Annual Report • Jun 8, 2015
Annual Report
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Annual Report Banco Santander Totta, SA
| BALANCE SHEET AND RESULTS (million euro) | 2014 | 2013 | 2014/2013 | 2012 |
|---|---|---|---|---|
| Proforma | ||||
| Net Assets | 38,860 | 38,811 | +0.1% | 38,527 |
| Net Loans | 25,523 | 26,108 | -2.2% | 26,980 |
| Customers' Resources | 26,841 | 26,078 | +2.9% | 27,346 |
| Own Funds + Minority Interests + Subordinated Liabilities | 2,963 | 2,500 | +18.5% | 2,329 |
| Net Interest Income (excludind dividends) | 543.5 | 507.3 | +7.2% | 541.5 |
| Fees and Other Income | 262.6 | 290.0 | -9.5% | 318.0 |
| Operating Income | 895.0 | 829.9 | +7.8% | 987.1 |
| Net Operating Income | 407.8 | 363.4 | +12.2% | 528.1 |
| Income Before Taxes & Minority Interests | 235.0 | 133.5 | +76.0% | 73.4 |
| Net Income | 165.2 | 89.2 | +85.2% | 88.1 |
| RATIOS | 2014 | 2013 | 2014/2013 | 2012 |
|---|---|---|---|---|
| ROE | 8.5% | 5.1% | +3.5 p.p. | 6.4% |
| ROA | 0.4% | 0.2% | +0.2 p.p. | 0.2% |
| Efficiency Ratio (including depreciation) | 54.4% | 56.2% | -1.8 p.p. | 46.5% |
| CET I Ratio* | 13.0% | 11.3% | +1.7 p.p. | n.a. |
| Tier I* Ratio | 15.3% | 13.0% | +2.3 p.p. | n.a. |
| Total Capital* ratio | 15.3% | 13.0% | +2.3 p.p. | n.a. |
| NPL and Doubtful Loans Ratio | 4.2% | 3.8% | +0.5 p.p. | 3.5% |
| Credit at Risk Ratio | 5.7% | 5.9% | -0.1 p.p. | 4.3% |
| Restructured Loans/Total Loans | 9.4% | 8.7% | +0.8 p.p. | 7.0% |
| Restructured Loans not included in Credito at Risk/Total Loans | 6.8% | 5.4% | +1 p.p. | n.a. |
| NPL and Doubtful Loans Coverage Ratio | 102.5% | 104.7% | -2.1 p.p. | 97.4% |
| Credit at Risk Coverage Ratio | 75.9% | 67.7% | +8.2 p.p. | 79.7% |
| Loan-to-Deposit Ratio** | 116.0% | 125.3% | -9.3 p.p. | 126.6% |
| RATING | 2014 | 2013 | 2012 | |
|---|---|---|---|---|
| FitchRatings | ||||
| short term | F2 | F3 | F3 | |
| long term | BBB | BBB- | BBB- | |
| Moody´s | ||||
| short term | NP | NP | NP | |
| long term | Ba1 | Ba1 | Ba1 | |
| Standard & Poor´s | ||||
| short term | B | B | B | |
| long term | BB | BB | BB | |
| DBRS | ||||
| short term | R-1L | R-1L | R-1L | |
| long term | BBBH | BBBH | BBBH | |
| Other Data | 2014 | 2013 | 2014/2013 | 2012 |
| Employees | 5,328 | 5,572 | -244 | 5,663 |
| Employees in Portugal | 5,281 | 5,523 | -242 | 5,613 |
| Branches | 594 | 640 | -46 | 667 |
| Total Branches and Corporate Centers in Portugal | 579 | 625 | -46 | 652 |
* With results net of payout
** According the definition in the "Memorandum of Understanding"
Note: In 2013, there was a reclassification to liabilities (representative capital instruments) of minority interests in mutual funds consolidated by the global integration method. As a result, the P&L minority interests were registered in "Other Banking Results".
"We aspire to be the best Commercial Bank that retains the trust and loyalty of our Customers, Employees, Shareholders and Society and that grows in market share.
With this purpose in mind, we want the Bank to be Simple, Personal and Fair for all our Stakeholders."
2014 was another troubled year for the Portuguese economy and particularly for the Portuguese financial industry. The new regulatory measures, the digital transformation, the abrupt reduction of interest rates and the lack of growth of the country's economic activity implied a loss of revenue in most banks, a considerable need for investment and higher levels of provisions. Consequently, the financial industry, as a whole, recorded relevant losses.
In spite of this scenario, Banco Santander Totta reached, in 2014, a net income amounting to 165.2 million euros, an 85.2% growth relative to the amount recorded in the previous year. We kept our capital ratios at comfortable levels, CET I ratio standing at 13.0% and Tier I ratio at 15.3%.
Attaining such good results is owed above all to three factors:
The digital stake was and will continue to be a priority. We developed a multichannel transformation plan, with the ambition to boost the aptness with which the Bank relates with its Customers. I emphasize the launching of the new process of opening a digital account through a tablet, which allows to decrease the time spent and to improve the quality of the recorded information, whilst also strengthening the rigour, the regulatory compliance and the security of the whole process.
To better correspond to Customers' requirements, several innovating solutions were launched which placed Santander Totta as a reference Bank regarding Customer proximity, in which stands out:
2014 was also the year in which we started the construction of the new building, where all service departments will be centralized, built in line with the best environmental practices and which deals with new and improved services common to all our Employees.
Through Santander Universities, we continued strengthening our support for an higher education, which is, more than ever, our focus in Social Responsibility policy.
I would like to share with all our Employees and Customers, the distinctions we have received once again, in 2014, as "Best Bank" by the most diverse international magazines, and our election, for the first time, as "2015 Customer Choice", in the category of Large Banks, an assessment by consumers which reflects the work of our teams and the recognition of our Customers.
For 2015, we aspire to be the best Commercial Bank that retains the trust and loyalty of our Customers, Employees, Shareholders and Society, while growing in market share. With this purpose in mind we want the Bank to be Simple, Personal and Fair for all our Stakeholders.
António Vieira Monteiro Executive Chairman of Santander Totta
| General Meeting | ||
|---|---|---|
| Chairman | José Manuel Galvão Teles | |
| Deputy Chairman | António Maria Pinto Leite | |
| Secretary | Luís Manuel Baptista Figueiredo | |
| Board of Directors | ||
| Chairman | António Basagoiti Garcia-Tuñón | |
| Deputy Chairman | António José Sacadura Vieira Monteiro | |
| Members | Carlos Manuel Amaral de Pinho | |
| João Baptista Leite | ||
| José Carlos Brito Sítima | ||
| José Urgel Moura Leite Maia | ||
| José Manuel Alves Elias da Costa | ||
| 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. | |
| Ricardo Manuel Duarte Vidal Castro | ||
| Alternate Member | Pedro Manuel Alves Ferreira Guerra | |
| Auditors | ||
| 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 Manuel Alves Elias da Costa | ||
| 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 | |
Bank of the Year in Portugal The Banker
Best Private Banking Services Overall 2014 Euromoney
In the following service categories: "Customer Relations Management", "Scope of Investment Products", "Scope of Consultancy Services", "Family Office Services", "Corporate Consultancy", "Best Bank in the Super Affluent segments (US\$ 500,000 – 1,000,000), High Net Worth I (US\$1,000,000 – 10,000,000), High Net Worth II (US\$10,000,000 – 30,000,000) and Ultra High Net Worth (in excess of US\$30,000,000)"
Best Sales in Portugal, Structured Products Awards 2014 – Structuredretailproducts.com
Best Financial Broker with the highest placing of company bonds – NYSE Euronext
Best Banking Group in Portugal World Finance
In the category "Services and Other Activities (Annual Consumption >1.25 Gwh)"
In the category "For the development of organizational success through the promotion of healthy life styles with employees and their families"
António Sampaio da Nóvoa wins the Coimbra University Prize
Ana Botín unanimously appointed as Chairman of Banco Santander
At the heart of our culture we believe that, wherever we operate, everything we do should be Simple, Personal and Fair
"These strong foundations give us a unique opportunity to grow. We can only do this with a team that fulfils Santander's purpose, understands its aim and lives by its values.
Back in 1857, the founders of Santander wanted to finance trade between Spain and Latin America that generated jobs and prosperity in both continents. Today, our role is obviously broader but the outcome of our efforts is the same.
I am convinced that the only way to achieve such aim is by having the best possible relationships with our team, our customers, our shareholders and the communities we serve. And the most precious asset in this relationship is loyalty:
And then this virtuous circle will begin again.
We have picked these three words because, together, they reflect what our teams and our customers around the world tell us they want from a bank.
A simple bank offers its customers a service that is convenient and products that are easy to understand however and whenever they choose the bank. It makes its processes better every day, so they are easy and clear for customers and its team.
A personal bank treats its customers as valued individuals, providing a professional, personal service they can trust. It supports colleagues to develop their skills and achieve their ambitions.
A fair bank treats people as they like to be treated – and it earns investors an adequate and sustainable return, while contributing its share to help communities."
Message from Ana Botín –2014 Annual Report
Santander Totta develops a social responsibility policy aligned with the Santander Group, and has as its main fulcrum the support of education, the promotion of knowledge, merit and entrepreneurialism, especially in Higher Education, through the cooperation agreements it maintains with Portuguese Universities and Polytechnic Institutions.
The Bank is also dynamically active: (1) in the area of social solidarity, through supporting several social projects and with the participation of employees that volunteer in initiatives with social features; (2) in the environmental area, through the adoption and promotion of measures to combat climatic change, waste reduction and sustainable development; and (3) in the culture area, through the support to initiatives and patronage of the arts. The promotion of health and wellbeing and of sports is equally important in areas comprised in the social responsibility policy.
In 2014, the total investment in Portugal in activities directly related with corporate social responsibility amounted to approximately 5.6 million euros, a slight increase over the previous year.
Currently, Banco Santander Totta is running 46 cooperation agreements with Higher Education Institutions in Portugal. In 2014, the Bank continued to reinforce relationships with Portuguese Universities and Polytechnic institutions, consolidating existing partnerships and initiating new collaboration agreements.
Within the scope of partnerships with Universities, several initiatives were carried out, by awarding prizes for scientific and academic merit, scholarships and mobility scholarships under the Programme for International Mobility Scholarships (Luso-Brazilian and Iberian-American for students, and Iberian-American for lecturers and researchers) which allowed more than 170 students, lecturers and researchers to enjoy an experience in mobility.
With the objective to promote and increase employment for Portuguese graduates, the Bank launched the Santander Universities
Programme of Training Scholarships, through which 1,500 training scholarships will be awarded to final year students during the next three years.
Training scholarships last for a three month period are worth 1,650 euros each (550 euros per month) and will take place in small and medium sized Portuguese companies. The programme will imply a global investment by the Bank of 2.5 million euros over three years.
With this programme, Santander Totta intends to provide students with a complement of their higher academic training through training periods in companies while allowing the same companies to have access to a trainee with higher education at no cost. This programme also aims to promote the University – Company bond and to reinforce the Bank's commitment with the Higher Education Institutions and the development of the Portuguese society.
More than 170 international mobility scholarships were available in 2014, under the Luso-Brazilian and Iberian-American Programme of Mobility Scholarships.
Established in 2007 by Santander Totta, more than 700 students have crossed the Atlantic Ocean under the Mobility Programme to continue their studies in a different country. Throughout these seven years of the Santander Universities mobility programmes, the approximately 700 students that took part in the programme connecting Oporto University with approximately one hundred Iberian-American Higher Education Institutions, especially in Brazil and Argentine, but also in Spain, Chile or Mexico. From Portugal there were 231 students, whilst 445 South American youngsters made the reverse trip as scholars in this programme.
In 2014, the Bank awarded 54 prizes for scientific and academic merit and support for entrepreneurialism, and 202 scholarships and social education aids, of which the following stand out:
Throughout the year, Santander Totta in association with other institutions endorsed a series of initiatives to further entrepreneurialism and job creation, amongst which stand out:
The Innovation Centre, where Santander Totta is a partner, intends to provide support for students and researchers in the development of business ideas and in the creation of scientifically based private companies or cooperative societies, which may attract investment and generate highly qualified employment. The Centre will also promote the transfer of knowledge between the Faculty's research units and the Market.
Santander Totta will provide support for the construction of the new campus for the Nova School of Business and Economics (Nova SBE), as a founding partner. This is a strategic project, not just for Higher Education in Portugal, but also for the positioning and internationalization of Portugal.
The III Chancellors International Meeting was held in Rio de Janeiro, where Santander assumed the commitment to allocate 700 million euros for university projects for the next four years. Of this amount, 40% will be destined to access scholarships for national and international mobility of students and lecturers, 30% to develop university research, innovation and entrepreneurialism and the remaining 30% to support academic projects and initiatives intended to modernize and incorporate new technologies at the university.
This meeting of the Tordesillas Group was held in Lisbon. The Group comprises 58 universities from Brazil, Spain and Portugal and relies upon Santander support for the development of diverse projects.
The new Universia strategic plan is focused towards two main initiatives: academic projects related with the disclosure of knowledge and with the approach between university and company which includes academic publications, reports and assessments,
MOOC's, open innovation, amongst others; and the university services that promote:
employment and professional training courses for students and recent graduates; entrepreneurial training through the link with the university and also online marketing actions specifically guided towards Iberian-American youngsters.
2014 was a consolidation year for the Working network in Portugal, with the launching of 7 new sites in Higher Education institutions, joining the 13 university sites which were launched in 2013 and the 5 corporate sites comprised in this professional network.
With this project, the universities achieved management platforms for professional insertion (the majority had none), which allows them to manage the students' CVs, exclusive job offers to the institution and also job offers shared by all the sites comprised in the network.
Jumping Talent – University talent competition
The 1st edition of Jumping Talent was held with the presence of 60 Portuguese undergraduates, who were required to show their capabilities before the leaders of the 7 participating companies, amongst them Santander Totta.
Santander Totta supports several social projects and employee involvement activities, of which the following stand out:
countries where the Santander Group is represented. Food collected in Portugal amounted to 2,710 kilos, that were donated to the "Acreditar" Institution);
Solidarity Basket (the Human Resources Department developed this initiative through which were collected, in branches and central departments, non-perishable foods, new school material, new toys, as well as bonnets, scarves and gloves for aged people, all of which will be donated to a local institution).
"Universia Capacitas Foundation Scholarships"
The Universia Foundation and the Santander Shareholder Relations area provided the "Universia Capacitas Foundation Scholarships" to Banco Santander shareholders and members of their families. These scholarships are intended for Santander shareholders in Portugal, Spain, United States and Mexico or up to second degree members of their families, matriculated in those countries' universities.
This programme's objective is to support handicapped youngsters in their university training, increasing their opportunities to access quality employment.
Santander Totta has since 1995 been a founder member of the CEBI Foundation, a social solidarity private institution whose objective is to provide support for children, youngsters, aged and less favoured families, attending its Founder's Meeting and appointing a representative on its Board of Directors.
Standing out amongst its actions is the educational programme, covering 1,800 students, from the kindergarten to the 9th grade, of which approximately 400 benefit from scholarships and social promotion actions. In addition, it includes support for more than 250 aged people and approximately 400 daily physical and rehabilitation treatments.
Santander Totta sponsored the participation of five third sector institutions in the 6th fundraising seminar organized by Call to Action. The main objective of the seminar was to enable the participating companies to ensure sustainable management and adequately collect their resources.
Santander Totta in partnership with Gertal launched a campaign named "Zero Waste", whereby for each 100 totally consumed meals Gertal donated 1 kg of food
products to the Banco Alimentar Contra a Fome (Food Bank). The campaign amounted to 350 kg of donated food products.
Within the scope of its corporate social responsibility policy, the Bank provides close support to the service sector through aid, sponsorships and donations to different social solidarity institutions, associations and NGOs.
Santander Totta established a collaboration protocol with Junior Achievement, a world organization dedicated to the training of children and youngsters in themes such as entrepreneurialism, citizenry, economy, ethics and financial literacy, in which training is provided by employees of several companies that act on a voluntary basis.
Approximately 80 employees of the Bank registered as voluntary workers are already teaching in public education facilities, from the 1st to the 12th grade.
Santander Totta took part in the National Plan of Financial Literacy, developed by the Securities Market Regulator (CMVM), the Bank of Portugal (BdP) and the Portuguese Insurance Market Regulator (ISP) which aims to contribute towards an improved level of financial knowledge and adoption of adequate financial deportment among the society.
In 2014, the Bank became associated with several initiatives, such as the World Savings Day, through the disclosure of information in its external communications channels.
The Bank supports the NCBS and awards scholarships to its best students, with the objective of training professional ballet dancers in the areas of classic and contemporary dancing.
The bank supported the Arts Festival, in Coimbra, organized by the Inês de Castro Foundation, which, in 2014 was dedicated to heritage and paid tribute to the Coimbra University.
Support for the cultural programme of the Serralves Foundation in the celebration of its 25th anniversary.
Other supports
Within the scope of its cultural supports, Santander Totta has whenever possible privileged the inclusion of customers in several initiatives, such as concerts in Casa da Música and in the Calouste Gulbenkian Foundation.
Present in the Green Fest (in 2014, the main topic was "education towards sustainability" through the promotion of an area for the sharing of ideas). The "Networking Lounge" promoted by the Bank was a privileged area for companies, professional organizations and citizens with ideas that wanted to establish contacts and share knowledge in a simple and effective way.
GIRO-GRACE, Intervene, Recover and Organize (a voluntary entrepreneurial initiative in which several national interventions are carried out, aiming to improve the quality of living for youngsters, children at risk and aged people, animal defence and recovery of natural spaces).
Santander Totta continued, throughout 2014, to develop efforts in order to improve the infrastructure efficiency and to develop devices to reduce consumptions, investing a total of 1.7 million euros.
Presence detector sensors were installed in the branches in order to switch off lighting when the various areas are unoccupied. Obsolete air conditioning systems were replaced by others with lower consumption.
A system of free cooling was installed in the central buildings operating with external temperatures lower than 20ºC by switching off the air conditioning. Lighting control was automated through the installation of luminaries with regulated flow to take advantage of natural light.
The world economy, in 2014, maintained the same rate of growth as in the previous year, thus not confirming the initial expectations of acceleration. This resulted primarily from the progressive downward revision of growth projections for the emerging and developing economies, since developed economies assumed their role as engine of the world economy.
However, even in this block the growth was not uniform, with the United States accelerating whilst the euro zone, in spite of coming out of a recessive situation, was still lagging, affected by the geostrategic risk following the political stresses between the Ukraine and Russia. Year-end growth data, nevertheless, indicated a modest recovery in economic activity.
| 2013 | 2014 | 2015 | |
|---|---|---|---|
| World | 3,3 | 3,3 | 3,5 |
| Advanced Economies | 1,3 | 1,8 | 2,4 |
| USA | 2,2 | 2,4 | 3,6 |
| Euro Area | -0,5 | 0,8 | 1,2 |
| United Kingdom | 1,7 | 2,6 | 2,7 |
| Japan | 1,6 | 0,1 | 0,6 |
| Developing Countries | 4,7 | 4,4 | 4,3 |
| Africa | 5,2 | 4,8 | 4,9 |
| Asia | 6,6 | 6,5 | 6,4 |
| China | 7,8 | 7,4 | 6,8 |
| Central and Eastern Europe | 2,8 | 2,7 | 2,9 |
| Middle East | 2,2 | 2,8 | 3,3 |
| Latin America | 2,8 | 1,2 | 1,3 |
| Brazil | 2,5 | 0,1 | 0,3 |
Source: IMF (January 2015)
In the USA, economic activity contracted unexpectedly in the first quarter, heavily influenced by particularly adverse climatic conditions, which affected not only investment, through activity in the construction industry, but also household expenditure. This effect was already reversed in the second quarter, with a re-acceleration of GDP, a trend which would be maintained in the remaining quarters, resulting in the IMF revising growth outlook upwards, for both 2014 and 2015.
The North-American labour market continued very dynamic, with an average monthly creation of 260,000 jobs in 2014, which however exceeded 300,000 at year end, allowing a swifter lowering of the unemployment rate to 5.6% in December.
Resulting from this, the US Federal Reserve gradually reduced the volume of acquisition of financial assets ("tapering") by 10 billion dollars per month, having
suspended the quantitative easing programme in November.
At the end of 2013 and beginning of 2014, the discussion over the start of this "tapering" process and its execution had a relevant impact on the emerging markets which had benefited, during the latter years, from the liquidity generated by the intervention of the central banks. There was a major exit of funds from these markets, causing disturbance in foreign exchange and requiring intervention by the authorities, including increases in reference interest rates. South Africa, Turkey and even Brazil, adopted measures, already in 2014, such as sharp increases in reference interest rates, to put a brake on the exchange rate depreciation their currencies were experiencing.
Simultaneously with "tapering", the governors of the Federal Reserve commenced the internal discussion as to the starting time for the rise in interest rates, which investors anticipate1 could happen during the Summer of 2015, but which they equally assess, resulting from declarations by Fed officials, may be gradually implemented, with the main reference interest rates still remaining at reduced levels.
In the United Kingdom, and in spite of a downward revision of the growth data relative to the three first quarters of the year, the economy will have grown by 2.6%, a large increase relative to the previous year, and almost exclusively based on domestic demand. The strong decrease in the rate of unemployment, to 5.7%, allowed an increase in private consumption. Investment was equally strong, doubling the rate of growth relative to 2013. In spite of this, the Bank of England continues its expansionist policy, leaving a possible change in reference interest rates to depend upon a more pronounced improvement in economic activity, since inflation had lowered during 2014 and remained below the Bank of England's objective.
In Japan, economic activity stagnated in 2014, contrary to the expectations of a more sustained recovery, considering that the Central Bank is implementing an aggressive programme of quantitative easing. The adoption of measures intended to revert the deteriorating trends of fiscal aggregates, in a framework of low internal demand and income stagnation, was a heavy load on the feelings of the economic agents. The postponing of several fiscal measures (new tax increases) to 2017, instead of 2015, could be a help in strengthening the activity.
In China, economic activity started slowing down, reacting to the easing of the residential real estate market, but the actions of the authorities, with a set of
1 In line with interest rates and consensus obtained by Bloomberg at the end of January 2015.
stimulating measures, such as a lowering of the reference interest rate, allowed a softening of the pace of slowing down.
| GDP | Inflation | |
|---|---|---|
| Euro Area | 0,8 | 0,4 |
| Germany | 1,5 | 0,8 |
| France | 0,4 | 0,6 |
| Spain | 1,4 | -0,2 |
| Italy | -0,5 | 0,2 |
Source: EC (February 2015)
In the euro zone, 2014 started with greater dynamism than expected, with most activity indicators showing, in general, an upward rise in activity and subsequent upward revision of growth perspectives. However, during the second quarter, and equally affected by the increase in geopolitical stresses in Europe, sentiment suffered a reversal and in several countries there was even a contraction of GDP, increasing the differences between the growth rates of the members of the euro zone, especially between Germany and the remaining countries. Signs of an upward trend in economic activity only appeared in the fourth quarter, based, on the one hand, on the lowering of oil prices (which has a positive effect on household disposable income, in addition to reducing companies' energy costs) and, on the other, by the depreciation in the euro, which fell to 2003 minimums relative to the US Dollar, at approximately 1.13 dollars.
The improvement seen at year-end supported more optimistic perspectives for 2015 resulting from the upward revision of growth projections by the European Commission. However, and in spite of a slight reduction in the growth deviations amongst countries, the euro zone should continue growing at a rate below the short term trend.
This picture of below potential growth, but especially of a greater downturn in inflation which, in December, stood at -0.2%, led the European Central Bank, in June, to lower the main reference interest rates and to announce an enlarged set of measures intended to relaunch bank lending and, through this, to support economic growth and a speeding up of inflation.
The rate of refinancing operations drew down to a historical minimum of 0.05%, whilst the rate of deposit facilities with the ECB became negative (-0.2%). With this measure the ECB endeavours that the financial sector reduces the volume of deposits with the ECB (which had already been significantly reduced since the 2012 maximums) and channels these to the real economy. At the same time, the ECB announced it would maintain the unlimited liquidity provision until the end of 2016.
The second package of measures announced consists of a set of targeted long term refinancing operations (TLTRO) through which the ECB provides liquidity: (i) in a first stage, of an amount up to 7% of the portfolio of credit granted to companies and households (excluding mortgages); and (ii) in a second stage, up to 3 times the net credit variation, relative to a reference, defined as the credit variation accumulated in the 12 months to April 2014. These operations, with maximum 4 year duration, have a fixed interest rate, equivalent to the refi rate at the time the funds are taken up (added by 0.1pp for the two TLTRO of 2014, and with no spread for the 2015 operations). In the first stage, the amount of eligible additional liquidity was estimated at approximately 400 billion euros, of which 213 billion had been taken up.
A third set of measures includes two programmes of acquisition of financial assets: the first comprising mortgage bonds (under which, until the end of 2014, had been acquired approximately 31 billion euros); and the second comprising credit securitizations (ABS) on companies and consumers (under which, in the same period, approximately 1.7 billion euros had been acquired).
The ECB announced, but already in January 2015, a further set of measures intended to support the economic recovery and combat possible deflationary pressures. Standing out amongst these is its programme of acquisition of financial assets, which is expanded to include public debt, of agencies and supranational bodies (such as the European Stability Mechanism, the EIB or the European Union itself) which will amount to, after inclusion of mortgage bonds and ABS, approximately 60 billion euros per month (i.e., the new programme should amount to approximately 50 billion euros of debt per month). The distribution of amounts per country will be carried out on a pro rata basis with the share capital subscribed in the ECB (Portugal has an adjusted share of approximately 2.5%1 ).
The risk will not be fully shared by all the Eurosystem, since the public debt acquisitions will be carried out by national central banks. The ECB will carry the risk resulting from the acquisition of the debt of European institutions and 8% of the remaining asset purchases. There is an indirect mutualisation, however, through the financial flows that occur through TARGET2.
Spain and Ireland, which completed their adjustment programmes in 2013, were the two most dynamic economies in the euro zone, with growth rates of 1.4% and 4.8%, respectively.
A new increase in uncertainty occurred at year-end, resulting from the calling of early elections in Greece,
1 Adjustment of share only considering the member countries of the Monetary Union.
which took place already in January 2015. The new Government, led by the SYRIZA Radical Left Wing Coalition, requested an extension of the current adjustment programme until end-June 2015, so that it could continue negotiating the conditionality measures that allow their receiving the last tranche of the programme, of approximately 7 billion euros. Public accounts relative to the beginning of 2015 showed deterioration of budgetary indicators, with a heavier fall in fiscal revenue which places in question the objectives for the year's primary balance.
The Greek situation did not seem to infect the remaining European countries, with most of the medium and long term interest rates decreasing to minimum historical rates, and with a reduction in credit spreads in regard to Germany, also due to the expectations as to the new ECB programme.
One of the steps towards the creation of the Banking Union was materialized in 20141 . In November, ECB assumed the responsibility for banking supervision, and is now the direct supervisor of more than one hundred of the larger European banks, those remaining coming under the joint supervision of the ECB and the national central banks.
In anticipation of this supervision attribution, the European banking sector was subject to a comprehensive assessment, under which an assessment was carried out of the quality of the assets, as well as an exercise in stress tests. Throughout the year, banks were carrying out various operations to increase the regulatory capital, as well as setting up provisions to cover the new requisites enjoined by the European authorities. Only 10 institutions were required to present capital reinforcement plans, amounting to a total of 10 billion euros.
In spite of the measures put forward by ECB with the intention to maintain the total liquidity provided at a high level to the economy, the excess liquidity became reduced during a large portion of the year, since it is penalized by the negative deposit interest rates. At year-end, however, liquidity increased, with the implementation of the first TLTROs.
The dynamics of the Eonia interest rate, computed from the average rate of the overnight transactions carried out in the European interbank market, reflected the expectations of the evolution in the total liquidity of the euro zone, evinced a decrease, especially in the second half of the year, after the ECB had decreased the refi rate and communicated the new strategy of liquidity provision and purchase of financial assets. At year-end the Eonia rate entered into a negative stance.
The Euribor 3 month rate, which entered the year with a slight upward trend, in line with the improved economic data, later went into a downward trend, reflecting the two moments in which the ECB lowered the respective interest reference rate. Tenors up to one month accompanied the evolution of the Eonia rate, also converging towards negative values.
In the USA, in spite of the ending of the programme of acquisition of financial assets and of the debate concerning the possible commencement of the upward trend in the cycle of reference interest rates, short term rates remained relatively stable, with a slight increase appearing at year-end as a result of the improvement in economic data, especially in job creation.
Source: Bloomberg
1 The Banking Union presupposes the breach of the relation between banking risk and sovereign risk, through the creation of three simultaneous mechanisms: (i) single supervision mechanism, attributed to ECB; (ii) single mechanism of banking resolution; and (iii) common deposit guarantee fund.
Long term interest rates in the euro zone kept to a sustained decreasing trend during the whole year, backed up both by the positive evolution of the fiscal variables and by the expectations that the ECB commenced the programme of acquisition of financial assets, as was in effect decided in the second half of the year. Long term yields thus fell to absolute historical minimums, a generalized move amongst the euro zone member countries. In Germany, the 10 year yield fell to 0.5%, whilst in Portugal it was reduced to 2.65%.
In the USA, in spite of the end of the quantitative easing programme and the debate concerning the monetary cycle, the 10 year yield fell from approximately 3% to nearly 2.15% at year-end.
Source: Bloomberg
The sovereign credit spreads, however, had a differentiated behaviour. A narrowing trend in the first half year – spreads in Portugal decreased from 450bp to 250bp – was followed by a higher volatility and a more moderate narrowing. In this period, Ireland was the country that most benefited from the reduction in spreads, as a result of the announced early repayment of the IMF loans and of an upward revision of the sovereign rating to the "A" level. The downward trajectory was resumed already in 2015.
Source: Bloomberg
In the foreign exchange market, the euro recorded a heavier depreciation, moving towards historical minimums against most other currencies. This motion went deeper in the second half of the year, when the ECB commenced the new stage of expansionist monetary policy, with the decrease in reference interest rates and the adoption of non-conventional measures.
Against the dollar the euro was quoted at 1.2 dollars at year-end, starting from levels of about 1.37 in the beginning of the year and which were maintained until June. The early diverging actions of the central banks of the USA and of the United Kingdom, on the one hand, and of the euro zone, on the other, from June onwards, led to the euro's depreciation, which is continuing along the first months in 2015, when the euro has reached more than 10 year minimums against the dollar. Against the pound sterling, the euro has been quoted in minimums since 2008.
The effective exchange rate of the euro (which takes into consideration the twelve main trading partners of the euro zone) also depreciated, in consonance, to minimums since 2002.
The Swiss National Bank has, already in 2015, abandoned the linkage it maintained between the Swiss franc and the euro, under which it intervened in the market to maintain a quotation of about 1.20 francs per euro. At first the Swiss franc appreciated up to 0.85 against the euro, to later stabilize at approximately 1.07 francs per euro.
Source: BCE
The international equities markets appreciated by approximately 10% throughout the whole year, but in a move that was only perceivable at the end of 2014, when the economic data, especially in the USA, but also in the United Kingdom, were stronger than anticipated. In effect, both markets closed at absolute historical maximums.
This trend was less pronounced in the euro zone, in spite of the perspectives that the ECB would adopt a quantitative easing policy, as it did in effect.
Source: Bloomberg
The Portuguese equities market, however, ended the year with an approximately 30% cumulative depreciation, in spite of a 20% appreciation – much above the moves in other markets – in the first four months of the year. The resolution of the Banco Espírito Santo and the setting up of the Novo Banco in its stead, in July, and the developments related with Portugal Telecom were determining factors for this trend.
The evolution of raw materials prices was differentiated, both in commodities and amongst the differing temporal periods. However, at the end of 2014, the falling trend was relatively general.
Oil fluctuated at around 110 dollars during most of the first half year, and later started a corrective move, also as a result of the fall in demand, which brought the price down to approximately 50 dollars per barrel at year-end.
Prices of metals, both precious and basic, as well as those of cereals, recorded an initial trend in appreciation, which would also be reverted in the second half-year. Gold reached a maximum of approximately 1,400 dollars per ounce at the end of the first quarter, serving as safe-haven asset during the increase of political instability in Europe, but the decrease in risk led to a depreciation, thus ending the year at 1,150 dollars.
Source: Bloomberg
At the end of the first half-year, Portugal concluded the Programme of Economic and Financial Adjustment (PEFA), agreed with the international institutions in April 2011, in the scope of which it received financing amounting to 78 billion euros.
Portugal dispensed with the last tranche of the financing programme, amounting to approximately 3 billion euros, following the unconstitutionality decision, taken by the Constitutional Court, regarding the new rules on salary cuts (which widened the range of salary cuts to include those above 650 euros per month). To complete the 12th assessment and receive the final tranche, Portugal would have to extend the period of the programme and adopt, in a reduced time limit, compensatory measures. Since the Republic had recovered, already in 2013, the access to the international financial markets, this allowed replacing the sources of financing without any disturbances.
| adopt, in a reduced time limit, compensatory measures. Since the Republic had recovered, already in 2013, the access to the international financial markets, this |
Source: INE | |||
|---|---|---|---|---|
| allowed replacing the sources of financing without any disturbances. Macroeconomic Data |
||||
| 2012 | 2013 | 2014 | ||
| GDP | -4,0 | -1,6 | 0,9 | the crisis. |
| Private Consumption | -5,5 | -1,5 | 2,1 | |
| Public Consumption | -3,3 | -2,4 | -0,3 | |
| Investment | -18,1 | -6,7 | 5,2 | |
| Exports | 3,4 | 6,4 | 3,4 | |
| Imports | -6,3 | 3,9 | 6,4 | |
| Inflation (average) | 2,8 | 0,3 | -0,3 | |
| Unemployment | 15,6 | 16,2 | 13,9 | |
| Fiscal Balance (% GDP) | -5,6 | -4,8 | -4,5 | |
| Public Debt (% GDP) | 125,8 | 129,7 | 130,2 | 18 |
| Current Account Balance (% GDP) | 0,0 | 3,0 | 2,1 | 16 |
| Source: INE, Banco de Portugal, Ministério das Finanças, Santander Totta, FMI | 14 |
Over the whole year the economy grew by 0.9%, the first positive rate of growth since 2010 and, which, at year-end, became regarded as a re-acceleration of economic growth whose effects, however, will only be more markedly felt in 2015.
During the first half-year, growth suffered a slowdown in relation to end-2013, and was marked by a series of one-off factors, such as the temporary maintenance shutdown of the Sines refinery, which resulted in a sharp decrease in exports of energy goods and consequent impact on growth. In the first quarter of 2014 GDP fell 0.6% QoQ due in large measure to the above fact, but recovered in the following quarters, once normal work was reinstituted in the refinery.
The sources of economic growth were altered in 2014, with internal demand the main factor, but this was rather the reflection of a stage in the process of transformation of the economy.
Private consumption has been expanding moderately, as households begin to reinstate the levels of expenditure which had been abated during 2011 and 2012. Expenditure in durable goods, which had decreased heavily in the last few years, increased, although still remaining at levels below those prior to the crisis.
The decrease in unemployment, which fell to 13.5% in the fourth quarter, recovering the 2011 levels, resulted from job creation and contributed towards an improvement in consumer confidence. In spite of a slight reduction, savings rate continues at high levels, approximately 10% of disposable income
Investment continued recovering, although several projects had been anticipated in 2013 as a result of fiscal incentives for capital expenditure. In 2014, investment grew by 5.2%, although also supported by an increase in inventories. Without this effect fixed gross capital expenditure grew by 2.3%, the first expansion since 2008. This growth was led by capital expenditure in machinery and equipment and transport goods, although the construction industry continued regressing from investment.
Net external demand, contrary to the trend shown in previous years, contributed negatively to the growth in GDP, but this could be a transitory effect. Exports of goods and services grew by 3.4% in the full year, diminishing in relation to the previous year, but affected by the already referred closedown of the Sines refinery. External sales recovered by the end of the year, in line with the improvement in the European economy, with a homologous growth of 5.1% in the 4Q2014.
Imports grew by 6.4% in 2014, almost doubling the rate of growth in 2013, with a visible increase in external purchases of transport goods (not just passenger vehicles, but also light and heavy commercial vehicles) and other equipment. Imports of consumer goods grew more moderately.
The balance of goods and services, however, maintained a surplus situation equal to 1.1% of GDP, slightly below the surplus shown in the previous year. The Current and capital balance was also in surplus, at 2.1% of GDP.
Source: Banco de Portugal, INE
Resulting from the progressive improvement in the external accounts, the net international investment position advanced towards a negative situation corresponding to 112.8% of GDP (-118.4% at end-2013).
Budgetary execution in 2014, in the method of public accounting (cash basis), showed an improvement in the fiscal balance relative to the past year, remarkably below the target defined by the Government, resulting from a higher growth in revenue, especially in Personal Income Tax and VAT, whilst current expenditure fell, in spite of the impact on expenditure derived from the unconstitutionality of the salary cuts included in the 2014 Budget.
Source: Ministério das Finanças
In national accounting, in line with the projections of UTAO (Budget Assessment Technical Unit) and of the Public Finance Council, the budget deficit will have stood at 3.8% of GDP, once corrected of one-off factors (the assumption, by the State, of financing of state owned companies in the transport industry). Including these effects, the deficit will have stood at 4.5% of GDP. Eurostat has not yet taken a decision on how the loan that the State made to the Resolution Fund, amounting to €3.9 billion (2,2pp of GDP) should be booked but, should it be recorded in the deficit it will have a non-recurrent effect and without any implications in the 2015 budgetary execution, nor in the public debt, since the funds used were already available in the recapitalization fund of the banking sector, created within the Programme for Economic and Financial Adjustment.
Outstanding in the evolution of budgetary aggregates is the fact that the primary balance is now showing a surplus of approximately 1.1pp of GDP (excluding nonrecurring effects), after two years in which it was near to being balanced.
Source: Ministério das Finanças
Fiscal Balance
The risk notation of the Republic was revised upwards by Moodys, to Ba1 (one level below investment grade), with a stable outlook. The remaining agencies maintained the previous rating, but revised the outlook to stable.
During the year the Treasury maintained the access to the international financial markets, with several medium and long term public debt issues, at 5 and 10 years, which attracted heavy demand and with progressively lower interest rates. In September the Treasury issued at 15 years with a 3.9% yield and already in 2015 the launching of the new 10 year issue: the 2025 Treasury Bonds, launched in January with a 2.875% coupon, and a 2.04% yield. In July 2014, and for the first time since 2010, the Treasury issued in US Dollars, at the rate of 5.23%.
In 2015, the Government was authorized by the international institutions to partially reimburse the IMF loans, with the objective to repay, until end-2017, approximately 14 billion euros. This measure is justified because the Republic currently has financing conditions in more favourable markets (in terms of rates and financing periods).
The situation in the banking industry was marked by the resolution process of Banco Espírito Santo, in the first application at European level of the new resolution mechanisms. The "Novo Banco" was set up, a transitory institution, which maintained the major part of the assets and the banking business, with the exception of the problematic assets, most of which were exposed to the Espírito Santo Group, which remained within the sphere of BES. The share capital was subscribed by the Resolution Fund, with funds loaned by the participating banks, as well as with a loan from the Portuguese State. The selling process of the Novo Banco was started already in 2014.
This situation did not have any contagion effects in the banking industry, in its total, with the volume of deposits continuing stable. During the year, the banks which had restructuring processes agreed with DGComp went ahead to their respective conclusion, with total or partial liquidation of the re-capitalization carried out by the Portuguese State. The banks covered by the comprehensive assessment passed in the criteria demanded by the ECB and by the EBA, with the exception of one institution which proposed correction measures.
Total credit to companies continued decreasing reflecting, on the one hand, the ongoing deleveraging of the economy and, on the other, specific factors, such as the assuming of the financing of several companies by the Portuguese State and, already at year-end, the reclassification of loans to holding companies, where merely instrumental companies were reclassified in the sector of other non-monetary financial institutions. These two effects, on their own, almost justify a credit
reduction to companies of approximately 6 billion euros (a total variation of approximately – 13 billion euros).
The flows of new credits to companies recorded a reduction, from July onwards, simultaneously with the BES resolution: However, data relative to the last quarter already evince a recovery in production, which equally occurred in private credit, especially mortgages.
This motion is in tune with the trend shown in the most recent survey on the conditions in the credit market, which signals a new easing in the conditions for the granting of credits, as well as an increase in the demand for credit.
Since it continues plentiful, liquidity is not a restriction in credit granting. On the one hand the ECB maintains its programmes of liquidity supply, but the national financial sector has been slowly reducing the use of these facilities, even with the new TLTRO, when what happened previously was a change in financing maturities in favour of lengthier periods. At year- end, the national banks were financed with 31.4 billion euros (27.7 billion when adjusted to the deposits with ECB, which compares with 39.8 billion at end-2013).
On another hand, the volume of deposits continued very high, although at year-end, but particularly at the start of 2015, a reduction occurred, with families subscribing savings products issued by the Treasury, with much higher interest rates than those practised by the banking industry, and which decreased in tune with the market interest rates.
Source: Banco de Portugal
The risks and uncertainties that may affect the business in 2015 are related to both domestic and external factors.
Internationally, the risk factors are related to (i) the developments regarding the adjustment programme in Greece and the next step to be taken in terms of the financing of that country. Negotiations between the Greek authorities and the international institutions are fundamental to avoid motions adverse to confidence and for the sustainability of the growth process. Both in Greece and in the euro zone; (ii) the geostrategic developments in Eastern Europe; (iii) the possibility that the USA enters into a cycle of raising reference interest rates and its impact on the flows of funds between economies; and (iv) the sustainability in the recovery of the world economy.
Nationally, there are several main sources of uncertainty. On the one hand, the growth potential must benefit from the structural reforms implemented in later years, but in a process that must proceed in order to consolidate the gains already achieved. Equally, the dynamism of the European economy is crucial for the growth in GDP, since it is still its main trading partner.
On another hand, the electoral cycle, with general elections taking place in the beginning of the autumn. Although there could be a postponement of private sector investments with effects in economic growth, the electoral cycle could also lead to the postponement of the budgetary process, which would only be started with the new government in office, presumably in the fourth quarter of 2015.
Additionally, and with respect to the financial sector, the challenge is placed in the increase in profitability, as soon as the adjustment process is completed. The improvement in the economic cycle could positively influence the need to provision credit impairment, but the context of low interest rates and the still sluggish recovery of credit volumes have effects over the generation of net credit income.
Still related with the financial sector, the sale of "Novo Banco" should be concluded in 2015.
In the Private and Business areas, Santander Totta improved its market share both in the resource and in the credit markets.
Throughout 2014, a sustained strategy was developed in the Bank's soundness, which allowed supporting private and business/SMEs customers.
As to credit to private customers, the bank approved projects through the granting of personal credit amounting to 469 million euros, and home loans amounting to 394 million euros. To companies in the Business/SMEs segment were granted 1,563 million euros in credit.
With respect to resources, market interest rates decreased to historically low levels, with relevant consequences to the market in terms of savings products. As such, the conditions and portfolio of the Bank's products, particularly the traditional liabilities, had to be adjusted to these market conditions, whilw continuing to reward the customers' level of relationship with the Bank.
In order to diversify customers' assets, the Bank maintained continuous the availability, throughout the year, of indexed deposits and financial insurance products, and strengthened its offer within the range of mutual funds, launching new products intended for the Select and Mid/Mass Market segments.
An annual 16.7% increase was recorded in investment funds marketed by the Bank, mainly attributable to the Santander Select funds (178.1 million euros) and Santander Private funds (116.6 million euros), with 8 new funds launched (3 for the Select segment, 3 for the Private Banking segment and 2 for the Mass Market segment), with the intent to complement the range of funds made available to customers.
At the end of 2014, the market share of mutual funds marketed by Santander Totta stood at 14.5%, an increase of 3.0 pp as compared the homologous period.
Also worth mentioning is the continued focus kept on attracting new domiciled salaries, in the placement of protection solutions (autonomous insurance) and in the placement of credit cards on new customers. In the latter case focus was kept in the increase of new credit card customers which reached more than 57,000 customers. This increase, along with the maintenance in the rates on card usage, allowed growth in invoicing in homologous terms, approximately 5 percentage points above market growth.
Several initiatives occurred throughout the year in order to increase the portfolio's return and to promote the usage of Santander Totta cards, with customers benefiting from several offers and discounts. Continuing initiatives were the partnership with the Vila Galé Hotel Group, the consolidation of the "Discount Programme" and the launching of the partnership with Repsol, which provides immediate discounts on payments with Santander Totta cards.
With reference to acceptance, the Bank maintained its reference position with the main retail channels, reaching very relevant positions, mainly in the food, clothing and consumer electronics sectors. The bank's invoicing market share grew by 8.1% (above the market value), which was reflected in an improvement in market share which continued above 17%. This reinforcement is due not only to a good commercial relationship with an important set of customers, but also to their recognition of the quality of the services rendered by the Bank.
In the control of non-performing loans, in spite of the unfavourable economic environment, the Bank surmounted the objectives set for 2014, continuing to be decisive the strict policy, as well as the implementation of new solutions for debt regularization and renegotiation to fit each customer's needs and requirements.
The Select label was launched in February 2014, becoming sounder throughout the year, recording an
18% growth in the customer base as a result of improved dynamism in the offer of products to the segment's customers
along with a management structure dedicated to greater customer proximity.
In a year marked by greater uncertainty in the financial markets, namely in Portugal, the Private Banking area achieved the business objectives set in the beginning of the year, that is, customer growth, managed assets and operating income.
The Private Banking business model of Santander Totta allows the consistent, objective and systematic control of the adequacy of the products to the customers' investment profiles, based upon the risk parameters considered for the model.
The drivers that allowed consolidating the Bank's
Best Private Banking Services Overall 2014
position in the market were its soundness, a range of comprehensive diversified products being offered, linked with the Private Banking area and the team's dynamism, which led to Santander Totta being distinguished, for the
fourth consecutive time by the prestigious Euromoney magazine, as the best Private Banking operating in Portugal, in the category "Best Private Banking Services Overall" within the scope of "Euromoney 's Private Banking Awards".
In the corporate area, results obtained in 2014 confirm the Bank's commitment to support corporates' business activities, investing in critical sectors for the growth of the Portuguese economy, namely the export sector, both in international trade and in the support for internationalization and in sectors of transaction goods that may benefit from the stability of the Republic's rating and from the expectation of the gradual recovery of investment by the economic agents.
In the beginning of 2014, the Bank reinforced the corporates' segment commercial network with the opening of three new Commercial Divisions (Paredes, São João da Madeira and Torres Vedras), thus investing in greater customer proximity.
The year was characterized by increased pressure on price levels, a reflexion of greater availability of banking supply in the corporate segment. The Corporate Network maintained its line of action, largely focusing in the growth of the credit portfolio, where production was in excess of 5.2 billion euros, safeguarding the balanced management of the volumes in credit portfolio and resources.
As a result of the close cooperation between Santander Totta and the European Investment Bank (EIB), within the scope of investment support lines for projects and programmes in various sectors of the economy and covering several segments, preferentially SMEs and MIDCAPs, the Bank concluded, in September, the placement of the total of the 6th EIB line, amounting to 200 million euros and which permitted supporting approximately 1,000 companies.
Following the companies' positive acceptance to the EIB lines, the Bank formalized, in October, a new line (7th) amounting to 200 million euros, which has already allowed, until December, the granting of financing totalling 60 million euros.
In the SME Invest/Growth lines, Banco Santander Totta maintains a relevant intervention with a 16.7% market share, having placed, until December, more than twenty thousand operations, amounting to a total of 2 billion euros. In the SME 2014 Growth line, which commenced being marketed in March, the Bank also positioned itself above its market share, reaching an 18.7% franchise in the amount of financing of operations framed by SME-Investimento (management body of these lines), positioning Santander Totta as leader in this line.
The Bank also maintains leadership in factoring and confirming, with an aggregate market share of 25%, which once more is symptomatic of the Bank's commitment to the effective support provided to corporates.
In international business, the Bank enlarged its offer of value to corporates, placing at its customers'
disposal the Santander Trade site and the capacity to expand customer's relations with potential partners via "Clube Santander". Improving its support to selected set of customers strongly involved in international trade, the Bank offered the "Santander Passport", allowing companies to benefit from a homogeneous relationship treatment in geographical areas where Santander Group is represented. Additionally, through the International Desk, the Bank continued providing support to companies undergoing internationalization procedures. During the year, Santander Totta promoted 22 regional business events and carried out, or took part, in partnership with external organizations, in more than 20 conferences and initiatives focused on international markets.
During the second half of 2014, a turning point was reached relative to the regard and following up that the Bank, in general, and the Department of Coordination of Promoters and Real Estate Brokers, in particular, would provide to home loans and the channel of real estate brokers.
Reflecting this new reality, the following stands out: (1) the launching of campaigns for attracting home loans for the real estate brokers; (2) carrying out promoter road shows replicating the good results accomplished in the channel of external promoters which, together with the commercial network was possible to disclose the new Santander solutions for home loans and the Bank's new strategy to energize the existing partnerships; (3) the completion of the survey of the existing protocols with active brokerage companies; (4) the presence in SIL - Salão Imobiliário de Portugal (Portuguese Real
estate Exhibition) now with a clear emphasis on home loans.
The same focus and attention were maintained on the external promoter's channel, endeavouring to further increase the commitment and the cooperating level with the bank, ensuring greater proximity by carrying out more than 120 road shows, during 2014.
Throughout the years the usual campaigns and competitions were maintained to encourage the capture of salary accounts, credit to the business sector and personal credit. More recently, a home loan campaign was launched and an insurance competition was held for the first time.
With respect to the project of promoter shops that act in collaboration with the support branch in places where the bank is not represented, this network was greatly strengthened with an annual increase of 25 shops, reaching a total of 295 open promoter shops.
2014 stood out by the implementation of the "Multichannel Transformation Plan", supported by the creation of the internal label appy, embodying the
strategy and positioning defined by the Group for direct channels with the objective of greater customer proximity. This impulse and change
marker implied the reformulation of the alignment of the direct channels, substantiated in the priority of structural changes aiming to capacitate these channels with a greater and better offer in product, service and customer experience.
SelfBanking business focused on technological renewal, with the replacement of more than one hundred items of equipment installed in branches and on technological innovation, installing in ATM network the first set of ATMs with the capability of rotation of deposited notes.
The number of ATM's in the ATM network decreased, mainly due to adjustments in the branch network. However, market shares continued stable as compared to the previous year, with a 12% share in terms of ATM´s and of 13% in number of transactions.
With the objective of being a channel focused on sales and an integral part of customer relationship, stands out, in 2014, the availability for subscription of autonomous insurance products and requests for debit cards. There are other ongoing initiatives which aim to
reinforce this channel's capabilities, with implementation more extended in time.
The availability of a more complete digital service became real in 2014, with the inclusion of alerts and account statements in digital documents service. Certified sales equally became a reality, enabling the consultation of all the documents accepted by the customer at the moment a product is contracted online.
In Private Mobile, considered as a fundamental channel to maintain and strengthen customer relations, several
initiatives were launched aiming to substantially improve customer experience and the level of service offer. Equally made available were state payments, scheduling services payments and the consulting of credit card movements, amongst others. A platform usability study was carried out with the objective of triggering priority structural initiatives, which are ongoing.
In Corporate NetBank, investment was carried out in transactionality as a lever to capture corporate customers. To be emphasized is the availability for requesting import documentary credits, a service providing digital documents (alerts, account statements and fiscal declarations), as well as the adequacy of regulation 260 to SEPA in direct debits and credit transfers.
The number of users of digital channels grew significantly in 2014, with greater focus in Mobile (+52%), which also results from a diminished starting base as compared with the remaining channels, but which is a symptom of how the customers are evolving in their relationship with the Bank.
In 2014, Santander Totta Contact Centre was considered, by the 6th consecutive year, the "Best Contact Centre in Portugal in the Financial Sector" a prize awarded by the Portuguese Contact Centres Association.
A multichannel vision was implemented during the year, in order to ensure a referenced customer experience and to enhance efficiency and profitability.
The Contact Centre has strengthened the investment in the increase of its autonomy and in the rapid resolution of all the situations presented by customers. All customer requests, even if out of Contact Centre scope, are followed up and are quickly solved by the competent areas.
The Advance Service Centre was set up to support all companies, current and potential customers, with special reference to SME's, guaranteeing support to all site users and establishing contacts with customers for the presentation of the Bank's products and services.
The focus of the Contact Centre continues to be the rendering of a quality service to the Bank's customers, with the use of the multichannel facilities and with the view of the segment in question.
Presence in the social networks was strengthened throughout 2014, with emphasis on the
presence in LinkedIn and Instagram and the launching of new initiatives in Facebook pages. The number of fans in the Bank's official page has already exceeded 65,000.
2014 witnessed the end of the adjustment period negotiated between Portugal and the international creditors, this being a positive sign for the community residing abroad.
Portugal's economic activity confirmed several signs of improvement, although unemployment levels continue above what would be desirable, mainly in the younger age groups and with higher qualification levels, which has had an impact in the emigration flows.
The International area has kept its strategy of proximity with customers residing abroad, also aiming to support, through external branches, those that commence their working life away from Portugal, and energizing the service offers and solutions in close connection with the commercial network in Portugal.
In this context, a detachable publication was promoted, linked with the newspaper with the greatest audience within the communities, the "Portuguese World", containing information that aimed to improve social integration in the main emigration destinations.
Internally, the offer of the "Super Foreign Residents Account" was adapted as well as the energizing of the "Select", segment, presenting customers with several solutions for savings management.
Equally, in the support to the communities in the countries where the Bank is represented, several meetings were held with customers, and the Bank was represented in the Real Estate Exhibition in Paris, where it sought to transmit confidence in the Country and the values of the Group and the Bank.
The traditional summer campaign was successfully held with the offer of Portuguese traditional products and personalized service being well received by non-resident customers. With greater visibility in the main airports and branches, communications campaigns were energized to encourage customers to transfer funds to Portugal. This promotion had a better expression in a competition, whose prizes included trips to Brazil and seats in the World Soccer Cup that was held in that Country, in the first half-year, and the offer of trips to Portugal, in the second half-year.
The London Branch kept its focus on relations with Portuguese residents in the United Kingdom, particularly in respect of several customer groups and professional and technical groups which opted to work in that country.
With a commercial strategy combined with adequate levels of security and profitability to the market conditions, an increase was possible in the volume of resources and of transfers from foreign residents. The credit portfolio showed a slight decrease mainly due to redemptions.
In the year under view it was possible to present, as in the two prior years, a significant growth in new customers in this segment.
Transfers from residents abroad, channelled through Santander Totta, recorded an 18% growth as well as an increase in market share.
Throughout 2014, the Corporate Finance area continued developing intense activity, with special reference to the participation, as joint leader, in the following successfully concluded operations: (1) syndicated placing of the Initial Public Offer of ESS – Espírito Santo Saúde; (2) syndicated placing of the Public Offer of REN shares, within the scope of the 2nd stage of the company's privatization; and (3) syndicated placing of the Public Offer for subscription in the BES share capital increase.
Reference also to the action of Santander Totta as consultant and financial intermediary to José de Mello Saúde in the public acquisition offer launched on ESS – Espírito Santo Saúde.
In the Credit Markets area, companies took advantage of the decrease in credit spreads to decide upon the lengthening or refinancing of their indebtedness. Additionally, a very positive evolution occurred in the Project Finance area with companies exploiting and materializing financing opportunities for new projects. Santander Totta was present in most of the operations which took place, particularly in the sector of renewable energies.
The Structured Products area recorded a successful performance in the marketing of liability products. Twenty three structured products were issued during the year, of which 19 were euro denominated, amounting to 781 million euros and 4 US Dollar denominated, amounting to 50.1 million US Dollars. Issues placed in this period are indexed to several different assets transacted in several shareholder markets in different geographical locations.
In February 2014, Banco Santander Totta was distinguished by Euromoney Structured Retail Products as "Best Sales in Portugal" of structured products in Portugal.
Expectations for 2015 look towards a gradual recovery of economic activity as well as financial conditions in the euro zone. However new sources of uncertainty arise, related to the Greek crisis, to the continuing conflict between the Ukraine and Russia, to the economic slowdown in the emerging countries and with the gradual consolidation of the euro zone with respect to the harmonization of the financial regulations (banking union) and supranational investment and defence strategies.
The Portuguese economy should keep to a path of recovery, in line with its European peers. There are risks associated, however, particularly the result of the electoral process, should this cause a slowdown in the implementation of the necessary structural reforms.
Banks will develop their activity within a framework of decreasing interest rates, credit spreads under pressure and great complexity in the new regulatory demands, namely in the case of capital requirements, liquidity and leverage ratios, and also the new rules concerning resolution mechanisms, which will have a structural impact in the profitability of the financial institutions in the following years.
Santander Totta has shown a strong capability in generating revenue, maintaining a sound balance sheet and a comfortable liquidity situation. In 2015, one of the main objectives of Santander Totta is to continue increasing the return on equity, and thus the evolution of net interest income will be a critical factor in the increase of the Bank's revenues, through the balanced management between the normalization in liability costs and the growth in business volumes.
Santander Totta will continue to be focused on its strategy of supporting the revitalization of the Portuguese economy and that of the companies, keeping up a policy of rigorous control of the risks surrounding the granting and credit follow up.
Simultaneously, the Bank will continue its commercial banking strategy based on greater customer proximity, presenting solutions adequate to each business segment with the objective of increasing the levels of customer binding and ensuring that Santander Totta is their primary Bank. This strategy will be based on: (1) further simplification of processes, making them more efficient; (2) use of devices that allow improved information management; and (3) streamlining risk management, with better adjusted models to each customer segment, keeping to a prudent and rigorous management of the risks undertaken.
Although the branch network remains a fundamental channel in customer relations, the Bank will continue to strengthen the model of multichannel distribution in order to render customers a more complete and accessible service.
The lines of action in the area of Human Resources were based upon the aggregate development in which participation, collaboration, cooperation and team work assume a leading role, in corporate alignment of the practices and policies to be implemented as well as the proximity to the business areas and the direct support for the materialization of the established strategic objectives.
Being the best bank for our customers and the best place to work is, in addition to an objective, a challenge on how to combine individual efforts with the collective strength.
The support to the internal reorganization, to the setting up and strengthening of the teams in the Commercial Intelligence area and to the Private, Select and Advance segments, the resizing of the commercial network, together with the consequent movement of personnel, the direct follow up of 70 branches within the scope of the Be Up Programme, and the 480 visits carried out to the areas, signal the proximity and support of the Human Resources team to the various business areas and the internal dynamics lived through in 2014.
The attribution of 338 new salary levels, the 157 functional upgrades, the fact that 98% of employees received variable remuneration and the average 1.38% salary increase show the importance given to the recognition of individual merit and contribution of the employees towards the achievement of the Bank's objectives.
Standing out in the area of Knowledge and Development is the following up of the Bank's business strategy with the creation of specific programmes to support the launching of the Select and Advance labels: To Be Excellent and Be Advance, respectively. To be referred also, in the Customer Engagement side, is the Commercial Energy programme for branch managers of the Individuals and Business South networks with the objective to develop competences that increase the customer's relation of trust with the Bank. These programmes involved approximately 500 commercial network employees.
Within the scope of gender diversity the 2nd edition took place and the 3rd edition of the Women's Executive Program was launched, built in partnership with a University, the objective of which is to impel the careers of women with potential through the learning of several key competences grouped in three blocks: business, leadership and career/personal management. There are 53 lady managers taking part in this programme.
Specific actions were developed throughout the year for 2nd line managers in the bank's structure, such as: Resonant Leadership, Be Your Own CEO, Free Mind and Productivity, and Mindfulness – Cultivate Full Attention. Eighty employees took part in these actions.
Continuing in the Development field, programmes of Executive Coaching were provided to 65 persons and Mentoring was included in the following programmes: Mentoring for Academics with the participation of 30 students and Santander Future for Young Managers, with the participation of recently appointed 20 managers.
With an offer of 90 courses in E-Learning, 32% of the total number of training hours (71,264 hours) were attained via platform, thus allowing a greater offer to respond to individual needs and geographical dispersion.
Under the cooperation with Universities, the Bank was present in the main national institutions: Catholic, Nova, ISCTE, ISEG and FEP. The Stock Exchange training programme was developed, and the Growth Acceleration Program was created, where, under the guidance of a tutor, 10 groups of trainees developed projects in specific areas of the Bank, from which resulted 4 prize winners on innovation and possibility of implementation by the Bank. During the whole year, 164 youngsters were trained in the bank, in a total of 83,762 training hours.
No. of training hours – 365,743 No. of training hours per employee – 46 % E-Learning training – 32% Investment in training – 1,500,000 € Investment in training/total salaries – 0.89%
As has been usual in later years, several training initiatives have been developed for the offspring of employees, namely in Christmas and Easter holidays, courses in methodologies and study techniques (59 participants) and in the summer holidays the course Searching for Magic (TEEN) which approached the means on how to trace a path of success and which involved 26 youngsters between the ages of 14 and 17.
Also carried out was the course Life Choices Today for 16 youngsters between the ages of 14 and 17 and, for employees, 6 workshops on educational topics and child development.
The attention given to the unfavourable economic and social context determined the renewal and implementation of new extraordinary measures aiming to minimize the effects of the crisis which, together with the more than 50 measures of conciliation and equilibrium which are at the disposal of employees, continue distinguishing Santander Totta as a Family Responsible Company.
Solidarity continued a part of the agenda for initiatives promoted and supported by the area of Human Resources, initiatives that occurred throughout the year, particularly during the "We Are Santander Week" and during Christmas with 2 food recovery actions, "Solidarity Basket", intended to aid social institutions and/or families, with more than 2,700 kg of food products distributed.
With the objective to strengthen values such as collaboration and team work, the "We Are Santander Regions" initiative was developed. During 7 weeks, as teams, the employees of each region of the country prepared a presentation on their region's themes. The "We Are Santander Regions" journal was edited at the end, comprising the various presentations, and was distributed in the first day of the "We Are Santander Week".
The "We Are Santander Week" was held once again, in June, to celebrate, as a team, the pride of belonging in Santander, focusing the recognition for the effort and commitment shown by all who are part of Santander Totta, an opportunity to consolidate the relationship between teams, hierarchies and employees.
As previously referred, the promotion of healthy living habits with employees has been a constant process in latter years, expressed through the different initiatives that have been implemented and that deserved external recognition through the award of the GYM Factory prize "For a World with Better Fitness" which distinguishes Santander Totta "For the development of organizational success through the promotion of healthy life styles with employees and their families". Continuing along these guidelines, the programme "Walking and Running" was organized and held between September and December, in Lisbon and Porto, and in which 68 employees and their families participated. This initiative had a solidarity component following which the Bank handed the total value of the registrations to D. Estefânia Hospital for the purchase of equipment for the Physical and Rehabilitation Facility.
Comprised in the Corporate Technology and Operations Division, the Technology and Business Processes area of Santander Totta is responsible for the availability and management of the Bank's technological infrastructure and business processes, permanently guaranteeing the adequacy of the technology platforms (hardware, communications), of business processes and operational control in order to efficiently support the Bank's business, with controlled operational and technological risks.
During 2014, a number of projects and structuring initiatives in the various areas were ensured, in order to pursue a continuous improvement process of operation and application efficiency, cost optimization, reduction of technological risk and timely adaptation to business requisites.
Development of regulatory projects was maintained, namely Instruction 5/2013, concerning incidence reductions, stabilization and optimization of the operation of technological resources, as well as increase in the availability of services provided by the Bank, with particular focus in the channels available on the Internet and in Mobile Banking. A new institutional site was launched, based on a new platform with greater dynamism, with superior availability, performance and security.
A Mobile APP was implemented on the tablet which enables the opening of an account in 15 minutes and opens space for the inclusion of more banking services in the referred APP.
Structural programmes were initiated jointly with the business areas aiming to improve the applications and processes in multichanelling, international business and documentary management, and the component of "Watch List Management" was implemented comprised in the Anti-Money Laundering corporate solution.
The migration process to the Windows 7 operating system was completed, which comprised several technical projects aiming to reduce incidences and to keep the technological risk of the involved applications at adequate levels.
In the Business Processes area, a number of projects were carried out aiming towards the improvement of processes and the continuous increase in efficiency and improvement in customer service, as well as compliance with the rulings issued both by the regulators and by the Group. To be noted: (1) the operational and functional optimization of the Corporate Network; (2) the adaptation of the hardware and software of the equipment of the retail network to comply with the implementation of the new 10 euro note (2nd series), maintaining the equipment ratified by the ECB; (3) the implementation of a new procedure which guarantees compliance with the maximum limits established by the Bank concerning liability concentration; and (4) the implementation of the North American FATCA rules, namely in the identification and documentation of the respective bodies/institutions. The implementation of data reporting and communication with the Tax Authorities continues on course.
The Department of Network Means (DNM) has been operating systematically, through periodical visits and actions in the business units, guaranteeing compliance with the established procedures and with the rules in force, identifying weaknesses in internal control and
operations and promoting several mitigating, training, support and improvement actions.
In the context of management change the DNM has equally been taking part in the definition of the implementation strategy of main projects or relevant improvements promoting, jointly with other areas of the Bank, the effective following up jointly with the retail network, supporting and training users to minimize possible impacts.
Within the scope of centralized operational follow up, a monthly review is being carried out over the main features of operational control which must be ensured by the network's business units, aiming towards the mitigation / minimization of the impacts of operational risks.
Service quality is one of the pillars of Santander Totta's management model.
In this changing world and in a market where all the players search for improvement and service quality, the Bank has assumed as an objective, in the latter years, the improvement of customer experience and its proximity relationship with Santander Totta, which has been reflected in the positive developments shown by customer indicators.
| No of "5 Star" Branches | 43% with maximum classification |
|---|---|
| No of complaints | 28% decrease in 2014 versus 2013 |
| Customers that recommend the BanK* |
94% of Customers |
| Target 100 Indicator in Companies |
40% of Company Managements achieve or overpass the objectives |
| * This feature is now classified on a scale of 1 to 10. The above results show |
the percentage of customers with a positive recommendation, i.e., above 5.
| Customer support | 2013 | 2014 |
|---|---|---|
| Satisfaction index branch of private customers (1-10) |
8.5 | 8.65 |
| % of satisfied active private customers* |
93.8 | 94.1 |
| Satisfaction index of manager of company customers (1-10) |
8 | 8 |
* This feature is now classified on a scale of 1 to 10. The above results show the percentage of customers with a positive recommendation, i.e., above 5.
In 2014, the Bank continued the model of star classification (5 star model) implemented in the braches of Individuals and Business networks. These stars are obtained through a set of critical indicators either of perceived quality or of operational quality. The percentage of 5 star branches increased from 27% in the beginning of the year to 43% at end-2014, also recording a positive evolution in the proportion of 2 star branches (from 45% to 21%).
Also established in the Corporate Network, similar to the 5 star model in the branches of the private customer network, a model that aggregates Bank and Commercial Division indicators. Each Corporate Division will be classified, from 2015 onwards, in line with a rating of satisfaction with the objective of obtaining a triple A (AAA).
From the point of view of central services and processes, 2014 was the year when the target 100 model became stabilized, with 47 models defined for the same number of areas and the promotion of a competition for the winning areas.
A competition was carried out in processes based upon a transversal view (customer) with the appointment of a process owner and the setting up of work teams for the development of specific action plans. 15 processes were appointed for an improvement methodology based upon the establishment of objectives and with a system organized for the establishment of action plans.
The management of customer experience, aiming to correspond to their expectations, has become one of the most important differentiating factors in the banking market. As such, the activity was developed in order to promote the improvement of the interaction of the customers with the branches. Approximately 120 visits were carried out, where, based upon the quality model, improvement features were designed and commitments assumed.
Continuity was given, jointly with the area of Human Resources, to the "Be Up" programme of behavioural improvement, applied in 70 branches classified with 2 and 3 stars, establishing an "on site" follow up plan with clear improvement objectives. The results achieved were, once again, extremely positive (more than 60% of the intervened branches climbed at least one level in the classification).
.
Banco Santander Totta was awarded the prize "Consumer Choice 2015", in the category of large banks. "Consumer Choice" is a reference assessment of the level of satisfaction and acceptability of products and services that takes into account the most valued
feature by the consumers themselves.
During the year, the second and third wave of the project "customer satisfaction when exiting branch" were launched. A tablet is used where the customer states his level of satisfaction relative to four features. The project had an excellent adhesion both by the customers, with more than 49 thousand participations, and by the retail area.
Results obtained in the stars model, in the "Benchmark" corporate assessment and on the several prizes awarded to the Bank are the expression of the improvement that customers experienced during 2014.
Guidance towards the customer and the logic of continuous improvement are concepts which are nowadays clearly present on the day-to-day Bank's activities and in the quality models it has been implementing.
In 2014, the quality management system was again certified and all the standard's requisites complied with.
After a very constant upward trend, wave upon wave since 2011, in the benchmark assessment, Santander Totta attained, in the second wave of 2014, the first place versus the main competitors. The improvement in the indicators achieved through the implemented quality models was thus confirmed.
In a year characterized by a difficult macroeconomic environment and by the turmoil in the national financial markets, deriving from the application, in August, of the first measure of banking resolution in the European union, Banco Santander Totta demonstrated a strong capability of generating income, a soundly capitalized balance sheet without any need to increase its nor to recur to any public aid, and thus showing very comfortable solvency and liquidity ratios, as compared to the minimum required values.
Banco Santander Totta attained a net income, at end-2014, amounting to 165.2 million euros, an expressive increase compared with the 89.2 million euros in the homologous period (+85.2%). This evolution reflected the increase in revenue, with emphasis in the increase in net interest income and results of financial operations and reduction in the need for impairments allocations.
The credit portfolio stood at 26.7 billion euros, a 1.8% decrease relative to the previous year, and in line with the trend shown in the banking system, standing out, however is the 0.7% increase in credit granted to corporates which compares with a sharp decrease in the system as a whole.
The credit at risk ratio decreased to 5.7%, as compared to the 5.9% at end-2013.
Customer's resources amounted to 26.8 billion euros, a +2.9% variation relative to that in the homologous period, with a favourable evolution in deposits and in the marketed investment funds.
The Loan-to-Deposit ratio, measured by the weight of net credit in deposits, reached 116.0%, at end-2014, an improvement over the 125.3% obtained in 2013.
Capital ratios, in line with the CRD IV/CRR rules, applicable in 2014, recorded an improvement relative to the end of the previous year, with the CET I ratio standing at 13.0% (11.3% in 2013) and the Tier I ratio standing at 15.3% (13.0% at the end of the previous year).
In 2014, Banco Santander Totta returned to the international markets through two issues of covered bonds: one billion euros at 3 years, with a 1.55% coupon, at the end of the first quarter, and 750 million euros at 5 years, with a 1.625%, coupon, at the beginning of June. In both cases demand was largely higher than supply and the spreads were 88 and 93 basis points, at 3 and 5 years, respectively.
Net financing obtained with the Eurosystem reached 3.8 billion euros, a reduction of 0.7 billion euros (-15.6%) relative to the homologous period. The portfolio of credits eligible as guarantees in the financing operations with the European Central Bank amounted to a total of 12.3 billion euros.
Banco Santander Totta's risk notation continues the best in the financial system. In the beginning of July, Fitch revised upwards the Bank's short and long term rating, from a negative to a positive outlook. The Bank's long term debt ratings as compared with those of the Portuguese Republic are as follows: Fitch – BBB (Portugal – BB+), Moody's – Ba1 (Portugal – Ba1), S&P – BB (Portugal – BB) e DBRS – BBBH (Portugal – BBBL).
| Million euro | |||
|---|---|---|---|
| 2014 | 2013 | 2014/2013 | |
| Proforma | |||
| Net Interest Income (without Dividends) | 543.5 | 507.3 | +7.2% |
| Dividends | 1.2 | 1.3 | -6.9% |
| Net Interest Income | 544.8 | 508.6 | +7.1% |
| Fees and Other Income | 262.6 | 290.0 | -9.5% |
| Commercial Revenue | 807.3 | 798.5 | +1.1% |
| Gain/Losses on Financial Transactions | 87.7 | 31.4 | +179.4% |
| Operating Income | 895.0 | 829.9 | +7.8% |
| Operating Costs | (487.2) | (466.5) | +4.4% |
| Net Operating Income | 407.8 | 363.4 | +12.2% |
| Impairment and Other Provisions | (192.5) | (244.0) | -21.1% |
| Results from Associated Companies | 19.8 | 14.1 | +40.7% |
| Income Before Taxes and MI | 235.0 | 133.5 | +76.0% |
| Taxes | (69.9) | (44.4) | +57.5% |
| Minority Interests | 0.0 | (0.0) | -252.2% |
| Net Income | 165.2 | 89.2 | +85.2% |
Net interest income amounted to 543.5 million euros, at end-2014, a 7.2% increase, deriving mainly from the lower cost of funding, especially in deposits, notwithstanding the historically low interest rates and the lower volume of credit granted.
Net commissions and other results of banking business amounted to 262.6 million euros, with a -9.5% variation as compared to the amount recorded in 2013; what stands out here is the impact deriving from the regulatory changes that limited administratively the capability to collect commissions, mainly from the beginning of the third quarter of 2013, partially compensated by a longer period of rents collected from the real estate of the Novimovest real estate investment fund, together with lower costs in the assessment of the market value of the real estate in question.
Commercial revenue amounted to 807.3 million euros, a growth of 1.1% relative to the previous year.
Results in financial transactions amounted to 87.7 million euros, a significant growth compared to the homologous period, mainly due to revenues obtained in the sale of securities, which was partially cancelled by the constitution of provisions to strengthen the balance sheet.
The evolution in revenue led to an operating income amounting to 895.0 million euros, 7.8% above the value recorded at end-2013, showing the progress obtained in net interest income and in the results in financial transactions, which offset the decrease in net commissions.
Operating expenses amounted to 487.2 million euros, increasing by 4.4%, relative to 2013. Personnel expenses increased by 4.5%, influenced by the aggregation of costs with social security derived from seniority bonus. General expenses increased by 4.8%, justified by changes in the accounting policies. Depreciation grew by 3.5%, due to the impact of an
extraordinary depreciation, booked in the first half year of 2014, following the change in the useful life of a software application, from 5 to 3 years.
Million euro
| 2014 | 2013 | 2014/2013 | |
|---|---|---|---|
| Proforma | |||
| Personnel Expenses | (281.6) | (269.6) | +4.5% |
| Other Administrative Expenses | (143.7) | (137.2) | +4.8% |
| Operating Costs | (425.3) | (406.7) | +4.6% |
| Depreciation | (61.9) | (59.8) | +3.5% |
| Total Operating Costs | (487.2) | (466.5) | +4.4% |
| Efficiency Ratio (excludes depreciation) | 47.5% | 49.0% | -1.5 p.p. |
| Efficiency Ratio (includes depreciation) | 54.4% | 56.2% | -1.8 p.p. |
At end-2014, the efficiency ratio, which represents operating expenses as a percentage of operating income, stood at 54.4%, a 1.8pp improvement over 2013, indicating that the growth in revenue (+7.8%) was above that of the expenses (+4.4%).
Net operating income amounted to 407.8 million euros, greater than the 363.4 million euros recorded in the homologous period in 2013 (+12.2%).
Banco Santander Totta presented a favourable homologous evolution in productivity indicators, with positive variations in credit, resources and net income per employee and per point of attendance, an important fact in an environment of business reduction.
| 2014 | 2013 | 2014/2013 | |
|---|---|---|---|
| Loans(1) per Employee | 5.2 | 5.1 | +2.4% |
| Resources per Employee | 5.0 | 4.7 | +7.6% |
| Loans(1) per Branch(2) | 46.7 | 44.3 | +5.5% |
| Resources per Branch(2) | 45.2 | 40.7 | +10.9% |
| Net Income per Employee (thousand euro) | 31.0 | 16.0 | +93.7% |
| Net Income per Branch (thousand euro)(1) | 278.1 | 139.3 | +99.6% |
(1) Includes guarantees
(2) Includes branches, corporate centers and representative offices
Allocation for impairment and net provisions amounted to 192.5 million euros, comparing favourably with the 244.0 million euros recorded in the homologous period, (-21.1% variation). This evolution derived from the slowing down of new entries in non-performing loans, following the implementation of a conservative policy in credit granting and of an efficient methodology in the control and follow up of non-performing loans.
Results of associates recognized by the equity method, amounting to 19.8 million euros, increased by 40.7% as compared to the amount recorded in 2013, incorporating the result in Banco Caixa Geral Totta de Angola, in Unicre-Instituição Financeira de Crédito, in Partang, amongst others with lesser relevance.
At end-2014, income before tax and minority interests, amounting to 235.0 million euros, recorded an 76.0% growth relative to 2013.
Banco Santander Totta recorded net income amounting to 165.2 million euros, at the end of 2014, compared with 89.2 million euros obtained in 2013, (homologous variation of +85.2%), corresponding to an 8.5% return on equity.
At end-2014, the volume of business amounted to a total of 54.6 billion euros, a growth of 0.3% as compared with the amount recorded at end-2013.
Credit (including guarantees and sureties) decreased by 2.1%, totalling 27.8 billion euros, although the corporate credit portfolio grew 0.7% in the last year. Customers' resources stood at 26.8 billion euros, a 2.9% increase, with balance sheet resources growing by 3.6% and off balance sheet resources by 0.1%.
Million euro
| 2014 | 2013 | 2014/2013 | |
|---|---|---|---|
| Business Volume | 54,610 | 54,449 | +0.3% |
| Total Gross Loans (includes guarantees) | 27,769 | 28,371 | -2.1% |
| Customers' Resources | 26,841 | 26,078 | +2.9% |
The credit/deposits ratio stood at 116.0%, in 2014 (this ratio is established in line with the definition comprised
in the Memorandum of Understanding), diminishing by 9.3 p.p. as compared to 125.3% recorded in 2013.
Million euro
| 2014 | 2013 | 2014/2013 | |
|---|---|---|---|
| Total Gross Loans (includes guarantees) | 27,769 | 28,371 | -2.1% |
| Gross Loans | 26,685 | 27,185 | -1.8% |
| of which | |||
| Loans to Individuals | 16,635 | 17,164 | -3.1% |
| of which | |||
| Mortgage | 14,794 | 15,276 | -3.2% |
| Consumer | 1,381 | 1,382 | -0.1% |
| Loans to Corporates | 9,823 | 9,759 | +0.7% |
The credit portfolio (including guarantees and sureties) registered a 2.1% reduction in the year, in an environment of contraction in credit granted by the banking industry. However, credit granted to corporates has gradually been increasing its weight in the portfolio, reaching 9.8 billion euros, 0.7% more than that recorded at the end of the previous year. Credit granted to individual customers amounted to 16.6 billion euros, (a homologous variation of -3.1%), of which 14.8 billion euros are mortgage loans. In spite of new mortgage loans having grown by 18.0% in the last year, this fact has not set off the value of redemptions whereby the portfolio decreased by 3.2%.
At end-2014, the credit at risk ratio stood at 5.7%, which compares with the 5.9% recorded in the homologous period, remaining significantly below the average of the banking system, and with a provision coverage of 75.9%, (67.7% in December 2013). Restructured credit
stood at 9.4% of total credit, above the 8.7% of the homologous period.
| 2014 | 2013 | 2014/2013 | |
|---|---|---|---|
| Non Performing Loans Ratio | 4.4% | 4.0% | +0.4 p.p. |
| Non Performing Loans Ratio (+90 days) | 4.2% | 3.7% | +0.5 p.p. |
| Non Performing Loans and Doubtful Loans Ratio | 4.2% | 3.8% | +0.5 p.p. |
| Credit at Risk Ratio | 5.7% | 5.9% | -0.1 p.p. |
| Restructured Loans / Total Loans | 9.4% | 8.7% | +0.8 p.p. |
| Restructured Loans not included in Credit at Risk / Total Loans | 6.8% | 5.4% | +1.4 p.p. |
| Non Performing Loans Coverage Ratio | 99.6% | 100.4% | -0.8 p.p. |
| Non Performing Loans Coverage Ratio (+90 days) | 103.4% | 106.4% | -3.0 p.p. |
| NPL and Doubtful Loans Coverage Ratio | 102.5% | 104.7% | -2.1 p.p. |
| Credit at Risk Coverage Ratio | 75.9% | 67.7% | +8.2 p.p. |
Total customers resources at end-2014, increased by 2.9% relative to the amount recorded in 2013.
| Million euro | ||||
|---|---|---|---|---|
| 2014 | 2013 | 2014/2013 | ||
| Customers' Resources | 26,841 | 26,078 | +2.9% | |
| On-Balance Sheet Resources | 21,760 | 21,001 | +3.6% | |
| Deposits | 21,626 | 20,707 | +4.4% | |
| Securities issued (clients) | 134 | 294 | -54.5% | |
| Off-Balance Sheet Resources | 5,082 | 5,077 | +0.1% | |
| Investment Funds Managed or Marketed by the Bank | 1,414 | 1,212 | +16.6% | |
| Insurance and Other Resources | 3,667 | 3,865 | -5.1% |
Balance sheet resources stood at 21.8 billion euros, representing 81.1% of total resources captured from costumers and a growth of 3.6% in homologous terms, with deposits increasing by 4.4%.
Off balance sheet resources amounted to 5.1 billion euros, an increase of 0.1% over 2013. Investment funds marketed by the Bank revealed a 16.6% growth, offsetting the decrease in capitalization insurance products and other resources (-5.1%).
minimum required value. The CET I ratio, fully implemented, stood at 11.9%.
At end-2014, the Bank presented sound capital ratios, with the CET I ratio, in line with the CRD IV/CRR rules, for 2014, standing at 13.0%, largely higher than the
| Million euro | |||
|---|---|---|---|
| 2014 | 2013 | 2014/2013 | |
| Total capital | 2,086 | 1,864 | +11.9% |
| Tier I Capital | 2,467 | 2,139 | +15.3% |
| Tier II capital | 2,467 | 2,139 | +15.3% |
| Risk Weighted Assets | 16,102 | 16,499 | -2.4% |
| CET I Ratio | 13.0% | 11.3% | +1.7 p.p. |
| Tier I Ratio | 15.3% | 13.0% | +2.3 p.p. |
| Total Capital Ratio | 15.3% | 13.0% | +2.3 p.p. |
Banco Santander Totta recorded net income, in terms of individual accounts, amounting to 134.5 million euros in 2014, as compared with 2.4 million euros in 2013.
Operating income amounted to 881.3 million euros in 2014, an 11.5% growth relative to the 790.5 million euros obtained in the previous year, particularly due to the increase in net interest income and in the results of financial transactions.
Operating expenses amounted to 483.9 million euros, a 4.9% increase relative to the homologous period. The efficiency ratio improved by 3.5 pp., from 58.4% in 2013 to 54.9% in 2014.
The aggregate evolution of revenues and expenses resulted in net operating income amounting to 397.4 million euros, a 20.7% increase relative to that obtained one year earlier.
Impairment and net provisions evolved favourably to 204.1 million euros in 2014, decreasing by 34.4% relative to 2013.
Taxes on profits amounted to 58.8 million euros.
In 2014, the volume of business amounted to a total of 54.6 billion euros, a -0.6% variation relative to the homologous period. Credit (including guarantees and sureties) decreased by 2.1%, to 27.7 billion euros, and customers resources increased by 1.0%, standing at 26.9 billion euros (balance sheet resources grew by 3.6% and off balance sheet resources decreased by 8.5%).
| Million euro | |
|---|---|
| 2014 | 2013 | 2014/2013 | |
|---|---|---|---|
| Business Volume | 54,579 | 54,908 | -0.6% |
| Total Gross Loans (includes guarantees) | 27,694 | 28,294 | -2.1% |
| Total Gross Loans | 26,607 | 27,105 | -1.8% |
| Customers' Resources | 26,884 | 26,614 | +1.0% |
| On-Balance Sheet Resources | 21,731 | 20,985 | +3.6% |
| Deposits | 21,598 | 20,691 | +4.4% |
| Securities issued (clients) | 134 | 294 | -54.5% |
| Off-Balance Sheet Resources | 5,153 | 5,630 | -8.5% |
| Investment Funds Managed or Marketed by the Bank | 1,762 | 1,907 | -7.6% |
| Insurance and Other Resources | 3,391 | 3,723 | -8.9% |
In 2014, CET I ratio, in line with the CRD IV/CRR rules, stood at 10.0%. CET I ratio fully implemented stood at 8.9%.
| Million euro | |||
|---|---|---|---|
| 2014 | 2013 | 2014/2013 | |
| Total Capital | 1,597 | 1,620 | -1.4% |
| Tier I Capital | 2,027 | 1,977 | +2.5% |
| Tier II Capital | 2,336 | 2,250 | +3.8% |
| Risk Weighted Assets | 15,948 | 16,301 | -2.2% |
| CET I Ratio | 10.0% | 9.9% | +0.1 p.p. |
| Tier I Ratio | 12.7% | 12.1% | +0.6 p.p. |
| Total Capital Ratio | 14.6% | 13.8% | +0.8 p.p. |
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 techniques has been a decisive factor in the achievement of the Bank's objectives.
In 2014, the activity of the Credit Risk area had the following main vectors:
Several measures were implemented in 2014 in the management of the admission process of new credits, with the objective of improving the quality of service rendered to customers whenever they present new credit opportunities;
Concerning Standardized Risks, the main focus was kept on the maintenance of the portfolio's quality level, aiming against management slowdown and non-performing loans, continuing to provide a set of products and solutions for debt restructuring that allow adapting customers' expenditure to their reimbursement capacity and current and future available income;
Credit risk arises from the possibility of losses derived from total or partial non-performance of the financial liabilities, incurred towards 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 customers in portfolio and standardized customers (not in portfolio):
automatic decision, additionally complemented, in a subsidiary way, when the model is not sufficiently precise, with teams of specialized risk analysts.
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, matching each rating to a non-performing probability.
Global classification tools are applied to country risk segments, financial institutions and Global Banking Markets, 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 the balance sheet data and/or ratios, or macroeconomic variables complemented through the analysis carried out by the risk analyst that follows up the customer.
Concerning the companies and institutions comprised in retail banking groups, the attribution of 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, which is also responsible to carry out a final revision of the rating attributed.
Attributed ratings are periodically revised, incorporating any new financial information that has become available, as well as, qualitatively, the experience deriving from the assessment of the existing credit relationship. This periodicity increases in case of customers from 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 in such a way that automatically attributes an evaluation/decision of the transactions submitted. These decision tools are complemented with a behavioural scoring model, a device that allows a 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. As such, what is taken into account is not just the probability that the customer may not comply with his contractual obligations (PD), but it is also estimated the amount of exposure at default (EAD) 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 estimation of the expected and unexpected loss. The expected (or probable) loss, is considered as a further activity cost (reflecting the risk premium), being 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 the standards comprised in the Basle (BIS II) capital agreement, is related to a very high, although very unlikely, loss level, which, considering its nature, it is not considered as recurrent and must, therefore, be properly covered by the equity.
In small and medium sized enterprises, the information obtained from their balance sheet is used not only for the rating attribution, but also to obtain explanatory factors for the probability of default. In retail portfolios, PD is estimated by observing entries into delinquency, and correlating them with the scoring attributed to the operations. With the exception of the portfolios in which, due to lesser internal default experience, such as financial institutions, country risk or Global Banking Markets, estimating these parameters is based upon alternative sources of information, such as market prices or assessments carried out by agencies with recognized experience and skill, with a portfolio containing a sufficient number of institutions (these portfolios are known as low default portfolio).
LGD estimates are based on the observation of 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 found in normal situations 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 propose a given tendency to risk. 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 most basic level is on customer level 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 operations 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 observation 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 the following:
Recoveries activity is structured in line with customers' commercial segmentation: Private, 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 delinquencies 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 total sum of the present value of each contract (or Current Replacement Cost) and the respective potential risk, 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.
In 2014, the present value of transactions on the indexing factors of interest rates (Euribor) has generally recorded a moderate reduction, reflecting the movements of the medium and long terms market rates. With respect to the exposure to financial groups, new transactions were carried out to cover the structural risk of interest rates, although the exposure continues relatively low, and equally keeping up the application of collateral providing agreements (ISDA Master Agreements/Credit Support Annex).
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 appreciation 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 balance sheet 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 measurement and control of the risks, originated 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 estimated based on the equity, such as Value at Risk (VaR) and the 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 extreme market conditions. In parallel, ratios are estimated on the current items in the balance sheet that are indicators of structural and short term liquidity requirements.
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 balance sheet is measured through a model of dynamic analysis of the market risk of the balance sheet, 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 re-appreciation, which determine the exposure to interest rate risk of the balance sheet components.
Considering the uncertainty in the variation of interest rate levels in 2014, the policy followed was to keep sensitivity at the levels considered as adequate.
The exchange rate risk of commercial activity is measured and controlled by the global exchange position, being the Group's strategy, its total coverage.
The liquidity policy followed by the Group is based upon a low liquidity risk and the continuous diversification of the sources of finance, placing into perspective the volume and nature of the financing instruments used to allow the achievement and the development under good conditions of the established business plan.
By keeping to a conservative profile, we are better protected with respect to potential crises that may affect the environment.
The policy of a financing mix is always based on an adequate level of liquidity risk, in line with the established limits, and it 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.
At end-2014, the net financing obtained with the Eurosystem amounted to 3.8 billion euros, representing a 15.6% decrease relative to the situation at the end of 2013, justified by the improvement in the trading gap and by two issues of mortgage bonds amounting to one billion euros (at 3 years) and to 750 million euros (at 5 years), respectively, which were materialized in the first half of the year. In turn, the portfolio of assets eligible as guarantees for financing operations with the Eurosystem amounted to 12.3 billion euros, which, together with the already referred current use of ECB funds, allows the Bank to enjoy very comfortable levels of available liquidity.
The favourable variation of the trade gap, with the significant increase in deposits simultaneously with the issues of mortgage bonds, led to an increase in the relative weight of medium/long term financing in the Bank's financing structure.
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 Santander Totta operates.
As a function of the risk objectives, activities are segmented as follows:
The methodology applied, within the scope of Santander Totta, for the 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 in 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 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 accompaniment 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 movements in the financial variables or 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
punctual/sporadic variances of the recorded results compared to the estimated measures are analysed.
The backtesting analyses carried out in 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, back-testing includes hypothetical tests: excess tests, normality 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:
The evolution of the risk relative to negotiation activity in the financial markets during 2014, quantified through VaR was that described in the following chart:
VaR was kept at reduced levels, varying between 5,000 and 32,000 euros.
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 it 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.
The objective in the case of control and management of operational risk is focused on the identification, measurement, assessment, control and mitigation of that risk.
The priority approach is, thus, to identify and eliminate risk outbreaks, independently from losses having occurred or not. Its measurement also contributes towards the establishment of priorities in the management of operational risk.
To estimate the equity required to cover operational risk, the Group opted, as a starting stage, to follow the Standard Method comprised 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, being 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 to:
Measure and assess the operational risk objectively, continually and coherently with the Basle II standards, define objectives and analyse the risk profile in line with the respective limits;
Carry out the continuous follow up of exposures to operational risk with the objective to detect risk levels that have not been assumed;
The control model of the operational risk that was implemented has the following advantages:
Limits to operational risk are annually established. An appetite for risk is equally established, which must always be set in the low/medium-low bracket profile.
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 juridical 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, allocation 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, being necessary, that the Bank has reputational risk amongst its main concerns and has available the organization and means required for its prevention, detection and, if that is 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:
Net Income for the Year, in individual terms and referring to 2014, amounted to € 134,472,548.11 (one hundred and thirty four million, four hundred and seventy two thousand, five hundred and forty eight euros and eleven cents) and the Consolidated Net Income for 2014 amounted to € 165,173,828 (one hundred and sixty five million, one hundred and seventy three thousand, eight hundred and twenty eight euros).
As such, the Board of Directors proposes to the General Meeting that the following distribution of the results:
Lisbon, 23 April 2015
THE BOARD OF DIRECTORS
Banco Santander Totta develops its business activity following policies and applying prevention of money laundering and of financing terrorism criteria, in line with the legislation in force.
The Bank applies procedures in accordance with legislative provisions, and has adopted the system to Bank of Portugal's Instruction No. 5/2013, complies with duties determined by Law, has available an organic structure exclusively assigned towards prevention and control of money laundering and financing terrorism which is comprised in the Department for Coordination of Compliance and Institutional Issues Staff is trained and regularly updated on this issue in order to detect eventual risk situations and immediately communicate with the competent body when such is justified, has available computer applications to monitor atypical movements, to assess transactions that fit into risk typologies to the Authorities and has automatic information systems to bring into prominence high risk customers, in order to apply reinforced due diligence measures. The system is audited annually.
Units headquartered abroad are followed up by the head office central structure through visits or centralized control. Compliance testing is carried out by systems for prevention and control of money laundering and of financing terrorism. These units apply the procedures determined by the Bank or by the legal regulations of the countries in which they operate, if it is more demanding.
Complying with the determinations of the Bank of Portugal's Instruction No. 9/2012, Santander Totta prepared the corresponding Report on Prevention of Money Laundering and of Financing Terrorism relative to the period from 1 June 2013 to 31 May 2014 which, once approved by the Board of Directors was submitted to the Bank of Portugal.
On another hand, the Bank, complying with the Bank of Portugal's Instruction No. nº 46/2012, prepared the Self-Assessment Questionnaire on the issue of prevention of money laundering and financing terrorism relative to the period between 1 November 2013 and 30 November 2014, forwarding it to the Bank of Portugal following its prior approval by the Executive Committee.
| Shareholder | Nº shares | % |
|---|---|---|
| Santander Totta, SGPS, S.A. | 641,269,620 | 97.65% |
| Taxagest - SGPS, S.A. | 14,593,315 | 2.22% |
In line with the decision of the Annual General Meeting, held on 15 May 2014, Santander Totta SGPS, S.A., directly on its own behalf or through a dependent company, may acquire own shares as well as dispose of those acquired up to the limit and remaining conditions foreseen in law.
On 31 December 2013, Santander Totta SGPS held 70,802,859 own shares corresponding to 0.036% of its share capital. In 2014, Santander Totta SGPS carried out a purchase of 10,473,249 own shares, corresponding to 0.005% of its share capital, thus holding a total of 81,276,108 own shares at year end.
This acquisition is comprised in Santander Totta SGPS's general policy, as to the purchase of shares from shareholders that are outside the Santander Group that wish to sell them.
| TRANSACTION WITH OWN SHARES - 2014 | |||||
|---|---|---|---|---|---|
| Nº of shares | Average unit price (€) | Book value (€) | % of Share Capital | ||
| 31/12/2013 | 249,427 | 5.73 | 1,428,817 | 0.038% | |
| Purchases | 21,817 | 6.05 | 131,977 | 0.003% | |
| Disposals | 0 | - | 0 | - | |
| 31/12/2014 | 271,244 | 5.75 | 1,560,794 | 0.041% |
Chairman's Office – Sebastião Beltrão Risk Control/Management – Manuel Aragão Internal Audit – Miguel Ruiz
Corporate Risk Management – Jesus Garcia Risk Methodology – Inês Furtado Credit Risks – Amílcar Lourenço Market & Structural Risks – Cláudia Correia Non Financial Risks – Esther Casillas
Accounting – Graça Vale Management Control – Luís Capitão Mor Internal Control – Américo Domingues
Human Resources – Isabel Viegas Real Estate, General Services & Security – Luís Morais Cost optimization and Purchases – Mário Paulino Organization, Productivity & Efficiency – Miguel Neves
Business Legal Consultancy – João Gomes da Silva Institutional Issues & Compliance – João Labareda Supervision – João Mendes
Recoveries – Mário Rodrigues Santos Divestment – Jacinto Galante
(1) Aggregate Manager to the Executive Committee (2) Assistant to the Board
Quality – Abel Bernardes Image & Internal Communication – Rui Santos Institutional External Communication – João Velez Public Relations & Events – Cristina Carvalho Shareholder Relations – José Pacheco Economic Research – Rui Constantino Universities – Marcos Ribeiro Public Policy – António Terra da Motta
Private & Business North – Manuel Cerejeira Castro Private & Business South – Sofia Frère Control & Dynamics of P&N Network – Paulo Lourenço Support to Private & Business Network – Pedro Louceiro Private Banking – Luís Santos Real Estate Promoters & Brokers – José Alberto Moura Control of Irregularities – Jorge Mogo International - Residents Abroad – António Carneiro
Companies North – Paulo Costa Companies South – António Velez do Peso Control & Dynamics of Companies Network – Mota Veiga Management & Coordination with Risks – Marcos Heitor International Business – Pedro Correia Building Credit/Construction Promotion – António Fontes Institutional Customers – Pedro Fialho
Corporate and Investment Banking – João Veiga Anjos Financing Solutions & Advisory – Cristina Melo Antunes Global Transaction Banking – Hélder Gomes Treasury – Alexandra Gomes Middle Office & GBM Control– António Rebocho Active Credit Portfolio Management and Financial Control – José Viegas Financial Institutions Group – Carlos Ramalho
Technology & Business Systems – Elsa Graça Operations – Luís Alves Data Integration & Information – Otília Casquilho
Finance – Miguel Carvalho
Strategy & Multichannel Management – Isabel Guerreiro Mid & Mass Market Segment – Luis Coito Select Segment – Jorge Alcobia Business & Company Segment – Inês Oom de Sousa Customer & CRM Development – Sara Fonseca Innovation, Optimization & Commercial Skill – Miguel Paixão
(*) Assists the Chairman of the Executive Committee in the Commercial Intelligence area
(**) Also relates with the areas of Insurance and Asset Management
(2) Assistant to the Board
Private Products & Services – Cláudia Barrocas Company Products & Services – Jorge Gaspar Means of Payment – Paula Resende Marketing – José Saks
The main activities that the members of the Board of Directors of BANCO SANTANDER TOTTA, SA, fulfil outside the company, significant to themselves, are the exercise of the following offices, in the following companies:
| Name | Company | Office held |
|---|---|---|
| Banco Santander, S.A (Spain). | Member of the Risks Committee of the Board of Directors of the International Committee and of the Committee for Technology, Productivity and Quality |
|
| Santander Totta, SGPS | Chairman of the Board of Directors and Chairman of the Salaries Committee (1) |
|
| Fundación Santander | Member of the Patronage | |
| Fundación Banesto Sociedad y Tecnologia | Chairman (2) | |
| Fundación Cultural Banesto | Chairman (2) | |
| António Basagoiti Garcia-Tuñón | Fundación Eugenio Rodriguez Pascual | Chairman |
| Fundación Príncipe de Asturias | Patron and Member of the Jury of the Concordia prize |
|
| A.T. Kearney | External Member of the Advisory Committee | |
| Círculo de Empresários | Member of the Board | |
| Real Asociación Amigos del Museo Nacional Centro de Arte Reina Sofia |
Member | |
| Fundación Amigos del Museo del Prado | Member | |
| Real Club Náutico de Calpe | Economic Vice President | |
| Fundación Silos | Patron | |
| Santander Totta, SGPS | Deputy Chairman of the Board of Directors and Chairman of the Executive Committee |
|
| Portal Universia Portugal, S.A. | Deputy Chairman of the Board of Directors and Chairman of the Executive Committee |
|
| António José Sacadura Vieira Monteiro |
Faculdade de Ciências Sociais e Humanas | Member of the General Council |
| da Universidade Nova Câmara de Comércio e Indústria Luso |
Deputy Chairman of the Board | |
| Espanhola | ||
| Vieira Monteiro, Lda. | Manager | |
| José Manuel Alves Elias da | Santander Totta, SGPS | Member of the Board of Directors and of the Executive Committee |
| Costa | Santander Totta Seguros-Companhia de Seguros de Vida, SA |
Chairman of the Board of Directors (3) |
| Santander Totta, SGPS | Member of the Board of Directors ad of the Executive Committee |
|
| José Carlos Brito Sítima | Portal Universia Portugal, S.A. | Chairman of the General Meeting |
| Partang, SGPS, S.A. | Member of the Board of Directors | |
| Member of the Board of Directors ad of the | ||
| Luís Filipe Ferreira Bento dos | Portal Universia Portugal, S.A. | Executive Committee |
| Santos | Virtualteorema – Estágios Digitais Unipessoal, Lda. |
Manager (4) |
| Casa da América Latina | Deputy Chairman | |
| Carlos Manuel Amaral de Pinho | Banco Caixa Geral Totta de Angola, S.A. | Member of the Board of Directors and of the Executive Committee |
(1) Elected on 15/05/14
(2) Relinquished office on 10/07/14
(3) Elected on 25/07/14
(4) Relinquished office on 3/10/14
| Name | Company | Office held |
|---|---|---|
| Banco Santander Consumer Portugal, S.A. | Member of the Audit Board | |
| Serfin International Bank & Trust | Director | |
| Taxagest – Sociedade Gestora de Participações Sociais, S.A. |
Chairman of the Board of Directors (1) | |
| Manuel António Amaral Franco Preto |
Santotta – International, SGPS, Sociedade Unipessoal, Lda |
Manager |
| Totta & Açores Financing, Ltd. | Director | |
| Totta Ireland, Plc | Director | |
| Partang, SGPS, S.A. | Member of the Board of Directors | |
| UNICRE – Instituição Financeira de Crédito, S.A. |
Member of the Board of Directors | |
| João Baptista Leite | SIBS – Forward Payment Solutions, S.A. | Member of the Board of Directors (2) |
| SIBS, SGPS, S.A. | Member of the Board of Directors (2) | |
| José Urgel Moura Leite Maia | Associação dos Amigos de Recife | Chairman of the Audit Board |
| Santander Totta Seguros – Companhia de Seguros de Vida, S.A. |
Chairman of the Board of Directors (3) | |
| Trem – Aluguer de Material Circulante, ACE | Member of the Board of Directors (4) | |
| Pedro Aires Coruche Castro e | Trem II – Aluguer de Material Circulante, ACE |
Member of the Board of Directors |
| Almeida | Nortrem – Aluguer de Material Ferroviário, ACE |
Chairman of the Board of Directors |
| SIBS – Forward Payment Solutions, S.A. | Member of the Board of Directors (5) | |
| SIBS – SGPS, S.A. | Member of the Board of Directors (5) | |
| Santander Totta, SGPS | Chairman of the Audit Board | |
| Fundação de Serralves | Deputy Chairman | |
| SEDES – Associação para o | ||
| Luís Manuel Moreira de | Desenvolvimento Económico e Social | Chairman |
| Campos e Cunha | Galp Energia, SGPS, S.A. | Member of the Board of Directors |
| Fundação Centro Cultural de Belém | Deputy Chairman of the Board (6) | |
| Universidade Nova de Lisboa | Professor | |
| Ricardo Manuel Duarte Vidal de | Santander Totta, SGPS | Chairman of the Audit Board |
| Castro | Clube do Autor, S.A. | Manager |
| Pedro Manuel Alves Ferreira Guerra |
Santander Totta, SGPS | Alternate Member of the Audit Board |
(1) Previously Member and now Chairman
(2) Elected on 31/01/14
(3) Relinquished office on 24/07/14
(4) Relinquished office on 23/12/14
(5) Relinquished office on 14/01/14
(6) Relinquished office on 3/12/14
In the terms and for the purposes of the provisions of Article No 447 of the code from commercial society and of CMVM Instruction 5/2008, the movements in shares and bonds carried out by members of the Governing Bodies with reference to 2014, were the following:
| Opening | Movements in 2014 | Closing | |||||
|---|---|---|---|---|---|---|---|
| Name | Securities | Position 31/12/13 |
Data | Acquisitions | Disposals | Unit Price (€) |
Position 31/12/14 |
| BST Bonds– Caixa EUA - Cx |
820 | 30/06/14 | 820 | 50 | 0 | ||
| João Baptista Leite |
BST Bonds – Caixa Rendimento América Latina TOP 3 |
400 | 31/12/14 | 400 | 50 | 0 |
This report is prepared in line with the provisions of article, No. 70, §2, item b) of Código das Sociedades Comerciais (Portuguese Company Law).
1. The Bank's share capital is 97.647% owned by Santander Totta SGPS, SA, which is directly controlled by Santusa, SL, a Company incorporated under Spanish Law which owns in it a 99.848% shareholding.
In its turn Santusa SL is fully owned by Banco Santander SA which thus indirectly holds the dominant control in Banco Santander Totta, SA.
A remaining 2.222% holding in the Bank's share capital is owned by a Company under full, direct or indirect control of Santander Totta, SGPS, S.A., Santusa, SL and Banco Santander, SA.
The remaining 0.131% of the total share capital is dispersed among several shareholders, with 0.038% corresponding to BST's own shares.
2. The shares representing the share capital are all of the same type and category, conferring similar rights to the respective holders, including voting rights and shares in profits.
Consequently there are no privileged shares of any type. There are no restrictions whatsoever to the possibility of share transfers, which are entirely free.
There is no system covering employee participation in the Company's share capital in place.
3. Without prejudice to the provisions of the previous paragraph the articles of association rule that one vote is attributed to each lot of one hundred shares.
For shareholders to have the right to participate in the General Meetings they must provide evidence of the registration or deposit of their shares in financial intermediaries until the fifteenth day prior to the date the General Meeting is scheduled to take place.
4. The Company is not aware of any agreement that may have been concluded among shareholders.
5. The Company is organically structured in line with the provisions of article No. 278, §1, item a) of Código das Sociedades Comerciais.
The governing bodies are: the General Meeting, the Board of Directors and the Audit Board. Additionally, a statutory auditor, autonomous from the Audit Board, has been appointed in line with the provisions of article No. 413, §1, item b) and §2 of Código das Sociedades Comerciais.
The governing bodies mandates have an ordinary duration of three years.
The Board of Directors comprises an Executive Committee on which are constituted all the powers permitted by article No. 407, §4 of Company Law.
The Board of Directors meets at least once every quarter and whenever it is called by the Chairman or by two Directors.
The Board of Directors is not empowered to decide upon increases in the Company's share capital.
No special rules exist concerning the appointment or replacement of Directors, or modifications to the articles of association, such events being governed by General Law.
6. The Executive Committee is the body responsible for the Bank's management and representation. It meets twice a month or whenever called by its Chairman or by any two of its members, continuously overseeing the development of the Bank's business, specifically through the analysis of projects in progress or to be developed, as well as the results obtained.
The rationalization and uniformity of operational and technical services supporting the Commercial Network is taken as a permanent goal.
7. The Company has not established any agreements whose entry into force requires a change in the Bank's shareholder structure or that may be subject to alterations or termination deriving from such a change.
Within the ordinary course of banking activity in its several components there are, however, contracts that confer to the Bank's counterparty the right to terminate them in the event of changes in the Bank's shareholder structure and control, in line with common banking practice.
There are no agreements that confer upon the Bank's officers or employees the right to compensation when the termination of their employment relationship with the institution derives from their own initiative, from deposition or dismissal with just cause or that occurs in connection with a public offering.
There are several interdisciplinary Committees that follow up and control all the institutions activities.
The main Committees are listed below, with a short description of their functions.
Presided by the Chairman of the Executive Committee and comprising some of its members as well as officers responsible for the business areas, it meets twice a month. It exercises the powers delegated by the Executive Committee. The main goals of the Management Committee are the analysis, decision and follow up of:
Highest decision body in the Risk structure. It exercises the powers delegated by the Executive Committee.
Monitoring of matters related to Internal Governance, namely those in concerning the adequacy of the Bank's policies to those of the Santander Group and the adhesion of these policies to the Corporate Markers of Governance, with the aim of setting up of Governance Models that are adequate to the needs and objectives of the companies of the Group.
Analysis of the governance information from the Risks area; analysis and control of the several risks; approval of procedures and controls to prevent or mitigate existing risks.
Manages market, liquidity and structural risk, establishes contingency plans, promotes hedging strategies, and decides strategic positioning in order to optimize net interest income and return on equity.
Analysis and implementation of changes and exceptions to the current HR management policies.
Prevention of Money Laundering and Terrorism Financing and communication of potential cases to the relevant authorities as established by Law.
Approval of new products and services and subsequent monitoring of the products and services implemented with a relevant focus on incidences that may occur and generate reputational risk for the Bank.
Execution of the corporate policy over pensions and control of the respective risks.
Follow up and supervision of compliance policies and promotion an environment of an internal control environment, specifically through the effective application of the risk management system.
Establishment and following up of measures for the control and mitigation of technological and operational risk.
Analysis and decision concerning the disposal of properties valued at amounts equal to or in excess of 200,000 euros.
Guarantees the alignment of the local areas involved in the development and follow up of risk models, as well as their inclusion in management procedures. Involvement must occur at the Higher Management level.
Ensure the correct operational management of provisions set up and decide upon credit provisions that are binding.
Follows up issues related to public policies with relevance in the Bank or other Group companies in Portugal, namely with respect to participation in the preparation or public debate of laws, regulations or rules of conduct, originated by supervisory or professional bodies, as well as the assessment of the projected measures relevant impacts.
Establishes the Social Responsibility Strategic Plan, in articulation with the Santander Group corporate plan.
Assesses the legal changes and fiscal rulings with impact on the Group's institutions to determine the appropriate measures to comply with the rules and requirements comprised in tax legislation.
Establish the plan for implementation of innovative solutions in Means of Payment for customers, taking as a reference the corporate strategy established in the Santander Group.
Promote an organizational culture that ensures business continuity, provide the necessary resources for implementation of the Business Continuity Plan and ensure that the approved and implemented plans and procedures are in line with the Business Continuity Plan for the Group.
Establish the profiles of access to the central systems, to departmental systems, to local networks and to the various applications that support the business.
Analysis and decision concerning proposals for the creation of new branches, refurbishment, displacement, merger or shut down of existing branches and assessment of the respective impacts.
Decide upon proposals to be implemented in the social networks.
Assess, decide, follow up and control expenditure and investment.
Two new areas were set up in 2013:
Commercial Intelligence – comprises the strategic definition and management of the segments of Mass-Market, Select, Small Businesses and Corporates, Complementary Channels, Market Assessments and CRM, its interconnection with the areas of Retail Banking and Companies Banking being ensured through the respective areas of dynamization and control of the branch network.
Within this framework, the Bank practices a system of risk identification and management in line with articles No. 11 and 12 of the above referred Aviso and has the required organization to foster a proper and appropriate control environment and a sound risk management system.
Policies and procedures are specifically established with respect to all the risks referred to in article No. 11 of the above mentioned Aviso No. 5/2008.
Such policies and procedures are available and easily accessed by all the institution's employees in the appropriate area of the Bank's intranet system.
The Bank complies with the demands of the Sarbanes Oxley (SOX) American Law since 2006, similarly to the Group to which it belongs. This regulation was made compulsory by the Securities Exchange Commission (SEC) for all corporations quoted on the New York Stock Exchange and is one of the most demanding in terms of requirements for an adequate and reliable Model of Internal Control.
11. The duties of risk management, compliance and auditing are duly instituted in legal and regulatory terms.
The general lines that rule the organization and operation of the referred three missions are described next.
The Risk Management Function (RMF) is materialized in the Control / Risk Management Function Office (CRMO), established in BST's organic structure.
Due to the high level of interconnection among Group companies, with a significant portion of risk measuring and control ensured by central services of global scope, the RMF is transversal and common to all Credit Institutions and Finance Companies dominated by Santander Totta, SGPS, SA.
This function's general goal is to ensure the effective application of the risk management system in line with art. 16 of the referred Aviso No. 5/2008 of the Bank of Portugal, aiming to assess the relevance of the risks incurred and the degree of effectiveness of the measures adopted for their control, mitigation and overcoming. The Internal Governance guiding lines of the EBA dated September 2011 (GL44) strengthened the role of the RMF. The Capital Requirements Regulation (CRR) No. 575/2013 (EU) and the Capital requirements Directive 2013/36/EU (CRDIV) became the new juridical framework required for the adjustment of the General Regime of Credit Institutions and Finance Companies (GRCIFC), approved by Decree-Law No 298/92 dated 31 December and re-published with alterations by means of Decree-Law No 157/2014. Article No 115-M of the new GRCIFC reinforced the role of the Risk Management Function in ensuring the adequate identification, assessment and reporting of all material risks, in participating in the strategy definition and decision on the management of material risks, and by reinforcing the recognition of independence and exemption in conflicts of interest of the officer responsible for the RMF. CMVM (the Portuguese Securities Market Regulator) also issued Decree-Law No. 63-A/2013 altering the Securities' Code (namely article No. 305-B) and through it, the level of exigency demanded from Risk Management.
RMF was set up with the highest level of independence, that is, without any direct responsibility concerning any executive or first line control over the activities to be assessed which allows it to carry out its own tests with independence.
This body was attributed by the Executive Committee (EC) the widest possible powers to apply its mission, basing its activity on what is stated in the applicable legislation and on the application of the following principles and duties:
to any others that, may become material to the institution;
In total agreement with these competences, the CRMFO was set up under the direct control of the EC, which also ensures it has the greatest autonomy and freedom in the exercise of its duties.
The CRMFO is currently applying a specific methodology developed to assess the reach and effectiveness of the controls and mitigation processes of the Risks profile, which has materialized in a number of tests or verifications of the requirements formulated specifically for each type of risk. Such tests and requirements were based on the recommendations issued by the Basle Committee and by the European Banking Authority (EBA, ex-CEBS), by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), by the Federal Reserve System (FED), Sarbanes-Oxley Law (SOX), Financial Services Authority (FSA) and other legislative and regulatory entities. The Portuguese case, especially the regulations covering Internal Control contained in the General Regime of Credit Institutions and Finance Companies (GRCIFC) and connected documentation such as BdP Instruction 5/2008, CMVM Regulatory Instruction 3/2008) was also taken into consideration.
As is usual, the activity developed by the Risk Management Function is documented in a specific annual report, the "RMF Report", the last of which is dated May 2014. This document is intended to be used as a support to the Santander Totta Internal Control System, with particular relevance being given to the following up of controls and promotion of internal control, namely through several actions included in the referred Report.
It should also be noted that, since the end of 2012, the Bank of Portugal firstly, with the support of international auditors and consultants, under the joint supervision of the International Monetary Fund, European Central Bank and European Commission (IMF/ECB/EU) and, later, that of the European Central Bank within the scope of direct and joint supervision with the Bank of Portugal, have confirmed, their
conviction that the policies, procedures and controls instituted by Banco Santander Totta are adequate.
The Bank has given precedence, for some time, to giving autonomy, following up and controlling risks that could materialize in legal or regulatory sanctions, or in financial or reputational losses, as a result of noncompliance with any legal or regulatory provisions that could be considered as applicable, whether legal or regulatory or deriving from an infringement to the Code of Conduct or from procedures that do not conform to ethical standards or the best practices admissible.
The compliance function is incorporated in the Department for Coordination of Institutional and Compliance Issues (DCICI), which includes, a unit specifically dedicated to the Prevention of Money Laundering and Terrorism Financing with staff reserved for its exclusive use. The officer responsible is the Compliance Manager, Dr. João António Cunha Labareda, having the following specific duties and attributions:
Code whose control, however, is attributed to the Department of Coordination of Human Resources;
On another level, and in order to ensure that its mission is performed in the most efficient and effective way, the Compliance Department promoted the institutionalization of specific compliance committees especially designed for the most sensitive areas, namely those closer related to the financial markets, that operate periodically - usually monthly – and that allow assessing the established practices, evaluating their conformity with the applicable legal and regulatory standards, keeping the areas informed about innovations occurred and guaranteeing that
these are implemented, controlling compliance with the information duties and other applicable requirements, identifying possible incidences and, should it be the case, analysing and implementing the appropriate mitigation and preventive measures. These committees are directed and coordinated by DCICI, with the officers responsible for the involved areas taking part in the meetings.
On another hand, both within and out of the scope of these Committees, DCICI maintains regular contact with the other control areas (Audit and General Risk Function), in order to enhance the placing into perspective, the follow up and the global control of risks.
Also worthy of note in this framework, is the institutionalized articulation with the Quality area – responsible for processing and following up customers' complaints – in order to follow up the situation unfolding in this field and, most importantly, to scrutinize, through the analysis of the complaints typology, the existence of possible omissions or inadequate practices that these may point out, so as to provide the appropriate adjustments or corrections.
The Compliance Department also comprises the Internal Control and Compliance Committee that has as general functions the control and management of risk.
Notwithstanding the permanent and systematic contacts with the Bank's Executive Committee, especially with the Board Director responsible for Compliance, the activity developed within this scope is the object of an annual report.
In this context, the Compliance Department Director submitted to the Board the report on compliance activity carried out during the period elapsed since the last report (May 2013) and the end of May 2014.
In line with the above, the Compliance Department Director's opinion is that the Bank is proceeding in accordance with the regulatory framework of the compliance mission, contained in Aviso No. 5/2008.
The basic duties of the Internal Audit are:
Supervising the level of compliance, effectiveness and efficiency of the Group's internal control systems, as well as the reliability and quality of the accounting information. To this purpose internal auditors check that the risks inherent to the Group's activity are adequately covered, particularly the accounting risks, market risks (that
include interest and exchange rates risks), risk of the balance sheet structure (that includes liquidity risks), credit risk, counterparty risk, operational risk, (including the adequate launching of products), money laundering risk, regulatory risk and reputational risk;
The officer responsible for the internal audit mission is appointed by the Board of Directors, which confers on him all the necessary powers for the performance of
his duties with independence and with free access to all relevant information. This position is currently assigned to Dr. Miguel Cabeza.
The staff of the Internal Audit Department comprises 28 employees, all with higher education, distributed over the areas of Financial Risks, Credit Risks, Operational Risks and Technological Risks.
The Risk Matrix prioritizes the units covered by the Internal Audit, in line with their inherent degree of risk. The matrix assesses the business risks implicit to the units during the previous accounting year as well as other factors (size of Unit, last rating obtained, and the recommendations degree of implementation).
Based upon the assessment of all these factors the Units are classified as Priority, Concerning, To Be Watched, Normal and Not Concerning. Amongst the Regulatory requisites are the carrying out of revisions of the Basel II project and DMIF. Additionally, the units' reviews include the analysis and checking of the SOX processes.
Banco Santander Totta, SA – 2014 Annual Report 63
Following a proposal of the Remuneration Committee, the General Meeting held on 29 March 2014 approved the following statement on remunerations policy.
In the terms and for the purposes of the provisions of article no.2, §1 of Law No. 28/2009, dated 19 June and of article No. 16 of Aviso No. 10/2011 of the Bank of Portugal , dated 29 December (Diário da República, 2nd Series, dated 9 January 2012), the proposed remuneration policy of the Members of the Board and Audit Board of Banco Santander Totta, S.A. (the "Bank"), to come into effect in 2014, is approved to be submitted to the General Meeting called to ratify the accounts for 2013, in the following terms:
The remuneration Policy of Banco Santander Totta is framed within the directives established by the Bank's dominant shareholder for all the Santander Group, which are laid out, with the involvement of external consultants, in line with the best practices existing in the sector. Santander Group owns a greater than 99% shareholding in the Bank.
The Remuneration Policy of the Members of the Board and Audit Board is reviewed and approved on an annual basis. In its definition, proposals were laid down and recommendations prepared to ensure that the remunerations are adequate and reflect the Bank's risk profile and long term objectives.
The Remuneration Committee comprises the following individuals:
D. António Basagoiti Garcia – Tuñón – Chairman of the Board of Directors Professor Doctor Luís Manuel Moreira de Campos e Cunha – Chairman of the Audit Board
Since the remuneration policy to be followed is necessarily and fully integrated in the Santander Group policy it is worth noting the very competitive environment in which this activity is developed and that the achievement of the Bank's objectives depends, in a large measure, on the quality, working capacity, dedication, responsibility, knowledge of the business and commitment to the institution, of those who perform key functions and lead the organization.
These are the premises that generally determine the Group's remuneration policy, particularly of the
executive directors, and that allow attracting and retaining talents in the organization, considering the wide scope of the market in which it operates.
Consequently, the remuneration policy of the members of the Board of Directors has the following objectives:
Concerning remuneration of non-executive duties, the remuneration policy equally aims to compensate the dedication, qualification and responsibility demanded for the performance of the job.
A Committee for the Assessment of Risks in Remunerations exists at Group level since 2010.Its members are individuals with recognized competence and impartiality, and its aims are to to assess the quality of the results, risks incurred and achievement of goals.
It is also worth to mention that the Group has received the assistance of consultants Towers Watson in the definition of its remunerations policy.
Thus the Group, following on what has been its practice, will continue to align its remuneration policy with the best market practices, anticipating, in general terms and within adequate measures, the concerns shown in the new Portuguese regulations.
In line with the above, the general guiding principles in setting remunerations are the following:
capacity for reinforcing its capital base is preserved, its employees, customers and investors;
In line with the above principles, the following is assumed:
Concerning the non-executive directors, the Chairman of the Board receives a fixed remuneration in Portugal and, as to the other Director, remuneration comprises both a fixed and a variable component, the latter, however, exclusively and directly related with the results of Banco Caixa Geral Totta de Angola, where he performs duties as Executive Director;
The members of the Audit Board receive only a fixed remuneration which is determined in line with the criteria and practices in use in the remaining Group companies, considering the size of the Bank's business and market in Portugal;
The shares attributed to the members of the Executive Committee do not benefit from any risk covering contract and will remain, until the end of the respective mandates, subject to the condition of being held, until their value reaches twice the amount of the total remuneration (they may nonetheless be sold for the purpose of paying the taxes resulting from the benefit inherent to the same shares).
Bank during a given established period; ii) preservation of the level of the Group's financial performance during the deferment period; iii); compliance with internal regulations, especially those relative to risks; iv) absence of material reformulation of the Group's financial components imposed by the auditors, excepting those resulting from changes in accounting standards; v) inexistence of significant variations in the Group's economic capital or risk profile;
Relative to 2010, and regarding two directors, the last third of the deferred variable remuneration was paid in 2014.
Relative to 2011, one third of the deferred variable remuneration remains to be paid.
Relative to 2012, two thirds of the deferred variable remuneration remains to be paid.
Relative to 2013 variable remuneration, the nondeferred portion was paid in 2014. The remaining portion will be deferred over three years.
It is not expected that the executive directors will receive, in 2014, any payments from other companies controlled by the Bank or by any of its subsidiaries.
Attribution of benefits is carried out in order to ensure compatibility with the bank's strategy, objectives, values and long term interests.
with the regulation approved by the General Meeting held on 30 May 2007, as provided for under §7 of article No. 11 of the Bank's Articles of Association and that globally adopts the provisions of the regulation that had been originally approved at the General Meeting of Banco Totta & Açores held on 30 October 1989. The requisites of this pension plan are, specifically, that the mandate is exercised for a minimum period, the complementary portion varying as a function of the director's accrued years of service;
The attribution of option plans for 2014 is not expected.
Considering the provisions of §5 of article No. 403 of Código das Sociedades Comerciais, statutory limitations to compensation for early termination of services by Members of the Board and Audit Board have not been established nor are they expected to be introduced.
It is not foreseeable that, in 2014, any compensation will be paid for early termination of services by Members of the Board and Audit Board.
This remuneration Policy of the Bank's Members of the Board and Audit Board is fully in line with the principles comprised in the Bank of Portugal's Aviso No. 10/2011, dated 26 December (Official Gazette, 2nd series, dated 9 January 2012), guided by simplicity, transparency and adequacy to the Bank's medium and long term objectives.
As such, the determination of the total remuneration of those Officers, comprising fixed and variable components, as well as the articulation between these components, such as outlined in this Declaration, allow arriving at the adoption, in general, of the rules
contained in Chapter II of the referred Aviso, which manifestly constitutes its most important part.
The circumstance of the Bank being integrated in the Santander Group, which owns more than 99% of its share capital, implies the necessary coherence of the respective corporate policies which, in turn, considering the global nature of the Group, respect the applicable international regulations.
This information is provided in order to comply with the provisions of article No. 3 of Law 28/2009, dated 19 June, article No. 17 of the Bank of Portugal's Aviso No. 10/2011, dated 29 December (Official Gazette, 2nd Series, dated 9 January 2012), in that part that refers to the disclosure of the annual amount paid in
remunerations to Members of the Board and Audit Board. The Remunerations Committee was summoned 6 times in 2014 to exercise its duties.
In aggregate terms, the fixed and variable remunerations paid to Members of the Board and Audit Board in 2014 were, respectively mEuros 3.578 in fixed remunerations and mEuros 4.596 in variable remunerations.
On 31 December 2014 the cumulative amount of credits granted to the members of the Board of Directors in accordance with article 85 of the general regime of credit institutions and finance companies amounted to mEuros 809.
Paid and deferred individual remuneration relative to 2014 is shown in the table below.
| Name | Position | Remuneration fixed |
|---|---|---|
| António Basagoiti Garcia -Tuñón | Chairman | 838 |
| António José Sacadura Vieira Monteiro | Deputy Chairman | 568 |
| Carlos Manuel Amaral de Pinho | Non-Executive Member | 190 |
| João Baptista Leite | Member | 200 |
| José Carlos Brito Sítima | Member | 321 |
| José Urgel Moura Leite Maia | Member | 227 |
| José Manuel Alves Elias da Costa | Member | 302 |
| Luís Filipe Ferreira Bento dos Santos | Member | 296 |
| Pedro Aires Coruche Castro e Almeida | Member | 337 |
| Manuel António Amaral Franco Preto | Member | 200 |
| 3,479 |
| Name | Position | Remuneration fixed |
|---|---|---|
| Luís Campos e Cunha | Chairman | 60 |
| Mazars & Associados, SROC | Member | 15 |
| Ricardo Castro | Member | 24 |
| 99 |
Pecuniary portion:
| Name | Position | Bonuses in 2014 (cash) |
|---|---|---|
| António José Sacadura Vieira Monteiro | Deputy Chairman | 225 |
| Carlos Manuel Amaral de Pinho | Non-Executive Member | 90 |
| João Baptista Leite | Member | 107 |
| José Carlos Brito Sítima | Member | 170 |
| José Urgel Moura Leite Maia | Member | 141 |
| José Manuel Alves Elias da Costa | Member | 168 |
| Luís Filipe Ferreira Bento dos Santos | Member | 135 |
| Pedro Aires Coruche Castro e Almeida | Member | 174 |
| Manuel António Amaral Franco Preto | Member | 137 |
| 1,346 |
Portion paid in shares:
| Name | Position | Bonuses in 2014 retained by one year |
|---|---|---|
| António José Sacadura Vieira Monteiro | Deputy Chairman | 221 |
| Carlos Manuel Amaral de Pinho | Non-Executive Member | 89 |
| João Baptista Leite | Member | 105 |
| José Carlos Brito Sítima | Member | 167 |
| José Urgel Moura Leite Maia | Member | 138 |
| José Manuel Alves Elias da Costa | Member | 165 |
| Luís Filipe Ferreira Bento dos Santos | Member | 133 |
| Pedro Aires Coruche Castro e Almeida | Member | 171 |
| Manuel António Amaral Franco Preto | Member | 134 |
| 1,323 |
This amount corresponds to 217,489 Banco Santander, S.A. shares, at a price per share of 6.085 Euros, since this was the market price (Stock Exchange quotation) on the date of the respective attribution.
The Santander Group, in which the Bank is inserted, also has a long term incentive plan on a worldwide level, which naturally includes Banco Santander Totta, S.A., and which is divided in cycles.
The sixth cycle of the share plan linked to objectives was finalized in July 2014, with no shares being attributed due to the objectives not having been achieved.
The pecuniary portion of the 2014 deferred remuneration is as follows:
| Bonuses - 2014 | |||||
|---|---|---|---|---|---|
| Name | Position | 2016 | 2017 | 2018 | |
| Cash | Cash | Cash | |||
| António José Sacadura Vieira Monteiro | Deputy Chairman | 75 | 75 | 75 | |
| Carlos Manuel Amaral de Pinho | Non-Executive Member | 20 | 20 | 20 | |
| João Baptista Leite | Member | 24 | 24 | 24 | |
| José Carlos Brito Sítima | Member | 38 | 38 | 38 | |
| José Urgel Moura Leite Maia | Member | 31 | 31 | 31 | |
| José Manuel Alves Elias da Costa | Member | 37 | 37 | 37 | |
| Luís Filipe Ferreira Bento dos Santos | Member | 30 | 30 | 30 | |
| Pedro Aires Coruche Castro e Almeida | Member | 39 | 39 | 39 | |
| Manuel António Amaral Franco Preto | Member | 30 | 30 | 30 | |
| 324 | 324 | 324 |
The portion of 2014 deferred remuneration paid in shares is as follows:
| Bonuses - 2014 | |||||
|---|---|---|---|---|---|
| Name | Position | 2015 | 2016 | 2017 | |
| shares | shares | shares | |||
| António José Sacadura Vieira Monteiro | Deputy Chairman | 12,097 | 12,097 | 12,097 | |
| Carlos Manuel Amaral de Pinho | Non-Executive Member | 3,233 | 3,233 | 3,233 | |
| João Baptista Leite | Member | 3,826 | 3,826 | 3,826 | |
| José Carlos Brito Sítima | Member | 6,110 | 6,110 | 6,111 | |
| José Urgel Moura Leite Maia | Member | 5,058 | 5,058 | 5,057 | |
| José Manuel Alves Elias da Costa | Member | 6,035 | 6,035 | 6,035 | |
| Luís Filipe Ferreira Bento dos Santos | Member | 4,850 | 4,850 | 4,849 | |
| Pedro Aires Coruche Castro e Almeida | Member | 6,251 | 6,251 | 6,250 | |
| Manuel António Amaral Franco Preto | Member | 4,904 | 4,904 | 4,903 | |
| 52,364 | 52,364 | 52,361 |
On this date, two thirds of the deferred 2013 remuneration remains deferred, and one third has been paid.
| Name | Position | Bonuses - 2013 paid in February 2015 | |||
|---|---|---|---|---|---|
| Interests | Dividends | Cash | Shares | ||
| António José Sacadura Vieira Monteiro | Deputy Chairman | 0.3 | 4 | 50 | 47 |
| Carlos Manuel Amaral de Pinho | Non-Executive Member | 0.1 | 1 | 17 | 16 |
| João Baptista Leite | Member | 0.1 | 1 | 16 | 15 |
| José Carlos Brito Sítima | Member | 0.2 | 3 | 33 | 31 |
| José Urgel Moura Leite Maia | Member | 0.1 | 2 | 23 | 22 |
| José Manuel Alves Elias da Costa | Member | 0.2 | 3 | 29 | 27 |
| Luís Filipe Ferreira Bento dos Santos | Member | 0.2 | 3 | 29 | 27 |
| Pedro Aires Coruche Castro e Almeida | Member | 0.2 | 3 | 36 | 33 |
| Manuel António Amaral Franco Preto | Member | 0.1 | 2 | 20 | 19 |
| 1.4 | 23 | 253 | 237 |
37,805 Banco Santander, S.A. shares were attributed, at a price per share of 6.272 Euros, since this was the market price (Stock Exchange quotation) on the date of the respective attribution.
| Bonuses - 2013 | |||||
|---|---|---|---|---|---|
| Name | Position | 2016 | 2017 | ||
| Shares | Cash | Shares | Cash | ||
| António José Sacadura Vieira Monteiro | Deputy Chairman | 7,485 | 50 | 7,485 | 50 |
| Carlos Manuel Amaral de Pinho | Non-Executive Member | 2,495 | 17 | 2,495 | 17 |
| João Baptista Leite | Member | 2,380 | 16 | 2,381 | 16 |
| José Carlos Brito Sítima | Member | 4,990 | 33 | 4,990 | 33 |
| José Urgel Moura Leite Maia | Member | 3,502 | 23 | 3,502 | 23 |
| José Manuel Alves Elias da Costa | Member | 4,339 | 29 | 4,340 | 29 |
| Luís Filipe Ferreira Bento dos Santos | Member | 4,281 | 29 | 4,282 | 29 |
| Pedro Aires Coruche Castro e Almeida | Member | 5,339 | 36 | 5,340 | 36 |
| Manuel António Amaral Franco Preto | Member | 2,994 | 20 | 2,994 | 20 |
| 37,805 | 253 | 37,809 | 253 |
On this date, one third of the deferred 2012 remuneration remains deferred, and one third has been paid
| Name | Bonuses - 2012 paid in February 2015 | ||||
|---|---|---|---|---|---|
| Position | Interests | Dividends | Cash | Shares | |
| António José Sacadura Vieira Monteiro | Deputy Chairman | 0.6 | 10 | 53 | 51 |
| Carlos Manuel Amaral de Pinho | Non-Executive Member | 0.2 | 3 | 19 | 18 |
| João Baptista Leite | Member | 0.2 | 3 | 18 | 17 |
| José Carlos Brito Sítima | Member | 0.3 | 5 | 27 | 27 |
| José Urgel Moura Leite Maia | Member | 0.3 | 5 | 27 | 26 |
| José Manuel Alves Elias da Costa | Member | 0.4 | 6 | 32 | 31 |
| Luís Filipe Ferreira Bento dos Santos | Member | 0.3 | 5 | 29 | 28 |
| Pedro Aires Coruche Castro e Almeida | Member | 0.4 | 7 | 38 | 37 |
| Manuel António Amaral Franco Preto | Member | 0.2 | 4 | 21 | 20 |
| 3.1 | 49 | 262 | 255 |
40,704 Banco Santander, S.A. shares were attributed, at a price per share of 6.272 Euros, since this was the market price (Stock Exchange quotation) on the date of the respective attribution.
| Bonuses - 2012 | |||||
|---|---|---|---|---|---|
| Name | Position | 2016 | |||
| Shares | Cash | ||||
| António José Sacadura Vieira Monteiro | Deputy Chairman | 8,169 | 53 | ||
| Carlos Manuel Amaral de Pinho | Non-Executive Member | 2,884 | 19 | ||
| João Baptista Leite | Member | 2,723 | 18 | ||
| José Carlos Brito Sítima | Member | 4,221 | 27 | ||
| José Urgel Moura Leite Maia | Member | 4,149 | 27 | ||
| José Manuel Alves Elias da Costa | Member | 4,964 | 32 | ||
| Luís Filipe Ferreira Bento dos Santos | Member | 4,452 | 29 | ||
| Pedro Aires Coruche Castro e Almeida | Member | 5,876 | 38 | ||
| Manuel António Amaral Franco Preto | Member | 3,268 | 21 | ||
| 40,706 | 261 |
The variable remuneration paid relative to 2011 was the following:
| Name | Bonuses - 2011 paid in February 2015 | ||||
|---|---|---|---|---|---|
| Position | Interests | Dividends | Cash | Shares | |
| António José Sacadura Vieira Monteiro | Deputy Chairman | 0.4 | 3 | 10 | 11 |
| Carlos Manuel Amaral de Pinho | Non-Executive Member | - | - | - | - |
| João Baptista Leite | Member | 0.3 | 2 | 6 | 7 |
| José Carlos Brito Sítima | Member | 0.4 | 3 | 10 | 11 |
| José Urgel Moura Leite Maia | Member | 0.4 | 3 | 10 | 11 |
| José Manuel Alves Elias da Costa | Member | 0.6 | 5 | 14 | 15 |
| Luís Filipe Ferreira Bento dos Santos | Member | 0.6 | 4 | 12 | 13 |
| Pedro Aires Coruche Castro e Almeida | Member | 1.2 | 8 | 26 | 28 |
| 4.0 | 29 | 87 | 96 |
15,241 Banco Santander, S.A. shares were attributed, at a price per share of 6.272 Euros, since this was the market price (Stock Exchange quotation) on the date of the respective attribution.
With respect to post-employment benefits, the members of the Board of Directors who are contractually bound to BST and that are not inserted in the plan referred to below are comprised in the pension plan of the Collective Labour Agreement for the banking sector subscribed by the Bank.
In 2010, the group set up a plan with an established contribution for its entire managerial staff. This plan also includes the members of the Board of Directors that are not comprised in the plan referred to below.
The executive directors who, at the date of the merger, were directors of Banco Totta & Açores, benefit from a complementary pension fund covering retirement due to age or incapability, whose terms and conditions were set in line with the regulation that was approved by the General Meeting held on 30 May 2007, as provided for under §7 of article No. 11 of the Banks Articles of Association and that globally adopts the provisions of the regulation that had been originally approved at the General Meeting of Banco Totta & Açores held on 30 October 1989. The requisites of this pension plan are, specifically, the exercise of the office for a minimum period, the complementary portion varying as a function of the director's accrued years of service.
On 31 December 2014, liabilities with this plan amounted to mEuros 18,391 and are duly covered by a provision recorded in the Bank's accounts.
.
There were no payments, in 2014, of any compensation for early termination of employment of corporate officers.
At its meeting held on 25 June 2014 the Board of Directors approved the following remunerations policy.
In the terms and for the purposes of the provisions of article No. 3 of Law No. 28/2009, dated 19 June, and in article No. 16 of Instruction No.10/2011 of the Bank of Portugal, dated 29 December (Official Gazette 2nd Series, dated 9 January 2012), the remuneration policy of the employees is disclosed of the employees for those who are not members of the Governing Bodies of Bank Santander Totta, S.A. (the "Bank"), (i) exercise their professional activity with responsibility for assuming risks on behalf of the Bank or of its customers with material impact on the Bank's risk profile or (ii) exercise their professional activity within the scope of the control functions, comprised in Instruction No. 5/2008 of the Bank of Portugal, dated 1 July, as is the case with the officers responsible for the Audit, General Control of Bank Risks, Compliance and Credit & Market Risks Departments, as well as those officers responsible for the Financial, accounting and Management Control areas.
In the definition of this policy's subjective scope consideration was given to the parameters referred in "the regulatory technical standards on criteria to identify categories of staff whose professional activities have a material impact on an institution's risk profile under Article 94(2) of Directive 2013/36/EU", such as proposed by the European Banking Authority (EBA).
The Remuneration Policy of Managerial Staff follows the principles in force for the Bank's remaining employees, as comprised in the directives established by the Bank's majority shareholder for all the Santander Group and laid out, with the involvement of external consultants, in line with the best practices existing in the sector. Santander Group owns more than 99% of Santander Totta Bank.
The Remuneration Policy of Managerial Staff is annually reviewed and approved by the Board of Directors, in the exercise of the competence that may be delegated on the respective Executive Committee, The officer responsible for the Bank's Human Resources Department also took part in its definition, putting forward recommendations intended to ensure that remunerations are adequate and reflect the
Bank's risk profile and long term objectives, and also conform to legal and regulatory standards, as well as with the national and international pertinent principles and recommendations.
Since the following remuneration policy is necessarily and fully comprised in the Santander Group policy, reference should be made to the extremely competitive context within which the Group's activity is developed and the circumstance that the achievement of its objectives largely depends upon the quality, the capacity for work, the dedication, responsibility, knowledge of the business and commitment towards the institution, from those that perform key duties in the organization.
These are the premises that generally determine the Santander Group's remuneration policy and that allow attracting and retaining talents in the organization, considering the global cover of the market within which it operates.
Consequently, the remuneration policy of these groups of employees has, as it did in the past, the following objectives:
The Group set up, in 2010, a Committee for the Assessment of Remuneration Risks, whose members are individualities of known competence and impartiality, in order to assess the quality of the results, incurred risks and achievement of objectives, issues that have an impact on remunerations.
Thus the Group, following on what has been its practice, will continue to align its remuneration policy with the best market practices, anticipating in general terms and within the adequate measures, the concerns expressed in the Portuguese legislation.
Additionally, the Group engaged the assistance of consultants Towers Watson in the definition of their remunerations policy.
In line with the above, the general guiding principles of the remunerations policy have been and must remain the following:
In line with the above principles, the following is assumed:
In order to objectively determine and bring greater transparency to the process for determining the Variable Remuneration, this takes into consideration the Bank's quantitative and qualitative objectives, as well as the respective indicators estimated in the Strategic Plan that are annually established at Group level;
With respect to the Officers covered by Instruction No, 5/2008 of the Bank of Portugal, the determination of Variable Remuneration will be based on the following criteria: (i) individual assessment of the employee, exclusively considering the specific objectives related to the functions exercised by the employee concerned; (ii) the Bank's global performance and that of the economic group it comprises, considering the indicators of efficient capital consumption and the average growth of the operating results;
The deferred portion will represent 40% of the total value of the Variable Remuneration;
Half of the non-deferred portion will be paid in shares and the remaining half in cash;
62,5% of one third of the respective value in the periods when the RTS of Banco Santander is the seventh placed in that group;
50% of one third of the respective value in the periods when the RTS of Banco Santander is the eighth placed in that group;
Relative to the 2012 variable remuneration two thirds remain to be paid.
Relative to the 2013 variable remuneration, the portion not subject to deferment was paid in 2014. Payment of the remainder is deferred for three years.
Attribution of benefits is carried out in order to ensure compatibility with company strategy, and with the Bank's objectives, values and long term objectives.
Without prejudice to causal or residual attributions, resulting from measures taken in the past by previous employers (Crédito Predial Português, Banco Totta & Açores, Banco Santander Portugal and Banco Santander de Negócios Portugal), all Managers enjoy the following benefits:
Several employees benefit from life insurance, resulting from the contractual connection to the extinct Banco Santander Portugal or to Banco Santander, S.A.
Several employees benefit from a complementary pension plan, in the terms of the decision taken by the Bank's Board of Directors on 25 February 2010.
There are no pension benefits attributed on a discrete basis.
The remuneration policy of the Bank's Officers is generally in line with the principles comprised in Instruction No. 10/2011, dated 26 December (Government Gazette, 2nd Series, dated 9 January 2012), also taking into consideration "the parameters defined in the regulatory technical standards on criteria to identify categories of staff whose professional activities have a material impact on an institution's risk profile under Article 94(2) of Directive 2013/36/EU", such as proposed by the European Banking Authority (EBA).
This policy is guided by simplicity, transparency and adequacy to the Bank's medium and long term objectives.
As such, the determining of the total remuneration of these groups of employees, comprised by a fixed and a variable remuneration, as well as the joint appraisal of these two components, such as made clear in this Declaration, allow the adoption, in general, of the rules contained in Chapter II of the referred Instruction which is clearly its basic nucleus.
The fact that the Bank is comprised in the Santander Group, which owns more than 99% of its share capital, implies the necessary coherence between the respective corporate policies which, in their turn, considering the Group's global nature, respect the international regulations that cover this issue. In this context, the adoption of the remaining rulings contained in Instruction No. 10/2011 would imply a procedural redundancy and an artificial regulatory execution without any practical effects. As such, the policy of Banco Santander Totta regarding its Officers' remunerations is contained within these limits without
prejudice to the compliance, in global terms and at the time of setting the directives of the Group to which
they are liable, with similar rules established by the competent national authorities.
This information is provided in compliance with the provisions of article No. 17 of Instruction No.10/2011 of the Bank of Portugal, dated 29 December (Official Gazette 2nd Series, dated 9 January 2012), in that part that refers the disclosure, in aggregate terms, of the amount of annual remuneration paid to employees who, not being Corporate Officers of Banco Santander Totta, S.A. (the "Bank"), exercise their professional activity within the scope of the control functions comprised in Instruction No. 5/2008 of the Bank of Portugal, dated 1 July, or exercise duties with responsibility for assuming risks on behalf of the Bank or of its customers that may have material impact on the Bank's risk profile (hereinafter referred to as "Managers" or "Officers").
| Annual Remuneration | |
|---|---|
| Amount of fixed remuneration | mEuros 4,293 |
| Amount of variable remuneration | mEuros 4,291 |
| Number of beneficiaries: | 25 |
2015 Performance premium retained for one year amounting to mEuros 1.242, corresponding to 204,103 shares of Banco Santander, S.A., at a price per share of 6.085 Euros, since this is the market price (Stock Exchange quotation) on the date of the respective attribution.
| Deferred Remuneration | Paid | 2016 | 2017 | 2018 |
|---|---|---|---|---|
| 2011 | ||||
| Pecuniary portion (mEuros) | 7 | - | - | - |
| Shares | 11 | - | - | - |
The value of the shares corresponds to 1,762 shares in Banco Santander, S.A., at a price per share of 6.27 Euros, since this is the market price (Stock Exchange quotation) on the date of the respective attribution.
.
| Pecuniary portion (mEuros) | 63 | 54 | - | - |
|---|---|---|---|---|
| Shares | 58 | 9,745 | - | - |
The value of the shares corresponds to 9,310 shares in Banco Santander, S.A., at a price per share of de 6.27 Euros, since this is the market price (Stock Exchange quotation) on the date of the respective attribution.
| Pecuniary portion (mEuros) | 72 | 67 | 67 | - |
|---|---|---|---|---|
| Shares | 65 | 10,796 | 10,797 | - |
The value of the shares corresponds to 10,386 shares in Banco Santander, S.A., at a price per share of de 6.27 Euros, since this is the market price (Stock Exchange quotation) on the date of the respective attribution.
| Pecuniary portion (mEuros) | - | 288 | 288 | 288 |
|---|---|---|---|---|
| Shares | - | 46,502 | 46,502 | 46,499 |
These officers are also included in the worldwide long term incentive plan which is divided in cycles. The sixth cycle of the share plan linked to objectives was finalized in July 2014, no shares having been attributed since the objectives were not achieved.
Officers enjoy the benefits of health insurance complementary to Medical & Social Assistance Services (SAMS) comprised in the collective labour regulations for the banking sector and of personal accident insurance, in line with the provisions of the collective labour regulations for the banking sector.
Several Officers benefit from life insurance, as a result of a contractual link with the extinct Banco Santander Portugal or with Banco Santander, S.A..
Several Officers benefit from a complementary pension plan, in the terms of the decision of the Bank's Board of Directors dated 25 February 2010.
The Remuneration Policy of the Corporate Officers of Banco Santander Totta, for 2015, will be the object of deliberation at the Annual General Meeting, in the terms of article no. 2, §1 of Law no. 28/2009, dated 19 June and of article no. 16 of Bank of Portugal Instruction no. 10/2011, dated 29 December (Government Gazette, 2nd Series, dated 9 January 2012).
The Remuneration policy for the Managerial Staff of Banco Santander Totta was approved at the meeting of the Board of Directors held on 25 June 2014, and applicable in 2014 and 2015. Until a further decision is taken, this policy is that which is transcribed above. It is expected that this issue will be considered in June 2015.
Item c) of §1 of article no. 245 of the Securities Legislation 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. 245 of the Securities Legislation that, as far as I am aware, the Management Report, the annual Accounts, the Statutory Auditor's Report and remaining financial statements of Banco Santander Totta, S.A., all relative to the year ended on 31 December 2014, 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 above named company and of those companies comprised in the perimeter of consolidation, containing an accurate description of the main risks and uncertainties with which all the above companies are being faced".
| António Basagoiti Garcia-Tuñon | |
|---|---|
| Chairman |
António José Sacadura Vieira Monteiro Carlos Manuel Amaral de Pinho Deputy Chairman Member
Pedro Aires Coruche Castro e Almeida Member
João Batista Leite José Carlos Brito Sítima Member Member
José Urgel Moura Leite Maia José Manuel Alves Elias da Costa Member Member
Luís Filipe Ferreira Bento dos Santos Manuel António Amaral Franco Preto Member Member
Item c) of §1 of article No. 245 of the Securities Legislation determines that each of the responsible officers in a company issues a declaration as defined therein.
The members of the Audit Board of Banco Santander Totta, S.A, hereunder individually identified, subscribed the following declaration:
"I hereby declare, in the terms and for the purposes foreseen in item c) of §1 of article No. 245 of the Securities Legislation that, to the best of my knowledge, the management report, the annual accounts, the statutory auditor's report and remaining notes to the accounts of Banco Santander Totta, S.A., all relative to the year ended on 31 December 2014, were prepared in line with the applicable accounting standards, provide a true and accurate view of the assets and liabilities, of the financial situation and of the results of the above named company and of those companies comprised in the consolidation perimeter, and include a description of the main risks and uncertainties with which all the above companies are faced".
Chairman: Luís Manuel Moreira de Campos e Cunha
Members: Mazars & Associados, SROC, represented by Fernando Vieira
Ricardo Manuel Duarte Vidal Castro
Banco Santander Totta, SA – 2014 Annual Report 81
| 201 4 |
201 3 (pro for ma) |
Jan 01 uary , 201 3 (pro for ma) |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| ASS ETS |
Not es |
Am ts b efor oun e imp airm ent and dep reci atio n |
Imp airm ent and dep reci atio n |
Net ets ass |
Net ets ass |
Net ets ass |
LIA BIL ITIE S A ND SHA REH OLD ERS ' EQ UIT Y |
Not es |
201 4 |
201 3 (pro for ma) |
Jan 01 uary , 201 3 (pro for ma) |
| Cas h an d de its a l ba nks t ce ntra pos |
5 | 830 .474 |
- | 830 .474 |
337 .841 |
352 .365 |
Liab ilitie s |
||||
| Bala s du e fro ther ban ks nce m o |
6 | 241 .218 |
- | 241 .218 |
552 .921 |
385 .323 |
Res of c al b ank entr our ces s |
18 | 4.4 06.3 12 |
6.24 1.41 0 |
5.8 37.2 42 |
| ld fo Fina ncia l as sets he r tra ding |
7 | 2.2 91.7 34 |
- | 2.2 91.7 34 |
1.94 9.11 5 |
2.2 65.4 95 |
ld fo Fina ncia l liab ilitie s he r tra ding |
7 | 1.9 95.0 19 |
1.6 19.7 68 |
2.04 8.74 3 |
| Fina ncia l as at f air v alue thr h pr ofit or lo sets oug ss |
- | - | - | - | 93. 735 |
Res of o ther dit i nsti tutio our ces cre ns |
19 | 4.0 30.7 24 |
4.1 75.0 58 |
1.94 9.57 4 |
|
| Ava ilab le-fo le fi cial ets r-sa nan ass |
8 | 6.7 74.4 98 |
61. 943 |
6.7 12.5 55 |
4.3 82.2 53 |
3.4 89.8 64 |
Res of c d ot her deb usto ts our ces mer s an |
20 | 21. 625 .902 |
20. 707 .001 |
21.4 97.1 74 |
| Loa nd a dva s to dit i nsti tutio ns a nce cre ns |
9 | 1.22 0.91 7 |
- | 1.22 0.91 7 |
3.2 70.9 70 |
3.0 97.4 22 |
Deb t se curi ties |
21 | 2.9 73.1 11 |
2.5 34. 161 |
3.95 3.5 19 |
| Loa nd a dva s to tom ns a nce cus ers |
10 | 26. 684 .869 |
1.1 61.6 18 |
25.5 23.2 51 |
26. 107 .521 |
26. 979 .649 |
Hed ging de riva tive s |
11 | 133 .690 |
370 .684 |
455 .911 |
| Hed ging de riva tive s |
11 | 195 .035 |
- | 195 .035 |
199 .427 |
284 .850 |
Pro visi ons |
22 | 71. 988 |
62. 039 |
72.2 71 |
| Non rent ets held for sale -cur ass |
12 | 332 .221 |
123 .846 |
208 .375 |
206 .943 |
206 .840 |
Cur rent tax liab ilitie s |
16 | 20. 034 |
14. 313 |
4.6 87 |
| Inve ertie stm ent prop s |
13 | 420 .239 |
- | 420 .239 |
467 .949 |
- D efer red liab ilitie tax s |
16 | 142 .026 |
58.5 24 |
303 75. |
|
| Oth ngib le a er ta ts sse |
14 | 745 .117 |
446 .325 |
298 .792 |
318 .662 |
336 .084 |
Equ ity r tativ e in stru ts epre sen men |
23 | 205 .979 |
235 .054 |
- |
| Inta ngib le a ts sse |
14 | 380 .023 |
351 .642 |
28. 381 |
52.4 68 |
65. 842 |
Sub ord inat ed l iabi lities |
24 | 4.3 06 |
4.3 07 |
4.3 11 |
| Inve in a ciat ed c anie stm ents sso omp s |
15 | 167 .859 |
1.5 00 |
166 .359 |
147 .730 |
142 .994 |
Oth er li abil ities |
25 | 292 .893 |
292 .900 |
303 .417 |
| Cur rent tax ets ass |
16 | 14. 603 |
- | 14. 603 |
17.4 58 |
4.24 6 |
Tota l liab ilitie s |
35. 901 .984 |
36. 315 .219 |
36.2 02.1 52 |
|
| Def d ta sets erre x as |
16 | 458 .675 |
- | 458 .675 |
540 .675 |
631 .578 |
|||||
| Oth ts er a sse |
17 | 274 .042 |
24.2 88 |
249 .754 |
258 .595 |
190 .956 |
Sha reh old ' eq uity ers |
||||
| Sha apit al re c |
26 | 656 .723 |
656 .723 |
656 .723 |
|||||||
| Sha ium t re p rem acc oun |
26 | 193 .390 |
193 .390 |
193 .390 |
|||||||
| Oth quit y in stru ts er e men |
26 | 135 .000 |
135 .000 |
135 .000 |
|||||||
| Rev alua tion res erve s |
26 | (27 8.73 8) |
(57 3.18 9) |
(69 9.20 2) |
|||||||
| Oth and ret aine d ea rnin er r ese rves gs |
26 | 1.5 34.5 96 |
1.4 77.2 17 |
1.42 1.51 2 |
|||||||
| (Ow n sh ) ares |
(43 .444 ) |
(43 .312 ) |
(42 .560 ) |
||||||||
| Con soli date d ne t inc ibut able he s hare hold ers' of B ST attr to t ome |
27 | 165 .174 |
89. 164 |
88. 068 |
|||||||
| Sha f BS reho lder s' e quit y at tribu tabl e to the sha reho lder s' o T |
2.3 62.7 01 |
1.9 34.9 93 |
1.75 2.93 1 |
||||||||
| Non troll ing inte rest -con s |
28 | 595 .677 |
560 .316 |
572 .160 |
|||||||
| To tal s hare hold ers' uity eq |
2.95 8.37 8 |
2.4 95.3 09 |
2.32 5.09 1 |
||||||||
| To tal a ts, n et sse |
41. 031 .524 |
2.1 71.1 62 |
38. 860 .362 |
38. 810 .528 |
38.5 27.2 43 |
To tal l iabi lities and sha reho lder s' e quit y |
38.8 60.3 62 |
38. 810 .528 |
38.5 27.2 43 |
The accompanying notes form an integral part of the consolidated balance sheet for the year ended December 31, 2014.
(Translation of statements of income originally issued in Portuguese - Note 53)
| Notes | 2014 | 2013 (pro forma) |
|
|---|---|---|---|
| Interest and similar income | 30 | 1.194.168 | 1.271.127 |
| Interest and similar charges | 31 | (650.629) | (763.859) |
| Net interest income | 543.539 | 507.268 | |
| Income from equity instruments | 32 | 1.222 | 1.313 |
| Income from services and commissions | 33 | 335.187 | 370.626 |
| Charges with services and commissions | 34 | (58.311) | (55.116) |
| Result of assets and liabilities at fair value through profit or loss | 35 | (244.097) | 20.326 |
| Result of available-for-sale financial assets | 36 | 308.722 | 4.534 |
| Result of foreign exchange revaluation | 37 | 5.458 | 4.039 |
| Result from the sale of other assets | 38 | 17.568 | 2.476 |
| Other operating results | 39 | (14.314) | (25.545) |
| Net income from banking activities | 894.974 | 829.921 | |
| Staff costs | 40 | (281.592) | (269.577) |
| General administrative costs | 41 | (143.744) | (137.159) |
| Depreciation in the year | 14 | (61.857) | (59.777) |
| Provisions, net of reversals | 22 | (46.416) | (6.930) |
| Loan impairment net of reversals and recoveries | 22 | (111.206) | (197.039) |
| Impairment of other financial assets net of reversals and recoveries | 22 | (1.131) | (3.155) |
| Impairment of other assets net of reversals and recoveries | 22 | (33.780) | (36.827) |
| Result from associates | 42 | 19.791 | 14.069 |
| Income before taxes and non-controlling interests | 235.039 | 133.526 | |
| Taxes | |||
| Current | 16 | (40.700) | (35.321) |
| Deferred | 16 | (29.171) | (9.037) |
| Income after taxes and before non-controlling interests | 165.168 | 89.168 | |
| Non-controlling interests | 28 | 6 | (4) |
| Consolidated net income attributable to the shareholders´ of BST | 27 | 165.174 | 89.164 |
| Average number of ordinary shares outstanding | 27 | 641.879.747 | 641.959.603 |
| Earnings per share (in Euros) | 27 | 0,26 | 0,14 |
The accompanying notes form an integral part of the consolidated statement of income for the year ended December 31, 2014.
(Amounts expressed in thousands of Euros - tEuros)
(Translation of statements of income and other comprehensive income originally issued in Portuguese - Note 53)
| De ce |
31 20 14 er , |
De mb 31 20 13 ( for ) ce er p ro ma , |
|||
|---|---|---|---|---|---|
| Att rib ble th uta to e sh ho lde rs' f B ST are o |
Att rib ble uta to llin inte tro ts no n-c on g res |
Att rib ble th uta to e sh ho lde rs' f B ST are o |
Att rib ble uta to llin inte tro ts no n-c on g res |
||
| 165 .17 4 |
( 6 ) |
89 .16 4 |
4 | ||
| 48 .39 |
- | 37 .78 5 |
- | ||
| 76 2 |
- | 7.4 47 |
- | ||
| 9.0 67 |
35 .47 6 |
( 4.4 87 ) |
( 11 .81 1) |
||
| 90 7 |
- | 76 7 |
- | ||
| 157 | - | 157 | - | ||
| 49 0.6 88 |
- | 27 8.5 91 |
- | ||
| 143 .41 9 |
- | 79 .60 |
- | ||
| 22 .49 9 |
- | .10 8 55 |
- | ||
| 6.7 46 |
- | 15 .76 0 |
- | ||
| 45 8.8 75 |
35 .47 0 |
21 4.5 88 |
( 11 .80 7) |
||
| ( 4) ( ) ( ) ( ) |
mb | ( ) ( ) ( 4) ( ) |
The accompanying notes form an integral part of the consolidated statements of income and other comprehensive income for the year ended December 31, 2014.
(Amounts expressed in thousands of Euros - tEuros)
(Translation of statements of changes in shareholders' equity originally issued in Portuguese - Note 53)
| Sha For eign re Ow Sha Pre miu Oth quit Leg al Fair han Def d Leg al Oth Ret aine d re m er e y exc ge erre er Cap ital Acc inst alua tion valu fluc ion rnin sha t ents tuat tax oun rum rev e es res erve res erve s ea gs |
Net inc n ome in t he y res ear |
Non lling Sha reho lder s´ ntro -co inte ity rest s equ |
|---|---|---|
| Bal De ber 31 , 20 12 656 .723 193 .390 135 .000 23. 245 (1.0 01.0 64) (5.8 57) 284 .474 245 .862 934 .572 241 .078 (42 s at anc es a cem |
.560 ) 88. 068 |
572 .160 2.3 25.0 91 |
| Effe f th clas sific atio n of lling inte liab ilitie ct o ntro rest s to e re no n-co s ocia ted with the rtici pati nits t ow ned by the Gro up i ass pa ng u no n inve stm ent fun ds c olid ated by the full soli dat ion met hod ons con - - - - - - - - - - |
- | - - |
| Bal s at Ja ry 1 , 20 13 ( for ma) 656 .723 193 .390 135 .000 23. 245 (1.0 01.0 64) (5.8 57) 284 .474 245 .862 934 .572 241 .078 (42 anc es a nua pro |
.560 ) 88. 068 |
572 .160 2.3 25.0 91 |
| App riati f ne t inc rop on o ome |
||
| . Tr fer 453 (3.9 08) 91. 523 to r ans ese rves - - - - - - - |
(88 .068 - |
) - |
| Dist ribu tion of divi den ds - fere sha 136 (30 .750 ) pre nce res - - - - - - - - |
- | 36 (30 .578 - |
| Lon g-te ince ntiv (79 9) rm es - - - - - - - - - |
- | (79 9) - - |
| Pur cha f ow n sh se o are s - - - - - - - - - - |
(75 2) |
(75 2) - - |
| Oth (36 1) er - - - - - - - - - |
- | (73 ) (43 4) - |
| Com hen sive inc pre ome |
||
| for the (4.4 87) (56 ) r 20 13 186 .465 .554 yea - - - - - - - |
89. 164 - |
(11 ) .807 202 .78 |
| Bal De ber 31 , 20 13 ( for ma) 656 .723 193 .390 135 .000 23. 245 (81 4.59 9) (10 .208 ) 228 .373 245 .862 898 .754 332 .601 (43 s at anc es a cem pro |
.312 ) 89. 164 |
560 .316 2.4 95.3 09 |
| App riati f ne t inc rop on o ome |
||
| . Tr fer to r 96 245 46. 382 41. 239 ans ese rves - - - - - - |
(87 .962 - |
) - |
| Dist ribu tion of divi den ds - fere sha pre nce res - - - - - - - - - - |
(1.2 02) - |
(1.2 02) - |
| fere (30 ) Pre sha 665 .150 nce res - - - - - - - - |
- | (10 8) (29 .593 - |
| Lon ince ntiv (22 2) g-te rm es - - - - - - - - - |
- | (22 2) - - |
| Pur cha f ow n sh se o are s - - - - - - - - - - |
(13 2) |
(13 2) - - |
| Oth (10 ) (1) (11 5) er - - - - - - - |
- | (1) (12 7) - |
| Com hen sive inc pre ome |
||
| for the r 20 14 420 .702 9.0 67 (13 6.06 8) yea - - - - - - - |
165 .174 - |
35. 470 494 .345 |
| Bal De ber 656 135 245 (39 7) (48 6) (43 s at 31 , 20 14 .723 193 .390 .000 23. 3.89 92. 400 246 .107 914 .649 373 .840 anc es a cem |
) 165 .444 .174 |
595 58.3 .677 2.9 78 |
The accompanying notes form an integral part of the consolidated statement of changes in shareholders' equity for the year ended December 31, 2014.
| 2014 | 2013 (Pro forma) | |
|---|---|---|
| CASH FLOW FROM OPERATING ACTIVITIES: Interest and commissions received |
1.314.804 | 1.490.692 |
| Payment of interest and commissions | (708.278) | (738.522) |
| Payments to staff and suppliers | (429.371) | (414.641) |
| Contributions to the Pension Fund | (79.200) | (56.000) |
| Foreign exchange and other operating results | 21.405 | (41.654) |
| Recovery of uncollectable loans | 5.403 | 7.457 |
| Operating results before changes in operating assets and liabilities | 124.763 | 247.332 |
| (Increase) / decrease in operating assets: | ||
| Loans and advances to credit institutions | 2.053.709 | (171.659) |
| Financial assets held for trading | (341.611) | 433.845 |
| Loans and advances to customers | 466.738 | 556.972 |
| Assets and liabilities at fair value through profit or loss | (277.517) | (14.399) |
| Non-current assets held for sale | (15.112) | (55.204) |
| Investment properties | 8.870 | - |
| Other assets | 27.300 | (55.098) |
| 1.922.377 | 694.457 | |
| Increase / (decrease) in operating liabilities: | ||
| Resources of financial institutions | (1.938.176) | 2.588.358 |
| Resources of customers and other debts | 925.831 | (734.970) |
| Financial liabilities held for trading | 375.251 | (428.975) |
| Other liabilities | (1.848) | (1.457) |
| (638.942) | 1.422.956 | |
| Net cash flow from operating activities before income tax | 1.408.198 | 2.364.745 |
| Income tax paid | (31.362) | (31.459) |
| Net cash flow from operating activities | 1.376.836 | 2.333.286 |
| CASH FLOW FROM INVESTING ACTIVITIES: | ||
| Dividends received | 1.222 | 1.313 |
| Purchase of available-for-sale financial assets | (4.910.480) | (1.205.590) |
| Sale of available-for-sale financial assets | 3.280.653 | 379.880 |
| Income from available-for-sale financial assets | 122.171 | 148.823 |
| Purchase of tangible and intangible assets | (29.489) | (36.798) |
| Sale of tangible assets Net cash flow from investment activities |
15.919 (1.520.004) |
5.535 (706.837) |
| CASH FLOW FROM FINANCING ACTIVITIES: | ||
| Issuance/(redemption) of debt securities | 398.605 | (1.378.946) |
| Interest paid on bonds issued and other | (73.215) | (94.338) |
| Dividends paid | (1.202) | - |
| Interest paid on subordinated liabilities | (90) | (91) |
| Net cash flow from financing activities | 324.098 | (1.473.375) |
| Net Increase / (Decrease) in cash and cash equivalents | 180.930 | 153.074 |
| Cash and cash equivalents at the beginning of the year | 890.762 | 737.688 |
| Cash and cash equivalents at the end of the year | 1.071.692 | 890.762 |
The accompanying notes form an integral part of the consolidated statement of cash flows for the year ended December 31, 2014.
Banco Santander Totta, S.A. (hereinafter referred to as the "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, in Rua do Ouro, nº 88, Lisboa. 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 during 2014 and 2013 are detailed in Note 46.
On December 16, 2004, a demerger/merger operation of Totta was carried out, under which its investments 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 from 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"). For accounting and tax purposes the operation was reported as from April 1, 2011, which was the date of registration.
The Bank's operations consist in obtaining funds from third parties, in the form of deposits and other, to apply along with its own funds, in all sectors of the economy, mostly in the form of loans granted or securities and providing other banking services in Portugal and abroad.
The Bank has a domestic network of 587 branches (604 branches as of December 31, 2013) and also has a branch in London, as well as an international financial branch in the Autonomous Region of Madeira. The Bank has also subsidiaries and representation offices abroad as well as investments in subsidiaries and associated companies.
BST's consolidated financial statements were prepared on a going concern basis, from its books and accounting records maintained in accordance with the accounting principles set forth in the International Financial Reporting Standards (IAS/IFRS), as adopted by the European Union, Regulation (CE) 1606/2002 of July 19 of the European Parliament and Council, transposed to Portuguese legislation by Decree-Law 35/2005 of February 17, and Notice 1/2005 of February 21 of the Bank of Portugal. When Group companies used different accounting principles, appropriate adjustments are made for conversion to the IAS/IFRS.
.
In 2014, the Bank adopted the following standards (new and revised) and interpretations endorsed by the European Union:
The adoption of the standards and interpretations above had an impact primarily on the disclosures and presentation of these financial statements.
The following standards, interpretations, amendments and revisions, with mandatory application in future financial years, were up to the date of approval of these financial statements, endorsed by the European Union:
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
These standards, although endorsed by the European Union have not yet been adopted by the Bank as of December 31, 2014, as their application was not yet mandatory.
Furthermore, up to the date of approval of the accompanying financial statements, the following standards and improvements, which are still not endorsed by the European Union, were also issued:
These standards have not been endorsed by the European Union and so they were not adopted by the Bank in the year ended December 31, 2014. Except for the effect of the application of IFRS 9, which up to this date is not possible to estimate, no material impacts are estimated as a result of the adoption of the above mentioned standards.
The Bank's financial statements for the year ended December 31, 2014 are pending approval from the General Shareholders' Meeting. Nevertheless, the Bank's Board of Directors believes that they will be approved without significant amendments.
The consolidated financial statements include the accounts of the Bank and those of the entities controlled directly and indirectly by the Bank (Note 4), including special purpose entities.
Subsidiary companies are those in which the Bank exercises effective control over its 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 the 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 them and when it is exposed to the majority of the risks and benefits associated to their activity.
The financial statements of subsidiaries are consolidated by the full integration method from the date that the Bank has control over their activities to the date that control ceases. The transactions and the significant 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 integration method are accounted for under the caption "Noncontrolling interests" (Note 28).
On the other hand, the Bank manages assets held by investment funds whose participating 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 participating units, situations when they are consolidated by the full integration method. In accordance with IAS 32 and IFRS 10, the amount corresponding to the third party participations in the investment funds that are consolidated by the full integration method is presented as a liability under the caption "Equity representative instruments" (Note 23). The non-controlling interests of the income statement related to investment funds consolidated are recognized as a deduction to the captions "Result from the sale of other assets" (Fundo Multiobrigações) and "Other operating income - Unrealized gains on investment properties" (Fundo Novimovest), given the nature of the main income earned by those funds (Notes 38 and 39).
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 participation (direct or indirect) exceeds 20% or where the Bank has the power to participate in decisions relating to it´s financial and operating policies, but does not have control or joint control over them. Participations in associated companies are recorded in accordance with the equity method of accounting, from the date the Bank has significant influence until the date it ceases.
In accordance with the equity method of accounting, the consolidated financial statements include the part of shareholders' equity and profit or loss of the associated companies attributable to the Bank.
Goodwill is measured as the excess of the acquisition cost over the effective percentage held in the fair value of the assets, liabilities and contingent liabilities of subsidiaries and associated companies. At least once a year, the Bank performs impairment tests to 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, and the recoverable amount is assessed based on the present value of the estimated future cash flows using discount rates considered appropriate by the Bank. Impairment losses associated with goodwill are recorded in the income statement and cannot be reversed.
Goodwill on 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 on acquisitions up to January 1, 2004 was reflected as a deduction to shareholders' equity in compliance with the former accounting policy. 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 acquisition cost corresponds to the fair value of the assets and liabilities of the subsidiaries and associated companies as of the acquisition date. Goodwill is recorded as an asset and is subject to impairment tests in accordance with IAS 36, but is not depreciated. Furthermore, whenever the fair value of the assets acquired and of the liabilities incurred or assumed is higher than the acquisition cost (negative goodwill), the difference is recognized in the income statement.
With the application of the amendments to the standards IFRS 3 and IAS 27, the Bank defined as accounting policy the fair value valuation through profit or loss when there is a change of control for subsidiaries acquired in stages. In such cases, the participation acquired prior to the date of the change of control is revalued at fair value through profit or loss. Goodwill is calculated on a given date as the difference between the total acquisition cost and the proportion in the fair value of the subsidiaries' assets and liabilities. Similarly, by the application of the amendments above, the Bank revalue through profit or loss the undertakings in which it loses control (Note 4).
On the other hand, the Bank decided to reverse, as of the transition date (January 1, 2004) to the IAS/IFRS, the reserve resulting from foreign exchange differences arising out from the translation of financial statements of subsidiaries and associated companies expressed in functional currencies other than the Euro. As from that date, in compliance with IAS 21, the financial statements of subsidiaries and associated companies expressed in foreign currencies have been converted to Euros as follows:
Currency exchange differences arising upon translation to Euros are accounted in shareholders' equity in the caption of "Revaluation reserves – Foreign exchange fluctuation".
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
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 captions. Therefore, expenses and income are recorded in the 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 when 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 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, less any commissions, plus all the external costs directly attributable to the operations.
Subsequently, loans and other accounts receivable are recorded at amortised cost, being submitted to periodic impairment analysis.
Commissions and the external costs attributable to the underlying operations included in this category, as well as interests associated to 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. The Bank chose to defer commissions received and paid relating to loans granted as from January 1, 2004.
The Bank classifies as overdue credit, instalments of principal and interests overdue for more than 30 days. Loans with overdue instalments are denounced in accordance with the credit procedures approved by the Bank, being the whole debt considered overdue from that moment on.
On the other hand, the Bank periodically analyses the loans and advances that should have already been paid in full but for which the effort to collect them has not been effective. When the prospects of recovering of those loans are negligible, loans are considered to be uncollectible and impairment losses are recognized for the full amount. In these cases, the Bank writes them off. Credits recovered subsequently are recognized in the income statement in the caption "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:
On the other hand, concerning the loans granted to the corporate customers segment, the Bank makes an individual assessment of the customers that have:
In this regard, these segments may include customers without overdue credit. Occasionally, the Bank also includes some customers without the mentioned features in its individual assessment, by professional judgment.
Customers assessed individually with impairment losses less than 0.5% are subsequently assessed on a collective impairment basis, being segmented between customers with responsibilities greater or less than 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:
Impairment losses for customers without overdue credit correspond to the probability of having overdue credit (PI) times the difference between the book value of the respective credits and the present value of estimated future cash flows of those operations. PI corresponds to the probability of one transaction, operation or client becoming overdue during an emergence period. The emergence period corresponds to the period between the occurrence of a loss event and the identification of that event by the Bank (incurred but not reported). For all 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 group of 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 by a corresponding charge in 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 future cash flows of that group are estimated based on the contractual cash flows of the assets of that group and on historical data regarding losses arising out 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 current conditions.
When, in a subsequent period, a decrease in the amount of impairment losses occur due to a specific event occurred after the impairment determination, the previously recognized amount is reversed and the impairment loss balance is adjusted. The amount of the reversal is recognized directly by a corresponding charge in the income statement.
In accordance with the policies in place in the Bank, interests arising out from overdue credits without a real guarantee are reversed three months after the due date of the operation or after the first due instalment. Unrecorded interest on the above-mentioned loans is only recognized in the period of its actual collection.
Interests on mortgage loans or on loans granted with other real guarantees are suspended from the date of termination of the contract.
Gains and losses on the definitive sale of loans are recorded in the income statement caption "Result from the sale of other assets" (Note 38). These gains or losses correspond to the difference between the sale amount agreed and the book value of these assets, net of impairment losses.
Assets resulting from factoring operations with recourse are recorded in the balance sheet as loans granted by the amount of the advance funds on behalf of those contracts.
Assets resulting from factoring operations without recourse are recorded in the balance sheet as loans granted by the amount of the credits taken against the recognition of a liability under the caption "Other liabilities - Creditors and other resources - Other creditors - Creditors under factoring contracts." The delivery of funds to the counterparts in factoring operations originate´ s a corresponding debit in the caption "Other liabilities - Creditors and other resources - Other creditors - Creditors under factoring contracts" (Note 25).
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 credits sold in securitization operations when:
Credits sold and not derecognized are recorded under the caption "Loans and advances to customers" and are subject to the same accounting criteria as other credit operations. The interests and commissions associated to 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 level 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 from consolidation.
At December 31, 2014 and 2013, there are no derecognized securitized loans.
Lease operations are classified as finance leases when substantially all the risks and benefits relating to ownership of the leased asset are transferred to the lessee under the lease contract. Finance leasing's are recorded in accordance with the following criteria:
Assets purchased under finance leases are recorded at their fair value in other tangible assets and in liabilities and the corresponding depreciation is recognized. Lease instalments are split in accordance with the respective financial plan, being the liabilities decreased by the amount corresponding to the payment of the principal. Interest included in the instalments is recorded in the caption "Interest and similar charges".
Leased assets are recorded in the balance sheet as loans granted, which are repaid by amortising the principal in accordance with the financial plan of the contracts. Interest included in the instalments is recorded in the caption "Interest and similar income".
Responsibilities arising from guarantees given and irrevocable commitments are recorded in off-balance sheet accounts for the amount at risk, while interest, commissions and other income are recorded in the income statement over the period of the operations.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
d) Recognition of income and expenses relating to services and commissions
Income from services and commissions obtained in the execution of a significant act, for example a commission from syndicating a loan operation, are recognised in the income statement when the significant service act has been completed.
Income from services and commissions obtained as the services are rendered are recognised in the income statement in the period to which it refers.
Income from services and commissions that are part of the remuneration of financial instruments is recorded in the income statement using the effective interest rate method.
Expenses relating to services and commissions are recognised using the same criteria as adopted for income.
Financial assets and liabilities are recognised on the balance sheet at the date of its 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 at a different date, in which cases the latter will be the relevant date.
Financial assets and liabilities are subsequently classified into 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 receivable net value (positive fair value) and options bought are included in the caption Financial assets held for trading. Trading derivatives with a payable net value (negative fair value) and options sold are included in the caption 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 recognised initially at fair value. Gains and losses arising from subsequent fair value measurement are recognised in the income statement.
Interest relating to trading derivatives is recorded in the caption "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 bidprice or their closing price on the balance sheet date. If the market price is not available, fair value of the instrument is estimated based on valuation techniques that include price valuation models or discounted cash flow techniques.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
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 correspond to market information.
The fair value of the derivative financial instruments that are 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 which 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 caption "Revaluation reserves - Fair value" until they are disposed of or until impairment losses are recognised, moment when they are reclassified to the income statement. Foreign exchange gains or losses on monetary assets are directly recognised in the income statement.
Interest on available-for-sale financial assets is calculated in accordance with the effective interest rate method and recorded in the income statement caption "Interest and similar income".
Income from variable return securities is recognized in the income statement caption "Income from equity instruments" in the date that it is declared. In accordance with this criterion, the interim dividends are recognized as income in the year the distribution is declared.
In accordance with the amendment introduced on October 13, 2008 in IAS 39 - "Financial instruments: Recognition and measurement", the Bank can 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 category of fair value through profit or loss, if some certain requirements are met. However, reclassifications of other categories to the category 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) is calculated in accordance with the effective interest rate method and recorded in the "Interest and similar income" caption 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, while interests payable are accrued.
When there is objective evidence of impairment of a financial asset or group of assets, an impairment loss is recognised in the income statement.
For listed securities, objective evidence of impairment exists when there is a significant or prolonged decline in its 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 that it can be reliably estimated.
The Bank considers the specific nature and features 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 adequate for the prolonged devaluation of financial instruments. The Bank also considers the existence of unrealised 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 impairment loss attributable to an event occurring after the impairment determination, the previously recognised impairment loss is directly reverted through an adjustment to the impairment loss account. The amount of the reversal is recognised 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 accumulated loss of 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 equity instruments cannot be reverted and so any unrealised capital gains arising after recognition of an impairment loss are recorded in the fair value reserve. In the case of equity instruments for which impairment losses have been recognised, subsequent reductions in its fair value are always recognised in the income statement.
For financial assets recorded at cost, namely unlisted equity instruments which 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 present value of the estimated future cash flows, using a discount rate that reflects the underlying risk of a similar asset.
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 amortised cost in accordance with the effective interest rate method.
Bond issues are recorded in the captions "Debt securities" and "Subordinated liabilities".
Embedded derivatives in bonds issued are recorded separately in the captions "Financial assets and liabilities held for trading", being revalued at fair value through the income statement.
The Bank carries out repurchases of bonds issued in the secondary market. Purchases and sales of own bonds are included in proportion to the respective accounts of debt issued (capital, interest and commissions) and the differences between the amount settled and the disposal, are recognised immediately in profit or loss.
As mentioned above, the financial assets and liabilities recorded in the categories of "Financial assets held for trading", "Financial liabilities held for trading", "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 independent, knowledgeable and interested parties in the transaction under normal market conditions.
The fair value of financial assets and liabilities is determined by an independent area of the Bank's trading function, based on:
Financial instruments measured at amortized cost are initially recorded at their fair value added to or deducted from the income or expenses directly attributable to the transaction. The interest is recognised 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 new 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 recognised by a corresponding charge in the income statement.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
f) Valuation and recording of derivative financial instruments and hedge accounting
Derivative financial instruments traded by the Bank are recognised in the balance sheet at their fair value.
Embedded derivatives 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 and the whole instrument is not recorded at fair value with changes in fair value recognised 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 captions, being all changes in their fair value recorded by a corresponding entry in the income statement.
Derivatives that qualify for hedge accounting are recorded at fair value and the corresponding capital gains and losses are recognised in accordance with the hedge accounting model adopted by the Bank.
In accordance with IAS 39, hedge accounting is applicable only when the following requirements are cumulatively met:
Hedge accounting is only applied as from the time all these requirements are met. In the same way, if at any time the hedging effectiveness ceases to be between 80% and 125%, hedge accounting is discontinued.
Gains or losses on the revaluation of a hedging derivative financial instrument are recognised 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 recognised in the income statement.
If a hedging instrument matures or is early terminated, the gains or losses in the valuation of the hedged item relating to the risk being hedge, recognised 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 recognised 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 recognised 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 foreign exchange rate hedging of monetary items, being the gain or loss arising from the derivative and from the foreign exchange variation of the monetary items both recognised in the income statement.
Cash flow hedges refer to hedging 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 forecast 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 records:
In addition, the gain or loss in the hedging instrument recognised in equity corresponds 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 recognised in equity is recorded in profit or loss.
Cash flow hedge accounting shall be discontinued if the hedging instrument matures or is early terminated, 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 recognised 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 recognised.
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 |
Non recoverable expenditure capitalized on leasehold buildings is amortised 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.
As permitted by IFRS 1, tangible assets acquired up to January 1, 2004 have been recorded at their net book value at the transition date to the IAS/IFRS, which corresponded to its cost adjusted by legal revaluations based on evolution of the general price index. 40% of the increase in the depreciation charges resulting from such revaluations is not tax deductible, being the corresponding deferred tax liabilities recognised accordingly.
On the other hand, the tangible assets of the Bank are subject periodically to impairment tests. The branches are considered as cash flows generating units for this purpose with impairment losses being recognised whenever the recoverable amount of a property (through its use in the operations or through its sale) is lower than its carrying amount.
The criteria followed in the valuation of the properties normally use a market comparison method, and the amount of the appraisal corresponds to the market value of the properties in their current condition.
In this caption the Bank recognises the expenses incurred in the development stage of IT systems implemented and in implementation stage, as well as expenses of acquiring software, in both cases when their impact extends beyond the financial year in which the expenses are incurred. Impairment losses assessments are performed on an annual basis.
Intangible assets are amortised on a monthly basis over its estimated useful life, which corresponds to three years on average. For the new computer platform (Partenon), until December 31, 2013, the expected useful life corresponded to a maximum of five years. In the year ended December 31, 2014, the Bank has revised the estimated useful life of that computer platform and reduced it to three years.
In 2014 and 2013, the Bank did not recognize internally generated intangible assets.
Investment properties comprise, essentially, buildings and land held by Novimovest – Real Estate Investment Fund (Novimovest) to earn rentals or for capital appreciation or both, rather than for its use in the provision of goods, 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 year.
Costs incurred with investment properties in use, such as maintenance, repairs, insurance and property taxes (municipal property tax) are recognized in the income statement for the 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 non-performing loans under this caption, 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 caption "Other assets" (Note 17). These assets are recorded at the amount agreed under negotiation or court decision, deducted from 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 by the outstanding principal amount on the date the contract is terminate.
This caption also includes participating 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 process of being sold is accounted for under this caption. These assets are transferred to this caption 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 appraisers. Impairment losses are recognised whenever the appraised value (net of costs to sell) is lower than the book value.
According to IFRS 5 – "Non-current assets held for sale and discontinued operations", the Bank does not recognize unrealized gains on these assets.
At last, the Bank's Board of Directors considers that the valuation methods adopted for these assets are appropriate and reflect the current market environment.
A provision is set up whenever there is a present obligation (legal or constructive) arising from a past obligation event relating to which there will be a probable future outflow of resources, and this can be determined reliably. 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 need only to be disclosed unless the probability of their disbursed is remote.
Thus, in accordance with IAS 37, the caption "Provisions" includes the provisions to cover specific post-employment benefits granted to some members of the Board of Directors, restructuring plans, tax contingencies, legal processes and other risks arising from the Bank's activity (Note 22).
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 would receive during retirement, based on his/her time of service and remuneration at the time of retirement, being the pensions updated annually based on the remuneration established in the ACT for the serving 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 started to be registered in the 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 from the Bank (1.5%) over the amount of the effective monthly salary. For this purpose, each employee can choose his/her own pension fund.
The employees of the former Totta were already covered by Social Security, thus 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 the Social Security. Following this agreement, it was published in 2011 the Decree-Law nº 1- A/2011, dated January 3, which defined that serving workers in the banking sector at the date of its entry into force (January 4, 2011) are to be included in the General Regime of the Social Security, with regard to retirement pensions and in the event of maternity, paternity and adoption. Given the complementary nature allowed for 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 the 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 abovementioned Decree-Law since the reduction of the pensionable amount attributable to the Bank will affect the services to be provided by the employees in the future as from January 1, 2011. Thus, the current service cost has been reduced as from this date only, though at the same time the Bank has started to pay the employer's contribution to the Social Security of 23.6% (the so called "Taxa Social Única"). On the other hand, the Bank maintains the responsibility of paying out the disability pensions and the survival pensions along with any healthcare assistance. This understanding was also confirmed by the National Council of Financial Supervisors (Conselho Nacional de Supervisores Financeiros).
In December 2011 a three party agreement was established between the Ministry of Finance, the Portuguese Association of Banks and the Federation for the Financial Sector (FEBASE), concerning the transfer to the Social Security of part of the liabilities for pensioners which, at December 31, 2011 were covered by the substitutive regime of the Social Security as per the Collective Labour Agreement (ACT) in force for the banking sector.
Following the above-mentioned three party agreement, still in 2011, Decree-Law nº 127/2011, dated December 31, was issued determining that as from January 1, 2012 the Social Security started to be responsible for the above-mentioned pensions for an amount corresponding to the pension computed in accordance to the terms and conditions in force under the Collective Labour Agreement for the Banking Sector, at December 31, 2011, including both vacation (14th month) and Christmas bonuses.
In accordance with this Decree-Law, the Bank, through its Pension Fund, only maintains the responsibility for paying:
Under the transfer of responsibilities to the 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 under the above mentioned Decree Law, which were determined considering the following assumptions:
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 should be comprised by cash and up to 50% in Portuguese government debt securities valued at their respective market value.
Under the terms of the aforementioned Decree-Law, the transfer of the assets was performed by the Bank as follows:
In this regard, and prior to the transfer to the Social Security, the Bank obtained actuarial studies that determine the amount of the transfer.
Following the transfer of the responsibilities of the pensioners to the Social Security, and for purposes of determining the value of the liabilities to be transferred in accordance with the provisions established in Decree Law nº 127/2011, of December 31, the Bank calculated the liabilities separately for serving and retired employees, having defined specific assumptions for each case (Note 44).
The difference between the amount of the liabilities to be transferred to the Social Security determined as per the above referred assumptions and the liabilities determined based on updated actuarial assumptions adopted by the Bank was recorded under the caption "Staff costs" in the income statement.
Furthermore, the London branch employees are covered by a defined benefit pension plan for which there is a separate Pension Fund (Note 44).
On the other hand, in February 2010, a supplementary defined contribution pension plan was approved for a defined set of Bank's 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 (Euros), with similar maturity of the plan's liability. Employees' post-employment benefits also include healthcare assistance (SAMS) and death subsidy during retirement.
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 established a defined contribution pension fund under which employees have been allowed to make voluntary contributions. BSN's contribution to that fund depended of the results and corresponded to a percentage of the employees' wages, with an annual floor of 1,000 Euros 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 recognition of the seniority of employees hired before July 1, 1997. In the first half of 2014, BSN defined contribution pension fund was extinguished after authorization granted by the Supervisory Authority of Insurance and Pension Funds.
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 integrated in the ACT and in the BST's defined benefit pension plan as from April 2011. Additionally, the seniority of the employees hired before July 1, 1997 has been recognised.
At January 1, 2004, the Bank opted not to apply IAS 19 retrospectively, and therefore has not recalculated the actuarial gains and losses that would be deferred on the balance sheet if that standard had been adopted as from the beginning of the pension's plans. Accordingly, the actuarial gains and losses existing at January 1, 2004, as well as those resulting from adopting IAS 19, were reversed/recorded against retained earnings at the transition date.
In 2011 the Bank decided to change the accounting policy for recognizing actuarial gains and losses abandoning the use of the corridor method, having started to recognize actuarial gains and losses in equity (other comprehensive income), as provided in the revised version of IAS 19.
From January 1, 2013, following the revision of IAS 19 - "Employee Benefits", the Bank records under the caption "Staff costs" in the income statement the following components:
Net interest profit / cost 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 profit / cost 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 calculate pension liabilities.
Gains and losses from remeasurement, namely: (i) gains and losses resulting from differences between actuarial assumptions used and the effective results (experience gains and losses) as well as 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 against 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 captions "Other assets" or "Other liabilities", depending on whether there is a financial surplus or deficit (Notes 17 and 25).
Notice nº 4/2005 of the Bank of Portugal states that the liability arising from pensions being paid shall be fully funded and a 95% minimum funded level should exist for the past service liabilities of serving employees. Notwithstanding this, it also established a transition period ranging from 5 to 7 years in respect of the increase in the liabilities as a result of the adoption of IAS 19.
At December 31, 2014 and 2013, the rate of coverage of the liabilities of BST for employee benefits, including SAMS and excluding those associated with its London branch, was 100.32% and 99.25%, respectively (Note 44).
In compliance with the ACT, the Bank assumed the commitment to pay bonuses to serving employees with fifteen, twenty-five and thirty years of good and effective service, corresponding to one, two or three months of their effective monthly wage (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 Bank's population. The discount rate used is determined based on market rates for high quality corporate bonds with similar maturity to the liability.
Long service bonuses liabilities are recorded in the caption "Accrued costs - Relating to personnel – Long service bonuses" (Note 25).
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 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 item 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 item 13, article 43 of the Corporate Income Tax Code.
Since January 1, 2007, local authorities have been able to establish a maximum local surcharge of up to 1.5% over 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 corresponds 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 present higher taxable income in that year and on the two following years were subject to higher state surcharge rates. Companies with taxable income comprised 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 from which it became applicable the rate of state surcharge of 5% from tEuros 10,000 to tEuros 7,500, applicable to the tax periods started on or after January 1, 2013.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Additionally, following the publication of Law nº 2/2014, of January 16, (CIRC amendment) the taxation of corporate income for 2014 became the one described below:
With the publication of the State Budget Law for 2015 (Law nº 82-B/2014, of December 31), it was approved a reduction in the income tax rate to 21%.
Thus, the above referred changes implied that the rates used by the Bank in the calculation and recognition of deferred taxes for 2013 and 2014 were 23% and 21%, respectively, for tax losses, and 29.5% and 29%, respectively, for other temporary differences.
Tax losses incurred from 2014, inclusive, may be used in the twelve subsequent tax periods. On the other hand, tax losses incurred in 2008 and 2009 could be used in the six subsequent periods, four years for tax losses incurred in 2010 and 2011 and five years for tax losses incurred in the years of 2012 and 2013. However, the deduction of those losses in each year cannot exceed 70% of the respective taxable income (75% until 2014), with the remaining balance (30% in 2014 and 25% in 2013), be deductible up to the end of the tax utilization period.
Following the publication of Law nº 55-A/2010, of December 31, the Bank is subject to the banking sector contribution regime. The basis of such contribution is as follows:
The rates applicable to the basis of incidence defined in a) and b) above are 0.07% and 0.0003%, respectively, as provided in the amendment made by the Dispatch nº 64/2014, of March 12 to the nº 5 of the Dispatch 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 temporary differences between the carrying amount of assets and liabilities in the balance sheet and their respective tax bases. Tax credits are also recognised as deferred tax assets.
The Group does not recognize deferred tax assets or liabilities on deductible or taxable temporary differences associated with investments in subsidiaries and associated companies, as it is unlikely that the difference will be reversed in the foreseeable future.
Deferred tax assets are recognised 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 temporary differences.
Deferred tax assets and liabilities were calculated based on the tax rates decreed for the period in which the respective assets are expected to be realised 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 financial assets available-for-sale and on cash flow hedging derivatives, as well as those associated to 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 long-term incentive plans is provided directly by Banco Santander, S.A.. The Bank pays out annually these plans to Banco Santander, S.A..
The recording of such plans corresponds to the recognition of the Bank's employee's right to these instruments in the caption "Other reserves" against an entry in the caption "Staff costs" of the income statement, as these are granted in exchange for services rendered.
A description of the long-term incentive plans for stocks and stock options in force in Banco Santander S.A. is included in Note 47.
p) Own shares
Own shares are recorded in equity accounts 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.
q) Preference shares
Preference shares are recorded as equity instruments when:
At December 31, 2014 and 2013, the Bank classified as equity instruments the preference shares issued by Totta & Açores Financing and BST International Bank, Inc. - Puerto Rico.
The preference shares classified as equity instruments and held by third parties are presented in the consolidated financial statements under the caption "Non-controlling interests" (Note 28).
r) Insurance brokerage services rendered
Income commissions from the insurance brokerage services rendered is 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.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The Bank is not engaged in the collection of insurance premiums on behalf of insurers, neither performs 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 the ones 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 captions "Cash and deposits at central banks" and "Balances due from other banks".
Following the adoption as of January 1, 2014 of IFRS 10 – "Consolidated Financial Statements" and the clarifications occurred regarding the classification of non-controlling interests in investment funds consolidated by the full consolidation method, the Group started to record them as a liability in the caption "Equity representative instruments". For the same reason, the non-controlling interests of results of those funds started to be recorded under the captions "Other operating results" (Note 39) (Novimovest) and "Result from the sale of other assets" (Note 38) (Multiobrigações).
The retrospective application of IFRS 10 requirements, as established by IAS 8, had the following impacts:
| Consolidated Equity on 01-01-2013 (net income included) |
Net income 2013 |
Consolidated Equity on 31-12-2013 (included net income) |
||
|---|---|---|---|---|
| Balances as reported (before the retrospective application of the accounting policy change) | 2,325,091 | 89,164 | 2,730,363 | |
| Impact of the retrospective application of IFRS 10 Reclassification of non-controlling interests in investment funds to liabilities |
- | - | (235,054) | |
| Balances (pro forma) | 2,325,091 | 89,164 | 2,495,309 |
The preparation of the financial statements requires estimates and assumptions to be made by the Bank's Board of Directors. These estimates are subjective by nature and can affect the amount of the assets and liabilities, income and costs, and also of the contingent liabilities disclosed.
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, pension growth and wages, 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 an independent area of the trading function.
Loans impairment losses have been determined as explained in Note 1.3 c) above. Consequently, impairment assessment performed on an individual basis corresponds to the Bank's judgement as to the financial situation of their 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 unrealised capital losses resulting from the valuation of these assets are recognised under the caption "Revaluation reserve - Fair value". Nevertheless, whenever there is objective evidence of impairment, the accumulated capital losses recorded on 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 on these assets exists through 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, unrealised capital losses are transferred from the caption "Revaluation reserve – Fair value" to the income statement whenever there are indications that default might occur, namely, due to financial difficulties of the issuer, failure to comply with other financial liabilities, or a significant deterioration in the rating of the issuer.
Deferred tax assets are recognised 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.
The Bank, as an entity subject to the Bank of Portugal supervision, must present separate (nonconsolidated) financial statements in accordance with the Adjusted Accounting Standards as issued under Bank of Portugal Notice nº 1/2005, dated February 21, which form the basis for determining the taxable income.
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 Contabilistica" (SNC), approved by Decree Law nº 158/2009, dated July 13, the Decree Law nº 159/2009, dated 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 to compute the taxable income for the years ended December 31, 2014 and 2013, in accordance with the Bank´s interpretation.
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, which, however may not come to materialize.
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 intermediation, custody and settlement services.
This area essentially corresponds to credit granting operations and attracting of funds from private customers and businesses with a turnover lower than 5 million Euros through the branches network, telephone and internet banking services.
This area is geared towards companies with a turnover ranging between 5 and 125 million Euros. This activity is supported by the branches network as well as by specialised services, and includes a variety of products, such as loans, project funding, export financing and real estate.
This area results from the investment fund management activity, which includes the launching of funds the objective of which is to create added value products for the Bank's customers.
At the end of 2013, the Bank sold the companies responsible for this business segment to a Santander Group company.
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 funding.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The income statement by business segment as of December 31, 2014 is made up as follows:
| Global Banking Retail Commercial Corporate Consolidated & Markets Banking Banking Activities Total Financial margin (narrow sense) 102,596 308,053 126,704 6,186 Income from equity instruments - - - 1,222 |
543,539 1,222 544,761 |
|---|---|
| Financial margin 102,596 308,053 126,704 7,408 |
|
| Net commissions 57,369 216,461 20,199 (17,153) |
276,876 |
| Other results from banking activity (55) (1,483) (218) (12,558) |
(14,314) |
| Commercial margin 159,910 523,031 146,685 (22,303) |
807,323 |
| Results from financial operations (9,125) 1,876 714 94,186 |
87,651 |
| Net income from banking activities 150,785 524,907 147,399 71,883 |
894,974 |
| Operating costs (15,932) (344,857) (61,099) (3,448) |
(425,336) |
| Depreciation and amortization (3,030) (47,398) (11,429) - |
(61,857) |
| Net operating income 131,823 132,652 74,871 68,435 |
407,781 |
| Impairment and provisions, net of reversals (41,235) (75,282) (39,957) (36,059) |
(192,533) |
| Result from associates - - 17,652 2,139 |
19,791 |
| Income before taxes 90,588 57,370 52,566 34,515 |
235,039 |
| Taxes (26,270) (17,460) (10,331) (15,810) |
(69,871) |
| Non-controlling interests - - - 6 |
6 |
| Net income for the year 64,318 39,910 42,235 18,711 |
165,174 |
At December 31, 2014 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:
| 2014 | |||||
|---|---|---|---|---|---|
| Global | |||||
| Banking | Retail | Commercial | Corporate | Consolidated | |
| & Markets | Banking | Banking | Activities | Total | |
| Assets | |||||
| Loans and advances to customers | |||||
| Mortgage loans | - | 14,795,658 | - | - | 14,795,658 |
| Consumer credit | - | 1,398,725 | - | - | 1,398,725 |
| Other loans | 2,966,050 | 2,306,703 | 4,056,115 | - | 9,328,868 |
| Total allocated assets | 2,966,050 | 18,501,086 | 4,056,115 | - | 25,523,251 |
| Total non-allocated assets | 13,337,111 | ||||
| Total assets | 38,860,362 | ||||
| Liabilities | |||||
| Resources in the balance sheet | |||||
| Customers' accounts and other resources | 938,483 | 17,665,370 | 1,725,300 | 1,296,749 | 21,625,902 |
| Debt securities issued | - | 171,791 | 48,474 | 2,752,846 | 2,973,111 |
| 938,483 | 17,837,161 | 1,773,774 | 4,049,595 | 24,599,013 | |
| Guarantees and sureties given | 125,654 | 157,480 | 800,895 | - | 1,084,029 |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The income statement by business segment as of December 31, 2013 is made up as follows:
| 2013 (pro forma) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Global Banking & Markets |
Retail Banking |
Commercial Banking |
Asset Management |
Corporate Activities |
Consolidated Total |
|||||
| Financial margin (narrow sense) | 95,721 | 281,023 | 157,883 | (1,784) | (25,575) | 507,268 | ||||
| Income from equity instruments | - | - | - | - | 1,313 | 1,313 | ||||
| Financial margin | 95,721 | 281,023 | 157,883 | (1,784) | (24,262) | 508,581 | ||||
| Net commissions | 63,663 | 231,843 | 22,722 | 5,122 | (7,840) | 315,510 | ||||
| Other results from banking activity | - | 1,421 | - | (6,489) | (20,477) | (25,545) | ||||
| Commercial margin | 159,384 | 514,287 | 180,605 | (3,151) | (52,579) | 798,546 | ||||
| Results from financial operations | 2,065 | 839 | 429 | 9,187 | 18,855 | 31,375 | ||||
| Net income from banking activities | 161,449 | 515,126 | 181,034 | 6,036 | (33,724) | 829,921 | ||||
| Operating costs | (17,063) | (337,141) | (45,758) | (6,774) | - | (406,736) | ||||
| Depreciation and amortization | (2,230) | (54,202) | (3,189) | (156) | - | (59,777) | ||||
| Net operating income | 142,156 | 123,783 | 132,087 | (894) | (33,724) | 363,408 | ||||
| Impairment and provisions, net of reversals | (10,755) | (182,189) | (75,398) | 1,433 | 22,958 | (243,951) | ||||
| Result from associates | - | - | 12,669 | - | 1,400 | 14,069 | ||||
| Income before taxes | 131,401 | (58,406) | 69,358 | 539 | (9,366) | 133,526 | ||||
| Taxes | (38,106) | 17,428 | (16,441) | (3,062) | (4,177) | (44,358) | ||||
| Non-controlling interests | - | - | - | 17 | (21) | (4) | ||||
| Net income for the year | 93,295 | (40,978) | 52,917 | (2,506) | (13,564) | 89,164 |
At December 31, 2013 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:
| 2013 (pro forma) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Global | ||||||||
| Banking | Retail | Commercial | Corporate | Consolidated | ||||
| & Markets | Banking | Banking | Activities | Total | ||||
| Assets | ||||||||
| Loans and advances to customers | ||||||||
| Mortgage loans | - | 15,277,265 | - | - | 15,277,265 | |||
| Consumer credit | - | 1,399,152 | - | - | 1,399,152 | |||
| Other loans | 2,758,628 | 2,632,642 | 4,039,834 | - | 9,431,104 | |||
| Total allocated assets | 2,758,628 | 19,309,059 | 4,039,834 | - | 26,107,521 | |||
| Total non-allocated assets | 12,703,007 | |||||||
| Total assets | 38,810,528 | |||||||
| Liabilities | ||||||||
| Resources in the balance sheet | ||||||||
| Customers' accounts and other resources | 763,842 | 16,448,582 | 2,084,356 | 1,410,221 | 20,707,001 | |||
| Debt securities issued | - | 289,272 | 101,557 | 2,143,332 | 2,534,161 | |||
| 763,842 | 16,737,854 | 2,185,913 | 3,553,553 | 23,241,162 | ||||
| Guarantees and sureties given | 171,674 | 167,383 | 846,410 | - | 1,185,467 |
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 as at December 31, 2014 and 2013, by geographical segments was as follows:
| 2014 | ||||||||
|---|---|---|---|---|---|---|---|---|
| International operations | Inter segment | |||||||
| Portugal | Ireland | Angola | Puerto Rico | Other | Total | balances | Consolidated | |
| Assets | ||||||||
| Cash and deposits at central banks | 830,474 | - | - | - | - | - | - | 830,474 |
| Balances due from other banks | 240,632 | 2 5 |
- | 5,675 | 630 | 6,330 | (5,744) | 241,218 |
| Financial assets held for trading | 2,291,734 | - | - | - | - | - | - | 2,291,734 |
| Available-for-sale financial assets | 6,712,555 | 987,451 | - | - | - | 987,451 | (987,451) | 6,712,555 |
| Loans and advances to credit institutions | 1,220,665 | 50,001 | - | 465,478 | 334,887 | 850,366 | (850,114) | 1,220,917 |
| Loans and advances to customers | 25,523,250 | - | - | 1 | - | 1 | - | 25,523,251 |
| Hedging derivatives | 195,035 | - | - | - | - | - | - | 195,035 |
| Non-current assets held for sale | 208,375 | - | - | - | - | - | - | 208,375 |
| Investment properties | 420,239 | - | - | - | - | - | - | 420,239 |
| Other tangible assets | 298,758 | 1 | - | - | 3 4 |
3 5 |
(1) | 298,792 |
| Intangible assets | 28,380 | - | - | - | - | - | 1 | 28,381 |
| Investments in associated companies | 33,674 | - | 132,685 | - | - | 132,685 | - | 166,359 |
| Current tax assets | 14,603 | - | - | - | - | - | - | 14,603 |
| Deferred tax assets | 458,675 | - | - | - | - | - | - | 458,675 |
| Other assets | 249,436 | 4,498 | - | (196) | 517 | 4,819 | (4,501) | 249,754 |
| Total Net Assets | 38,726,485 | 1,041,976 | 132,685 | 470,958 | 336,068 1,981,687 | (1,847,810) | 38,860,362 | |
| Liabilities | ||||||||
| Resources of central banks | 4,406,312 | - | - | - | - | - | - | 4,406,312 |
| Financial liabilities held for trading | 1,995,019 | - | - | - | - | - | - | 1,995,019 |
| Resources of other credit institutions | 4,030,724 | 628,141 | - | 23,046 | - | 651,187 | (651,187) | 4,030,724 |
| Resources of customers and other debts | 21,505,353 | - | - | 120,549 | - | 120,549 | - | 21,625,902 |
| Debt securities | 2,973,111 | - | - | - | - | - | - | 2,973,111 |
| Hedging derivatives | 133,690 | - | - | - | - | - | - | 133,690 |
| Provisions | 71,988 | - | - | - | - | - | - | 71,988 |
| Current tax liabilities | 19,772 | - | - | - | - | - | 262 | 20,034 |
| Deferred tax liabilities | 126,171 | - | - | - | - | - | 15,855 | 142,026 |
| Equity representative instruments | 205,979 | - | - | - | - | - | - | 205,979 |
| Subordinated liabilities | 4,306 | - | - | - | - | - | - | 4,306 |
| Other liabilities | 291,899 | 132,960 | - | 779 | 187 | 133,926 | (132,932) | 292,893 |
| Total Liabilities | 35,764,324 | 761,101 | - | 144,374 | 187 | 905,662 | (768,002) | 35,901,984 |
| Shareholders' equity | ||||||||
| Shareholders' equity attributable to shareholders of BST | 2,961,485 | 280,875 | 132,685 | 30,068 | 37,396 | 481,024 | (1,079,808) | 2,362,701 |
| Non-controlling interests | 676 | - | - | 296,516 | 298,485 | 595,001 | - | 595,677 |
| Total shareholders' equity | 2,962,161 | 280,875 | 132,685 | 326,584 | 335,881 1,076,025 | (1,079,808) | 2,958,378 | |
| Total liabilities and shareholders' equity | 38,726,485 | 1,041,976 | 132,685 | 470,958 | 336,068 1,981,687 | (1,847,810) | 38,860,362 |
| 2013 (pro forma) | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| International operations | Inter segment | ||||||||
| Portugal | Ireland | Angola | Puerto Rico | Other | Total | balances | Consolidated | ||
| Assets | |||||||||
| Cash and deposits at central banks | 337,841 | - | - | - | - | - | - | 337,841 | |
| Balances due from other banks | 552,432 | 1,566 | - | 5,479 | 438 | 7,483 | (6,994) | 552,921 | |
| Financial assets held for trading | 1,949,115 | - | - | - | - | - | - | 1,949,115 | |
| Available-for-sale financial assets | 4,382,253 | 1,186,994 | - | - | - 1,186,994 | (1,186,994) | 4,382,253 | ||
| Loans and advances to credit institutions | 3,270,749 | 50,000 | - | 424,659 | 327,238 | 801,897 | (801,676) | 3,270,970 | |
| Loans and advances to customers | 26,107,521 | - | - | - | - | - | - | 26,107,521 | |
| Hedging derivatives | 199,427 | - | - | - | - | - | - | 199,427 | |
| Non-current assets held for sale | 206,943 | - | - | - | - | - | - | 206,943 | |
| Investment properties | 467,949 | - | - | - | - | - | - | 467,949 | |
| Other tangible assets | 318,636 | 2 | - | - | 2 4 |
2 6 |
- | 318,662 | |
| Intangible assets | 52,468 | - | - | - | - | - | - | 52,468 | |
| Investments in associated companies | 32,334 | - | 115,396 | - | - | 115,396 | - | 147,730 | |
| Current tax assets | 17,458 | - | - | - | - | - | - | 17,458 | |
| Deferred tax assets | 540,675 | - | - | - | - | - | - | 540,675 | |
| Other assets | 257,890 | 5,500 | - | 1,175 | 694 | 7,369 | (6,664) | 258,595 | |
| Total Net Assets | 38,693,691 | 1,244,062 | 115,396 | 431,313 | 328,394 2,119,165 | (2,002,328) | 38,810,528 | ||
| Liabilities | |||||||||
| Resources of central banks | 6,241,410 | - | - | - | - | - | - | 6,241,410 | |
| Financial liabilities held for trading | 1,619,768 | - | - | - | - | - | - | 1,619,768 | |
| Resources of other credit institutions | 4,175,058 | 704,921 | - | 6,676 | - | 711,597 | (711,597) | 4,175,058 | |
| Resources of customers and other debts | 20,568,824 | - | - | 138,177 | - | 138,177 | - | 20,707,001 | |
| Debt securities | 2,534,161 | - | - | - | - | - | - | 2,534,161 | |
| Hedging derivatives | 370,684 | - | - | - | - | - | - | 370,684 | |
| Provisions | 62,039 | - | - | - | - | - | - | 62,039 | |
| Current tax liabilities | 13,475 | - | - | - | - | - | 838 | 14,313 | |
| Deferred tax liabilities | 41,990 | - | - | - | - | - | 16,534 | 58,524 | |
| Equity representative instruments | 235,054 | - | - | - | - | - | - | 235,054 | |
| Subordinated liabilities | 4,307 | - | - | - | - | - | - | 4,307 | |
| Other liabilities | 290,702 | 140,767 | - | 1,935 | 178 | 142,880 | (140,682) | 292,900 | |
| Total Liabilities | 36,157,472 | 845,688 | - | 146,788 | 178 | 992,654 | (834,907) | 36,315,219 | |
| Shareholders' equity | |||||||||
| Shareholders' equity attributable to shareholders of BST | 2,535,536 | 398,374 | 115,396 | 23,485 | 29,623 | 566,878 | (1,167,421) | 1,934,993 | |
| Non-controlling interests | 683 | - | - | 261,040 | 298,593 | 559,633 | - | 560,316 | |
| Total shareholders' equity | 2,536,219 | 398,374 | 115,396 | 284,525 | 328,216 1,126,511 | (1,167,421) | 2,495,309 | ||
| Total liabilities and shareholders' equity | 38,693,691 | 1,244,062 | 115,396 | 431,313 | 328,394 2,119,165 | (2,002,328) | 38,810,528 |
In the years ended at December 31, 2014 and 2013, the income statement by geographical segments was as follows:
| 2014 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| International operations | Inter segment | ||||||||
| Portugal | Ireland | Angola | Puerto Rico | Other | Total | balances | Consolidated | ||
| Interest and similar income | 1,194,167 | 26,396 | - | 24,206 | - | 50,602 | (50,601) | 1,194,168 | |
| Interest and similar charges | (647,843) | (12,307) | - | (2,822) | - | (15,129) | 12,343 | (650,629) | |
| Financial margin | 546,324 | 14,089 | - | 21,384 | - | 35,473 | (38,258) | 543,539 | |
| Income from equity instruments | 1,222 | - | - | - | - | - | - | 1,222 | |
| Income from services and commissions | 335,187 | 8,805 | - | - | - | 8,805 | (8,805) | 335,187 | |
| Charges w ith services and commissions |
(58,072) | - | - | - | (238) | (238) | (1) | (58,311) | |
| Result of assets and liabilities at fair value through profit or loss | (244,097) | - | - | - | - | - | - | (244,097) | |
| Result of available-for-sale financial assets | 308,722 | - | - | - | - | - | - | 308,722 | |
| Result of foreign exchange revaluation | 5,591 | - | - | (133) | - | (133) | - | 5,458 | |
| Result from sale of other assets | 17,566 | - | - | - | 2 | 2 | - | 17,568 | |
| Other operating results | (14,225) | - | - | (4) | (86) | (90) | 1 | (14,314) | |
| Net income from banking activities | 898,218 | 22,894 | - | 21,247 | (322) | 43,819 | (47,063) | 894,974 | |
| Staff costs | (280,650) | (178) | - | (186) | (578) | (942) | - | (281,592) | |
| General administrative costs | (143,005) | (347) | - | (107) | (285) | (739) | - | (143,744) | |
| Depreciation in the year | (61,834) | (1) | - | - | (22) | (23) | - | (61,857) | |
| Provisions, net of reversals | (46,416) | - | - | - | - | - | - | (46,416) | |
| Loan impairment net of reversals and recoveries | (111,206) | - | - | - | - | - | - | (111,206) | |
| Impairment of other financial assets net of reversals and recoveries | (1,131) | - | - | - | - | - | - | (1,131) | |
| Impairment of other assets net of reversals and recoveries | (33,780) | - | - | - | - | - | - | (33,780) | |
| Result from associates | 2,139 | - | 17,652 | - | - | 17,652 | - | 19,791 | |
| Income before taxes and non-controlling interests | 222,335 | 22,368 | 17,652 | 20,954 | (1,207) | 59,767 | (47,063) | 235,039 | |
| Current taxes | (37,219) | (3,471) | - | - | (10) | (3,481) | - | (40,700) | |
| Deferred taxes | (29,850) | 679 | - | - | - | 679 | - | (29,171) | |
| Income after taxes and before non-controlling interests | 155,266 | 19,576 | 17,652 | 20,954 | (1,217) | 56,965 | (47,063) | 165,168 | |
| Non-controlling interests | (6) | 6 | (10) | (19) | (13) | (36) | 48 | 6 | |
| Consolidated net income attributable to the shareholders of the Bank | 155,260 | 19,582 | 17,642 | 20,935 | (1,230) | 56,929 | (47,015) | 165,174 |
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2013 (pro forma) | ||||||||
|---|---|---|---|---|---|---|---|---|
| International operations | Inter segment | Total | ||||||
| Portugal | Ireland | Angola | Porto Rico | Outros | Total | balances | consolidado | |
| Interest and similar income | 1,271,030 | 47,944 | - | 25,697 | - | 73,641 | (73,544) | 1,271,127 |
| Interest and similar charges | (758,938) | (9,878) | - | (4,982) | - | (14,860) | 9,939 | (763,859) |
| Financial margin | 512,092 | 38,066 | - | 20,715 | - | 58,781 | (63,605) | 507,268 |
| Income from equity instruments | 1,313 | - | - | - | - | - | - | 1,313 |
| Income from services and commissions | 370,626 | 5,498 | - | - | - | 5,498 | (5,498) | 370,626 |
| Charges w ith services and commissions |
(54,873) | - | - | (1) | (242) | (243) | - | (55,116) |
| Result of assets and liabilities at fair value through profit or loss | 20,327 | - | - | (1) | - | (1) | - | 20,326 |
| Result of available-for-sale financial assets | 4,534 | - | - | - | - | - | - | 4,534 |
| Result of foreign exchange revaluation | 3,984 | - | - | 55 | - | 55 | - | 4,039 |
| Result from sale of other assets | 2,475 | - | - | - | 1 | 1 | - | 2,476 |
| Other operating results | (25,454) | - | - | (4) | (87) | (91) | - | (25,545) |
| Net income from banking activities | 835,024 | 43,564 | - | 20,764 | (328) | 64,000 | (69,103) | 829,921 |
| Staff costs | (268,637) | (177) | - | (193) | (570) | (940) | - | (269,577) |
| General administrative costs | (136,461) | (329) | - | (115) | (254) | (698) | - | (137,159) |
| Depreciation in the year | (59,767) | (1) | - | - | (9) | (10) | - | (59,777) |
| Provisions, net of reversals | (6,930) | - | - | - | - | - | - | (6,930) |
| Loan impairment net of reversals and recoveries | (197,039) | - | - | - | - | - | - | (197,039) |
| Impairment of other financial assets net of reversals and recoveries | (3,155) | - | - | - | - | - | - | (3,155) |
| Impairment of other assets net of reversals and recoveries | (36,827) | - | - | - | - | - | - | (36,827) |
| Result from associates | 1,400 | - | 12,669 | - | - | 12,669 | - | 14,069 |
| Income before taxes and non-controlling interests | 127,608 | 43,057 | 12,669 | 20,456 | (1,161) | 75,021 | (69,103) | 133,526 |
| Current taxes | (29,042) | (6,266) | - | - | (13) | (6,279) | - | (35,321) |
| Deferred taxes | (9,895) | 858 | - | - | - | 858 | - | (9,037) |
| Income after taxes and before non-controlling interests | 88,671 | 37,649 | 12,669 | 20,456 | (1,174) | 69,600 | (69,103) | 89,168 |
| Non-controlling interests | (4) | - | - | - | - | - | - | (4) |
| Consolidated net income attributable to the shareholders of the Bank | 88,667 | 37,649 | 12,669 | 20,456 | (1,174) | 69,600 | (69,103) | 89,164 |
The accounting policies used in the preparation of the financial information by segments were consistent with those described in Note 1.3. from these accompanying notes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, the subsidiaries and associated companies and their most significant financial data, extracted from their respective standalone financial statements, excluding conversion adjustments to IAS/IFRS, can be summarised as follows:
| Direct | Effective | Total assets | Shareholders' | Net income | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| participation (%) | participation (%) | (net) | equity | of the year | ||||||
| Company | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 |
| BANCO SANTANDER TOTTA, S.A. | - | - | 100.00 | 100.00 | 39,994,424 | 40,260,305 | 1,918,640 | 1,471,117 | 134,473 | 2,449 |
| BANCO CAIXA GERAL TOTTA DE ANGOLA, S.A. | - | - | 24.96 | 24.96 | 1,843,631 | 1,371,384 | 313,771 | 247,304 | 70,243 | 52,120 |
| TOTTA & AÇORES FINANCING (1) (4) | 100.00 | 100.00 | 100.00 | 100.00 | 311,792 | 311,787 | 311,792 | 311,787 | 12,360 | 12,360 |
| SERFIN INTERNATIONAL BANK & TRUST | - | - | 100.00 | 100.00 | 37,280 | 32,592 | 37,263 | 32,578 | 258 | 320 |
| TOTTA & AÇORES, INC. - NEWARK | 100.00 | 100.00 | 100.00 | 100.00 | 1,337 | 1,180 | 1,161 | 1,014 | 8 | 47 |
| TOTTA IRELAND, PLC (3) | 100.00 | 100.00 | 100.00 | 100.00 | 1,039,176 | 1,011,636 | 410,739 | 298,037 | 945 | 2,732 |
| SANTOTTA-INTERNACIONAL, SGPS, S.A. | 100.00 | 100.00 | 100.00 | 100.00 | 106,527 | 110,807 | 77,628 | 74,397 | 5,376 | 4,933 |
| TOTTA URBE - Emp. Admin. e Construções, S.A. (2) | 100.00 | 100.00 | 100.00 | 100.00 | 132,009 | 113,713 | 125,479 | 109,961 | 1,470 | 1,941 |
| BENIM - Sociedade Imobiliária, S.A. | - | - | 25.81 | 25.81 | n/a | n/a | n/a | n/a | n/a | n/a |
| SANTANDER - GESTÃO DE ACTIVOS, SGPS, S.A. | 100.00 | 100.00 | 100.00 | 100.00 | 15,804 | 49,795 | 15,788 | 49,417 | (19) | 7,784 |
| BST INTERNATIONAL BANK, INC. - PORTO RICO (1) (5) | 100.00 | 100.00 | 100.00 | 100.00 | 471,160 | 431,322 | 326,584 | 284,486 | 20,953 | 20,457 |
| TAXAGEST, SGPS, S.A. | 99.00 | 99.00 | 99.00 | 99.00 | 55,727 | 55,731 | 55,722 | 55,724 | (2) | 761 |
| PARTANG, SGPS, S.A. | 0.49 | 0.49 | 49.00 | 49.00 | 172,497 | 152,642 | 161,418 | 140,714 | 35,936 | 25,616 |
| UNICRE - INSTITUIÇÃO FINANCEIRA DE CRÉDITO, S.A. | 21.50 | 21.50 | 21.50 | 21.50 | 334,788 | 315,889 | 98,274 | 89,696 | 10,249 | 9,785 |
| HIPOTOTTA nº 1 PLC | - | - | - | - | 176,126 | 194,678 | (775) | (1,654) | 798 | (152) |
| HIPOTOTTA nº 4 PLC | - | - | - | - | 1,081,604 | 1,147,748 | (9,483) | (13,619) | 2,915 | (2,036) |
| HIPOTOTTA nº 5 PLC | - | - | - | - | 930,559 | 972,764 | (4,439) | (8,404) | 2,826 | (1,155) |
| LEASETOTTA nº 1 Ltd | - | - | - | - | 176 | 428,640 | 60 | (13,187) | 10,919 | 3,434 |
| HIPOTOTTA nº 1 FTC | - | - | - | - | 158,823 | 179,215 | 158,163 | 178,077 | 310 | (24) |
| HIPOTOTTA nº 4 FTC | - | - | - | - | 1,034,833 | 1,107,500 | 1,033,635 | 1,104,994 | (1,305) | (1,035) |
| HIPOTOTTA nº 5 FTC | - | - | - | - | 901,075 | 953,003 | 897,390 | 947,977 | (123) | (1,932) |
| LEASETOTTA nº 1 FTC | - | - | - | - | - | 347,423 | - | 350,252 | 4,143 | (1,599) |
| NOVIMOVEST - Fundo de Investimento Imobiliário Aberto (6) | 77.26 | 71.60 | 77.26 | 71.60 | 429,050 | 477,098 | 330,315 | 360,442 | (17,324) | (28,670) |
| SANTANDER MULTIOBRIGAÇÕES - Fundo de Investimento Mobiliário Aberto | ||||||||||
| de Obrigações de Taxa Variável (6) | 64.84 | 64.32 | 64.84 | 64.32 | 374,055 | 374,590 | 372,261 | 371,951 | 3,320 | 8,824 |
Note: The financial statements of some subsidiaries, associated companies and entities under joint control are still subject to approval by the respective governing bodies. However, the Group Board of Directors believes that there will be no changes with significant impact on the consolidated net income of the Group.
n/a – not available
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, the business, the location of the headquarters and the consolidation method used for the companies included in the consolidation was as follows:
| Location of | Consolidation | ||
|---|---|---|---|
| Company | Business | headquarters | Method |
| BANCO SANTANDER TOTTA, S.A. | Banking | Portugal | Parent company |
| BANCO CAIXA GERAL TOTTA DE ANGOLA, S.A. | Banking | Angola | Equity method |
| TOTTA & AÇORES FINANCING (1) (4) | Banking | Cayman Island | Full |
| SERFIN INTERNATIONAL BANK & TRUST | Banking | Cayman Island | Full |
| TOTTA & AÇORES, INC. - NEWARK | Obtaining funds | USA | Full |
| TOTTA IRELAND, PLC (3) | Investment management | Ireland | Full |
| SANTOTTA-INTERNACIONAL, SGPS, S.A. | Holding company | Funchal | Full |
| TOTTA URBE - Emp. Admin. e Construções, S.A. (2) | Real estate management | Portugal | Full |
| BENIM - Sociedade Imobiliária, S.A. | Real estate | Portugal | Equity method |
| SANTANDER - GESTÃO DE ACTIVOS, SGPS, S.A. | Holding company | Portugal | Full |
| BST INTERNATIONAL BANK, INC. - PORTO RICO (1) (5) | Banking | Puerto Rico | Full |
| TAXAGEST, SGPS, S.A. | Holding company | Portugal | Full |
| PARTANG, SGPS, S.A. | Holding company | Portugal | Equity method |
| UNICRE - INSTITUIÇÃO FINANCEIRA DE CRÉDITO, S.A. | Credit Card Management | Portugal | 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 |
| LEASETOTTA nº 1 Ltd | 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 |
| LEASETOTTA nº 1 FTC | Securitized loans fund | Portugal | Full |
| NOVIMOVEST - Fundo de Investimento Imobiliário Aberto (6) | Investment management | Portugal | Full |
| SANTANDER MULTIOBRIGAÇÕES - Fundo de Investimento Mobiliário Aberto | |||
| de Obrigações de Taxa Variável (6) | Investment management | Portugal | Full |
In compliance with IFRS 10, which replaced IAS 27 and SIC 12, the Bank's consolidated financial statements include special purpose entities (SPE) created for securitization operations since the Bank retains control over them, as it holds the majority of the risks and benefits associated with their activity, namely the bonds issued by those entities with a higher degree of subordination (Note 45). These entities are referred to above as Leasetotta FTC or Hipototta FTC (securitization loans funds) and Hipototta PLC or Leasetotta Ltd. (entities which subscribed the participating units issued by the securitization loans funds).
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
During the year 2013, the Bank increased its participation in Fundo de Investimento Imobiliário - Novimovest, managed by Santander Asset Management, SGFIM, S.A. ("SAM"), to a holding percentage higher than 50%. According to the accounting policy adopted by the Bank, the Investment Funds are consolidated (by the full consolidation method) when the Bank holds control over them, i.e., when more than 50% of their participating units are held.
From July 1, 2013, the Bank started to consolidate that Fund.
For the above referred reasons, at December 31, 2013, the Bank also consolidated Fundo de Investimento Mobiliário Aberto de Obrigações de Taxa Variável – Santander Multiobrigações, also managed by SAM.
At December 31, 2013, the Funds consolidated for the first time during that year, their activity, the percentage of participation held by the Bank and the amount paid in their acquisition were as follows:
| Entity | Developed activity |
% participation Amount held |
paid |
|---|---|---|---|
| Fundo de Investimento Imobiliário Aberto - Novimovest | Real estate investment fund |
71.60% | 275,910 |
| Fundo de Investimento Mobiliário Aberto de Obrigações de Taxa Variável - Santander Multiobrigações |
Securities investment fund |
64.32% | 239,249 |
Since the participating units in the Investment Funds referred to above were recorded at their fair value, determined based on the value of the participating units disclosed periodically by SAM in the Portuguese Securities Market Commission (CMVM) site, and given that all the subscriptions of participating units were based on that source of valuation, no goodwill was generated on those acquisitions. Moreover, all subscriptions of participating units in those Funds were made through cash.
At December 31, 2014 and 2013 the balance sheet of those Funds had the following breakdown:
| 31-12-2014 | ||||||
|---|---|---|---|---|---|---|
| Novimovest | Multiobrigações | Total | Novimovest | 31-12-2013 Multiobrigações |
Total | |
| Securities portfolio | 3,019 | 318,129 | 321,148 | 3,151 | 344,421 | 347,572 |
| Real estate portfolio | 401,239 | - | 401,239 | 449,758 | - | 449,758 |
| Accounts receivables | 23,640 | - | 23,640 | 23,257 | - | 23,257 |
| Cash and banks | 499 | 54,677 | 55,176 | 513 | 28,150 | 28,663 |
| Accruals and deferrals | 653 | 1,249 | 1,902 | 419 | 2,019 | 2,438 |
| 429,050 | 374,055 | 803,105 | 477,098 | 374,590 | 851,688 | |
| Fund Capital | 330,315 | 372,261 | 702,576 | 360,442 | 371,951 | 732,393 |
| Adjustments and provisions | 5,366 | 383 | 5,749 | 5,285 | 580 | 5,865 |
| Accounts payable | 87,099 | 1,405 | 88,504 | 104,260 | 1,718 | 105,978 |
| Accruals and deferrals | 6,270 | 6 | 6,276 | 7,111 | 341 | 7,452 |
| 429,050 | 374,055 | 803,105 | 477,098 | 374,590 | 851,688 |
At December 31, 2014 and 2013, the consolidated net income includes a loss of tEuros 13,385 and tEuros 20,529 attributable, respectively, to Novimovest Fund.
At December 31, 2014 and 2013, the consolidated net income includes a profit of tEuros 2,153 and tEuros 0 attributable, respectively, to Santander Multiobrigações Fund.
In December 2013, the Bank, through Santander - Asset Management, SGPS, S.A., sold 100% of its shares in Santander Asset Management, SGFIM, S.A. and in Santander Pensões – Sociedade Gestora de Fundos de Pensões, S.A. ("Santander Pensões, S.A."), to an entity of Santander Group, recording a gain of tEuros 12,588 (Note 38), calculated as follows:
| Santander Asset | Santander | ||
|---|---|---|---|
| Management, SGFIM, S.A. | Pensões, S.A. | Total | |
| Net assets sold | 25,440 | 3,472 | 28,912 |
| Cash received | 37,400 | 4,100 | 41,500 |
| Gain on the operation | 12,588 |
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This caption is made up as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Cash Demand deposits at Central Banks: European Central Bank |
208,014 | 221,706 |
| 622,460 ----------- |
116,135 ------------ |
|
| 830,474 | 337,841 | |
| ====== | ====== |
In accordance with European Central Bank Regulation nº 2,818/98, dated December 1, as from January 1, 1999 credit institutions established in Member States shall maintain minimum cash reserves at the participating National Central Banks. The basis for determining the amount of the reserves consists in all deposits at central banks and financial and monetary entities outside the Euro Zone and all deposits of customers repayable in less than two years' time, to which 1% is applied and 100,000 Euros is deducted from the amount calculated. The minimum cash reserves earn interest at the average of the rates for the principal refinancing operations of the European Central Bank System.
This caption is made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Balances due from domestic banks | ||
| Cheques for collection | 64,841 | 54,077 |
| Demand deposits | 709 | 756 |
| Balances due from foreign banks | ||
| Demand deposits | 173,847 | 496,556 |
| Cheques for collection | 1,821 | 1,532 |
| ----------- | ---------- | |
| 241,218 | 552,921 | |
| ====== | ====== |
At December 31, 2014 and 2013, sub captions "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 December 31, 2014 and 2013, the caption "Balances due from foreign banks – Demand deposits" included a deposit in the amount of tEuros 67,831 and tEuros 165,375, respectively, which is being mobilized as the fulfilment of certain obligations towards third parties, occur.
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This caption is made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Financial assets held for trading | ||
| Derivatives with positive fair value | 1,969,494 | 1,599,893 |
| Securities – Debt instruments | 319,221 | 346,070 |
| Securities - Participating units | 3,019 | 3,152 |
| ------------- 2,291,734 |
------------- 1,949,115 |
|
| ======= | ======= | |
| Financial liabilities held for trading | ||
| Derivatives with negative fair value | ( 1,995,019 ) | ( 1,619,768 ) |
| ======= | ======= | |
| Net balance of the fair value | ||
| of derivative financial instruments | ( 25,525 ) | ( 19,875 ) |
| ===== | ===== |
At December 31, 2014 and 2013, the captions of derivative financial instruments were made up as follows:
| 2014 | 2013 (pro forma) | |||||||
|---|---|---|---|---|---|---|---|---|
| Assets | Liabilities | Net | Assets | Liabilities | Net | |||
| (Note 11) | (Note 11) | |||||||
| Forwards | 31,123 | 30,886 | 237 | 1,250 | 1,311 | (61) | ||
| Swaps | ||||||||
| Currency swaps | 19,568 | - | 19,568 | 1,119 | 7,400 | (6,281) | ||
| Interest rate swaps | 1,556,561 | 1,602,271 | (45,710) | 1,203,389 | 1,217,597 | (14,208) | ||
| Equity swaps | 36,580 | 35,348 | 1,232 | 76,883 | 76,233 | 650 | ||
| Credit-linked notes | - | 7 | (7) | - | - | - | ||
| Options | ||||||||
| Exchange rate contracts | 1,368 | 1,184 | 184 | 831 | 836 | (5) | ||
| Contracts on prices | 158,355 | 156,781 | 1,574 | 137,076 | 137,076 | - | ||
| Caps & Floors | 165,939 | 168,542 | (2,603) | 179,345 | 179,315 | 3 0 |
||
| 1,969,494 | 1,995,019 | (25,525) | 1,599,893 | 1,619,768 | (19,875) |
At December 31, 2014, the captions of assets and liabilities of derivative financial instruments are net of the amounts of approximately tEuros 142,400 and tEuros 110,700, respectively, of "Credit Value Adjustments" and "Debit Value Adjustments".
At December 31, 2013, the captions of assets and liabilities of derivative financial instruments are net of the amounts of approximately tEuros 187,800 and tEuros 168,000, respectively, of "Credit Value Adjustments" and "Debit Value Adjustments".
At December 31, 2014 and 2013, the caption of derivative financial instruments – assets, included the amounts of tEuros 1,420,000 and tEuros 1,030,000, respectively, maintained with entities belonging to the Portuguese Public Sector which are in litigation (Note 50).
At December 31, 2014 and 2013, the majority of the derivative financial instruments held for trading were hedged "back-to-back" with Banco Santander, S.A..
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, the caption "Securities - Debt instruments" is made up as follows:
| Book value | ||||||
|---|---|---|---|---|---|---|
| Description | 2014 | 2013 (pro forma) | ||||
| Issued by residents | ||||||
| Portuguese public debt | 11,177 | 76,613 | ||||
| Others | 9,531 | 23,583 | ||||
| Issued by non residents | ||||||
| Public foreign issuers | 40,935 | 7,667 | ||||
| Others | 257,578 | 238,207 | ||||
| 319,221 | 346,070 |
At December 31, 2013, the Bank started to consolidate by the full consolidation method Fundo Santander Multiobrigações, which holds the debt instruments mentioned above.
At December 31, 2014 and 2013, the caption "Securities – Participating units" corresponds to the Real Estate Investment Fund Maxirent.
| 2014 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Value adjustments |
||||||||
| Acquisition | Interest | resulting from | Fair Value Reserve | Book | ||||
| cost | receivable hedging operations | Positive | Negative | Total | Impairment | Value | ||
| (Note 26) | (Note 22) | |||||||
| Debt instruments | ||||||||
| Issued by residents | ||||||||
| Treasury Bonds | 4,975,473 | 133,789 | 37,423 | 258,110 | - | 258,110 | (130) | 5,404,665 |
| Other Portuguese Government entities | 7,502 | - | - | - | (672) | (672) | - | 6,830 |
| Other residents | ||||||||
| Acquired in securitization operations | 79,600 | 72 | - | - | (8,045) | (8,045) | - | 71,627 |
| Unsubordinated debt | 830,723 | 14,980 | - | 35,737 | (6,957) | 28,780 | (230) | 874,253 |
| Subordinated debt | 139,009 | 22 | - | - | (12,135) | (12,135) | (6,603) | 120,293 |
| Issued by non-residents | ||||||||
| Other non-residents | 117,420 | 3,477 | - | 1,457 | (344) | 1,113 | - | 122,010 |
| Equity instruments | ||||||||
| Issued by residents | ||||||||
| Valued at fair value | 158,113 | - | - | 621 | (10,859) | (10,238) | (48,017) | 99,858 |
| Valued at cost | 18,765 | - | - | - | - | - | (6,217) | 12,548 |
| Issued by non-residents | ||||||||
| Valued at fair value | 11 | - | - | - | - | - | - | 11 |
| Valued at cost | 1,206 - |
- | - | - | - | - | (746) | 460 |
| 6,327,822 | 152,340 | 37,423 | 295,925 | (39,012) | 256,913 | (61,943) | 6,712,555 |
| 2013 (pro forma) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Value | ||||||||||
| adjustments | ||||||||||
| Acquisition | Interest | resulting from | Fair Value Reserve | Book | ||||||
| cost | receivable hedging operations | Positive | Negative | Total | Impairment | Value | ||||
| (Note 26) | (Note 22) | |||||||||
| Debt instruments | ||||||||||
| Issued by residents | ||||||||||
| Treasury Bonds | 2,130,470 | 29,161 | 105,608 | 106 | (136,469) | (136,363) | (231) | 2,128,645 | ||
| Other Portuguese Government entities | 479,002 | 1,119 | - | 13,155 | (1,456) | 11,699 | - | 491,820 | ||
| Other residents | ||||||||||
| Acquired in securitization operations | 86,505 | 87 | - | - | (23,349) | (23,349) | - | 63,243 | ||
| Unsubordinated debt | 416,584 | 8,013 | - | 7,662 | (11,220) | (3,558) | (231) | 420,808 | ||
| Subordinated debt | 128,233 | 36 | - | - | (7,256) | (7,256) | (11,193) | 109,820 | ||
| Issued by non-residents | ||||||||||
| Foreign government entities | 1,007,249 | 23,108 | 120,005 | 109 | (75,105) | (74,996) | - | 1,075,366 | ||
| Equity instruments | ||||||||||
| Issued by residents | ||||||||||
| Valued at fair value | 121,633 | - | - | 374 | (326) | 48 | (42,655) | 79,026 | ||
| Valued at cost | 19,732 | - | - | - | - | - | (6,683) | 13,049 | ||
| Issued by non-residents | ||||||||||
| Valued at fair value | 16 | - | - | - | - | - | - | 16 | ||
| Valued at cost | 1,205 - |
- | - | - | - | - | (745) | 460 | ||
| 4,390,629 | 61,524 | 225,613 | 21,406 | (255,181) | (233,775) | (61,738) | 4,382,253 |
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2014 | 2013 (pro forma) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Description | Acquisition Interest cost |
Gains/losses in hedging receivable operations |
Gains/losses recorded in reserves |
Impairment | Book value |
Acquisition cost |
Interest receivable |
Gains/losses in hedging operations |
Gains/losses recorded in reserves |
Impairment | Book value |
|
| Treasury bonds - Portugal | ||||||||||||
| . Maturing in one year . Maturing betw een one and three years |
- - |
- - |
- - |
- - |
- - |
- - |
649,159 - |
4,981 - |
12,388 - |
(7,573) - |
- - |
658,955 - |
| . Maturing betw een three and five years . Maturing betw een five and ten years |
1,790,592 3,184,881 |
42,375 91,414 |
- 37,423 |
54,782 203,328 |
- (130) |
1,887,749 3,516,916 |
517,531 675,000 |
6,447 17,728 |
- 93,220 |
(4,195) (124,701) |
- - |
519,783 661,247 |
| Treasury bills - Portugal Other |
- - |
- - |
- - |
- - |
- - |
- - |
288,293 487 |
- 5 |
- - |
106 - |
- (231) |
288,399 261 |
| 4,975,473 133,789 | 37,423 | 258,110 | (130) | 5,404,665 | 2,130,470 | 29,161 | 105,608 | (136,363) | (231) | 2,128,645 | ||
| Treasury bonds - Spain | ||||||||||||
| . Maturing betw een five and ten years |
- | - | - | - | - | - | 1,000,000 | 23,028 | 120,005 | (75,105) | - | 1,067,928 |
| Other | - | - | - | - | - | - | 7,249 | 80 | - | 109 | - | 7,438 |
| - | - | - | - | - | - | 1,007,249 | 23,108 | 120,005 | (74,996) | - | 1,075,366 | |
| 4,975,473 133,789 | 37,423 | 258,110 | (130) | 5,404,665 | 3,137,719 | 52,269 | 225,613 | (211,359) | (231) | 3,204,011 |
At December 31, 2014, the Bank held in its portfolio Treasury Bonds of Portugal, in an amount of tEuros 2,002,426, which were used as collateral in financing operations (Note 19).
At December 31, 2013, the Bank held in its portfolio Treasury Bonds of Portugal and Spain, in the amounts of tEuros 1,595,639 and tEuros 1,070,943 respectively, which were used as collateral in financing operations (Note 19).
At December 31, 2014 and 2013, the caption "Debt instruments – Issued by residents - Other residents" includes, amongst others, the following securities:
| 2014 | 2013 (pro forma) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Gains/losses | Gains/losses | |||||||||
| Acquisition | Interest | recorded | Book | Acquisition | Interest | recorded | Book | |||
| Description | cost | receivable in reserves | Impairment | value | cost | receivable | in reserves | Impairment | value | |
| Acquired in securitization operations | ||||||||||
| ENERGYON NO.2 CLASS A NOTES 2025 | 79,550 | 72 | (8,025) | - | 71,597 | 86,455 | 87 | (23,329) | - | 63,213 |
| Other | 50 | - | (20) | - | 30 | 50 | - | (20) | - | 30 |
| 79,600 | 72 | (8,045) | - | 71,627 | 86,505 | 87 | (23,349) | - | 63,243 | |
| Unsubordinated debt | ||||||||||
| CAIXA GERAL DE DEPOSITOS 3.75% JAN/2018 | 251,991 | 8,931 | 21,143 | - | 282,065 | 199,820 | 7,144 | 6,521 | - | 213,485 |
| PARPUBLICA 2013/2015 | 200,000 | 78 | 4,136 | - | 204,214 | - | - | - | - | - |
| Banco Comercial Português 22/06/2017 | 105,358 | 2,512 | 3,702 | - | 111,572 | - | - | - | - | - |
| GALP ENERGIA 2013/2017 | 99,455 | 429 | 1,530 | - | 101,414 | 99,226 | 446 | 1,141 | - | 100,813 |
| CGD 3% 2014/2019 | 49,965 | 1,442 | 4,582 | - | 55,989 | - | - | - | - | - |
| SONAE DISTRIBUICAO SET 2007/2015 | 35,000 | 82 | (442) | - | 34,640 | 35,000 | 98 | (2,295) | - | 32,803 |
| Galp Energia Sgps Sa -4,125%-25/01/2019 | 23,885 | 894 | 215 | - | 24,994 | - | - | - | - | - |
| IBERWIND II P- CONSULTORIA SENIOR A | 28,046 | 29 | (4,165) | - | 23,910 | 29,956 | 32 | (5,845) | - | 24,143 |
| EDIA 2010/2030 | 19,250 | 226 | (1,401) | - | 18,075 | 19,250 | 227 | (1,413) | - | 18,064 |
| OBRIGAÇÕES ZON MULTIMÉDIA 2014 | - | - | - | - | - | 24,300 | 50 | (294) | - | 24,056 |
| Other | 17,773 | 357 | (520) | (230) | 17,380 | 9,032 | 16 | (1,373) | (231) | 7,444 |
| 830,723 | 14,980 | 28,780 | (230) | 874,253 | 416,584 | 8,013 | (3,558) | (231) | 420,808 | |
| Subordinated debt | ||||||||||
| CAIXA GERAL DEPOSITOS 3.875% 2017 | 122,087 | 19 | - | (6,603) | 115,503 | 111,360 | 32 | - | (11,193) | 100,199 |
| TOTTA SEGUROS - OBRIG. SUB. 2002 | 14,000 | 1 | (9,213) | - | 4,788 | 14,000 | 2 | (5,150) | - | 8,852 |
| Other | 2,922 | 2 | (2,922) | - | 2 | 2,873 | 2 | (2,106) | - | 769 |
| 139,009 | 22 | (12,135) | (6,603) | 120,293 | 128,233 | 36 | (7,256) | (11,193) | 109,820 |
In the last quarter of 2012, the Bank acquired to Santander Totta Seguros – Companhia de Seguros de Vida, S.A., subordinated bonds issued by Caixa Geral de Depósitos, S.A. by an amount that was tEuros 15,674 above its fair value. Following this operation, impairment losses of the same amount were recorded. During the years 2014 and 2013, the Bank reversed impairment losses of tEuros 4,590 and tEuros 4,481, respectively, on that security due to its appreciation.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2014 | 2013 (pro forma) | |||||||
|---|---|---|---|---|---|---|---|---|
| Gains/losses | Gains/losses | |||||||
| Acquisition | recorded | Book | Acquisition | recorded | Book | |||
| Description | cost | in reserves | Impairment | value | cost | in reserves | Impairment | value |
| Recorded at fair value | ||||||||
| FUNDO SOLUÇÃO ARRENDAMENTO | 28,925 | (1,769) | - | 27,156 | 24,915 | (319) | - | 24,596 |
| FUNDO RECUPERAÇÃO FCR | 33,120 | - | (8,109) | 25,011 | 28,491 | - | (3,850) | 24,641 |
| LUSIMOVEST - F.I. IMOBILIÁRIO | 26,379 | 186 | (2,827) | 23,738 | 26,379 | - | (1,998) | 24,381 |
| BANCO BPI, SA | 21,502 | (9,010) | - | 12,492 | - | - | - | - |
| GARVAL - SOC.DE GARANTIA MUTUA S.A. | 1,443 | 64 | - | 1,507 | 1,759 | 51 | - | 1,810 |
| Other | 13,359 | 291 | (3,685) | 9,965 | 6,690 | 316 | (3,392) | 3,614 |
| Securities w ith 100% impairment losses |
33,396 | - | (33,396) | - | 33,415 | - | (33,415) | - |
| 158,124 | (10,238) | (48,017) | 99,869 | 121,649 | 48 | (42,655) | 79,042 | |
| Recorded at historical cost | ||||||||
| SIBS - SOC.INTERBANCÁRIA DE SERVIÇOS S.A. | 3,461 | - | - | 3,461 | 3,461 | - | - | 3,461 |
| ASCENDI NORTE - AUTO ESTRADAS DO NORTE S.A. (ex-AENOR) ASCENDI NORTE - AUTO ESTRADAS DO NORTE S.A. |
3,749 | - | (531) | 3,218 | 3,749 | - | (531) | 3,218 |
| (Supplementary capital contributions) (ex-AENOR) | 3,749 | - | (531) | 3,218 | 3,749 | - | (531) | 3,218 |
| Other | 3,986 | - | (875) | 3,111 | 4,951 | - | (1,339) | 3,612 |
| Securities w ith 100% impairment losses |
5,026 | - | (5,026) | - | 5,027 | - | (5,027) | - |
| 19,971 | - | (6,963) | 13,008 | 20,937 | - | (7,428) | 13,509 |
At December 31, 2014 and 2013, the Bank held 5,861,770 and 5,020,942 of participating units of the "Fundo Solução Arrendamento, Fundo de Investimento Imobiliário Fechado" in the amounts of tEuros 27,156 and tEuros 24,596, respectively, which were subscribed through a cash payment of tEuros 2 and the remaining through the delivery of land and buildings.
During the years 2014 and 2013, the Bank subscribed capital calls of Fundo Recuperação, FCR in the amounts of tEuros 4,629 and tEuros 3,477, respectively. At December 31, 2014 and 2013, the Bank held in its portfolio 33,110 and 28,427 participating units, respectively, corresponding to a participation of 4.12% in the capital of that Fund.
During 2014 the Bank acquired to Santander Totta Seguros – Companhia de Seguros de Vida, S.A. shares of Banco BPI, S.A. by an amount of tEuros 21,502 (fair value at the acquisition date), which, as of December 31, 2014, were recorded by tEuros 12,492.
At December 31, 2014 and 2013, the negative fair value reserve arising from the fair value valuation of the available-for-sale financial assets presents the following percentages against their acquisition cost:
| 2014 | |||||
|---|---|---|---|---|---|
| Gains/(losses) | |||||
| Acquisition | Interest | on hedging | Negative | Book | |
| cost | receivable | operations | reserve | Value | |
| Debt instruments | |||||
| . Between 0% and 25% | 219,676 | 1,430 | - | (15,998) | 205,108 |
| . Between 25% and 50% | 50 | - | - | (20) | 30 |
| . Over 50% | 16,922 | 3 | - | (12,135) | 4,790 |
| 236,648 | 1,433 | - | (28,153) | 209,928 | |
| Equity instruments | |||||
| . Between 0% and 25% | 35,001 | - | - | (1,849) | 33,152 |
| . Between 25% and 50% | 21,502 | - | - | (9,010) | 12,492 |
| 56,503 | - | - | (10,859) | 45,644 | |
| 293,151 | 1,433 | - | (39,012) | 255,572 | |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2013 (pro forma) | |||||
|---|---|---|---|---|---|
| Gains/(losses) | |||||
| Acquisition cost |
Interest receivable |
on hedging operations |
Negative reserve |
Book Value |
|
| Debt instruments | |||||
| . Between 0% and 25% | 2,968,000 | 52,608 | 225,613 | (224,250) | 3,021,971 |
| . Between 25% and 50% | 100,505 | 88 | - | (28,500) | 72,093 |
| . Over 50% | 2,873 | 3 | - | (2,105) | 771 |
| 3,071,378 | 52,699 | 225,613 | (254,855) | 3,094,835 | |
| Equity instruments | |||||
| . Between 0% and 25% | 24,988 | - | - | (326) | 24,662 |
| 3,096,366 | 52,699 | 225,613 | (255,181) | 3,119,497 |
This caption is made up as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Loans and advances to the European Central Bank | - | 1,600,000 |
| Loans and advances to other Portuguese banks Deposits Loans Interest receivable |
--- 200,000 22,212 5,806 ----------- |
------------- 200,407 36,522 3,523 ----------- |
| 228,018 ----------- |
240,452 ----------- |
|
| Loans and advances to other foreign banks Deposits Very short term loans and advances Other applications Interest receivable |
833,764 71,574 55,883 31,678 ------------- |
1,158,953 68,797 172,463 30,305 ------------- |
| 992,899 | 1,430,518 | |
| ------------- 1,220,917 ======== |
------------- 3,270,970 ======== |
At December 31, 2014 and 2013, the caption "Loans and advances to other foreign banks - Other applications" includes margin accounts of tEuros 46,926 and tEuros 172,446, respectively.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This caption is made up as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Unsecuritised loans | ||
| Domestic loans | ||
| To corporate clients Loans |
3,793,601 | 3,898,652 |
| Factoring | 1,057,039 | 995,271 |
| Current account loans | 738,311 | 1,011,146 |
| Finance leasing | 733,256 | 460,387 |
| Discount and other credit securities | 139,255 | 144,180 |
| Overdrafts | 95,541 | 105,260 |
| Other credits | 19,866 | 20,309 |
| To individuals | ||
| Mortgage loans Consumer credit and other loans |
12,199,253 1,652,604 |
12,554,234 1,722,630 |
| Foreign loans | ||
| To corporate clients | ||
| Loans | 147,724 | 132,935 |
| Factoring | 71,325 | 57,974 |
| Current account loans | 7,263 | 11,615 |
| Finance leasing | 1,272 | 2,282 |
| Discount and other credit securities | 140 | 128 |
| Overdrafts Other credits |
62 3 |
440 3,231 |
| To individuals | ||
| Mortgage loans | 334,883 | 361,067 |
| Consumer credit and other loans | 27,812 | 32,147 |
| --------------- | --------------- | |
| 21,019,210 --------------- |
21,513,888 --------------- |
|
| Loans represented by securities | ||
| Non-subordinated debt securities | 2,390,245 | 2,003,612 |
| ------------- | ------------- | |
| Non-derecognised securitised assets (Note 45) | ||
| Corporate Clients | ||
| Finance leasing | ||
| . Leasetotta nº 1 To individuals |
- | 335,458 |
| Loans | ||
| Mortgage loans | ||
| . Hipototta nº 1 | 157,613 | 177,830 |
| . Hipototta nº 4 | 1,031,230 | 1,103,384 |
| . Hipototta nº 5 | 894,145 | 945,687 |
| Finance leasing | ||
| . Leasetotta nº 1 | - ------------- |
206 -------------- |
| 2,082,988 | 2,562,565 |
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Overdue loans and interest | ||
| Up to 90 days | 41,490 | 60,190 |
| More than 90 days | 1,079,431 | 949,842 |
| Non-derecognised securitised assets up to 90 days | 1,620 | 1,102 |
| Non-derecognised securitised assets more than 90 days | 43,696 ------------- |
62,830 -------------- |
| 1,166,237 | 1,073,964 | |
| --------------- 26,658,680 |
--------------- 27,154,029 |
|
| Interest receivable | --------------- | --------------- |
| Unsecuritised loans | 39,206 | 47,101 |
| Loans represented by securities | 11,498 | 4,791 |
| Non-derecognised securitised assets | 2,180 | 3,165 |
| Deferred expenses | 69,414 | 77,414 |
| Commissions associated with amortised cost (net) | (100,355 ) | (105,303 ) |
| Value adjustments of hedged assets | 4,246 | 4,200 |
| ---------- 26,189 |
---------- 31,368 |
|
| --------------- 26,684,869 |
--------------- 27,185,397 |
|
| Impairment of loans and advances to customers (Note 22) | (1,161,618 ) | (1,077,876 ) |
| --------------- 25,523,251 |
--------------- 26,107,521 |
|
| ========= | ========= |
In 2014 and 2013, the Bank sold mortgage loans and company loans portfolios, most of which had already been written off. As a result of these operations, net gains were recorded in 2014 and 2013 amounting to tEuros 1,128 and tEuros 2,321 respectively (Note 38).
At December 31, 2014 and 2013, the caption "Domestic loans - To individuals – Mortgage loans" included loans allocated to the autonomous pool of the covered bonds issued by the Bank totalling tEuros 8,021,820 and tEuros 8,245,739, respectively (Note 21).
During 2014 the Bank liquidated in advance the securitization operation named Leasetotta nº 1, which justified the increase occurred in the caption "Domestic loans – To corporate clients – Finance leasing".
Changes in impairment of loans and advances to customers during 2014 and 2013 are presented in Note 22.
At December 31, 2014 and 2013, overdue loans and interest are made up as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Up to three months | 43,110 | 61,292 |
| Between three and six months | 61,723 | 32,115 |
| Between six months and one year | 127,866 | 163,839 |
| Between one year and three years | 545,546 | 627,701 |
| More than three years | 387,992 | 189,017 |
| ------------- 1,166,237 |
------------ 1,073,964 |
|
| ======= | ======= |
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The portfolio of loans and advances to customers as of December 31, 2014 and 2013, by business sector, was as follows:
| 2014 | |||||
|---|---|---|---|---|---|
| Performing | Overdue | Total | % | ||
| Agriculture and forestry | 146,259 | 7,973 | 154,232 | 0.58% | |
| Fishing | 3,758 | 4 4 |
3,802 | 0.01% | |
| Mining | 16,617 | 1,043 | 17,660 | 0.07% | |
| Manufacturing: | |||||
| Food, beverage and tobacco | 363,292 | 21,155 | 384,447 | 1.44% | |
| Textiles, leather and clothing | 194,547 | 8,379 | 202,926 | 0.76% | |
| Wood and cork | 94,716 | 5,254 | 99,970 | 0.37% | |
| Paper and publishing | 193,675 | 2,361 | 196,036 | 0.74% | |
| Chemical industry | 171,963 | 3,774 | 175,737 | 0.66% | |
| Ceramics, glass and cement | 164,282 | 3,488 | 167,770 | 0.63% | |
| Metal-working | 117,888 | 8,559 | 126,447 | 0.47% | |
| Machines and vehicles | 162,960 | 12,526 | 175,486 | 0.66% | |
| Electricity, water and gas | 683,108 | 2,474 | 685,582 | 2.57% | |
| Construction and public works | 1,195,295 | 228,721 | 1,424,016 | 5.34% | |
| Commerce and hotels: | |||||
| Wholesale trading | 650,927 | 55,595 | 706,522 | 2.65% | |
| Retail sale | 948,063 | 66,781 | 1,014,844 | 3.81% | |
| Restaurants and hotels | 367,792 | 21,709 | 389,501 | 1.46% | |
| Transport and communications | 401,804 | 16,327 | 418,131 | 1.57% | |
| Non-monetary financial institutions | 561,191 | 13,535 | 574,726 | 2.16% | |
| Government administration | 556,792 | 2,096 | 558,888 | 2.10% | |
| Other service companies | 1,262,402 | 128,172 | 1,390,574 | 5.22% | |
| Loans to individuals | 15,816,560 | 532,171 | 16,348,731 | 61.33% | |
| Foreign loans | 306,597 | 5,112 | 311,709 | 1.17% | |
| Holding companies | 881,678 | 11,911 | 893,589 | 3.35% | |
| Other loans | 230,277 | 7,077 | 237,354 | 0.89% | |
| 25,492,443 | 1,166,237 | 26,658,680 | 100.00% |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2013 (pro forma) | |||||
|---|---|---|---|---|---|
| Performing | Overdue | Total | % | ||
| Agriculture and forestry | 151,426 | 8,971 | 160,397 | 0.59% | |
| Fishing | 3,122 | 3 5 |
3,157 | 0.01% | |
| Mining | 23,673 | 1,739 | 25,412 | 0.09% | |
| Manufacturing: | |||||
| Food, beverage and tobacco | 402,914 | 10,408 | 413,322 | 1.52% | |
| Textiles, leather and clothing | 172,748 | 7,202 | 179,950 | 0.66% | |
| Wood and cork | 95,945 | 4,358 | 100,303 | 0.37% | |
| Paper and publishing | 186,370 | 2,394 | 188,764 | 0.70% | |
| Chemical industry | 176,807 | 3,483 | 180,290 | 0.66% | |
| Ceramics, glass and cement | 247,283 | 2,088 | 249,371 | 0.92% | |
| Metal-working | 114,182 | 7,608 | 121,790 | 0.45% | |
| Machines and vehicles | 180,979 | 10,768 | 191,747 | 0.71% | |
| Electricity, water and gas | 277,654 | 1,355 | 279,009 | 1.03% | |
| Construction and public works | 1,354,987 | 220,361 | 1,575,348 | 5.80% | |
| Commerce and hotels: | |||||
| Wholesale trading | 642,398 | 50,003 | 692,401 | 2.55% | |
| Retail sale | 842,497 | 57,899 | 900,396 | 3.32% | |
| Restaurants and hotels | 398,633 | 27,176 | 425,809 | 1.57% | |
| Transport and communications | 540,288 | 13,912 | 554,200 | 2.04% | |
| Non-monetary financial institutions | 702,904 | 3 1 |
702,935 | 2.59% | |
| Government administration | 551,843 | 2,760 | 554,603 | 2.04% | |
| Other service companies | 1,307,674 | 128,433 | 1,436,107 | 5.29% | |
| Loans to individuals | 16,217,460 | 489,350 | 16,706,810 | 61.53% | |
| Foreign loans | 339,914 | 5,851 | 345,765 | 1.27% | |
| Holding companies | 811,988 | 9,967 | 821,955 | 3.03% | |
| Other loans | 336,376 | 7,812 | 344,188 | 1.27% | |
| 26,080,065 | 1,073,964 | 27,154,029 | 100.00% |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, the overdue and performing loans, with and without evidence of impairment, considering the segmentation used for the calculation of impairment losses by the Bank, were as follows:
| 2014 | |||
|---|---|---|---|
| Overdue | Performing | Total | |
| loans | loans | loans | |
| Loans granted to companies | |||
| Without objective evidence of impairment | - | 8,923,870 | 8,923,870 |
| With objective evidence of impairment | 613,100 | 425,763 | 1,038,863 |
| ----------- 613,100 |
--------------- 9,349,633 |
-------------- 9,962,733 |
|
| ----------- | --------------- | -------------- | |
| Mortgage loans | |||
| Without objective evidence of impairment | - | 13,934,517 | 13,934,517 |
| With objective evidence of impairment | 350,449 | 682,607 | 1,033,056 |
| ----------- 350,449 |
--------------- 14,617,124 |
--------------- 14,967,573 |
|
| ----------- | --------------- | --------------- | |
| Consumer loans | |||
| Without objective evidence of impairment | - | 1,028,509 | 1,028,509 |
| With objective evidence of impairment | 50,726 | 42,686 | 93,412 |
| --------- 50,726 |
-------------- 1,071,195 |
-------------- 1,121,921 |
|
| --------- | -------------- | -------------- | |
| Loans granted through credit cards | |||
| Without objective evidence of impairment | - | 236,810 | 236,810 |
| With objective evidence of impairment | 37,268 --------- |
4,407 ----------- |
41,675 ----------- |
| 37,268 | 241,217 | 278,485 | |
| --------- | ----------- | ----------- | |
| Other loans to individuals | |||
| Without objective evidence of impairment | - | 169,572 | 169,572 |
| With objective evidence of impairment | 114,694 ---------- |
43,702 ----------- |
158,396 ----------- |
| 114,694 | 213,274 | 327,968 | |
| ----------- 1,166,237 |
--------------- 25,492,443 |
---------------- 26,658,680 |
|
| ======== | ========= | ========= | |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2013 (pro forma) | |||
|---|---|---|---|
| Overdue | Performing | Total | |
| Loans granted to companies | loans | loans | loans |
| Without objective evidence of impairment | - | 9,015,937 | 9,015,937 |
| With objective evidence of impairment | 562,922 ----------- |
324,947 --------------- |
887,869 -------------- |
| 562,922 | 9,340,884 | 9,903,806 | |
| Mortgage loans | ----------- | --------------- | -------------- |
| Without objective evidence of impairment | - | 14,477,439 | 14,477,439 |
| With objective evidence of impairment | 339,470 | 664,763 | 1,004,233 |
| ----------- 339,470 |
--------------- 15,142,202 |
--------------- 15,481,672 |
|
| Consumer credit | ----------- | --------------- | --------------- |
| Without objective evidence of impairment | - | 1,047,541 | 1,047,541 |
| With objective evidence of impairment | 35,496 --------- |
48,351 -------------- |
83,847 -------------- |
| 35,496 | 1,095,892 | 1,131,388 | |
| Loans granted through credit cards | --------- | -------------- | -------------- |
| Without objective evidence of impairment | - | 233,736 | 233,736 |
| With objective evidence of impairment | 35,152 --------- |
3,508 ----------- |
38,660 ----------- |
| 35,152 | 237,244 | 272,396 | |
| --------- | ----------- | ----------- | |
| Other loans to individuals | |||
| Without objective evidence of impairment With objective evidence of impairment |
- 100,924 |
190,756 73,087 |
190,756 174,011 |
| ---------- | ----------- | ----------- | |
| 100,924 | 263,843 | 364,767 | |
| ----------- 1,073,964 |
--------------- 26,080,065 |
---------------- 27,154,029 |
|
| ======== | ========= | ========= |
This caption is made up as follows:
| 2014 | 2013 (pro forma) | |||||||
|---|---|---|---|---|---|---|---|---|
| Assets | Liabilities | Net | Assets | Liabilities | Net | |||
| Fair value hedge | ||||||||
| Interest rate swaps | 32,926 | 45,158 | (12,232) | 46,101 | 272,356 | (226,255) | ||
| Equity swaps | 38,092 | 20,577 | 17,515 | 51,381 | 37,484 | 13,897 | ||
| AutoCallable options | - | 208 | (208) | - | 49,951 | (49,951) | ||
| Cash-flows hedge | ||||||||
| Interest rate swaps | 124,017 | 67,747 | 56,270 | 101,945 | 10,893 | 91,052 | ||
| 195,035 | 133,690 | 61,345 | 199,427 | 370,684 | (171,257) |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, the breakdown of the derivative financial instruments was as follows:
| 2014 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Notional amounts | |||||||||
| Type of financial Instruments | Book Value |
Up to 3 months |
6 months | Between 3 and Between 6 and Between 1 12 months |
and 3 years | Over 3 years |
Total | Notional amounts EUR |
Other |
| 1. Derivatives held for trading (Note 7) | |||||||||
| Forwards | |||||||||
| . Purchased . Sold |
237 | 50,478 50,369 |
46,467 46,414 |
16,221 16,173 |
180 175 |
- - |
113,346 113,131 |
52,872 59,219 |
60,474 53,912 |
| Currency swaps | |||||||||
| . Purchased | 1,177,015 | - | - | - | - | 1,177,015 | - | 1,177,015 | |
| . Sold | 19,568 | 1,157,722 | - | - | - | - | 1,157,722 | 1,157,722 | - |
| Other | (45,710) | 733,977 | 79,160 | 457,056 | 1,049,816 | 4,458,982 | 6,778,991 | 6,710,385 | 68,606 |
| Equity swaps | 1,232 | - | 133,900 | 170,004 | 279,520 | 70,000 | 653,424 | 653,424 | - |
| Currency options | |||||||||
| . Purchased | 184 | 30,560 | 43,043 | 51,373 | - | - | 124,976 | - | 124,976 |
| . Sold | 30,560 | 43,043 | 51,373 | - | - | 124,976 | - | 124,976 | |
| Equity options | |||||||||
| . Purchased | 1,574 | - | - | 29,053 | 1,819 | - | 30,872 | 29,053 | 1,819 |
| . Sold | - | - | 29,053 | 1,819 | - | 30,872 | 29,053 | 1,819 | |
| Caps | (178) | 1,047 | 4,145 | 38,207 | 679,144 | 1,155,913 | 1,878,456 | 1,878,456 | - |
| Floors Credit linked notes |
(2,425) (7) |
- - |
- - |
5,805 7,000 |
649,000 - |
448,733 - |
1,103,538 7,000 |
1,103,539 7,000 |
(1) - |
| (25,525) | 3,231,728 | 396,172 | 871,318 | 2,661,473 | 6,133,628 | 13,294,319 11,680,723 | 1,613,596 | ||
| 2. Hedging derivatives | |||||||||
| Fair value hedges | |||||||||
| Interest rate swaps | |||||||||
| . Liabilities and loans | 28,636 | 7,100 | 25,873 | 74,588 | 89,178 | 179,974 | 376,713 | 376,713 | - |
| . Available-for-sale financial assets Auto Callable options |
(40,868) (208) |
- - |
- - |
- 21,253 |
- - |
200,000 - |
200,000 21,253 |
200,000 21,253 |
- - |
| Equity swaps | 17,515 | 293,305 | 398,095 | 610,838 | 1,870,023 | 141,301 | 3,313,562 | 3,118,223 | 195,339 |
| Cash flow hedges | |||||||||
| Interest rate swaps | |||||||||
| . Cash flow | 56,270 | 200,000 | - | - | 1,400,000 | 1,300,000 | 2,900,000 | 2,900,000 | - |
| 61,345 | 500,405 | 423,968 | 706,679 | 3,359,201 | 1,821,275 | 6,811,528 | 6,616,189 | 195,339 | |
| 2013 (pro forma) | |||||||||
| Notional amounts | |||||||||
| Book | Up to 3 | Between 3 and Between 6 and Between 1 | Over | Notional amounts | |||||
| Type of financial Instruments | Value | months | 6 months | 12 months | and 3 years | 3 years | Total | EUR | Other |
| 1. Derivatives held for trading (Note 7) | |||||||||
| Forwards | |||||||||
| . Purchased | 30,337 | 58,904 | 7,202 | 81 | - | 96,524 | 45,471 | 51,053 | |
| . Sold | (61) | 30,306 | 58,916 | 7,214 | 81 | - | 96,517 | 42,220 | 54,297 |
| Currency swaps | |||||||||
| . Purchased | (6,281) | 1,212,071 | - | - | - | - | 1,212,071 | - | 1,212,071 |
| . Sold | 1,218,426 | - | - | - | - | 1,218,426 | - | ||
| Interest rate swaps | 1,218,426 | ||||||||
| Cross currency swaps | |||||||||
| . Purchased | - | - | - | - | 19,848 | 85,295 | 105,143 | 105,143 | - |
| . Sold | - | - | - | (19,848) | (85,295) | (105,143) | - | (105,143) | |
| Other | (14,208) | 196,193 | 373,775 | 443,024 | 1,910,362 | 3,420,108 | 6,343,462 | 6,305,502 | 37,960 |
| Equity swaps | 650 | 60,402 | 39,107 | 58,837 | 818,959 | 1,137,609 | 2,114,914 | 2,114,914 | - |
| FRA's | - | 20,000 | - | - | - | - | 20,000 | 20,000 | - |
| Currency options | |||||||||
| . Purchased . Sold |
(5) | 13,489 13,489 |
11,956 11,956 |
10,333 10,333 |
- - |
- - |
35,778 35,778 |
- - |
|
| Equity options | |||||||||
| . Purchased | - | 23,079 | - | 346,590 | - | 369,669 | 369,669 | - | |
| . Sold | - | - | 23,079 | - | 346,590 | - | 369,669 | 369,669 | 35,778 35,778 - |
| Caps | 30 | 33,214 | 41,834 | 2,804 | 78,768 | 1,251,253 | 1,407,873 | 1,407,873 | - |
| Floors | - | - | 53,171 | - | 6,611 | 491,948 | 551,730 | 523,559 | |
| (19,875) | 2,827,927 | 695,777 | 539,747 | 3,508,042 | 6,300,918 | 13,872,411 12,522,446 | |||
| 2. Hedging derivatives | 28,171 1,349,965 |
||||||||
| Fair value hedges | |||||||||
| Interest rate swaps | |||||||||
| . Liabilities and loans | 41,625 | 48,320 | 46,510 | 891,120 | 191,241 | 212,566 | 1,389,757 | 1,389,757 | - |
| . Available-for-sale financial assets | (267,880) | - | - | 400,000 | - | 1,675,000 | 2,075,000 | 2,075,000 | - |
| AutoCallable options | (49,951) | 62,160 | 153,520 | 1,140 | 21,253 | - | 238,073 | 238,073 | - |
| Equity swaps | 13,897 | 185,571 | 207,162 | 586,121 | 2,426,063 | 34,303 | 3,439,220 | 3,270,182 | |
| Cash flow hedges | |||||||||
| Interest rate swaps | |||||||||
| . Cash flow FRA's |
91,052 - |
1,000,000 2,200,000 |
- - |
- - |
1,375,000 - |
1,525,000 - |
3,900,000 2,200,000 |
3,900,000 2,200,000 |
169,038 - - |
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The Bank carries out derivative transactions in the scope of its activity, managing its own positions based on expectations for the market's evolution, satisfying customer's needs, or covering positions of a structural nature (hedging).
The Bank trades derivatives, namely exchange rates 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 based, usually, on a standard bilateral contract, which encompasses all the derivative transactions between the parties. In the case of professional relationships, an ISDA Master Agreement - International Swaps and Derivatives Association. In the case of customer relationships, a specific agreement of the Bank.
In these type of contracts, the compensation of liabilities in the event of default is ruled (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 of collateralization of the credit risk that arises from the transactions covered by it. Generally the derivative contract established between two parties normally includes all 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 accounted at fair value.
Derivatives are also recorded in off balance sheet accounts by their theoretical value (notional amount). Notional amount is the reference amount for the calculation of payments and receipts resulting from the operations.
The fair value corresponds to the price of the derivatives if they were traded on the market 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 in the income statement.
This caption is made up as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Property received as settlement of defaulting loans | 271,204 | 268,035 |
| Own property for sale Participating units |
38,790 18,663 |
28,706 18,663 |
| Equipment | 3,464 | 4,021 |
| Other properties | 100 | 100 |
| ----------- 332,221 |
---------- 319,525 |
|
| Impairment (Note 22) | ---------- ( 123,846 ) |
---------- ( 112,582 ) |
| ----------- 208,375 |
---------- 206,943 |
|
| ====== | ====== |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The changes occurred under the caption "Non-current assets held for sale" during the years ended December 31, 2014 and 2013 were as follows:
| 2014 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31 2013 | December 31 2014 | ||||||||||
| Gross | Accumulated | Impairment (Note 22) | Gross | Accumulated | Net | ||||||
| amount | impairment | Increases | Sales | Transfers | Increases | Reversals | Utilization | amount | impairment | amount | |
| (Notes 14 and 17) | |||||||||||
| Property: | |||||||||||
| . Received as settlement of defaulting loans | 268,035 | (87,677) | 110,040 | (106,219) | (652) | (30,183) | 6,210 | 19,244 | 271,204 | (92,406) | 178,798 |
| . Ow n property for sale |
28,806 | (17,978) | 124 | (1,200) | 11,160 | (8,067) | 121 | 983 | 38,890 | (24,941) | 13,949 |
| Equipment | 4,021 | (2,927) | 1,758 | (2,315) | - | (1,823) | 1,262 | 989 | 3,464 | (2,499) | 965 |
| Participating units | 18,663 | (4,000) | - | - | - | - | - | - | 18,663 | (4,000) | 14,663 |
| 319,525 | (112,582) | 111,922 | (109,734) | 10,508 | (40,073) | 7,593 | 21,216 | 332,221 | (123,846) | 208,375 |
| 2013 (pro forma) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31 2012 | December 31 2013 | ||||||||||
| Gross | Accumulated | Impairment (Note 22) | Gross | Accumulated | Net | ||||||
| amount | impairment | Increases | Sales | Transfers | Increases Reversals Utilization |
amount | impairment | amount | |||
| (Note 14) | |||||||||||
| Property: | |||||||||||
| . Received as settlement of defaulting loans | 245,155 | (71,078) | 158,002 | (135,122) | - | (55,840) | 18,718 | 20,523 | 268,035 | (87,677) | 180,358 |
| . Ow n property for sale |
31,528 | (15,413) | 114 | (9,820) | 6,984 | (6,765) | 50 | 4,150 | 28,806 | (17,978) | 10,828 |
| Equipment | 5,559 | (3,574) | 5,477 | (7,015) | - | (3,914) | 3,376 | 1,185 | 4,021 | (2,927) | 1,094 |
| Participating units | 18,663 | (4,000) | - | - | - | - | - | - | 18,663 | (4,000) | 14,663 |
| 300,905 | (94,065) | 163,593 | (151,957) | 6,984 | (66,519) | 22,144 | 25,858 | 319,525 | (112,582) | 206,943 |
In 2014, the amount of tEuros 652 associated with property received as settlement of defaulting loans, was transferred to the caption "Other assets – Promises and other assets received as settlement of defaulting loans".
At December 31, 2014 and 2013, the caption "Participation units" includes participation units in the Real Estate Investment Fund - Imorent, acquired as a result of a debt settlement agreement established with a client.
The Bank's intention is to immediately sell all properties received as settlement of defaulting loans. These properties are classified as non-current assets held for sale and are recorded upon their initial recognition at the lowest of their fair value less expected selling costs and the accounting value of the loans recovered. Subsequently, these assets are measured at the lowest of its initial recognition value and its 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 market method has by reference the transaction values of similar and comparable properties to the asset being studied, obtained through market research, and carried out in the area where the asset is located.
The purpose of this method is to estimate the value of the property from the capitalization of its net rent discounted to the present moment, through the discounted cash flows methodology.
The cost method consists in determining the replacement value of the property taking into consideration the cost of build another one with identical functionality, less the amount of functional, physical and economical depreciation/obsolescence verified.
The valuations of the properties mentioned above are performed by specialized independent entities, which are accredited in the Portuguese Securities Market Commission (CMVM).
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This caption is made up as follows:
| ====== | ====== | |
|---|---|---|
| 420,239 | 467,949 | |
| ----------- | ----------- | |
| Hotel | 19,000 | 18,191 |
| Properties held by Fundo Imobiliário Novimovest | 401,239 | 449,758 |
| 2014 | 2013 (pro forma) |
During 2013, following the subscription of several participating units, the Bank started to consolidate by the full consolidation method Fundo Imobiliário Novimovest, whose main assets are properties for rental.
At December 31, 2014 and 2013, the properties held by Fundo Imobiliário Novimovest had the following characteristics:
| 2013 | |
|---|---|
| (pro forma) | |
| 47,809 | |
| 9,457 | |
| 307,213 | |
| 74,770 | 85,279 |
| ----------- | ----------- |
| 401,239 | 449,758 |
| ====== | ====== |
| 2014 38,651 9,378 278,440 |
On the other hand, during 2014 and 2013, the properties held by Fundo Imobiliário Novimovest generated, amongst others, the following revenues and annual charges:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Rents | 19,630 | 22,744 |
| Taxes | ( 3,913 ) | ( 4,762 ) |
| Condominium expenses | ( 1,339 ) | ( 1,369 ) |
| Maintenance and repair expenses | ( 1,382 ) | ( 945 ) |
| Insurances | ( 279 ) | ( 316 ) |
| --------- | -------- | |
| 12,717 | 15,352 | |
| ===== | ===== |
Finally, during the first half of 2013, the Bank received as settlement for a non performing loan a hotel valuated at that date in tEuros18,660. Simultaneously, the Bank celebrated a lease contract for that property for a period of 1 year automatically renewable. At December 31, 2014 and 2013, the Bank updated the fair value of that property taking in consideration a purchase commitment agreement established with a third party and an appraisal report performed by a specialized entity, respectively.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The changes occurred under the caption "Investment properties" during the years ended December 31, 2014 and 2013 were as follows:
| 2014 | ||||||
|---|---|---|---|---|---|---|
| Balances at | Balances at | |||||
| December 31, | Fair value | December 31, | ||||
| 2013 | Increases | valuation | Sales | 2014 | ||
| Properties held by Fundo Imobiliário Novimovest | 449,758 | - | (22,507) | (26,012) | 401,239 | |
| Hotel | 18,191 | - | 809 | - | 19,000 | |
| 467,949 | - | (21,698) | (26,012) | 420,239 | ||
| 2013 (pro forma) | ||||||
| Balances at | Changes in the | Balances at | ||||
| December 31, | consolidation | Fair value | December 31, | |||
| 2012 | Increases | perimeter | valuation | Sales | 2013 | |
| Properties held by Fundo Imobiliário Novimovest | - | - 523,886 |
(25,978) | (48,150) | 449,758 | |
| Hotel | - | 18,660 | - (469) |
- 18,191 |
||
| - | 18,660 | 523,886 | (26,447) | (48,150) | 467,949 |
The impact of the fair value valuation of the properties held by Fundo Imobiliário Novimovest was recognised in the income statement caption "Other operating results - Unrealized gains/losses on investment properties" (Note 39). The impact in 2014 of the fair value valuation of the Hotel was recognised in the income statement caption "Result from the sale of other assets" (Note 38).
Investment properties held by the Bank are valued mostly on a biannual basis, or whenever occurs an event which raises doubts about the value included in the last appraisal performed, using specialized independent entities, in accordance with the valuation methodologies described in Note 12.
At December 31, 2014 and 2013, the determination of the fair value of the investment properties in accordance with the levels defined in IFRS 13 was as follows:
| 31-12-2014 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Valuation techniques | |||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||
| Investment properties | 19,000 | - | 401,239 | 420,239 | |||||
| 31-12-2013 (pro forma) | |||||||||
| Valuation techniques | |||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||
| Investment properties | - | - | 467,949 | 467,949 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Following the requirements of IFRS 13, for the investment properties with a higher amount in the Bank's portfolio at December 31, 2014 and 2013, a summary of their main characteristics, the valuation techniques adopted and the relevant inputs used in the estimation of their fair value are presented below:
| Amount in | Amount in | ||||
|---|---|---|---|---|---|
| Property description | Status | 2014 | 2013 (pro forma) | Valuation method | Relevant inputs |
| Hotel Delfim - Alvor Hotel in Portimão |
Rented | 33,284 | 33,284 Income method / Cost method | Rent value by square meter Yield |
|
| Stª Cruz do Bispo - plots of land 1,2 and 3 Land in Matosinhos |
Urban area | 22,110 | 31,796 Comparative market method / Residual value method | Yield Land price and construction and sale costs by square meter |
|
| Galerias Saldanha Residence Shopping center in Lisbon |
Rented | 29,347 | 31,006 Income method / Comparative market method | Rent value by square meter Yield |
|
| Hotel in Cascais | Rented | 19,000 | 18,191 Purchase agreement (2014) Income method / Depreciated replacement cost method (2013) |
Yield Occupation rate |
|
| Warehouse in Perafita Warehouse in Matosinhos |
Rented | 16,855 | 17,315 Income method / Comparative market method | Rent value by square meter Yield |
|
| Antero de Quental Avenue, 9 Offices and shops in Ponta Delgada |
Rented | 12,441 | 12,441 Income method / Comparative market method | Rent value by square meter Yield |
|
| Estrada da Outurela, 119, Carnaxide Offices in Oeiras |
Rented | 12,021 | 12,399 Income method / Cost method | Rent value by square meter Yield |
|
| Golf courses "Vila Sol" - G1 and G2 Golf courses in Loulé |
Rented | 11,738 | 11,799 Income method / Cost method | Rent value by square meter Yield |
|
| Logistics parks SPC - warehouses 1 and 4 Warehouses in Vila Franca de Xira |
Rented | 10,216 | 10,823 Income method / Cost method | Rent value by square meter Yield |
|
| Alfena - Land in Valongo Land in Valongo |
Non - urban area |
8,224 | 8,224 Comparative market method / Cost method/ Residual value method | Land price and construction and sale costs by square meter |
|
| 175,236 | 187,278 |
If an increase in the rent value per square meter occurs, or an increase in the occupation rate, or a decrease in the yield 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.
Changes in these captions for the years ended at December 31, 2014 and 2013 were as follows:
| 2014 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Transfers | ||||||||||||||||||
| From/to assets held | ||||||||||||||||||
| 31-12-2013 (pro forma) | Write-offs and sales | for sale (Note 12) | Transfers | Depreciation | Foreign exchange differences | 31-12-2014 | ||||||||||||
| Gross | Accumulated | Gross | Accumulated | Gross | Accumulated Gross | Accumulated | in the | Reversal of | Gross | Accumulated | Gross | Accumulated | Net | |||||
| amount | depreciation Impairment Acquisitions | amount | depreciation amount | depreciation amount | depreciation | year | Impairment | amount | depreciation | amount | depreciation | Impairment | amount | |||||
| (Note 22) | (Note 22) | (Note 22) | ||||||||||||||||
| Tangible assets | ||||||||||||||||||
| Property | ||||||||||||||||||
| . Property for own use | 404,845 | 132,012 | 3,843 | 1,250 | 552 | 181 (14,931) | (3,804) | (10) | - | 7,259 | - | - | - | 390,602 | 135,286 | 3,843 | 251,473 | |
| . Leasehold expenditure | 129,254 | 110,979 | - | 526 | 4,441 | 4,441 | - | - | 5 | - | 5,565 | - | 19 | 19 | 125,363 | 112,122 | - | 13,241 |
| . Other property | 312 | 6 | 20 | - | 6 | - | - | - | - | - | 1 | - | - | - | 306 | 7 | 20 | 279 |
| Tangible assets in progress | ||||||||||||||||||
| . Property for own use | 537 | - | - | 906 | - | - | - | - | 10 | - | - | - | - | - | 1,453 | - | - | 1,453 |
| . Leasehold expenditure | 5 | - | - | - | - | - | - | - | (5) | - | - | - | - | - | - | - | - | - |
| 534,953 | 242,997 | 3,863 | 2,682 | 4,999 | 4,622 | (14,931) | (3,804) | - | - | 12,825 | - | 19 | 19 | 517,724 | 247,415 | 3,863 | 266,446 | |
| Equipment | ||||||||||||||||||
| . Furniture and fixtures | 22,257 | 19,528 | - | 279 | 100 | 100 | - | - | - | - | 1,038 | - | 5 | 5 | 22,441 | 20,471 | - | 1,970 |
| . M achinery and tools |
3,745 | 3,652 | - | 14 | 9 | 9 | - | - | - | - | 35 | - | 5 | 5 | 3,755 | 3,683 | - | 72 |
| . Computer hardware | 125,098 | 115,542 | - | 4,562 | 1,959 | 1,959 | - | - | - | - | 3,841 | - | 2 | 2 | 127,703 | 117,426 | - | 10,277 |
| . Indoor facilities | 91,840 | 83,017 | - | 2,621 | 75,977 | 75,969 | (139) | (106) | - | - | 2,003 | - | - | - | 18,345 | 8,945 | - | 9,400 |
| . Vehicles | 19,135 | 13,131 | - | 3,470 | 1,638 | 1,611 | - | - | - | - | 1,640 | - | 10 | 9 | 20,977 | 13,169 | - | 7,808 |
| . Security equipment | 27,016 | 26,506 | - | 89 | 454 | 454 | - | - | - | - | 250 | - | - | - | 26,651 | 26,302 | - | 349 |
| . Other equipment | 5,730 | 4,414 | - | 183 | 211 | 194 | - | - | 2 | - | 550 | - | - | - | 5,704 | 4,770 | - | 934 |
| . Tangible assets in progress | 2 | - | - | - | - | - | - | - | (2) | - | - | - | - | - | - | - | - | - |
| 294,823 | 265,790 | - | 11,218 | 80,348 | 80,296 | (139) | (106) | - | - | 9,357 | - | 22 | 21 | 225,576 | 194,766 | - | 30,810 | |
| Other tangible assets | ||||||||||||||||||
| . Leased equipment | 281 | 281 | - | - | - | - | - | - | - | - | - | - | - | - | 281 | 281 | - | - |
| . Work of Art | 1,536 | - | - | - | - | - | - | - | - | - | - | - | - | - | 1,536 | - | - | 1,536 |
| 1,817 | 281 | - | - | - | - | - | - | - | - | - | - | - | - | 1,817 | 281 | - | 1,536 | |
| 831,593 | 509,068 | 3,863 | 13,900 | 85,347 | 84,918 (15,070) | (3,910) | - | - | 22,182 | - | 41 | 40 | 745,117 | 442,462 | 3,863 | 298,792 | ||
| Intangible assets | ||||||||||||||||||
| Software purchased | 361,034 | 308,566 | - | 15,588 | 63 | 63 | - | - | (503) | - | 39,675 | - | - | - | 376,056 | 348,178 | - | 27,878 |
| Intangible assets in progress | - | - | - | - | - | - | - | - | 503 | - | - | - | - | - | 503 | - | - | 503 |
| Goodwill | 3,464 | 3,464 | - | - | - | - | - | - | - | - | - | - | - | - | 3,464 | 3,464 | - | - |
| 364,498 | 312,030 | - | 15,588 | 63 | 63 | - | - | - | - | 39,675 | - | - | - | 380,023 | 351,642 | - | 28,381 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2013 (pro forma) | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Transfers | |||||||||||||||||||
| Entrance and/or exit of entities in | From/to assets held | ||||||||||||||||||
| 31-12-2012 | the consolidation perimeter | Write-offs and sales | for sale (Note 12) | Depreciation | Foreign exchange differences | 31-12-2013 (pro forma) | |||||||||||||
| Gross | Accumulated | Gross | Accumulated | Gross | Accumulated Gross | Accumulated | in the | Reversal of | Gross | Accumulated | Gross | Accumulated | Net | ||||||
| amount | depreciation Impairment | amount | depreciation | Acquisitions amount | depreciation amount | depreciation | year | Impairment | amount | depreciation | amount | depreciation | Impairment | amount | |||||
| (Note 22) | (Note 22) | (Note 22) | |||||||||||||||||
| Tangible assets | |||||||||||||||||||
| Property | |||||||||||||||||||
| . Property for own use | 408,502 | 126,731 | 3,875 | - | - | 5,922 | 1,010 | 412 | (8,569) | (1,601) | 7,294 | (32) | - | - | 404,845 | 132,012 | 3,843 | 268,990 | |
| . Leasehold expenditure | 134,256 | 110,170 | - | (258) | (258) | 790 | 5,527 | 5,504 | - | - | 6,578 | - | (7) | (7) | 129,254 | 110,979 | - | 18,275 | |
| . Other property | 306 | 4 | 20 | - | - | 6 | - | - | - | - | 2 | - | - | - | 312 | 6 | 20 | 286 | |
| Tangible assets in progress | |||||||||||||||||||
| . Property for own use | 131 | - | - | - | - | 406 | - | - | - | - | - | - | - | - | 537 | - | - | 537 | |
| . Leasehold expenditure | 1 | - | - | - | - | 4 | - | - | - | - | - | - | - | - | 5 | - | - | 5 | |
| 543,196 | 236,905 | 3,895 | (258) | (258) | 7,128 | 6,537 | 5,916 | (8,569) | (1,601) | 13,874 | (32) | (7) | (7) | 534,953 | 242,997 | 3,863 | 288,093 | ||
| Equipment | |||||||||||||||||||
| . Furniture and fixtures | 23,219 | 19,287 | - | (669) | (669) | 65 | 356 | 356 | - | - | 1,268 | - | (2) | (2) | 22,257 | 19,528 | - | 2,729 | |
| . M achinery and tools |
3,966 | 3,854 | - | (187) | (187) | 22 | 54 | 54 | - | - | 41 | - | (2) | (2) | 3,745 | 3,652 | - | 93 | |
| . Computer hardware | 124,725 | 113,064 | - | (1,280) | (1,245) | 2,720 | 1,066 | 1,032 | - | - | 4,756 | - | (1) | (1) | 125,098 | 115,542 | - | 9,556 | |
| . Indoor facilities | 92,346 | 84,120 | - | (254) | (254) | 3,170 | 3,356 | 3,344 | (66) | (50) | 2,545 | - | - | - | 91,840 | 83,017 | - | 8,823 | |
| . Vehicles | 17,708 | 11,970 | - | (160) | (133) | 2,597 | 1,007 | 928 | - | - | 2,224 | - | (3) | (2) | 19,135 | 13,131 | - | 6,004 | |
| . Security equipment | 27,593 | 26,904 | - | - | - | 154 | 731 | 731 | - | - | 333 | - | - | - | 27,016 | 26,506 | - | 510 | |
| . Other equipment | 5,801 | 4,008 | - | - | - | 139 | 210 | 210 | - | - | 616 | - | - | - | 5,730 | 4,414 | - | 1,316 | |
| . Tangible assets in progress | - | - | - | - | - | 2 | - | - | - | - | - | - | - | - | 2 | - | - | 2 | |
| 295,358 | 263,207 | - | (2,550) | (2,488) | 8,869 | 6,780 | 6,655 | (66) | (50) | 11,783 | - | (8) | (7) | 294,823 | 265,790 | - | 29,033 | ||
| Other tangible assets | |||||||||||||||||||
| . Leased equipment | 281 | 281 | - | - | - | - | - | - | - | - | - | - | - | - | 281 | 281 | - | - | |
| . Work of Art | 1,537 | - | - | (1) | - | - | - | - | - | - | - | - | - | - | 1,536 | - | - | 1,536 | |
| 1,818 | 281 | - | (1) | - | - | - | - | - | - | - | - | - | - | 1,817 | 281 | - | 1,536 | ||
| 840,372 | 500,393 | 3,895 | (2,809) | (2,746) | 15,997 | 13,317 | 12,571 (8,635) | (1,651) | 25,657 | (32) | (15) | (14) | 831,593 | 509,068 | 3,863 | 318,662 | |||
| Intangible assets | |||||||||||||||||||
| Software purchased | 342,991 | 277,149 | - | (1,999) | (1,945) | 20,800 | 758 | 758 | - | - | 34,120 | - | - | - | 361,034 | 308,566 | - | 52,468 | |
| Goodwill | 3,585 | 3,585 | - | - | - | - | 121 | 121 | - | - | - | - | - | - | 3,464 | 3,464 | - | - | |
| Other | 29 | 29 | - | (29) | (29) | - | - | - | - | - | - | - | - | - | - | - | - | - | |
| 346,605 | 280,763 | - | (2,028) | (1,974) | 20,800 | 879 | 879 | - | - | 34,120 | - | - | - | 364,498 | 312,030 | - | 52,468 | ||
In the year ended December 31, 2013, the column "Entrance and / or exit of entities in the consolidation perimeter" refers to Santander Asset Management, SGFIM, S.A. and Santander Pensões, S.A..
The caption "Software purchased" at December 31, 2014 and 2013 includes software acquired from Santander Tecnologia y Operaciones A.E.I.E., a european economic interest group owned by Santander Group, amounting to, net of depreciation, tEuros 25,414 and tEuros 50,783, respectively.
During 2014, the Bank revised the expected useful life of its IT platform Parthenon from 5 to 3 years. As a result of that review, the depreciation in the year of the caption "Software purchased" increased approximately tEuros 7,300 in comparison with the one recorded in the previous year.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, this caption is made up as follows:
| 2014 | 2013 (pro forma) | |||
|---|---|---|---|---|
| Effective | Book | Effective | Book | |
| participation (%) | value | participation (%) value | ||
| Investments in associates | ||||
| Domestic | ||||
| Partang, SGPS, S.A. | 49.00 | 132,685 | 49.00 | 115,396 |
| Unicre - Instituição Financeira | ||||
| de Crédito, S.A. (Unicre) | 21.50 | 33,109 | 21.50 | 31,265 |
| Benim - Sociedade Imobiliária, S.A. | 25.81 | 2,065 | 25.81 | 2,129 |
| ----------- | ---------- | |||
| 167,859 | 148,790 | |||
| ---------- | ---------- | |||
| Impairment of investments in associates (Note 22) | ||||
| Benim – Sociedade Imobiliária, S.A. (Benim) | ( 1,500 ) | (1,060 ) | ||
| ---------- 166,359 |
----------- 147,730 |
|||
| ====== | ====== |
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 founded Partang, SGPS, S.A. (Partang) through the delivery of shares of Banco Caixa Geral Totta de Angola, S.A. ("BCGTA"), previously denominated by Banco Totta de Angola, S.A., corresponding to 50.5% and 0.5% of its share capital, respectively. Under the terms of the above referred 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 reduced its participation to 49% of the share capital of Partang, having lost its joint control over BCGTA. In accordance with IAS 27, the Bank measured the remaining participating interest at the date when joint control was lost at fair value. Thus, that participation started to be recognised in accordance with the equity method of accounting.
On the other hand, the Bank has a put option to sell its participation in Partang to CGD exercisable during the period of 4 years starting July 2, 2011 till 2015. Additionally, CGD had a second call option on the Bank's participation in Partang, with a limit of 80% of Partang's share capital and voting rights, to be exercise in the first month of the fifth anniversary of the date of the share capital increase of Partang (July 2, 2009). CGD on July 2, 2014 did not exercise its call option.
The participation in Benim – Sociedade Imobiliária, S.A. is held indirectly by the Bank through Totta Urbe – Empresa de Administração e Construções, S.A. (Totta Urbe).
At December 31, 2014 and 2013, Partang owns 51% of Banco Caixa Geral Totta de Angola, S.A..
At December 31, 2014, the investments held in Partang and Unicre included goodwill. Nevertheless, the put option held by the Bank over CGD regarding Partang allows it to fully recover the financial investment performed on that subsidiary. On the other hand, the impairment test performed over the goodwill of Unicre did not evidence any impairment loss arising from that financial investment.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The summary of the financial data regarding the main associated company of the Bank in December 31, 2014 and 2013 is as follows:
| Partang | ||
|---|---|---|
| 2014 | 2013 | |
| Balance sheet | ||
| Current assets | 11,176 | 10,558 |
| Non current assets | 161,321 | 142,084 |
| 172,497 | 152,642 | |
| Current liabilities | 11,079 | 10,555 |
| Non current liabilities | - | 1,373 |
| 11,079 | 11,928 | |
| Shareholders equity excluding net income | 125,482 | 115,098 |
| Net income for the year | 35,936 | 25,616 |
| Statement of income | ||
| Operating income | 35,949 | 25,643 |
| Income before tax | 35,949 | 25,643 |
| Net income for the year | 35,936 | 25,616 |
At December 31, 2014 and 2013, these captions were made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Current tax assets: | ||
| . Corporate income tax receivable | 14,538 | 16,973 |
| . Other | 65 | 485 |
| --------- | --------- | |
| 14,603 ===== |
17,458 ===== |
|
| Current tax liabilities: | ||
| . Corporate income tax payable | 16,122 | 9,551 |
| . Tax on rental income (Fundo Novimovest) | 3,912 | 4,762 |
| --------- | --------- | |
| 20,034 | 14,313 | |
| ===== | ===== | |
| Deferred tax assets: | ||
| . Relating to temporary differences | 432,718 | 500,144 |
| . Tax losses carried forward | 25,957 | 40,531 |
| ----------- | ----------- | |
| 458,675 | 540,675 | |
| ====== | ====== | |
| Deferred tax liabilities: | ||
| . Relating to temporary differences | 138,521 | 54,759 |
| . Relating to tax credits | 3,505 ---------- |
3,765 ---------- |
| 142.026 | 58,524 | |
| ====== | ===== | |
At December 31, 2014 and 2013, the caption "Current tax assets – Corporate income tax receivable" included tEuros 7,856 and tEuros 9,807, respectively, regarding payments performed by the Bank concerning some corrections made by the Tax Authorities to its tax declarations in previous years. Since the Bank does not agree with the fundamentals of such corrections it recorded those payments as an asset and appealed to the competent court.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, income tax for the year was made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Current tax | ||
| Of the year | ( 21,137 ) | ( 20,214 ) |
| Special contribution to the banking sector | ( 13,922 ) | ( 10,802 ) |
| Consortiums ("ACE's") | ( 1,833 ) | ( 1,597 ) |
| Other | ( 3,808 ) | ( 2,708 ) |
| --------- ( 40,700 ) |
--------- ( 35,321 ) |
|
| ---------- | --------- | |
| Deferred tax | ||
| Increases and reversals of temporary differences | ( 14,597 ) | ( 8,941 ) |
| (Expense)/Income for tax credits | ( 14,574 ) | ( 96 ) |
| -------- ( 29,171 ) |
--------- ( 9,037 ) |
|
| -------- | --------- | |
| ( 69,871 ) | ( 44,358 ) | |
| ===== | ===== |
Changes in deferred tax assets and liabilities for the years ended December 31, 2014 and 2013 were as follows:
| 2014 | |||||
|---|---|---|---|---|---|
| Balances at 31-12-2013 |
Other Comprehensive Income |
Income | Other | Balances at 31-12-2014 |
|
| Provisions/Impairment temporarily not accepted for tax purposes | |||||
| Assets | 241,282 | - | (10,961) | - | 230,321 |
| Liabilities relating to potential capital losses | (1,999) | - | 41 | - | (1,958) |
| Revaluation of tangible assets | (3,765) | - | 260 | - | (3,505) |
| Pensions: | |||||
| Early retirement pensions | 24,244 | - | 7,745 | - | 31,989 |
| Retirement pensions and actuarial deviations | 139,771 | - | (18,952) | - | 120,819 |
| Transfer of pension liabilities to the Social Security | 4,921 | - | 219 | - | 5,140 |
| Long service bonuses | 8,423 | - | 2,148 | - | 10,571 |
| Securitization operations: | |||||
| Premium/discount on debt issued | (251) | - | 37 | - | (214) |
| Recognition of an interest accrual regarding the notes w ith higher subordination |
(8,573) | - | 4,213 | - | (4,360) |
| Results on intra-Group securities purchases | (18,417) | - | (1,997) | - | (20,414) |
| Tax losses carried forw ard |
40,531 | - | (14,574) | - | 25,957 |
| Valuations and adjustments temporarily not accepted for tax purposes: | |||||
| Tangible and intangible assets | (1,518) | - | 1,986 | - | 468 |
| Cash flow hedges |
(13,092) | 6,746 | - | - | (6,346) |
| Available-for-sale financial assets | 68,640 | (143,419) | - | 343 | (74,436) |
| Deferred commissions | - | - | 1,424 | - | 1,424 |
| Capital gains | (1,767) | - | 541 | - | (1,226) |
| Application of the equity method in the | |||||
| valuation of investments in associated companies | (457) | - | 65 | - | (392) |
| Incentives plan | 2,495 | - | (566) | - | 1,929 |
| Investments in subsidiaries, associates and joint ventures | 1,685 | - | (802) | - | 883 |
| Other | (2) | - | 2 | (1) | (1) |
| 482,151 | (136,673) | (29,171) | 342 | 316,649 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2013 (pro forma) | |||||
|---|---|---|---|---|---|
| Balances at 31-12-2012 |
Other Comprehensive Income |
Income | Entrance and/or exit of entities in the consolidation perimeter and regularizations |
Balances at 31-12-2013 |
|
| Provisions/Impairment temporarily not accepted for tax purposes | |||||
| Assets | 235,044 | - | 6,238 | - | 241,282 |
| Liabilities relating to potential capital losses | (5,755) | - | 3,756 | - | (1,999) |
| Revaluation of tangible assets | (3,861) | - | 96 | - | (3,765) |
| Pensions: | |||||
| Early retirement pensions | 27,317 | - | (3,073) | - | 24,244 |
| Retirement pensions and actuarial deviations | 162,482 | - | (22,711) | - | 139,771 |
| Transfer of pension liabilities to the Social Security | 5,442 | - | (521) | - | 4,921 |
| Long service bonuses | 7,871 | - | 552 | - | 8,423 |
| Securitization operations: | |||||
| Premium/discount on debt issued | (283) | - | 32 | - | (251) |
| Recognition of an interest accrual regarding the notes w ith higher subordination |
(8,850) | - | 277 | - | (8,573) |
| Results on intra-Group securities purchases | (18,034) | - | (383) | - | (18,417) |
| Tax losses carried forw ard |
27,369 | - | 14,062 | (900) | 40,531 |
| Valuations and adjustments temporarily not accepted for tax purposes: | |||||
| Tangible and intangible assets | 22 | - | (1,540) | - | (1,518) |
| Cash flow hedges |
(28,852) | 15,760 | - | - | (13,092) |
| Available-for-sale financial assets | 148,587 | (79,604) | - | (343) | 68,640 |
| Deferred commissions | 3,263 | - | (3,263) | - | - |
| Capital gains | (1,815) | - | 48 | - | (1,767) |
| Application of the equity method in the | |||||
| valuation of investments in associated companies | (461) | - | 4 | - | (457) |
| Long-term incentives and executives plan | 3,568 | - | (1,073) | - | 2,495 |
| Investments in subsidiaries, associates and joint ventures | 3,226 | - | (1,541) | - | 1,685 |
| Other | (5) | - | 3 | - | (2) |
| 556,275 | (63,844) | (9,037) | (1,243) | 482,151 |
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 such Business Plan, the deferred tax assets arising from tax losses carried forward will be recovered in a two years period.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
In 2014 and 2013, the reconciliation between the nominal and the effective income tax rate was as follows:
| 2014 | 2013 (pro forma) | |||
|---|---|---|---|---|
| Income | Income | |||
| Tax Rate | Amount | Tax Rate | Amount | |
| Income before taxes | 235,039 | 133,526 | ||
| Income tax based on the current tax rate in force in Portugal | ||||
| and in the countries where the subsidiaries are established | 20.20% | 47,489 | 23.12% | 30,873 |
| Special contribution to the banking sector | 5.92% | 13,922 | 8.09% | 10,802 |
| Recognition of deferred tax assets associated with | ||||
| early retirement pensions not recorded previously | -4.66% | (10,954) | 0.00% | - |
| Recognition of deferred tax assets associated with | ||||
| tax losses carried forward not recorded previously | -4.59% | (10,793) | -2.30% | (3,068) |
| Constitution/(reversal) of provisions | 3.01% | 7,080 | 4.42% | 5,903 |
| Adjustments in the deferred tax assets associated with | ||||
| corrections made by the tax authorities | 2.58% | 6,069 | 0.00% | - |
| Impact on the effective tax rate of income from associated companies | -2.32% | (5,442) | -3.12% | (4,172) |
| Insufficiency/(excess) of tax estimate of the previous year | 1.62% | 3,808 | 1.56% | 2,084 |
| Impact of the income tax rate change in deferred tax calculation | 3.95% | 9,283 | -3.67% | (4,902) |
| State surtax | 2.34% | 5,509 | - | - |
| Autonomous taxation | 1.27% | 2,994 | 2.02% | 2,699 |
| Adjustments in the deferred taxes resulting from long-term incentives | ||||
| Tax benefits | 0.38% | 889 | 1.33% | 1,777 |
| Tax exempt dividends | -0.22% | (507) | -0.29% | (386) |
| Non taxable results arising from the sale of investments | -0.12% | (290) | -0.18% | (246) |
| Other | 0.00% | - | -2.78% | (3,713) |
| Income tax for the year | 0.35% | 814 | 5.02% | 6,707 |
| 29.73% | 69,871 | 33.22% | 44,358 |
Following the changes occurred in the tax legislation for the year 2015, the Bank measured and recognized the deferred tax assets related to tax losses carried forward at a rate of 21% (23% at December 31, 2013) and the deferred taxes associated with temporary differences at a rate of 29% (29.5% on December 31, 2013).
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 in result of the arrangements laid down in Article 51 of the Corporate Income Tax Code, which provides for the elimination of double taxation on 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 when tax losses carried forward exist, as well as of any other tax deduction or credit. In those cases, the right to the corrections expires in the year of the usage of that right.
The Bank was subject to tax inspections for the years up to 2012, inclusive. As a result of the tax inspection for 2012, 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 Tax, the Bank was also subject to an additional assessment. The corrections made to the tax losses related to several matters, including, amongst others, adjustments in the recognition of actuarial deviations, adjustments in early retirement pensions and utilization of provisions for overdue loans. Some of these corrections are only temporary.
Regarding the additional tax assessments received, the Bank has paid them. However, the Bank has challenged the majority of those additional tax assessments.
The Bank records in the liability caption "Provisions" the amount considered to be necessary to cover the risks arising from the additional tax assessments received as well as the contingencies relating to the years not yet reviewed by the Tax Authorities (Note 22).
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This caption is made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Other available funds | 327 | 315 |
| Debtors and other applications | ||
| Debtors resulting from operations with futures | 9,523 | 12,548 |
| VAT recoverable | 2,055 | 1,905 |
| Debtors for loan interest subsidies | 3,780 | 4,617 |
| Other debtors | 46,369 | 56,481 |
| Debtors and other applications - overdue capital | 6,666 | 6,441 |
| Debtors - unrealised capital | 38 | 38 |
| Shareholders' loans: | ||
| Fafer - Empreendimentos Urbanísticos e de Construção, S.A. Gestínsua - Aquisições e Alienações de Património Imobiliário |
364 | 364 |
| e Mobiliário, S.A. | 126 | 126 |
| Propaço - Sociedade Imobiliária de Paço de Arcos, Lda. | 2,458 | 2,443 |
| Gold, other precious metals, coins and medals | 2,483 | 2,503 |
| Promises and other assets received as settlement of defaulting loans | 65,440 | 72,477 |
| Income receivable | 29,796 | 66,441 |
| Other income receivable - securitization | 3,867 | 4,991 |
| Deferred costs on participations in consortiums | ||
| NORTREM - Aluguer Material Ferroviário ACE | 1,138 | 2,093 |
| TREM II - Aluguer Material Circulante ACE | - | 216 |
| Deferred costs | 5,592 | 6,891 |
| Other | 94,020 | 40,803 |
| ----------- 274,042 |
----------- 281,693 |
|
| ----------- | ----------- | |
| Impairment losses (Note 22): | ||
| Shareholders' loans | ( 2,392 ) | ( 2,222 ) |
| Assets received as settlement of defaulting loans | ( 15,849 ) | ( 14,933 ) |
| Debtors and other applications | ( 6,047 ) --------- |
( 5,943 ) ---------- |
| ( 24,288 ) ----------- |
( 23,098 ) ----------- |
|
| 249,754 | 258,595 | |
| ====== | ====== |
The caption "Debtors and other applications - Debtors resulting from operations with futures" corresponds to the current accounts maintained by the Bank in international financial institutions related to the trading of futures. Customer´s futures margin accounts are recorded under the caption " Creditors and other resources - Creditors resulting from operations with futures" (Note 25).
The caption "Debtors and other applications - Other debtors" at December 31, 2014 and 2013, included the amounts of the credit rights held over Lusimovest Fund totalling tEuros 17,600 and tEuros 24,500, respectively, relating to the redemptions settled on account of that Fund. Additionally, at December 31, 2014 and 2013, that caption included tEuros 16,600 and tEuros 16,488, respectively, related to accounts receivable of Novimovest Fund resulting from the sale of properties.
At December 31, 2014 and 2013, the caption "Debtors and other applications - Debtors and other applications - Overdue capital" included tEuros 6,141 and tEuros 5,017, respectively, related to overdue rents from properties leased by Novimovest Fund.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, the caption "Income receivable" included essentially commissions receivable from Santander Totta Seguros – Companhia de Seguros de Vida, S.A. associated with the sale of its insurance products (tEuros 20,128 and tEuros 56,843, respectively, at December 31, 2014 and 2013).
At December 31, 2014 and 2013, the caption "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 45). The amount payable related to these transactions is recorded under the caption "Other liabilities – Accrued costs – Relating to swap agreements" (Note 25).
At December 31, 2014 and 2013, the caption "Other" includes transactions pending settlement in accordance with the following detail:
| 31-12-2014 | 31-12-2013 (pro forma) | |||
|---|---|---|---|---|
| Other | Other Other |
Other | ||
| assets | liabilities | assets | liabilities | |
| (Note 25) | (Note 25) | |||
| Interest receivable from sw ap contracts established w ith state ow ned enterprises (Note 50) |
178,048 | - | 45,022 | - |
| Cheques, values in transit and other transactions to be settled | 30,308 | (770) | 25,748 | (900) |
| Compensation system of direct debits | (8) | - | 26,317 | - |
| Amounts receivable/(payable) to group companies | (1,940) | - | 14,365 | - |
| Confirming contracts | - | - | 9,957 | - |
| Transfers w ithin SEPA |
(77,400) | - | (45,870) | - |
| Balances to be settled in ATM's | (34,988) | - | (34,736) | - |
| 94,020 | (770) | 40,803 | (900) |
This caption is made up as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Resources of the European Central Bank | ||
| Demand deposits | 4,406,000 | 6,200,000 |
| Interest payable | 261 | 41,394 |
| Resources of other Central Banks | ||
| Demand deposits | 51 | 16 |
| ------------- | -------------- | |
| 4,406,312 | 6,241,410 | |
| ======== | ======== |
This caption is made up as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Resources of domestic credit institutions | ||
| Deposits | 67,468 | 136,765 |
| Interest payable | 26 ----------- |
39 ---------- |
| 67,494 | 136,804 | |
| ---------- | ---------- | |
| Resources of foreign credit institutions | ||
| Sale operations with repurchase agreement | 2,797,788 | 3,082,444 |
| Deposits | 706,026 | 711,980 |
| Very short term resources | 33,770 | 41,261 |
| Other resources | 425,429 | 202,242 |
| Interest payable | 217 | 327 |
| ------------- | ------------- | |
| 3,963,230 ------------- |
4,038,254 ------------- |
|
| 4,030,724 | 4,175,058 | |
| ======== | ======== |
At December 31, 2014 and 2013, the caption "Resources of foreign credit institutions – Sale operations with repurchase agreement", is made up as follows, by type of underlying asset:
| 2014 | ||||
|---|---|---|---|---|
| Type of underlying asset | Principal | Interest | Deferred costs | Total |
| Treasury Bonds - Portugal | 2,002,426 | 2,009 | (557) | 2,003,878 |
| Non-subordinated debt | 401,744 | 182 | (122) | 401,804 |
| Bonds issued by BST Group | ||||
| in securitization operations | 371,789 | 159 | (66) | 371,882 |
| Bonds issued by non-residents | 20,222 | 4 | (2) | 20,224 |
| 2,796,181 | 2,354 | (747) | 2,797,788 | |
| 2013 (pro forma) | ||||
| Type of underlying asset | Principal | Interest | Deferred costs | Total |
| Treasury Bonds - Portugal | 1,595,639 | 891 | (270) | 1,596,260 |
| Treasury Bonds - Spain | 1,070,943 | 426 | (191) | 1,071,178 |
| Bonds issued by BST Group | ||||
| in securitization operations | 362,758 | 287 | (84) | 362,961 |
| Covered bonds issued by BST | 52,029 | 395 | (379) | 52,045 |
At December 31, 2014 and 2013, the caption "Resources of foreign credit institutions – Other resources" includes tEuros 400,000 and tEuros 200,000, respectively, related to loans obtained from the European Investment Bank (EIB).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This caption is made up as follows:
| 2014 | 2013 (pro forma) |
||
|---|---|---|---|
| Term deposits Demand deposits Structured deposits |
12,880,868 5,522,964 3,006,349 |
13,062,376 4,595,022 2,766,498 |
|
| Savings deposits Advance notice deposits |
27,710 19,346 |
36,599 18,267 |
|
| --------------- 21,457,237 |
--------------- 20,478,762 |
||
| Interest payable Cheques and orders payable Value adjustments of hedging operations |
--------------- 140,635 30,097 ( 2,067 ) |
--------------- 156,382 75,843 ( 3,986 ) |
|
| ----------- 168,665 |
----------- 228,239 |
||
| --------------- 21,625,902 ========= |
--------------- 20,707,001 ======== |
||
| 21. | DEBT SECURITIES | ||
| This caption is made up as follows: | |||
| 2014 | 2013 (pro forma) |
||
| Bonds in circulation Covered bonds |
|||
| Issued | 6,000,000 | 7,132,300 | |
| Repurchased Interest payable and other deferred costs and income Bonds issued in securitization operations |
( 4,250,000 ) 13,283 |
( 6,255,750 ) 5,365 |
|
| Issued | 2,140,550 | 2,714,309 | |
| Repurchased Interest payable and other deferred costs and income |
( 1,137,116 ) ( 1,330 ) |
( 1,538,636 ) ( 1,496 ) |
|
| Cash bonds | |||
| Issued Repurchased |
273,608 ( 105,021 ) |
614,557 ( 255,543 ) |
|
| Interest payable and other deferred costs and income | 6,324 | 11,023 | |
| ------------- 2,940,298 ------------- |
------------- 2,426,129 ------------- |
||
| Other | |||
| EMTN Program | 32,300 | 141,830 | |
| Repurchased Interest payable |
( 1,250 ) 2 |
( 2,940 ) 4 |
|
| ----------- 31,052 ----------- |
-------------- 138,894 -------------- |
||
| Value adjustments of hedging operations | 1,761 | ( 30,862 ) | |
| ------------- 2,973,111 |
------------- 2,534,161 |
||
| ======== | ======== |
In accordance with the corresponding law, the holders of covered bonds have a special credit privilege over the cover pool, which constitutes a guarantee of the debt to which the bondholders have access in case of insolvency of the issuer.
The conditions of the covered bonds and the cash bonds are described in Annex I.
Between May 2008 and December 2014, BST made thirteen issues of covered bonds under the "€ 12,500,000,000 Covered Bonds Programme". At December 31, 2014 and 2013, the covered bonds had an autonomous pool of assets comprised by:
| 2014 | 2013 (pro forma) |
|---|---|
| 8,021,820 7,938 8,458 |
8,245,739 8,649 ( 36,575 ) 11,222 |
| 8,002,838 | ------------ 8,229,035 |
| 4,859 | ------------ 11,642 |
| 8,007,697 ======== |
------------ 8,240,677 ======== |
| ( 35,378 ) -------------- -------------- -------------- |
Changes in the debt issued by the Bank during the years 2013 and 2014 were as follows:
| Bonds in circulation | EMTN Programme | |||
|---|---|---|---|---|
| Issued | Repurchased | Issued | Repurchased | |
| Balances at December 31, 2012 | 6,540,960 | (4,036,896) | 160,530 | - |
| . Issues made | 3,250,000 | - | - | - |
| . Issues repaid | (2,044,103) | 1,004,624 | (18,700) | - |
| . Issues repurchased | - | (3,479,021) | - | (2,940) |
| Balances at December 31, 2013 (pro forma) | 7,746,857 | (6,511,293) | 141,830 | (2,940) |
| . Issues made | 2,501,211 | - | - | - |
| . Issues repaid | (3,974,460) | 2,755,750 | (109,530) | 1,690 |
| . Issues repurchased | - | (599,478) | - | - |
| Balances at December 31, 2014 | 6,273,608 | (4,355,021) | 32,300 | (1,250) |
The debt issues repurchased during 2013 originated losses in the amount of approximately tEuros 11,100, which have been recorded under the caption "Result from the sale of other assets" (Note 38). Nevertheless, those losses were offset by gains arising from the settlement of derivative transactions.
At December 31, 2014 and 2013, the Bank had the following bonds issued under its Euro Medium Term Notes Programme:
| ===== | ====== | |
|---|---|---|
| 32,300 | 141,830 | |
| ---------- | ---------- | |
| . Maturity between three and five years | - | 32,300 |
| . Maturity between one and three years | 32,300 | - |
| Bonds with remuneration indexed to Euribor | ||
| . Maturity between one and three years | - | 109,530 |
| Bonds with remuneration indexed to baskets of shares | ||
| 2014 | (pro forma) | |
| 2013 |
Changes in bonds issued associated with securitization operations during 2014 and 2013 were as follows:
| Bonds | ||
|---|---|---|
| Issued | Repurchased | |
| Balances at December 31, 2012 | 4,270,551 | (3,004,781) |
| Redemptions | (1,556,242) | 1,479,075 |
| Repurchases: | ||
| - Hipototta No. 4 - Class A | - | (9,803) |
| - Hipototta No. 5 - Class A2 | - | (3,127) |
| - | (12,930) | |
| Balances at December 31, 2013 (pro forma) | 2,714,309 | (1,538,636) |
| Redemptions | (573,759) | 499,820 |
| Repurchases: | ||
| - Hipototta No. 4 - Class A | - | (31,736) |
| - Hipototta No. 5 - Class A2 | - | (66,564) |
| - | (98,300) | |
| Balances at December 31, 2014 | 2,140,550 | (1,137,116) |
In 2014 and 2013, the Bank repurchased bonds issued associated with securitization operations having recorded capital gains of tEuros 8,900 and tEuros 2,942, respectively (Note 38).
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Changes in provisions and impairment in 2014 and 2013 were as follows:
| 2014 | ||||||
|---|---|---|---|---|---|---|
| 31-12-2013 | Increases | Reversals | Utilizations | 31-12-2014 | ||
| Provision for tax contingencies | 4,474 | - | (307) | - 4,167 |
||
| Provision for pensions and other charges | 25,478 | 32,783 | (5,468) | (24,608) | 28,185 | |
| Impairment and provisions for guarantees | ||||||
| and other sureties given | 9,124 | 8,263 | (5,833) | - 11,554 |
||
| Other provisions | 22,963 | 31,552 | (14,574) | (11,859) | 28,082 | |
| 62,039 | 72,598 | (26,182) | (36,467) | 71,988 | ||
| 2013 (pro forma) | ||||||
| Changes in the | ||||||
| consolidation | ||||||
| 31-12-2012 | perimeter | Increases | Reversals | Utilizations | 31-12-2013 | |
| Provision for tax contingencies | 5,246 | - | 835 | (1,607) | - | 4,474 |
| Provision for pensions and other charges | 31,846 | - | 9,863 | - | (16,231) | 25,478 |
| Impairment and provisions for guarantees | ||||||
| and other sureties given | 14,893 | - | 540 | (6,309) | - | 9,124 |
| Other provisions | 20,286 | 168 | 14,002 | (10,394) | (1,099) | 22,963 |
| 72,271 | 168 | 25,240 | (18,310) | (17,330) | 62,039 | |
| 2014 | ||||||
| Reversal of | ||||||
| Impairment | impairment | Impairment | ||||
| 31-12-2013 | losses | losses | Utilizations | 31-12-2014 | recovery | |
| Impairment of loans and advances to customers (Note 10): | ||||||
| Domestic loans | 287,036 | 116,807 | (174,300) | - | 229,543 | - |
| Foreign loans | 1,657 | - | (556) | - | 1,101 | - |
| Non-derecognized securitized loans | 14,669 | 183 | (4,208) | - | 10,644 | - |
| Other securitized loans and receivables | 12,296 | 74 | (5,143) | - | 7,227 | - |
| Impairment of overdue loans and interest (Note 10): | ||||||
| Domestic loans | 694,768 | 258,490 | (59,110) | (32,394) | 861,754 | (5,403) |
| Foreign loans Non-derecognized securitized loans |
20,803 46,647 |
3,673 9,647 |
(5,162) (25,804) |
(91) (383) |
19,223 30,107 |
(1) - |
| Other securitized loans and receivables | - | 2,019 | - | - | 2,019 | - |
| 1,077,876 | 390,893 | (274,283) | (32,868) | 1,161,618 | (5,404) | |
| Impairment of other financial assets: | ||||||
| Impairment of available-for-sale | ||||||
| financial assets (Note 8) Impairment of investments in associated companies (Note 15) |
61,738 1,060 |
5,525 440 |
(4,834) - |
(486) - |
61,943 1,500 |
- - |
| 62,798 | 5,965 | (4,834) | (486) | 63,443 | - | |
| Impairment of non-financial assets: | ||||||
| Non-current assets held for sale (Note 12) | 112,582 | 40,073 | (7,593) | (21,216) | 123,846 | - |
Other assets (Note 17) 23,098 25,968 (24,668) (110) 24,288 -
139,543 66,041 (32,261) (21,326) 151,997 - 1,280,217 462,899 (311,378) (54,680) 1,377,058 (5,404)
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2013 (pro forma) | |||||||
|---|---|---|---|---|---|---|---|
| 31-12-2012 | Changes in the consolidation perimeter |
Impairment losses |
Reversal of impairment losses |
Utilizations | 31-12-2013 | Impairment recovery |
|
| Impairment of loans and advances to customers (Note 10): | |||||||
| Domestic loans | 319,663 | - | 69,020 | (101,647) | - | 287,036 | - |
| Foreign loans | 2,120 | - | - | (463) | - | 1,657 | - |
| Non-derecognized securitized loans | 22,742 | - | 187 | (8,260) | - | 14,669 | - |
| Other securitized loans and receivables | 3,460 | - | 8,836 | - | - | 12,296 | - |
| Impairment of overdue loans and interest (Note 10): | |||||||
| Domestic loans | 543,351 | - | 296,873 | (54,264) | (91,192) | 694,768 | (7,456) |
| Foreign loans | 17,269 | - | 6,671 | (2,892) | (245) | 20,803 | - |
| Non-derecognized securitized loans | 54,480 | - | 13,329 | (20,318) | (844) | 46,647 | - |
| Other securitized loans and receivables | 2,577 | - | - | (2,577) | - | - | - |
| 965,662 | - | 394,916 | (190,421) | (92,281) | 1,077,876 | (7,456) | |
| Impairment of other financial assets: | |||||||
| Impairment of available-for-sale | |||||||
| financial assets (Note 8) | 58,983 | - | 11,100 | (8,345) | - | 61,738 | - |
| Impairment of investments in associated companies (Note 15) | 660 | - | 400 | - | - | 1,060 | - |
| 59,643 | - | 11,500 | (8,345) | - | 62,798 | - | |
| Impairment of non-financial assets: | |||||||
| Non-current assets held for sale (Note 12) | 94,065 | - | 66,519 | (22,144) | (25,858) | 112,582 | - |
| Other tangible assets (Note 14) | 3,895 | - | - | (32) | - | 3,863 | - |
| Other assets (Note 17) | 25,842 | 5,095 | 12,340 | (19,856) | (323) | 23,098 | - |
| 123,802 | 5,095 | 78,859 | (42,032) | (26,181) | 139,543 | - | |
| 1,149,107 | 5,095 | 485,275 | (240,798) | (118,462) | 1,280,217 | (7,456) |
At December 31, 2014 and 2013, the provision for pensions and other charges is made up as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Restructuring plans Supplementary pension plan of the Board of |
9,804 | 9,880 |
| Directors (Note 46) | 18,381 --------- |
15,598 ---------- |
| 28,185 ===== |
25,478 ===== |
In 2014, the increases and the utilizations of provisions for pensions and other charges are justified essentially by the retirement of some employees of the Bank in accordance with the clause nº 137 of the Collective Labour Agreement.
During 2013, the reduction recorded in the caption "Impairment and provisions for guarantees and other sureties given" resulted essentially from the reduction of lines of commercial paper and the execution of some guarantees.
At December 31, 2014 and 2013, the caption "Other provisions" included:
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, this caption was made up as follows:
| ==== | ===== | |
|---|---|---|
| 4,306 | 4,307 | |
| Interest payable | 31 -------- |
32 ------- |
| Repurchased securities | 288,540 ( 284,265 ) |
288,540 ( 284,265 ) |
| ----------- | ----------- | |
| Subordinated Perpetual Bonds BSP 2001 Subordinated Perpetual Bonds CPP 2001 |
13,818 4,275 |
13,818 4,275 |
| Subordinated Perpetual Bonds Totta 2000 | 270,447 | 270,447 |
| 2014 | (pro forma) | |
| This caption is made up as follows: | 2013 | |
| 24. SUBORDINATED LIABILITIES | ||
| 205,979 ====== |
235,054 ====== |
|
| Participating units in Fundo Novimovest not held by the Bank | 75,109 ----------- |
102,353 ----------- |
| Participating units in Fundo Multiobrigações not held by the Bank | 130,870 | 132,701 |
| 2014 | 2013 (pro forma) |
|
The conditions of the subordinated liabilities are detailed in Annex II.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This caption is made up as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Creditors and other resources | ||
| Creditors resulting from operations with futures (Note 17) Other resources |
9,523 | 12,548 |
| Secured account resources | 52,698 | 38,474 |
| Collateral account resources | 1,458 | 3,250 |
| Other resources | 1,452 | 1,438 |
| Public sector | ||
| VAT payable | 5,487 | 3,047 |
| Withholding taxes | 19,295 | 17,622 |
| Social Security contributions | 3,931 | 3,883 |
| Other | 558 | 84 |
| Collections on behalf of third parties | 161 | 162 |
| Contributions to other health systems | 1,532 | 1,534 |
| Other creditors | ||
| Creditors under factoring contracts | 31,757 | 45,443 |
| Creditors for the supply of goods | 5,388 | 9,196 |
| Other creditors | 18,637 | 15,483 |
| Accrued costs: | ||
| Relating to personnel | ||
| Long service bonuses | 36,452 | 28,552 |
| Vacation and vacation subsidy | 30,567 | 31,211 |
| Other variable remuneration | 28,011 | 24,593 |
| Other personnel costs | 467 | 381 |
| General administrative costs | 27,371 | 25,007 |
| Relating to swap agreements (Note 17) | 4,356 | 5,185 |
| Other | 3,306 | 5,146 |
| Liabilities with pensions (Note 44): | ||
| BST liabilities | 907,691 | 846,885 |
| Fair value of BST Pension Fund | ( 910,580 ) ( 840,543 ) | |
| London branch liabilities | 42,855 | 35,037 |
| Fair value of the London branch Pension Fund | ( 38,223 ) | ( 30,720 ) |
| Other deferred income | 1,580 | 1,873 |
| Amounts to be settled with banks and customers | ||
| Liability operations to be settled | 6,393 | 7,229 |
| Other (Note 17) | 770 | 900 |
| ---------- | ------------ | |
| 292,893 | 292,900 | |
| ====== | ======= |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, the Bank's share capital was represented by 656,723,284 shares, with a nominal value of 1 Euro each, fully subscribed and paid up by the following shareholders:
| 2014 | |||
|---|---|---|---|
| Number | % of | ||
| of shares | participation | Amount | |
| Santander Totta, SGPS, S.A. | 641,269,620 | 97.65 | 641,270 |
| Taxagest, SGPS, S.A. (own shares) | 14,593,315 | 2.22 | 14,593 |
| Own shares | 271,244 | 0.04 | 271 |
| Other | 589,105 | 0.09 | 589 |
| ----------------- | --------- | ----------- | |
| 656,723,284 | 100.00 | 656,723 | |
| ========== | ===== | ====== |
| 2013 (pro forma) | ||||
|---|---|---|---|---|
| Number | % of | |||
| of shares | participation | Amount | ||
| Santander Totta, SGPS, S.A. | 641,269,620 | 97.65 | 641,270 | |
| Taxagest, SGPS, S.A. (own shares) | 14,593,315 | 2.22 | 14,593 | |
| Own shares | 249,427 | 0.04 | 249 | |
| Other | 610,922 | 0.09 | 611 | |
| ---------------- | --------- | ----------- | ||
| 656,723,284 | 100.00 | 656,723 | ||
| ========== | ===== | ====== |
During 2014 and 2013, the Bank acquired 21,817 and 124,258 own shares by the amount of tEuros 132 and tEuros 752, respectively.
Within the terms of Dispatch nº 408/99, of June 4, published in the Diário da República – I Série B, nº 129, 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 the previous approval of the Bank of Portugal.
During 2014 the Bank paid dividends in the amount of tEuros 1,202 (net of the dividends allocated to own shares) which corresponded to a dividend of approximately 0.0018 Euros per share.
During 2013 the Bank did not pay dividends.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, the revaluation reserves were made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Revaluation reserves | ||
| Reserves resulting from the fair value valuation: | ||
| Available-for-sale financial assets (Note 8) | 256,913 | ( 233,775 ) |
| Available-for-sale financial assets of companies | ||
| consolidated under the equity method | 4,354 | 3,317 |
| Cash-flow hedging instruments | 21,883 | 44,382 |
| Actuarial gains and losses (Note 44) | ||
| Pension Fund - BST | ( 666,672 ) | ( 621,069 ) |
| Pension Fund of the London branch of BST | ( 8,867 ) | ( 6,076 ) |
| Actuarial gains and losses of companies consolidated | ||
| under the equity method | ( 1,508 ) | ( 1,378 ) |
| Foreign exchange differences | ( 486 ) | ( 10,208 ) |
| Legal revaluation reserves as at the transition date to the IFRS | 23,245 | 23,245 |
| -------------- ( 371,138 ) |
-------------- ( 801,562 ) |
|
| -------------- | -------------- | |
| Deferred tax reserves | ||
| For temporary differences: | ||
| Reserves resulting from the fair value valuation: | ||
| Available-for-sale financial assets | ( 74,436 ) | 68,983 |
| Available-for-sale financial assets of companies | ||
| consolidated under the equity method | ( 967 ) | ( 788 ) |
| Cash-flow hedging instruments | ( 6,346 ) | ( 13,092 ) |
| Tax impact of actuarial gains and losses | 177,625 | 176,863 |
| Tax impact from the change in accounting policies | ||
| of companies consolidated under the equity method | 422 | 400 |
| Relating to the revaluation of tangible assets | ( 3,765 ) | ( 3,861 ) |
| Relating to the revaluation of tangible assets | ||
| of companies consolidated under the equity method | ( 132 ) | ( 132 ) |
| ----------- 92,400 |
----------- 228,373 |
|
| ----------- ( 278,738 ) |
------------ ( 573,189 ) |
|
| ====== | ====== |
Changes in the caption "Deferred tax reserves – Tax impact of actuarial gains and losses" in 2014 were as follows:
| Opening balance | 176,863 ----------- |
|---|---|
| Tax impact resulting from financial and actuarial deviations of the year | 4,958 |
| Tax impact resulting from the adjustments made by the Tax Authorities to the actuarial gains and losses deducted by the Bank in 2011 and 2012 |
( 4,196 ) |
| Closing balance | ----------- 177,625 ====== |
Deferred taxes were calculated based on current legislation and reflect the best estimate of the impact of realization of potential capital gains or losses included in the revaluation reserves.
The revaluation reserves cannot be used to pay dividends or to increase capital.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
During 1998, under Decree-Law nº 31/98, of February 11, the Bank revalued its tangible fixed assets, which resulted in an increase in the respective value, net of accumulated depreciation, of approximately tEuros 23,245, which was recognised in revaluation reserves. The net amount resulting from the revaluation may only be used for capital increases or to offset losses through the use (amortization) or sale of the assets it relates to.
At December 31, 2014 and 2013, the caption "Other reserves and retained earnings" was made up as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Legal reserve | 246,107 | 245,862 |
| Other reserves | ---------- | ---------- |
| Reserves of consolidated companies | 157,336 | 149,216 |
| Reserves of companies consolidated under the equity method Merger reserve |
89,770 | 81,660 |
| 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 | 284 ----------- |
619 ----------- |
| 914,649 ---------- |
898,754 ----------- |
|
| Retained earnings | 373,840 | 332,601 |
| ------------- 1,534,596 |
------------- 1,477,217 |
|
| ======= | ======= |
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 up to the amount of the share capital or of the sum of the free reserves and the retained earnings, if greater. 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 reached.
This reserve may only be used to offset accumulated losses or to 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 to increase the 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 2014 and 2013 may be summarised as follows:
| 2014 | 2013 (pro forma) | |||
|---|---|---|---|---|
| Contribution to | Contribution to | |||
| Net income | the consolidated | Net income | the consolidated | |
| for the year | net income | for the year | net income | |
| Net income of BST (individual basis) | 134,473 | 134,473 | 2,449 | 2,449 |
| Net income of the other Group companies: | ||||
| BST International Bank, Inc. | 20,953 | 20,953 | 20,457 | 20,457 |
| Partang, SGPS, S.A. | 35,936 | 17,609 | 25,616 | 12,552 |
| Banco Caixa Geral Totta de Angola, S.A. | 70,243 | 17,554 | 52,120 | 13,025 |
| Totta & Açores, Financing, Ltd | 12,360 | 12,360 | 12,360 | 12,360 |
| Santotta - Internacional, SGPS, S.A. | 5,376 | 5,376 | 4,933 | 4,933 |
| Unicre, Instituição Financeira de Crédito, S.A. | 10,249 | 2,203 | 9,785 | 2,104 |
| Santander Multiobrigações - Fundo de Investimento Mobiliário Aberto de | ||||
| Obrigações de Taxa Variável | 3,320 | 2,153 | - | - |
| Totta Urbe, Empresa de Administração e Construções, S.A. | 1,414 | 1,414 | 1,997 | 1,997 |
| Totta Ireland, Plc.(1) | 24,292 | 24,292 | 43,837 | 43,837 |
| Serfin International Bank & Trust | 258 | 258 | 320 | 320 |
| Totta & Açores, Inc. - Newark | 8 | 8 | 4 7 |
4 7 |
| Taxagest, S.A. | (2) | (2) | 761 | 753 |
| Santander Gestão de Activos, SGPS, S.A. | (19) | (19) | 7,784 | 7,784 |
| Novimovest - Fundo de Investimento Imobiliário Aberto | (17,324) | (13,385) | (28,670) | (18,428) |
| Santander Asset Management, SGFIM, S.A. | - | - | 3,202 | 3,202 |
| Santander Pensões, S.A. | - | - | 624 | 624 |
| 167,064 | 90,774 | 155,173 | 105,567 | |
| Elimination of dividends: | ||||
| Totta Ireland, Plc. | (26,079) | (26,079) | (45,145) | (45,145) |
| Unicre, Instituição Financeira de Crédito, S.A. | (1,161) | (1,161) | (985) | (985) |
| Santander Gestão de Activos, SGPS, S.A. | (7,763) | (7,763) | - | - |
| Banco Caixa Geral Totta Angola, S.A. | (6,382) | (6,382) | (5,595) | (5,595) |
| Partang, SGPS, S.A. | (5,390) | (5,390) | (5,047) | (5,047) |
| Santotta - Internacional, SGPS, S.A. | (5,336) | (5,336) | (10,826) | (10,826) |
| Santander Pensões, S.A. | - | - | (760) | (760) |
| (52,111) | (68,358) | |||
| Elimination of the equity method application by Partang in the participation held in BCGTA Gains on the repurchase by the Group of bonds issued associated with |
(11,394) | (8,110) | ||
| securitization operations (Note 38) | 8,900 | 2,942 | ||
| Adjustments related with securitization operations: | ||||
| Impairment and deferral of commissions related to securitized loans recorded by BST | (8,127) | 44,278 | ||
| Other adjustments | (6,383) | (11,785) | ||
| Gains on the sale of Santander Asset Management, SGFIM, S.A and Santander Pensões, S.A. | - | 12,588 | ||
| Reversal of impairment recorded by BST for the participating units held in | ||||
| Novimovest - Fundo de Investimento Imobiliário Aberto | 13,807 | 17,821 | ||
| Elimination of impairment reversals for supplementary capital contributions | ||||
| between Group companies | - | (5,500) | ||
| Elimination of the valuation recorded for the participating units held by BST in Fundo Multiobrigações | (2,153) | - | ||
| Other | (2,612) | (2,728) | ||
| Consolidated net income for the year | 165,174 | 89,164 |
(1) The amount reflected corresponds to the net result for the month of December, as this entity closes its financial year on November 30, plus the net result for the period comprised between January 1 to November 30, 2014 and 2013, which amounted to tEuros 23,347 and tEuros 41,105, respectively.
Basic earnings per share are calculated by dividing the net profit attributable to the shareholders of the Bank by the weighted average number of ordinary shares outstanding during the year.
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Consolidated net profit attributable to the shareholders of BST | 165,174 | 89,164 |
| Weighted average number of ordinary shares issued | 656,723,284 | 656,723,284 |
| Weighted average number of own shares | 14,843,537 | 14,763,681 |
| Weighted average number of ordinary shares outstanding | 641,879,747 | 641,959,603 |
| Basic earnings per share attributable to the shareholders | ||
| of BST (in Euros) | 0.26 | 0.14 |
Basic earnings per share are equivalent to the diluted ones since no contingently issuable ordinary shares, namely through options, warrants or other equivalent financial instruments exist at the balance sheet date.
Third parties participations in Group's companies in 2014 and 2013 have the following detail by entity:
| 2014 | 2013 (pro forma) | |||
|---|---|---|---|---|
| Balance | Income | Balance | Income | |
| sheet | statement | sheet | statement | |
| Preference shares of BST | ||||
| International Bank, Inc | 296,516 | - | 261,040 | - |
| Preference shares of TAF | 300,000 | - | 300,000 | - |
| Taxagest | 557 | - | 554 | ( 3 ) |
| Dividends received in advance | ( 1,515 ) | - | ( 1,407 ) | - |
| Other | 119 | 6 | 129 | ( 1 ) |
| ----------- | --- | ----------- | --- | |
| 595,677 | 6 | 560,316 | ( 4 ) | |
| ====== | == | ====== | == |
On June 30, 2006 BST International Bank, Inc (BST Puerto Rico) issued 3,600 non-voting preference shares of 100,000 United States Dollars (USD) each, 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. BST Puerto Rico may redeem the preference shares, in full or in part, from June 30, 2016 at 100,000 USD per share plus the amount of the dividend accrued monthly since the last payment made.
On June 29, 2005 TAF issued 300,000 non-voting preference shares of 1,000 Euros each, 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 1,000 Euros per share plus the amount of the dividend accrued monthly since the last payment made.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The above-mentioned issues were recorded as equity in accordance with IAS 32. Under this Standard, the preference shares issued are recorded as equity if:
At December 31, 2014 and 2013, the main financial data of BST International Bank, Inc. (BST Puerto Rico) and of Totta & Açores Financing (TAF), was as follows:
| 2014 | 2013 | |||
|---|---|---|---|---|
| BST Puerto Rico (*) | TAF | BST Puerto Rico (*) | TAF | |
| Balance sheet | ||||
| Cash and deposits at central banks | - | 11,792 | - | 11,787 |
| Balances due from other banks | 570,598 | 297,750 | 593,203 | 297,750 |
| Loans and advances to customers | 1 | - | - | - |
| Other assets | 1,437 | 2,250 | 1,634 | 2,250 |
| 572,036 | 311,792 | 594,837 | 311,787 | |
| Resources of other credit institutions | 27,977 | - | 9,207 | - |
| Resources of customers and other debts | 145,653 | - | 190,623 | - |
| Other liabilities | 1,900 | - | 2,672 | - |
| 175,530 | - | 202,502 | - | |
| Shareholders' equity (excluding net income) | 368,719 | 299,432 | 365,179 | 299,427 |
| Net income for the year | 27,787 | 12,360 | 27,156 | 12,360 |
| 572,036 | 311,792 | 594,837 | 311,787 | |
| Statement of income | ||||
| Net interest income | 28,358 | 13,110 | 27,499 | 13,110 |
| Operating income | 28,176 | 13,335 | 27,565 | 13,335 |
| Income before tax | 27,787 | 12,360 | 27,156 | 12,360 |
| Net income for the year | 27,787 | 12,360 | 27,156 | 12,360 |
(*) Amounts expressed in thousands of United States Dollars.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Off-balance sheet items are made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Guarantees given and other contingent liabilities | ||
| Guarantees and sureties | 1,084,029 | 1,185,467 |
| Documentary credits | 216,516 | 199,314 |
| Assets pledged as guarantee | ||
| Bank of Portugal | 143,700 | 142,677 |
| Deposit Guarantee Fund | 75,300 | 71,645 |
| Investor Indemnity System | 5,792 | 4,980 |
| On loans of securities | - | 526,722 |
| Other contingent liabilities | 6 | 6 |
| -------------- 1,525,343 |
-------------- 2,130,811 |
|
| ======== | ======== | |
| Commitments | ||
| Credit lines | ||
| Revocable | 4,205,060 | 4,207,922 |
| Irrevocable | 417,809 | 652,278 |
| Deposit Guarantee Fund | 54,092 | 54,092 |
| Investor Indemnity System | 4,139 | 3,178 |
| Other revocable commitments | 216 | 215 |
| Other irrevocable commitments | - | 11,447 |
| -------------- 4,681,316 |
--------------- 4,929,132 |
|
| ======== | ======== | |
| Liabilities for services rendered | ||
| Deposit and custodial services | 57,931,149 | 51,992,816 |
| Amounts received for collection | 125,186 | 142,214 |
| Assets managed by the Bank | ||
| Other values | 7 | 13 |
| --------------- 58,056,342 |
--------------- 52,135,043 |
|
| ========= | ========= | |
The increase occurred in 2014 in the caption "Deposit and custodial services" is mainly explained by the appreciation of the deposited assets, namely shares of national companies and Portuguese government debt, as well as by the attraction of new customers to the custodial services offered by the Bank.
At December 31, 2013, the caption "Assets pledged as guarantee - On loan of securities" corresponded to bonds issued by BST which were used as collateral in refinancing operations.
The Deposit Guarantee Fund was created in November 1994 in accordance with Decree-Law n. 298/92, dated 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, which was established by Ministerial Order of the Ministry of Finance, was made through the delivery of cash and deposit securities, and was 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.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
In 2011, as allowed by the Bank of Portugal, the Bank paid 90% of the annual contribution to the Fund, in the amount of tEuros 3,918. In that year, the Bank also accepted an irrevocable commitment to the Deposit 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 of December 31, 2014 and 2013 amounted to tEuros 54,092. Assets pledged as guarantee to the Bank of Portugal are recorded in off-balance sheet accounts at market value. During 2014 and 2013 the Bank paid the full amount of the annual contribution amounting to tEuros 4,222 and tEuros 4,642, respectively (Note 39).
The liability towards the Investor Indemnity System is not recorded as a cost but is guaranteed by the acceptance of an irrevocable commitment to pay that liability, if required to do so, being part (50%) of the commitment guaranteed by a pledge of Portuguese Treasury Bonds. At December 31, 2014 and 2013, that liability arised to tEuros 4,139 and tEuros 3,178, respectively.
This caption is made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Interest on cash and deposits | ||
| In Central Banks | ||
| In the Bank of Portugal | 229 | 950 |
| In credit institutions | 14 | 16 |
| Interest on applications | ||
| In domestic credit institutions | ||
| In other credit institutions | 4,953 | 5,474 |
| In foreign credit institutions | 36,844 | 53,150 |
| Interest on loans and advances to customers | ||
| Domestic loans | 554,366 | 593,748 |
| Foreign loans | 15,460 | 16,115 |
| Other loans and receivables (commercial paper) | 65,102 | 64,284 |
| Income from commissions received associated to amortised cost | 33,444 | 35,719 |
| Interest from securitized assets not derecognised | 33,402 | 41,725 |
| Interest on overdue credit (Note 48) | 7,178 | 8,643 |
| Interest and similar income on other financial assets | ||
| Financial assets held for trading | 7,593 | - |
| Available for sale financial assets | 214,435 | 157,758 |
| Financial assets at fair value through profit or loss | 630 | 3,506 |
| Hedging derivatives | 184,551 | 248,278 |
| Debtors and other applications | 147 | - |
| Other interest and similar income | ||
| Swap agreements | 33,480 | 40,764 |
| Other | 2,340 | 997 |
| ------------- | ------------- | |
| 1,194,168 | 1,271,127 | |
| ======= | ======= |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This caption is made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Interest on customers' deposits | ||
| Public sector | 1,365 | 9,646 |
| Emigrants | 13,268 | 17,421 |
| Other-residents | 296,169 | 346,024 |
| Non-residents | 19,813 | 28,781 |
| ----------- 330,615 |
---------- 401,872 |
|
| ----------- | ---------- | |
| Interest on resources of Central Banks | ||
| Bank of Portugal | 20,941 | 25,542 |
| Interest on resources of credit institutions | ||
| Domestic | 1,681 | 1,000 |
| Foreign | 37,820 | 26,922 |
| Interest on debt securities issued | ||
| Bonds | 50,678 | 44,994 |
| EMTN | 338 | 430 |
| Interest on hedging derivatives | 173,535 | 217,973 |
| Interest and commissions on other subordinated liabilities | 188 | 189 |
| Commissions paid associated with amortized cost of credit Other interest and similar charges |
61 | 116 |
| Swap agreements | 34,772 | 44,821 |
| ----------- 320,014 |
----------- 361,987 |
|
| ----------- | ------------ | |
| 650,629 | 763,859 | |
| ====== | ====== |
This caption refers to dividends and income received and is made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Available-for-sale financial assets: | ||
| SIBS – Sociedade Interbancária de Serviços, S.A. | 1,090 | 881 |
| Unicampus | 88 | 88 |
| Finangest | - | 206 |
| PME Investimentos | - | 120 |
| Others | 44 | 18 |
| ------- | ------- | |
| 1,222 | 1,313 | |
| ==== | ==== |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This caption is made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| On guarantees given | ||
| Guarantees and sureties | 15,227 | 16,294 |
| Documentary credits | 3,633 | 3,605 |
| On commitments to third parties | ||
| Revocable | 2,389 | 4,619 |
| Irrevocable | 1,622 | 2,823 |
| On services rendered | ||
| Card transactions | 63,476 | 63,742 |
| Credit operations | 32,494 | 44,327 |
| Real estate and mutual fund management | 18,123 | 24,994 |
| Annuities | 15,357 | 14,434 |
| Asset management and collection | 8,964 | 12,706 |
| Other | 7,990 | 7,681 |
| On operations carried out on behalf of third parties | ||
| On securities | 28,366 | 39,961 |
| Other | 317 | 424 |
| Other commission received | ||
| Insurance companies (Note 43) | 93,802 | 89,491 |
| Demand deposits | 26,354 | 25,603 |
| Cheques | 8,175 | 11,702 |
| Booklets | 8,896 | 8,192 |
| Other | 2 | 28 |
| ----------- 335,187 |
----------- 370,626 |
This caption is made up as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| On guarantees received | ||
| Guarantees and sureties | 1,761 | 805 |
| On commitments assumed by third parties | ||
| Revocable commitments | - | 76 |
| On banking services rendered by third parties | ||
| Customer transactions | 29,000 | 29,548 |
| Credit operations | 12,912 | 12,868 |
| Funds for collection and management | 1,974 | 3,535 |
| Other | 9,057 | 4,524 |
| On operations carried out by third parties | ||
| Securities | 1,875 | 1,972 |
| Other | 1,047 | 1,274 |
| Other commission paid | 685 | 514 |
| --------- | --------- | |
| 58,311 | 55,116 | |
| ===== | ===== |
====== ======
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
These captions are made up as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Financial assets held for trading: Debt instruments |
1,135 | - |
| Equity instruments Derivative instruments: |
( 127 ) | 5,034 |
| . FRA's . Swaps: |
- | ( 14 ) |
| Currency swaps Interest rate swaps Equity swaps Other |
( 41 ) ( 244,690 ) 1,135 ( 2,464 ) |
256 13,792 12,892 ( 10,198 ) |
| . Futures: Equity swaps . Options: |
(10) | - |
| Foreign exchange rate contracts Equity swaps Other . Interest rate guarantee contracts |
183 199 60 374 |
476 ( 24 ) 135 63 |
| Financial assets and liabilities at fair value through profit or loss |
- ---------- |
( 1,777 ) --------- |
| ( 244,246 ) ---------- |
20,635 --------- |
|
| Hedging derivatives: Swaps |
||
| . Interest rate swaps . Equity swaps . "Auto-callable" options Value adjustments of hedged assets and liabilities |
180,038 ( 1,990 ) 2,530 ( 180,429 ) |
62,331 ( 43,648 ) 17,701 ( 36,693 ) |
| ----------- 149 |
---------- ( 309 ) |
|
| ----------- ( 244,097 ) ====== |
--------- 20,326 ===== |
At December 31, 2014, the balance of the caption "Financial assets held for trading - Derivative instruments: Swaps: Interest rate swaps" includes tEuros 238,335 related to the cancellation of the positive valuation of some hedge items as a consequence of the sale of a group of securities (Note 36) for which hedge accounting had been applied.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This caption is made up as follows:
| 2014 | 2013 (pro forma) | |||||
|---|---|---|---|---|---|---|
| Gains | Losses | Net | Gains | Losses | Net | |
| Debt instruments | ||||||
| Issued by residents National public issuers Issued by non-residents |
171,005 | - | 171,005 | 573 | - | 573 |
| Foreign public issuers | 137,760 | - | 137,760 | 3,723 | - | 3,723 |
| Equity instruments | ||||||
| Value at fair value | 8 2 |
- | 8 2 |
- | - | - |
| Valued at historical cost | 967 | (1) | 966 | - | (2) | (2) |
| Other | - | (1,091) | (1,091) | 240 | - | 240 |
| 309,814 | (1,092) | 308,722 | 4,536 | (2) | 4,534 |
At December 31, 2014, the gains recorded under the caption "Available-for-sale financial assets " were mainly justified by the sale of Portuguese and Spanish Treasury Bonds.
This caption is made up as follows:
| 2014 | 2013 (pro forma) |
||
|---|---|---|---|
| Gains on the revaluation of the foreign exchange position Losses on the revaluation of the foreign exchange position |
52,118 ( 46,660 ) |
46,506 ( 42,467 ) |
|
| --------- 5,458 |
------- 4,039 |
||
| 38. | RESULT FROM THE SALE OF OTHER ASSETS | ==== | ==== |
| This caption is made up as follows: | |||
| 2014 | 2013 (pro forma) |
||
| Gains on the repurchase of bonds issued associated with securitization operations (Note 21) |
8,900 | 2,942 | |
| Gains on tangible assets Gains on non-current assets held for sale Gains on the sale of loans and advances to customers (Note 10) |
3,806 3,663 1,220 |
3,728 2,696 2,321 |
|
| Gains on disposal of investments in subsidiaries and associates (Note 4) Other |
- 3,392 |
12,588 1 |
|
| --------- 20,981 |
-------- 24,276 |
||
| --------- | -------- |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2014 | 2013 (pro forma) |
||
|---|---|---|---|
| Losses on non-current assets held for sale | ( 1,360 ) | ( 3,869 ) | |
| Losses associated with the participating units of Multiobrigações Fund held by non-controlling interests Losses on tangible assets Losses on the sale of loans and advances to customers (Note 10) |
( 1,180 ) ( 706 ) ( 92 ) |
- ( 5,952 ) - |
|
| Losses on the repurchase of debt issues (Note 21) Other |
- ( 75 ) |
( 11,107 ) ( 872 ) |
|
| ---------- ( 3,413 ) --------- |
--------- ( 21,800 ) --------- |
||
| 17,568 ===== |
2,476 ==== |
||
| 39. | OTHER OPERATING RESULTS | ||
| This caption is made up as follows: | |||
| 2014 | 2013 (pro forma) |
||
| Other operating income Rents received Rents of automatic payment terminals Unrealized gains on investment properties (Note 13) Gains associated with the participating units of Novimovest Fund held by non-controlling interests Income from sundry services rendered Reimbursement of expenses |
20,240 14,612 7,885 4,556 3,714 2,656 |
11,792 15,455 2,767 8,886 5,585 2,787 |
|
| Other | 2,190 --------- 55,853 |
2,180 --------- 49,452 |
|
| Other operating expenses Unrealized losses on investment properties (Note 13) Other operating expenses Charges related to transactions made by customers Subscriptions and donations Expenses with automatic teller machines Contributions to the Deposit Guarantee Fund (Note 29) Contributions to the Resolution Fund Other taxation Direct Indirect |
--------- ( 30,392 ) ( 12,341 ) ( 7,903 ) ( 5,255 ) ( 4,456 ) ( 4,222 ) ( 2,528 ) ( 1,645 ) ( 1,425 ) --------- ( 70,167 ) --------- |
--------- ( 29,214 ) ( 13,883 ) ( 10,677 ) ( 5,087 ) ( 4,848 ) ( 4,642 ) ( 4,205 ) ( 1,703 ) ( 738 ) --------- ( 74,997 ) --------- |
|
| ( 14,314 ) ===== |
( 25,545 ) ====== |
At December 31, 2014 and 2013, the caption "Rents received" includes the amounts of tEuros 19,630 and tEuros 11,036, respectively, related to the income earned by Novimovest Fund in the year 2014 and in the period comprised between June 1, 2013 (first date of consolidation of the Fund) and December 31, 2013.
The Decree-Law nº 24/2013 of February 19, established the contributions regime of the banks to the new Resolution Fund created with the purpose of prevention, mitigation and containment of systemic risk. According to the Notice nº 1/2013 and the Instructions nº 6/2013 and 7/2013 of the Bank of Portugal, the Bank should pay an initial and a regular contribution to the Resolution Fund.
This caption is made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Remuneration | ||
| Management and supervisory boards (Note 46) | 8,174 | 6,310 |
| Employees | 191,993 | 186,346 |
| Stock option plans (Note 47) | 533 | 1,802 |
| Other variable remuneration | 22,111 | 17,189 |
| ----------- 222,811 |
----------- 211,647 |
|
| Mandatory social charges | ----------- | ----------- |
| Charges on remuneration | 50,624 | 50,172 |
| Charges with pensions and other benefits (Note 44) | 2.149 | 1,924 |
| Other mandatory social charges | 766 | 815 |
| Decrease in liabilities with death subsidy (Note 44) | - | ( 416 ) |
| --------- | ---------- | |
| 53,539 | 52,495 | |
| --------- | ---------- | |
| Other staff costs | ||
| Staff transfers | 678 | 599 |
| Supplementary retirement plan (Note 44) | 583 | 583 |
| Other | 3,981 | 4,253 |
| -------- | ---------- | |
| 5,242 ----------- |
5,435 ---------- |
|
| 281,592 | 269,577 | |
| ====== | ====== |
During 2014 and 2013, the Bank did not record any cost with early retirements as it used part of the provisions recorded for that purpose (Note 22).
The balance of the caption "Mandatory social charges – Decrease in liabilities with death subsidy" refers to the reduction in liabilities with pensioners resulting from the amendments introduced by Decree Law nº 133/2012 of June 27, which introduced a maximum limit to the amount for the death subsidy corresponding to six times the amount of the social support index.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
This caption is made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Maintenance of software and hardware | 42,962 | 36,624 |
| Specialised services | 40,549 | 40,592 |
| Communications | 11,933 | 12,953 |
| Rent and leases | 10,077 | 10,273 |
| Advertising and publishing | 9,526 | 9,550 |
| External supplies | ||
| Water, electricity and fuel | 7,576 | 7,778 |
| Current consumable material | 1,822 | 1,894 |
| Other | 234 | 278 |
| Travel, lodging and representation expenses | 4.560 | 4,590 |
| Maintenance and repairs | 4,414 | 3,536 |
| Transportation | 2,283 | 2,337 |
| Staff training | 1,480 | 1,807 |
| Insurance | 1,125 | 1,063 |
| Other | 5,203 | 3,884 |
| ---------- 143,744 |
----------- 137,159 |
|
| ====== | ====== |
This caption is made up as follows:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Partang, SGPS, S.A. | 17,652 | 12,668 |
| Unicre - Instituição Financeira de Crédito, S.A. | 2,203 | 1,473 |
| Benim - Sociedade Imobiliária, S.A. | ( 64 ) | ( 72 ) |
| --------- | ---------- | |
| 19,791 | 14,069 | |
| ===== | ===== |
Partang SGPS, S.A. is held by the Bank in 49% and holds 51% of the share capital of Banco Caixa Geral Totta Angola, S.A..
Income from the insurance brokerage services rendered refers mainly to the commissions charged to Santander Totta Seguros - Companhia de Seguros de Vida S.A. for the commercialization of its products, and is made up as follows:
| 2014 | 2013 (pro forma) | |||||
|---|---|---|---|---|---|---|
| Life | Non-Life | Life | Non-Life | |||
| Insurance | Insurance | Total | Insurance | Insurance | Total | |
| (Note 33) | (Note 33) | |||||
| Santander Totta Seguros | 81,997 | 162 | 82,159 | 77,747 | 204 | 77,951 |
| Liberty Seguros | - | 10,726 | 10,726 | - | 10,268 | 10,268 |
| Other | - | 917 | 917 | - | 1,272 | 1,272 |
| --------- | --------- | --------- | --------- | -------- | ----------- | |
| 81,997 | 11,805 | 93,802 | 77,747 | 11,744 | 89,491 | |
| ===== | ===== | ===== | ===== | ===== | ====== |
At December 31, 2014 and 2013, the caption "Other assets – Income receivable" (Note 17) includes commission's receivable from insurance companies, as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Santander Totta Seguros Other |
20,128 918 |
56,843 1,197 |
| --------- | ---------- | |
| 21,046 ===== |
58,040 ===== |
|
These amounts refer essentially to the commissions earned on insurance premiums sold and not invoiced during the last quarter of 2014 and during the last three quarters of 2013, respectively.
For the purpose of determining BST's past service liability relating to the servicing and retired employees, actuarial studies were carried out in 2014 and 2013 by Towers Watson (Portugal) Unipessoal Limitada. The present value of the past service liability and the corresponding current service cost were determined based on the Projected Unit Credit method.
The liabilities of BST with retirement pensions, healthcare benefits and death subsidy at December 31, 2014 and in the four previous years, as well as the respective coverage, are as follows:
| 2014 | 2013 | 2012 | 2011 | 2010 | |
|---|---|---|---|---|---|
| Estimated past service liability | |||||
| - Pensions | |||||
| . Current employees | 308,223 | 282,028 | 251,252 | 210,669 | 275,580 |
| . Pensioners | 26,343 | 22,891 | 21,002 | 18,455 | 36,406 |
| . Retired and early retired staff | 415,679 | 399,434 | 388,656 | 387,608 | 855,952 |
| 750,245 | 704,353 | 660,910 | 616,732 | 1,167,938 | |
| - Healthcare benefits (SAMS) | 151,903 | 137,970 | 129,267 | 117,422 | 127,822 |
| - Death subsidy | 5,543 | 4,562 | 4,331 | 16,973 | 18,184 |
| 907,691 | 846,885 | 794,508 | 751,127 | 1,313,944 | |
| Coverage of the liability | |||||
| - Net assets of the Fund | 910,580 | 840,543 | 784,937 | 758,244 | 1,312,888 |
| Amount overfunded / (underfunded) | 2,889 | (6,342) | (9,571) | 7,117 | (1,056) |
| Actuarial and financial deviations generated in the year | |||||
| - Changes in assumptions | 37,912 | 42,565 | 73,518 | (103,831) | - |
| - Experience adjustments | |||||
| . Other actuarial (gains) / losses | 6,580 | (1,775) | (25,383) | (23,708) | (29,458) |
| . Financial (gains) / losses | 1,111 | (3,115) | (15,796) | 339,627 | 103,392 |
| 7,691 | (4,890) | (41,179) | 315,919 | 73,934 | |
| 45,603 | 37,675 | 32,339 | 212,088 | 73,934 |
The increase in the responsibilities in 2014 and 2013 was mainly explained by the decrease in the discount rate used to calculate the responsibilities for past services.
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
In 2011, a three party agreement was established, between the Finance Ministry, the Portuguese Association of Banks and the Federation for the Financial Sector (FEBASE), regarding the transfer to the Social Security of part of the liabilities with pensioners who at December 31, 2011 were covered by the substitutive regime of the Social Security 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 the Social Security. Following Decree Law n. 127/2011, dated December 31, the amount of the pension liabilities transferred to the Social Security was determined considering the following assumptions:
Mortality table male population TV 73/77 less than 1 year Mortality table female population TV 88/90 Actuarial technical rate (discount rate) 4%
The liabilities transferred to the 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 financial and actuarial assumptions used by it, amounted to tEuros 435,260.
The difference between the liabilities transferred to the Social Security calculated using the assumptions set out in Decree Law nº 127/2011, dated December 31 (tEuros 456,111) and those used by the Bank (tEuros 435,260), amounting to tEuros 20,851, was recorded in the caption "Staff costs" of the income statement for 2011.
The assumptions used by the Bank for the determination of the liabilities immediately before the transfer to the Social Security were the following:
| Serving Employee's |
Retired Employee's |
|
|---|---|---|
| Mortality table | TV 88/90 | TV 88/90 |
| Actuarial technical rate (discount rate) | 5.92% | 5.00% |
| Salary growth rate | 2.35% | - |
| Pension growth rate | 1.35% | 1.35% |
The liabilities determined considering the above referred assumptions amounted to tEuros 1,186,387 of which tEuros 435,260 corresponded to the liabilities transferred to the Social Security, as mentioned above.
The main assumptions used by the Bank for determining its liabilities with pensions as of December 31, 2014 and 2013 were as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Mortality table | TV 88/90 | TV 88/90 |
| Pension fund return rate | 2.50% | 4.00% |
| Actuarial technical rate (discount rate) | ||
| - Serving employees | 2.50% | 4.30% |
| - Retired employees | 2.50% | 3.54% |
| Salary growth rate for 2015 (2014) | 0.50% | 0.50% |
| Salary growth rate for 2016 (2015) | 0.75% | 0.50% |
| Salary growth rate after 2016 (2015) | 1.00% | 2.35% |
| Pension growth rate for 2015 and 2016 (2014 and 2015) | 0.00% | 0.00% |
| Pension growth rate after 2016 (2015) | 0.75% | 1.35% |
| Inflation rate | 0.75% | 1.75% |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
On 2013, the discount rates of 4.30% for serving employees and 3.54% for retired employees correspond to an average rate of 4%, more specifically, the use of different rates for different populations leads to the same liability amount that would be determined if a rate of 4% had been used for the entire population.
To determine the amount of the Social Security pension which, under the terms of the ACT of the banking sector should reduce the pension to be provided under that ACT, the following assumptions were used at December 31, 2014 and 2013:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Salary growth rate to calculate the deductible pension: | ||
| For 2015 (2014) | 0.50% | 0.50% |
| For 2016 (2015) | 0.75% | 0.50% |
| After 2016 (2015) | 1.00% | 2.35% |
| Inflation (n. 1 of Article 27) | 1.75% | 1.75% |
| Inflation (n. 2 of Article 27) | 2.00% | 2.00% |
| Sustainability factor accumulated until 2014 | Reduction of 4.78% | |
| Sustainability factor accumulated until 2013 | Reduction of 4.78% | |
| Sustainability factor accumulated until 2012 | Reduction of 3.92% | |
| Sustainability factor accumulated until 2011 | Reduction of 3.14% | |
| Future sustainability factor | Reduction of 0.5% per year |
On the other hand, Decree-Law nº 167-E/2013, of December 31, changed the retirement age for the general Social Security regime for 2014 and 2015 to 66 years old. Nevertheless, the sustainability factor charge will not apply to the pensioners who retire with that age.
The discount rate used in the calculation of liabilities was determined based on the market rates of low risk corporate bonds, for similar maturities as those of the Plan's liabilities.
The economic environment and the sovereign debt crisis in the South of Europe have brought volatility and disruption to the debt market in the Euro Zone, with a consequent abrupt reduction in the market yields of the debt of the companies with the best ratings and have limited the available basket of these bonds. In order to maintain the representativeness of the discount rate taking into consideration the universe of the Euro Zone, at December 31, 2014 and 2013 the Bank incorporated in the determination of the discount rate information regarding interest rates that is possible to obtain on bonds denominated in Euros, including public debt, which it had considered to be of high quality in terms of credit risk.
Changes in the past service liabilities for the years ended December 31, 2014 and 2013 may be detailed as follows, with regard to the Bank's pension plan:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Liabilities at the beginning of the year | 846,885 | 794,508 |
| Current service cost | 1,783 | 1,054 |
| Interest cost | 30,942 | 32,880 |
| Actuarial (gains)/losses | 44,492 | 40,790 |
| Early retirement | 19,790 | 14,028 |
| Amounts paid | ( 38,532 ) | ( 38,285 ) |
| Contributions of employees | 2,331 | 2,326 |
| Reduction of liabilities with death subsidy (Note 40) | - | ( 416 ) |
| ----------- | ------------ | |
| Liabilities at the end of the year | 907,691 | 846,885 |
| ====== | ====== |
The cost of the year relating to pensions includes the current service cost and the interest cost, deducted from the estimated return from the assets Fund. In 2014 and 2013, pension´s costs are made up as follows (Note 40):
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Current service cost | 1,783 | 1,054 |
| Interest cost | 30,942 | 32,880 |
| Return on assets calculated with the discount rate | ( 30,942 ) | ( 32,449 ) |
| --------- | --------- | |
| Defined benefits plan | 1,783 | 1,485 |
| Defined contribution plan | 45 | 42 |
| London Branch plan | 321 | 397 |
| ------- | ------- | |
| 2,149 | 1,924 | |
| ==== | ==== |
As from January 1, 2009, employees hired by BST are integrated in the Social Security and are covered by a supplementary defined contribution pension plan with acquired rights under Article 137 – C of the ACT. That plan is supported by contributions of the employees (1.5%) and from BST (1.5%) taking in consideration the amount of the effective monthly salary. For this purpose, each employee can choose the Pension Fund to which BST transfers its contribution.
Changes occurred in actuarial gains and losses in 2014 and 2013 were as follows:
| Balance at December 31, 2012 | 583,394 ----------- |
|---|---|
| Actuarial losses on pensions generated in 2013 Financial gains on pensions generated in 2013 Actuarial losses on healthcare benefits and death subsidy in 2013 Financial gains on healthcare benefits and death subsidy in 2013 |
32,728 ( 2,653 ) 8,062 ( 462 ) |
| Balance at December 31, 2013 (pro forma) (Note 26) | ----------- 621,069 ----------- |
| Actuarial losses on pensions generated in 2014 Financial losses on pensions generated in 2014 Actuarial losses on healthcare benefits and death subsidy in 2014 Financial losses on healthcare benefits and death subsidy in 2014 |
31,163 896 13,329 215 |
| Balance at December 31, 2014 (Note 26) | ------------ 666,672 ====== |
The actuarial deviations on pensions occurred in 2014 and 2013 may be explained as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Changes in actuarial assumptions | 25,033 | 34,831 |
| Changes in the salary table | ||
| with impact on pensions and salaries | 4,064 | ( 4,362 ) |
| Changes in the population | 636 | 2,693 |
| Mortality deviations | ||
| . Due to departures | ( 5,474 ) | ( 4,049 ) |
| . Due to maintenance | 3,774 | 3,299 |
| . Due to survival pensions and orphan hood | 3,519 | 3,074 |
| Transfer from early retirement to retirement | ( 389 ) | ( 2,758 ) |
| --------- | ---------- | |
| 31,163 | 32,728 | |
| ===== | ====== |
In 2014 the changes of actuarial assumptions included the effect of reducing the discount rate from 4,0% to 2,5%, on average.
In 2013 the changes of actuarial assumptions included the effect of reducing the discount rate from 4,5% to 4,0%, on average.
The estimated increases in salaries and pensions were revised taking in consideration the current economic environment in Portugal and the consequent prospects of smaller increases in the future, or even of maintenance of the current amounts, particularly in the years 2015 and 2016.
The effective salary growth in 2014 and 2013 for purposes of the contributions to the Social Security relating to the employees of the former Totta was 1.02% and 1.63% respectively.
There was no effective increase in the pensions and in the salary table in 2014 and 2013.
The actuarial deviations in healthcare benefits and in the death subsidy in 2014 and 2013 can be explained as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Changes in assumptions | 12,878 | 7,734 |
| Changes in salaries | 358 | 130 |
| Other | 93 | 198 |
| --------- | --------- | |
| 13,329 | 8,062 | |
| ===== | ===== |
In 2015, BST estimates to make a contribution of tEuros 3,049 to its defined benefit plan.
The average duration of BST's pension liability with employees is 17 years, including serving and retired ones.
Santander Pensões – Sociedade Gestora de Fundos de Pensões, S.A. manages BST's Pension Fund. At December 31, 2014 and 2013, the number of participants of the Fund was as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Serving employees (1) | 5,262 | 5,409 |
| Pensioners Retired and early retired staff |
1,031 5,373 |
996 5,339 |
| --------- 11,666 |
--------- 11,744 |
|
| ===== | ===== |
(1) Of whom 195 and 181 employees are included in the new defined contribution plan as of 31 December 2014 and 2013, respectively.
The main demographic changes occurred in 2014 and 2013, were the following:
| Serving employees | ||||
|---|---|---|---|---|
| Defined | ||||
| Contribution | Defined | Retired and early | ||
| Plan | Benefit Plan | retired staff | Pensioners | |
| Total number at December 31, 2012 | 177 | 5,341 | 5,332 | 954 |
| Exits: | ||||
| . Serving Employees | (16) | (42) | - | - |
| . By death | - | - | (78) | (30) |
| Transfers | - | (74) | 7 4 |
- |
| Entries | 2 0 |
3 | 1 1 |
7 2 |
| Total Number at December 31, 2013 (pro forma) | 181 | 5,228 | 5,339 | 996 |
| Exits: | ||||
| . Serving Employees | (11) | (45) | - | - |
| . By death | - | - | (94) | (31) |
| Transfers | - | (120) | 120 | - |
| Entries | 2 5 |
4 | 8 | 6 6 |
| Total Number at December 31, 2014 | 195 | 5,067 | 5,373 | 1,031 |
Changes occurred in BST's Pension Fund during 2014 and 2013 were the following:
| Net assets at December 31, 2012 | 784,937 |
|---|---|
| Contributions made by the Bank (cash) Contributions made by the employees Net return of the Fund: |
----------- 56,000 2,326 |
| Return on assets calculated with the discount rate | 32,449 |
| Fund performance above the discount rate | 3,116 |
| Pensions paid | ( 38,285 ) ----------- |
| Net assets at December 31, 2013 (pro forma) | 840,543 |
| ====== | |
| Contributions made by the Bank (cash) | 76,410 |
| Contributions made by employees | 2,331 |
| Net return of the Fund: | |
| Return on assets calculated with the discount rate | 30,942 |
| Fund performance below the discount rate | ( 1,114 ) |
| Pensions paid | ( 38,532 ) |
| Net assets at December 31, 2014 | ----------- 910,580 |
| ====== |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The return rates of the Pension Fund in 2014 and 2013 were 3.55% and 4.66%, 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 stocks, bonds, other debt instruments, participations 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, having the manager of the Fund 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:
At December 31, 2014 and 2013, BST's Pension Fund breakdown was as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Debt instruments | ||
| . Rating A | 1,110 | - |
| . Rating BBB | 106,271 | 83,939 |
| . Rating BB | 170,057 | 164,839 |
| . Rating B | - | 22,161 |
| . Without rating attributed either to the issue or the issuer | 85,396 | 36,372 |
| Real estate investment funds | 192,145 | 207,011 |
| Securities investment funds | 157,337 | 141,059 |
| Deposits | 94,420 | 75,556 |
| Real Estate: | ||
| . Retail buildings | 54,708 | 63,316 |
| . Land | 860 | 860 |
| Equity instruments: | ||
| . Portuguese listed companies | 3,588 | 2,582 |
| . Portuguese unlisted companies | 152 | 152 |
| . Foreign listed companies Derivative financial instruments |
41,927 | 44,316 |
| . Listed options | ( 790 ) | ( 1,765 ) |
| Others | 3,399 | 145 |
| ---------- 910,580 |
----------- 840,543 |
|
| ====== | ====== |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, the methodology adopted by the Management Company of BST´s Pension Fund to determine the fair value of the assets and liabilities above referred, taking in consideration IFRS 13 (Note 48), was as follows:
| 31-12-2014 | 31-12-2013 (pro forma) | |||||||
|---|---|---|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
| Debt instruments | 327,908 | 13,829 | 21,097 | 362,834 | 246,197 | 22,846 | 38,268 | 307,311 |
| Investment funds | 144,334 | 2 | 205,146 | 349,482 | 138,865 | 16,004 | 193,201 | 348,070 |
| Equity instruments | 45,515 | - | 152 | 45,668 | 46,898 | - | 152 | 47,050 |
| Derivative financial instruments | (790) | - | - | (790) | (1,765) | - | - | (1,765) |
| Real estate | - | - | 55,568 | 55,568 | - | - | 64,176 | 64,176 |
| 516,967 | 13,831 | 281,963 | 812,762 | 430,195 | 38,850 | 295,797 | 764,842 |
At December 31, 2014 and 2013, the portfolio of the Pension Fund included the following assets of Santander Group companies in Portugal:
| ====== | ====== | |
|---|---|---|
| ----------- 200,617 |
----------- 182,197 |
|
| Leased property Securities (including participating units in Funds managed by the Group) |
16,509 184,108 |
21,918 160,279 |
| 2014 | 2013 (pro forma) |
In 2010 a life insurance policy was taken out with Santander Totta Seguros – Companhia de Seguros de Vida, S.A. to cover the liability arising from the new supplementary retirement plan granted to the Bank's executives. The initial contribution to the new plan amounted to tEuros 4,430. In 2014 and 2013, the premium paid by the Bank amounted to tEuros 583 (Note 40).
This plan covers the possibilities of retirement, death and absolute permanent incapacity for regular work or due to disablement.
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 death of the beneficiary that amount will be increased by 6,000 Euros.
At December 31, 2014 and 2013, 113 and 111 executives were covered by this plan, respectively.
At December 31, 2014 and 2013, the main assumptions used in the calculation 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:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Mortality table | AMC00/AFC00 | AMC00/AFC00 |
| Actuarial technical rate (discount rate) | 3.60% | 4.60% |
| Salary growth rate | 3.40% | 3.70% |
| Pension growth rate | 2.00% | 2.10% |
| Inflation rate | 2.40% | 2.70% |
At December 31, 2014 and 2013, the liabilities with the defined benefit pension plan of the London branch of BST and its coverage were as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Estimated liabilities for past services Net assets of the Pension Fund |
42,855 38,223 |
35,037 30,720 |
| Non-financed amount – London branch | -------- ( 4,632 ) ==== |
-------- ( 4,317 ) ==== |
In relation to the specific pension plan of the London branch of BST, the changes in the past service liabilities in the years ended December 31, 2014 and 2013 may be presented as follows:
| Liabilities at December 31, 2012 | 35,303 |
|---|---|
| Current service cost | --------- 174 |
| Interest cost | 1,513 |
| Actuarial gains | ( 353 ) |
| Amounts paid | ( 855 ) |
| Foreign exchange fluctuations | ( 745 ) |
| --------- | |
| Liabilities at December 31, 2013 (pro forma) | 35,037 |
| --------- | |
| Current service cost | 168 |
| Interest cost | 1,712 |
| Actuarial losses | 4,622 |
| Amounts paid | ( 1,139 ) |
| Foreign exchange fluctuations | 2,455 |
| --------- | |
| Liabilities at December 31, 2014 | 42,855 |
| ===== |
Changes in the Pension Fund of the London branch of BST during the years ended December 31, 2014 and 2013 were as follows:
| Net assets at December 31, 2012 | 31,342 |
|---|---|
| Net return of the Fund | ---------- 741 |
| Contribution performed by the Bank | 152 |
| Pensions paid | ( 855 ) |
| Foreign exchange fluctuations | ( 660 ) |
| Net assets at December 31, 2013 (pro forma) | ---------- 30,720 |
| Net return of the fund | ---------- 3,690 |
| Contribution performed by the Bank | 2,790 |
| Pensions paid | ( 1,139 ) |
| Foreign exchange fluctuations | 2,162 |
| ---------- | |
| Net assets at December 31, 2014 | 38,223 |
| ===== |
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The costs with the defined benefit plan of BST's London branch in 2014 and 2013 were as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Current service cost | 168 | 174 |
| Interest cost | 1,712 | 1,513 |
| Estimated return of assets calculated with the discount rate | ( 1,559 ) | (1,290 ) |
| ------- | ------ | |
| 321 | 397 | |
| === | === |
The changes and the detail of the actuarial gains and losses of BST's London branch Pension Fund in 2014 and 2013 were as follows:
| Balance at December 31, 2012 | 5,968 |
|---|---|
| Actuarial gains on pensions in 2013 Financial losses on pensions in 2013 Foreign exchange fluctuations |
-------- ( 353 ) 548 ( 87 ) |
| Balance at December 31, 2013 (pro forma) (Note 26) | ------- 6,076 |
| Actuarial losses on pensions in 2014 Financial gains on pensions in 2014 Foreign exchange fluctuations |
-------- 4,622 ( 2,131 ) 300 |
| Balance at December 31, 2014 (Note 26) | ------- 8,867 ==== |
At December 31, 2014 and 2013, the BST's London branch Pension Fund portfolio included the following assets:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Debt instruments | 32,564 | 25,218 |
| Equity instruments | 5,582 | 5,413 |
| Deposits | 77 | 89 |
| --------- | --------- | |
| Fund's net asset value | 38,223 | 30,720 |
| ===== | ===== |
At December 31, 2014 and 2013, the balances associated with the pension plans can be detailed as follows:
| 2014 | 2013 (pro forma) |
|---|---|
| 2,889 ( 4,632 ) |
( 6,342 ) ( 4,317 ) |
| ( 1,743 ) ====== |
----------- (10,659 ) ====== |
| ----------- |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The liabilities with defined benefit pension plans exposes the Bank to the following risks:
At December 31, 2014, a sensitivity analysis to a variation of the main financial assumptions reported to that date would lead to the following impacts in the current past services liabilities of the Bank (excluding those associated with the London Branch):
| (Reduction)/Increase | in % | in amount |
|---|---|---|
| Variation of discount rate: Increase of 0.5% Reduction of 0.5% |
( 7.2% ) 8.2% |
( 65,686 ) 74,417 |
| Variation of salary growth rate: Increase of 0.5% Reduction of 0.5% |
5.6% (4.8% ) |
50,729 ( 43,462 ) |
| Variation of pension growth rate: Increase of 0.5% Reduction of 0.5% |
7.5% ( 6.9% ) |
67,806 ( 62,587 ) |
At December 31, 2014 and 2013, the amount of liabilities associated with healthcare benefits (SAMS) resulting from a 1% change in the contribution rate can be presented as follows:
| (SAMS) resulting from a 1% change in the contribution rate can be presented as follows: | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2014 2013 (pro forma) |
||||||||
| Number | Contribution Contribution |
Number | Contribution | Contribution | ||||
| o f |
rate | rate | o f |
rate | rate | |||
| beneficiaries | -1% | + 1% | beneficiaries | -1% | + 1% | |||
| Serving employees (Defined benefit plan) | 5,067 | 40,282 | 54,930 | 5,228 | 32,130 | 43,814 | ||
| Serving employees (Defined contribution plan) | 195 | 190 | 258 | 181 | 104 | 142 | ||
| Pensioners | 1,031 | 5,147 | 7,019 | 996 | 4,784 | 6,524 | ||
| Retired and early retired staff | 5,373 | 82,915 | 113,065 | 5,339 | 79,725 | 108,717 | ||
| 11,666 | 128,533 | 175,273 | 11,744 | 116,744 | 159,196 |
These sensitivity analysis may not be representative of the changes that may occur in the future in the pension plan since they are being considered alone and some of them are correlated.
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 Hipototta FTC Funds, with the exception of the last securitization operations (Hipototta nº 11 and Hipototta nº 12), in which the credits were sold to Tagus – Sociedade de Titularização de Créditos, S.A. (Tagus).
In April 2009, the former Totta IFIC securitized part of its leasing and long-term rental portfolio through an operation with a total initial amount of tEuros 1,300,000. The loans were sold at their nominal value (book value) to a securitization fund called LeaseTotta nº 1 FTC.
In October 2009, BST liquidated Hipototta nº 9 Ltd., which was established under a securitization operation performed at November 2008. The initial amount of the loans sold amounted to tEuros 1,550,000. The liquidation occurred after a "Mortgage Retransfer Agreement", under which the Bank repurchased the previously securitised loans for tEuros 1,462,000.
In April 2010, BST liquidated Hipototta nº 6 Ltd., which was established under a securitization operation performed at October 2007. The initial amount of the loans sold amounted to tEuros 2,200,000. The liquidation occurred after a "Mortgage Retransfer Agreement", under which the Bank repurchased the previously securitised loans for tEuros 1,752,357.
In January and February 2011, BST entered into "Mortgage Retransfer Agreements" with Hipototta nº 2 PLC, Hipototta nº 3 PLC and Hipototta nº 10 Ltd. under which it repurchased the loans previously securitised, by the amounts of tEuros 880,636, tEuros 1,548,396 and tEuros 803,494, respectively and the Notes held in its portfolio related to these securitizations have been redeemed at their nominal value.
In March 2011, BST securitised part of its portfolio of commercial paper and loans granted to companies through an operation denominated BST SME nº 1, with a total initial amount of tEuros 2,000,000. Additionally, in June 2011 the Bank proceeded to the securitization of part of its consumer credit portfolio through an operation denominated Totta Consumer nº 1 with a total initial amount of tEuros 1,000,000. The credits from these operations were sold at their nominal value to Tagus. In March 2012, BST liquidated the BST SME nº 1. This liquidation took place through the "SME Receivables Retransfer Agreement", under which the Bank repurchased the credits initially securitised for tEuros 1,792,480.
In October 2011, BST liquidated Hipototta nº 8. The liquidation occurred after a "Mortgage Retransfer Agreement", under which the Bank repurchased the previously securitised loans for tEuros 907,828.
In May and June 2012, BST entered into "Mortgage Retransfer Agreements" with Hipototta nº 11 and Hipototta nº 12. Under these agreements, BST repurchased the previously securitised loans for tEuros 1,719,660 and tEuros 1,197,009, respectively, and the Notes held in its securities portfolio related to these securitizations have been redeemed at their nominal value.
In August 2012, BST liquidated the Totta Consumer nº 1. This liquidation occurred after a "Consumer Receivables Retransfer Agreement", under which the Bank repurchased the loans initially securitized for tEuros 626,373.
In May 2013, BST liquidated Hipototta nº 7. The liquidation occurred after a "Mortgage Retransfer Agreement", under which the Bank repurchased the previously securitised loans for tEuros 1,196,403.
In December 2014, BST liquidated LeaseTotta nº 1 FTC. This liquidation occurred after a "Consumer Receivables Retransfer Agreement", under which the Bank repurchased the loans initially securitized for tEuros 280,175.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The Funds Hipototta FTC 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. Santander Group do not hold any direct or indirect participation in Navegator.
To finance these operations, Hipototta Funds issued participating units for the same amount of the loans portfolios purchased, which were fully subscribed by the Hipototta PLC Funds, which are incorporated in Ireland.
Furthermore, Hipototta Funds FTC pay all the amounts received from BST and from the Portuguese Treasury ("Direcção Geral do Tesouro") to the 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 December 31, 2014, the bonds issued and still outstanding are as follows:
| Hipottta nº 1 PLC | ||||||||
|---|---|---|---|---|---|---|---|---|
| Early | Remuneration | |||||||
| Amount | Rating | Redemption | Redemption | Up to early | After early | |||
| Issued debt | Initial | Current | S&P | Moody's | Date | Date | redemption date | redemption date |
| Class A | 1,053,200 | 145,770 | A- | Baa3 | November of 2034 | August of 2012 | Euribor 3 m + 0.27% | Euribor 3 m + 0.54% |
| Class B | 32,500 | 9,714 | A- | Ba1 | November of 2034 | August of 2012 | Euribor 3 m + 0.65% | Euribor 3 m + 0.95% |
| Class C | 14,300 | 4,281 | A- | Ba2 | November of 2034 | August of 2012 | Euribor 3 m + 1.45% | Euribor 3 m + 1.65% |
| 1,100,000 | 159,765 | |||||||
| Class D | 17,600 | 11,000 | November of 2034 | August of 2012 | Residual income of the securitized portfolio | |||
| 1,117,600 | 170,765 | |||||||
| Hipottta nº 4 PLC | |||||||
|---|---|---|---|---|---|---|---|
| Early | Remuneration | ||||||
| Amount | Redemption | redemption | Up to early | After early | |||
| Issued debt | Initial | Current | Rating Fitch | date | rate | redemption date | redemption date |
| Class A | 2,616,040 | 905,861 | A | December of 2048 | December of 2014 | Euribor 3 m + 0.12% | Euribor 3 m + 0.24% |
| Class B | 44,240 | 32,956 | A | December of 2048 | December of 2014 | Euribor 3 m + 0.19% | Euribor 3 m + 0.40% |
| Class C | 139,720 | 104,081 2,800,000 1,042,898 |
CCC | December of 2048 | December of 2014 | Euribor 3 m + 0.29% | Euribor 3 m + 0.58% |
| Class D | 14,000 | 14,000 | December of 2048 | December of 2014 | Residual income of the securitized portfolio | ||
| 2,814,000 1,056,898 |
| Hipottta nº 5 PLC | ||||||||
|---|---|---|---|---|---|---|---|---|
| Early | Remuneration | |||||||
| Amount | Rating | Redemption | redemption | Up to early | After early | |||
| Issued debt | Initial | Current | S&P | Moody's | date | date | redemption date | redemption date |
| Class A1 | 200,000 | - | February of 2060 | February of 2014 | Euribor 3 m + 0.05% | Euribor 3 m + 0.10% | ||
| Class A2 | 1,693,000 | 796,849 BBB | Baa3 | February of 2060 | February of 2014 | Euribor 3 m + 0.13% | Euribor 3 m + 0.26% | |
| Class B | 26,000 | 26,000 BBB- | Ba3 | February of 2060 | February of 2014 | Euribor 3 m + 0.17% | Euribor 3 m + 0.34% | |
| Class C | 24,000 | 24,000 BBB- | B2 | February of 2060 | February of 2014 | Euribor 3 m + 0.24% | Euribor 3 m + 0.48% | |
| Class D | 26,000 | 26,000 | BB | B3 | February of 2060 | February of 2014 | Euribor 3 m + 0.50% | Euribor 3 m + 1.00% |
| Class E | 31,000 2,000,000 |
31,000 BB- 903,849 |
Caa2 | February of 2060 | February of 2014 | Euribor 3 m + 1.75% | Euribor 3 m + 3.50% | |
| Class F | 10,000 2,010,000 |
912,887 | 9,038 CCC- | Ca | February of 2060 | February of 2014 | Residual income of the securitized portfolio |
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 31 of each year. The bonds issued by Hipototta PLC nº 5 pay interest quarterly on February 28, May 30, August 31 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 less than 10% of the initial amount of the operations.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Furthermore, up to five days before each quarterly interest payment date, all Hipototta have the option to make partial repayments of the Classes A, B and C notes, as well as the Classes D and E notes in the case of Hipototta PLC nº 5, in order to adjust the amount of the liability to that of the outstanding mortgage loan portfolios.
Remuneration of the Class D bonds of Hipototta nº 1 and Hipototta nº 4, and the Class F bonds for Hipottota nº 5 are the last liabilities to be paid.
Remuneration of these classes of bonds corresponds to the difference between the income generated by the securitised loan portfolio and the sum of all costs of the operation, namely:
When the securitization operations were issued, the estimated income of the securitised loans portfolios included in the calculation of the remuneration of the Class D bonds for Hipototta PLC nº 1 and nº 4 corresponded to an average annual rate of 1.1% and 0.9%, respectively. For the Class F notes of Hipototta PLC nº 5 it corresponded to an annual average of 0.9% of the total credit portfolio.
When the securitization operations were issued, subordinated loans were granted by BST to Hipotottas as facilities / credit lines in case of need for liquidity by Hipotottas. There were also been signed "Swap Agreements" between the Santander Group and the first issued Hipotottas and between BST and the remaining securitization vehicles to cover the interest rate risk.
The related entities of the Bank with which it had balances or transactions in 2014 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 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. Santander - Gestão de Activos, SGPS, S.A. Fundo de Investimento Mobiliário Aberto de Obrigações de Taxa Variável – Santander Multiobrigações Fundo de Investimento Imobiliário Novimovest |
Cayman islands Cayman islands USA Ireland Portugal Portugal Puerto Rico Portugal 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 LEASETOTTA NO. 1 Ltd HIPOTOTTA NO. 1 FTC HIPOTOTTA NO. 4 FTC HIPOTOTTA NO. 5 FTC LEASETOTTA NO.1 FTC |
Ireland Ireland Ireland Ireland Portugal Portugal Portugal 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 |
| All Funds Bank, S.A. | Spain |
| Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander | 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, 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, 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,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 |
| Santander UK plc | United Kingdom |
| Santander, Asset Management, SGFIM, S.A. | Portugal |
| Sovereign Bank | USA |
| UCI - Mediação de Seguros Unipessoal, Lda. | Portugal |
| Union de Créditos Inmobiliários,S.A. | Spain |
The related entities of the Bank with which it had balances or transactions in 2013 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 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. Santander - Gestão de Activos, SGPS, S.A. Santander Asset Management, SGFIM, S.A. Santander Pensões - Sociedade Gestora de Fundos de Pensões, S.A. Fundo de Investimento Mobiliário Aberto de Obrigações de Taxa Variável – Santander Multiobrigações Fundo de Investimento Imobiliário Novimovest |
Cayman islands Cayman islands USA Ireland Portugal Portugal Puerto Rico Portugal Portugal Portugal 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. 7 Ltd LEASETOTTA NO. 1 Ltd HIPOTOTTA NO. 1 FTC HIPOTOTTA NO. 4 FTC HIPOTOTTA NO. 5 FTC LEASETOTTA NO.1 FTC HIPOTOTTA NO. 7 FTC |
Ireland Ireland Ireland Ireland Ireland Portugal Portugal Portugal Portugal Portugal |
| LEASETOTTA NO.1 FTC | 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 |
| All Funds Bank, S.A. | Spain |
| Banco Banif, S.A. | Spain |
| Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander | Mexico |
| Banco Santander (Suisse), S.A. | Switzerland |
| Banco Santander Brasil, S.A. | Brazil |
| Banco Santander Consumer Portugal, S.A. | Portugal |
| Banco Santander de Puerto Rico | Puerto Rico |
| Capital Grupo Santander, S.A. S.G.E.C.R. | Spain |
| Geoban, S.A. | Spain |
| Gesban Servicios Administrativos Globais | Spain |
| Grupo Banesco | 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 Informaticos Generales, S.L. | Spain |
| Retama Real Estate, SL | Spain |
| Santander Asset Management, S.A., SGIIC | Spain |
| Santander Back-Office Globales Mayorista | Spain |
| Santander Bank & Trust Ltd. | Bahamas |
| Santander Consumer Finance S.A. | Spain |
| Santander Consumer, EFC, S.A. | Spain |
| Santander de Titulizacion SGFT | Spain |
| Santander Global Facilities | Spain |
| Santander Investment Securities, Inc. | USA |
| Santander Investment, S.A. | Spain |
| 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 December 31, 2014 and 2013, the balances and transactions maintained with related entities were as follows:
| 2014 | |||
|---|---|---|---|
| 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 Financial assets held for trading Available-for-sale financial assets |
15,855 222,816 - |
- 35,326 - |
604 2,671 5,189 |
| Loans and advances to credit institutions Loans and advances to customers |
945,038 - |
826 35,065 |
206,433 5,551 |
| Hedging derivatives Investments in associated companies |
190,764 - |
- 166,359 |
- - |
| Other assets | 13,396 | 5,392 | 23,237 |
| Liabilities: | |||
| Financial liabilities held for trading Resources of other credit institutions Resources of customers and other debts Debt securities |
1,806,191 1,118,533 88,755 84,358 |
- 101,906 11,176 - |
52,548 3,933 1,275,346 33,374 |
| Hedging derivatives Subordinated liabilities |
133,100 - |
- - |
- 4,306 |
| Other liabilities | 4,384 | - | 3,183 |
| Costs: | |||
| Interest and similar charges Charges w ith services and commissions |
185,308 256 |
290 - |
53,991 5,996 |
| Result of assets and liabilities at fair value through profit or loss |
1,348,551 | 1,966 | 35,499 |
| Result of foreign exchange revaluation General administrative costs Impairment on investments in associated companies |
5 - - |
- - 440 |
- 46,097 - |
| Income: | |||
| Interest and similar income Result of assets and liabilities |
207,818 | 60 | 6,690 |
| at fair value through profit or loss Result of foreign exchange revaluation |
716,098 - |
3,814 - |
32,580 51 |
| Income from services and commissions Results from associates Results from other assets |
189 - - |
- 19,791 - |
102,670 - 207 |
| Other operating results | |||
| Off balance sheet items: | |||
| Guarantees provided and other contingent liabilities Guarantees received |
19,786 1 |
- - |
15,249 16,000 |
| Commitments to third parties | 25,788 | 6,829 | 174,687 |
| Currency operations and derivatives Responsibilities for services rendered |
15,159,296 2,805,584 |
29,744 35,017 |
591,437 2,692,136 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2013 (pro forma) | |||
|---|---|---|---|
| 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 | 8,674 | - | 1,780 |
| Financial assets held for trading | 262,686 | 25,416 | 27,450 |
| Available-for-sale financial assets | - | - | 9,251 |
| Loans and advances to credit institutions | 1,256,990 | 1,686 | 218,579 |
| Loans and advances to customers | - | 35,717 | 13,151 |
| Hedging derivatives | 174,964 | - | - |
| Investments in associated companies | - | 147,730 | - |
| Other assets | 17,536 | 5,047 | 64,722 |
| Liabilities: | |||
| Financial liabilities held for trading | 1,552,750 | - | 53,544 |
| Resources of other credit institutions | 574,924 | 154,986 | 7,099 |
| Resources of customers and other debts | 132,692 | 10,801 | 1,402,466 |
| Debt securities | 125,496 | - | 80,985 |
| Hedging derivatives Subordinated liabilities |
370,487 - |
- - |
- 4,307 |
| Other liabilities | 5,329 | - | 1,586 |
| Costs: | |||
| Interest and similar charges | 228,345 | 551 | 69,893 |
| Charges w ith services and commissions |
26 | - | 1,320 |
| Result of assets and liabilities | |||
| at fair value through profit or loss | 1,009,308 | - | 47,942 |
| Result of foreign exchange revaluation | - | - | 312 |
| General administrative costs | - | - | 39,889 |
| Impairment on investments in associated companies | - | 400 | - |
| Income: | |||
| Interest and similar income | 268,873 | 145 | 5,856 |
| Result of assets and liabilities | |||
| at fair value through profit or loss | 1,181,389 | - | 45,839 |
| Result of foreign exchange revaluation | 642 | - | - |
| Income from services and commissions Results from associates |
161 - |
- 14,069 |
86,660 - |
| Results from other assets | - | - | 12,588 |
| Other operating results | - | - | 203 |
| Off balance sheet items: | |||
| Guarantees provided and other contingent liabilities | 11,642 | - | 96,969 |
| Guarantees received | 710 | - | 1,400 |
| Commitments to third parties | 19,669 | 6,058 | 48,386 |
| Currency operations and derivatives | 20,678,434 | 23,078 | 819,796 |
| Responsibilities for services rendered | 2,761,815 | 32,487 | 2,741,556 |
At December 31, 2014 and 2013 the loans and advances granted to members of management and supervisory boards, considered key management personnel of the Bank, amounted to tEuros 809 and tEuros 1,009, respectively. Fixed and variable remuneration at these dates amounted to tEuros 8,174 and tEuros 6,310, respectively (Note 40).
The Santander Group, which includes BST, also has a worldwide long term incentive plan, described in Note 47, which is divided into cycles. For the members of the Board of Directors the amount recorded in the caption "Staff costs" in the years ended December 31, 2014 and 2013 is presented below:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Fifth cycle – PI13 - assigned in 2010 exercisable in July 2013 | - | 118 |
| Sixth cycle – PI14 - assigned in 2011 exercisable in July 2014 | 7 | 11 |
| ----- | ----- | |
| 7 | 129 | |
| === | === | |
The cycles of the share plans linked to objectives of the members of the Board of Directors ended on the dates indicated below and shares were attributed at the following amount per share:
| Cycle | Maturity date | Number of shares attributed | Value per share |
|---|---|---|---|
| First | July 6, 2009 | 97,676 | 8.49 Euros |
| Second | July 8, 2010 | 136,719 | 8.77 Euros |
| Third | July 11, 2011 | 133,727 | 7.51 Euros |
| Fourth | July 9, 2012 | 35,850 | 4.88 Euros |
| Fifth | July 31, 2013 | - | n.a. |
| Sixth | July 31, 2014 | - | n.a. |
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).
In the Shareholders' General Meeting held on May 30, 2007, the BST's shareholders approved the "Regulation for supplementary attribution of retirement pensions for age or disability" for the executive members of the Board of Directors of the former Totta that are executive members of the BST's Board of Directors (Executive Committee) which be in office for more than fifteen years, consecutive or interpolated. Under this Regulation they will be entitled to a pension supplement equivalent to 80% of its gross annual salary. The amount of the supplementary retirement pension shall be determined by the Remuneration Committee when the time in office is less than fifteen years. For these situations, actually, it is defined that the supplement of the pension will be 65% of gross annual salary, whenever the time in office is equal to or is more than ten years, and 75% of gross annual salary, whenever the time in office is equal to or is more than twelve years. This defined benefit plan is a supplementary plan dependent from the general Social Security system.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, the liabilities with this plan amounted to tEuros 18,381 and tEuros 15,598, respectively, and were covered by a provision of the same amount recorded in the caption "Provision for pensions and other charges" (Note 22).
With regard to employment termination benefits, in accordance with the Commercial Company´s Law ("Código das Sociedades Comerciais"), whenever the term of a member of the management or supervisory board is early terminated by BST, it will pay the member the future remuneration that he/she would be entitled to up to the end of its term.
The fees invoiced or to be invoiced by the statutory auditors of the Bank and its subsidiaries in 2014, excluding VAT, were as follows:
| Statutory audit and external auditor services rendered (a) | 731 |
|---|---|
| Other assurance services (a) | 989 |
| Tax consulting (b) | 138 |
| Other (b) | 575 |
| ------- | |
| 2,433 | |
| ==== |
(a) Represents the amounts agreed for 2014, regardless of its invoicing date.
(b) Represents the amounts invoiced during 2014.
The "Share Plan Linked to the Santander Group's Objectives" was approved in a Shareholders' General Meeting of Banco Santander, S.A.. This plan is divided into cycles, and so far six cycles have been approved. BST is also included in this plan.
Each beneficiary of the plan has the right to receive a maximum number of Banco Santander, S.A.'s shares. The final number allocated is determined by multiplying the maximum number of shares initially allocated, by the sum of coefficients indexed to the evolution of Banco Santander, S.A. in comparison with other entities included in a predefined group. That comparison is performed taking in consideration two parameters: total shareholders' return and increase in earnings per share for the first three cycles and for the remaining cycles the comparison is measured by the total shareholders' return only.
The maturity dates of the cycles of the "Share Plan Linked to the Santander Group's Objectives", the total number of shares granted and the value per share are as follows:
| Total number | |||
|---|---|---|---|
| Cycle | Maturity date | of shares granted | Value per share |
| First | July 6, 2009 | 326,681 | 8,49 Euros |
| Second | July 8, 2010 | 540,822 | 8,77 Euros |
| Third | July 11, 2011 | 571,640 | 7,51 Euros |
| Fourth | July 9, 2012 | 200,897 | 4,88 Euros |
| Fifth | July 31, 2013 | - | n.a. |
| Sixth | July 31, 2014 | - | n.a. |
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 caption "Staff costs", as it corresponds to a remuneration for services rendered. Management, hedging and implementation of the plans are provided by Banco Santander S.A. for all employees covered by the worldwide Plan.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
In 2014 and 2013, the total cost of the "Share Plan Linked to the Santander Group's Objectives" for all the employees of the Bank covered by it was as follows:
| 2014 | 2013 (pro forma) |
|
|---|---|---|
| Fifth cycle – PI13 - assigned in 2010 and exercisable in July 2013 Sixth cycle – PI14 - assigned in 2011 and exercisable in July 2014 |
- 533 |
736 1,066 |
| ------- 533 |
-------- 1,802 |
|
| ==== | ==== |
The employees are entitled to the shares upon their permanence in the Santander Group. The cost per share, as well as the dates of the delivery of the shares are summarised in the following table:
| Estimated | ||||||||
|---|---|---|---|---|---|---|---|---|
| Number of | Cost per share | delivery date of | Number of | Entitlement | ||||
| Stock's Plans | shares | (Euros) | the shares | employees | date | |||
| Plans in place at December 31, 2012 | ||||||||
| PI13 | 702,873 | 5.5707 | jul-2013 | 318 | 2010 | |||
| PI14 | 609,358 | 4.5254 | jul-2014 | 309 | 2011 | |||
| Changes in 2013: | ||||||||
| PI13 - Shares not available | (702,873) | - | jul-2013 | (318) | - | |||
| PI14 - Reversals | (2,600) | - | jul-2014 | (1) | - | |||
| Plans in place at December 31, 2013 (pro forma) | ||||||||
| PI14 | 606,758 | 4.5254 | jul-2014 | 308 | 2011 | |||
| Changes in 2014: | ||||||||
| PI14 - Shares not available | (606,758) | - | - | (308) | - | |||
In 2014 and 2013 the Group employees did not received any shares, since the minimum parameters defined in the plan were not achieved.
At December 31, 2014 and 2013, financial instruments presented the following book value:
| 2014 | |||||||
|---|---|---|---|---|---|---|---|
| Valued at | Valued at | Valued at | Net | ||||
| fair value | amortised cost | historical cost | Impairment | value | |||
| Assets | |||||||
| Cash and deposits at central banks | - | 622,460 | 208,014 | - | 830,474 | ||
| Balances due from other banks | - | 174,556 | 66,662 | - | 241,218 | ||
| Financial assets held for trading | 2,291,734 | - | - | - | 2,291,734 | ||
| Available-for-sale financial assets | 6,754,527 | - | 19,971 | (61,943) | 6,712,555 | ||
| Loans and advances to credit institutions | - | 1,220,917 | - | - | 1,220,917 | ||
| Loans and advances to customers | 37,394 | 26,647,475 | - | (1,161,618) | 25,523,251 | ||
| Hedging derivatives | 195,035 | - | - | - | 195,035 | ||
| 9,278,690 | 28,665,408 | 294,647 | (1,223,561) | 37,015,184 | |||
| Liabilities | |||||||
| Resources of central banks | - | 4,406,312 | - | - | 4,406,312 | ||
| Financial liabilities held for trading | 1,995,019 | - | - | - | 1,995,019 | ||
| Resources of other credit institutions | - | 4,030,724 | - | - | 4,030,724 | ||
| Resources of customers and other debts | 3,555,668 | 18,040,137 | 30,097 | - | 21,625,902 | ||
| Debt securities | 175,460 | 2,797,651 | - | - | 2,973,111 | ||
| Hedging derivatives | 133,690 | - | - | - | 133,690 | ||
| Subordinated liabilities | - | 4,306 | - | - | 4,306 | ||
| 5,859,837 | 29,279,130 | 30,097 | - | 35,169,064 | |||
| 2013 (pro forma) | |||||||
| Valued at fair value |
Valued at amortised cost |
Valued at historical cost |
Impairment | Net value |
|||
| Assets | |||||||
| Cash and deposits at central banks | - | 116,135 | 221,706 | - | 337,841 | ||
| Balances due from other banks | - | 497,312 | 55,609 | - | 552,921 | ||
| Financial assets held for trading | 1,949,115 | - | - | - | 1,949,115 | ||
| Available-for-sale financial assets | 4,423,054 | - | 20,937 | (61,738) | 4,382,253 | ||
| Loans and advances to credit institutions | - | 3,270,970 | - | - | 3,270,970 | ||
| Loans and advances to customers | 42,609 | 27,142,788 | - | (1,077,876) | 26,107,521 | ||
| Hedging derivatives | 199,427 | - | - | - | 199,427 | ||
| 6,614,205 | 31,027,205 | 298,252 | (1,139,614) | 36,800,048 | |||
| Liabilities | |||||||
| Resources of central banks | - | 6,241,410 | - | - | 6,241,410 | ||
| Financial liabilities held for trading | 1,619,768 | - | - | - | 1,619,768 | ||
| Resources of other credit institutions | - | 4,175,058 | - | - | 4,175,058 | ||
| Resources of customers and other debts | 3,621,415 | 17,009,744 | 75,842 | - | 20,707,001 | ||
| Debt securities | 1,326,599 | 1,207,562 | - | - | 2,534,161 |
In 2014 and 2013 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 adjustment.
Hedging derivatives 370,684 - - - 370,684 Subordinated liabilities - 4,307 - - 4,307
6,938,466 28,638,081 75,842 - 35,652,389
In the years ended December 31, 2014 and 2013, the net gains and losses on financial instruments were as follows:
| 2014 | ||||||
|---|---|---|---|---|---|---|
| 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 | 1,629,977 | (1,866,631) | (236,654) | - | - | - |
| Available-for-sale financial assets | 342,117 | (7,056) | 335,061 | 490,688 | - | 490,688 |
| Balances in central banks and other | ||||||
| credit institutions | 42,040 | - | 42,040 | - | - | - |
| Loans and advances to customers | 1,218,386 | (593,193) | 625,193 | - | - | - |
| Hedging derivatives | 392,060 | (200,465) | 191,595 | - | (22,499) | (22,499) |
| Resources in central banks and other credit institutions | - | (60,442) | (60,442) | - | - | - |
| Resources of customers and other debts | 44,757 | (332,779) | (288,022) | - | - | - |
| Debt securities | 70,970 | (100,167) | (29,197) | - | - | - |
| Subordinated liabilities | - | (188) | (188) | - | - | - |
| 3,740,307 | (3,160,921) | 579,386 | 490,688 | (22,499) | 468,189 | |
| Guarantees given | 19,435 | (3,139) | 16,296 | |||
| Credit lines | 9,270 | (5,124) | 4,146 | |||
| 2013 (pro forma) | ||||||
|---|---|---|---|---|---|---|
| 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 | 1,855,042 | (1,832,630) | 22,412 | - | - | - |
| Financial assets at fair value through profit or loss | 3,841 | (2,112) | 1,729 | - | - | - |
| Available-for-sale financial assets | 75,747 | (11,262) | 64,485 | 278,591 | - | 278,591 |
| Balances in central banks and other | ||||||
| credit institutions | 59,590 | - | 59,590 | - | - | - |
| Loans and advances to customers | 1,156,998 | (556,752) | 600,246 | - | - | - |
| Hedging derivatives | 433,812 | (367,122) | 66,690 | - | (55,108) | (55,108) |
| Resources in central banks and other credit institutions | - | (53,464) | (53,464) | - | - | - |
| Resources of customers and other debts | 95,610 | (401,938) | (306,328) | - | - | - |
| Debt securities | 34,453 | (65,155) | (30,702) | - | - | - |
| Subordinated liabilities | - | (189) | (189) | - | - | - |
| 3,715,093 | (3,290,624) | 424,469 | 278,591 | (55,108) | 223,483 | |
| Guarantees given | 24,849 | (217) | 24,632 | |||
| Credit lines | 8,802 | (323) | 8,479 |
The above referred amounts do not include gains and losses resulting from the foreign exchange revaluation of financial instruments, which for the years ended December 31, 2014 and 2013 corresponded to net gains of tEuros 5,458 and tEuros 4,039, respectively (Note 37).
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
In the years ended December 31, 2014 and 2013, 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:
| 2014 | 2013 (pro forma) | |||||
|---|---|---|---|---|---|---|
| Income | Expense | Net | Income | Expense | Net | |
| Assets | ||||||
| Cash and deposits at central banks | 229 | - | 229 | 950 | - | 950 |
| Balances due from other banks | 14 | - | 14 | 16 | - | 16 |
| Available-for-sale financial assets | 214,435 | - | 214,435 | 157,758 | - | 157,758 |
| Loans and advances to credit institutions | 41,797 | - | 41,797 | 58,624 | - | 58,624 |
| Loans and advances to customers | 708,952 | (61) | 708,891 | 760,234 | (116) | 760,118 |
| 965,427 | (61) | 965,366 | 977,582 | (116) | 977,466 | |
| Liabilities | ||||||
| Resources of central banks | - | (20,941) | (20,941) | - | (25,542) | (25,542) |
| Resources of other credit institutions | - | (39,501) | (39,501) | - | (27,922) | (27,922) |
| Resources of customers and other debts | - | (330,615) | (330,615) | - | (401,872) | (401,872) |
| Debt securities | - | (51,038) | (51,038) | - | (45,447) | (45,447) |
| Subordinated liabilities | - | (188) | (188) | - | (189) | (189) |
| - | (442,283) | (442,283) | - | (500,972) | (500,972) | |
| Guarantees given | 18,860 | - | 18,860 | 19,899 | - | 19,899 |
| Credit Lines | 4,011 | - | 4,011 | 7,442 | - | 7,442 |
In the years ended December 31, 2014 and 2013, commissions 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:
| 2014 | 2013 (pro forma) | |||||
|---|---|---|---|---|---|---|
| Income | Expense | Net | Income | Expense | Net | |
| Assets | ||||||
| Loans and advance to customers | 37,954 | (13,958) | 23,996 | 49,889 | (14,142) | 35,747 |
| Liabilities | ||||||
| Resources of customers and other debts | 44,428 | - | 44,428 | 46,179 | - | 46,179 |
In 2014 and 2013, the Bank recognised financial income relating to "Interest and similar income" on overdue or impaired credit operations amounting to tEuros 7,178 and tEuros 8,643, respectively (Note 30).
At December 31, 2014 and 2013, hedging derivatives and financial instruments designated as hedged items were as follows:
| 2014 | |||||||
|---|---|---|---|---|---|---|---|
| Hedged item | Hedging instrument | ||||||
| Nominal | Value net | Fair value | Book | Nominal | Fair | ||
| value | of impairment | adjustments | value | Value | Value | ||
| Fair value hedges | |||||||
| Loans and advances to customers | 32,887 | 33,108 | 4,246 | 37,354 | 32,888 | (4,291) | |
| Available-for-sale financial assets | 200,000 | 205,260 | 37,423 | 242,683 | 200,000 | (40,868) | |
| Resources of customers and other debts | (3,508,013) | (3,557,735) | 2,067 | (3,555,668) | 3,511,255 | 41,824 | |
| Debt securities | (167,375) | (173,699) | (1,761) | (175,460) | 167,385 | 8,410 | |
| Cash flow hedges |
|||||||
| Loans and advances to customers | 3,207,528 | 3,207,528 | - | 3,207,528 | 2,250,000 | 124,017 | |
| Debt securities | 1,005,866 | 1,005,866 | - | 1,005,866 | 650,000 | (67,747) | |
| 770,893 | 720,328 | 41,975 | 762,303 | 6,811,528 | 61,345 |
| 2013 (pro forma) | |||||||
|---|---|---|---|---|---|---|---|
| Hedged item | Hedging instrument | ||||||
| Nominal | Value net | Fair value | Book | Nominal | Fair | ||
| value | of impairment | adjustments | value | Value | Value | ||
| Fair value hedges | |||||||
| Loans and advances to customers | 38,085 | 38,323 | 4,200 | 42,523 | 38,086 | (4,477) | |
| Available-for-sale financial assets | 2,075,000 | 2,118,830 | 225,613 | 2,344,443 | 2,075,000 | (267,880) | |
| Resources of customers and other debts | (3,576,534) | (3,625,401) | 3,986 | (3,621,415) | 3,579,439 | 33,602 | |
| Debt securities | (1,341,104) | (1,357,461) | 30,862 | (1,326,599) | 1,449,525 | (23,554) | |
| Cash flow hedges |
|||||||
| Loans and advances to customers | 4,492,042 | 4,492,042 | - | 4,492,042 | 5,450,000 | 80,640 | |
| Debt securities | 1,141,190 | 1,141,190 | - | 1,141,190 | 650,000 | 10,412 | |
| 2,828,679 | 2,807,523 | 264,661 | 3,072,184 | 13,242,050 | (171,257) |
The expected periods for the occurrence of the cash flows that will affect the profit or loss of the year are as follows:
| 2014 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Up to 3 months |
From 3 months to 6 months |
From 6 months to 1 year |
From 1 to 3 years |
Over 3 years |
Total | |||
| Interest rate swaps | 27,459 | 9,076 | 9,644 | 24,358 | (14,266) | 56,271 | ||
| 2013 (pro forma) | ||||||||
| 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 | 40,959 | 8,125 | 6,861 | 48,869 | (13,762) | 91,052 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The gains and losses recognised in the income statement for the years ended December 31, 2014 and 2013, arising from fair value hedging operations, were as follows:
| 2014 | 2013 (pro forma) | ||||||
|---|---|---|---|---|---|---|---|
| Hedged item |
Hedging instrument |
Net | Hedged item |
Hedging instrument |
Net | ||
| Loans and advances to customers | (71) | 71 | - | (1,738) | 1,738 | - | |
| Available-for-sale financial assets | (188,189) | 188,189 | - | (95,965) | 95,965 | - | |
| Resources of customers and other debts | (1,718) | 3,781 | 2,063 | 49,207 | (29,353) | 19,854 | |
| Debt securities | 9,549 | (11,463) | (1,914) | 11,803 | (31,966) | (20,163) | |
| (180,429) | 180,578 | 149 | (36,693) | 36,384 | (309) |
At December 31, 2014 and 2013, financial instruments were made up as follows:
| 2014 | 2013 (pro forma) | |||||
|---|---|---|---|---|---|---|
| Valued at | Not valued at | Valued at | Not valued at | |||
| fair value | fair value | Total | fair value | fair value | Total | |
| Assets | ||||||
| Cash and deposits at central banks | - | 830,474 | 830,474 | - | 337,841 | 337,841 |
| Balances due from other banks | - | 241,218 | 241,218 | - | 552,921 | 552,921 |
| Financial assets held for trading | 2,291,734 | - | 2,291,734 | 1,949,115 | - | 1,949,115 |
| Available-for-sale financial assets | 6,699,547 | 13,008 | 6,712,555 | 4,368,744 | 13,509 | 4,382,253 |
| Loans and advances to credit instituions | - | 1,220,917 | 1,220,917 | - | 3,270,970 | 3,270,970 |
| Loans and advances to customers | 37,354 | 25,485,897 | 25,523,251 | 42,523 | 26,064,998 | 26,107,521 |
| Hedging derivatives | 195,035 | - | 195,035 | 199,427 | - | 199,427 |
| 9,223,670 | 27,791,514 | 37,015,184 | 6,559,809 | 30,240,239 | 36,800,048 | |
| Liabilities | ||||||
| - | 4,406,312 | 4,406,312 | - | 6,241,410 | 6,241,410 | |
| Resources of central banks | 1,995,019 | - | 1,995,019 | 1,619,768 | - | 1,619,768 |
| Financial liabilities held for trading | - | 4,030,724 | 4,030,724 | - | 4,175,058 | 4,175,058 |
| Resources of other credit institutions | 3,555,668 | 18,070,234 | 21,625,902 | 3,621,415 | 17,085,586 | 20,707,001 |
| Resources of customers and other debts | 175,460 | 2,797,651 | 2,973,111 | 1,326,599 | 1,207,562 | 2,534,161 |
| Debt securities | 133,690 | - | 133,690 | 370,684 | - | 370,684 |
| Hedging derivatives | - | 4,306 | 4,306 | - | 4,307 | 4,307 |
| Subordinated liabilities | 5,859,837 | 29,309,227 | 35,169,064 | 6,938,466 | 28,713,923 | 35,652,389 |
The financial assets and liabilities for 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 adjustment.
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, 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:
| 2014 | ||||||
|---|---|---|---|---|---|---|
| Value adjustments | Net | |||||
| Acquisition | due to hedging | book | ||||
| cost | Accruals | Valuation | operations | Impairment | value | |
| Assets | ||||||
| Financial assets held for trading | 320,347 | 1,093 | 1,970,294 | - | - | 2,291,734 |
| Available-for-sale financial assets | 6,307,851 | 152,340 | 256,913 | 37,423 | (54,980) | 6,699,547 |
| Loans and advances to customers | 32,887 | 261 | - | 4,246 | (40) | 37,354 |
| Hedging derivatives | - | - | 195,035 | - | - | 195,035 |
| 6,661,085 | 153,694 | 2,422,242 | 41,669 | (55,020) | 9,223,670 | |
| Liabilities | ||||||
| Financial liabilities held for trading | - | - | 1,995,019 | - | - | 1,995,019 |
| Resources of customers and other debts | 3,508,013 | 49,722 | - | (2,067) | - | 3,555,668 |
| Debt securities | 167,375 | 6,324 | - | 1,761 | - | 175,460 |
| Hedging derivatives | - | - | 133,690 | - | - | 133,690 |
| 3,675,388 | 56,046 | 2,128,709 | (306) | - | 5,859,837 | |
| 2013 (pro forma) | ||||||
| Acquisition | Value adjustments due to hedging |
Net book |
||||
| cost | Accruals | Valuation | operations | Impairment | value | |
| Assets | ||||||
| Financial assets held for trading | 355,921 | 1,650 | 1,591,544 | - | - | 1,949,115 |
| Available-for-sale financial assets | 4,369,692 | 61,522 | (233,773) | 225,613 | (54,310) | 4,368,744 |
| Loans and advances to customers | 38,085 | 324 | - | 4,200 | (86) | 42,523 |
| Hedging derivatives | - | - | 199,427 | - | - | 199,427 |
| 4,763,698 | 63,496 | 1,557,198 | 229,813 | (54,396) | 6,559,809 | |
| Liabilities | ||||||
| Financial liabilities held for trading | - | - | 1,619,768 | - | - | 1,619,768 |
| Resources of customers and other debts | 3,576,534 | 48,867 | - | (3,986) | - | 3,621,415 |
| Debt securities | 1,340,822 | 16,639 | - | (30,862) | - | 1,326,599 |
| Hedging derivatives | - | - | 370,684 | - | - | 370,684 |
| 4,917,356 | 65,506 | 1,990,452 | (34,848) | - | 6,938,466 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The methods used to determine fair value for the financial instruments were based on listed prices on active markets or other valuation techniques, such as discounted cash flows. At December 31, 2014 and 2013, 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:
| 2014 | |||||||
|---|---|---|---|---|---|---|---|
| Methodology of determining fair value | |||||||
| Listed in | Other valuation | ||||||
| active markets | techniques | ||||||
| (Level 1) | (Level 2) | (Level 3) | Total | ||||
| Assets | |||||||
| Financial assets held for trading | 304,871 | 1,761,896 | 224,967 | 2,291,734 | |||
| Available-for-sale financial assets | 6,130,956 | 320,079 | 248,512 | 6,699,547 | |||
| Loans and advances to customers | - | 37,354 | - | 37,354 | |||
| Hedging derivatives | - | 195,035 | - | 195,035 | |||
| 6,435,827 | 2,314,364 | 473,479 | 9,223,670 | ||||
| Liabilities | |||||||
| Financial liabilities held for trading | - | 1,995,019 | - | 1,995,019 | |||
| Resources of customers and other debts | - | 3,555,668 | - | 3,555,668 | |||
| Debt securities | - | 175,460 | - | 175,460 | |||
| Hedging derivatives | - | 133,690 | - | 133,690 | |||
| - | 5,859,837 | - | 5,859,837 | ||||
| 2013 (pro forma) | |||||||
| Methodology of determining fair value | |||||||
| Listed in | Other valuation | ||||||
| active markets | techniques | ||||||
| (Level 1) | (Level 2) | (Level 3) | Total | ||||
| Assets | |||||||
| Financial assets held for trading | 267,025 | 1,540,019 | 142,071 | 1,949,115 | |||
| Available-for-sale financial assets | 3,417,440 | 686,315 | 264,989 | 4,368,744 | |||
| Loans and advances to customers | - | 42,523 | - | 42,523 | |||
| Hedging derivatives | - | 199,427 | - | 199,427 | |||
| 3,684,465 | 2,468,284 | 407,060 | 6,559,809 | ||||
| Liabilities | |||||||
| Financial liabilities held for trading | - | 1,619,768 | - | 1,619,768 | |||
| Resources of customers and other debts | - | 3,621,415 | - | 3,621,415 | |||
| Debt securities | - | 1,326,599 | - | 1,326,599 | |||
| Hedging derivatives | - | 370,684 | - | 370,684 | |||
| - | 6,938,466 | - | 6,938,466 | ||||
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
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 |
| Currency options | Black-Scholes model, Monte Carlo model |
| Equity 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 |
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 its derivative financial instruments in Level 2. When such valuation resulted from internal information prepared by the Bank, those financial instruments were classified in Level 3.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
In 2014 and 2013, the changes in financial instruments classified in the column "Level 3" were as follows:
| Financial assets held for trading |
Available for sale |
||||
|---|---|---|---|---|---|
| Securities | Derivatives | financial assets | Total | ||
| Financial instruments classified as Level 3 as of December 31, 2012 | - | - | 40,023 | 40,023 | |
| Entries in the consolidation perimeter ("Multiobrigações Fund") | 32,802 | - | - | 32,802 | |
| Acquisitions | 3,886 | - | 13,807 | 17,693 | |
| Sales | - | - | (694) | (694) | |
| Reclassifications | - | 106,119 | 239,561 | 345,680 | |
| Changes in fair value | (736) | - | (21,190) | (21,926) | |
| Impairment recognized in the year | - | - | (6,518) | (6,518) | |
| Financial instruments classified as Level 3 as of December 31, 2013 (pro forma) | 35,952 | 106,119 | 264,989 | 407,060 | |
| Acquisitions | 719 | 47,258 | 12,502 | 60,479 | |
| Sales | (32,802) | (29,492) | (36,002) | (98,296) | |
| Changes in fair value | (199) | 97,412 | 14,760 | 111,973 | |
| Impairment recognized in the year | - | - | (7,737) | (7,737) | |
| Financial instruments classified as Level 3 as of December 31, 2014 | 3,670 | 221,297 | 248,512 | 473,479 |
The reclassifications occurred in 2013 to Level 3 can be explained as follows:
At December 31, 2014 and 2013, the valuation techniques, the inputs used and the relationship between those inputs and the fair value determined for financial instruments classified in Level 3 were as follows:
| Financial instruments Valuation techniques |
Inputs used |
Relationship between the inputs used and the fair value determined |
|
|---|---|---|---|
| Financial assets held for trading | |||
| Debt securities | Price provided by the counterparty | . No information | Not applicable. |
| Participating units in Real Estate Funds |
Price disclosed by the respective Management Company . Yields | . Rents per square meter . Occupancy rates |
If an increase of the rent per square meter occurs or an increase in the occupancy rate or a decrease in the yield occurs, the fair value determined will increase. If a decrease in the amount of the rent per square meter occurs or a decrease of the occupancy rate or an increase of the yield occurs, the fair value determined will decrease. |
| Derivative financial instruments | Discounted cash flows/ Valuation models | . Probability of default (PD) taking into consideration internal credit ratings assigned by the Bank . Specific LGD's |
If a higher probability of default or a higher LGD is used, the fair value of the financial instrument will decrease. On the other hand, if a lower probability of default or a lower LGD is used, the fair value of the financial instrument will increase. |
| Available-for-sale financial assets | |||
| Debt securities | Discounted cash flows | . Credit spread calculated internally by the Bank |
If a higher credit spread is used, the fair value of the security will decrease. On the other hand, if a lower credit spread is used, the fair value of the security will increase. |
| Participating units in real estate funds |
Price disclosed by the respective Management Company . Yields | . Rents per square meter . Occupancy rates |
If an increase of the rent per square meter occurs or an increase in the occupancy rate or a decrease in the yield occurs, the fair value determined will increase. If a decrease in the amount of the rent per square meter occurs or a decrease of the occupancy rate or an increase of the yield occurs, the fair value determined will decrease. |
| Participating units in Venture Capital Funds |
Price disclosed by the respective Management Company . No information | Not applicable. |
The most representative interest rate curves used by maturity and currency were the following:
| 31-12-2014 | 31-12-2013 | ||||
|---|---|---|---|---|---|
| EUR | USD | EUR | USD | ||
| Overnight | 0.02% | 0.22% | 0.28% | 0.31% | |
| 1 month | 0.10% | 0.23% | 0.44% | 0.25% | |
| 3 months | 0.17% | 0.26% | 0.39% | 0.25% | |
| 6 months | 0.17% | 0.29% | 0.38% | 0.27% | |
| 9 months | 0.16% | 0.35% | 0.39% | 0.29% | |
| 1 year | 0.16% | 0.44% | 0.40% | 0.31% | |
| 3 years | 0.22% | 1.29% | 0.74% | 0.86% | |
| 5 years | 0.36% | 1.80% | 1.26% | 1.80% | |
| 7 years | 0.53% | 2.09% | 1.70% | 2.51% | |
| 10 years | 0.82% | 2.34% | 2.21% | 3.18% | |
At December 31, 2014 and 2013, the book value and the fair value of the financial instruments valued at amortised cost or historical cost was as follows:
| 2014 | |||
|---|---|---|---|
| Book | Fair | ||
| value | value | Difference | |
| Assets | |||
| Cash and deposits at central banks | 830,474 | 830,474 | - |
| Balances due from other banks | 241,218 | 241,218 | - |
| Available-for-sale financial assets | 13,008 | 13,008 | - |
| Loans and advances to credit institutions | 1,220,917 | 1,273,301 | 52,384 |
| Loans and advances to customers | 25,485,897 | 23,639,357 | (1,846,540) |
| 27,791,514 | 25,997,358 | (1,794,156) | |
| Liabilities | |||
| Resources of central banks | 4,406,312 | 4,403,630 | 2,682 |
| Resources of other credit institutions | 4,030,724 | 4,009,901 | 20,823 |
| Resources of customers and other debts | 18,070,234 | 18,203,397 | (133,163) |
| Debt securities | 2,797,651 | 2,768,244 | 29,407 |
| Subordinated liabilities | 4,306 | 4,306 | - |
| 29,309,227 | 29,389,478 | (80,251) | |
| 2013 (pro forma) | |||
| Book | Fair | ||
| value | value | Difference | |
| Assets | |||
| Cash and deposits at central banks | 337,841 | 337,841 | - |
| Balances due from other banks | 552,921 | 552,921 | - |
| Available-for-sale financial assets | 13,509 | 13,509 | - |
| Loans and advances to credit institutions | 3,270,970 | 3,358,931 | 87,961 |
| Loans and advances to customers | 26,064,998 | 23,114,032 | (2,950,966) |
| 30,240,239 | 27,377,234 | (2,863,005) | |
| Liabilities | |||
| Resources of central banks | 6,241,410 | 6,122,608 | 118,802 |
| Resources of other credit institutions | 4,175,058 | 4,197,975 | (22,917) |
| Resources of customers and other debts | 17,085,586 | 17,230,163 | (144,577) |
| Debt securities | 1,207,562 | 920,474 | 287,088 |
| Subordinated liabilities | 4,307 | 4,301 | 6 |
| 28,713,923 | 28,475,521 | 238,402 |
(Translation of notes originally issued in Portuguese – Note 53)
(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 December 31, 2014 and 2013, the financial instruments recorded at amortized cost or historical cost presented the following detail by valuation methodology:
| 2014 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Methodology for determining fair value | ||||||||
| Listed in | Other valuation | |||||||
| active markets | techniques | |||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||
| Assets | ||||||||
| Cash and deposits at central banks | - | 830,474 | - | 830,474 | ||||
| Balances due from other banks | - | 241,218 | - | 241,218 | ||||
| Available-for-sale financial assets | - | - | 13,008 | 13,008 | ||||
| Loans and advances to credit institutions | - | 1,220,917 | - | 1,220,917 | ||||
| Loans and advances to customers | - | - | 25,485,897 | 25,485,897 | ||||
| - | 2,292,609 | 25,498,905 | 27,791,514 | |||||
| Liabilities | ||||||||
| Resources of central banks | - | 4,406,312 | - | 4,406,312 | ||||
| Resources of other credit institutions | - | 4,030,724 | - | 4,030,724 | ||||
| Resources of customers and other debts | - | - | 18,070,234 | 18,070,234 | ||||
| Debt securities | - | - | 2,797,651 | 2,797,651 | ||||
| Subordinated liabilities | - | - | 4,306 | 4,306 | ||||
| - | 8,437,036 | 20,872,191 | 29,309,227 | |||||
| 2013 (pro forma) | ||||||||
| Listed in | Other valuation | |||||||
| active markets | techniques | |||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||
| Assets | ||||||||
| Cash and deposits at central banks | - | 337,841 | - | 337,841 | ||||
| Balances due from other banks | - | 552,921 | - | 552,921 | ||||
| Available-for-sale financial assets | - | - | 13,509 | 13,509 | ||||
| Loans and advances to credit institutions | - | 3,270,970 | - | 3,270,970 | ||||
| Loans and advances to customers | - | - | 26,064,998 | 26,064,998 | ||||
| - | 4,161,732 | 26,078,507 | 30,240,239 | |||||
| Liabilities | ||||||||
| Resources of central banks | - | 6,241,410 | - | 6,241,410 | ||||
| Resources of other credit institutions | - | 4,175,058 | - | 4,175,058 | ||||
| Resources of customers and other debts | - | - | 17,085,586 | 17,085,586 | ||||
| Debt securities | - | - | 1,207,562 | 1,207,562 | ||||
| Subordinated liabilities | - | - | 4,307 | 4,307 | ||||
| - | 10,416,468 | 18,297,455 | 28,713,923 | |||||
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The main assumptions used in the calculation of fair value, by type of financial instrument, were as follows:
Credit risk management by the Bank includes identification, measurement, integration and evaluation of different credit risk exposures and analysis of return in relation to risk, on an overall basis, as well as for each area of activity.
Credit risk management is provided by an independent area, the Group Risk Area, which is responsible for managing the special client vigilance system, the credit risk segmentation based on the characteristics of customers and products and for the scoring and rating systems (applicable to mortgage loans, consumer credit and credit cards) used by the Bank.
Counterparty risk consists in the potential credit risk on transactions in financial markets, corresponding to the possibility of non-compliance by the counterparty with the contracted terms and 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 with certain customer segments, a perimeter control is defined in accordance with the segments involved.
Control of 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 that the concentration of risk by groups of customers/counterparties to be controlled on a transversal basis (at several levels).
Derivative position risk (known as Equivalent Credit Risk) is determined as the sum of the present value of each contract (or present cost of substitution) 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 contracted cash flow structure.
For specific customer segments (namely global corporate customers) the Bank has implemented credit limits that consider economic capital, incorporating variables relating to the credit quality of each counterparty in the quantitative control.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, the maximum exposure to credit risk and the corresponding book value of the financial instruments were as follows:
| 2014 | 2013 (pro forma) | |||
|---|---|---|---|---|
| Book | Maximum | Book | Maximum | |
| value | exposure | value | exposure | |
| Cash and deposits at central banks | 830,474 | 830,474 | 337,841 | 337,841 |
| Balances due from other banks | 241,218 | 241,218 | 552,921 | 552,921 |
| Financial assets held for trading | 2,291,734 | 2,291,734 | 1,949,115 | 1,949,115 |
| Available-for-sale financial assets | 6,712,555 | 6,712,555 | 4,382,253 | 4,382,253 |
| Loans and advances to credit institutions | 1,220,917 | 1,220,917 | 3,270,970 | 3,270,970 |
| Loans and advances to customers | 25,523,251 | 30,146,120 | 26,107,521 | 30,967,721 |
| Hedging derivatives | 195,035 | 195,035 | 199,427 | 199,427 |
| 37,015,184 | 41,638,053 | 36,800,048 | 41,660,248 | |
| Guarantees given and open documentary credits (Note 29) | 1,300,545 | 1,300,545 | 1,384,781 | 1,384,781 |
The maximum exposure in "Loans and advances to customers" at December 31, 2014 includes tEuros 417,809 and tEuros 4,205,060 relating to irrevocable credit lines and revocable credit lines, respectively (tEuros 652,278 and tEuros 4,207,922 at December 31, 2013, respectively).
The Bank monthly reviews loans and advances to customers and other receivables in order to identify evidence of impairment. For the purpose of 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 Bank of Portugal, in February 26, 2014, the Bank presents the following information reported to December 31, 2014:
| Exposure at 31-12-2014 | Impairment at 31-12-2014 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Segment | Total Exposure |
Performing loans |
of which cured credit |
of which restructured |
Non-performing loans |
of which restructured |
Total Impairment |
Performing loans |
Non-performing loans |
||
| Corporate | 7,564,464 | 7,200,093 | 3,429 | 229,547 | 364,371 | 194,706 | (282,266) | (75,813) | (206,453) | ||
| Building and CRE | 3,036,506 | 2,553,175 | 14 | 357,260 | 483,331 | 232,453 | (351,994) | (54,868) | (297,126) | ||
| Mortgage | 14,950,326 | 14,491,944 | 2,025 | 993,184 | 458,382 | 166,322 | (301,645) | (106,856) | (194,789) | ||
| Retail | 1,890,535 | 1,666,376 | 319 | 221,511 | 224,159 | 125,367 | (236,011) | (34,014) | (201,997) | ||
| Guarantees not included | |||||||||||
| in other segments | 988,087 | 988,087 | - | - | - | - | (1,256) | (706) | (550) | ||
| 28,429,918 | 26,899,675 | 5,787 | 1,801,502 | 1,530,243 | 718,848 | (1,173,172) | (272,257) | (900,915) |
Reconciliation between the maximum credit exposure referred to in the table above and the total exposure presented previously is as follows:
| Maximum exposure to credit risk | 30,146,120 |
|---|---|
| Commitments on credit lines revocable | ( 4,205,060 ) |
| Guarantees given and other contingent liabilities – guarantees and sureties | 1,084,029 |
| Guarantees given and other contingent liabilities – documentary credits | 216,516 |
| Impairment losses | 1,161,618 |
| Deferred expenses | ( 69,414 ) |
| Commissions related to deferred cost (net) | 100,355 |
| Value adjustments of hedged assets | ( 4,246 ) |
| Total credit exposure | -------------- 28,429,918 |
| ======== | |
| The detail of total impairment is as follows: | |
| Impairment of loans to customers (Note 10) | ( 1,161,618 ) |
| Provisions and impairment for guarantees and commitments (Note 22) | ( 11,554 ) |
| ------------- ( 1,173,172 ) |
|
| ======= |
The aging of the credit exposure and its impairment losses is as follows:
| Total exposure at 31-12-2014 | |||||||
|---|---|---|---|---|---|---|---|
| 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 | 7,564,464 | 7,154,113 | 45,980 | - | 364,371 | ||
| Building and CRE | 3,036,506 | 2,504,283 | 48,892 | - | 483,331 | ||
| Mortgage | 14,950,326 | 14,336,868 | 155,076 | - | 458,382 | ||
| Retail | 1,890,535 | 1,637,097 | 29,279 | - | 224,159 | ||
| Guarantees | 988,087 | 988,087 | - | - | - | ||
| 28,429,918 | 26,620,448 | 279,227 | - | 1,530,243 | |||
| Impairment | |||||||
| Corporate | (282,266) | (60,175) | (15,638) | - | (206,453) | ||
| Building and CRE | (351,994) | (49,173) | (5,695) | - | (297,126) | ||
| Mortgage | (301,645) | (34,706) | (72,150) | - | (194,789) | ||
| Retail | (236,011) | (18,257) | (15,757) | - | (201,997) | ||
| Guarantees | (1,256) | (706) | - | - | (550) | ||
| (1,173,172) | (163,017) | (109,240) | - | (900,915) | |||
| 27,256,746 | 26,457,431 | 169,987 | - | 629,328 |
The credit exposure and its impairment losses by year of production is as follows:
| Guarantees not included in other | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Corporate | Building and CRE | Mortgage | Retail | segments | |||||||||||
| Year of origination |
Number of operations |
Amount | Allocated Number of impairment operations |
Amount | Allocated Number of impairment operations |
Amount | Allocated Number of impairment operations |
Amount | Allocated Number of impairment operations Amount |
Allocated impairment |
|||||
| up to 2004 | 2,832 | 206,965 | (5,097) | 3,734 | 157,453 | (8,670) | 127,884 | 4,385,491 | (98,462) | 114,634 | 132,074 | (4,731) | 1,961 | 140,372 | (190) |
| 2005 | 1,147 | 74,882 | (5,106) | 888 | 94,858 | (8,212) | 26,270 | 1,351,318 | (29,167) | 18,124 | 25,569 | (794) | 189 | 18,798 | (23) |
| 2006 | 1,178 | 90,316 | (5,580) | 1,078 | 95,410 | (12,595) | 27,245 | 1,595,630 | (34,632) | 18,473 | 30,277 | (1,531) | 213 | 23,179 | (111) |
| 2007 | 1,801 | 130,537 | (7,960) | 1,604 | 147,108 | (21,325) | 36,880 | 2,201,465 | (52,906) | 27,504 | 55,737 | (3,992) | 226 | 63,910 | (26) |
| 2008 | 2,238 | 209,194 | (14,057) | 2,172 | 195,682 | (26,234) | 27,030 | 1,614,876 | (43,611) | 30,947 | 61,985 | (7,693) | 505 | 70,806 | (68) |
| 2009 | 2,941 | 255,713 | (24,413) | 2,483 | 194,248 | (36,357) | 17,792 | 1,126,442 | (19,776) | 29,001 | 70,789 | (15,587) | 508 | 35,397 | (98) |
| 2010 | 5,634 | 366,789 | (35,851) | 3,320 | 272,111 | (46,129) | 15,898 | 1,161,120 | (12,140) | 54,716 | 151,913 | (32,989) | 542 | 77,830 | (157) |
| 2011 | 7,972 | 360,604 | (42,976) | 3,873 | 320,765 | (56,232) | 7,720 | 511,073 | (6,263) | 68,483 | 195,891 | (52,903) | 572 | 45,255 | (476) |
| 2012 | 8,419 | 489,537 | (53,745) | 3,819 | 426,386 | (79,051) | 4,995 | 329,726 | (2,770) | 81,923 | 269,566 | (57,378) | 619 | 47,430 | (11) |
| 2013 | 10,542 | 763,572 | (52,601) | 3,448 | 308,230 | (37,974) | 4,010 | 300,413 | (1,138) | 90,847 | 407,421 | (37,808) | 893 | 155,723 | (39) |
| 2014 | 118,482 4,616,355 | (34,880) | 18,097 | 824,255 | (19,215) | 4,576 | 372,772 | (780) | 78,564 | 489,313 | (20,605) | 2,127 | 309,387 | (57) | |
| 163,186 7,564,464 | (282,266) | 44,516 3,036,506 | (351,994) | 300,300 | 14,950,326 | (301,645) | 613,216 | 1,890,535 | (236,011) | 8,355 | 988,087 | (1,256) |
At December 31, 2014, the impairment losses estimated individually and through the statistical model of collective analysis, by segment, were as follows:
| Exposure | Impairment | |||||||
|---|---|---|---|---|---|---|---|---|
| Individual | Collective | Total | Individual | Collective | Total | |||
| Corporate | 350,672 | 7,213,792 | 7,564,464 | (113,681) | (168,585) | (282,266) | ||
| Building and CRE | 924,918 | 2,111,588 | 3,036,506 | (276,135) | (75,859) | (351,994) | ||
| Mortgage | - | 14,950,326 | 14,950,326 | - | (301,645) | (301,645) | ||
| Retail | - | 1,890,535 | 1,890,535 | - | (236,011) | (236,011) | ||
| Guarantees not included | ||||||||
| in other segments | 9,744 | 978,343 | 988,087 | (1,034) | (222) | (1,256) | ||
| 1,285,334 | 27,144,584 | 28,429,918 | (390,850) | (782,322) | (1,173,172) |
At December 31, 2014, the credit risk analysed individually and through the statistical model of collective analysis, had the following composition by sector, for the "Corporate" and "Building and CRE" segments:
| Exposure | Impairment | |||||
|---|---|---|---|---|---|---|
| Individual | Collective | Total | Individual | Collective | Total | |
| Insurance and financial activities | 60,470 | 1,770,414 | 1,830,884 | (23,388) | (10,571) | (33,959) |
| Scientific, technical and similar consultancy activities | 30,093 | 168,710 | 198,803 | (8,135) | (6,964) | (15,099) |
| Human health and social support activities | 9,684 | 146,274 | 155,958 | (2,617) | (3,797) | (6,414) |
| Extraterritorial organizations and other international institutions activities | - | 24,538 | 24,538 | - | (236) | (236) |
| Manufacturing industries | 58,352 | 1,487,066 | 1,545,418 | (16,760) | (43,626) | (60,386) |
| Collection, purification and distribution of water, sanitation, | ||||||
| waste management and depollution activities | 516 | 82,716 | 83,232 | (10) | (1,044) | (1,054) |
| Construction | 684,308 | 1,309,813 | 1,994,121 | (212,921) | (47,675) | (260,596) |
| Real Estate | 227,852 | 422,896 | 650,748 | (58,192) | (10,587) | (68,779) |
| Education | 1,000 | 29,355 | 30,355 | (650) | (956) | (1,606) |
| Other service activities | 17,916 | 54,099 | 72,015 | (1,473) | (1,765) | (3,238) |
| Transport and storage | 6,009 | 221,922 | 227,931 | (1,398) | (10,175) | (11,573) |
| Art, entertainment, recreation and sports activities | 9,387 | 19,727 | 29,114 | (939) | (1,475) | (2,414) |
| Agriculture, Livestock, Hunting, Forestry and Fishing | 3,775 | 78,867 | 82,642 | (1,139) | (2,699) | (3,838) |
| Wholesale and retail trade | 104,259 | 1,497,295 | 1,601,554 | (38,061) | (78,585) | (116,646) |
| Administrative and support activities | 17,230 | 186,298 | 203,528 | (12,125) | (6,388) | (18,513) |
| Information and communication activities | 783 | 173,332 | 174,115 | (267) | (4,056) | (4,323) |
| Electricity, gas and water | (20,778) | 730,329 | 709,551 | - | (1,590) | (1,590) |
| Hotels, restaurants and similar | 63,968 | 300,756 | 364,724 | (11,592) | (10,938) | (22,530) |
| Extractive industries | 613 | 16,019 | 16,632 | (5) | (1,089) | (1,094) |
| Public administration, defense and social security | - | 604,787 | 604,787 | - | (71) | (71) |
| Others | 153 | 167 | 320 | (144) | (157) | (301) |
| 1,275,590 | 9,325,380 | 10,600,970 | (389,816) | (244,444) | (634,260) |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014, the credit risk analysed individually and through the statistical model of collective analysis had the following composition by geography:
| Portugal | England | |||||
|---|---|---|---|---|---|---|
| Exposure | Impairment | Exposure | Impairment | |||
| Individual | 1,285,334 | (390,850) | - | - | ||
| Collective | 26,345,957 | (755,931) | 798,627 | (26,391) | ||
| 27,631,291 | (1,146,781) | 798,627 | (26,391) |
The risk analysis for customers or economic groups where the Bank has an exposure higher than 500,000 Euros are made by risk analysts that follow those customers and are supported by an internally developed rating model approved by the regulators. The risk level inherent to the customer is implied in the allocation of internal rating levels, which can go from 1 to 9, and the probability of default in a one year that the Bank monitors and calibrates in a constant and in a regular way. The rating is determined based on an analysis of the following parameters:
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% | ||
| Owners/Management | 15% | 15% | ||
| Access to credit | 10% | 10% | ||
| Profitability | 15% | |||
| Generation of funds | 25% | 55% | ||
| Solvency | 15% |
The rating is calculated by analysts, based on information supplied by the customer, general information on the business sector and external databases. The final rating, by each weighting parameter, is subsequently introduced into the Bank's IT system.
In general terms, the Bank's internal rating classification may be described in the following manner:
Rating 1 – 3: Customer with high credit risk; Rating 4 – 6: Customer with moderate credit risk; Rating 7 – 9: Customer with low credit risk.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014, the loans portfolio of the Bank presents the following segmentation by internal rating:
| Risk Level | ||||||
|---|---|---|---|---|---|---|
| High | Medium | Low | Without rating | Total | ||
| Corporate | 247,552 | 4,280,905 | 1,351,484 | 1,684,523 | 7,564,464 | |
| Building and CRE | 482,922 | 1,853,631 | 107,463 | 592,490 | 3,036,506 | |
| Mortgage | 2,183,434 | 1,437,204 | 10,318,509 | 1,011,179 | 14,950,326 | |
| Retail | 363,638 | 297,380 | 897,056 | 332,461 | 1,890,535 | |
| Guarantees not included | ||||||
| in other segments | 9,940 | 656,948 | 213,721 | 107,478 | 988,087 | |
| 3,287,486 | 8,526,068 | 12,888,233 | 3,728,131 | 28,429,918 |
At December 31, 2014 and 2013, the book value of executed guarantees and other collaterals relating to credit operations granted amounted to tEuros 263,017 and tEuros 271,850, respectively, and present the following detail:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Non-current assets held for sale (Note 12): | ||
| . Properties received as settlement of defaulting loans | 271,204 | 268,035 |
| . Participating units | 18,663 | 18,663 |
| . Equipment | 3,464 | 4,021 |
| Investment properties (Note 13) | 19,000 | 18,191 |
| Other assets received as settlement of defaulting loans (Note 17) | 65,440 | 72,477 |
| Available-for-sale financial assets | 22,121 | 22,121 |
| 399,892 | 403,508 | |
| Impairment of non-current assets held for sale (Note 12): | ||
| . Properties received as settlement of defaulting loans | (92,406) | (87,677) |
| . Participating units | (4,000) | (4,000) |
| . Equipment | (2,499) | (2,927) |
| Impairment of other assets received as settlement of defaulting loans (Note 17) | (15,849) | (14,933) |
| Impairment of available-for-sale financial assets | (22,121) | (22,121) |
| (136,875) | (131,658) | |
| 263,017 | 271,850 |
The detail of the fair value and the net book value of property received as settlement of defaulting loans, by type of asset, is as follows:
| 2014 | |||
|---|---|---|---|
| Asset | Items of real estate property |
Asset's fair value (*) |
Book value |
| Land | |||
| Urban | 129 | 23,623 | 19,005 |
| Rural | 78 | 10,523 | 8,288 |
| Buildings | |||
| Commercial | 449 | 52,937 | 44,856 |
| Residencial | 1,571 | 126,560 | 96,547 |
| Others | 32 | 8,931 | 6,112 |
| Others | 14 | 5,097 | 3,990 |
| 2,273 | 227,671 | 178,798 |
* does not include costs to sell and estimated historic loss on disposal of such assets
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The detail of the net book value of property received as settlement of defaulting loans, by aging, is as follows:
| 2014 | |||||
|---|---|---|---|---|---|
| Asset | From 1 year | From 2,5 years | |||
| Up to 1 year | to 2,5 years | to 5 years | Over 5 years | Total | |
| Land | |||||
| Urban | 214 | 2,769 | 15,166 | 856 | 19,005 |
| Rural | 90 | 6,540 | 722 | 936 | 8,288 |
| Buildings | |||||
| Commercial | 5,649 | 31,427 | 4,531 | 3,249 | 44,856 |
| Residencial | 34,000 | 41,304 | 17,022 | 4,221 | 96,547 |
| Others | - | 2,533 | 2,994 | 585 | 6,112 |
| Others | 1,368 | 2,576 | 46 | - | 3,990 |
| 41,321 | 87,149 | 40,481 | 9,847 | 178,798 |
At December 31, 2014 and 2013, the restructured credit operations were identified in accordance with the Instruction nº 32/2013 of Bank of Portugal (which replaced the Instruction nº 18/2012) which established the definition of restructured credit due to client's financial difficulties.
According to the referred Instruction, the institutions shall identify and mark in their information systems credit operations of clients with a difficult financial situation whenever there are changes to the terms and conditions of those operations (namely, postponement of the reimbursement deadline, introduction of grace periods, capitalized interest, reduction in interest rates, forgiveness of interest or principal) or the institution enters into new credit lines for settling (totally or partially) the existing debt service, in which cases the institutions should include the reference "restructured credit by financial difficulties of the client."
A client is considered to be in a difficult financial position whenever he has failed to fulfil any of its financial obligations to the institution or if it is predictable, given the information available, that such situation will occur.
Unmarking restructured credit by financial difficulties of the client 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.
The movement occurred in the restructured credit operations during 2014 was as follows:
| 31-12-2014 | |
|---|---|
| Opening balance of the restructured portfolio (gross of impairment) | 2,352,993 |
| Restructured loans in the year | 563,837 |
| Accrued interest of the restructured portfolio | (1,192) |
| Restructured loans settlement (partial or total) | (372,288) |
| Other | (23,000) |
| Closing balance of the restructured portfolio (gross of impairment) | 2,520,350 |
At December 31, 2014, the portfolio of restructured credits by restructuring measure adopted had the following detail:
| 2014 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 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 | 36,117 | 987,824 | 61,542 | 8,751 | 177,463 | 153,884 | 44,868 | 1,165,287 | 215,426 |
| Others | 27,987 | 813,678 | 89,707 | 10,875 | 541,385 | 254,350 | 38,862 | 1,355,063 | 344,057 |
| 64,104 | 1,801,502 | 151,249 | 19,626 | 718,848 | 408,234 | 83,730 | 2,520,350 | 559,483 |
At December 31, 2014, the coverage of overdue loans by collaterals was as follows:
| Exposure | Collaterals | ||||||
|---|---|---|---|---|---|---|---|
| Degree of | Non overdue amount | Overdue | Other | ||||
| coverage | associated with overdue loans | (Note 10) | Total | Mortgages | collaterals | Total | Impairment |
| Companies | |||||||
| >= 100% | 59,188 | 45,087 | 104,275 | 178,573 | 6,122 184,695 | (14,991) | |
| >= 80% and < 100% | 6,987 | 39,536 | 46,523 | 30,990 | 5,425 | 36,415 | (17,781) |
| >= 60% and < 80% | 935 | 39,723 | 40,658 | 23,877 | 1,094 | 24,971 | (18,132) |
| < 60% | 12,692 | 60,534 | 73,226 | 21,079 | 2,175 | 23,254 | (35,305) |
| Without guarantees | 559,152 | 439,216 | 998,368 | - | - | - | (410,965) |
| Mortgage | |||||||
| >= 100% | 303,112 | 2,297 | 305,409 | 578,589 | 732 579,321 | (40,736) | |
| >= 80% and < 100% | 18,908 | 124 | 19,032 | 24,061 | 3 | 24,064 | (6,288) |
| >= 60% and < 80% | 6,213 | 47 | 6,260 | 8,288 | 6 | 8,294 | (5,444) |
| < 60% | 2,772 | 1,526 | 4,298 | 4,062 | 163 | 4,225 | (7,240) |
| Without guarantees | 39,335 | 340,567 | 379,902 | - | - | - | (135,081) |
| Other particular | |||||||
| >= 100% | 2,740 | 5,738 | 8,478 | 8,524 | 4,237 | 12,761 | (5,430) |
| >= 80% and < 100% | 1,576 | 336 | 1,912 | - | 1,836 | 1,836 | (356) |
| >= 60% and < 80% | 850 | 203 | 1,053 | - | 736 | 736 | (291) |
| < 60% | 2,375 | 1,658 | 4,033 | - | 1,130 | 1,130 | (1,862) |
| Without guarantees | 83,465 | 189,646 | 273,111 | - | - | - | (201,013) |
| 1,100,300 1,166,237 2,266,537 | 878,043 | 23,659 901,702 | (900,915) |
At December 31, 2014, the degree of coverage of performing loans, for which impairment was assigned based on an individual analysis, was as follows:
| Degree of | Performing | ||||
|---|---|---|---|---|---|
| coverage | loans | Mortgages | Other collaterals | Total | Impairment |
| >=100% | 202,105 | 381,619 | 2,077 | 383,696 | (23,017) |
| >= 80% and < 100% | 31,924 | 26,250 | 2,559 | 28,809 | (10,704) |
| >= 60% and < 80% | 23,942 | 6,044 | 10,014 | 16,058 | (9,283) |
| < 60% | 10,288 | 347 | 1,862 | 2,209 | (1,321) |
| Without guarantees | 326,136 | - | - | - | (69,025) |
| 594,395 | 414,260 | 16,512 | 430,772 | (113,350) |
It is considered as an encumbered asset, an explicit or implicitly asset given collateral or subject to an agreement to ensure, collateralize or improve credit quality in any operation in which it cannot be freely withdrawn.
According to the requirements defined in Notice nº 28/2014 of January 15, 2015 of the Bank of Portugal, the Bank discloses information regarding encumbered assets.
At December 31, 2014, the detail of the encumbered and unencumbered assets is as follows:
| Carrying amount of encumbered assets |
Fair value of encumbered assets |
Carrying amount of unencumbered assets |
Fair value of unencumbered assets |
|
|---|---|---|---|---|
| Assets | ||||
| Cash and deposits at central banks and | ||||
| balances due from other banks | - | - | 863,678 | - |
| Equity instruments | - | - | 115,896 | 115,896 |
| Debt securities | 5,294,786 | 5,294,786 | 3,719,575 | 3,719,575 |
| Loans and advances to customers | ||||
| and to credit institutions | 10,351,176 | - | 13,978,309 | - |
| Other assets | - | - | 4,536,942 | - |
| 15,645,962 | 5,294,786 | 23,214,400 | 3,835,471 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014, the liabilities associated with encumbered assets and the collaterals received are as follows:
| Associated liabilities, contingent liabilities and securities lent |
Assets, collateral received and own debt securities issued excluding covered bonds or ABS |
|
|---|---|---|
| Carrying amount of financial liabilities | 11,899,212 | 15,645,962 |
| Other | 364,000 | - |
| 12,263,212 | 15,645,962 |
At December 31, 2014 and 2013, the book value of the debt instruments was made up as follows, by external rating, in accordance with the Standard & Poor's rating classification:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| Financial assets held for trading Rating S&P |
||
| AA+ / AA / AA- | 1,257 | 2,098 |
| A+ / A / A- | 103,947 | 53,382 |
| BBB+ / BBB / BBB- | 133,495 | 96,913 |
| BB+ / BB / BB- | 23,741 | 101,171 |
| B+ / B / B- | - | 7,816 |
| Without external rating | 56,781 | 84,690 |
| 319,221 | 346,070 | |
| Available-for-sale financial assets Rating S&P |
||
| AA+ / AA / AA- | - | 7,437 |
| BBB+ / BBB / BBB- | - | 1,068,428 |
| BB+ / BB / BB- | 5,888,016 | 2,450,332 |
| B+ / B / B- | 111,574 | 354,691 |
| Without external rating | 600,088 | 408,814 |
| 6,599,678 | 4,289,702 | |
| 6,918,899 | 4,635,772 | |
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 in the top organization area responsible for Asset and Liability Management (ALM), the Assets and Liabilities Committee (ALCO), which is chaired by the President 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 strategic options.
The following balance sheet risk management limits are defined for the ALM Area:
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The Bank 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 given the credit lines available, the dispersion of the maturities and minimization of funding activity related costs.
Under its liquidity management policy, at December 31, 2014 and 2013 the Bank has a Euro Medium Term Notes (EMTN) program of tEuros 5,000,000, of which tEuros 32,300 and tEuros 141,830 are used, respectively.
It should be noted that the Bank does not analyse the liquidity risk of financial instruments held for trading.
The projected cash flows of the financial instruments (not discounted) at December 31, 2014 and 2013, in accordance with their contractual maturity, were as follows:
| 2014 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 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 | 208,014 | 78 | 238 | 632 | 623,094 | - | - | 832,056 |
| Balances due from other banks | 241,218 | - | - | - | - | - | - | 241,218 |
| Financial assets held for trading | 2,291,734 | - | - | - | - | - | - | 2,291,734 |
| Available-for-sale financial assets | 2 | 87,567 | 417,616 | 855,294 | 2,511,162 | 3,614,804 | 178,095 | 7,664,540 |
| Loans and advances to credit institutions | 80,897 | 54,609 | 613,661 | 477,306 | 2,175 | 49,954 | - | 1,278,602 |
| Loans and advances to customers | 315,350 | 2,204,676 | 3,184,363 | 5,225,099 | 4,068,893 | 14,240,783 | - | 29,239,164 |
| Hedging derivatives | 195,035 | - | - | - | - | - | - | 195,035 |
| Investments in associates | - | - | - | - | - | - | 166,359 | 166,359 |
| 3,332,250 | 2,346,930 | 4,215,878 | 6,558,331 | 7,205,324 | 17,905,541 | 344,454 | 41,908,708 | |
| Liabilities | ||||||||
| Resources of central banks | 3,800,088 | - | - | - | 609,694 | - | - | 4,409,782 |
| Financial liabilities held for trading | 1,995,019 | - | - | - | - | - | - | 1,995,019 |
| Resources of other credit institutions | 224,704 | 2,804,571 | 316,626 | 303,951 | 4,636 | 405,393 | - | 4,059,881 |
| Resources of customers and other debts | 6,219,756 | 2,733,455 | 5,150,978 | 7,533,068 | 430,177 | 95,839 | - | 22,163,273 |
| Debt securities | 1,761 | 87,294 | 154,066 | 1,259,767 | 906,769 | 685,837 | - | 3,095,494 |
| Hedging derivatives | 133,690 | - | - | - | - | - | - | 133,690 |
| Subordinated liabilities | - | - | - | - | - | - | 4,319 | 4,319 |
| 12,375,018 | 5,625,320 | 5,621,670 | 9,096,786 | 1,951,276 | 1,187,069 | 4,319 | 35,861,458 | |
| 2013 (pro forma) | ||||||||
| 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 | 222,107 | 72 | 221 | 588 | 587 | 123,086 | - | 346,661 |
| Balances due from other banks | 552,921 | - | - | - | - | - | - | 552,921 |
| Financial assets held for trading | 1,949,115 | - | - | - | - | - | - | 1,949,115 |
| Available-for-sale financial assets | 2 | 299,222 | 1,106,694 | 532,235 | 1,100,163 | 1,963,112 | 142,567 | 5,143,995 |
| Loans and advances to credit institutions | 1,679,810 | 42,892 | 124,521 | 1,411,556 | 63,308 | 53,578 | - | 3,375,665 |
| Loans and advances to customers | 665,187 | 2,908,286 | 3,989,822 | 4,465,835 | 3,072,981 | 15,022,088 | - | 30,124,199 |
| Hedging derivatives | 199,427 | - | - | - | - | - | - | 199,427 |
| Investments in associates | - | - | - | - | - | - | 147,730 | 147,730 |
| 5,268,569 | 3,250,472 | 5,221,258 | 6,410,214 | 4,237,039 | 17,161,864 | 290,297 | 41,839,713 | |
| Liabilities | ||||||||
| Resources of central banks | 41,410 | 2,200,138 | - | 4,030,742 | - | - | - | 6,272,290 |
| Financial liabilities held for trading | 1,619,768 | - | - | - | - | - | - | 1,619,768 |
| Resources of other credit institutions | 474,345 | 2,869,871 | 86,833 | 575,931 | 5,370 | 206,009 | - | 4,218,359 |
| Resources of customers and other debts | 5,227,653 | 3,018,611 | 5,135,818 | 7,348,145 | 359,500 | 296,950 | - | 21,386,677 |
| Debt securities | (30,862) | 55,762 | 1,228,197 | 348,438 | 188,069 | 812,124 | - | 2,601,728 |
| Hedging derivatives | 370,684 | - | - | - | - | - | - | 370,684 |
| Subordinated liabilities | - | - | - | - | - | - | 4,320 | 4,320 |
| 7,702,998 | 8,144,382 | 6,450,848 | 12,303,256 | 552,939 | 1,315,083 | 4,320 | 36,473,826 |
(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 were determined based on principles and assumptions used by the Bank to manage and control liquidity resulting from its operations, namely the following ones:
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 security prices, precious metals and commodities.
The standard methodology applied for the Bank trading activity is Value at Risk (VaR). Historical simulation with a 99% confidence level and a time horizon of one day is used as the basis being applied statistical adjustments to enable the more recent occurrences that affect the level of risk assumed to be included quickly and effectively. This measure is only used in the Group's treasury management since the Bank uses specific sensitivity measures.
The VaR calculated 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.
In addition, other measures are carried out that enable additional risk control to be maintained. In abnormal market conditions stress testing is carried out. This consists of defining extreme behavioural scenarios with different financial variables, in order to obtain the corresponding potential impact on results. In resume, the analysis of scenarios tries to identify the potential risk in extreme market conditions and scenarios at the limits of probability, not covered by VaR.
In parallel with this, daily positions are also monitored, with an exhaustive control being made of 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 measures and equivalent positions. In the case of interest rates it uses the BPV – estimated impact on results of parallel changes in the interest rate curves. Because of the unusual nature of derivative operations, specific sensitivity measures are carried out daily, namely calculation of sensitivity to changes in the underlying prices (delta and gamma), volatility (vega) and time (theta).
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Quantitative limits, classified into two groups, are used for the trading portfolio, based on the following objectives:
The model used to analyse interest rate structural risk enables 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 re-pricing structure, which determine the sensitivity of the financial margin and the sensitivity of the asset value of balance sheet instruments.
At December 31, 2014 and 2013, financial instruments by exposure to interest rate risk were as follows:
| 2014 | |||||
|---|---|---|---|---|---|
| Exposure to | |||||
| Fixed rate | Variable rate | Not subject to interest rate risk |
Derivatives | Total | |
| Assets | |||||
| Cash and deposits at central banks | - | 622,460 | 208,014 | - | 830,474 |
| Balances due from other banks | - | - | 241,218 | - | 241,218 |
| Financial assets held for trading | 121,600 | 197,621 | 3,019 | 1,969,494 | 2,291,734 |
| Available-for-sale financial assets | 5,344,934 | 804,792 | 562,829 | - | 6,712,555 |
| Loans and advances to credit institutions | 890,877 | 282,915 | 47,125 | - | 1,220,917 |
| Loans and advances to customers | 2,821,989 | 22,676,129 | 25,133 | - | 25,523,251 |
| Hedging derivatives | - | - | - | 195,035 | 195,035 |
| 9,179,400 | 24,583,917 | 1,087,338 | 2,164,529 | 37,015,184 | |
| Liabilities | |||||
| Resources of central banks | 606,000 | 3,800,051 | 261 | - | 4,406,312 |
| Financial liabilities held for trading | - | - | - | 1,995,019 | 1,995,019 |
| Resources of other credit institutions | 3,167,409 | 863,072 | 243 | - | 4,030,724 |
| Resources of customers and other debts | 15,758,146 | 5,699,091 | 168,665 | - | 21,625,902 |
| Debt securities | 1,918,587 | 1,034,484 | 20,040 | - | 2,973,111 |
| Hedging derivatives | - | - | - | 133,690 | 133,690 |
| Subordinated liabilities | - 21,450,142 |
4,275 11,400,973 |
31 189,240 |
- 2,128,709 |
4,306 35,169,064 |
| Exposure to | 2013 (pro forma) Not subject to |
||||
| Fixed rate | Variable rate | interest rate risk | Derivatives | Total | |
| Assets | |||||
| Cash and deposits at central banks | - | 116,135 | 221,706 | - | 337,841 |
| Balances due from other banks | - | - | 552,921 | - | 552,921 |
| Financial assets held for trading | 72,497 | 273,573 | 3,152 | 1,599,893 | 1,949,115 |
| Available-for-sale financial assets | 3,457,589 | 790,358 | 134,306 | - | 4,382,253 |
| Loans and advances to credit institutions | 2,432,516 | 804,626 | 33,828 | - | 3,270,970 |
| Loans and advances to customers | 2,382,892 | 23,698,903 | 25,726 | - | 26,107,521 |
| Hedging derivatives | - | - | - | 199,427 | 199,427 |
| 8,345,494 | 25,683,595 | 971,639 | 1,799,320 | 36,800,048 | |
| Liabilities | |||||
| Resources of central banks | - | 6,200,016 | 41,394 | - | 6,241,410 |
| Financial liabilities held for trading | - | - | - | 1,619,768 | 1,619,768 |
| Resources of other credit institutions | 3,582,505 | 592,187 | 366 | - | 4,175,058 |
| Resources of customers and other debts | 15,696,775 | 4,781,987 | 228,239 | - | 20,707,001 |
| Debt securities | 1,341,104 | 1,209,023 | (15,966) | - | 2,534,161 |
| Hedging derivatives | - | - | - | 370,684 | 370,684 |
| Subordinated liabilities | - | 4,307 | - | - | 4,307 |
| 20,620,384 | 12,787,520 | 254,033 | 1,990,452 | 35,652,389 |
(Translation of notes originally issued in Portuguese – Note 53) (Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The methodology used for the calculation of 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's) in the forward interest rate curve. This methodology uses the following parameters and assumptions:
The interest rate gap enables an approximation to the sensitivity of the net assets value and the financial margin to variations in market rates. This approximation uses the following assumptions:
In terms of variation in net asset´s value, an increase in the interest rates originates a decrease in the amount 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.
General assumptions of this interest rate sensitivity analysis
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014 and 2013, the sensitivity of the Bank's financial instruments to positive and negative changes of 100 basis points (bp's) in the interest rates, over a time frame of one year, corresponds to:
| 2014 | 2013 (pro forma) | ||||
|---|---|---|---|---|---|
| Change | Change | Change | Change | ||
| Assets | + 100 bp's | - 100 bp's | + 100 bp's | - 100 bp's | |
| Cash and deposits at central banks | 263 | 9,556 | 9 6 |
(195) | |
| Available-for-sale financial assets | (364,218) | 208,326 | (146,096) | 144,720 | |
| Loans and advances to credit institutions | (8,362) | 3,714 | (14,643) | 8,042 | |
| Loans and advances to customers | (134,640) | 53,400 | (136,262) | 111,563 | |
| (506,957) | 274,996 | (296,905) | 264,130 | ||
| Hedging derivatives | (54,126) | 9,259 | (3,830) | (43,088) | |
| Liabilities | |||||
| Resources of central banks | (22,764) | 6,170 | (1,444) | 7,820 | |
| Resources of other credit institutions | (4,825) | 542 | (7,210) | 2,940 | |
| Resources of customers and other debts | (401,951) | 136,480 | (362,651) | 288,137 | |
| Debt securities | (58,746) | 15,003 | (13,668) | 5,254 | |
| (488,286) | 158,195 | (384,973) | 304,151 |
Besides the Bank's own calculation methodology, the basic parameters for the calculation of VaR are as follows:
In any case, the values of VaR are the highest arising from the calculation made with the factor of deterioration in force and the calculation with uniform weights.
The calculation 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 to the more recent observations in relation to the reference date of the analysis.
Historic simulation consists of using historic changes as a distribution model of 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 them, are well reflected in the historical period selected.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
In addition, a complete revaluation of the portfolio requires a valuation for each of the instruments, using the respective mathematical expression in order to obtain the market value of each individual position. Upon using revaluation methods, the implicit nonlinear effects on certain financial products as a result of market factor changes are calculated and retained in the VaR amounts.
At December 31, 2014 and 2013, the VaR associated to the interest rate risk corresponds to:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| VaR Percentile 99% | (1) | (4) |
| VaR Weighted Percentile 99% | (1) | (2) |
The profile defined for foreign exchange risk is very conservative and is based on the hedging policy adopted. Implementation of such policy is a responsibility of the Treasury Department so that the risks involved are maintained at a low level, being those achieved mainly through currency swaps. Exchange risk limits are established and monitored by the Market Risk Area.
At December 31, 2014 and 2013, financial instruments by currency were as follows:
| 2014 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Other | ||||||||
| Euros | US Dollars | currencies | Total | |||||
| Assets | ||||||||
| Cash and deposits at central banks | 822,546 | 4,277 | 3,651 | 830,474 | ||||
| Balances due from other banks | 184,396 | 42,768 | 14,054 | 241,218 | ||||
| Financial assets held for trading | 2,261,697 | 28,528 | 1,509 | 2,291,734 | ||||
| Available-for-sale financial assets | 6,712,555 | - | - | 6,712,555 | ||||
| Loans and advances to credit institutions | 833,871 | 353,009 | 34,037 | 1,220,917 | ||||
| Loans and advances to customers | 25,262,509 | 238,869 | 21,873 | 25,523,251 | ||||
| Hedging derivatives | 193,802 | 1,233 | - | 195,035 | ||||
| 36,271,376 | 668,684 | 75,124 | 37,015,184 | |||||
| Liabilities | ||||||||
| Resources of central banks | 4,406,312 | - | - | 4,406,312 | ||||
| Financial liabilities held for trading | 1,993,129 | 1,671 | 219 | 1,995,019 | ||||
| Resources of other credit institutions | 3,651,700 | 372,316 | 6,708 | 4,030,724 | ||||
| Resources of customers and other debts | 20,540,195 | 918,865 | 166,842 | 21,625,902 | ||||
| Debt securities | 2,973,111 | - | - | 2,973,111 | ||||
| Hedging derivatives | 131,337 | 2,353 | - | 133,690 | ||||
| Subordinated liabilities | 4,306 | - | - | 4,306 | ||||
| 33,700,090 | 1,295,205 | 173,769 | 35,169,064 |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
| 2013 (pro forma) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Other | ||||||||
| Euros | US Dollars | currencies | Total | |||||
| Assets | ||||||||
| Cash and deposits at central banks | 329,257 | 5,391 | 3,193 | 337,841 | ||||
| Balances due from other banks | 493,501 | 34,386 | 25,034 | 552,921 | ||||
| Financial assets held for trading | 1,908,412 | 38,432 | 2,271 | 1,949,115 | ||||
| Available-for-sale financial assets | 4,374,816 | 7,437 | - | 4,382,253 | ||||
| Loans and advances to credit institutions | 2,924,538 | 326,942 | 19,490 | 3,270,970 | ||||
| Loans and advances to customers | 26,043,429 | 38,177 | 25,915 | 26,107,521 | ||||
| Hedging derivatives | 198,634 | 793 | - | 199,427 | ||||
| 36,272,587 | 451,558 | 75,903 | 36,800,048 | |||||
| Liabilities | ||||||||
| Resources of central banks | 6,241,410 | - | - | 6,241,410 | ||||
| Financial liabilities held for trading | 1,618,606 | 1,111 | 51 | 1,619,768 | ||||
| Resources of other credit institutions | 3,779,243 | 393,149 | 2,666 | 4,175,058 | ||||
| Resources of customers and other debts | 19,784,630 | 764,049 | 158,322 | 20,707,001 | ||||
| Debt securities | 2,534,161 | - | - | 2,534,161 | ||||
| Hedging derivatives | 368,086 | 2,598 | - | 370,684 | ||||
| Subordinated liabilities | 4,307 | - | - | 4,307 | ||||
| 34,330,443 | 1,160,907 | 161,039 | 35,652,389 |
At December 31, 2014 and 2013, the VaR associated to foreign exchange risk corresponds to:
| 2013 | ||
|---|---|---|
| 2014 | (pro forma) | |
| VaR Percentile 99% | (6) | (7) |
| VaR Weighted Percentile 99% | (5) | (5) |
At December 31, 2014 and 2013, the Bank had no equity risk associated with financial instruments held for trading and therefore the VaR related to this risk is zero.
At December 31, 2014, the amounts of derivative financial instruments, traded on over-thecounter markets, which are offset by other financial instruments, by counterparty type, are as follows:
| Financial assets / liabilities in the |
Amounts related not offset in the financial statements |
|||||
|---|---|---|---|---|---|---|
| financial Counterparty statements |
Collateral in cash received as guarantee |
Net value |
||||
| Financial institutions | 4,271 | instruments - |
(4,200) | 71 | ||
| Group companies | (1,749,115) | - | 200,000 | (1,549,115) | ||
| (1,744,844) | - | 195,800 | (1,549,044) |
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
At December 31, 2014, the amount of sale operations with repurchase agreement by counterparty, is as follows:
| Financial assets / liabilities |
Amounts related not offset in the |
|||
|---|---|---|---|---|
| in the | financial statements | |||
| financial | Financial | Collateral in cash | Net | |
| Counterparty | statements | instruments | received as guarantee | value |
| Financial institutions | (2,797,788) | 2,796,181 | 43,734 | 42,127 |
| (2,797,788) | 2,796,181 | 43,734 | 42,127 |
BST endeavours to have significant financial stability through the maintenance of an adequate equity ratio – relationship between Eligible Equity Funds capital and assets weighted by risk (or positions in risk) - above 8%, which is the minimum legal ratio requirement established under Directive nº 2013/36/EU (CRD IV) and Regulation (EU) nº 575/2013, both of the European Parliament and of the Council of June 26, 2013, which have been established in the Basel Agreement (BIS III).
The dividend distribution policy is subject to the maintenance of a capital base that enables the Bank to sustain the development of its operations within its risk policies.
BST uses the mixed method for credit risk, namely the advanced method (IRB) for most of the loans segments and the standard method for leasing, factoring and manual operations.
As from December 2010, BST has used the mixed method for market risk, namely internal models for most of the trading derivatives (IRB) and the standard method for the rest of the trading portfolio.
In June 2012, BST started to use the standard method for determining the requirements of operational risk, having used the basic indicator method till that date.
From January 1, 2014, BST started to report its capital ratios according to the new regulatory framework established by BIS III, which provides a transitional period, which however is more demanding for the core capital ratio (or Common Equity Tier I, CET1), namely through the establishment of additional deductions and higher ratios in the calculation of risk weighted assets (or positions in risk).
(Translation of notes originally issued in Portuguese – Note 53)
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
The following table summarizes the composition of regulatory capital and ratios of the Bank at consolidated level at December 2014 (BIS III – Phasing in) and 2013 (BIS II):
| Amounts in millions of Euros | ||
|---|---|---|
| 2014 (*) | 2013 (pro forma) | |
| A - BASE OWN FUNDS (TIER I) | 2,467 | 2,292 |
| Share Capital | 942 | 943 |
| Reserves and Retained earnings (excluding Non-controlling interests) | 1,166 | 1,103 |
| Non-controlling interests | 476 | 500 |
| IAS adoption impacts (transitory regime) | - | 14 |
| Deductions to base ow n funds |
(117) | (268) |
| B - COMPLEMENTARY OWN FUNDS (TIER II) | - | - |
| Perpetual subordinated liabilities | 4 | 4 |
| Term subordinated liabilities | - | - |
| Revaluation reserves | - | 24 |
| Other elements/deductions to complementary ow n funds |
(4) | (28) |
| C - DEDUCTIONS TO OWN FUNDS | - | (8) |
| D - TOTAL OWN FUNDS (A+B+C) | 2,467 | 2,284 |
| E- ASSETS WEIGHTED BY RISK | 16,102 | 16,090 |
| CAPITAL RATIOS | 2014 (*) | 2013 (pro forma) |
|---|---|---|
| TIER I (A/E) | 15.3% | 14.2% |
| CORE CAPITAL | 13.0% | 12.4% |
| TIER II (B/E) | 0.0% | 0.0% |
| CAPITAL ADEQUACY RATIO (D/E) | 15.3% | 14.2% |
(*)Excluding the income generated in 2014, the capital adequacy ratio is 15.0%, TIER I is 15.0% and the CORE TIER I is 12.6%
BST´s solvency ratios at consolidated level increased during 2014. The capital adequacy and the Tier I ratios increased from 14.2% in December 2013 (BIS II) to 15.3% in December 2014 (BIS III). Furthermore, the core capital ratio (or CET1 ratio) reached 13.0% in December 2014 (BIS III) compared to 12.4% in December 2013 (BIS II).
For the good performance of the capital ratios contributed a greater incorporation of the net income of the year and lower deductions related with intangibles and with insufficiency of provisions for losses in the IRB portfolios and significant holdings, which offset the negative impact of the revaluation of non-financial assets (pension fund) and a lower eligibility of preference shares as a result of the application of the transition coefficient to the instruments with safeguard of acquired rights.
From the end of the first quarter of 2013 a movement with public projection arise in Portugal in the sequence of which the validity of some interest rate swap agreements established between some financial institutions and several state owned enterprises, namely in the railway and road transportation sectors, have been challenged. These agreements were signed essentially until 2008, which is, before the beginning of the recent financial crisis and represent to those enterprises high charges.
Among those agreements, some established with the Bank were challenged, whose positive fair value at December 31, 2014 and 2013 arise to approximately tEuros 1,320,000 and tEuros 1,030,000, respectively, which is reflected in the accompanying balance sheet under the caption "Financial assets held for trading " (Note 7). These agreements were carried out without incidents until September 2013.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Following the above referred movement, in its conviction of the total regularity and binding force of the agreements established with the state owned enterprises, the Bank requested a legal statement regarding their validity, considering that it was its duty to contribute, by the appropriate way, to eliminate any doubts about their validity and binding force. This initiative took place during the second quarter of 2013, in English courts, as they were the ones chosen by the parties as expressly stated in the respective agreement terms.
At September 2013, after the submission of the above referred legal actions, the state owned enterprises communicated to the Bank that they would suspend from that date the payment of the net interest associated with those swap agreements until the on-going actions were decided. At December 31, 2014 and 2013, the balance sheet caption "Other assets - Other" includes approximately tEuros 163,000 and tEuros 45,000, respectively, relating to the interests not paid (Note 17).
At November 2013, the state owned enterprises presented to the English courts their plea to the legal actions raised by the Bank requiring the nullity of the agreements and requesting the refund of the net flows of interest paid in the past, which amounted to approximately tEuros 134,000.
At February 14, 2014, the Bank presented to the English courts its reply to the plea submitted by the state owned enterprises and at April 4, 2014 the defence presented its counter arguments. At May 16, 2014, the preliminary hearing was held, and the legal actions are currently in the document analysis stage.
It is the Board of Directors of the Bank belief, supported by the opinion of its English and Portuguese legal attorneys, that all the conditions are now met for the court to rule in its favour and consequently to declare the validity of the above referred agreements and notifying the state owned enterprises to liquidate the corresponding interest. For this reason, no provisions were recorded in the accompanying financial statements to address for any eventual adverse outcome of those legal actions.
Additionally, during the first semester of 2014, five legal actions regarding the validity and binding force of certain interest rate swap agreements were raised against the Bank in Portuguese Courts by some entities comprised in the Regional Government of Madeira Island (entities included in the Portuguese public sector), which have also suspended the payment of the net interest associated with those swap contracts. At December 31, 2014, the positive fair value of those swaps amounted to tEuros 100,000 and was recorded under the caption "Financial assets held for trading" (Note 7). On the other hand, at December 31, 2014, the balance sheet caption "Other assets - Other" includes approximately tEuros 15,000 related to the interest not paid (Note 17). Last, the above referred entities are also asking for the refund of the net interest paid by them in the past, which, as of December 31, 2014, amounted to tEuros 20,000. As of this date, the Bank has already presented its plea to those legal actions and for three of them the respective courts declared themselves incompetent to appreciate the actions, accepting the arguments of the Bank and considering that the matters raised in those actions are under the jurisdiction of the English courts. These decisions were subject to an appeal to a higher court ("Tribunal de Relação de Lisboa"). Nevertheless, since the arguments used by the above referred entities to challenge the validity of those swap contracts are similar to the ones used in the legal actions referred in the previous paragraphs, the Board of Directors of the Bank do not expect an adverse outcome of those legal actions.
Furthermore, at December 31, 2014, another set of claims / legal actions were raised against the Bank by its customers relating to swap agreements. In the majority of those claims / legal actions the customers request for the cancelation of the swap agreements established with the Bank, as well as for the reimbursement of the net amount of interest paid by them in the past. At December 31, 2014, the amounts involved in those claims / legal actions were as follows:
| Interest received from customers | 52,665 |
|---|---|
| Interest paid to customers | (8,879) |
| 43,786 | |
| Interest overdue not paid by customers | 10,551 |
| Swaps Mark to Market | 72 |
| Impairment recorded | (9,624) |
| 999 | |
| Provisions for litigations in progress | (12,440) |
| Exposure | 32,345 |
However, it is the Board of Directors of the Bank belief, that the provisions recorded in the accompanying financial statements are sufficient to address an eventual adverse outcome of the above referred claims / legal actions.
Finally, during 2014, two new legal actions were raised against the Bank and two state owned enterprises, 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 the table above. These legal actions are focused in the cancellation of some swap agreements established between the Bank and those two state owned enterprises, which are already being judged by the English courts since the second quarter of 2013, as a result of the initiatives held by the Bank as described in the beginning of this Note.
In accordance with a statement issued by the Bank of Portugal in August 3, 2014, it was decided to apply to Banco Espírito Santo, S.A. a resolution measure, which resulted in the transfer of the majority of its activity to a "transitory bank", named Novo Banco, incorporated especially for that purpose. Following the EU legislation, the capitalization of Novo Banco was provided through the Resolution Fund, which was established by the 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 contributions due by the participating institutions in the Fund and through the special contribution to the banking sector. In addition, it is also established that if such resources are insufficient to fulfil its obligations other financing sources can be used, such as: (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 own resources, resulting from the contributions already paid by the participating institutions and from the special contribution to the banking sector. 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 subsequently 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.
Until the approval date of the accompanying financial statements by the Board of Directors, BST does not have information that allow it to estimate with reasonable accuracy the amounts potentially involved in the sale of Novo Banco.
(Amounts expressed in thousands of Euros - tEuros, unless otherwise expressly indicated)
Due to the same reason, it is not possible to estimate with reasonable accuracy if, as a result of that sale process, a shortfall of resources in Resolution Fund will occur, and if applicable, how it will be financed.
Therefore, at this date, it is not possible to evaluate the potential impact of this situation in the financial statements of BST, since the potential costs involved will depend on the sale price of Novo Banco and the measures to be taken by the Finance Ministry, under the competences that are legally attributed to it.
These financial statements were approved by the Board of Directors on April 23, 2015.
These financial statements are a translation of the financial statements originally issued in Portuguese language. In the event of discrepancies, the Portuguese language version prevails.
(Translation of Annex I originally issued in Portuguese - Note 53)
| Amount of the issue | Value adjustments | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Securities issued | Currency | Total | Subscribed | Consolidated by the Group Balance Sheet |
Accrual | of hedging operations |
Consolidated Balance Sheet |
Interest Rate |
Issue Date |
Maturity Date |
Index |
| Bonds issued | |||||||||||
| Bonds | |||||||||||
| ST Diversificação Invest 3º amortização Clientes | EUR | 23.913 | 8.983 | 14.930 | 1.246 | 1.328 | 17.504 Floating | March 17, 2009 | March 28, 2015 | Basket of indexes | |
| ST Diversificação Invest 4º amortização Clientes | EUR | 23.913 | 8.983 | 14.930 | - | - | 14.930 Floating | March 17, 2009 | March 28, 2015 | Basket of indexes | |
| Performance Mais II | EUR | 13.731 | 13.731 | - | - | - | - Floating | December 22, 2009 | January 15, 2015 | Basket of indexes | |
| Valorização Performance 5 anos | EUR | 21.533 | 4.317 | 17.216 | 366 | 105 | 17.687 Floating | September 30, 2010 | September 30, 2015 | Basket of indexes | |
| Valorização Performance 5 anos Outubro 2010 | EUR | 9.993 | - | 9.993 | 208 | 55 | 10.256 Floating | November 2, 2010 | November 2, 2015 | Basket of indexes | |
| Top Alemanha | EUR | 65.042 | 29.342 | 35.700 | 1.386 | 62 | 37.148 Floating | February 14, 2011 | February 13, 2015 | Basket of indexes | |
| Top Alemanha Fevereiro 2011 | EUR | 57.892 | 26.513 | 31.379 | 1.497 | 79 | 32.955 Floating | March 9, 2011 | March 9, 2015 | Basket of indexes | |
| Valorização China | EUR | 56.379 | 13.152 | 43.227 | 1.621 | 132 | 44.980 Floating | April 11,2011 | April 2, 2015 | Index FTSE China 25 | |
| Valorização Europa GBP | GBP | 1.212 | - | 1.212 | - | - | 1.212 Floating | June 27, 2014 | June 27, 2017 | Stock index EURO STOXX 50® Index | |
| 273.608 | 105.021 | 168.587 | 6.324 | 1.761 | 176.672 | ||||||
| Covered bonds | |||||||||||
| Mortgage Bonds VIII - 1st tranche | EUR | 250.000 | 250.000 | - | Floating | July 20, 2012 | July 20, 2015 | Euribor3m+2.5% | |||
| Mortgage Bonds IX - 1st tranche | EUR | 500.000 | 500.000 | - | - | - | - Floating | April 2, 2013 | April 2, 2016 | Euribor6m+2.25% | |
| Mortgage Bonds IX - 2nd tranche | EUR | 1.000.000 | 1.000.000 | - | - | - | - Floating | April 15, 2013 | April 15, 2016 | Euribor3m+2.25% | |
| Mortgage Bonds X | EUR | 750.000 | 750.000 | - | - | - | - Floating | July 26, 2013 | July 26, 2016 | Euribor3m+2.25% | |
| Mortgage Bonds XI - 1st tranche | EUR | 500.000 | 500.000 | - | - | - | - Floating | December 19, 2013 | December 19, 2016 | Euribor3m+1.85% | |
| Mortgage Bonds XI - 2nd tranche | EUR | 500.000 | 500.000 | - | - | - | - Floating | December 19, 2013 | December 19, 2016 | Euribor6m+1.85% | |
| Mortgage Bonds XI - 3rd tranche | EUR | 750.000 | 750.000 | - | - | - | - | 2,58% | January 13, 2014 | January 13, 2017 | Fixed interest rate |
| Mortgage Bonds XII - 1st tranche | EUR | 1.000.000 | - | 1.000.000 | 10.191 | - | 1.010.191 | 2,58% | April 1, 2014 | April 3, 2017 | Fixed interest rate |
| Mortgage Bonds XIII - 1st tranche | EUR | 750.000 | - | 750.000 | 3.092 | - | 753.092 | 1,63% | June 11, 2014 | June 11, 2019 | Fixed interest rate |
| 6.000.000 | 4.250.000 | 1.750.000 | 13.283 | - | 1.763.283 | ||||||
| Bonds issued on securitization operations | |||||||||||
| Hipototta 1 - Class A - Notes | EUR | 145.770 | 118.518 | 27.252 | (32) | - | 27.220 Floating | July 25, 2003 | November 25, 2034 | Euribor 3m+0.27% (until early reimbursement in August 2012); | |
| Euribor 3m+0.54% (after early reimbursement date) | |||||||||||
| Hipototta 1 - Class B - Notes | EUR | 9.714 | 9.714 | - | - | - | - Floating | May 12, 2004 | November 12, 2034 | Euribor 3m+0.65% (until early reimbursement in August 2012); | |
| Euribor 3m+0.95% (after early reimbursement date) | |||||||||||
| Hipototta 1 - Class C - Notes | EUR | 4.281 | 4.281 | - | - | - | - Floating | May 12, 2004 | November 12, 2034 | Euribor 3m+1.45% (until early reimbursement in August 2012); | |
| Euribor 3m+1.65% (after early reimbursement date) | |||||||||||
| Hipototta 1 - Class D - Notes | EUR | 11.000 | 11.000 | - | - | - | - Floating | May 12, 2004 | November 12, 2034 | Residual return generated by securitized portfolio | |
| Hipototta 4 - Class A - Notes | EUR | 905.861 | 489.814 | 416.047 | (970) | - | 415.077 Floating | December 9, 2005 | December 30, 2048 | Euribor 3m+0.12% (until early reimbursement in December 2014); | |
| Euribor 3m+0.24% (after early reimbursement date) | |||||||||||
| Hipototta 4 - Class B - Notes | EUR | 32.956 | 32.956 | - | - | - | - Floating | December 9, 2005 | December 30, 2048 | Euribor 3m+0.19% (until early reimbursement in December 2014); | |
| Euribor 3m+0.40% (after early reimbursement date) | |||||||||||
| Hipototta 4 - Class C - Notes | EUR | 104.081 | 55.661 | 48.420 | 2 | - | 48.422 Floating | December 9, 2005 | December 30, 2048 | Euribor 3m+0.29% (until early reimbursement in December 2014); | |
| Euribor 3m+0.58% (after early reimbursement date) | |||||||||||
| Hipototta 4 - Class D - Notes | EUR | 14.000 | 14.000 | - | - | - | - Floating | December 9, 2005 | December 30, 2048 | Residual return generated by securitized portfolio | |
| Hipototta 5 - Class C - Notes | EUR | 24.000 | 24.000 | - | - | - | - Floating | March 22, 2007 | February 28, 2060 | Euribor 3m+0.24% (until early reimbursement in February 2014); | |
| Euribor 3m+0.48% (after early reimbursement date) | |||||||||||
| Hipototta 5 - Class A2 - Notes | EUR | 796.849 | 285.134 | 511.715 | (330) | - | 511.385 Floating | March 16, 2007 | February 28, 2060 | Euribor 3m+0.13% (until early reimbursement in February 2014); | |
| Hipototta 5 - Class B - Notes | EUR | 26.000 | 26.000 | - | - | - | - Floating | March 22, 2007 | February 28, 2060 | Euribor 3m+0.26% (after early reimbursement date) Euribor 3m+0.17% (until early reimbursement in February 2014); |
|
| Hipototta 5 - Class D - Notes | EUR | 26.000 | 26.000 | - | - | - | - Floating | March 22, 2007 | February 28, 2060 | Euribor 3m+0.34% (after early reimbursement date) Euribor 3m+0.50% (until early reimbursement in February 2014); |
|
| Euribor 3m+1.00% (after early reimbursement date) | |||||||||||
| Hipototta 5 - Class E - Notes | EUR | 31.000 | 31.000 | - | - | - | - Floating | March 22, 2007 | February 28, 2060 | Euribor 3m+1.75% (until early reimbursement in February 2014); | |
| Euribor 3m+3.50% (after early reimbursement date) | |||||||||||
| Hipototta 5 - Class F - Notes | EUR | 9.038 | 9.038 | - | - | - | - Floating | March 22, 2007 | February 28, 2060 | Residual return generated by securitized portfolio | |
| 2.140.550 | 1.137.116 | 1.003.434 | (1.330) | - | 1.002.104 | ||||||
| Other | |||||||||||
| EMTN's | EUR | 32.300 | 1.250 | 31.050 | 2 | - | 31.052 | ||||
| 32.300 8.446.458 |
1.250 5.493.387 |
31.050 2.953.071 |
2 18.279 |
- 1.761 |
31.052 2.973.111 |
||||||
ANNEX II
| Amount of the issue | Accrual | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Securities issued | Currency | Total | Subscribed | Consolidated by the Group Balance Sheet |
Total | Subscribed Consolidated by the Group Balance Sheet |
Consolidated Balance Sheet |
Interest Rate Maturity date |
Early repayment as from: | ||
| Subordinated Perpetual Bonds 2000 Subordinated Perpetual Bonds CPP 2001 |
EUR EUR |
270.447 4.275 |
270.447 - |
- 4.275 |
143 31 |
143 - |
- 31 |
- 4.306 |
1,93% Perpetual 2,04% Perpetual |
June 22, 2010 February 23, 2011 |
|
| Subordinated Perpetual Bonds BSP 2001 | EUR | 13.818 288.540 |
13.818 284.265 |
- 4.275 |
101 275 |
101 244 |
- 31 |
- 4.306 |
2,04% Perpetual | February 23, 2011 |
(Amounts expressed in thousands of Euros – tEuros)
(Translation of a report originally issued in Portuguese – Note 53)
Page 3 of 3
Lisbon, April 23, 2015
Deloitte & Associados, SROC S.A. Represented by Eduardo Manuel Fonseca Moura
(This report is a translation of a report originally issued in Portuguese. Therefore according to Deloitte & Associados, SROC, S.A. internal procedures, the report should not be signed. In the event of discrepancies, the Portuguese language version prevails.)
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