 | |
| 10,736 | - | 1,165,122 | 1,175,858 | ||
| Trading derivatives | 10,950 | 151,764 | 586,572 | 749,286 | |
| 10,557,793 | 1,115,338 | 1,827,553 | 13,500,684 |
The portfolio of Financial assets held for trading, Other financial assets held for trading at fair value through profit or loss and Financial assets available for sale, net of impairment, as at 31 December 2016, by valuation levels, is analysed as follows:
| Valuation techniques | |||||
|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | ||
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | ||
| Fixed income: | |||||
| Bonds issued by public entities | |||||
| Portuguese issuers | 3,352,504 | 116,252 | - | 3,468,756 | |
| Foreign issuers | 3,350,226 | 13 | 48,078 | 3,398,317 | |
| Bonds issued by other entities | |||||
| Portuguese issuers | 1,076,804 | 179,121 | 49,773 | 1,305,698 | |
| Foreign issuers | 120,704 | 690,690 | - | 811,394 | |
| Treasury bills and other Government bonds | |||||
| Portuguese issuers | 654,928 | - | - | 654,928 | |
| Foreign issuers | - | 78,316 | 12,174 | 90,490 | |
| 8,555,166 | 1,064,392 | 110,025 | 9,729,583 | ||
| Impairment for overdue securities | - | - | (13,079) | (13,079) | |
| 8,555,166 | 1,064,392 | 96,946 | 9,716,504 | ||
| Variable income: | |||||
| Shares in Portuguese companies | 19,428 | - | 22,988 | 42,416 | |
| Shares in foreign companies | 25 | - | 13,292 | 13,317 | |
| Investment fund units | 58 | 45 | 1,170,237 | 1,170,340 | |
| Other securities | - | - | 383 | 383 | |
| 19,511 | 45 | 1,206,900 | 1,226,456 | ||
| Trading derivatives | 6,174 | 236,055 | 606,545 | 848,774 | |
| 8,580,851 | 1,300,492 | 1,910,391 | 11,791,734 |
As referred in IFRS 13, financial instruments are measured according to the levels of valuation described in note 47.
During the first semester of 2017, were made reclassifications from level 2 to level 1 in the amount of Euros 37,899,000 (31 December 2016: Euros 7,202,000) related to securities that became complied with the requirements of this level, as described in note 47.
The variable income securities classified as level 3 includes units in restructuring funds (note 56) in the amount of Euros 1,067,752,000 (31 December 2016: Euros 1,113,482,000) which book value resulted from the last disclosure of the Net Asset Value (NAV) determined by the management company, which, as at 30 June 2017, corresponds to the NAV with reference to that date, except for Vega and Flit-Ptrel funds which reports to 31 December 2016 and 31 March 2017, respectively, after considering the effects of the last audited accounts for the respective funds. These funds have a diverse set of assets and liabilities, valued in their respective accounts at fair value through internal methodologies used by the management company. It is not practicable to present a sensitivity analysis of the different components of the underlying assumptions used by entities in the presentation of NAV, nevertheless it should be noted that a variation of + / - 10 % of the NAV has an impact of Euros 106,775,000 (31 December 2016: Euros 111,348,000) in Equity. This impact includes the effect on Fair value reserves of Euros 5,374,000 (31 December 2016: Euros 41,542,000) and in Net income for the period, of Euros 101,401,000 (31 December 2016: Euros 75,252,000).
The instruments classified as level 3 have associated net gains not performed in the amount of Euros 14,089,000 (31 December 2016: Euros 19,915,000) recorded in fair value reserves. The amount of impairment associated to these securities amounts to Euros 531,734,000 as at 30 June 2017 (31 December 2016: Euros 536,365,000).
The analysis of the impact of the reclassifications performed in prior periods until 30 June 2017, are analysed as follows:
| At the reclassification date | Jun 2017 | ||||
|---|---|---|---|---|---|
| Book value | Fair value | Book value | Fair value | Difference | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| From Financial assets held for trading to: | |||||
| Financial assets available for sale | 196, 800 |
196,800 | 19,354 | 19,354 | - |
| Financial assets held to maturity | 2,144, 892 |
2,144,892 | 187,781 | 178,415 | (9,366) |
| From Financial assets available for sale to: | |||||
| Loans represented by securities | 2,713,52 4 |
2,713,524 | 4,375 | 4,375 | - |
| Financial assets held to maturity | 695,02 0 |
695,020 | 173,567 | 179,496 | 5,929 |
| 5,750,236 | 5,750,236 | 385,077 | 381,640 | (3,437) |
The amounts accounted in the income statement and in fair value reserves, as at 30 June 2017 related to financial assets reclassified in prior years, are analysed as follows:
| Net income for the | ||||
|---|---|---|---|---|
| period | Changes | |||
| Fair value | ||||
| Interests | reserves | Equity | ||
| Euros '000 | Euros '000 | Euros '000 | ||
| From Financial assets held for trading to: | ||||
| Financial assets available for sale | 297 | 1,644 | 1,941 | |
| Financial assets held to maturity | 1,823 | - | 1,823 | |
| From Financial assets available for sale to: | ||||
| Loans represented by securities | 62 | - | 62 | |
| Financial assets held to maturity | 7,122 | 125 | 7,247 | |
| 9,304 | 1,769 | 11,073 |
If the reclassifications described previously had not occurred, the additional amounts recognised in equity as at 30 June 2017, would be as follows:
| Net income for the period |
||||
|---|---|---|---|---|
| Fair value changes Euros '000 |
Retained earnings Euros '000 |
Fair value reserves Euros '000 |
Equity Euros '000 |
|
| From Financial assets held for trading to: | ||||
| Financial assets available for sale | 1,64 4 |
(736) | (908) | - |
| Financial assets held to maturity | 8,741 | (18,107) | - | (9,366) |
| From Financial assets available for sale to: | ||||
| Financial assets held to maturity | - | - | 5,929 | 5,929 |
| 10,385 | (18,843) | 5,021 | (3,437) |
As at 31 December 2016, this reclassification is analysed as follows:
| At the reclassification date | Dec 2016 | ||||
|---|---|---|---|---|---|
| Book value | Fair value | Book value | Fair value | Difference | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| From Financial assets held for trading to: | |||||
| Financial assets available for sale | 196, 800 |
196,800 | 17,744 | 17,744 | - |
| Financial assets held to maturity | 2,144, 892 |
2,144,892 | 237,513 | 219,406 | (18,107) |
| From Financial assets available for sale to: | |||||
| Loans represented by securities | 2,713,52 4 |
2,713,524 | 4,375 | 4,375 | - |
| Financial assets held to maturity | 796,41 1 |
796,411 | 175,309 | 181,728 | 6,419 |
| 5,851,627 | 5,851,627 | 434,941 | 423,253 | (11,688) |
The amounts accounted in the income statement and in fair value reserves, as at 31 December 2016, related to financial assets reclassified are analysed as follows:
| Net income for the period |
Changes | ||
|---|---|---|---|
| Interest Euros '000 |
Fair value reserves Euros '000 |
Equity Euros '000 |
|
| From Financial assets held for trading to: | |||
| Financial assets available for sale | 490 | (791) | (301) |
| Financial assets held to maturity From Financial assets available for sale to: |
4,907 | - | 4,907 |
| Loans represented by securities | 120 | - | 120 |
| Financial assets held to maturity | 3,262 | 252 | 3,514 |
| 8,779 | (539) | 8,240 |
If the reclassifications described previously had not occurred, the additional amounts recognised in equity as at 31 December 2016, would be as follows:
| Net income for the period Fair value changes Euros '000 |
Retained earnings Euros '000 |
Fair value reserves Euros '000 |
Equity Euros '000 |
|
|---|---|---|---|---|
| From Financial assets held for trading to: | ||||
| Financial assets available for sale | (791 ) |
55 | 736 | - |
| Financial assets held to maturity | (11,71 6) |
(6,391) | - | (18,107) |
| From Financial assets available for sale to: | ||||
| Financial assets held to maturity | - | - | 6,419 | 6,419 |
| (12,507) | (6,336) | 7,155 | (11,688) |
30 June 2017
The changes occurred in impairment for financial assets available for sale are analysed as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Balance on 1 January | 572,589 | 317,423 |
| Transfers | 210 | (2) |
| Impairment against profit and loss | 31,926 | 171,996 |
| Amounts charged-off | (63,159) | (6,064) |
| Exchange rate differences | (77) | (46) |
| Other variations | 9,741 | 1,475 |
| Balance on 30 June | 551,230 | 484,782 |
The Group recognises impairment for financial assets available for sale when there is a significant or prolonged decrease in its fair value or when there is an impact on expected future cash flows of the assets. This assessment involves judgment in which the Group takes into consideration, among other factors, the volatility of the securities prices.
Thus, as a consequence of the low liquidity and significant volatility in financial markets, the following factors were taken into consideration in determining the existence of impairment:
Equity instruments: (i) decreases of more than 30% against the purchase price; or (ii) the market value below the purchase price for a period exceeding 12 months;
Debt instruments: when there is objective evidence of events with impact on recoverable value of future cash flows of these assets.
The analysis of Financial assets held for trading, Other financial assets held for trading at fair value through profit or loss and Financial assets available for sale by maturity, as at 30 June 2017 is as follows:
| Jun 2017 | ||||||
|---|---|---|---|---|---|---|
| Up to 3 months Euros '000 |
3 months to 1 year Euros '000 |
1 year to 5 years Euros '000 |
Over 5 years Euros '000 |
Undetermined Euros '000 |
Total Euros '000 |
|
| Fixed income: | ||||||
| Bonds issued by public entities | ||||||
| Portuguese issuers | - | 121,907 | 1,339,144 | 2,782,975 | - | 4,244,026 |
| Foreign issuers | 100,788 | 440,621 | 3,078,320 | 193,419 | - | 3,813,148 |
| Bonds issued by other entities | ||||||
| Portuguese issuers | 4,334 | 66,132 | 893,494 | 257,864 | 3,723 | 1,225,547 |
| Foreign issuers | 355,029 | 26 | 74,682 | 146,980 | - | 576,717 |
| Treasury bills and other | ||||||
| Government bonds | ||||||
| Portuguese issuers | 140,304 | 704,659 | - | - | - | 844,963 |
| Foreign issuers | 199,669 | 665,338 | 8,863 | 991 | - | 874,861 |
| Impairment for overdue securities | 800,124 - |
1,998,683 - |
5,394,503 - |
3,382,229 - |
3,723 (3,722) |
11,579,262 (3,722) |
| 800,124 | 1,998,683 | 5,394,503 | 3,382,229 | 1 | 11,575,540 | |
| Variable income: | ||||||
| Companies' shares | ||||||
| Portuguese companies | - | - | - | - | 33,711 | 33,711 |
| Foreign companies | - | - | - | - | 16,268 | 16,268 |
| Investment fund units | - | 2,204 | 16,104 | 1,106,826 | 359 | 1,125,493 |
| Other securities | - | - | - | 386 | - | 386 |
| - | 2,204 | 16,104 | 1,107,212 | 50,338 | 1,175,858 | |
| 800,124 | 2,000,887 | 5,410,607 | 4,489,441 | 50,339 | 12,751,398 |
The analysis of Financial assets held for trading, Other financial assets held for trading at fair value through profit or loss and Financial assets available for sale, by maturity, as at 31 December 2016, is as follows:
| Dec 2016 | |||||||
|---|---|---|---|---|---|---|---|
| Up to 3 months Euros '000 |
3 months to 1 year Euros '000 |
1 year to 5 years Euros '000 |
Over 5 years Euros '000 |
Undetermined Euros '000 |
Total Euros '000 |
||
| Fixed income: | |||||||
| Bonds issued by public entities | |||||||
| Portuguese issuers | - | 55,083 | 1,011,824 | 2,401,849 | - | 3,468,756 | |
| Foreign issuers | 175,430 | 657,153 | 2,516,164 | 49,570 | - | 3,398,317 | |
| Bonds issued by other entities | |||||||
| Portuguese issuers | - | 73,238 | 989,532 | 224,906 | 18,022 | 1,305,698 | |
| Foreign issuers | 605,332 | 94 | 67,210 | 138,758 | - | 811,394 | |
| Treasury bills and other | |||||||
| Government bonds | |||||||
| Portuguese issuers | 98,638 | 556,290 | - | - | - | 654,928 | |
| Foreign issuers | 10,183 | 70,752 | 8,605 | 950 | - | 90,490 | |
| 889,583 | 1,412,610 | 4,593,335 | 2,816,033 | 18,022 | 9,729,583 | ||
| Impairment for overdue securities | - | - | - | - | (13,079) | (13,079) | |
| 889,583 | 1,412,610 | 4,593,335 | 2,816,033 | 4,943 | 9,716,504 | ||
| Variable income: | |||||||
| Companies' shares | |||||||
| Portuguese companies | - | - | - | - | 42,416 | 42,416 | |
| Foreign companies | - | - | - | - | 13,317 | 13,317 | |
| Investment fund units | - | 1,889 | 16,590 | 1,151,405 | 456 | 1,170,340 | |
| Other securities | - | - | - | 383 | - | 383 | |
| - | 1,889 | 16,590 | 1,151,788 | 56,189 | 1,226,456 | ||
| 889,583 | 1,414,499 | 4,609,925 | 3,967,821 | 61,132 | 10,942,960 |
The analysis of Financial assets held for trading, Other financial assets held for trading at fair value through profit or loss and Financial assets available for sale by sector of activity as at 30 June 2017 is as follows:
| Jun 2017 | ||||||
|---|---|---|---|---|---|---|
| Bonds Euros '000 |
Shares Euros '000 |
Other Financial Assets Euros '000 |
Overdue Securities Euros '000 |
Total Euros '000 |
||
| Textiles | - | - | - | 203 | 203 | |
| Wood and cork | - | - | - | 998 | 998 | |
| Paper, printing and publishing | - | 11 | - | - | 11 | |
| Chemicals | 26,400 | 7 | - | - | 26,407 | |
| Machinery, equipment and basic metallurgical | - | 8 | - | - | 8 | |
| Electricity and gas | 8,838 | - | - | - | 8,838 | |
| Construction | - | 4 | - | 2,395 | 2,399 | |
| Retail business | 4,334 | 1,606 | - | - | 5,940 | |
| Wholesale business | - | 1,048 | - | 126 | 1,174 | |
| Restaurants and hotels | - | 46 | - | - | 46 | |
| Transports | 701,886 | 766 | - | - | 702,652 | |
| Telecommunications | - | 9,660 | - | - | 9,660 | |
| Services | ||||||
| Financial intermediation | 926,816 | 23,124 | 1,118,279 | - | 2,068,219 | |
| Consulting, scientific and technical activities | 4 4 |
102 | - | - | 146 | |
| Administrative and support services activities | - | 12,770 | - | - | 12,770 | |
| Health and collective service activities | 113,541 | - | - | - | 113,541 | |
| Artistic, sports and recreational activities | 16,6 83 |
16 | - | - | 16,699 | |
| Other services | - | 801 | 7,214 | 1 | 8,016 | |
| Other international activities | - | 9 | 386 | - | 395 | |
| 1,798,542 | 49,978 | 1,125,879 | 3,723 | 2,978,122 | ||
| Government and Public securities | 8,057,174 | - | 1,719,824 | - | 9,776,998 | |
| Impairment for overdue securities | - | - | - | (3,722) | (3,722) | |
| 9,855,716 | 49,978 | 2,845,703 | 1 | 12,751,398 |
(*) The balance Other financial assets includes restructuring funds in the amount of Euros 1,067,752,000, which are classified in the sector of activity Services - Financial intermediation, but which have the core segment as disclosed in note 56.
The analysis of Financial assets held for trading, Other financial assets held for trading at fair value through profit or loss and Financial assets available for sale by sector of activity as at 31 December 2016 is as follows:
| Dec 2016 | |||||
|---|---|---|---|---|---|
| Bonds Euros '000 |
Shares Euros '000 |
Other Financial Assets Euros '000 |
Overdue Securities Euros '000 |
Total Euros '000 |
|
| Textiles | - | - | - | 203 | 203 |
| Wood and cork | - | - | - | 998 | 998 |
| Paper, printing and publishing | - | 11 | - | - | 11 |
| Chemicals | 26,193 | 7 | - | - | 26,200 |
| Machinery, equipment and basic metallurgical | - | 4 | - | - | 4 |
| Electricity and gas | 8,742 | - | - | - | 8,742 |
| Construction | - | 7 | - | 2,395 | 2,402 |
| Retail business | 4,501 | 1,667 | - | - | 6,168 |
| Wholesale business | - | 655 | - | 126 | 781 |
| Restaurants and hotels | - | 46 | - | - | 46 |
| Transports | 672,408 | 766 | - | - | 673,174 |
| Telecommunications | - | 21,054 | - | - | 21,054 |
| Services | |||||
| Financial intermediation (*) | 1,104,702 | 20,216 | 1,120,810 | 14,299 | 2,260,027 |
| Real estate activities | - | - | 43,251 | - | 43,251 |
| Consulting, scientific and technical activities | 1 76,390 |
102 | - | - | 176,492 |
| Administrative and support services activities | - | 10,441 | - | - | 10,441 |
| Health and collective service activities | 89,450 | - | - | - | 89,450 |
| Artistic, sports and recreational activities | 16,6 83 |
16 | - | - | 16,699 |
| Other services | 1 | 736 | 6,278 | 1 | 7,016 |
| Other international activities | - | 5 | 384 | - | 389 |
| 2,099,070 | 55,733 | 1,170,723 | 18,022 | 3,343,548 | |
| Government and Public securities | 6,867,073 | - | 745,418 | - | 7,612,491 |
| Impairment for overdue securities | - | - | - | (13,079) | (13,079) |
| 8,966,143 | 55,733 | 1,916,141 | 4,943 | 10,942,960 | |
(*) The balance Other financial assets includes restructuring funds, in the amount of Euros 1,113,482,000, which are classified in the sector of activity Services - Financial intermediation, but which have the core segment as disclosed in note 56.
As referred in note 51, the Group, as part of the management process of the liquidity risk, holds a pool of eligible assets that can serve as collateral in funding operations in the European Central Bank and other Central Banks in countries were the Group operates, which includes fixed income securities. As at 30 June 2017, this caption included Euros 40,348,000 (31 December 2016: Euros 190,985,000) of securities included in the ECB's monetary policy pool.
The analysis of trading derivatives, by maturity, as at 30 June 2017, is as follows:
| Jun 2017 | ||||||
|---|---|---|---|---|---|---|
| Notional (remaining term) | Fair value | |||||
| Up to 3 months Euros '000 |
3 months to 1 year Euros '000 |
Over 1 year Euros '000 |
Total Euros '000 |
Assets Euros '000 |
Liabilities (note 36) Euros '000 |
|
| Interest rate derivatives: | ||||||
| OTC Market: | ||||||
| Interest rate swaps | 1,006,420 | 1,277,370 | 9,038,504 | 11,322,294 | 427,706 | 380,866 |
| Interest rate options (purchase) | - | 83,417 | 108,181 | 191,598 | 8 | - |
| Interest rate options (sale) | - | - | 108,181 | 108,181 | - | 593 |
| Other interest rate contracts | - | 10,692 | 132,447 | 143,139 | 1,067 | 2,855 |
| 1,006,420 | 1,371,479 | 9,387,313 | 11,765,212 | 428,781 | 384,314 | |
| Stock Exchange transactions: | ||||||
| Interest rate futures | 37,891 | 35,078 | - | 72,969 | - | - |
| Currency derivatives: | ||||||
| OTC Market: | ||||||
| Forward exchange contract | 298,611 | 173,458 | 17,964 | 490,033 | 8,728 | 9,408 |
| Currency swaps | 1,507,138 | 522,720 | 9,586 | 2,039,444 | 19,121 | 33,872 |
| Currency options (purchase) | 11,069 | 48,090 | 21,306 | 80,465 | 1,058 | - |
| Currency options (sale) | 10,816 | 48,090 | 21,306 | 80,212 | - | 1,004 |
| 1,827,634 | 792,358 | 70,162 | 2,690,154 | 28,907 | 44,284 | |
| Shares/indexes: | ||||||
| OTC Market: | ||||||
| Shares/indexes swaps | 592,356 | 1,042,915 | 1,483,012 | 3,118,283 | 18,465 | 6,346 |
| Shares/indexes options (purchase) | - | - | 2,067 | 2,067 | - | - |
| Others shares/indexes | ||||||
| options (purchase) | - | - | 16,864 | 16,864 | 14,616 | - |
| Others shares/indexes options (sale) | - | - | 16,864 | 16,864 | - | - |
| 592,356 | 1,042,915 | 1,518,807 | 3,154,078 | 33,081 | 6,346 | |
| Stock exchange transactions: | ||||||
| Shares futures | 343,616 | - | - | 343,616 | - | - |
| Shares/indexes options (purchase) | 57,107 | 281,489 | 177,175 | 515,771 | 10,950 | - |
| Shares/indexes options (sale) | 10,155 | 6,786 | 2,909 | 19,850 | - | 496 |
| 410,878 | 288,275 | 180,084 | 879,237 | 10,950 | 496 | |
| Commodity derivatives: | ||||||
| Stock Exchange transactions: | ||||||
| Commodities futures | 90,975 | 84 | 213 | 91,272 | - | - |
| 90,975 | 84 | 213 | 91,272 | - | - | |
| Credit derivatives: | ||||||
| OTC Market: | ||||||
| Credit default swaps | 119,800 | 563,400 | 491,953 | 1,175,153 | 247,537 | 4,804 |
| Other credit derivatives (sale) | - | - | 48,338 | 48,338 | - | - |
| 119,800 | 563,400 | 540,291 | 1,223,491 | 247,537 | 4,804 | |
| Total financial instruments | ||||||
| traded in: | ||||||
| OTC Market | 3,546,210 | 3,770,152 | 11,516,573 | 18,832,935 | 738,306 | 439,748 |
| Stock Exchange | 539,744 | 323,437 | 180,297 | 1,043,478 | 10,950 | 496 |
| Embedded derivatives | 30 | 10,567 | ||||
| 4,085,954 | 4,093,589 | 11,696,870 | 19,876,413 | 749,286 | 450,811 |
30 June 2017
The analysis of trading derivatives, by maturity, as at 31 December 2016, is as follows:
| Dec 2016 | ||||||
|---|---|---|---|---|---|---|
| Notional (remaining term) | Fair value | |||||
| Up to | 3 months to | Over 1 | Liabilities | |||
| 3 months | 1 year | year | Total | Assets | (note 36) | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Interest rate Derivatives: | ||||||
| OTC Market: | ||||||
| Interest rate swaps | 389,419 | 1,397,333 | 9,786,013 | 11,572,765 | 519,817 | 477,010 |
| Interest rate options (purchase) | 2,267 | 92,472 | 108,888 | 203,627 | 29 | - |
| Interest rate options (sale) | 2,267 | 9,055 | 108,888 | 120,210 | - | 739 |
| Other interest rate contracts | 52,001 | 127,829 | 85,971 | 265,801 | 1,859 | 7,864 |
| 445,954 | 1,626,689 | 10,089,760 | 12,162,403 | 521,705 | 485,613 | |
| Stock Exchange transactions: | ||||||
| Interest rate futures | 201,384 | 18,974 | - | 220,358 | - | - |
| Currency derivatives: | ||||||
| OTC Market: | ||||||
| Forward exchange contract | 231,416 | 171,687 | 23,477 | 426,580 | 5,723 | 6,225 |
| Currency swaps | 2,684,852 | 384,258 | 3,846 | 3,072,956 | 41,058 | 7,512 |
| Currency options (purchase) | 41,232 | 39,571 | 42,798 | 123,601 | 3,149 | - |
| Currency options (sale) | 42,009 | 39,571 | 42,798 | 124,378 | - | 3,484 |
| 2,999,509 | 635,087 | 112,919 | 3,747,515 | 49,930 | 17,221 | |
| Shares/indexes: | ||||||
| OTC Market: | ||||||
| Shares/indexes swaps | 644,404 | 958,302 | 1,651,783 | 3,254,489 | 29,068 | 7,799 |
| Shares/indexes options (sale) | - | - | - | - | - | - |
| Other shares/indexes options (purchase) Other shares/indexes options (sale) |
- - |
- - |
16,864 16,864 |
16,864 16,864 |
13,671 - |
- - |
| 644,404 | 958,302 | 1,687,578 | 3,290,284 | 42,739 | 7,799 | |
| Stock Exchange transactions: | ||||||
| Shares futures | 249,929 | - | - | 249,929 | - | - |
| Shares/indexes options (purchase) | 109,678 | 196,064 | 213,652 | 519,394 | 6,174 | - |
| Shares/indexes options (sale) | 9,506 | 9,369 | 1,782 | 20,657 | - | 234 |
| 369,113 | 205,433 | 215,434 | 789,980 | 6,174 | 234 | |
| Commodity derivatives: | ||||||
| Stock exchange transactions: | ||||||
| Commodities futures | 76,397 | - | - | 76,397 | - | - |
| Credit derivatives: | ||||||
| OTC Market: | ||||||
| Credit Default swaps | 221,900 | 552,000 | 828,544 | 1,602,444 | 228,031 | 6,381 |
| Other credit derivatives (sale) | - | - | 55,881 | 55,881 | - | - |
| 221,900 | 552,000 | 884,425 | 1,658,325 | 228,031 | 6,381 | |
| Total financial instruments | ||||||
| traded in: | ||||||
| OTC Market | 4,311,767 | 3,772,078 | 12,774,682 | 20,858,527 | 842,405 | 517,014 |
| Stock Exchange | 646,894 | 224,407 | 215,434 | 1,086,735 | 6,174 | 234 |
| Embedded derivatives | 195 | 6,111 | ||||
| 4,958,661 | 3,996,485 | 12,990,116 | 21,945,262 | 848,774 | 523,359 |
This balance is analysed, by hedging instruments, as follows:
| Jun 2017 | Dec 2016 | |||
|---|---|---|---|---|
| Assets Euros '000 |
Liabilities Euros '000 |
Assets Euros '000 |
Liabilities Euros '000 |
|
| Swaps | 39,892 | 146,843 | 51,717 | 122,121 |
| Others | 73,968 | 142,449 | 5,321 | 261,871 |
| 113,860 | 289,292 | 57,038 | 383,992 |
Hedging derivatives are measured in accordance with internal valuation techniques considering observable market inputs and, when not available, on information prepared by the Group by extrapolation of market data. In accordance with the hierarchy of the valuation sources, as referred in IFRS 13 these derivatives are classified in level 2. The Group resources to derivatives to hedge interest and exchange rate exposure risks. The accounting method depends on the nature of the hedged risk, namely if the Group is exposed to fair value changes, variability in cash flows or highly probable forecast transactions.
For the hedging relationships which comply with the hedging requirements of IAS 39, the Group adopts the hedge accounting method mainly interest rate and exchange rate derivatives. The fair value hedge model is adopted for debt securities, loans granted at fixed rate and money market loans and deposits, securities and combined hedge of variable rate financial assets and fixed rate financial liabilities. The cash flows hedge model is adopted for future transactions in foreign currency to cover dynamic changes in cash flows from loans granted and variable rate deposits in foreign currency and foreign currency mortgage loans.
During the first semester of 2017, the relationships that follow the fair value hedge model recorded ineffectiveness of a negative amount of Euros 1,784,000 (31 December 2016: positive amount of Euros 11,238,000) and the hedging relationships that follow the cash flows model recorded ineffectiveness of a negative amount of Euros 2,281,000 (31 December 2016: negative amount of Euros 4,206,000).
During the first semester of 2017, reclassifications were made from fair value reserves to results, related to cash flow hedge relationships, in a positive amount of Euros 13,254,000 (31 December 2016: positive amount Euros 16,220,000).
The accumulated adjustment on financial risks covered performed on the assets and liabilities which includes hedged items is analysed as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Hedged item | Euros '000 | Euros '000 |
| Loans | 4,202 | 6,242 |
| Deposits | 13,904 | 6,341 |
| Debt issued | (45,765) | (51,806) |
| (27,659) | (39,223) |
30 June 2017
The analysis of hedging derivatives portfolio, by maturity, as at 30 June 2017, is as follows:
| Jun 2017 | ||||||
|---|---|---|---|---|---|---|
| Notional (remaining term) | Fair value | |||||
| Up to 3 months Euros '000 |
3 months to 1 year Euros '000 |
Over 1 year Euros '000 |
Total Euros '000 |
Assets Euros '000 |
Liabilities Euros '000 |
|
| Fair value hedging derivatives related to | ||||||
| interest rate risk changes: | ||||||
| OTC Market: | ||||||
| Interest rate swaps | - | 5,000 | 6,473,003 | 6,478,003 | 17,802 | 64,492 |
| Others | 425,000 | 225,000 | - | 650,000 | - | 39,367 |
| 425,000 | 230,000 | 6,473,003 | 7,128,003 | 17,802 | 103,859 | |
| Cash flow hedging derivatives related to interest rate risk changes: |
||||||
| OTC Market: | ||||||
| Interest rate swaps | 35,501 | 221,055 | 8,943,004 | 9,199,560 | 1,632 | 63,093 |
| Cash flow hedging derivatives related to currency risk changes: |
||||||
| OTC Market: | ||||||
| Currency swaps | 205,856 | 139,239 | - | 345,095 | 14,363 | - |
| Other currency contracts | 237,622 | 1,016,793 | 2,498,243 | 3,752,658 | 73,968 | 103,082 |
| 443,478 | 1,156,032 | 2,498,243 | 4,097,753 | 88,331 | 103,082 | |
| Hedging derivatives related to net investment in foreign operations: |
||||||
| OTC Market: | ||||||
| Currency and interest rate swap | - | 178,371 | 426,054 | 604,425 | 6,095 | 19,258 |
| Total financial instruments | ||||||
| Traded by: | ||||||
| OTC Market | 903,979 | 1,785,458 | 18,340,304 | 21,029,741 | 113,860 | 289,292 |
The analysis of hedging derivatives portfolio, by maturity, as at 31 December 2016, is as follows:
| Dec 2016 | ||||||
|---|---|---|---|---|---|---|
| Notional (remaining term) | Fair value | |||||
| Up to | 3 months to | Over 1 | ||||
| 3 months Euros '000 |
1 year Euros '000 |
year Euros '000 |
Total Euros '000 |
Assets Euros '000 |
Liabilities Euros '000 |
|
| Fair value hedging derivatives related to | ||||||
| interest rate risk changes: | ||||||
| OTC Market: | ||||||
| Interest rate swaps | 341,100 | - | 6,548,576 | 6,889,676 | 27,168 | 90,865 |
| Other | 550,000 | 150,000 | - | 700,000 | 5,232 | 3,356 |
| 891,100 | 150,000 | 6,548,576 | 7,589,676 | 32,400 | 94,221 | |
| Cash flow hedging derivatives related to interest rate risk changes: |
||||||
| OTC Market: | ||||||
| Interest rate swaps | 77,092 | 158,719 | 6,677,312 | 6,913,123 | 3,963 | 29,273 |
| Cash flow hedging derivatives related to currency risk changes: |
||||||
| OTC Market: | ||||||
| Currency swaps | 93,356 | 141,393 | - | 234,749 | 2,375 | 1,931 |
| Other currency contracts | 771,735 | 974,062 | 2,538,745 | 4,284,542 | 89 | 258,515 |
| 865,091 | 1,115,455 | 2,538,745 | 4,519,291 | 2,464 | 260,446 | |
| Hedging derivatives related to net investment in foreign operations: |
||||||
| OTC Market: | ||||||
| Currency and interest rate swap | - | 178,371 | 358,768 | 537,139 | 18,211 | 52 |
| Total financial instruments Traded by: |
||||||
| OTC Market | 1,833,283 | 1,602,545 | 16,123,401 | 19,559,229 | 57,038 | 383,992 |
The balance Financial assets held to maturity is analysed as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Bonds and other fixed income securities | ||
| Issued by public entities | 150,248 | 152,119 |
| Issued by other entities | 301,006 | 359,062 |
| 451,254 | 511,181 |
As at 30 June 2017, the balance Financial assets held to maturity includes the amount of Euros 187,781,000 (31 December 2016: Euros 237,513,000) related to non-derivatives financial assets (bonds) reclassified in previous years from financial assets held for trading caption to financial assets held to maturity caption, as referred in the accounting policy note 1 f) and note 23.
As at 30 June 2017, the balance Financial assets held to maturity also includes the amount of Euros 173,567,000 (31 December 2016: Euros 175,309,000) related to non-derivatives financial assets (bonds) reclassified in previous periods, from financial assets available for sale caption to financial assets held to maturity caption, as referred in the accounting policy note 1 f) and note 23.
As at 30 June 2017, the Financial assets held to maturity portfolio is analysed as follows:
| Maturity | Nominal value | Book value | Fair value | |||
|---|---|---|---|---|---|---|
| Description | Country | date | Interest rate | Euros '000 | Euros '000 | Euros '000 |
| Issued by Government and public entities | ||||||
| BTPS 4.5 PCT 08/01.08.2018 EUR | Italy | August, 2018 | 4.500% | 50,000 | 50,790 | 53,550 |
| OT 2014/2017 - 4ª Série | Mozambique | July, 2017 | 9.875% | 2, 912 |
2,949 | 2,962 |
| OT 2014/2017 - 5ª Série | Mozambique | August, 2017 | 10.000% | 2,912 | 2,931 | 2,931 |
| OT 2014/2017 - 7ª Série | Mozambique | November, 2017 | 10.250% | 4,863 | 4,753 | 4,753 |
| OT 2014/2017 - 8ª Série | Mozambique | December, 2017 | 10.125% | 2,402 | 2,394 | 2,687 |
| OT 2015/2018 - 1ª Série | Mozambique | February, 2018 | 10.000% | 2,958 | 2,726 | 2,697 |
| OT 2015/2018 - 2ª Série | Mozambique | February, 2018 | 10.000% | 13,354 | 12,304 | 12,150 |
| OT 2015/2018 - 3ª Série | Mozambique | March, 2018 | 10% | 8,91 2 |
8,211 | 8,103 |
| OT 2015/2019 - 4ª Série | Mozambique | November, 2019 | 10.13% | 6,792 | 5,914 | 5,815 |
| OT 2015/2019 - 6ª Série | Mozambique | December, 2019 | 10.50% | 29,523 | 27,064 | 26,383 |
| OT 2016/2019 - 1ª Série | Mozambique | March, 2019 | 11.000% | 4,600 | 4,191 | 4,073 |
| OT 2016/2020 - 2ª Série | Mozambique | May, 2020 | 13% | 4,537 | 4,176 | 4,128 |
| OT 2013/2017 - 3ª Serie | Mozambique | September, 2017 | 10% | 3,640 | 3,668 | 3,666 |
| OT 2013/2017 - 4ª Serie | Mozambique | December, 2017 | 10% | 1 ,456 |
1,447 | 1,447 |
| OT 2014/2017 - 6ª Série | Mozambique | November, 2017 | 10.750% | 8,735 | 8,844 | 8,847 |
| OT 2014/2017 - 7ª Série | Mozambique | November, 2017 | 10.3% | 3,873 | 3,893 | 3,893 |
| OT 2015/2019 - 5ª Série | Mozambique | December, 2019 | 10.5% | 4,473 | 3,993 | 4,041 |
| 150,248 | 152,126 | |||||
| Issued by other entities | ||||||
| CP Comboios Pt 09/16.10.2019 | Portugal | October, 2019 | 4.170% | 75,000 | 76,320 | 83,130 |
| Edia SA 07/30.01.2027 | Portugal | January, 2027 | Euribor 6M+0,005% | 40,000 | 39,098 | 31,146 |
| Stcp 00/05.06.2022 - 100Mios Call | ||||||
| Semest. a Partir 10Cpn-Min.10Mios | Portugal | June, 2022 | Euribor 6M+0,0069% | 100,000 | 98,825 | 94,651 |
| Mbs Magellan M Series 1 Class A | Ireland | December, 2036 | Euribor 3M+0,54% | 42,631 | 42,635 | 42,388 |
| Mbs Magellan M Series 1 Class B | Ireland | December, 2036 | Euribor 3M+1,16% | 26,300 | 26,310 | 25,033 |
| Mbs Magellan M Series 1 Class C | Ireland | December, 2036 | Euribor 3M+2,6% | 17,800 | 17,818 | 14,184 |
| 301,006 | 290,532 | |||||
| 451,254 | 442,658 |
| Maturity | Nominal value | Book value | Fair value | |||
|---|---|---|---|---|---|---|
| Description | Country | date | Interest rate | Euros '000 | Euros '000 | Euros '000 |
| Issued by Government and public entities | ||||||
| BTPS 4.5 Pct 08/01.08.2018 EUR | Italy | August, 2018 | 4.500% | 50,000 | 50,728 | 54,623 |
| OT 2013/2017 - 1ª Serie | Mozambique | April, 2017 | 7.500% | 4 ,807 |
4,363 | 4,244 |
| OT 2013/2017 - 3ª Serie | Mozambique | September, 2017 | 9.875% | 3,320 | 3,414 | 3,414 |
| OT 2013/2017 - 4ª Serie | Mozambique | December, 2017 | 9.875% | 1,328 | 1,338 | 1,338 |
| OT 2014/2017 - 1ª Série | Mozambique | October, 2017 | 9.875% | 3,984 | 3,644 | 3,607 |
| OT 2014/2017 - 2ª Série | Mozambique | November, 2017 | 9.875% | 3,984 | 3,585 | 3,607 |
| OT 2014/2017 - 3ª Serie | Mozambique | December, 2017 | 9.875% | 2,656 | 2,593 | 2,587 |
| OT 2014/2017 - 4ª Série | Mozambique | July, 2017 | 9.875% | 2, 656 |
2,662 | 2,660 |
| OT 2014/2017 - 5ª Série | Mozambique | August, 2017 | 10.000% | 2,656 | 2,551 | 2,535 |
| OT 2014/2017 - 6ª Série | Mozambique | November, 2017 | 10.750% | 7,967 | 8,100 | 8,100 |
| OT 2014/2017 - 7ª Série | Mozambique | November, 2017 | 10.250% | 7,079 | 6,754 | 6,718 |
| OT 2014/2017 - 8ª Série | Mozambique | December, 2017 | 10.125% | 2,191 | 2,102 | 2,092 |
| OT 2015/2018 - 1ª Série | Mozambique | August, 2018 | 10.000% | 2,698 | 2,346 | 2,326 |
| OT 2015/2018 - 2ª Série | Mozambique | August, 2018 | 10.000% | 12,180 | 10,592 | 10,501 |
| OT 2015/2018 - 3ª Série | Mozambique | September, 2018 | 10.000% | 8,128 | 7,069 | 7,008 |
| OT 2015/2019 - 4ª Série | Mozambique | November, 2019 | 10.125% | 6,195 | 5,141 | 5,104 |
| OT 2015/2019 - 5ª Série | Mozambique | December, 2019 | 10.500% | 4,080 | 4,037 | 4,037 |
| OT 2015/2019 - 6ª Série | Mozambique | December, 2019 | 10.500% | 26,927 | 23,773 | 23,646 |
| OT 2016/2019 - 1ª Série | Mozambique | March, 2019 | 11.000% | 4,195 | 3,644 | 3,615 |
| OT 2016/2020 - 2ª Série | Mozambique | May, 2020 | 12.750% | 4, 138 |
3,683 | 3,667 |
| 152,119 | 155,429 | |||||
| Issued by other entities | ||||||
| CP Comboios Pt 09/16.10.2019 | Portugal | October, 2019 | 4.170% | 75,000 | 74,578 | 81,582 |
| Edia SA 07/30.01.2027 | Portugal | January, 2027 | Euribor 6M+0,005% | 40,000 | 39,052 | 27,675 |
| STCP 00/05.06.2022- 100Mios Call | ||||||
| Semest. a Partir 10Cpn-Min.10Mios Portugal | June, 2022 | Euribor 6M+0,0069% | 100,000 | 98,709 | 87,636 | |
| Ayt Cedulas 07/21.03.2017 | Spain | March, 2017 | 4.000% | 50,0 00 |
51,527 | 51,974 |
| Mbs Magellan M Series 1 Class A | Ireland | December, 2036 | Euribor 3M+0,54% | 51,062 | 51,067 | 50,399 |
| Mbs Magellan M Series 1 Class B | Ireland | December, 2036 | Euribor 3M+1,16% | 26,300 | 26,310 | 24,339 |
| Mbs Magellan M Series 1 Class C | Ireland | December, 2036 | Euribor 3M+2,6% | 17,800 | 17,819 | 14,185 |
| 359,062 | 337,790 | |||||
| 511,181 | 493,219 |
The analysis of Bonds and other fixed income securities portfolio, net of impairment, included in Financial assets held to maturity, by maturity, as at 30 June 2017 is as follows:
| Jun 2017 | |||||
|---|---|---|---|---|---|
| Up to 3 months Euros '000 |
3 months to 1 year Euros '000 |
1 year to 5 years Euros '000 |
Over 5 years Euros '000 |
Total Euros '000 |
|
| Fixed income: | |||||
| Bonds issued by public entities | |||||
| Foreign issuers | 9,548 | 44,572 | 96,128 | - | 150,248 |
| Bonds issued by other entities | |||||
| Portuguese issuers | - | - | 175,145 | 39,098 | 214,243 |
| Foreign issuers | - | - | - | 86,763 | 86,763 |
| 9,548 | 44,572 | 271,273 | 125,861 | 451,254 |
30 June 2017
The analysis of Bonds and other fixed income securities portfolio, net of impairment, included in Financial assets held to maturity, by maturity, as at 31 December 2016 is as follows:
| Dec 2016 | |||||
|---|---|---|---|---|---|
| Up to 3 months Euros '000 |
3 months to 1 year Euros '000 |
1 year to 5 years Euros '000 |
Over 5 years Euros '000 |
Total Euros '000 |
|
| Fixed income: | |||||
| Bonds issued by public entities | |||||
| Foreign issuers | - | 41,106 | 111,013 | - | 152,119 |
| Bonds issued by other entities | |||||
| Portuguese issuers | - | - | 74,578 | 137,761 | 212,339 |
| Foreign issuers | 51,527 | - | - | 95,196 | 146,723 |
| 51,527 | 41,106 | 185,591 | 232,957 | 511,181 |
The analysis of Bonds and other fixed income securities portfolio, net of impairment, included in Financial assets held to maturity, by sector of activity, is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Transports and communications | 175,145 | 173,287 |
| Services | ||
| Financial intermediation | 86,763 | 146,723 |
| Consulting, scientific and technical activities | 39,098 | 39,052 |
| 301,006 | 359,062 | |
| Government and Public securities | 150,248 | 152,119 |
| 451,254 | 511,181 |
As referred in note 51, as part of the management process of the liquidity risk, the Group holds a pool of eligible assets that can be used as collateral in funding operations with the European Central Bank and other Central Banks in countries were the Group operates, in which are included fixed income securities. As at 30 June 2017, there is no securities included in the ECB's monetary policy (31 December 2016: Euros 51,447,000).
This balance is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Portuguese credit institutions | 31,213 | 46,271 |
| Foreign credit institutions | 242,742 | 253,478 |
| Other Portuguese companies | 309,058 | 277,454 |
| Other foreign companies | 21,998 | 21,663 |
| 605,011 | 598,866 | |
| Impairment | (9,006) | - |
| 596,005 | 598,866 |
The balance Investments in associated companies is analysed as follows:
| Jun 2017 | |||||
|---|---|---|---|---|---|
| Ownership on | Goodwill | ||||
| equity Euros '000 |
Goodwill Euros '000 |
impairment Euros '000 |
Total Euros '000 |
Dec 2016 Euros '000 |
|
| Millenniumbcp Ageas Grupo Segurador, S.G.P.S., S.A. | 279,252 | - | - | 279,252 | 244,497 |
| Banco Millennium Atlântico, S.A. | 109,232 | 100,408 | - | 209,640 | 219,754 |
| Unicre - Instituição Financeira de Crédito, S.A. | 23,777 | 7,436 | - | 31,213 | 46,271 |
| Banque BCP, S.A.S. | 33,102 | - | - | 33,102 | 32,438 |
| SIBS, S.G.P.S, S.A. | 22,600 | - | - | 22,600 | 25,575 |
| Webspectator Corporation | 93 | 18,011 | (9,006) | 9,098 | 18,111 |
| Mundotêxtil - Indústrias Têxteis, S.A. | 6,626 | - | - | 6,626 | 6,854 |
| Banque BCP (Luxembourg), S.A. | - | - | - | - | 1,286 |
| Others | 4,474 | - | - | 4,474 | 4,080 |
| 479,156 | 125,855 | (9,006) | 596,005 | 598,866 |
These investments correspond to unquoted companies. According to the accounting policy described in note 1 b), these investments are measured at the equity method.
The Group's companies included in the consolidation perimeter are presented in note 58.
The main indicators of the principal associated companies are analysed as follows:
| % | Total Assets |
Total Liabilities |
Total Income |
Net income for the period |
||
|---|---|---|---|---|---|---|
| Country | held | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Jun 2017 (a) | ||||||
| Millenniumbcp Ageas Grupo | ||||||
| Segurador, S.G.P.S., S.A. | Portugal | 49.0 | 10,896,231 | 10,005,686 | 358,730 | 29,661 |
| Banco Millennium Atlântico, S.A. | Angola | 22.7 | 5,414,833 | 4,798,855 | 307,652 | 69,434 |
| Unicre - Instituição Financeira de | ||||||
| Crédito, S.A. (*) | Portugal | 32.0 | 319,875 | 248,834 | 84,985 | 10,288 |
| Banque BCP, S.A.S. | France | 19.9 | 3,402,374 | 3,236,034 | 59,765 | 9,110 |
| SIBS, S.G.P.S, S.A. (*) | Portugal | 22.7 | 185,380 | 70,100 | 89,998 | 6,249 |
| Dec 2016 (b) | ||||||
| Millenniumbcp Ageas Grupo | ||||||
| Segurador, S.G.P.S., S.A. | Portugal | 49.0 | 10,519,633 | 9,693,976 | 743,285 | 40,342 |
| Banco Millennium Atlântico, S.A. | Angola | 22.7 | 5,543,186 | 4,882,720 | 609,145 | 137,761 |
| Unicre - Instituição Financeira de | ||||||
| Crédito, S.A. | Portugal | 32.0 | 339,037 | 255,619 | 209,070 | 60,545 |
| Banque BCP, S.A.S. | France | 19.9 | 3,217,286 | 3,054,283 | 118,315 | 15,015 |
| SIBS, S.G.P.S, S.A. | Portugal | 22.7 | 185,380 | 70,100 | 212,895 | 45,398 |
| Banque BCP (Luxembourg), S.A. | Luxembourg | 3.6 | 590,770 | 555,371 | 16,633 | 850 |
(*) - Provisional values
(a) - Non audited accounts
(b) - Audited accounts
According to the requirements defined in IFRS 12 and considering their relevance, we present in the following table the consolidated financial statements of Millenniumbcp Ageas Group, SGPS, S.A. and Banco Millennium Atlântico, S.A., prepared in accordance with IFRS, modified by the consolidation adjustments:
| Millenniumbcp Ageas Grupo Segurador, S.G.P.S., S.A. |
Banco Millennium Atlântico, S.A. |
||||
|---|---|---|---|---|---|
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
||
| Income | 358,730 | 743,285 | 307,652 | 609,145 | |
| Net profit for the period | 29,661 | 40,342 | 69,434 | 137,761 | |
| Comprehensive income | 35,277 | (9,087) | 4,901 | 3,322 | |
| Total comprehensive income | 64,938 | 31,255 | 74,335 | 141,083 | |
| Attributable to Shareholders of the associates Comprehensive income (pre-acquisition) Adjustments of intra-group transactions (reverse |
64,93 8 - |
31,255 - |
74,335 - |
141,083 (78,663) |
|
| of the VOBA annual amortization (*) | 6,041 | 12,792 | |||
| Attributable to Shareholders of the associates adjusted of intra-group transactions |
70,979 | 44,047 | 74,335 | 62,420 | |
| Attributable to the BCP Group | 34,780 | 21,583 | 16,745 | 14,061 | |
| Financial assets Non-financial assets Financial liabilities Non-financial liabilities |
10,510,203 386,028 (9,900,845) (104,841) |
10,124,342 395,291 (9,581,715) (112,261) |
4,789,377 625,456 (4,710,216) (88,639) |
4,866,955 676,231 (4,714,890) (167,830) |
|
| Equity | 890,545 | 825,657 | 615,978 | 660,466 | |
| Attributable to Shareholders of the associates Adjustments of intra-group transactions (reverse |
890,5 45 |
825,657 | 615,978 | 660,466 | |
| of the VOBA total amortizations (*) | 310,260 | 304,219 | |||
| Attributable to Shareholders of the associates adjusted of intra-group transactions |
1,200,805 | 1,129,876 | 615,978 | 660,466 | |
| Attributable to the BCP Group | 588,394 | 553,639 | 140,040 | 150,154 | |
| Reverse of the initial gain in 2004 allocated to the BCP Group Goodwill of the merge |
(309,142) | (309,142) | - 69,600 |
- 69,600 |
|
| Attributable to the BCP Group | |||||
| adjusted of consolidation items | 279,252 | 244,497 | 209,640 | 219,754 |
(*) - VOBA corresponds to the estimated current value of the future cash flows of the contracts in force at the date of acquisition. The value of the acquired business (VOBA) is recognized in the consolidated accounts of Millenniumbcp Ageas Grupo Segurador, S.G.P.S., S.A. as intangible assets and is amortized over the period of recognition of the income associated with the policies acquired.
The movement of these investments is as follows:
| Millenniumbcp Ageas Grupo Segurador, S.G.P.S., S.A. |
Banco Millennium Atlântico, S.A. |
|||
|---|---|---|---|---|
| Jun 2017 | Dec 2016 | Jun 2017 | Dec 2016 | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Ownership held by BCP on equity | ||||
| of the associates as at 1 January | 244,497 | 222,914 | 219,754 | - |
| Merger of Banco Millennium Angola, S.A. | ||||
| with Banco Privado Atlântico, S.A. | - | - | - | 205,140 |
| Exchange differences | - | - | (12,234) | 11,632 |
| Other comprehensive income attributable to BCP | 17,261 | (4,453) | 359 | 755 |
| Dividends received | - | - | (14,011) | (10,031) |
| Appropriation by BCP of net income of | ||||
| the associates (*) | 17,368 | 26,036 | 15,771 | 13,306 |
| Other adjustments | 126 | - | 1 | (1,048) |
| Investment held at the end of the period | 279,252 | 244,497 | 209,640 | 219,754 |
(*) - includes adjustments of intra-group transactions.
This balance is analysed as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Gross value | ||
| Real estate | ||
| Assets arising from recovered loans results | 1 ,844,818 |
1,798,040 |
| Assets belong to investments funds and | ||
| real estate companies | 475,709 | 529,261 |
| Assets for own use (closed branches) | 72,259 | 77,323 |
| Equipment and other | 31,472 | 31,577 |
| Other assets | 34,849 | 41,537 |
| 2,459,107 | 2,477,738 | |
| Impairment | ||
| Real estate | ||
| Assets arising from recovered loans results | ( 200,155) |
(203,020) |
| Assets belong to investments funds and | ||
| real estate companies | (16,769) | (7,277) |
| Assets for own use (closed branches) | (8,463) | (7,106) |
| Equipment and other | (9,753) | (10,176) |
| (235,140) | (227,579) | |
| 2,223,967 | 2,250,159 |
The assets included in this balance are accounted for in accordance with the accounting policy note 1 k).
The balance Real estate - Assets arising from recovered loans includes, essentially, real estate resulted from recovered loans or judicial auction following the resolution of credit agreements to customers who are accounted following the establishment of the contract or promise of recovered loans and the respective irrevocable power of attorney issued by the client on behalf of the Bank. Additional information on these assets is presented in note 51.
These assets are available for sale in a period less than one year and the Bank has a strategy for its sale, according to the characteristic of each asset. However, taking into account the actual market conditions, it was not possible in all instances to conclude the sales in the expected time. The sale strategy is based in an active search of buyers, with the Bank having a website where advertises these properties and through partnerships with the mediation of companies having more ability for the product that each time the Bank has for sale. Prices are periodically reviewed and adjusted for continuous adaptation to the market.
The Group requests, regularly, to the Bank of Portugal, following the Article 114º of the General Regime of Credit Institutions and Financial Companies, the extension of the period of holding these properties.
The referred balance includes real estate for which the Group has already established contracts for the sale in the amount of Euros 74,207,000 (31 December 2016: Euros 92,682,000), which impairment associated is Euros 9,403,000 (31 December 2016: Euros 17,435,000), that was calculated considering the value of the contracts.
The changes occurred in impairment for non-current assets held for sale are analysed as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
||
|---|---|---|---|
| Balance on 1 January | 227,579 | 265,170 | |
| Transfers | - | (13,788) | |
| Impairment for the period | 40,162 | 9,135 | |
| Write-back for the period | (137) | (339) | |
| Amounts charged-off | (33,143) | (33,475) | |
| Exchange rate differences | 679 | (1,042) | |
| Balance on 30 June | 235,140 | 225,661 |
The balance Investment property corresponds to real estate evaluated in accordance with the accounting policy presented in note 1 r), based on independent assessments and compliance with legal requirements.
The rents received related to these assets amounted to Euros 251,000 (31 December 2016: Euros 1,001,000), and the maintenance expenses related to rented or not rented real estate, amount to Euros 133,000 (31 December 2016: Euros 375,000).
This balance is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Gross value | ||
| Land and buildings | 838,340 | 841,497 |
| Equipment | ||
| Furniture | 83,724 | 82,947 |
| Machinery | 44,922 | 44,642 |
| Computer equipment | 292,901 | 286,268 |
| Interior installations | 139,001 | 136,563 |
| Motor vehicles | 30,675 | 24,857 |
| Security equipment | 71,696 | 71,391 |
| Other equipment | 30,439 | 29,696 |
| Work in progress | 18,715 | 16,532 |
| Other tangible assets | 235 | 219 |
| 1,550,648 | 1,534,612 | |
| Accumulated depreciation | ||
| Charge for the period (note 11) | (20,526) | (39,100) |
| Charge for the previous periods | (1,042,697) | (1,021,646) |
| (1,063,223) | (1,060,746) |
473,866 487,425
This balance is analysed as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Intangible assets | ||
| Gross value | ||
| Software | 105,089 | 101,739 |
| Other intangible assets | 56,057 | 52,509 |
| 161,146 | 154,248 | |
| Accumulated amortization | ||
| Charge for the period (note 11) | (5,593) | (10,724) |
| Charge for the previous periods | (121,218) | (111,349) |
| (126,811) | (122,073) | |
| 34,335 | 32,175 | |
| Differences arising on consolidation (Goodwill) | ||
| Gross value | ||
| Bank Millennium, S.A. (Poland) | 125,447 | 125,447 |
| Real estate and mortgage credit | 40,859 | 40,859 |
| Others | 21,181 | 31,354 |
| 187,487 | 197,660 | |
| Impairment | ||
| Real estate and mortgage credit | (40,859) | (40,859) |
| Others | (16,670) | (26,870) |
| (57,529) | (67,729) | |
| 129,958 | 129,931 | |
| 164,293 | 162,106 |
30 June 2017
According to the accounting policy described in note 1 b), the recoverable amount of the Goodwill is annually assessed in the second semester of each year or whenever there are indications of eventual loss of value.
In accordance with IAS 36 the recoverable amount of goodwill resulting from the consolidation of the subsidiaries, should be the greater between its value in use (the present value of the future cash flows expected from its use) and its fair value less costs to sell. Based on these criteria, the Group made in 2016, valuations of their investments for which there is goodwill recognised considering among other factors:
There were not identified in the first semester of 2017, any factors that indicates the deterioration in these investments' amount.
The valuations are based on reasonable and sustainable assumptions representing the best estimate of the Executive Committee on the economic conditions that affect each subsidiary, the budgets and the latest projections approved for those subsidiaries and their extrapolation to future periods. The assumptions made for these valuations might vary with the change in economic conditions and in the market.
The estimated cash flows of the business were projected based on current operating results and assuming the business plan and projections approved by the Executive Committee up to 2021. After that date, perpetuity was considered based on the average long-term expected rate of return for this activity in the Polish market. Additionally it was taken into consideration the market performance of the Bank Millennium, S.A. in the Polish capital market and the direct percentage of shareholding. Based on this analysis and the expectations of future development, the Group concluded for the absence of impairment indicators related to the goodwill of this participation.
The business plan of Bank Millennium, S.A. comprises a five-year period, from 2017 to 2021, considering, along this period, a compound annual growth rate of 4.9% for Total Assets and of 8.8% for Total Equity, while considering a ROE evolution from 8.0% in 2017 to 9.6% by the end of the period.
The exchange rate EUR/PLN considered was 4.4047 at the end of 2016 (December 2016 average: 4.4322).
The Cost of Equity considered was 9.50% for the period 2017-2021 and in perpetuity. The annual growth rate in perpetuity (g) was 3.1%.
Considering the changes made in management of the real estate and mortgage credit over the past few years, the Executive Committee analysed this business as a whole.
The estimated cash flows of the business were projected based on current operating results and assuming the business plan and projections approved by the Executive Committee for real estate business and a set of assumptions related to the estimated future evolution of the businesses of mortgage credit originated in real estate agents network and real estate promotion.
The Real estate and mortgage business comprises the current Banco de Investimento Imobiliário operations plus the income associated with other portfolios booked in Banco Comercial Português.
The business plan and estimates for Real estate and mortgage business comprises a five-year period, from 2017 to 2021, considering, along this period, an average annual decrease rate of -8.1% for total assets and of 0.5% for the allocated capital. As a consequence of the impairment test made, it was recognised during 2016 an impairment loss of Euros 40,859,000 corresponding to 100.0% of the goodwill associated.
Deferred income tax assets and liabilities, are analysed as follows:
| Jun 2017 | Dec 2016 | |||||
|---|---|---|---|---|---|---|
| Assets | Liabilities | Net | Assets | Liabilities | Net | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Deferred taxes not depending | ||||||
| on the future profits (a) | ||||||
| Impairment losses | 922,771 | - | 922,771 | 927,675 | - | 927,675 |
| Employee benefits | 762,114 | - | 762,114 | 789,000 | - | 789,000 |
| 1,684,885 | - | 1,684,885 | 1,716,675 | - | 1,716,675 | |
| Deferred taxes depending | ||||||
| on the future profits | ||||||
| Impairment losses | 968,012 | 50,303 | 917,709 | 928,645 | 50,303 | 878,342 |
| Tax losses carried forward | 494,098 | - | 494,098 | 494,785 | - | 494,785 |
| Employee benefits | 37,701 | 2,673 | 35,028 | 60,083 | 27,248 | 32,835 |
| Financial assets available for sale | 29,475 | 7,285 | 22,190 | 60,828 | 5,458 | 55,370 |
| Derivatives | - | 7,305 | (7,305) | - | 7,444 | (7,444) |
| Intangible assets | 39 | - | 39 | 39 | - | 39 |
| Other tangible assets | 10,287 | 3,369 | 6,918 | 8,289 | 3,547 | 4,742 |
| Others | 27,177 | 16,931 | 10,246 | 34,258 | 27,366 | 6,892 |
| 1,566,789 | 87,866 | 1,478,923 | 1,586,927 | 121,366 | 1,465,561 | |
| Total deferred taxes | 3,251,674 | 87,866 | 3,163,808 | 3,303,602 | 121,366 | 3,182,236 |
| Offset between deferred tax assets and deferred tax liabilities |
(86,231) | (86,231) | - | (118,677) | (118,677) | - |
| Net deferred taxes | 3,165,443 | 1,635 | 3,163,808 | 3,184,925 | 2,689 | 3,182,236 |
(a) Special Regime applicable to deferred tax assets
The Extraordinary General Meeting of the Bank, held on 15 October 2014, approved the Bank's adherence to the special regime applicable to deferred tax assets, approved by Law no. 61/2014, of August 26, applicable to expenses and negative equity variations recorded in taxable periods beginning on or after 1 January 2015 and the deferred tax assets that are recorded in the annual accounts of the taxpayer to the last period prior to that date and the taxation of the expenses and negative equity variations that are associated with them. Pursuant to Law no. 23/2016, of 19 August, this special regime is not apply to expenses and negative equity changes recorded in the tax periods beginning on or after 1 January 2016, or to tax assets associated with them.
The Law no. 61/2014, of 26 August, provides an optional framework with the possibility of subsequent resignation, according to which, in certain situations (those of negative net result in individual annual accounts or liquidation by voluntary dissolution, insolvency decreed in court or revocation of the respective authorization), there will be a conversion into tax credits of the deferred tax assets that have resulted from the non-deduction of expenses and reductions in the value of assets resulting from impairment losses on credits and from post-employment or long-term employee benefits. In this case, it should be constituted a special reserve corresponding to 110% of its amount, which implies the simultaneous constitution of conversion rights attributable to the State of equivalent value, which rights can be acquired by the shareholders through payment to the State of that same amount. Tax credits can be offset against tax debts of the beneficiaries (or from an entity based in Portugal of the same prudential consolidation perimeter) or reimbursable by the State. Under the regime described, the recovery of deferred tax assets covered by the optional regime approved by Law no. 61/2014, of 26 August, is not dependent on future profits.
The above-mentioned legal framework was densified by ordinance no. 259/2015, of 4 October, about the control and use of tax credits, and by the ordinance No. 293-A / 2016, of 18 November, which establishes the conditions and procedures for the acquisition by the shareholders of the referred rights of the State. According to this legislation, among other aspects, these rights are subject to a right of acquisition by the shareholders on the date of creation of the rights of the State, exercisable in periods that will be established by the Board of Directors until 10 years after the date of its creation, and the issuing bank shall deposit in the name of the State the amount of the price corresponding to all the rights issued, within 3 months of date of its creation, in advance and independently of its acquisition. Such deposit shall be redeemed when and to the extent that the rights of the State are acquired by the shareholders, or exercised by the State.
Deferred taxes are calculated based on the tax rates expected to be in force when the temporary differences are reversed, which correspond to the approved rates or substantively approved at the balance sheet date. The deferred tax assets and liabilities are presented on a net basis whenever, in accordance with applicable law, current tax assets and current tax liabilities can be offset and when the deferred taxes are related to the same tax.
The deferred tax rate for Banco Comercial Português, S.A. is analysed as follows:
| Description | Jun 2017 | Dec 2016 |
|---|---|---|
| Income tax | 21% | 21% |
| Municipal surtax rate | 1.5% | 1.5% |
| State tax rate | 7% | 7% |
| Total | 29.5% | 29.5% |
30 June 2017
The tax applicable to deferred taxes related to tax losses of the Bank is 21% (31 December 2016: 21%).
The average deferred tax rate associated with temporary differences of the Bank is 29.43% (31 December 2016: 29.43%). The income tax rate in the other main countries where the Group operates is 19% in Poland, 32% in Mozambique, 0% (exemption) in the Cayman Islands and 24.24% in Switzerland.
The reporting period of tax losses in Portugal is 5 years for the losses of 2012, 2013 and 2017 and 12 years for the losses of 2014, 2015 and 2016. In Poland, the term is 5 years, in Mozambique it is 5 years and in Switzerland it is 7 years.
In 2016, Banco Comercial Português, S.A. opted for the Special Regime for Taxation of Groups of Companies (RETGS).
The balance of deferred tax assets, with reference to 30 June 2017, related to expenses and negative equity variations with post-employment or long-term employee benefits and to specific credit impairment losses registered up to 31 December 2014 amounts to Euros 1,640,215,000, of which Euros 210,686,000 and Euros 4,020,000 were recorded in 2015 and 2016, respectively, assets which are considered eligible for the scheme approved by Law no. 61/2014, of 26 August.
The differed income tax assets associated to tax losses carried forward, by expire date, is presented as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Maturity | Euros '000 | Euros '000 |
| 2018 | 3,320 | 4,069 |
| 2019-2025 | 65 | 4 |
| 2026 | 212,833 | 201,812 |
| 2028 and following | 277,880 | 288,900 |
| 494,098 | 494,785 |
Regarding the activity in Portugal, the specific rules regarding the tax regime for credit impairment and guarantees for the tax periods beginning on or after 1 January 2017 are not defined, since the reference to the Bank of Portugal Notice No. 3/95 was only applicable until 31 December 2016 and the regime that will be effective as at 1 January 2017 has not yet been defined. In this context, the Bank is considering, for the purpose of calculating taxable income and the deferred tax recording with reference to 30 June 2017, that the impairment of the credit and guarantees recorded which is deductible for IRC purpose is limited to the amount of the deductible provisions that would have been verified if the Bank of Portugal Notice No. 3/95 still remained in force.
In the projections of future taxable income, the Executive Committee considered the approximation between the tax rules and accounting rules underlying a bill amending article 28-C of the IRC Code and publicly referred to by the Secretary of State of Fiscal Issues in office until July 13, 2017, on the understanding that it is probable the approval of a diploma without substantial changes in relation to the referred bill.
Briefly, in accordance with referred bill, the impairment losses resulting from individual analysis are deductible up to the amount corresponding to the application of the maximum reference percentages set by the Bank of Portugal on the value of the exposure not covered by assets given as collateral for the respective payment and impairment losses resulting from a collective analysis are deductible at 75% of the amount of the difference, when positive, calculated annually between the accumulated amount of these losses and the balance that has been accepted for tax purposes in previous taxation years, with a transition period of 15 years with increasing percentages for the tax deductibility of impairment losses for credit and guarantees not accepted fiscally until 31 December 2016 and which become deductible under the terms provided in the bill. In this context, in the projections of future taxable income, were considered the scenario in which the impairment losses resulting from individual analysis are fully deductible.
Additionally, as part of the analysis of the recoverability of deferred tax assets, the Bank prepared a sensitivity analysis on the assumption of future maintenance of the tax regime applicable to impairment for credit and guarantees that was in force in 2016 (Bank of Portugal Notice No 3/95). According to this sensitivity analysis, the Bank also concluded the recoverability of all deferred tax assets recorded as at 30 June 2017.
In accordance with the accounting policy 1 ad. ii), and with the requirements of IAS 12, the deferred tax assets were recognized based on the Group's expectation of their recoverability.
The recoverability of deferred taxes depends on the implementation of the strategy of the Bank's Board of Directors, namely the generation of estimated taxable income and its interpretation of tax legislation. Any changes in the assumptions used in estimating future profits or tax legislation may have material impacts on deferred tax assets.
The assessment of the recoverability of deferred tax assets was carried out for each entity included in the Group's consolidation perimeter based on the respective financial statements prepared under the budget process for 2017 and which support future taxable income for each Group's entity considering the macroeconomic and competitive environment, at the same time that incorporate the Group's strategic priorities.
The projections made take into consideration, in addition to the Group's strategic priorities, certain assumptions of the Funding and Capital Plan requested by Bank of Portugal, namely in terms of interest rate evolution, and are globally consistent with the Reduction Plan of Non-Performing Assets 2017-2021 sent it to the supervisory entity, underlining:
Improvement of the net interest income, considering interest rate curves used under the scope of the projections of net interest income in line with the market forecasts;
Stabilization of the ratio loans and advances over the balance sheet resources from customer by approximately 100%, simultaneously with a reduction of NPE of loans and advances in Portugal;
Decrease in the cost of risk, supported by the expectation of a gradual recovery of economic activity, consubstantiating a stabilization of the business risk, as well as the reduction of the non-core portfolio. In this way, the gradual convergence of the cost of credit risk (up to 2021) is estimated to be close to those currently observed in other European countries, including in the Iberian Peninsula.
30 June 2017
Control of the operating expenses, in line with the targets defined in the Group's strategic priorities;
Positive net results, projecting the favourable evolution of the ROE and maintaining of the CET1 ratio fully implemented at levels appropriate to the requirements and benchmarks. From 2021 onwards, it is estimated an annual growth of the RAI, which reflects a partial convergence to the estimated Cost of Equity.
Additionally, the deductions related to impairment of financial assets were projected based on the destination (sale or settlement) and the estimated date of the respective operations. The deductions related to employee benefits are projected based on their estimated payments or deduction plans, in accordance with information provided by the actuary of the pension fund.
The analyses made allow the conclusion of the recoverability of the total deferred tax assets recognised as at 30 June 2017.
It is present the sensitivity of the analysis of the recoverability of deferred tax assets to the estimate of income before income taxes: If there was a 5% reduction in estimated income before income taxes in all years of projections from 2017 to 2028, the deferred tax assets would have a reduction of about Euros 73 million; If there was a 5% increase in estimated income before income taxes in all years of projections from 2017 to 2028, the deferred tax assets would have an increase of about Euros 73 million.
In accordance with this assessment, the amount of unrecognized deferred tax, by year of expiration, is as follows:
| Tax losses carried forward | Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|---|---|---|
| 2017 | 2,418 | 2,453 |
| 2018 | 1,595 | 1,594 |
| 2019-2025 | 852 | 3 |
| 2026 | 912 | 917 |
| 2027 and following | 242,123 | 172,552 |
| 247,900 | 177,519 |
The impact of income taxes in Net income / (loss) and in other captions of Group's equity, as at 30 June 2017, is analysed as follows:
| Jun 2017 | |||
|---|---|---|---|
| Net income / (loss) for the period Euros '000 |
Reserves and retained earnings Euros '000 |
Exchange differences Euros '000 |
|
| Deferred taxes | |||
| Deferred taxes not depending | |||
| on the future profits (a) | |||
| Impairment losses | (7,163) | 2,259 | - |
| Employee benefits | (26,199) | (687) | - |
| (33,362) | 1,572 | - | |
| Deferred taxes depending | |||
| on the future profits | |||
| Impairment losses | 40,699 | (2,259) | 927 |
| Tax losses carried forward | (8,749) | 7,651 | 411 |
| Employee benefits | 7,297 | (4,851) | (253) |
| Financial assets available for sale | - | (32,644) | (536) |
| Derivatives | 461 | - | (322) |
| Other tangible assets | 2,123 | - | 53 |
| Others | 2,640 | - | 714 |
| 44,471 | (32,103) | 994 | |
| 11,109 | (30,531) | 994 | |
| Current taxes | |||
| Actual period | (55,945) | 12 | - |
| Correction of previous periods | 1,397 | - | - |
| (54,548) | 12 | - | |
| (43,439) | (30,519) | 994 |
(a) Deferred tax related to expenses and negative equity variations covered by the special arrangements for deferred tax assets (Law No. 61/2014 of 26 August). Under the Law No. 23/2016 of 19 August, this special scheme is not applicable to expenses and negative equity variations accounted in the taxable periods beginning on or after 1 January 2016, neither to deferred tax assets associated with them.
The impact of income taxes in Net income / (loss) and in other captions of Group's equity, as at 30 June 2016, is analysed as follows:
| Jun 2016 | ||||
|---|---|---|---|---|
| Net income / (loss) for the period Euros '000 |
Reserves and retained earnings Euros '000 |
Exchange differences Euros '000 |
Discontinued operations and other variations Euros '000 |
|
| Deferred taxes | ||||
| Deferred taxes not depending on the future profits (a) |
||||
| Impairment losses | 380,439 | (418,125) | - | - |
| Employee benefits | 20,546 | 1,654 | - | - |
| 400,985 | (416,471) | - | - | |
| Deferred taxes depending | ||||
| on the future profits | ||||
| Impairment losses | (402,995) | 439,171 | (2,921) | 13,683 |
| Tax losses carried forward | 111,520 | 2,034 | (52) | - |
| Employee benefits | 2,252 | 22,102 | 699 | - |
| Financial assets available for sale | - | 30,794 | (5,280) | - |
| Derivatives | 845 | - | (686) | - |
| Other tangible assets | 262 | - | (58) | - |
| Others | 21,879 | - | 1,732 | (511) |
| (266,237) | 494,101 | (6,566) | 13,172 | |
| 134,748 | 77,630 | (6,566) | 13,172 | |
| Current taxes | ||||
| Actual period | (56,996) | 147 | - | 2 |
| Correction of previous periods | 549 | (62) | - | - |
| (56,447) | 85 | - | 2 | |
| 78,301 | 77,715 | (6,566) | 13,174 |
(a) Deferred tax related to expenses and negative equity variations covered by the special arrangements for deferred tax assets (Law No. 61/2014 of 26 August). Under the Law No. 23/2016 of 19 August, this special scheme is not applicable to expenses and negative equity variations accounted in the taxable periods beginning on or after 1 January 2016, neither to deferred tax assets associated with them.
The reconciliation between the nominal tax rate and the effective tax rate is analysed as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Net income / (loss) before income taxes | 183,304 | (241,262) |
| Current tax rate (%) | 29.5% | 29.5% |
| Expected tax | (54,075) | 71,172 |
| Non-deductible impairment | (7,761) | (10,844) |
| Contribution to the banking setor | (13,335) | (7,322) |
| Results of companies consolidated by the equity method | 10,356 | 11,126 |
| Other accruals for the purpose of calculating the taxable income | (5,227) | (7,888) |
| Employees' benefits | 15,661 | - |
| Effect of difference of rate tax and deferred tax | ||
| not recognised previously | 8,468 | 11,761 |
| Correction of previous periods | 2,779 | 11,080 |
| (Autonomous tax) / tax credits | (305) | (784) |
| Total | (43,439) | 78,301 |
| Effective rate | 23.7% | 32.5% |
This balance is analysed as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Deposit account applications | 295,208 | 280,675 |
| Associated companies | 939 | 6,247 |
| Subsidies receivables | 7,661 | 5,084 |
| Prepaid expenses | 36,822 | 31,662 |
| Debtors for futures and options transactions | 50,2 07 |
49,422 |
| Debtors | ||
| Residents | ||
| Insurance activity | 5,017 | 4,386 |
| Advances to suppliers | 1,206 | 1,663 |
| SIBS | 6,889 | 6,340 |
| Prosecution cases / agreements with the Bank | 1 1,317 |
11,481 |
| Receivables from real estate, transfers | ||
| of assets and other securities | 48,224 | 55,693 |
| Others | 90,866 | 81,432 |
| Non-residents | 31,263 | 26,014 |
| Receivable dividends | - | 18,063 |
| Interest and other amounts receivable | 44,366 | 47,763 |
| Amounts receivable on trading activity | 69,993 | 37,223 |
| Gold and other precious metals | 3,597 | 3,635 |
| Other financial investments | 6,304 | 20,426 |
| Other recoverable tax | 24,152 | 24,558 |
| Artistic patrimony | 28,853 | 28,811 |
| Capital supplementary contributions | 8,010 | 7,648 |
| Reinsurance technical provision | 18,362 | 11,999 |
| Obligations with post-employment benefits (note 48) | 130,112 | 31,681 |
| Capital supplies | 217,742 | 214,810 |
| Amounts due for collection | 32,024 | 29,618 |
| Amounts due from customers | 198,923 | 227,376 |
| Sundry assets | 107,309 | 91,493 |
| 1,475,366 | 1,355,203 | |
| Impairment for other assets | (294,076) | (267,389) |
| 1,181,290 | 1,087,814 |
As referred in note 56, the balance Capital supplies includes the amount of Euros 216,345,000 (31 December 2016: Euros 213,464,000) and the balance Capital supplementary contributions includes the amount of Euros 2,939,000 (31 December 2016: Euros 2,939,000), arising from the transfers of assets to Specialized recovery funds which have impairment in the same amount. The impairment with impact on results in the first semester of 2017 related to these operations amounted to Euros 2,880,000 (30 June 2016: Euros 3,022,000).
As at 30 June 2017, the caption Deposit account applications includes the amount of Euros 240,004,000 (31 December 2016: Euros 228,949,000) on the Clearing houses / Clearing derivatives.
The caption Amounts receivable on trading activity includes amounts receivable within 3 business days of stock exchange operations.
Considering the nature of these transactions and the age of the amounts of these items, the Group's procedure is to periodically assess the collectability of these amounts and whenever impairment is identified, an impairment loss is recognised in the income statement.
The changes occurred in impairment for other assets are analysed as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Balance on 1 January | 267,389 | 240,943 |
| Other transfers | 7,429 | 22,472 |
| Impairment for the period | 21,860 | 5,327 |
| Write back for the period | (618) | (152) |
| Amounts charged-off | (2,132) | (120) |
| Exchange rate differences | 148 | (351) |
| Balance on 30 June | 294,076 | 268,119 |
This balance is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Resources and other financing from Central Banks | ||
| Bank of Portugal | 3,976,226 | 4,851,574 |
| Central Banks abroad | 196,782 | 300,098 |
| 4,173,008 | 5,151,672 | |
| Resources from credit institutions in Portugal | ||
| Sight deposits | 82,873 | 126,260 |
| Term Deposits | 132,106 | 428,861 |
| Loans obtained | - | 2,978 |
| Other resources | 3,679 | 1,240 |
| 218,658 | 559,339 | |
| Resources from credit institutions abroad | ||
| Very short-term deposits | 1,077 | 11 |
| Sight deposits | 131,990 | 151,516 |
| Term Deposits | 331,546 | 240,712 |
| Loans obtained | 1,431,113 | 1,450,724 |
| Sales operations with repurchase agreement | 3,075 ,864 |
2,317,772 |
| Other resources | 9,925 | 66,649 |
| 4,981,515 | 4,227,384 | |
| 9,373,181 | 9,938,395 |
The caption Resources from credit institutions abroad includes, under the scope of transactions involving derivative financial instruments (IRS and CIRS) with institutional counterparties, and in accordance with the terms of their respective agreements ("Cash collateral"), the amount of Euros 74,368,000 (31 December 2016: Euros 66,485,000). These deposits are held by the Group and are reported as collateral for the referred operations (IRS and CIRS), whose revaluation is positive.
The caption Resources from credit institutions - Resources from credit institutions abroad - Sales operations with repurchase agreement, corresponds to repo operations carried out in the money market and is a tool for the Bank's treasury management.
This balance is analysed as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Deposits from customers: | ||
| Repayable on demand | 24,200,240 | 22,017,099 |
| Term deposits | 20,161,866 | 20,459,067 |
| Saving accounts | 3,007,022 | 2,841,677 |
| Deposits at fair value through profit and loss | 2, 835,451 |
2,985,741 |
| Treasury bills and other assets sold | ||
| under repurchase agreement | 110,441 | 137,707 |
| Cheques and orders to pay | 308,808 | 320,159 |
| Others | 11,921 | 36,197 |
| 50,635,749 | 48,797,647 |
In the terms of the Law, the Deposit Guarantee Fund was established to guarantee the reimbursement of funds deposited in Credit Institutions. The criteria to calculate the annual contributions to the referred fund are defined in the Regulation no. 11/94 of the Bank of Portugal.
The caption Deposits from customers - Deposits at fair value through profit and loss is measured at fair value in accordance with internal valuation techniques considering mainly observable internal inputs. In accordance with the hierarchy of the valuation sources, as referred in IFRS 13 these instruments are classified in level 3 (note 47). These financial liabilities are revalued against income statement, as referred in the accounting policy presented in note 1 d) and was recognised in the first semester of 2017 a loss of Euros 227,000 (31 December 2016: gain of Euros 3,239,000) related to the fair value changes resulting from variations in the credit risk of the Group, as referred in note 6.
The nominal amount of the caption Deposits from customers - Deposits at fair value through profit and loss amounts to, as at 30 June 2017, Euros 2,835,203,000 (31 December 2016: Euros 2,992,567,000).
| This balance is analysed as follows: | ||
|---|---|---|
| Jun 2017 | Dec 2016 | |
| Euros '000 | Euros '000 | |
| Debt securities at amortized cost | ||
| Bonds | 877,292 | 967,289 |
| Covered bonds | 992,063 | 926,793 |
| MTNs | 25,592 | 415,460 |
| Securitizations | 361,454 | 382,412 |
| 2,256,401 | 2,691,954 | |
| Accruals | 3,164 | 35,202 |
| 2,259,565 | 2,727,156 | |
| Debt securities at fair value through profit and loss | ||
| Bonds | 25,201 | 38,709 |
| MTNs | 158,445 | 157,873 |
| 183,646 | 196,582 | |
| Accruals | 340 | 3,566 |
| 183,986 | 200,148 | |
| Certificates at fair value through profit and loss | 6 77,874 |
585,516 |
| 3,121,425 | 3,512,820 |
The securities in caption Debt securities at fair value through profit and loss are measured in accordance with internal valuation techniques considering mainly observable market inputs. In accordance with the hierarchy of the valuation sources, as referred in IFRS 13, these instruments are classified in level 2 (note 47). These financial liabilities are revalued against income statement, as referred in the accounting policy presented in note 1 d). As at 30 June 2017, a gain in the amount of Euros 392,000 was recognised (31 December 2016: loss of Euros 1,368,000) related to the fair value changes resulting from variations in the credit risk of the Group, as referred in note 6.
The nominal value of the balance Debt securities at fair value through profit and loss includes, as at 30 June 2017, the amount of Euros 163,940,000 (31 December 2016: Euros 177,890,000).
The balance is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Short selling securities | 25,381 | 24,228 |
| Trading derivatives (note 23): | ||
| Swaps | 425,888 | 498,702 |
| Options | 2,093 | 4,457 |
| Embedded derivatives | 10,567 | 6,111 |
| Forwards | 9,408 | 6,225 |
| Others | 2,855 | 7,864 |
| 450,811 | 523,359 | |
| 476,192 | 547,587 | |
| Level 1 | 496 | 234 |
| Level 2 | 394,263 | 459,309 |
| Level 3 | 81,433 | 88,044 |
As referred in IFRS 13, financial instruments are measured according to the levels of valuation described in note 47.
The balance Financial liabilities held for trading includes, as at 30 June 2017, the embedded derivatives valuation separated from the host contracts in accordance with the accounting policy presented in note 1 d), in the amount of Euros 10,567,000 (31 December 2016: Euros 6,111,000). This note should be analysed together with note 23.
This balance is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Provision for guarantees and other commitments (note 22) | 127,213 | 128,056 |
| Technical provision for the insurance activity | ||
| For direct insurance and reinsurance accepted | ||
| Unearned premium | 11,551 | 10,490 |
| Life insurance | 36,812 | 34,751 |
| For participation in profit and loss | 2,828 | 431 |
| Other technical provisions | 23,424 | 15,816 |
| Other provisions for liabilities and charges | 137,268 | 131,506 |
| 339,096 | 321,050 |
Changes in Provision for guarantees and other commitments are analysed as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Balance on 1 January | 128,056 | 74,710 |
| Transfers resulting from changes in the | ||
| Group's structure | - | (930) |
| Other transfers | - | 102 |
| Charge for the period | 8,286 | 14,384 |
| Write-back for the period | (9,433) | (4,167) |
| Exchange rate differences | 304 | (1,886) |
| Balance on 30 June | 127,213 | 82,213 |
Changes in Other provisions for liabilities and charges are analysed as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Balance on 1 January | 131,506 | 136,908 |
| Transfers resulting from changes in the | ||
| Group's structure | 3 | (1,879) |
| Other transfers | (572) | 13,696 |
| Charge for the period | 9,748 | 7,083 |
| Write-back for the period | (492) | (7,828) |
| Amounts charged-off | (3,426) | (3,334) |
| Exchange rate differences | 501 | (1,666) |
| Balance on 30 June | 137,268 | 142,980 |
The Other provisions for liabilities and charges were based on the probability of occurrence of certain contingencies related to risks inherent to the Group's activity, being reviewed at each reporting date to reflect the best estimate of the amount and respective probability of payment. This caption includes provisions for contingencies in the sale of Millennium Bank (Greece), lawsuits, fraud and tax contingencies. The provisions constituted to cover tax contingencies totalled Euros 57,260,000 (31 December 2016: Euros 49,016,000 ) and are associated, essentially, to contingencies related to VAT and Stamp Duty.
This balance is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Bonds | ||
| Non Perpetual | 810,035 | 804,547 |
| Perpetual | 27,147 | 28,955 |
| CoCos | - | 703,421 |
| 837,182 | 1,536,923 | |
| Accruals | 13,421 | 7,632 |
| 850,603 | 1,544,555 |
The balance Subordinated debt - CoCos corresponds to hybrids subordinated debt instruments that qualify as Core Tier I Capital, issued on 29 June 2012, by Banco Comercial Português, S.A. with an initial amount of Euros 3,000,000,000 and fully subscribed by the Portuguese State. These instruments are fully reimbursable by the Bank through a five years period and only in specific circumstances, such as delinquency or lack of payment are susceptible of being converted in Bank's ordinary shares.
The referred instruments were issued under the scope of the recapitalisation program of the bank, using the Euros 12,000,000,000 line made available by the Portuguese State, under the scope of the IMF intervention program, in accordance with the Law no. 150-A/2012. Following the restructuring process agreed with DGComp, these instruments are eligible for prudential effects as Core Tier I. However, under the IAS 32 - Financial Instruments: Presentation for accounting purposes, these instruments are classified as liability according to its characteristics, namely: (i) mandatory obligation to pay capital and interests; and (ii) in case of settlement through the delivery of equity securities, the number of securities to delivery is depending on the market value at the date of conversion, in order to have the value of the bond settled.
Thus, the classification as liability results from the fact that the investor, as holder of the instrument issued, is not exposed to the company equity instruments risk, and will always receive the equivalent amount of the value invested, in cash or in ordinary shares of the Bank. The operation has an increasing interest rate beginning in 8.5% and ending at the maturity at 10% in 2017.
Throughout 2014 and following the capital increase and the assessment of the evolution of capital ratios, the Bank repaid in May the amount of Euros 400,000,000 of core tier I capital instruments (CoCos) issued by the Portuguese State, and in August 2014 repaid Euros 1,850,000,000 of common equity tier I capital instruments (CoCos), after having received the authorization from the Bank of Portugal.
Under the Restructuring Plan approved by the European Commission following the injection of State funds in June 2012, Banco Comercial Português, S.A. became bound to a compromise catalogue that includes the need to sell its holding in Bank Millennium S.A. (Poland) if outstanding Core Tier 1 hybrid capital instruments subscribed by the Portuguese State ("CoCos") exceed Euros 700,000,000 as at 31 December 2016. Thus, the Bank repaid Euros 50,000,000 of CoCos during December 2016, thus meeting once again the deadlines established under the CoCos repayment plan agreed with the European Commission.
As referred in note 46, Banco Comercial Português, S.A. has proceeded, on 9 February 2017, to the early repayment to the Portuguese state of the remaining Core Tier 1 hybrid capital instruments, in the amount of Euros 700 million. This repayment, key to the return to normalisation of BCP's activity, was previously approved by the European Central Bank, subject to the success of the rights issue completed in this date.
As at 30 June 2017, the subordinated debt issues are analysed as follows:
| Issue | Issue date |
Maturity date |
Interest rate | Nominal value Euros '000 |
Book value Euros '000 |
Own funds value Euros '000 |
|---|---|---|---|---|---|---|
| Non Perpetual Bonds | ||||||
| Banco Comercial Português: | ||||||
| Mbcp Ob Cx Sub 1 Serie 2008-2018 | September, 2008 September, 2018 (i) See reference (viii) | 52,445 | 52,445 | 7,709 | ||
| Mbcp Ob Cx Sub 2 Serie 2008-2018 Bcp Ob Sub Jun 2020 - Emtn 727 |
October, 2008 June, 2010 |
October, 2018 (ii) June, 2020 (iii) |
See reference (viii) See reference (ix) |
14,887 14,791 |
14,887 14,791 |
2,356 2,949 |
| Bcp Ob Sub Aug 2020 - Emtn 739 | August, 2010 | August, 2020 (iv) | See reference (x) | 9,278 | 9,278 | 1,222 |
| Bcp Ob Sub Mar 2021 - Emtn 804 | March, 2011 | March, 2021 | Euribor 3M + 3.75% | 114,000 | 114,000 | 85,373 |
| Bcp Ob Sub Apr 2021 - Emtn 809 | April, 2011 | April, 2021 | Euribor 3M + 3.75% | 64,100 | 64,100 | 48,111 |
| Bcp Ob Sub 3S Apr 2021 - Emtn 812 | April, 2011 | April, 2021 | Euribor 3M + 3.75% | 35,000 | 35,000 | 26,658 |
| Bcp Sub 11/25.08.2019 - Emtn 823 | August, 2011 | August, 2019 | Fixed rate 6.383% | 7,500 | 7,916 | 3,229 |
| Bcp Subord Sep 2019 - Emtn 826 | October, 2011 | September, 2019 | Fixed rate 9.31% | 50,000 | 54,527 | 22,444 |
| Bcp Subord Nov 2019 - Emtn 830 | November, 2011 | November, 2019 | Fixed rate 8.519% | 40,000 | 43,443 | 18,844 |
| Mbcp Subord Dec 2019 - Emtn 833 | December, 2011 | December, 2019 | Fixed rate 7.15% | 26,600 | 29,045 | 12,990 |
| Mbcp Subord Jan 2020 - Emtn 834 | January, 2012 | January, 2020 | Fixed rate 7.01% | 14,000 | 14,977 | 7,101 |
| Mbcp Subord Feb 2020 - Vm Sr. 173 | April, 2012 | February, 2020 | Fixed rate 9% | 23,000 | 24,181 | 12,241 |
| Bcp Subord Apr 2020 - Vm Sr 187 | April, 2012 | April, 2020 | Fixed rate 9.15% | 51,000 | 53,350 | 28,135 |
| Bcp Subord 2 Serie Apr 2020 - Vm 194 | April, 2012 | April, 2020 | Fixed rate 9% | 25,000 | 26,092 | 13,917 |
| Bcp Subordinadas Jul 20-Emtn 844 | July, 2012 | July, 2020 | Fixed rate 9% | 26,250 | 26,860 | 15,779 |
| Bank Millennium: | ||||||
| MB Finance AB | December, 2007 | December, 2017 | Euribor 6M + 2% | 150,046 | 150,046 | 14,171 |
| BCP Finance Bank: | ||||||
| BCP Fin Bank Ltd EMTN - 828 | October, 2011 | October, 2021 | Fixed rate 13% | 94,274 | 75,053 | 19,555 |
| Magellan No. 3: | ||||||
| Magellan No. 3 Series 3 Class F | June, 2005 | May, 2058 | - | 44 | 44 | - |
| 810,035 | 342,784 | |||||
| Perpetual Bonds | ||||||
| Obrigações Caixa Perpétuas | ||||||
| Subord 2002/19jun2012 | June, 2002 | See reference (v) | See reference (xi) | 85 | 68 | - |
| TOPS BPSM 1997 | December, 1997 | See reference (vi) | Euribor 6M + 0,9% | 22,035 | 22,093 | 22,017 |
| BCP Leasing 2001 | December, 2001 | See reference (vii) | Euribor 3M + 2,25% | 4,986 | 4,986 | 4,986 |
| 27,147 | 27,003 | |||||
| Accruals | 13,421 | - | ||||
| 850,603 | 369,787 | |||||
Date of exercise of the next call option - It is considered the first date after the end of the restructuring period (31 December 2017). Subject to prior approval of the Supervisory Authorities.
(i) March 2018; (ii) - April 2018; (iii) - June 2018; (iv) - February 2018; (v) - March 2018; (vi) - June 2018 ; (vii) March 2018
(viii) - 1st year 6%; 2nd to 5th year Euribor 6M + 1%; 6th year and following Euribor 6M + 1.4%;
(ix) - Until the 5th year Fixed rate 3.25%; 6th year and following years Euribor 6M + 1%;
(x) - 1st year: 3%; 2nd year 3.25%; 3rd year 3.5%; 4th year 4%; 5th year 5%; 6th year and following Euribor 6M + 1.25%;
(xi) - Until 40th coupon 6.131%; After 40th coupon Euribor 3M + 2.4%.
As at 31 December 2016, the subordinated debt issues are analysed as follows:
| Own funds | ||||||
|---|---|---|---|---|---|---|
| Issue | Issue date |
Maturity date |
Interest rate | Nominal value Euros '000 |
Book value Euros '000 |
value Euros '000 |
| Non Perpetual Bonds | ||||||
| Banco Comercial Português: | ||||||
| MBCP Ob Cx Sub 1 Serie 2008-2018 | September, 2008 September, 2018 (i) See reference (viii) | 52,587 | 52,587 | 7,740 | ||
| MBCP Ob Cx Sub 2 Serie 2008-2018 | October, 2008 | October, 2018 (ii) | See reference (viii) | 14,887 | 14,887 | 2,357 |
| BCP Ob Sub jun 2020 - EMTN 727 | June, 2010 | June, 2020 (iii) | See reference (ix) | 14,791 | 14,791 | 1,471 |
| BCP Ob Sub ago 2020 - EMTN 739 | August, 2010 | August, 2020 (iv) | See reference (x) | 9,278 | 9,278 | 1,222 |
| BCP Ob Sub mar 2021 - EMTN 804 | March, 2011 | March, 2021 | Euribor 3M + 3.75% | 114,000 | 114,000 | 96,773 |
| BCP Ob Sub abr 2021 - EMTN 809 | April, 2011 | April, 2021 | Euribor 3M + 3.75% | 64,100 | 64,100 | 54,521 |
| BCP Ob Sub 3S abr 2021 - EMTN 812 | April, 2011 | April, 2021 | Euribor 3M + 3.75% | 35,000 | 35,000 | 30,158 |
| BCP Sub 11/25.08.2019 - EMTN 823 | August, 2011 | August, 2019 | Fixed rate 6.383% | 7,500 | 8,011 | 3,979 |
| BCP Subord set 2019 - EMTN 826 | October, 2011 | September, 2019 | Fixed rate 9.31% | 50,000 | 53,933 | 27,444 |
| BCP Subord nov 2019 - EMTN 830 | November, 2011 | November, 2019 | Fixed rate 8.519% | 40,000 | 42,675 | 22,844 |
| MBCP Subord dez 2019 - EMTN 833 | December, 2011 | December, 2019 | Fixed rate 7.15% | 26,600 | 28,260 | 15,650 |
| MBCP Subord jan 2020 - EMTN 834 | January, 2012 | January, 2020 | Fixed rate 7.01% | 14,000 | 14,490 | 8,501 |
| MBCP Subord fev 2020 - Vm Sr. 173 | April, 2012 | February, 2020 | Fixed rate 9% | 23,000 | 23,730 | 14,541 |
| BCP Subord abr 2020 - Vm Sr 187 | April, 2012 | April, 2020 | Fixed rate 9.15% | 51,000 | 52,485 | 33,235 |
| BCP Subord 2 Serie abr 2020 - Vm 194 | April, 2012 | April, 2020 | Fixed rate 9% | 25,000 | 25,650 | 16,417 |
| BCP Subordinadas jul 20-EMTN 844 | July, 2012 | July, 2020 | Fixed rate 9% | 26,250 | 26,370 | 18,404 |
| Bank Millennium: | ||||||
| MB Finance AB | December, 2007 | December, 2017 | Euribor 6M + 2% | 150,466 | 150,466 | 29,257 |
| BCP Finance Bank: | ||||||
| BCP Fin Bank Ltd EMTN - 828 | October, 2011 | October, 2021 | Fixed rate 13% | 94,413 | 73,791 | 19,470 |
| Magellan No. 3: | ||||||
| Magellan No. 3 Series 3 Class F | June, 2005 | May, 2058 | - | 44 | 44 | - |
| 804,548 | 403,984 | |||||
| Perpetual Bonds | ||||||
| Obrigações Caixa Perpétuas | ||||||
| Subord 2002/19jun2012 | June, 2002 | See reference (v) | See reference (xi) | 95 | 75 | - |
| TOPS BPSM 1997 | December, 1997 | See reference (vi) | Euribor 6M + 0.9% | 23,216 | 23,332 | 23,216 |
| BCP Leasing 2001 | December, 2001 | See reference (vii) | Euribor 3M + 2.25% | 5,548 | 5,548 | 5,548 |
| 28,955 | 28,764 | |||||
| CoCos | ||||||
| BCP Coco Bonds 12/29.06.2017 | December, 2001 | June, 2017 | See reference (xii) | 700,000 | 703,420 | 700,000 |
| Accruals | 7,632 | - | ||||
| 1,544,555 | 1,132,748 |
Date of exercise of the next call option - It is considered the first date after the end of the restructuring period (31 December 2017). Subject to prior approval of the Supervisory Authorities.
(i) March 2018; (ii) - April 2018; (iii) - June 2018; (iv) - February 2018; (v) - March 2018; (vi) - June 2018; (vii) March 2018
(viii) - 1st year 6%; 2nd to 5th year Euribor 6M + 1%; 6th year and following Euribor 6M + 1.4%;
(ix) - Until the 5th year Fixed rate 3.25%; 6th year and following years Euribor 6M + 1%;
(x) - 1st year: 3%; 2nd year 3.25%; 3rd year 3.5%; 4th year 4%; 5th year 5%; 6th year and following Euribor 6M + 1.25%;
(xi) - Until 40th coupon 6.131%; After 40th coupon Euribor 3M + 2.4%;
(xii) - 1st year: 8.5%; 2nd year 8.75%; 3rd year 9%; 4th year 9.5%; 5th year 10%.
This balance is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Creditors: | ||
| Suppliers | 33,373 | 28,430 |
| From factoring operations | 15,030 | 13,717 |
| Deposit account applications and others applications | 86,723 | 23,615 |
| Associated companies | 2 | 108 |
| For futures and options transactions | 6,911 | 6,517 |
| For direct insurance and reinsurance operations | 8,374 | 9,853 |
| Obligations not covered by the Group Pension | ||
| Fund - amounts payable by the Group | 31,859 | 47,989 |
| Other creditors | ||
| Residents | 32,651 | 51,241 |
| Non-residents | 29,625 | 36,573 |
| Negative equity in associated companies | ||
| Luanda Waterfront Corporation | 13,340 | 9,473 |
| Nanium, S.A. | - | 2,367 |
| Holiday pay and subsidies | 57,114 | 50,910 |
| Interests and other amounts payable | 27,991 | 65,147 |
| Operations to be settled - foreign, transfers | ||
| and deposits | 239,307 | 301,696 |
| Amounts payable on trading activity | 45,517 | 803 |
| Other administrative costs payable | 2,471 | 2,856 |
| Deferred income | 66,248 | 10,930 |
| Loans insurance received and to amortized | 52,974 | 52,164 |
| Public sector | 45,162 | 32,643 |
| Other liabilities | 187,269 | 168,496 |
| 981,941 | 915,528 |
The caption Obligations not covered by the Group Pension Fund - amounts payable by the Group includes the amount of Euros 9,741,000 (31 December 2016: Euros 17,818,000) related to the actual value of benefits attributed associated with mortgage loans to employees, retirees and former employees and the amount of Euros 3,837,000 (31 December 2016: Euros 3,837,000), related to the obligations with retirement benefits already recognised in Staff costs, to be paid to former members of the Executive Board of Directors, as referred in note 48. This balance also includes the amount of Euros 14,000,000 regarding to restructuration costs. These obligations are not covered by the Group Pension Fund and therefore, correspond to amounts payable by the Group.
As at 31 December 2016, this caption also included the amount of Euros 21,337,000 related to the seniority premium.
The caption Amounts payable on trading activity includes amounts payable within 3 business days of stock exchange operations.
The Bank's share capital, as at 30 June 2017, amounts to Euros 5,600,738,053.72 and is represented by 15,113,989,952 ordinary, book-entry and nominates shares, without nominal value, which is fully paid.
As referred in note 46, the Board of Directors of BCP has resolved on 9 January 2017, to increase the share capital of BCP from Euros 4,268,817,689.20 to Euros 5,600,738,053.72, through an offering to existing holders of BCP's ordinary shares pursuant to their respective pre-emption rights, and other investors who acquire subscription rights, to subscribe for 14,169,365,580 new ordinary, book entry and registered shares, without nominal value. The resulting number of BCP ordinary shares is 15,113,989,952.
In November 2016, and in accordance with the resolution of the General Meeting of Shareholders of 21 April 2016 to suppress the pre-emptive right of the shareholders, the Board of Directors of BCP has approved a resolution for the increase of BCP's share capital, from Euros 4,094,235,361.88 to Euros 4,268,817,689.20, by way of a private placement of 157,437,395 new shares offered for subscription by Chiado at a subscription price of Euros 1.1089 per new share.
In October 2016, Banco Comercial Português proceeded with a reverse stock split, without decrease of the share capital, of the shares representing the Bank's share capital, by applying a regrouping ratio of 1:75, every 75 shares prior to the reverse split corresponding to 1 share thereafter, which is applicable to all the shares, in the same proportion. Thus, BCP's share capital at that date, in the amount of Euros 4,094,235,361.88, was represented by 787,186,977 shares.
30 June 2017
As at 30 June 2017, the balance preference shares amounts to Euros 59,910,000.
The preference shares includes two issues by BCP Finance Company Ltd which considering the rules established in IAS 32 and in accordance with the accounting policy presented in note 1 h), were considered as equity instruments. The issues are analysed as follows:
The balance Other equity instruments, in the amount of Euros 2,922,000 includes 2,922 perpetual subordinated debt securities with conditional coupons, issued on 29 June 2009, with a nominal value of Euros 1,000 each.
Banco Comercial Português, S.A. issued on 29 June 2012 hybrids subordinated debt instruments qualified as Core Tier I Capital, (CoCos) fully subscribed by the Portuguese State. These instruments are fully reimbursable by the Bank through a five years period and only in specific circumstances, such as delinquency or lack of payment are susceptible of being converted in Bank's ordinary shares.
These instruments are eligible for prudential effects as Core Tier I. However, under the IAS 32 - Financial Instruments: Presentation for accounting purposes, these instruments are classified as liability (note 38) according to its characteristics, namely: (i) mandatory obligation to pay capital and interests; and (ii) in case of settlement through the delivery of equity securities, the number of securities to delivery is depending on the market value at the date of conversion, in order to have the value of the bond settled. Thus, the classification as liability results from the fact that the investor, as holder of the instrument issued, is not exposed to the company equity instruments risk, and will always receive the equivalent amount of the value invested, in cash or in ordinary shares of the Bank.
Under the Restructuring Plan approved by the European Commission following the injection of State funds in June 2012, Banco Comercial Português, S.A. (BCP) became bound to a compromise catalogue that includes the need to sell its holding in Bank Millennium S.A. (Poland) if outstanding Core Tier 1 hybrid capital instruments subscribed by the Portuguese State ("CoCos") exceed Euros 700 million as at 31 December 2016. Thus, the Bank reimbursed Euros 50,000,000 of Core Tier 1 hybrid instruments (CoCos) during the month of December 2016, thus meeting once again the deadlines established under the CoCos repayment plan agreed with the European Commission.
As referred in note 46, on 9 February 2017, BCP reimbursed the remaining CoCos to the Portuguese State in the amount of Euros 700 million. This repayment, which marks the return to the normalization of BCP's activity, had previously been approved by the European Central Bank, subject to the success of the capital increase that BCP concluded on that date.
Pursuant to the conditions of the issue of Core Tier I Capital Instruments underwritten by the State, under Law no. 63-A/2008 and Implementing Order no. 150- A/2012 (CoCos), the Bank could not distribute dividends until the issue was fully reimbursed.
As at 30 June 2017, the shareholders who hold individually or jointly 2% or more of the capital of the Bank, are the following:
| Shareholder | number of shares | % share capital % voting rights | |
|---|---|---|---|
| Fosun Group - Chiado (Luxembourg) S.a.r.l. | 3,738,412,411 | 24.73% | 24.73% |
| Sonangol Group - Sonangol - Sociedade Nacional de Combustíveis de Angola, EP | 2,303,640,891 | 15.24% | 15.24% |
| Grupo EDP - EDP Pension Fund (*) | 319,113,690 | 2.11% | 2.11% |
| Norges Bank, directly | 327,405,240 | 2.17% | 2.17% |
| BlackRock, Inc.** | 307,981,328 | 2.04% | 2.04% |
| Total Qualified Shareholdings | 6,996,553,560 | 46.29% | 46.29% |
(*) Imputation in accordance with paragraph f) of paragraph 1 of Article 20 of the Portuguese Securities Code.
** According to the press release of 5 April 2017
Under Portuguese legislation, the Bank is required to set-up annually a legal reserve equal to a minimum of 10 percent of annual profits until the reserve equals the share capital. Such reserve is not normally distributable. In accordance with the proposal for the application of results for the year 2016 approved at the General Shareholders' Meeting held on 10 May 2017, the Bank increased its legal reserve in the amount of Euros 6,931,000. As at 30 June 2017, the amount of Legal reserves amounts to Euros 222,806,000 (31 December 2016: Euros 215,875,000).
In accordance with current legislation, the Group companies must set-up annually a reserve with a minimum percentage between 5 and 20 percent of their net annual profits depending on the nature of their economic activity.
As at 30 June 2017, the amount of Statutory reserves amounts to Euros 30,000,000 (31 December 2016: Euros 30,000,000) and corresponds to a reserve to steady dividends that, according to the bank's by-laws, can be distributed.
This balance is analysed as follows:
| Banco Comercial Português, S.A. |
Other treasury |
||
|---|---|---|---|
| shares | stock | Total | |
| Jun 2017 | |||
| Net book value (Euros '000) | 76 | 203 | 279 |
| Number of securities | 323,774 | (*) | |
| Average book value (Euros) | 0.23 | ||
| Dec 2016 | |||
| Net book value (Euros '000) | 2,880 | - | 2,880 |
| Number of securities | 2,689,098 | (*) | |
| Average book value (Euros) | 1.07 |
The own shares held by the companies included in the consolidation perimeter are within the limits established by the bank's by-laws and by "Código das Sociedades Comerciais".
(*) As at 30 June 2017, Banco Comercial Português, S.A. does not held treasury shares and does not performed any purchases or sales of own shares during the period. However, this balance includes 323,774 shares (31 December 2016: 2,689,098 shares) owned by clients. Considering the fact that for some of these clients there is evidence of impairment, the shares of the Bank owned by these clients were considered as treasury shares, and, in accordance with the accounting policies, written off from equity.
Regarding treasury shares owned by associated companies of the BCP Group, as referred in note 49, as at 30 June 2017, the Millenniumbcp Ageas Group owned 142,601,002 BCP shares (31 December 2016: 8,694,500 shares) in the amount of Euros 33,597,000 (31 December 2016: Euros 9,312,000).
This balance is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Fair value reserves | ||
| Gross value | ||
| Financial assets available for sale | ||
| Potential gains and losses recognised in fair value reserves | (65,231) | (233,799) |
| Financial assets held to maturity (*) | (4,589) | (6,517) |
| Of associated companies and others | 19,667 | 3,568 |
| Cash-flow hedge | 9,793 | 56,842 |
| (40,360) | (179,906) | |
| Tax | ||
| Financial assets available for sale | ||
| Potential gains and losses recognised in fair value reserves | 21,678 | 67,936 |
| Financial assets held to maturity | 170 | 207 |
| Cash-flow hedge | (4,750) | (18,869) |
| 17,098 | 49,274 | |
| (23,262) | (130,632) | |
| Reserves and retained earnings | ||
| Exchange differences arising on consolidation: | ||
| Bank Millennium, S.A. | (20,342) | (33,196) |
| BIM - Banco Internacional de Moçambique, S.A. | (146,045) | (166,996) |
| Others | 4,471 | 15,873 |
| (161,916) | (184,319) | |
| Actuarial losses | (2,535,593) | (2,575,656) |
| Other reserves and retained earnings | 2,646,195 | 2,657,669 |
| (51,314) | (102,306) |
(*) Refers to the amount not accrued of the fair value reserve at the date of reclassification for securities subject to reclassification.
30 June 2017
The fair value reserves correspond to the accumulated fair value changes of the financial assets available for sale and Cash flow hedge, in accordance with the accounting policy presented in note 1 d).
The changes occurred in Fair value reserves, excluding the effect of hedge accounting, during the first semester of 2017, are analysed as follows:
| 2017 | |||||
|---|---|---|---|---|---|
| Balance on 1 January Euros '000 |
Fair value adjustment Euros '000 |
Impairment in profit and loss Euros '000 |
Sales Euros '000 |
Balance on 30 June Euros '000 |
|
| Millenniumbcp Ageas | (976) | 17,261 | - | - | 16,285 |
| Portuguese public debt securities | (295,433) | 149,003 | - | (3,277) | (149,707) |
| Visa Inc. | 644 | 863 | - | - | 1,507 |
| Other investments | 59,017 | 18,850 | 31,926 | (28,031) | 81,762 |
| (236,748) | 185,977 | 31,926 | (31,308) | (50,153) |
The changes occurred in Fair value reserves, excluding the effect of hedge accounting, during 2016, are analysed as follows:
| 2016 | |||||
|---|---|---|---|---|---|
| Balance on 1 January Euros '000 |
Fair value adjustment Euros '000 |
Impairment in profit and loss Euros '000 |
Sales Euros '000 |
Balance on 31 December Euros '000 |
|
| Millenniumbcp Ageas | 3,270 | (4,246) | - | - | (976) |
| Portuguese public debt securities | (116,939) | (168,491) | - | (10,003) | (295,433) |
| Visa Europe Limited. | 43,312 | 18,036 | - | (61,348) | - |
| Visa Inc. | - | 644 | - | - | 644 |
| Other investments | 123,742 | (308,469) | 274,419 | (30,675) | 59,017 |
| 53,385 | (462,526) | 274,419 | (102,026) | (236,748) |
This balance is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Exchange differences arising on consolidation | (95,25 4) |
(141,617) |
| Deferred taxes | 2,775 | 4,900 |
| Actuarial losses (net of taxes) | (1,069) | (1,069) |
| Fair value reserves | (16,515) | (28,653) |
| (110,063) | (166,439) | |
| Other reserves and retained earnings | 1,107,855 | 1,049,504 |
| 997,792 | 883,065 |
The balance Non-controlling interests is analysed as follows:
| Balance Sheet | Income Statement | |||
|---|---|---|---|---|
| Jun 2017 | Dec 2016 | Jun 2017 | Jun 2016 | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| From continuing operations | ||||
| Bank Millennium, S.A. | 866,834 | 785,357 | 36,789 | 49,110 |
| BIM - Banco Internacional de Moçambique, SA (*) | 124,217 | 106,377 | 14,628 | 12,761 |
| Other subsidiaries | 6,741 | (8,669) | (230) | (720) |
| 997,792 | 883,065 | 51,187 | 61,151 | |
| From discontinued or discontinuing operations | ||||
| Banco Millennium Angola, S.A. | - | - | - | 18,366 |
| 997,792 | 883,065 | 51,187 | 79,517 |
(*) Includes the non-controlling interests of BIM Group related to SIM - Seguradora Internacional de Moçambique, S.A.R.L.
30 June 2017
The main subsidiaries included in the balance Non-controlling interests are as follows:
| % held of | |||||
|---|---|---|---|---|---|
| Non-controlling interests | |||||
| Name | Head office | Segment | Jun 2017 | Dec 2016 | |
| Bank Millennium, S.A. | Warsaw | Bank | 49.9% | 49.9% | |
| BIM - Banco Internacional de Moçambique, S.A. | Maputo | Bank | 33.3% | 33.3% |
The following table presents a summary of financial information for the above institutions, prepared in accordance with IFRS. The information is presented before inter-company eliminations:
| Bank Millennium, S.A. | BIM - Banco Internacional de Moçambique, S.A. |
|||
|---|---|---|---|---|
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
| Income | 301,954 | 423,028 | 181,032 | 154,324 |
| Net profit for the period | 73,725 | 98,417 | 42,769 | 36,762 |
| Net profit for the period attributable to the shareholders Net profit for the period attributable |
36,936 | 49,307 | 28,521 | 24,515 |
| to non-controlling interests | 36,789 | 49,110 | 14,248 | 12,247 |
| Other comprehensive income attributable to the shareholders Other comprehensive income attributable |
(9,095) | (17,189) | (1,878) | (17) |
| to non-controlling interests | (9,059) | (17,120) | (938) | (8) |
| Total comprehensive income | 55,571 | 64,108 | 39,953 | 36,737 |
| BIM - Banco Internacional | ||||
|---|---|---|---|---|
| de Moçambique, S.A. | ||||
| Jun 2017 | Dec 2016 | Jun 2017 | Dec 2016 | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| 16,215,901 | 15,384,246 | 1,885,272 | 1,709,588 | |
| 228,201 | 211,494 | 160,776 | 128,229 | |
| (14,432,111) | (13,741,008) | (1,545,669) | (1,402,163) | |
| (274,849) | (280,870) | (133,945) | (123,526) | |
| 1,737,142 | 1,573,862 | 366,434 | 312,128 | |
| 870,308 | 788,505 | 244,358 | 208,144 | |
| 8 66,834 |
785,357 | 122,076 | 103,984 | |
| 6,516 | ||||
| (11,357) | ||||
| (67,977) | 3,019 | (47,913) | 8,703 | |
| (201,053) | (333,123) | (8,971) | 3,862 | |
| 12,359 | ||||
| - | - | 7,352 | 6,174 | |
| - | - | 22,069 | 18,533 | |
| 222,953 (356,029) - |
Bank Millennium, S.A. 655,612 (991,754) - |
42,492 (3,550) 14,717 |
| This balance is analysed as follows: | Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|---|---|---|
| Guarantees granted (note 22) | ||
| Guarantees | 3,716,413 | 3,859,747 |
| Stand-by letter of credit | 72,082 | 68,301 |
| Open documentary credits | 337,585 | 506,160 |
| Bails and indemnities | 366,170 | 401,837 |
| 4,492,250 | 4,836,045 | |
| Commitments to third parties | ||
| Irrevocable commitments | ||
| Term deposits contracts | 20,490 | 18,383 |
| Irrevocable credit lines | 2,470,245 | 2,184,968 |
| Other irrevocable commitments | 282,546 | 294,046 |
| Revocable commitments | ||
| Revocable credit lines | 3,829,901 | 3,931,708 |
| Bank overdraft facilities | 492,318 | 615,795 |
| Other revocable commitments | 39,669 | 62,571 |
| 7,135,169 | 7,107,471 | |
| Guarantees received | 26,623,798 | 27,051,441 |
| Commitments from third parties | 10,994,238 | 11,043,835 |
| Securities and other items held for safekeeping | 65,9 75,425 |
59,903,424 |
| Securities and other items held under custody | ||
| by the Securities Depository Authority | 60,161,612 | 55,380,653 |
| Other off balance sheet accounts | 129,085,781 | 131,179,648 |
The amounts of Guarantees granted and Commitments to third parties are analysed as follows: The guarantees granted by the Group may be related to loans transactions, where the Group grants a guarantee in connection with a loan granted to a client by a third entity. According to its specific characteristics it is expected that some of these guarantees expire without being executed and therefore these transactions do not necessarily represent a cash-outflow. The estimated liabilities are recorded under provisions (note 37).
Stand-by letters and open documentary credits aim to ensure the payment to third parties from commercial deals with foreign entities and therefore financing the shipment of the goods. Therefore the credit risk of these transactions is limited since they are collateralised by the shipped goods and are generally short term operations.
Irrevocable commitments are non-used parts of credit facilities granted to corporate or retail customers. Many of these transactions have a fixed term and a variable interest rate and therefore the credit and interest rate risk is limited.
The financial instruments accounted as Guarantees and other commitments are subject to the same approval and control procedures applied to the credit portfolio, namely regarding the analysis of objective evidence of impairment, as described in the accounting policy in note 1 c). The maximum credit exposure is represented by the nominal value that could be lost related to guarantees and commitments undertaken by the Group in the event of default by the respective counterparties, without considering potential recoveries or collaterals.
Resolutions of the Annual General Meeting of Shareholders
The amounts of Guarantees granted and Commitments to third parties are analysed as follows: Banco Comercial Português, S.A. concluded on 10 May 2017, with 54.17% of the share capital represented, the Annual General Meeting of Shareholders, with the following resolutions:
Item One – Approval of the individual and consolidated annual reports, balance sheet and financial statements for 2016;
Item Two – Approval of the proposal for the application of year-end results;
Item Three – Approval of a vote of trust and praise addressed to the Board of Directors, including to the Executive Committee and to the Audit Committee and each one of their members, as well as to the Chartered Accountant and its representative;
Item Four – Approval of the statement on the remuneration policy of the Members of the Management and Supervision Bodies;
Item Five – Approval of the appointment of two new directors: Lingiang Xu as non-executive member of the Board of Directors of BCP and João Nuno de Oliveira Palma as executive member of the Board of Directors of BCP;
Item Six - Approval of the acquisition and sale of own shares and bonds;
Item Seven – Election of the members of the Board of the General Meeting of Banco Comercial Português for the term-of-office of 2017/2019.
Banco Comercial Português, S.A. fixed on 23 May 2017, the terms and conditions for a new issue of covered mortgage bonds, under its Covered Bond Program, with subscription date on 31 May. The issue, in the amount of Euros 1,000 million has a term of 5 years, an issuance price of 99.386% and an annual interest rate of 0.75%, reflecting a spread of 65 basis points over 5-year swaps.
The operation was placed successfully with a very diverse group of European institutional investors. Demand for the issue was more than 180% the amount on offer, and the speed with which the placement was completed demonstrate unequivocally the confidence of the market in the Bank and its clear ability to access this important source of financing.
Share capital increase Of Banco Comercial Português, S.A. from Euros 4,268,817,689.20 to Euros 5,600,738,053.72
The Board of Directors of Banco Comercial Português, S.A. ("BCP") has resolved on 9 January 2017, with the favourable prior opinion of the Audit Committee, to increase the share capital of BCP, from Euros 4,268,817,689.20 to Euros 5,600,738,053.72, through an offering to existing holders of BCP's ordinary shares pursuant to their respective pre-emption rights, and other investors who acquire subscription rights, to subscribe for 14,169,365,580 new ordinary, book entry and registered shares, without nominal value. The resulting number of ordinary shares will be 15,113,989,952.
The subscription price was set at Euros 0.0940 per share. Each holder of BCP's ordinary shares will receive one subscription right for each ordinary share it owns.
Further to the subscription by Chiado (Luxembourg) S.à r.l. ("Chiado"), a member of the Fosun group, of the reserved capital increase completed on 18 November 2016, through which Chiado holds a shareholding of approximately 16.67% of the total share capital of BCP, Chiado presented an irrevocable anticipated subscription order of an amount of shares that, if satisfied in full, will increase its holding in BCP's share capital to 30% after the Rights Offering, to be achieved through the exercise of the subscription rights corresponding to the number of shares presently held by it and, in addition, an oversubscription order and/or the potential exercise of further subscription rights that may be acquired by Chiado. This order may not be withdrawn except under certain circumstances where material adverse changes have occurred, as long as the same circumstances have led to the termination of the Underwriting Agreement referred to below by the Joint Global Coordinators.
Under the terms of the subscription order, Chiado has committed to (i) a lock-up period related to the sale of shares subscribed by it through its proportional subscription rights corresponding to the number of shares acquired as part of the Reserved Capital Increase, for a period of three years starting from 18 November 2016 and (ii) taking all reasonably appropriate actions to avoid the sale or transfer, within 30 days of closing of the Offering, of any of the shares obtained by Chiado in the Rights Offering. For the avoidance of doubt, this limitation does not prohibit Chiado from pledging the shares subscribed by it.
The Bank was informed that, in the context of the change to the voting cap provided in the articles of association of BCP to 30%, Sonangol has requested and obtained authorisation from the ECB to increase its stake in the share capital of BCP to up to 30%, but BCP has no information regarding Sonangol's decision with reference to the Rights Offering, notably as to the exercise, sale and/or purchase of subscription rights.
In connection with the Rights Offering, BCP has entered into an underwriting agreement with a syndicate of banks, pursuant to which the banks have agreed, and subject to certain conditions, to procure subscribers for, or failing which to subscribe for, any remaining offered shares in the Rights Offering, but excluding the shares to be subscribed by Chiado under its irrevocable anticipated subscription order.
The 14,169,365,580 new ordinary shares issued pursuant to the Rights Offering, as well as the 157,437,395 shares fully subscribed and paid-up by the shareholder Chiado (Luxembourg) S.à r.l. in the BCP's reserved share capital increase (in the amount of Euros 174,582,327.32) completed on 18 November 2016, was admitted to trading on Euronext Lisbon as at 9 February 2017.
As such, the BCP's share capital from this date amounts to Euros 5,600,738,053.72, represented by 15,113,989,952 ordinary, registered, book-entry shares without nominal value.
Banco Comercial Português, S.A. has proceeded, on 9 February 2017, to the early repayment to the Portuguese state of the remaining Core Tier 1 hybrid capital instruments, in the amount of Euros 700 million. This repayment, key to the return to normalisation of BCP's activity, was previously approved by the European Central Bank, subject to the success of the share capital increase completed in this date.
Fair value is based on market prices, whenever these are available. If market prices are not available, as occurs regarding many products sold to clients, fair value is estimated through internal models based on cash-flow discounting techniques. Cash-flows for the different instruments sold are calculated according to its financial characteristics and the discount rates used include both the market interest rate curve and the current conditions of the Group's pricing policy.
Thus, the fair value obtained is influenced by the parameters used in the evaluation model that have some degree of judgment and reflects exclusively the value attributed to different financial instruments. However it does not consider prospective factors, as the future business evolution. Therefore the values presented cannot be understood as an estimate of the economic value of the Group.
The main methods and assumptions used in estimating the fair value for the financial assets and financial liabilities are presented as follows:
Cash and deposits at Central Banks, Loans and advances to credit institutions repayable on demand
Considering the short term of these financial instruments, the amount in the balance sheet is a reasonable estimate of its fair value.
Loans and advances to credit institutions, Deposits from credit institutions and Assets with repurchase agreements
The fair value of these financial instruments is calculated discounting the expected principal and interest future cash flows for these instruments, considering that the payments of the instalments occur in the contractually defined dates. This update is made based on the prevailing market rate for the term of each cash flow plus the average spread of the production of the most recent 3 months of the same. For the elements with signs of impairment, the net impairment of these operations is considered as a reasonable estimate of their fair value, considering the economic valuation that is realized in the determination of this impairment.
For resources from Central Banks it was considered that the book value is a reasonable estimate of its fair value, given the nature of operations and the associated short-term. The rate of return of funding with the European Central Bank is 0.00% as at 30 June 2017 (31 December 2016: 0.00%).
For the remaining loans and advances and deposits, the discount rate used reflects the current conditions applied by the Group on identical instruments for each of the different residual maturities (rates from the monetary market or from the interest rate swap market). As at 30 June 2017, the average discount rate was 3.04% for loans and advances and -0.53% for deposits, for operations in Euros these rates are 1.41% and -0.69% (these values include the spread associated with each type of operation).
These financial instruments are accounted for at fair value. Fair value is based on market prices ("Bid-price"), whenever these are available. If market prices are not available, fair value is estimated through numerical models based on cash-flow discounting techniques, using the market interest rate curve adjusted for factors associated, predominantly credit risk and liquidity risk, determined in accordance with the market conditions and time frame.
Market interest rates are determined based on information released by the suppliers of financial content - Reuters and Bloomberg - more specifically as a result of prices of interest rate swaps. The values for the very short-term rates are obtained from similar sources but regarding interbank money market. The interest rate curve obtained is calibrated with the values of interest rate short-term futures. Interest rates for specific periods of the cash flows are determined by appropriate interpolation methods. The same interest rate curves are used in the projection of the non-deterministic cash flows such as indexes.
When optionality is involved, the standard templates (Black-Scholes, Black, Ho and others) are used considering the volatility areas applicable. Whenever there are no references in the market of sufficient quality or that the available models do not fully apply to meet the characteristics of the financial instrument, specific quotations supplied by an external entity are applied, typically a counterparty of the business.
These financial instruments are accounted at amortised cost net of impairment. Fair value is based on market prices, whenever these are available. If market prices are not available, fair value is estimated through numerical models based on cash-flow discounting techniques, using the market interest rate curve adjusted for factors associated, predominantly credit risk and liquidity risk, determined in accordance with the market conditions and time frame.
All derivatives are recorded at fair value.
In case of derivative contracts that are quoted in organised markets their market prices are used. As for derivatives traded "Over-the-counter", it is applied methods based on numerical cash-flow discounting techniques and models for assessment of options considering variables of the market, particularly the interest rates on the instruments in question, and where necessary, their volatilities.
Interest rates are determined based on information disseminated by the suppliers of financial content - Reuters and Bloomberg - more specifically those resulting from prices of interest rate swaps. The values for the very short-term rates are obtained from a similar source but regarding interbank money market. The interest rate curve obtained is calibrated with the values of interest rate short-term futures. Interest rates for specific periods of the cash flows are determined by appropriate interpolation methods. The interest rate curves are used in the projection of the non-deterministic cash flows such as indexes.
Considering the short maturity of these financial instruments, the conditions of the portfolio are similar to conditions used at the date of the report. Therefore the amount in the balance sheet is a reasonable estimate of its fair value.
The fair value of these instruments is calculated by discounting the expected principal and interest future cash flows for these instruments, considering that the payments of the instalments occur in the contractually defined dates. For loans with signs of impairment, the net impairment of these operations is considered as a reasonable estimate of their fair value, considering the economic valuation that is realized in the determination of this impairment.
The discount rate used is the one that reflects the current rates of the Group for each of the homogeneous classes of this type of instruments and with similar residual maturity. The discount rate includes the market rates for the residual maturity date (rates from the monetary market or from the interest rate swap market, at the end of the period) and the spread used at the date of the report, which was calculated from the average production of the three most recent months compared to the reporting date. The average discount rate was 4.05% as at 30 June 2017, for operations in Euros this rate is 3.75% (these values include the spread associated with each type of operation). The calculations also include the credit risk spread.
The fair value of these financial instruments is calculated by discounting the expected principal and interest future cash flows for the referred instruments, considering that payments occur in the contractually defined dates. The discount rate used reflects the current conditions applied by the Group in similar instruments with a similar maturity. The discount rate includes the market rates of the residual maturity date (rates of monetary market or the interest rate swap market, at the end of the period) and the actual spread of the Group. This was calculated from the average production of the three most recent months compared to the reporting date. As at 30 June 2017, the average discount rate was 1.33% (for Euros 0.09%).
For these financial instruments the fair value was calculated for components for which fair value is not yet reflected in the balance sheet. Fixed rate instruments for which the Group adopts "hedge-accounting", the fair value related to the interest rate risk is already recognised.
For the fair value calculation, other components of risk were considered, in addition to the interest rate risk already recorded. The fair value is based on market prices, whenever these are available. If market prices are not available, fair value is estimated through numerical models based on cash-flow discounting techniques, using the market interest rate curve adjusted by associated factors, predominantly credit risk and trading margin, the latter only in the case of issues placed on non-institutional customers of the Group.
As original reference, the Group applies the curves resulting from the market interest rate swaps for each specific currency. The credit risk (credit spread) is represented by an excess from the curve of interest rate swaps established specifically for each term and class of instruments based on the market prices on equivalent instruments.
For own issued debts placed among non institutional costumers of the Group, one more differential was added (commercial spread), which represents the margin between the financing cost in the institutional market and the cost obtained by distributing the respective instrument in the owned commercial network.
The average reference yield curve obtained from market prices in Euros and used in the calculation of the fair value of own securities was 6.79% (31 December 2016: 8.54%) for subordinated debt placed on the institutional market, not considering the CoCos. Regarding the subordinated issues placed on the retail market it was determined a discount rate of 2.55% (31 December 2016: 3.03%). The average discount rate calculated for senior issues (including the Government guaranteed and asset-backed) was 0.18% (31 December 2016: 0.76%) for issues placed on the institutional market and 1.29% (31 December 2016: 1.28%) for senior and collateralised securities placed on the retail market.
For debt securities, the fair value calculation focused on all the components of these instruments, as a result the difference determined is a negative amount of Euros 32,244,000 (31 December 2016: a negative amount of Euros 20,752,000), and includes a payable amount of Euros 10,537,000 (31 December 2016: a payable amount of Euros 5,916,000) which reflects the fair value of embedded derivatives and are recorded in financial assets and liabilities held for trading.
As at 30 June 2017, the following table presents the interest rates used in the definition of the interest rate curves of main currencies, namely EUR, USD, GBP and PLN used to determine the fair value of the assets and liabilities of the Group:
| Currencies | ||||||
|---|---|---|---|---|---|---|
| EUR | USD | GBP | PLN | |||
| 1 day | -0.42% | 1.39% | 0.24% | 1.49% | ||
| 7 days | -0.42% | 1.40% | 0.25% | 1.49% | ||
| 1 month | -0.42% | 1.41% | 0.27% | 1.56% | ||
| 2 months | -0.39% | 1.45% | 0.36% | 1.60% | ||
| 3 months | -0.38% | 1.52% | 0.40% | 1.63% | ||
| 6 months | -0.30% | 1.66% | 0.57% | 1.71% | ||
| 9 months | -0.23% | 1.75% | 0.68% | 1.73% | ||
| 1 year | -0.23% | 1.43% | 0.78% | 1.76% | ||
| 2 years | -0.13% | 1.59% | 0.69% | 1.93% | ||
| 3 years | 0.00% | 1.71% | 0.80% | 2.07% | ||
| 5 years | 0.28% | 1.91% | 0.99% | 2.36% | ||
| 7 years | 0.54% | 2.07% | 1.15% | 2.56% | ||
| 10 years | 0.90% | 2.24% | 1.35% | 2.80% | ||
| 15 years | 1.28% | 2.39% | 1.55% | 3.13% | ||
| 20 years | 1.45% | 2.47% | 1.62% | 3.25% | ||
| 30 years | 1.54% | 2.50% | 1.61% | 3.25% |
The following table shows the fair value of financial assets and liabilities of the Group, as at 30 June 2017:
| Jun 2017 | |||||
|---|---|---|---|---|---|
| Fair value through | Fair value | Amortised | Book | Fair | |
| profit or loss | through reserves | cost | value | value | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Cash and deposits at Central Banks | - | - | 1,650,857 | 1,650,857 | 1,650,857 |
| Loans and advances to credit institutions | |||||
| Repayable on demand | - | - | 491,497 | 491,497 | 491,497 |
| Other loans and advances | - | - | 895,899 | 895,899 | 894,053 |
| Loans and advances to customers (i) | - | - | 48,065,976 | 48,065,976 | 45,791,282 |
| Financial assets held for trading | 973,978 | - | - | 973,978 | 973,978 |
| Other financial assets held for trading | |||||
| at fair value through profit or loss | 141,973 | - | - | 141,973 | 141,973 |
| Financial assets available for sale | - | 12,384,733 | - | 12,384,733 | 12,384,733 |
| Assets with repurchase agreement | - | - | 15,419 | 15,419 | 15,421 |
| Hedging derivatives (ii) | 113,860 | - | - | 113,860 | 113,860 |
| Held to maturity financial assets | - | - | 451,254 | 451,254 | 442,658 |
| 1,229,811 | 12,384,733 | 51,570,902 | 65,185,446 | 62,900,312 | |
| Resources from credit institutions | - | - | 9,373,181 | 9,373,181 | 9,357,549 |
| Resources from customers (i) | 2,835,451 | - | 47,800,298 | 50,635,749 | 50,630,827 |
| Debt securities (i) | 861,860 | - | 2,259,565 | 3,121,425 | 3,089,181 |
| Financial liabilities held for trading | 476,192 | - | - | 476,192 | 476,192 |
| Hedging derivatives (ii) | 289,292 | - | - | 289,292 | 289,292 |
| Subordinated debt (i) | - | - | 850,603 | 850,603 | 1,038,550 |
| 4,462,795 | - | 60,283,647 | 64,746,442 | 64,881,591 |
(i) - The book value includes the effect of the adjustments resulting from the application of hedge accounting;
(ii) - Includes a portion that is recognized in reserves in the application of accounting cash flow hedge.
The following table shows the fair value of financial assets and liabilities of the Group, as at 31 December 2016:
| Dec 2016 | |||||
|---|---|---|---|---|---|
| Fair value through profit or loss |
Fair value through reserves |
Amortised cost |
Book value |
Fair value |
|
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Cash and deposits at Central Banks | - | - | 1,573,912 | 1,573,912 | 1,573,912 |
| Loans and advances to credit institutions | |||||
| Repayable on demand | - | - | 448,225 | 448,225 | 448,225 |
| Other loans and advances | - | - | 1,056,701 | 1,056,701 | 1,054,536 |
| Loans and advances to customers (i) | - | - | 48,017,602 | 48,017,602 | 45,692,179 |
| Financial assets held for trading | 1,048,797 | - | - | 1,048,797 | 1,048,797 |
| Other financial assets held for trading | |||||
| at fair value through profit or loss | 146,664 | - | - | 146,664 | 146,664 |
| Financial assets available for sale | - | 10,596,273 | - | 10,596,273 | 10,596,273 |
| Assets with repurchase agreement | - | - | 20,525 | 20,525 | 20,525 |
| Hedging derivatives (ii) | 57,038 | - | - | 57,038 | 57,038 |
| Held to maturity financial assets | - | - | 511,181 | 511,181 | 493,219 |
| 1,252,499 | 10,596,273 | 51,628,146 | 63,476,918 | 61,131,368 | |
| Resources from credit institutions | - | - | 9,938,395 | 9,938,395 | 9,984,427 |
| Resources from customers (i) | 2,985,741 | - | 45,811,906 | 48,797,647 | 48,692,203 |
| Debt securities (i) | 785,664 | - | 2,727,156 | 3,512,820 | 3,492,068 |
| Financial liabilities held for trading | 547,587 | - | - | 547,587 | 547,587 |
| Hedging derivatives (ii) | 383,992 | - | - | 383,992 | 383,992 |
| Subordinated debt (i) | - | - | 1,544,555 | 1,544,555 | 1,745,871 |
| 4,702,984 | - | 60,022,012 | 64,724,996 | 64,846,148 |
(i) - The book value includes the effect of the adjustments resulting from the application of hedge accounting;
(ii) - Includes a portion that is recognized in reserves in the application of accounting cash flow hedge.
30 June 2017
The Group classified the financial instruments recorded in the balance sheet at fair value in accordance with the hierarchy established in IFRS 13.
The fair value of financial instruments is determined using quotations recorded in active and liquid markets, considering that a market is active and liquid whenever its stakeholders conduct transactions on a regular basis giving liquidity to the instruments traded.
When it is verified that there are no transactions that regularly provide liquidity to the traded instruments, valuation methods and techniques are used to determine the fair value of the financial instruments.
In this category are included, in addition to financial instruments traded on a regulated market, bonds and units of investment funds valued on the basis of prices disclosed through trading systems.
The classification of the fair value of level 1 is used when:
i) - There is a firm daily enforceable quotation for the financial instruments concerned, or;
ii) - There is a quotation available in market information systems that aggregate multiple prices of various stakeholders, or;
iii) - Financial instruments have been classified in level 1, at least 90% of trading days in the year (at the valuation date).
Financial instruments, when there are no regular transactions in the active and liquid markets (level 1), are classified in level 2, according to the following rules:
i) - Failure to comply with the rules defined for level 1, or;
ii) - They are valued based on valuation methods and techniques that use mostly observable market data (interest rate or exchange rate curves, credit curves, etc.).
Level 2 includes over-the-counter derivative financial instruments contracted with counterparties with which the Bank maintains collateral exchange ISDAs with Credit Support Annex (CSA)), in particular with quite reduced MTA (Minimum Transfer Amount) which contributes to the mitigation of the counterparty credit risk, so that the CVA (Credit Value Adjustment) component is not significant.
If the level 1 or level 2 criteria are not met, financial instruments should be classified in level 3, as well as in situations where the fair value of financial instruments results from the use of information not observable in the market, such as:
i) - They are valued using comparative price analysis of financial instruments with risk and return profile, typology, seniority or other similar factors, observable in the active and liquid markets;
ii) - They are valued based on performance of impairment tests, using performance indicators of the underlying transactions (e.g. default probability rates of the underlying assets, delinquency rates, evolution of the ratings, etc.);
iii) - They are valued based on NAV (Net Asset Value) disclosed by the management entities of securities/real estate/other investment funds not listed on a regulated market.
The following table shows, by valuation levels, the fair value of financial assets and liabilities of the Group, as at 30 June 2017:
| Jun 2017 | |||||
|---|---|---|---|---|---|
| Valorisation techniques | |||||
| Level 1 | Level 2 | Level 3 | Total | ||
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | ||
| Cash and deposits at Central Banks | 1,650,857 | - | - | 1,650,857 | |
| Loans and advances to credit institutions | |||||
| Repayable on demand | 491,497 | - | - | 491,497 | |
| Other loans and advances | - | - | 894,053 | 894,053 | |
| Loans and advances to customers | - | - | 45,791,282 | 45,791,282 | |
| Financial assets held for trading | 228,298 | 151,764 | 593,916 | 973,978 | |
| Other financial assets held for trading | |||||
| at fair value through profit or loss | 141,973 | - | - | 141,973 | |
| Financial assets available for sale | 10,187,522 | 963,574 | 1,233,637 | 12,384,733 | |
| Assets with repurchase agreement | - | - | 15,421 | 15,421 | |
| Hedging derivatives | - | 113,860 | - | 113,860 | |
| Held to maturity financial assets | 53,550 | 290,532 | 98,576 | 442,658 | |
| 12,753,697 | 1,519,730 | 48,626,885 | 62,900,312 | ||
| Resources from credit institutions | - | - | 9,357,549 | 9,357,549 | |
| Resources from customers | - | - | 50,630,827 | 50,630,827 | |
| Debt securities | 677,874 | - | 2,411,307 | 3,089,181 | |
| Financial liabilities held for trading | 496 | 394,263 | 81,433 | 476,192 | |
| Hedging derivatives | - | 289,292 | - | 289,292 | |
| Subordinated debt | - | - | 1,038,550 | 1,038,550 | |
| 678,370 | 683,555 | 63,519,666 | 64,881,591 | ||
The following table shows, by valuation levels, the fair value of financial assets and liabilities of the Group, as at 31 December 2016:
| Dec 2016 | ||||
|---|---|---|---|---|
| Valorisation techniques | ||||
| Level 1 | Level 2 | Level 3 | Total | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Cash and deposits at Central Banks | 1,573,912 | - | - | 1,573,912 |
| Loans and advances to credit institutions | ||||
| Repayable on demand | 448,225 | - | - | 448,225 |
| Other loans and advances | - | - | 1,054,536 | 1,054,536 |
| Loans and advances to customers | - | - | 45,692,179 | 45,692,179 |
| Financial assets held for trading | 194,943 | 239,634 | 614,220 | 1,048,797 |
| Other financial assets held for trading | ||||
| at fair value through profit or loss | 146,664 | - | - | 146,664 |
| Financial assets available for sale | 8,239,244 | 1,060,858 | 1,296,171 | 10,596,273 |
| Assets with repurchase agreement | - | - | 20,525 | 20,525 |
| Hedging derivatives | - | 57,038 | - | 57,038 |
| Held to maturity financial assets | 54,623 | 337,790 | 100,806 | 493,219 |
| 10,657,611 | 1,695,320 | 48,778,437 | 61,131,368 | |
| Resources from credit institutions | - | - | 9,984,427 | 9,984,427 |
| Resources from customers | - | - | 48,692,203 | 48,692,203 |
| Debt securities | 585,516 | - | 2,906,552 | 3,492,068 |
| Financial liabilities held for trading | 234 | 459,309 | 88,044 | 547,587 |
| Hedging derivatives | - | 383,992 | - | 383,992 |
| Subordinated debt | - | - | 1,745,871 | 1,745,871 |
| 585,750 | 843,301 | 63,417,097 | 64,846,148 |
30 June 2017
The fair value of non-current assets held for sale and investment properties as at 30 June 2017 amounts to Euros 2,448,740,000 and Euros 12,293,000, respectively (31 December 2016: Euros 2,491,635,000 and Euros 12,692,000, respectively) and are framed within level 3 of the fair value hierarchy of IFRS 13. There were no transfers between fair value hierarchies in the first semester of 2017 and in 2016.
The fair value of these assets is determined based on valuations carried out by independent appraisers, which incorporate assumptions about the evolution of the real estate market, better use of the property and, when applicable, expectations regarding the development of real estate projects.
The evaluations are based on generally accepted methodologies in the real estate market, namely the market, income and cost method, which are selected by the appraisers according to the specific characteristics of each asset.
The Group assumed the liability to pay to their employees pensions on retirement or disability and other obligations, in accordance with the accounting policy described in note 1 w).
As at 30 June 2017 and 31 December 2016,, the number of participants in the Pension Fund of Banco Comercial Português covered by this pension plan and other benefits is analysed as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Number of participants | ||
| Pensioners | 16,558 | 16,524 |
| Former Attendees Acquired Rights | 3,360 | 3,386 |
| Employees | 7,487 | 7,537 |
| 27,405 | 27,447 |
In accordance with the accounting policy described in note 1 w), the Group's pension obligation and other benefits and the respective coverage for the Group based on the projected unit credit method are analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Projected benefit obligations | ||
| Pensioners | 1,979,648 | 1,959,977 |
| Former attendees acquired rights | 205,320 | 221,860 |
| Employees | 871,523 | 910,812 |
| 3,056,491 | 3,092,649 | |
| Pension fund value | (3,186,603) | (3,124,330) |
| Net (assets) / liabilities in balance sheet (notes 32 and 39) | (130,112) | (31,681) |
| Accumulated actuarial losses and changing assumptions effect recognised in Other comprehensive income |
3,174,677 | 3,220,601 |
As at 30 June 2017, the projected benefit liabilities include Euros 316,421,000 (31 December 2016: Euros 324,210,000) which correspond to Extra-fund liabilities and as such are not covered by the Pension Fund. As at 30 June 2017, these liabilities include Euros 11,696,000 (31 December 2016: Euros 9,864,000) corresponding to responsibilities with the End of Career Premium, which resulted from the changes made at the end of 2016 in the Collective Labor Agreement (CLA).
The change in the projected benefit obligations is analysed as follows:
| Jun 2017 | Dec 2016 | |||||
|---|---|---|---|---|---|---|
| Pension benefit | Pension benefit | |||||
| obligations | Extra-Fund | Total | obligations | Extra-Fund | Total | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Balance as at 1 January | 2,768,439 | 324,210 | 3,092,649 | 2,824,165 | 311,522 | 3,135,687 |
| Service cost | (8,436) | 278 | (8,158) | (741) | - | (741) |
| Interest cost / (income) | 28,670 | 3,297 | 31,967 | 69,715 | 7,537 | 77,252 |
| Actuarial (gains) and losses | ||||||
| Not related to changes | ||||||
| in actuarial assumptions | 21,024 | (2,287) | 18,737 | 21,828 | (1,690) | 20,138 |
| Arising from changes | ||||||
| in actuarial assumptions | - | - | - | 93,570 | 18,553 | 112,123 |
| Payments | (37,481) | (10,713) | (48,194) | (70,534) | (21,576) | (92,110) |
| Early retirement programmes | 5,388 | - | 5,388 | 4,164 | - | 4,164 |
| Contributions of employees | 4,099 | - | 4,099 | 8,398 | - | 8,398 |
| Changes occurred in the Collective | - | - | ||||
| Labour Agreement (CLA) | (41,633) | 1,636 | (39,997) | (182,126) | 9,864 | (172,262) |
| Balance at the end of the period | 2,740,070 | 316,421 | 3,056,491 | 2,768,439 | 324,210 | 3,092,649 |
As at 30 June 2017 the value of the benefits paid by the Pension Fund, excluding other benefits included on Extra-fund, amounts to Euros 37,481,000 (31 December 2016: Euros 70,534,000).
The liabilities with health benefits are fully covered by the Pension Fund and correspond, as at 30 June 2017, to the amount of Euros 311,949,000 (31 December 2016: Euros 313,509,000).
Additionally, regarding the coverage of some benefit obligations related to pensions, the Bank contracted with Ocidental Vida the acquisition of perpetual annuities for which the total liability as at 30 June 2017 amounts to Euros 66,356,000 (31 December 2016: Euros 68,530,000), in order to pay:
i) pensions of former Group's Board Members in accordance with the Bank's Board Members Retirement Regulation; ii) pensions and complementary pension to pensioners in accordance with the Pension Fund of the BCP Group employees established in 28 December 1987, as also to pensioners, in accordance with other Pension Funds, that were incorporated after on the BCP Group Pension Fund and which were planed that the retirement benefits should be paid through the acquisition of insurance policies, in accordance with the Decree - Law no. 12/2006.
Ocidental Vida is 100% owned by Ageas Group and Ageas Group is 49% owned by the BCP Group.
At the end of December 2016, a revision of the Collective Labour Agreement (CLA) was reached between the BCP Group and the Workers' Trade Unions, "Federação dos Sindicatos Independentes da Banca" and" Federação Nacional do Sector Financeiro", resulted in a profit of Euros 191,507,000 (of which Euros 19,245,000 do not correspond to benefits post-employment). Regarding the "Sindicato dos Bancários do Norte" ("SBN"), which was also involved in the negotiations of the new CLA, formalize the acceptance of the amendments to the CLA in April 2017 and, as such, the Bank only recognise the impact of changes from CLA to employees associates of SBN in 2017. The profit arising from the changes amounts to Euros 44,924,000 (of which Euro 4,927,000 do not correspond to benefits post-employment).
The new CLAs have already been published by the Ministry of Labor in Bulletin of Labor and Employment.
The most relevant changes that occurred in the CLA and can be described as follows:
Change in the retirement age (presumed disability) from 65 years to 66 years and 2 months in 2016. This age is not fixed and increases at the beginning of each calendar year one month. So in 2017 the retirement age is 66 years and 3 months. It was agreed that the retirement age in each year, fixed by the application of the above mentioned rule, cannot exceed in any case the normal retirement age in force in the General Social Security Regime. For the actuarial calculation, a progressive increase in retirement age was considered up to 67 years and 2 months.
It was introduced a change into the formula for determining the employer's contribution to the SAMS, which is no longer a percentage of the Pensions (Euros 88 per beneficiary and Euros 37.93 in the case of pensioners). This amount will be updated by the salary table update rate. This change has no impact on participants and beneficiaries, both in terms of their contributions and in their benefits.
A new benefit and retirement was introduced called End of Career Premium. At the retirement date the participant is entitled to a capital equal to 1.5 times the amount of the monthly remuneration earned at the retirement date. This benefit replaces the Seniority premium that was awarded during active life. This benefit, to be attributed at the retirement date or in the event of death, is considered to be a post-employment benefit by which it becomes part of retirement liabilities. This benefit is not included in the pension fund agreement and as such was considered as Extra-Fund.
During the first semester of 2017 and in the year 2016, the changes in the value of plan's assets is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Balance as at 1 January | 3,124,330 | 3,157,869 |
| Contributions to the Fund | - | 125,000 |
| Employees' contributions | 4,099 | 8,398 |
| Actuarial gains and (losses) | 64,661 | (170,384) |
| Payments | (37,481) | (70,534) |
| Expected return on plan assets | 29,700 | 72,750 |
| Amount transferred to the Fund resulting from acquired | ||
| rights unassigned related to the Complementary Plan | 1,294 | 1,231 |
| Balance at the end of the period | 3,186,603 | 3,124,330 |
The elements of the Pension Fund's assets are analysed as follows:
| Jun 2017 | Dec 2016 | |||||
|---|---|---|---|---|---|---|
| Asset class | Assets with market price in active market Euros '000 |
Remaining Euros '000 |
Total Portfolio Euros '000 |
Assets with market price in active market Euros '000 |
Remaining Euros '000 |
Total Portfolio Euros '000 |
| Shares | 330,464 | 95,717 | 426,181 | 423,343 | 102,756 | 526,099 |
| Bonds and other fixed income securities | 1,256,882 | 3,360 | 1,260,242 | 1,187,721 | 159,618 | 1,347,339 |
| Participations units in investment funds | - | 542,194 | 542,194 | - | 259,312 | 259,312 |
| Participation units in real estate funds | - | 262,052 | 262,052 | - | 243,680 | 243,680 |
| Properties | - | 282,675 | 282,675 | - | 282,673 | 282,673 |
| Loans and advances to credit | ||||||
| institutions and others | - | 413,259 | 413,259 | - | 465,227 | 465,227 |
| 1,587,346 | 1,599,257 | 3,186,603 | 1,611,064 | 1,513,266 | 3,124,330 |
The caption Shares includes an investment of 2.71% held in the Dutch unlisted insurance group "Achmea BV", whose valuation as at 30 June 2017 amounts to Euros 94,382,000 (31 December 2016: Euros 101,471,000). This valuation was determined by the Management Company based on an independent valuation carried out by Achmea solicitation with reference to 31 December 2016.
The balance Properties includes buildings owned by the Fund and used by the Group's companies which as at 30 June 2017, amounts to Euros 281,991,000 (31 December 2016: Euros 281,991,000), mostly a set of properties called "Taguspark" whose book value as at 30 June 2017 amounts to Euros 269,287,000 (31 December 2016: Euros 269,287,000). This book value was calculated on the basis of valuations performed by independent expert evaluators performed in 2016, whose assumptions considered in these evaluations include the expectation of the Bank to make renewals of the current lease.
The securities issued by Group's companies accounted in the portfolio of the Fund are analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Fixed income securities | 129,973 | 129,966 |
| Loans and advances to credit institutions and others | 319,559 | 351,766 |
| 449,532 | 481,732 |
The evolution of net (assets) / liabilities in the balance sheet is analysed as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Balance as at 1 January | (31,681) | (22,182) |
| Recognised in the income statement: | ||
| Changes occurred in the Collective Labour Agreement | (39,997) | (172,262) |
| Service cost | (8,158) | (741) |
| Interest cost / (income) net of the | ||
| balance liabilities coverage | 2,267 | 4,502 |
| Cost with early retirement programs | 5,388 | 4,164 |
| Amount transferred to the Fund resulting from acquired rights | ||
| unassigned related to the Complementary Plan | (1,294) | (1,231) |
| Recognised in the statement of comprehensive income: | ||
| Actuarial (gains) and losses | ||
| Not related to changes in actuarial assumptions | ||
| Deviation between the estimated and the actual income of the fund | (64,661) | 170,384 |
| Difference between expected and effective obligations | 18,737 | 20,138 |
| Arising from changes in actuarial assumptions | - | 112,122 |
| Contributions to the fund | - | (125,000) |
| Payments | (10,713) | (21,575) |
| Balance at the end of the period | (130,112) | (31,681) |
During 2017, no contributions were made to the Pension Fund by the Group's companies (31 December 2016: contributions in cash of Euros 125,000,000).
In accordance with IAS 19, as at 30 June 2017, the Group accounted post-employment benefits as a gain in the amount of Euros 41,794,000 (30 June 2016: loss of Euros 987,000), which is analysed as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Current service cost | (8,158) | (376) |
| Net interest cost in the liability coverage balance | 2,267 | 2,252 |
| Cost / (income) with early retirement programs | ||
| and mutually agreed terminations | 4,094 | (889) |
| Changes occurred in the Collective Labour Agreement | (39,997) | - |
| (Income) / Cost of the period | (41,794) | 987 |
As the Board of Directors Retirement Regulation establish that the pensions are increased annually, and as it is not common in the insurance market the acquisition of perpetual annuities including the increase in pensions, the Bank determined, the liability to be recognised on the financial statements taking into consideration current actuarial assumptions.
In accordance with the remuneration policy of the Board Members, the Group has the responsibility of supporting the cost with the retirement pensions of former Group's Executive Board Members, as well as the Complementary Plan for these members in accordance with the applicable rules funded through the Pension Fund, Extra-fund and perpetual annuities.
In order to cover liabilities with pensions to former members of the Executive Board of Directors, under the Bank's Board of Directors Retirement Regulation the Bank contracted with Ocidental Vida to purchase immediate life annuity insurance policies.
To cover the update of contracted responsibilities through perpetual annuities policies, based on the actuarial calculations, the Group recognised a provision of Euros 3,837,000 (31 December 2016: Euros 3,837,000).
The changes occurred in responsibilities with retirement pensions payable to former members of the Executive Board of Directors, included in the balance Other liabilities (note 39), are analysed as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Balance as at 1 January | 3,837 | 4,245 |
| Charge / (Write-back) | - | (408) |
| Balance at the end of the period | 3,837 | 3,837 |
Considering the market indicators, particularly the inflation rate estimates and the long term interest rate for Euro Zone, as well as the demographic characteristics of its employees, the Group considered the following actuarial assumptions for calculating the liabilities with pension obligations:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Salary growth rate | 0,25% until 2019 0,75% after 2019 |
0,25% until 2019 0,75% after 2019 |
| Pensions growth rate | 0% until 2019 0,5% after 2019 |
0% until 2019 0,5% after 2019 |
| Discount rate / Projected Fund's rate of return | 2.1% | 2.1% |
| Mortality tables | ||
| Men | TV 88/90 | TV 88/90 |
| Women | TV 88/90 - 3 years | TV 88/90 - 3 years |
| Disability rate | Non applicable | Non applicable |
| Turnover rate | Non applicable | Non applicable |
| Normal retirement age (a) | 66 years and 3 months |
66 years and 2 months |
| Total salary growth rate for Social Security purposes | 1.75% | 1.75% |
| Revaluation rate of wages / pensions of Social Security | 1% | 1% |
a) The retirement age is variable. In 2017 it is 66 years and 3 months and will increase by 1 month for each calendar year. This age cannot be higher than the normal retirement age in force in the General Social Security System (RGSS). The normal retirement age in RGSS is variable and depends on the evolution of the average life expectancy at 65 years. For the purposes of the actuarial calculation, it was assumed that the increase in life expectancy in future years will be one year in every 10 years. However, as a prudential factor the maximum age was 67 years and 2 months
The assumptions used on the calculation of the actuarial value of the liabilities are in accordance with the requirements of IAS 19. No disability decreases are considered in the calculation of the liabilities.
As defined by IAS 19, the discount rate used to update the responsibilities of the Bank's pension fund was determined on 31 December 2016, based on an analysis performed over the market yield regarding a bond issues universe – with high quality (low risk), different maturities (appropriate to the period of liquidation of the fund's liabilities) and denominated in Euros - related to a diverse and representative range of issuers.
As at 30 June 2017 and 31 December 2016, the Bank used a discount rate of 2.1% to measure its liability for defined benefit pension plans of its employees and managers.
As at 31 December 2016 the Group taking into consideration the positive deviations observed in the last financial year and the current trend of wages evolution and the economic situation at this time, determined a growth rate of wages progressive of 0.25% by 2019 and 0.75% from 2019 and a growth rate of pensions from 0% by 2019 and 0.50% from 2019. As at 30 June 2017, no changes were made to these actuarial assumptions.
Net actuarial gains amounts to Euros 45,924,000 (31 December 2016: actuarial losses amounts to Euros 302,644,000) and are related to the difference between the actuarial assumptions used for the estimation of the liabilities and the values actually verified and the change in actuarial assumptions, are analysed as follows:
| Actuarial (gains) / losses | ||||
|---|---|---|---|---|
| Jun 2017 | Dec 2016 | |||
| Values effectively verified in % |
Euros '000 | Values effectively verified in % |
Euros '000 | |
| Deviation between | ||||
| expected and actual liabilities | 18,737 | 20,138 | ||
| Changes on the assumptions: | ||||
| Discount rate | - | 224,619 | ||
| Salary growth rate and total salary | ||||
| rate for Social Security purposes | - | (88,973) | ||
| Pensions increase rate | - | (39,621) | ||
| Mortality tables | - | 24,537 | ||
| Other changes* | - | (8,440) | ||
| Return on Fund | 3.52% | (64,661) | -2.62% | 170,384 |
| (45,924) | 302,644 | |||
(*) Change in the methodology for determining the retirement age in accordance with the General Social Security System.
The change in the wage growth assumption includes the effect of changing the growth rate of the pensionable wage and the change in the rate of growth of the total salary used for the purposes of calculating social security responsibility.
As at 30 June 2017, the actuarial losses not resulting from changes in assumptions amount to Euros 18,737,000 (31 December 2016: Euros 20,138,000).
In accordance with IAS 19, the sensitivity analysis to changes in assumptions, is as follows:
| Impact resulting from changes in financial assumptions | |||||
|---|---|---|---|---|---|
| Jun 2017 | Dec 2016 | ||||
| -0.25% | 0.25% | -0.25% | 0.25% | ||
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | ||
| Discount rate | 132,021 | (124,057) | 134,744 | (126,913) | |
| Pension's increase rate | (129,840) | 122,024 | (122,043) | 160,604 | |
| Salary growth rate | (35,094) | 37,265 | (36,049) | 38,509 |
| Impact resulting from changes in demographic assumptions | |||||
|---|---|---|---|---|---|
| Jun 2017 | Dec 2016 | ||||
| - 1 year Euros '000 |
+ 1 year Euros '000 |
- 1 year Euros '000 |
+ 1 year Euros '000 |
||
| Changes in mortality table | 97,661 | (98,209) | 72,748 | (97,787) |
The sensitivities presented were determined based on the application of the same conditions to the whole population, that is, as at 31 December 2016, the affiliates of the "Sindicato dos Bancários do Norte" are considered to have the same plan as the rest. It is considered that this simplification does not materially affect the analysis.
During the first semester of 2017 and in the year 2016, a sensitivity analysis was performed to a positive variation and a negative variation of one percentage point in the value of the health benefits costs, the impact of which is analysed as follows:
| Positive variation of 1% | Negative variation of 1% | |||
|---|---|---|---|---|
| Jun 2017 | Dec 2016 | Jun 2017 | Dec 2016 | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Pension cost impacts | 27 | 29 | (27) | (29) |
| Liabilities impacts | 3,119 | 3,135 | (3,119) | (3,135) |
According to what is described in accounting policy 1 w ii), in the scope of the Defined Contribution Plan provided for the BCP Pension Fund of the BCP Group, no contributions were made in 2016, for employees who have been admitted until 1 July 2009, because the following requirements have not been met: (i) Bank's ROE equals or exceeds the rate of government bonds of 10 years plus 5 percentage points, and (ii) distributable profits or reserves exist in the accounts of Banco Comercial Português.
For employees who have been admitted after 1 July 2009, are made monthly contributions equal to 1.5% of the monthly remuneration received by employees in the current month, either by themselves or by the Group and employees. This contribution has a mandatory character and is defined in the Collective Labor Agreement of the BCP Group, and does not have a performance criterion. The Group accounted as staff costs the amount of Euros 29,000 (31 December 2016: Euros 48,000) related to this contribution.
As defined by IAS 24, are considered related parties of the Group, the companies detailed in note 58 - List of subsidiary and associated companies of Banco Comercial Português Group, the Pension Fund, the members of the Board of Directors and key management members. The key management members are the first line Directors. Beyond the members of the Board of Directors and key management members, are also considered related parties people who are close to them (family relationships) and entities controlled by them or in whose management they have significant influence.
As the transactions with subsidiaries are eliminated in consolidation, these are not included in the notes to the Group's consolidated financial statements.
According to Portuguese law, in particular under Articles 109 of the General Law for Credit Institutions and Financial Companies, are also considered related parties, the qualified shareholders of Banco Comercial Português, S.A. and the entities controlled by them or with which they are in a group relationship. The list of the qualified shareholders is detailed in note 40.
The balances reflected in assets of consolidated balance sheet with qualified shareholders, are analysed as follows:
| Jun 2017 | Dec 2016 |
|---|---|
| 229,553 | 237,577 |
| 19,117 | 15,814 |
| 116,7 82 |
106,390 |
| 365,452 | 359,781 |
| 373,764 | 390,965 |
| 390,965 | |
| 373,764 |
Loans and advances to customers are net of impairment in the amount of Euros 187,000 (31 December 2016: Euro 130,000).
During the first semester of 2017 and 2016, the transactions with qualified shareholders, reflected in the consolidated income statement items, are as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
||
|---|---|---|---|
| Income | |||
| Interest and similar income | 5,574 | 2,868 | |
| Commissions | 2,703 | 737 | |
| 8,277 | 3,605 | ||
| Costs | |||
| Interest and similar expenses | 376 | 68 | |
| Commissions | 20 | 9 | |
| 396 | 77 |
The balances with qualified shareholders, reflected in the guarantees granted and revocable and irrevocable credit lines, are as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Guarantees granted | 30,281 | 30,378 |
| Revocable credit lines | 221,506 | 216,271 |
| 251,787 | 246,649 |
30 June 2017
The balances with related parties discriminated in the following table, included in asset items on the consolidated balance sheet, are analysed as follows:
| Loans and advances to credit institutions |
Loans and advances to customers | Financial assets held for trading | |||||
|---|---|---|---|---|---|---|---|
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
||
| Board of Directors | |||||||
| Non-executive directors | - | - | 10 | 20 | - | - | |
| Executive Committee | - | - | 128 | 139 | - | - | |
| Closely related people | - | - | 15 | 13 | - | - | |
| Controlled entities | - | 2,840 | - | - | 1,738 | 844 | |
| Key management members | |||||||
| Key management members | - | - | 6,975 | 7,272 | - | - | |
| Closely related people | - | - | 364 | 274 | - | - | |
| Controlled entities | - | - | 130 | 196 | - | - | |
| - | 2,840 | 7,622 | 7,914 | 1,738 | 844 |
The balances with related parties discriminated in the following table, included in liabilities items in the consolidated balance sheet, are analysed as follows:
| Resources from credit institutions Resources from customers Financial liabilities held for trading |
||||||
|---|---|---|---|---|---|---|
| Jun 2017 | Dec 2016 | Jun 2017 | Dec 2016 | Jun 2017 | Dec 2016 | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Board of Directors | ||||||
| Non-executive directors | - | - | 527 | 1,593 | - | - |
| Executive Committee | - | - | 1,118 | 1,094 | - | - |
| Closely related people | - | - | 2,592 | 1,745 | - | - |
| Controlled entities | 21,551 | 16,866 | 438 | 1,446 | - | 1,053 |
| Key management members | ||||||
| Key management members | - | - | 7,340 | 6,924 | - | - |
| Closely related people | - | - | 2,239 | 2,143 | - | - |
| Controlled entities | - | - | 1,712 | 904 | - | - |
| 21,551 | 16,866 | 15,966 | 15,849 | - | 1,053 |
During the first semester of 2017 and 2016, the transactions with related parties discriminated in the following table, included in income for items of the consolidated income statement, are as follows:
| Interest and similar income | Commissions' income | |||
|---|---|---|---|---|
| Jun 2017 | Jun 2016 | Jun 2017 | Jun 2016 | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Board of Directors | ||||
| Non-executive directors | - | - | 40 | 39 |
| Executive Committee | - | - | 14 | 12 |
| Closely related people | - | - | 11 | 9 |
| Controlled entities | - | - | 64 | 71 |
| Key management members | ||||
| Key management members | 22 | 27 | 31 | 31 |
| Closely related people | 4 | 5 | 18 | 17 |
| Controlled entities | 2 | 3 | 5 | 4 |
| 28 | 35 | 183 | 183 |
During the first semester of 2017 and 2016, the transactions with related parties discriminated in the following table, included in cost items of the consolidated income statement, are as follows:
| Interest and similar expense | Commissions' expense | |||
|---|---|---|---|---|
| Jun 2017 | Jun 2016 | Jun 2017 | Jun 2016 | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Board of Directors | ||||
| Non-executive directors | 2 | 10 | 1 | 1 |
| Executive Committee | 2 | 3 | - | - |
| Closely related people | 2 | 6 | - | - |
| Controlled entities | 27 | 20 | - | - |
| Key management members | ||||
| Key management members | 19 | 27 | 1 | 1 |
| Closely related people | 4 | 5 | 1 | 1 |
| Controlled entities | 1 | 1 | 1 | 1 |
| 57 | 72 | 4 | 4 |
The revocable and irrevocable credit lines granted by the Group to the following related parties are as follows:
| Revocable credit lines | Irrevocable credit lines | ||||
|---|---|---|---|---|---|
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
||
| Board of Directors | |||||
| Non-executive directors | 95 | 109 | - | - | |
| Executive Committee | 105 | 95 | - | - | |
| Closely related people | 109 | 138 | - | - | |
| Controlled entities | 25 | 25 | - | - | |
| Key management members | |||||
| Key management members | 461 | 453 | - | 39 | |
| Closely related people | 280 | 268 | - | - | |
| Controlled entities | 17 | 16 | - | - | |
| 1,092 | 1,104 | - | 39 | ||
The fixed remunerations and social charges paid to members of the Board of Directors and Key management members are analysed as follows:
| Board of Directors | |||||||
|---|---|---|---|---|---|---|---|
| Executive Committee | Non-executive directors | Key management members | |||||
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
||
| Remunerations | 1,417 | 1,040 | 343 | 279 | 3,148 | 2,768 | |
| Supplementary retirement pension | 375 | 346 | - | - | - | - | |
| Post-employment benefits | 19 | 14 | - | - | (28) | 78 | |
| Other mandatory social security charges | 333 | 235 | 83 | 65 | 787 | 748 | |
| 2,144 | 1,635 | 426 | 344 | 3,907 | 3,594 |
Considering that the remuneration of members of the Executive Committee intends to compensate the functions that are performed in the Bank and in all other functions on subsidiaries or governing bodies for which they have been designated by indication of the Bank or representing it, in the latter case, the net amount of the remunerations annually received by each member would be deducted from the fixed annual remuneration attributed by the Bank.
During the first semester 2017, the amount of remuneration paid to the Executive Committee, includes Euros 49,000 (30 June 2016: Euros 110,000), which were supported by subsidiaries or companies whose governing bodies represent the Group's interests. During the first semester of 2017 and 2016, no variable remuneration was attributed to the members of the Executive Committee.
During the first semester 2017, no severance payments were paid to key management members (30 June 2016: Euros 483,000 paid to one member).
The shareholder and bondholder position of members of the Board of Directors, Key management members and persons closely related to the previous categories, is as follows:
| Changes during 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Number of | Unit | ||||||
| securities at | Price | ||||||
| Shareholders / Bondholders | Security | 30/06/17 | 31/12/16 | Acquisitions (*) | Disposals | Date | Euros |
| Members of Board of Directors | |||||||
| António Vítor Martins Monteiro (i) | BCP Shares | 3,872 | 242 | 3,630 | 3-fev-17 | 0,094 | |
| Carlos José da Silva | BCP Shares | 248,704 | 15,544 | 233,160 | 3-fev-17 | 0,094 | |
| Nuno Manuel da Silva Amado | BCP Shares | 1,025,388 | 50,996 | 974,392 | 3-fev-17 | 0,094 | |
| Álvaro Roque de Pinho de Bissaia Barreto | BCP Shares | 0 | 0 | ||||
| André Magalhães Luiz Gomes | BCP Shares | 11,392 | 712 | 10,680 | 3-fev-17 | 0,094 | |
| António Henriques Pinho Cardão (ii) | BCP Shares | 55,304 | 10,304 | 45,000 | 3-fev-17 | 0,094 | |
| António Luís Guerra Nunes Mexia | BCP Shares | 2,416 | 151 | 2,265 | 2-fev-17 | 0,094 | |
| Cidália Maria Mota Lopes (x) | BCP Shares | 2,184 | 136 | 2,048 | 2-fev-17 | 0,094 | |
| Jaime de Macedo Santos Bastos | BCP Shares | 848 | 53 | 795 | 3-fev-17 | 0,094 | |
| João Manuel Matos Loureiro | BCP Shares | 2,800 | 175 | 2,625 | 3-fev-17 | 0,094 | |
| João Nuno Oliveira Jorge Palma | BCP Shares | 34,128 | 2,133 | 31,995 | 2-fev-17 | 0,094 | |
| José Jacinto Iglésias Soares | BCP Shares | 0 | 0 | ||||
| José Miguel Bensliman Schorcht da Silva Pessanha | BCP Shares | 1,748 | 278 | 1,470 | 3-fev-17 | 0,094 | |
| Lingjiang Xu | BCP Shares | 0 | 0 | ||||
| Maria da Conceição Mota Soares de Oliveira Callé Lucas | BCP Shares | 58,672 | 3,667 | 55,005 | 3-fev-17 | 0,094 | |
| Miguel de Campos Pereira de Bragança | BCP Shares | 365,968 | 22,873 | 343,095 | 3-fev-17 | 0,094 | |
| Miguel Maya Dias Pinheiro | BCP Shares | 361,408 | 22,588 | 338,820 | 3-fev-17 | 0,094 | |
| Raquel Rute da Costa David Vunge (iii) | BCP Shares | 0 | 0 | ||||
| Rui Manuel da Silva Teixeira (iv) | BCP Shares | 36,336 | 2,271 | 34,065 | 2-fev-17 | 0,094 | |
| Key management members | |||||||
| Albino António Carneiro de Andrade | BCP Shares | 0 | 0 | ||||
| Américo João Pinto Carola (v) | BCP Shares | 503 | 503 | ||||
| Ana Isabel dos Santos de Pina Cabral (vi) | BCP Shares | 39,040 | 2,440 | 36,600 | 3-fev-17 | 0,094 |
| Ana Isabel dos Santos de Pina Cabral (vi) | BCP Shares | 39,040 | 2,440 | 36,600 | 3-fev-17 | 0,094 |
|---|---|---|---|---|---|---|
| Ana Maria Jordão F. Torres Marques Tavares (vii) | BCP Shares | 82,635 | 9,509 | 73,126 | 2-fev-17 | 0,094 |
| André Cardoso Meneses Navarro | BCP Shares | 267,888 | 16,743 | 251,145 | 2-fev-17 | 0,094 |
| António Augusto Amaral de Medeiros | BCP Shares | 42,656 | 2,666 | 39,990 | 2-fev-17 | 0,094 |
| António Augusto Decrook Gaioso Henriques | BCP Shares | 506,126 | 29,036 | 477,090 | 2-fev-17 | 0,094 |
| António Ferreira Pinto Júnior | BCP Shares | 21,344 | 1,334 | 20,010 | 2-fev-17 | 0,094 |
| António Luís Duarte Bandeira (viii) | BCP Shares | 113,001 | 8,000 | 105,001 | 2-fev-17 | 0,094 |
| Artur Frederico Silva Luna Pais | BCP Shares | 328,795 | 20,047 | 308,748 | 2-fev-17 | 0,094 |
| Belmira Abreu Cabral | BCP Shares | 0 | 1,206 | 1,206 19-jan-17 | 0.152 | |
| Carlos Alberto Alves | BCP Shares | 106,656 | 6,666 | 99,990 | 2-fev-17 | 0,094 |
| Diogo Cordeiro Crespo Cabral Campello | BCP Shares | 29,328 | 1,833 | 27,495 | 2-fev-17 | 0,094 |
| Dulce Maria Pereira Cardoso Mota Jorge Jacinto | BCP Shares | 11,691 | 1,911 | 9,780 | 2-fev-17 | 0,094 |
| Filipe Maria de Sousa Ferreira Abecasis | BCP Shares | 0 | 0 | |||
| Francisco António Caspa Monteiro | BCP Shares | 29,354 | 2,965 | 2,965 17-jan-17 | 0.160 | |
| 29,354 | 2-fev-17 | 0,094 | ||||
| Gonçalo Nuno Belo de Almeida Pascoal | BCP Shares | 48 | 3 | 45 | 3-fev-17 | 0,094 |
| Henrique Raul Ferreira Leite Pereira Cernache | BCP Shares | 2,272 | 142 | 2,130 | 3-fev-17 | 0,094 |
| João Nuno Lima Brás Jorge | BCP Shares | 91,709 | 5,653 | 86,056 | 3-fev-17 | 0,094 |
| Jorge Filipe Nogueira Freire Cortes Martins | BCP Shares | 1,600 | 100 | 1,500 | 2-fev-17 | 0,094 |
| Jorge Manuel Machado de Sousa Góis | BCP Shares | 0 | 0 | |||
| José Guilherme Potier Raposo Pulido Valente | BCP Shares | 138,719 | 28,600 | 110,119 | 2-fev-17 | 0,094 |
(*) Under the scope of the increase of share capital occurred in February 2017, as referred in note 40.
The paragraphs indicated in the tables above for the categories "Members of Board of Directors" and "Key management members", identify the people to who they are associated with the category "People closely related to the previous categories."
| Changes during 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Number of | Unit | ||||||
| securities at | Price | ||||||
| Shareholders / Bondholders | Security | 30/06/17 | 31/12/16 | Acquisitions (*) | Disposals | Date | Euros |
| José Laurindo Reino da Costa (ix) | BCP Shares | 182,428 | 12,433 | 169,995 | 3-fev-17 | 0,094 | |
| Luis Miguel Manso Correia dos Santos | BCP Shares | 21,328 | 1,333 | 19,995 | 2-fev-17 | 0,094 | |
| Maria Manuela Correia Duro Teixeira | BCP Shares | 0 | 0 | ||||
| Maria Manuela de Araujo Mesquita Reis | BCP Shares | 106,656 | 6,666 | 99,990 | 2-fev-17 | 0,094 | |
| Maria Montserrat Vendrell Serrano Duarte | BCP Shares | 0 | 0 | ||||
| Mário António Pinho Gaspar Neves | BCP Shares | 30,000 | 1,855 | 28,145 | 6-fev-17 | 0,094 | |
| Certificates BCPI Eurostox 50 | 0 | 187 | 187 18-jan-17 115.8200 | ||||
| Certificates BCPI DAX 30 | 0 | 55 | 55 18-jan-17 | 32.9000 | |||
| Miguel Filipe Rodrigues Ponte | BCP Shares | 5,164 | 221 | 4,943 | 7-fev-17 | 0,094 | |
| Miguel Pedro Lourenço Magalhães Duarte | BCP Shares | 30,600 | 30,600 | ||||
| Nelson Luís Vieira Teixeira | BCP Shares | 285 | 285 | ||||
| Nuno Alexandre Ferreira Pereira Alves | BCP Shares | 1,800 | 1,800 | ||||
| Pedro José Mora de Paiva Beija | BCP Shares | 0 | 0 | ||||
| Pedro Manuel Macedo Vilas Boas | BCP Shares | 0 | 0 | ||||
| Pedro Manuel Rendas Duarte Turras | BCP Shares | 14,816 | 926 | 13,890 | 3-fev-17 | 0,094 | |
| Pedro Trigo de Morais de Albuquerque Reis | BCP Shares | 0 | 0 | ||||
| Ricardo Potes Valadares | BCP Shares | 10,373 | 1,373 | 9,000 | 23-jan-17 | 0,094 | |
| Rosa Maria Ferreira Vaz Santa Barbara | BCP Shares | 8,240 | 1,205 | 7,035 | 23-jan-17 | 0,094 | |
| Rui Fernando da Silva Teixeira | BCP Shares | 12,614 | 12,614 | ||||
| Rui Manuel Pereira Pedro | BCP Shares | 149,328 | 9,333 | 139,995 | 3-fev-17 | 0,094 | |
| Rui Nelson Moreira de Carvalho Maximino | BCP Shares | 0 | 0 | ||||
| Rui Pedro da Conceição Coimbra Fernandes | BCP Shares | 0 | 0 | ||||
| Vânia Alexandra Machado Marques Correia | BCP Shares | 0 | 0 | ||||
| Teresa Paula Corado Leandro Chaves do Nascimento | BCP Shares | 0 | 0 | ||||
| Vasco do Carmo Viana Rebelo de Andrade | BCP Shares | 0 | 0 |
| Alexandre Miguel Martins Ventura (x) | BCP Shares | 2,184 | 137 | 2,047 | 3-fev-17 | 0,094 |
|---|---|---|---|---|---|---|
| Ana Isabel Salgueiro Antunes (v) | BCP Shares | 29 | 29 | |||
| Ana Margarida Rebelo A.M. Soares Bandeira (viii) | BCP Shares | 2,976 | 186 | 2,790 | 2-fev-17 | 0,094 |
| Eusébio Domingos Vunge (iii) | BCP Shares | 4,170 | 691 | 3,479 | 0,2357 | |
| Certific BCPi DAX 30 | 100 | 100 | ||||
| Certific BCPi EUROSTOXX 50 | 142 | 142 | ||||
| Francisco Jordão Torres Marques Tavares (vii) | BCP Shares | 1,016 | 62 | 954 | 2-fev-17 | 0,094 |
| Isabel Maria V Leite P Martins Monteiro (i) | BCP Shares | 3,104 | 195 | 2,909 | 3-fev-17 | 0,094 |
| João Paulo Fernandes de Pinho Cardão (ii) | BCP Shares | 72,736 | 4,546 | 68,190 | 3-fev-17 | 0,094 |
| José Manuel de Vasconcelos Mendes Ferreira (vi) | BCP Shares | 1,616 | 101 | 1,515 | 3-fev-17 | 0,094 |
| Luís Miguel Fernandes de Pinho Cardão (ii) | BCP Shares | 3,104 | 194 | 2,910 | 3-fev-17 | 0,094 |
| Maria Avelina V C L J Teixeira Diniz (viii) | BCP Shares | 16,770 | 2,434 | 14,336 | 2-fev-17 | 0,094 |
| Maria da Graça dos Santos Fernandes de Pinho Cardão (ii) | BCP Shares | 3,728 | 383 | 3,345 | 3-fev-17 | 0,094 |
| Maria Helena Espassandim Catão (iv) | BCP Shares | 576 | 36 | 540 | 2-fev-17 | 0,094 |
| Maria Raquel Sousa Candeias Reino da Costa (ix) | BCP Shares | 288 | 18 | 270 | 2-fev-17 | 0,094 |
(*) Under the scope of the increase of share capital occurred in February 2017, as referred in note 40.
The paragraphs indicated in the tables above for the categories "Members of Board of Directors" and "Key management members", identify the people to who they are associated with the category "People closely related to the previous categories."
30 June 2017
The balances with associated companies included in the consolidated balance sheet items are as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Assets | ||
| Loans and advances to credit institutions | ||
| Repayable on demand | 1,398 | 980 |
| Other loans and advances | 276,586 | 262,262 |
| Loans and advances to customers | 86,322 | 111,591 |
| Financial assets held for trading | 65,707 | 73,468 |
| Other assets | 12,897 | 26,274 |
| 442,910 | 474,575 | |
| Liabilities | ||
| Resources from credit institutions | 160,954 | 194,348 |
| Resources from customers | 494,254 | 488,165 |
| Debt securities issued | 652,286 | 976,849 |
| Subordinated debt | 479,388 | 475,276 |
| Financial liabilities held for trading | 52,781 | 66,946 |
| Other liabilities | - | 28 |
| 1,839,663 | 2,201,612 |
As at 30 June, the associated company Millenniumbcp Ageas Grupo Segurador, S.G.P.S, S.A. holds 142,601,002 BCP shares (31 December 2016: 8,694,500 shares) in the amount of Euros 33,597,000 (31 December 2016: Euros 9,312,000).
During the first semester of 2017 and 2016, the transactions with associated companies included in the consolidated income statement items, are as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Income | ||
| Interest and similar income | 6,238 | 4,737 |
| Commissions' income | 28,272 | 27,736 |
| Other operating income | 620 | 638 |
| 35,130 | 33,111 | |
| Costs | ||
| Interest and similar expenses | 27,171 | 34,157 |
| Commissions' expenses | 44 | 3 |
| Other administrative costs | 31 | 10 |
| 27,246 | 34,170 |
As at 31 December 2016 and 2015, the guarantees granted and revocable credit lines by the Group to associated companies, are as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Guarantees granted | 780 | 5,330 |
| Revocable credit lines | 10,768 | 10,403 |
| 11,548 | 15,733 |
Under the scope of the Group's insurance mediation activities, the remunerations from services rendering are analysed as follows:
| Jun 2017 | Jun 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Life insurance | ||
| Saving products | 16,190 | 15,879 |
| Mortgage and consumer loans | 9,785 | 10,273 |
| Others | 16 | 17 |
| 25,991 | 26,169 | |
| Non - Life insurance | ||
| Accidents and health | 8,064 | 7,798 |
| Motor | 1,713 | 1,620 |
| Multi-Risk Housing | 2,988 | 2,955 |
| Others | 519 | 523 |
| 13,284 | 12,896 | |
| 39,275 | 39,065 |
The remuneration for insurance intermediation services were received through bank transfers and resulted from insurance intermediation with the subsidiary of Millenniumbcp Ageas Group (Ocidental - Companhia Portuguesa de Seguros de Vida, S.A.) and with Ocidental - Companhia Portuguesa de Seguros, SA. The Group does not collect insurance premiums on behalf of Insurance Companies, or performs any movement of funds related to insurance contracts. Thus, there is no other asset, liability, income or expense to be reported on the activity of insurance mediation exercised by the Group, other than those already disclosed.
The receivable balances from insurance intermediation activity, by nature, are analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Funds receivable for payment of | ||
| life insurance commissions | 12,784 | 12,636 |
| Funds receivable for payment of | ||
| non-life insurance commissions | 6,421 | 6,108 |
| 19,205 | 18,744 |
The commissions received by the Bank result from the insurance mediation contracts and investment contracts, under the terms established in the contracts. The mediation commissions are calculated given the nature of the contracts subject to mediation, as follows:
d) Transactions with the Pension Fund
The balances with the Pension Fund included in Liabilities items of the consolidated balance sheet are as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Resources from customers | 319,559 | 351,766 |
| Subordinated debt | 129,973 | 129,966 |
| 449,532 | 481,732 |
During the first semester of 2017, there were no transactions of financial assets between the Group and the Pension Fund. During 2016, the Group sold bonds to the pension fund in the amount of Euros 16,748,000.
During the first semester of 2017 and 2016, the balances with the Pension Fund included in income and expense items of the consolidated income statement, are as follows:
| Jun 2017 Euros '000 |
Jun 2016 Euros '000 |
|
|---|---|---|
| Income | ||
| Commissions | 408 | 341 |
| Expenses | ||
| Interest expense and similar charges | 1,187 | 1,336 |
| Administrative costs | 9,952 | 8,360 |
| 11,139 | 9,696 |
The balance Administrative costs corresponds to the amount of rents incurred under the scope of Fund's properties which the tenant is the Group.
As at 30 June 2017, the amount of Guarantees granted by the Group to the Pension Fund amounted to Euros 5,000 (31 December 2016: Euros 5,000).
The segments presented are in accordance with IFRS 8. In accordance with the Group's management model, the segments presented correspond to the segments used for Executive Committee's management purposes. The Group offers a wide range of banking activities and financial services in Portugal and abroad, with a special focus on Commercial Banking, Companies Banking and Private Banking.
Following the commitment agreed with the Directorate-General for Competition of the European Commission (DG Comp), an additional segment named non-Core Business Portfolio was considered, respecting the criteria agreed.
The Group operates in the Portuguese market, and also in a few affinity markets of recognised growth potential. Considering this, the geographical segments are structured in Portugal and Foreign Business (Poland, Mozambique and Other). Portugal segment reflects, essentially, the activities carried out by Banco Comercial Português in Portugal, ActivoBank and Banco de Investimento Imobiliário.
Portugal activity includes:
Retail Banking includes the following business areas:
Retail network where the strategic approach is to target "Mass Market" customers, who appreciate a value proposition based on innovation and speed, as well as Prestige and Small Business customers, whose specific characteristics, financial assets or income imply a value proposition based on innovation and personalisation, requiring a dedicated Account Manager;
Retail Recovery Division that accompanies and manages the responsibilities of Customers or economic groups in effective default, as well as customers with bankruptcy requirement or other similar mechanisms, looking through the conclusion of agreements or payment restructuring processes that minimizes the economic loss to the Bank; and
ActivoBank, a bank focused on clients who are young, intensive users of new communication technologies and who prefer a banking relationship based on simplicity, offering modern products and services.
Companies, Corporate and Investment Banking segment includes:
Companies network that covers the financial needs of companies with an annual turnover between Euros 2,500,000 and Euros 50,000,000, and focuses on innovation, offering a wide range of traditional banking products complemented by specialised financing;
Corporate and Large Corporates networks in Portugal, targeting corporate and institutional customers with an annual turnover in excess of Euros 50,000,000, providing a complete range of value-added products and services;
Specialised Monitoring Division which carries out the monitorisation of business groups that have high and complex credit exposures or that show relevant signs of impairment;
Investment Banking unit, that ensures the offer of products and specific services, in particular financial advice, capital market transactions and analysis and financing structuring in the medium to long term, in particular with regard to Project and Structured Finance;
Treasury and Markets International Division, in particular the area of coordination of business with banks and financial institutions, boosting international business with the commercial networks of the Bank and institutional custody services for securities;
Specialised Recovery Division which ensures efficient tracking of customers with predictable or effective high risk of credit, from Companies, Corporate, Large Corporate and retail networks (exposure exceeding Euros 1,000,000);
Real Estate Business Division, which ensures integrated and specialized management of real estate business of the Group; and
Interfundos. with the activity of management of real estate investment funds.
30 June 2017
The Private Banking segment, for purposes of geographical segments, comprises the Private Banking network in Portugal. For purposes of business segments also includes Banque Privée BCP in Switzerland and Millennium bcp Bank & Trust in Cayman Islands that are considered Foreign Business on geographical segmentation.
Following the process for obtaining authorisation from the European Commission (EC) to the State aid, business portfolios were identified that the Bank should gradually disinvest/demobilise, ceasing grant new credit. This demobilisation is subject to a framework which dominant criterion is the capital impact optimisation, in particular through the minimisation of expected losses. In this context, the Bank proceeded with the segregation of these portfolios, highlighting them in a separate segment defined as Non Core Business Portfolio (PNNC).
PNNC includes the business with clients for which credit has been granted for securities-backed lending, loans collateralised with other assets for those which the debt ratio over asset value is not less than 90%, historical subsidised mortgage loans, construction subcontractors focused almost exclusively on the Portuguese market, football clubs and Real Estate development.
The separate disclosure for those types of loans resulted, exclusively, from the need to identify and monitoring the segments described in the previous paragraph, in the scope of the authorisation process abovementioned. Thus, the PNNC portfolio has not been aggregated based on risk classes or any other performance criteria.
It should be noted that, in 30 June 2017, 72% of this portfolio benefited from asset backed loans, including 68% with real estate collateral and 4% with other assets guarantee.
All other businesses not previously discriminated are allocated to the segment Other (Portugal) and include the centralized management of financial investments, corporate activities and operations not integrated in the remaining business segments and other values not allocated to segments.
Poland, where the Group is represented by Bank Millennium, a universal bank offering a wide range of financial products and services to individuals and companies nationwide;
Mozambique, where the Group is represented by BIM – Banco Internacional de Moçambique, a universal bank targeting companies and individual customers; and
Other, which includes other countries activity such as Switzerland where the Group is represented by Banque Privée BCP, a Private Banking platform under Swiss law and Cayman Islands by Millennium bcp Bank & Trust, a bank designed for international services in the area of Private Banking to customers with high financial assets (Affluent segment); The segment Other also includes the contribution of the associate in Angola.
Foreign Business segment, indicated within the business segment reporting, comprises the Group's operations developed in other countries already mentioned excluding the activity of Banque Privée BCP in Switzerland and Millennium bcp Bank & Trust in the Cayman Islands which are considered in Private Banking segment.
In the context of the Banco Millennium in Angola merger process with Banco Privado Atlântico, which agreement occurred in 22 April 2016 and the conclusion of the process of the necessary authorizations in 3 May 2016, Banco Millennium Angola was considered as a discontinued operation in March 2016, with the impact of its results presented in the balance Income / (loss) arising from discontinued operations and restated for the previous periods. At the consolidated balance, the assets and liabilities of Banco Millennium Angola, S.A. continued to be consolidated by the full consolidation method till April 2016. After the completion of the merger, in May 2016, the assets and liabilities of Banco Millennium in Angola stopped being considered in the consolidated balance sheet and the investment of 22.5 % in Banco Millennium Atlântico, the new merged entity, started being accounted using the equity method and its contribution to the Group's results have been recognized in the consolidated accounts from May 2016 onwards.
The figures reported for each business segment result from aggregating the subsidiaries and business units integrated in each segment, including the impact from capital allocation and the balancing process of each entity, both at the balance sheet and income statement levels, based on average figures. Balance sheet headings for each subsidiary and business unit are re-calculated, given the replacement of their original own funds by the outcome of the capital allocation process, according to regulatory solvency criteria.
Considering that the capital allocation process complies with regulatory solvency criteria currently in place, the weighted risk, as well as the capital allocated to segments, is based on Basel III methodology, in accordance with the CRD IV/CRR, with reference to 30 June 2017 and 31 December 2016. The capital allocation for each segment on those dates, resulted from the application of 10% to the risks managed by each segment, reflecting the application of Basel III methodologies. Each operation is balanced through internal transfers of funds, with no impact on consolidated accounts.
Operating costs determined for each business area rely on one hand on the amounts accounted directly in the respective cost centres, and on the other hand, on the amounts resulting from internal cost allocation processes. As an example, in the first set of costs are included costs related to phone communication, travelling accommodation and representation expenses and to advisory services and in the second set are included costs related to correspondence, water and electricity and to rents related to spaces occupied by organic units, among others. The allocation of this last set of costs is based on the application of previously defined criteria, related to the level of activity of each business area, like the number of current accounts, the number of customers or employees, the business volume and the space occupied.
The following information has been prepared based on the individual and consolidated financial statements of the Group prepared in accordance with international financial reporting standards (IFRS), as adopted by the European Union (EU), and with the Organization of the Group's business areas in force on 30 June 2017. Information relating to prior periods is restated whenever it occur changes in the internal organization of the entity so susceptible to change the composition of the reportable segments (business and geographical).
The information in the financial statements of reportable segments is reconciled, at the level of the total revenue of those same segments, with the revenue from the demonstration of the consolidated financial position of the reportable entity for each date on which is lodged a statement of financial position.
Notes to the Interim Condensed Consolidated Financial Statements 30 June 2017
As at 30 June 2017, the net contribution of the major operational segments, for the income statement, is analysed as follows:
| Companies, Corporate and |
(Thousands of Euros) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Retail | Commercial banking Foreign |
Investment banking |
Private | Non-core business |
||||||
| in Portugal | business (1) | Total | in Portugal | banking | portfolio | Other | Consolidated | |||
| Income statement | ||||||||||
| Interest and similar income Interest expense and similar charges |
237,872 (34,112) |
417,569 (140,186) |
655,441 (174,298) |
173,293 (37,472) |
19,466 (7,868) |
60,930 (47,303) |
47,452 (11,142) |
956,582 (278,083) |
||
| Net interest income | 203,760 | 277,383 | 481,143 | 135,821 | 11,598 | 13,627 | 36,310 | 678,499 | ||
| Commissions and other income Commissions and other costs |
200,127 (7,481) |
126,662 (69,097) |
326,789 (76,578) |
89,785 (4,164) |
34,611 (2,804) |
4,870 (14) |
(26,962) (96,760) |
429,093 (180,320) |
||
| Net commissions and other income | 192,646 | 57,565 | 250,211 | 85,621 | 31,807 | 4,856 | (123,722) | 248,773 | ||
| Net gains arising from trading activity | (149) | 49,471 | 49,322 | - | (18,568) | - | 59,150 | 89,904 | ||
| Share of profit of associates under the equity method |
- | 15,771 | 15,771 | - | - | - | 19,333 | 35,104 | ||
| Gains / (losses) arising from the sale of subsidiaries and other assets |
- | 2,205 | 2,205 | - | (1) | (1) | (5,669) | (3,466) | ||
| Net operating revenue | 396,257 | 402,395 | 798,652 | 221,442 | 24,836 | 18,482 | (14,598) | 1,048,814 | ||
| Staff costs and administrative costs Amortizations and depreciations |
232,147 1,175 |
157,294 9,969 |
389,441 11,144 |
44,073 315 |
19,138 80 |
9,728 8 |
(38,291) 14,572 |
424,089 26,119 |
||
| Operating expenses | 233,322 | 167,263 | 400,585 | 44,388 | 19,218 | 9,736 | (23,719) | 450,208 | ||
| Impairment for credit and financial assets | (36,258) | (46,964) | (83,222) | (123,303) | (2,620) | (105,150) | (22,621) | (336,916) | ||
| Other impairments and provisions | (45) | 1,985 | 1,940 | 91 | 1 | (13,907) | (66,511) | (78,386) | ||
| Net income / (loss) before income tax | 126,632 | 190,153 | 316,785 | 53,842 | 2,999 | (110,311) | (80,011) | 183,304 | ||
| Income tax | (37,413) | (41,632) | (79,045) | (15,230) | (6,085) | 32,605 | 24,316 | (43,439) | ||
| Income / (loss) after income tax from continuing operations |
89,219 | 148,521 | 237,740 | 38,612 | (3,086) | (77,706) | (55,695) | 139,865 | ||
| Income / (loss) arising from discontinued operations (2) |
- | - | - | - | - | - | 1,250 | 1,250 | ||
| Net income / (loss) for the period | 89,219 | 148,521 | 237,740 | 38,612 | (3,086) | (77,706) | (54,445) | 141,115 | ||
| Non-controlling interests | - | (51,417) | (51,417) | - | - | - | 230 | (51,187) | ||
| Net income / (loss) for the period attributable to Shareholders of the Bank |
89,219 | 97,104 | 186,323 | 38,612 | (3,086) | (77,706) | (54,215) | 89,928 |
As at 30 June 2017, the net contribution of the major operational segments, for the balance sheet, is analysed as follows:
| Cash and Loans and advances | ||||||||
|---|---|---|---|---|---|---|---|---|
| to credit institutions | 9,863,008 | 972,159 | 10,835,167 | 973,858 | 2,440,505 | 4,532 | (11,215,809) | 3,038,253 |
| Loans and advances to customers | 16,820,105 | 12,251,108 | 29,071,213 | 10,846,599 | 482,731 | 7,287,819 | 377,614 | 48,065,976 |
| Financial assets (2) | 20,610 | 4,760,766 | 4,781,376 | - | 25,806 | 521,688 | 8,752,347 | 14,081,217 |
| Other assets | 166,851 | 602,514 | 769,365 | 49,149 | 16,015 | 883,329 | 6,120,434 | 7,838,292 |
| Total Assets | 26,870,574 | 18,586,547 | 45,457,121 | 11,869,606 | 2,965,057 | 8,697,368 | 4,034,586 | 73,023,738 |
| Resources from other credit | ||||||||
| institutions | 1,130,799 | 1,508,348 | 2,639,147 | 3,247,241 | 338,590 | 8,090,387 | (4,942,184) | 9,373,181 |
| Resources from customers | 24,286,600 | 15,004,706 | 39,291,306 | 7,849,192 | 2,486,632 | 333,693 | 674,926 | 50,635,749 |
| Debt securities issued | 805,129 | 274,170 | 1,079,299 | 1,036 | 45,699 | 2,853 | 1,992,538 | 3,121,425 |
| Other financial liabilities | - | 187,802 | 187,802 | - | 4,442 | - | 1,423,843 | 1,616,087 |
| Other liabilities | 35,831 | 408,796 | 444,627 | 44,821 | 7,789 | 4,314 | 830,033 | 1,331,584 |
| Total Liabilities | 26,258,359 | 17,383,822 | 43,642,181 | 11,142,290 | 2,883,152 | 8,431,247 | (20,844) | 66,078,026 |
| Equity and non-controlling | ||||||||
| interests | 612,215 | 1,202,725 | 1,814,940 | 727,316 | 81,905 | 266,121 | 4,055,430 | 6,945,712 |
| Total Liabilities, Equity and non-controlling interests |
26,870,574 | 18,586,547 | 45,457,121 | 11,869,606 | 2,965,057 | 8,697,368 | 4,034,586 | 73,023,738 |
| Number of employees | 4,811 | 8,428 | 13,239 | 602 | 269 | 147 | 1,552 | 15,809 |
(1) Includes the contribution associated with the Bank's investments in Angola, in Banco Millennium Atlântico, recorded since May 2016 by the equity method;
(2) Includes financial assets held for trading, financial assets held for trading at fair value through profit or loss, financial assets held to maturity, financial assets available for sale, hedging derivatives and assets with repurchase agreement.
Note: As at 30 June 2017, the goodwill disclosed in the financial statements that is reflected in Foreign business is Euros 2 million and Euros 128 million in Other Portugal, as described in note 30.
30 June 2017
As at 30 June 2016, the net contribution of the major operational segments, for the income statement, is analysed as follows:
| Companies, Corporate and |
(Thousands of Euros) | |||||||
|---|---|---|---|---|---|---|---|---|
| Retail in Portugal |
Commercial banking Foreign business (1) |
Total | Investment banking in Portugal |
Private banking |
Non-core business portfolio |
Other | Consolidated | |
| Income statement | ||||||||
| Interest and similar income Interest expense and similar charges |
262,580 (72,909) |
360,577 (129,295) |
623,157 (202,204) |
187,640 (46,680) |
21,275 (11,481) |
80,682 (63,117) |
52,722 (41,190) |
965,476 (364,672) |
| Net interest income | 189,671 | 231,282 | 420,953 | 140,960 | 9,794 | 17,565 | 11,532 | 600,804 |
| Commissions and other income Commissions and other costs |
187,774 (6,487) |
111,744 (66,405) |
299,518 (72,892) |
80,551 (3,080) |
30,755 (3,028) |
5,056 (16) |
(759) (93,550) |
415,121 (172,566) |
| Net commissions and other income | 181,287 | 45,339 | 226,626 | 77,471 | 27,727 | 5,040 | (94,309) | 242,555 |
| Net gains arising from trading activity | (41) | 105,386 | 105,345 | - | 1,564 | 23,893 | 52,021 | 182,823 |
| Share of profit of associates under the equity method |
- | 2,953 | 2,953 | - | - | - | 34,763 | 37,716 |
| Gains / (losses) arising from the sale of subsidiaries and other assets |
2 | 1,236 | 1,238 | - | 9 | - | (5,727) | (4,480) |
| Net operating revenue | 370,919 | 386,196 | 757,115 | 218,431 | 39,094 | 46,498 | (1,720) | 1,059,418 |
| Staff costs and administrative costs Amortizations and depreciations |
241,303 1,043 |
151,250 11,075 |
392,553 12,118 |
47,839 241 |
19,353 99 |
10,632 10 |
(11,806) 13,012 |
458,571 25,480 |
| Operating expenses | 242,346 | 162,325 | 404,671 | 48,080 | 19,452 | 10,642 | 1,206 | 484,051 |
| Impairment for credit and financial assets | (36,841) | (35,543) | (72,384) | (271,545) | (1,442) | (302,623) | (142,680) | (790,674) |
| Other impairments and provisions Net income / (loss) before income tax |
(45) 91,687 |
(7,637) 180,691 |
(7,682) 272,378 |
37 (101,157) |
- 18,200 |
(5,811) (272,578) |
(12,499) (158,105) |
(25,955) (241,262) |
| Income tax | (27,033) | (47,377) | (74,410) | 29,960 | (5,300) | 80,410 | 47,641 | 78,301 |
| Income / (loss) after income tax from continuing operations |
64,654 | 133,314 | 197,968 | (71,197) | 12,900 | (192,168) | (110,464) | (162,961) |
| Income / (loss) arising from | ||||||||
| discontinued operations (2) | - | 36,806 | 36,806 | - | - | - | 8,421 | 45,227 |
| Net income / (loss) for the period | 64,654 | 170,120 | 234,774 | (71,197) | 12,900 | (192,168) | (102,043) | (117,734) |
| Non-controlling interests | - | (80,597) | (80,597) | - | - | - | 1,080 | (79,517) |
| Net income / (loss) for the period attributable to Shareholders of the Bank |
64,654 | 89,523 | 154,177 | (71,197) | 12,900 | (192,168) | (100,963) | (197,251) |
As at 31 December 2016, the net contribution of the major operational segments, for the balance sheet, is analysed as follows:
| Cash and Loans and advances | ||||||||
|---|---|---|---|---|---|---|---|---|
| to credit institutions | 9,334,906 | 1,067,882 | 10,402,788 | 1,059,177 | 2,527,926 | 5,375 | (10,916,428) | 3,078,838 |
| Loans and advances to customers | 16,917,689 | 11,701,120 | 28,618,809 | 10,934,311 | 473,707 | 8,065,466 | (74,691) | 48,017,602 |
| Financial assets (3) | 20,960 | 4,260,453 | 4,281,413 | - | 6,083 | 634,878 | 7,458,104 | 12,380,478 |
| Other assets | 183,848 | 562,980 | 746,828 | 55,424 | 17,967 | 847,921 | 6,119,753 | 7,787,893 |
| Total Assets | 26,457,403 | 17,592,435 | 44,049,838 | 12,048,912 | 3,025,683 | 9,553,640 | 2,586,738 | 71,264,811 |
| Resources from other credit | ||||||||
| institutions | 1,344,914 | 1,419,154 | 2,764,068 | 3,751,972 | 352,081 | 9,101,255 | (6,030,981) | 9,938,395 |
| Resources from customers | 23,893,851 | 13,966,967 | 37,860,818 | 7,668,144 | 2,499,795 | 329,361 | 439,529 | 48,797,647 |
| Debt securities issued | 556,065 | 297,902 | 853,967 | 1,795 | 62,353 | 584 | 2,594,121 | 3,512,820 |
| Other financial liabilities | - | 335,073 | 335,073 | - | 5,984 | - | 2,135,077 | 2,476,134 |
| Other liabilities | 19,505 | 404,346 | 423,851 | 42,332 | 7,005 | 4,025 | 797,421 | 1,274,634 |
| Total Liabilities | 25,814,335 | 16,423,442 | 42,237,777 | 11,464,243 | 2,927,218 | 9,435,225 | (64,833) | 65,999,630 |
| Equity and non-controlling interests | 643,068 | 1,168,993 | 1,812,061 | 584,669 | 98,465 | 118,415 | 2,651,571 | 5,265,181 |
| Total Liabilities, Equity | ||||||||
| and non-controlling interests | 26,457,403 | 17,592,435 | 44,049,838 | 12,048,912 | 3,025,683 | 9,553,640 | 2,586,738 | 71,264,811 |
| Number of employees | 4,854 | 8,395 | 13,249 | 588 | 264 | 148 | 1,558 | 15,807 |
(1) Includes the activity of the subsidiary in Angola, considered as discontinued operation;
(2) The amount considered for Angola in discontinued operations corresponds to the book value. The impact of capital allocation in segments base, is reflected in net interest income item;
(3) Includes financial assets held for trading, financial assets held for trading at fair value through profit or loss, financial assets held to maturity, financial assets available for sale, hedging derivatives and assets with repurchase agreement.
Note: As at 31 December 2016, the goodwill disclosed in the financial statements is reflected, in Foreign business, Euros 2 million and Euros 128 million in Other Portugal, as
Notes to the Interim Condensed Consolidated Financial Statements
As at 30 June 2017, the net contribution of the major geographic segments, for the income statement, is analysed as follows:
| Portugal | (Thousands of Euros) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Retail banking |
Companies, Corporate and Investment banking |
Private banking |
Non-core business portfolio |
Other | Total | Poland | Mozambique | Other (1) | Consolidated | |
| Income statement | ||||||||||
| Interest and similar income Interest expense and similar charges |
237,872 (34,112) |
173,293 (37,472) |
11,954 (4,007) |
60,930 (47,303) |
47,452 (11,142) |
531,501 (134,036) |
274,570 (87,891) |
147,386 (56,262) |
3,125 106 |
956,582 (278,083) |
| Net interest income | 203,760 | 135,821 | 7,947 | 13,627 | 36,310 | 397,465 | 186,679 | 91,124 | 3,231 | 678,499 |
| Commissions and other income Commissions and other costs |
200,127 (7,481) |
89,785 (4,164) |
19,732 (119) |
4,870 (14) |
(26,962) (96,760) |
287,552 (108,538) |
96,984 (58,379) |
29,678 (10,718) |
14,879 (2,685) |
429,093 (180,320) |
| Net commissions and other income | 192,646 | 85,621 | 19,613 | 4,856 | (123,722) | 179,014 | 38,605 | 18,960 | 12,194 | 248,773 |
| Net gains arising from trading activity |
(149) | - | - | - | 59,150 | 59,001 | 24,559 | 5,257 | 1,087 | 89,904 |
| Share of profit of associates under the equity method Gains / (losses) arising from |
- | - | - | - | 19,333 | 19,333 | - | - | 15,771 | 35,104 |
| the sale of subsidiaries | ||||||||||
| and other assets | - | - | (1) | (1) | (5,669) | (5,671) | 2,123 | 82 | - | (3,466) |
| Net operating revenue | 396,257 | 221,442 | 27,559 | 18,482 | (14,598) | 649,142 | 251,966 | 115,423 | 32,283 | 1,048,814 |
| Staff costs and administrative costs Amortizations and depreciations |
232,147 1,175 |
44,073 315 |
7,396 3 |
9,728 8 |
(38,291) 14,572 |
255,053 16,073 |
118,245 6,304 |
39,049 3,665 |
11,742 77 |
424,089 26,119 |
| Operating expenses | 233,322 | 44,388 | 7,399 | 9,736 | (23,719) | 271,126 | 124,549 | 42,714 | 11,819 | 450,208 |
| Impairment for credit and financial assets Other impairments and provisions |
(36,258) (45) |
(123,303) 91 |
(2,309) - |
(105,150) (13,907) |
(22,621) (66,511) |
(289,641) (80,372) |
(29,296) (759) |
(17,669) 2,745 |
(310) - |
(336,916) (78,386) |
| Net income / (loss) before income tax |
126,632 | 53,842 | 17,851 | (110,311) | (80,011) | 8,003 | 97,362 | 57,785 | 20,154 | 183,304 |
| Income tax | (37,413) | (15,230) | (5,109) | 32,605 | 24,316 | (831) | (26,975) | (14,781) | (852) | (43,439) |
| Income / (loss) after income tax from continuing operations |
89,219 | 38,612 | 12,742 | (77,706) | (55,695) | 7,172 | 70,387 | 43,004 | 19,302 | 139,865 |
| Income / (loss) arising from discontinued operations (2) |
- | - | - | - | 1,250 | 1,250 | - | - | - | 1,250 |
| Net income / (loss) for the period Non-controlling interests |
89,219 - |
38,612 - |
12,742 - |
(77,706) - |
(54,445) 230 |
8,422 230 |
70,387 (35,123) |
43,004 (14,580) |
19,302 (1,714) |
141,115 (51,187) |
| Net income / (loss) for the period attributable to Shareholders |
89,219 | 38,612 | 12,742 | (77,706) | (54,215) | 8,652 | 35,264 | 28,424 | 17,588 | 89,928 |
As at 30 June 2017, the net contribution of the major geographic segments, for the balance sheet is analysed as follows:
| Cash and Loans and advances | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| to credit institutions | 9,863,008 | 973,858 | 1,546,380 | 4,532 | (11,215,809) | 1,171,969 | 636,453 | 448,952 | 780,879 | 3,038,253 |
| Loans and advances to | ||||||||||
| customers | 16,820,105 | 10,846,599 | 211,152 | 7,287,819 | 377,614 | 35,543,289 | 11,198,692 | 1,052,416 | 271,579 | 48,065,976 |
| Financial assets (2) | 20,610 | - | - | 521,688 | 8,752,347 | 9,294,645 | 4,380,756 | 380,010 | 25,806 | 14,081,217 |
| Other assets | 166,851 | 49,149 | 10,122 | 883,329 | 6,120,434 | 7,229,885 | 228,201 | 164,672 | 215,534 | 7,838,292 |
| Total Assets | 26,870,574 | 11,869,606 | 1,767,654 | 8,697,368 | 4,034,586 | 53,239,788 | 16,444,102 | 2,046,050 | 1,293,798 | 73,023,738 |
| Resources from other | ||||||||||
| credit institutions | 1,130,799 | 3,247,241 | - | 8,090,387 | (4,942,184) | 7,526,243 | 1,453,138 | 104,139 | 289,661 | 9,373,181 |
| Resources from customers | 24,286,600 | 7,849,192 | 1,698,812 | 333,693 | 674,926 | 34,843,223 | 13,486,366 | 1,518,339 | 787,821 | 50,635,749 |
| Debt securities issued | 805,129 | 1,036 | 45,699 | 2,853 | 1,992,538 | 2,847,255 | 274,170 | - | - | 3,121,425 |
| Other financial liabilities | - | - | - | - | 1,423,843 | 1,423,843 | 187,802 | - | 4,442 | 1,616,087 |
| Other liabilities | 35,831 | 44,821 | 1,253 | 4,314 | 830,033 | 916,252 | 274,850 | 133,947 | 6,535 | 1,331,584 |
| Total Liabilities | 26,258,359 | 11,142,290 | 1,745,764 | 8,431,247 | (20,844) | 47,556,816 | 15,676,326 | 1,756,425 | 1,088,459 | 66,078,026 |
| Equity and non-controlling | ||||||||||
| interests | 612,215 | 727,316 | 21,890 | 266,121 | 4,055,430 | 5,682,972 | 767,776 | 289,625 | 205,339 | 6,945,712 |
| Total Liabilities, Equity | ||||||||||
| and non-controlling interests | 26,870,574 | 11,869,606 | 1,767,654 | 8,697,368 | 4,034,586 | 53,239,788 | 16,444,102 | 2,046,050 | 1,293,798 | 73,023,738 |
| Number of employees | 4,811 | 602 | 191 | 147 | 1,552 | 7,303 | 5,865 | 2,563 | 78 | 15,809 |
(1) Includes the contribution associated with the Bank's investments in Angola, in Banco Millennium Atlântico, recorded since May 2016 by the equity method;
(2) Includes financial assets held for trading, financial assets held for trading at fair value, financial assets held to maturity, financial assets available for sale, hedging derivatives and assets with repurchase agreement.
Note: As at 30 June 2017, the goodwill disclosed in the financial statements that is reflected in Mozambique is Euros 2 million and Euros 128 million in Other Portugal, as described in note 30.
Notes to the Interim Condensed Consolidated Financial Statements 30 June 2017
As at 30 June 2016, the net contribution of the major geographic segments, for the income statement, is analysed as follows:
| Portugal | (Thousands of Euros) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Retail banking |
Companies, Corporate and Investment banking |
Private banking |
Non-core business portfolio |
Other | Total | Poland | Mozambique | Other (1) | Consolidated | ||
| Income statement | |||||||||||
| Interest and similar income Interest expense and similar charges |
262,580 (72,909) |
187,640 (46,680) |
14,629 (7,090) |
80,682 (63,117) |
52,722 (41,190) |
598,253 (230,986) |
258,359 (96,883) |
105,952 (36,146) |
2,912 (657) |
965,476 (364,672) |
|
| Net interest income | 189,671 | 140,960 | 7,539 | 17,565 | 11,532 | 367,267 | 161,476 | 69,806 | 2,255 | 600,804 | |
| Commissions and other costs Commissions and other costs |
187,774 (6,487) |
80,551 (3,080) |
16,715 (216) |
5,056 (16) |
(759) (93,550) |
289,337 (103,349) |
79,039 (53,707) |
32,706 (12,697) |
14,039 (2,813) |
415,121 (172,566) |
|
| Net commissions and other income | 181,287 | 77,471 | 16,499 | 5,040 | (94,309) | 185,988 | 25,332 | 20,009 | 11,226 | 242,555 | |
| Net gains arising from trading activity |
(41) | - | - | 23,893 | 52,021 | 75,873 | 87,805 | 17,581 | 1,564 | 182,823 | |
| Share of profit of associates under the equity method Gains / (losses) arising from |
- | - | - | - | 34,763 | 34,763 | - | - | 2,953 | 37,716 | |
| the sale of subsidiaries | |||||||||||
| and other assets Net operating revenue |
2 370,919 |
- 218,431 |
- 24,038 |
- 46,498 |
(5,727) (1,720) |
(5,725) 658,166 |
1,175 275,788 |
61 107,457 |
9 18,007 |
(4,480) 1,059,418 |
|
| Staff costs and administrative costs Amortizations and depreciations |
241,303 1,043 |
47,839 241 |
7,509 3 |
10,632 10 |
(11,806) 13,012 |
295,477 14,309 |
111,806 6,473 |
39,444 4,603 |
11,844 95 |
458,571 25,480 |
|
| Operating expenses | 242,346 | 48,080 | 7,512 | 10,642 | 1,206 | 309,786 | 118,279 | 44,047 | 11,939 | 484,051 | |
| Impairment for credit | |||||||||||
| and financial assets Other impairments and provisions |
(36,841) (45) |
(271,545) 37 |
(922) - |
(302,623) (5,811) |
(142,680) (12,499) |
(754,611) (18,318) |
(22,799) (8,190) |
(12,744) 553 |
(520) - |
(790,674) (25,955) |
|
| Net income / (loss) before income tax |
91,687 | (101,157) | 15,604 | (272,578) | (158,105) | (424,549) | 126,520 | 51,219 | 5,548 | (241,262) | |
| Income tax | (27,033) | 29,960 | (4,603) | 80,410 | 47,641 | 126,375 | (33,026) | (14,351) | (697) | 78,301 | |
| Income / (loss) after income tax from continuing operations |
64,654 | (71,197) | 11,001 | (192,168) | (110,464) | (298,174) | 93,494 | 36,868 | 4,851 | (162,961) | |
| Income / (loss) arising from discontinued operations (2) |
- | - | - | - | 8,421 | 8,421 | - | - | 36,806 | 45,227 | |
| Net income / (loss) for the period | 64,654 | (71,197) | 11,001 | (192,168) | (102,043) | (289,753) | 93,494 | 36,868 | 41,657 | (117,734) | |
| Non-controlling interests | - | - | - | - | 1,080 | 1,080 | (46,653) | (12,626) | (21,318) | (79,517) | |
| Net income / (loss) for the period | |||||||||||
| attributable to Shareholders | 64,654 | (71,197) | 11,001 | (192,168) | (100,963) | (288,673) | 46,841 | 24,242 | 20,339 | (197,251) |
As at 31 December 2016, the net contribution of the major geographic segments, for the balance sheet, is analysed as follows:
| Balance sheet | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Cash and Loans and advances to credit institutions |
9,334,906 | 1,059,177 | 1,595,368 | 5,375 | (10,916,428) | 1,078,398 | 690,787 | 437,922 | 871,731 | 3,078,838 |
| Loans and advances | ||||||||||
| to customers | 16,917,689 | 10,934,311 | 172,165 | 8,065,466 | (74,691) | 36,014,940 | 10,661,642 | 1,039,478 | 301,542 | 48,017,602 |
| Financial assets (3) | 20,960 | - | - | 634,878 | 7,458,104 | 8,113,942 | 4,031,817 | 228,636 | 6,083 | 12,380,478 |
| Other assets | 183,848 | 55,424 | 11,729 | 847,921 | 6,119,753 | 7,218,675 | 211,494 | 131,782 | 225,942 | 7,787,893 |
| Total Assets | 26,457,403 | 12,048,912 | 1,779,262 | 9,553,640 | 2,586,738 | 52,425,955 | 15,595,740 | 1,837,818 | 1,405,298 | 71,264,811 |
| Resources from other | ||||||||||
| credit institutions | 1,344,914 | 3,751,972 | - | 9,101,255 | (6,030,981) | 8,167,160 | 1,303,029 | 121,268 | 346,938 | 9,938,395 |
| Resources from customers | 23,893,851 | 7,668,144 | 1,691,628 | 329,361 | 439,529 | 34,022,513 | 12,668,085 | 1,298,883 | 808,166 | 48,797,647 |
| Debt securities issued | 556,065 | 1,795 | 62,353 | 584 | 2,594,121 | 3,214,918 | 297,902 | - | - | 3,512,820 |
| Other financial liabilities | - | - | - | - | 2,135,077 | 2,135,077 | 335,073 | - | 5,984 | 2,476,134 |
| Other liabilities | 19,505 | 42,332 | 639 | 4,025 | 797,421 | 863,922 | 280,870 | 123,527 | 6,315 | 1,274,634 |
| Total Liabilities | 25,814,335 | 11,464,243 | 1,754,620 | 9,435,225 | (64,833) | 48,403,590 | 14,884,959 | 1,543,678 | 1,167,403 | 65,999,630 |
| Equity and non-controlling interests |
643,068 | 584,669 | 24,642 | 118,415 | 2,651,571 | 4,022,365 | 710,781 | 294,140 | 237,895 | 5,265,181 |
| Total Liabilities, Equity and non-controlling interests |
26,457,403 | 12,048,912 | 1,779,262 | 9,553,640 | 2,586,738 | 52,425,955 | 15,595,740 | 1,837,818 | 1,405,298 | 71,264,811 |
| Number of employees | 4,854 | 588 | 185 | 148 | 1,558 | 7,333 | 5,844 | 2,551 | 79 | 15,807 |
(1) Includes the activity of the subsidiary in Angola, considered as discontinued operation;
(2) The amount considered for Angola in discontinued operations corresponds to the book value. The impact of capital allocation in segments base, is reflected in net interest income item; (3) Includes financial assets held for trading, financial assets held for trading at fair value through profit or loss, financial assets held to maturity, financial assets available for sale, hedging derivatives and assets with repurchase agreement.
Note: As at 31 December 2016, the goodwill disclosed in the financial statements that is reflected in Mozambique is Euros 2 million and Euros 128 million in Other Portugal, as described in note 30.
30 June 2017
Description of materially relevant reconciliation items:
| Jun 2017 | Jun 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| Net contribution: | ||
| Retail banking in Portugal | 89,219 | 64,654 |
| Companies, Corporate and Investment banking | 38,612 | (71,197) |
| Private Banking | 12,742 | 11,001 |
| Non-core business portfolio | (77,706) | (192,168) |
| Foreign business (continuing operations) (1) | 132,693 | 135,213 |
| Non-controlling interests (2) | (51,417) | (80,597) |
| 144,143 | (133,094) | |
| Income from discontinued or discontinuing operations (3) | - | 36,806 |
| 144,143 | (96,288) | |
| Amounts not allocated to segments: | ||
| Interests of hybrid instruments | (6,343) | (32,801) |
| Net interest income of the bond portfolio | 20,773 | 18,382 |
| Interests written off | 10,922 | (930) |
| Own credit risk | 1,781 | 10,641 |
| Foreign exchange activity | 14,882 | 12,065 |
| Equity accounted earnings | 19,333 | 34,763 |
| Impairment and other provisions (4) | (89,130) | (155,178) |
| Operational costs (5) | 23,719 | (1,206) |
| Gains on sale of public debt | 3,070 | (4,725) |
| Mandatory contributions | (57,862) | (51,711) |
| Gains on the acquisition of Visa Europe by Visa Inc. (1) | - | 26,353 |
| Gain arising from the sale of Banco Millennium Angola | - | 7,329 |
| Taxes (6) | 24,316 | 47,641 |
| Others (7) | (19,676) | (11,586) |
| Total not allocated to segments | (54,215) | (100,963) |
| Consolidated net income | 89,928 | (197,251) |
(1) The net contribution of the Foreign Business (continuing operations) segment includes, in the first semester of 2016, the gain of Euros 64.6 million arising from the sale of Visa Europe by Bank Millennium in Poland. The caption Gains on the acquisition of Visa Europe by Visa Inc. only includes the amount of Euros 26.4 million related to the gains obtained from the same operation in Portugal, as referred in note 7.
(2) Corresponds mainly to the income attributable to third parties related to the subsidiaries in Poland, in Mozambique and in Angola.
(3) In 2016, includes the book value of the subsidiary in Angola considered as a discontinued operation. Concerning Angola, only includes the figures of the first three months of the year, since from May 2016 on, the contribution of the new merged entity, Banco Millennium Atlântico, resulted from the merger process of Banco Millennium in Angola with Banco Privado Atlântico started being accounted using the equity method. It does not include the value of the Other segment (Portugal).
(4) Includes provisions for property in kind and for funds specialized in the recovery of loans, administrative infractions, various contingencies and other unallocated to business segments.
(5) Corresponds to costs related to the impacts arising from the revision of the Collective Labour Agreement and to restructuring costs .
(6) Includes deferred tax revenue, net of current non-segment tax expense, namely the tax effect associated with the impacts of the previous items, calculated based on a marginal tax rate.
Notes to the Interim Condensed Consolidated Financial Statements
30 June 2017
The Group is subject to several risks during the course of its business. The risks from different companies of the Group are managed centrally, in coordination with the local departments and considering the specific risks of each business.
The Group's risk-management policy is designed to permanently ensure an adequate relationship between its own funds and the business it develops, as well as the corresponding evaluation of the risk/return profile by business line.
Under this scope, the monitoring and control of the main types of financial risks to which the Group's business is subject to – credit, market, liquidity and operational – is particularly relevant.
Credit – Credit risk is associated with the degree of uncertainty of the expected returns as a result of the inability either of the borrower (and the guarantor, if any) or of the issuer of a security or of the counterparty to an agreement to fulfil their obligations.
Market – Market risk reflects the potential loss inherent in a given portfolio as a result of changes in rates (interest and exchange) and/or in the prices of the various financial instruments that make up the portfolio, considering both the correlations that exist between these instruments and the respective volatilities.
Liquidity – Liquidity risk reflects the Group's inability to meet its obligations at maturity without incurring in significant losses resulting from the deterioration of the funding conditions (funding risk) and/or from the sale of its assets below market value (market liquidity risk).
Operational – Operational risk consists in the potential losses resulting from failures or inadequacies in internal procedures, persons or systems, and also in the potential losses resulting from external events.
Banco Comercial Português Board of Directors is responsible for the definition of the risk policy, including the approval of the principles and rules of the highest level to be followed in risk management, as well as the guidelines dictating the allocation of capital to the business lines.
The Board of Directors, through the Audit Committee, ensures the existence of adequate risk control and of risk-management systems at Group level and for each entity. The Board of Directors also approves the risk-tolerance level acceptable to the Group, proposed by its Executive Committee.
The Risk Committee is responsible for monitoring the overall levels of risk incurred, ensuring that these are compatible with the goals and strategies approved for the business.
The Chief Risk Officer is responsible for the control of risks in all Group entities, for the identification of all risks to which the Group activity is exposed and for the proposal of measures to improve risks control. The Chief Risk Officer also ensures that risks are monitored on an overall basis and that there is alignment of concepts, practices and goals in risk management.
The activity of every entity included within the Banco Comercial Português consolidation perimeter is governed by the principles and decisions established centrally by the Risk Committee and the main subsidiaries are provided with Risk Office structures which are established in accordance with the risks inherent to their particular business. A Risk Control Commission has been set up at each relevant subsidiary, responsible for the control of risks at local level, in which the Chief Risk Officer takes part.
The Group Head of Compliance is responsible for implementing systems for monitoring the compliance with legal obligations and responsibilities to which the Bank is subject, as well, the prevention, monitoring and reporting of risks in organizational processes, which include, among others, the prevention and repression of money laundering, combating financing of terrorism, prevention of conflicts of interest, issues related to abuse of market and compliance with the disclosure requirements to customers.
Credit granting is based on a prior classification of the customers' risk and on a thorough assessment of the level of protection provided by the underlying collateral. In order to do so, a single risk-notation system has been introduced, the Rating Master Scale, based on the expected probability of default, allowing greater discrimination in the assessment of the customers and better establishment of the hierarchies of the associated risk. The Rating Master Scale also identifies those customers that show a worsening credit capacity and, in particular, those classified as being in default. All rating and scoring models used by the Group have been duly calibrated for the Rating Master Scale. The protection-level concept has been introduced as a crucial element of evaluation of the effectiveness of the collateral in credit-risk mitigation, leading to a more active collateralization of loans and to a better adequacy of pricing regarding the risk incurred.
30 June 2017
The gross Group's exposure to credit risk (original exposure) is presented in the following table:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Risk items | Euros '000 | Euros '000 |
| Central Governments or Central Banks | 12,184,035 | 10,351,072 |
| Regional Governments or Local Authorities | 774,669 | 763,620 |
| Administrative and non-profit Organisations | 555,476 | 765,626 |
| Multilateral Development Banks | 18,818 | 17,968 |
| Other Credit Institutions | 2,936,463 | 3,024,895 |
| Retail and Corporate customers | 58,746,372 | 59,364,139 |
| Other items | 10,334,338 | 13,889,468 |
| 85,550,171 | 88,176,788 |
Note: gross exposures of impairment and amortization, in accordance with the prudential consolidation perimeter. Includes securitization positions.
The Bank of Portugal applied for a group of templates to evaluate the risk associated to the loans portfolio and the calculation of the corresponding losses. Methodological notes regarding the following categories:
On the risk evaluation of an operation or of a group of operations, the mitigation elements of credit risk associated to those operations are considered in accordance with the rules and internal procedures that fulfil the requirements defined by the regulations in force, also reflecting the experience of the loans recovery areas and the Legal Department opinions with respect to the entailment of the various mitigation instruments.
The collaterals and the relevant guarantees can be aggregated in the following categories:
personal guarantees, when the persons are classified with Risk Grade 7 or better;
credit derivatives.
The financial collaterals accepted are those that are traded in a recognized stock exchange, i.e., on an organized secondary market, liquid and transparent, with public bid-ask prices, located in countries of the European Union, United States, Japan, Canada, Hong Kong or Switzerland.
In this context, it is important to refer that the Bank's shares are not accepted as financial collaterals of new credit operations and are only accepted for the reinforcement of guarantees of existing credit operations, or in restructuring process associated to credit recoveries.
Regarding guarantees and credit derivatives, the substitution principle is applied by replacing the Risk Grade of the client by the Risk Grade of the guarantor, if the Risk of Grade Degree of the guarantor is better than the client's, when:
State, Financial Institutions or Mutual Guarantee Societies guarantees exist;
personal guarantees (or, in the case of Leasing, an adhering contracting party);
An internal level of protection is attributed to all credit operations at the moment of the credit granting decision, considering the credit amount as well as the value and type of the collaterals involved. The protection level corresponds to the loss reduction in case of default that is linked to the various collateral types, considering their market value and the amount of the associated exposure.
In the case of financial collaterals, adjustments are made to the protection value by the use of a set of haircuts, in order to reflect the price volatility of the financial instruments.
In the case of real estate mortgages, the initial appraisal of the real estate value is done during the credit analysis and decision process.
Either the initial evaluations or the subsequent reviews carried out are performed by external expert valuers and the ratification process is centralized in the Appraisals Unit, which is independent of the clients' areas.
There is always a written report, in a standardized digital format, based on a group of predefined methods that are aligned with the sector practices – income, replacement cost and/or market comparative - mentioning the obtained value, for both the market value and for purposes of the mortgage guarantee, depending on the type of the real estate. The evaluations have a declaration/certification of an expert valuer since 2008, as requested by Notice n.5/2007 of Bank of Portugal and are ratified by the Appraisals Unit.
Regarding residential real estate, after the initial valuation and in accordance with Notices n. 5/2006 and n.5/2007 of Bank of Portugal, the Bank monitors the respective values through market indexes. If the index is lower than 0.9, the Bank revaluates choosing one of the following three methods:
i) - depreciation of the property by direct application of the index, if the amount owed does not exceed 70% of the revised collateral; ii) - review based on recent reviews, geographically close, certified by internal expert;
iii) - review of the property value by external valuators, depending on the value of the credit operation, and in accordance with established standards.
For all non-residential real estate, the Bank also monitors its values through market indexes and to the regular valuation reviews in accordance with the Notice n.5/2007 of Bank of Portugal, in the case of offices, warehouses and industrial premises.
30 June 2017
For all real estate (residential or non-residential) for which the monitoring result in significant devaluation of the real estate value (more than 10%), a valuation review is subsequently carried out by an expert valuer.
For the remaining real estate (land, commercial real estate or country side buildings for example) there are no market indexes available for the monitoring of appraisal values, after the initial valuations. Therefore, for these cases and in accordance with the minimum periodicity established for the monitoring and reviewing of this type of real estate, valuation reviews are carried out by expert valuers.
The indexes currently used are supplied to the Bank by an external specialized entity that, for more than a decade, has been collecting and processing the data upon which the indexes are built.
In the case of financial collaterals, their market value is daily and automatically updated, through the IT connection between the collaterals management system and the relevant financial markets data.
Credit granting is based on the previous risk assessment of clients and also on a rigorous assessment of the protection level provided by the underlying collaterals. For this purpose, a single risk grading system is used - the Rating Master Scale - based on Probability of Default (PD), allowing for a greater discriminating power in clients assessment and for a better hierarchy of the associated risk. The Rating Master Scale also allows to identify clients that show signs of degradation in their credit capacity and, in particular, those that are classified in a default situation. All rating systems and models used by the Group were calibrated for the Rating Master Scale.
Aiming at an adequate assessment of credit risk, the Group defined a set of macro segments and segments which are treated through different rating systems and models that relate the internal risk grades and the clients' PD, ensuring a risk assessment that considers the clients' specific features in terms of their respectively risk profiles.
The assessment made by these rating systems and models result in the risk grades of the Master Scale, that has fifteen grades, where the last three correspond to relevant downgrades of the clients' credit quality and are referred to by "procedural risk grades": 13, 14 and 15, that correspond, in this order, to situations of increased severity in terms default, as risk grade 15 is a Default situation.
The non-procedural risk grades are attributed by the rating systems through automatic decision models or by the Rating Division – a unit which is independent from the credit analysis and decision areas and bodies- and are reviewed/updated periodically or whenever this is justified by events.
The models within the various rating systems are regularly subject to validation, made by the Models Validation and Monitoring Office, which is independent from the units that are responsible for the development and maintenance of the rating models.
The conclusions of the validations by the Models Validation and Monitoring Office, as well the respective recommendations and proposal for changes and/or improvements, are analysed and ratified by a specific Validation Committee, composed in accordance to the type of model analysed. The proposals for models' changes originated by the Validation Committee are submitted to the approval of the Risk Committee.
In order to align with the international best practices in this area, the credit impairment calculation within BCP Group integrates the general principles defined by IAS 39 and the guidelines issued by the Bank of Portugal through "Carta-Circular 2/2014 / DSP".
This process is based, as far as possible, on the concepts and the data used in capital requirements calculation according to the Internal Ratings Based Approach (IRB), in order to maximize the synergies between the two processes.
There are three components to be considered in impairment calculation, according to the risk of the customers' exposure and whether there is objective evidence of impairment:
Individual analysis for customers with high exposure and risk;
Collective analysis for customers in default or considered at high risk, not included in individual analysis;
Collective analysis of customers not in default, non-high risk or without enough evidence of impairment, as a result of individual analysis (IBNR - Incurred But Not Reported component).
Customers in one of the following conditions are submitted to individual analysis:
i) Customers in insolvency or under legal proceedings provided that the total exposure of the group's customers in these situations exceed Euros 1 million; ii) Customers rated "15" integrated in groups with exposure above Euros 5 million;
Customers not in default but with impairment indicators
iii) Customers rated "14" integrated in groups with exposure above Euros 5 million;
Groups or Customers without impairment indicators
iv) Other customers integrating groups under the above conditions;
v) Groups or customers with exposure above Euros 5 million having restructured credits and rated "13";
vi) Groups or Customers with exposure above Euros 10 million, provided that some pre-defined impairment soft signs exist;
vii) Groups or Customers not included in the preceding paragraphs, with exposure above Euros 25 million.
30 June 2017
Other customers, that do not meet the criteria above, will also be subject to individual analysis if under the following conditions:
i) Have impairment as a result of the latest individual analysis; or ii) According to recent information, show a significant deterioration in risk levels; or
iii) are Special Vehicle Investment (SPV);
Individual analysis includes the following procedures:
For customers without impairment signs, analysis of a set of financial difficulties indicators, in order to conclude if the customer has objective impairment signs;
For customers with impairment signs and for those in which objective evidence of impairment is identified in the above mentioned preliminary analysis, loss estimation.
Customers included in individually analysis are subject to a regular process of assigning an expectation of recovery of the totality of their exposure and of the expected period for such recovery, and the impairment value of each customer should be supported, mainly in the prospects of receiving monetary, financial or physical assets and in the forecasted period for those receipts.
This process is carried out by recovery areas or by the Credit Division, supported by all the relevant elements for the calculation of impairment, including the following ones:
economic and financial data, based on the most recent financial statements of the customer;
qualitative data, characterizing the customer's situation, particularly with regard to the economic viability of the business;
estimated cash flows for the clients on an ongoing basis;
customers credit experience with the Bank and with the Financial System.
Each of the aforementioned units is responsible for assigning an expectation and a recovery period to the exposures relating to clients subject to individual analysis, which must be transmitted to the Risk Office in the context of the regular process of collection of information, accompanied by detailed justification of the impairment proposal.
The Risk Office is responsible for reviewing the information collected and for clarifying all identified inconsistencies, and it is the final decision on the client's impairment.
For the purpose of individual analysis, information on collaterals and guarantees plays an important role, mainly for real estate companies and whenever the viability of the customer's business is weak.
The Bank takes a conservative approach concerning collaterals, working with haircuts that incorporate the risk of assets devaluation, the sale and maintenance costs and the required time for sale.
For each client, the impairment is calculated as the difference between the exposure and the sum of the expected cash-flows of all the businesses, discounted at the effective interest rate of each operation.
Credits to customers that are not individually analysed are grouped according to their risk characteristics, and impairment is based on homogenous populations, assuming a one-year emergence period (or loss identification period).
For the calculation of the impairment by homogeneous population is used the following formula: Colective impairment = EAD * PD * LGD.
in which EAD represents the client's credit exposure, PD represents the probability of a customer going into default in the period of recognition of the loss and LGD represents the loss associated with a customer in default taking into account the time of default.
For the calculation of PD, the homogeneous populations result from the following factors:
Customer segment for rating purposes (according to the corresponding rating model);
Risk bucket, depending on customer current status (different probabilities of default correspond to the several buckets).
For the calculation of LGD, the homogeneous populations result from the following factors:
Customer segment;
Defaulted period;
LTV (Loan to Value) for exposures collateralized by real estate.
LGD estimation is mainly based on the following components:
a priori definition of the possible recovery scenarios;
historical information about the Bank's recovery processes, mainly regarding incurred losses and the probabilities associated to each of the recovery scenarios;
direct and indirect costs associated to the recovery processes;
discounted rate to be used in the discount of the cash-flows to the date of default;
collaterals associated to each loan.
The criteria and the concepts underlying the definition of the above mentioned homogeneous populations are in line with the ones used for capital requirements (IRB) purposes.
The results of the impairment calculation process are the subject of accounting. In accordance with "Carta-Circular 15/2009" from the Bank of Portugal, write-offs take place whenever there are no realistic expectations of recovery; hence, when impairment reaches 100%, credits shall be considered as uncollectible. However, even if a credit not yet has an impairment of 100% can also be classified as uncollectible, provided there are no recovery expectations. It is noteworthy that all of the described procedures and methodologies are subject to internal regulations superiorly approved, concerning impairment, credit granting and monitoring and non-performing credit treatment.
30 June 2017
The following tables detail the exposures and impairment by segment, as at 30 June 2017. The data presented includes the irrevocable credit lines, guarantees and commitments:
| Exposure Jun 2017 | ||||||
|---|---|---|---|---|---|---|
| Performing loans | Non-performing loans | |||||
| Total | Of which | Of which | Of which | |||
| Exposure | Total | "cured" (a) | restructured (b) | Total | restructured | |
| Segment | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 |
| Construction and CRE (*) | 6,507,391 | 4,800,562 | 34,752 | 540,796 | 1,706,829 | 638,722 |
| Companies-Other Activities | 20,320,347 | 18,664,605 | 131,999 | 942,216 | 1,655,742 | 673,835 |
| Mortgage loans | 23,838,868 | 22,679,889 | 174,063 | 633,782 | 1,158,979 | 331,017 |
| Individuals - Others | 4,752,501 | 4,122,633 | 8,926 | 140,838 | 629,868 | 243,384 |
| Other loans | 3,227,530 | 2,610,521 | 293 | 575,445 | 617,009 | 309,807 |
| Total | 58,646,637 | 52,878,210 | 350,033 | 2,833,077 | 5,768,427 | 2,196,765 |
| Impairment Jun 2017 | |||
|---|---|---|---|
| Segment | Total Impairment Euros '000 |
Performing loans Euros '000 |
Non-performing loans Euros '000 |
| Construction and CRE (*) | 984,585 | 200,243 | 784,342 |
| Companies-Other Activities | 1,206,331 | 398,580 | 807,751 |
| Mortgage loans | 288,088 | 48,212 | 239,876 |
| Individuals - Others | 458,244 | 92,153 | 366,091 |
| Other loans | 808,131 | 453,988 | 354,143 |
| Total | 3,745,379 | 1,193,176 | 2,552,203 |
(*) - CRE - Commercial real estate
(a) - Credits that have been in default for more than 90 days or have been classified as Credit Risk and which, in the past 12 months, did not verify any of these conditions;
(b) - Credits in which there have been changes in the contractual terms, motivated by customer financial difficulties.
The following tables detail the exposures and impairment by segments, as at 31 December 2016. The data presented includes the irrevocable credit lines, guarantees and commitments:
| Exposure Dec 2016 | ||||||
|---|---|---|---|---|---|---|
| Performing loans | Non-performing loans | |||||
| Total | Of which | Of which | Of which | |||
| Exposure | Total | "cured" (a) | restructured (b) | Total | restructured | |
| Segment | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 |
| Construction and CRE | 6,748,292 | 5,042,462 | 204,762 | 551,913 | 1,705,830 | 601,521 |
| Companies-Other Activities | 20,291,371 | 18,394,499 | 216,646 | 1,124,187 | 1,896,872 | 668,235 |
| Mortgage loans | 24,103,692 | 22,768,643 | 196,672 | 666,056 | 1,335,049 | 352,006 |
| Individuals - Others | 4,664,975 | 3,963,339 | 28,110 | 153,607 | 701,636 | 261,274 |
| Other loans | 2,971,136 | 2,501,615 | 76,775 | 381,303 | 469,521 | 299,469 |
| Total | 58,779,466 | 52,670,558 | 722,965 | 2,877,066 | 6,108,908 | 2,182,505 |
| Impairment Dec 2016 | |||
|---|---|---|---|
| Total Impairment |
Performing loans |
Non-performing loans |
|
| Segment | Euros '000 | Euros '000 | Euros '000 |
| Construction and CRE | 968,978 | 198,499 | 770,479 |
| Companies-Other Activities | 1,462,086 | 512,074 | 950,012 |
| Mortgage loans | 316,314 | 49,844 | 266,470 |
| Individuals - Others | 513,351 | 93,196 | 420,155 |
| Other loans | 608,178 | 269,729 | 338,449 |
| Total | 3,868,907 | 1,123,342 | 2,745,565 |
(a) - Credits that have been in default for more than 90 days or have been classified as Credit Risk and which, in the past 12 months, did not verify any of these conditions;
(b) - Credits in which there have been changes in the contractual terms, motivated by customer financial difficulties.
30 June 2017
The following tables include the detail of the exposure of non-performing loans and impairment respectively by segment, as at 30 June 2017:
| Exposure Jun 2017 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Performing loans | Non-performing loans | |||||||||
| Total | Days past due <30 | Days past due | ||||||||
| Exposure | Without evidence | With evidence | Total | <=90 (*) | >90 | |||||
| Segment | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | ||||
| Construction and CRE | 6,507,391 | 3,781,766 | 939,004 | 4,720,770 | 534,295 | 1,172,534 | ||||
| Companies-Other Activities | 20,320,347 | 16,353,178 | 1,189,766 | 17,542,944 | 270,320 | 1,385,422 | ||||
| Mortgage loans | 23,838,868 | 22,046,832 | 450,829 | 22,497,661 | 77,235 | 1,081,744 | ||||
| Individuals - Others | 4,752,501 | 3,924,494 | 148,010 | 4,072,504 | 103,577 | 526,292 | ||||
| Other loans | 3,227,530 | 1,848,292 | 703,633 | 2,551,925 | 124,410 | 492,599 | ||||
| Total | 58,646,637 | 47,954,562 | 3,431,242 | 51,385,804 | 1,109,837 | 4,658,591 |
| Impairment Jun 2017 | |||||
|---|---|---|---|---|---|
| Performing loans | Non-performing loans | ||||
| Total | Days past due | Days past due | Days past due | Days past due | |
| Impairment | <30 | between 30-90 | <=90 (*) | >90 | |
| Segment | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 |
| Construction and CRE | 984,585 | 196,211 | 4,032 | 224,427 | 559,915 |
| Companies-Other Activities | 1,206,331 | 299,254 | 99,327 | 109,614 | 698,136 |
| Mortgage loans | 288,088 | 38,948 | 9,264 | 14,113 | 225,763 |
| Individuals - Others | 458,244 | 77,126 | 15,028 | 34,908 | 331,182 |
| Other loans | 808,131 | 418,102 | 35,886 | 34,863 | 319,280 |
| Total | 3,745,379 | 1,029,641 | 163,537 | 417,925 | 2,134,276 |
(*) Credit with capital instalments or interest overdue for less than 90 days, but for which there is evidence to justify its classification as credit at risk, namely bankruptcy or liquidation of the debtor, among others.
The tables disclosed above do not include exposure related to performing loans with past due between 30 and 90 days.
The following tables include the detail of the exposure of non-performing loans and impairment respectively by segment, as at 31 December 2016:
| Exposure Dec 2016 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Performing loans | Non-performing loans | |||||||
| Total | Days past due <30 | Days past due | ||||||
| Exposure | Without evidence | With evidence | Total | <=90 (*) | >90 | |||
| Segment | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | ||
| Construction and CRE | 6,748,292 | 4,060,773 | 896,062 | 4,956,835 | 563,519 | 1,142,312 | ||
| Companies-Other Activities | 20,291,371 | 15,693,300 | 1,893,076 | 17,586,376 | 333,054 | 1,563,818 | ||
| Mortgage loans | 24,103,692 | 22,058,813 | 519,822 | 22,578,635 | 71,029 | 1,264,020 | ||
| Individuals - Others | 4,664,975 | 3,721,530 | 176,385 | 3,897,915 | 110,511 | 591,125 | ||
| Other loans | 2,971,136 | 1,996,372 | 498,510 | 2,494,882 | 38,251 | 431,271 | ||
| Total | 58,779,466 | 47,530,788 | 3,983,855 | 51,514,643 | 1,116,364 | 4,992,546 |
| Impairment Dec 2016 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Performing loans | Non-performing loans | ||||||||
| Total | Days past due | Days past due | Days past due | Days past due | |||||
| Impairment | <30 | between 30-90 | <=90 | >90 | |||||
| Segment | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | ||||
| Construction and CRE | 968,978 | 194,988 | 3,511 | 229,196 | 541,283 | ||||
| Companies-Other Activities | 1,462,086 | 499,588 | 12,486 | 134,998 | 815,014 | ||||
| Mortgage loans | 316,314 | 39,239 | 10,604 | 12,160 | 254,311 | ||||
| Individuals - Others | 513,351 | 70,563 | 22,633 | 46,757 | 373,398 | ||||
| Other loans | 608,178 | 269,212 | 516 | 14,614 | 323,836 | ||||
| Total | 3,868,907 | 1,073,590 | 49,750 | 437,725 | 2,307,842 |
(*) Credit with capital instalments or interest overdue for less than 90 days, but for which there is evidence to justify its classification as credit at risk, namely bankruptcy or liquidation of the debtor, among others.
The tables disclosed above do not include exposure related to performing loans with past due between 30 and 90 days.
As at 30 June 2017, the following table includes the loans portfolio by segment and by year of production (date of the beginning of the operations, in the portfolio at the date of balance sheet - it does not include restructured loans):
| Jun 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Construction | Companies - | Individuals - | |||||
| Year of production | and CRE | Other Activities | Mortgage loans | Others | Other loans | Total | |
| 2006 and previous | |||||||
| Number of operations | 12,577 | 23,982 | 230,797 | 467,094 | 572 | 735,022 | |
| Value (Euros '000) | 900,650 | 2,784,756 | 8,763,291 | 467,016 | 72,847 | 12,988,560 | |
| Impairment constituted (Euros '000) | 129,114 | 82,916 | 98,765 | 39,828 | 6,006 | 356,629 | |
| 2007 | |||||||
| Number of operations | 2,124 | 3,988 | 72,160 | 82,967 | 102 | 161,341 | |
| Value (Euros '000) | 296,079 | 934,261 | 3,957,054 | 122,604 | 129,588 | 5,439,586 | |
| Impairment constituted (Euros '000) | 60,368 | 57,169 | 50,030 | 11,929 | 83,012 | 262,508 | |
| 2008 | |||||||
| Number of operations | 2,565 | 4,954 | 52,586 | 93,550 | 134 | 153,789 | |
| Value (Euros '000) | 545,786 | 743,984 | 3,066,613 | 127,292 | 81,124 | 4,564,799 | |
| Impairment constituted (Euros '000) 2009 |
71,796 | 37,797 | 41,468 | 14,620 | 9,851 | 175,532 | |
| Number of operations | 2,555 | 4,294 | 20,865 | 84,977 | 114 | 112,805 | |
| Value (Euros '000) | 317,034 | 760,933 | 1,073,965 | 99,762 | 96,099 | 2,347,793 | |
| Impairment constituted (Euros '000) | 28,385 | 18,493 | 17,704 | 12,580 | 714 | 77,876 | |
| 2010 | |||||||
| Number of operations | 2,444 | 5,095 | 22,791 | 111,261 | 155 | 141,746 | |
| Value (Euros '000) | 335,286 | 473,947 | 1,185,073 | 118,401 | 77,288 | 2,189,995 | |
| Impairment constituted (Euros '000) | 25,277 | 22,321 | 8,096 | 14,142 | 13,181 | 83,017 | |
| 2011 | |||||||
| Number of operations | 2,390 | 7,107 | 14,932 | 127,383 | 155 | 151,967 | |
| Value (Euros '000) | 249,654 | 690,717 | 715,450 | 142,476 | 30,068 | 1,828,365 | |
| Impairment constituted (Euros '000) | 25,355 | 40,831 | 3,966 | 14,825 | 7,884 | 92,861 | |
| 2012 | |||||||
| Number of operations | 2,369 | 8,966 | 12,175 | 134,955 | 180 | 158,645 | |
| Value (Euros '000) | 241,372 | 727,131 | 529,322 | 135,659 | 33,500 | 1,666,984 | |
| Impairment constituted (Euros '000) | 16,323 | 73,035 | 4,449 | 13,218 | 2,367 | 109,392 | |
| 2013 | |||||||
| Number of operations | 3,286 | 13,276 | 12,797 | 178,819 | 334 | 208,512 | |
| Value (Euros '000) | 274,254 | 1,151,986 | 612,461 | 249,271 | 403,820 | 2,691,792 | |
| Impairment constituted (Euros '000) | 24,758 | 30,563 | 6,230 | 28,066 | 23,933 | 113,550 | |
| 2014 | |||||||
| Number of operations | 3,788 | 19,758 | 9,386 | 205,589 | 452 | 238,973 | |
| Value (Euros '000) | 389,897 | 1,664,205 | 512,098 | 377,083 | 320,318 | 3,263,601 | |
| Impairment constituted (Euros '000) | 8,153 | 47,940 | 4,775 | 36,493 | 17,961 | 115,322 | |
| 2015 | |||||||
| Number of operations | 4,993 | 26,117 | 10,859 | 282,307 | 711 | 324,987 | |
| Value (Euros '000) | 390,835 | 2,645,569 | 691,803 | 693,186 | 410,654 | 4,832,047 | |
| Impairment constituted (Euros '000) | 28,482 | 75,529 | 2,682 | 40,184 | 100,814 | 247,691 | |
| 2016 | |||||||
| Number of operations | 5,475 | 33,892 | 14,704 | 306,583 | 915 | 361,569 | |
| Value (Euros '000) | 666,999 | 3,079,743 | 990,464 | 1,013,405 | 442,865 | 6,193,476 | |
| Impairment constituted (Euros '000) | 26,060 | 50,455 | 3,524 | 24,318 | 7,938 | 112,295 | |
| 2017 | |||||||
| Number of operations | 5,434 | 91,475 | 11,930 | 162,098 | 1,157 | 272,094 | |
| Value (Euros '000) | 612,350 | 2,918,294 | 854,936 | 739,738 | 248,914 | 5,374,232 | |
| Impairment constituted (Euros '000) | 7,897 | 20,446 | 3,152 | 10,381 | 12,585 | 54,461 | |
| Total | |||||||
| Number of operations | 50,000 | 242,904 | 485,982 | 2,237,583 | 4,981 | 3,021,450 | |
| Value (Euros '000) | 5,220,196 | 18,575,526 | 22,952,530 | 4,285,893 | 2,347,085 | 53,381,230 | |
| Impairment constituted (Euros '000) | 451,968 | 557,495 | 244,841 | 260,584 | 286,246 | 1,801,134 |
As at 31 December 2016, the following table includes the loans portfolio by segment and by year of production (date of the beginning of the operations, in the portfolio at the date of balance sheet - it does not include restructured loans):
| Dec 2016 | ||||||
|---|---|---|---|---|---|---|
| Construction | Companies - | Individuals - | ||||
| Year of production | and CRE | Other Activities | Mortgage loans | Others | Other loans | Total |
| 2006 and previous | ||||||
| Number of operations | 13,954 | 27,200 | 238,932 | 495,381 | 612 | 776,079 |
| Value (Euros '000) | 987,187 | 2,950,498 | 9,274,646 | 510,746 | 93,713 | 13,816,790 |
| Impairment constituted (Euros '000) | 153,796 | 124,394 | 116,516 | 54,484 | 5,822 | 455,012 |
| 2007 | ||||||
| Number of operations | 2,510 | 4,937 | 74,381 | 89,737 | 105 | 171,670 |
| Value (Euros '000) | 340,607 | 988,410 | 4,139,184 | 138,278 | 133,037 | 5,739,516 |
| Impairment constituted (Euros '000) | 64,934 | 68,366 | 55,587 | 18,953 | 82,562 | 290,402 |
| 2008 | ||||||
| Number of operations | 3,068 | 5,871 | 53,873 | 101,624 | 119 | 164,555 |
| Value (Euros '000) | 584,715 | 852,956 | 3,217,980 | 142,400 | 128,754 | 4,926,805 |
| Impairment constituted (Euros '000) | 70,834 | 72,220 | 42,295 | 22,102 | 11,880 | 219,331 |
| 2009 | ||||||
| Number of operations | 3,040 | 5,011 | 21,614 | 92,642 | 123 | 122,430 |
| Value (Euros '000) | 345,427 | 860,420 | 1,130,253 | 111,509 | 124,445 | 2,572,054 |
| Impairment constituted (Euros '000) | 29,742 | 20,960 | 18,976 | 17,008 | 15,803 | 102,489 |
| 2010 | ||||||
| Number of operations | 2,881 | 5,868 | 23,711 | 122,176 | 159 | 154,795 |
| Value (Euros '000) | 418,951 | 498,879 | 1,230,618 | 123,635 | 92,606 | 2,364,689 |
| Impairment constituted (Euros '000) | 24,085 | 30,112 | 8,578 | 14,556 | 12,872 | 90,203 |
| 2011 | ||||||
| Number of operations | 2,820 | 8,792 | 15,503 | 139,078 | 155 | 166,348 |
| Value (Euros '000) | 263,864 | 731,191 | 732,335 | 145,005 | 30,794 | 1,903,189 |
| Impairment constituted (Euros '000) | 24,632 | 61,294 | 3,957 | 14,247 | 7,942 | 112,072 |
| 2012 | ||||||
| Number of operations | 2,705 | 10,805 | 12,688 | 146,103 | 221 | 172,522 |
| Value (Euros '000) | 248,257 | 872,458 | 538,325 | 144,676 | 48,516 | 1,852,232 |
| Impairment constituted (Euros '000) | 14,801 | 75,056 | 4,207 | 12,702 | 3,388 | 110,154 |
| 2013 | ||||||
| Number of operations | 3,854 | 16,364 | 13,289 | 192,661 | 405 | 226,573 |
| Value (Euros '000) | 326,763 | 1,261,752 | 633,521 | 288,250 | 473,537 | 2,983,823 |
| Impairment constituted (Euros '000) | 22,111 | 40,362 | 6,127 | 26,632 | 7,676 | 102,908 |
| 2014 | ||||||
| Number of operations | 4,242 | 22,475 | 9,756 | 226,808 | 559 | 263,840 |
| Value (Euros '000) | 401,286 | 2,020,901 | 529,641 | 438,920 | 348,371 | 3,739,119 |
| Impairment constituted (Euros '000) | 21,645 | 46,060 | 5,110 | 33,894 | 19,369 | 126,078 |
| 2015 | ||||||
| Number of operations | 5,267 | 27,642 | 11,119 | 306,969 | 840 | 351,837 |
| Value (Euros '000) | 591,962 | 3,054,775 | 719,689 | 785,720 | 384,592 | 5,536,738 |
| Impairment constituted (Euros '000) | 28,876 | 119,317 | 2,845 | 34,598 | 35,669 | 221,305 |
| 2016 | ||||||
| Number of operations | 7,913 | 60,938 | 13,618 | 300,805 | 2,028 | 385,302 |
| Value (Euros '000) | 883,234 | 4,173,631 | 1,008,641 | 1,298,497 | 732,708 | 8,096,711 |
| Impairment constituted (Euros '000) | 25,776 | 39,645 | 3,696 | 20,123 | 7,682 | 96,922 |
| Total | ||||||
| Number of operations | 52,254 | 195,903 | 488,484 | 2,213,984 | 5,326 | 2,955,951 |
| Value (Euros '000) | 5,392,253 | 18,265,871 | 23,154,833 | 4,127,636 | 2,591,073 | 53,531,666 |
| Impairment constituted (Euros '000) | 481,232 | 697,786 | 267,894 | 269,299 | 210,665 | 1,926,876 |
As at 30 June 2017, the following tables include the details of the loans portfolio subject to individual and collective impairment by segment, sector and geography:
| Jun 2017 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Exposure | Impairment | |||||||
| Segment | Individual Euros '000 |
Collective (*) Euros '000 |
Total Euros '000 |
Individual Euros '000 |
Collective Euros '000 |
Total Euros '000 |
||
| Construction and CRE | 2,202,490 | 4,304,901 | 6,507,391 | 814,982 | 169,603 | 984,585 | ||
| Companies - Other Activities | 2,625,547 | 17,694,800 | 20,320,347 | 958,445 | 247,886 | 1,206,331 | ||
| Mortgage loans | 62,548 | 23,776,320 | 23,838,868 | 22,170 | 265,918 | 288,088 | ||
| Individuals - Others | 113,172 | 4,639,329 | 4,752,501 | 56,223 | 402,021 | 458,244 | ||
| Other loans | 1,608,064 | 1,619,466 | 3,227,530 | 790,613 | 17,518 | 808,131 | ||
| Total | 6,611,821 | 52,034,816 | 58,646,637 | 2,642,433 | 1,102,946 | 3,745,379 |
| Jun 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Exposure | Impairment | ||||||
| Individual | Collective (*) | Total | Individual | Collective | Total | ||
| Sector | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Loans to Individuals | 168,055 | 26,980,695 | 27,148,750 | 74,713 | 625,092 | 699,805 | |
| Manufacturing | 285,534 | 4,408,193 | 4,693,727 | 117,470 | 67,130 | 184,600 | |
| Construction | 1,048,808 | 2,198,086 | 3,246,894 | 442,780 | 110,733 | 553,513 | |
| Commerce | 185,845 | 4,657,575 | 4,843,420 | 80,707 | 132,485 | 213,192 | |
| Real Estate Promotion | 580,973 | 680,583 | 1,261,556 | 177,657 | 13,063 | 190,720 | |
| Other Services | 3,542,234 | 10,248,758 | 13,790,992 | 1,595,521 | 123,146 | 1,718,667 | |
| Other Activities | 800,372 | 2,860,926 | 3,661,298 | 153,585 | 31,297 | 184,882 | |
| Total | 6,611,821 | 52,034,816 | 58,646,637 | 2,642,433 | 1,102,946 | 3,745,379 |
| Jun 2017 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Exposure | Impairment | |||||||
| Individual | Collective (*) | Total | Individual | Collective | Total | |||
| Geography | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | ||
| Portugal | 5,943,667 | 37,572,713 | 43,516,380 | 2,498,177 | 787,138 | 3,285,315 | ||
| Mozambique | 144,804 | 1,246,017 | 1,390,821 | 53,291 | 55,283 | 108,574 | ||
| Poland | 177,871 | 13,216,086 | 13,393,957 | 88,746 | 260,525 | 349,271 | ||
| Switzerland | 345,479 | - | 345,479 | 2,219 | - | 2,219 | ||
| Total | 6,611,821 | 52,034,816 | 58,646,637 | 2,642,433 | 1,102,946 | 3,745,379 |
As at 31 December 2016, the following table includes the details of the loans portfolio subject to individual and collective impairment by segment:
| Dec 2016 | ||||||
|---|---|---|---|---|---|---|
| Exposure | Impairment | |||||
| Individual | Collective (*) | Total | Individual | Collective | Total | |
| Segment | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 |
| Construction and CRE | 2,119,430 | 4,628,862 | 6,748,292 | 758,593 | 210,385 | 968,978 |
| Companies - Other Activities | 3,185,584 | 17,105,787 | 20,291,371 | 1,152,849 | 309,237 | 1,462,086 |
| Mortgage loans | 73,302 | 24,030,390 | 24,103,692 | 22,330 | 293,984 | 316,314 |
| Individuals - Others | 124,418 | 4,540,557 | 4,664,975 | 66,963 | 446,388 | 513,351 |
| Other loans | 1,303,921 | 1,667,215 | 2,971,136 | 585,872 | 22,306 | 608,178 |
| Total | 6,806,655 | 51,972,811 | 58,779,466 | 2,586,607 | 1,282,300 | 3,868,907 |
(*) The Collective Exposure column includes the credits under individual analysis for which the Group concluded that there is no objective evidence of impairment, and therefore recognised as incurred but not reported losses (IBNR) on a collective basis.
As at 31 December 2016, the following tables include the details of the loans portfolio subject to individual and collective impairment, by sector and geography:
| Dec 2016 | |||||||
|---|---|---|---|---|---|---|---|
| Exposure | Impairment | ||||||
| Individual | Collective (*) | Total | Individual | Collective | Total | ||
| Sector | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Loans to Individuals | 189,387 | 27,089,364 | 27,278,751 | 85,368 | 684,960 | 770,328 | |
| Manufacturing | 260,843 | 4,117,389 | 4,378,232 | 98,174 | 87,593 | 185,767 | |
| Construction | 990,647 | 2,379,746 | 3,370,393 | 400,294 | 134,501 | 534,795 | |
| Commerce | 192,188 | 4,576,106 | 4,768,294 | 67,719 | 171,453 | 239,172 | |
| Real Estate Promotion | 572,232 | 749,161 | 1,321,393 | 158,805 | 12,299 | 171,104 | |
| Other Services | 3,745,051 | 10,060,467 | 13,805,518 | 1,607,959 | 158,625 | 1,766,584 | |
| Other Activities | 856,307 | 3,000,578 | 3,856,885 | 168,288 | 32,869 | 201,157 | |
| Total | 6,806,655 | 51,972,811 | 58,779,466 | 2,586,607 | 1,282,300 | 3,868,907 |
| Exposure | Impairment | |||||
|---|---|---|---|---|---|---|
| Individual | Collective (*) | Total | Individual | Collective | Total | |
| Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| 6,130,870 | 38,100,228 | 44,231,098 | 2,458,327 | 1,004,630 | 3,462,957 | |
| 105,654 | 1,375,707 | 1,481,361 | 38,115 | 50,696 | 88,811 | |
| 197,002 | 12,496,876 | 12,693,878 | 88,094 | 226,974 | 315,068 | |
| 373,129 | - | 373,129 | 2,071 | - | 2,071 | |
| 6,806,655 | 51,972,811 | 58,779,466 | 2,586,607 | 1,282,300 | 3,868,907 | |
| Dec 2016 |
(*) The Collective Exposure column includes the credits under individual analysis for which the Group concluded that there is no objective evidence of impairment, and therefore recognised as incurred but not reported losses (IBNR) on a collective basis.
The following chart includes the entrances and the exits of the restructured loans portfolio:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Balance on 1 January | 5,059,571 | 5,440,684 |
| Transfers resulted from structure changes (*) | - | (71,197) |
| Restructured loans in the period | 483,075 | 888,271 |
| Accrued interests of the restructured portfolio | 33,048 | 7,383 |
| Settlement restructured credits (partial or total) | (332,713) | (684,603) |
| Reclassified loans from restructured to normal | (133,256) | (299,580) |
| Others | (79,883) | (221,387) |
| Balance at the end of the period | 5,029,842 | 5,059,571 |
(*) Banco Millennium Angola, S.A.
30 June 2017
As at 30 June 2017, the following table includes the fair value of the collaterals (not limited by the value of the collateral) associated to the loans portfolio by segments Construction and CRE, Companies - Other Activities and Mortgage loans:
| Jun 2017 | ||||||
|---|---|---|---|---|---|---|
| Construction and | ||||||
| Commercial Real Estate | Companies-Other Activities | Mortgage loans | ||||
| Other | Other | Other | ||||
| Fair Value | Real Estate | Collateral (*) | Real Estate | Collateral (*) | Real Estate | Collateral (*) |
| < 0.5 M€ | ||||||
| Number | 8,839 | 6,224 | 11,949 | 53,772 | 396,222 | 448 |
| Value (Euros '000) | 978,967 | 166,924 | 1,592,557 | 1,330,804 | 43,114,623 | 22,965 |
| >= 0.5 M€ and < 1 M€ | ||||||
| Number | 542 | 47 | 1,262 | 252 | 2,035 | 6 |
| Value (Euros '000) | 368,736 | 29,662 | 872,364 | 173,200 | 1,309,792 | 3,525 |
| >= 1 M€ and < 5 M€ | ||||||
| Number | 396 | 42 | 1,012 | 255 | 279 | 1 |
| Value (Euros '000) | 786,099 | 77,348 | 2,004,555 | 503,438 | 413,976 | 1,829 |
| >= 5 M€ and < 10 M€ | ||||||
| Number | 56 | 1 | 110 | 24 | 3 | - |
| Value (Euros '000) | 374,315 | 5,182 | 756,005 | 183,426 | 15,390 | - |
| >= 10 M€ and < 20 M€ | ||||||
| Number | 35 | 3 | 71 | 15 | - | - |
| Value (Euros '000) | 528,207 | 40,650 | 964,924 | 215,513 | - | - |
| >= 20 M€ and < 50 M€ | ||||||
| Number | 10 | - | 25 | 12 | - | - |
| Value (Euros '000) | 288,648 | - | 806,695 | 307,435 | - | - |
| >= 50 M€ | ||||||
| Number | 5 | - | 9 | 6 | - | - |
| Value (Euros '000) | 308,071 | - | 871,935 | 985,733 | - | - |
| Total | ||||||
| Number | 9,883 | 6,317 | 14,438 | 54,336 | 398,539 | 455 |
| Value (Euros '000) | 3,633,043 | 319,766 | 7,869,035 | 3,699,549 | 44,853,781 | 28,319 |
(*) Includes, namely, securities, deposits and fixed assets pledges.
As at 31 December 2016, the following table includes the fair value of the collaterals (not limited by the value of the collateral) associated to the loans portfolio by segments Construction and CRE, Companies - Other Activities and Mortgage loans:
| Dec 2016 | |||||||
|---|---|---|---|---|---|---|---|
| Construction and Commercial Real Estate |
Companies - Other Activities | Mortgage loans | |||||
| Fair Value | Real Estate | Other Collateral (*) |
Real Estate | Other Collateral (*) |
Real Estate | Other Collateral (*) |
|
| < 0.5 M€ | |||||||
| Number | 9,122 | 6,118 | 11,425 | 50,211 | 406,843 | 447 | |
| Value (Euros '000) | 1,037,511 | 101,234 | 1,576,589 | 549,682 | 44,361,715 | 22,468 | |
| >= 0.5 M€ and < 1 M€ | |||||||
| Number | 582 | 48 | 1,233 | 254 | 2,048 | 4 | |
| Value (Euros '000) | 390,326 | 26,845 | 858,829 | 140,359 | 1,317,158 | 2,506 | |
| >= 1 M€ and < 5 M€ | |||||||
| Number | 417 | 44 | 1,055 | 223 | 274 | 1 | |
| Value (Euros '000) | 804,227 | 55,103 | 2,069,466 | 367,380 | 407,943 | 1,824 | |
| >= 5 M€ and < 10 M€ | |||||||
| Number | 52 | 3 | 110 | 18 | 6 | - | |
| Value (Euros '000) | 314,635 | 6,148 | 745,492 | 120,051 | 32,022 | - | |
| >= 10 M€ and < 20 M€ | |||||||
| Number | 41 | 3 | 72 | 11 | 2 | - | |
| Value (Euros '000) | 586,963 | 15,950 | 987,617 | 151,649 | 26,807 | - | |
| >= 20 M€ and < 50 M€ | |||||||
| Number | 11 | - | 25 | 12 | - | - | |
| Value (Euros '000) | 339,336 | - | 834,071 | 310,046 | - | - | |
| >= 50 M€ | |||||||
| Number | 3 | - | 9 | 5 | - | - | |
| Value (Euros '000) | 221,017 | - | 763,086 | 913,612 | - | - | |
| Total | |||||||
| Number | 10,228 | 6,216 | 13,929 | 50,734 | 409,173 | 452 | |
| Value (Euros '000) | 3,694,015 | 205,280 | 7,835,150 | 2,552,779 | 46,145,645 | 26,798 |
(*) Includes, namely, securities, deposits and fixed assets pledges.
As at 30 June 2017, the following table includes the LTV ratio by segments Construction and Commercial Real Estate (CRE), Companies - Other Activities and Mortgage loans:
| Jun 2017 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Performing | Non-performing | |||||||
| Number | loans | loans | Impairment | |||||
| Segment/Ratio | of properties | Euros '000 | Euros '000 | Euros '000 | ||||
| Construction and CRE | ||||||||
| Without associated collateral | n.a. | 2,577,958 | 616,627 | 347,833 | ||||
| <60% | 9,843 | 624,891 | 59,919 | 29,527 | ||||
| >=60% and <80% | 2,887 | 263,731 | 117,068 | 30,061 | ||||
| >=80% and <100% | 2,599 | 427,388 | 123,966 | 71,608 | ||||
| >=100% | 39,564 | 906,594 | 789,249 | 505,556 | ||||
| Companies - Other Activities | ||||||||
| Without associated collateral | n.a. | 13,291,050 | 833,387 | 604,298 | ||||
| <60% | 41,667 | 1,719,684 | 109,770 | 111,393 | ||||
| >=60% and <80% | 14,894 | 1,155,763 | 97,773 | 59,057 | ||||
| >=80% and <100% | 11,744 | 804,411 | 167,998 | 76,882 | ||||
| >=100% | 7,856 | 1,693,697 | 446,814 | 354,701 | ||||
| Mortgage loans | ||||||||
| Without associated collateral | n.a. | 232,822 | 12,035 | 9,050 | ||||
| <60% | 261,599 | 8,557,441 | 134,255 | 21,904 | ||||
| >=60% and <80% | 138,809 | 7,578,246 | 171,567 | 20,966 | ||||
| >=80% and <100% | 77,247 | 4,290,615 | 253,106 | 33,663 | ||||
| >=100% | 37,735 | 2,020,766 | 588,015 | 202,505 | ||||
As at 31 December 2016, the following table includes the LTV ratio by segments Construction and Commercial Real Estate (CRE), Companies - Other Activities and Mortgage loans:
| Dec 2016 | ||||||
|---|---|---|---|---|---|---|
| Performing | Non-performing | |||||
| Number | loans | loans | Impairment | |||
| Segment/Ratio | of properties | Euros '000 | Euros '000 | Euros '000 | ||
| Construction and CRE | ||||||
| Without associated collateral | n.a. | 2,623,640 | 572,377 | 335,981 | ||
| <60% | 9,440 | 651,488 | 62,593 | 31,177 | ||
| >=60% and <80% | 3,558 | 376,367 | 148,279 | 48,787 | ||
| >=80% and <100% | 2,290 | 432,887 | 92,814 | 68,083 | ||
| >=100% | 39,362 | 958,081 | 829,766 | 484,950 | ||
| Companies - Other Activities | ||||||
| Without associated collateral | n.a. | 12,993,008 | 1,062,494 | 707,851 | ||
| <60% | 36,660 | 1,830,677 | 115,842 | 105,523 | ||
| >=60% and <80% | 13,370 | 1,075,359 | 101,104 | 58,065 | ||
| >=80% and <100% | 10,516 | 697,979 | 122,288 | 48,271 | ||
| >=100% | 8,500 | 1,797,476 | 495,144 | 542,376 | ||
| Mortgage loans | ||||||
| Without associated collateral | n.a. | 80,268 | 8,283 | 6,719 | ||
| <60% | 257,170 | 8,287,300 | 143,948 | 20,873 | ||
| >=60% and <80% | 137,791 | 7,462,388 | 185,475 | 18,938 | ||
| >=80% and <100% | 81,980 | 4,520,200 | 291,601 | 34,685 | ||
| >=100% | 43,992 | 2,418,488 | 705,741 | 235,099 |
As at 30 June 2017, the following table includes the fair value and the accounting net value of the properties arising from recovered loans, by asset and aging:
| Jun 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Assets belong to | |||||||
| Assets arising from | investments funds and | ||||||
| recovered loans results (note 27) | real estate companies (note 27) | Total | |||||
| Value | Value | Value | |||||
| of the asset | Book value | of the asset | Book value | of the asset | Book value | ||
| Asset | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Land | |||||||
| Urban | 611,570 | 547,300 | 337,430 | 337,430 | 949,000 | 884,730 | |
| Rural | 15,975 | 12,890 | 4,247 | 4,247 | 20,222 | 17,137 | |
| Buildings in development | |||||||
| Commercials | 6,542 | 5,443 | 44,631 | 44,631 | 51,173 | 50,074 | |
| Mortgage loans | 66,639 | 59,192 | - | - | 66,639 | 59,192 | |
| Others | 739 | 739 | - | - | 739 | 739 | |
| Constructed buildings | |||||||
| Commercials | 432,049 | 377,219 | 41,146 | 41,146 | 473,195 | 418,365 | |
| Mortgage loans | 733,582 | 639,630 | 20,956 | 20,956 | 754,538 | 660,586 | |
| Others | 2,340 | 2,250 | 6,601 | 6,601 | 8,941 | 8,851 | |
| Others | - | - | 3,929 | 3,929 | 3,929 | 3,929 | |
| Total | 1,869,436 | 1,644,663 | 458,940 | 458,940 | 2,328,376 | 2,103,603 |
As at 30 June 2017, the following table includes the accounting net value of the properties arising from recovered loans, by aging:
| Jun 2017 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Past due since the lieu / execution | ||||||||
| >=1 year and | >=2,5 years and | |||||||
| Number | <1 year | <2,5 years | <5 years | >=5 years | Total | |||
| Asset | of properties | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | ||
| Land | ||||||||
| Urban | 2,250 | 185,870 | 294,736 | 148,826 | 255,298 | 884,730 | ||
| Rural | 213 | 8,169 | 5,547 | 1,334 | 2,087 | 17,137 | ||
| Buildings in development | ||||||||
| Commercials | 73 | 81 | 191 | 47,877 | 1,925 | 50,074 | ||
| Mortgage loans | 460 | 3,276 | 30,666 | 15,099 | 10,151 | 59,192 | ||
| Others | 2 | - | 677 | - | 62 | 739 | ||
| Constructed buildings | ||||||||
| Commercials | 2,121 | 97,581 | 43,515 | 165,402 | 111,866 | 418,364 | ||
| Mortgage loans | 7,582 | 326,811 | 202,011 | 79,966 | 51,799 | 660,587 | ||
| Others | 19 | 1,950 | 182 | 5,124 | 1,595 | 8,851 | ||
| Others | 3 | - | 3,929 | - | - | 3,929 | ||
| Total | 12,723 | 623,738 | 581,454 | 463,628 | 434,783 | 2,103,603 |
30 June 2017
As at 31 December 2016, the following table includes the fair value and the accounting net value of the properties arising from recovered loans, by asset and aging:
| Dec 2016 | ||||||
|---|---|---|---|---|---|---|
| Assets belong to | ||||||
| Assets arising from | investments funds and | |||||
| recovered loans results (note 27) | real estate companies (note 27) | Total | ||||
| Value | Value | Value | ||||
| of the asset | Book value | of the asset | Book value | of the asset | Book value | |
| Asset | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 |
| Land | ||||||
| Urban | 652,374 | 574,518 | 400,618 | 400,618 | 1,052,992 | 975,136 |
| Rural | 15,523 | 12,021 | - | - | 15,523 | 12,021 |
| Buildings in development | ||||||
| Commercials | - | - | 44,634 | 44,634 | 44,634 | 44,634 |
| Others | 674 | 674 | - | - | 674 | 674 |
| Constructed buildings | ||||||
| Commercials | 239,084 | 207,589 | 41,855 | 41,855 | 280,939 | 249,444 |
| Mortgage loans | 749,929 | 649,284 | 24,417 | 24,417 | 774,346 | 673,701 |
| Others | 178,912 | 150,934 | 6,643 | 6,643 | 185,555 | 157,577 |
| Others | - | - | 3,817 | 3,817 | 3,817 | 3,817 |
| Total | 1,836,496 | 1,595,020 | 521,984 | 521,984 | 2,358,480 | 2,117,004 |
As at 31 December 2016, the following table includes accounting net value of the properties arising from recovered loans, by aging:
| Dec 2016 | |||||||
|---|---|---|---|---|---|---|---|
| Past due since the lieu / execution | |||||||
| >=1 year and | >=2.5 years and | ||||||
| Number | <1 year | <2.5 years | <5 years | >=5 years | Total | ||
| Asset | of properties | Euros '000 | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Land | |||||||
| Urban | 2,358 | 271,988 | 212,774 | 142,385 | 347,989 | 975,136 | |
| Rural | 188 | 7,209 | 1,527 | 920 | 2,365 | 12,021 | |
| Buildings in development | |||||||
| Commercials | 2 | - | - | - | 44,634 | 44,634 | |
| Others | 2 | 617 | - | - | 57 | 674 | |
| Constructed buildings | |||||||
| Commercials | 1,695 | 33,848 | 65,991 | 79,047 | 70,558 | 249,444 | |
| Mortgage loans | 7,609 | 343,610 | 178,169 | 79,199 | 72,723 | 673,701 | |
| Others | 406 | 18,082 | 26,612 | 65,203 | 47,680 | 157,577 | |
| Others | 3 | - | - | - | 3,817 | 3,817 | |
| Total | 12,263 | 675,354 | 485,073 | 366,754 | 589,823 | 2,117,004 |
As at 30 June 2017, the following table includes the distribution of the loans portfolio by degrees of internal risk, attributable in Portugal and Poland:
| Jun 2017 | ||||||
|---|---|---|---|---|---|---|
| Segments | Euros '000 | |||||
| Construction | Companies | Individuals | ||||
| Degrees of risk | and CRE | Other Activities | Mortgage loans | Others | Other loans | Total |
| Higher quality | ||||||
| 1 | - | 6 | - | - | - | 6 |
| 2 | 2,622 | 29,447 | 4,212,678 | 380,013 | 35 | 4,624,795 |
| 3 | 14,481 | 755,232 | 5,869,346 | 148,002 | 450 | 6,787,511 |
| 4 | 66,585 | 2,009,694 | 3,304,773 | 471,316 | 26,520 | 5,878,888 |
| 5 | 126,663 | 1,718,719 | 2,281,922 | 521,981 | 289,124 | 4,938,409 |
| 6 | 382,547 | 2,627,824 | 1,565,213 | 484,082 | 11,776 | 5,071,442 |
| Average quality | ||||||
| 7 | 290,588 | 1,841,864 | 1,076,126 | 477,885 | 100,947 | 3,787,410 |
| 8 | 341,965 | 2,155,793 | 752,747 | 414,223 | 77,008 | 3,741,736 |
| 9 | 320,960 | 1,603,406 | 764,845 | 294,366 | 127,830 | 3,111,407 |
| Lower quality | ||||||
| 10 | 723,396 | 1,034,199 | 556,626 | 179,520 | 203,065 | 2,696,806 |
| 11 | 185,982 | 620,200 | 436,103 | 135,235 | 8,434 | 1,385,954 |
| 12 | 552,223 | 1,717,077 | 896,541 | 233,585 | 144,881 | 3,544,307 |
| Procedural | ||||||
| 13 | 56,344 | 69,875 | 177,094 | 46,190 | 1,450 | 350,953 |
| 14 | 38,030 | 103,135 | 83,591 | 27,966 | 10,540 | 263,262 |
| 15 | 2,507,879 | 2,877,379 | 1,676,071 | 723,206 | 1,144,119 | 8,928,654 |
| Not classified (without degree of risk) | 356,323 | 1,142,552 | 168,704 | 35,382 | 95,836 | 1,798,797 |
| Total | 5,966,588 | 20,306,402 | 23,822,380 | 4,572,952 | 2,242,015 | 56,910,337 |
As at 31 December 2016, the following table includes the distribution of the loans portfolio by degrees of internal risk, attributable in Portugal and Poland:
| Dec 2016 | ||||||
|---|---|---|---|---|---|---|
| Segments | Euros '000 | |||||
| Construction | Companies | Individuals | ||||
| Degrees of risk | and CRE | Other Activities | Mortgage loans | Others | Other loans | Total |
| Higher quality | ||||||
| 1 | - | 2 | - | - | - | 2 |
| 2 | 2,033 | 19,519 | 4,018,844 | 341,842 | - | 4,382,238 |
| 3 | 3,281 | 119,768 | 2,599,096 | 98,061 | 361 | 2,820,567 |
| 4 | 45,395 | 1,594,023 | 5,259,247 | 230,697 | 14,699 | 7,144,061 |
| 5 | 146,495 | 1,510,764 | 3,119,117 | 697,564 | 313,173 | 5,787,113 |
| 6 | 381,357 | 2,539,932 | 1,900,010 | 517,556 | 22,233 | 5,361,088 |
| Average quality | ||||||
| 7 | 220,504 | 1,708,236 | 1,481,423 | 523,515 | 97,764 | 4,031,442 |
| 8 | 349,773 | 2,397,122 | 899,127 | 366,992 | 50,565 | 4,063,579 |
| 9 | 338,060 | 1,731,824 | 768,276 | 290,138 | 161,730 | 3,290,028 |
| Lower quality | ||||||
| 10 | 672,034 | 978,908 | 686,832 | 193,492 | 200,950 | 2,732,216 |
| 11 | 208,538 | 532,768 | 377,493 | 113,588 | 14,080 | 1,246,467 |
| 12 | 864,728 | 1,655,436 | 625,830 | 156,357 | 78,252 | 3,380,603 |
| Procedural | ||||||
| 13 | 19,964 | 66,622 | 175,318 | 53,030 | - | 314,934 |
| 14 | 31,403 | 110,015 | 96,273 | 32,841 | 55 | 270,587 |
| 15 | 2,500,535 | 3,516,179 | 1,908,378 | 815,257 | 832,366 | 9,572,715 |
| Not classified (without degree of risk) | 391,079 | 1,788,807 | 167,208 | 33,454 | 146,788 | 2,527,336 |
| Total | 6,175,179 | 20,269,925 | 24,082,472 | 4,464,384 | 1,933,016 | 56,924,976 |
30 June 2017
The Group's policy relating to the identification, measurement and evaluation of the concentration risk in credit risk is defined and described in the document Credit Principles and Guidelines, approved by the Bank's management body. This policy applies to all Group entities by the transposition of the respective definitions and requirements into the internal rulings of each entity.
Through the document mentioned above, the Group defined the following guidelines relating to the control and management of credit concentration risk:
The monitoring of the concentration risk and the follow-up of major risks is made, at Group level, based on the concept of "Economic Groups" and "Groups of Clients";
A "Group of Clients" is a group of clients (individuals or companies) related among themselves, that represent a single entity from a credit risk standpoint, as follows: if one of those clients is affected by adverse financial conditions it is likely that another client (or all the clients) of that group also experiences difficulties in servicing their debts;
The relations between clients that originate "Groups of Clients": the formal participation in an economic group, the evidence that there is a control relationship (direct or indirect) between clients (including an individual's control over a company) or the existence of a significant business interdependence between clients that cannot be altered in a near future;
So as to control the concentration risk and limit the exposure to this risk, there are soft limits defined in view of the own funds (consolidated or for each entity of the Group);
The Risk Office has, validates and monitors a centralised information process relating to concentration risk, with the participation of all the Group's entities.
The definition of the concentration limits mentioned above takes into consideration the specific situation of the Group's credit portfolio in what concerns the respective concentration and observing best market practices.
Besides, the definition of concentration limits (more specifically the several types of limits established) also identifies the types of concentration risk deemed relevant. The definition of the concentration limits of the Group takes into account all types of credit concentration risk defined by in force regulations. The control of these limits considers:
Two types of "major exposures", at Group level and at the level of each Group entity;
That the basis used to define major exposures and to estimate the limit-values of the concentration is the own funds level (consolidated or individual, at the level of each Group entity);
That the concentration is measured, in case of direct exposures, in terms of net exposures (EAD x LGD, assuming that PD=1) relating to a counterparty or a group of counterparties;
That concentration limits are defined for major exposures as a whole, for major exposures at Group's level or for major exposures of each entity;
Sectorial limits and limits for country-risk are also defined.
Concerning the monitoring of the concentration risk, the Bank's management body and the Risk Commission are regularly informed on the evolution of the concentration limits and on major risks.
Thus, the quantification of the concentration risk in credit exposures (direct and indirect) involves, firstly, the identification of specific concentration and major exposure cases and the comparison of the exposure values in question versus the own funds levels expressed in percentages that are compared with the pre-defined concentration limits. For such, Risk Office uses a database on credit exposures (the risk Datamart), regularly updated by the Group's systems.
It is also foreseen in the document mentioned above that if a certain limit is exceeded, that fact must be specifically reported to the members of the management body by the Credit Department and by the Risk Office, being that report accompanied by a remedy proposal. Usually, the remedies proposed will imply the reduction of the net exposure to the counterparties in question.
The control and management of concentration risk represent for the Group one of the main pillars of its risk mitigation strategy. It is in this context – and, particularly in credit risk – that the Group is making an ongoing monitoring of potential or effective risk concentration events adopting, whenever justified, the preventive (or corrective) measures deemed necessary.
The continuity of the measures aiming at the progressive reduction of the concentration of credit in the major individual debtors - either by decreasing the credit exposure or increasing the collaterals provided in the credit operations - should also be highlighted. Moreover, we must also emphasise the reinforcement of the prudential criteria in the analysis and decision-making of financing proposals, particularly in what concerns the mitigation of sectorial concentration.
As at 30 June 2017, the tables of control of credit concentration are as follows:
| Economic | ||
|---|---|---|
| Major risks | Limit | groups |
| Major exposures - Group | Max 75% of COF | |
| Portugal | 60.9% | 28 |
| Major exposures - by entity | Max 75% of EOF | |
| Portugal | 60.9% | 28 |
| Poland | 8.2% | 4 |
| "Hot spots" | Weight over COF | |
| 30 largest exposures | Max 50% of COF | 62.1% |
| Exposures to shareholders with at least | ||
| 0.5% of share capital | Max 20% of COF | 9.2% |
| Counterparties | Limit (as a % of COF) | Largest net exposures (*) / COF | ||
|---|---|---|---|---|
| Sovereign | Very low risk: 25%; Low risk: 10%; Medium or worse risk: 7.5% |
Treasury Country A (Very low risk): 4.1%; Treasury Country B (Low risk): 0.4%; Sovereign Entity A (Low risk): 0.3% |
||
| Medium or worse risk (10 largest exposures): 0.4% | ||||
| Banks (**) | Very low risk: 10%; Low risk: 5%; Medium or worse risk: 2.5% |
Bank A: 2.6%; Bank B: 0.8%; Bank C: 0.7%; Bank D: 0.7%; Bank E: 0.6%; Bank F: 0.5%; Bank G: 0.5%; Bank H: 0.5%; Bank I: 0.4%; Bank J: 0.4% |
||
| Other counterparties | 5% | Client Group A: 4.3% ; Client Group B: 4.0%; Client Group C: 4.0%; Client Group D: 3.6% |
||
| Portfolios | Limit (as a % of OF) | Largest net exposures (*) / COF (or EOF) | ||
| Medium or worse risk: 4.5% | ||||
| Country risk | Very low risk: 40% of COF; Low risk: 20% of COF; Medium or worse risk: 10% of COF |
Country A: 5.1% ; Country B: 4.1% ; Country C: 3.1% ; Country D: 3.0% ; Country E: 2.3% ; Country F: 2.2% ; Country G: 1.6% ; Country H: 1.4% ; Country I: 1.1% ; Country J: 0.6% |
||
| Portugal: Construction 20.1%; Commerce and repairs 15.5%; Financial activities and insurance 13.6% |
||||
| Sector risk | 40% of EOF | Poland: Commerce and repairs 28.1%; Transportation and storage 13.3%; Financial activities and insurance 10.3% |
||
(*) LGD x EAD (considering LGD = 45% in the cases treated by STD) (**) Not considering institution in which the Group has a financial stake COF = Consolidated Own Funds. EOF = Entity's Own Funds
30 June 2017
Market risks consist in losses that may occur as a result of changes in rates (interest or exchange rates) and / or in the prices of different financial instruments, considering not only the correlations between them but also their volatilities.
For the purposes of profitability analysis and market risk quantification and control, the following management areas are defined for each entity of the Group:
Trading - Management of positions whose objective is the achievement of short term gains, through sale or revaluation. These positions are actively managed, tradable without restriction and may be valued frequently and accurately. The positions in question include securities and derivatives of sales activities;
Funding - Management of institutional funding (wholesale funding) and money market positions;
Investment: Management of all the positions in securities to be held to maturity (or for a longer period of time) or positions which are not tradable on liquid markets;
Commercial: Management of positions arising from commercial activity with Customers;
Structural: Management of balance sheet items or operations which, due to their nature, are not directly related to any of the management areas referred to above; and
ALM: Assets and Liabilities management.
The definition of these areas allows for an effective separation of the trading and banking portfolios management, as well as for a proper allocation of each operation to the most appropriate management area, according to its context and strategy.
In order to ensure that the risk levels incurred in the different portfolios of the Group comply with the predefined levels of tolerance to risk, various market risks limits are established, at least yearly, being applicable to all portfolios of the risk management areas over which the risks are incident. These limits are monitored on a daily basis (or intra-daily, in the case of financial markets) by the Risk Office.
Stop Loss limits are also defined for the financial markets areas, based on multiples of the risk limits defined for those areas, aimed at limiting the maximum losses that might occur. When these limits are reached, a review of the strategy and of the assumptions relative to the management of the positions in question is mandatory.
The Group uses an integrated market risk measurement that allows for the monitoring all of the risk subtypes that are considered relevant. This measurement includes the assessment of the following types of risk: general risk, specific risk, non-linear risk and commodity risk. Each risk subtype is measured individually using an appropriate risk model and the integrated measurement is built from the measurements of each subtype without considering any kind of diversification between the four subtypes (worst-case scenario approach).
For the daily measurement of general market risk (relative to interest rate risk, exchange rate risk, equity risk and price risk of credit default swaps) a VaR (value-at-risk) model is used, considering a time horizon of 10 business days and a significance level of 99%.
For non-linear risk, an internally-developed methodology is applied, replicating the effect that the main non-linear elements of options might have in P&L results of the different portfolios in which these are included, similarly to what is considered by the VaR methodology, using the same time horizon and significance level.
Specific and commodity risks are measured through standard methodologies defined in the applicable regulations, with an appropriate change of the time horizon considered.
The following table presents the values at risk for the trading book between 30 June 2017 and 31 December 2016, as measured by the above methodologies, which registered moderate levels along the first semester of 2017:
| Euros '000 | |||||
|---|---|---|---|---|---|
| Jun 2017 | Average | Maximum | Minimum | Dec 2016 | |
| Generic Risk ( VaR ) | 1,005 | 2,631 | 4,133 | 1,005 | 3,921 |
| Interest Rate Risk | 807 | 2,470 | 4,031 | 807 | 3,855 |
| FX Risk | 454 | 827 | 551 | 454 | 354 |
| Equity Risk | 26 | 269 | 47 | 26 | 37 |
| Diversification effects | 282 | 935 | 497 | 282 | 325 |
| Specific Risk | 555 -2,281 |
514 -2,281 |
1,026 4,555 |
273 9,120 |
440 0 |
| Non Linear Risk | 13 | 11 | 67 | 1 | 8 |
| Commodities Risk | 17 | 19 | 24 | 15 | 16 |
| Global Risk | 1,590 | 3,174 | 4,734 | 1,590 | 4,385 |
In order to check the appropriateness of the internal VaR model to the assessment of the risks involved in the positions held, several validations are conducted over time, of different scopes and frequency, which include back testing, the estimation of the effects of diversification and the analysis of the comprehensiveness of the risk factors.
As a complement to the VaR assessment, the Group continuously tests a broad range of stress scenarios analysing the respective results with a view to identify risk concentrations that have not been captured by the VaR model and, also, to test for other possible dimensions of loss.
30 June 2017
The interest rate risk derived from Banking Book operations is assessed through a process of risk sensitivity analysis, undertaken every month, covering all the operations included in the Group's consolidated Balance Sheet and discriminated by exposure currency.
Variations of market interest rates influence the Group's net interest income, both in the short term and medium/long term, affecting its economic value in a long term perspective. The main risk factors arise from the repricing mismatch of portfolio positions (repricing risk) and from the risk of variation in market interest rates (yield curve risk). Besides this, but with less impact, there is the risk of unequal variations in different reference rates with the same repricing period (basis risk).
In order to identify the exposure of the Group's banking book to these risks, the monitoring of the interest rate risk takes into consideration the financial characteristics of each of the relevant contracts, with the respective expected cash-flows (principal and interest, without the spread component but including costs for liquidity, capital, operational and other) being projected according to the repricing dates, thus calculating the impact on economic value resulting from alternative scenarios of change of market interest rate curves.
The interest rate sensitivity of the balance sheet, by currency, is calculated as the difference between the present value of the interest rate mismatch discounted at market interest rates and the discounted value of the same cash flows simulating parallel shifts of the market interest rates.
The following tables show the expected impact on the banking book economic value of parallel shifts of the yield curve by +/- 100 and +/- 200 basis points, for each of the main currencies in which the Group holds material positions:
| Euros '000 | ||||
|---|---|---|---|---|
| Currency | - 200 bp | - 100 bp | + 100 bp | + 200 bp |
| CHF | 3,556 | 3,556 | 5,012 | 9,937 |
| EUR | (4,696) | (8,494) | 68,465 | 134,071 |
| PLN | 2,498 | 1,124 | (853) | (1,459) |
| USD | (14,001) | (7,757) | 7,499 | 14,758 |
| TOTAL | (12,643) | (11,571) | 80,123 | 157,307 |
| Dec 2016 2015 | ||||||
|---|---|---|---|---|---|---|
| Currency | - 200 bp | - 100 bp | + 100 bp | + 200 bp | ||
| CHF | 3,662 | 3,662 | 4,929 | 9,774 | ||
| EUR | 12,055 | 18,765 | 79,381 | 156,355 | ||
| PLN | 19,346 | 9,639 | (8,953) | (17,274) | ||
| USD | 9,198 | (8,630) | 8,448 | 40,601 | ||
| TOTAL | 44,261 | 23,436 | 83,805 | 189,456 |
Decrease in rates scenario, limited to non-negative rates (which implies effective variations of lesser amplitude than 100 bp, especially in shorter periods).
As described in accounting policy 1 b), the financial statements of the Group's subsidiaries and associates residing abroad are prepared in their functional currency and translated into Euros at the end of each financial period. The exchange rates used for the conversion of balance sheet foreign currency amounts are the ECB reference rates at the end of each period. In foreign currency conversion of results, are calculated average exchange rates according to the closing exchange rates of each month of the year. The rates used by the Group are as follows:
| Closing exchange rates | Average exchange rates | ||||
|---|---|---|---|---|---|
| (Balance sheet) (Income statement) |
|||||
| Currency | Jun 2017 | Dec 2016 | Jun 2017 | Dec 2016 | |
| AOA | 189.1600 | 174.8900 | 181.7892 | 179.4808 | |
| BRL | 3.7780 | 3.4305 | 3.4674 | 4.1424 | |
| CHF | 1.0923 | 1.0739 | 1.0754 | 1.1004 | |
| MOP | 9.1685 | 8.4204 | 9.1685 | 8.8719 | |
| MZN | 68.6870 | 75.3100 | 71.8837 | 58.6550 | |
| PLN | 4.2252 | 4.4103 | 4.2604 | 4.3788 | |
| USD | 1.1403 | 1.0541 | 1.0893 | 1.1127 |
Foreign exchange and equity risk in the banking book
The exchange rate risk of the banking book is transferred internally to the Trading area (Treasury), in accordance with the risk specialisation model followed by the Group for the management of the exchange rate risk of the Balance Sheet. The exposures to exchange rate risk that are not included in this transfer – the financial holdings in subsidiaries, in foreign currency - are hedged on a case-by-case basis through market operations.
30 June 2017
As at 30th of June 2017, the Group's financial holdings in USD, CHF and PLN were fully hedged. On a consolidated basis, these hedges are identified, in accounting terms, as 'Net investment hedges', in accordance with the IFRS nomenclature. On an individual basis, for entities which have financial holdings with exchange rate risk, hedge accounting is also carried out, in this case through a 'Fair Value Hedge' methodology.
Regarding equity risk, the Group maintains a series of equity positions of a small size and low risk in the investment portfolio, which are not held for trading purposes. The management of these positions is carried out by a specific area of the Group, with the respective risk being controlled on a daily basis, through the indicators and limits defined for market risks.
As at 30 June 2017, the information of net investments, considered by the Group in total or partial hedging strategies on subsidiaries and on hedging instruments used, is as follows:
| Jun 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Net | Hedging | Net | Hedging | ||||
| Investment | instruments | Investment | instruments | ||||
| Company | Currency | Currency '000 | Currency '000 | Euros '000 | Euros '000 | ||
| Banque Privée BCP (Suisse) S.A. | CHF | 81,189 | 81,189 | 74,328 | 74,328 | ||
| Millennium bcp Bank & Trust | USD | 340,000 | 340,000 | 298,167 | 298,167 | ||
| BCP Finance Bank, Ltd. | USD | 561,000 | 561,000 | 491,976 | 491,976 | ||
| BCP Finance Company | USD | 1 | 1 | 1 | 1 | ||
| bcp holdings (usa), Inc. | USD | 44,734 | 44,734 | 39,230 | 39,230 | ||
| Bank Millennium, S.A. | PLN | 2,570,017 | 2,570,017 | 608,259 | 608,259 |
The information on the gains and losses in exchange rates on the loans to cover the investments in foreign institutions, accounted for as exchange differences, is presented in the statement of changes in equity. The ineffectiveness generated in the hedging operations is recognised in the statement of income, as referred in the accounting policy 1 e).
The transfer to Portugal of funds, including dividends, which are owed by BCP's subsidiaries or associates in third countries, particularly outside the European Union, are, by their nature, subject to the exchange restrictions and controls that are in force at any time in the country of subsidiaries or associates. In particular, as regards Angola and Mozambique, countries in which the Group holds a minority investment in Banco Millennium Angola and a majority investment in BIM - Banco Internacional de Moçambique, being the case of, export of foreign currency requires prior authorization of the competent authorities, which depends, namely, on the availability of foreign exchange by the central bank of each country. At the date of preparation of this report, there are no outstanding amounts due to the aforementioned requirements.
Evaluation of the Group's liquidity risk is carried out using indicators defined by the supervisory authorities on a regular basis and other internal metrics for which exposure limits are also defined.
The evolution of the Group's liquidity situation for short-term time horizons (up to 3 months) is reviewed daily on the basis of two indicators defined inhouse, immediate liquidity and quarterly liquidity. These measure the maximum fund-taking requirements that could arise on a single day, considering the cash-flow projections for periods of 3 days and of 3 months, respectively.
Calculation of these indicators involves adding to the liquidity position of the day under analysis the estimated future cash flows for each day of the respective time horizon (3 days or 3 months) for the transactions as a whole brokered by the markets areas, including the transactions with customers of the Corporate and Private networks that, for their dimension, have to be quoted by the Trading Room. The amount of assets in the Bank's securities portfolio considered highly liquid is added to the calculated value, leading to determination of the liquidity gap accumulated for each day of the period under review.
In parallel, the evolution of the Group's liquidity position is calculated on a regular basis identifying all the factors that justify the variations that occur. This analysis is submitted to the Capital and Assets and Liabilities Committee (CALCO) for appraisal, in order to enable the decision making that leads to the maintenance of financing conditions adequate to the continuation of the business.
In addition, the Risks Commission is responsible for controlling the liquidity risk. This control is reinforced with the monthly execution of stress tests, to characterize the Bank's risk profile and to ensure that the Group and each of its subsidiaries, fulfil its obligations in the event of a liquidity crisis. These tests are also used to support the liquidity contingency plan and management decisions.
In the first semester of 2017, there was a reduction of Euros 1,335,011,000 in the wholesale funding requirements on a consolidated basis for which contributed the capital increase (Euros 1,350,000,000) and the reduction of the commercial gap in Portugal (Euros 1,411,280,000), which effects were partially counterbalanced by the net increase of the securities portfolios by approximately Euros 1,400,000,000.
The reduction in liquidity needs was accompanied by the change in the financing structure through the repayment of the remaining portion of the CoCos (Euros 700,000,000), the amortization of MTN (Euros 328,200,000), the increase in the use of repos in Portugal (Euros 758,415,000, for a balance of Euros 3,076,462,000) and the reduction of collateralized funding with the ECB (in Euros 870,000,000, to Euros 4,000,000,000 corresponding to the balance of the of the targeted longer-term refinancing operations (T LTRO)).It should be noted that the remaining issue of mortgage bonds placed in the market, amortized in June, was refinanced by a new issue of Euros 1,000,000,000 in the same instrument, with a maturity of 5 years, marking the return of the Bank to medium-long term debt markets about three years after the market placement of a MTN issue, amortized in February 2017.
In net terms, the funding requirements with the ECB were reduced by Euros 798,552,000 from December 2016 to Euros 3,637,740,000.
30 June 2017
The accentuated decrease in net funding with the Eurosystem allowed the Eurosystem to increase its liquidity buffer by Euros 741,260,000 compared to December 2016, for a total of Euros 8,355,061,000. The amount of the portfolio of ECB eligible assets available for discount, as at 30 June 2017, which is the basis to the liquidity buffer calculation does not consider: i) the collateral in excess to the covered bond program which, under the form of an issue to be retained as eligible collateral, would allow its increase by an amount of at least Euros 1,000,000,000 after haircuts, assuming the use of the valuation criteria of the ECB concerning the other retained issues: ii) a Treasury Bills portfolio of USD 600,000,000. In case of consideration of this amount, the liquidity buffer as at 30 June 2017, amounts to Euros 9,876,015,000, more Euros 762,214,000 than the balance as at 31 December 2016 (with an amount also calculated on a pro-forma basis and compared).
The eligible pool of assets for funding operations in the European Central Bank and other Central Banks in Europe, net of haircuts, is detailed as follows:
| Jun 2017 | Dec 2016 | |
|---|---|---|
| Euros '000 | Euros '000 | |
| European Central Bank | 7,724,715 | 8,592,234 |
| Other Central Banks | - | 3,204,850 |
| 7,724,715 | 11,797,084 |
As at 30 June 2017, the amount discounted in the European Central Bank amounted to Euros 4,000,000,000 (31 December 2016: Euros 4,870,000,000). As at 30 June 2017 and 31 December 2016 no amounts were discounted in Other Central Banks. The amount of eligible assets for funding operations in the European Central Banks includes securities issued by SPEs concerning securitization operations in which the assets were not derecognised at a consolidated level. Therefore, the respective securities are not recognised in the securities portfolio.
The evolution of the ECB's Monetary Policy Pool, the net borrows at the ECB and liquidity buffer is analysed as follows:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Collateral eligible for ECB, after haircuts: | ||
| The pool of ECB monetary policy (i) | 7,72 4,715 |
8,592,234 |
| Outside the pool of ECB monetary policy | 4,268,087 | 3,457,859 |
| 11,992,802 | 12,050,093 | |
| Net borrowing at the ECB (ii) | 3,637,740 | 4,436,292 |
| Liquidity buffer (iii) | 8,355,062 | 7,613,801 |
(i) Corresponds to the amount reported in COLMS (Bank of Portugal application).
(ii) Includes, as at 30 June 2017, the value of funding with the ECB net of deposits at the Bank of Portugal (Euros 373,716,000) and other liquidity of the Eurosystem (Euros 325,335,000), plus the minimum cash reserve (Euros 336,791,000).
(iii) Collateral eligible for the ECB, after haircuts, less net borrowing at the ECB.
The Basel Committee published the definition of the Liquidity Coverage Ratio (LCR) in 2014, and the Delegated Act by the European Commission was adopted in early October 2015, which introduced new metrics and calculation criteria implemented in the European Union against CRD IV / CRR. The adoption of the new framework defines a minimum requirement of 80% for this ratio by the end of 2017 and 100% as at 1 January 2018. The LCR ratio of the BCP Group comfortably stood above 100% as at 30 June 2017, supported by highly liquid asset portfolios of value compatible with prudent management of the Group's short-term liquidity.
The definition of the Net stable funding ratio (NSFR) was approved by the Basel Committee in October 2014. The regulatory requirement will enter into force from January 2018. As regards this ratio, the Group presents a stable financing base obtained by the high weight of customer deposits into the funding structure, by collateralized financing and medium and long-term instruments, which allowed that the levels of stable financing ratio established in June 2017 exceeded 100%.
According to the Notice n.º28/2014 of the Bank of Portugal, which focuses on the guidance of the European Banking Authority on disclosure of encumbered assets and unencumbered assets (EBA/GL/2014/3), and taking into account the recommendation made by the European Systemic Risk Board, the following information regarding the assets and collaterals, with reference to 30 June 2017 and 31 December 2016, is presented as follows:
| Jun 2017 | |||||
|---|---|---|---|---|---|
| Carrying amount of encumbered assets |
Fair value of encumbered assets |
Carrying amount of unencumbered assets |
Fair value of unencumbered assets |
||
| Assets | Euros '000 | Euros '000 | Euros '000 | Euros '000 | |
| Assets of the reporting institution | 14,359,209 | n/a | 59,135,559 | n/a | |
| of which: | |||||
| Equity instruments | - | - | 2,006,374 | 2,006,374 | |
| Debt securities | 2,140,777 | 2,140,777 | 12,170,228 | 12,161,631 | |
| Other assets | 295,199 | n/a | 8,586,702 | n/a |
| Dec 2016 | ||||
|---|---|---|---|---|
| Assets | Carrying amount of encumbered assets Euros '000 |
Fair value of encumbered assets Euros '000 |
Carrying amount of unencumbered assets Euros '000 |
Fair value of unencumbered assets Euros '000 |
| Assets of the reporting institution | 14,164,516 | n/a | 57,496,393 | n/a |
| of which: | ||||
| Equity instruments | - | - | 1,920,821 | 1,920,821 |
| Debt securities | 1,894,589 | 1,894,589 | 10,402,545 | 10,385,168 |
| Other assets | - | n/a | 8,950,882 | n/a |
| Fair value of encumbered collateral received or own debt securities issued |
Fair value of collateral received or own debt securities issued available for encumbrance |
||||
|---|---|---|---|---|---|
| Collateral received | Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
| Collateral received by the reporting institution | - | - | - | - | |
| Equity instruments | - | - | - | - | |
| Debt securities | 580,330 | 179,046 | 15,423 | 21,280 | |
| Other assets | - | - | - | - | |
| Own debt securities issued other than own covered bonds or ABSs | - | - | - | - |
| Carrying amount of selected financial liabilities |
|||
|---|---|---|---|
| Encumbered assets, encumbered collateral received and matching liabilities | Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
| Matching liabilities, contingent liabilities and securities lent | 9,549,497 | 9,591,662 | |
| Assets, collateral received and own debt securities issued | |||
| other than covered bonds and ABSs encumbered | 13,406,355 | 13,752,482 |
The encumbered assets are mostly related to collateralized financing, in particular the ECB's, repo transactions, issuance of covered bonds and securitization programs. The types of assets used as collateral of these financing transactions are divided into portfolios of loans to clients, supporting securitization programs and covered bonds issues, whether placed outside the Group, whether to improve the pool of collateral with the ECB, and Portuguese sovereign debt, which collateralize repo transactions in the money market. The funding raised from the IEB is collateralized by Portuguese public debt and bonds issues of the public sector entities.
The balance other assets in the amount of Euros 8,586,702,000 (31 December 2016: Euros 8,950,882,000) although unencumbered, are mostly related to the Group's activity, namely: investments in associates and subsidiaries, tangible fixed assets and investment property, intangible assets, assets associated with derivatives and deferred tax assets and current taxes.
The amounts presented in these tables correspond to the position as at 30 June 2017 and 31 December 2016 and reflect the high level of collateralisation of the wholesale funding of the Group. The buffer of eligible assets for the ECB, after haircuts, less net borrowing at the ECB, as at 30 June 2017 amounts to Euros 8,355,061,000 (31 December 2016: Euros 7,613,801,000 ).
The approach to operational risk management is based on the business process structure and an end-to-end processes structure, both for business and business support processes. Process management is the responsibility of the Process Owners, who are the first parties responsible for the risks assessment and for strengthening the performance within the scope of their processes. Process Owners are responsible for the updating of all of the relevant documentation concerning the processes, for ensuring the effective adequacy of all of the existing controls through direct supervision or by delegation on the departments responsible for the controls in question, for coordinating and taking part in the risks self-assessment exercises and for detecting improvement opportunities and implementing improvements, including mitigating measures for the most significant exposures.
Within the operational risk model implemented in the Group, there is a systematic process of capturing data on operational losses that systematically characterizes the loss events in terms of their causes and effects. From the analysis of the historical information and its relationships, processes involving greater risk are identified and mitigation measures are launched to reduce the critical exposures.
The contractual terms of instruments of wholesale funding encompass obligations assumed by entities belonging to the Group as debtors or issuers, concerning general duties of societary conduct, maintenance of banking activity and the inexistence of special guarantees constituted for the benefit of other creditors ("negative pledge"). These terms reflect essentially the standards internationally adopted for each type of instrument.
The terms of the Group's participation in securitization operations involving its own assets are subject to mandatory changes in case the Group stops respecting certain rating criteria. The criteria established in each transaction results mainly from the existing risk analysis at the moment that the transaction was set, being these methodologies usually applied by each rating agency in a standardised way to all the securitization transactions involving the same type of assets.
Regarding the Covered Bond Programs of Banco Comercial Português and Banco de Investimento Imobiliário that are currently underway, there are no relevant covenants related to a possible downgrade of BCP.
The Group's own funds are determined according to the established regulation, in particular, according to Directive 2013/36/EU and Regulation (EU) 575/2013, approved by the European Parliament and the Council (CRD IV / CRR), and Banco de Portugal Notice No.6/2013.
Total capital includes tier 1 and tier 2. Tier 1 comprises common equity tier 1 (CET1) and additional tier 1.
Common equity tier 1 includes: (i) paid-up capital, share premium, hybrid instruments subscribed by the Portuguese State within the scope of the Bank's recapitalization process and not reimbursed, reserves and retained earnings and non-controlling interests; ii) and deductions related to own shares and loans to finance the acquisition of shares of the Bank, the shortfall of value adjustments and provisions to expected losses concerning risk‐weighted exposure amounts calculated according to the IRB approach and goodwill and other intangible assets. Reserves and retained earnings are adjusted by the reversal of unrealised gains and losses on cash-flow hedge transactions and on financial liabilities valued at fair value through profits and losses, to the extent related to own credit risk. The minority interests are only eligible up to the amount of the Group's capital requirements attributable to the minorities. In addition, the deferred tax assets arising from unused tax losses carried forward are deducted, as well as the deferred tax assets arising from temporary differences relying on the future profitability and the interests held in financial institutions and insurers of at least 10%, in this case only in the amount that exceeds the thresholds of 10% and 15% of the common equity tier 1, when analysed on an individual and aggregated basis, respectively.
Additional tier 1 comprises preference shares and hybrid instruments that are compliant with the issue conditions established in the Regulation and minority interests related to minimum additional capital requirements of institutions that are not totally owned by the Group.
Tier 2 includes the subordinated debt that is compliant with the Regulation and the minority interests related to minimum total capital requirements of institutions that are not totally owned by the Group. Additionally, Tier 2 instruments held in financial institutions and insurers of at least 10% are deducted.
The legislation in force stipulates a transitional period between the own funds calculated under national law until 31 December 2013, and own funds estimated according to EU law, in order to exclude some elements previously considered (phase-out) and include new elements (phase-in). The transitional period for the majority of the elements will last until the end of 2017, with the exception of the deferred tax already recorded on the balance sheet of 1 January 2014, and the subordinated debt and all the hybrid instruments not eligible to own funds, according to the new regulation, that have a longer period ending in 2023 and 2021, respectively.
CRD IV/CRR establishes Pilar 1 capital requirements of 4.5%, 6% and 8% for CET1, Tier 1 and Total Capital, respectively. However, under SREP , European Central Bank notified BCP about the need to comply with phased-in capital ratios, during 2017, of 8.15% (CET1), 9.65% (Tier 1) and 11.65% (Total), including 2.4% of additional Pilar 2 requirements and 1.25% of capital conservation buffer. The Bank meets all the requirements and other recommendations emanating from the supervision in this matter.
The Group has adopted the methodologies based on internal rating models (IRB) for the calculation of capital requirements for credit and counterparty risk, covering a substantial part of both its retail portfolio in Portugal and Poland and its corporate portfolio in Portugal. The Group has adopted the advanced approach (internal model) for the coverage of trading portfolio's general market risk and for exchange rate risks generated in exposures in the perimeter centrally managed from Portugal, and the standard method was used for the purposes of operating risk coverage. The capital requirements of the other portfolios/geographies were calculated using the standardised approach.
The own funds and the capital requirements determined according to the CRD IV/CRR (phased-in) methodologies previously referred, are the following:
| Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|
|---|---|---|
| Common equity tier 1 (CET1) | ||
| Share capital | 5,600,738 | 4,268,818 |
| Share Premium | 16,471 | 16,471 |
| Ordinary own shares | (76) | (2,880) |
| Other capital (State aid) | - | 700,000 |
| Reserves and retained earnings | 268,158 | 36,875 |
| Minority interests eligible to CET1 | 510,196 | 654,488 |
| Regulatory adjustments to CET1 | (1,442,331) | (799,737) |
| 4,953,156 | 4,874,035 | |
| Tier 1 | ||
| Capital Instruments | 10,393 | 10,629 |
| Minority interests eligible to AT1 | 42,069 | - |
| Regulatory adjustments | (52,462) | (10,629) |
| 4,953,156 | 4,874,035 | |
| Tier 2 | ||
| Subordinated debt | 355,617 | 403,491 |
| Minority interests eligible to CET1 | 180,440 | 126,963 |
| Others | (135,861) | (147,152) |
| 400,196 | 383,302 | |
| Total own funds | 5,353,352 | 5,257,337 |
| RWA - Risk weighted assets | ||
| Credit risk | 33,870,402 | 35,007,882 |
| Market risk | 840,619 | 675,498 |
| Operational risk | 3,260,661 | 3,260,661 |
| CVA | 175,180 | 215,749 |
| 38,146,862 | 39,159,790 | |
| Capital ratios | ||
| CET1 | 13.0% | 12.4% |
| Tier 1 | 13.0% | 12.4% |
| Tier 2 | 1.0% | 1.0% |
| 14.0% | 13.4% |
IFRS 9 - Financial Instruments was endorsed by EU in November 2016 and come into force for periods beginning on or after 1 January 2018. IFRS 9 will replace IAS 39 - Financial Instruments: Recognition and Measurement and will provide new requirements in accounting for financial instruments with significant changes specifically regarding impairment requirements. For this reason it is a standard that has been subject to a detailed and complex implementation process that has involved all the key stakeholders in order to understand the impacts but also the changes in processes, governance and business strategy that may imply.
The requirements provided by IFRS 9 are applied retrospectively by adjusting the opening balance at the date of initial application.
Banco Comercial Português ('Group') has been working on this process since 2016 and, as a first stage, the work developed was on the identification of changes required regarding accounting classifications and credit risk impairment models and also on the criation and development of a governance structure that meets the requirements and challenges that arise from IFRS 9 and it is currently in a phase of final implementation, improvement and automation of processes.
Within this scope the Group set up a Steering Committee that is responsible for the key decisions regarding IFRS 9 requirements and for monitoring the status of the process of analysis and implementation of this new standard. The main departments involved in the project are Risk-Office, Planning, Treasury, Operations, Accounting Department, Credit Departments and IT Department. Internal Audit division and the Independent validation unit take also part of the project, namely in the component of its validation.
30 June 2017
Regarding IFRS 9 implementation process the Group adopted a set of procedures that act like risk mitigation factors for a complex project.
| Risks | Mitigation |
|---|---|
| - Design, approval and implementation of governance model for the new Classification & Measurement and Impairment processes, establishing clear roles and responsibilities; |
|
| Ensure that the new processes to be designed and implemented during the IFRS 9 both for C&M and Impairment work in a business as usual environment |
- Meetings and IFRS 9 workshops with the departments involved in the process to create an awareness about the topic; |
| - Preparation of several areas teams in order to be able to be autonomous and to carry out the necessary tasks in the scope of IFRS 9 implementation as business as usual. |
|
| Traceability / audit trail of the assumptions and decisions to be taken during the IFRS 9 implementation |
- Minutes of the Steering Committees; - Documentation of the assumptions and decisions taken regarding Classification & Measurement at the transition date; - Documentation of the assumptions and decisions taken regarding Impairment at the transition date; - Backup of the SPPI & benchmark tests performed; |
| Concepts comparability | - Internal efforts in order to achieve a concepts alignment; - Efforts to achieve full alignment with the requirements and guidelines issued by the different regulatory and supervisory boards; |
| Data quality | - Definition of internal owners by type of information; - Process of revision of the key information; - Involvement of independent review. |
2 - The project's main phases and milestones
During 2016 the Group started its implementation process for IFRS with the objective of adopting IFRS 9 from 1 January 2018. The plan for implementation was divided in 4 main stages:
Training and preliminary analysis: a preliminary diagnosis was undertaken to determine the main impacts arising from application of IFRS 9 by the Group. This sessions also included various workshops with different departments concerning Business models, Solely Payment of Principal and Interest ('SPPI') criteria, impairment methodology (including Significant decrease of credit risk criteria, forward looking) both in Portugal and abroad.
Operational, accounting and disclosure analysis: this stage was designed to perform a detailed analysis of the differences between the accounting principles of IAS 39 and IFRS 9 and the related technical implications. Given the complexity and scope of some of the matters, various specialized teams were set up and the Group requirements in terms of IT were determined.
Conversion plan: a detailed conversion plan was prepared including the action plan for IT systems.
Implementation: during this stage the various processes will be subject to changes and testing, including conversion of the financial information and reporting processes at Group level (management information, budget, prudential information, ICAAP, ILAAP and stress testing). This stage includes the testing and parallel run of the processes and systems as well as the determination of the transitional adjustments to be accounted for as at 1 January 2018.
The Group is currently working on the implementation phase. Design and development phase are completed and included some key milestones, namely:
Design of an operational model that allows an alignment with IFRS 9 requirements including the definition of functional requirements;
Set up a training plan for the staff that will deal on a daily basis with IFRS 9 requirements;
Group's main focus following the implementation stage relates to the efficiency of all the process ensuring that the model performs in a business as usual environment. The Group will run several simulations to assess how the model performs. This includes a parallel run for impairment calculation under IFRS 9 requirements which allow a comparison with the results of the internal simulations performed during the project of IFRS 9 implementation, starting in 30 June 2017.
Considering the current status of the process and the issues already identified we present on the following paragraphs information regarding the key changes in the different areas:
IFRS 9 brings major changes to how financial instruments are classified. The new model for classifying financial assets is more principles-based and requires taking into account not only the business model for the management of the financial assets but also the characteristics of contractual cash flows of these assets (SPPI criteria). Financial assets will be consequently measured at amortised cost, at fair value through other comprehensive income or at fair value through profit and loss depending on the business model that is applied but also on their specific characteristics.
In order to classify the financial assets in accordance with IFRS 9 on 1 January 2018, the Group has reviewed the financial assets in the Group's portfolio with the objective of determining and allocating groups of financial assets to the appropriate business model on the basis of the assessment of the applied way of managing the financial asset portfolios by:
identifying and analysing the contractual terms of financial assets, that may cause the financial assets to fail the SPPI criterion.
reviewing and assessing relevant and objective qualitative data which may have an impact on allocating financial asset portfolios to the appropriate business model (such as, e.g.: how the particular financial assets are managed including the justification of the sales of the financial assets from certain portfolios that occurred in the past);
30 June 2017
reviewing and assessing relevant and objective quantitative data which may have an impact on allocating financial asset portfolios to the appropriate business model (e.g. the value of sales of the financial assets from certain portfolios that occurred in previous reporting periods and the frequency of those sales);
analysing the expectations regarding the value and frequency of future sales from certain portfolios.
Regarding the securities portfolio the Group does not expect significant changes in the applied method of the classification and measurement of financial assets that could have a significant impact on the balance sheet and / or the Group's result. Regarding credit portfolio the analysis performed allow to conclude that the majority of the contracts meet with SPPI criteria and therefore amortized cost can be maintained as measurement criteria for such financial assets. However, given their characteristics, there is a residual set of contracts that will need to be reclassified for fair value through profit and loss because the contractual terms of the loan give rise to cash flows that are not solely payments of principal and interest on the principal amount outstanding. Based on the current stage of analysis (final conclusions are not made yet), the Group expects that these changes could affect a residual percentage of the portfolio.
With regard to business models assessment, the Group performed an analysis of current portfolios sales history whose results allow the Group to maintain the current business models. Therefore and considering the current strategy, business models will be maintained.
The main changes provided by IFRS 9 are related impairment requirements. IFRS 9 introduces a new model for impairment estimative based on expected losses while the model under IAS 39 is based on incurred losses.
IFRS 9 impairment model is applicable to all financial assets valued at amortised cost, to debt instruments valued at fair value through other comprehensive income, and to contingent risks and commitments not valued at fair value.
Within the scope of the IFRS 9 implementation project, the Group is working on the operationalization of a new methodology of loss allowance calculation as well as on enforcement of the appropriate modifications in IT systems and processes used by the Group. In particular, the work is focused on designing processes and tools and performing a detailed estimation of the impact of IFRS 9 on the level of loss allowance, in a current perspective. In methodological terms, the respective adjustments to PD, LGD, EAD and CC were made in order to refletct the requirements of the new standart in terms of estimate expected credit losses and defining details of the stage allocation criteria and including expectations regarding future macroeconomic outlook in the estimation of loss allowance levels.
It should be underlined that, the implementation of the new standard requires the application of more complex credit risk models of greater predictive abilities which require a significantly broader set of source data than the currently applied models.
Probability of default ("PD"), loss given default ("LGD") and exposure at default ("EAD") are used as main components to measure expected credit losses. As an approved bank in terms of internal models (IRB) in regulatory terms, and that uses in the risk management, the Bank enjoys the already existing capacities in terms of information, IT structure and governance, for estimation of these new parameters. Under IFRS 9, allowance for credit risk losses is affected by several characteristics namely the expected balance at default and the related amortization profile as well as the expected life of the financial asset. The allowance for credit losses for each stage will also be impacted by forecasts of economic conditions once these forecasts are used in estimating expected credit losses. For calculate lifetime expected credit losses, the Group derive the corresponding lifetime PDs that reflect the economic forecasts. To classify a financial asset as Stage 3 must be identified one or more events that represent adverse impact on the estimated future cash flows.
Financial instruments subject to impairment will be divided into three stages based on its level of credit risk as follow:
Stage 1: there has been no significant increase in risk since its initial recognition. In this case, the value correction will reflect expected credit losses arising from defaults over the 12 months from the reporting date.
Stage 2: financial instruments that are considered to have experienced a significant increase in credit risk since initial recognition but the impairment has not materialised. In this case, the value correction for losses will reflect the expected losses from defaults over the residual life of the financial instrument. For determine the existence of a significant increase in credit risk will be take into account not only quantitative indicators, namely indicators related to credit risk management, but also qualitative variables.
Stage 3: financial instruments for which there is objective evidence of impairment in sequence of events that result in a loss. In this case, the amount of the value correction will reflect the expected losses for credit risk over the expected residual life of the financial instrument.
The assessment of credit risk and quantification of expected loss for credit events is required to be unbiased and probability-weighted and should take into account all available information that are considered relevant namely information regarding past events, current conditions and forecasts of economic conditions and the time value of money.
Once allowance for credit losses will be based on forward-looking information IFRS 9 will lead to an increase in subjectivity. The forward-looking information mentioned takes into account the evaluation of future macro-economic conditions which are monitored in a continuous basis and that are also used fo management and internal planning.
Credit losses are defined as the expected contractual cash-flows not received over the estimated life of the financial instrument, discounted at the original interest rate. Following this definition, expected credit losses correspond to credit losses determined by considering future economic conditions.
The main change brought by IFRS 9 is related to assets measured at fair value through other comprehensive income. For these assets, the changes in fair value due to expected credit losses will be recorded at profit and loss.
IFRS 9 provides a new model that aims to align accounting with the economic hedge accounting which will allow the Group to have a wider range of instruments covered, risks covered and hedge instruments (derivatives and non-derivatives). The new requirements align hedge accounting with risk management and take an objective approach to the hedge accounting, simplifying the current hedge accounting model. The standard requires a deeper scrutiny of the effects on financial statements and on the Group's risk management strategy. The Group expect to maintain IAS 39 hedge accounting model.
In accordance with accounting policy 1 (z), the main contingent liabilities and other commitments under IAS 37 are as follows:
The Portuguese Competition Authority has declared that the administrative proceedings are to stay under judicial secrecy, once it considered that the interests dealt with in the investigation, as well as the parties' rights, would not be compatible with the publicity of the process.
The Bank received on 2 June 2015, the notice of an illicit act issued by the Competition Authority relating to the administrative offence proceedings nr. 2012/9, and was charged of taking part in the exchange of information amongst Banks of the system relating to pricing already approved and mortgage and consumption loan operations already approved or granted. Concerning the charges brought forward, the Bank will present its reply to the notice and afterwards, if need be, will present its legal objections. We must point out that a notice of an illicit act does not imply the making of a final decision concerning the proceedings. If the Competition Authority were to issue a conviction, the Bank could be sentenced to pay a fine within the limits set forth by the law, which foresees a maximum amount equivalent to 10% of the consolidated annual turnover registered in the year prior to the making of the decision. Notwithstanding, such a decision may be contested in court. The proceedings were suspended by the Competition Authority until the legal decision of the various pending interlocutory appeals.
In October 2016, the Lisbon Court of Appeal overruled the decision of the Competition, Regulation and Supervision Court which had decided for the proceedings to be suspended.The Bank appealed to the Constitutional Court on this sentence. The Constitutional Court denied the appeal and the decision became final.
On 4 July 2017, the Competition Authority notified the Bank on the decision regarding the withdrawal of the suspension concerning the access to documents deemed as confidential and of the extension of the term for the making of a decision on the illicit act for more 40 days. The Bank will now present its reply.
On 17 February 2016 the Claimant filed a submission with the Regional Court in Warsaw, extending the claim again by a further 1,041 group members. The Bank has not yet been notified of this submission. On 2 August 2016 the Regional Court in Warsaw issued a decision ordering the publication of an announcement in the press concerning the commencement of group action proceedings.
Following the Bank's motion to repeal this decision, the Court suspended its execution, but, on 8 August 2016, it issued another decision for the case to be heard in group action proceedings. On 31 August 2016 the Bank appealed against this decision. On 16 December 2016 the Court of Appeal in Warsaw overruled decision of the Regional Court for the case to be heard in group action proceedings and referred the request for the case to be heard in group action proceedings to the Regional Court for re-examination. At a hearing on 15 March 2017 the Regional Court issued decision for the case to be heard in group action proceedings. On 18 April 2017 the Bank filed an appeal against the above decision; currently the date of reviewing the case by the the Court of Appeal in Warsaw has not been scheduled yet. On 30 June 2017 the Claimant filed a submission with the Regional Court in Warsaw, extending the claim again by further 676 group members. The new value of the subject matter of the dispute was indicated as approx. PLN 132.7 million (Euros 31 million, including the values provided in the statement of claim and the previous submissions concerning extension of the claim dated 4 March 2015 and 17 February 2016). The submission dated 30 June 2017 extending the claim has not yet been served on the Bank's counsel.
On 3 December 2015 the Bank received notice of a class action lawsuit lodged by a group of 454 borrowers represented by the Municipal Consumer Ombudsman in Olsztyn pertaining to low down payment insurance used with CHF - indexed mortgage loans. The plaintiffs demand the payment of the amount of PLN 3.5 million (Euros 0.83 millions) claiming for some clauses of the agreements pertaining to low down payment insurance to be declared null and void. On 3 March 2016 the Bank filed the response to the lawsuit demanding its dismissal. The first court hearing took place on 13 September 2016 and the court issued the decision on the admissibility of the class action in this case. On 16 February 2017, the Court of Appeal denied the appeal brought forward by the Bank and the previous sentence became definitive. On 30 March 2017 the Regional Court in Warsaw dismissed Bank's motion to oblige the plaintiff to provide security for costs of proceedings. On 10 April 2017 Bank filed a complaint to the Court of Appeal in Warsaw against the decision dismissing the motion to provide security.
On 28 December 2015 and 5 April 2016, Bank Millennium was notified of two cases filed by clients (PCZ SA and Europejska Fundacja Współpracy Polsko - Belgijskiej / European Foundation for Polish-Belgian Cooperation (EFWP-B)), in the amount of PLN 150 million (Euros 35.5 million) and of PLN 521.9 million Euros 123.5 million) respectively. The authors allege in their petitions that Bank Millennium misrepresented certain contractual clauses, which determined the maturity of the credits, causing losses to the Authors. A decision of the Warsaw Regional Court is awaited. As regards the case brought by PCZ, the Wrocław Regional Court (first instance) on 7 April 2017 issued a verdict favorable to Bank Millennium by rejecting the case.
On 21 March 2017, a lawsuit was filed against the subsidiary Bank Millennium by a client in which the amount of PLN 200 million (Euros 47.2 million) was claimed for the payment of damages and compensation following the blocking of accounts in the context of insolvency proceedings. The process is currently at an early stage of assessment. In the Bank's opinion, the probability of the customer winning the process is marginal.
On 15 January 2016 a presidential proposal of legislation aimed at supporting FX mortgage borrowers was put forward, however without an assessment of impact for the banking sector. According to estimations later announced by Polish Financial Supervision Authority, the overall direct costs for the polish banking sector could reach PLN 66.9 billion (Euros 15 billion).
30 June 2017
On 2 August 2016 another presidential proposal of legislation aimed at supporting FX mortgage borrowers was put forward, this time mainly focusing on repayment part of fx spreads charged on the disbursement of the credit and in foreign exchange transactions related to the payment of mortgage loans in foreign currency. On 10 August the Financial Stability Committee of Poland (CEFP) (composed of the governor of the National Bank of Poland, the Minister of Finance responsible for the CEFP and the person responsible for the Banking Guarantee Fund), following the initiative of the National Bank of Poland, set up a working group to analyse this issue, which included representatives of the institutions represented in the CEFP.
On 13 January 2017, the CEFP issued Resolution No 14/2017, which included the recommendation of a set of measures to create a framework of encouraging voluntary agreements between banks and customers. The CEFP considers that after the analysis and evaluation of risk related to weight significant part of this loan portfolio, the restructuring of this portfolio should begin. However, this restructuring must be gradually, through negotiation between banks and customers, should be voluntary and should ensure the stability of the financial system.
On 1 August 2017, the Polish president introduced a bill to amend the Law to support borrowers in difficult financial situations who obtained mortgage loans. The proposed law is designed to facilitate the provision of assistance to people who, for objective reasons, is in a difficult financial situation, and introduces a new instrument which encourages and supports the voluntary restructuring of mortgage loans in foreign currency and determines the mechanisms for their financing. This bill was initially positively evaluated by the Polish Financial Supervisory Authority and the National Bank of Poland.
In these circumstances, it is not possible at this time to assess the actual entry into force and content of this (these) bill (s) of law, as well as the impact of the bill (s), but the implementation of some or all of the measures in it, may have a significant impact on the results and capital ratios of the banks, including the subsidiary Bank Millennium.
As at 30 June 2017, the requirements of International Accounting Standard 37 - Provisions, Liabilities and Contingent Assets are not met to establish any provision as it cannot be made a reliable estimate of the possible obligation, and so this situation is being treated as a contingent liability.
a) deny the obligation to settle those debts to the Bank, arguing that the respective agreement is null, but without the corresponding obligation of returning the amounts already paid;
b) have the Bank sentenced to pay amounts of around Euros 90 million and Euros 34 million for other debts owed by those entities to other banking institutions, as well as other amounts, totalling around Euros 26 million, supposedly already paid by the debtors within the scope of the loan agreements; c) have the Bank be given ownership of the object of the pledges associated to the aforementioned loan agreements, around 340 million shares of the Bank, allegedly purchased on behalf of the Bank, at its request and in its interest.
The Bank presented its defence and counterclaim, demanding the payment of the debt. The Plaintiffs submitted their defence against the counterclaim and the Bank answered in July 2016. The proceedings are waiting for the schedule of a prior hearing or the issue of a conclusive opening order.
On 3 August 2014, with the purpose of safeguarding the stability of the financial system, the Bank of Portugal applied a resolution measure to Banco Espírito Santo, S.A. (BES) in accordance with the provisos of article 145 C (1.b) of the Legal Framework for Credit Institutions and Financial Companies (RGICSF), namely by the partial transfer of assets, liabilities, off-balance sheet items and assets under management into a transition bank, Novo Banco, S.A. (Novo Banco), incorporated on that date by a decision issued by the Bank of Portugal. Within the scope of this process, the Resolution Fund made a capital contribution to Novo Banco amounting to Euros 4,900 million, becoming the sole shareholder.
Within this context, the Resolution Fund asked for loans amounting to Euros 4,600 million, Euros 3,900 million of which were granted by the State and Euros 700 million by a group of credit institutions, including the Bank.
As announced on 29 December 2015, the Bank of Portugal transferred to the Resolution Fund the liabilities emerging from the "eventual negative effects of future decisions regarding the resolution process and which may result in liabilities or contingencies".
On 7 July 2016, the Resolution Fund declared that it would analyse and evaluate the diligences to make, following the publication of the report on the result of the independent evaluation, made to estimate the level of credit recovery for each category of creditors under a hypothetical scenario of a normal insolvency process of BES on 3 August 2014.
In accordance with the applicable law, when the liquidation process is over, if it is ascertained that the creditors, whose credits were not transferred to Novo Banco, would take on a loss higher than the one they would hypothetically take if BES had gone into liquidation right before the application of the resolution measure, such creditors shall be entitled to receive the difference from the Resolution Fund.
Moreover, following this process, a significant number of lawsuits against the Resolution Fund was filed and is underway.
On 20 February 2017, the Bank of Portugal communicated that it decided to select the potential investor Lone Star to be part of an exclusive definitive negotiation stage for the conditions under which the sale of the investment that the Resolution Fund held in Novo Banco, S.A. could be carried out.
On 31 March 2017, the Bank of Portugal made a communication about the sale of Novo Banco, where it states the following:
"The Bank of Portugal selected today the company Lone Star to conclude the sale of Novo Banco. The sale agreement documentation has already been signed by the Resolution Fund. In accordance with the sale agreement, Lone Star will make capital injections into Novo Banco totalling Euros 1,000 million, of which Euros 750 million at the moment the operation is completed and Euros 250 million during the following 3 years. Via this capital injection, the company Lone Star will become the owner of 75% of the share capital of Novo Banco and the Resolution Fund will own the remaining 25%.
30 June 2017
The conditions agreed also include the existence of a contingent capitalization mechanism, according to which the Resolution Fund, as shareholder, commits to carry out capital injections if certain cumulative conditions materialize, related with: i) the performance of a defined group of assets of Novo Banco and ii) the performance shown by the bank's capitalization levels.
The eventual capital injections to be made in accordance with this contingent mechanism benefit from a capital buffer resulting from the capital injection to be made, in accordance with the terms and conditions of the operation, and are subject to an absolute maximum threshold.
The conditions agreed also foresee mechanisms to safeguard the interests of the Resolution Fund, to line up the incentives and supervision, despite the limitations resulting from the application of State aid rules.
The completion of the sale depends on receiving the usual regulatory authorisations (including from the European Central Bank and from the European Commission) and also on the execution of a liabilities management exercise, subject to the bondholders joining in, which will encompass the unsubordinated bonds of Novo Banco and generate at least Euros 500 million in own funds eligible for CET1, by offering new bonds. "
On 7 July 2017, the European Commission declared its non-opposition to this sale operation.
On 25 July 2017, the Novo Banco launched a tender offer for the acquisition of several senior debt issues issued directly or indirectly by the Novo Banco, with the aim of strengthening the Bank's equity capital and completing the Lone Star sale process announced on 31 March. The offer provides for the purchase of all securities related to 36 issues of the NovoBanco, is a cash offer, that will provide its holders a price aligned with the market and is accompanied by a request for early repayment (consent soliciion).
On 19 December 2015, the Board of Directors of the Bank of Portugal resolved to announce that Banif was "at risk of insolvency or insolvent" and to open the process for the urgent resolution of the institution through the partial or total sale of its activity, which was completed on 20 December 2015 through the sale to Banco Santander Totta S.A. (BST) of the rights and obligations of Banif, formed by the assets, liabilities, off-balance sheet items and assets under management.
The largest portion of the assets that were not sold, were transferred into an asset management vehicle denominated Oitante, S.A. (Oitante) specifically created for that purpose, of which the Resolution Fund is the sole shareholder. For that purpose, Oitante issued bonds representing debt amounting to Euros 746 million. The Resolution Fund provided a guarantee and the Portuguese State a counter-guarantee, for which the Oitante has already made a partial early repayment in the amount of Euros 90 million.
The operation involved state aid, Euros 489 million of which were provided by the Resolution Fund. The Euros 489 million taken by the Resolution Fund were funded through a loan granted by the State.
In a statement of 21 July 2016, the Resolution Fund announced it had proceeded to the early partial repayment, amounting to Euros 136 million, of the loan obtained from the State in December 2015 to finance the resolution measures applied to Banif. This amount corresponds to the income of the contribution collected, until 31 December 2015, from the institutions covered by the Regulation of the Single Resolution Mechanism that was not transferred to the Single Resolution Fund. This amount will be paid to the Single Resolution Fund by credit institutions that are covered by this scheme over a period of 8 years, starting in 2016.
Pursuant to the resolution measures applied to BES and Banif, on 31 December 2016 the Resolution Fund held the entire share capital of Novo Banco and of Oitante, position which is believed unchanged as of 30 June 2017.
Within the scope of these measures, the Resolution Fund asked for loans and took on other responsibilities and contingent liabilities, including:
effects of the application of the principle that no creditor of the credit institution under resolution may take on a loss greater than the one it would take if that institution did not go into liquidation.
negative effects of the resolution process that result in additional liabilities or contingencies for Novo Banco, S.A. and that must be neutralized by the Resolution Fund.
legal proceedings filed against the Resolution Fund.
guarantee granted to the bonds issued by Oitante S.A. totalling Euros 746 million, of which Oitante, S.A. reimbursed Euros 90 million early. This guarantee is counter-guaranteed by the Portuguese State.
To reimburse the loans obtained and to face other liabilities that it may take on, the Resolution Fund has only the revenues from the initial and regular contributions from the participating institutions (including the Bank) and from the contribution over the banking sector by Law 55-A/2010. It also provides for the possibility of the member of the Government in charge of finances determining, issuing an ordinance, that the participating institutions should make special contributions, in the situations foreseen in the applicable legislation, namely in case of the Resolution Fund not having own resources for fulfilling its obligations.
Pursuant to Decree-Law no. 24/2013 of 19 February, which establishes the method for determining the initial, periodic and special contributions to the Resolution Fund, provided for in the RGICSF, the Bank has been proceeding, since 2013, to the mandatory contributions, as provided for in the decree-law.
On 3 November 2015, the Bank of Portugal issued a Circular Letter under which it is clarified that the periodic contribution to the RF should be recognised as an expense at the time of the occurrence of the event which creates the obligation to pay the contribution, i.e. on the last day of April of each year, as stipulated in Article 9 of the referred Decree-Law, thus the Bank is recognising as an expense the contribution to the RF in the year in which it becomes due.
The RF issued, on 15 November 2015, a public statement declaring: "...it is further clarified that it is not expected that the Resolution Fund will propose the setting up of a special contribution to finance the resolution measure applied to Banco Espírito Santo, S.A., ('BES'). Therefore, the eventual collection of a special contribution appears to be unlikely."
30 June 2017
The regime established in Decree-Law no. 24/2013 establishes that the Bank of Portugal fixes, by instruction, the rate to be applied each year on the basis of objective incidence of periodic contributions. According to the Bank of Portugal Instruction No. 19/2015, published on 29 December, Portuguese banks paid contributions to the Resolution Fund in 2016, calculated at a base rate of 0.02%. The Instruction No. 21/2016 of the Bank of Portugal, published on 26 December establishes the base rate to be effective in 2017 for the determination of periodic contributions to the FR by 0.0291%.
Thus, during the first semester of 2017, the Group made periodic contributions to the Resolution Fund in the amount of Euros 8,490,000. The amount related to the contribution on the banking sector for the first semester of 2017 was Euros 31,037,000. These contributions were recognised as cost in the months of April and June, in accordance with IFRIC No. 21 – Levies.
In 2015, following the establishment of the Single Resolution Fund ('SRF'), the Group had to make an initial contribution in the amount of Euros 31,364,000. In accordance with the Intergovernmental Agreement on the transfer and mutualisation of contributions to the SRF, this amount was not transferred to the SRF but was used instead to partially cover for the disbursements made by the RF in respect of resolution measures prior to the date of application of this Agreement. This amount will have to be reinstated over a period of 8 years (starting in 2016) through the periodic contributions to the SRF. The total amount of the contribution, in first semester of 2017, attributable to the Group was Euros 21,466,000, of which the Group delivered Euros 18,246,000 and the remaining was constituted as irrevocable payment commitment. The Single Resolution Fund does not cover undergoing situations with the National Resolution Fund as at 31 December 2015.
By a public statement on 28 September 2016, the RF and the Ministry of Finance communicated the agreement on the basis of a review of the terms of the Euros 3,900,000 million loan originally granted by the State to the FR in 2014 to finance the resolution measure applied to BES. According to the Resolution Fund, the extension of the maturity of the loan was intended to ensure the ability of the Resolution Fund to meet its obligations through its regular revenues, regardless of the contingencies to which the Resolution Fund is exposed. On the same day, the Office of the Minister of Finance also announced that increases in the liabilities arising from the materialization of future contingencies will determine the maturity adjustment of State and Bank loans to the Resolution Fund, in order to maintain the contributory effort required to the banking sector at current levels.
According to the communication of the Resolution Fund of 21 March 2017:
The conditions of the loans obtained by the Fund to finance the resolution measures applied to Banco Espírito Santo, S.A. and to Banif – Banco Internacional do Funchal, S.A. were changed ." These loans in the amount of Euros 4,953 million, of which Euros 4,253 million granted by the Portuguese State and Euros 700 million granted by a group of banks.
"Those loans are now due in December 2046, without prejudice to the possibility of being repaid early based on the use of the Resolution Fund's revenues. The due date will be adjusted so that it enables the Resolution Fund to fully meet its liabilities based on regular revenues and without the need for special contributions or any other type of extraordinary contributions. The liabilities resulting from the loans agreed between the Resolution Fund and the Sate and the banks pursuant to the resolution measures applied to BES and Banif are handled pari-passu with one another.
"The revision of the loans' conditions aimed to ensure the sustainability and financial balance of the Resolution Fund".
"The new conditions enable the full payment of the liabilities of the Resolution Fund, as well as the respective remuneration, without the need to ask the banking sector for special contributions or any other type of extraordinary contributions".
It is not possible, on this date, to assess the effects on the Resolution Fund due to: (i) the partial sale of the shareholding in Novo Banco in accordance with the communication of Banco de Portugal dated 31 March 2017; (ii) the application of the principle that no creditor of the credit institution under resolution may take on a loss greater than the one it would take if that institution did not go into liquidation; (iii) additional liabilities or contingencies for Novo Banco, S.A. which need to be neutralized by the Resolution Fund; (iv) legal proceedings against the Resolution Fund, including the legal proceeding filed by those who have been defrauded by BES; and (v) the guarantee provided to the bonds issued by Oitante.
Despite the possibility foreseen in the applicable legislation concerning the payment of special contributions, taking into consideration the recent developments in the renegotiation of the conditions of the loans granted to the Resolution Fund by the Portuguese State and by a group of banks, including the Bank, and the public notice made by the Resolution Fund and by the Office of the Portuguese Ministry of Finance mentioning that such a possibility will not be used, the interim financial statements as at 30 June 2017 translate the Bank's expectation that no special contributions or other type of extraordinary contributions will be required of the institutions part of the Resolution Fund to finance the resolution measures applied to BES and to Banif.
Eventual alterations regarding this matter may have relevant implications in future financial statements of the Bank.
In the last week of 2016, the negotiation that had been held since October 2016 with some labour unions was completed with the objective of reviewing the Collective Labour Agreement ("CLA"), whose main objective was the Bank's ability to maintain adequately the evolution of short-term staff costs with the lowest possible impact on employees' lives.
This revision of the CLA, which has been in force since February 2017, covered several matters, among which the most relevant are (i) the commitment to anticipate, by July 2017, the salary replacement that was scheduled for January 2018 and (ii) to raise the retirement age in order to bring it into line with that of Social Security, which will make it possible to strengthen the sustainability of pension funds.
With the implementation of the Restructuring Plan, the Bank was able to anticipate the full repayment of public funding in February 2017 and for this reason, the Board of Directors decided to bring forward by the end of the transitional period of the wage adjustment to July 2017.
The Bank recorded provisions or deferred tax liabilities at the amount considered adequate to offset the tax or tax loss carry forwards, as well as the contingencies related to the fiscal years not yet reviewed by the tax administration.
Following a period of deceleration in economic activity and increase of inflation, of revisions to the rating of the Republic of Mozambique, depreciation of the metical and of decrease in foreign direct investment, the Bank of Mozambique has adopted a restrictive policy, with increases in the reference rate since December 2015, as well as increasing the reserve ratio. This set of factors constrained commercial banking in Mozambique, pushing it to pursue strict liquidity management, with a focus on raising funds, despite contributing to the improvement of net interest income.
According to an International Monetary Fund (IMF) statement dated 23 April 2016, it existed debt guaranteed by the State of Mozambique in an amount over USD 1 billion that had not been disclosed to the IMF. Following this disclosure, the economic program supported by the IMF was suspended. According to an IMF statement dated 13 December 2016, discussions were initiated on a possible new agreement with the Government of Mozambique, and were agreed the terms of reference for an external audit.
In a statement dated 16 January 2017 and 17 July 2017, the Ministry of Economy and Finance of Mozambique informed the bonds holders issued by the Republic of Mozambique "US\$726.524 million, 10.5%, repayable securities in 2023" that the interest payment due on 18 January 2017 and 18 July 2017, would not be paid by the Republic of Mozambique.
In June 2017, the Attorney General's Office of the Republic of Mozambique published an Executive Summary regarding the above-mentioned external audit. On 24 June 2017, the IMF released in a statement that due to the existence of information gaps in this audit, an IMF mission would visit the country to discuss audit results and possible follow-up measures. Following this visit, the IMF requested the Government of Mozambique to obtain additional information on the use of the funds.
According to public information provided by the IMF, there are credits granted in default to Mozambican companies, non-state, guaranteed by the Mozambican State.
This situation does not change the expectations of the Group on the ability of the Government of Mozambique and public enterprises to fully reimburse their commitments and about the development of the activity of their subsidiary Banco Internacional de Moçambique (BIM).
As at 30 June 2017, considering the 66.7% indirect investment in BIM Group, the Bank's interest in BIM's equity amounted to Euros 244,358,000, being the exchange translation reserve associated with this participation a negative amount of Euros 147,767,000. BIM's contribution to consolidated net income for the first semester of 2017, attributable to the shareholders of the Bank, amounts to Euros 28,521,000
On that date, the subsidiary BIM's exposure to the State of Mozambique includes public debt securities denominated in metical classified as Financial assets available for sale financial assets and Financial assets held to maturity in the amounts of Euros 279,614,000 and Euros 99,458,000 respectively. These public debt securities mostly have a maturity of less than 1 year.
As at 30 June 2017, the Group has also registered in the balance Loans and advances to costumers, a direct exposure to the Mozambican State in the amount of Euros 384,578,000 (of which Euros 295,860,000 are denominated in metical and Euros 88,718,000 denominated in USD) and an indirect exposure resulting from sovereign guarantees received in the amount of Euros 294.681.000 (of which Euros 139,730,000 are denominated in metical and Euros 154,951,000 denominated in USD) and in the balance Guarantees granted, an amount of Euros 32,915,000 (of which Euros 1,206,000 are denominated in metical and Euros 31,708,000 denominated in USD).
The Group performed a set of transactions of sale of financial assets (namely loans and advances to customers) for Funds specialized in the recovery of loans. These funds take the responsibility for management of the borrower companies or assets received as collateral with the objective of ensuring a pro-active management through the implementation of plans to explore/increase the value of the companies/assets.
The specialized funds in credit recovery that acquired the financial assets are closed funds, in which the holders of the participation units have no possibility to request the reimbursement of its participation units throughout the useful life of the Fund. These participation units are held by several banks, which are the sellers of the loans, in percentages that vary through the useful life of the Funds, ensuring however that, separately, none of the banks hold more than 50% of the capital of the Fund.
The Funds have a specific management structure (General Partner), fully independent from the assignor banks and that is selected on the date of establishment of the Fund. The management structure of the Fund has as main responsibilities to: (i) determine the objective of the Fund and (ii) administrate and manage exclusively the Fund, determining the objectives and investment policy and the conduct in management and business of the Fund. The management structure is remunerated through management commissions charged to the Funds.
These funds (in which the Group holds minority positions) establish companies in order to acquire the loans to the banks, which are financed through the issuance of senior and junior securities. The value of the senior securities fully subscribed by the Funds that hold the share capital match the fair value of the asset sold, determined in accordance with a negotiation based on valuations performed by both parties.
The value of the junior securities is equivalent to the difference between the fair value based on the valuation of the senior securities and the value of the transfer of credits. These junior securities, when subscribed by the Group, provide the right to a contingent positive value if the recovered amount for the assets transferred is above the nominal value amount of senior securities plus it related interest. Thus, considering these junior assets reflect a difference between the valuations of the assets sold based on the appraisals performed by independent entities and the negotiation between the parties, the Group performs the constitution of impairment losses for all of them.
30 June 2017
Therefore, as a result of the transfer of assets occurred operations, the Group subscribed:
Senior securities (participation units) of the funds, for which the cash-flows arise mainly from a set of assets transferred from the participant banks. These securities are booked in the available for sale portfolio and are accounted for at fair value based on the last available quote, as disclosed by the Management companies and audited at year end;
Junior securities (with higher subordination degree) issued by the Portuguese law companies held by the funds and which are fully provided to reflect the best estimate of impairment of the financial assets transferred.
Within this context, not withholding control but maintaining an exposure to certain risks and rewards, the Group, in accordance with IAS 39.21 performed an analysis of the exposure to the variability of risks and rewards in the assets transferred, before and after the transaction, having concluded that it does not hold substantially all the risks and rewards.
Considering that it does not hold control and does not exercise significant influence on the funds or companies management, the Group performed, under the scope of IAS 39.20 c, the derecognition of the assets transferred and the recognition of the assets received in return as follows:
As at 30 June 2017, the assets received under the scope of these operations are comprised of:
| Jun 2017 | ||||
|---|---|---|---|---|
| Assets transferred Euros '000 |
Net assets transferred Euros '000 |
Received value Euros '000 |
Net gain / (loss) Euros '000 |
|
| Fundo Recuperação Turismo FCR (a) | 304,400 | 268,318 | 294,883 | 26,565 |
| Fundo Reestruturação Empresarial FCR (b) | 84,112 | 82,566 | 83,212 | 646 |
| FLIT-PTREL (c) | 577,803 | 399,900 | 383,821 | (16,079) |
| Vallis Construction Sector Fund (d) | 238,325 | 201,737 | 238,325 | 36,588 |
| Fundo Recuperação FCR (b) | 343,266 | 243,062 | 232,267 | (10,795) |
| Fundo Aquarius FCR (c) | 132,635 | 124,723 | 132,635 | 7,912 |
| Discovery Real Estate Fund (c) | 211,388 | 152,155 | 138,187 | (13,968) |
| Fundo Vega FCR (e) | 113,665 | 113,653 | 109,599 | (4,054) |
| 2,005,594 | 1,586,114 | 1,612,929 | 26,815 |
| Dec 2016 | ||||
|---|---|---|---|---|
| Assets transferred Euros '000 |
Net assets transferred Euros '000 |
Received value Euros '000 |
Net gain / (loss) Euros '000 |
|
| Fundo Recuperação Turismo FCR (a) | 304,400 | 268,318 | 294,883 | 26,565 |
| Fundo Reestruturação Empresarial FCR (b) | 84,112 | 82,566 | 83,212 | 646 |
| FLIT-PTREL (c) | 577,803 | 399,900 | 383,821 | (16,079) |
| Vallis Construction Sector Fund (d) | 238,325 | 201,737 | 238,325 | 36,588 |
| Fundo Recuperação FCR (b) | 343,266 | 243,062 | 232,267 | (10,795) |
| Fundo Aquarius FCR (c) | 132,635 | 124,723 | 132,635 | 7,912 |
| Discovery Real Estate Fund (c) | 211,388 | 152,155 | 138,187 | (13,968) |
| Fundo Vega FCR (e) | 113,665 | 113,653 | 109,599 | (4,054) |
| 2,005,594 | 1,586,114 | 1,612,929 | 26,815 |
The Restructuring of the Fund activity segments are as follows: a) Tourism; b) Diversified; c) Real estate and tourism; d) Construction and e) Property.
The net gain/ (loss) was obtained at the date of the transfer of assets and was recorded in the item Net gains / (losses) arising from trading and hedging activities - Credit sales (note 6).
| Jun 2017 | |||||
|---|---|---|---|---|---|
| Senior securities | Junior securities | ||||
| Participation units (note 23) Euros '000 |
Participation units (note 23) Euros '000 |
Capital supplies (note 32) Euros '000 |
Capital supplementary contributions (note 32) Euros '000 |
Total Euros '000 |
|
| Fundo Recuperação Turismo FCR | |||||
| Gross value | 287,929 | - | 31,509 | - | 319,438 |
| Impairment | (46,046) | - | (31,509) | - | (77,555) |
| 241,883 | - | - | - | 241,883 | |
| Fundo Reestruturação Empresarial FCR | |||||
| Gross value | 84,627 | - | - | - | 84,627 |
| Impairment | (6,071) | - | - | - | (6,071) |
| 78,556 | - | - | - | 78,556 | |
| FLIT-PTREL | |||||
| Gross value | 301,352 | - | 38,154 | 2,939 | 342,445 |
| Impairment | (4,053) | - | (38,154) | (2,939) | (45,146) |
| 297,299 | - | - | - | 297,299 | |
| Vallis Construction Sector Fund | |||||
| Gross value | 203,172 | 36,292 | - | - | 239,464 |
| Impairment | (194,655) | (36,292) | - | - | (230,947) |
| 8,517 | - | - | - | 8,517 | |
| Fundo Recuperação FCR | |||||
| Gross value | 204,269 | - | 78,033 | - | 282,302 |
| Impairment | (77,898) | - | (78,033) | - | (155,931) |
| 126,371 | - | - | - | 126,371 | |
| Fundo Aquarius FCR | |||||
| Gross value | 137,333 | - | - | - | 137,333 |
| Impairment | (10,189) | - | - | - | (10,189) |
| 127,144 | - | - | - | 127,144 | |
| Discovery Real Estate Fund | |||||
| Gross value | 150,008 | - | - | - | 150,008 |
| Impairment | (7,412) | - | - | - | (7,412) |
| 142,596 | - | - | - | 142,596 | |
| Fundo Vega FCR | |||||
| Gross value | 47,087 | - | 68,648 | - | 115,735 |
| Impairment | (1,701) | - | (68,648) | - | (70,349) |
| 45,386 | - | - | - | 45,386 | |
| Total Gross value | 1,415,777 | 36,292 | 216,344 | 2,939 | 1,671,352 |
| Total Impairment | (348,025) | (36,292) | (216,344) | (2,939) | (603,600) |
| Total | 1,067,752 | - | - | - | 1,067,752 |
As mentioned in note 23, the book value of these assets resulted from the last communication by the respective management company of the NAV of the Fund which, as at 30 June 2017, corresponds to the NAV at that date, With the exception of the Vega and Flit-Ptrel funds, which reports on 31 December 2016 and 31 March 2017, respectively. In addition, the valuation of these funds includes, among others, the following aspects: (i) these are funds whose latest Audit Reports available with reference to December 31, 2016 (except for the Vallis Fund whose reference date is 30 September 2016) do not present any reservations; (ii) the funds are subject to supervision by the competent authorities
Within the scope of the transfer of assets, the junior securities subscribed which carry a subordinated nature and are directly linked to the transferred assets, are fully provided for. Although the junior securities are fully provisioned, the Group still holds an indirect exposure to financial assets transferred, under the minority investment that holds in the pool of all assets transferred by financial institutions involved, through the holding of participation units of the funds (denominated in the table as senior securities).
The impairment for credit restructuring funds with impact on results, which occurred in the first semester of 2017 amounts to Euros 34,489,000, of which Euros 31,609,000 are recorded in Other financial assets impairment (note 13) and Euros 2,880,000 in Other assets impairment (note 32).
30 June 2017
| Dec 2016 | |||||
|---|---|---|---|---|---|
| Senior securities | Junior securities | ||||
| Participation units (note 23) Euros '000 |
Participation units (note 23) Euros '000 |
Capital supplies (note 32) Euros '000 |
Capital supplementary contributions (note 32) Euros '000 |
Total Euros '000 |
|
| Fundo Recuperação Turismo FCR | |||||
| Gross value | 287,929 | - | 31,274 | - | 319,203 |
| Impairment | (45,611) | - | (31,274) | - | (76,885) |
| 242,318 | - | - | - | 242,318 | |
| Fundo Reestruturação Empresarial FCR | |||||
| Gross value | 84,112 | - | - | - | 84,112 |
| Impairment | (5,463) | - | - | - | (5,463) |
| 78,649 | - | - | - | 78,649 | |
| FLIT-PTREL | |||||
| Gross value | 299,479 | - | 38,155 | 2,939 | 340,573 |
| Impairment | (4,713) | - | (38,155) | (2,939) | (45,807) |
| 294,766 | - | - | - | 294,766 | |
| Vallis Construction Sector Fund | |||||
| Gross value | 203,172 | 36,292 | - | - | 239,464 |
| Impairment | (173,799) | (36,292) | - | - | (210,091) |
| 29,373 | - | - | - | 29,373 | |
| Fundo Recuperação FCR | |||||
| Gross value | 215,996 | - | 77,085 | - | 293,081 |
| Impairment | (70,698) | - | (77,085) | - | (147,783) |
| 145,298 | - | - | - | 145,298 | |
| Fundo Aquarius FCR | |||||
| Gross value | 136,111 | - | - | - | 136,111 |
| Impairment | (8,967) | - | - | - | (8,967) |
| 127,144 | - | - | - | 127,144 | |
| Discovery Real Estate Fund | |||||
| Gross value | 151,086 | - | - | - | 151,086 |
| Impairment | - | - | - | - | - |
| 151,086 | - | - | - | 151,086 | |
| Fundo Vega FCR | |||||
| Gross value | 44,848 | - | 66,950 | - | 111,798 |
| Impairment | - | - | (66,950) | - | (66,950) |
| 44,848 | - | - | - | 44,848 | |
| Total Gross value | 1,422,733 | 36,292 | 213,464 | 2,939 | 1,675,428 |
| Total Impairment | (309,251) | (36,292) | (213,464) | (2,939) | (561,946) |
| Total | 1,113,482 | - | - | - | 1,113,482 |
Additionally are booked in Loans and advances to customer's portfolio and in balances Guarantees granted and Irrevocable credit lines, the following exposures and respective impairment:
| Itens | Jun 2017 Euros '000 |
Dec 2016 Euros '000 |
|---|---|---|
| Loans and advances to customers | 391,846 | 351,624 |
| Guarantees granted and irrevocable credit lines | 124, 106 |
134,203 |
| Gross exposure | 515,952 | 485,827 |
| Impairment | (112,288) | (101,795) |
| Net exposure | 403,664 | 384,032 |
Banco Comercial Português, S.A agreed to carry out a merger by incorporation of Banco Millennium Angola, S.A. with Banco Privado Atlântico, S.A, for that reason, that entity has been considered as a discontinued operation since 31 March 2016.
In this context, costs and income for the period from 1 January to 30 April 2016 are presented in a single line denominated Result of discontinued or discontinued operations. After the completion of the merger, which occurred on 30 April 2016, the assets and liabilities of Banco Millennium Angola were derecognized from the balance sheet, and the interest held in Banco Millennium Atlântico, S.A. was registered as an associated company, as described in note 26.
As provided in point a) of IFRS 5 paragraph 33, the net cash flow attributable to operating activities, investing and financing activities of discontinued operations should be disclosed not being however mandatory for groups of assets held for sale that are newly acquired subsidiaries that meet the criteria for classification as held for sale on acquisition.
Following the completion of the merger, the Group has no longer the control over the Banco Millennium Angola, and now holds significant influence over the new entity, Banco Millennium Atlântico S.A., of 22.5% of its share capital. In this context, the Group valued its investment in the associated company Banco Millennium Atlântico, S.A at fair value.
The fair value of the shareholding attributable to Banco Comercial Português in Banco Millennium Atlântico at the date of opening balance (30 April 2016), was established by discounting the cash flows to equity associated to the Business Plan developed for the Project of the Merger between Banco Millennium Angola with Banco Privado Atlântico, adjusted to reflect the change in the local currency rate since the end of the year until that date and the date of opening balance, and the difference between the estimate of the combined Net Asset Value (which was based on the information available at the date of the fair value estimation) and the corresponding estimate in the Business Plan underlying the merger projection.
Additionally, the discretionary adjustment considered at the end of 2015 was kept, although to a lesser extent (-10% instead of -30%), in order to reflect the remaining uncertainty regarding the future evolution of economic and financial conditions in Angola, in spite of the gradual stabilisation that has taken place in the meantime.
The main effects are recognized in the consolidated financial statements associated to this operation were as follows:
Positive impact on net income /(loss) for the period, as at 31 December 2016, of Euros 7,328,000
Positive impact on equity, excluding net income /(loss) for the period, as at 31 December 2016, amounting to Euros 76,835,000, following the valuation at fair value of the shareholding in the new entity.
The negative foreign exchange reserves of Euros 78,554,000 was annulled and recorded in Net income /(loss) for the period, not implying net impact on equity.
After 30 April 2016, the equity method has been applied to the shareholding held in Banco Millennium Atlântico, S.A. which resulted in a positive contribution of Euros 15,771,000 to the Group's consolidated results of 2016 and other effects on shareholders' equity, in the negative amount of Euros 25,885,000, as at 31 December 2016 (note 26).
As at 30 June 2017, shareholding held in Banco Millennium Atlântico, S.A amounts to Euros 209,640,000, including Euros 100,408,000 related to goodwill, as described in note 26.
The main items of the income statement, related to this discontinued operation, are analysed as follows:
| 2016 | ||||
|---|---|---|---|---|
| Banco Millennium Angola Euros '000 |
Others Euros '000 |
Total Euros '000 |
||
| Net interest income | 37,690 | - | 37,690 | |
| Net fees and commissions income | 8,777 | - | 8,777 | |
| Net gains on trading | 26,962 | - | 26,962 | |
| Other operating income | (328) | (533) | (861) | |
| Total operating income | 73,101 | (533) | 72,568 | |
| Staff costs | 12,020 | - | 12,020 | |
| Other administrative costs | 11,129 | (533) | 10,596 | |
| Depreciation | 3,009 | - | 3,009 | |
| Total operating expense | 26,158 | (533) | 25,625 | |
| Loans impairment and other provisions | (5,023) | - | (5,023) | |
| Net operating income / (loss) | 41,920 | - | 41,920 | |
| Net gain from the sale of subsidiaries and other assets |
14 | - | 14 | |
| Net income / (loss) before income tax | 41,934 | - | 41,934 | |
| Income tax | (5,128) | - | (5,128) | |
| Net income /(loss) for the period (note 17) | 36,806 | - | 36,806 |
Notes to the Interim Condensed Consolidated Financial Statements
30 June 2017
As at 30 June 2017, the Group's subsidiary companies included in the consolidated accounts using the full consolidation method were as follows:
| Group | Bank | ||||||
|---|---|---|---|---|---|---|---|
| Head | Share | % economic effective |
% | % direct |
|||
| Subsidiary companies | office | capital | Currency | Activity | interests | held | held |
| Banco de Investimento Imobiliário, S.A. | Lisbon | 17,500,000 | EUR | Banking | 100.0 | 100.0 | 100.0 |
| Banco ActivoBank, S.A. | Lisbon | 17,500,000 | EUR | Banking | 100.0 | 100.0 | – |
| Bank Millennium, S.A. | Warsaw | 1,213,116,777 | PLN | Banking | 50.1 | 50.1 | 50.1 |
| Banque Privée BCP (Suisse) S.A. | Geneva | 70,000,000 | CHF | Banking | 100.0 | 100.0 | – |
| BCP África, S.G.P.S., Lda. | Funchal | 682,965,800 | EUR | Holding company | 100.0 | 100.0 | 100.0 |
| BCP Capital - Sociedade de Capital de Risco, S.A. | Oeiras | 2,000,000 | EUR | Venture capital | 100.0 | 100.0 | 100.0 |
| BCP International B.V. | Amsterdam | 18,000 | EUR | Holding company | 100.0 | 100.0 | 100.0 |
| BCP Investment B.V. | Amsterdam | 620,774,050 | EUR | Holding company | 100.0 | 100.0 | 100.0 |
| BCP Finance Bank, Ltd. | George Town | 246,000,000 | USD | Banking | 100.0 | 100.0 | – |
| BCP Finance Company | George Town | 90,911,185 | EUR | Financial | 100.0 | 34.1 | – |
| bcp holdings (usa), Inc. | Newark | 250 | USD | Holding company | 100.0 | 100.0 | – |
| BG Leasing, S.A. | Gdansk | 1,000,000 | PLN | Leasing | 74.0 | 37.1 | – |
| BIM - Banco Internacional de Moçambique, S.A. | Maputo | 4,500,000,000 | MZN | Banking | 66.7 | 66.7 | – |
| Caracas Financial Services, Limited | George Town | 25,000 | USD | Financial Services | 100.0 | 100.0 | 100.0 |
| Millennium bcp Bank & Trust | George Town | 340,000,000 | USD | Banking | 100.0 | 100.0 | – |
| Millennium BCP - Escritório de Representações e Serviços, Ltda. |
São Paulo | 52,270,768 | BRL | Financial Services | 100.0 | 100.0 | 100.0 |
| Millennium bcp Participações, S.G.P.S., Sociedade Unipessoal, Lda. |
Funchal | 25,000 | EUR | Holding company | 100.0 | 100.0 | 100.0 |
| MB Finance AB | Stockholm | 500,000 | SEK | Financial | 100.0 | 50.1 | – |
| Enerparcela - Empreendimentos Imobiliários, S.A. | Oeiras | 37,200,000 | EUR | Real-estate management | 100.0 | 100.0 | – |
| Interfundos - Gestão de Fundos de Investimento Imobiliários, S.A. |
Oeiras | 1,500,000 | EUR | Investment fund management | 100.0 | 100.0 | 100.0 |
| Adelphi Gere, Investimentos Imobiliários, S.A. | Oeiras | 10,706,743 | EUR | Real-estate management | 100.0 | 100.0 | – |
| Sadamora - Investimentos Imobiliários, S.A. | Oeiras | 11,737,399 | EUR | Real-estate management | 100.0 | 100.0 | – |
| Monumental Residence - Investimentos Imobiliários, S.A. |
Funchal | 30,300,000 | EUR | Real-estate management | 100.0 | 100.0 | – |
| Millennium bcp - Prestação de Serviços, A.C.E. | Lisbon | 331,000 | EUR | Services | 93.9 | 93.5 | 83.5 |
| Millennium bcp Teleserviços - Serviços de Comércio Electrónico, S.A. |
Lisbon | 50,004 | EUR | Videotext services | 100.0 | 100.0 | 100.0 |
| Millennium Dom Maklerski, S.A. | Warsaw | 16,500,000 | PLN | Brokerage services | 100.0 | 50.1 | – |
| Millennium Goodie Sp.z.o.o. | Warsaw | 500,000 | PLN | Consulting and services | 100.0 | 50.1 | – |
| Millennium Leasing, Sp.z o.o. | Warsaw | 48,195,000 | PLN | Leasing | 100.0 | 50.1 | – |
| Millennium Service, Sp.z o.o. | Warsaw | 1,000,000 | PLN | Services | 100.0 | 50.1 | – |
| Millennium Telecomunication, Sp.z o.o. | Warsaw | 100,000 | PLN | Brokerage services | 100.0 | 50.1 | – |
| Millennium TFI - Towarzystwo Funduszy Inwestycyjnych, S.A. |
Warsaw | 10,300,000 | PLN | Investment fund management | 100.0 | 50.1 | – |
30 June 2017
| Group | Bank | |||||||
|---|---|---|---|---|---|---|---|---|
| Subsidiary companies | Head office |
Share capital |
Currency | Activity | % economic effective interests |
% held |
% direct held |
|
| Millennium bcp Imobiliária, S.A. | Oeiras | 50,000 | EUR | Real-estate management | 99.9 | 99.9 | 99.9 | |
| MULTI 24 - Sociedade Imobiliária, SA | Lisbon | 44,919,000 | EUR | Real-estate management | 100.0 | 100.0 | – | |
| Servitrust - Trust Management Services S.A. | Funchal | 100,000 | EUR | Trust services | 100.0 | 100.0 | 100.0 | |
| Setelote - Aldeamentos Turísticos S.A. | Oeiras | 200,000 | EUR | Real-estate company | 100.0 | 100.0 | – | |
| Irgossai - Urbanização e construção, S.A. | Oeiras | 50,000 | EUR | Real-estate company | 100.0 | 100.0 | – | |
| Imábida - Imobiliária da Arrábida, S.A. (*) | Oeiras | 1,750,000 | EUR | Real-estate company | 100.0 | 100.0 | 100.0 | |
| Bichorro – Empreendimentos Turísticos e Imobiliários S.A. |
Oeiras | 2,150,000 | EUR | Real-estate company | 100.0 | 100.0 | – | |
| Finalgarve – Sociedade de Promoção Imobiliária Turística, S.A. |
Oeiras | 250,000 | EUR | Real-estate company | 100.0 | 100.0 | – | |
| Fiparso – Sociedade Imobiliária Lda | Oeiras | 50,000 | EUR | Real-estate company | 100.0 | 100.0 | – |
(*) - Company classified as non-current assets held for sale.
As at 30 June 2017, the investment funds included in the consolidated accounts using the full consolidation method as referred in the accounting policy presented in note 1 b) were as follows:
| Group | |||||||
|---|---|---|---|---|---|---|---|
| % | % | % | |||||
| Subsidiary companies | Head office |
Nominal Value Units |
Currency | Activity | economic effective interests |
held | direct held |
| Fundo de Investimento Imobiliário Imosotto Acumulação |
Oeiras | 153,883,066 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Fundo de Investimento Imobiliário Gestão Imobiliária |
Oeiras | 11,718,513 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Fundo de Investimento Imobiliário Imorenda | Oeiras | 155,507,815 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Fundo Especial de Investimento Imobiliário Oceânico II |
Oeiras | 304,320,700 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Fundo Especial de Investimento Imobiliário Fechado Stone Capital |
Oeiras | 17,122,497,300 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Fundo Especial de Investimento Imobiliário Fechado Sand Capital |
Oeiras | 16,149,800,900 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Fundo de Investimento Imobiliário Fechado Gestimo |
Oeiras | 6,653,257 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Fundo Especial de Investimento Imobiliário Fechado Intercapital |
Oeiras | 7,791,600 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Millennium Fundo de Capitalização - Fundo de Capital de Risco |
Oeiras | 120,307,000 | EUR | Venture capital fund | 100.0 | 100.0 | 100.0 |
| Group | Bank | ||||||
|---|---|---|---|---|---|---|---|
| Subsidiary companies | Head office |
Nominal Value Units |
Currency | Activity | % economic effective interests |
% held |
% direct held |
| Funsita - Fundo Especial de Investimento Imobiliário Fechado |
Oeiras | 15,820,000 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Imoport - Fundo de Investimento Imobiliário Fechado |
Oeiras | 4,682,827,000 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Multiusos Oriente - Fundo Especial de Investimento Imobiliário Fechado |
Oeiras | 491,610 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Grand Urban Investment Fund - Fundo Especial de Investimento Imobiliário Fechado |
Oeiras | 134,023,100 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Fundial – Fundo Especial de Investimento Imobiliário Fechado |
Oeiras | 21,850,850 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| DP Invest – Fundo Especial de Investimento Imobiliário Fechado |
Oeiras | 4,785,000 | EUR | Real estate investment fund | 54.0 | 54.0 | 54.0 |
| Fundipar – Fundo Especial de Investimento Imobiliário Fechado |
Oeiras | 11,945,000 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| MR – Fundo Especial de Investimento Imobiliário Fechado |
Oeiras | 31,056,099 | EUR | Real estate investment fund | 100.0 | 100.0 | 100.0 |
| Domus Capital– Fundo Especial de Investimento Imobiliário Fechado |
Oeiras | 2,600,000 | EUR | Real estate investment fund | 50.0 | 50.0 | 50.0 |
| Predicapital – Fundo Especial de Investimento Imobiliário Fechado |
Oeiras | 1,800,000 | EUR | Real estate investment fund | 60.0 | 60.0 | 60.0 |
The Group held a set of securitization transactions regarding mortgage loans which were set through specifically created SPE. As referred in accounting policy 1 b), when the substance of the relationships with the SPEs indicates that the Group holds control of its activities, the SPE are fully consolidated, following the application of IFRS 10.
As at 30 June 2017, the SPEs included in the consolidated accounts under the full consolidation method are as follows:
| Group | Bank | ||||||
|---|---|---|---|---|---|---|---|
| % | % | % | |||||
| Head | Share | economic effective | direct | ||||
| Special Purpose Entities | office | capital | Currency | Activity | interests | held | held |
| Magellan Mortgages No.2 Limited | Dublin | 40,000 - |
EUR | Special Purpose Entities | 100.0 | 100.0 | 100.0 |
| Magellan Mortgages No.3 Limited | Dublin | 40,000 | EUR | Special Purpose Entities | 82.4 | 82.4 | 82.4 |
As at 30 June 2017, the BCP Group's subsidiary insurance companies included in the consolidated accounts under the full consolidation method were as follows:
| Group | Bank | ||||||
|---|---|---|---|---|---|---|---|
| % | % | % | |||||
| Head | Share | economic effective | direct | ||||
| Subsidiary companies | office | capital | Currency | Activity | interests | held | held |
| S&P Reinsurance Limited | Dublin | 1,500,000 | EUR | Life reinsurance | 100.0 | 100.0 | 100.0 |
| SIM - Seguradora Internacional de | Maputo | 147,500,000 | MZN | Insurance | 92.0 | 61.4 | – |
Moçambique, S.A.R.L.
As at 30 June 2017, the Group's associated companies included in the consolidated accounts under the equity method are as follows:
| Group | Bank | ||||||
|---|---|---|---|---|---|---|---|
| Associated companies | % Head Share office capital Currency Activity Luanda 53,821,603,000 AOA Banking Paris 126,955,886 EUR Banking Sta.Maria Feira 17,923,610 EUR Extractive industry Luanda 100,000,196 USD Services Beira 2,849,640 MZN Naval shipyards Maputo 1,053,500,000 MZN Property management George Town 5,000 USD Financial services George Town 10,810,000 USD Services Swiebodzin 13,400,050 PLN Furniture manufacturer Vizela 11,150,000 EUR Textile products, except clothing Lisbon 24,642,300 EUR Banking services |
economic effective interests |
% held |
% direct held |
|||
| Banco Millennium Atlântico, S.A. | 22.7 | 22.5 | – | ||||
| Banque BCP, S.A.S. | 19.9 | 19.9 | 19.9 | ||||
| ACT-C-Indústria de Cortiças, S.A. | 20.0 | 20.0 | 20.0 | ||||
| Baía de Luanda - Promoção, Montagem e Gestão de Negócios, S.A. (**) |
10.0 | 10.0 | – | ||||
| Beiranave Estaleiros Navais Beira SARL | 22.8 | 14.0 | – | ||||
| Constellation, S.A. | 20.0 | 12.3 | – | ||||
| Imbondeiro Development Corporation | 39.0 | 39.0 | – | ||||
| Luanda Waterfront Corporation (**) | 10.0 | 10.0 | – | ||||
| Lubuskie Fabryki Mebli, S.A. | 50.0 | 25.1 | – | ||||
| Mundotêxtil - Indústrias Têxteis, S.A. | 25.1 | 25.1 | – | ||||
| SIBS, S.G.P.S., S.A. | 22.8 | 21.9 | – | ||||
| Sicit - Sociedade de Investimentos e Consultoria em Infra-Estruturas de Transportes, S.A |
Oeiras | 50,000 | EUR | Advisory | 25.0 | 25.0 | 25.0 |
| UNICRE - Instituição Financeira de Crédito, S.A. | Lisbon | 10,000,000 | EUR | Credit cards | 32.0 | 32.0 | 0.6 |
| Webspectator Corporation | Delaware | 950 | USD | Digital advertising services | 25.1 | 25.1 | 25.1 |
(**) Given the nature of the Group's involvement, the Board of Directors believes that the Group maintains a significant influence on these companies.
As at 30 June 2017 the Group's associated insurance companies included in the consolidated accounts under the equity method were as follows:
| Group | Bank | |||||||
|---|---|---|---|---|---|---|---|---|
| Associated companies | Head office |
Share capital |
Currency | Activity | % economic effective interests |
% held |
% direct held |
|
| Millenniumbcp Ageas Grupo Segurador, S.G.P.S., S.A. |
Oeiras | 775,002,375 | EUR | Holding company | 49.0 | 49.0 | – | |
| Ocidental - Companhia Portuguesa de Seguros de Vida, S.A. |
Oeiras | 22,375,000 | EUR | Life insurance | 49.0 | 49.0 | – | |
| Ocidental - Sociedade Gestora de Fundos de Pensões, S.A. |
Oeiras | 1,200,000 | EUR | Pension fund management | 49.0 | 49.0 | – |
During the first semester of 2017, the Group liquidated its subsidiaries Propaço - Sociedade Imobiliária de Paço D'Arcos, Lda and M Inovação - Fundo de Capital de Risco BCP Capital and sold the associated company Nanium SA.
As regards to the 3.6% investment held in Banque BCP (Luxembourg), S.A., it was no longer considered as Investments in associated companies because the Group no longer maintains a significant influence on the bank.
Regarding the entries in the consolidation perimeter, were included the investment funds Domus Capital– Fundo Especial de Investimento Imobiliário Fechado and Predicapital – Fundo Especial de Investimento Imobiliário Fechado.
Banco Comercial Português, after having conveyed reservations regarding the contingent capitalization obligation by the Portuguese Resolution Fund) which was announced to be included in a sale agreement of Novo Banco, has decided, in light of the legal deadline and for caution, to request the respective appreciation through administrative legal proceedings. This diligence does not comprise nor entail, the production of any suspensive effects on the sale of Novo Banco, S.A. and, consequently, brings legally no impediment to such sale within the foreseen delays, which centers exclusively on the referred capitalization contigent obligation,.
(Amounts expressed in thousands of euros – t.euros)
(Translation of a report originally issued in Portuguese – in the case of discrepancies, the original version in Portuguese prevails – Note 1a)
We have performed a limited review of the accompanying interim condensed consolidated financial statements of Banco Comercial Português, S.A. (the Bank) and its subsidiaries (the Group) for the six month period ended 30 June 2017, which comprise the interim condensed consolidated balance sheet as of 30 June 2017 that presents a total of 73,023,738 t.euros and total consolidated shareholders' equity of 6,945,712 t.euros, including a consolidated net profit attributable to the shareholders of the Bank of 89,928 t.euros, the interim condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the six month period then ended and a selected set of notes to the interim condensed consolidated financial statements.
The Board of Directors of the Bank is responsible for the preparation of interim condensed consolidated financial statements of the Bank in accordance with International Accounting Standard 34 – Interim Financial Reporting (IAS 34) as endorsed by the European Union, and for the design and maintenance of appropriate systems of internal control in order to permit the preparation of interim condensed consolidated financial statements exempt from material misstatement due to fraud or error.
Our responsibility is to express a conclusion on the accompanying interim condensed consolidated financial statements. Our work was performed in accordance with ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity and the applicable technical and ethical standards and guidelines of the Portuguese Institute of Statutory Auditors ("Ordem dos Revisores Oficiais de Contas"). These standards require that our work be performed in order to conclude as to whether anything has come to our attention that causes us to believe that the interim condensed consolidated financial statements are not prepared in all material respects in accordance with International Accounting Standard 34 - Interim Financial Reporting (IAS 34) as endorsed by the European Union.
A limited review is a limited assurance engagement. The procedures that we have performed consist mainly of inquiries and analytical procedures and subsequent assessment of the evidence obtained.
A limited review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (ISA). Accordingly, we do not express an audit opinion on these interim condensed consolidated financial statements.
Based on the work performed, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements of Banco Comercial Português, S.A. and its subsidiaries for the six month period ended 30 June 2017 have not been prepared in all material respects in accordance with International Accounting Standard 34 – Interim Financial Reporting as endorsed by the European Union.
Lisbon, 22 September 2017
Deloitte & Associados, SROC S.A. Represented by Paulo Alexandre de Sá Fernandes, ROC
________________________________________
(This report is a translation of a report originally issued in Portuguese. Therefore according to Deloitte & Associados, SROC S.A. internal procedures, the report should not be signed. In the event of discrepancies, the Portuguese language version prevails.)
Financial statements for the first half-year of 2017
© Millennium bcp
Banco Comercial Português, S.A., Company open to public investment
Registered Office: Praça D. João I, 28 4000-295 Porto
Share Capital: 5,600,738,053.72 Euros
Registered at Commercial Registry Office of Oporto under the Single Registration and Tax Identification Number 501 525 882
Investor Relations Division Av. Professor Doutor Cavaco Silva Edifício 1 Piso 0 Ala B 2744-002 Porto Salvo Phone: (+351) 211 131 084 [email protected]
Communication Division Av. Professor Doutor Cavaco Silva Edifício 3 Piso 1 Ala C 2744-002 Porto Salvo Phone: (+351) 211 131 243 [email protected]
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