Interim / Quarterly Report • Sep 26, 2016
Interim / Quarterly Report
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| General Meeting | |
|---|---|
| Chairman Deputy Chairman |
José Manuel Galvão Teles António Maria Pinto Leite |
| Secretary | Luís Manuel Baptista Figueiredo |
| Board of Directors | |
| Chairman | António Basagoiti Garcia-Tuñón |
| Deputy Chairman | António José Sacadura Vieira Monteiro |
| Deputy Chairman | Enrique Garcia Candelas |
| Members | Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota |
| João Baptista Leite | |
| José Carlos Brito Sítima | |
| José Urgel Moura Leite Maia | |
| Luís Filipe Ferreira Bento dos Santos | |
| Manuel António Amaral Franco Preto | |
| Pedro Aires Coruche Castro e Almeida | |
| Audit Board | |
| Chairman | Luís Manuel Moreira de Campos e Cunha |
| Members | Mazars & Associados, S.R.O.C. represented byOfficial Appointed Auditor |
| Fernando Vieira | |
| Ricardo Manuel Duarte Vidal Castro | |
| Alternate Member | Pedro Manuel Alves Ferreira Guerra |
| Official Auditor | |
| Deloitte & Associados, S.R.O.C., S.A. | |
| Executive Committee | |
| Chairman | António José Sacadura Vieira Monteiro |
| Members | João Baptista Leite |
| José Carlos Brito Sítima | |
| José Urgel Moura Leite Maia | |
| Luís Filipe Ferreira Bento dos Santos | |
| Manuel António Amaral Franco Preto | |
| Pedro Aires Coruche Castro e Almeida | |
| Company Secretary | |
| Effective | Luís Manuel Baptista Figueiredo |
| Alternate | Raquel João Branquinho Nunes Garcia |
On 31 May 2016, the Annual General Meeting of BST shareholders was held and approved, inter alia, the change in the Supervisory Body for the Audit Committee and the proposal for the following makeup of the corporate officers, including the members of the General Meeting, of the Board of Directors, of the Audit Board and the Bank's Auditor, for the 2016/2018 period. The duties of the new members of the corporate bodies will commence when their complement is approved or not opposed by the competent supervisory bodies.
| Chairman | José Manuel Galvão Teles |
|---|---|
| Deputy Chairman Secretary |
António Maria Pinto Leite Company Secretary |
| Board of Directors | |
| Chairman | António Basagoiti Garcia-Tuñón |
| Deputy Chairman | António José Sacadura Vieira Monteiro |
| Deputy Chairman | Enrique Garcia Candelas |
| Members | Angel Rivera Congosto |
| António Manuel de Carvalho Ferreira Vitorino | |
| Inês Oom Ferreira de Sousa | |
| Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota | |
| João Baptista Leite | |
| José Carlos Brito Sítima | |
| José Urgel Moura Leite Maia | |
| Luís Filipe Ferreira Bento dos Santos | |
| Luís Manuel Moreira de Campos e Cunha | |
| Manuel António Amaral Franco Preto | |
| Pedro Aires Coruche Castro e Almeida | |
| Remedios Ruiz Macia | |
| Audit Committee | |
| Chairman | Luís Manuel Moreira de Campos e Cunha |
| Members | António Basagoiti Garcia-Tuñon |
| Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota | |
| Official Auditor | |
PricewaterhouseCoopers & Associados, Sociedade de Revisores Oficiais de Contas, Lda.
Economic activity during the first half of 2016 was marked by a modest and decelerating rate of growth, and equally affected by a set of shocks that increased uncertainty as to its progress in the following quarters.
As a result of these conditioning factors, the International Monetary Fund, in the July update of the "World Economic Outlook", again reviewed at a lower level its world GDP growth in 2016 and 2017, to 3.1% and 3.4%, respectively (- 0.1pp).
The first factor to be considered was the uncertainty, in the first months of the year, concerning growth dynamics in China, which caused additional turbulence in financial markets. Economic data disclosed meanwhile revealed a slightly higher rate of growth than was expected, also resulting from the expansionary measures adopted by the authorities in the latter quarters, and which led the IMF to forecast a gradual growth convergence to approximately 6% in the following years, as compared with the 6.9% recorded in 2015.
The second factor was the British referendum regarding the continuity of the United Kingdom in the European Union. The ballot favouring exit (the "Brexit" scenario) came as a surprise to investors, generating moments of increased volatility in financial markets. This ballot was followed by a change in Government, which will be responsible for the effective exit negotiations. The British Government will have to resort to article No. 50 of the Lisbon Treaty, upon which a two year period will be available to negotiate the exit and the future relations between the two economies.
IMF estimates that the impact on economic growth within a successful negotiation environment may be approximately 0.5 pp during a two to three year period. This also justifies the size of the revisions carried out on the April projections. The heaviest impact, according to the IMF, shall occur on the British economy where, in 2017, growth could decrease by approximately 0.9 pp to 1.3%, significantly aggravating the current slowdown.
The Bank of England, in its post referendum meeting, maintained interest rates and the framework of the monetary policy, although stating it had available all the necessary tools to act, as and when required.
The other most affected economies will probably be those that are more developed, and with which the United Kingdom has stronger economic and financial links. In this context, even within the European Union, impacts will differ, affecting for instance Ireland and The Netherlands more than the remaining countries.
During the first half of the year the euro zone kept to a sustained economic growth rate, although differing amongst the various countries, benefiting from the increase in domestic demand, including capital expenditure. However, with a forecast annual 1.6% growth rate, below potential growth estimates, and with an inflation rate clearly below the objective of "close to, but below 2%", ECB reinforced the stimulus measures for economic activity.
In its March meeting, the ECB decided: (i) to lower the refi rate to 0% and the deposit rate to -0.4%; (ii) to expand the Financial Assets Purchase Programme ("quantitative easing") to 80 billion euros per month (a 20 billion increase); (iii) to include debt issued by non-financial companies in the set of eligible assets in the "quantitative easing" programme; and (iv) to launch a four year series of long-term refinancing operations (TLTRO2), within which banks may obtain finance at the refi rate, and later benefit from a bonus in the interest rate up to the deposit interest rate, depending upon the development of the credit portfolio during the life of the operation.
As a result, short and long term interest rates recorded a further downturn to absolute historical minimums, strengthened by the statement of the ECB Chairman that such operations would remain in place until necessary. In the case of long term interest rates, in some European countries, such as Germany, the yield curve converged to negative levels, including that of 10 year maturities.
In the USA, economic activity evolved at a more moderate rate during the first half-year, having been (once again) particularly affected by adverse climatic conditions which penalized investment. Employment dynamics kept strong, but with a greater monthly volatility which, together with the risks connected with "Brexit", prevented the Federal Reserve from increasing the reference interest rate as it had previously indicated.
The postponement in the increase of the reference interest rates by the USA Federal Reserve also contributed to a depreciation of the dollar versus the euro which, during the whole of the first half-year, fluctuated in an range between 1.10 and 1.15 dollars per euro. Versus the pound sterling, the dollar appreciated to the strongest level in three decades, as a result of "Brexit".
Economic growth in the first half-year of 2016, kept to the decelerating trend commenced in the second half-year of 2015, with homologous variation rates below 1%, versus 1.5% rates in the homologous period.
This slowdown was more marked in investment and exports, also deriving from the increase in global uncertainty which characterized the World economy during this period.
Slowdown in investment, a trend already started in 2015, increased due to the adverse climatic conditions which affected the construction industry. But investment in plant and equipment was already going through a downward trend, with companies postponing production capacity expansion projects when external demand showed signs of slowing down and the utilization levels of installed capacity remained below historical averages.
However, the most recent investment survey, carried out by Statistics Portugal, indicates a strengthening in capital expenditure in manufacturing companies, and particularly in exporting companies.
Exports slowed down during the whole of the first half-year, especially affected by two factors. On the one hand, by the heavy reduction in sales to Angola, whose economy is going through an adjustment process due to the decrease in oil prices. During the first half-year, exports of goods to Angola represented little more than 2% of total exports, a large reduction from the 7% evinced in latter years. Another relevant factor was the preparation for the launching of a new model of automobile to be produced in Auto Europa. A reduction in sales is a frequent occurrence in the transition between models, which is affecting exports to Germany and also to China.
Additional spot factors are related to the export of oil derived products to markets such as the USA. Exports of goods to the European Union, between January and May, grew by 3.5%, whilst exports to non-EU markets decreased by 16.3% in the same period.
Private consumption evolved moderately during the first halfyear, after a greater acceleration in 2015, in spite of the gradual ongoing restitution of incomes to Public Servants. An increase in the consumption of durable goods occurred in the first quarter, particularly in the case of motor vehicles, acquisitions being anticipated due to the fiscal changes which came into force in April via the 2016 State Budget, an effect which however melted away in the next quarter. Consumer expenditure benefited from the gradual decrease in unemployment, which fell to 11.2% in June, as well as from the low levels in interest rates, which were reflected in the decrease of the monthly instalments in mortgage loans (approximately 80% of which already corresponds to capital repayments).
Total credit stock to the economy continued decreasing, greatly influenced precisely by the dynamics of mortgage loans (notwithstanding increases in monthly production values), but also by the similar movement in company loans. To be highlighted in this case is the reduction in credit to the construction industry and real estate activities which were jointly responsible for approximately two-thirds of the reduction in credit advanced to companies. In its turn, consumer credit stock recorded a slight increase in the first months of the year.
The budgetary execution of the General Government, in cash terms, improved in the first half-year, with a reduction in the deficit amounting to almost one billion euros, to 2.9 billion euros, relative to the homologous period. This improvement resulted from an increase in fiscal revenue derived from indirect taxation (particularly ISP – tax on oil products and IA – tax on automobiles and, in a lesser degree, VAT), since revenue from direct taxation decreased relative to the same period in 2015, due to the reduction in the supplementary rate in Income Tax and changes in the taxation on investment funds in Company Tax. Expenditure stabilized versus the 2015 volumes, with an increase in personnel expenses (result of salary restitution) to be offset by a greater reduction in expenses in goods and services and in investment.
Throughout the whole of the first half-year the Treasury kept up regular access to the market, launching a new product intended for the retail market, Variable Rate Treasury Bonds – OTRV, with a remuneration corresponding to 6 months Euribor with a 2.05% spread. Demand for "Poupança Mais" Treasury Certificates also remained sound.
In terms of medium and long term debt, the Treasury issued 10.4 billion euros in Treasury Bonds. Public debt increased by approximately 8.5 billion euros during the first half-year, to 240 billion euros (approximately 132% of GDP).
The risks and uncertainties that may affect business in the second half of 2016 are related to both domestic and external factors.
Internationally, risk factors are related to the process of the United Kingdom's exit from the European Union. After an initial moment of uncertainty, international investors are in a "wait and see mode" and awaiting the formalizing of the process by the British Government. However, since this is an unprecedented process, negotiations are wound in high uncertainty, which could condition both the progress of the global economy and the dynamics of the main financial assets in the world markets. This is reflected in the wide interval of IMF estimates of the potential impacts from "Brexit" becoming materially effective, with a knock-on effect on the remaining European and developed economies, and, at a lesser scale, on the emerging economies.
Domestically, the main sources of risk are, on the one hand, the rate of growth of the economy and respective impacts on the macroeconomic variables that determine the development of the banking business and, on the other, the dynamics of the European economy. Both factors are decisive for GDP growth, specifically for the growth in exports, revival of domestic demand and investment growth.
The budgetary execution in the second half-year but especially the proposal of the State Budget for 2017, are equally relevant for business sentiment and to the regular access to wold financial markets.
Additionally, and regarding the financial industry, the system continues focused on the increase in profitability based upon recurring business. Improvement in the economic cycle may positively influence the need for provisioning credit impairments, but the context of low interest rates and the continuing slowness in the recovery of credit volumes have negative effects on the capacity for generating net interest income.
At the end of the first half-year of 2016, Banco Santander Totta achieved net income amounting to 192.8 million euros, an increase of 87.8% relative to the homologous period.
The credit portfolio (including guarantees and sureties) stood at 35.4 billion euros, a 27.6% growth as compared with the homologous period in 2015. Loans granted to companies advanced by 38.6%, with an increase in market share and representing approximately 40% of the total credit portfolio. Loans granted to private customers advanced by 16.9% in the last year.
The credit at risk ratio reached 6.9%, compared to 5.6% one year earlier, with a coverage ratio standing at 91.8%, an increase relative to the 80.6% at end-June 2015.
Customers' resources, amounting to 32.8 billion euros, increased by 22.3% versus the homologous period, with deposits advancing by 30.8% in this period.
The transformation ratio, measured by the ratio of net credit to deposits, stood at 109.8%, at end-June 2016, compared with 115.5% reached in June 2015.
The Common Equity Tier 1 (CET 1) ratio, in line with the CRD IV/CRR rules, stood at 16.6%, in a phasing in base, and at 16.5% on a fully implemented base.
At the end of the first half of 2016, net financing obtained with the Eurosystem stood at 1.7 billion, decreasing by 49.7% in the last year, with the improvement in the commercial gap and the increase in customers' deposits.
The portfolio of assets eligible as guarantees in financial operations with the Eurosystem increased to 12.9 billion euros.
The LCR Ratio (Liquidity Coverage Ratio), reckoned in line with CRD IV standards, stood at 121.6%, complying with the regulatory demands on a fully implemented basis which will come into force in 2018.
Within the scope of the capital optimization plan, Banco Santander Totta carried out, in March 2016, a 300 million euro increase in share capital, intended to replace an issue of preference shares. This operation was similar to another carried out in December 2015.
The ratings of Banco Santander Totta long term debt are: Fitch – BBB, Moody's – Ba1, S&P – BB+ and DBRS – BBBH.
Banco Santander Totta, SA – 2016 Half Year Report 8
| Jun16 | Jun15 | Jun16/Jun15 | |
|---|---|---|---|
| Net Interest Income (without Dividends) | 370.0 | 282.6 | +30.9% |
| Dividends | 0.3 | 1.1 | -70.9% |
| Net Interest Income | 370.3 | 283.7 | +30.5% |
| Fees and Other Income | 151.9 | 136.9 | +10.9% |
| Commercial Revenue | 522.2 | 420.6 | +24.2% |
| Gain/Losses on Financial Transactions | 87.8 | 25.5 | +244.9% |
| Operating Income | 610.0 | 446.1 | +36.7% |
| Operating Costs | (284.4) | (234.9) | +21.1% |
| Net Operating Income | 325.6 | 211.2 | +54.2% |
| Impairment and Other Provisions | (53.4) | (65.9) | -19.1% |
| Results from Associated Companies | 2.0 | 9.0 | -77.5% |
| Income Before Taxes and MI | 274.3 | 154.2 | +77.9% |
| Taxes | (81.5) | (51.5) | +58.1% |
| Minority Interests | (0.0) | (0.0) | -95.2% |
| Net Income | 192.8 | 102.7 | +87.8% |
At end-June 2016, strict net interest income stood at 370.0 million euros, an homologous 30.9% increase, benefiting from the reduction in costs of deposits and from the impact of the business acquired from the former Banif at the end of December 2015.
Net commissions and other results from banking business increased by 10.9% in homologous terms to 151.9 million euros, with improvements in account management and maintenance commissions, in insurance, and in business acquired from Banif.
Commercial revenue amounted to 522.2 million euros, recording a 24.2% increase relative to end-June 2015.
Results from financial transactions amounted to 87.8 million euros, evincing an expressive increase relative to the amount obtained in the first half of 2015, with the favourable impact resulting from an adequate management of the credit and public debt portfolio.
Operating income amounted to 610.0 million euros, showing a 36.7% increase, with a transversal positive progress of its components.
Net Interest Income
Operating expenses amounted to 284.4 million euros, a 21.1% increase as compared with the amount recorded in the first half-year of 2015, reflecting costs inherent to the
acquisition of the former Banif commercial business, with personnel expenses growing by 22.1% and general expenses growing by 32.6%.
| Jun16 | Jun15 | Jun16/Jun15 | |
|---|---|---|---|
| Personnel Expenses | (166.1) | (136.1) | +22.1% |
| Other Administrative Expenses | (100.6) | (75.9) | +32.6% |
| Operating Costs | (266.7) | (211.9) | +25.8% |
| Depreciation | (17.7) | (23.0) | -23.0% |
| Total Operating Costs | (284.4) | (234.9) | +21.1% |
| Efficiency Ratio (excludes depreciation) | 43.7% | 47.5% | -3.8 p.p. |
| Efficiency Ratio (includes depreciation) | 46.6% | 52.7% | -6.1 p.p. |
In June 2016, the efficiency ratio, which shows operating expenses as a percentage of operating income, decreased by 6.1 pp to 46.6%, relative to the 52.7% obtained in June 2015.
Net operating income amounted to 325.6 million euros, exceeding the 211.2 million euros recorded in the homologous period (+54.2%).
Impairments and provisions decreased by 19.1% versus the value shown in the same period of the previous year, amounting to 53.4 million euros.
Results in subsidiaries recognized by the equity method, amounting to 2.0 million euros, decreased by 77.5% relative to the value shown one year previously, influenced by the disposal of the shareholding in Banco Caixa Geral Totta Angola in July 2015.
Income before taxes and minority interests amounted to 274.3 million euros and net income reached 192.8 million euros, an 87.8% growth as compared with the amount of 102.7 million euros recorded in the first half of 2015.
At end-June 2016, business volume amounted to 68.2 billion euros, a 25.0% increase relative to the value recorded in June 2015.
This increment resulted from the evolution shown in gross credit (+27.6%) and in customers' resources (+22.3%).
| Jun16 | Jun15 | Jun16/Jun15 | |
|---|---|---|---|
| Business Volume | 68,228 | 54,593 | +25.0% |
| Total Gross Loans (includes guarantees) | 35,401 | 27,750 | +27.6% |
| Customers' Resources | 32,827 | 26,843 | +22.3% |
The credit/deposits ratio stood at 109.8% at end-June 2016, a 5.7 pp reduction relative to the 115.5% shown in June 2015.
| Jun16 | Jun15 | Jun16/Jun15 | |
|---|---|---|---|
| Total Gross Loans (includes guarantees) | 35,401 | 27,750 | +27.6% |
| Gross Loans | 34,011 | 26,671 | +27.5% |
| of which | |||
| Loans to Individuals | 19,268 | 16,482 | +16.9% |
| of which | |||
| Mortgage | 17,044 | 14,657 | +16.3% |
| Consumer | 1,890 | 1,387 | +36.3% |
| Loans to Corporates | 13,853 | 9,992 | +38.6% |
The credit portfolio (including guarantees and sureties) stood at 35.4 billion euros at end-June 2016, increasing by 27.6% as compared with the homologous period. Loans granted to companies, amounting to 13.9 billion euros, advanced by 38.6%, resulting from an increase in new production and from the acquisition of the credit portfolio of the former Banif, and now represent approximately 40% of the total Santander Totta credit portfolio. Loans granted to private
customers stood at 19.3 billion euros, +16.9% versus end-June 2015. Home loans, amounting to 17.0 billion euros, increased by 16.3% in the last year, not just due to the absorption of the former Banif portfolio, but also resulting from the 66.5% increase in new loans versus the amounts contracted in the first half of 2015, overcoming the natural reduction in existing stock due to repayments.
LOANS (million euros)
At the end of the first half of 2016, the credit at risk ratio increased by 1.3 pp versus June 2015, to 6.9%. Impairments in the accounts covered by 91.8% the credit at risk, as compared with the 80.6% coverage in the homologous
period. This evolution shows the fragile credit quality of a significant portion of the portfolio acquired in December 2015, although it is adequately provisioned.
| Jun16 | Jun15 | Jun16/Jun15 | |
|---|---|---|---|
| Non Performing Loans Ratio | 4.6% | 4.3% | +0.3 p.p. |
| Non Performing Loans Ratio (+90 days) | 4.2% | 4.3% | -0.1 p.p. |
| Credit at Risk Ratio | 6.9% | 5.6% | +1.3 p.p. |
| Restructured Loans / Total Loans | 9.5% | 9.5% | +0.0 p.p. |
| Restructured Loans not included in Credit at Risk / Total Loans | 6.7% | 7.1% | -0.4 p.p. |
| Non Performing Loans Coverage Ratio | 137.0% | 103.5% | +33.5 p.p. |
| Non Performing Loans Coverage Ratio (+90 days) | 150.7% | 105.6% | +45.1 p.p. |
| Credit at Risk Coverage Ratio | 91.8% | 80.6% | +11.2 p.p. |
Customers' resources amounted to 32.8 billion euros at end-June 2016, a 22.3% increase versus the amount shown in June 2015.
| Jun16 | Jun15 | Jun16/Jun15 | |
|---|---|---|---|
| Customers' Resources | 32,827 | 26,843 | +22.3% |
| On-Balance Sheet Resources | 28,447 | 21,768 | +30.7% |
| Deposits | 28,447 | 21,743 | +30.8% |
| Securities issued | 0 | 2 5 |
-100.0% |
| Off-Balance Sheet Resources | 4,380 | 5,074 | -13.7% |
| Investment Funds | 1,514 | 1,694 | -10.6% |
| Insurance and Other Resources | 2,867 | 3,380 | -15.2% |
Deposits stood at 28.4 billion euros in the first half of 2016, which compares with an amount of 21.7 billion euros one year previously (+30.8%), showing not just the acquisition of the former Banif deposit portfolio, but also the growth ascertained in the commercial network since the beginning of the year. This increment more than offset the decrease shown in investment funds marketed by the Bank (-10.6%) and in capitalization insurance and other resources (-15.2%).
The Common Equity Tier 1 (CET 1) ratio, in line with the CRD IV/CRR rules stood at 16.6%, reaching 16.5% on a fully implemented base.
| Jun16 | Jun15 | Jun16/Jun15 | |
|---|---|---|---|
| Total capital | 3,113 | 2,115 | +47.2% |
| Tier I Capital | 3,113 | 2,510 | +24.0% |
| Tier II capital | 3,116 | 2,510 | +24.1% |
| Risk weighted assets | 18,772 | 16,046 | +17.0% |
| Core Capital Ratio | 16.6% | 13.2% | +3.4 p.p. |
| Tier I Ratio | 16.6% | 15.6% | +1.0 p.p. |
| Total Capital Ratio | 16.6% | 15.6% | +1.0 p.p. |
Outlook for the second half of 2016 signals stability in economic activity, as well as in euro zone financial conditions, although within a more uncertain environment, given the scenario of the exit of the United Kingdom from the European Union.
Banks will continue developing their business within an framework of low interest rates, credit spreads under pressure and new regulatory requirements, namely with respect to capital requisites, liquidity and leverage ratios, as well as new regulations regarding resolution mechanisms, with the consequent structural impact in the profitability of financial institutions
Santander Totta has shown a strong capability in revenue generation, maintaining sound capital ratios and a comfortable liquidity situation.
To be maintained, for the second half-year, are the main objectives of increase in market share and customer loyalty, with special reference to those originating from the former Banif network, as well as the increment in the profitability of capital funds, and in the increase in net interest income, through strict management of liability costs, expansion of business volumes, and in the management of the quality of the credit portfolio.
Santander Totta will maintain its strategy in providing support to the revitalization of the Portuguese economy and companies, increasing the relative weight of this segment in its credit portfolio, together with a policy of strict risk control regarding loan granting and follow up.
Simultaneously, the Bank will continue the process of commercial transformation, within the scope of its mission to contribute towards the development of people and companies, aiming to be a Simple, Personal and Fair Bank. The Bank will pursue simplifying processes; the strengthening of the model of multichannel distribution in order to provide customers with a fuller and easier accessible service; and the streamlining of risk management, with models better adjusted to each customer segment, keeping to a prudent and strict management of assumed risks.
After the acquisition of a number of assets and liabilities of the Banif Bank, following the resolution measure applied by the Bank of Portugal at the end of 2015, Santander Totta proceeded with the immediate integration of its commercial structure and carrying out the rebranding of all the branches. The process should be completed in the second half of 2016, with the integration of the former Banif operational and technological network.
The completion of the process will allow expanding the offer of products and services to more than 300,000 customers, with special focus placed on the autonomous regions of the Azores and Madeira, providing additional leverage for growth in activity and in business volumes.
During the first half-year, the Bank continued guiding its actions based on its strategic priorities and in the corporate culture of a Bank which assumes being Simple, Personal and Fair.
In the current environment of negative interest rates the Bank continued adjusting the offer of its products and portfolio within the market context, endeavouring to keep on rewarding its customers' levels of relationship. As such, and in line with the relation of trust and benefiting from the Bank's soundness, customers' resources recorded a significant increase during the first half of the year.
In home and personal loans, and corresponding to the customers' need to carry out their projects, a 35.6% growth was recorded versus the homologous period.
Credit granted to the Business/SME segment recorded a 3.2% growth relative to the same period in the previous year, which allowed a positive evolution in the segment's credit portfolio.
Mundo 1|2|3 continued being revealed as an important lever in capturing and binding customers. Mundo 1|2|3 is a multi-product solution which provides advantages on the main day-to-day commissions and several insurance covers comprising 24h home assistance, and a number of benefits, via reimbursement in the Mundo 1|2|3 card account. This solution has allowed the Bank to augment the capture of new customers and the strengthen relations with those already on the books. A reinforcement of benefits attributed to customers was carried out in March, namely the increase in the Repsol offer, the inclusion of advantages in the use of Via Verde (automatic toll and parking fees) and in tickets for the Rock in Rio Lisbon events.
The Bank also increased the number of digital customers, which has now exceeded 404,000.
Business in the higher income segments was conditioned by the evolution of the financial markets which, in the first half-year were, as already stated, characterized by fears related to the slowdown in the Chinese economy and, already at the end of this period, by the United Kingdom referendum relative to its continuing in the European Union. These factors gave rise to moments of greater volatility and to a flight towards quality.
The integration of the Private centres of the former Banif network were a further opportunity for the Private Banking area to confirm the strength of its business model, based upon customer proximity, on an open model of consultancy and design, and on its continuing to offer investment solutions adapted to the customers' profile, needs and objectives.
The Private Banking area was distinguished, for the 5th consecutive year, as the "Best Private Banking Services Overall" by Euromoney, which joined the two recognition prizes attributed in 2015 by Global Finance and by the PWM/The Banker partnership, as "Best Private Bank in Portugal".
With regard to the Affluent segment, Santander Totta has now made public the access criteria to this segment. The Bank thus increases transparency in its customer relations and creates conditions for improved commercial dynamics, placing a clear stake on its relations with Affluent customers. Also in this half-year and as a complement to the current Select offer, Global Value is now available to Select and Private Customers. This solution covers a number of services and is thus a further factor supporting client engagement and loyalty.
The Bank kept on focusing the increase in proximity and relationship with its customers in the Companies segment.
With the motto "A Bank close to your company", the Bank chose as a priority its presence in fairs and industry events, with special reference to the creation of a new concept of proximity and communication: the Santander Advance Empresas Box. This opens up a new concept of proximity between the Bank, companies and universities.
The Santander Advance Empresas strategy comprises the streamlining of the existing integrated offer, in which the non-financial component is particularly relevant, considering its innovatory and distinctive features. Highlighted, as an instance, is the Santander Advance Site with approximately 1.5 million sightings; the Santander Universities Trainee Scholarships Programme, with more than 900 requests for Traineeships since its launching, or the Training (online and personal attendance) attributed to more than 1,300 companies.
The Santander Group was awarded by Euromoney magazine the prize for "World's Best Bank for SMEs", highlighting that the Santander global strategy, within the scope of Santander Advance, runs far beyond financing, since it comprises training solutions, internationalization
and connectivity which allow companies to overcome barriers to their activity.
With regard to international business, the Bank strengthened, during the first half-year, its support for companies in terms of external trade and in the process of internationalization. In this period, the Bank: i) expanded the number of companies that regularly carry out their international business with the Bank; ii) obtained significant growth in its market share in trade finance; and iii) increased its revenues, namely in commissions linked to this business.
The first half of 2016 featured the integration of the former Banif network. Since the beginning of the year the Real Estate Promoters and Brokers area entered into a process of analysis of the real situation existing in that Bank in the Promoters and Brokers Channel, with the objective to assess impacts, identify necessary developments and define procedures aiming towards the expansion of the network of activities carried out in these channels.
It was already possible, during the second quarter, to disclose and implement procedures in order that, on a transitional basis, the Bank's support and follow-up structures of these channels could be made available to the former Banif branch network, thus allowing the streamlining of the protocols which already exist with real estate brokers.
At the same time a process of admittance of new External Promoters was also developed and disclosed, with the objective of swiftly providing the former Banif branches with a minimum number of business partners during the transitional stage.
Throughout the first six months of the year a significant increase was shown in the contribution provided by the Real Estate Brokers to the levels of production achieved.
The Promoter Shop network continues its expansion process, with 24 more shops opened in the first half-year, which increased the national cover of the complementary network to the Branch network.
During the first half of 2016, the Multichannel Strategy and Management area continued the introduction of the Multichannel Implementation Plan, in line with the strategy defined by the Group for direct channels, with the aim of modernizing, simplifying and achieving closer proximity
with the customers, enabling and increasing the digital offer of the Bank's services.
In this context, new features were introduced and improvements carried out, in order to widen the offer, to substantially improve customers' experience, and significantly increasing adhesion to online channels and sales effected via these channels.
Several actions and initiatives were implemented towards the integration of the former Banif, which should fully occur during the second half of the year.
SelfBanking activity was emphasized in the placing into practise of strategy and of activity plans foreseen for the increase in business, focusing on service supplied to customers and implementing the integration plan of the former Banif business network.
In parallel to the progress foreseen in ATM installation, the beginning of the integration of the former Banif resulted in a greater growth in the number of ATM's of the Multibanco network, increasing market share to 15% in equipment numbers and to 16% in transactions carried out.
The use of the equipment network, whilst a communication channel and providing value offers to customers was strengthened, and proved to be an effective generator of commercial leads for the branch network.
The plan for the renewal and technological innovation, and the consolidation, of ATM equipment with recirculation capability continues being the buttress for the increase in the quality of services rendered, as recognized by customers and evinced by a 94% satisfaction level.
Concerning digital processes, the strategy was maintained to enable the various channels, strengthening their positioning as vehicles for distribution of the Bank's products and services and customer binding with segmented offers. Instances of this are the Select menu – Private segment – and the launching of Mundo Select in the Mobile channel (App). Also implemented was the Mundo 1|2|3 in the Mobile channel, an offer guided towards customers in the Mid&Mass Market segment. Highlighted amongst the several improvements carried out in this channel are the Mobile Touch ID, which allows accessing the Mobile application through a fingerprint, easily, simply and totally secure, as well as enabling the management of the card's limits.
In NetBanco Private, changes were implemented in transfer levels, in order to comply with SEPA standards. Along with
the Mobile channel, the segmented offer mastered the improvements implemented in Homebanking, especially with Mundo 1|2|3 and with "My Offers", where the user may view the offers made available.
Similarly to Private Customers, the SEPA theme was included in the changes and improvements occurred in NetBanco Companies, not just with regard to transfers but also with direct debits. The Companies site has an ongoing redesigning plan, which is being implemented and, as for instance in the Cards area (Meal Cards).
Improvements were achieved in the availability and performance of websites and in the growth of users of digital platforms. Active digital customers recorded, in June, a homologous 19% growth, with those that carried out transactions equally recording an almost equivalent growth in the same period.
The Bank opened, in the central Lisbon area, in January 2016, a new Contact Centre, provided with road and rail services since it is close to a central transport hub. This centre is equipped with the best Contact Centre technology and its conditions are unique and in line with the best practises available in the industry and in the Group's contact centres. Working conditions and additional features of leisure and support for the families of the contact centre employees were substantially improved.
This stake and reinforcement in investment aims to improve customer contact experience and to facilitate the transformation of the Contact Centre into a means of revenue for the Bank.
The strategy followed in prior years strengthened the investment in the increase of autonomy and in the swift resolution of all the issues brought about by customers, and is now better focused on commercial transformation, creating the necessary conditions to increment the weight of the Bank's sales generated by this channel and a greater stake placed on the Companies and Business segment, with very definite projects in this area.
The Companies' Attendance Centre was concluded; the objective of this centre is to guarantee the follow up of all the operational requests that customers usually place with the Bank's Company Commercial Departments and, simultaneously, ensure a swifter answer and improved Customer Experience.
The systematic generation of commercial leads to the branch network was strengthened, following the detecting of sales opportunities in customer contacts.
Business in this area, in the first half of 2016 averaged a 20% increase to that obtained in the homologous period, with emphasis placed in the changes in the mix of contacts, with greater weight in the support to digital channels.
In May, the Santander Totta Contact Centre was considered, for the 8th consecutive year, the "Best Contact Centre in Portugal in the Finance Industry", a prize awarded by the Portuguese Association of Contact Centres.
Throughout the first six months of the year, the Bank implemented several pastimes and disclosure and promotional actions in the social networks, aligned with the Marketing strategy and with the partnerships established by the Bank, namely the half-marathons and the Rock in Rio event, which were targeted with specific media coverage in Facebook.
The Bank's institutional Facebook page has 350,000 followers and grew by 40% in the first half-year: 100,343 new followers including 57,184 deriving from the merger with the former Banif's page.
The growth in the number of the Bank's followers in Facebook results from a consistent investment in publicity and from regular implementation of pastimes and initiatives.
Instagram, with 3,542 new followers in the first half of 2016, was the social network which recorded greater relative growth (306%) versus December 2015.
Banco Santander Totta is available in 6 social networks: Facebook, Twitter, LinkedIn, YouTube, Instagram and Google+.
Banco Santander Totta's international business activity in 2016 for retail customers residing abroad has privileged the increase in binding, the capture of new customers and the offer of digital channels, with greater focus placed on NetBanco and Mobile, both of which are strategic priorities, and enable customers to digitally access the Bank's services.
Within the scope of the Santander Group restructuring operations, the process was concluded in the closing down of two units regulated by USA legislation: Totta Inc. and the BSTI (Porto Rico) subsidiary.
On another hand, actions have been developed via the local authorities for the integration of former Banif external units.
Volume of business in the area of residents abroad recorded a fair growth in terms of credit, but a lower progress in resources, mostly due to low levels in interest rates and the tendency to invest savings in real estate.
With regard to relations with the communities, the Bank attended several events carried out for customers, namely in the "National Day of Portugal", where links with Portugal were strengthened and where the intent was to disclose the Bank's offer and availability for the systematic support of the Portuguese communities residing abroad.
The Bank attended the 12th annual conference of the Luso-British Chamber of Commerce and the Paris Real Estate Exhibition, in both of which a large number of contacts were carried out with the communities, local associations and customers.
The last months of the first half-year witnessed the conclusion of the Summer campaign, which targets preferential attendance for customers who visit us, providing gifts and structured commercial information, thus allowing the welcoming of Portuguese residing abroad. Also strengthened were communications, welcoming in the main branches, in national airports and means of communication, promoting the offer of services and savings solutions.
It was possible to associate, for the first time, an important sports event, the Bicycle Tour of Portugal, with the visit of customers residing abroad, inviting them to take part in events organized in locations to watch the Tour and where they were born or spend their holidays.
As happened in previous years, and within an environment where several traditional transfer channels were reduced, namely in Switzerland and the United Kingdom, streamlining actions were promoted to remind customers of the possibility and advantages of carrying out transfers
to Portugal, this having resulted in a market share in excess of 20%.
The London branch has continued evincing good progress in the control of its credit portfolio, maintaining strong support to branches in Portugal to provide services to the Portuguese community that resides and works in the United Kingdom.
The Structured Financing area has kept up an intense activity, accompanying the trend of companies in exploring new investment opportunities. Standing out in this period was the financing of a portfolio of wind power projects, as well as a new cruise shipping terminal in Lisbon.
Highlighted in the Corporate Finance area are the successful conclusion of the consultancy for the acquisition of a minority participation in a portfolio of wind power assets in Portugal, and the financial consultancy to a national media group in assessing its subsidiaries.
The Fixed Income & FX (FIC) area maintains its support to Portuguese companies through the presentation of mitigating solutions regarding financial risks, providing market information and close follow-up of customers, in connection with the Commercial Networks.
For Santander Totta, the quality of risk management is a fundamental basis of operation, within the corporate policy of the Group in which it is comprised. Prudence in risk management allied to the use of advanced management technologies has been a decisive factor in the achievement of the Bank's objectives.
In the first half of 2016, the activity of the Credit Risk area had the following main vectors:
Deriving from the integration of the former Banif network, several tasks were carried out in the identification and assessment of credit risks over credit exposures, with special focus on the main exposures. The integration of the admittance process and follow-up of operations and customers from that network were initiated, following the Banco Santander Totta models;
With massive treatment (or non-standardized) risks the Bank, aiming towards continuous improvement and efficiency in the admittance procedures, and taking into account the objective of portfolio quality, maintained the automatic decision models, namely scorings and behavioural systems used in the retail Customers and Business segments;
requirement of own resources as well as their increasing integration in management.
Credit risk arises from the possibility of losses derived from total or partial non-performance of the financial liabilities contracted with the Bank by its customers.
The organization of the credit risk function in Santander Totta is specialized in line with customer types and is differentiated, throughout all the risk management process, between portfolio customers and standardized customers (not in portfolio):
Santander Totta uses its own models for attributing solvency classification or internal ratings for the different customer segments, to measure the credit capacity of a customer or a transaction, each rating corresponding to a non performing probability.
Global classification tools are applied to country risk segments, financial institutions and wholesale banking groups, both in determining their rating as in following up the risks assumed. These tools attribute a rating to each customer as a result of a quantitative, or automatic, module, based upon balance sheet data and/or ratios, or macroeconomic variables complemented by the analysis carried out by the risk analyst that follows up the customer.
In the case of companies and institutions comprised in retail banking groups, attributing a rating is based on the same modules as those referred above, in this case quantitative or automatic (analysing the credit behaviour of a sample of customers and its correlation with a set of accounting data and ratios), and qualitative, in line with the analysis of the risk analyst, whose duty is to carry out a final review of the rating attributed.
Attributed ratings are periodically reviewed, incorporating any new financial information that has meanwhile become available as well as, qualitatively, the experience deriving from the assessment of the existing credit relationship. This frequency increases in case of customers for which the internal alert systems and risk classification so demand.
For the portfolios of standardized risks, both in the case of private customers and in businesses without portfolios, scoring tools are implemented that automatically attribute an evaluation/decision of the transactions submitted. These decision tools are complemented with a behavioural scoring model, a device that allows greater predictability of the assumed risks and which is used both in the pre-sale and in the sale period.
The evaluation of a customer and/or operation, through rating or scoring, is an assessment of credit capacity, which is quantified through the probability of default (PD). In addition to the evaluation of the customer, the quantitative risk analysis carries other features such as the period of the operation, the type of product and the existing guarantees. What is thus taken into account is not just the probability that the customer may not comply with his contractual obligations (PD) but that the exposure at default (EAD) may be estimated as well as the percentage EAD that may not be recovered (loss given default or LGD).
These factors (PD, LGD and EAD) are the main credit risk parameters and, when taken jointly, allow an estimate of the expected loss or that of the unexpected loss. The expected (or probable) loss, is considered as a further activity cost (reflecting the risk premium), and this cost duly included in the price of the operations.
The estimate of the unexpected loss, which is the basis for establishing the regulatory capital in line with standards comprised in the Basle (BIS II) capital agreement, is related to a very high and thus improbable loss level which, considering its nature is taken as non-recurring and must thus be covered by equity.
In small and medium sized companies, the information obtained from their accounts is used not just to attribute a rating, but also to obtain explanatory factors for the probability of default. In retail portfolios, PD is estimated by observing entries into default, and correlating these with the scoring attributed to the transactions. Excepted are the portfolios in which, due to lesser internal default experience, such as financial institutions, country risk or wholesale banking groups, estimating these parameters is based upon alternative sources of information or assessments carried out by agencies with recognized experience and competence, with a portfolio containing a sufficient number of entities (these portfolios are known as low default portfolios).
LGD estimates are based on monitoring the recovery process of operations in default, taking into consideration not just revenues and expenses associated to this process, but also the moment when the same are produced and the indirect expenses that derive from the recovery activity.
EAD estimates are based on the comparison of the use of the committed lines at the time of default and in a normal situation, in order to identify the real use of the lines at the time of default.
Estimated parameters are immediately ascribed to operations that are normally under way and will be differentiated between low default portfolios and the remainder.
The risk management process consists in identifying, measuring, analysing, controlling, negotiating and deciding the risks incurred in the Banks' operations.
This process is initiated in the business areas, which propound a given risk trend. These risks are analysed and decided in special committees, which act through remits delegated by the Executive Committee on the Higher Credit Council (HCC). The HCC establishes risk policies and procedures and the limits and delegation of powers.
Establishing risk limits is conceived as a dynamic process that identifies the risk profiles that the Bank is willing to assume through the assessment of the business proposals and the opinion of the Risks area.
With respect to the large corporate groups a preclassification model is used based upon a measurement system and the sequence of economic capital.
With respect to portfolio risks, the more basic level is that of the customer and when certain features concur - generally at a level of relative importance – the portfolio is the object of an individual limitation, usually named as pre-classification, through a simpler system and usually for those customers that comply with determined requisites (well known, rating, etc.).
With respect to standardized risks, the process of planning and establishing limits is carried out through a joint preparation, by the Risks and Business areas, of credit
management programmes (CMP) where the results of the business in terms of risk and profitability are considered, as well as the limits to which the activity and associated risk management must be subject.
Risk assessment, decision on transactions, follow up and control
Risk assessment is a requisite prior to authority being given for any credit transaction in Banco Santander Totta. This assessment consists in analysing the customer's capability to comply with the contractual commitments assumed with the Bank, which implies analysing the customer's credit quality, its credit transactions, solvency and profitability. Additionally, an assessment and revision of the attributed rating is also carried out whenever an alert or event appears that may affect the customer and/or the operation.
The decision process on operations is intended to analyse these and to take the respective decision, considering the risk profile and the relevant components of the operation in determining a balance between risk and profitability.
In order to keep adequate control of the portfolio's credit quality, apart from the actions developed by the Internal Audit, a specific follow up function, comprising teams and responsible officers, is established within the Risks area. This function is also specialized in line with customer segmentation and is fundamentally based upon a continuous monitoring process that allows the prior detection of incidences that may occur in the evolution of the risk, of the operations and of the customer, with the objective to previously carry out the actions intended to mitigate such incidences.
Recoveries management in Santander Totta is a strategic, comprehensive and business activity. The specific objectives of the recoveries process are to ensure the collection or regularize the amounts in irregular situations, preferring the negotiated solution, in order that the customer's credit situation returns to normal, and, on the other hand, maintain and strengthen relations with the customer, safeguarding his deportment within the commitments contractually assumed with the Bank.
Recoveries activity is structured in line with customers' commercial segmentation: Households, Business and Companies, with specific management models. The thus segmented recoveries management also respects the distinct management levels: preventive management, management of irregular situations and management of delays and bankruptcies. This whole activity is shared with the business areas.
Counterparty risk, dormant in contracts carried out in financial markets – organized markets or over the counter (OTC) – corresponds to the possibility of default by the counterparties over the contractual terms and subsequent occurrence of financial losses for the institution.
Types of transactions comprised include the purchase and sale of securities, operations in the interbank monetary market, contracting of "repos", loans of securities and derivative instruments.
Control of such risks is carried out through an integrated system that allows recording the approved limits and provides information on their availability for different products and maturities. The same system also allows the transversal control of risk concentration for certain groups of customers and/or counterparties.
Risks in derivative positions, known as Credit Risk Equivalent (CRE), is the sum total of the present value of each contract (or Current Replacement Cost) and the respective risk potential, a component that reflects an estimate of the maximum expected value until maturity, according to the underlying volatilities of the market factors and the contracted flow structure.
During the first half of 2016, the present value of operations on interest rates (Euribor) indexing factors recorded a slight increase, reflecting the progress of medium and long term rates.
The control of the balance sheet risk covers the risk deriving from changes in interest and foreign exchange rates, as well as the liquidity risk, resulting from maturity lags and valuation of assets and liabilities. The measurement and control of the balance sheet risk are ensured by a body which is independent from the management.
The interest rate risk in the consolidated accounts is measured through the modelling of the items in assets and liabilities sensitive to interest rate variations in line with their indexing and re-appreciation structure. This model allows the measuring and control of the risks originating directly from the movement of the income curve, namely their impact on net interest income and on the Bank's equity.
As a complement, other risk indicators are reckoned based on equity values, such as the Value at Risk (VaR) and scenario analyses (stress test).
Liquidity risk is measured and controlled through the modelling of present and future flows of payments and receipts, as well as by carrying out stress test exercises which endeavour to identify the potential risk on external market conditions. In parallel, ratios are estimated on the current items in the accounts that are indicators of structural and short term liquidity requirements.
LCR (Liquidity Coverage Ratio), reckoned in line with CRD IV standards stood at 121.6% at end-June 2016.
The control of the balance sheet risks is guaranteed through the application of a structure of quantitative limits which aim to keep exposures within the authorized levels. Limits are focused on the following indicators:
The interest rate risk in the consolidated accounts is measured through a model of dynamic risk analysis of the balance sheet's market risk, modelling the timing variations of risk factors and the Bank's positions over assets and liabilities sensitive to interest rate variations. The model in use allows the measuring and control of all the risks associated to the balance sheet's market risk, namely the risk originating directly from the movement of the income curve, given the structure of the indexing factors and existing reappreciation, which determine the exposure to interest rate risk of the balance sheet components.
The exchange rate risk in commercial activity is measured and controlled through the total position in foreign exchange, the Group's strategy being its full coverage.
Liquidity policy followed by the Group is based upon a low liquidity risk and in the continuous diversification in sources of finance, bringing into perspective the volume and nature of the financing tools to be used, in order to allow the achievement and correct development of the established business plan.
By keeping to a conservative profile, the Bank is better protected with respect to potential crises that may affect the business environment.
The policy of a financing mix is always based on an adequate level of liquidity risk, in line with the established limits and will be assessed monthly by ALCO. The limits of liquidity risks are established by an independent management body which, apart from other indicators, demands a reasonable amount of available liquid assets.
Liquidity management is carried out at the consolidated level. The Group's financial policy takes into consideration the variations of the balance sheet components, the structural situations of the maturities of assets and liabilities, the level of interbank indebtedness relative to the available lines, the spread of maturities and the minimization of expenditure related to the funding activity.
The perimeter of measurement, control and follow up of financial risks comprises operations where equity risks are assumed. This risk derives from the variation in risk factors – interest rate, exchange rate, variable income and their respective volatility – as well as the solvency risk and the liquidity risk of the several products and markets in which Banco Santander Totta operates.
As a function of the risk objectives, activities are segmented as follows:
The methodology applied in 2016 for negotiation activity, is the Value at Risk (VaR). Used as a basis is the methodology of historic simulation with a 99% level of confidence and a one day time horizon, with statistical adjustments applied that allow a swift and effective inclusion of the more recent events that condition the assumed risk levels.
Stress testing is used as a complement, consisting of the definition of behavioural scenarios of differing financial
variables and obtaining the respective impact on results when applying these to the portfolios. These scenarios may replicate the behaviour of financial variables in the face of past factual events (such as crises) or, on the contrary, may determine plausible scenarios that do not correspond to past events. In short, the analysis of scenarios endeavours to identify the potential risk over extreme market conditions and in the fringes of occurrence probabilities not covered by VaR.
Also estimated are several sensibility measures (BPV and Greeks) and equivalent volumes.
In parallel, a daily follow-up of positions takes place, by carrying out an exhaustive control of the changes that occur in the portfolios, aiming to detect changes in profile or possible incidences for their correction. The daily preparation of the profit and loss account is a risk indicator, insofar as it allows identifying the impact of the operations on the financial variables or on the changes in the make-up of the portfolios.
The reliability of the VaR model is periodically checked through a backtesting analysis. Backtesting consists of a comparative analysis between the Value at Risk (VaR) estimates and the daily "clean" trial balances (clean P&L result related to the reassessment of the closing portfolios of the previous day at the closing prices of the following day), where the one-off/sporadic variances of the recorded results compared to the estimated measures are analysed.
The backtesting analyses carried out in Banco Santander Totta comply with the BIS recommendations, as regards the comparison of the internal systems used in the measurement and management of financial risks. Additionally, backtesting includes hypothetical tests: excess tests, standard tests, measures of average excess, etc.
Quantitative limits for negotiation portfolios, which are classified in two groups, are established in line with the following objectives:
unacceptable levels and the positions will be immediately closed.
Following is the evolution of risk attached to the negotiation activity in financial markets in 2016, quantified through VaR:
VaR was kept at low levels, varying between €4,000 and €21,000.
Banco Santander Totta defines operational risk as "the risk of loss arising from deficiencies or failures in internal procedures, human resources or systems, or derived from external circumstances". It distinguishes it from other types of risks, since it is not associated to products or business, but is present in processes and/or assets, and is internally generated (people, systems, etc.) or as a consequence of external risks such as third party activities or natural catastrophes.
Operational risk is inherent to all products, activities, processes and systems, and is generated in all business and support areas. For this reason employees are responsible to manage and control operational risks generated in their areas of activity.
The objective in the case of control and management of operational risk is focused on the identification, measurement, assessment, control and mitigation and information concerning that risk.
The priority of Santander Totta is thus to identify and mitigate risk sources, independently from these having, or not, occasioned losses. Measurement may also contribute towards establishing priorities in the management of operational risk.
In order to reckon the requirements of own funds to cover operational risks, the Group opted, in a first stage, for the standard method foreseen in the BIS II regulations.
The organizational management and control model results from the adaptation of the Group's approach to Basle II.
Supervision and control of operational risk is practised through its governing bodies. As such, the Board of Directors and the Executive Committee periodically include in their agendas the treatment of relevant features in the management and mitigation of operational risk.
The management and control of operational risk is the responsibility of all the Bank's areas, since these have the better knowledge of the processes, as well as of those items that are susceptible to cause relevant exposures to operational risk, and are accompanied by a central area, responsible for the implementation and follow up of the project through control and supervision
The different stages of the management model allow:
The control model of the operational risk that was implemented has the following advantages:
measurement/assessment, control/mitigation and information);
.
.
Compliance risk is defined as the probability of the occurrence of negative impacts for the institution, which may influence results or equity, deriving from the breach of legal standards, specific determinations, contractual responsibilities, rules of conduct and relationship with customers, ethical principles and established practices, relative to the practised activity, which may be materialized, for instance, in legal or regulatory sanctions, impairment of business opportunities, reduction of expansion potential or inability to demand contractual responsibilities by third parties.
In its turn, reputational risk is understood to be the probability of occurrence of negative financial impacts for the Institution affecting the results or even its equity, resulting from an unfavourable perception of its public image, whether proven or not, from customers, suppliers, analysts, employees, investors, media and any other bodies with which the Institution may be related, or even by public opinion in general.
The objective of the policy governing compliance and reputational risk is their management such as defined in the above paragraphs, determining the devices and procedures that allow: i) to minimize the probability that it becomes factual; ii) to identify, report to the Board and overcome the situations that may have arisen; iii) to ensure follow up and control; and iv) to provide evidence, if necessary, that the Bank has reputational risk amongst its main concerns and has available the organization and means required for its prevention and, should it be the case, to overcome it.
Without prejudice to all the remaining features that derive from the above, the global policy with respect to compliance and reputational risks covers, specifically, the tools identified below that are referred due to their particular impact in the prevention and management of the risk:
The General Meeting held on 31 May 2016 approved a general reformulation of the company's articles of association, which implied changes in the structure of the company supervision, adopting the model known as the Anglo-Saxon Company Governance, comprising a Board of Directors and an Audit Committee as supervising body.
The general reformulation of the company's articles of association is under suspense whilst awaiting the conclusion of the process of authorization or non-opposition by the competent supervision bodies for the corporate officers proposed for the management and supervision bodies, a process that by 30 June 2016 was still pending.
The remaining structure of the Company Governance as well as the Bank's policies, procedures and internal control bodies suffered no changes relative to 2015..
| Shareholder | No. of shares | % |
|---|---|---|
| Santander Totta, SGPS, S.A. | 1,241,179,513 | 98,76% |
| Taxagest - SGPS, S.A. | 14,593,315 | 1,16% |
In line with the decision taken at the Annual General Meeting held on 31 May 2016, Banco Santander Totta, S.A. may, directly on its own or through a subsidiary company, purchase own shares or dispose of those acquired up to the limit and in accordance with the remaining provisions of the respective legislation.
On 31 December 2015, Banco Santander Totta held 290,435 own shares, representing 0.030% of its share capital. In the course of 2016 the Bank did not acquire or dispose of any own shares, closing the half-year with the same number of own shares as stated above, and which now represent 0.023% of its share capital, following the issue of 300,000,000 new shares in March 2016.
| TRANSACTIONS OF OWN SHARES IN 1ST QUARTER OF 2016 | |||||||
|---|---|---|---|---|---|---|---|
| Banco Santander Totta, S.A. No. Shares Average unit price (€) Nominal Value (€) % Share Capital |
|||||||
| Balance at 31/12/2015 | 290,435 | 5.78 | 1,678,843 | 0.030% | |||
| Purchase of shares | 0 | - | 0 | - | |||
| Sale of shares | 0 | - | 0 | - | |||
| Balance at 30/06/2016 | 290,435 | 5.78 | 1,678,843 | 0.023% |
In the terms and for the purposes of the provisions of Article No. 447 of Company Law, it is hereby declared that no movements were carried out in the first half of 2016 in shares and bonds by the company's Corporate Officers.
António Basagoiti Garcia-Tuñon Chairman
Isabel Maria de Lucena Vasconcelos Cruz de Almeida Mota
Member
Pedro Aires Coruche Castro e Almeida
Item c) of §1 of article no. 246 of the Securities Code determines that each one of the persons responsible for the company issues a declaration the text of which is established therein.
The members of the Board of Directors of Banco Santander Totta, S.A, herein nominally identified individually subscribed the declaration transcribed below:
"I hereby declare, in the terms and for the purposes of item c) of §1 of article no. 246 of the Securities Code that, to the best of my knowledge, the consolidated financial statements relative to the accounts for the first half-year of 2016 were prepared in accordance with the applicable accounting standards, and provide a true and accurate view of the assets and liabilities, of the financial situation and results of Banco Santander Totta, S.A and of the companies included in the perimeter of consolidation, and that the interim management report truly and fairly presents all the information required under § 2 of article no. 246 of the Securities Code."
António José Sacadura Vieira Monteiro Enrique Garcia Candelas
Deputy Chairman Member
João Batista Leite
Member Member
José Carlos Brito Sítima José Urgel Moura Leite Maia
Member Member
Luís Filipe Ferreira Bento dos Santos Manuel António Amaral Franco Preto
Interest and similar revenue less Interest and similar expenses
Net interest income accrued by dividends
Income from services and commissions less expenses with services and commissions, accrued by other net operating income
Sum total of net interest income, fees and other income from banking business
Sum total of gains/losses from assets and liabilities assessed at fair value through income, of gains/losses derived from financial assets available for sale, of gains/losses from foreign exchange revaluation and of gains/losses from the disposal of other assets
Commercial revenue accrued by gains/losses on financial transactions
Personnel expenses accrued by general expenses
Operating costs accrued by year's depreciation
Operating income less operating costs
Sum total of provisions net of cancellations, of impairment net of reversions and recoveries and impairment of other assets net of reversions and recoveries
Ratio of operating costs to operating income
Measured in line with definitions deriving from the "Memorandum of Understanding"
Defined in line with management information segmentation (MIS)
Ratio of the balance of customers' loans with capital instalments or overdue interest to total loans to customers
Ratio of the balance of customers' loans with capital instalments or overdue interest in excess of 90 days to total customer loans
Ratio of customer loans at risk (gross) to total customer loans (gross)
Ratio of restructured customer loans to total customer loans.
Ratio of restructured customer loans not included in loans at risk to total customer loans.
Ratio of cumulative Impairment for customer loans (balance sheet value) to non-performing loans
Ratio of cumulative Impairment for customer loans (balance sheet value) to non-performing 90 day overdue loans
Ratio of cumulative Impairment for customer loans (balance sheet value) to loans to customers at risk
Matches balance sheet heading "Customers' Resources and Other Loans"
Sum total of investment funds managed or marketed and of insurance and other resources, information on which is obtained through Santander Asset Management and/or the management information system (MIS)
1 In line with Bank of Portugal Instruction No. 32/2013
2 In line with Bank of Portugal Instruction No. 32/2013
The 2016 half-year accounts were not the object of a limited review or of an opinion from the Bank's auditors.
(Translation of consolidated balance sheets originally issued in Portuguese - Note 53)
| December | ||||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2016 | 31,2015 | |||||||
| Amounts before | ||||||||
| impairment and | Impairment | Net | Net | December 31, | ||||
| ASSETS Notes |
depreciation | and depreciation | assets | assets | LIABILITIES AND SHAREHOLDERS' EQUITY | Notes | June 30, 2016 | 2015 |
| Cash and deposits at central banks 5 |
968 665 | - | 968 665 | 3 134 032 Liabilities | ||||
| Balances due from other banks 6 |
402 067 | - | 402 067 | 463 898 Resources of central banks | 19 | 2 450 427 | 4 952 679 | |
| Financial assets held for trading 7 |
1 679 638 | - | 1 679 638 | 1 750 694 Financial liabilities held for trading | 7 | 1 687 799 | 1 721 691 | |
| Available-for-sale financial assets 8 |
5 683 685 | 71 628 | 5 612 057 | 6 467 813 Resources of other credit institutions | 20 | 3 124 569 | 3 545 229 | |
| Loans and advances to credit institutions 9 |
1 830 797 | - | 1 830 797 | 1 535 436 Resources of customers and other debts | 21 | 28 446 921 | 27 126 313 | |
| Loans and advances to customers 10 |
34 011 457 | 2 160 581 | 31 850 876 | 31 780 965 Debt securities | 22 | 4 625 993 | 5 043 445 | |
| Investments held to maturity 11 |
301 730 | - | 301 730 | - Hedging derivatives | 12 | 183 854 | 170 133 | |
| Hedging derivatives 12 |
126 281 | - | 126 281 | 130 292 Provisions | 23 | 250 385 | 323 090 | |
| Non-current assets held for sale 13 |
297 910 | 120 983 | 176 927 | 190 595 Current tax liabilities | 17 | 34 536 | 37 747 | |
| Investment properties 14 |
380 961 | - | 380 961 | 387 193 Deferred tax liabilities | 17 | 88 070 | 122 920 | |
| Other tangible assets 15 |
744 579 | 436 791 | 307 788 | 300 194 Equity representative instruments | 24 | 69 314 | 69 309 | |
| Intangible assets 15 |
413 746 | 379 922 | 33 824 | 31 054 Subordinated liabilities | 25 | 4 299 | 4 302 | |
| Investments in associated companies 16 |
40 163 | 1 500 | 38 663 | 42 957 Other liabilities | 26 | 496 351 | 399 302 | |
| Current tax assets 17 |
13 367 | - | 13 367 | 16 458 | Total liabilities | 41 462 518 | 43 516 160 | |
| Deferred tax assets 17 |
385 796 | - | 385 796 | 418 317 | ||||
| Other assets 18 |
670 335 | 98 191 | 572 144 | 279 070 Shareholders' equity | ||||
| Share capital | 27 | 1 256 723 | 956 723 | |||||
| Share premium account | 27 | 193 390 | 193 390 | |||||
| Other equity instruments | 27 | 135 000 | 135 000 | |||||
| Revaluation reserves | 27 | (469 097) | (322 046) | |||||
| Other reserves and retained earnings | 27 | 1 953 134 | 1 603 610 | |||||
| (Ow n shares) |
(43 561) | (43 561) | ||||||
| Consolidated net income attributable to the shareholders' of BST | 28 | 192 804 | 568 377 | |||||
| Shareholders' equity attributable to the shareholders' of BST | 3 218 393 | 3 091 493 | ||||||
| Non-controlling interests | 29 | 670 | 321 315 | |||||
| Total shareholders' equity | 3 219 063 | 3 412 808 | ||||||
| Total assets | 47 951 177 | 3 269 596 | 44 681 581 | 46 928 968 | Total liabilities and shareholders' equity | 44 681 581 | 46 928 968 |
The accompanying notes form an integral part of these consolidated balance sheets.
(Translation of consolidated statements of income originally issued in Portuguese - Note 53)
| Interest and similar income 31 574 573 540 798 Interest and similar charges 32 (204 591) (258 237) Net interest income 369 982 282 561 Income from equity instruments 33 330 1 134 Income from services and commission 34 190 328 164 807 Charges w ith services and commission 35 (33 008) (29 503) Result of assets and liabilities at fair value through profit or loss 36 (33 519) (6 913) Result of available-for-sale financial assets 37 90 519 20 587 Result of foreign exchange revaluation 38 4 402 4 619 Result from the sale of other assets 39 26 389 7 161 Other operating results 40 (5 429) 1 617 Net income from banking activities 609 994 446 070 Staff costs 41 (166 082) (136 074) General administrative costs 42 (100 627) (75 864) Depreciation 15 (17 673) (22 952) Provisions, net of reversals 23 (949) (12 780) Loan impairment net of reversals and recoveries 23 (41 266) (42 931) Impairment of other financial assets net of reversals and recoveries 23 (2 189) (459) Impairment of other assets net of reversals and recoveries 23 (8 948) (9 767) Result from associates 43 2 010 8 951 Income before taxes and non-controlling interests 274 270 154 194 Taxes Current 17 (37 626) (26 533) Deferred 17 (43 840) (25 009) Income after taxes and before non-controlling interests 192 804 102 652 Non-controlling interests 29 - - Consolidated net income attributable to the shareholders of BST 28 192 804 102 652 Average number of ordinary shares outstanding 28 1 098 432 941 641 858 667 Earnings per share (in Euros) 28 0.18 0.16 |
Notes | June 30, 2016 | June 30, 2015 |
|---|---|---|---|
The accompanying notes form an integral part of these consolidated statements of income.
| June 30, 2015 | |||
|---|---|---|---|
| Attributable to the shareholders' of BST |
Attributable to the non-controlling interests |
Attributable to the shareholders' of BST |
Attributable to the non-controlling interests |
| 192 804 | - | 102 652 | - |
| (23 478) | - | 8 912 | - |
| - | - | - | - |
| (598) | (6 405) | 2 894 | 19 598 |
| (1 717) | - | - | - |
| (67 482) | - | (88 338) | - |
| 17 128 | - | 25 550 | - |
| (90 041) | - | (20 603) | - |
| - | |||
| - | |||
| 2 928 | - | 3 199 | - |
| 45 559 | (6 405) | 29 209 | 19 598 |
| 26 112 (10 097) |
June 30, 2016 - - |
5 975 (11 032) |
The accompanying notes form an integral part of these consolidated statements of other comprehensive income.
(Amounts expressed in thousands of Euros - tEuros)
(Translation of consolidated statements of changes in shareholder's equity originally issued in Portuguese - Note 53)
| Revaluation reserves | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Share | Foreign | |||||||||||||
| Share | premium Other equity | Legal | Fair | exchange | Deferred | Legal | Other | Retained | Own | Net income | Non-controlling Shareholder's | |||
| capital | account | instruments revaluation | value | fluctuation | taxes | reserve | reserves | Earnings | shares | for the period | interests | equity | ||
| Balances as at December 31, 2014 | 656 723 | 193 390 | 135 000 | 23 245 | (393 897) | (486) | 92 400 | 246 107 | 914 649 | 373 840 | (43 444) | 165 174 | 595 677 | 2 958 378 |
| Appropriation of net income | ||||||||||||||
| . Transfer to reserves | - | - | - | - | - | - | 260 | 13 447 | 30 969 | 54 784 | - | (99 460) | - | - |
| . Distribution of dividends | - | - | - | - | - | - | - | - | - | - | - | (65 714) | - | (65 714) |
| Distribution of dividends - preference shares | - | - | - | - | - | - | - | - | (30 168) | - | - | - | - | (30 168) |
| Long-term incentives | - | - | - | - | - | - | - | - | 191 | - | - | - | - | 191 |
| Purchase of own shares | - | - | - | - | - | - | - | - | - | - | (1) | - | - | (1) |
| Other | - | - | - | - | - | - | - | - | (8) | - | - | - | - | (8) |
| Comprehensive income for the | ||||||||||||||
| first semester of 2015 | - | - | - | - | (111 061) | 2 894 | 34 724 | - | - | - | - | 102 652 | 19 598 | 48 807 |
| Balances as at June 30, 2015 | 656 723 | 193 390 | 135 000 | 23 245 | (504 958) | 2 408 | 127 384 | 259 554 | 915 633 | 428 624 | (43 445) | 102 652 | 615 275 | 2 911 485 |
| Capital increase | 300 000 | - | - | - | - | - | - | - | - | - | - | - | - | 300 000 |
| Distribution of dividends - preference shares | - | - | - | - | - | - | - | - | - | - | - | - | (8 511) | (8 511) |
| Long-term incentives | - | - | - | - | - | - | - | - | (201) | - | - | - | - | (201) |
| Purchase of own shares | - | - | - | - | - | - | - | - | - | - | (116) | - | - | (116) |
| Redemption of preference shares | - | - | - | - | - | - | - | - | - | - | - | - | (300 000) | (300 000) |
| Comprehensive income for the | ||||||||||||||
| second semester of 2015 | - | - | - | - | 42 535 | 158 | (12 818) | - | - | - | - | 465 725 | 14 551 | 510 151 |
| Balances as at December 31, 2015 | 956 723 | 193 390 | 135 000 | 23 245 | (462 423) | 2 566 | 114 566 | 259 554 | 915 432 | 428 624 | (43 561) | 568 377 | 321 315 | 3 412 808 |
| Capital increase | 300 000 | - | - | - | - | - | - | - | - | - | - | - | - | 300 000 |
| Appropriation of net income | ||||||||||||||
| . Transfer to reserves | - | - | - | - | - | - | 194 | 51 544 | 41 066 | 297 286 | - | (390 090) | - | - |
| . Distribution of dividends | - | - | - | - | - | - | - | - | - | - | - | (178 287) | - | (178 287) |
| Distribution of dividends - preference shares | - | - | - | - | - | - | - | - | (40 416) | - | - | - | 10 026 | (30 390) |
| Redemption of preference shares | - | - | - | - | - | - | - | - | - | - | - | - | (324 266) | (324 266) |
| Long-term incentives | - | - | - | - | - | - | - | - | 4 4 |
- | - | - | - | 4 4 |
| Comprehensive income for the | ||||||||||||||
| first semester of 2016 | - | - | - | - | (191 098) | (2 315) | 46 168 | - | - | - | - | 192 804 | (6 405) | 39 154 |
| Balances as at June 30, 2016 | 1 256 723 | 193 390 | 135 000 | 23 245 | (653 521) | 251 | 160 928 | 311 098 | 916 126 | 725 910 | (43 561) | 192 804 | 670 | 3 219 063 |
The accompanying notes form an integral part of these consolidated statements of other comprehensive income.
| June 30, 2016 | June 30, 2015 | |
|---|---|---|
| CASH FLOW FROM OPERATING ACTIVITIES: | ||
| Interest and commissions received | 713 009 | 648 517 |
| Payment of interest and commission | (250 586) | (274 973) |
| Payments to staff and suppliers | (292 440) | (231 464) |
| Contributions to the Pension Fund | - | - |
| Foreign exchange and other operating results | 7 721 | 10 576 |
| Recovery of uncollectable loans | 1 317 | 1 461 |
| Operating results before changes in operating assets and liabilities | 179 021 | 154 117 |
| (Increase) / decrease in operating assets: | ||
| Loans and advances to credit institutions | (318 167) | 86 034 |
| Financial assets held for trading | 71 097 | 137 634 |
| Loans and advances to customers | (54 164) | 6 300 |
| Assets and liabilities at fair value through profit and loss | (3 220) | 87 144 |
| Non-current assets held for sale | (4 594) | (18 379) |
| Investment properties | 9 037 | 35 982 |
| Other assets | (108 830) | 1 530 |
| (408 841) | 336 245 | |
| Increase / (decrease) in operating liabilities: | ||
| Resources of financial institutions | (2 919 086) | (1 631 298) |
| Resources of customers and other debts | 1 356 100 | 143 144 |
| Financial liabilities held for trading | (33 892) | (101 731) |
| Other liabilities Net cash flow from operating activities before income tax |
69 396 | 94 131 |
| (1 527 482) | (1 495 754) | |
| (1 757 302) | (1 005 392) | |
| Income tax paid | (37 978) | (35 958) |
| Net cash flow from operating activities | (1 795 280) | (1 041 350) |
| CASH FLOW FROM INVESTING ACTIVITIES: | ||
| Dividends received | 330 | 1 134 |
| Purchase of available-for-sale financial assets | (2 477 722) | (432 185) |
| Sale of available-for-sale financial assets | 2 615 091 | 1 522 528 |
| Income from available-for-sale financial assets | 144 077 | 181 656 |
| Purchase of tangible and intangible assets | (28 703) | (20 335) |
| Sale of tangible assets | 1 149 | 389 |
| Net cash flow from investment activities | 254 222 | 1 253 187 |
| CASH FLOW FROM FINANCING ACTIVITIES: | ||
| Issuance/(redemption) of debt securities | (406 439) | (238 859) |
| Redemption of preference shares | (320 642) | - |
| Interest paid on bonds issued and other | (80 737) | (63 021) |
| Dividends paid | (178 286) | (65 715) |
| Share capital increase | 300 000 | - |
| Interest paid on subordinated liabilities | (36) | (41) |
| Net cash flow from financing activities | (686 140) | (367 636) |
| Net Increase / (Decrease) in cash and cash equivalents | (2 227 198) | (155 799) |
| Cash and cash equivalents at the start of the period | 3 597 930 | 1 071 692 |
| Cash and cash equivalents at the end of the period | 1 370 732 | 915 893 |
The accompanying notes form an integral part of these consolidated statements of other comprehensive income.
Banco Santander Totta, S.A. (hereinafter referred to as "Bank", "BST" or "Group") previously known as Companhia Geral de Crédito Predial Português, S.A. ("CPP") was founded in 1864 and has its registered office in Portugal, at Rua do Ouro, nº 88, Lisbon. The Bank was nationalized in 1975 and transformed into a Government owned corporation in 1990. On December 2, 1992 the Bank's capital was re-privatized through an Initial Public Offering carried out in a special session of the Lisbon Stock Exchange.
Since December 2000, following the acquisition of Banco Totta & Açores, S.A. ("Totta") by the Santander Group, the Bank has been part of the Santander Group. The main balances and transactions with companies of the Santander Group for the first half-year of 2016 and 2015 are detailed in Note 47.
On December 16, 2004, a demerger/merger operation of Totta was carried out, under which its shareholdings in Foggia, SGPS, S.A. and Totta Seguros – Companhia de Seguros de Vida, S.A. were demerged and the remainder of its operations, together with Banco Santander Portugal, S.A. ("BSP"), were merged into CPP, which then changed its name to the current one.
On May 3, 2010, the Bank carried out the merger by incorporation of Banco Santander de Negócios Portugal, S.A. ("BSN"). For accounting purposes the operation was recorded as at January 1, 2010.
On April 1, 2011, the Bank carried out the merger by incorporation of Totta Crédito Especializado – Instituição Financeira de Crédito, S.A. ("Totta IFIC").
On December 20, 2015, following the resolution measure applied by the Banco de Portugal (hereinafter Bank of Portugal) to Banif – Banco Internacional do Funchal, SA ("Banif"), the Bank acquired the banking activity and a group of assets, liabilities, off-balance sheet items and assets under the management of this entity (Note 1.4).
The BST's operations consist of obtaining funds from third parties, in the form of deposits or other, to apply along with its own funds, in all sectors of the economy, mostly in the form of loans granted or in securities and providing other banking services in Portugal and abroad.
The Bank has a domestic network of 691 branches (693 branches as at December 31, 2015, of which 154 transferred from the former Banif) and also has a branch in London, as well as an international financial branch in the Autonomous Region of Madeira. The Bank also has subsidiaries and representation offices abroad as well as shareholdings in subsidiaries and associated companies.
BST's consolidated financial statements were prepared on a going concern basis, from its accounting books and records maintained in accordance with the accounting principles set forth in the International Financial Reporting Standards ("IAS/IFRS"), as adopted by the European Union, as per Regulation (CE) 1606/2002, of July 19 of the European Parliament and Council, transposed into the Portuguese legislation through Decree-Law No. 35/2005, of February 17, and Notice No. 1/2005, of February 21, of the Bank of Portugal. When Group companies use different accounting principles, appropriate adjustments are made for conversion to the IAS/IFRS.
In the first half-year of 2016, the Bank adopted the following standards (new and revised) and interpretations endorsed by the European Union that became effective as of 1 January 2016:
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The adoption of the above mentioned standards and interpretations did not have a material impact on the financial statements.
Furthermore, up to the date of approval of the accompanying financial statements, the following standards and improvements, which have not yet been endorsed by the European Union, were also issued:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
how this information reconciles with the cash flows from financing activities presented in the Cash Flow Statement.
IAS 12 (amendment), 'Income taxes – Recognition of deferred tax assets on potential losses' (effective for annual periods beginning on or after January 1, 2017. This amendment clarifies how to account for deferred tax assets related with assets measured at fair value, how to estimate future taxable profits when deductible timing differences exist and how to evaluate the recoverability of deferred tax assets when there are restrictions in the tax law.
IFRS 2 (amendment), 'Classification and measurement of share-based payment transactions' (effective for annual periods beginning on or after January 1, 2018). This amendment clarifies the measurement basis for payment transactions based on cashsettled shares and the accounting for changes in share-based payment plans that alter their classification from cash-settled to equity-settled. Furthermore, it introduces an exception to the principles of IFRS 2, now requiring that a share-based payment plan be treated as if it were fully equity-settled when the employer is required to withhold employee taxes on these and pay it over to the tax authority.
These standards have not been yet endorsed by the European Union and have therefore not been adopted by the Bank in the six-month period ended June 30, 2016. Except for the effects of the application of IFRS 9 and IFRS 16, which up to this date are not possible to estimate, no material impacts are expected as a result of the adoption of the above mentioned standards.
1.2. Consolidation principles and recording of associated companies
The consolidated financial statements include the accounts of the Bank and those of the entities directly and indirectly controlled by the Bank (Note 4), including special purpose entities.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Subsidiary companies are those in which the Bank exercises effective control over their current management in order to obtain economic benefits from their activities. Control usually exists when more than 50% of the share capital or the voting rights are held, when the investor is exposed to or has the right to variable returns through its relationship with the investee and has the ability to use its power over the investee to affect its results. Furthermore, as a result of the application of IAS 27 – "Consolidated and Separate Financial Statements" and IFRS 10 – "Consolidated Financial Statements", the Group includes special purpose entities in its consolidation perimeter, namely vehicles and funds created under securitization operations, when it exercises effective financial and operating control over these and when it is exposed to the majority of the risks and rewards associated with their activity.
The financial statements of subsidiaries are consolidated by the full consolidation method from the date the Bank assumes control over their activities to the date that control ceases. Significant transactions and balances between the companies subject to consolidation were eliminated. In addition, when applicable, consolidation adjustments are made in order to ensure consistency in the application of accounting principles. Third party shareholders in subsidiary companies consolidated by the full consolidation method are accounted for under the heading "Non-controlling interests" (Note 29).
The acquisition cost is measured at the fair value of the assets given in exchange, the liabilities assumed and the equity interests issued for this purpose. The transaction costs incurred are recorded as costs in the periods in which incurred, except for the costs of issuing securities representing debt or equity, which must be recognized in accordance with IAS 32 and IAS 39. The identifiable assets acquired and liabilities assumed on the acquisition are measured at fair value, determined as at the date of acquisition.
In the application of the acquisition method, the non-controlling interests are measured at fair value or in proportion to the percentage held of the net assets of the acquired entity, when representing effective rights in the entity. When control is acquired through potential rights the non-controlling interests are measured at fair value.
On the other hand, the Bank manages assets held by investment funds whose participation units are held by third parties. The financial statements of those investment funds are not included in the consolidation perimeter of the Bank, except when the Bank has control over those investment funds, namely when it holds more than 50% of its participation units, in which cases they are consolidated by the full consolidation method. In accordance with IAS 32 and IFRS 10, the amount corresponding to the third party interests in the investment funds that are consolidated by the full consolidation method is presented as a liability under the heading "Equity representative instruments" (Note 24). The non-controlling interests' share of the results of the investment fund consolidated is recognized as a deduction from the heading "Other operating results" (Fundo Novimovest, hereafter "Novimovest Fund"), given the nature of the main income earned by that fund (Note 40).
Associated companies are those in which the Bank has significant influence, but over which it does not have control. Significant influence is presumed to exist when a shareholding (direct or indirect) exceeds 20% or when the Bank has the power to participate in decisions relating to its financial and operating policies, but does not have control or joint control over same. Shareholdings in associated companies are recorded in accordance with the equity method, from the date the Bank gains significant influence until the date same ceases.
In accordance with the equity method, the consolidated financial statements include the portion of shareholders' equity and profit or loss of the associated companies attributable to the Bank. Dividends paid by associated companies reduce the value of the investment held by the Group. The Bank performs impairment tests on its investments in associated companies, whenever there are signs of impairment. Impairment losses recorded in prior periods may be reversible, up to the limit of the accumulated losses.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Goodwill is measured as the excess of the acquisition cost of the businesses over the effective percentage held in the fair value of the assets, liabilities and contingent liabilities of subsidiaries and associated companies acquired, as well as any Equity instruments issued by the Group. At least once a year, the Bank performs impairment tests on the goodwill recognized in the balance sheet, in accordance with the requirements of IAS 36 - "Impairment of Assets". For this purpose, goodwill is allocated to cash generating units, which are never greater wider than the group of assets composing each operational segment of the Group, and the recoverable amount of these is assessed based on the present value of the estimated future cash flows, determined using discount rates considered appropriate by the Bank and based on appropriate and accepted methodologies. Impairment losses associated with goodwill are recorded in the income statement and cannot be reversed.
The goodwill of associated companies is included in the carrying amount of the investment, which is subject to impairment tests.
The Bank decided not to apply IFRS 3 – "Business combinations", retrospectively. Therefore, goodwill arising on acquisitions up to January 1, 2004 was reflected as a deduction from shareholders' equity in compliance with the former accounting policy followed. Previously recognized negative goodwill was recorded as an increase in shareholders' equity, as permitted by IFRS 1.
Acquisitions of subsidiaries and associated companies after January 1, 2004 were recorded in accordance with the acquisition method. The Bank recognized the fair value of the acquired assets and assumed liabilities or determined their value in accordance with International Financial Reporting Standards applicable to certain assets and liabilities for which fair value is not the measurement principle foreseen under IFRS 3 "Business Combinations". The acquisition cost corresponds to the value of the acquired assets and incurred or assumed liabilities and contingencies, according to IFRS 3. Accordingly, the Bank applied IAS 19 to acquired assets and assumed liabilities related to employee benefits and IAS 12 to acquired assets and assumed liabilities related to income taxes.
Additionally, whenever the fair value of acquired assets and incurred or assumed liabilities is higher than its acquisition cost (gain on bargain purchase), and after confirmation of same as foreseen under IFRS 3, the difference is recognized in the income statement (Note 1.4). According to IFRS 3, the Bank has a maximum period of one year from the acquisition date to obtain the pending information and, if necessary, to correct retrospectively the value of the assets acquired and liabilities assumed and, consequently, the result determined on the acquisition.
With the application of the amendments to IFRS 3 and IAS 27, the Bank defined as its accounting policy the fair value valuation through profit or loss whenever there is a change in control over equity investments acquired via phased acquisitions. In such cases, the shareholding acquired prior to the date of the change in control is revalued at fair value through profit or loss. Goodwill is calculated on that date as the difference between the total acquisition cost and the proportion of the fair value of the equity investment's assets and liabilities. Similarly, through the application of the amendments to the standards mentioned above, the Bank revalued, through profit or loss, the equity investments over which it lost control (Note 4).
On the other hand, the Bank decided to cancel, on the date of transition (January 1, 2004) to IAS/IFRS, the reserve related to foreign exchange differences arising on the translation of financial statements of subsidiaries and associated companies expressed in functional currencies other than the Euro, through retained earnings. As from that date, in compliance with IAS 21, the financial statements of subsidiaries, joint ventures and associated companies expressed in foreign currency have been translated into Euros as follows:
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
exchange rate for Euros on the balance sheet date;
Currency exchange differences arising on the translation into Euros are accounted in shareholders' equity in the heading "Revaluation reserves – Foreign exchange fluctuation".
The accounting policies of subsidiaries and associated companies are changed, whenever necessary, to ensure that they are applied consistently by all Group companies.
The main accounting policies used in the preparation of the accompanying financial statements were the following:
The Bank uses the accrual-based accounting principle for most of its financial statement headings. Therefore, expenses and income are recorded in the financial year to which they relate, independently of when they are paid or received.
The Bank's accounts are prepared in the currency of the economic environment in which it operates ("functional currency"), being expressed in Euros.
Transactions in a currency other than the functional currency, and the corresponding income and expenses, are recorded at the exchange rate of the date they occur. Foreign currency assets and liabilities are translated to Euros at the fixing exchange rates as of the balance sheet date (Bank of Portugal "fixing").
This category of financial assets includes loans and advances to customers, other accounts receivable and loans and advances to credit institutions.
Loans and advances to customers include loans to customers, as well as other securitized loans (commercial paper and bonds), not intended to be sold in the short term, being initially recorded at fair value, net of any commissions and increased by all the external costs directly attributable to the operations.
Subsequently, loans and other accounts receivable are recorded at amortized cost, being submitted to periodic impairment analysis.
Commissions and external costs attributable to the underlying operations included in this category, as well as the interest associated with the loans and advances granted, are recognized on an accruals basis, using the effective interest rate method, regardless of when they are received or paid. As from January 1, 2004, the Bank chose to defer commissions received and paid related to loans granted.
The Bank classifies as overdue loans, instalments of principal and interest overdue for more than 30 days. Loans with overdue instalments are denounced in accordance with the Credit Manual approved by the Bank, with the entire debt being considered overdue as from that moment.
On the other hand, the Bank periodically analyses the loans and advances that should already have been paid in full but for which the efforts in their collection have not been effective. When the prospects recovering of those loans are minimal, the loans are considered to be uncollectible and impairment losses are recognized for the full amount. In these cases, the Bank writes them off. Loans subsequently recovered are recognized in the income statement in the heading "Loan impairment net of reversals and recoveries".
The Bank periodically analyses the loans and advances granted to customers and other accounts receivable in order to identify objective evidence of impairment. A financial asset is considered to be impaired if, and only if, there is evidence that one or more loss events have occurred that have a measurable impact on the estimated future cash flows of that asset or group of assets.
For the purpose of determining loan impairment, the Bank´s loan portfolio is segmented as follows:
Concerning the loans granted to the corporate customers segment, the Bank performs an individual assessment of the customers that have:
In this regard, these segments may include customers without overdue loans. Occasionally, the Bank also includes some customers without the above mentioned characteristics in its individual assessment, based on professional judgment.
Customers individually assessed with impairment losses below 0.5% are subsequently assessed on a collective impairment basis, being segmented into customers with credit in excess or below tEuros 300.
The Bank carries out a collective impairment assessment on the remaining segments of the loan portfolio.
Evidence of impairment of an asset or group of assets, as defined by the Bank, corresponds to the observation of several loss events, such as:
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Impairment losses of customers without overdue loans correspond to the amount determined by multiplying the probability of non-compliance (PI) with the difference between the book value of the respective loans and the present value of the estimated future cash flows of those operations. PI corresponds to the probability of one transaction, operation or customer becoming overdue during an emergence period. The emergence period corresponds to the period between the occurrence of a loss event and the identification of said event by the Bank ("incurred but not reported"). For all the loan portfolio segments, the Bank considers an emergence period of 6 months.
If there is evidence that the Bank has incurred in an impairment loss on loans or other receivables, the impairment loss corresponds to the difference between the book value of those assets and the present value of the estimated future cash flows, discounted at the original interest rate of the asset or financial assets. The book value of the asset or financial assets is reduced by the impairment loss account balance. In the case of loans with variable interest rates, the discount rate used to determine an impairment loss is the current interest rate, as established in the respective contract. Impairment losses are recorded through the income statement.
In accordance with the Bank's current impairment model for the loan portfolio, impairment losses are assessed individually, on a sample basis, and on a collective basis. When a group of financial assets is assessed collectively, the estimates of the future cash flows of that group are based on the contractual cash flows of the assets of that group and on historical data regarding losses arising from assets with similar credit risk characteristics. Whenever the Bank considers it necessary, the historic information is updated based on current observable data, in order to reflect the effect of the current conditions.
When, in a subsequent period, a decrease in the amount of impairment losses occurs due to a specific event occurring after the impairment determination, the previously recognized amount is reversed and the impairment loss account balance is adjusted. The amount of the reversal is recognized directly through the income statement.
As required by IFRS 3, the Bank determined the fair value of the loans acquired from Banif under the resolution measure as of the acquisition date (December 20, 2015, date of the Banco de Portugal resolution).
In accordance with the policies practised by the Bank, interest arising on overdue loans without a real guarantee is written off three months after the due date of the operation or after the first overdue instalment. Unrecorded interest on the above mentioned loans is only recognized in the period of its actual collection.
Interest on mortgage loans or on loans granted with other real guarantees is suspended as from the date of the resolution of the contract.
Gains and losses on the definitive sale of loans are recorded in the income statement heading "Result from the sale of other assets" (Note 39). These gains or losses correspond to the difference between the sale amount agreed and the book value of these assets, net of impairment losses.
The derecognizing of these assets in the balance sheet takes place when (i) the Bank's contractual rights expire or when (ii) the Bank substantially transfers all the associated risks and rewards.
Assets associated with factoring operations with recourse are recorded in the balance sheet as loans granted, at the amount of the funds advanced on behalf of those contracts.
Assets associated with factoring operations without recourse are recorded in the balance sheet as loans granted, at the amount of the credits taken, against the recognition of a liability under the heading "Other liabilities - Creditors and other resources - Other creditors - Creditors under factoring contracts." The advancing of the funds to the counterparts in factoring operations originates a corresponding debit in the heading "Other liabilities - Creditors and other resources - Other creditors - Creditors under factoring contracts" (Note 26).
Commitments resulting from credit lines negotiated with customers and not yet used are recorded as off-balance sheet items.
The Bank does not derecognize from the balance sheet loans sold in securitization operations when it:
Credits sold and not derecognized are recorded under the heading "Loans and advances to customers" and are subject to the same accounting criteria as other credit operations. The interest and commissions associated with the securitized loan portfolio are accrued over the term of the loans.
The maintenance of risk and/or benefit is represented by the bonds with higher risk levels issued by the securitization vehicle. The amounts recorded in assets and liabilities represent the proportion of the risk/benefit held by the Bank (continuous involvement).
The bonds issued by the securitization vehicles held by the Group entities are eliminated on consolidation.
Lease operations are classified as finance leases when substantially all the risks and rewards relating to ownership of the leased asset are transferred to the lessee under the lease contract. Finance leasing operations are recorded in accordance with the following criteria:
i) As lessee
Assets acquired under finance leases are recorded at their fair value in other tangible assets and under liabilities and the corresponding depreciation is recognized. Lease instalments are split in accordance with the respective financial
plan, with the liabilities being decreased by the payment amount corresponding to the principal. Interest included in the instalments is recorded in the heading "Interest and similar charges".
ii) As lessor
Leased assets are recorded in the balance sheet as loans granted, which are repaid through the amortizations of the principal in accordance with the financial plan of the contracts. The finance lease balance corresponds to the amount receivable from the lessee, increased by any estimated residual value, not guaranteed by the Bank. Interest included in the instalments is recorded in the heading "Interest and similar income".
Guarantees provided and irrevocable commitments
Responsibilities arising from guarantees provided and irrevocable commitments are recorded in off-balance sheet headings at the amount at risk, whilst interest, commissions and other income are recorded in the income statement over the term of the operations.
d) Recognition of income and expenses relating to services and commissions
Income from services and commissions obtained for the execution of a significant act, for example a commission for syndicating a loan operation, is recognized in the income statement when the significant act has been completed.
Income from services and commissions obtained over the period the services are rendered is recognized in the income statement in the period to which it refers.
Income from services and commissions integrating the remuneration of financial instruments is recorded in the income statement using the effective interest rate method.
Expenses relating to services and commissions are recognized using the same criteria as that adopted for income.
e) Financial instruments
Financial assets and liabilities are recognized in the balance sheet on the date of their payment or receipt, unless there is an explicit contractual provision arising from the legal regime applicable that establishes that the rights and obligations related to the traded values are transferred on a different date, in which case the latter will be the relevant date.
Besides "Loans and advances to customers" and "Instruments held to maturity", the financial assets and liabilities are subsequently classified in one of the four specific categories set down in IAS 39:
Financial assets held for trading include variable and fixed yield securities traded on active markets purchased with the intention of being sold or repurchased in the short term. Trading derivatives with a net value receivable (positive fair value) and options bought are included in the heading "Financial assets held for trading". Trading derivatives with a net value payable (negative fair value) and options sold are included in the heading "Financial liabilities held for trading".
Financial assets and liabilities held for trading and financial assets and liabilities at fair value through profit or loss are initially recognized at fair value. Gains and losses arising from subsequent fair value measurements are recognized in the income statement.
Interest relating to trading derivatives is recorded in the heading "Result of assets and liabilities at fair value through profit or loss" in the income statement.
The fair value of financial assets held for trading and traded on active markets is their bid-price or their closing price on the balance sheet date. If a market price is not available, the fair value of the instrument is estimated based on valuation techniques that include price valuation models or discounted cash flow techniques.
When discounted cash flow techniques are used, the future cash flows are estimated in accordance with management's expectations and the discount rate used corresponds to the market rate for financial instruments with similar characteristics. Data used in price valuation models corresponds to market information.
The fair value of derivative financial instruments not traded on active markets, including the credit risk component attributed to the parties involved in the transaction ("Credit Value Adjustments" and "Debit Value Adjustments"), is estimated based on the amount that would be received or paid to settle the contract on that date, considering the current market conditions as well as the credit quality of the counterparties.
Available-for-sale financial assets include equity and debt instruments that are not classified as financial assets held for trading, at fair value through profit or loss, as investments to be held to maturity or as loans and accounts receivable.
Available-for-sale financial assets are stated at fair value, with the exception of equity instruments not listed on active markets and whose fair value cannot be reliably measured, which are recorded at their acquisition cost, net of impairment. Subsequent gains or losses resulting from changes in fair value are reflected in a specific equity heading "Revaluation reserves - Fair value" until they are disposed of or until impairment losses are recognized, at which moment they are reclassified to the income statement. Foreign exchange gains or losses on monetary assets are recognized directly in the income statement.
Interest on available-for-sale financial assets is reckoned in accordance with the effective interest rate method and recorded in the income statement heading "Interest and similar income".
Income from variable return securities is recognized in the income statement heading "Income from equity instruments" on the date that it is attributed. In accordance with this criterion, interim dividends are recognized as income in the year the distribution is deliberated.
iii) Reclassification of financial assets
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
In accordance with the amendment introduced on October 13, 2008, in IAS 39 - "Financial instruments: Recognition and measurement", the Bank may reclassify a financial asset that is no longer held for sale or repurchase in the short term (although it may have been acquired or incurred mainly for the purpose of sale or repurchase in the short term), removing it from the fair value through profit or loss category, if certain requirements are met. However, reclassifications from other categories to the category of financial assets at fair value through profit or loss are not allowed.
Interest relating to financial assets and the recognition of the difference between their acquisition cost and nominal value (premium or discount) are reckoned in accordance with the effective interest rate method and recorded in the "Interest and similar income" heading in the income statement.
Securities sold with repurchase agreements are maintained in their original securities portfolio. Funds received are recorded on the settlement date, in a specific liability account, with the respective interest payable being accrued.
When there is objective evidence of impairment of a financial asset or group of financial assets, an impairment loss is recognized in the income statement.
For listed equity instruments, objective evidence of impairment exists when there is a significant or prolonged decline in their fair value. Objective evidence of impairment for unlisted securities exists when there is a negative impact on the estimated future cash flows of the financial asset, provided this can be reliably estimated.
The Bank considers the specific nature and characteristics of the assets being valued in its periodic impairment tests. In terms of objective impairment criteria, the Bank considers a 24-month period to be an adequate measure of a prolonged devaluation of financial instruments. The Bank also considers the existence of unrealized capital losses exceeding 50% of the acquisition cost to be a significant devaluation.
Except as explained in the following paragraph, if in a subsequent period there is a decrease in the amount of the impairment loss attributable to an event occurring after the impairment determination, the previously recognized impairment loss is reverted through an adjustment to the impairment loss account. The amount of the reversal is recognized directly in the income statement.
When there is objective evidence of impairment of available-for-sale financial assets as a result of a significant or prolonged decline in the fair value of the security or of financial difficulties of the issuer, the loss accumulated in the fair value reserve is reclassified from equity to the income statement. Impairment losses on fixed income securities can be reverted through profit or loss if there is an increase in the fair value of the security resulting from an event that occurs after the determination of the impairment. Impairment losses on variable income securities cannot be reverted and, consequently, any unrealized capital gains arising after recognition of an impairment loss are recorded in the fair value reserve. In the case of variable income securities for which impairment losses have been recognized, subsequent reductions in their fair value are always
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
recognized in the income statement.
For financial assets recorded at cost, namely unlisted equity instruments whose fair value cannot be reliably measured, the Bank also carries out periodic impairment tests. In this context, the recoverable amount of those assets corresponds to the best estimate of the present value of their estimated future cash flows, estimated using a discount rate that reflects the risk associated with its holding.
Other financial liabilities correspond, essentially, to resources of central banks, of other credit institutions, of customers' deposits and bond issues. These liabilities are initially recognized at fair value, which normally corresponds to the amount received, net of transaction costs, and are subsequently measured at amortized cost in accordance with the effective interest rate method.
Bond issues are recorded in the headings "Debt securities" and "Subordinated liabilities".
Derivatives embedded in bonds issued are recorded separately in the headings "Financial assets and liabilities held for trading", being revalued at fair value through the income statement.
The Bank repurchases bonds issued on the secondary market. Purchases and sales of own bonds are proportionally included in the respective headings of debt issued (capital, interest and commissions) and the differences between the amount settled and the write-off, or the increase in liabilities, are immediately recognized in profit or loss.
Derivative financial instruments traded by the Bank are recognized in the balance sheet at their fair value.
Derivatives embedded in other financial instruments (namely in bonds and structured deposits) are separated from their host contract whenever their risks and characteristics are not closely related to those of the host contract, that is, they are different from the risks and characteristics of this contract, and the whole instrument is not recorded at fair value with changes in fair value being recognized in profit or loss.
The Bank uses derivative financial instruments, namely to hedge the interest rate risk resulting from financing and investing activities. Derivatives that do not qualify for hedge accounting are recorded as financial instruments held for trading, under the financial assets or financial liabilities held for trading headings, with all changes in their fair value being recorded in the income statement.
Derivatives that qualify for hedge accounting are recorded at fair value and the corresponding capital gains and losses are recognized in accordance with the hedge accounting model adopted by the Bank.
In accordance with IAS 39, hedge accounting is applied only when the following requirements are cumulatively met:
There is formal documentation regarding the hedging relationship and risk management strategy of the Bank, including the following aspects:
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Hedge accounting is only applied as from the time all these requirements are met. Likewise, if at any time the hedging effectiveness ceases to fall between 80% and 125%, hedge accounting is discontinued.
Gains or losses on the revaluation of a hedging derivative financial instrument are recognized in the income statement. If the hedge is effective, the gains or losses resulting from variations in the fair value of the hedged item relating to the risk being hedged are also recognized in the income statement.
If a hedging instrument matures or is terminated early, the gains or losses in the valuation of the hedged item relating to the risk being hedged, recognized as value adjustments of the hedged items, are amortized over their remaining life. If the asset or liability being hedged is sold or settled, the amounts recognized as a result of the valuation of the hedged risk are reclassified to the income statement and the derivative is transferred to the trading portfolio. If the hedge becomes ineffective, the gains or losses recognized as value adjustments to the hedged items are amortized through the income statement over the remaining period.
Hedge accounting is not applied in the case of the foreign exchange rate hedging of monetary items, with the gain or loss arising from the derivative and from the foreign exchange rate variation of the monetary items both being recognized in the income statement.
Cash flow hedges refer to the hedging of the exposure to variability in future cash flows that can be attributed to a particular risk associated with a recognized asset or liability, or to a highly probable future transaction that may affect profit or loss.
In this sense, the Bank has entered into derivatives to hedge future cash flows of interest on its variable rate mortgage loan portfolio.
The application of cash flow hedge accounting is also subject to the previously mentioned hedge accounting requirements and implies the following recordings:
In addition, the gain or loss on the hedging instrument recognized in equity corresponds
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
to the lower of the following amounts:
In this regard, and if applicable, the remaining portion of the gain or loss on the hedging instrument not recognized in equity is recorded in profit or loss.
Cash flow hedge accounting shall be discontinued if the hedging instrument matures or is terminated early, if the hedge relationship becomes ineffective or if it is decided to terminate the hedging relationship. In these cases, the accumulated gain or loss on the hedging instrument that was recognized in equity continues to be separately classified in equity, being recorded in the income statement in the same period that the gains or losses of the hedged item are recognized. If the Bank accomplishes the coverage of a transaction that is not expected to be accomplished, the amount of the derivative still recognized in equity is immediately transferred to the income statement, with the derivative being transferred to the Bank's trading portfolio.
Tangible assets used by the Bank in its operations are stated at cost (including directly attributable costs) less accumulated depreciation and impairment losses, when applicable.
Depreciation of tangible assets is recorded on a monthly basis over the estimated useful life of the assets, which corresponds to the period in which the assets are expected to be available for use and is detailed below:
| Years of useful life |
|
|---|---|
| Property for own use | 50 |
| Equipment | 4 to 10 |
Capitalized non-recoverable expenditure on leasehold buildings is depreciated over a period adjusted to its expected useful life or the term of the lease contract, if shorter, which on average corresponds to a period of ten years. Costs incurred with the dismantling or removal of such assets are considered part of their respective initial cost, when these materialize into significant and reliably measurable amounts.
As permitted by IFRS 1, tangible assets acquired up to January 1, 2004 were recorded at their net book value at the transition date to IAS/IFRS, which corresponded to their cost adjusted by legal revaluations based on the evolution of the general price index. 40% of the increase in the depreciation charges resulting from such revaluations is not tax deductible, with the corresponding deferred tax liabilities being accordingly recognized.
Whenever there is an indication that a tangible fixed asset may be impaired, an estimate of its recoverable amount is made. Branches are considered cash flow generating units for this purpose, with impairment losses being recognized whenever the recoverable amount of a property (through its use in the operations or through its sale) is lower than its carrying amount. Impairment losses are recognized in the income statement, being reversed in subsequent reporting periods when the reasons that led to the initial recognition cease to exist. For this purpose, the new depreciated amount shall not exceed that which would be recorded had impairment losses on the asset not been recognized, considering the depreciation that it would have suffered.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The criteria followed in the valuation of the properties normally consider the market comparison method, and the amount of the appraisal corresponds to the market value of the properties in their current condition.
In this heading the Bank recognizes the expenses incurred in the development stage of IT systems implemented and in the implementation stage, as well as those incurred with acquired software, in both cases only when their impact extends beyond the financial year in which the expenses are incurred. Impairment loss assessments are performed on an annual basis.
Intangible assets are amortized on a monthly basis over their estimated useful life, which corresponds to three years on average.
In the first half-year of 2016 and financial year 2015, the Bank did not recognize internally generated intangible assets.
Investment properties comprise, essentially, buildings and land held by Fundo Imobiliário Novimovest (Novimovest Real Estate Investment Fund (Novimovest Fund)) to earn rentals or for capital appreciation or both, rather than for their use in the provision of goods or services or for administrative purposes.
Investment properties are stated at their fair value based on periodic appraisals performed by independent appraisers. Changes in the fair value of investment properties are recognized directly in the income statement for the financial year.
Costs incurred with investment properties in use, such as maintenance, repairs, insurance and property taxes (Imposto Municipal sobre Imóvies - municipal property tax) are recognized in the income statement for the financial year to which they relate. Improvements which are expected to generate additional future economic benefits are capitalized.
The Bank accounts for property and other assets received in settlement of nonperforming loans under this heading, when these are available for immediate sale in their present condition and their sale is highly probable within one year. Should these criteria not be met, these assets are accounted for under the heading "Other assets" (Note 18). These assets are recorded at the amount agreed through negotiation or court decision, net of the estimated sale costs, or their forced sale value, if lower. On the other hand, property recovered following the termination of finance lease contracts is recorded as an asset at the outstanding principal amount on the date the contract is terminated.
This heading also includes participation units of a real estate investment fund acquired following a debt settlement agreement established with a customer.
In addition, the Bank's property for own use which is in the process of being sold is accounted for under this heading. These assets are transferred to this heading at their net book value in accordance with IAS 16 (acquisition cost, net of accumulated depreciation and accumulated impairment losses), being subject to periodic impairment tests.
Property is subject to periodic appraisals performed by independent real estate
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
appraisers. Impairment losses are recognized whenever the appraised value (net of costs to sell) is lower than the book value. If, at a later date, the facts that led the Bank to record impairment losses cease to exist, the Bank will reverse impairment losses up to the threshold value that the assets would have had they had not been reclassified to non-current assets held for sale.
According to IFRS 5 – "Non-current assets held for sale and discontinued operations", the Bank does not recognize unrealized gains on these assets.
A provision is set up whenever there is a present obligation (legal or constructive) arising from a past event relating to which there will be a probable future outflow of resources, and this can be reliably measured. The amount of the provision corresponds to the best estimate of the amount to be disbursed to settle the liability at the balance sheet date. Whenever the outflow of resources is not probable, a contingent liability exists. Contingent liabilities only need to be disclosed (unless the probability of their disbursement is remote), except in respect to contingent liabilities associated with the acquisition of businesses, which are recognized according to IFRS 3.
Thus, the heading "Provisions" includes the provisions to cover specific postemployment benefits granted to some members of the Board of Directors of the Bank, restructuring plans, tax contingencies, legal processes and other risks arising from the Bank's activity (Note 23), as well as other situations related to the acquisition of significant part of the former Banif's activity, as described in greater detail in Note 1.4.
The Bank signed the Collective Labour Agreement (Acordo Colectivo de Trabalho ("ACT")) for the Portuguese Banking Sector, under which its employees or their families are entitled to retirement, disability and survival pensions.
For employees hired by the Bank up to December 31, 2008, BST's pension plan corresponds to a defined benefit plan, as it establishes the criteria for determining the amount of the pension that each employee is to receive during retirement, based on his/her time of service and remuneration at the time of retirement, with the pensions being updated annually based on the remuneration established in the ACT for the current employees. For these employees, the Bank has been responsible for the payment of the full amount of the pensions established under the ACT. The liabilities arising from the defined benefit plan are covered by a Pension Fund.
As from January 1, 2009, employees hired by the Bank are registered with Social Security and are covered by a supplementary defined contribution pension plan with acquired rights under Article 137 – C of the ACT. This plan is supported by contributions from the employees (1.5%) and the Bank (1.5%) calculated on the amount of the effective monthly salary. For this purpose, each employee can choose his/her own open pension fund.
The employees of the former Totta were always covered by Social Security; consequently, the Bank's liability for those employees consists only in the payment of supplements.
In October 2010 an agreement was reached between the Ministry of Labour and Social Solidarity, the Portuguese Association of Banks and the Financial Sector Federation (FEBASE) to include workers of the banking sector in the General Regime of Social Security. Following this agreement, Decree-Law No. 1- A/2011, of January 3, was issued 2011, defining that current employees in the banking sector at the date of its entry into force (January 4, 2011) are to be included in the General Regime of Social
Security, with regard to retirement pensions and in the event of maternity, paternity and adoption. Given the complementary nature foreseen under the rules of the Collective Labour Agreement for the Banking Sector, the Bank will continue to cover the difference between the amount of the benefits paid under the General Regime of Social Security and those resulting from the Collective Labour Agreement.
Past service liabilities at December 31, 2010 have not changed as a result of the above-mentioned Decree-Law, since the decrease in the value of the pensions payable by the Bank in relation to current workers was applicable to future services to be rendered by the employees, as from January 1, 2011.
In this manner, the current service cost has decreased as from this date, but the Bank has started to pay the employer's contribution of 23.6% to Social Security (Taxa Social Única). On the other hand, the Bank maintains the responsibility of paying out the disability and the survival pensions along with healthcare assistance. This understanding was also confirmed by the National Council of Financial Supervisors (Conselho Nacional de Supervisores Financeiros).
In December 2011, a tripartite agreement was established between the Ministry of Finance, the Portuguese Association of Banks and the Financial Sector Federation (FEBASE), regarding the transfer to Social Security of part of the liabilities for retirees and pensioners who, at December 31, 2011 were covered by the substitutive Social Security regime contained in the Collective Labour Agreement (ACT).
Following the above mentioned tripartite agreement, Decree-Law No. 127/2011, of December 31, determined that as from January 1, 2012 Social Security would start being responsible for the above mentioned pensions, in an amount corresponding to the pension established in accordance with the terms and conditions in force under the Collective Labour Agreement for the Banking Sector as at December 31, 2011, including both the holiday (14th month) and Christmas subsidies.
In accordance with this Decree-Law, the Bank, through its Pension Fund, only maintains the responsibility for paying:
Under the transfer of the responsibilities to Social Security, the Bank's Pension Fund assets backing such responsibilities were also transferred. The value of the Pension Fund assets transferred corresponded to the value of the responsibilities assumed by Social Security under the above mentioned Decree-Law, which were determined considering the following assumptions:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Mortality table - male population TV 73/77 less 1 year Mortality table - female population TV 88/90 Actuarial technical rate (discount rate) 4%
The assets to be transferred had to be comprised of cash and, up to 50% of same, of Portuguese government debt securities, valued at their respective market value.
Under the terms of the above mentioned Decree-Law, the transfer of the ownership of the assets was performed by the Bank as follows:
In this regard, and prior to the transfer to Social Security, the Bank obtained actuarial studies that determined the amount of the transfer.
Following the transfer of the responsibilities with retirees and pensioners to Social Security, and for purposes of determining the value of the liabilities to be transferred in accordance with the provisions established by the Decree-Law No. 127/2011, of December 31, the Bank estimated the liabilities separately for current and retired employees, having defined specific assumptions for each case (Note 45).
The difference between the amount of the liabilities to be transferred to Social Security determined as per the above referred assumptions and the liabilities determined based on the updated actuarial assumptions adopted by the Bank was recorded as a cost.
Furthermore, the London Branch employees are covered by a defined benefit pension plan for which there is a separate Pension Fund (Note 45).
On the other hand, in February 2010, a supplementary defined contribution pension plan was approved for a specific group of Bank executives, for which an insurance policy was taken out.
BST's retirement pension liability is calculated annually by external experts (Towers Watson (Portugal) Unipessoal Limitada), based on the "Projected Unit Credit" method. The discount rate used in the actuarial calculations is determined based on market rates for high quality corporate bonds in terms of credit risk, in the currency in which the benefits will be paid out (Euros), and with a similar maturity to the plan's liabilities. Employees' post-employment benefits also include healthcare assistance (SAMS) and death subsidy during retirement.
The former Banco Santander de Negócios Portugal, S.A. (BSN) did not sign the Collective Labour Agreement (ACT) in force for the banking sector. So, in 2006, BSN set up a defined contribution pension fund to which employees have been allowed to make voluntary contributions. BSN's contribution to that fund depended of its results and corresponded to a percentage of the employees' remuneration, with an annual minimum of Euros 1,000 per participant. Following the merger of BSN into BST, the employees of the former BSN have been incorporated in the ACT and in BST's defined benefit pension plan as from May 2010, with the recognition of the service period of employees hired before July 1, 1997. In the first half-year of 2014, BSN's defined contribution pension fund was extinguished following the authorization granted by the Insurance and Pension Fund Supervisory Authority.
Totta IFIC had no Pension Fund. As a result of the merger by incorporation of Totta
IFIC into BST, the employees of the former Totta IFIC were comprised in the ACT and in BST's defined benefit pension plan as from April 2011. Additionally, the service period of employees hired before July 1, 1997 has been recognized.
On December 20, 2015, following the resolution measure applied by the Bank of Portugal to the former Banif, BST took over the pension liabilities of a group of workers of the former Banif (Note 45).
As at January 1, 2004, the Bank opted not to apply IAS 19 retrospectively and, therefore, has not re-estimated the actuarial gains and losses that would be deferred in the balance sheet if that standard had been adopted as from the set-up of the pension plans. Accordingly, the actuarial gains and losses existing on January 1, 2004, as well as those resulting from the adoption of IAS 19, were annulled/recorded against retained earnings as at that date.
In 2011 the Bank decided to change the accounting policy for the recognition of actuarial gains and losses, abandoning the use of the corridor method and recognizing actuarial gains and losses in equity (other comprehensive income), as provided for in the revised version of IAS 19.
From January 1, 2013, following the revision of IAS 19 - "Employee Benefits", the Bank records under the heading "Staff costs" in the income statement, the following components:
Net interest with the pension plan is calculated by multiplying the Bank net asset/liability with pensions (liabilities less the fair value of plan assets) by the discount rate used in determining the liabilities with retirement pensions. Thus, the net interest represents the interest cost associated with pension liabilities net of the theoretical return of the Fund's assets, both measured based on the discount rate used to estimate pension liabilities.
Gains and losses arising from re-measurement, namely: (i) gains and losses resulting from differences between the actuarial assumptions used and the effective results (experience gains and losses), as well as from changes in actuarial assumptions; and (ii) gains and losses arising from the difference between the theoretical return of the Fund's assets and the effective return obtained are recognized through the statement of other comprehensive income.
The liabilities for retirement pensions, less the fair value of the assets of the Pension Fund, are recorded in the headings "Other assets" or "Other liabilities", depending on whether there is a financing surplus or deficit (Notes 18 and 26). The recognition of an excess of the fair value of the plan assets over the discounted liabilities depends on the existence of a reduction in future contributions, or of a refund of contributions made.
Notice No. 4/2005 of the Bank of Portugal states that the liability corresponding to the current pensions being paid shall be fully funded by the Pension Fund and that the funding of the liabilities for past services of current employees must attain a minimum level of 95%.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the rate of coverage of the liabilities of BST for employee benefits, including SAMS and excluding those associated with the London Branch and the former Banif, was 99.94% and 102.99%, respectively (Note 45).
At June 30, 2016, the rate of coverage of the responsibilities transferred from the former Banif amounted to 92.2% (Note 45).
In compliance with the ACT, the Bank assumed the commitment to pay bonuses to current employees attaining fifteen, twenty-five and thirty years of good and effective service, corresponding to one, two or three months of their effective monthly remuneration (in the year the bonus is attributed), respectively.
The Bank determines the present value of its liability for long service bonuses through actuarial calculations based on the "Projected Unit Credit" method. The actuarial assumptions used (financial and demographic) are based on expectations, as of the balance sheet date, regarding salary increases and are based on mortality tables adapted to the Bank's population. The discount rate used is determined based on market rates for high quality corporate bonds with a similar maturity to the liability.
Liabilities for long service bonuses are recorded in the heading "Accrued costs - Relating to personnel – Long service bonuses" (Note 26).
BST and the Group's companies established in Portugal are subject to the tax regime established in the Corporate Income Tax Code ("CIRC"). The branch accounts are consolidated with those of the Bank for tax purposes. In addition to being subject to Corporate Income Tax, the results of the branch are also subject to local taxes in the country/territory in which it is established. Local taxes are deductible for Corporate Income Tax purposes in Portugal under the terms of Article 91 of CIRC and the Double Taxation Agreements signed by Portugal.
In accordance with the State Budget Law for 2011 (Law No. 55–A/2010, of December 3) and Article 92 of the Corporate Income Tax Code, tax paid under the terms of paragraph 1, Article 90, net of international double taxation and any tax benefits, cannot be lower than 90% of the amount that would have been determined if the taxpayer did not have the tax benefits established in paragraph 13, Article 43 of the Corporate Income Tax Code.
Since January 1, 2007, local authorities have been able to establish a maximum municipal surcharge of up to 1.5% of taxable income subject to and not exempt from Corporate Income Tax. With the publication of Law No. 12 - A/2010, of June 30, a State surcharge was also introduced, which must be paid by all taxpayers subject to and not exempt from Corporate Income Tax with taxable income in excess of tEuros 2,000. The State surcharge corresponded to 2.5% of the taxable income exceeding that limit.
With the publication of the State Budget Law for 2012 (Law No. 64-B/2011, of December 30), the companies that presented a higher taxable income in that year and in the two following years were subject to higher State surcharge rates. Companies with taxable income between tEuros 1,500 and tEuros 10,000 were subject to a State surcharge rate of 3% and companies with taxable income exceeding tEuros 10,000 were subject to a rate of 5%.
However, the Law No. 66-B/2012, of December 31 (the State Budget Law for 2013) established a reduction in the limit for the application of the State surcharge rate of 5%,
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
from tEuros 10,000 to tEuros 7,500, applicable for the tax periods started on or after January 1, 2013.
Additionally, following the publication of Law No. 2/2014, of January 16, (CIRC amendment) and the wording of the State Budget Law for 2016 (Law No. 7-A/2016, of March 30) and by the State Budget Law for 2015 (Law No. 82–B/2014, of December 31) the taxation of corporate income for 2015 and for 2016 became as described below:
Thus, the above referred changes implied that the rate used by the Bank in the calculation and recognition of deferred taxes for the first half-year of 2016 and financial year 2015 was 29%.
Tax losses generated as from 2014, inclusive, may be used in the twelve subsequent tax periods. On the other hand, tax losses generated in 2008 and 2009 could be used in the six subsequent periods, in the four subsequent periods for tax losses generated in 2010 and 2011 and in the five subsequent periods for tax losses generated in the years of 2012 and 2013. However, the deduction of those losses in each year cannot exceed 70% of the respective taxable income, with the remaining balance (30%), being deductible up to the end of the tax utilization period.
The tax aspects related to the acquisition of a significant part of the Banif activity are presented in Note 1.4.
Following the publication of Law No. 55-A/2010, of December 31, the Bank is subject to the banking sector contribution regime. The application of such contribution is as follows:
The rates applicable to the incidence base defined in a) and b) above are 0.110% and
0.0003%, respectively, as foreseen in the amendment introduced by Ordinance No. 165 - A/2016, of June 14, to Article 5 of Ordinance No. 121/2011, of March 30.
Deferred tax assets and liabilities correspond to the amount of the tax recoverable and payable in future periods resulting from timing differences between the carrying amount of assets and liabilities in the balance sheet and their respective tax basis. Tax credits are also recognized as deferred tax assets.
The Group does not recognize deferred tax assets or liabilities on deductible or taxable timing differences associated with investments in subsidiaries and associated companies, as it is unlikely that the difference will be reversed in the foreseeable future.
Regarding the unrecognized deferred tax assets associated with the acquisition of a significant part of the Banif activity, supplementary information is presented in Note 1.4.
Deferred tax assets are recognized when it is estimated that they will be recovered and only up to the amount that will probably be recovered through the existence of sufficient expected future taxable income to absorb the deductible timing differences.
Deferred tax assets and liabilities were calculated based on the tax rates decreed for the year in which the respective assets are expected to be realized or the liabilities incurred.
Current and deferred taxes are reflected in the income statement, except for taxes on transactions recorded directly in shareholders' equity, namely potential gains and losses on available-for-sale financial assets and on cash flow hedging derivatives, as well as those associated with actuarial gains and losses related to pension liabilities, which are also recorded in shareholders' equity.
The Bank has long-term incentive plans for stocks and stock options of Banco Santander, S.A., holding company of the Santander Group. Given their characteristics, these plans consist of equity-settled share-based payment transactions, as defined in IFRS 2 and IFRIC 11. The management, hedging and implementation of these longterm incentive plans are provided directly by Banco Santander, S.A. The Bank pays the amount related to these plans to Banco Santander, S.A. on an annual basis.
The recording of such plans corresponds to the recognition of the rights of the Bank's employees to these instruments in the heading "Other reserves" against an entry in the heading "Staff costs" of the income statement, as these are granted in exchange for services rendered.
A description of the long-term incentive plans for stock options in force in Banco Santander S.A. is included in Note 48.
Own shares are recorded in equity at their acquisition cost and are not subject to revaluation. Gains or losses arising from the sale of own shares, as well as the related taxes, are recorded directly in equity, not affecting the net income for the year.
Preference shares are recorded as equity instruments when:
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2015, the Bank classified as equity instruments the preference shares issued by BST International Bank, Inc. – Puerto Rico
Preference shares classified as equity instruments and held by third parties are presented in the consolidated financial statements under the heading "Non-controlling interests" (Note 29).
r) Insurance brokerage services rendered
Commissions from the insurance brokerage services rendered are recorded on an accrual basis. Income is recorded as it is generated, irrespective of when it is received. Amounts receivable are subject to impairment analysis.
The Bank is not engaged in the collection of insurance premiums on behalf of insurers, nor does it perform the movement of funds related to insurance contracts. Thus, there is no other asset, liability, revenue or expense to report on the insurance mediation activity performed by the Bank, besides those already disclosed.
s) Cash and cash equivalents
In the preparation of the cash flow statement, the Bank considers "Cash and cash equivalents" to be the total of the headings "Cash and deposits at central banks" and "Balances due from other banks".
On December 20, 2015, the Bank of Portugal applied a resolution measure to Banif, under which it took the following decisions:
In its statement of December 20, the Bank of Portugal stated: "the operation involves estimated public support in the amount of Euros 2,255 million intended to cover future contingencies, of which Euros 489 million provided by the Resolution Fund and Euros 1,766 million directly by the State, as a result of the options agreed to between the Portuguese authorities, European bodies and Banco Santander Totta, to define the
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
perimeter of the assets and liabilities to be sold". The European Commission, in its statement of December 21, 2015, approved the State aid to Banif of Euros 2,255 million, as mentioned above, to cover for the financing gap in Banif's resolution measure, in accordance with European rules on State aid. The State support to Banif is deducted from the amount owed by the Bank for the acquisition of the set of assets, liabilities and activities of the former Banif. The European Commission also referred that the Bank, as buyer of a set of assets and liabilities of Banif, did not receive any public aid.
The resolution measure also defined that the Portuguese State would provide a counterguarantee to the guarantee provided by the Resolution Fund to the debt instruments issued by Oitante. That counter-guarantee was approved by the Ministry of Finance Order No. 867/2016.
Additionally, the resolution measure states that the Bank of Portugal may, provided BST's agreement, return to Banif or perform additional transfers of assets, liabilities, off-balance sheet items and assets under management between Banif and the Bank.
The acquisition of part of Banif's banking activity by BST occurred under the resolution measure mentioned above.
This acquisition was formalized with the presentation of BST's Definitive Offer following the process letter issued by the Bank of Portugal on December 19, 2015, in a context of a possible application of a resolution measure to Banif, which eventually took place.
The transfer of assets and liabilities to BST, including the debt instruments issued by Oitante, occurs immediately and automatically upon the decision taken of the Board of Directors of the Bank of Portugal related to the sale of the former Banif's activity under the resolution measure applied. Thus, there was no purchase and sale agreement related to the acquisition of part of the former Banif's activity.
Based on the above, the acquisition date considered by BST was December 20, 2015, the date of the resolution measure.
The amount agreed with the Bank of Portugal for the transfer of part of the activity, assets and liabilities of the former Banif to BST corresponded to tEuros 150,000. This amount has been deducted from the State aid granted to Banif, which corresponded to tEuros 2,255,000 and, as such, was not subject to a separate financial settlement.
The amount of tEuros 150,000 does not include any expenses related to the acquisition.
The Bank of Portugal separated the unaudited financial statements of Banif with reference to December 20, 2015 amongst the three entities, Oitante, Banif and BST, considering the provisions of the resolution measure, the Definitive Offer and the subsequent clarifications.
On March 18, 2016, the Bank of Portugal announced an unaudited draft balance sheet for the assets and liabilities transferred to BST as of December 20, 2015, with total assets of Euros 12,957 million and total liabilities of Euros 11,217 million. On Abril 19, 2016, the Bank of Portugal announced their understanding on a number of questions and requests for clarifications put to them by BST, Oitante and Banif. Thus, BST made the following changes: i) Increase in assets amounting to Euros 12 million; and ii) Increase in liabilities amounting to Euros 20 million.
In this context, the unaudited draft balance sheet as of December 20, 2015 (hereinafter balance sheet) considered was the following (amounts in millions of Euros):
| Amount | |
|---|---|
| Assets | |
| Cash and deposits at central banks | 2 377 |
| Balances due from other banks | 99 |
| Financial assets held for trading | 36 |
| Other financial assets at fair value through profit or loss | 16 |
| Available-for-sale financial assets | 2 887 |
| Loans and advances to credit instituions | 11 |
| Loans and advances to customers | 6 066 |
| Assets with reprchase agreement | 1 081 |
| Other tangible assets | 8 |
| Investments in subsidiaries, associates and joint ventures | 18 |
| Deferred tax assets | 273 |
| Other assets | 97 |
| 12 969 | |
| Liabilities | |
| Resources of central banks | 2 110 |
| Financial liabilities held for trading | 21 |
| Resources of other credit institutions | 996 |
| Resources of customers and other debts | 4 642 |
| Debt securities | 223 |
| Financial liabilities associated to transferred assets | 3 031 |
| Current tax liabilities | 1 |
| Provisions | 20 |
| Other liabilities | 193 |
| 11 236 | |
| Difference between unaudited provisional assets and liabilities | 1 733 |
The balance sheet presented above does not include the effects of the consolidation of vehicles and securitization funds and the consolidation of the subsidiary Banif International Bank Ltd. (Bahamas).
Under the Definitive Offer, BST recognized a reduction of the net book value of the assets and liabilities transferred from the former Banif in the amount of Euros 1,133 million, of which Euros 75 million relating to restructuring costs, resulting in a difference between the assets and liabilities of Euros 600 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Additionally, under the resolution measure, there was a transfer to BST of off-balance sheet items and assets under management, detailed as follows:
| Amount | |
|---|---|
| Assets pleged as guarantee | 2 175 257 |
| Guarantees and commitments | 279 256 |
| Open documentary credits | 21 148 |
| Credit lines | |
| Commitments | |
| Revocable | 314 711 |
| Irrevocable | 79 021 |
| Deposit Guarantee Fund | 10 253 |
| Investor Indemnity | 1 146 |
| Overdraft facilities | 87 946 |
| Other revocable commitments | 104 855 |
| 3 073 593 | |
| Deposit and custodial services | 2 241 777 |
| Amoutns received for collection | 112 398 |
| 2 354 175 |
The heading "Assets pledged as guarantee" refers essentially to assets pledged as collateral in financing operations.
The heading "Deposit and custodial services" corresponds to securities deposited by customers in the former Banif.
Under the resolution measure, there was a transfer to BST of the contractual position of 1,130 employees of Banif, mainly from the commercial area. On January 27, 2016, BST informed the Insurance and Pension Funds Supervisory Authority of its intention to assume the responsibility for past services of the aforementioned employees and of an additional group of 511 retired employees, early retirees, pensioners and former employees.
Also according to the resolution measure, there was a transfer to BST not only of the responsibilities related to the business areas, assets, rights or liabilities transferred to BST, but also those that may be constituted by Banif in its banking business (including Banif obligations related to deposits, comfort letters, banking guarantees, performance bonds and other similar contingencies).
The following, amongst others, were excluded from the transfer to BST:
The result achieved with the purchase of a significant part of Banif's business on December 20, 2015 was positive in the amount of tEuros 327,159, and was based on the estimated fair value of the acquired assets and assumed liabilities or in accordance with the International Financial Reporting Standards applicable to certain assets and liabilities
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
for which fair value is not the measurement principle under IFRS 3 - Business Combinations.
The Bank applied IAS 19 – Employee benefits to the acquired assets and assumed liabilities related to employees' benefits and IAS 12 – Income taxes to the acquired assets and assumed liabilities related to income taxes.
The Bank recognized this result under the heading "Result on the purchase of the Banif activity" in the income statement. The result of the purchase fits the circumstances related to the resolution measure applied by the Bank of Portugal to Banif mentioned above.
The methodology used by the Bank in the determination of the fair value of the main assets and liabilities acquired may be presented as follows:
According to IFRS 3, the acquirer recognizes as of the acquisition date any contingent liabilities assumed in business combinations, if they correspond to a present obligation that arises from past events and which fair value can be reliably determined.
In determining the fair value of the assets and liabilities of Banif, the Bank used several simplifications considering the information available.
According to IFRS 3, the Bank has a maximum period of one year from the acquisition date to obtain the pending information and, if needed, to correct retrospectively the value of the assets acquired and liabilities assumed and, consequently, the result determined on the acquisition.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The reconciliation between the unaudited draft balance sheet as at December 20, 2015 presented by the Bank of Portugal (separate accounts), considering the clarifications obtained on April 19, 2016, and the fair value of assets and liabilities acquired by BST, including the result from the acquisition, is as follows (amounts in millions of Euros):
| Perimeter | Consolidation | Purchase | Estimated | |||
|---|---|---|---|---|---|---|
| Notes 20/12/2015 Reclassifications | effect (1) | adjustments (2) | by BST | |||
| Assets | ||||||
| Cash and deposits at central banks | a) | 2 377 | - | - | - | 2 377 |
| Balances due from other banks | 99 | - | - | - | 99 | |
| Financial assets held for trading | 36 | - | 1 | (1) | 36 | |
| Other financial assets at fair value through profit or loss | 16 | (16) | - | - | - | |
| Available-for-sale financial assets | b) | 2 887 | 351 | (2 129) | (20) | 1 089 |
| Loans and advances to credit instituions | 11 | - | 261 | 1 | 273 | |
| Loans and advances to customers | c ) |
6 066 | 746 | (4) | (828) | 5 981 |
| Assets with reprchase agreement | 1 081 | (1 081) | - | - | - | |
| Non-current assests held for sale | - | - | 1 | - | 1 | |
| Other tangible assets | 8 | - | 1 | (8) | 1 | |
| Investments in subsidiaries, associates and joint ventures | 18 | - | 2 | (18) | 2 | |
| Deferred tax assets | d) | 273 | - | - | (273) | - |
| Other assets | 97 | - | (39) | (41) | 17 | |
| 12 969 | - | (1 906) | (1 188) | 9 876 | ||
| Liabilities | ||||||
| Resources of central banks | e) | 2 110 | - | - | - | 2 110 |
| Financial liabilities held for trading | 21 | - | 2 | - | 23 | |
| Resources of other credit institutions | f) | 996 | - | (77) | 1 | 920 |
| Resources of customers and other debts | g) | 4 642 | - | (214) | - | 4 428 |
| Debt securities | h) | 223 | - | 1 437 | - | 1 660 |
| Financial liabilities associated to transferred assets | 3 031 | - | (3 031) | - | - | |
| Current tax liabilities | 1 | - | - | - | 1 | |
| Provisions | i) | 20 | - | (52) | 215 | 183 |
| Other liabilities | 193 | - | 30 | 1 | 224 | |
| 11 236 | - | (1 906) | 217 | 9 549 | ||
| Result from the acquisition | 327 |
(1) It corresponds to the consolidation impact of the securitization vehicles and of Banif International Bank, Ltd as of December 31, 2015. (2) In addition to the 1,133 million Euros as defined in the Definitive Offer, it also comprises the derecognition of deferred tax assets in the amount of 273 million Euros.
a) The heading "Cash and deposits at central banks", as of the acquisition date includes State aid granted to Banif amounting to Euros 2,255 million, including Euros 489 million injected by the Resolution Fund.
Under Article 3 of Law No. 159-E/2015, of December 30, which introduced an addendum to Law No. 82 -B/2014, of December 31, under the resolution measure of Banif, the State fully subscribed and paid up a share capital increase in Banif, amounting to Euros 1,766 million. Although the Amending State Budget that permitted the financing of the resolution measure was only approved on December 30, 2015, the balance sheet presented above already reflects the State aid granted to Banif, to be received in accordance with the resolution measure.
The gross amount of securitized loans included under this heading amounted to tEuros 3,343,104.
The heading "Loans and advances to customers" also includes tEuros 746,000 related to debt instruments issued by Oitante under the resolution measure. These securities were classified in the unaudited draft balance sheet presented by the Bank of Portugal on March 18, 2016 under the heading "Available-for-sale financial assets".
The Oitante debt securities are repayable in 10 years from the issue date (December 22, 2015), with floating interest, linked to the 3-month Euribor and a spread equivalent to "Portuguese 5-year CDS" (fixed as of December 18, 2015 at 1.679%) plus 1%. As at December 31, 2015, the interest rate of the bonds is 2.548%. The bonds are guaranteed by the Resolution Fund and counter-guaranteed by the Portuguese Republic. On March 18, 2016, the interest payment frequency changed to six months. Considering the terms of these bonds, the Bank considered its fair value to be equal to its nominal value.
The Bank filed a request with the Minister of Finance to approve that the deferred tax assets transferred under the acquisition of the former Banif relating to tax losses carried forward may be used to offset future taxable profits of BST, in accordance with number 4 of Article 145º- AU of the Legal Framework of Credit Institutions and Financial Companies (Regime Geral das Instituições de Crédito e Sociedades Financeiras).
The request filed by the Bank included the figures contained in the resolution measure (tEuros 179,000), which were subsequently updated by the Bank of Portugal to tEuros 273,000, of which tEuros 250,000 corresponding to tax losses, due to the exclusion from the perimeter of net liabilities in this amount.
According to the Definitive Offer, if BST does not receive a favourable decision in respect of the request submitted to the Minister of Finance, the Bank is entitled to receive an equivalent amount in government bonds or cash.
Notwithstanding the foregoing, given that up to this date the Bank has not yet received the approval from the Minister of Finance, nor is it aware of its terms, the Bank did not recognize the deferred tax assets transferred from the former Banif.
As defined in the Definitive Offer, the Bank requested of the Minister of Finance and is still awaiting the recognition of the following:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
implement the resolution measure of the partial transfer of the Banif activity to BST, including those relating to the transfer of mortgage loans.
This heading also includes tEuros 1,436,399 in outstanding bonds issued by the former Banif's securitization vehicles.
Finally, the covered bonds issued by the former Banif and fully owned by same, in the amount of tEuros 285,000, were also transferred to BST.
The cash and cash equivalents acquired (net) under the acquisition of a significant part of Banif's business amounted to Euros 1,326 million. This amount includes the movements carried out under the resolution measure up till December 31, 2015, including transfers received on December 31, 2015, after the approval of the Amending State Budget that permitted the financing of the resolution measure, net of the funds repaid by the Bank on December 21, 2015.
The income for the period between December 20 and December 31, 2015 arising from the acquired activity from the former Banif amounted to tEuros 534, corresponding mainly to net interest income of tEuros 2,114, net services income and commissions amounting to tEuros 1,829, losses on the results of assets and liabilities at fair value through profit or loss amounting to tEuros 1,138 and staff and general administrative costs in the amounting to tEuros 2,187.
In addition, the Bank recognized integration costs with the activity of the former Banif in its 2015 financial statements in the amount of tEuros 53,000 (before tax).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
1.5. Comparability of information The information contained in these financial statements is, in its entirety, comparable to that of the previous financial year.
The estimates and judgements with an impact on the consolidated financial statements of the Santander Totta Group are continuously evaluated, representing at each reporting date the best estimate of the Board of Directors, considering the historic performance, accumulated experience and expectations as to future events which, in the circumstances, are considered to be reasonable.
The intrinsic nature of the estimates may lead to the actual amounts of the situations that had been estimated, for financial reporting purposes, being different from the estimated amounts.
Retirement and survival pensions have been estimated using actuarial valuations performed by external experts certified by the Insurance and Pension Funds Supervisory Authority (ASF). These estimates incorporate a set of financial and actuarial assumptions, including discount rate, mortality and disability tables, and pension and salary growth, amongst others.
The assumptions adopted correspond to the best estimate of the Bank's Board of Directors regarding the future behaviour of the above referred variables.
Models and valuation techniques, such as those described in Note 1.3 e) above, are used to value financial instruments not traded on active markets. Consequently, the valuations correspond to the best estimate of the fair value of these instruments as of the balance sheet date. As mentioned in Note 1.3. e), to ensure an adequate segregation of duties, the valuation of these financial instruments is determined by a body independent of the trading function.
The financial assets and liabilities recorded in the categories "Financial assets held for trading", "Financial liabilities held for trading", "Other financial assets at fair value through profit or loss" and "Available-for-sale financial assets" are measured at fair value.
The fair value of a financial instrument corresponds to the amount for which an asset or a financial liability can be sold or settled (in other words, an exit price) between parties that are independent, knowledgeable and interested in the closing of the transaction under normal market conditions.
The fair value of financial assets and liabilities is determined by a Bank body independent of the trading function, based on:
For financial instruments traded on active markets, the closing price on the balance sheet date;
For debt instruments not traded on active markets (including unlisted securities or securities with limited liquidity) valuation methods and techniques are used, which include:
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Financial instruments measured at amortized cost are initially recorded at their fair value increased or decreased by the expenses or income directly attributable to the transaction. The interest is recognized through the effective interest rate method.
Whenever the estimate of payments or collections associated with financial instruments measured at amortized cost is revised, the carrying amount is adjusted to reflect the revised expected cash flows. The new amortized cost results from the present value of the revised future cash flows discounted at the original effective interest rate of the financial instrument. The adjustment in the amortized cost is recognized in the income statement.
Loans impairment losses have been determined as explained in Note 1.3 c) above. Consequently, the impairment assessment performed on an individual basis corresponds to the Bank's judgement as to the financial situation of its customers and its estimate of the value of the collaterals received, with the corresponding impact on the expected future cash flows. Impairment losses determined on a collective basis are estimated based on historical parameters for comparable types of operations, considering estimates of default and recoverability.
As described in Note 1.3. e), the unrealized capital losses resulting from the valuation of these assets are recognized under the heading "Revaluation reserve - Fair value". Nevertheless, whenever there is objective evidence of impairment, the accumulated capital losses recorded in that reserve are transferred to the income statement.
In case of equity instruments, the determination of impairment losses may involve a certain degree of subjectivity. The Bank determines whether or not impairment of these assets exists through a specific analysis at each balance sheet date, taking into account the existence of any of the events foreseen in IAS 39.
In case of debt instruments recorded in this category, unrealized capital losses are transferred from the heading "Revaluation reserve – Fair value" to the income statement whenever there are indications that default might occur, namely, due to financial difficulties of the issuer, its failure to comply with other financial liabilities, or a significant deterioration in the rating of the issuer.
Deferred tax assets are recognized based on the assumption of the existence of future taxable income. Furthermore, current and deferred taxes have been determined based on the interpretation of the tax legislation currently in force. Therefore, changes in tax legislation or in its interpretation by the competent authorities may have an impact on the amount of current and deferred taxes.
In order to adapt the Corporate Income Tax Code to the International Accounting Standards as adopted by the European Union and to the new accounting system (Sistema de Normalização
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Contabilistica ("SNC")), approved by Decree-Law No. 158/2009, of July 13 and Decree-Law No. 159/2009, of July 13, was also approved.
The above referred Decree-Law amended some articles of the Corporate Income Tax Code and also revoked paragraph 2 of Article 57 of the State Budget Law of 2007. These changes came into force on January 1, 2010.
In this regard, these new rules were observed in the computation of the taxable income for the six-month period ended June 30, 2016 and financial year 2015, in accordance with the Bank´s interpretation of same.
The outcome of the legal proceedings in progress, including those mentioned in Note 50, as well as the need for provisioning are estimated based on the opinion of the lawyers/legal advisors of the Bank, the Commercial Court of London's approved judgement and the decisions made up to this date by the Portuguese courts, which may however not be upheld.
In accordance with the requirements of IFRS 8, the disclosures regarding the Bank's operating segments are presented below in accordance with the information reviewed by the management of the Bank:
This area essentially includes the Bank's activity with financial markets and large companies, providing financial advisory services, namely Corporate and Project Finance, as well as brokerage, custody and settlement services.
This area essentially corresponds to credit granting operations and attracting of funds from private customers and businesses with a turnover under Euros 5 million, through the branch network and telephone and internet banking services.
This area targets companies with a turnover ranging between Euros 5 million and Euros 125 million. This activity is supported by the branch network as well as by specialized services, and includes a variety of products, namely loans and project, trade, export and real estate financing.
This area covers all the activities that provide support to the Bank's main activities but which are not directly related to its core business, including liquidity management, balance sheet hedging and Bank structural funding.
The income statement by business segment as of June 30, 2016 is made up as follows:
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 30/06/2016 | |||||
|---|---|---|---|---|---|
| Global | |||||
| Banking & | Retail | Commercial | Corporate | Consolidated | |
| Markets | Banking | Banking | Activities | Total | |
| Financial margin (narrow sense) | 43 185 | 229 556 | 74 967 | 22 274 | 369 982 |
| Income from equity instruments | - | - | - | 330 | 330 |
| Financial margin | 43 185 | 229 556 | 74 967 | 22 604 | 370 312 |
| Net commissions | 25 068 | 131 044 | 12 011 | (10 803) | 157 320 |
| Other results from banking activity | (14) | 3 033 | (1) | (8 448) | (5 429) |
| Commercial margin | 68 239 | 363 633 | 86 977 | 3 353 | 522 203 |
| Results from financial operations | 5 815 | 1 271 | 356 | 80 348 | 87 791 |
| Net income from banking activities | 74 054 | 364 905 | 87 334 | 83 701 | 609 993 |
| Operating costs | (9 786) | (230 921) | (24 643) | (1 359) | (266 709) |
| Depreciation and amortization | (1 559) | (15 349) | (765) | 0 | (17 673) |
| Net operating income | 62 709 | 118 634 | 61 926 | 82 342 | 325 612 |
| Impairment and provisions, net of reversals | (12 826) | (55 281) | (11 403) | 26 157 | (53 352) |
| Result from associates | - | - | - | 2 010 | 2 010 |
| Income before taxes | 49 883 | 63 354 | 50 523 | 110 510 | 274 269 |
| Taxes | (14 965) | (19 175) | (15 157) | (32 169) | (81 466) |
| Net income for the period | 34 918 | 44 179 | 35 366 | 78 341 | 192 804 |
At June 30, 2016, the assets and liabilities under management of each business segment, in accordance with the information used by the Bank's Management for decision making, are as follows:
| 30/06/2016 | |||||
|---|---|---|---|---|---|
| Global Banking | Retail | Commercial | Corporate | Consolidated | |
| & Markets | Banking | Banking | Activities | Total | |
| Assets | |||||
| Loans and advances to customers | |||||
| Mortgage loans | - | 16 825 403 | - | - | 16 825 403 |
| Consumer loans | - | 1 533 105 | - | - | 1 533 105 |
| Other loans | 3 696 406 | 2 858 000 | 6 937 962 | - | 13 492 368 |
| Total allocated assets | 3 696 406 | 21 216 508 | 6 937 962 | - | 31 850 876 |
| Total non-allocated assets | 12 830 705 | ||||
| Total Assets | 44 681 581 | ||||
| Liabilities | |||||
| Resources in the balance sheet | |||||
| Resources of customers and other debts | 510 613 | 23 719 772 | 3 404 277 | 812 259 | 28 446 921 |
| Debt securities | - | 16 271 | - | 4 609 722 | 4 625 993 |
| Total allocated resources | 510 613 | 23 736 043 | 3 404 277 | 5 421 981 | 33 072 914 |
| Guarantees and sureties given | 201 348 | 157 111 | 1 031 347 | - | 1 389 806 |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The income statement by business segment as of June 30, 2015 is made up as follows:
| 30/06/2015 | |||||||
|---|---|---|---|---|---|---|---|
| Global | |||||||
| Banking & | Retail | Commercial | Corporate | Consolidated | |||
| Markets | Banking | Banking | Activities | Total | |||
| Financial margin (narrow sense) | 47 283 | 163 755 | 54 467 | 17 056 | 282 561 | ||
| Income from equity instruments | - | - | - | 1 134 | 1 134 | ||
| Financial margin | 47 283 | 163 755 | 54 467 | 18 190 | 283 695 | ||
| Net commissions | 27 682 | 105 707 | 10 287 | (8 372) | 135 304 | ||
| Other results from banking activity | (28) | 1 651 | (22) | 16 | 1 617 | ||
| Commercial margin | 74 937 | 271 113 | 65 | 9 834 | 420 616 | ||
| Results from financial operations | 6 178 | 1 695 | 116 | 17 465 | 25 454 | ||
| Net income from banking activities | 81 115 | 272 808 | 64 848 | 27 299 | 446 070 | ||
| Operating costs | (8 871) | (173 730) | (27 899) | (1 438) | (211 938) | ||
| Depreciation and amortization | (2 188) | (18 227) | (2 537) | - | (22 952) | ||
| Net operating income | 70 056 | 80 851 | 34 412 | 25 861 | 211 180 | ||
| Impairment and provisions, net of reversals | (9 223) | (21 565) | (12 812) | (22 337) | (65 937) | ||
| Result from associates | - | - | 7 487 | 1 464 | 8 951 | ||
| Income before taxes | 60 833 | 59 286 | 29 087 | 4 988 | 154 194 | ||
| Taxes | (18 250) | (14 804) | (6 480) | (12 008) | (51 542) | ||
| Net income for the period | 42 583 | 44 482 | 22 607 | (7 020) | 102 652 |
At December 31, 2015 the assets and liabilities under management for each business segment in accordance with the information used by the Bank's Management for decision making, are as follows:
| 31/12/2015 | ||||||
|---|---|---|---|---|---|---|
| Global Banking | Retail | Commercial | Corporate | Consolidated | ||
| & Markets | Banking | Banking | Activities (1) | Total | ||
| Assets | ||||||
| Loans and advances to customers | ||||||
| Mortgage loans | - | 14 601 677 | - | 2 616 463 | 17 218 140 | |
| Consumer loans | - | 1 368 668 | - | - | 1 368 668 | |
| Other loans | 3 308 123 | 2 155 361 | 5 106 083 | 2 624 590 | 13 194 157 | |
| Total allocated assets | 3 308 123 | 18 125 705 | 5 106 083 | 5 241 053 | 31 780 965 | |
| Total non-allocated assets | 15 148 003 | |||||
| Total Assets | 46 928 968 | |||||
| Liabilities | ||||||
| Resources in the balance sheet | ||||||
| Resources of customers and other debts | 638 251 | 18 749 857 | 2 209 797 | 5 528 408 | 27 126 312 | |
| Debt securities | - | 61 129 | - | 4 982 316 | 5 043 445 | |
| Total allocated resources | 638 251 | 18 810 986 | 2 209 797 | 10 510 724 | 32 169 758 | |
| Guarantees and sureties given | 222 328 | 148 830 | 786 163 | 303 627 | 1 460 948 |
(1) Includes the assets acquired and liabilities undertaken under the resolution measure
The information by geographical area of the consolidated activity, namely the balance sheet and the income statement, is presented below. The Bank's balance sheet at June 30, 2016 and December 31, 2015, by geographical segments, was as follows:
| 30/06/2016 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| International operations | |||||||||
| Portugal | Ireland | Banif Bahamas | Others | Total | Consolidated Total | ||||
| Assets | |||||||||
| Cash and deposits at central banks | 968 665 | - | - | - | - | 968 665 | |||
| Balances due from other banks | 396 275 | 42 | 5 628 | 122 | 5 792 | 402 067 | |||
| Financial assets held for trading | 1 679 638 | - | - | - | - | 1 679 638 | |||
| Available-for-sale financial assets | 5 612 057 | - | - | - | - | 5 612 057 | |||
| Loans and advances to credit instituions | 1 830 797 | - | - | - | - | 1 830 797 | |||
| Loans and advances to customers | 31 839 746 | - | 11 130 | - | 11 130 | 31 850 876 | |||
| Investments held to maturity | 301 730 | - | - | - | - | 301 730 | |||
| Hedging derivatives | 126 281 | - | - | - | - | 126 281 | |||
| Non-current assets held for sale | 175 458 | - | 1 469 | - | 1 469 | 176 927 | |||
| Investment properties | 380 961 | - | - | - | - | 380 961 | |||
| Other tangible assets | 306 933 | - | 855 | - | 855 | 307 788 | |||
| Intangible assets | 33 824 | - | - | - | - | 33 824 | |||
| Investments in associated companies | 38 663 | - | - | - | - | 38 663 | |||
| Current tax assets | 13 367 | - | - | - | - | 13 367 | |||
| Deferred tax assets | 385 796 | - | - | - | - | 385 796 | |||
| Other assets | 572 101 | - | 43 | 0 | 43 | 572 144 | |||
| Total net assets | 44 662 292 | 42 | 19 125 | 122 | 19 289 | 44 681 581 | |||
| Liabilities | |||||||||
| Resources of central banks | 2 450 427 | - | - | - | - | 2 450 427 | |||
| Financial liabilities held for trading | 1 687 799 | - | - | - | - | 1 687 799 | |||
| Resources of other credit institutions | 3 123 626 | - | 943 | - | 943 | 3 124 569 | |||
| Resources of customers and other debts | 28 421 465 | - | 25 456 | - | 25 456 | 28 446 921 | |||
| Debt securities | 4 625 993 | - | - | - | - | 4 625 993 | |||
| Hedging derivatives | 183 854 | - | - | - | - | 183 854 | |||
| Provisions | 250 385 | - | - | - | - | 250 385 | |||
| Current tax liabilities | 33 990 | 546 | - | - | 546 | 34 536 | |||
| Deferred tax liabilities | 68 407 | 19 663 | - | - | 19 663 | 88 070 | |||
| Equity representative instruments | 69 314 | - | - | - | - | 69 314 | |||
| Subordinated liabilities | 4 299 | - | - | - | - | 4 299 | |||
| Other liabilities | 495 358 | 7 | 974 | 12 | 993 | 496 351 | |||
| Total liabilities | 41 414 917 | 20 216 | 27 373 | 12 | 47 601 | 41 462 518 | |||
| Shareholders' equity | |||||||||
| Shareholders' equity attributable to shareholders of BST | 3 245 488 | 7 247 | (33 684) | (657) | (27 095) | 3 218 393 | |||
| Non-controlling interests | 670 | - | - | - | - | 670 | |||
| Total shareholders' equity | 3 246 158 | 7 247 | (33 684) | (657) | (27 095) | 3 219 063 | |||
| Total liabilities and shareholders' equity | 44 661 075 | 27 463 | (6 311) | (645) | 20 506 | 44 681 581 |
| 31/12/2015 | |||||||
|---|---|---|---|---|---|---|---|
| International operations | |||||||
| Portugal | Ireland | Puerto Rico | Banif Bahamas | Others | Total | Consolidated Total | |
| Assets | |||||||
| Cash and deposits at central banks | 3 134 032 | - | - | - | - | - | 3 134 032 |
| Balances due from other banks | 462 678 | 24 | 58 | 683 | 455 | 1 220 | 463 898 |
| Financial assets held for trading | 1 750 694 | - | - | - | - | - | 1 750 694 |
| Available-for-sale financial assets | 6 467 813 | - | - | - | - | - | 6 467 813 |
| Loans and advances to credit instituions | 1 535 156 | - | 280 | - | - | 280 | 1 535 436 |
| Loans and advances to customers | 31 766 739 | - | - | 14 226 | - | 14 226 | 31 780 965 |
| Hedging derivatives | 130 292 | - | - | - | - | - | 130 292 |
| Non-current assets held for sale | 189 126 | - | - | 1 469 | - | 1 469 | 190 595 |
| Investment properties | 387 193 | - | - | - | - | - | 387 193 |
| Other tangible assets | 299 310 | - | - | 866 | 18 | 884 | 300 194 |
| Intangible assets | 31 054 | - | - | - | - | - | 31 054 |
| Investments in associated companies | 42 957 | - | - | - | - | - | 42 957 |
| Current tax assets | 16 458 | - | - | - | - | - | 16 458 |
| Deferred tax assets | 418 317 | - | - | - | - | - | 418 317 |
| Other assets | 278 777 | - | 6 | (105) | 392 | 293 | 279 070 |
| Total net assets | 46 910 596 | 24 | 344 | 17 139 | 865 | 18 372 | 46 928 968 |
| Liabilities | |||||||
| Resources of central banks | 4 952 679 | - | - | - | - | - | 4 952 679 |
| Financial liabilities held for trading | 1 721 691 | - | - | - | - | - | 1 721 691 |
| Resources of other credit institutions | 3 544 248 | - | 981 | - | 981 | 3 545 229 | |
| Resources of customers and other debts | 26 934 343 | - | 70 690 | 121 280 | - | 191 970 | 27 126 313 |
| Debt securities | 5 043 445 | - | - | - | - | - | 5 043 445 |
| Hedging derivatives | 170 133 | - | - | - | - | - | 170 133 |
| Provisions | 323 090 | - | - | - | - | - | 323 090 |
| Current tax liabilities | 36 966 | 781 | - | - | - | 781 | 37 747 |
| Deferred tax liabilities | 103 323 | 19 597 | - | - | - | 19 597 | 122 920 |
| Equity representative instruments | 69 309 | - | - | - | - | - | 69 309 |
| Subordinated liabilities | 4 302 | - | - | - | - | - | 4 302 |
| Other liabilities | 397 983 | 28 | 872 | 344 | 75 | 1 319 | 399 302 |
| Total liabilities | 43 301 512 | 20 406 | 71 562 | 122 605 | 75 | 214 648 | 43 516 160 |
| Shareholders' equity | |||||||
| Shareholders' equity attributable to shareholders of BST | 3 112 238 | 5 700 | 7 644 | (33 690) | (399) | (20 745) | 3 091 493 |
| Non-controlling interests | 672 | - | 329 659 | - | (9 016) | 320 643 | 321 315 |
| Total shareholders' equity | 3 112 910 | 5 700 | 337 303 | (33 690) | (9 415) | 299 898 | 3 412 808 |
| Total liabilities and shareholders' equity | 46 414 422 | 1 047 192 | 408 865 | 88 915 | (9 340) | 514 546 | 46 928 968 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
For the six-month periods ended June 30, 2016 and 2015, the income statement by geographical segments was as follows:
| 30/06/2016 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| International operations | |||||||||
| Portugal | Ireland | Banif Bahamas | Others | Total | Consolidated Total | ||||
| Interest and similar income | 573 833 | 1 | 739 | - | 740 | 574 573 | |||
| Interest ans similar charges | (204 434) | - | (157) | - | (157) | (204 591) | |||
| Financial margin | 369 399 | 1 | 582 | - | 583 | 369 982 | |||
| Income from equity instruments | 330 | - | - | - | - | 330 | |||
| Income from services and comissions | 190 129 | - | 199 | - | 199 | 190 328 | |||
| Charges with services and comissions | (32 969) | - | (33) | (6) | (39) | (33 008) | |||
| Result of assets and liabilities at fair value through profit or loss | (33 519) | - | - | - | - | (33 519) | |||
| Result of available-for-sale financial assets | 90 519 | - | - | - | - | 90 519 | |||
| Result of foreign exchange revaluation | 4 648 | - | (246) | - | (246) | 4 402 | |||
| Result from sale of other assets | 26 438 | - | (58) | 9 | (49) | 26 389 | |||
| Other operating results | (5 358) | - | (69) | (2) | (71) | (5 429) | |||
| Net income from banking activities | 609 617 | 1 | 375 | 1 | 377 | 609 994 | |||
| Staff costs | (164 734) | (97) | (225) | (1 026) | (1 348) | (166 082) | |||
| General administrative costs | (100 018) | (166) | (134) | (309) | (609) | (100 627) | |||
| Depreciation in the year | (17 656) | - | (11) | (6) | (17) | (17 673) | |||
| Provisions, net of reversals | (949) | - | - | - | - | (949) | |||
| Loan impairment net of reversals and recoveries | (41 266) | - | - | - | - | (41 266) | |||
| Impairment of other financial assets net of reversals and recoveries | (2 189) | - | - | - | - | (2 189) | |||
| Impairment of others assets net of reversals and recoveries | (8 948) | - | - | - | - | (8 948) | |||
| Results from associates | 2 010 | - | - | - | - | 2 010 | |||
| Income before tax and non-controlling interests | 275 867 | (262) | 5 | (1 340) | (1 597) | 274 270 | |||
| Current taxes | (36 508) | (1 115) | - | (3) | (1 118) | (37 626) | |||
| Deferred taxes | (43 775) | (65) | - | - | (65) | (43 840) | |||
| Income after taxes and before non-controlling interests | 195 584 | (1 442) | 5 | (1 343) | (2 780) | 192 804 | |||
| Non-controlling interests | - | - | - | - | - | - | |||
| Consolidated net income attributable to the shareholders of BST | 195 584 | (1 442) | 5 | (1 343) | (2 780) | 192 804 |
| 30/06/2015 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| International operations | |||||||||
| Portugal | Ireland | Angola | Puerto Rico | Others | Total | Consolidated Total | |||
| Interest and similar income | 540 798 | - | - | - | - | - | 540 798 | ||
| Interest ans similar charges | (257 533) | (4) | - | (700) | - | (704) | (258 237) | ||
| Financial margin | 283 265 | (4) | - | (700) | - | (704) - |
282 561 | ||
| Income from equity instruments | 1 134 | - | - | - | - | - | 1 134 | ||
| Income from services and comissions | 164 807 | - | - | - | - | - | 164 807 | ||
| Charges with services and comissions | (29 380) | - | - | - | (123) | (123) | (29 503) | ||
| Result of assets and liabilities at fair value through profit or loss | (6 913) | - | - | - | - | - | (6 913) | ||
| Result of available-for-sale financial assets | 20 587 | - | - | - | - | - | 20 587 | ||
| Result of foreign exchange revaluation | 4 642 | - | - | (23) | - | (23) | 4 619 | ||
| Result from sale of other assets | 7 161 | - | - | - | - | - | 7 161 | ||
| Other operating results | 1 619 | - | - | (2) | - | (2) | 1 617 | ||
| Net income from banking activities | 446 922 | (4) | - | (725) | (123) | (852) - |
446 070 | ||
| Staff costs | (135 499) | (97) | - | (105) | (373) | (575) | (136 074) | ||
| General administrative costs | (75 469) | (166) | - | (72) | (157) | (395) | (75 864) | ||
| Depreciation in the year | (22 952) | - | - | - | - | - | (22 952) | ||
| Provisions, net of reversals | (12 780) | - | - | - | - | - | (12 780) | ||
| Loan impairment net of reversals and recoveries | (42 931) | - | - | - | - | - | (42 931) | ||
| Impairment of other financial assets net of reversals and recoveries | (459) | - | - | - | - | - | (459) | ||
| Impairment of others assets net of reversals and recoveries | (9 767) | - | - | - | - | - | (9 767) | ||
| Results from associates | 1 464 | - | 7 487 | - | - | 7 487 | 8 951 | ||
| Income before tax and non-controlling interests | 148 529 | (267) | 7 487 | (902) | (653) | 5 665 - |
154 194 | ||
| Current taxes | (25 050) | (1 483) | - | - | - | (1 483) | (26 533) | ||
| Deferred taxes | (25 213) | 204 | - | - | - | 204 | (25 009) | ||
| Income after taxes and before non-controlling interests | 98 266 | (1 546) | 7 487 | (902) | (653) | 4 386 - |
102 652 | ||
| Non-controlling interests | - | - | - | - | - | - | - | ||
| Consolidated net income attributable to the shareholders of BST | 98 266 | (1 546) | 7 487 | (902) | (653) | 4 386 | 102 652 |
The accounting policies used in the preparation of the financial information by segments were consistent with those described in Note 1.3. of these Notes to the Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the subsidiaries and associated companies and their most significant financial data, extracted from their respective separate financial statements, excluding conversion adjustments to IAS/IFRS, may be summarized as follows:
| Direct Participation (%) | Effective Participation (%) | Total assets (net) | Shareholders' equity | Net income of the year | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Company | 30/06/2016 | 31/12/2015 | 30/06/2016 | 31/12/2015 | 30/06/2016 | 31/12/2015 | 30/06/2016 | 31/12/2015 | 30/06/2016 | 31/12/2015 |
| BANCO SANTANDER TOTTASA | - | - | 100.00 | 100.00 | 47 895 591 | 50 232 462 | 2 779 427 | 2 621 463 | 175 442 | 515 438 |
| TOTTA & AÇORES FINANCING | 100.00 | 100.00 | 100.00 | 100.00 | 45 | 46 | 45 | 46 | - | 9 017 |
| SERFIN INTERNATIONAL BANK & TRUST | - | - | - | 100.00 | - | 41 735 | - | 41 718 | - | 164 |
| TOTTA & AÇORES, INC. - NEWARK | 100.00 | 100.00 | 100.00 | 100.00 | 482 | 1 441 | 468 | 1 249 | (753) | (45) |
| TOTTA IRELAND, PLC | 100.00 | 100.00 | 100.00 | 100.00 | 950 474 | 1 010 842 | 428 694 | 416 546 | 12 234 | 4 433 |
| SANTOTTA-INTERNACIONAL, SGPS | 100.00 | 100.00 | 100.00 | 100.00 | 180 240 | 180 859 | 180 209 | 180 832 | (623) | 101 741 |
| TOTTAURBE - EMP.ADMIN. E CONSTRUÇÕES, S.A. (1) | 100.00 | 100.00 | 100.00 | 100.00 | 145 304 | 144 563 | 135 803 | 135 431 | 425 | 2 756 |
| BST INTERNATIONAL BANK, INC. -PORTO RICO | 100.00 | 100.00 | - | 100.00 | - | 440 858 | - | 358 672 | - | 25 694 |
| TAXAGEST,SGPS,SA | 100.00 | 99.00 | 99.00 | 99.00 | 55 755 | 55 753 | 55 747 | 55 747 | 1 | 25 |
| FUNDO NOVIMOVEST | 78.58 | 78.59 | 78.84 | 78.59 | 396 041 | 408 283 | 328 184 | 325 168 | 4 205 | 450 |
| HIPOTOTTA NO. 1 PLC | - | - | - | - | 140 500 | 157 406 | (190) | (722) | 204 | 453 |
| HIPOTOTTA NO. 4 PLC | - | - | - | - | 889 026 | 1 009 080 | (4 778) | (4 895) | 1 060 | 5 826 |
| HIPOTOTTA NO. 5 PLC | - | - | - | - | 811 282 | 878 085 | (2 415) | (3 214) | 1 145 | 3 741 |
| HIPOTOTTA NO. 1 FTC | - | - | - | - | 121 612 | 139 960 | 121 603 | 138 460 | - | (1 263) |
| HIPOTOTTA NO. 4 FTC | - | - | - | - | 835 369 | 965 241 | 837 437 | 954 929 | - | (4 169) |
| HIPOTOTTA NO. 5 FTC | - | - | - | - | 775 362 | 848 331 | 775 474 | 840 639 | - | (3 352) |
| GAMMA STC | - | - | - | - | 3 064 618 | 3 635 777 | (415 707) | (113 002) | 2 125 | 9 888 |
| ATLANTES MORTGAGE 1 | - | - | - | - | 110 252 | 123 472 | (133 321) | (7 070) | (584) | (872) |
| ATLANTES FINANCE6 | - | - | - | - | 74 349 | 96 228 | 94 | (85) | - | - |
| BENIM - SOCIEDADE IMOBILIÁRIA, SA (2) | - | - | 25.81 | 25.81 | n/a | n/a | n/a | n/a | n/a | n/a |
| UNICRE (MAY 2016) | 21.50 | 21.50 | 21.50 | 21.50 | 373 500 | 347 230 | 122 393 | 137 926 | 10 386 | 39 872 |
| BANIF INTERNACIONALBANK, LTD | 100.00 | 100.00 | 100.00 | 100.00 | 34 644 | 89 203 | (33 476) | (33 689) | 218 | (53 941) |
n/a - not available
At June 30, 2016 and December 31, 2015, the business, the location of the headquarters and the consolidation method used for the companies included in the consolidation was as follows:
| Company | Business | Headquarters | Consolidation Method |
|---|---|---|---|
| BANCO SANTANDER TOTTA, S.A. | Banking | Lisbon | Full |
| TOTTA & AÇORES FINANCING | Banking | Cayman Islands | Full |
| SERFIN INTERNATIONAL BANK & TRUST | Banking | Cayman Islands | Full |
| TOTTA & AÇORES, INC. - NEWARK | Obtaining funds | USA | Full |
| TOTTA IRELAND, PLC | Investment management | Ireland | Full |
| SANTOTTA - INTERNACIONAL, SGPS | Holding company | Funchal | Full |
| TOTTAURBE - Emp. Admin. e Construções, S.A. (1) | Real estate management | Lisbon | Full |
| BENIM - Sociedade Imobiliária, SA | Real estate | Lisbon | Equity method |
| BST INTERNATIONAL BANK, INC. - PORTO RICO | Banking | Puerto Rico | Full |
| BANIF INTERNACIONALBANK, LTD (2) | Banking | Bahamas | Full |
| TAXAGEST, SGPS,SA | Holding company | Lisbon | Full |
| UNICRE - INSTITUIÇÃO FINANCEIRA DE CRÉDITO, S.A. | Issuance and management of credit cards | Lisbon | Equity method |
| HIPOTOTTA NO. 1 PLC | Investment management | Ireland | Full |
| HIPOTOTTA NO. 4 PLC | Investment management | Ireland | Full |
| HIPOTOTTA NO. 5 PLC | Investment management | Ireland | Full |
| HIPOTOTTA NO. 1 FTC | Securitized loans fund | Portugal | Full |
| HIPOTOTTA NO. 4 FTC | Securitized loans fund | Portugal | Full |
| HIPOTOTTA NO. 5 FTC | Securitized loans fund | Portugal | Full |
| GAMMA STC (3) | Securitized loans fund | Portugal | Full |
| ATLANTES MORTGAGE 1 (3) | Securitized loans fund | Portugal | Full |
| ATLANTES FINANCE 6 (3) | Securitized loans fund | Portugal | Equity method |
| NOVIMOVEST - Fundo de Investimento Imobiliário Aberto | Fund management | Lisbon | Full |
In compliance with IFRS 10, which replaced IAS 27 and SIC 12, the Bank's consolidated financial statements include special purpose entities (SPE's) created for securitization operations that the Bank controls, that is, it holds the majority of the risks and rewards associated with their activity, namely the bonds issued by those entities with a higher degree of subordination – equity pieces (Note 46).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
During the first half-year of 2016, the Bank closed down the following companies:
At June 30, 2016 and December 31, 2015 the balance sheet of Novimovest Fund was as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Securities portfolio | 3 078 | 3 096 |
| Real estate portfolio | 380 961 | 387 193 |
| Accounts receivable | 9 663 | 14 795 |
| Cash and cash equivalents | 424 | 513 |
| Accruals and deferrals | 1 915 | 2 686 |
| 396 041 | 408 283 | |
| Fund capital | 328 184 | 325 168 |
| Adjustments and provisions | 5 536 | 5 485 |
| Accounts payable | 59 959 | 75 201 |
| Accruals and deferrals | 2 362 | 2 429 |
| 396 041 | 408 283 | |
At June 30, 2016 and 2015, the consolidated net income includes a profit and a loss of tEuros 3,317 and tEuros 93, respectively, attributable to the Novimovest Fund.
This heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Cash | 244 242 | 284 668 |
| Demand deposits at Central Banks: | ||
| Bank of Portugal | 724 423 | 2 849 364 |
| 968 665 | 3 134 032 | |
At December 31, 2015, this heading included tEuros 2,329,852 related to assets acquired by the Bank under the resolution measure applied to Banif.
In accordance with European Central Bank Regulation No. 2818/98, of December 1, as from January 1, 1999 credit institutions established in Member States shall maintain minimum cash reserves with the participating National Central Banks. The incidence base for determining the amount of the reserves includes all deposits placed with central banks and financial and monetary entities outside the Eurozone and all deposits of customers repayable in less than two years. This base is multiplied by 1% and, from the amount so determined, Euros 100,000 is deducted. The minimum cash reserves earn interest at the average of the rates for the main refinancing operations of the European Central Bank System.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Balances due from domestic banks | ||
| Demand deposits | 3 630 | 2 631 |
| Cheques for collection | 65 905 | 63 219 |
| Interest receivable | 320 | - |
| Balances due from foreign banks Other financial institutions |
||
| Demand deposits | 330 644 | 393 043 |
| Cheques for collection | 1 435 | 1 074 |
| Other receivables | 133 | 3 931 |
| 402 067 | 463 898 |
At December 31, 2015, the heading "Balances due from other banks" included tEuros 114,619 related to assets acquired under the resolution measure applied to Banif.
At June 30, 2016 and December 31, 2015, the subheadings of "Cheques for collection" correspond to cheques drawn by third parties over other credit institutions which, in general, are compensated in the following business days.
At June 30, 2016 and December 31, 2015, the heading "Balances due from foreign banks – Demand deposits" included a deposit in the amount of tEuros 79,147 and tEuros 67,831, respectively, which is being mobilized upon the fulfilment of certain obligations towards third parties.
This heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Financial assets held for trading | ||
| Derivatives with positive fair value | 1 676 560 | 1 747 598 |
| Securities – Participation units | 3 078 | 3 096 |
| 1 679 638 | 1 750 694 | |
| Financial liabilities held for trading | ||
| Derivatives with negative fair value | (1 687 799) | (1 721 691) |
| Net balance of the fair value of derivative financial instruments | (11 239) | 25 907 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the headings of derivative financial instruments were made up as follows:
| 30/06/2016 | 31/12/2015 | |||||
|---|---|---|---|---|---|---|
| Assets | Liabilities | Net | Assets | Liabilities | Net | |
| (Note 12) | (Note 12) | |||||
| Forwards | 16 676 | 16 099 | 577 | 22 123 | 21 261 | 862 |
| Swaps | ||||||
| Currency swaps | 4 088 | - | 4 088 | 14 061 | 12 732 | 1 329 |
| Interest rate swaps | 1 440 847 | 1 459 624 | (18 777) | 1 412 795 | 1 396 888 | 15 907 |
| Equity swaps | 495 | 388 | 107 | 55 437 | 53 976 | 1 461 |
| Options | ||||||
| Foreign exchange options | 1 117 | 963 | 154 | 1 163 | 1 081 | 82 |
| Equity options | 59 993 | 59 280 | 713 | 92 086 | 88 802 | 3 284 |
| Caps & Floors | 153 344 | 151 445 | 1 899 | 149 933 | 146 951 | 2 982 |
| 1 676 560 | 1 687 799 | (11 239) | 1 747 598 | 1 721 691 | 25 907 |
At June 30, 2016, the headings of assets and liabilities relating to "Derivative financial instruments" are net of the amounts of approximately tEuros 218,917 and tEuros 203,564, respectively, of "Credit Value Adjustments" and "Debit Value Adjustments" (tEuros 113,100 and tEuros 152,000 at December 31, 2015, respectively).
At June 30, 2016 and December 31, 2015, the heading "Derivative financial instruments – Assets", included the amounts of tEuros 1,315,800 and tEuros 1,315,000, respectively, maintained with Portuguese State-owned enterprises, and which are in litigation (Note 50).
At June 30, 2016 and December 31, 2015, the majority of the derivative financial instruments held for trading celebrated with customers were hedged "back-to-back" with Banco Santander, S.A.
At June 30, 2016 and December 31, 2015, the heading "Securities – Participation units" corresponds to the participation units held in Fundo de Investimento Imobiliário Fechado Maxirent (Real Estate Investment Fund).
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Acquisition | Accrued | Hedge | Fair Value Reserve | Book | ||||
| cost | interest | Adjustments Positive Negative | Total | Impairment | Value | |||
| (Note 27) | (Note 23) | |||||||
| Debt instruments | ||||||||
| Issued by residents | ||||||||
| Treasury Bonds | 4 966 560 | 50 377 | 44 709 | 78 586 (69 101) | 9 485 | (109) 5 071 022 | ||
| Other residents | ||||||||
| Acquired in securitization operations | 12 949 | 7 | - | - | - | - | - | 12 956 |
| Unsubordinated debt | 403 235 | 5 029 | - | 19 983 | - | 19 983 | (230) | 428 017 |
| Subordinated debt | 2 970 | 2 | - | - | - | - | (2 970) | 2 |
| 5 385 714 | 55 415 | 44 709 | 98 569 (69 101) | 29 468 | (3 309) 5 511 997 | |||
| Equity instruments | ||||||||
| Issued by residents | ||||||||
| Measured at fair value | 73 957 | - | - | 892 | (1 184) | (292) | (36 892) | 36 773 |
| Measured at cost | 92 474 | - | - | - | - | - | (30 681) | 61 793 |
| Issued by non-residents | ||||||||
| Measured at fair value | 1 382 | - | - | 1 | - | 1 | - | 1 383 |
| Measured at cost | 857 | - | - | - | - | - | (746) | 111 |
| 5 554 384 | 55 415 | 44 709 | 99 462 (70 285) | 29 177 | (71 628) 5 612 057 | |||
| Acquisition Accrued | Hedge | 31/12/2015 | Fair Value Reserve | Book | ||||
| cost | interest | Adjustments Positive Negative | Total | Impairment | Value | |||
| (Note 27) | (Note 23) | |||||||
| Debt instruments | ||||||||
| Issued by residents | ||||||||
| Treasury Bonds | 5 251 118 108 845 | 20 761 214 425 | (562) | 213 863 | (116) 5 594 471 | |||
| Other Portugues Government entities | 6 003 | - | - | - | (367) | (367) | - | 5 636 |
| Other residents | ||||||||
| Services acquired under securitization operations | 85 996 | 59 | - | (4 697) | (4 697) | - | 81 358 | |
| Unsubordinated debt | 466 838 | 13 464 | - | 22 833 | (4 156) | 18 677 | (230) | 498 749 |
| Subordinated debt | 126 017 | 24 | - | - | - | - | (6 254) | 119 786 |
| Issued by non-residents | ||||||||
| Unsubordinated debt | 97 874 | 3 217 | - | - (51 872) | (51 872) | - | 49 219 | |
| Equity instruments | ||||||||
| Issued by residents | ||||||||
| Measured at fair value | 96 428 | - | - | 584 | (1 633) | (1 049) | (45 329) | 50 050 |
| Measured at cost | 93 847 | - | - | - | - | - | (29 486) | 64 361 |
| Issued by non-residents | ||||||||
| Measured at fair value | 8 | - | - | 3 728 | - | 3 728 | - | 3 736 |
| Measured at cost | 1 192 | - | - | - | - | - | (746) | 446 |
| 6 225 321 125 609 | 20 761 241 570 (63 287) | 178 283 | (82 161) 6 467 813 |
At December 31, 2015, the heading "Available-for-sale financial assets" included tEuros 1,083,808 of assets acquired under the resolution measure applied to Banif.
At June 30, 2016 and December 31, 2015, the heading "Treasury Bonds" included capital gains of tEuros 44,709 and tEuros 20,761, respectively, relating to value adjustments resulting from interest rate risk hedging operations. These securities have the following characteristics:
| 30/06/2016 | 31/12/2015 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Acquisition cost |
Accrued in hedging receivable operations |
Gains/losses Gains/losses recorded in reserves Impairment |
Book Value |
Acquisition cost |
Accrued in hedging receivable operations |
Gains/losses Gains/losses recorded in reserves Impairment |
Book Value |
|||||
| Treasury bonds - Portugal | ||||||||||||
| Maturing between one and three years | - | - | - | - | - | - | 414 489 | 4 802 | - | (546) | - | 418 745 |
| Maturing between three and five years | 1 777 962 | 5 407 | 32 052 | 12 582 | - 1 828 003 2 269 602 | 54 776 | 34 514 | 90 039 | - 2 448 931 | |||
| Maturing between five and tem years | 3 188 111 | 44 966 | 12 657 | (3 097) | - 3 242 637 2 566 540 | 49 263 | (13 753) | 124 370 | - 2 726 420 | |||
| Others | 487 | 4 | - | - | (109) | 382 | 487 | 4 | - | - | (116) | 375 |
| 4 966 560 | 50 377 | 44 709 | 9 485 | (109) 5 071 022 5 251 118 108 845 | 20 761 | 213 863 | (116) 5 594 471 |
At June 30, 2016 and December 31, 2015, the Bank held in its portfolio Portuguese Treasury Bonds, in the amounts of tEuros 1,438,598 and tEuros 1,207,074 respectively, which were used as collateral in financing operations (Note 20).
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the remaining headings of "Debt instruments" included the following securities:
| Acquisition Accrued | 30/06/2016 Gains/losses recorded |
Book | Acquisition Accrued | 31/12/2015 Gains/losses recorded |
Book | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| Descrição | cost | receivable in reserves | Impairment | Value | cost | receivable in reserves | Impairment | Value | ||
| Adquired in securitization operations | ||||||||||
| ENERGYON NO.2 CLASS A NOTES 2025 | - | - | - | - | - | 72 463 | 51 | (4 677) | - | 67 837 |
| ATLANTES FINANCE 6 B 03/20/33 | 9 000 | 7 | - | - | 9 007 | 9 000 | 8 | - | - | 9 008 |
| ATLANTES FINANCE 6 S 03/20/33 | 3 949 | - | - | - | 3 949 | 4 483 | - | - | - | 4 483 |
| ENERGYON NO.2 CLASS B NOTES 2025 | - | - | - | - | - | 50 | - | (20) | - | 30 |
| 12 949 | 7 | - | - | 12 956 | 85 996 | 59 | (4 697) | - | 81 358 | |
| Unsubordinated debt | ||||||||||
| CAIXA GERAL DEPOSITOS 3.75% JAN/2018 | 250 914 | 4 222 | 14 199 | - 269 335 | 251 273 | 8 931 | 15 771 | - 275 975 | ||
| Banco Comercial Português 22/06/2017 | 102 112 | 118 | 2 158 | - 104 388 | 103 192 | 2 505 | 2 878 | - 108 575 | ||
| CGD 3% 2014/2019 | 49 979 | 689 | 3 626 | - | 54 294 | 49 974 | 1 442 | 3 800 | - | 55 216 |
| PORTUGAL TELECOM INT FIN 5.875%2 | - | - | - | - | - | 56 025 | 2 215 | (29 642) | - | 28 598 |
| IBERWIND II P- CONSULTORIA SENIOR A | - | - | - | - | - | 26 058 | 24 | (2 937) | - | 23 145 |
| EDIA 2010/2030 | - | - | - | - | - | 19 250 | 206 | (542) | - | 18 914 |
| PORTUGAL TELECOM INT FIN 4.625%2 | - | - | - | - | - | 31 230 | 921 | (17 189) | - | 14 962 |
| PORTUGAL TELECOM INT FIN 5 2019 | - | - | - | - | - | 10 620 | 81 | (5 040) | - | 5 661 |
| Outros | 230 | - | - | (230) | - | 17 090 | 356 | (294) | (230) | 16 922 |
| 403 235 | 5 029 | 19 983 | (230) 428 017 | 564 712 | 16 681 | (33 195) | (230) 547 968 | |||
| Subordinated debt | ||||||||||
| CAIXA GERAL DEPOSITOS 3.875% 2017 | - | - | - | - | - | 123 061 | 22 | - | (3 299) 119 784 | |
| BPSM/97 - TOPS - OB. PERP. SUB | 2 970 | 2 | - | (2 970) | 2 | 2 956 | 2 | (2 955) | 3 | |
| 2 970 | 2 | - | (2 970) | 2 | 126 017 | 24 | - | (6 254) 119 787 |
In the last quarter of 2012, the Bank acquired from Santander Totta Seguros – Companhia de Seguros de Vida, S.A., subordinated bonds issued by Caixa Geral de Depósitos, S.A. for an amount that was tEuros 15,674 above its fair value. Following this operation, impairment losses of the same amount were recorded. During 2015, the Bank reversed impairment losses of tEuros 3,304, of that security, due to its appreciation. This security, in the first half-year of 2016, was reclassified to the Investments held to maturity portfolio.
At June 30, 2016 and December 31, 2015, the heading "Equity instruments" includes the following securities:
| 30/06/2016 | 31/12/2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| Gain/loss | Gain/loss | |||||||
| Acquisition recorded | Book Acquisition recorded | Book | ||||||
| Descrição | cost | in reserves Impairment Value | cost | in reserves Impairment Value | ||||
| Recorded at fair value | ||||||||
| FUNDO SOLUCAO ARRENDAMENTO | 28 925 | (1 024) | - 27 901 | 28 925 | (1 531) | - 27 394 | ||
| Banco PBI | - | - | - | - | 21 502 | - | (8 218) 13 284 | |
| SANTANDER MULTIACTIVOS 0-30 | 2 852 | (63) | - | 2 789 | 2 852 | (50) | - | 2 803 |
| UNICAMPUS-FEI IMOBILIARIO FECHAD | 1 500 | (9) | - | 1 491 | 1 500 | 7 | - | 1 507 |
| VISA INC series C | 1 375 | - | - | 1 375 | - | 3 727 | - | 3 727 |
| SANTANDER MULTIACTIVOS 20-60 | 1 120 | (68) | - | 1 052 | 1 120 | (36) | - | 1 084 |
| FCR PORTUGAL VENTURES VALOR 2 | 3 836 | 297 | (3 099) | 1 034 | 3 826 | 51 | (3 099) | 778 |
| FUNFRAP-FUNDICAO PORTUGUESA, S.A | 274 | 468 | - | 742 | 274 | 371 | - | 645 |
| GARVAL - SOC.DE GARANTIA MUTUA S | 685 | 43 | - | 728 | 1 110 | 72 | - | 1 182 |
| FII FECHADO GEF II | 391 | (9) | - | 382 | 391 | (7) | - | 384 |
| Other | 1 212 | 74 | (624) | 662 | 1 539 | 74 | (616) | 997 |
| Securities with 100% impairment | 33 169 | - | (33 169) | - | 33 396 | - | (33 396) | - |
| 75 339 | (291) | (36 892) 38 156 | 96 436 | 2 679 | (45 329) 53 786 | |||
| Recorded at cost | ||||||||
| LUSIMOVEST - F.I. IMOBILIARIO | 26 379 | - | (2 894) 23 485 | 26 379 | - | (2 894) 23 485 | ||
| FUNDO RECUPERAÇÃO FCR-CATEGORIA | 33 621 | - | (11 715) 21 906 | 33 621 | - | (10 515) 23 106 | ||
| BANIF PROPERTY | 15 350 | - | (10 000) | 5 350 | 15 350 | - | (10 000) | 5 350 |
| SIBS - SGPS, S.A. | 3 461 | - | - | 3 461 | 3 461 | - | - | 3 461 |
| ASCENDI NORTE - AUTO ESTRADAS DO NORTE S.A. | 3 749 | - | (531) | 3 218 | 3 749 | - | (531) | 3 218 |
| ASCENDI NORTE - AUTO ESTRADAS DO NORTE S.A. (Supplementary | ||||||||
| capital contributions) | 3 749 | - | (531) | 3 218 | 3 749 | - | (531) | 3 218 |
| PORTUGAL CAPITAL VENTURES - SOCIEDADE DE CAPITAL DE RISCO, SA 1 065 | - | (214) | 851 | 1 065 | - | (214) | 851 | |
| Other | 501 | - | (86) | 415 | 2 118 | - | - | 2 118 |
| Securities with 100% impairment | 5 456 | - | (5 456) | - | 5 547 | - | (5 547) | - |
| 93 331 | - | (31 427) 61 904 | 95 039 | - | (30 232) 64 807 |
In 2015 the Bank revalued the share of Visa Europe Limited it held at fair value, considering the transfer operation to Visa International Inc. In the first half-year of 2016, the Bank recognized the impact of this operation in the income statement.
At June 30, 2016 and December 31, 2015, the Bank held 5,861,770 participation units in "Fundo Solução Arrendamento, Fundo de Investimento Imobiliário Fechado para Arrendamento Habitacional" in the amount of tEuros 28,925 which were subscribed through the payment in cash of tEuros 2, the delivery of real estate properties and the remainder through the sale of real estate and subsequent subscription of participation units.
During 2015 and 2014, the Bank subscribed to capital increases of Fundo Recuperação, FCR in the amount of tEuros 501 and tEuros 4,629, respectively. At June 30, 2016 and December 31, 2015, the Bank held in its portfolio 33,620 participation units corresponding to a participation of 4.12% in the capital of that Fund. Since the Bank believes that there is insufficient information to reliably determine the fair value of the participation units of this fund, the Bank classified these at historical cost in financial year 2015.
During 2014, the Bank acquired from Santander Totta Seguros – Companhia de Seguros de Vida, S.A. shares of Banco BPI, S.A. for an amount of tEuros 21,501 (fair value as at the acquisition date), which, as at December 31, 2015, were recorded at tEuros 13,284. During 2015, BST recognized impairment for this shareholding considering its prolonged devaluation. In the first half-year of 2016 the Bank sold its entire stake.
At June 30, 2016 and December 31, 2015, the negative fair value reserve arising from the fair value valuation of the available-for-sale financial assets presents the following devaluating percentages on their acquisition cost:
| 30/06/2016 | |||||
|---|---|---|---|---|---|
| Acquisition | Accrued | Gain/loss on | Negative | ||
| cost | interest | hedging operations | reserve | Book Value | |
| Debt instruments | |||||
| Between 0% and 25% | 1 625 029 | 21 543 | 44 709 | (69 101) | 1 622 180 |
| 1 625 029 | 21 543 | 44 709 | (69 101) | 1 622 180 | |
| Equity instruments | |||||
| Between 0% and 25% | 34 888 | - | - | (1 176) | 33 712 |
| Between 25% and 50% | 19 | - | - | (8) | 11 |
| 34 907 | - | - | (1 184) | 33 723 | |
| 1 659 936 | 21 543 | 44 709 | (70 285) | 1 655 903 |
| 31/12/2015 | |||||
|---|---|---|---|---|---|
| Acquisition | Accrued | Gain/loss on | Negative | ||
| cost | interest | hedging operations | reserve | Book Value | |
| Debt instruments | |||||
| Between 0% and 25% | 451 227 | 3 011 | - | (9 762) | 444 476 |
| Between 25% and 50% | 10 669 | 81 | - | (5 060) | 5 690 |
| Over 50% | 87 255 | 3 136 | - | (46 832) | 43 559 |
| 549 151 | 6 228 | - | (61 654) | 493 725 | |
| Equity instruments | |||||
| Between 0% and 25% | 33 325 | - | - | (1 628) | 31 697 |
| Between 25% and 50% | 19 | - | - | (5) | 14 |
| 33 344 | - | - | (1 633) | 31 711 | |
| 582 495 | 7 561 | - | (63 287) | 525 436 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| This heading is made up as follows: | ||
|---|---|---|
| 30/06/2016 | 31/12/2015 | |
| Loans and advances to other domestic banks | ||
| Deposits | 215 263 | 220 221 |
| Loans | 54 817 | 45 704 |
| Other applications | 12 | 7 247 |
| Interest receivable | 1 632 | 3 918 |
| 271 724 | 277 090 | |
| Loans and advances to other foreign banks | ||
| Very short term loans and advances | 833 361 | 364 522 |
| Deposits | 524 116 | 807 694 |
| Other applications | 201 269 | 65 284 |
| Interest receivable | 327 | 20 846 |
| 1 559 073 | 1 258 346 | |
| 1 830 797 | 1 535 436 | |
At December 31, 2015, the heading "Loans and advances to credit institutions" included assets of tEuros 268,334 acquired under the resolution measure applied to Banif (Note 1.4).
At June 30, 2016 and December 31, 2015, the heading "Loans and advances to other foreign banks - Other applications" includes margin accounts of tEuros 161,287 and tEuros 64,966, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| This heading is made up as follows: | ||
|---|---|---|
| 30/06/2016 | 31/12/2015 | |
| Unsecuritized loans | ||
| Domestic loans | ||
| To corporate clients | ||
| Discount and other credit securities | 204 269 | 252 163 |
| Loans | 4 182 525 | 4 215 499 |
| Current account loans | 885 669 | 852 069 |
| Overdrafts | 129 776 | 117 932 |
| Factoring | 1 184 588 | 1 285 974 |
| Finance leasing | 824 248 | 806 335 |
| Other credits To individuals |
737 607 | 704 112 |
| Mortgage loans | 12 937 241 | 12 840 588 |
| Consumer credit and other loans | 2 042 421 | 2 086 065 |
| Foreign loans | ||
| To corporate clients | ||
| Loans | 200 361 | 188 091 |
| Current account loans | 7 190 | 8 467 |
| Overdrafts | 1 185 | 1 039 |
| Factoring | 29 321 | 52 624 |
| Finance leasing | 5 481 | 5 863 |
| Other credits | 2 576 | 2 535 |
| To individuals | ||
| Mortgage loans | 326 903 | 363 681 |
| Consumer credit and other loans | 37 892 | 38 431 |
| 23 739 253 | 23 821 468 | |
| Loans represented by securities | ||
| Non-subordinated debt securities | 4 249 072 | 3 889 120 |
| Non-derecognized securitized assets | ||
| To corporate clients | ||
| Loans | ||
| Gamma STC | 871 855 | 1 100 443 |
| To individuals Mortgage loans |
||
| Hipototta No. 1 PLC | 120 611 | 131 006 |
| Hipototta No. 4 PLC | 832 218 | 884 221 |
| Hipototta No. 5 PLC | 767 914 | 802 221 |
| Gamma STC | 1 715 695 | 1 908 081 |
| Leasing | ||
| Gamma | 71 847 | 97 731 |
| 4 380 140 | 4 923 703 | |
| Overdue loans and interest | ||
| Up to 90 days | 143 233 | 40 228 |
| More than 90 days | 1 433 309 | 1 388 942 |
| 1 576 542 | 1 429 170 | |
| 33 945 007 | 34 063 461 | |
| Accrued interest | ||
| Loans and advances | 70 189 | 71 956 |
| Loans represented by securities | 19 436 | 13 461 |
| Non-derecognized securitized assets | 8 894 | 12 276 |
| Hedge adjustments | 7 928 | 3 527 |
| Deferred expenses | 73 004 | 73 141 |
| Commissions associated with amortized cost (net) | (113 001) | (111 371) |
| 66 450 | 62 990 | |
| 34 011 457 | 34 126 451 | |
| Impairment of loans and advances to customers (Note 23) | (2 160 581) | (2 345 486) |
| 31 850 876 | 31 780 965 |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
In the first half-year of 2016 and in the 2015 financial year, the Bank sold mortgage and company loan portfolios, most of which had already been written off. As a result of these transactions, net gains were recorded in the first half-year of 2016, amounting to tEuros 12,527 (Note 39).
At June 30, 2016 and December 31, 2015, the heading "Domestic loans - To individuals – Mortgage loans" included loans allocated to the autonomous pool of covered bonds issued by the Bank (excluding the former Banif) totalling tEuros 8,086,111 and tEuros 7,669,850, respectively (Note 22).
At December 31, 2015, the loans transferred from the former Banif included tEuros 3,290,657 generated through securitization transactions originating in this entity.
Changes in impairment of loans and advances to customers during the first half-year of 2016 and financial year 2015 are presented in Note 23.
At June 30, 2016 and December 31, 2015, overdue loans and interest are made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Up to three months | 143 233 | 40 228 |
| Between three and six months | 88 452 | 39 379 |
| Between six months and one year | 235 814 | 175 284 |
| Between one year and three years | 451 247 | 476 158 |
| More than three years | 657 796 | 698 121 |
| 1 576 542 | 1 429 170 |
At June 30, 2016, the portfolio of loans and advances to customers, by business sector, was as follows:
| 30/06/2016 | ||||||
|---|---|---|---|---|---|---|
| Performing | Overdue | Total | % | |||
| Agriculture and forestry | 169 524 | 5 300 | 174 823 | 0.52% | ||
| Fishing | 4 860 | 7 | 4 867 | 0.01% | ||
| Mining | 14 202 | 826 | 15 028 | 0.04% | ||
| Manufacturing: | 274 166 | 14 518 | 288 684 | 0.85% | ||
| Food, beverage and tobacco | 147 932 | 5 2 |
147 984 | 0.44% | ||
| Textiles, leather and clothing | 252 779 | 11 991 | 264 770 | 0.78% | ||
| Wood and cork | 244 417 | 7 266 | 251 683 | 0.74% | ||
| Paper and publishing | 284 679 | 2 205 | 286 884 | 0.85% | ||
| Chemical industry | 215 542 | 5 881 | 221 422 | 0.65% | ||
| Ceramics, glass and cement | 206 016 | 2 060 | 208 076 | 0.61% | ||
| Metal-working | 160 909 | 14 406 | 175 315 | 0.52% | ||
| Machines and vehicles | 190 897 | 9 124 | 200 021 | 0.59% | ||
| Electricity, water and gas | 986 865 | 896 | 987 761 | 2.91% | ||
| Construction and public works | 1 153 374 | 297 459 | 1 450 833 | 4.27% | ||
| Commerce and hotels: | 758 972 | 45 880 | 804 852 | 2.37% | ||
| Wholesale trading | 928 067 | 63 890 | 991 957 | 2.92% | ||
| Retail sale | 472 877 | 17 515 | 490 392 | 1.44% | ||
| Restaurants and hotels | 445 732 | 7 074 | 452 805 | 1.33% | ||
| Transport and communications | 86 898 | 2 585 | 89 483 | 0.26% | ||
| Non-monetary financial institutions | 520 869 | 33 163 | 554 032 | 1.63% | ||
| Government administration | 1 749 983 | 219 | 1 750 203 | 5.16% | ||
| Other service companies | 1 712 800 | 210 376 | 1 923 177 | 5.67% | ||
| Loans to individuals | 19 330 145 | 773 509 | 20 103 654 | 59.22% | ||
| Foreign loans | 314 960 | 3 953 | 318 913 | 0.94% | ||
| Other loans | 1 740 999 | 46 387 | 1 787 386 | 5.27% | ||
| 32 368 465 | 1 576 542 | 33 945 007 | 100.00% |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2015, the portfolio of loans and advances to customers (excluding those transferred from the former Banif), by business sector, was as follows:
| 31/12/2015 | ||||||
|---|---|---|---|---|---|---|
| Performing | Overdue | Total | % | |||
| Agriculture and forestry | 175 687 | 5 295 | 180 982 | 0.67% | ||
| Fishing | 4 432 | 1 4 |
4 446 | 0.02% | ||
| Mining | 16 382 | 900 | 17 282 | 0.06% | ||
| Manufacturing: | ||||||
| Food, beverage and tobacco | 353 138 | 5 374 | 358 512 | 1.34% | ||
| Textiles, leather and clothing | 198 354 | 7 494 | 205 848 | 0.77% | ||
| Wood and cork | 93 763 | 2 221 | 95 984 | 0.36% | ||
| Paper and publishing | 197 794 | 1 524 | 199 318 | 0.74% | ||
| Chemical industry | 173 543 | 2 060 | 175 603 | 0.65% | ||
| Ceramics, glass and cement | 210 734 | 1 459 | 212 193 | 0.79% | ||
| Metal-working | 113 669 | 5 334 | 119 003 | 0.44% | ||
| Machines and vehicles | 154 212 | 7 965 | 162 177 | 0.60% | ||
| Electricity, water and gas | 875 366 | 1 210 | 876 576 | 3.27% | ||
| Construction and public works | 1 000 676 | 269 441 | 1 270 117 | 4.74% | ||
| Commerce and hotels: | ||||||
| Wholesale trading | 678 902 | 29 249 | 708 151 | 2.64% | ||
| Retail sale | 857 016 | 38 978 | 895 994 | 3.34% | ||
| Restaurants and hotels | 318 870 | 9 515 | 328 385 | 1.22% | ||
| Transport and communications | 447 083 | 8 364 | 455 447 | 1.70% | ||
| Non-monetary financial institutions | 610 727 | 12 595 | 623 322 | 2.32% | ||
| Government administration | 699 857 | 112 | 699 969 | 2.61% | ||
| Other service companies | 2 001 289 | 92 152 | 2 093 441 | 7.81% | ||
| Loans to individuals | 14 818 069 | 438 549 | 15 256 618 | 56.88% | ||
| Foreign loans | 325 815 | 4 898 | 330 713 | 1.23% | ||
| Holding companies | 1 258 594 | 8 493 | 1 267 087 | 4.72% | ||
| Other loans | 282 546 | 1 677 | 284 223 | 1.06% | ||
| 25 866 518 | 954 873 | 26 821 391 | 100.00% |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 the overdue and the performing loans with and without evidence of impairment, considering the segments used for the reckoning of impairment losses by the Bank, were as follows:
| 30/06/2016 | |||
|---|---|---|---|
| Overdue | Performing | ||
| loans | loans | Total loans | |
| Corporate loans | |||
| Without objective evidence of impairment | - | 11 832 365 | 11 832 365 |
| With objective evidence of impairment | 1 109 657 | 1 102 952 | 2 212 609 |
| 1 109 657 | 12 935 317 | 14 044 974 | |
| Mortgage loans | |||
| Without objective evidence of impairment | - | 15 806 828 | 15 806 828 |
| With objective evidence of impairment | 316 761 | 839 214 | 1 155 975 |
| 316 761 | 16 646 042 | 16 962 803 | |
| Consumer loans | |||
| Without objective evidence of impairment | - | 1 147 221 | 1 147 221 |
| With objective evidence of impairment | 43 886 | 63 299 | 107 185 |
| 43 886 | 1 210 520 | 1 254 406 | |
| Loans granted through credit cards | |||
| Without objective evidence of impairment | - | 301 287 | 301 287 |
| With objective evidence of impairment | 11 970 | 23 664 | 35 634 |
| 11 970 | 324 951 | 336 921 | |
| Other loans to individuals | |||
| Without objective evidence of impairment | - | 1 101 768 | 1 101 768 |
| With objective evidence of impairment | 94 268 | 149 867 | 244 135 |
| 94 268 | 1 251 635 | 1 345 903 | |
| 1 576 542 | 32 368 465 | 33 945 007 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2015 the overdue and performing loans, excluding loans and advances acquired by BST under the resolution measure applied to Banif, with and without evidence of impairment, considering the segments used for the reckoning of impairment losses by the Bank, were as follows:
| 31/12/2015 | |||
|---|---|---|---|
| Overdue | Performing | ||
| loans | loans | Total loans | |
| Corporate loans | |||
| Without objective evidence of impairment | - | 9 234 844 | 9 234 844 |
| With objective evidence of impairment | 484 597 | 288 514 | 773 111 |
| 484 597 | 9 523 358 | 10 007 955 | |
| Mortgage loans | |||
| Without objective evidence of impairment | - | 13 672 636 | 13 672 636 |
| With objective evidence of impairment | 336 480 | 682 010 | 1 018 490 |
| 336 480 | 14 354 646 | 14 691 126 | |
| Consumer loans | |||
| Without objective evidence of impairment | - | 1 024 538 | 1 024 538 |
| With objective evidence of impairment | 35 640 | 48 777 | 84 417 |
| 35 640 | 1 073 315 | 1 108 955 | |
| Loans granted through credit cards | |||
| Without objective evidence of impairment | - | 245 307 | 245 307 |
| With objective evidence of impairment | 17 199 | 5 246 | 22 445 |
| 17 199 | 250 553 | 267 752 | |
| Other loans to individuals | |||
| Without objective evidence of impairment | - | 621 862 | 621 862 |
| With objective evidence of impairment | 80 957 | 42 784 | 123 741 |
| 80 957 | 664 646 | 745 603 | |
| 954 873 | 25 866 518 | 26 821 391 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | ||||||
|---|---|---|---|---|---|---|
| Acquisition cost |
Interest receivable |
Reserves resulting from fair value valuation |
Book Value |
|||
| (Note 27) | ||||||
| Other national public entities | ||||||
| CAMARA MUNICIPAL DE LISBOA/99 | 4 502 | - | (314) | 4 188 | ||
| Other national entities | ||||||
| Non-subordinated debt | ||||||
| EDIA 2010/2030 | 19 251 | 192 | (524) | 18 919 | ||
| IBERWIND II P- CONSULTORIA SENIOR | 24 883 | 20 | (2 782) | 22 121 | ||
| IBERWIND II P-CONSULTORIA SENIOR | 7 311 | 12 | (642) | 6 681 | ||
| REN REDES ENERGETICAS 4.125% 2018 | 9 155 | 154 | 292 | 9 601 | ||
| TAGUS CLASSE A-VARIAVEL-12/05 | 68 833 | 41 | (4 428) | 64 446 | ||
| ENERGYON NO.2 CLASS B NOTES MAY | 50 | - | (19) | 31 | ||
| 129 483 | 419 | (8 103) | 121 799 | |||
| Subordinated Debt | ||||||
| CAIXA GERAL DE DEPOSITOS 2017 | 121 075 | 20 | - | 121 095 | ||
| Securities - Issued by non-national entities | ||||||
| Other non-national entities - Non-subordinated debt | ||||||
| PORTUGAL TELECOM INT FIN 5.875% | 31 749 | 515 | - | 32 264 | ||
| PORTUGAL TELECOM INT FIN 4.625% | 15 782 | 151 | - | 15 934 | ||
| PORTUGAL TELECOM INT FIN 5 2019 | 6 135 | 315 | - | 6 450 | ||
| 53 667 | 981 | - | 54 647 | |||
| 308 727 | 1 420 | (8 417) | 301 730 | |||
In the first half-year of 2016 the Bank classified under this heading a number of securities that were previously classified under "Available-for-sale financial assets".
This heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |||||
|---|---|---|---|---|---|---|
| Assets | Liabilities | Net | Assets | Liabilities | Net | |
| Fair value hedge | ||||||
| Interest rate swaps | 21 860 | 81 748 | (59 888) | 24 634 | 80 782 | (56 148) |
| Equity swaps | 12 283 | 17 825 | (5 542) | 16 218 | 18 329 | (2 111) |
| Options | - | 1 042 | (1 042) | - | 1 593 | (1 593) |
| Cash-flows hedge | ||||||
| Interest rate swaps | 92 138 | 83 239 | 8 899 | 89 440 | 69 429 | 20 011 |
| 126 281 | 183 854 | (57 573) | 130 292 | 170 133 | (39 841) |
At June 30, 2016 and December 31, 2015, the breakdown of the derivative financial instruments was as follows:
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 30/06/2016 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Notional amounts | |||||||||
| Book | Up to 3 | Between 3 | Between 6 | Between 1 | Over 3 | Notional amounts | |||
| Value | months | and 6 months | and 12 months and 3 years | years | Total | EUR | Other | ||
| 1. Derivatives held for trading (Note 7) Forwards |
|||||||||
| Purchased | 577 | 85 179 | 32 498 | 10 733 | 1 029 | - | 129 438 | 63 331 | 66 107 |
| Sold | - | 85 131 | 32 474 | 10 726 | 1 028 | - | 129 359 | 65 396 | 63 964 |
| Currency swaps | |||||||||
| Purchased | 4 088 | 405 856 | - | - | - | - | 405 856 | - | 405 856 |
| Sold | - | 401 544 | - | - | - | - | 401 544 | 401 544 | - |
| Interest rate swaps | (18 777) | 732 838 | 69 938 | 74 990 | 1 304 581 | 8 328 434 10 510 781 10 510 781 | - | ||
| Equity swaps | 107 | - | - | 519 | 40 000 | - | 40 519 | 40 519 | - |
| Cross currency swaps | |||||||||
| Purchased Sold |
154 - |
40 764 40 764 |
28 007 28 007 |
18 692 16 979 |
- - |
- - |
87 464 85 750 |
- - |
87 464 85 750 |
| Equity options | |||||||||
| Purchased | 713 | 216 105 | - | - | - | - | 216 105 | 216 105 | - |
| Sold | - | 216 105 | - | 1 713 | - | - | 217 818 | 216 105 | 1 713 |
| Caps & Floors | 1 899 | 742 | 2 604 | 1 311 874 | 205 115 | 1 390 315 | 2 910 649 | 2 910 649 | - |
| (11 239) 2 225 028 | 193 528 | 1 446 226 | 1 551 752 | 9 718 749 15 135 284 14 424 429 | 710 854 | ||||
| 2. Hedging derivatives | |||||||||
| Fair value hedge | |||||||||
| Interest rate swaps Available-for-sale financial assets |
(71 650) | - | - | - | - | 600 000 | 600 000 | 600 000 | - |
| Liabilities and loans | 11 762 | 9 625 | 8 594 | 29 729 | 54 694 | 447 697 | 550 339 | 550 339 | - |
| Auto Callable options | (1 042) | - | - | - | 196 516 | - | 196 516 | 196 516 | - |
| Equity swaps | (5 542) | 243 074 | 281 808 | 421 744 | 1 509 537 | 114 591 | 2 570 754 | 2 410 937 | 159 817 |
| Cash flow hedge | |||||||||
| Interest rate swaps | |||||||||
| Cash flow | 8 899 | 400 000 | 200 000 | 225 000 | - | 1 300 000 | 2 125 000 | 2 125 000 | - |
| (57 573) | 652 699 | 490 402 | 676 473 | 1 760 746 | 2 462 288 | 6 042 609 | 5 882 792 | 159 817 | |
| 31/12/2015 | |||||||||
| Notional amounts | |||||||||
| Book | Up to 3 | Between 3 and Between 6 and Between 1 | Over | Notional amounts | |||||
| Value | months | 6 months | 12 months | and 3 years | 3 years | Total | EUR | Other | |
| 1. Derivatives held for trading (Note 7) Forwards |
|||||||||
| Purchased | 862 | 76 292 | 80 815 | 15 578 | 205 | - | 172 890 | 85 500 | 87 390 |
| Sold | - | 76 214 | 80 786 | 15 553 | 204 | - | 172 757 | 87 225 | 85 532 |
| Currency swaps | |||||||||
| Purchased | 1 329 | 838 715 | - | - | - | - | 838 715 | - | 838 715 |
| Sold | 847 133 | - | - | - | - | 847 133 | 847 133 | - | |
| Interest rate swaps | 15 907 | 870 380 | 578 144 | 169 621 | 604 488 10 012 699 12 235 332 10 972 766 1 262 566 | ||||
| Equity swaps | 1 461 | 139 009 | 70 000 | - | 180 519 | - | 389 528 | 389 528 | - |
| Cross currency swaps | |||||||||
| Purchased | 82 | 7 006 | 13 778 | 24 800 | - | - | 45 584 | - | 45 584 |
| Sold | - | 7 006 | 13 778 | 24 800 | - | - | 45 584 | - | 45 584 |
| Equity options Purchased |
3 284 | - | 195 899 | 125 104 | 1 929 | - | 322 932 | 321 003 | 1 929 |
| Sold | - | - | 195 899 | 125 104 | 1 929 | - | 322 932 | 321 003 | 1 929 |
| Caps & Floors | 2 982 | 1 106 | 1 340 | 5 101 | 1 359 303 | 1 421 102 | 2 787 952 | 2 787 952 | - |
| 25 907 2 862 861 | 1 230 439 | 505 661 | 2 148 577 11 433 801 18 181 339 15 812 110 2 369 229 | ||||||
| 2. Hedging derivatives | |||||||||
| Fair value hedge | |||||||||
| Interest rate swaps | |||||||||
| Available-for-sale financial assets | (76 981) | - | - | - | - | 850 000 | 850 000 | 850 000 | - |
| Liabilities and loans Auto Callable options |
20 833 (1 593) |
19 442 - |
33 721 - |
18 219 - |
66 055 196 516 |
314 058 - |
451 495 196 516 |
451 495 196 516 |
- - |
| Equity swaps | (2 111) | 325 583 | 300 481 | 525 399 | 1 531 074 | 153 632 | 2 836 169 | 2 649 122 | 187 047 |
| Cash flow hedge | |||||||||
| Interest rate swaps | |||||||||
| Cash flow | 20 011 | 275 000 | 300 000 | 600 000 | 225 000 | 1 300 000 | 2 700 000 | 2 700 000 | - |
The Bank carries out derivative transactions in the scope of its activity, managing its own positions based on expectations of the market's evolution, satisfying customers' needs, or covering positions of a structural nature (hedging).
The Bank trades derivatives, namely exchange rate contracts, interest rate contracts or a combination of both. These transactions are carried out over-the-counter (OTC).
The negotiation of derivatives on over-the-counter (OTC) markets is usually based on a standard bilateral contract, which encompasses all the derivative transactions between the parties. In the
case of professional relationships, an ISDA - International Swaps and Derivatives Association Master Agreement is used. In the case of customer relationships, an own Bank contract is used.
In these type of contracts, the compensation of liabilities in the event of default is foreseen (the scope of such compensation is provided in the contract and is regulated by Portuguese law and, for contracts executed with foreign counterparties or under foreign law, by the law applicable in the relevant jurisdiction).
The derivative contract may also include an agreement for the collateralization of the credit risk that arises from the transactions covered by same. Generally, the derivative contract established between two parties normally includes all the OTC derivative transactions carried out, whether they are for hedging or not.
According to IAS 39, embedded derivatives are also separated and recorded as derivatives, in order to recognize in profit or loss the fair value of those operations.
All derivatives (embedded or autonomous) are recorded at fair value.
accounts at their theoretical value (notional amount). The notional amount is the reference amount for the calculation of the payments and receipts resulting from the operations.
The fair value corresponds to the estimated price of the derivatives if these were traded on the market as at the reference date. The evolution of the fair value of the derivatives is recognized in the appropriate balance sheet accounts and has an immediate impact on the income statement.
This heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Property received as settlement of defaulting loans | 242 274 | 253 626 |
| Own property for sale | 34 695 | 36 792 |
| Participation units | 18 663 | 18 663 |
| Equipment | 2 178 | 2 253 |
| Other properties | 100 | 100 |
| 297 910 | 311 434 | |
| Impairment (Note 23) | (120 983) | (120 839) |
| 176 927 | 190 595 |
The changes occurring under the heading "Non-current assets held for sale" during the six-month periods ended June 30, 2016 and 2015 were as follows:
| 30/06/2016 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2015 June 30, 2016 |
|||||||||||
| Gross | Impairment (Note 23) | Gross | Net | ||||||||
| amount Impairment Increases | Sales | Transfers Increases Reversals Utilization amount Impairment amount | |||||||||
| (Note 15) | |||||||||||
| Property: | |||||||||||
| Received as settlement of defaulting loans | 253 626 | (89 821) | 39 140 (50 492) | - | (9 229) | 1 791 | 6 504 242 274 | (90 755) 151 519 | |||
| Own property for sale | 36 792 | (25 376) | 20 (2 592) | 475 | (548) | - | 1 519 34 695 | (24 405) | 10 290 | ||
| Equipment | 2 253 | (1 642) | 687 | (762) | - | (823) | 186 | 456 | 2 178 | (1 823) | 355 |
| Participation units | 18 663 | (4 000) | - | - | - | - | - | - | 18 663 | (4 000) | 14 663 |
| Other properties | 100 | - | - | - | - | - | - | - | 100 | - | 100 |
| 311 434 | (120 839) | 39 847 (53 846) | 475 | (10 600) | 1 977 | 8 479 297 910 | (120 983) 176 927 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 30/06/2015 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2014 | June 30, 2015 | ||||||||||
| Gross | Impairment (Note 23) | Gross | Net | ||||||||
| amount Impairment Increases | Sales | Transfers Increases Reversals Utilization amount Impairment amount | |||||||||
| (Note 15) | |||||||||||
| Property: | |||||||||||
| Received as settlement of defaulting loans | 271 204 | (92 406) | 57 484 (59 137) | - | (13 852) | 3 126 | 11 164 269 550 | (91 968) 177 582 | |||
| Own property for sale | 38 890 | (24 941) | 66 | (108) | 5 599 | (2 242) | 1 132 | 10 44 448 | (26 041) | 18 407 | |
| Equipment | 3 464 | (2 499) | 499 (1 563) | - | (280) | 451 | 654 | 2 400 | (1 674) | 726 | |
| Participation units | 18 663 | (4 000) | - | - | - | - | - | - | 18 663 | (4 000) | 14 663 |
| 332 221 | (123 846) | 58 049 (60 808) | 5 599 | (16 374) | 4 709 | 11 828 335 061 | (123 683) 211 378 |
At June 30, 2016 and December 31, 2015, the heading "Participation units" includes participation units in Fundo Fechado de Investimento Imobiliário - Imorent (Real Estate Investment Fund – Imorent), acquired as a result of a debt settlement agreement established with a customer.
The Bank's intention is to immediately sell all properties received in settlement of defaulted loans. These properties are classified as non-current assets held for sale and are recorded upon their initial recognition at the lower of their fair value less expected selling costs and the carrying value of the loans recovered. Subsequently, these assets are measured at the lower of their initial recognition value and their fair value less costs to sell, and they are not depreciated. The unrealized losses on these assets, thus determined, are recognized in the income statement.
The valuation of these properties is made in accordance with one of the following methodologies, applied according to the specific situation of each asset:
The comparative market method uses as a reference transaction values of similar and comparable properties, obtained from market research, in the same location of the asset.
b) Income method
The purpose of this method is to estimate the value of the property through the capitalization of its net income (rent) discounted to the present, using discounted cash flow methods.
c) Cost method
The cost method consists of determining the replacement value of the property taking into consideration the cost of building another property with identical functionality, less the amount of functional, physical and economic depreciation/obsolescence verified.
The valuations of the properties mentioned above were performed by specialized independent entities, certified by the Portuguese Securities Market Commission (Comissão dos Mercados dos Valores Mobiliários ("CMVM")).
This heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Properties held by Novimovest Fund | 380 961 | 387 193 |
| 380 961 | 387 193 |
During 2013, following the subscription of several participation units, the Bank started to consolidate through the full consolidation method the Novimovest Fund, whose main assets are properties held for rental.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the properties held by the Novimovest Fund had the following characteristics:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Land | ||
| Urbanized | 15 127 | 15 129 |
| Non-urbanized | 1 196 | 1 196 |
| Construction projects | ||
| Other construction projects | 27 337 | 36 147 |
| Finished constructions | ||
| Rented | 273 832 | 267 848 |
| Not rented | 63 469 | 66 873 |
| 380 961 | 387 193 |
On the other hand, during the first half-year of 2016 and 2015, the properties held by the Novimovest Fund generated, amongst others, the following income and annual charges:
The changes occurring under the heading "Investment properties" during the six-month period ended June 30, 2016 and financial year 2015, were as follows:
| 30/06/2016 | |||||
|---|---|---|---|---|---|
| Balances at | Fair value | Balances at | |||
| December 31, 2015 | Increases | valuation | Sales | June 30, 2016 | |
| Properties held by Novimovest Fund | 387 193 | - | 2 805 | (9 037) | 380 961 |
| 387 193 | - | 2 805 | (9 037) | 380 961 | |
| 31/12/2015 | |||||
| Balances at | Fair value | Balances at | |||
| December 31, 2014 | Increases | valuation | Sales | December 31, 2015 | |
| Properties held by Novimovest Fund Hotel |
401 239 19 000 |
- - |
(6 241) - |
(7 805) (19 000) |
387 193 - |
| 420 239 | - | (6 241) | (26 805) | 387 193 |
The impact of the fair value valuation of the properties held by the Novimovest Fund was recognized in the income statement heading "Other operating results - Unrealized gains/losses on investment properties" (Note 40).
Investment properties held by the Bank are valued on a biannual basis, or whenever an event occurs which raises doubts as to the value of the last valuation carried out, using specialized independent entities, in accordance with the valuation methodologies described in Note 13.
At June 30, 2016 and December 31, 2015, the determination of the fair value of the investment properties in accordance with the levels defined in IFRS 13 was as follows:
| Level 3 | ||
|---|---|---|
| 30/06/2016 | 31/12/2015 | |
| Investment properties | 380 961 | 387 193 |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
According to the requirements of IFRS 13, the main features of the higher valued investment properties in the Bank's portfolio at June 30, 2016 and December 31, 2015, should be summarized showing the valuation techniques adopted and the relevant inputs used in the estimation of their fair value, as presented below:
| Description of the property | Use | Value on | Value on 30/06/2016 31/12/2015 |
Valuation technique | Relevant inputs |
|---|---|---|---|---|---|
| Hotel Delfim - Alvor Hotel in Portimão |
Leased out | 34 253 | 34 253 Income method | Lease value per m2 Capitalization rate |
|
| Stª Cruz do Bispo - Lots 1, 2 and 3 Plots in Matosinhos |
Urbanized | 33 702 | 30 017 Comparative market method / Residual value method | Capitalization rate Land value and cost of construction and marketing per m2 |
|
| Galerias Saldanha Residence Shopping Center in Lisbon |
Leased out | 26 420 | 26 420 Income method / Comparative market method | Lease value per m2 | |
| Warehouse in Perafita Warehouse in Matosinhos |
Leased out | 15 721 | 15 721 Income method / Comparative market method | Lease value per m2 Capitalization rate |
|
| Av. Antero de Quental, 9 Offices and store in Ponta Delgada |
Leased out | 12 173 | 12 373 Income method / Comparative market method | Lease value per m2 Capitalization rate |
|
| Estrada da Outurela, 119, Carnaxide Offices in Oeiras |
Leased out | 11 446 | 12 854 Income method / Comparative market method (2015) Income method / Cost method (2014) |
Lease value per m2 Capitalization rate |
|
| Campos de Golf Vila Sol - G1 and G2 Golf courses in Loulé |
Leased out | 12 032 | 11 722 Income method / Cost method | Lease value per m2 Capitalization rate |
|
| Parque Logístico SPC - Warehouses 1 and 4 Leased out (SPC 1) Warehouses in Vila Franca de Xira |
Vacant (SPC 4) | 10 455 | 10 455 Income method / Comparative market method (2015) Income method / Cost method (2014) |
Lease value per m2 Capitalization rate |
|
| Alfena - Valongo Plots Plots in Valongo |
Non-urbanized | 6 122 | 6 130 Comparative market method / Cost method / Residual value method | Land value and cost of construction and marketing per m2 |
|
| 162 324 | 159 945 |
If an increase in the rent value per square meter occurs, or an increase in the occupation rate, or a decrease in the capitalization rate occurs, the fair value of the investment properties will increase. On the other hand, if an increase in the construction or sale costs occurs, or an increase in the capitalization rate, or a decrease in the amount of rent per square meter or a decrease in the occupation rate occurs, the fair value of the investment properties will decrease
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Changes in these headings in the six-month periods ended June 30, 2016 and 2015 were as follows:
| 30/06/2016 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Transfers | ||||||||||||||||
| From/to non-current | Foreign exchange | |||||||||||||||
| December 31, 2015 | Write-offs and sales | assets held for sale (Note 13) Depreciation | differences and others | June 30, 2016 | ||||||||||||
| Gross Accumulated | Gross Accumulated | Gross | Accumulated | in the | Impairment Gross Accumulated Gross Accumulated | Net | ||||||||||
| amount depreciation Impairment Acquisitions amount depreciation | amount | depreciation | period | Reversal | Amount depreciation Amount depreciation Impairment amount | |||||||||||
| (Note 23) | (Note 23) | (Note 23) | ||||||||||||||
| Tangible assets Property |
||||||||||||||||
| Property for own use | 387 162 | 139 061 | 3 843 | 4 995 | - | - | (715) | (241) | 3 541 | 36 | (376) | (292) 391 066 | 142 069 | 3 879 245 118 | ||
| Leasehold expenditure | 148 784 | 138 518 | - | 6 | 173 | 173 | - | - | 1 604 | - | (3) | (3) 148 613 | 139 945 | - | 8 668 | |
| Other property | 1 293 | 287 | 20 | - | - | - | - | - | 63 | - | - | - | 1 293 | 350 | 20 | 924 |
| Unfinished tangible assets | ||||||||||||||||
| Property for own use | 9 034 546 273 |
- 277 866 |
- 3 863 |
5 282 10 284 |
- 173 |
- 173 |
- (715) |
- (241) |
- 5 208 |
- 36 |
- (379) |
- | 14 317 (295) 555 289 |
- 282 364 |
- | 14 317 3 899 269 027 |
| Equipment | ||||||||||||||||
| Furniture and fixtures | 20 840 | 19 129 | - | 1 010 | 46 | 46 | - | - | 370 | - | (1) | (1) | 21 803 | 19 452 | - | 2 351 |
| Machinery and tools | 5 555 | 5 462 | - | 13 | 45 | 45 | - | - | 19 | - | (1) | (1) | 5 522 | 5 435 | - | 87 |
| Computer hardware | 98 949 | 89 608 | - | 3 919 10 307 | 10 306 | - | - | 2 099 | - | - | - | 92 562 | 81 401 | - | 11 161 | |
| Indoor facilities | 24 740 | 13 551 | - | 1 267 | 4 | 4 | (1) | (1) | 939 | - | - | - | 26 002 | 14 485 | - | 11 517 |
| Vehicles | 21 848 | 11 720 | - | 1 159 | 3 608 | 3 556 | - | - | 949 | - | (2) | (2) | 19 397 | 9 111 | - | 10 286 |
| Security equipment | 12 669 | 12 172 | - | 123 | - | - | - | - | 87 | - | - | - | 12 791 | 12 260 | - | 532 |
| Other equipment | 5 320 | 4 472 | - | 89 | - | - | - | - | 117 | - | - | - | 5 409 | 4 588 | - | 821 |
| Unfinished tangible assets | 14 | - | - | 164 | - | - | - | - | - | - | - | - | 178 | - | - | 178 |
| 189 935 | 156 114 | - | 7 745 14 010 | 13 957 | (1) | (1) | 4 580 | - | (4) | (4) 183 665 | 146 732 | - | 36 933 | |||
| Other tangible assets | ||||||||||||||||
| Leased equipment | 281 | 281 | - | - | - | - | - | - | - | - | - | - | 281 | 281 | - | - |
| Work of Art | 1 829 | - | - | - | - | - | - | - | - | - | - | - | 1 829 | - | - | 1 829 |
| Other | 3 464 | 3 464 | - | - | - | - | - | - | - | - | 51 | 51 | 3 515 | 3 515 | - | - |
| 5 574 | 3 744 | - | - | - | - | - | - | - | 51 | 51 | 5 625 | 3 796 | - | 1 829 | ||
| 741 782 | 437 724 | 3 863 | 18 029 14 183 | 14 130 | (717) | (242) | 9 788 | 36 | (332) | (248) 744 579 | 432 892 | 3 899 307 788 | ||||
| Intangible assets | ||||||||||||||||
| Software purchased | 393 964 | 368 693 | - | 8 434 | 19 | - | - | - | 7 885 | - | - | - 402 379 | 376 577 | - | 25 802 | |
| Unfinished intangible assets | 5 782 | - | - | 2 239 | - | - | - | - | - | - | - | - | 8 022 | - | - | 8 022 |
| Business transfers | 3 345 | 3 345 | - | - | - | - | - | - | - | - | - | - | 3 345 | 3 345 | - | - |
| 403 091 | 372 037 | - | 10 674 | 19 | - | - | - | 7 885 | - | - | - 413 746 | 379 922 | - | 33 824 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 30/06/2015 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Transfers | ||||||||||||||||||
| From/to non-current | Foreign exchange | |||||||||||||||||
| December 31, 2014 | Write-offs and sales | assets held for sale (Note 13) | Transfers | Depreciation | differences | June 30, 2015 | ||||||||||||
| Gross Accumulated | Gross Accumulated | Gross | Accumulated | Gross Accumulated | in the | Impairment | Gross Accumulated Gross Accumulated | Net | ||||||||||
| amount depreciation Impairment Acquisitions amount depreciation amount | depreciation | amount depreciation | period | Reversal | Amount depreciation Amount depreciation Impairment amount | |||||||||||||
| (Note 23) | (Note 23) | (Note 23) | ||||||||||||||||
| Tangible assets | ||||||||||||||||||
| Property | ||||||||||||||||||
| Property for own use | 390 602 | 135 286 | 3 843 | 555 | 40 | 40 | (10 028) | (4 456) | - | - | 3 642 | - | - | - 381 089 | 134 432 | 3 843 242 814 | ||
| Leasehold expenditure | 125 363 | 112 122 | - | 401 | 1 932 | 1 932 | (130) | (130) | - | - | 2 126 | - | 13 | 13 123 715 | 112 199 | - 11 516 | ||
| Other property | 306 | 7 | 20 | - | - | - | - | - | - | - | 1 | - | - | - | 306 | 8 | 20 | 278 |
| Unfinished tangible assets | ||||||||||||||||||
| Property for own use | 1 453 | - | - | 2 482 | - | - | - | - | - | - | - | - | - | - | 3 935 | - | - | 3 935 |
| 517 724 | 247 415 | 3 863 | 3 438 | 1 972 | 1 972 | (10 158) | (4 586) | - | - | 5 769 | - | 13 | 13 509 045 | 246 639 | 3 863 258 543 | |||
| Equipment | ||||||||||||||||||
| Furniture and fixtures | 22 441 | 20 471 | - | 188 | 426 | 426 | - | - | 8 | - | 393 | - | 3 | 3 | 22 214 | 20 441 | - | 1 773 |
| Machinery and tools | 3 755 | 3 683 | - | 14 | 67 | 67 | - | - | - | - | 16 | - | 2 | 2 | 3 704 | 3 634 | - | 70 |
| Computer hardware | 127 703 | 117 426 | - | 861 | 303 | 300 | - | - | - | - | 1 838 | - | 1 | 1 128 262 | 118 965 | - | 9 297 | |
| Indoor facilities | 18 345 | 8 945 | - | 1 508 | 36 | 36 | (51) | (24) | - | - | 949 | - | - | - | 19 766 | 9 834 | - | 9 932 |
| Vehicles | 20 977 | 13 169 | - | 1 291 | 1 146 | 1 146 | - | - | - | - | 709 | - | 8 | 4 | 21 130 | 12 736 | - | 8 394 |
| Security equipment | 26 651 | 26 302 | - | 190 | 273 | 273 | (1) | (1) | - | - | 110 | - | - | - | 26 567 | 26 138 | - | 429 |
| Other equipment | 5 704 | 4 770 | - | 163 | 68 | 68 | - | - | (8) | - | 236 | - | - | - | 5 791 | 4 938 | - | 853 |
| 225 576 | 194 766 | - | 4 215 | 2 319 | 2 316 | (52) | (25) | - | - | 4 251 | - | 14 | 10 227 434 | 196 686 | - 30 748 | |||
| Other tangible assets | ||||||||||||||||||
| Leased equipment | 281 | 281 | - | - | - | - | - | - | - | - | - | - | - | - | 281 | 281 | - | - |
| Work of Art | 1 536 | - | - | 4 | - | - | - | - | - | - | - | - | 1 | - | 1 541 | - | - | 1 541 |
| 1 817 | 281 | - | 4 | - | - | - | - | - | - | - | - | 1 | - | 1 822 | 281 | - | 1 541 | |
| 745 117 | 442 462 | 3 863 | 7 657 4 291 | 4 288 | (10 210) | (4 611) | - | - | 10 020 | - | 28 | 23 738 301 | 443 606 | 3 863 290 832 | ||||
| Intangible assets | ||||||||||||||||||
| Software purchased | 376 056 | 348 178 | - | 8 862 | - | - | - | - | 272 | - | 12 932 | - | - | - 385 190 | 361 110 | - | 24 080 | |
| Unfinished intangible assets | 503 | - | - | 3 554 | - | - | - | - | (272) | - | - | - | - | - | 3 785 | - | - | 3 785 |
| Business transfers | 3 464 | 3 464 | - | - | 118 | 118 | - | - | - | - | - | - | - | - | 3 346 | 3 346 | - | - |
| 380 023 | 351 642 | - | 12 416 | 118 | 118 | - | - | - | - | 12 932 | - | - | - 392 321 | 364 456 | - | 27 865 |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, this heading was made up as follows:
| 30/06/2016 | 31/12/2015 | ||||
|---|---|---|---|---|---|
| Effective | Book | Effective | Book | ||
| participation (%) | value | participation (%) | value | ||
| Investments in associates | |||||
| Domestic | |||||
| Benim - Sociedade Imobiliária, S.A. | 25.81 | 1 855 | 25.81 | 2 078 | |
| Unicre - Instituição Financeira de Crédito, S.A. (Unicre) | 21.50 | 38 295 | 21.50 | 41 635 | |
| Atlantes Finance 6 C | 22.02 | 13 | 23.00 | 744 | |
| 40 163 | 44 457 | ||||
| Impairment of investments in associates (Note 23) | |||||
| Benim - Sociedade Imobiliária, S.A. | (1 500) | (1 500) | |||
| 38 663 | 42 957 |
Under the terms of the agreement signed in August 2008 between Caixa Geral de Depósitos, S.A. ("CGD") and BST, on June 4, 2009 Santotta – Internacional, SGPS, S.A. ("Santotta") and BST incorporated Partang, SGPS, S.A. ("Partang") through the delivery of shares of Banco Totta de Angola, S.A., subsequently denominated Banco Caixa Geral Totta de Angola, S.A. ("BCGTA"), corresponding to 50.5% and 0.5% of its share capital, respectively. Under the terms of the above mentioned agreement, on July 2, 2009 CGD subscribed the total amount of Partang's share capital increase. After that operation, Partang was 50% owned by CGD and 50% owned by the Santander Group (of which 49.51% was held by the subsidiary Santotta and 0.49% was held directly by BST).
Under the terms of the agreement entered into between BST and CGD on July 5, 2010, CGD exercised its purchase option over 1% of Partang's share capital. Following this operation, the Bank's shareholding decreased to 49% of the share capital of Partang and it lost its joint control over BCGTA. In accordance with IAS 27, the Bank measured the remaining shareholding as at the date joint control was lost at fair value. Subsequently, that shareholding started being recognized in accordance with the equity method.
At December 31, 2014, Partang owned 51% of Banco Caixa Geral Totta Angola, S.A.
On May 29, 2015, the Bank exercised its put option to sell its shareholding in Partang to CGD (49% of the share capital directly and indirectly held). The sales price amounted to approximately US Dollars191 million. The transfer of shares, the corresponding settlement of the sales price and the derecognition of this financial investment from the financial statements occurred in July, 2015. BST recognized a capital gain in the consolidated accounts in the amount of tEuros 41,042.
The shareholding in Benim – Sociedade Imobiliária, S.A. is held indirectly by the Bank through Totta Urbe – Empresa de Administração e Construções, S.A..
At June 30, 2016 and December 31, 2015, the financial investments held in Unicre included goodwill. The impairment test performed on the goodwill of Unicre did not evidence any impairment loss in this financial investment.
The Bank holds 22% of the equity piece of the "Atlantes Finance 6 C" securitization, which was recognized in the heading "Investments in associated companies" following the acquisition of this asset by BST, under the resolution measure applied to Banif.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, these headings were made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Current tax assets: Corporate income tax receivable |
13 367 | 16 458 |
| Current tax liabilities: | ||
| Corporate income tax payable | 30 282 | 34 090 |
| Other | 4 254 | 3 657 |
| 34 536 | 37 747 | |
| Deferred tax assets: | ||
| Relating to temporary differences | 385 796 | 418 318 |
| Deferred tax liabilities: | ||
| Relating to temporary differences | 84 828 | 119 609 |
| Relating to tax credits | 3 242 | 3 311 |
| 88 070 | 122 920 |
At June 30, 2016 and December 31, 2015, the heading "Current tax assets – Corporate income tax receivable" included tEuros 8,641, paid by the Bank in respect of some corrections made by the Tax Authorities to its tax returns in previous years. Since the Bank does not agree with the grounds of such corrections it recorded those payments as an asset and lodged administrative appeals regarding same.
At June 30, 2016 and December 31, 2015, corporate income tax in the income statement was made up as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| Current tax | ||
| Of the period | (28 875) | (11 278) |
| Special contribution to the banking sector | (19 633) | (16 716) |
| Consortiums ("ACE's") | (563) | (569) |
| Other | 11 445 | 2 030 |
| (37 626) | (26 533) | |
| Deferred tax | ||
| Increases and reversals of temporary differences | (43 840) | (19 836) |
| (Expense)/Income for tax credits | - | (5 173) |
| (43 840) | (25 009) |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Changes in deferred tax assets and liabilities for the period ended June 30, 2016 and financial year 2015 were as follows:
| 30/06/2016 | ||||
|---|---|---|---|---|
| Other | ||||
| Balances at | Comprehensive | Income | Balances at | |
| December 31, 2015 | Income | statement June 30, 2016 | ||
| Provisions/Impairment temporarily not accepted for tax purposes | ||||
| Assets | 220 997 | - | (19 498) | 201 499 |
| Liabilities relating to potential capital losses | (1 818) | - | - | (1 818) |
| Revaluation of tangible assets | (3 311) | - | 69 | (3 242) |
| Pensions: | ||||
| Early retirement pensions | 23 096 | - | (56) | 23 040 |
| Retirement pensions and actuarial deviations | 101 629 | - | (10 817) | 90 812 |
| Transfer of pension liabilities to the Social Security | 4 838 | - | (151) | 4 687 |
| Long service bonuses | 10 861 | - | (257) | 10 604 |
| Securitization operations: | ||||
| Premium/discount on debt issued | (185) | - | 13 | (172) |
| Recognition of an interest accrual regarding the notes with higher subordination | (4 271) | - | (279) | (4 550) |
| Results on intra-group securities purchases | (21 642) | - | (2 206) | (23 848) |
| Tax losses carried forward | - | - | - | - |
| Valuations and adjustments temporarily not accepted for tax purposes: | ||||
| Tangible and intangible assets | (559) | - | (357) | (916) |
| Cash flow hedges | 132 | 2 928 | - | 3 060 |
| Available-for-sale financial assets | (51 701) | 43 240 | - | (8 461) |
| Deferred commissions | 1 870 | - | 381 | 2 251 |
| Capital gains only considered for tax purposes | (1 540) | - | 17 | (1 523) |
| Application of the equity method in the | ||||
| valuation of investments in associated companies | (330) | - | - | (330) |
| Long-term incentives plan | 1 962 | - | 85 | 2 047 |
| Integration costs | 15 370 | - | (10 783) | 4 587 |
| Other | (1) | - | - | - |
| 295 397 | 46 168 | (43 840) | 297 726 |
The Bank did not recognize tEuros 272,955 of deferred tax assets transferred from the former Banif, as described in Note 1.4.
| 30/06/2015 | ||||
|---|---|---|---|---|
| Other | ||||
| Balances at | Comprehensive | Income | Balances at | |
| December 31, 2014 | Income | statement June 30, 2015 | ||
| Provisions/Impairment temporarily not accepted for tax purposes | ||||
| Assets | 230 321 | - | (5 026) | 225 295 |
| Liabilities relating to potential capital losses | (1 958) | - | 140 | (1 818) |
| Revaluation of tangible assets | (3 505) | - | 122 | (3 383) |
| Pensions: | ||||
| Early retirement pensions | 31 989 | - | (3 843) | 28 146 |
| Retirement pensions and actuarial deviations | 120 819 | - | (9 445) | 111 374 |
| Transfer of pension liabilities to the Social Security | 5 140 | - | (151) | 4 989 |
| Long service bonuses | 10 571 | - | 152 | 10 723 |
| Securitization operations: | ||||
| Premium/discount on debt issued | (214) | - | 14 | (200) |
| Recognition of an interest accrual regarding the notes with higher subordination | (4 360) | - | (8) | (4 368) |
| Results on intra-Group securities purchases | (20 414) | - | (1 007) | (21 421) |
| Tax losses carried forward | 25 957 | - | (5 295) | 20 662 |
| Valuations and adjustments temporarily not accepted for tax purposes: | ||||
| Tangible and intangible assets | 468 | - | (521) | (53) |
| Cash flow hedges | (6 346) | 3 199 | - | (3 147) |
| Available-for-sale financial assets | (74 436) | 31 525 | - | (42 911) |
| Deferred commissions | 1 424 | - | 83 | 1 507 |
| Capital gains only considered for tax purposes | (1 226) | - | (309) | (1 535) |
| Application of the equity method in the | ||||
| valuation of investments in associated companies | (392) | - | - | (392) |
| Long-term incentives plan | 1 929 | - | 85 | 2 014 |
| Investments in subsidiaries, associates and joint ventures | 883 | - | - | 883 |
| Other | (1) | 1 | - | - |
| 316 649 | 34 725 | (25 009) | 326 365 |
At December 31, 2014, the assessment of the realization of the deferred tax assets, namely those associated with tax losses carried forward, was performed taking in consideration the last Business Plan approved by the Bank's Board of Directors, which encompasses a three year period. In accordance with this Business Plan, the deferred tax assets arising from tax losses carried forward will be recovered in the next two years, as had already occurred in 2015.
Following the changes occurring in the tax legislation for 2015, the Bank decided, in 2014, to start measuring and recognizing deferred tax assets related to tax losses carried forward at a rate of 21% and deferred taxes associated with timing differences at a rate of 29%.
The dividends distributed to the Bank by its subsidiaries and associated companies located in Portugal or in a European Union member state are not taxed at the level of the Bank as a result of the regime laid down in Article 51 of the Corporate Income Tax Code, which provides for the elimination of the double taxation of distributed profits.
Tax authorities may review the Bank's tax situation during a period of four years (five years for Social Security), except in the cases where tax losses carried forward, as well as any other tax benefits or credits exist. In those cases, the statutory limitation period corresponds to that of the year that right is exercised.
The Bank was subject to tax inspections up to 2013, inclusive. As a result of the tax inspection on the accounts for 2013, the Bank was subject to an additional assessment of Corporate Income Tax relating to autonomous taxation and several corrections to the tax losses reported in that year. In terms of Stamp Duty, the Bank was also subject to an additional assessment. The corrections made to the Corporate Income Tax base covered several matters, including, amongst others, adjustments relating to the fiscal recognition of actuarial deviations, adjustments at the level of early retirement pensions and the use of the provisions for overdue loans. Parts of these corrections are merely temporary.
The Bank has paid the amount regarding the additional tax assessments. However, the Bank has challenged the majority of those additional tax assessments via administrative and/or judicial appeals.
The Bank records under the heading "Provisions" the amount considered to be necessary to cover the risks arising from the additional tax assessments as well as the contingencies relating to the years not yet reviewed by the Tax Authorities (Note 23).
In 2015, the Bank applied the tax neutrality regime to the result arising from the purchase of a significant part of the former Banif's activity. The Board of Directors trusts that the request made to the Minister of Finance will be approved (Note 1.4) and that the result in question is not subject to taxation under the Corporate Income Tax Code.
This heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Other available funds | 421 | 311 |
| Debtors and other applications | ||
| Debtors resulting from operations with futures | 9 385 | 7 484 |
| Deposit accounts | 818 | 823 |
| Other applications | 480 | 480 |
| VAT recoverable | 4 916 | 4 024 |
| Debtors for loan interest subsidies | 10 396 | 12 385 |
| Other debtors | 47 556 | 39 001 |
| Debtors and other applications - overdue capital and interest | 8 848 | 6 683 |
| Debtors - unrealised capital | 38 | 38 |
| Shareholders' loans | ||
| Fafer - Empreendimentos Urbanísticos e de Construção, S.A. | 364 | 364 |
| Gestínsua - Aquisições e Alienações de Património Imobiliário e Mobiliário, S.A. | 126 | 126 |
| Propaço - Sociedade Imobiliária de Paço de Arcos, Lda. | 2 465 | 2 465 |
| Other intercompany loans - Banif | 25 144 | - |
| Gold, other precious metals, coins and medals | 3 102 | 3 062 |
| Promises and other assets received as settlement of defaulting | 43 689 | 42 479 |
| Deferred costs on participations in consortiums loans | 27 478 | 36 794 |
| Other income receivable - securitization and covered bonds | 2 636 | 2 982 |
| Deferred costs | 2 351 | 3 293 |
| Liabilities with pensions | ||
| BST liabilities | - | (1 069 479) |
| Fair value of BST Pension Fund | - | 1 071 360 |
| Actuarial losses | - | (96) |
| Other operations pending settlement | 200 381 | - |
| Other assets pending regularization | 277 856 | 171 506 |
| Other assets | 1 885 | 19 827 |
| 670 335 | 355 912 | |
| Impairment losses (Note 23): | ||
| Debtors and other applications | ||
| Debtors and other applications | (5 960) | (5 909) |
| Debtors, other investments and other assets | ||
| Assets received as settlement of defaulting loans | (9 944) | (9 725) |
| Supplies | (19 686) | (2 398) |
| Other assets and other investments | (62 601) | (58 810) |
| (98 191) | (76 482) | |
| 572 144 | 279 070 |
The heading "Debtors and other applications - Debtors resulting from operations with futures" corresponds to the current accounts maintained by the Bank with international financial institutions related to the trading of futures. Customers' futures margin accounts are recorded under the heading "Creditors and other resources - Creditors resulting from operations with futures" (Note 26).
At June 30, 2016 and December 31, 2015, the heading "Debtors and other applications - overdue capital" included tEuros 6,311 and tEuros 6,157, respectively, related to overdue rents of properties leased by the Novimovest Fund.
At June 30, 2016 and December 31, 2015, the heading "Income receivable" included, essentially, commissions receivable from insurance companies related to the sale of their insurance products (Note 44).
At June 30, 2016 and December 31, 2015, the heading "Other income receivable - securitization" corresponds to the interest amount receivable arising from the swap agreements entered into between the Bank and the Santander Group and between the Santander Group and the securitization vehicles (Note 46). The amount payable related to these transactions is recorded under the heading "Other liabilities – Accrued costs – Relating to swap agreements" (Note 26).
At June 30, 2016 and December 31, 2015, the heading "Other" includes transactions pending settlement in accordance with the following detail:
| 30/06/2016 | 31/12/2015 | |||
|---|---|---|---|---|
| Other | Other | Other | Other | |
| Assets | Liabilities | Assets | Liabilities | |
| (Note 26) | (Note 26) | |||
| Interest receivable from swap contracts established with Portuguese State-owned companies (Note 50) | 434 348 | - 341 894 | - | |
| Cheques, values in transit and other transactions to be settled | - | (11 126) | (74 553) | (216) |
| Amounts receivable/(payable) | - | (32 394) | 10 666 | - |
| Transfers within SEPA | (136 293) | - | (62 355) | - |
| Balances to be settled in ATM's | (64 840) | (10 757) | (46 945) | - |
| Other | 44 641 | (45 103) | 2 799 | (1 258) |
| 277 856 | (99 380) 171 506 | (1 474) |
This heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Resources from Bank of Portugal | ||
| Deposits | 2 446 000 | 4 946 002 |
| Accrued interest | - | 2 207 |
| Resources from other central banks | ||
| Deposits | 4 427 | 4 470 |
| 2 450 427 | 4 952 679 |
At December 31, 2015, the heading "Resources of the European Central Bank" included tEuros 819,639 recognized by the Bank under the resolution measure applied to Banif.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Resources of domestic credit institutions | ||
| Deposits | 134 627 | 172 731 |
| Loans | 1 150 | 2 349 |
| Other resources | - | 20 082 |
| Interest payable | 21 | 29 |
| 135 798 | 195 191 | |
| Resources of foreign credit institutions | ||
| Consigned resources | 699 333 | 675 909 |
| Very short term resources | 942 | 947 |
| Deposits | 183 197 | 487 926 |
| Sale operations with repurchase agreement | 2 105 269 | 2 183 614 |
| Interest payable | 30 | 1 642 |
| 2 988 771 | 3 350 038 | |
| 3 124 569 | 3 545 229 |
At June 30, 2016 and December 31, 2015, the heading "Resources of foreign credit institutions – Sale operations with repurchase agreement", is made up as follows, by type of underlying asset:
| 30/06/2016 | ||||
|---|---|---|---|---|
| Principal | Interest | Deferred costs | Total | |
| Treasury Bonds - Portugal | 1 438 598 | (103) | - | 1 438 495 |
| Non-subordinated debt | 292 861 | 45 | (4) | 292 902 |
| Bonds issued by non-residents | 373 586 | 285 | - | 373 871 |
| 2 105 045 | 227 | (4) | 2 105 269 | |
| 31/12/2015 | ||||
| Principal | Interest | Deferred costs | Total | |
| Treasury Bonds - Portugal | 1 207 074 | 215 | (158) | 1 207 131 |
| Non-subordinated debt | 292 031 | 50 | (17) | 292 064 |
| Bonds issued by non-residents | 41 428 | (37) | 12 | 41 403 |
| Repurchase agreements (former Banif) | 643 016 | - | - | 643 016 |
At June 30, 2016 and December 31, 2015, the heading "Resources of foreign credit institutions – Other resources" included tEuros 600,000, related to loans obtained from the European Investment Bank (EIB).
At December 31, 2015, the heading "Resources of other credit institutions" included tEuros 750,189 of liabilities assumed by the Bank under the resolution measure applied to Banif.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Term deposits | 13 853 877 | 14 431 359 |
| Demand deposits | 9 993 318 | 8 636 032 |
| Structured deposits | 4 350 503 | 3 798 996 |
| Savings deposits | 95 379 | 76 759 |
| Advance notice deposits | 22 713 | 19 190 |
| 28 315 790 | 26 962 336 | |
| Interest payable | 81 658 | 120 614 |
| Cheques and orders payable | 51 218 | 48 729 |
| Expenses of deferred charges | (786) | (945) |
| Hedge Adjustments | (959) | (4 421) |
| 131 131 | 163 977 | |
| 28 446 921 | 27 126 313 |
At December 31, 2015, the heading "Resources of customers and other debts" included tEuros 4,180,600 of liabilities assumed by the Bank under the resolution measure applied to Banif.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| This heading is made up as follows: | ||
|---|---|---|
| 30/06/2016 | 31/12/2015 | |
| Outstanding bonds | ||
| Covered bonds | ||
| Issued | 6 950 000 | 6 785 000 |
| Repurchased | (4 450 000) | (4 285 000) |
| Interest payable and another deferred costs and income | 4 650 | 14 410 |
| Cash Bonds | ||
| Issued | 5 183 014 | 5 660 994 |
| Repurchased | (3 298 403) | (3 401 765) |
| Interest payable and another deferred costs and income | (593) | (257) |
| Bonds issued in securitization operations | ||
| Issued | 192 378 | 193 056 |
| Repurchased | (10 780) | (10 780) |
| Interest payable and another deferred costs and income | 3 060 | 2 749 |
| 4 573 326 | 4 958 407 | |
| Other | ||
| EMTN Programme - Issued | - | 32 300 |
| Repurchased | - | (1 250) |
| Interest payable | - | 2 |
| - | 31 052 | |
| Deposit certificates | 51 409 | 52 392 |
| Interests payable | 766 | 796 |
| 52 175 | 53 188 | |
| Value adjustments of hedging operations | 492 | 798 |
| 4 625 993 | 5 043 445 | |
At December 31, 2015, the heading "Debt securities" included liabilities assumed by the Bank under the resolution measure applied to Banif amounting to tEuros 1,653,875, of which tEuros 1,435,413 correspond to bonds issued under securitization operations and tEuros 52,392 to deposit certificates.
In line with law, the holders of covered bonds have a special credit privilege over the autonomous pool of assets, which constitutes a guarantee of the debt to which the bondholders will have access in case of insolvency of the issuer.
The conditions of the covered and cash bonds are described in Appendix I.
Between May 2008 and June 2016, BST issued seventeen tranches of covered bonds under the "€ 12,500,000,000 Covered Bonds Programme". At June 30, 2016 and December 31, 2015, the covered bonds had an autonomous pool of assets comprising:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Loans and advances to customers (Note 10) | 8 086 111 | 7 669 850 |
| Interest on loans | 6 869 | 6 914 |
| Commissions | (37 865) | (34 141) |
| Deferred expenses | 6 033 | 6 625 |
| 8 061 148 | 7 649 248 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Covered bonds transferred from the former Banif, amounting to tEuros 285,000, had been fully repurchased as at the resolution date. On January 27, 2016 the Bank proceeded with the early repayment of those issues, followed by the early cancellation of the respective programme.
Changes in the debt issued by the Bank during the first half-year of 2016 and financial year 2015 were as follows:
| Deposit | Bonds outstanding | EMTN Programme | |||
|---|---|---|---|---|---|
| Certificates | Issued | Repurchased | Issued | Repurchased | |
| Balances at December 31, 2014 | - | 6 273 608 | (4 355 021) | 32 300 | (1 250) |
| Transfered from former Banif | 52 392 | 452 867 | - | - | - |
| Issues made | - | 1 500 000 | - | - | - |
| Issues repaid | - | (1 248 483) | 1 096 038 | - | - |
| Issues repurchased | - | - | (1 036 797) | - | - |
| Exchange rate movements | - | 64 | - | - | - |
| Balances at December 31, 2015 | 52 392 | 6 978 056 | (4 295 780) | 32 300 | (1 250) |
| Issues made Issues repaid Issues repurchased Exchange rate movements |
- - - (983) |
1 200 000 (1 035 000) - (678) |
(1 200 000) 1 035 000 - - |
- (32 300) - - |
- 1 250 - - |
| Balances at June 30, 2016 | 51 409 | 7 142 378 | (4 460 780) | - | - |
At December 31, 2015, the Bank held bonds issued under its European Medium Term Notes Programme (EMTN) in the amount of tEuros 32,300.
Changes in bond issues associated with securitization operations during the first half-year of 2016 and financial year 2015 were as follows:
| Bonds outstanding | |||
|---|---|---|---|
| Issued | Repurchased | ||
| Balances at December 31, 2014 | 2 140 550 | (1 137 116) | |
| Transferred from former Banif | 3 674 999 | (2 239 586) | |
| Repaid | (154 555) | 86 204 | |
| Repurchased Hipototta 4 - Class A Hipototta 5 - Class A2 |
- - |
(15 132) (96 135) |
|
| - | (111 267) | ||
| Balances at December 31, 2015 | 5 660 994 | (3 401 765) | |
| Repaid Repurchased |
(477 980) | 174 746 | |
| Hipototta 4 - Class A | - | (7 158) | |
| Atlantes Mortgage PLC Series 3 - A | - | (63 226) | |
| Azor Mortgage PLC Class A | - | (1 000) | |
| - | (71 384) | ||
| Balances at June 30, 2016 | 5 183 014 | (3 298 403) |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
In the first half-year of 2016 and 2015, the Bank repurchased bond issues associated with securitization operations, having recorded gains of tEuros 8,678 and tEuros 4,489, respectively (Note 39).
Changes in provisions and impairment during the six-month periods ended June 30, 2016 and 2015, were as follows:
| 30/06/2016 | |||||
|---|---|---|---|---|---|
| 31/12/2015 Increases | Reversals | Utilizations | 30/06/2016 | ||
| Provision for tax contingencies | 12 063 | 600 | - | - | 12 663 |
| Provision for pensions and other charges | 99 444 | 435 | - | (20 469) | 79 410 |
| Impairment and provisions for guarantees and other sureties given | 11 187 | 630 | (1 158) | - | 10 659 |
| Other provisions | 200 397 | 15 882 | (15 440) | (53 185) | 147 653 |
| 323 090 | 17 547 | (16 598) | (73 654) | 250 385 | |
| 30/06/2015 | |||||
| 31/12/2014 Increases | Reversals | Utilizations | 30/06/2015 | ||
| Provision for tax contingencies | 4 167 | 984 | - | - | 5 151 |
| Provision for pensions and other charges | 28 185 | 444 | - | (4 212) | 24 417 |
| Impairment and provisions for guarantees and other sureties given | 11 554 | 2 222 | (1 484) | - | 12 292 |
| Other provisions | 28 082 | 14 651 | (4 037) | (9 880) | 28 816 |
| 71 988 | 18 301 | (5 521) | (14 092) | 70 676 |
| 30/06/2016 | |||||||
|---|---|---|---|---|---|---|---|
| Reversal of | |||||||
| December | Impairment | impairment | June 30, | Impairment | |||
| 31, 2015 | losses | losses | Utilizations Others | 2016 | recovery | ||
| Impairment of loans and advances to customers (Note 10): | |||||||
| Domestic loans | 1 061 142 | 72 112 | (44 328) | (36 726) | - 1 052 200 | - | |
| Foreign loans | 2 420 | - | - | - | - | 2 420 | - |
| Non-derecognized securitized loans | 9 382 | 136 | (120) | - | - | 9 398 | - |
| Other securitized loans and receivables | 5 891 | 41 | - | - | - | 5 932 | - |
| Impairment of overdue loans and interest (Note 10): | |||||||
| Domestic loans | 984 626 | 64 840 | (44 772) | (183 949) (3 181) | 817 564 | (1 289) | |
| Foreign loans | 90 169 | 505 | (4 470) | (2 767) | - | 83 437 | (28) |
| Non-derecognized securitized loans | 190 746 | 3 187 | (3 458) | (730) | (135) | 189 610 | - |
| Other securitized loans and receivables | 1 110 | - | (1 090) | - | - | 20 | |
| 2 345 487 | 140 821 | (98 238) | (224 172) (3 316) 2 160 581 | (1 317) | |||
| Impairment of other financial assets: | |||||||
| Impairment of available-for-sale financial assets (Note 8) | 82 161 | 13 497 | (11 308) | (12 722) | - | 71 628 | - |
| Impairment of investments in associated companies (Note 16) | 1 500 | - | - | - | - | 1 500 | - |
| 83 661 | 13 497 | (11 308) | (12 722) | - | 73 128 | - | |
| Impairment of non-financial assets: | |||||||
| Non-current assets held for sale (Note 13) | 120 839 | 10 600 | (1 977) | (8 479) | - | 120 983 | - |
| Other tangible assets (Note 15) | 3 863 | 36 | - | - | - | 3 899 | - |
| Other assets (Note 18) | 76 482 | 5 519 | (5 230) | (1 160) 22 580 | 98 191 | - | |
| 201 184 | 16 155 | (7 207) | (9 639) 22 580 | 223 073 | - | ||
| 2 630 332 | 170 473 | (116 753) | (246 533) 19 264 2 456 782 | (1 317) |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 30/06/2015 | ||||||
|---|---|---|---|---|---|---|
| Reversal of | ||||||
| December | Impairment | impairment | June 30, | Impairment | ||
| 31, 2014 | losses | losses | Utilizations | 2015 | recovery | |
| Impairment of loans and advances to customers (Note 10): | ||||||
| Domestic loans | 229 543 | 31 326 | (36 158) | - | 224 711 | - |
| Foreign loans | 1 101 | - | (307) | - | 794 | - |
| Non-derecognized securitized loans | 10 644 | 217 | (452) | - | 10 409 | - |
| Other securitized loans and receivables | 7 227 | - | (3 408) | - | 3 819 | |
| Impairment of overdue loans and interest (Note 10): | ||||||
| Domestic loans | 861 754 | 103 411 | (52 178) | (4 041) | 908 946 | (1 460) |
| Foreign loans | 19 223 | 1 333 | (2 300) | (5) | 18 251 | (1) |
| Non-derecognized securitized loans | 30 107 | 5 185 | (3 543) | (1 323) | 30 426 | - |
| Other securitized loans and receivables | 2 019 | 1 266 | - | - | 3 285 | - |
| 1 161 618 | 142 738 | (98 346) | (5 369) 1 200 641 | (1 461) | ||
| Impairment of other financial assets: | ||||||
| Impairment of available-for-sale financial assets | 61 943 | 4 541 | (4 082) | (569) | 61 833 | - |
| Impairment of investments in associated companies | 1 500 | - | - | - | 1 500 | - |
| 63 443 | 4 541 | (4 082) | (569) | 63 333 | - | |
| Impairment of non-financial assets: | ||||||
| Non-current assets held for sale (Note 13) | 123 846 | 16 374 | (4 709) | (11 828) | 123 683 | - |
| Other tangible assets (Note 15) | 3 863 | - | - | - | 3 863 | - |
| Other assets (Note 18) | 24 288 | 11 090 | (12 988) | (2) | 22 388 | - |
| 151 997 | 27 464 | (17 697) | (11 830) | 149 934 | - | |
| 1 377 058 | 174 743 | (120 125) | (17 768) 1 413 908 | (1 461) |
At June 30, 2016 and December 31, 2015, the provision for pensions and other charges is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Restructuring plans | 58 299 | 78 768 |
| Supplementary pension plan of the Board of Directors (Note 47) | 21 111 | 20 676 |
| 79 410 | 99 444 |
At June 30, 2016 and December 31, 2015, the heading "Other provisions" included:
At June 30, 2016 and December 31, 2015, this heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Participation units in Novimovest Fund not held by the Bank | 69 314 | 69 309 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Subordinated Perpetual Bonds Totta 2000 | 270 447 | 270 447 |
| Subordinated Perpetual Bonds BSP 2001 | 13 818 | 13 818 |
| Subordinated Perpetual Bonds CPP 2001 | 4 275 | 4 275 |
| 288 540 | 288 540 | |
| Repurchased securities | (284 265) | (284 265) |
| Interest payable | 24 | 27 |
| 4 299 | 4 302 |
The conditions of the subordinated liabilities are detailed in Appendix II.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Creditors and other resources | ||
| Creditors resulting from operations with futures | 9 385 | 7 484 |
| Other resources | ||
| Secured account resources | 62 198 | 53 475 |
| Collateral account resources | 1 714 | 924 |
| Other resources | 1 507 | 1 529 |
| Public sector | ||
| VAT payable | 2 331 | 3 629 |
| Withholding taxes | 20 147 | 25 524 |
| Social Security contributions | 4 993 | 5 272 |
| Other | 531 | 593 |
| Collections on behalf of third parties | - | 454 |
| Contributions to other health systems | 1 681 | 1 535 |
| Other creditors | ||
| Creditors under factoring contracts | 31 634 | 33 324 |
| Creditors for the supply of goods | 9 784 | 5 525 |
| Other creditors | 35 837 | 40 953 |
| Accounts Payable | ||
| Relating to "Swap Agreements" (Note 18) | 2 815 | 3 419 |
| Relating to personnel | ||
| Long service bonuses | 42 005 | 42 890 |
| Vacation and vacation subsidy | 26 383 | 33 988 |
| Other variable remuneration | 21 888 | 28 523 |
| Other personnel costs | 9 370 | 631 |
| General administrative costs | 62 563 | 37 564 |
| Integration costs of former Banif (Note 1.4) | 15 818 | 53 000 |
| Other | 15 214 | 5 035 |
| Liabilities with pensions (Note 45) | ||
| BST liabilities | 893 652 | - |
| Fair value of BST pension fund | (893 089) | - |
| London branch liabilities | 49 575 | - |
| Fair value of London branch pension fund | (38 244) | - |
| Former Banif liabilities | 118 021 | - |
| Fair value of Former Banif pension fund | (117 138) | - |
| Other deferred income | 3 149 | 3 177 |
| Amounts to be settled with banks and customers | ||
| Liability operations to be settled | 3 247 | 9 380 |
| Other (Note 18) | 99 380 | 1 474 |
| 496 351 | 399 302 |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the Bank's share capital was represented by 1,256,723,284 shares and 956,723,284 shares, respectively, with a nominal value of 1 Euro each, fully subscribed and paid up by the following shareholders:
| 30/06/2016 | ||||
|---|---|---|---|---|
| Number of | % of | |||
| shares | participation | Amount | ||
| Santander Totta, SGPS, S.A. | 1 241 179 513 | 98.76% | 1 241 180 | |
| Taxagest, SGPS, S.A. (Own shares) | 14 593 315 | 1.16% | 14 593 | |
| Own shares | 290 435 | 0.02% | 290 | |
| Other | 660 021 | 0.05% | 660 | |
| 1 256 723 284 | 100.00% | 1 256 723 | ||
| 31/12/2015 | ||||
| Number of | % of | |||
| shares | participation | Amount | ||
| Santander Totta, SGPS, S.A. | 941 226 328 | 98.38% | 941 227 | |
| Taxagest, SGPS, S.A. (Own shares) | 14 593 315 | 1.53% | 14 593 |
| 956 723 284 | 100.00% | 956 723 | |
|---|---|---|---|
| On March 23, 2016 and December 30, 2015, the Bank increased its share capital through the |
Own shares 290 435 0.03% 290 Other 613 206 0.06% 613
During 2015, the Bank acquired 19,191 own shares for the amount of tEuros 117.
issue of 300,000,000 new shares on each of these dates.
Under Ordinance No. 408/99, of June 4, published in the Diário da República – I Série B, No. 129 (Government Gazette), the share premium, amounting to tEuros 193,390, cannot be used to pay out dividends or to purchase own shares.
The "Other equity instruments" correspond to supplementary capital contributions made by the shareholder Santander Totta, SGPS, S.A., which neither bear interest nor have a defined redemption term. These instruments can only be redeemed by decision of the Bank's Board of Directors, with prior approval of the Bank of Portugal.
In the first half-year of 2016 the Bank paid dividends in the amount of t.Euros 178,287 (net of the dividends allocated to own shares), equivalent to a dividend of approximately Euros 0.1419 per share.
During 2015 the Bank paid dividends in the amount of tEuros 65,714 (net of the dividends allocated to own shares) which corresponded to a dividend of approximately Euros 0.1001 per share.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the revaluation reserves were made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Revaluation reserves | ||
| Reserves resulting from the fair value valuation: | ||
| Available-for-sale financial assets (Note 8) | 29 177 | 178 283 |
| Investments held to maturity (Note 11) | (8 417) | - |
| Available-for-sale financial assets of companies | ||
| under the equity method | 8 262 | 8 262 |
| Cash-flow hedging instruments | (10 553) | (456) |
| Actuarial gains and losses (Note 45) | ||
| Pension Fund of BST | (655 812) | (639 140) |
| Pension Fund of the Lond branch of BST | (15 203) | (8 397) |
| Actuarial gains and losses of companies under the equity method | (975) | (975) |
| Foreign exchange differences | 251 | 2 566 |
| Legal revaluation reserves | 23 245 | 23 245 |
| (630 025) | (436 612) | |
| Deferred tax reserves | ||
| For temporary differences: | ||
| Reserves resulting from the fair value valuation of: | ||
| Available-for-sale financial assets | (8 461) | (51 701) |
| Available-for-sale financial assets of companies | ||
| under the equity method | (2 394) | (2 394) |
| Cash-flow hedging instruments | 3 060 | 132 |
| Tax impact of actuarial gains and losses | 171 745 | 171 745 |
| Tax impact from the change in accounting policies | ||
| of companies under the equity method | 285 | 285 |
| Relating to the revaluation of tangible assets | (3 311) | (3 505) |
| Relating to the revaluation of tangible assets | ||
| of companies under the equity method | 4 | 4 |
| 160 928 | 114 566 | |
| (469 097) | (322 046) |
During the financial year ended December 31, 2015, changes in the heading "Deferred tax reserves - Tax impact of actuarial gains and losses", were as follows:
| Balance at December 31, 2014 | 177 625 |
|---|---|
| Tax impact resulting from financial and actuarial deviations in the year | (5 880) |
| Balance at December 31, 2015 | 171 745 |
Deferred taxes were calculated based on current legislation and reflect the best estimate of the impact of the realization of potential capital gains or losses included in the revaluation reserves.
The revaluation reserves cannot be used to pay dividends or to share capital.
During 1998, under Decree-Law No. 31/98, of February 11, the Bank revalued its tangible fixed assets, which resulted in an increase in their respective value, net of accumulated depreciation, of approximately tEuros 23,245, which was recognized in revaluation reserves. The net amount
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
resulting from the revaluation may only be used to increase share capital or offset losses, to the extent of their use (amortization) or the sale of the assets it relates to.
At June 30, 2016 and December 31, 2015, the heading "Other reserves and retained earnings" was made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Legal reserve | 311 098 | 259 554 |
| Other reserves | ||
| Reserves of consolidated companies | 238 480 | 203 626 |
| Reserves of companies consolidated under the equity method | 9 308 | 44 283 |
| Merger reserve | ||
| By incorporation of Totta and BSP | 541 334 | 541 334 |
| By incorporation of BSN | 35 405 | 35 405 |
| By incorporation of Totta IFIC | 90 520 | 90 520 |
| Other reserves | 1 079 | 264 |
| Retained earnings | 725 910 | 428 624 |
| 1 953 134 | 1 603 610 |
In accordance with the provisions of Decree-Law No. 298/92, of December 31, amended by Decree-Law No. 201/2002, of September 26, BST set up a legal reserve fund that shall attain the higher of the amount of the share capital or of the sum of the free reserves and retained earnings. For this purpose, a portion of the annual net income on a stand-alone basis is transferred to this reserve each year, until the aforementioned amount is attained.
This reserve may only be used to offset accumulated losses or increase share capital.
Under the current legislation, the merger reserve is equivalent to the legal reserve and may only be used to offset accumulated losses or increase share capital.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The consolidated net income for the first half-year of 2016 and financial year 2015 may be summarized as follows:
| 30/06/2016 | 30/06/2015 | |||
|---|---|---|---|---|
| Net income for the year |
Contribution to the consolidated net income |
Net income for the year |
Contribution to the consolidated net income |
|
| Net income of BST (individual basis) | 175 442 | 175 442 | 86 193 | 86 193 |
| Net income of other Group companies: | ||||
| Totta Ireland, Plc. | 12 234 | 12 234 | 10 377 | 10 377 |
| Novimovest - Fundo de Investimento Imobiliário Aberto | 4 205 | 3 317 | (119) | (93) |
| Unicre, Instituição Financeira de Crédito, S.A. | 10 386 | 2 233 | 6 810 | 1 464 |
| Gama STC | 2 125 | 2 125 | - | - |
| Totta Urbe, Empresa de Administração e Construções, S.A. | 425 | 425 | 1 101 | 1 101 |
| Banif International Bank, LTD | 218 | 218 | - | - |
| Totta & Açores, Inc. - Newark | (753) | (753) | (4) | (4) |
| Santotta - Internacional, SGPS, S.A. | (623) | (623) | (22) | (22) |
| Atlantis Mortage 1 | (584) | (584) | - | - |
| BST International Bank, Inc. (BSTI) | - | - | 12 848 | 12 848 |
| Partang, SGPS, S.A. | - | - | 17 277 | 8 466 |
| Banco Caixa Geral Totta de Angola, S.A. | - | - | 33 756 | 8 436 |
| Totta & Açores, Financing, Ltd | - | - | 6 216 | 6 216 |
| Santander Multiobrigações - Fundo de Investimento Mobiliário Aberto de | - | - | (2 167) | (1 398) |
| Serfin International Bank & Trust | - | - | 118 | 118 |
| Taxagest, S.A. | 1 | 1 | 17 | 17 |
| 27 636 | 18 594 | 86 208 | 47 526 | |
| Adjustments to the consolidated results | ||||
| Elimination of dividends: | ||||
| Totta Ireland, Plc. | (10 020) | (13 800) | ||
| Unicre, Instituição Financeira de Crédito, S.A. | (5 573) | (1 436) | ||
| Banco Caixa Geral Totta de Angola, S.A. | - | (8 601) | ||
| (15 593) | (23 837) | |||
| Elimination of the equity method application by Partang in the participation held in BCGTA | - | 1 173 | ||
| Adjustments related with securitization operations | 5 759 | 138 | ||
| Dissolution of BSTI Porto Rico | 8 806 | - | ||
| Dissolution of TOTTA & AÇORES,INC. | 93 | - | ||
| Dissolution of Santander Gestão de Ativos, SGPS, S.A. | - | (8 370) | ||
| Other | (298) | (171) |
Basic earnings per share are computed by dividing the net income attributable to the shareholders of the Bank by the weighted average number of ordinary shares outstanding during the financial year.
Consolidated net income for the period 192 804 102 652
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| Consolidated net income attributable to the shareholders of BST | 192 804 | 102 652 |
| Weighted average number of ordinary shares issued | 1 113 316 691 | 656 723 284 |
| Weighted average number of own shares | 14 883 750 | 14 864 617 |
| Weighted average number of ordinary shares outstanding | 1 098 432 941 | 641 858 667 |
| Basic earnings per share attributable to the shareholders of BST (in Euros) | 0.18 | 0.16 |
Basic earnings per share coincide with the diluted earnings per share since no contingently issuable ordinary shares, namely through options, warrants or other equivalent financial instruments exist at the balance sheet date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Third parties' shareholdings in Group companies in the first half-year of 2016 and financial year 2015 have the following detail, by entity:
| Balance sheet | Income statment | |||
|---|---|---|---|---|
| 30/06/2016 | 31/12/2015 | 30/06/2016 | 31/12/2015 | |
| Preference shares of BSTI | - | 330 670 | - | - |
| Dividends received in advance | - | (10 027) | - | - |
| Taxagest | 557 | 557 | - | - |
| Other | 113 | 115 | - | - |
| 670 | 321 315 | - | - |
On June 30, 2006, BST International Bank, Inc (BST Puerto Rico) issued 3,600 non-voting preference shares with a nominal value of US Dollars 100,000 each, which were fully subscribed and paid up by Banco Santander, S.A.. BST Puerto Rico guarantees a non-cumulative dividend on these shares corresponding to an annual remuneration of 6.56%, payable if, and when, declared by BST Puerto Rico's Directors, at the beginning of January of each year. In the first half-year of 2016, BST Puerto Rico fully redeemed the preference shares.
On June 29, 2005 TAF issued 300,000 non-voting preference shares with a nominal value of Euros 1,000 each, which were fully subscribed and paid up by Banco Santander, S.A.. TAF guarantees a non-cumulative dividend on these shares corresponding to an annual remuneration of 4.12%, payable if, and when, declared by TAF's Directors, at the beginning of January of each year. TAF may redeem the preference shares, in full or in part, as from June 30, 2015 at Euros 1,000 per share plus the amount of the dividend accrued monthly since the last payment made. On December 30, 2015 TAF fully redeemed the preference shares.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Off-balance sheet items are made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Guarantees given and other contingent liabilities | ||
| Guarantees and sureties | 1 389 806 | 1 460 948 |
| Documentary credits | 250 742 | 255 497 |
| Other contingent liabilities | 6 | 6 |
| Assets pledged as guarantee | ||
| Bank of Portugal | 142 884 | 142 884 |
| Deposit Guarantee Fund | 66 162 | 68 251 |
| Investor Indemnity System | 6 603 | 5 803 |
| Assets pledged as guarantee (former Banif) | - | 1 402 875 |
| 1 856 203 | 3 336 264 | |
| Commitments | ||
| Credit lines | ||
| Revocable | 4 434 583 | 4 599 351 |
| Irrevocable | 518 695 | 658 346 |
| Deposit Guarantee Fund | 63 655 | 63 655 |
| Investor Indemnity System | 5 133 | 4 891 |
| Other revocable commitments | 89 911 | 106 202 |
| Credit lines | 65 659 | 88 274 |
| 5 177 636 | 5 520 719 | |
| Liabilities for services rendered | ||
| Deposit and custodial services | 21 629 244 | 20 975 056 |
| Amounts received for collection | 207 340 | 207 034 |
| Other values | 5 | 5 |
| Other | 396 | 398 |
| 21 836 985 | 21 182 493 |
The Deposits Guarantee Fund was created in November 1994 as provided for in Decree-Law No. 298/92, of December 31, to guarantee customers' deposits in accordance with the limits established in the General Regime for Credit Institutions. The initial contribution to the Fund, set by a Ministry of Finance Ordinance, was made through the delivery of cash and deposit securities, having been amortized over 60 months as from January 1995. Except for the situation referred in the following paragraph, regular annual contributions to the Fund are recorded as an expense in the year to which they relate.
Until 2011, as allowed by the Bank of Portugal, the Bank paid 90% of the annual contribution to the Fund, having also accepted an irrevocable commitment to the Deposits Guarantee Fund to pay the remaining 10% of the annual contribution if, and when, required to do so. The total accumulated unpaid amount of this commitment as at June 30, 2016 and December 31, 2015 amounted to tEuros 63,655. Assets pledged as a guarantee to the Bank of Portugal are recorded in off-balance sheet headings at market value. In the first half-year of 2016 and 2015, the Bank paid and recorded the full amount of the annual contribution amounting to tEuros 12 and tEuros 728, respectively (Note 40).
The liabilities to the Investors Indemnity System are not recorded as a cost but are guaranteed
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
through the acceptance of an irrevocable commitment to pay said liabilities, if required to do so, with part (50%) of the commitment being guaranteed by a pledge of Portuguese Treasury Bonds. At June 30, 2016 and December 31, 2015, such liabilities amounted to tEuros 5,133 and tEuros 4,891, respectively.
This heading is made up as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| Interest on cash and deposits | ||
| In Central Banks | ||
| In the Bank of Portugal | 27 | 33 |
| In credit institutions | 6 | 28 |
| Interest on applications | ||
| In domestic credit institutions | 1 647 | 1 967 |
| In foreign credit institutions | 14 241 | 19 044 |
| Interest on loans and advances to customers | ||
| Domestic loans | 270 022 | 249 091 |
| Foreign loans | 6 828 | 6 111 |
| Other loans and receivables (commercial paper) | 45 036 | 29 388 |
| Interest from securitized assets not derecognized | 41 899 | 11 654 |
| Receivables associated to amortized cost | 19 716 | 17 089 |
| Interest on overdue loans | 5 808 | 4 923 |
| Interest and similar income on other financial assets | ||
| Available-for-sale financial assets | 1 193 | 1 866 |
| Financial assets held for trading | 74 917 | 85 129 |
| Investments held to maturity | 5 183 | - |
| Hedging derivatives | 77 994 | 100 451 |
| Other interest and similar income | ||
| Swap agreements | 9 144 | 13 141 |
| Others | 912 | 883 |
| 574 573 | 540 798 |
This heading is made up as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| Interest on resources of Central Banks | ||
| Bank of Portugal | 3 870 | 1 585 |
| Interest on resources of credit institutions | ||
| Domestic | 2 321 | 130 |
| Foreign | 4 254 | 12 067 |
| Interest on customers' deposits | ||
| Deposits | ||
| Residents | 65 677 | 117 445 |
| Non-residents | 3 521 | 6 518 |
| Interest on debt securities issued | ||
| Deposit certificates | 714 | - |
| Bonds | 29 763 | 33 086 |
| Other debt securities | 70 | 105 |
| Interest on subordinated liabilities | ||
| Subordinated loans | 36 | 41 |
| Interest on hedging derivatives | 75 767 | 71 877 |
| Swap Agreements | 12 334 | 15 316 |
| Payables associated to amortized cost | ||
| Loans to customers | 5 | 12 |
| Debt securities | 5 476 | 10 |
| Subordinated liabilities | 45 | 45 |
| Other operations | 738 | - |
| 204 591 | 258 237 |
This heading refers to dividends and income received and is made up as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| Available-for-sale financial assets: | ||
| SIBS – Sociedade Interbancária de Serviços, S.A. | - | 1 090 |
| BANIF PROPERTY | 280 | - |
| Unicampos | 43 | 43 |
| Other | 7 | 1 |
| 330 | 1 134 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| On guarantees given | ||
| Guarantees and sureties | 9 348 | 7 053 |
| Documentary credits | 2 005 | 1 631 |
| On commitments to third parties | ||
| Irrevocable credit lines | 201 | 984 |
| Revocable commitments | 178 | 658 |
| On services rendered | ||
| Deposit and custody services | 2 319 | 2 617 |
| Asset management and collection | 6 252 | 4 119 |
| Real estate and mutual fund management | 8 933 | 10 383 |
| Transfers | 592 | 671 |
| Card transactions | 33 475 | 30 613 |
| Annuities | 10 173 | 7 633 |
| Credit operations | 17 963 | 16 313 |
| Other | 1 574 | 56 |
| On operations carried out on behalf of third parties | ||
| On securities | 9 203 | 12 246 |
| Other | 83 | 118 |
| Other commission received | ||
| Insurance companies (Note 44) | 44 290 | 44 854 |
| Demand deposits | 15 318 | 13 569 |
| Cheques | 3 948 | 4 139 |
| Other | 24 473 | 7 150 |
| 190 328 | 164 807 |
This heading is made up as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| On guarantees received | ||
| Guarantees and sureties | 754 | - |
| On banking services rendered by third parties | ||
| Funds for collection and management | 1 560 | 777 |
| Customer transactions | 21 090 | 15 786 |
| Credit operations | 5 117 | 6 839 |
| Other | 2 605 | 4 405 |
| On operations carried out by third parties | ||
| Securities | 841 | 795 |
| Other | 760 | 525 |
| Other commission paid | 281 | 376 |
| 33 008 | 29 503 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | 31/06/2015 | |
|---|---|---|
| Financial assets held for trading: | ||
| Debt instruments | - | (1 698) |
| Equity instruments | 41 | 35 |
| Derivative instruments: | ||
| Swaps: | ||
| Currency swaps | (344) | (58) |
| Interest rate swaps | (34 221) | (5 282) |
| Equity swaps | 347 | 31 |
| Other | 1 | (279) |
| Futures: | ||
| Contracts on prices | - | 19 |
| Options: | ||
| Foreign exchange rate contracts | 183 | 101 |
| Equity options | (18) | - |
| Other | 1 | 9 |
| Interest rate guarantee contracts | 401 | 16 |
| Other | 125 | - |
| (33 484) | (7 106) | |
| Hedging derivatives: | ||
| Swaps | ||
| Interest rate swaps | (29 768) | 24 166 |
| Equity swaps | 3 880 | (826) |
| Autocallable options | 618 | (1 722) |
| Hedged adjustments on assets and liabilities | 25 235 | (21 425) |
| (35) | 193 | |
| (33 519) | (6 913) |
This heading is made up as follows:
| 30/06/2016 | 30/06/2015 | |||||
|---|---|---|---|---|---|---|
| Gains | Losses | Net | Gains | Losses | Net | |
| Debt instruments Issued by residents |
||||||
| National public issuers | 83 590 | (1 721) | 81 869 | 17 776 | - | 17 776 |
| Other residents | - | - | - | 2 780 | - | 2 780 |
| Equity instruments | ||||||
| Measured at fair value | 8 180 | (8) | 8 172 | 47 | - | 47 |
| Measured at historical cost | 478 | - | 478 | 14 | (30) | (16) |
| 92 248 | (1 729) | 90 519 | 20 617 | (30) | 20 587 |
In the first half-year of 2016 and 2015, the gains recorded under the heading "Result of availablefor-sale financial assets" were mainly justified by the sale of Portuguese Treasury Bonds.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| Gains on the revaluation of the foreign exchange position | 181 061 | 72 940 |
| Exchange gains on investments in foreign operations | 1 717 | - |
| Losses on the revaluation of the foreign exchange position | (178 376) | (68 321) |
| 4 402 | 4 619 |
This heading is made up as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| Gains on the sale of loans and advances to customers (Note 10) Gains on the repurchase of bonds issued associated |
12 658 | 56 |
| with securitization operations (Note 22) | 8 678 | 4 489 |
| Gains on non-current assets held for sale | 4 162 | 3 075 |
| Gains on tangible assets | 2 271 | 2 532 |
| Other gains on financial operations | 19 | 774 |
| 27 788 | 10 926 | |
| Losses on tangible assets | (936) | (2 990) |
| Losses on the sale of loans and advances to customers (Note 10) | (131) | - |
| Losses on non-current assets held for sale | (272) | (690) |
| Other losses on financial operations | (60) | (85) |
| (1 399) | (3 765) | |
| 26 389 | 7 161 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| Operating income | ||
| Rents received | 9 097 | 9 325 |
| Capital gains on investment properties | 4 637 | 6 801 |
| Reimbursement of expenses | 4 033 | 1 214 |
| Income from rendering of services | 4 408 | 2 052 |
| Rents of automatic payment terminals | 7 363 | 6 938 |
| Other | 2 576 | 1 226 |
| 32 114 | 27 556 | |
| Other operating expenses | ||
| Subscriptions and donations | (3 220) | (3 095) |
| Contributions to the Deposit Guarantee Fund | (12) | (728) |
| Contributions to the Resolution Fund | (15 090) | (2 357) |
| Unrealized losses on investment properties | (5 792) | (8 610) |
| Charges related to transactions made by customers | (2 173) | (3 272) |
| Expenses with automatic teller machines | (5 183) | (5 222) |
| Other charges and operating expenses | (4 572) | (1 293) |
| Other taxation | ||
| Direct | (654) | (598) |
| Indirect | (847) | (764) |
| (37 543) | (25 939) | |
| (5 429) | 1 617 |
For the six-month periods ended June 30, 2016 and 2015, the heading "Rents received" includes the amounts of tEuros 8,967 and tEuros 9,180, respectively, related to the income earned by the Novimovest Fund.
Decree-Law No. 24/2013, of February 19, established the contributory regime by the banks to the new Resolution Fund created for the purpose of preventing, mitigating and containing systemic risk. According to Notice No. 1/2013 and the Instructions No. 6/2013 and 7/2013 of the Bank of Portugal, the Bank is to pay an initial and a regular contribution to the Resolution Fund. BST's periodic contribution for the years 2016 and 2015 amounted to tEuros 2,850 and tEuros 2,357, respectively.
In accordance with the Single Resolution Mechanism these contributions will be transferred to the Single Resolution Fund, in accordance with Article 3, paragraph 3 of the Agreement on the transfer and mutualisation of contributions to the Single Resolution Fund, signed in Brussels on May 21, 2014.
The Bank of Portugal, as resolution authority, determines the value of the contribution of each institution based on the risk profile of each entity. In December 2015 the Bank paid an additional contribution to the Resolution Fund in the amount of tEuros 13,318, based on the letter received from the Bank of Portugal in November 2015. In the first half-year of 2016 and as foreseen in a letter from the Bank of Portugal, the Single Resolution Board (Conselho Único de Resolução ("CUR")) permitted that for the year 2016, banks could opt for the use of an irrevocable commitment to pay, in respect of 15% of the annual contribution amount. The annual contribution amounted to tEuros 14,400 and the irrevocable commitment in cash amounted to tEuros 2,160.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| Remuneration | ||
| Management and supervisory boards (Note 47) | 2 309 | 1 786 |
| Employees | 110 478 | 92 026 |
| Stock option plans (Note 48) | 342 | 310 |
| Other variable remuneration | 16 217 | 12 370 |
| 129 346 | 106 492 | |
| Mandatory social charges | ||
| Charges on remuneration | 30 912 | 25 393 |
| Pension Funds (Note 45) | 2 168 | 1 179 |
| Other mandatory social charges | 689 | 398 |
| 33 769 | 26 970 | |
| Other staff costs | ||
| Complementary pension plan (Note 45) | 291 | 291 |
| Staff transfers | 255 | 339 |
| Other | 2 421 | 1 982 |
| 2 967 | 2 612 | |
| 166 082 | 136 074 | |
In the first half-year of 2016 and 2015, the Bank did not record any cost with early retirements as it used part of the provisions that had been recorded for that purpose (Note 23).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This heading is made up as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| External services | ||
| Specialized services | 40 459 | 24 275 |
| Maintenance of software and hardware | 19 521 | 21 670 |
| Rent and leases | 8 667 | 4 754 |
| Communications | 7 977 | 5 564 |
| Advertising and publishing | 6 111 | 5 386 |
| Travel, lodging and representation expenses | 2 586 | 2 301 |
| Maintenance and repairs | 1 917 | 1 950 |
| Transportation | 1 807 | 1 221 |
| Insurance | 1 143 | 584 |
| Staff training | 1 034 | 847 |
| Other | 3 586 | 2 510 |
| External supplies | ||
| Water, electricity and fuel | 4 603 | 3 801 |
| Current consumable material | 1 092 | 867 |
| Other | 124 | 134 |
| 100 627 | 75 864 |
This heading is made up as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| Partang, SGPS, S.A. | - | 8 923 |
| Unicre - Instituição Financeira de Crédito, S.A. (Unicre) | 2 233 | 28 |
| Benim - Sociedade Imobiliária, S.A. | (223) | - |
| 2 010 | 8 951 |
At December 31, 2014 Partang SGPS, S.A. was held by the Bank in 49%. The bank, in turn, held 51% of the share capital of Banco Caixa Geral Totta de Angola, S.A.. In May 2015, the Bank exercised its put option to sell its shareholding in Partang to CGD.
Income from the insurance brokerage services rendered relates mainly to the commissions earned with the commercialization of life and non-life insurance products, and is made up as follows:
| 30/06/2016 | 30/06/2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| Life | Non-Life | Life | Non-Life | |||||
| Products | Products | Total | Products | Products | Total | |||
| (Note 34) | (Note 34) | |||||||
| Santander Totta Seguros - Companhia de Seguros de Vida, S.A. | 26 002 | - | 26 002 | 38 706 | 124 | 38 830 | ||
| Aegon Santander Portugal Vida - Companhia de Seguros de Vida, S.A. | 13 360 | - | 13 360 | - | - | |||
| Aegon Santander Portugal Não Vida - Companhia de Seguros, S.A. | - | 664 | 664 | - | - | - | ||
| Liberty Seguros | - | - | 4 264 | - | 5 607 | 5 607 | ||
| Other | - | - | - | - | 417 | 417 | ||
| 39 362 | 664 | 44 290 | 38 706 | 6 148 | 44 854 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the heading "Other assets – Income receivable" (Note 18) included commissions' receivable from insurance companies, as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Santander Totta Seguros – Companhia de Seguros de Vida, S.A. | 11 895 | 12 975 |
| Aegon Santander Portugal Vida – Companhia de Seguros de Vida, S.A. | 3 022 | 6 756 |
| Aegon Santander Portugal Não Vida – Companhia de Seguros, S.A. | 93 | 238 |
| Other | 4 331 | 1 003 |
| 19 341 | 20 972 |
These amounts relate, essentially, to the commissions accrued in respect of insurance premiums sold and not yet invoiced during the second quarter of 2016 and the last quarter of 2015, respectively.
For the purpose of determining BST's past service liability relating to active and retired employees, actuarial studies were carried out by Towers Watson (Portugal) Unipessoal Limitada. The present value of the past service liability, as well as the corresponding current service costs, were determined based on the Projected Unit Credit method.
The liabilities of BST with retirement pensions, healthcare benefits and death subsidy as of June 30, 2016 and in the four previous years, as well as the respective coverage, are as follows:
| 30/06/2016 31/12/2015 31/12/2014 31/12/2013 31/12/2012 | |||||
|---|---|---|---|---|---|
| Estimate of responsibilities for past services: Pensions |
|||||
| Current employees | 304 519 | 303 523 | 308 223 | 282 028 | 251 252 |
| Pensioners | 28 439 | 26 928 | 26 343 | 22 891 | 21 002 |
| Retired staff and early retired staff | 402 554 | 399 942 | 415 679 | 399 434 | 388 656 |
| 735 512 | 730 393 | 750 245 | 704 353 | 660 910 | |
| Healthcare systems (SAMS) | 152 268 | 151 544 | 151 903 | 137 970 | 129 267 |
| Death subsidy | 5 872 | 5 759 | 5 543 | 4 562 | 4 331 |
| 893 652 | 887 696 | 907 691 | 846 885 | 794 508 | |
| Coverage of responsibilities: | |||||
| Net assets of the Fund | 893 089 | 914 204 | 910 580 | 840 543 | 784 937 |
| Excess / insufficient funding | (563) | 26 508 | 2 889 | (6 342) | (9 571) |
| Actuarial and financial deviations generated in the period/year | |||||
| Change in assumptions | - | - | 37 912 | 42 565 | 73 518 |
| Experience adjustments: | |||||
| Other actuarial (gains) / losses | (6 986) | (9 857) | 6 580 | (1 775) | (25 383) |
| Financial (gains) / losses | (9 686) | (17 675) | 1 111 | (3 115) | (15 796) |
| (16 672) | (27 532) | 7 691 | (4 890) | (41 179) | |
| (16 672) | (27 532) | 45 603 | 37 675 | 32 339 |
In 2011, a tripartite agreement was established, between the Finance Ministry, the Portuguese Association of Banks and the Financial Sector Federation (FEBASE), regarding the transfer to Social Security of part of the liabilities with pensioners who, at December 31, 2011, were covered by the substitutive Social Security regime under the Collective Labour Agreement (ACT) in force for the banking sector. As a result, the Bank's Pension Fund assets covering such liabilities were also transferred to Social Security. According to Decree-Law No. 127/2011, of December 31, the amount of the pension liabilities transferred to Social Security was determined considering the following assumptions:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Mortality table - female population TV 88/90 Actuarial technical rate (discount rate) 4%
The liabilities transferred to Social Security amounted to tEuros 456,111 and were determined based on the assumptions described above.
The liabilities calculated by the Bank immediately before the transfer, according to the updated financial and actuarial assumptions, amounted to tEuros 435,260.The difference between the liabilities transferred to Social Security calculated using the assumptions set out in Decree-Law No. 127/2011, of December 31 (tEuros 456,111) and those used by the Bank (tEuros 435,260), amounting to tEuros 20,851, was recorded in the heading "Staff costs" of the income statement for 2011.
The assumptions used by the Bank to determine the liabilities immediately before the transfer to Social Security were the following:
| Active Employees |
Retired Employees |
|---|---|
| TV 88/90 | |
| 5.00% | |
| - | |
| 1.35% | 1.35% |
| TV 88/90 5.92% 2.35% |
The liabilities determined considering the above mentioned assumptions amounted to tEuros 1,186,387, of which tEuros 435,260 corresponding to the liabilities transferred to Social Security, as mentioned above.
The main assumptions used by the Bank to determine its liabilities with retirement pensions as of June 30, 2016 and December 31, 2015 were as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Mortality table | TV 88/90 | TV 88/90 |
| Pension fund return rate | 2.50% | 2.50% |
| Actuarial technical rate (discount rate) | 2.50% | 2.50% |
| Salary growth rate for 2016 | 0.75% | 0.75% |
| Salary growth rate after 2017 | 1.00% | 1.00% |
| Pension growth rate for 2016 | 0.00% | 0.00% |
| Pension growth rate after 2017 | 0.75% | 0.75% |
| Inflation rate | 0.75% | 0.75% |
Changes in the past service liabilities for the first half-year of 2016 and financial year 2015 may be detailed as follows, with regard to the Bank's pension plan:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Liabilities at the beginning of the financial period/year | 887 696 | 907 691 |
| Current service cost | 1 574 | 1 916 |
| Interest cost | 10 641 | 21 738 |
| Actuarial (gains)/losses | 6 986 | ( 9 857) |
| Early retirement | 8 824 | 3 940 |
| Amounts paid | ( 23 263 ) | ( 40 095 ) |
| Contributions of employees | 1 194 | 2 363 |
| ----------- | ------------ | |
| Liabilities at the end of the financial period/year | 893 652 | 887 696 |
| ====== | ====== |
The cost for the financial year relating to pensions includes the current service cost and the
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
interest cost, net of the estimated return on the assets of the Pension Fund. In the six-month periods ended June 30, 2016 and 2015, pension costs were made up as follows (Note 41):
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| Current service cost | 1 574 | 959 |
| Interest cost | 10 641 | 10 869 |
| Return on assets calculated with the discount rate | ( 10 641 ) | ( 10 869 ) |
| --------- | --------- | |
| Defined benefits plan | 1 574 | 959 |
| Defined contribution plan | 434 | 26 |
| London Branch plan | 160 | 194 |
| ------- | ------- | |
| 2 168 | 1 179 | |
| ==== | ==== |
As from January 1, 2009, employees hired by BST are integrated in Social Security, and are covered by a supplementary defined contribution pension plan with acquired rights under Article 137 – C of the ACT. Said plan is supported by contributions of the employees (1.5%) and of BST (1.5%) based on the amount of the effective monthly salary. For this purpose, each employee can choose an open pension fund to which BST transfers its contribution.
Changes occurring in actuarial gains and losses in the first half-year of 2016 and financial year 2015 were as follows:
| Balance at December 31, 2014 | 666 672 ----------- |
|---|---|
| Actuarial gains on pensions generated in 2015 | ( 10 197 ) |
| Financial gains on pensions generated in 2015 | ( 14 895 ) |
| Actuarial losses on healthcare benefits and death subsidy in 2015 | 340 |
| Financial gains on healthcare benefits and death subsidy in 2015 | ( 2 780 ) |
| Balance at December 31, 2015 (Note 27) | ----------- 639 140 |
| Actuarial losses on pensions generated in 2016 | 6 336 |
| Financial losses on pensions generated in 2016 | 7 926 |
| Actuarial losses on healthcare benefits and death subsidy in 2016 | 650 |
| Financial losses on healthcare benefits and death subsidy in 2016 | 1 760 |
| ----------- | |
| Balance at June 30, 2016 (Note 27) | 655 812 |
| ===== |
Santander Pensões – Sociedade Gestora de Fundos de Pensões, S.A. manages BST's Pension Fund. At June 30, 2016 and December 31, 2015, the number of Fund participants was as follows:
| ===== | ===== | |
|---|---|---|
| 11 615 | 11 615 | |
| --------- | --------- | |
| Retired and early retired staff | 5 347 | 5 325 |
| Pensioners | 1 092 | 1 052 |
| Active employees (1) | 5 176 | 5 238 |
| 30/06/2016 | 30/06/2015 | |
(1) Of whom 266 and 236 employees are included in the new defined contribution plan as of June 30, 2016 and December 31, 2015, respectively.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The main demographic changes occurring in the first half-year of 2016 and in the 2015 financial year, were the following:
| Assets | ||||
|---|---|---|---|---|
| Defined | Defined | Retired staff and | ||
| contribution plan | benefit plan | early retired staff | Pensioners | |
| Total number at December 31, 2014 | 195 | 5 067 | 5 373 | 1 031 |
| Leavers: | ||||
| Current employees | (14) | (24) | - | (10) |
| Due to mortality | - | (2) | (101) | (28) |
| Transfers | - | (43) | 43 | - |
| Joiners | 55 | 4 | 10 | 59 |
| Total number at December 31, 2015 | 236 | 5 002 | 5 325 | 1 052 |
| Leavers: | ||||
| Current employees | (10) | (16) | - | (14) |
| Due to mortality | - | (8) | (53) | - |
| Transfers | - | (68) | 68 | - |
| Joiners | 40 | - | 7 | 54 |
| Total number at June 30, 2016 | 266 | 4 910 | 5 347 | 1 092 |
Changes occurring in BST's Pension Fund during the first half-year of 2016 and financial year 2015 were the following:
| Net assets at December 31, 2014 | 910 580 |
|---|---|
| Contributions made by the Bank (cash) Contributions made by employees Net return of the Fund: |
----------- 1 943 2 363 |
| Return on assets calculated with the discount rate | 21 738 |
| Fund performance above the discount rate | 17 675 |
| Pensions paid | ( 40 095 ) ----------- |
| Net assets at December 31, 2015 | 914 204 |
| Contributions made by employees Net return of the Fund: |
----------- 1 194 |
| Return on assets calculated with the discount rate | 10 641 |
| Fund performance below the discount rate | ( 9 687 ) |
| Pensions paid | ( 23 263 ) ----------- |
| Net assets at June 30, 2016 | 893 089 |
| ====== |
The return rates of the Pension Fund in 2016 and 2015 were 0.21% and 4.33%, respectively.
The investment and allocation policy of BST's Pension Fund defines that its portfolio should take in consideration adequate levels of safety, profitability and liquidity, through a diverse set of investments, including shares, bonds, other debt instruments, shareholdings in collective investment institutions, bank deposits and other assets of a monetary nature as well as land and buildings recorded in the real estate property registry.
Furthermore, that policy is guided by risk diversification and profitability criteria, with the Fund
Management Company having the choice to adopt a more or less conservative policy, by increasing or decreasing the exposure to shares or bonds, according to its expectations about the market developments and in accordance with the defined investment limits.
The current investment policy of BST´s Pension Fund defines the following limits:
| Limits |
|---|
| 40% to 95% |
| 0% to 25% |
| 0% to 20% |
| 0% to 15% |
| 0% to 10% |
| 0% to 5% |
At June 30, 2016 and December 31, 2015, BST's Pension Fund breakdown was as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Debt instruments: | ||
| . Rating A | 23 668 | 10 605 |
| . Rating BBB | 194 877 | 239 174 |
| . Rating BB | 126 914 | 97 990 |
| . Without rating attributed either to the issue or the issuer | 74 444 | 46 689 |
| Real Estate Investment Funds | 186 712 | 196 957 |
| Securities Investment Funds | 154 944 | 180 399 |
| Deposits | 19 815 | 27 385 |
| Real estate: | ||
| . Commercial buildings | 52 041 | 52 060 |
| . Land | 862 | 862 |
| Equity instruments: | ||
| . Portuguese listed companies | 1 265 | 1 636 |
| . Portuguese non-listed companies | 112 | 120 |
| . Foreign listed companies | 45 385 | 47 968 |
| Derivative financial instruments: | ||
| . Listed options | 766 | 852 |
| Other | 11 284 | 11 507 |
| ---------- 893 089 |
----------- 914 204 |
|
| ====== | ====== |
At June 30, 2016 and December 31, 2015, the methodology adopted by the Management Company of BST´s Pension Fund to determine the fair value of the above mentioned assets and liabilities, taking in consideration IFRS 13 (Note 49), was as follows:
| 30/06/2016 | 31/12/2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
| Debt instruments | 410 119 | - | 9 784 | 419 903 | 386 182 | - | 8 276 | 394 458 |
| Investment Funds | 161 188 | - | 180 468 | 341 656 | 153 618 | - | 223 738 | 377 356 |
| Equity instruments | 46 650 | - | 112 | 46 762 | 49 604 | - | 120 | 49 724 |
| Derivative financial instruments | 766 | - | - | 766 | 852 | - | - | 852 |
| Real estate | - | - | 52 903 | 52 903 | - | - | 52 922 | 52 922 |
| 618 723 | - | 243 267 | 861 990 | 590 256 | - | 285 056 | 875 312 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the portfolio of the Pension Fund included the following assets of Santander Group companies in Portugal:
| ====== | ====== | |
|---|---|---|
| 176 403 | 206 289 | |
| Securities (including participation units in funds managed by the Group) | 160 677 ----------- |
190 563 ----------- |
| Property leased out | 15 726 | 15 726 |
| 30/06/2016 | 31/12/2015 |
In 2010 an insurance contract was undertaken with Santander Totta Seguros – Companhia de Seguros de Vida, S.A. to cover the liability arising from a new supplementary retirement plan granted to the Bank's executives. The initial contribution to the new plan amounted to tEuros 4,430. In the six-month periods ended June 30, 2016 and 2015, the premium paid by the Bank amounted to tEuros 291 (Note 41).
This plan covers the possibilities of retirement, death and absolute permanent incapacity for regular work or due to disability.
For all the possibilities, the instalments to be received by the beneficiaries will correspond to the accumulated balance of the supplementary plan on the date that these occur. In the event of the death of the beneficiary, said amount will be increased by Euros 6,000.
At June 30, 2016 and December 31, 2015, 107 persons were covered by this plan.
Defined benefit pension plan – London Branch
At June 30, 2016 and December 31, 2015, the main assumptions used in the reckoning of the liabilities with retirement pensions relating to the pension plan that was attributed to the employees of the London Branch of BST were the following:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Mortality table | AMC00/AFC00 AMC00/AFC00 | |
| Actuarial technical rate (discount rate) | 2.70% | 3.80% |
| Salary growth rate | 3.10% | 3.40% |
| Pension growth rate | 1.80% | 2.00% |
| Inflation rate | 2.10% | 2.40% |
At June 30, 2016 and December 31, 2015, the liabilities with the defined benefit pension plan of the London Branch of BST and its coverage were as follows:
| ==== | ==== | |
|---|---|---|
| Not financed amount – London Branch | ( 11 331 ) | ( 4 434 ) |
| -------- | -------- | |
| Net assets of the Pension Fund | 38 244 | 40 125 |
| Estimated liabilities for past services | 49 575 | 44 559 |
| 30/06/2016 | 31/12/2015 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Regarding to the specific pension plan of the London Branch of BST, the changes in the past service liabilities in the first half-year of 2016 and financial year 2015 may be presented as follows:
| Liabilities at December 31, 2014 | 42 855 |
|---|---|
| --------- | |
| Current service cost | 202 |
| Interest cost | 1 627 |
| Actuarial gains | ( 1 892 ) |
| Amounts paid | ( 857 ) |
| Foreign exchange fluctuations | 2 624 |
| --------- | |
| Liabilities at December 31, 2015 | 44 559 |
| --------- | |
| Current service cost | 86 |
| Interest cost | 742 |
| Actuarial losses | 4 570 |
| Amounts paid | ( 382 ) |
| --------- | |
| Liabilities at June 30, 2016 | 49 575 |
| ===== |
Changes in the Pension Fund of the London Branch of BST during the first half-year of 2016 and financial year 2015 were as follows:
| Net assets at December 31, 2014 | 38 223 |
|---|---|
| --------- | |
| Net return of the Fund | 305 |
| Contribution made by the Branch | 113 |
| Pensions paid | ( 857 ) |
| Foreign exchange fluctuations | 2 341 |
| --------- | |
| Net assets at December 31, 2015 | 40 125 |
| --------- | |
| Net return of the Fund: | |
| Return on assets calculated with the discount rate | 668 |
| Fund performance below the discount rate | ( 2 236 ) |
| Contribution made by the Branch | 69 |
| Pensions paid | ( 382 ) |
| --------- | |
| Net assets at June 30, 2016 | 38 244 |
| ===== |
The costs with the defined benefit pension plan of BST's London Branch in the six-month periods ended June 30, 2016 and 2015 were as follows:
| 30/06/2016 | 30/06/2015 | |
|---|---|---|
| Current service cost | 86 | 104 |
| Interest cost | 742 | 834 |
| Return on assets calculated with the discount rate | ( 668 ) | ( 744 ) |
| ------- | ------ | |
| 160 | 194 | |
| === | === |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The changes and the detail of the actuarial gains and losses of BST's London Branch during the first half-year of 2016 and financial year 2015 were as follows:
| Balance at December 31, 2014 | 8 867 |
|---|---|
| Actuarial gains on pensions in 2015 Financial losses on pensions in 2015 Foreign exchange fluctuations |
-------- ( 1 892 ) 1 142 280 |
| Balance at December 31, 2015 (Note 27) | ------- 8 397 |
| Actuarial losses on pensions in 2016 Financial losses on pensions in 2016 |
------- 4 570 2 236 |
| Balance at June 30, 2016 (Note 27) | ------- 15 203 ==== |
At June 30, 2016 and December 31, 2015, BST's London Branch Pension Fund portfolio included the following assets:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Debt instruments | 32 979 | 34 374 |
| Equity instruments | 5 180 | 5 667 |
| Deposits | 85 | 84 |
| --------- | --------- | |
| Fund's net asset value | 38 244 | 40 125 |
| ===== | ===== |
The liabilities with defined benefit pension plans exposes the Bank to the following risks:
Following the resolution measure applied to Banif on December 20, 2015, a group of employees of the former Banif was transferred to BST, including their liabilities for past services. Responsibilities were also transferred for 511 retired employees, early retirees, pensioners and former participants with acquired rights. On January 27, 2016, the Bank requested the Insurance and Pension Fund Supervisory Authority's approval to the transfer to BST of Banif's position whilst member of the Banif Pension Fund, in the defined benefit pension plan, subpopulations A and B and in the defined contribution pension plans II and III.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The employees of the former Banif were covered by different types of pension plans:
The former Banif also had two defined contribution pension plans:
The former Banif's responsibilities with pension plans were assumed by BST. The detail of the population transferred is as follows:
| Subpopulation Banif |
Subpopulation Former BBCA |
Total | |
|---|---|---|---|
| Current employees | 894 | 228 | 1 122 |
| Rerired staff and pensioners | 90 | 193 | 283 |
| Early retired staff | 14 | 182 | 196 |
| Former participants with vested rigths | - | 32 | 32 |
| 998 | 635 | 1 633 |
Defined contribution pension plan - employees covered
| Plan II | 594 |
|---|---|
| Plan III | 313 |
| 907 |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The estimated liabilities for past services, based on the assumptions used by BST, for the defined benefit pension plan (considering both subpopulations: the former Banif and the former BBCA), are as follows:
| Liabilities | ||||
|---|---|---|---|---|
| Healthcare | Death | |||
| Pensions | systems (SAMS) | Subsidy | Total | |
| Current Employees | 32 982 | 5 104 | 104 | 38 190 |
| Retired staff | 54 312 | 5 170 | 125 | 59 607 |
| Pensioners | 4 695 | 670 | - | 5 365 |
| Early retired staff | 16 005 | 3 506 | 167 | 19 678 |
| Former participants with vested rights | 4 213 | - | - | 4 213 |
| Total liabilities for past services | 112 207 | 14 450 | 396 | 127 053 |
| Book value of the transferred pension fund | 117 138 | |||
| Insufficient fund | (9 915) |
The liabilities for past services of employees of the former Banif amount to tEuros 127,053, which are recognized as follows:
| Other liabilities (Note 26) | 118 021 |
|---|---|
| Provisions (Note 23) | 9 032 ---------- |
| 127 053 | |
| ====== |
The portfolio of the former Banif Pension Fund associated with the defined benefit pension plan was as follows:
| Type of Asset | Total | Relative weight |
|---|---|---|
| Debt instruments | 46 205 | 38,16% |
| Securities investment fund | 49 094 | 40,54% |
| Real estate fund | 3 388 | 2,80% |
| Real estate properties | 18 885 | 15,60% |
| Equity instruments | 1 332 | 1,10% |
| Deposits | 1 314 | 1,09% |
| Other | 869 | 0,72% |
| 121 087 | ||
| Assets to be transferred | (3 949) | |
| 117 138 |
The net asset amount to be transferred corresponds to the amount of the assets of the Pension Fund portfolio that will cover the liabilities of the employees of the former Banif who were not transferred to the Bank.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Between July 2003 and February 2011, BST securitized part of its mortgage loan portfolio, through twelve operations, with a total initial amount of tEuros 23,250,000. The loans were sold at their nominal value (book value) to securitization funds denominated Fundos Hipototta FTC (hereinafter Hipototta FTC Funds), with the exception of the last securitization operations (Hipototta No. 11 and Hipototta No. 12), for which the loans were sold to Tagus – Sociedade de Titularização de Créditos, S.A. (Tagus). A substantial part of the securitization operations were repurchased by BST under those agreements, with the remaining securitization operations being Hipototta No. 1, Hipototta No. 4 and Hipototta No. 5.
Hipototta FTC Funds are managed by Navegator – Sociedade Gestora de Fundos de Titularização de Créditos, S.A. (Navegator). BST continues to manage the loan contracts, transferring all the amounts received under those loans to Hipototta Funds. The Santander Group does not hold any direct or indirect shareholding in Navegator.
To finance these operations, Hipototta Funds issued participation units for the same amount of the loan portfolios purchased, which were fully subscribed by Hipototta PLC Funds, with registered offices in Ireland.
Furthermore, Hipototta FTC Funds channel all the amounts received from BST and from the Portuguese Treasury (Direcção Geral do Tesouro) to Hipototta PLC Funds, segregating the instalments between principal and interest.
To finance these operations, the Hipottota PLC Funds issued bonds with different levels of subordination and rating and, consequently, of return. At June 30, 2016, the bonds issued and still outstanding are as follows:
| Hipototta No. 1 PLC | ||||||||
|---|---|---|---|---|---|---|---|---|
| Amount | Rating | Early | Remuneration | |||||
| Issued debt |
Initial | Current | S&P Moody´s | Redemption date |
redemption date |
Up to early redemption date |
After early redemption date | |
| Class A | 1 053 200 111 675 | A | A1 | November 2034 | August 2012 | Euribor 3 months + 0.27% | Euribor 3 months + 0.54% | |
| Class B | 32 500 | 7 201 | A- | A3 | November 2034 | August 2012 | Euribor 3 months + 0.65% | Euribor 3 months + 0.95% |
| Class C | 14 300 | 3 173 | A- | Baa1 | November 2034 | August 2012 | Euribor 3 months + 1.45% | Euribor 3 months + 1.65% |
| 1 100 000 122 049 | ||||||||
| Class D | 17 600 | 11 000 | November 2034 | August 2012 | Residual income of the securitized portfolio | |||
| 1 117 600 133 049 |
| Hipototta No. 4 PLC | ||||||||
|---|---|---|---|---|---|---|---|---|
| Amount | Rating | Remuneration | ||||||
| Issued debt |
Initial | Current | S&P | Redemption date |
Early redemption date |
Up to early redemption date |
After early redemption date | |
| Class A | 2 616 040 731 247 | A | December 2048 December 2014 | Euribor 3 months + 0.12% | Euribor 3 months + 0.24% | |||
| Class B | 44 240 | 26 934 | A | December 2048 December 2014 | Euribor 3 months + 0.19% | Euribor 3 months + 0.40% | ||
| Class C | 139 720 | 84 055 | CCC | December 2048 December 2014 | Euribor 3 months + 0.29% | Euribor 3 months + 0.58% | ||
| 2 800 000 842 236 | ||||||||
| Class D | 14 000 | 14 000 | December 2048 December 2014 | Residual income of the securitized portfolio | ||||
| 2 814 000 856 236 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| Hipototta No. 5 PLC | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Amount | Rating | Early | Remuneration | ||||||
| Issued debt |
Initial | Current | S&P Moody´s | Redemption date |
redemption date |
Up to early redemption date |
After early redemption date | ||
| Class A1 | 200 000 | - | February 2060 February 2014 Euribor 3 months + 0.05% | Euribor 3 months + 0.10% | |||||
| Class A2 1 693 000 670 944 | A- | A1 | February 2060 February 2014 Euribor 3 months + 0.13% | Euribor 3 months + 0.26% | |||||
| Class B | 26 000 | 26 000 | A- | Baa1 | February 2060 February 2014 Euribor 3 months + 0.17% | Euribor 3 months + 0.34% | |||
| Class C | 24 000 | 24 000 BB+ | Baa3 | February 2060 February 2014 Euribor 3 months + 0.24% | Euribor 3 months + 0.48% | ||||
| Class D | 26 000 | 26 000 BB+ | Ba3 | February 2060 February 2014 Euribor 3 months + 0.50% | Euribor 3 months + 1.00% | ||||
| Class E | 31 000 | 31 000 | BB- | B3 | February 2060 February 2014 Euribor 3 months + 1.75% | Euribor 3 months + 3.50% | |||
| 2 000 000 777 944 | |||||||||
| Class F | 10 000 | 7 779 CCC- | Ca | February 2060 February 2014 | Residual income of the securitized portfolio | ||||
| 2 010 000 785 723 |
The bonds issued by Hipototta No. 1 PLC and Hipototta No. 4 PLC pay interest quarterly on March 30, June 30, September 30 and December 30 of each year. The bonds issued by Hipototta No. 5 PLC pay interest quarterly on February 28, May 30, August 30 and November 30 of each year.
BST has the option to early redeem the bonds on the above mentioned dates. For all Hipototta, BST has the possibility of repurchasing the loan portfolios at their nominal value when the outstanding loan portfolio is equal to or lower than 10% of the initial amount of the operations.
Furthermore, up to five days before each quarterly interest payment date, all Hipototta have the option to make partial repayments of the Class A, B and C bonds, as well as of Class D and E bonds in the case of Hipototta No. 5 PLC, in order to adjust the amount of the liability to that of the outstanding mortgage loan portfolios.
The Class D bonds of Hipototta No. 1 and Hipototta No. 4, and the Class F bonds of Hipottota No. 5 constitute the last liabilities to be paid.
The remuneration of these bonds corresponds to the difference between the income generated by the securitized loan portfolio and the sum of all the costs related to the operation, namely:
When the securitization operations were contracted, the estimated income from the securitized loan portfolios included in the computation of the remuneration of the Class D bonds for Hipototta No. 1 PLC and Hipototta No. 4 PLC corresponded to an average annual rate of 1.1% and 0.9%, respectively. For the Class F bonds of Hipototta No. 5 PLC, this corresponded to an annual average of 0.9% of the total loan portfolio.
When the securitization operations were contracted, subordinated loans were granted by BST to Hipototta as facilities/credit lines in case of need of liquidity by Hipototta. Swap agreements were also celebrated between the Santander Group and the first Hipototta issued and between BST and the remaining securitization vehicles to cover the interest rate risk.
Following the resolution measure applied to the former Banif, BST acquired a number of securitization operations issued by this entity, and the corresponding securitized loans and bonds issued were transferred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Securitization operations acquired are presented below:
Operation implemented in February 2003 by the former Banif, where mortgage loans were sold to Atlantes Mortgage No.1 FTC, a securitization fund that issued participation units subscribed by Atlantes Mortgage No.1 PLC based in Ireland. For funding purposes, Atlantes Mortgage No.1 PLC issued bonds with different levels of subordination and rating and, consequently, of remuneration. This securitization is managed by Navegator.
| Atlantes Mortgage No. 1 PLC | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Issued | Amount | Rating | Remuneration | |||||||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | ||||
| Class A | 462 500 | 46 028 | A | A3 | January 2036 | Euribor 3 months + 0.054% | ||||
| Class B | 22 500 | 22 500 | BB- | Baa2 | January 2036 | Euribor 3 months + 1.3% | ||||
| Class C | 12 500 | 12 500 | B- | Ba3 | January 2036 | Euribor 3 months + 2.6% | ||||
| Class D | 2 500 | 2 500 | B- | B3 | January 2036 | Euribor 3 months + 4.75% | ||||
| 500 000 | 83 528 | |||||||||
| Class E | 15 400 | 15 400 | NR | NR | January 2036 | Residual income of the securitized portfolio | ||||
| 515 400 | 98 928 |
Operation implemented in November 2004 by the former Banif, where mortgage loans originated in the former BBCA (Banif e Banco Comercial dos Açores, S.A.) were sold to Sagres – Sociedade de Titularização de Créditos (Sagres STC), which issued the Azor Notes, bonds fully subscribed by Azor Mortgages PLC, based in Ireland. For funding purposes, Azor Morgages PLC issued bonds with different levels of subordination and rating and, consequently, of remuneration. In December 2006, the Azor Notes and the respective rights to receive payments on the loans and the duties to pay to Azor Mortgages PLC were transferred from Sagres STC to Gamma Sociedade de Titularização de Créditos ("Gamma STC"), a company currently owned by Oitante.
| Azor Mortgage No. 1 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Issued | Amount | Rating | Remuneration | ||||||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | |||
| Class A | 253 000 | 14 427 | A | Baa3 | September 2047 | Euribor 3 months + 0.3% | |||
| Class B | 19 000 | 19 000 | BB | Ba1 | September 2047 | Euribor 3 months + 0.76% | |||
| Class C | 9 000 | 9 000 | BB | Ba3 | September 2047 | Euribor 3 months + 1.75% | |||
| 281 000 | 42 427 | ||||||||
| Class D | 10 000 | 10 000 | NR | NR | September 2047 | Residual income of the securitized portfolio | |||
| 291 000 | 52 427 |
Atlantes Mortgage No. 2
Operation implemented in March 2008 by the former Banif, where mortgages loans were sold to Gamma STC. To finance the operation, Gamma STC issued Atlantes Mortgage No. 2 Class A, B, C and D bonds with different levels of subordination and rating and, consequently, of remuneration.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| Atlantes Mortgage No. 2 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Issued | Amount | Rating | Remuneration | ||||||||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | |||||
| Class A | 349 100 | 174 437 | BBB+ | A | September 2060 | Euribor 3 months + 0.33% | |||||
| Class B | 18 400 | 13 817 | BB+ | BBB | September 2060 | Euribor 3 months + 0.95% | |||||
| Class C | 7 500 | 5 632 | B- | BB | September 2060 | Euribor 3 months + 1.65% | |||||
| 375 000 | 193 885 | ||||||||||
| Class D | 16 125 | 16 125 | NR | NR | September 2060 | Residual income of the securitized portfolio | |||||
| 391 125 | 210 010 |
Operation implemented in July 2008 by the former Banif, where mortgage loans originated by the former BBCA were sold to Gamma STC. To finance the operation, Gamma STC issued Azor Mortgages No. 2 Class A, B and C bonds with different levels of subordination and rating and, consequently, of remuneration.
| Azor Mortgage No. 2 | ||||||
|---|---|---|---|---|---|---|
| Issued | Amount | Rating | Remuneration | |||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date |
| Class A | 253 000 | 137 165 | A+ | A | December 2065 | Euribor 3 months + 0.3% |
| Class B | 46 500 | 43 080 | NR | NR | December 2065 | Euribor 3 months + 0.8% |
| 299 500 | 180 245 | |||||
| Class D | 6 750 | 6 750 | NR | NR | December 2065 | Residual income of the securitized portfolio |
| 306 250 | 186 995 |
Operation implemented in October 2008 by the former Banif, where mortgage loans were sold to Gamma STC. To finance the operation, Gamma STC issued Atlantes Mortgage No. 3 Class A, B and C bonds with different levels of subordination and rating and, consequently, of remuneration.
| Atlantes Mortgage No. 3 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Issued | Amount | Rating | Remuneration | |||||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | ||
| Class A | 558 600 | 296 552 | A | A+ | August 2061 | Euribor 3 months + 0.2% | ||
| Class B | 41 400 | 35 441 | NR | NR | August 2061 | Euribor 3 months + 0.5% | ||
| 600 000 | 331 993 | |||||||
| Class C | 57 668 | 57 668 | NR | NR | August 2061 | Residual income of the securitized portfolio | ||
| 657 668 | 389 661 |
Operation implemented in February 2009 by the former Banif, where mortgage loans were sold to Gamma STC. To finance the operation, Gamma STC issued Atlantes Mortgage No. 4 Class A, B and C bonds with different levels of subordination and rating and, consequently, of remuneration.
| Atlantes Mortgage No. 4 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Issued | Amount | Rating | Remuneration | |||||||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | ||||
| Class A | 514 250 | 337 963 | A+ | A+ | December 2064 | Euribor 3 months + 0.2% | ||||
| Class B | 35 750 | 34 947 | NR | NR | December 2064 | Euribor 3 months + 0.5% | ||||
| 550 000 | 372 910 | |||||||||
| Class C | 74 250 | 74 250 | NR | NR | December 2064 | Residual income of the securitized portfolio | ||||
| 624 250 | 447 160 |
Operation implemented in December 2009 by the former Banif, where mortgage loans were sold to Gamma STC. To finance the operation, Gamma STC issued Atlantes Mortgage No. 5 Class A, B and C bonds with different levels of subordination and rating and, consequently, remuneration.
| Atlantes Mortgage No. 5 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Issued | Amount | Rating | Remuneration | ||||||||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | |||||
| Class A | 455 000 | 284 062 | A+ | A+ | December 2068 | Euribor 3 months + 0,15% | |||||
| Class B | 45 000 | 43 806 | NR | NR | December 2068 | Euribor 3 months + 0,3% | |||||
| 500 000 | 327 868 | ||||||||||
| Class C | 66 250 | 66 250 | NR | NR | December 2068 | Residual income of the securitized portfolio | |||||
| 566 250 | 394 118 |
Operation implemented in June 2010 by the former Banif, where mortgage loans were sold to Gamma STC. To finance the operation, Gamma STC issued Atlantes Mortgage No. 6 Class A and B bonds with different levels of subordination and rating and, consequently, of remuneration.
| Atlantes Mortgage No. 6 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Issued | Amount | Rating | Remuneration | |||||||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | ||||
| Class A | 91 000 | 49 090 | NR | NR | December 2016 | 4.50% | ||||
| 91 000 | 49 090 | |||||||||
| Class B | 22 000 | 22 000 | NR | NR | December 2016 | Residual income of the securitized portfolio | ||||
| 113 000 | 71 090 |
Operation implemented in November 2010 by the former Banif, where mortgage loans were sold to Gamma STC. To finance the operation, Gamma STC issued Atlantes Mortgage No. 7 Class A, B and C bonds with different levels of subordination and rating and, consequently, of remuneration.
| Atlantes Mortgage No. 7 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Issued | Amount | Rating | Remuneration | |||||||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | ||||
| Class A | 357 300 | 220 420 | A+ | A+ | August 2066 | Euribor 3 months + 0.15% | ||||
| Class B | 39 700 | 36 907 | NR | NR | August 2066 | Euribor 3 months + 0.3% | ||||
| 397 000 | 257 327 | |||||||||
| Class C | 63 550 | 63 550 | NR | NR | August 2066 | Residual income of the securitized portfolio | ||||
| 460 550 | 320 877 |
Operation implemented in December 2012, under which Banif and Banif Banco Mais (currently Cofidis) sold to Gamma STC a portfolio of mortgage or real estate collateralized loans. The transaction was financed through the issuance of Atlantes NPL No. 1 Class A and B bonds with different levels of subordination and rating and, consequently, of remuneration.
| Atlantes NPL No. 1 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Issued Amount |
Rating | Remuneration | ||||||||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | ||||
| Class A | 168 000 | 107 141 | NR | NR | December 2018 | 6.0% | ||||
| 168 000 | 107 141 | |||||||||
| Class B | 45 000 | 45 000 | NR | NR | December 2018 | Residual income of the securitized portfolio | ||||
| 213 000 | 152 141 |
Operation implemented in December 2013, under which Banif and Banif Banco Mais (currently Cofidis) sold to Gamma STC a consumer loan portfolio. The transaction was financed through the issuance of Atlantes Finance No. 6 Class A, B, C and S bonds with different levels of subordination and rating and, consequently, of remuneration.
| Atlantes Finance No. 6 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Issued | Amount | Rating | Remuneration | |||||||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | ||||
| Class A | 176 800 | 32 550 | A- | NR | March 2033 | Euribor 3 months + 2.4% | ||||
| Class B | 40 100 | 40 100 | NR | NR | March 2033 | Euribor 3 months + 3% | ||||
| 216 900 | 72 650 | |||||||||
| Class C | 10 900 | 6 365 | NR | NR | March 2033 | Residual income of the securitized portfolio | ||||
| Class S | 7 400 | 3 949 | NR | NR | March 2033 | Without payment | ||||
| 235 200 | 76 599 |
As mentioned above, the Bank has only 22% of the equity (Class C) and, therefore, the loans were derecognized. The bonds held are recorded under "Available-for-sale financial assets" and "Investments in associated companies".
Operation implemented in September 2014 by the former Banif, where a corporate loan portfolio was sold to Gamma STC. To finance this operation, Gamma STC issued Atlantes SME No. 4 Class A, B, C, D and S bonds with different levels of subordination and rating and, consequently, of remuneration.
| Atlantes SME No. 4 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Issued | Amount | Rating | Remuneration | |||||||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | ||||
| Class A | 465 000 | 55 778 | A | NR | December 2043 | Euribor 3 months + 0.98% | ||||
| Class B | 55 000 | 55 000 | BB | NR | December 2043 | Euribor 3 months + 1.48% | ||||
| Class C | 180 000 | 180 000 | BB | NR | December 2043 | Euribor 3 months + 6.00% | ||||
| 700 000 | 290 778 | |||||||||
| Class D | 186 400 | 186 400 | NR | NR | December 2043 | Residual income of the securitized portfolio | ||||
| Class S | 41 000 | 20 045 | NR | NR | December 2043 | Without payment | ||||
| 927 400 | 497 223 |
Operation implemented in July 2015 by the former Banif, where a corporate loan portfolio was sold to Gamma STC. To finance the operation, Gamma STC issued Atlantes SME No. 5 Class A, B, C, D and S bonds with different levels of subordination and rating and, consequently, of remuneration.
| Atlantes SME No. 5 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Issued | Amount | Rating | Remuneration | |||||||
| debt | Initial | Current | S&P | Moody´s | Redemption date | Up to early redemption date | ||||
| Class A | 440 000 | 283 133 | A- | A3 | January 2044 | Euribor 3 months + 1.20% | ||||
| Class B | 35 600 | 35 600 | BBB | B1 | January 2044 | Euribor 3 months + 1.75% | ||||
| Class C | 164 400 | 164 400 | NR | NR | January 2044 | Euribor 3 months + 6.00% | ||||
| 640 000 | 483 133 | |||||||||
| Class D | 172 800 | 172 800 | NR | NR | January 2044 | Residual income of the securitized portfolio | ||||
| Class S | 33 200 | 23 647 | NR | NR | January 2044 | Without payment | ||||
| 846 000 | 679 580 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The related entities of the Bank with which it had balances or transactions in the first half-year of 2016 were the following:
| Name of the related entity | Head office |
|---|---|
| Entities that directly or indirectly control the Group | |
| Santander Totta, SGPS | Portugal |
| Santusa Holding, S.L. | Spain |
| Banco Santander, S.A. | Spain |
| Entities under direct or indirect control by the Group | |
| Totta & Açores, Inc. - Newark | USA |
| Totta Ireland, PLC | Ireland |
| BST International Bank, Inc. - Porto Rico | Puerto Rico |
| Santotta Internacional, S.G.P.S, Sociedade Unipessoal, LDA | Portugal |
| Taxagest, SGPS, S.A. | Portugal |
| Tottaurbe - Emp.Admin. e Construções, S.A. | Portugal |
| NOVIMOVEST - Fundo de Investimento Imobiliário Aberto | Portugal |
| Banif International Bank, Ltd | Bahamas |
| Entities significantly influenced by the Group | |
| Benim - Sociedade Imobiliária, SA | Portugal |
| Unicre-Instituição Financeira de Crédito | Portugal |
| Special purpose Entities that are directly or indirectly controlled by the Group | |
| Hipototta NO. 1 PLC | Ireland |
| Hipototta NO. 1 FTC | Portugal |
| Hipototta NO. 4 PLC | Ireland |
| Hipototta NO. 4 FTC | Portugal |
| Hipototta NO. 5 PLC | Ireland |
| Hipototta NO. 5 FTC | Portugal |
| Gamma STC | Portugal |
| Atlantes Mortgage 1 PLC | Ireland |
| Atlantes Mortgage 1 FTC | Portugal |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| Name of the related entity | Head office |
|---|---|
| Entities under direct or indirect common control by the group | |
| Abbey National Treasury Services plc | United Kingdom |
| All Funda Bank, SA | Spain |
| Banco Santander (México), S.A. | Mexico |
| Banco Santander (Suisse), S.A. | Switzerland |
| Banco Santander Brasil, S.A. | Brazil |
| Banco Santander Consumer Portugal S.A. | Portugal |
| Banco Santander Puerto Rico | Puerto Rico |
| Capital Grupo Santander, SA SGECR | Spain |
| Financiera El Corte Inglés, E.F.C., S.A. | Spain |
| Geoban, S.A. | Spain |
| Gesban Servicios Administrativos Globais | Spain |
| Ibérica de Compras Corporativas | Spain |
| Ingeniería de Software Bancário, S.L. | Spain |
| Konecta Portugal, Lda. | Portugal |
| Open Bank Santander Consumer S.A. | Spain |
| Portal Universia Portugal, Prestaçao de Serviços de Informática, S.A. | Portugal |
| Produban Servicios Informáticos Generales, S.L. | Spain |
| Retama Real Estate, S.L. | Spain |
| Santander AM Holding, S.L. | Spain |
| Santander Asset Management SGFIM, S.A. | Portugal |
| Santander Asset Management, S.A. SGIIC. | Spain |
| Santander Back-Office Globales Mayorista | Spain |
| Santander Bank & Trust Ltd. | Bahamas |
| Santander Consumer Bank A.S. | Norway |
| Santander Consumer Finance S.A. | Spain |
| Santander Consumer, EFC, S.A. | Spain |
| Santander Global Facilities,SL | Spain |
| Santander International Debt, S.A. | Spain |
| Santander Investment Securities,Inc | USA |
| Santander Investment, S.A. | Spain |
| Santander Pensões - Sociedade Gestora de Fundos de Pensões, S.A. | Portugal |
| Santander Seguros y Reaseguros, Compañía Aseguradora, S.A. | Spain |
| Santander Tecnologia y Operaciones AEIE | Spain |
| Santander Totta Seguros, Companhia de Seguros de Vida, S.A. | Portugal |
| Aegon Santander Portugal Vida - Companhia de Seguros Vida, S.A. | Portugal |
| Aegon Santander Portugal Não Vida - Companhia de Seguros, S.A. | Portugal |
| Santander UK plc | United Kingdom |
| Santander Issuances, SA | Spain |
| Sovereign Bank | USA |
| UCI Mediação de Seguros, Unipessoal Lda. | Portugal |
| Union de Créditos Inmobiliários,SA | Spain |
| PSA Gestao Comercio&Aluguer Veiculos,SA | Portugal |
| Allfunds Bank International S.A. | Luxembourg |
| Financeira El Corte Inglés, Portugal, S.F.C., S.A. | Portugal |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The related entities of the Bank with which it had balances or transactions in 2015 were the following:
| Name of the related entity | Head office |
|---|---|
| Entities that directly or indirectly control the Group | |
| Santander Totta, SGPS, S.A. Santusa Holding, S.L. Banco Santander, S.A. |
Portugal Spain Spain |
| Entities under direct or indirect control by the Group | |
| Totta & Açores Financing, Ltd. Serfin International Bank & Trust Banif International Bank, Ltd. Totta & Açores, Inc. - Newark Totta Ireland, PLC Santotta Internacional, SGPS, Sociedade Unipessoal, Lda. TottaUrbe - Empresa de Administração e Construções, S.A. BST International Bank, Inc. Taxagest, SGPS, S.A. Fundo de Investimento Mobiliário Aberto de Obrigações de Taxa Variável Multiobrigações Fundo de Investimento Imobiliário Novimovest |
Cayman Islands Cayman Islands Bahamas USA Ireland Portugal Portugal Puerto Rico Portugal Portugal Portugal |
| Entities significantly influenced by the Group | |
| Benim - Sociedade Imobiliária, S.A. Partang, SGPS, S.A. Banco Caixa Geral Totta de Angola, S.A. Unicre - Instituição Financeira de Crédito, S.A. |
Portugal Portugal Angola Portugal |
| Special purpose Entities that are directly or indirectly controlled by the Group HIPOTOTTA NO. 1 PLC HIPOTOTTA NO. 4 PLC HIPOTOTTA NO. 5 PLC HIPOTOTTA NO. 1 FTC HIPOTOTTA NO. 4 FTC HIPOTOTTA NO. 5 FTC Gamma STC (1) Atlantes Mortgage 1 PLC Atlantes Mortgage 1 FTC (1) See Note 4 |
Ireland Ireland Ireland Portugal Portugal Portugal Portugal Ireland Portugal |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| Name of the related entity | Head office |
|---|---|
| Entities under direct or indirect common control by the group | |
| Abbey National Treasury Services plc | United Kingdom |
| Aegon Santander Portugal Vida - Companhia de Seguros Vida, S.A. | Portugal |
| Aegon Santander Portugal Não Vida - Companhia de Seguros, S.A. | Portugal |
| All Funds Bank, S.A. | Spain |
| Banco Santander (México), S.A. | Mexico |
| Banco Santander (Suisse), S.A. | Switzerland |
| Banco Santander Brasil, S.A. | Brazil |
| Banco Santander Consumer Portugal, S.A. | Portugal |
| Banco Santander Puerto Rico | Puerto Rico |
| Capital Grupo Santander, S.A. SGECR | Spain |
| Financiera El Corte Inglés, E.F.C., S.A. | Spain |
| Geoban, S.A. | Spain |
| Gesban Servicios Administrativos Globais | Spain |
| Ibérica de Compras Corporativas | Spain |
| Ingeniería de Software Bancário, S.L. | Spain |
| Konecta Portugal, Lda. | Portugal |
| Open Bank Santander Consumer S.A. | Spain |
| Portal Universia Portugal, Prestação de Serviços de Informática, S.A. | Portugal |
| Produban Servicios Informáticos Generales, S.L. | Spain |
| PSA Gestão Comércio & Aluguer Veículos, S.A. | Portugal |
| Retama Real Estate, S.L. | Spain |
| Santander AM Holding, S.L. | Spain |
| Santander Asset Management SGFIM, S.A. | Portugal |
| Santander Asset Management, S.A. SGIIC | Spain |
| Santander Back-Office Globales Mayorista | Spain |
| Santander Bank & Trust Ltd. | Bahamas |
| Santander Consumer Bank S.A. | Norway |
| Santander Consumer Finance S.A. | Spain |
| Santander Consumer, EFC, S.A. | Spain |
| Santander Global Facilities, S.L. | Spain |
| Santander International Debt, S.A. | Spain |
| Santander Investment Securities,Inc | USA |
| Santander Investment, S.A. | Spain |
| Santander Issuances, S.A. | Spain |
| Santander Pensões - Sociedade Gestora de Fundos de Pensões, S.A. | Portugal |
| Santander Seguros y Reaseguros, Compañía Aseguradora, S.A. | Spain |
| Santander Tecnologia y Operaciones AEIE | Spain |
| Santander Totta Seguros, Companhia de Seguros de Vida, S.A. | Portugal |
| Santander UK plc | United Kingdom |
| Sovereign Bank | USA |
| UCI - Mediação de Seguros Unipessoal, Lda. | Portugal |
| Union de Créditos Inmobiliários,S.A. | Spain |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the balances and off-balance sheet items maintained with related entities were as follows:
| 30/06/2016 | |||
|---|---|---|---|
| Entities under | |||
| Entities that | Entities that are | direct or indirect | |
| directly or indirectly | significantly influenced | common control | |
| control the Group | by the Group | by the Group | |
| Assets: | |||
| Balances due from banks | 26 946 | - | 139 |
| Financial assets held for trading | 87 419 | - | 1 739 |
| Loans and advances to credit institutions | 1 128 353 | - | 235 433 |
| Loans and advances to customers | - | 54 120 | 1 415 |
| Hedging derivatives | 123 340 | - | - |
| Investments in associated companies | - | 38 650 | - |
| Other assets | 11 858 | 3 920 | 18 697 |
| Liabilities: | |||
| Financial liabilities held for trading | 1 573 539 | - | 28 844 |
| Resources of other credit institutions | 340 187 | 51 840 | 1 819 |
| Resources of customers and other debts | 186 561 | - | 905 049 |
| Debt securities | 61 405 | - | 18 251 |
| Hedging derivatives | 183 849 | - | - |
| Subordinated liabilities | - | - | 4 299 |
| Other liabilities | 2 842 | - | 10 420 |
| Costs: | |||
| Interest and similar charges | 62 871 | - | 23 318 |
| Charges with services and commissions | 825 | - | 978 |
| Result of assets and liabilities at fair value through profit or loss | 628 385 | - | 35 010 |
| General administrative costs | - | - | 23 443 |
| Income: | |||
| Interest and similar income | 83 896 | - | 1 658 |
| Result of assets and liabilities at fair value through profit or loss | 321 211 | - | 37 201 |
| Income from services and commissions | 96 | - | 49 408 |
| Result of foreign exchange revaluation | 18 | - | - |
| Result from associates | - | 2 010 | - |
| Other operating results | - | - | 102 |
| Off balance sheet items: | |||
| Guarantees provided and other contingent liabilities | 25 461 | - | 10 438 |
| Guarantees received | 1 | - | 1 000 |
| Commitments to third parties | 37 916 | 3 000 | 156 281 |
| Currency operations and derivatives | 11 407 239 | - | 332 100 |
| Responsibilities for services rendered | 3 311 390 | 25 707 | 2 155 400 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 31/12/2015 | |||
|---|---|---|---|
| Entities that directly or indirectly control the Group |
Entities that are significantly influenced by the Group |
Entities under direct or indirect common control by the Group |
|
| Assets: | |||
| Balances due from banks | 21 036 | 525 | |
| Financial assets held for trading | 174 230 | - | 4 192 |
| Available-for-sale financial assets | - | - | 400 |
| Loans and advances to credit institutions | 952 003 | 1 | 228 887 |
| Loans and advances to customers | - | 39 027 | 5 851 |
| Hedging derivatives | 127 036 | - | - |
| Investments in associated companies | - | 42 213 | - |
| Other assets | 10 505 | 7 840 | 22 067 |
| Liabilities: | |||
| Financial liabilities held for trading | 1 534 391 | - | 46 867 |
| Resources of other credit institutions | 359 041 | 65 046 | 1 639 |
| Resources of customers and other debts | 93 652 | - | 1 100 942 |
| Debt securities | 69 592 | - | 18 095 |
| Hedging derivatives | 170 095 | - | - |
| Subordinated liabilities | - | - | 4 302 |
| Other liabilities | 3 462 | - | 1 694 |
| Costs: | |||
| Interest and similar charges | 138 134 | 30 | 39 518 |
| Charges with services and commissions | 990 | - | 3 870 |
| Result of assets and liabilities at fair value through profit or loss | 963 166 | - | 35 760 |
| General administrative costs | - | - | 49 016 |
| Income: | |||
| Interest and similar income | 192 925 | 23 | 4 429 |
| Result of assets and liabilities at fair value through profit or loss | 952 619 | 6 867 | 31 903 |
| Income from services and commissions | 231 | - | 99 907 |
| Result of foreign exchange revaluation | 1 794 | 937 | - |
| Result from associates | - | 14 499 | - |
| Other operating results | - | - | 156 |
| Off balance sheet items: | |||
| Guarantees provided and other contingent liabilities | 25 717 | - | 13 005 |
| Guarantees received | 1 | - | 1 000 |
| Commitments to third parties | 71 074 | 3 000 | 153 768 |
| Currency operations and derivatives | 13 642 089 | - | 453 067 |
| Responsibilities for services rendered | 590 996 | - | 2 221 970 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015 loans and advances granted to members of management and supervisory boards, considered key management personnel of the Bank, amounted to tEuros 303 and tEuros 554, respectively. At June 30, 2016 and 2015, fixed and variable remuneration amounted to tEuros 2,309 and tEuros 1,786, respectively (Note 41).
In 2015 financial year the Bank approved a new Individual Long-term Incentive Plan, to be a part of the multiannual variable remuneration, which is described in Note 48. For the members of the Board of Directors, the amount recorded in the heading "Staff costs" in the six-month periods ended June 30, 2016 and 2015 is presented below:
| Individual Long-term Incentive Plan | 152 | 198 |
|---|---|---|
| === | === |
With regard to post-employment benefits, the members of the Board of Directors with a labour contract with BST are included in the pension plan of the Collective Labour Agreement (Acordo Colectivo de Trabalho - ACT) for the banking sector subscribed by the Bank. The general conditions of this plan are described in Note 1.3. l).
At the General Meeting held on May 30, 2007, BST's shareholders approved the "Regulation for the supplementary attribution of retirement pensions for age or disability" for the executive members of the Board of Directors of the former Totta and who are executive members of BST's Board of Directors (Executive Committee), as previously defined in the former Totta regulation. Members of the Board of Directors whose time in office is at least fifteen years, whether consecutive or interpolated, will be entitled to a pension supplement equivalent to 80% of their gross annual salary. The amount of the supplementary retirement pension shall be determined by the Remuneration Committee when their time in office is less than fifteen years. For these situations, it has been currently defined that the pension supplement will be 65% of the gross annual salary, whenever the time in office is equal to or greater than ten years, and 75% of the gross annual salary, whenever the time in office is equal to or greater than twelve years. This defined benefit plan is a supplementary plan that is dependent of the general Social Security regime.
At June 30, 2016 and December 31, 2015, the liabilities with this plan amounted to tEuros 21,111 and tEuros 20,676, respectively, and were covered by a provision in the same amount recorded in the heading "Provision for pensions and other charges" (Note 23).
With regard to employment termination benefits, in accordance with the Company Law (Código das Sociedades Comerciais), whenever the term of a member of the management or supervisory board is early terminated by BST, the latter will pay the member the future remuneration that he/she would be entitled to up to the end of the respective term-of-office.
During financial year 2015, an Individual Long-term Incentive Plan was approved for a restricted number of employees. This incentive takes into account the performance, relative to 2014, of the Total Shareholder Return ("TSR") of Banco Santander, S.A., compared with a bucket of 15 credit institutions. The Individual Long-term Incentive Plan value takes as a reference 15% of the Bank's base performance bonus, and corresponds to 100% of that value if Banco Santander's TSR is ranked among the first eight positions of the referred group of credit institutions, 50% if it is ranked between the ninth and twelfth position and 0% if it is in a lower position.
As described in Note 1.3. o), the accounting of the share incentive plans consists in recognizing the right of the Bank's employees to such instruments in the income statement for the year, under the heading "Staff costs", given these correspond to a remuneration for services rendered. The management, hedging and implementation of the plans are provided by Banco Santander S.A. for all employees, on a worldwide basis, covered by the Plan.
At June 30, 2016 and 2015, the total cost of the Share Plan Incentive for all the employees of the Bank covered by same was as follows:
| === | === | |
|---|---|---|
| Individual Long-term Incentive Plan | 342 | 310 |
| 30/06/2016 | 30/06/2015 |
The employees are entitled to the shares provided they remain in the Santander Group.
At June 30, 2016 and December 31, 2015, financial instruments had the following book value:
| 30/06/2016 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Measured at | Measured at | Measured at | Net | ||||||
| fair value | amortized cost | historical cost | Impairment | Value | |||||
| Assets | |||||||||
| Cash and deposits at central banks | - | 724 423 | 244 242 | - | 968 665 | ||||
| Balances due from banks | - | 334 727 | 67 340 | - | 402 067 | ||||
| Financial assets held for trading | 1 679 638 | - | - | - | 1 679 638 | ||||
| Available-for-sale financial assets | 5 590 354 | - | 93 331 | (71 628) | 5 612 057 | ||||
| Loans and advances to credit institutions | - | 1 830 797 | - | - | 1 830 797 | ||||
| Loans and advances to customers | 355 176 | 33 656 281 | - | (2 160 581) | 31 850 876 | ||||
| Held-to-maturity investments | - | - | 301 730 | - | 301 730 | ||||
| Hedging derivatives | 126 281 | - | - | - | 126 281 | ||||
| 7 751 449 | 36 546 229 | 706 643 | (2 232 209) | 42 772 111 | |||||
| Liabilities | |||||||||
| Resources of central banks | - | 2 450 427 | - | - | 2 450 427 | ||||
| Financial liabilities held for trading | 1 687 799 | - | - | - | 1 687 799 | ||||
| Resources of other credit institutions | - | 3 124 569 | - | - | 3 124 569 | ||||
| Resources of customers and other debts | 2 894 564 | 25 501 139 | 51 218 | - | 28 446 921 | ||||
| Debt securities | 16 310 | 4 609 683 | - | - | 4 625 993 | ||||
| Hedging derivatives | 183 854 | - | - | - | 183 854 | ||||
| Subordinated liabilities | - | 4 299 | - | - | 4 299 | ||||
| 4 782 527 | 35 690 117 | 51 218 | - | 40 523 862 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 31/12/2015 | |||||
|---|---|---|---|---|---|
| Measured at | Measured at | Measured at | Net | ||
| fair value | amortized cost | historical cost | Impairment | Value | |
| Assets | |||||
| Cash and deposits at central banks | - | 2 849 364 | 284 668 | - | 3 134 032 |
| Balances due from banks | - | 399 605 | 64 293 | - | 463 898 |
| Financial assets held for trading | 1 750 694 | - | - | - | 1 750 694 |
| Available-for-sale financial assets | 6 454 935 | - | 95 039 | (82 161) | 6 467 813 |
| Loans and advances to credit institutions | - | 1 535 436 | - | - | 1 535 436 |
| Loans and advances to customers | 195 661 | 33 930 790 | - | (2 345 486) | 31 780 965 |
| Hedging derivatives | 130 292 | - | - | - | 130 292 |
| 8 531 582 | 38 715 195 | 444 000 | (2 427 647) | 45 263 130 | |
| Liabilities | |||||
| Resources of central banks | - | 4 952 679 | - | - | 4 952 679 |
| Financial liabilities held for trading | 1 721 691 | - | - | - | 1 721 691 |
| Resources of other credit institutions | - | 3 545 229 | - | - | 3 545 229 |
| Resources of customers and other debts | 3 215 210 | 23 862 374 | 48 729 | - | 27 126 313 |
| Debt securities | 16 261 | 5 027 184 | - | - | 5 043 445 |
| Hedging derivatives | 170 133 | - | - | - | 170 133 |
| Subordinated liabilities | - | 4 302 | - | - | 4 302 |
| 5 123 295 | 37 391 768 | 48 729 | - | 42 563 792 |
In the first half-year of 2016 a number of securities was reclassified from the "Available-for-sale financial assets" portfolio to the "Investments held to maturity" portfolio. In financial year 2015 there were no reclassifications of financial assets.
The financial assets and liabilities for which fair value hedge accounting was applied are classified as valued at fair value, although only the amounts relating to the hedged risk were subject to fair value adjustments.
In the six-month periods ended June 30, 2016 and 2015, the net gains and losses on financial instruments were as follows:
| 30/06/2016 | |||||||
|---|---|---|---|---|---|---|---|
| By corresponding entry to profit or loss | By corresponding entry to equity | ||||||
| Gains | Losses | Net | Gains | Losses | Net | ||
| Financial assets and liabilities held for trading | 1 026 851 | (1 059 146) | (32 295) | - | - | - | |
| Available-for-sale financial assets | 202 751 | (15 227) | 187 524 | - (157 523) (157 523) | |||
| Balances in central banks and other credit institutions | 15 921 | - | 15 921 | - | - | - | |
| Loans and advances to customers | 535 108 | (155 727) | 379 381 | - | - | - | |
| Hedging derivatives | 84 508 | (107 549) | (23 041) | - | (10 097) | (10 097) | |
| Resources in central banks and other credit institutions | - | (10 445) | (10 445) | - | - | - | |
| Resources of customers and other debts | 27 990 | (74 042) | (46 052) | - | - | - | |
| Debt securities | 8 987 | (36 023) | (27 036) | - | - | - | |
| Subordinated liabilities | - | (81) | (81) | - | - | - | |
| 1 902 116 | (1 458 240) | 443 875 | - (167 619) (167 619) | ||||
| Guarantees given | 12 511 | (630) | 11 881 | ||||
| Credit lines | 379 | - | 379 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 30/06/2015 | |||||||
|---|---|---|---|---|---|---|---|
| By corresponding entry to profit or loss | By corresponding entry to equity | ||||||
| Gains | Losses | Net | Gains | Losses | Net | ||
| Financial assets and liabilities held for trading | 1 231 096 | (1 236 335) | (5 239) | - | - | - | |
| Available-for-sale financial assets | 83 835 | (4 571) | 79 264 | - (108 941) (108 941) | |||
| Balances in central banks and other credit institutions | 21 074 | - | 21 074 | - | - | - | |
| Loans and advances to customers | 465 082 | (177 642) | 287 440 | - | - | - | |
| Hedging derivatives | 133 945 | (83 753) | 50 192 | - | (11 032) | (11 032) | |
| Resources in central banks and other credit institutions | - | (13 782) | (13 782) | - | - | - | |
| Resources of customers and other debts | 28 055 | (123 963) | (95 908) | - | - | - | |
| Debt securities | 5 882 | (33 201) | (27 319) | - | - | - | |
| Subordinated liabilities | - | (86) | (86) | - | - | - | |
| 1 968 969 | (1 673 333) | 295 636 | - (119 973) (119 973) | ||||
| Guarantees given | 8 824 | (553) | 8 271 | ||||
| Credit lines | 2 986 | (1 669) | 1 317 |
The above mentioned amounts do not include gains and losses resulting from the foreign exchange revaluation of financial instruments, which for the six-month periods ended June 30, 2016 and 2015, corresponded to net gains of tEuros 2,685 and tEuros 4,619, respectively (Note 38).
In the first half-year of 2016 and 2015, the income and expenses with interest, determined in accordance with the effective interest rate method, for financial assets and liabilities not recorded at fair value through profit or loss, were as follows:
| 30/06/2016 | 30/06/2015 | |||||
|---|---|---|---|---|---|---|
| Income | Expense | Net | Income | Expense | Net | |
| Assets | ||||||
| Cash and deposits at central banks | 27 | - | 27 | 33 | - | 33 |
| Balances due from other banks | 6 | - | 6 | 28 | - | 28 |
| Available-for-sale financial assets | 74 917 | - | 74 917 | 85 129 | - | 85 129 |
| Loans and advances to credit institutions | 15 888 | - | 15 888 | 21 011 | - | 21 011 |
| Loans and advances to customers | 387 853 | (740) | 387 113 | 318 257 | (12) | 318 245 |
| Held-to-maturity investments | 5 183 | - | 5 183 | - | - | - |
| 483 874 | (740) | 483 134 | 424 458 | (12) | 424 446 | |
| Liabilities | ||||||
| Resources of central banks | - | (3 870) | (3 870) | - | (1 585) | (1 585) |
| Resources of other credit institutions | - | (6 575) | (6 575) | - | (12 197) | (12 197) |
| Resources of customers and other debts | - | (69 198) | (69 198) | - | (123 963) | (123 963) |
| Debt securities | - | (36 023) | (36 023) | - | (33 201) | (33 201) |
| Subordinated liabilities | - | (81) | (81) | - | (86) | (86) |
| - | (115 747) | (115 747) | - | (171 032) | (171 032) | |
| Guarantees given | 11 353 | - | 11 353 | 8 684 | - | 8 684 |
| Credit Lines | 379 | - | 379 | 1 642 | - | 1 642 |
In the first half-year of 2016 and 2015, commission income and expenses, not included in the calculation of the effective interest rate, for financial assets and liabilities not recorded at fair value through profit or loss, were as follows:
| 30/06/2016 | 30/06/2015 | |||||
|---|---|---|---|---|---|---|
| Income | Expense | Net | Income | Expense | Net | |
| Assets | ||||||
| Loans and advances to customers | 20 834 | (5 877) | 14 957 | 19 070 | (7 364) | 11 706 |
| Liabilities | ||||||
| Resources of customers and other debts | 26 568 | - | 26 568 | 22 585 | - | 22 585 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
In the first half-years of 2016 and 2015, the Bank recognized financial income relating to "Interest and similar income" on overdue or impaired credit operations amounting to tEuros 5,808 and tEuros 4,923, respectively (Note 31).
At June 30, 2016 and December 31, 2015, hedging derivatives and financial instruments designated as hedged items were as follows:
| 30/06/2016 | ||||||
|---|---|---|---|---|---|---|
| Hedged item | Hedging instrument | |||||
| Nominal | Value net | Fair value | Book | Nominal | Fair | |
| value | of impairment adjustments | value | Value | Value | ||
| Fair value hedge: | ||||||
| Loans and advances to customers | 344 423 | 347 013 | 7 928 | 354 941 | 344 417 (10 098) | |
| Result of assets and liabilities at fair value through profit or loss | ||||||
| Available-for-sale financial assets | 600 000 | 608 590 | 44 709 | 653 299 | 600 000 (71 650) | |
| Cash and deposits at central banks | ||||||
| Resources of customers and other debts | (2 877 016) | (2 895 523) | 959 | (2 894 564) 2 958 262 | 13 902 | |
| Debt securities | (14 930) | (15 818) | (492) | (16 310) | 14 930 | 1 374 |
| Cash flow hedge: | ||||||
| Loans and advances to customers | 1 970 097 | 1 970 097 | - | 1 970 097 1 475 000 | 92 137 | |
| Debt securities | 711 223 | 711 223 | - | 711 223 | 650 000 (83 238) | |
| 733 797 | 725 582 | 53 104 | 778 686 6 042 609 (57 573) | |||
| 31/12/2015 | ||||||
| Hedged item | Hedging instrument | |||||
| Nominal | Value net | Fair value | Book | Nominal | Fair | |
| value | of impairment adjustments | value | Value | Value | ||
| Fair value hedge: | ||||||
| Loans and advances to customers | 191 786 | 191 919 | 3 527 | 195 446 | 191 787 | (3 792) |
| Result of assets and liabilities at fair value through profit or loss | ||||||
| Available-for-sale financial assets | 850 000 | 867 212 | 20 761 | 887 973 | 850 000 (76 981) | |
| Cash and deposits at central banks | ||||||
| Resources of customers and other debts | (3 189 489) | (3 219 631) | 4 421 | (3 215 210) 3 277 463 | 19 604 | |
| Debt securities | (14 930) | (15 463) | (798) | (16 261) | 14 930 | 1 317 |
| Cash flow hedge: | ||||||
| Loans and advances to customers | 2 767 567 | 2 767 567 | - | 2 767 567 2 050 000 | 89 440 | |
| Debt securities | 794 542 | 794 542 | - | 794 542 | 650 000 (69 429) |
The expected periods for the occurrence of the cash flows that will affect the profit or loss of the period/financial year are as follows:
| 30/06/2016 | ||||||
|---|---|---|---|---|---|---|
| Up to 3 | From 3 months | From 6 months | From 1 | Over | ||
| months | to 6 months | to 1 year | to 3 years | 3 years | Total | |
| Interest rate swaps | (29 628) | (17 571) | (5 765) | 20 628 | 41 235 | 8 899 |
| 31/12/2015 | ||||||
| Up to 3 | From 3 months | From 6 months | From 1 | Over | ||
| months | to 6 months | to 1 year | to 3 years | 3 years | Total | |
| Interest rate swaps | 5 131 | 9 725 | 11 069 | (1 287) | (4 627) | 20 011 |
The gains and losses recognized in the income statement for the half-years ended June 30, 2016 and 2015, arising from fair value hedging operations, were as follows:
| 30/06/2016 | 30/06/2015 | |||||
|---|---|---|---|---|---|---|
| Hedged | Hedging | Hedged | Hedging | |||
| item | instrument | Net | item | instrument | Net | |
| Loans and advances to customers | 4 402 | (4 402) | - | (390) | 390 | - |
| Available-for-sale financial assets | 23 948 | (23 948) | - | (27 127) | 27 127 | - |
| Resources of customers and other debts | (3 420) | 3 385 | (35) | 5 472 | (5 279) | 193 |
| Debt securities | 305 | (305) | - | 620 | (620) | - |
| 25 235 | (25 270) | (35) | (21 425) | 21 618 | 193 |
At June 30, 2016 and December 31, 2015, financial instruments were made up as follows:
| 30/06/2016 | 31/12/2015 | |||||
|---|---|---|---|---|---|---|
| Measured | Not measured | Measured | Not measured | |||
| at fair value | at fait value | Total | at fair value | at fait value | Total | |
| Assets | ||||||
| Cash and deposits at central banks | - | 968 665 | 968 665 | - | 3 134 032 | 3 134 032 |
| Balances due from other banks | - | 402 067 | 402 067 | - | 463 898 | 463 898 |
| Financial assets held for trading | 1 679 638 | - | 1 679 638 | 1 750 694 | - | 1 750 694 |
| Available-for-sale financial assets | 5 550 153 | 61 904 | 5 612 057 | 6 403 006 | 64 807 | 6 467 813 |
| Loans and advances to credit institutions | - | 1 830 797 | 1 830 797 | - | 1 535 436 | 1 535 436 |
| Loans and advances to customers | 354 941 | 31 495 935 | 31 850 876 | 195 446 | 31 585 519 | 31 780 965 |
| Held-to-maturity investments | - | 301 730 | 301 730 | - | - | - |
| Hedging derivatives | 126 281 | - | 126 281 | 130 292 | - | 130 292 |
| 7 711 013 | 35 061 098 | 42 772 111 | 8 479 438 | 36 783 692 | 45 263 130 | |
| Liabilities | ||||||
| Resources of central banks | - | 2 450 427 | 2 450 427 | - | 4 952 679 | 4 952 679 |
| Financial liabilities held for trading | 1 687 799 | - | 1 687 799 | 1 721 691 | - | 1 721 691 |
| Resources of other credit institutions | - | 3 124 569 | 3 124 569 | - | 3 545 229 | 3 545 229 |
| Resources of customers and other debts | 2 894 564 | 25 552 357 | 28 446 921 | 3 215 210 | 23 911 103 | 27 126 313 |
| Debt securities | 16 310 | 4 609 683 | 4 625 993 | 16 261 | 5 027 184 | 5 043 445 |
| Hedging derivatives | 183 854 | - | 183 854 | 170 133 | - | 170 133 |
| Subordinated liabilities | - | 4 299 | 4 299 | - | 4 302 | 4 302 |
| 4 782 527 | 35 741 335 | 40 523 862 | 5 123 295 | 37 440 497 | 42 563 792 |
The financial assets and liabilities to which hedge accounting was applied are classified as valued at fair value, although only the amounts relating to the hedged risk were subject to fair value adjustments.
At June 30, 2016 and December 31, 2015, the fair value of financial assets and liabilities valued at fair value, or subject to fair value adjustments in accordance with the application of hedge accounting, was as follows:
| 30/06/2016 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Acquisition Accrued | Hedge | Net book | ||||||
| cost | interest | Valuation | adjustments | Impairment | value | |||
| Assets | ||||||||
| Financial assets held for trading | 4 115 | - | 1 675 523 | - | - | 1 679 638 | ||
| Available-for-sale financial assets | 5 461 053 | 55 415 | 29 177 | 44 709 | (40 201) | 5 550 153 | ||
| Loans and advances to customers | 344 423 | 2 825 | - | 7 928 | (235) | 354 941 | ||
| Hedging derivatives | - | - | 126 281 | - | - | 126 281 | ||
| 5 809 591 | 58 240 | 1 830 981 | 52 637 | (40 436) | 7 711 013 | |||
| Liabilities | ||||||||
| Financial liabilities held for trading | - | - | 1 687 799 | - | - | 1 687 799 | ||
| Resources of customers and other debts 2 877 015 | 18 508 | - | (959) | - | 2 894 564 | |||
| Debt securities | 14 930 | 888 | - | 492 | - | 16 310 | ||
| Hedging derivatives | - | - | 183 854 | - | - | 183 854 | ||
| 2 891 945 | 19 396 | 1 871 653 | (467) | - | 4 782 527 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 31/12/2015 | |||||||
|---|---|---|---|---|---|---|---|
| Acquisition Accrued | Hedge | Net book | |||||
| cost | interest | Valuation | adjustments | Impairment | value | ||
| Assets | |||||||
| Financial assets held for trading | 4 065 | - | 1 746 629 | - | - | 1 750 694 | |
| Available-for-sale financial assets | 6 129 912 | 125 609 | 178 283 | 20 761 | (51 559) | 6 403 006 | |
| Loans and advances to customers | 191 785 | 349 | - | 3 527 | (215) | 195 446 | |
| Hedging derivatives | - | - | 130 292 | - | - | 130 292 | |
| 6 325 762 | 125 958 | 2 055 204 | 24 288 | (51 774) | 8 479 438 | ||
| Liabilities | |||||||
| Financial liabilities held for trading | - | - | 1 721 691 | - | - | 1 721 691 | |
| Resources of customers and other debts 3 189 489 | 30 142 | - | (4 421) | - | 3 215 210 | ||
| Debt securities | 14 930 | 533 | - | 798 | - | 16 261 | |
| Hedging derivatives | - | - | 170 133 | - | - | 170 133 | |
| 3 204 419 | 30 675 | 1 891 824 | (3 623) | - | 5 123 295 |
The methods used to determine the fair value of the financial instruments were based on listed prices on active markets or other valuation techniques, such as discounted cash flows. At June 30, 2016 and December 31, 2015, the book value of the financial instruments valued at fair value or subject to value adjustments due to hedge accounting, by valuation methodology, was made up as follows:
| 30/06/2016 | |||||
|---|---|---|---|---|---|
| Methodology of determining fair value | |||||
| Listed in | |||||
| active markets | Other valuation techniques | ||||
| (Level 1) | (Level 2) | (Level 3) | Total | ||
| Assets | |||||
| Financial assets held for trading | - | 1 676 560 | 3 078 | 1 679 638 | |
| Available-for-sale financial assets | 3 672 727 | 1 831 962 | 45 464 | 5 550 153 | |
| Loans and advances to customers | - | 354 941 | - | 354 941 | |
| Hedging derivatives | - | 126 281 | - | 126 281 | |
| 3 672 727 | 3 989 743 | 48 542 | 7 711 013 | ||
| Liabilities | |||||
| Financial liabilities held for trading | - | 1 687 799 | - | 1 687 799 | |
| Resources of customers and other debts | - | 2 894 564 | - | 2 894 564 | |
| Debt securities | - | 16 310 | - | 16 310 | |
| Hedging derivatives | - | 183 854 | - | 183 854 | |
| - | 4 782 527 | - | 4 782 527 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 31/12/2015 | ||||||
|---|---|---|---|---|---|---|
| Methodology of determining fair value | ||||||
| Listed in | ||||||
| active markets | Other valuation techniques | |||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||
| Assets | ||||||
| Financial assets held for trading | - | 1 632 210 | 118 484 | 1 750 694 | ||
| Available-for-sale financial assets | 6 110 637 | 137 380 | 154 989 | 6 403 006 | ||
| Loans and advances to customers | - | 195 446 | - | 195 446 | ||
| Hedging derivatives | - | 130 292 | - | 130 292 | ||
| 6 110 637 | 2 095 328 | 273 473 | 8 479 438 | |||
| Liabilities | ||||||
| Financial liabilities held for trading | - | 1 721 691 | - | 1 721 691 | ||
| Resources of customers and other debts | - | 3 215 210 | - | 3 215 210 | ||
| Debt securities | - | 16 261 | - | 16 261 | ||
| Hedging derivatives | - | 170 133 | - | 170 133 | ||
| - | 5 123 295 | - | 5 123 295 |
In accordance with IFRS 7 and IFRS 13, the Bank's financial assets and liabilities valued at fair value are classified into three levels:
For derivative financial instruments, the main valuation techniques are as follows:
| Derivative instrument | Main valuation techniques | ||
|---|---|---|---|
| Forwards | Present value model | ||
| Interest rate swaps | Present value model | ||
| Currency swaps | Present value model | ||
| Equity swaps | Present value model | ||
| FRA's | Present value model | ||
| Exchange rate options | Black-Scholes model, Monte Carlo model | ||
| Contracts on prices (options) | Black-Scholes model, Heston model | ||
| Interest rate options | Black-Scholes model, Heath-Jarrow-Morton model | ||
| Options - other | Black-Scholes model, Monte Carlo model, Heath-Jarrow-Morton model | ||
| Caps/Floors | Black-Scholes model, Monte Carlo model, Heath-Jarrow-Morton model |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Additionally, in the calculation of Credit Value Adjustments and Debit Value Adjustments to derivative financial instruments, the following inputs were used:
When the inputs used in the valuation of derivative financial instruments resulted from market observable data, the Bank classified the derivative financial instruments as Level 2. When such valuation resulted from internal information prepared by the Bank, the financial instruments were classified as Level 3.
In the first half-year of 2016, changes in financial instruments classified as "Level 3" were as follows:
| Financial assets held for trading |
Available-for sale financial |
|||
|---|---|---|---|---|
| Securities | Derivatives | assets | Total | |
| At December 31, 2014 | 3 670 | 221 297 | 248 512 | 473 479 |
| Acquisitions | 108 | 8 769 | - | 8 877 |
| Disposals | - | (79 842) | (11 684) | (91 526) |
| Settlements | (648) | - | (39 429) | (40 077) |
| Reclassifications | - | - | (48 749) | (48 749) |
| Fair value changes | (34) | (34 836) | 6 339 | (28 531) |
| At December 31, 2015 | 3 096 | 115 388 | 154 989 | 273 473 |
| Acquisitions | - | - | 63 | 63 |
| Settlements | - | - | (1 568) | (1 568) |
| Reclassifications | - | (115 388) | (109 064) | (224 452) |
| Fair value changes | (18) | - | 818 | 800 |
| Impairment recognized in the period | - | - | 226 | 226 |
| At June 30, 2016 | 3 078 | - | 45 464 | 48 542 |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the valuation techniques, the inputs used and the relationship between those inputs and the fair value determined for financial instruments classified as Level 3 were as follows:
| Relation between the inputs used and | |||
|---|---|---|---|
| Financial instruments | Valuation techniques | Inputs used | the fair value determined |
| Financial assets held for trading | |||
| Participation units in Real Estate Investment Funds |
Price disclosed by respective Managing Company |
. Capitalization rates . Lease values per m2 . Occupation rates |
In the event of an increase in the lease value per m2 or occupation rate or a decrease in the capitalization rate, the fair value determined will increase. In the event of a decrease in the lease value per m2 or occupation rate or an increase in the capitalization rate, the fair value determined will decrease. |
| Derivative financial instruments | Discounted cash flows / Valuation models |
. Probability of default (PD) considering the internal credit ratings attributed by the Bank . Specific LGDs |
In the event a higher probability of default or LDG is used, the fair value of the financial instrument will decrease. On the other hand, in the event a lower probability of default or LDG is used, the fair value of the financial instrument will increase. |
| Available-for-sale financial assets | |||
| Debt securities | Discounted cash flows | . Credit spreads determined internally by the Bank |
In the event a higher credit risk is used, the fair value of the security will decrease. On the other hand, in the event a lower credit risk is used, the fair value of the security will increase. |
| Participation units in Real Estate Investment Funds |
Price disclosed by respective Managing Company |
. Capitalization rates . Lease values per m2 . Occupation rates |
In the event of an increase in the lease value per m2 or occupation rate or a decrease in the capitalization rate, the fair value determined will increase. In the event of a decrease in the lease value per m2 or occupation rate or an increase in the capitalization rate, the fair value determined will decrease. |
The most representative interest rate curves used in the valuation of financial instruments, by maturity and currency, were the following:
| 30/06/2016 | 31/12/2015 | |||
|---|---|---|---|---|
| EUR | USD | EUR | USD | |
| Overnight | -0.17% | 0.98% | -0.04% | 0.61% |
| 1 month | -0.17% | 0.98% | -0.02% | 0.57% |
| 3 months | -0.17% | 0.98% | -0.02% | 0.61% |
| 6 months | -0.18% | 0.92% | -0.04% | 0.70% |
| 9 months | -0.19% | 0.92% | -0.05% | 0.78% |
| 1 year | -0.20% | 0.92% | -0.06% | 0.86% |
| 3 years | -0.21% | 0.81% | 0.06% | 1.42% |
| 5 years | -0.10% | 0.98% | 0.33% | 1.76% |
| 7 years | 0.08% | 1.14% | 0.62% | 1.99% |
| 10 years | 0.36% | 1.35% | 1.00% | 2.22% |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the book value and the fair value of the financial instruments valued at amortized cost or historical cost was as follows:
| 30/06/2016 | |||
|---|---|---|---|
| Book | Fair | ||
| value | value | Difference | |
| Assets | |||
| Cash and deposits at central banks | 968 665 | 972 627 | 3 962 |
| Balances due from other banks | 402 067 | 402 067 | - |
| Available-for-sale financial assets | 61 904 | 61 904 | - |
| Loans and advances to credit institutions | 1 830 797 | 1 840 691 | 9 894 |
| Loans and advances to customers | 31 495 935 | 31 001 218 | (494 717) |
| Investments held to maturity | 301 730 | 301 730 | - |
| 35 061 098 | 34 580 237 | (480 861) | |
| Liabilities | |||
| Resources of central banks | (2 450 427) | (2 466 914) | (16 487) |
| Resources of other credit institutions | (3 124 569) | (3 134 591) | (10 022) |
| Resources of customers and other debts | (25 552 357) | (25 597 853) | (45 496) |
| Debt securities | (4 609 683) | (4 604 017) | 5 666 |
| Subordinated liabilities | (4 299) | (4 299) | - |
| (35 741 335) | (35 807 674) | (66 339) | |
| 31/12/2015 | |||
| Book | Fair | ||
| value | value | Difference | |
| Assets | |||
| Cash and deposits at central banks | 3 134 032 | 3 134 032 | - |
| Balances due from other banks | 463 898 | 463 898 | - |
| Available-for-sale financial assets | 64 807 | 64 807 | - |
| Loans and advances to credit institutions | 1 535 436 | 1 567 464 | 32 028 |
| Loans and advances to customers | 31 585 519 | 31 023 382 | (562 137) |
| 36 783 692 | 36 253 583 | (530 109) | |
| Liabilities | |||
| Resources of central banks | (4 952 679) | (4 955 163) | (2 484) |
| Resources of other credit institutions | (3 545 229) | (3 582 827) | (37 598) |
| Resources of customers and other debts | (23 911 103) | (23 983 746) | (72 643) |
| Debt securities | (5 027 184) | (4 950 983) | 76 201 |
| Subordinated liabilities | (4 302) | (4 283) | 19 |
| (37 440 497) | (37 477 002) | (36 505) |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
To determine the fair value of financial instruments recorded at amortized cost or historical cost, the valuation methods used consisted of valuation techniques, namely discounted cash flows. At June 30, 2016 and December 31, 2015, the financial instruments recorded at amortized cost or historical cost presented the following detail, by valuation methodology:
| 30/06/2016 | |||||
|---|---|---|---|---|---|
| Methodology of determining fair value | |||||
| Listed in | |||||
| active markets | Other valuation techniques | ||||
| (Level 1) | (Level 2) | (Level 3) | Total | ||
| Assets | |||||
| Cash and deposits at central banks | - | 968 665 | - | 968 665 | |
| Balances due from other banks | - | 402 067 | - | 402 067 | |
| Available-for-sale financial assets | - | - | 61 904 | 61 904 | |
| Loans and advances to credit institutions | - | 1 830 797 | - | 1 830 797 | |
| Loans and advances to customers | - | - | 31 495 935 | 31 495 935 | |
| Held-to-maturity investments | 64 249 | 121 095 | 116 386 | 301 730 | |
| 64 249 | 3 322 624 | 31 674 225 | 35 061 098 | ||
| Liabilities | |||||
| Resources of central banks | - | (2 450 427) | - | (2 450 427) | |
| Resources of other credit institutions | - | (3 124 569) | - | (3 124 569) | |
| Resources of customers and other debts | - | - | (25 552 357) | (25 552 357) | |
| Debt securities | - | - | (4 609 683) | (4 609 683) | |
| Subordinated liabilities | - | - | (4 299) | (4 299) | |
| - | (5 574 996) | (30 166 339) | (35 741 335) |
| 31/12/2015 | |||||
|---|---|---|---|---|---|
| Methodology of determining fair value | |||||
| Listed in | |||||
| active markets | Other valuation techniques | ||||
| (Level 1) | (Level 2) | (Level 3) | Total | ||
| Assets | |||||
| Cash and deposits at central banks | - | 3 134 032 | - | 3 134 032 | |
| Balances due from other banks | - | 463 898 | - | 463 898 | |
| Available-for-sale financial assets | - | - | 64 807 | 64 807 | |
| Loans and advances to credit institutions | - | 1 535 436 | - | 1 535 436 | |
| Loans and advances to customers | - | - | 31 585 519 | 31 585 519 | |
| - | 5 133 366 | 31 650 326 | 36 783 692 | ||
| Liabilities | |||||
| Resources of central banks | - | 4 952 679 | - | 4 952 679 | |
| Resources of other credit institutions | - | 3 545 229 | - | 3 545 229 | |
| Resources of customers and other debts | - | - | 23 911 103 | 23 911 103 | |
| Debt securities | - | - | 5 027 184 | 5 027 184 | |
| Subordinated liabilities | - | - | 4 302 | 4 302 | |
| - | 8 497 908 | 28 942 589 | 37 440 497 |
The main assumptions used in the assessment of fair value, by type of financial instrument, were as follows:
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Credit risk management by the Bank includes the identification, measurement, integration and evaluation of the different credit risk exposures and the analysis of its return adjusted for its risk, on an overall basis, as well as for each area of activity.
Credit risk management is provided by an independent area, the Group's Risk Area, which is responsible for managing the special customer vigilance system, the credit risk segmentation based on customer and product characteristics and the scoring and rating systems (applicable to mortgage loans, consumer credit and credit cards) used by the Bank.
Counterparty risk consists of the potential credit risk in transactions on financial markets, corresponding to the possibility of non-compliance by the counterparty with the contracted terms and the subsequent financial loss for the Bank. Such transactions include the purchase and sale of securities, the contracting of sale transactions with repurchase agreements, the loan of securities and derivative instruments. Considering the complexity and volume of the transactions, as well as the requirements of an adequate control of the consolidated risks of certain customer segments, the control perimeter is defined in accordance with the segments involved.
The control over these risks is carried out on a daily basis using an integrated system that records the limits approved, updates the positions in real time, and provides information on the limits available and aggregate exposure, also in real time, for the different products and maturities. The system also enables the control over risk concentrations by groups of customers/counterparties on a transversal basis (at several levels).
Derivative position risk (denominated Equivalent Credit Risk) is determined as the sum of the present value of each contract (or current replacement cost) with its Potential Risk, a component that reflects the estimated maximum expected value until maturity, in accordance with the volatility of the underlying market and the contracted cash flow structure.
For specific customer segments (namely global corporate customers) the Bank has implemented credit limits that consider economic capital, incorporating in the quantitative control variables relating to the credit quality of each counterparty.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the maximum exposure to credit risk and the corresponding book value of the financial instruments were as follows:
| 30/06/2016 | 31/12/2015 | ||||
|---|---|---|---|---|---|
| Book | Maximum | Book | Maximum | ||
| value | exposure | value | exposure | ||
| Cash and deposits at central banks | 968 665 | 968 665 | 3 134 032 | 3 134 032 | |
| Balances due from other banks | 402 067 | 402 067 | 463 898 | 463 898 | |
| Financial assets held for trading | 1 679 638 | 1 679 638 | 1 750 694 | 1 750 694 | |
| Available-for-sale financial assets | 5 612 057 | 5 612 057 | 6 467 813 | 6 467 813 | |
| Loans and advances to credit institutions | 1 830 797 | 1 830 797 | 1 535 436 | 1 535 436 | |
| Loans and advances to customers | 31 850 876 | 36 804 154 | 31 780 965 | 37 038 662 | |
| Investments held to maturity | 301 730 | 301 730 | - | - | |
| Hedging derivatives | 126 281 | 126 281 | 130 292 | 130 292 | |
| Investments in associates | 38 663 | 38 663 | 42 957 | 42 957 | |
| 42 810 774 | 47 764 052 | 45 306 087 | 50 563 784 | ||
| Guarantees and sureties and open documentary credits | 1 640 548 | 1 640 548 | 1 716 445 | 1 716 445 |
The maximum exposure in "Loans and advances to customers" at June 30, 2016 includes tEuros 518,695 and tEuros 4,434,583 relating to irrevocable credit lines and revocable credit lines, respectively (tEuros 658,346 and tEuros 4,599,351 at December 31, 2015, respectively).
The Bank reviews loans and advances to customers and other receivables monthly, in order to identify evidence of impairment. For the purpose of the collective analysis of impairment losses, BST segments its credit portfolio in accordance with the type of product and the type of customer involved in the operations (Note 10).
According to the requirements defined in "Carta-Circular" No. 02/2014/DSP issued by the Bank of Portugal on February 26, 2014, the Bank shows the following information reported as at June 30, 2016 and December 31, 2015:
Credit exposure and respective impairment by segment, excluding credit transferred from the former Banif:
| Exposure at June 30, 2016 | Impairment at June 30, 2015 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Total | Performing | Of which | Of which | Non-performing | Of which | Total | Performing Non-performing | ||
| Segment | Exposure | loans | cured credit restructured | loans | restructured Impairment | loans | loans | ||
| Corporate | 8 904 515 | 8 727 153 | 3 911 | 273 166 | 177 362 | 47 574 | (244 505) | (89 823) | (154 682) |
| Construction and CRE | 2 685 120 | 2 334 793 | 2 819 | 242 100 | 350 327 | 153 560 | (321 074) | (56 190) | (264 884) |
| Mortgage | 14 571 977 14 248 609 | 9 489 | 1 158 443 | 323 368 | 124 554 | (208 436) | (49 529) | (158 907) | |
| Retail | 1 739 793 | 1 659 525 | 1 878 | 190 495 | 80 268 | 37 660 | (113 324) | (27 079) | (86 245) |
| Guarantees not included | |||||||||
| in other segments | 1 217 410 | 1 217 410 | - | - | - | - | (1 612) | (842) | (770) |
| 29 118 815 28 187 490 | 18 097 | 1 864 204 | 931 325 | 363 347 | (888 952) | (223 463) | (665 489) | ||
| Exposure at December 31, 2015 | Impairment at December 31, 2015 | ||||||||
| Total | Performing | Of which | Of which | Non-performing | Of which | Total | Performing Non-performing | ||
| Segment | Exposure | loans | cured credit restructured | loans | restructured Impairment | loans | loans | ||
| Corporate | 8 455 216 | 8 234 418 | 2 444 | 275 098 | 220 798 | 65 629 | (245 225) | (66 689) | (178 536) |
| Construction and CRE | 2 677 947 | 2 264 075 | 800 | 272 840 | 413 872 | 195 426 | (349 302) | (52 560) | (296 742) |
| Mortgage | 14 661 579 14 277 028 | 5 347 | 1 152 581 | 384 551 | 125 667 | (273 911) | (36 165) | (237 746) | |
| Retail | 1 793 075 | 1 660 786 | 975 | 210 218 | 132 289 | 74 407 | (162 487) | (27 859) | (134 628) |
| Guarantees not included | |||||||||
| in other segments | 1 245 282 | 1 245 282 | - | - | - | - | (1 273) | (792) | (481) |
| 28 833 099 27 681 589 | 9 566 | 1 910 737 | 1 151 510 | 461 129 (1 032 198) | (184 065) | (848 133) |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The reconciliation between the maximum credit exposure referred to in the table above and the total exposure presented in this table for the six-month periods ended June 30, 2016 and the oneyear period ended December 31, 2015, is as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Maximum exposure to credit risk | 36 804 154 | 37 038 662 |
| Commitments with revocable credit lines | (4 434 583) | (4 599 351) |
| Guarantees provided and other - guarantees and sureties | 1 389 806 | 1 460 948 |
| Guarantees provided and other - open documentary credits | 250 742 | 255 497 |
| Impairment recognized | 2 171 240 | 2 356 673 |
| Exposure related to former Banif | ||
| Loans and advances portfolio | (5 991 723) | (6 552 587) |
| Oitante bonds | (746 444) | (746 000) |
| Guarantees and sureties | (260 340) | (303 627) |
| Documentary credits | (10 652) | (19 861) |
| Irrevocable commitments | (82 756) | (87 954) |
| Deferred expenses | (65 948) | (65 659) |
| Commissions associated with amortized cost (net) | 103 247 | 99 885 |
| Value adjustments of hedged assets | (7 928) | (3 527) |
| 29 118 815 | 28 833 099 |
Detail of total impairment is as follows:
| ======== | ======== | |
|---|---|---|
| ( 888 952 ) | ( 1 032 198 ) | |
| ------------- | ------------ | |
| Provisions and impairment for guarantees and commitments assumed | ( 10 659 ) | ( 11 185 ) |
| Impairment of loans and advances to customers | ( 878 293 ) | ( 1 021 013 ) |
| 30/06/2016 31/12/2015 |
The aging of the credit exposure and respective impairment losses, excluding loans transferred from the former Banif, at June 30, 2016 and December 31, 2015 is as follows:
| Total exposure at June 30, 2016 | |||||
|---|---|---|---|---|---|
| Performing loans | Non-performing loans | ||||
| Days overdue | Days overdue between | Days overdue | Days overdue | ||
| Segment | Total | under 30 days | 30 days to 90 days | under 90 days | over 90 days |
| Credit | |||||
| Corporate | 8 904 515 | 8 679 000 | 48 153 | - | 177 362 |
| Construction and CRE | 2 685 120 | 2 314 605 | 20 188 | - | 350 327 |
| Mortgage | 14 517 977 | 14 106 728 | 141 881 | - | 323 368 |
| Retail | 1 739 793 | 1 629 874 | 29 650 | - | 80 268 |
| Guarantees not included | |||||
| in other segments | 1 217 410 | 1 217 410 | - | - | - |
| 29 118 815 | 27 947 617 | 239 872 | - | 931 325 | |
| Impairment | |||||
| Corporate | (244 505) | (82 538) | (7 285) | - | (154 682) |
| Construction and CRE | (321 074) | (52 231) | (3 958) | - | (264 884) |
| Mortgage | 208 436 | (35 716) | (13 813) | - | (158 907) |
| Retail | (113 324) | (16 298) | (10 781) | - | (86 245) |
| Guarantees not included | |||||
| in other segments | (1 612) | (842) | - | - | (770) |
| (888 952) | (187 625) | (35 838) | - | (665 489) | |
| 28 229 863 | 27 759 991 | 204 034 | - | 265 837 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| Total exposure at December 31, 2015 | |||||
|---|---|---|---|---|---|
| Performing loans | Non-performing loans | ||||
| Days overdue | Days overdue between | Days overdue | Days overdue | ||
| Segment | Total | under 30 days | 30 days to 90 days | under 90 days | over 90 days |
| Credit | |||||
| Corporate | 8 455 216 | 8 197 466 | 36 952 | - | 220 798 |
| Construction and CRE | 2 677 947 | 2 245 991 | 18 084 | - | 413 872 |
| Mortgage | 14 661 579 | 14 137 900 | 139 128 | - | 384 551 |
| Retail | 1 793 075 | 1 634 060 | 26 726 | - | 132 289 |
| Guarantees not included | |||||
| in other segments | 1 245 282 | 1 245 282 | - | - | - |
| 28 833 099 | 27 460 699 | 220 890 | - | 1 151 510 | |
| Impairment | |||||
| Corporate | (245 225) | (61 663) | (5 026) | - | (178 536) |
| Construction and CRE | (349 302) | (48 938) | (3 622) | - | (296 742) |
| Mortgage | (273 911) | (19 628) | (16 537) | - | (237 746) |
| Retail | (162 487) | (17 428) | (10 431) | - | (134 628) |
| Guarantees not included | |||||
| in other segments | (1 273) | (792) | - | - | (481) |
| (1 032 198) | (148 449) | (35 616) | - | (848 133) | |
| 27 800 901 | 27 312 250 | 185 274 | - | 303 377 |
At June 30, 2016 and December 31, 2015, the credit exposure and respective impairment losses by year of production, excluding loans transferred from the former Banif, are as follows:
| 30/06/2016 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Corporate | Construction and CRE | Mortgage | Retail | Guarantees not included in other segments | |||||||||||
| Year of Number of | Allocated Number of | Allocated Number of | Allocated Number of | Allocated Number of | Allocated | ||||||||||
| origination operations Amount impairment operations Amount impairment operations Amount | impairment operations Amount impairment operations | Amount | impairment | ||||||||||||
| up to 2004 | 2 059 150 360 | (2 543) | 3 135 110 301 | (6 442) | 117 414 3 725 268 | (66 232) | 95 080 113 907 | (3 938) | 1 724 | 173 249 | (127) | ||||
| 2005 | 836 | 37 477 | (1 438) | 667 | 62 554 | (5 802) | 24 880 1 205 959 | (20 219) | 14 402 | 19 910 | (580) | 124 | 5 212 | (24) | |
| 2006 | 873 | 55 712 | (2 832) | 769 | 54 582 | (8 621) | 25 816 1 421 539 | (22 954) | 14 839 | 22 955 | (958) | 148 | 33 769 | (332) | |
| 2007 | 1 402 | 71 660 | (2 936) | 1 177 | 85 850 | (15 868) | 35 133 1 976 201 | (36 067) | 22 938 | 33 993 | (1 682) | 165 | 45 510 | (9) | |
| 2008 | 1 303 121 085 | (3 513) | 1 429 119 238 | (15 382) | 25 645 1 447 300 | (30 511) | 22 263 | 38 248 | (3 362) | 366 | 66 865 | (90) | |||
| 2009 | 1 521 147 037 | (9 614) | 1 585 127 706 | (33 065) | 16 805 1 001 807 | (13 972) | 19 146 | 32 667 | (4 223) | 266 | 36 780 | (9) | |||
| 2010 | 2 079 153 193 | (7 937) | 1 856 152 523 | (29 019) | 15 087 1 044 492 | (8 765) | 21 051 | 47 257 | (7 732) | 339 | 47 392 | (70) | |||
| 2011 | 2 496 168 458 | (9 616) | 2 325 153 231 | (23 177) | 7 228 | 458 695 | (4 878) | 34 444 | 65 234 | (10 992) | 380 | 29 193 | (327) | ||
| 2012 | 3 807 200 080 | (19 086) | 2 233 319 372 | (99 482) | 4 579 | 291 636 | (2 410) | 49 613 124 785 | (20 217) | 427 | 35 962 | (4) | |||
| 2013 | 5 872 339 103 | (35 306) | 2 371 185 038 | (31 118) | 3 733 | 268 987 | (749) | 62 367 196 155 | (16 526) | 552 | 89 681 | (169) | |||
| 2014 | 8 357 801 061 | (25 777) | 2 874 356 323 | (22 305) | 4 381 | 352 554 | (642) | 63 164 276 698 | (17 923) | 851 | 148 760 | (411) | |||
| 2015 | 12 638 1 218 049 | (30 675) | 4 176 398 316 | (20 334) | 8 320 | 742 749 | (609) | 120 649 472 685 | (18 803) | 1 357 | 261 348 | (12) | |||
| 2016 | 81 319 5 441 240 | (93 232) | 18 667 560 085 | (10 459) | 7 601 | 634 789 | (428) | 69 102 295 299 | (6 388) | 1 404 | 243 689 | (29) | |||
| 124 562 8 904 515 (244 505) | 43 264 2 685 120 (321 074) | 296 622 14 571 977 (208 436) | 609 058 1 739 793 (113 324) | 8 103 | 1 217 410 | (1 612) |
| 31/12/2015 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Corporate | Construction and CRE | Mortgage | Retail | Guarantees not included in other segments | |||||||||||
| Year of Number of | Allocated Number of | Allocated Number of | Allocated Number of | Allocated Number of | Allocated | ||||||||||
| origination operations Amount impairment operations Amount impairment operations Amount | impairment operations Amount impairment operations | Amount | impairment | ||||||||||||
| up to 2004 | 2 832 173 544 | (3 624) | 1 649 123 039 | (5 321) | 127 884 3 968 877 | (69 624) | 114 634 125 581 | (4 484) | 1 961 | 203 680 | (126) | ||||
| 2005 | 1 147 | 47 530 | (2 528) | 888 | 67 457 | (6 364) | 26 270 1 263 635 | (27 106) | 18 124 | 22 345 | (726) | 189 | 5 353 | (22) | |
| 2006 | 1 178 | 75 577 | (4 033) | 1 078 | 61 090 | (8 972) | 27 245 1 493 960 | (34 714) | 18 473 | 26 478 | (1 258) | 213 | 78 643 | (331) | |
| 2007 | 1 801 | 92 824 | (4 397) | 1 604 109 222 | (23 048) | 36 880 2 073 411 | (55 430) | 27 504 | 38 703 | (2 542) | 226 | 46 884 | (13) | ||
| 2008 | 2 238 164 056 | (5 581) | 2 172 144 482 | (17 838) | 27 030 1 519 491 | (44 821) | 30 947 | 43 190 | (4 674) | 505 | 47 480 | (93) | |||
| 2009 | 2 941 193 722 | (15 454) | 2 483 158 543 | (38 223) | 17 792 1 054 185 | (19 171) | 29 001 | 42 965 | (7 311) | 508 | 16 942 | (12) | |||
| 2010 | 5 634 238 582 | (17 314) | 3 320 201 040 | (36 449) | 15 898 1 091 875 | (11 827) | 54 716 | 64 760 | (16 049) | 542 | 54 751 | (79) | |||
| 2011 | 7 972 245 029 | (18 220) | 3 873 183 670 | (34 215) | 7 720 | 480 975 | (6 117) | 68 483 106 285 | (22 485) | 572 | 47 779 | (433) | |||
| 2012 | 8 419 315 052 | (32 977) | 3 819 352 258 | (97 871) | 4 995 | 306 838 | (2 763) | 81 923 166 309 | (33 180) | 619 | 50 117 | (9) | |||
| 2013 | 10 542 490 671 | (60 411) | 3 448 215 769 | (35 312) | 4 010 | 284 065 | (845) | 90 847 264 129 | (28 598) | 893 | 130 687 | (55) | |||
| 2014 | 118 482 1 058 999 | (39 531) | 18 097 395 198 | (28 112) | 4 576 | 367 242 | (684) | 78 564 349 208 | (24 163) | 2 127 | 154 531 | (29) | |||
| 2015 | 106 362 5 359 630 | (41 155) | 20 760 666 179 | (17 577) | 8 415 | 757 025 | (809) | 115 749 543 122 | (17 017) | 2 452 | 408 435 | (71) | |||
| 269 548 8 455 216 (245 225) | 63 191 2 677 947 (349 302) | 308 715 14 661 579 (273 911) | 728 965 1 793 075 (162 487) | 10 807 | 1 245 282 | (1 273) |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the impairment losses estimated individually and using the collective analysis statistical model (excluding loans transferred from the former Banif), by segment, were as follows:
| 30/06/2016 | ||||||
|---|---|---|---|---|---|---|
| Exposure | Impairment | |||||
| Individual | Collective | Total | Individual | Collective | Total | |
| Corporate | 1 787 750 | 7 116 765 | 8 904 515 | (151 943) | (92 562) | (244 505) |
| Construction and CRE | 767 170 | 1 917 949 | 2 685 120 | (285 893) | (35 181) | (321 074) |
| Mortgage | - | 14 571 977 | 14 571 977 | - | (208 436) | (208 436) |
| Retail | - | 1 739 793 | 1 739 793 | - | (113 324) | (113 324) |
| Guarantees not included in other segments | 26 355 | 1 191 055 | 1 217 410 | (1 548) | (64) | (1 612) |
| 2 581 275 | 26 537 540 | 29 118 815 | (439 384) | (449 567) | (888 952) |
| 31/12/2015 | |||||||
|---|---|---|---|---|---|---|---|
| Exposure Impairment |
|||||||
| Individual | Collective | Total | Individual | Collective | Total | ||
| Corporate | 1 372 189 | 7 083 027 | 8 455 216 | (150 202) | (95 023) | (245 225) | |
| Construction and CRE | 781 079 | 1 896 868 | 2 677 947 | (301 503) | (47 799) | (349 302) | |
| Mortgage | - | 14 661 579 | 14 661 579 | - | (273 911) | (273 911) | |
| Retail | - | 1 793 075 | 1 793 075 | - | (162 487) | (162 487) | |
| Guarantees not included in other segments | 55 879 | 1 189 403 | 1 245 282 | (1 097) | (176) | (1 273) | |
| 2 209 147 | 26 623 952 | 28 833 099 | (452 802) | (579 396) | (1 032 198) |
At June 30, 2016 and December 31, 2015, the credit risk analysed individually and using the collective analysis statistical model (excluding loans transferred from the former Banif), had the following composition by sector, for the "Corporate" and "Construction and CRE" segments:
| 30/06/2016 | |||||||
|---|---|---|---|---|---|---|---|
| Exposure | Impairment | ||||||
| Individual Collective | Total | Individual Collective | Total | ||||
| Insurance and financial activities | 1 138 649 2 194 289 3 332 938 (91 335) | (19 737) (111 072) | |||||
| Consulting, scientific, technical and similar consultancy activities | 21 064 | 214 157 | 235 221 | (7 819) | (3 522) | (11 341) | |
| Human health and social support activities | 6 325 | 165 070 | 171 396 | (93) | (1 753) | (1 846) | |
| International organizations activities and other extraterritorial institutions | - | 19 741 | 19 741 | - | (29) | (29) | |
| Manufacturing industries | 303 845 1 346 820 1 650 665 (13 592) | (22 846) | (36 438) | ||||
| Collection, purification and distribution of water, sanitation, waste management and depollution activities | 1 708 | 69 404 | 71 112 | (443) | (419) | (861) | |
| Construction | 778 744 1 037 337 1 816 081 (240 883) | (21 893) (262 776) | |||||
| Real Estate | 117 652 | 567 280 | 684 932 (41 533) | (6 664) | (48 197) | ||
| Education | 1 276 | 55 024 | 56 299 | (20) | (610) | (630) | |
| Other service activities | 534 | 28 100 | 28 633 | (226) | (637) | (863) | |
| Transport and storage | 4 747 | 399 240 | 403 987 | (2 160) | (4 234) | (6 394) | |
| Art, entertainment, recreation and sports activities | 8 958 | 26 783 | 35 741 | (2 240) | (1 166) | (3 405) | |
| Agriculture, Livestock, Hunting, Forestry and Fishing | 2 855 | 114 842 | 117 697 | (592) | (2 050) | (2 641) | |
| Wholesale and retail trade | 106 676 1 280 764 1 387 440 (29 704) | (32 892) | (62 597) | ||||
| Administrative and support activities | 16 970 | 175 061 | 192 031 | (1 147) | (1 794) | (2 941) | |
| Information and communication activities | 1 194 | 76 724 | 77 918 | (537) | (1 276) | (1 814) | |
| Electricity, gas and water | 7 269 | 924 118 | 931 387 | (738) | (223) | (961) | |
| Hotels, restaurants and similar | 34 427 | 313 029 | 347 455 | (4 617) | (4 380) | (8 997) | |
| Extractive industries | 2 028 | 12 386 | 14 414 | (157) | (1 283) | (1 440) | |
| Public administration, defense and social security | - | 14 250 | 14 250 | - | (41) | (41) | |
| Other | - | 296 | 296 | - | (294) | (294) | |
| 2 554 920 9 034 715 11 589 635 (437 836) (127 743) (565 579) |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 31/12/2015 | |||||||
|---|---|---|---|---|---|---|---|
| Exposure | Impairment | ||||||
| Individual Collective | Total | Individual Collective | Total | ||||
| Insurance and financial activities | 1 016 353 1 466 872 2 483 225 (28 184) | (11 463) | (39 647) | ||||
| Consulting, scientific, technical and similar consultancy activities | 21 118 | 230 679 | 251 797 | (8 356) | (3 032) | (11 388) | |
| Human health and social support activities | 8 303 | 154 146 | 162 449 | (224) | (1 548) | (1 772) | |
| International organizations activities and other extraterritorial institutions | - | 32 628 | 32 628 | - | (29) | (29) | |
| Manufacturing industries | 71 038 1 455 472 1 526 510 (15 626) | (27 129) | (42 755) | ||||
| Collection, purification and distribution of water, sanitation, waste management and depollution activities | - | 71 913 | 71 913 | - | (711) | (711) | |
| Construction | 713 766 1 042 141 1 755 907 (301 578) | (28 697) (330 275) | |||||
| Real Estate | 123 515 | 423 486 | 547 001 (47 530) | (9 552) | (57 082) | ||
| Education | 1 316 | 50 334 | 51 650 | (27) | (552) | (579) | |
| Other service activities | 15 868 | 38 051 | 53 919 | (781) | (764) | (1 545) | |
| Transport and storage | 4 693 | 302 169 | 306 862 | (1 794) | (4 763) | (6 557) | |
| Art, entertainment, recreation and sports activities | 9 120 | 25 568 | 34 688 | (2 280) | (1 248) | (3 528) | |
| Agriculture, Livestock, Hunting, Forestry and Fishing | 12 766 | 105 004 | 117 770 | (911) | (1 807) | (2 718) | |
| Wholesale and retail trade | 97 244 1 356 816 1 454 060 (37 287) | (39 790) | (77 077) | ||||
| Administrative and support activities | 2 080 | 166 962 | 169 042 | (512) | (2 182) | (2 694) | |
| Information and communication activities | 3 140 | 132 917 | 136 057 | (1 139) | (1 486) | (2 625) | |
| Electricity, gas and water | 7 493 | 903 629 | 911 122 | (761) | (701) | (1 462) | |
| Hotels, restaurants and similar | 45 455 | 251 449 | 296 904 | (4 715) | (5 623) | (10 338) | |
| Extractive industries | - | 16 568 | 16 568 | - | (1 397) | (1 397) | |
| Public administration, defense and social security | - | 752 710 | 752 710 | - | (38) | (38) | |
| Other | - | 381 | 381 | - | (310) | (310) | |
| 2 153 268 8 979 895 11 133 163 (451 705) (142 822) (594 527) |
At June 30, 2016 and December 31, 2015, the credit risk analysed individually and using the collective analysis statistical model (excluding loans transferred from the former Banif) had the following composition by geography:
| 30/06/2016 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Portugal | England | ||||||||
| Exposure | Impairment | Exposure | Impairment | ||||||
| Individual | 2 581 275 | (439 384) | - | - | |||||
| Collective | 26 089 612 | (434 214) | 447 928 | (15 353) | |||||
| 28 670 887 | (873 598) | 447 928 | (15 353) |
| 31/12/2015 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Portugal | England | |||||||||
| Exposure | Impairment | Exposure | Impairment | |||||||
| Individual | 2 209 147 | (452 802) | - | - | ||||||
| Collective | 25 754 726 | (559 649) | 869 226 | (19 747) | ||||||
| 27 963 873 | (1 012 451) | 869 226 | (19 747) |
The risk analysis for customers or economic groups where the Bank has an exposure in excess of Euros 500,000 is performed by risk analysts that monitor those customers and are supported by an internally developed rating model approved by the regulators. These models are mandatorily prepared. The attribution of various levels of internal rating, which vary from 1 to 9, consider the risk level inherent to the customer and a one year probability of default, which the Bank monitors and calibrates on a constant and regular basis. The rating is determined based on an analysis of the following parameters:
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
A classification from 1 (minimum) to 9 (maximum) is attributed to these factors in accordance with the following weighting:
| Weighting parameters | Large Companies | Small and medium size Companies |
|---|---|---|
| Demand/Market | 20% | 20% |
| Equity holders/Management | 15% | 15% |
| Access to credit | 10% | 10% |
| Profitability | 15% | |
| Cash flow generation | 25% | 55% |
| Solvency | 15% |
The rating is calculated by analysts, based on information supplied by the customer, general information of the business sector and external databases. The final rating, by weighting parameter, is subsequently introduced into the Bank's IT system.
In general terms, the Bank's internal rating system may be described as follows:
Rating 1 – 3: Customer with high credit risk; Rating 4 – 6: Customer with moderate credit risk; Rating 7 – 9: Customer with low credit risk.
At June 30, 2016 and December 31, 2015, the loan portfolio of the Bank (excluding loans transferred from the former Banif) presents the following segmentation by internal rating:
| 30/06/2016 | |||||
|---|---|---|---|---|---|
| Risk Level | |||||
| High | Moderate | Low | Without rating | Total | |
| Corporate | 213 040 | 4 611 598 | 1 554 371 | 2 525 506 | 8 904 515 |
| Construction and CRE | 399 067 | 1 558 532 | 162 427 | 565 094 | 2 685 120 |
| Mortgage | 2 022 932 | 1 340 836 | 9 570 900 | 1 637 309 | 14 571 977 |
| Retail | 297 875 | 261 535 | 799 951 | 380 432 | 1 739 793 |
| Guarantees not included | |||||
| in other segments | 10 230 | 756 308 | 383 580 | 67 291 | 1 217 410 |
| 2 943 144 | 8 528 809 | 12 471 230 | 5 175 632 | 29 118 815 |
| 31/12/2015 | |||||
|---|---|---|---|---|---|
| Risk Level | |||||
| High | Moderate | Low | Without rating | Total | |
| Corporate | 217 791 | 4 447 680 | 1 424 162 | 2 365 583 | 8 455 216 |
| Construction and CRE | 385 256 | 1 593 084 | 108 311 | 591 296 | 2 677 947 |
| Mortgage | 2 077 886 | 1 375 513 | 9 828 958 | 1 379 222 | 14 661 579 |
| Retail | 325 308 | 272 085 | 830 911 | 364 771 | 1 793 075 |
| Guarantees not included | |||||
| in other segments | 7 061 | 783 692 | 393 606 | 60 923 | 1 245 282 |
| 3 013 302 | 8 472 054 | 12 585 948 | 4 761 795 | 28 833 099 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the book value of guarantees and other collateral executed relating to credit operations granted amounted to tEuros 200,282 and tEuros 211,832, respectively, and presented the following detail:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Non-current assets held for sale (Note 13) | ||
| Properties received as settlement of defaulting loans | 242 274 | 253 626 |
| Participating units | 18 663 | 18 663 |
| Equipment | 2 178 | 2 253 |
| Other assets received as settlement of defaulting loans (Note 18) | 43 689 | 42 479 |
| Available-for-sale financial assets | 22 121 | 22 121 |
| 328 925 | 339 142 | |
| Impairment of non-current assets held for sale (Note 13) | ||
| Properties received as settlement of defaulting loans | (90 755) | (89 822) |
| Participating units | (4 000) | (4 000) |
| Equipment | (1 823) | (1 642) |
| Impairment of other assets received as settlement of defaulting loans (Note 18) | (9 944) | (9 725) |
| Impairment of available-for-sale financial assets | (22 121) | (22 121) |
| (128 643) | (127 310) | |
| 200 282 | 211 832 |
At June 30, 2016 and December 31, 2015, the detail of the fair value and the net book value of property received in settlement of defaulted loans, by type of asset, is as follows:
| 30/06/2016 | 31/12/2015 | |||||
|---|---|---|---|---|---|---|
| Number of real | Fair value of | Carrying book | Number of real | Fair value of | Carrying book | |
| Asset | estate assets | asset (*) | value | estate assets | asset (*) | value |
| Land | ||||||
| Urban | 127 | 19 983 | 16 286 | 131 | 22 661 | 18 124 |
| Rural | 96 | 8 695 | 7 087 | 96 | 9 908 | 8 171 |
| Constructed buildings | ||||||
| Commercial | 429 | 40 044 | 32 327 | 514 | 56 361 | 46 725 |
| Residential | 1 495 | 116 376 | 92 526 | 1 463 | 102 136 | 83 016 |
| Other | 15 | 3 798 | 3 030 | 35 | 11 172 | 7 420 |
| Other | 11 | 360 | 263 | 4 | 393 | 348 |
| 2 173 | 189 256 | 151 519 | 2 243 | 202 631 | 163 804 |
(*) does not include the selling costs or the estimated historical loss on the disposal of this type of asset
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the detail of the net book value of property received in settlement of defaulted loans, by aging, is as follows:
| 30/06/2016 | |||||
|---|---|---|---|---|---|
| >= 1 year and | >= 2.5 years and | ||||
| Asset | < 1 year | < 2.5 years | < 5 years | >= 5 years | Total |
| Land | |||||
| Urban | 501 | 597 | 4 651 | 10 537 | 16 286 |
| Rural | 82 | 177 | 5 948 | 880 | 7 087 |
| Constructed buildings | |||||
| Commercial | 4 727 | 8 136 | 17 392 | 2 072 | 32 327 |
| Residential | 24 395 | 26 528 | 30 323 | 11 280 | 92 526 |
| Other | - | 1 154 | 769 | 1 107 | 3 030 |
| Other | 26 | 91 | 146 | - | 263 |
| 29 731 | 36 683 | 59 229 | 25 876 | 151 519 |
| 31/12/2015 | |||||
|---|---|---|---|---|---|
| >= 1 year and | >= 2.5 years and | ||||
| Asset | < 1 year | < 2.5 years | < 5 years | >= 5 years | Total |
| Land | |||||
| Urban | 774 | 1 162 | 4 050 | 12 138 | 18 124 |
| Rural | 220 | 3 342 | 3 952 | 657 | 8 171 |
| Constructed buildings | |||||
| Commercial | 6 060 | 15 131 | 22 652 | 2 882 | 46 725 |
| Residential | 23 605 | 23 147 | 31 871 | 4 393 | 83 016 |
| Other | 1 927 | 2 082 | 3 207 | 204 | 7 420 |
| Other | - | 206 | 142 | - | 348 |
| 32 586 | 45 070 | 65 874 | 20 274 | 163 804 |
At June 30, 2016 and December 31, 2015, the restructured credit operations were identified in accordance with Instruction No. 32/2013 of the Bank of Portugal (replacing Instruction No. 18/2012) which establishes the definition of restructured credit due to customers' financial difficulties.
According to said Instruction, the institutions shall identify and mark in their information systems the credit operations of customers with a difficult financial situation whenever there are changes to the terms and conditions of those operations (namely, extension of the reimbursement deadline, introduction of grace periods, capitalization of interest, reduction of interest rates, interest or principal pardon) or the institution contracts new credit lines to settle (totally or partially) the existing debt service, in which cases the institutions shall include the reference "restructured credit due to financial difficulties of the customer."
A customer is considered to be in a difficult financial position whenever he/she/it has failed to fulfil any of its financial obligations vis-à-vis the institution or if it is predictable, given the information available, that such situation will occur.
The unmarking of restructured credit due to financial difficulties of the customer can only occur after a minimum period of two years from the date of its restructuring, provided that certain conditions are cumulatively verified. So far BST has not unmarked any restructured credit.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The change occurring in the restructured credit operations (excluding credit transferred from the former Banif) during the six-month period ended June 30, 2016 and financial year 2015 was as follows:
| Balance of the restructured portfolio (gross of impairment) at December, 31 2014 | 2 520 350 |
|---|---|
| Restructured loans in the period | 359 094 |
| Accrued interest of the restructured portfolio | (1 513) |
| Restructured loans settlement (partial or total) | (477 059) |
| Other | (29 006) |
| Balance of the restructured portfolio (gross of impairment) at December, 31 2015 | 2 371 866 |
| Restructured loans in the period | 285 084 |
| Accrued interest of the restructured portfolio | (2 156) |
| Restructured loans settlement (partial or total) | (422 987) |
| Reclassified credit from "restructured" to "normal" | (4 256) |
| Balance of the restructured portfolio (gross of impairment) at June 30, 2016 | 2 227 551 |
At June 30, 2016 and December 31, 2015, the portfolio of restructured credit (excluding credit transferred from the former Banif) by restructuring measure adopted had the following detail:
| 30/06/2016 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Performing loans | Non-performing loans | Total | ||||||||
| Number of | Number of | Number of | ||||||||
| operations | Exposure Impairment operations Exposure Impairment operations Exposure Impairment | |||||||||
| Attribution of a grace period | 33 422 | 943 418 | (32 895) | 4 993 | 139 695 | (101 694) | 38 415 1 083 113 | (134 588) | ||
| Others | 28 423 | 920 786 | (95 697) | 4 640 | 223 652 | (171 927) | 33 063 1 144 438 | (267 623) | ||
| 61 845 1 864 204 | (128 591) | 9 633 | 363 347 | (273 621) | 71 478 2 227 551 | (402 212) |
| 31/12/2015 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Performing loans | Non-performing loans | Total | |||||||
| Number of | Number of | Number of | |||||||
| operations | Exposure Impairment operations Exposure Impairment operations Exposure Impairment | ||||||||
| Attribution of a grace period | 34 899 | 992 152 | (40 787) | 7 659 | 166 422 | (122 286) | 42 558 1 158 574 | (163 073) | |
| Others | 28 632 | 918 585 | (88 846) | 7 574 | 294 707 | (209 502) | 36 206 1 213 292 | (298 348) | |
| 63 531 1 910 737 | (129 633) | 15 233 | 461 129 | (331 788) | 78 764 2 371 866 | (461 421) |
On June 30, 2016, the coverage of overdue loans by collateral was as follows:
| 30/06/2016 | |||||
|---|---|---|---|---|---|
| Collateral | |||||
| Other real | |||||
| Coverage level | Exposure | Mortgages | guarantees | Total | Impairment |
| Corporate | |||||
| >= 100% | 209 888 | 50 413 | 96 834 | 147 247 | (120 898) |
| >= 80% and < 100% | 208 422 | 114 581 | 118 473 | 233 054 | (101 718) |
| >= 60% and < 80% | 220 836 | 184 147 | 137 179 | 321 326 | (122 055) |
| < 60% | 868 644 | 1 569 184 | 423 584 | 1 992 768 | (461 383) |
| Without guarantee | 699 475 | - | - | - | (453 221) |
| Mortgage | |||||
| >= 100% | 98 629 | 76 849 | 3 503 | 80 352 | (41 403) |
| >= 80% and < 100% | 166 738 | 183 946 | 4 437 | 188 383 | (54 438) |
| >= 60% and < 80% | 216 427 | 309 300 | 2 602 | 311 902 | (66 403) |
| < 60% | 235 868 | 515 241 | 6 011 | 521 252 | (88 267) |
| Without guarantee | 19 117 | - | - | - | (15 064) |
| Other | |||||
| >= 100% | 14 183 | 3 470 | 7 631 | 11 101 | (10 918) |
| >= 80% and < 100% | 29 128 | 8 400 | 24 244 | 32 644 | (23 481) |
| >= 60% and < 80% | 53 971 | 49 283 | 27 645 | 76 928 | (40 961) |
| < 60% | 81 706 | 148 435 | 40 469 | 188 904 | (59 544) |
| Without guarantee | 136 406 | - | - | - | (102 457) |
| 3 259 438 | 3 213 249 | 892 612 | 4 105 861 | (1 762 211) |
At December 31, 2015, the coverage of overdue loans by collateral (excluding loans transferred from the former Banif) was as follows:
| 2015 | |||||||
|---|---|---|---|---|---|---|---|
| Exposure | Collaterals | ||||||
| Non overdue amount | Overdue loans | Other | |||||
| Coverage level | associated with overdue loans | (Note10) | Total | Mortgages | collaterals | Total | Impairment |
| Corporate | |||||||
| >= 100% | 16 340 | 31 678 | 48 018 | 18 545 | 11 575 | 30 120 | (25 039) |
| >= 80% and < 100% | 8 628 | 13 022 | 21 650 | 22 303 | 2 330 | 24 633 | (8 554) |
| >= 60% and < 80% | 12 382 | 38 029 | 50 411 | 65 220 | 8 371 | 73 591 | (22 661) |
| < 60% | 32 962 | 132 504 | 165 466 | 352 564 | 25 914 | 378 478 | (71 870) |
| Without guarantee | 176 310 | 271 337 | 447 647 | - | - | - | (263 115) |
| Mortgage | |||||||
| >= 100% | 22 885 | 99 528 | 122 413 | 103 326 | 11 | 103 337 | (41 913) |
| >= 80% and < 100% | 94 889 | 81 587 | 176 476 | 198 004 | - | 198 004 | (38 196) |
| >= 60% and < 80% | 106 406 | 65 707 | 172 113 | 244 691 | - | 244 691 | (32 376) |
| < 60% | 117 263 | 100 324 | 217 587 | 472 797 | 27 | 472 824 | (47 972) |
| Without guarantee | 2 098 | 2 080 | 4 178 | - | - | - | (1 239) |
| Other | - | ||||||
| >= 100% | 3 634 | 5 588 | 9 222 | 2 369 | 2 683 | 5 052 | (5 182) |
| >= 80% and < 100% | 1 831 | 2 329 | 4 160 | 2 701 | 1 778 | 4 479 | (2 447) |
| >= 60% and < 80% | 1 791 | 1 703 | 3 494 | 1 891 | 2 901 | 4 792 | (1 777) |
| < 60% | 5 637 | 3 064 | 8 701 | 11 979 | 7 379 | 19 358 | (4 374) |
| Without guarantee | 67 783 | 106 393 | 174 176 | - | - | - | (124 824) |
| 670 839 | 954 873 1 625 712 | 1 496 390 | 62 969 1 559 359 | (691 539) |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the book value of the debt instruments by external rating, in accordance with Standard & Poor's rating classification, was made up as follows:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| Financial assets held for trading | ||
| Rating S&P | ||
| BBB+ / BBB / BBB- | - | 9 929 |
| BB+ / BB / BB- | 5 394 652 | 6 045 447 |
| B+ / B / B- | 104 389 | 108 577 |
| Without external rating | 12 956 | 185 267 |
| 5 511 997 | 6 349 220 |
Whenever Standard & Poor's rating was not available, the ratings of the agencies Moody's or Fitch were used.
The liquidity risk management policy is decided by the top level body of the organizational area responsible for Asset and Liability Management ("ALM"), the Assets and Liabilities Committee (ALCO), which is presided by the Chairman of the Executive Committee and includes the members of the Executive Committee responsible for the Financial, Treasury, Commercial, Marketing and International Areas. The ALCO Committee meets monthly and analyses balance sheet risks and decides the strategic options.
The following balance sheet risk management limits are defined for the ALM Area:
The Bank's financing policy considers the evolution of the balance sheet components, the structural position of the maturity terms of its assets and liabilities, its net inter-bank debt level considering the credit lines available, the dispersion of the maturities and the minimization of funding activity related costs.
It should be noted that the Bank does not analyse the liquidity risk of financial instruments held for trading.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The projected cash flows of the financial instruments (not discounted) at June 30, 2016 and December 31, 2015, in accordance with their contractual maturity, were as follows:
| 30/06/2016 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Up to 3 | From 3 months From 1 to From 3 to | Over | ||||||
| On demand | months | to 1 year | 3 years | 5 years | 5 years | Undetermined | Total | |
| Assets | ||||||||
| Cash and deposits at central banks | 244 242 | - | - | - | 724 340 | - | - | 968 581 |
| Balances due from other banks | 402 067 | - | - | - | - | - | - | 402 067 |
| Financial assets held for trading | 1 679 638 | - | - | - | - | - | - | 1 679 638 |
| Available-for-sale financial assets | 2 | 8 715 | 259 334 1 639 717 | 829 486 | 3 895 201 | 166 431 | 6 798 887 | |
| Loans and advances to credit institutions | 904 126 | 22 926 | 34 872 | 566 249 | 13 543 | 278 172 | - | 1 819 888 |
| Loans and advances to customers | 169 324 2 533 864 | 3 552 638 6 843 031 | 6 184 421 17 133 892 | - 36 417 169 | ||||
| Held-to-maturity investments | - | 1 844 | 7 565 | 206 378 | 56 342 | 84 483 | - | 356 612 |
| Hedging derivatives | 126 281 | - | - | - | - | - | - | 126 281 |
| Investments in associates | - | - | - | - | - | - | 40 163 | 40 163 |
| 3 525 680 2 567 348 | 3 854 409 9 255 375 | 7 808 132 21 391 747 | 206 594 48 609 285 | |||||
| Liabilities | ||||||||
| Resources of central banks | 4 427 | - | - | - | 2 446 000 | - | - | 2 450 427 |
| Financial liabilities held for trading | 1 687 799 | - | - | - | - | - | - | 1 687 799 |
| Resources of other credit institutions | 478 473 2 026 606 | 3 977 | 1 857 | 1 860 | 600 521 | - | 3 113 294 | |
| Resources of customers and other debts | 10 605 580 4 627 628 | 6 334 584 6 555 665 | 566 626 | 18 098 | - 28 708 181 | |||
| Debt securities | 692 | 86 182 | 1 240 358 1 013 546 | 937 304 | 1 615 381 | - | 4 893 463 | |
| Hedging derivatives | 183 854 | - | - | - | - | - | - | 183 854 |
| Subordinated liabilities | - | 4 309 | - | - | - | - | - | 4 309 |
| 12 960 825 6 744 725 | 7 578 919 7 571 068 | 3 951 790 | 2 233 999 | - 41 041 328 | ||||
| 31/12/2015 | ||||||||
| Up to 3 | From 3 months From 1 to From 3 to | Over | ||||||
| On demand | months | to 1 year | 3 years | 5 years | 5 years | Undetermined | Total | |
| Assets | ||||||||
| Cash and deposits at central banks | 284 667 | 360 | 1 089 | 2 891 | 2 854 750 | - | - | 3 143 757 |
| Balances due from other banks | 463 898 | - | - | - | - | - | - | 463 898 |
| Financial assets held for trading | 1 750 694 | - | - | - | - | - | - | 1 750 694 |
| Available-for-sale financial assets | 2 | 48 792 | 175 493 1 352 981 | 2 476 589 | 2 970 632 | 191 477 | 7 215 966 | |
| Loans and advances to credit institutions | 364 581 | 40 269 | 677 660 | 169 392 | 15 802 | 275 884 | - | 1 543 588 |
| Loans and advances to customers | 187 542 6 322 392 | 4 243 992 5 293 685 | 5 434 510 14 726 040 | - 36 208 161 | ||||
| Hedging derivatives | 130 292 | - | - | - | - | - | - | 130 292 |
| 3 181 676 6 411 813 | 5 098 234 6 818 949 10 781 651 17 972 556 | 191 477 50 456 356 | ||||||
| Liabilities | ||||||||
| Resources of central banks | 1 404 484 1 100 149 | - 2 453 964 | - | - | - | 4 958 597 | ||
| Financial liabilities held for trading | 1 721 691 | - | - | - | - | - | - | 1 721 691 |
| Resources of other credit institutions | 284 592 1 445 647 | 1 329 884 | 3 280 | 3 038 | 601 900 | - | 3 668 341 | |
| Resources of customers and other debts | 8 905 366 5 048 603 | 6 907 147 6 036 093 | 882 570 | 22 315 | - 27 802 094 | |||
| Debt securities | 798 | 31 300 | 320 609 1 352 224 | 1 739 228 | 2 108 026 | - | 5 552 185 | |
| Hedging derivatives | 170 133 | - | - | - | - | - | - | 170 133 |
| Subordinated liabilities | - | - | - | - | - | - | 4 313 | 4 313 |
| 12 487 064 7 625 699 | 8 557 640 9 845 561 | 2 624 836 | 2 732 241 | 4 313 43 877 354 |
The projected cash flows of the financial instruments were determined based on the principles and assumptions used by the Bank to manage and control the liquidity resulting from its operations, namely:
Credit line operations without defined maturity or periodically renewable, such as bank overdrafts and current account credit lines, were considered to have an average maturity of 25 months; and
The projected cash flows of demand deposits were considered as being payable on demand.
Market risk generally consists in the potential fluctuation of a financial instrument value due to unanticipated variations in the market variables, such as interest rates, exchange rates, credit spreads, equity instrument prices, precious metals and commodities.
The standard methodology applied for the Bank's trading activity is Value at Risk ("VaR"). The Historical Simulation with a 99% confidence level and a time horizon of one day is used as the standard, with statistical adjustments being applied to include the more recent occurrences that affect the level of risk assumed. This measure is only used in the Group's treasury management since the Bank uses specific sensitivity measurements.
The reckoned VaR represents a daily estimate of the maximum potential risk under normal market conditions (individually by portfolio/business sector and for the overall positions), within the underlying assumptions of the model.
Other measures are simultaneously implemented that permit an additional control of market risk. For abnormal market conditions stress testing is carried out. This consists of defining extreme behavioural scenarios for different financial variables, in order to obtain the corresponding potential impact on results. In short, the analysis of the scenarios seeks to identify the potential risk under extreme market conditions and on the fringes of the probability of occurrence not covered by VaR.
In parallel with this, daily positions are also monitored, with an exhaustive control being realized over the changes in the portfolios so as to detect the existence of possible situations that require immediate correction. A daily income statement is prepared in order to identify the impact of changes in variables or in the composition of the portfolios.
The Bank uses sensitivity measurements and equivalent positions. In the case of interest rates it uses the BPV – estimated impact on results due to parallel changes in the interest rate curves. For the control of the derivative activities, due to the unusual nature of same, specific sensitivity measurements are performed daily, namely estimating sensitivity to changes in the underlying prices (delta and gamma), volatility (i) and time (theta).
Quantitative limits, classified into two groups, are used for the trading portfolio, based on the following objectives:
As for the interest rate structural risk, the model used in the analysis permits the measurement and control of all the factors associated with the balance sheet market risk, namely the risk resulting directly from the change in the yield curve, given the existing indexing and repricing structure, which determines the sensitivity of the financial margin and the sensitivity of the net asset value of the balance sheet instruments.
At June 30, 2016 and December 31, 2015, financial instruments, by exposure to interest rate risk, were as follows:
| 30/06/2016 | |||||||
|---|---|---|---|---|---|---|---|
| Exposure to | Non subject to | ||||||
| Fixed rate | Floating rate | interest rate risk | Derivatives | Total | |||
| Assets | |||||||
| Cash and deposits at central banks | - | 724 423 | 244 242 | - | 968 665 | ||
| Balances due from other banks | - | - | 402 067 | - | 402 067 | ||
| Financial assets held for trading | - | - | 3 078 | 1 676 560 | 1 679 638 | ||
| Available-for-sale financial assets | 5 217 475 | 168 239 | 226 343 | - | 5 612 057 | ||
| Loans and advances to credit institutions | 1 025 891 | 783 893 | 21 013 | - | 1 830 797 | ||
| Loans and advances to customers | 4 720 173 | 27 643 943 | (513 240) | - | 31 850 876 | ||
| Hedging derivatives | - | - | - | 126 281 | 126 281 | ||
| 10 963 539 | 29 320 498 | 383 503 | 1 802 841 | 42 470 381 | |||
| Liabilities | |||||||
| Resources of central banks | 2 446 000 | - | 4 427 | - | 2 450 427 | ||
| Financial liabilities held for trading | - | - | - | 1 687 799 | 1 687 799 | ||
| Resources of other credit institutions | 16 609 | 3 107 909 | 51 | - | 3 124 569 | ||
| Resources of customers and other debts | 18 293 862 | 10 021 142 | 131 917 | - | 28 446 921 | ||
| Debt securities | 2 720 769 | 1 972 567 | (67 343) | - | 4 625 993 | ||
| Hedging derivatives | - | - | - | 183 854 | 183 854 | ||
| Subordinated liabilities | - | 4 275 | 24 | - | 4 299 | ||
| 23 477 240 | 15 105 893 | 69 076 | 1 871 653 | 40 523 862 | |||
| 31/12/2015 | |||||||
| Exposure to | Non subject to | ||||||
| Fixed rate | Floating rate | interest rate risk | Derivatives | Total | |||
| Assets | |||||||
| Cash and deposits at central banks | - | 2 849 364 | 284 668 | - | 3 134 032 | ||
| Balances due from other banks | - | - | 463 898 | - | 463 898 | ||
| Financial assets held for trading | - | - | 3 096 | 1 747 598 | 1 750 694 | ||
| Available-for-sale financial assets | 5 609 518 | 424 326 | 433 969 | - | 6 467 813 | ||
| Loans and advances to credit institutions | 1 112 740 | 371 308 | 51 388 | - | 1 535 436 | ||
| Loans and advances to customers | 3 524 326 | 29 095 874 | (839 235) | - | 31 780 965 | ||
| Hedging derivatives | - | - | - | 130 292 | 130 292 | ||
| 10 246 584 | 32 740 872 | 397 784 | 1 877 890 | 45 263 130 | |||
| Liabilities | |||||||
| Resources of central banks | 2 446 000 | 2 500 000 | 6 679 | - | 4 952 679 | ||
| Financial liabilities held for trading | - | - | - | 1 721 691 | 1 721 691 | ||
| Resources of other credit institutions | 162 807 | 2 863 654 | 518 768 | - | 3 545 229 | ||
| Resources of customers and other debts | 18 297 662 | 8 626 069 | 202 582 | - | 27 126 313 | ||
| Debt securities | 2 733 748 | 2 291 199 | 18 498 | - | 5 043 445 | ||
| Hedging derivatives Subordinated liabilities |
- - |
- 4 275 |
- 27 |
170 133 - |
170 133 4 302 |
The methodology used for the estimating the sensitivity of the net asset value simulates the variation in the market value of assets and liabilities based on changes of 100 basis points ("bp") in the forward interest rate curve. This methodology uses the following parameters and assumptions:
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The interest rate gap permits the obtaining of an approximate value of the sensitivity of the net assets value and the financial margin to variations in market rates. This approximate value uses the following assumptions:
Regarding the variation in Net Asset value, an increase in the interest rates originates a decrease in the value of the ranges with positive gaps and an increase in the value of the negative gaps. A decrease in interest rates has the opposite effect.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, the sensitivity of the Bank's financial instruments to positive and negative changes of 100 basis points (bp) in the interest rates, over a time frame of one year, corresponded to:
| 30/06/2016 | 31/12/2015 | ||||
|---|---|---|---|---|---|
| + 100 bp's | - 100 bp's | + 100 bp's | - 100 bp's | ||
| variation | variation | variation | variation | ||
| Assets | |||||
| Cash and deposits at central banks | (42) | 11 848 | 1 627 | 83 080 | |
| Available-for-sale financial assets | (416 009) | 278 899 | (326 835) | 288 920 | |
| Loans and advances to credit institutions | (4 471) | 14 051 | (6 493) | 7 016 | |
| Loans and advances to customers | (216 934) | 88 444 | (182 767) | 110 011 | |
| (637 456) | 393 242 | (514 468) | 489 027 | ||
| Hedging derivatives | 27 417 | (26 334) | 22 224 | (40 417) | |
| Liabilities | |||||
| Resources of central banks | (96 168) | 22 800 | (68 348) | 23 265 | |
| Resources of other credit institutions | (3 641) | 5 085 | (8 501) | 6 124 | |
| Resources of customers and other debts | (640 363) | 236 589 | (532 907) | 338 888 | |
| Debt securities | (68 916) | 30 156 | (80 645) | 48 438 | |
| Other subordinated liabilities | (6) | 1 | (6) | 2 | |
| (809 094) | 294 631 | (690 407) | 416 717 |
Besides the Bank's own calculation methodology, the basic parameters for the calculation of the VaR are as follows:
The VaR values used are the higher of those arising from the estimate made with the deterioration factor in force and the calculation made using uniform weights.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The reckoning of the VaR Percentile assumes that the set of 520 observations considered have all the same weight. The VaR Weighted Percentile assumes a significantly higher weight for the more recent observations in relation to the reference date of the analysis.
Historical simulation consists of using historic changes as a distribution model of the possible changes in risk factors. Therefore, the period chosen must be sufficiently long and significant, so that all the interactions between the market factors, including the volatilities and correlations between these, are well reflected in the historical period selected.
In addition, a complete revaluation of the portfolio requires the valuation of each of the instruments, using the respective mathematical expression in order to obtain the market value of each individual position. On using revaluation methods, the implicit non-linear effects on certain financial products as a result of market factor changes are calculated and retained in the VaR amounts.
At June 30, 2016 and December 31, 2015, the VaR associated with the interest rate risk corresponds to:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| VaR Percentil 99% | (4) | (4) |
| VaR Weighted Percentil 99% | (1) | (25) |
The profile defined for currency risk is very conservative and is based on the hedging policy adopted. The implementation of such policy is the responsibility of the Treasury Department so that the risks involved are maintained at a low level, this being achieved mainly through the use of currency swaps. Currency risk limits are established and monitored by the Market Risk Area.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2016 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At June 30, 2016 and December 31, 2015, financial instruments, by currency, were as follows:
| 30/06/2016 | ||||||
|---|---|---|---|---|---|---|
| Euros | US Dollars | Other currencies |
Total | |||
| Assets | ||||||
| Cash and deposits at central banks | 965 926 | 1 288 | 1 451 | 968 665 | ||
| Balances due from other banks | 275 293 | 102 786 | 23 988 | 402 067 | ||
| Financial assets held for trading | 1 676 549 | 2 714 | 375 | 1 679 638 | ||
| Available-for-sale financial assets | 5 612 057 | - | - | 5 612 057 | ||
| Loans and advances to credit institutions | 927 896 | 753 033 | 149 868 | 1 830 797 | ||
| Loans and advances to customers | 31 538 059 | 268 491 | 44 326 | 31 850 876 | ||
| Held-to-maturity investments | 301 730 | - | - | 301 730 | ||
| Hedging derivatives | 125 596 | 684 | - | 126 281 | ||
| Investments in associates | 38 663 | - | - | 38 663 | ||
| 41 461 769 | 1 128 997 | 220 007 | 42 810 773 | |||
| Liabilities | ||||||
| Resources of central banks | 2 450 427 | - | - | 2 450 427 | ||
| Financial liabilities held for trading | 1 684 615 | 2 768 | 416 | 1 687 799 | ||
| Resources of other credit institutions | 3 045 334 | 76 151 | 3 083 | 3 124 569 | ||
| Resources of customers and other debts | 26 909 217 | 1 314 166 | 223 538 | 28 446 921 | ||
| Debt securities | 4 596 367 | 28 426 | 1 200 | 4 625 993 | ||
| Hedging derivatives | 182 718 | 1 136 | - | 183 854 | ||
| Subordinated liabilities | 4 299 | - | - | 4 299 | ||
| 38 872 978 | 1 422 647 | 228 237 | 40 523 862 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 31/12/2015 | ||||
|---|---|---|---|---|
| Euros | US Dollars | Other currencies |
Total | |
| Assets | ||||
| Cash and deposits at central banks | 3 128 135 | 2 486 | 3 411 | 3 134 032 |
| Balances due from other banks | 408 863 | 34 345 | 20 690 | 463 898 |
| Financial assets held for trading | 1 748 022 | 2 574 | 98 | 1 750 694 |
| Available-for-sale financial assets | 6 467 813 | - | - | 6 467 813 |
| Loans and advances to credit institutions | 819 396 | 636 260 | 79 780 | 1 535 436 |
| Loans and advances to customers | 31 458 868 | 300 746 | 21 351 | 31 780 965 |
| Hedging derivatives | 129 584 | 708 | - | 130 292 |
| 44 160 681 | 977 119 | 125 330 | 45 263 130 | |
| Liabilities | ||||
| Resources of central banks | 4 948 209 | - | 4 470 | 4 952 679 |
| Financial liabilities held for trading | 1 701 878 | 19 715 | 98 | 1 721 691 |
| Resources of other credit institutions | 3 157 960 | 383 597 | 3 672 | 3 545 229 |
| Resources of customers and other debts | 25 556 896 | 1 346 985 | 222 432 | 27 126 313 |
| Debt securities | 5 013 954 | 28 205 | 1 286 | 5 043 445 |
| Hedging derivatives | 168 116 | 2 017 | - | 170 133 |
| Subordinated liabilities | 4 302 | - | - | 4 302 |
| 40 551 315 | 1 780 519 | 231 958 | 42 563 792 |
At June 30, 2016 and December 31, 2015, the VaR associated with currency risk corresponded to:
| 30/06/2016 | 31/12/2015 | |
|---|---|---|
| VaR Percentil 99% | (4) | (8) |
| VaR Weighted Percentil 99% | (3) | (10) |
Financial instruments - held for trading
At June 30, 2016 and December 31, 2015, the Bank had no asset quotation risk associated with financial instruments held for trading and, therefore, the VaR related to this risk is zero.
At the end of the first quarter of 2013 a publicly prominent motion surged in Portugal as a result of which the validity of some interest rate swap agreements, established between some financial institutions and several Portuguese State-owned companies, namely in the railway and road transportation sectors, have been challenged. These agreements were mostly celebrated before 2008, that is, prior to the emergence of the recent financial crisis and could render those companies liable to significant charges.
Some of those agreements subscribed with the Bank were challenged; their positive fair values at June 30, 2016 and December 31, 2015 amounting to approximately tEuros 1,228,700 and tEuros 1,228,000, respectively, which are reflected in the accompanying balance sheet under the heading "Financial assets held for trading" (Note 7). These agreements were executed without incidents until September 2013.
As a result of the above mentioned motion, the Bank, certain of the total regularity and binding force of the agreements subscribed with the Portuguese State-owned companies, took the initiative to request a legal statement regarding their validity, considering that it was its duty to contribute, in an appropriate manner, to the elimination of any doubts subsisting as to their validity and binding force. This initiative occurred during the second quarter of 2013, in the English courts of law, which were chosen by the parties as expressly stated in the respective agreement.
In September 2013, after the lodging of the above mentioned suits, the Portuguese State-owned companies notified the Bank that they would suspend, as from that date, the payment of the interest associated with those swap agreements until the on-going legal suits were decided. At June 30, 2016 and December 31, 2015, the balance sheet heading "Other assets - Other" includes approximately tEuros 396,000 and tEuros 311,000, respectively, relating to the unpaid interest (Note 18).
In November 2013, the Portuguese State-owned companies placed before the English courts of law their challenge to the suits lodged by the Bank, requesting the nullity of the agreements and the refund of the net interest paid in the past, which amounted to approximately tEuros 134,000.
On February 14, 2014, the Bank placed before the English courts of law its plea regarding the challenge submitted by the Portuguese State-owned companies and, on April 4, 2014, the defence placed its counter arguments. On May 16, 2014, the preliminary hearing was held. The hearings occurred between October and November 2015, with the final oral arguments being placed in December 2015.
On March 4, 2016, the decision of London's Commercial Court was made known, which favoured the Bank's claims, declaring the validity and binding force of the interest rate swap agreements and sentencing the respective companies to the payment of the flows overdue. This process is currently in the appeal stage, at the initiative of the transport companies.
Additionally, during the first half-year of 2014, five legal suits regarding the validity and binding force of certain interest rate swap agreements were raised against the Bank in the Portuguese courts by some entities comprised in the Regional Government of Madeira (belonging in the Portuguese public sector), which have also suspended the payment of the interest associated with those swap contracts. At June 30, 2016 and December 31, 2015, the positive fair value of those swaps amounted to tEuros 87,100 and tEuros 87,000, respectively, and was recorded under the heading "Financial assets held for trading" (Note 7). On the other hand, at June 30, 2016 and December 31, 2015, the balance sheet heading "Other assets - Other" includes approximately tEuros 39,000 and tEuros 31,000, respectively, related to the unpaid interest (Note 18). Finally, the above mentioned entities are also requesting the refund of the net interest paid by them in the past, which amounted to circa tEuros 20,000. The Bank placed its challenge to these suits. Until this date, all court decisions on these suits have been in the Bank's favour, including second- and third-instance court decisions, and three of these suits have already been concluded in favour of the Bank. For those three suits, the Supreme Court rulings confirmed the rulings of the Courts of first instance and, for one of them, of the Lisbon Court of Appeal (given that the other two legal suits went directly from the Court of first instance to the Supreme Court) that declared their incompetence to judge such suits, and accepting the arguments of the Bank, the grounds that the issues raised are the competence of the English courts. In respect of another suit, the ruling of the Supreme Court referred the matter to the Court of Justice of the European Union ("CJEU") questioning the applicability of Article 23 of Regulation No. 44/2001, as to whether the jurisdiction pact sufficed as an element of extraneousness or, if not, whether the other facts in the relationship in question sufficed. This decision to refer the matter to CJEU suspended the appeal to the Supreme Court on February 4, 2016.
The Board of Directors of the Bank believes, supported by the opinion of its English and Portuguese legal attorneys, by the ruling of the Commercial Court of London and by the decisions to date of the Portuguese Courts, that the outcome of these suits will be favourable to the Bank
and, consequently, no provisions were recorded in the accompanying financial statements for these situations.
Finally, during 2014, two new class actions were raised against the Bank and two Portuguese State-owned companies, Metropolitano de Lisboa, E.P.E. and Metro do Porto, S.A., involving a total amount of approximately tEuros 350,000, which are not included in those indicated above. These suits are focused on the cancellation of some swap agreements established between the Bank and those two Portuguese State-owned companies, which are already being judged by the English courts since the second quarter of 2013, as a result of the initiative taken by the Bank as described in the initial part of this Note. These legal suits were concluded in favour of the Bank, on the grounds of the incompetence of the Portuguese courts, one in February 2016 and the other in June 2016.
In accordance with a statement issued by the Bank of Portugal on August 3, 2014, it was decided that a resolution measure be applied to Banco Espírito Santo, S.A., which resulted in the transfer of the majority of its activity to a "transitory bank", named Novo Banco, incorporated especially for that purpose. According to EU legislation, the capitalization of Novo Banco was provided through the Resolution Fund, which was established by Decree-Law No. 31-A/2012, of February 10. As provided for in that Decree-Law, the Resolution Fund is financed through the payment of the contributions due by the participating institutions of the Fund and through the banking sector contribution. In addition, it is also established that if such resources are insufficient to fulfil the Fund's obligations other financing sources may be used, namely: (i) special contributions from credit institutions; and (ii) loans granted.
In the specific case of the resolution measure applied to Banco Espírito Santo, S.A., the Resolution Fund provided tEuros 4,900,000 to subscribe the share capital of Novo Banco. Of this amount, tEuros 377,000 corresponded to the Resolution Fund's own resources, resulting from the contributions already paid by the participating institutions and from the banking sector contribution. In addition, a syndicated loan of tEuros 700,000 was granted to the Resolution Fund, with the contribution of each credit institution depending on several factors, including their size. The participation of BST in that loan was tEuros 116,200. The remaining amount needed to finance the resolution measure adopted came from a loan granted by the Portuguese State, which will be repaid and remunerated by the Resolution Fund. When Novo Banco is sold, the proceeds of the sale will be primarily assigned to the Resolution Fund.
In September 2015, the Bank of Portugal suspended the sale process of the Resolution Fund's shareholding in Novo Banco, started in 2014, and concluded the sale process underway without accepting any of the three binding proposals, considering that their terms and conditions were not satisfactory. In a statement dated December 21, 2015, the Bank of Portugal announced the agreement reached with the European Commission which provided, amongst other commitments, for the extension of the deadline for the sale of the Resolution Fund's shareholding in Novo Banco.
On November 15, 2015, the Resolution Fund issued a statement, with the following text: "it is also clarified that it is not expected that the Resolution Fund will propose the creation of a special contribution to fund the resolution measure applied to BES. The eventual collection of a special contribution appears, therefore, remote." Hence, it is foreseen that any Resolution Fund deficits will be financed through regular contributions under Article 9 of Decree-Law No. 24/2013, of February 19, which states that periodic contributions to the Resolution Fund must be paid by the participating institutions that are in active on the last day of the month of April of the year to which the periodic contribution relates.
On December 29, 2015, the Bank of Portugal issued an announcement related to the approval of a set of decisions completing the resolution measure applied to BES. The Bank of Portugal decided to retransfer to BES the responsibility for non-subordinated bonds issued by this entity and that were aimed at institutional investors. The nominal amount of the bonds retransferred to
BES is Euros 1,941 million, corresponding to a book value of Euros 1,985 million. The bonds were originally issued by BES and placed with qualified investors. In addition to this measure, the Bank of Portugal also clarified that the Resolution Fund is required to compensate Novo Banco for the possible adverse effects of future decisions, resulting from the resolution process, which may result in liabilities or contingencies.
On March 31, 2016, the Bank of Portugal issued a new statement on the sale process of Novo Banco, advising that it had defined the terms of the new sale procedure following the relaunch of the sale process announced on January 15, 2016.
Up to the approval date of the accompanying financial statements by the Board of Directors, BST does not have information available to reliably estimate the amounts potentially involved in the sale of Novo Banco. For the same reason, it is not possible to reliably estimate whether, as a result of that sale process, a shortfall of resources will occur in the Resolution Fund will occur, and, if so, how this will be financed. Therefore, at this date, it is not possible to evaluate the potential impact of this situation on the financial statements of BST, since the potential costs involved will depend on the sale price of Novo Banco and the measures that may be taken by the Finance Ministry, under the powers legally assigned to it.
Additionally, on December 20, 2015, the Bank of Portugal applied a resolution measure to Banif, under which an asset management vehicle was created, Oitante, owned by the Resolution Fund. The greater part of Banif's assets that have not been sold were transferred to Oitante. Oitante was incorporated with a share capital of tEuros 50. Under the resolution measure, Oitante issued debt instruments for the payment of the rights and obligations corresponding to the assets transferred from Banif. The bonds were issued for an amount of tEuros 746,000, corresponding to the preliminary valuation of the assets transferred in accordance with paragraph 8 of Article 145º-H of the Legal Framework of Credit Institutions and Financial Companies (RGICSF). Additionally, in the resolution measure it was also determined that the Resolution Fund should provide a guarantee for the Oitante debt instruments as well as financial support to cover the losses of Banif. Banif's losses amounted to tEuros 489,000. The debt instruments of Oitante received by Banif in return for the assets transferred to Oitante were transferred to BST. In addition, the debt instruments also have an additional guarantee provided by the Portuguese State.
The proceeds from the sale of the assets transferred from Banif to Oitante will be used to pay the bonds and to repay the amounts paid by the Resolution Fund to cover the losses of Banif. Up till the date of approval of the attached financial statements, BST has no information available on the estimated disposal value of the assets transferred from Banif to Oitante and on the costs incurred by the latter, in order to analyse any potential impact at the BSTl via the Resolution Fund.
These financial statements were approved by the Board of Directors on July 22, 2016.
These financial statements are a free translation of the financial statements originally issued in Portuguese language. In the event of discrepancies, the Portuguese language version prevails.
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