Banco Popular Portugal, SA

Annual Report and Accounts

This is a mere translation of the original Portuguese documents prepared by Banco Popular Portugal, S.A., which was made with the single purpose of simplifying their consultation to English speaking stakeholders. In case of any doubt or contradiction between these and the original documents, their Portuguese version prevails.

Index of Tables and Images 3 General Information4 Board and Management 5 Banco Popular Portugal Financial Highlights 6
Management Report7 Macroeconomic scenario8 Commercial strategy 9 Income and profitability11 Net interest income 11 Banking income 14 Operating income15 Net income and profitability 17 Investments and assets20 Total assets20 Customer funds21 Lending operations24 Proposal for the appropriation of net income 26 Outlook for 201526 Risk management 27 Quality and Innovation40 Social and Corporate Responsibility41 Energetic Efficiency: Cost Reduction and Environmental Sustainability42 Final note 43
Annex 1 - Shareholding position of the members of the governing and supervisory bodies 44 Annex 2 - Qualifying holdings44
Annual Accounts45 Balance Sheet45 Income Statement 46 Statement of Comprehensive Income47 Individual Statement of Changes in Equity 47 Cash flow Statement 48
Corporate Governance Report126
Statement of the Board of Directors151
Remuneration Policy for the Members of the Managing and Supervisory Bodies 152
Remuneration Policy for Key Function Holders156
Policy for the Prevention, Communication and Remedy of Conflicts of Interests160
Policy for the Selection and Assessment of the Members of Managing and Supervisory Bodies, and of Key Function Holders164
Statutory Audit and Auditor's Report176
Report and Opinion of the Supervisory Board178

TABLE 1 – INDIVIDUAL INCOME STATEMENT 11
TABLE 2 – ANNUAL CHANGES IN NET INTEREST INCOME 12
TABLE 3 – EVOLUTION OF EQUITY AND AVERAGE ANNUAL RATES 12
TABLE 4 – NET FEES AND COMMISSIONS 15
TABLE 5 – OPERATING EXPENSES 16
TABLE 6 – TOTAL RETURN ON INVESTMENT 19
TABLE 7 – INDIVIDUAL BALANCE SHEET 20
TABLE 8 – CUSTOMER FUNDS 22
TABLE 9 – INVESTMENT FUND PORTFOLIO 23
TABLE 10 – LENDING TRANSACTIONS 24
TABLE 11 – PAST-DUE LOANS AND NON-PERFORMING LOANS 25

IMAGE 1 – CUSTOMER SPREAD IMAGE 2 – NET INTEREST INCOME 14
IMAGE 3 – NET FEES AND COMMISSIONS 14
IMAGE 4 – COST-TO-INCOME RATIO 17
IMAGE 5 – EVOLUTION OF NET INCOME 18
IMAGE 6 – RETURN ON ASSETS AND EQUITY 19
IMAGE 7 – TOTAL MANAGET ASSETS 21
IMAGE 8 – CUSTOMER FUNDS 21
IMAGE 9 – INVESTMENT FUND PORTFOLIO IMAGE 10 – FINANCIAL INSURANCE ASSETS 23
IMAGE 11 – LOANS AND ADVANCES TO CUSTOMERS 25

General Information

Banco Popular Portugal, S.A., was founded on 2 July 1991. The head office is located at 51 Ramalho Ortigão in Lisbon.It is registered at the Lisbon Commercial Registry under the taxpayer No. 502.607.084. The Bank adopted its current corporate name in September 2005 to the detriment of its former name 'BNC-Banco Nacional de Crédito, S.A.'. Banco Popular Portugal is a member of the Deposit Guarantee Fund and it has a share capital of 476 million euros.

The financial and statistical data provided herein were prepared according to analytical criteria based on the utmost objectivity, detail, reporting transparency and consistency over time, from the financial information periodically sent to the Bank of Portugal. The financial statements are presented in accordance with the legislation in force in 2014, particularly those issued by the Bank of Portugal regarding the presentation of accounting information.

The management report, the annual accounts, and accompanying documents are available at Banco Popular Portugal's Internet website: www.bancopopular.pt.

Board and Management

Board of the General Meeting

Augusto Fernando Correia Aguiar-Branco - Chairman João Carlos de Albuquerque de Moura Navega - Secretary

Executive Board of Directors

Rui Manuel Morganho Semedo - Chairman Carlos Manuel Sobral Cid da Costa Ávares - Member Tomás Pereira Pena - Member José Ramón Alonso Lobo - Member

Supervisory Board

Rui Manuel Ferreira de Oliveira - Chairman Telmo Francisco Salvador Vieira António José Marques Centúrio Monzelo Ana Cristina Freitas Rebelo Gouveia – Alternate

Statutory Auditor

PricewaterhouseCoopers & Associados, Sociedade de Revisores Oficiais de Contas, Lda., represented by Aurélio Adriano Rangel Amado or José Manuel Henriques Bernardo

Alternate Statutory Auditor

Jorge Manuel Santos Costa, Statutory Auditor

Banco Popular Portugal Financial Highlights

(million euros, unless otherwise stated)

	2014	Change (% and p.p.)	2013	2012	2011	2010
Turnover
Total assets managed	9 391	-6.8%	10 078	9 565	10 258	10 952
On-balance sheet total assets	8 406	-8.9%	9 222	8 867	9 634	10 233
Own funds (a)	703	5.6%	666	648	496	579
Customer funds:	5 100	0.5%	5 073	4 605	4 778	4 277
on balance sheet funds	4 115	-2.4%	4 217	3 907	4 154	3 558
other intermediated customer funds	985	15.0%	856	698	624	719
Loans and advances to customers	5 775	4.8%	5 510	6 021	6 530	7 855
Contingent risks	538	-7.0%	579	605	655	444
Solvency
Solvency ratio	12.1%	1.0	11.1%	10.6%	9.4%	8.6%
Tier 1	11.5%	0.4	11.1%	10.6%	9.4%	8.8%
Core Tier 1	11.5%	0.1	11.4%	10.9%	9.6%	8.9%
Risk management
Total risks	6 313	3.7%	6 089	6 625	7 185	8 298
Non-performing loans	329	20.5%	273	232	169	194
Non-performing loans for more than 90 days	314	24.0%	253	209	145	157
Non-performing loan ratio (%)	5.70%	0.75	4.95%	3.85%	2.59%	2.47%
Non-performing loan coverage ratio	111.1%	-2.7	113.7%	102.0%	129.0%	123.4%
Earnings
Net interest income	124.7	2.9%	121.2	148.9	131.1	128.0
Banking income	172.3	0.3%	171.7	193.5	166.9	201.3
Operating income	59.6	1.1%	58.9	80.0	47.1	89.6
Income before tax	5.4	110.6%	- 51.5	6.4	24.4	21.7
Net income	2.3	107.2%	- 31.7	2.7	13.4	15.9
Profitability and efficiency
Average net assets	9 389	3.6%	9 061	9 441	10 411	9 132
Average own assets	706	5.1%	672	538	515	604
ROA (%)	0.02%	0.37	-0.35%	0.03%	0.13%	0.17%
ROE (%)	0.32%	5.04	-4.72%	0.50%	2.61%	2.63%
Operating efficiency (Cost to income) (%)	65.4%	-0.3	65.7%	58.7%	71.8%	56.2%
(without depreciation) (%)	63.2%	0.4	62.8%	54.9%	66.9%	52.3%
Per share data
Final number of shares (millions)	476	0.0%	476	476	451	376
Average number of shares (millions)	476	0.0%	476	451	376	376
Share book value (€)	1.477	5.6%	1.399	1.361	1.101	1.540
Earnings per share (€)	0.005	107.5%	-0.067	0.006	0.030	0.042
Other data
Number of employees	1 299	-0.1%	1 300	1 309	1 329	1 343
Number of branches	173	-0.6%	174	179	213	232
Employees per branch	7.5	0.5%	7.5	7.3	6.2	5.8
Number of ATMs	315	2.3%	308	305	348	338

(a) After appropriation of results for each year

Management Report

As at 31 December 2014, Banco Popular Portugal reported shareholder's equity of 703,205 thousand euros, managed over 9.3 billion euros of total assets, including customer funds in the amount of 5.1 billion euros. At the end of 2014, Banco Popular's net assets amounted to 8.4 billion euros and net profit amounted to 2.3 million euros. The bank's activity was supported by a network of 173 branches and a team of around 1,300 staff.

Banco Popular Portugal offers a full range of products and services, together with the following companies that are also included in the Banco Popular Español Group:

Popular Gestão de Activos, S.A., wholly owned by BPE, is a Fund Management Company that manages, among others, the securities and real estate investment funds commercialised by the Bank;
Popular Factoring, S.A., 99.8% held by BPE, is a credit institution that provides Factoring services;
Eurovida - Companhia de Seguros de Vida, S.A., is an insurance company that provides life and capitalisation insurance, and is 84.1% held by BPE and 15.9% held by the Bank;
Popular Seguros - Companhia de Seguros, S.A., is wholly owned by Eurovida, and trades in non-life insurance products.

Macroeconomic scenario

Gross Domestic Product increased by 0.9% in 2014, thus recovering from a 1.4% drop in the previous year. This evolution was supported by the solid performance of domestic demand, reflecting a good recovery in private consumption and a slight recovery in investment. On the other hand, net foreign demand contributed negatively due to stronger growth in imports of goods and services vis-à-vis exports.

Over the year, the unemployment rate was down by 2.3 p.p. when compared with 2013 and stood at 13.9%, which reflected a 1.6% increase in terms of employment. According to OECD forecasts, the unemployment rate is expected to decrease in Portugal to 12.8% in 2015 and 12.4% in 2016.

The stabilization of the domestic savings rate mostly reflects the improvement in consumer confidence, which has been steadily rising since the last quarter of 2014.

Inflation stood at low levels throughout the year, reflecting the decrease in the prices of telecoms and liquid fuels.

The Portuguese economy is expected to continue recovering moderately in the 2015-2016 period, backed by the correction of the macroeconomic imbalances that had been accumulated over the past few years. This recovery is based on export and investment growth, although domestic demand will most probably remain conditioned by the high level of indebtedness in the private sector and by the budgetary consolidation process.

The economic improvement was seen in most countries in the eurozone. However, the relatively small growth in the most advanced economies and the low inflation rates resulted in a slack monetary policy, which led the ECB to adopt some measures such as reducing the reference interest rates.

The year was marked by Portugal's exit from its bailout programme and the country's return to the international primary market of treasury bills (medium and long term).

Commercial strategy

Banco Popular has maintained its strategy of being a leading Bank for companies while still meeting the needs of families with a customer-centred approach, prepared for their everyday needs.

Underlying the plan for 2014 was the articulation and maximization of synergies between companies and private individuals. In order to do so, some joint actions were taken to promote cross-business between managers of private costumers and managers of companies, viewing companies as an important channel to attract private customers through protocols targeted at specific sectors of activity.

Regarding the private customer segment, there was a net increase of around 23 thousand new customers, raised mostly via corporate customers. There was also a strong investment in this segment as regards transactions and customer loyalty. Throughout the year, several customer loyalty programs were implemented, and particular attention was given to Personal Banking and Private Banking.

In the corporate segment, there was an increase by around 5.5 thousand new customers, with significant growth in the number of companies receiving loans and an average increase in terms of loyalty of new customers. There was an increase by 7% in the volume of lending to companies and simultaneously an improvement in terms of credit quality. The action plan for corporate customers continued to position the Bank as an important player in this segment, strongly supported by agreements that have granted visibility to the Bank and the availability of segmented, tailored offers.

The Bank has continued to support SME in terms of investment and internationalisation as an important player in SME Growth Lines in 2014. Banco Popular obtained a market share that is higher than its natural lending share in the Portuguese banking system, standing at No.8 regarding the number of contracted transactions and volume. Regarding the totality of SME Investment Lines/FINOVA, Banco Popular had a total of 8,209 contracted operations as at 31 December 2014, which correspond to 568 million euros of credit granted. In terms of Equipment Leasing, the Bank earned the 6th place in the Credit Institutions ranking in terms of market production, with a 6.8% share and 79 million euros contracted.

At the end of 2013, a new agreement was signed with the European Investment Bank, through which 100 million euros were made available to support new investment projects for small and medium sized enterprises (SME) in more favourable conditions. This line was fully placed in 2014.

2014 also brought an improvement in the Iberian offer, positioning the Bank further in the market as a strong Iberian group.

Aiming at completing its offer and meeting its customers' needs, Banco Popular signed two new partnerships in 2014. In October, the Bank started to sell Médis health insurance - Popular Saúde by Médis - a comprehensive solution both for private and corporate customers. In December, the Bank started a partnership with Cofidis, which has allowed Banco Popular to offer personal loans with improved service levels while still being close to its customers.

In 2014, Banco Popular created the brand Popular ON, associated with non-branch banking channels - Online Banking, Mobile Banking and Telephone Banking - which intends to convey the idea that the Bank is always available for its customers by whatever means is most convenient to them, whenever they want and wherever they are. Additionally several new functionalities were made available on those channels, namely services associated with online payments, which add growing mobility to day-to-day operations.

In terms of communication, Banco Popular associated with nationwide recognizable events, heavily focusing on local dynamics through a network of agencies, and corporate and cooperative associations, with tailored proposals and direct advantages. The communication strategy has accompanied and reflected the strategic positioning of the Bank, conjugating several multimedia communication actions. In 2014, the Bank developed an institutional advertising campaign called 'Soluções que são a sua cara' (literally: Solutions that are your face) and product campaigns - Thematic Time Deposits, Activations, Solidarity, Real Estate. There was a clear investment in television as a privileged communication medium since it is the most appropriate for gaining exposure, and in 2014 radio and Internet still played an important role in promoting Banco Popular's brand, through the institutional campaign coupled with solidarity and property campaigns. The presence in trade fairs, congresses and sponsoring shows have consolidated the investment in the corporate segment, showing the Bank's availability and know how to business people and associations.

Income and profitability

The income statement is summarised in table 1. The Annual Accounts show the income statements for 2014 and the previous year pursuant to regulations issued by the Bank of Portugal.

	Table 1 . Individual Income Statement
	(€ thousand)			Change
		2014	2013	Amount	%
1	Interest and similar income	256 131	303 812	- 47 681	-15.7
2	Interest and similar charges	131 408	182 564	- 51 156	-28.0
3	Net interest income (1-2)	124 723	121 248	3 475	2.9
4	Return on equity instruments	60	49	11	22.4
5	Net fees and commissions	55 677	52 083	3 594	6.9
6	Income from financial transactions (net)	7 401	9 991	- 2 590	-25.9
7	Income from the sale of other assets	- 8 329	- 5 241	- 3 088	-58.9
8	Other operating income	- 7 243	- 6 415	- 828	-12.9
9	Banking income (3+4+5+6+7+8)	172 289	171 715	574	0.3
1 0	Personnel expenses	58 175	56 309	1 866	3.3
1 1	General administrative expenses	50 696	51 473	- 777	-1.5
1 2	Depreciation	3 848	5 023	- 1 175	-23.4
1 3	Operating income (9-10-11-12)	59 570	58 910	660	1.1
1 4	Provisions net of recoveries and write-offs	1 521	8 563	- 7 042	-82.2
1 5	Value adjustments net of loans and advances to customers	59 433	89 390	- 29 957	-33.5
1 6	Impairment and other net provisions	- 6 828	12 481	- 19 309	-154.7
1 7	Profit before tax (13-14-15-16)	5 444	- 51 524	56 968	110.6
1 8	Income tax	3 161	- 19 804	22 965	116.0
1 9	Net income for the period (17-18)	2 283	- 31 720	34 003	107.2

Net interest income

In 2014, net interest income amounted to 124.7 million euros, 3,475 euros higher, i.e., 2.9%, when compared with 2013. This amount was largely due to the reduction in interest and similar charges (total assets) by 28% (-51.1 million euros). Around the middle of 2014, the Bank adopted a commercial policy of reducing its liabilities, which resulted, as far as time deposits are concerned, in saving 34 million euros in interest paid (around -27 millions due to price and -7 millions due to volume). Regarding interest and similar income (total investments), there was also a decrease by 15.7% (-47.7 million euros), resulting from the volume effect in terms of lending (-5.6 million euros) via de decrease in the average volume of loans granted throughout the year and the interest rate effect (-19.7 million euros) via the reduction of the average rate of loans granted. Additionally, we would like to highlight the negative contribution to net interest income of the financial assets portfolio (-24.4 million

euros) due, on the one hand, to a portfolio reduction by over 109 million euros, with negative impact on net interest income of 3.6 million euros, and, on the other, to decreasing levels of profitability, which also had a negative impact of around 20.9 million euros (table 2). The combination of these two components of net interest income has confirmed the efficient management of interest rates even in an adverse scenario.

Table 2 . Annual changes in net interest income - Causal analysis 2014 / 2013
(€ thousand)
Changes in:	Due to changes in business volume	Due to changes in interest rates	Due to changes in period	Total change
Loans and advances to customers	- 5 604	- 19 686	0	- 25 290
Deposits with banks	3 107	- 1 109	0	1 998
Financial assets	- 3 603	- 20 851	0	- 24 454
Other assets	- 82	148	0	66
Total investments	- 6 182	- 41 498	0	- 47 680
Deposits from customers	- 9 549	- 37 919	0	- 47 468
Deposits from banks	3 604	- 10 104	0	- 6 500
Own assets	0	0	0	0
Other liabilities	3 573	- 760	0	2 813
Total assets	- 2 372	- 48 783	0	- 51 155
Net interest income	- 3 810	7 285	0	3 475

Regarding average balances and rates, and according to table 3, average assets in 2014 were supported by customer funds (50%) and deposits from banks (40%). Loans and advances to customers is still their main component, representing around 60% of total average assets.

Table 3 . Evolution of equity and average annual rates. Margins

(€ thousand and %)
			2014			2013
	Average Balance	Dist. (%)	Income or expense Rate (%)	Average	Average Balance	Dist. (%)	Income or expense Rate (%)	Average
Loans and advances to customers (a)	5 635 515	60.0%	198 799	3.53	5 783 097	63.8%	224 091	3.87
Deposits with banks	1 273 105	13.6%	4 603	0.36	533 742	5.9%	2 605	0.49
Financial assets	2 129 476	22.7%	52 444	2.46	2 238 928	24.7%	76 898	3.43
Other assets	351 133	3.7%	285	0.08	505 713	5.6%	218	0.04
Total Assets ( b )	9 389 228	100%	256 131	2.73	9 061 480	100%	303 812	3.35
Deposits from customers ( c )	4 658 592	49.6%	92 384	1.98	5 022 597	55.4%	139 853	2.78
Deposits from banks	3 743 365	39.9%	14 147	0.38	3 113 214	34.4%	20 647	0.66
Equity accounts	705 995	7.5%	0	0.00	671 724	7.4%	0	0.00
Other liabilities	281 276	3.0%	24 876	8.84	253 945	2.8%	22 064	8.69
Total Liabilities and Equity (d)	9 389 228	100%	131 408	1.40	9 061 480	100%	182 564	2.01
Customer spread (a - c)				1.55				1.09
Net Interest Income (b - d)				1.33				1.34

Taking into consideration the evolution of the average annual interest rates of loans and deposits, we would like to stress that the average assets, which amounted to 9,389 million euros, posted an overall profitability of 2.73%, which, when compared with the average cost of total resources allocated to the financing of assets (1.40%), has enabled an annual net interest income of 1.33%, 1 basis point lower than in the previous year.

The policy of reducing the cost of liabilities implemented around the middle of 2014 led to an 80 basis points reduction in the annual average rate of customer funds and stood at 1.98% at the end of the year, compared with 2.78% in 2013 (table 3a). The average annual rate of loans dropped 34 basis points, from 3.87% to 3.53%. Due to this combined effect, customer spread decreased by 46 basis points to 1.55%.

Table 3a . Evolution of annual average rates. Margins
	Average annual rate 2014 (%)	Average annual rate 2013 (%)	Change 2014 / 2013 (p.p.)
Loans and advances to customers (a)	3.53	3.87	-0.34
Deposits with banks	0.36	0.49	-0.13
Financial assets	2.46	3.43	-0.97
Other assets	0.08	0.04	0.04
Total Assets ( b )	2.73	3.35	-0.62
Deposits from customers ( c )	1.98	2.78	-0.80
Deposits from banks	0.38	0.66	-0.28
Equity accounts	0.00	0.00	0.00
Other liabilities	8.84	8.69	0.15
Total Liabilities and Equity (d)	1.40	2.01	-0.61
Customer spread (a - c)	1.55	1.09	0.46
Net Interest Income (b - d)	1.33	1.34	-0.01

From the analysis of images 1 and 2, we can see the consolidation of the downward turn in the average rate of loans and customer funds in 2014. In that same period, customer spread, which results from the difference between the average rate of loans and advances to customers and the average rate of deposits from customers remained virtually unchanged at 1.33%.

Banking income

In 2014, net fees and commissions charged to customers for the sale of products and services totalled 55.7 million euros, rising by around 6.9% when compared with the previous year. Figures reached in 2014 represent the highest in the past five years (Image 3).

To complement this, table 4 shows the main items that have contributed to changes in net fees and commissions during 2014. On the positive side, we would like to highlight

commissions from the sale of insurance (+150.8%), asset management commissions (+83%), and commissions from collection and payment methods (+30.5%). Commissions from lending operations contributed negatively (-28.9%).

Table 4 . Net Fees and Commissions
(€ thousand)
			Change
	2014	2013	Amount	%
Commissions from lending	13 925	19 575	- 5 650	-28.9
Commissions from guarantees	6 861	6 063	798	13.2
Commissions from collection and payment handling (net)	14 993	11 485	3 508	30.5
Commissions from asset management (net)	2 397	1 310	1 087	83.0
Commissions from insurance sales	5 220	2 081	3 139	150.8
Commissions from account management	5 810	5 183	627	12.1
Commissions from processing services	1 632	1 673	- 41	-2.5
Other commissions (net)	4 839	4 713	126	2.7
Total	55 677	52 083	3 594	6.9

Regarding the remaining items of banking product, we would like to highlight the increase by 2.6 million euros in terms of financial transactions and an increase by 3.1 million euros in the sale of other assets, which mostly corresponds to losses related with the sale of properties.

The combined effect of these two items virtually annulled the positive effect of net interest income, contributing negatively to a banking product of around 172.3 million euros, i.e. 574 thousand euros more, or 0.3% vis-à-vis 2013.

Operating income

The year 2014 was another step forward into the consolidation of the measures that had been implemented in the previous years as regards the Bank's expense policy. In 2014, operating expenses totalled 112.7 million euros, which represents a decrease by 86 million euros or - 0.1% when compared with the previous year.

From table 5 we can see that personnel expenses amounted to 58.1 million euros, which corresponds to an increase by 3.3%. This increase was mostly due to a larger transfer to the Pension Fund in the amount of 1.2 million euros, while the remaining items varied only slightly.

General expenses totalled around 50.7 million euros, which corresponds to a 1.5% decrease, or 777 thousand euros, when compared with the previous year. Cost control was achieved by a decrease in Advisory services (-877 thousand euros, or -13.7%), Security/surveillance and cleaning (-681 thousand euros, or -58.8%) and Legal expenses (-541 thousand euros, or - 21.9%). These savings were invested into strengthening the brand Banco Popular, which implied an increase by 1.3 million euros (+49.1%) in advertising expenses.

In terms of allocations for depreciation of fixed assets we have witnessed a positive performance (-1.1 million euros, or -23.4%) to 3.8 million euros. This item was instrumental to stabilize expenses.

Table 5 . Operating Expenses
(€ thousand)
			Change
	2014	2013	Amount	%
Personnel expenses (a)	58 175	56 309	1 866	3.3
Wages and salaries	42 384	41 781	603	1.4
Social security charges	11 222	11 126	96	0.9
Pension Fund	3 605	2 397	1 208	50.4
Other personnel expenses	964	1 005	- 41	-4.1
General expenses (b)	50 696	51 473	- 777	-1.5
External supplies	2 631	2 742	- 111	-4.0
Rents and leasing	4 342	4 392	- 50	-1.1
Communications	4 008	4 164	- 156	-3.7
Travel, hotel and representation	1 189	1 134	55	4.9
Advertising and publications	4 025	2 700	1 325	49.1
Maintenance of premises and equipment	3 761	4 170	- 409	-9.8
Transports	1 067	1 137	- 70	-6.2
Advisory services	5 543	6 420	- 877	-13.7
Legal expenses	1 932	2 473	- 541	-21.9
IT services	8 969	8 338	631	7.6
Security, surveillance and cleaning	478	1 159	- 681	-58.8
Temporary work	4 447	4 575	- 128	-2.8
External consultants and auditors	903	1 148	- 245	-21.3
SIBS	1 170	1 259	- 89	-7.1
Services rendered by Banco Popular Group	3 422	3 283	139	4.2
Other general expenses	2 809	2 379	430	18.1
Operating expenses (c=a+b)	108 871	107 782	1 089	1.0
Depreciation (d)	3 848	5 023	- 1 175	-23.4
Total (c+d)	112 719	112 805	- 86	-0.1

The cost-to-income ratio, which corresponds to the part of banking income consumed by operating expenses, remained virtually unchanged (dropping from 65.7% to 65.4%). This

percentage resulted from the stabilization of both the banking product and operating expenses. This evidence is reflected on image 4.

The weight of personnel expenses in banking income stood at 33.8%, which is higher than the 32.8% seen in 2013. Operating income thus amounted to approximately 59.6 million euros, around 1.1% higher than in the previous year.

Net income and profitability

Banco Popular Portugal ended 2014 with net income of 2.3 million euros, after the net loss it had posted for the previous year in the amount of 31.7 million euros. This result was achieved by the combined effect of increased net interest income and cost control, and a better performance of provisions. Loan provisions decreased year-on-year by 37 million euros, while impairment and other net provisions decreased by around 19 million euros. This combined effect allowed the Bank to return to profits in 2014 after the 3.1 million euro tax burden.

Image 5 shows the evolution of income before tax and net income in the past five years.

By analysing the income statement and the balance sheet together we can assess the profitability of the Bank's financial activity, comparing profits and costs and their respective margins with the investments and assets that originated them. Table 6 shows income statements for 2014 and 2013 broken down by their percentage of average total assets.

In 2014, operating profitability stood at 0.63%, 2 basis points lower than in the previous year.

Table 6 . Total Return on Investment
(€ thousand and % of average net assets)
	2014		2013			Change
	amount	%	amount	%	in amount	% / p.p.
Investment income	256 131	2.73	303 812	3.35	- 47 681	-0.63
Cost of assets	131 408	1.40	182 564	2.01	- 51 156	-0.62
Net interest income	124 723	1.33	121 248	1.34	3 475	-0.01
Net fees and commissions	55 677	0.59	52 083	0.57	3 594	0.02
Other operating profits/losses	- 8 111	-0.09	- 1 616	-0.02	- 6 495	-0.07
Banking income	172 289	1.83	171 715	1.90	574	-0.06
Personnel expenses	58 175	0.62	56 309	0.62	1 866	0.00
General administrative expenses	50 696	0.54	51 473	0.57	- 777	-0.03
Depreciation	3 848	0.04	5 023	0.06	- 1 175	-0.01
Operating profitability	59 570	0.63	58 910	0.65	660	-0.02
Net loan provisions	60 954	0.65	97 953	1.08	- 36 999	-0.43
Impairment and other net provisions	- 6 828	-0.07	12 481	0.14	- 19 309	-0.21
Return before tax	5 444	0.06	- 51 524	-0.57	56 968	0.63
Income tax	3 161	0.03	- 19 804	-0.22	22 965	0.25
Return after tax	2 283	0.02	- 31 720	-0.35	34 003	0.37
Memorandum item:
Average net assets ( € million )	9 389		9 061		328	3.6
Average own funds (€ million)	706		672		3 4	5.1
Return on equity - ROE (%) (net income after tax/average shareholders' equity)	0.32		-4.72		5.04	106.9
Gross return on equity (%) (income before tax/average shareholders' equity)	0.77		-7.67		8.44	110.1
Cost-to-income (%)	65.42		65.69		-0.27	-0.4

In 2014, return on equity (ROE), defined as the ratio of annual net income to average shareholders' equity, stood at 0.32%, which compares with -4.72% in 2013. Image 6 shows the performance of total customer funds over the past 5 years.

Investments and assets

Total assets

The balance sheets as at 31 December 2014 and 2013 are summarised in table 7. In the section Annual Accounts, those same balance sheets are presented in accordance with the model defined by the Bank of Portugal.

As at 31 December 2014, Banco Popular's net assets amounted to 8,406 million euros, 816 million euros less than in the same period last year, which corresponds to a decrease by around 8.9%.

Table 7 . Individual Balance Sheet




				148.1
				-54.0

				-100.0




				-100.0
















				535.3







				107.2

Total Liabilities + Equity	8 405 848	9 222 173	- 816 325

The Bank also manages other customer funds applied in investment, savings and retirement instruments, which amounted to 985 million euros at year end, representing a 15% increase when compared with 2013.

Therefore, total assets managed by the Bank amounted to 9,391 million euros at the end of 2014, which represents a 6.8% drop when compared with the previous year.

Customer funds

At the end of 2013, the total amount of on- and off-balance sheet customer funds amounted to 5,100 million euros, 0.5% more when compared with the previous year. Image 8 shows the performance of total customer funds over the past 5 years.

On-balance sheet funds, comprised mostly of customer deposits, totalled 4,115 million euros, which corresponds to an increase by 2.4% when compared with 2013.

Demand accounts significantly increased by 163 million euros, or 21.9%, from 743.9 million euros to 906.9 million euros. Conversely, time deposits decreased by approximately 245.2 million euros, representing a 7.2% drop.

Table 8 . Customer funds
(€ thousand)
	2014	2013	Change
			Amount	%
CUSTOMER FUNDS :
Deposits	4 081 525	4 164 419	- 82 894	-2.0
Demand accounts	906 921	743 941	162 980	21.9
Time deposits	3 170 379	3 415 576	- 245 197	-7.2
Savings accounts	4 225	4 902	- 677	-13.8

Cheques, payment orders and other funds	5 822	14 160	- 8 338	-58.9
Interest payable and other similar charges	27 556	37 999	- 10 443	-27.5
ON-BALANCE SHEET FUNDS ( a )	4 114 903	4 216 578	- 101 675	-2.4
Disintermediation funds
Investment funds	235 154	269 200	- 34 046	-12.6
Investment and capitalisation insurance	559 022	429 634	129 388	30.1
Retirement insurance plans	86 575	90 136	- 3 561	-4.0
Customer portfolio under management	104 510	67 488	37 022	54.9
OFF-BALANCE SHEET FUNDS ( b )	985 261	856 458	128 803	15.0
TOTAL CUSTOMER FUNDS ( a + b )	5 100 164	5 073 036	27 128	0.5

Off-balance sheet funds – which include investment fund applications, retirement plans, funds raised through investment insurance products, and assets managed through private banking – increased by 15%, rising from 856.5 million euros in 2013 to 985.3 million euros at the end of 2014. The positive performance of this item was mostly due to the growth of investment insurance products by around 129 million euros, or 30.1%, and portfolio management by 37 million euros, i.e. 54.9%, as can be seen in the previous table.

As at 31 December 2014, Banco Popular Portugal was the depositary of 14 investment funds managed by Popular Gestão de Activos, whose total portfolio amounted to over 235 million euros. Table 9 shows the assets contained in each of the investment funds

managed over the past two years and image 9 shows the performance of the amount managed in terms of investment funds over the past 5 years.

Table 9 . Investment Fund Portfolio ( asset value )
(€ thousand)
	2014	2013	Change
Funds			Amount	%
Popular Valor	0	2 598	- 2 598	-100.0
Popular Acções	10 417	4 284	6 133	143.2
Popular Euro Obrigações	20 880	14 548	6 332	43.5
Popular Global 25	37 007	18 289	18 718	102.3
Popular Global 50	30 566	12 770	17 796	139.4
Popular Global 75	15 615	6 299	9 316	147.9
Popular Tesouraria	14 851	4 191	10 660	254.4
Popular Objectivo Rendimento 2015	2 220	2 418	- 198	-8.2
Popular Economias Emergentes - FEI F	0	8 259	- 8 259	-100.0
Pop. Economia Emergentes II - FEI F	0	9 945	- 9 945	-100.0
Popular Multiactivos I	2 144	3 398	- 1 254	-36.9
Pop. Obrig. Ind. Emp. Germ. and USA	0	5 859	- 5 859	-100.0
Pop. Obrig. Ind. Ouro (Londres)	3 960	3 971	- 11	-0.3
Popular Objectivo Rendimento 2021	1 291	0	1 291	100.0
Popular Predifundo	11 522	13 239	- 1 717	-13.0
ImoPopular	21 135	22 629	- 1 494	-6.6
ImoPortugal	0	22 836	- 22 836	-100.0
Imourbe	10 925	14 161	- 3 236	-22.9
Popular Arrendamento FIIFAH	52 621	99 506	- 46 885	-47.1
Total	235 154	269 200	- 34 046	-12.6

Banco Popular Portugal also sells Eurovida's retirement plans and investment insurance, holding an equity stake in that company. Image 10 shows the performance the amounts invested in those products over the past 5 years.

Lending operations

Loans and advances to customers amounted to more than 5,775 million euros at the end of 2014, representing 68.7% of total assets, or 64.9% if provisions for past-due loans are deducted. Loans and advances to corporate customers and the public sector totalled around 3,182 million euros (excluding other securitized loans and overdue loans), which corresponds to 62.6% of total lending operations.

The following table shows the distribution of loans and advances to customers in the past two years.

Table 10 . Lending Transactions
(€ thousand)
	2014	2013		Change
			Amount	%
Loans and advances to customers ( a )
Public sector	3 181 880	3 092 054	89 826	2.9
Private customers	1 902 445	1 870 285	32 160	1.7
Residential mortgage loans	1 511 573	1 468 891	42 682	2.9
Personal and consumer loans	40 305	45 782	- 5 477	-12.0
Other personal lending	350 567	355 612	- 5 045	-1.4
Total	5 084 325	4 962 339	121 986	2.5
Other loans (represented by securities) ( b )	352 773	267 000	85 773	32.1
Interest and commissions receivable ( c )	8 700	8 188	512	6.3
Past-due loans and interest ( d )
Due within 90 days	15 526	19 757	- 4 231	-21.4
Over 90 days	313 924	253 065	60 859	24.0
Total	329 450	272 822	56 628	20.8
Total Gross Lending ( a + b + c + d )	5 775 248	5 510 349	264 899	4.8
Specific Loan Provisions	316 465	260 893	55 572	21.3
Total Net Lending	5 458 783	5 249 456	209 327	4.0

The increase in the amount of loans and advances to customers was due to an increase of around 86 million euros, or 32.1% , in other securitized loans and a rise by around 122 million euros, or 2.5%, in terms of loans granted, mostly to public bodies (74%) and the remaining 26% to private customers. Loans granted to companies and public bodies increased by over 89.8 million euros, or 2.9%, representing 55.1% of total gross lending. Loans to private customers represented 32.9% of total gross lending, reflecting an upsurge of 1.7%, i.e., a 32 million euro increase. This increase of loans to customers was mostly supported by the 2.9% or around 42.7 million euro increase in residential mortgage loans.

Image 11 shows the evolution of total lending operations in the past five years.

The amount of past-due loans and interest at the end of 2014 totalled over 329 million euros, which represents an increase by 20.8% when compared with the previous year. This type of loans represented 5.70% of total lending. Taking into consideration only loans that have been non-performing for more than 90 days this indicator stands at 5.44%.

Total non-performing loans amounted to 447.3 million euros at the end of 2014, which represents 7.8% of total lending operations.

Table 11 . Past-due Loans and Non-performing Loans
(€ thousand)
	2014	2013	Change
			Amount	% / p.p.
Past-due loans and interest	329 450	272 822	56 628	20.8
Past-due loans by more than 90 days (a)	313 924	253 065	60 859	24.0
Doubtful loans reclassified as past-due loans (b)	133 405	158 027	-24 622	-15.6
Non-performing loans (a+b)	447 329	411 091	36 238	8.8
Past-due loans / total lending (%)	5.70	4.95		0.75
Past-due loans over 90 days / total lending (%)	5.44	4.59		0.85
Non-performing loans / total lending (%)	7.75	7.46		0.29
Net non-performing loans / total net lending (%)	2.54	2.91		-0.37
Provisions for Credit risk (specific and generic)	366 049	310 070	55 979	18.1
Hedging Ratio (%)	111.1	113.7		-2.6
memorandum item:
Total lending	5 775 248	5 510 349	264 899	4.8

At the end of 2014, provisions for credit risks amounted to 366 million euros, ensuring a hedging ratio of 111.1%.

Proposal for the appropriation of net income

Pursuant to the Articles of Association, the Board of Directors proposes that net income for 2014, in the amount of 2,282,543.23 euros, shall be appropriated as follows:

- Statutory Reserve	Euros	229,000.00
- Other Reserves	Euros 2,053,543.23

Outlook for 2015

We believe 2015 may be a turning point in terms of investment growth in Portugal. Institutionwise belonging to a solid group provides Banco Popular with the necessary robustness and solvency to be able to strengthen its current weaknesses while simultaneously embracing the challenge of converting the opportunities offered by the market into business activities.

We need to keep on investing in the sustainable growth of our customer base, both corporate and private, and increase the number of products bought by our customers to raise their profitability.

These past few years, Banco Popular has been strengthening its costumer-centred strategy, particularly as regards SME. The whole structure has been readjusted and geared towards this ambition, namely by separating management from the commercial area regarding the management of less profitable assets, thus freeing the network for the activity of attracting customers and managing the commercial activity.

However, aspiring to become a leading Bank for companies does not alter the fact that Banco Popular still wants to provide its offers to families, being prepared to meet the needs of private costumers. As a matter of fact, private customers play an essential role in the financing of the corporate activity since they are a stable funding source.

Therefore, the Bank shall have four major strategic aims:

Increasing business
Expanding its customer base
Strengthening its positioning as a Bank for companies
Improving customer loyalty and profitability

This strategy is largely dependant on attracting as many stakeholders as possible from the corporate universe, namely customers, suppliers, employees, and partners.

In 2015, the Bank will continue to invest in providing portable services and tools, which will allow Popular Customers to be in direct contact with their bank in a fast, easy way.

As regards communication for 2015, we intend to uphold the strategy implemented in the past few years, reaffirming the Bank's standing as one of the best banks for Companies. Communication will be based on an integrated 360º campaign, aiming at increasing exposure, coverage and frequency, following an always on approach.

Risk management

Risk management has been increasingly more important for Banco Popular Portugal, in line with the Group's corporate policy, implying the direct involvement of top management in the definition of risk policies aimed at guaranteeing the Bank's stability, its short, medium and long term viability, and the optimization of the risk versus profitability ratio.

The Bank has a set of guidelines and policies for each risk category that mostly depend on identifying risks, assessing them quantitative and qualitatively, and then defining priorities in order to design action plans and subsequently monitor the risk from the analysis stage to the moment it is accepted by the institution.

These guidelines are intended to be aligned with the following risk management principles defined for the Bank:

Organizational strategy influenced by its risk exposure degree;
Involvement of the whole organization in the risk management effort;
Transparent internal and external communication as far as risks are concerned.

The aim of developing risk management processes is allowing the Bank to successfully fulfil its mission by carefully controlling the risks that characterize its activity. Simultaneously the Bank has tried to adapt its organizational structure aiming at adequately separating functions to mitigate risks.

Structure and communication lines

The risk management structure has adopted the 'three lines of defence' as illustrated and explained by the following image:

Thus, the three lines of defence are basically represented by the following internal structures: (i) the first line of defence is represented by the Risk Management Department; (ii) the second line of defence by Compliance and the Operational Control area; and (iii) the third line of defence by Auditing.

The Board of Directors is in charge of defining and implementing a risk management system, although many of the activities that are connected with this process are delegated on other organizational functions.

Communication lines are established between business units, including internal auditing, and monthly reports are sent to Risk Management detailing the state of control mechanisms employed to manage risk and changes in terms of objectives and risks. The Risk Management Department reports to the Executive Committee on the monitoring process regarding the different types of risks.

Credit and Concentration risk

This type of risk arises from the possible loss triggered by the breach of contractual obligations of the Bank's counterparties. In the case of refundable financing it arises as a consequence of the non-recovery of principal, interest and commissions, regarding amount, period and other conditions stipulated in the contracts. Concerning off-balance sheet risks, these are triggered when the Bank's counterparties fail to fulfil their obligations with third parties, which implies that the Bank has to assume as its own in view of the contract.

The credit risk the Bank is exposed to results mainly from its commercial banking activity, which is its core business. Total lending operations amounted to around 5,775 million euros at the end of December 2014, with a year-on-year increase of around 4.81%.

Loans to customers is the main asset of the Bank, representing around 65% of its net assets. As at 31 December 2014, around 69.8% of the portfolio had to do with advances and loans to corporate customers (mostly SME).

Portfolio broken down by type of counterparty

The evolution of the default ratio, as seen below, is mostly attributable to the current macroeconomic scenario. In spite of the focus given by management to credit recovering, this evolution was still slightly negative, reaching 7.8% at the end of 2014.

On the other hand, due to the ageing of the non-performing loans in the portfolio, there has been an increase of the respective average level of provisioning and, consequently of its hedging ratio.

Evolution of non-performing loans

Main areas of activity in 2014

As far as credit risk is concerned, in 2014, risk management was focused mainly on the aspects detailed in the following paragraphs.

Implementation of internal models to assess risk

In line with the Group's policy, the Bank has continued to adapt the models to the specific characteristics of the country, which is intended, in the short term, to result in an application with the Bank of Portugal to use internal methods to calculate own funds requirements to face credit risk.

As the starting point, a new definition for default was adopted pursuant to Regulation No. 575/2013 of the European Parliament and of the Council of 26 June 2013 (CRR). This definition of default of an obligor, which also serves to calculate risk-weighted assets, besides quantitative criteria now also includes qualitative criteria, as well as concerns with contamination or the materiality of the exposures.

The implementation and management of models has remained a fundamental tool to help in the credit decision process. The decision-making power of our branches is part of this process, based on the risk levels attributed by the models employed. As a complement, it is important to say that the credit decision process in the scope of the central bodies already considers a differentiation of powers depending on the risk level attributed by the rating models.

On the other hand, besides helping in the credit decision process, scoring and rating models are still being used to monitor credit risk and prepare information for the management on the portfolio's risk profile.In view of the monthly update of the respective credit ratings, it is possible to identify high risk customers or those that present higher non-performance risk at a given moment in time, enabling closer and quicker monitoring of possible warning signals.

Credit Impairment Model

The Bank implemented an internal credit impairment model that enables it to meet the need to present impairment reports, as well as monthly assess the quality of the loans granted and monitor those transactions.

This model is monitored by Risk Management and, after being revised by the external auditor, is reported to the Bank of Portugal half-yearly in the scope of the Impairment Report, where the full methodology of this model is detailed.

Ever since its inception, the Bank has regularly revised the model, mostly to reflect not only changes in the macroeconomic scenario, but also the evolution of its loan portfolio.

Since the existing model has an excellent indicator of credit quality, the concept of Probability of Default (PD), it is used in the day-to-day management of the Bank. Strictly speaking, we can say that PD incorporates two fundamental aspects: the quality of the loans granted and monitoring the customer throughout the life cycle of the transactions.

It should be noted that during the first half of 2014 the Bank initiated a process of substantial revision of its credit impairment model, which will result, in the short term, in a new LGD estimation model. These aspects, as well as the full description of the corresponding methodology are described in detail in note 47 of this report.

In the scope of the stress tests that are regularly performed, the estimated impairment amount for the three-year period is subject to a scenario and sensitivity analysis depending on the incorporation of the macroeconomic variables defined by the Bank of Portugal into the model.

Concentration Risk

Risk Management monitors and manages concentration risk and ensures that adequate policies and procedures are maintained and implemented to monitor and manage credit concentration risk. It is also in charge of monitoring delegated powers in terms of concentration risk and periodically presents reports on concentration risk to the Board of Directors.

The Bank defined a structure of limits aimed at maintaining an exposure level in line with its risk profile and an adequate diversification of its loan portfolio.

The currently established limits for credit concentration risk are detailed in note 47 of this report.

Herfindahl Index

In order to estimate the capital requirements necessary to face concentration risk, the Bank resorted to the methodology published by the Bank of Portugal in its Instruction No. 5/2011, which is based on the Herfindahl Index calculation.

Securities portfolio

The Bank's securities portfolio (including available-for-sale financial assets and other financial assets at fair value through profit or loss) amounted to around 1.9 billion euros at the end of 2014, which represents around 22.8% of the Bank's total net assets. The chart below shows these assets broken down by type.

Market risk

Market Risk is the probability of negative impact on the Bank's earnings or capital due to adverse changes in the market prices of the instruments in the trading book, caused by the volatility of equity prices, interest rates, and foreign exchange rates.

Considering that the measurement and management of the impact of interest rate fluctuations on the Bank's Balance Sheet is done separately via the Structural Interest Rate Risk of the Balance Sheet, and given the Bank's activity and the structure of its Balance Sheet, market risk is limited to the fluctuation in the prices of the securities that comprise its portfolio.

As at 31 December 2014, the Bank's portfolio amounted to around 1,918 million euros, of which around 1,879 million were classified as available-for-sale financial assets.

Foreign Exchange Rate Risk

Foreign exchange rate risk is the probability of negative impact on the Bank's earnings or capital due to adverse changes in foreign exchange rates, caused by the volatility of the price of instruments that correspond to foreign exchange positions or by any change in the competitive position of the institution due to significant fluctuations in foreign exchange rates. The activity in foreign currency consists in making transactions with the parent company deriving from customer operations. In this context, the global currency position is almost null and therefore any impact on the Bank's earnings as a result of fluctuations in exchange rates (mostly the American dollar) is immaterial.

The Bank also uses the VaR methodology as a management instrument for its foreign currency position using the standard method to calculate own funds requirements.

Operational Risk

Banco Popular Portugal interprets Operational Risk as defined in the Basel II Accord, i.e., as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

The management process is based on an analysis by functional area listing the risks inherent in the specific functions and tasks of each body in the structure.

Involving the whole organization, the management model is ensured by the following structures:

Executive Committee (CE) – Top management structure that is the main responsible for management guidelines and policies, establishing and monitoring risk appetite and risk tolerance limits.

Risk Management Department (DGR) - Integrates the unit exclusively dedicated to managing operational risk. It is in charge of boosting and coordinating the remaining structures towards the application of methodologies and employment of corporate tools to support the model.

Heads of Operational Risk (RRO) – Corresponding to the basis of the organization, these are elements appointed by the hierarchies of each organic unit who have the role of facilitators and promoters of the operational risk management model.

Internal auditing, internal control and security also play a key role in the process of operational risk management.

The methodology adopted in line with the parent company is characterized by the following components or stages of the risk management cycle:

1. Identification
a. Descriptive of Functions and Risk and Control Maps

Under the guidance of Risk Management every functional area of the Bank collects these documents based on models and surveys especially designed for this effect.

b. Collection of operational risk events

Mostly done automatically, every loss occurred due to reasons that fit into the definition of operational risk is recorded and catalogued in a specific database, complying with the standards defined in view of the quality and integrity of the information.

2. Assessment

With the aim of assessing the institution's exposure to operational risk, the people in charge of operational risk periodically carry out a self-assessment exercise in order to

attribute potential values of frequency and impact of the risks identified within each functional area.

From the conjugation of these values with those of the efficiency assessment and the application of control procedures results a residual risk value that enables the management to identify the areas and processes that are more fragile and in need for intervention.

From this assessment and depending on the estimated average impacts for each risk factor, it is understood that the Bank has a moderate risk profile.

Risks by expected impact

3. Monitoring

a. Key operational risk indicators (KRIs).

Whenever relevant, warning mechanisms are developed as regards indicators that might identify risk situations.

b. Reporting

Regular Operational Risk reporting circuits are implemented for the benefit of the several participants in its management, namely top management and those in charge of Operational Risk in their functional areas with the aim of exposing the main causes and origins of the losses occurred.

Every month, the more relevant situations are presented to the Internal Control and Operational Risk Committee which fosters its analysis and the adoption of the most adequate mitigating measures.

Since 31 December 2014, Banco Popular Portugal has calculated its own funds requirements for operational risk hedging according to the standard approach (TSA).

Quantitative situation

At the end of 2014, the losses identified that fit into Operational Risk amounted to 9% of the Bank's capacity for the absorption of such losses, considering the amount of own funds to hedge Operational Risk defined according to the standard approach at the end of the year.

The losses verified are distributed as follows according to the types defined by Basel II:

Frequency:

Bearing in mind the guidelines provided by the Bank of Portugal in its Instruction No. 4/2011, which states that institutions should take into consideration Operational Risk in their stress

tests, and given that we have not identified a direct correlation with an adverse macroeconomic environment in the event database, Banco Popular has chosen to perform a stress test based on the statistical processing of its event history, presenting it in the scope of its regular reporting to the Bank of Portugal.

Structural interest rate risk

This risk is defined as the risk originated by the fluctuations in interest rates and is estimated through the analysis made to maturities and repricing of on-balance sheet transactions involving assets and liabilities.

Banco Popular Portugal measures its structural interest rate risk by using the repricing gap method.

This method consists in measuring exposures by different maturity and repricing dates in asset and liability cash flows. Briefly, this model groups those assets and liabilities into fixed time intervals (maturity date or date of the next interest rate revision when indexed) based on which the potential impact on net interest income is calculated.

In this framework, this model considers a scenario in which there is an immediate impact on interest rates, so that, on the date the interest rates are revised (both asset and liability transactions) the new rates incorporate that effect.

Besides regularly assessing the interest rate risk pursuant to Instruction No. 19/2005 issued by the Bank of Portugal - in which the impact of a shift of 200 basis points in the yield curve, both in terms of net earnings and net interest income, are measured - in the scope of the stress test performed, the Bank analyses the sensitivity to the following parameters:

Parallel shift of 100 b.p. in the yield curve;
Fluctuation of 100 b.p. in the steepness of the yield curve.

Liquidity risk

By controlling liquidity risk, the Bank intends to ensure that it will have the necessary funds to meet its payment obligations at all times, thus minimizing the risk of losses that would arise if those obligations were not met. The Bank is exposed to daily disbursements of cash arising from current accounts, loans and guarantees, margin account needs and other needs related with the regular functioning of a banking institution.

of access, depth, and compliance with the pre-established risk management policies. The liquidity management process, as performed by the Bank, includes:

The daily funding needs that are managed by monitoring future cash flows in order to guarantee that the requirements are met. This includes write-backs as loans mature or are granted to customers;
Maintaining a high-liquidity asset portfolio so that these can be easily converted into cash as a protection against any unexpected interruption in cash flows;
Monitoring liquidity ratios taking into account external and internal requirements;
Managing the concentration and profile of debt maturities resorting to the liquidity gap model.

Monitoring and reporting assume the form of cash flow measurement and projection reports for the following day, week and month, since these are important time brackets in terms of liquidity management. The starting point for these projections is an analysis of the contractual maturity of financial liabilities and the expected date for asset cash flows. The cash flow also monitors the degree of non-utilized loan commitments, the use of overdraft facilities and the impact of contingent liabilities such as letters of credit and guarantees.

Regarding the analysis of liquidity risk, besides the obligations established by the Bank of Portugal under the terms of Instruction No. 13/2009, the Bank also resorts to the concept of liquidity gap, i.e., from the balance sheet of the Bank as at 31 December 2014, based on the maturities of assets and liabilities it is possible to ascertain the ratio between the referred to maturities (positive or negative) according to residual maturity deadlines called liquidity gaps.

The Bank also calculates LCR (Liquidity Coverage Ratio) and NSFR (Net Stable Funding Ratio), with the aim to monitor the evolution of liquidity and report it to the supervising authorities.

Reputational risk

Reputational risk is defined as the probability of negative impact on earnings or capital due to an adverse perception of the public image of the financial institution, grounded or otherwise, held by its different stakeholders, i.e., clients, suppliers, financial analysts, employees, investors or the public opinion in general.

Potential adverse impact on the Bank's reputation may arise from failures in terms of management and control of the aforementioned risks. In this scope, the Group considers that

the internal government system, the policies and procedures in force, are adequate and enable the prevention and mitigation of reputational risk in its various forms.

The main and more easily identifiable source of this type of risk is legal risk. In this scope, at Banco Popular Portugal, the areas of Compliance and Control worry about abiding by the legal regulations in force, assessing and trying to prevent possible relevant default risks from an economic or reputational standpoint.

Property Risk

Property risk is defined as the probability of negative impact on results or equity arising from a general drop in the property portfolio and the inherent volatility of the real estate market.

The Bank is exposed to property risk that arises from its property portfolio whose net amount as at 31 December 2014 amounted to around 112.1 million euros, representing around 1.3% of the Bank's net assets. These were assets whose ownership was transferred to the Bank following legal actions or in lieu of payment to settle loan debts (mostly loans for construction/property development and residential mortgage loans).

In the scope of the stress test performed, a sensitivity analysis and the impact on capital consumption caused by the decrease in property prices is calculated.

Quality and Innovation

'Service Quality' - A Culture of Commitment to Customers

For a bank operating in a competitive market in which the different competitors do not provide a varied offer, the quality of the service delivered is the main factor that offers added-value to the customer. Therefore, Banco Popular Portugal has endeavoured to develop a set of initiatives aiming at implementing these practices.

Quality Metrics - For Banco Popular it is important that its customers' perceptions exceed their initial expectations. Thus, the Bank offers its costumers products and services tailored to their real needs and replies to all requests swiftly and efficiently with greater involvement between staff and customers in every interaction. Based on this assumption, the Bank continues to monitor in detail the quality results based on metrics such as:

Internal surveys on the quality of central services;
Internal surveys on the commercial offer;
Mystery customer programmes targeted at assessing key moments in the experiences of the customer with the Bank;
Training actions and interaction sessions with the commercial network with the aim to deliver continuously improved customer service;
Attributing internal awards to staff from both the commercial network and central services for services delivered with the highest levels of customer satisfaction.

The aim is to continuously identify aspects that require readjustment and implement their respective improvement actions, always with the aim of increasing customer satisfaction with the quality of the service delivered.

Customer Service - Managing complaints is also a key aspect in the service quality strategy of Banco Popular Portugal and is understood by every employee as an opportunity to recover the trust relationship with the customers and facilitate improvement actions.

Recognition of the Quality of the Service delivered by Banco Popular - Banco Popular Portugal was chosen as a 'Consumers' Choice' brand in the segment of small and mediumsized banks. This is an assessment and classification system for brands based on customer satisfaction and acceptability.

Erasmus Project - The Bank created a programme targeted at the staff of the central departments with the objective of letting them know how branches work with the customers and showing how important the support and contribution of the several departments is towards developing the commercial activity and improving the quality of the service provided to our customers.

Social and Corporate Responsibility

In 2014, Banco Popular continued to invest in the Social Responsibility area, trying to involve its staff and customers in actions that support several social solidarity institutions.

The beginning of the year was marked by the entrance of Banco Popular in the GRACE (Group of Reflection and Support to Corporate Citizenship), a non-profit organization that joins over 100 companies and is exclusively dedicated to the promotion of Corporate Social Responsibility. Accordingly, throughout the year, the Bank participated in several initiatives promoted by GRACE: the participation of two staff members in the training program 'New Leaders', whose aim was to develop new leaders for corporate citizenship; the participation of around two dozen members of staff in the 9th edition of GIRO (GRACE, Intervene, Recover, Organize), the largest corporate voluntary initiative in Portugal; the participation of a member of staff in a work group promoted by GRACE in a partnership with Everis, whose aim was to identify social responsibility challenges and opportunities in the banking sector.

In 2014, the Bank also created a Pool of Volunteers from which voluntary initiatives are designed and created, promoted in a partnership with GRACE or any other charities. One of the most significant internal campaigns of social responsibility was carried out at Christmas and was called 'Put this project in your lap'. This campaign encompassed every member of staff and involved the collection of foodstuff to Ajuda de Berço, an association that helps babies and their mothers. As a whole, over a ton of goods were collected. The Bank also promoted an activity for members of the Pool of Volunteers (in Lisbon and Oporto), in a partnership with Operação Nariz Vermelho, in which members of staff helped put together and package red noses. Another internal initiative was donating plastic caps, in which each ton of caps corresponded to 250 euros. This action is still active, and over a ton of caps have already been collected. In December, Banco Popular again made available to its customers the 'Solidarity Deposit', in which for each 1,000 euros deposited in a special Time Deposit, 1 euro was donated to charities.

In 2014, Banco Popular Portugal also played an important role by sponsoring social projects. The Quarteto Gastronómico, an initiative created to mitigate the academic emergency caused by the war in Syria, was one of the organizations supported by the Bank. As the Bank has been doing in the past few year, in 2014 it also sponsored several awards promoted by the Academy of Sciences of Lisbon to distinguish the best students of high school in 2012/2013: Alexandre Herculano (History), Pedro Nunes (Mathematics) and Padre António Vieira (Portuguese Language). Through a partnership with the Ministry for Education, we have also created the Competition 'Ler é uma Festa' (literally, Reading is a Party) within the National Plan for Reading. The competition was open to every child and youngster studying in the public education system. Finally, the law office Vieira de Almeida created an initiative sponsored by the Bank that benefited Ajuda de Berço, whose aim was to climb the Mount Chimborazo in Ecuador to help three charities.

Energetic Efficiency: Cost Reduction and Environmental Sustainability

Banco Popular has adopted environmental sustainability policies by implementing energetic efficiency practices that include using energy as rationally as possible without prejudice to comfort levels and the quality of our staff's working conditions. This mostly implied minimizing the waste of energy by altering the behaviour of the users of the buildings and resorting to more modern and efficient equipment, with less energy consumption and less pollutant emissions.

In 2014, the project of energetic efficiency that had been started in 2012 was continued in order to obtain savings in terms of energy expenses and reduce the negative impact on the environment. In order to do that, we implemented measures that have generated savings, especially as regards equipments that consume more power in our Headquarters, such as lights, air-conditioning, elevators, and neon signs.

Lights in the work spaces and in the six parking floors will turn off automatically in almost every floor at 7 p.m. Besides that, we have also installed motion detectors that react to the presence or absence of people at their work stations, automatically turning on or off the surrounding lights.

The measures implemented have had a rather positive impact on the consumption of electricity and consequently on the respective expenses, which have dropped by around 20% in the past two years. In 2014, electricity consumption decreased by 11% when

compared with 2013, which represents 373,000 Kw less consumed and 202 tons of CO2 less launched into the atmosphere.

Although with a somewhat lesser economic impact, this concern is also applied to the rationalization of the consumption of water. Therefore, in the second half of 2014, we have installed flow rate regulators that were able to generate savings of around 60% in terms of water consumption. Consequently, in 2014, water expenses decreased by 7% due to a reduction in consumption of around 12%.

To the above-mentioned initiatives, we have to add the information that Banco Popular only hires environmentally certified companies for the collection, separation and destruction of non-organic solid residues.

Final note

The Board of Directors would like to express its recognition to the monetary and supervising authorities, to the shareholder Banco Popular Español, and to the Supervisory Board, for their valuable cooperation in monitoring the activity of Banco Popular Portugal.

The Board would also like to thank the Bank's customers for the trust bestowed, and would like to express its appreciation to the Bank's employees for their professional commitment in the exercise of their functions, and their contribution to the development of the Bank.

Lisbon, 26 February 2015

The Board of Directors

Annex 1 - Shareholding position of the members of the governing and supervisory bodies

(Article 447 of the Commercial Companies Code - 'Código das Sociedades Comerciais') Nothing to report.

Annex 2 - Qualifying holdings

(Article 448 of the Commercial Companies Code and Article 20 of the Securities Code 'Código dos Valores Mobiliários')

Shareholders	No. of Shares	Shareholding position	Voting Rights
Banco Popular Español, SA	476 000 000	100%	100%

Annual Accounts

Balance Sheet

Individual Balance Sheet as at 31 December 2014 and 2013

					(€ thousand)

	N o te/ T able A nnex	A mo unt befo re pro visio ns impairment & depreciatio n	31-12-2014 P ro visio ns, impairment & depreciatio n	N et amo unt	31-12-2013
		1	2	3 = 1 - 2
Net
Cash and balances w ith central banks	17	134 283		134 283	54 114
Deposits w ith banks	18	80 219		80 219	174 427
Financial assets held for trading	19	78 280		78 280	73 843
Other financial assets at fair value through profit or loss 20		-		-	24 983
Available-for-sale financial assets	21	1 879 094		1 879 094	1 704 136
Loans and advances to banks	22	197 962		197 962	1 268 822
Loans and advances to customers	23	5 775 248	316 465	5 458 783	5 249 456
Hedging derivatives	34			0	103
Non-current assets held for sale	25	20 747		20 747	20 747
Other tangible assets	26	160 247	89 616	70 631	82 381
Intangible assets	27	20 864	20 793	71	172
Current income tax assets	15	3 566		3 566	3 566
Deferred income tax assets	28	75 226		75 226	72 175
Other assets	29	436 103	29 117	406 986	493 248
Total Assets		8 861 839	455 991	8 405 848	9 222 173
Liabilities
Deposits from central banks	30	900 003		900 003	1 306 839
Financial liabilities held for trading	19	43 845		43 845	29 629
Deposits from banks	31	2 065 409		2 065 409	1 919 736
Deposits from customers	32	4 114 903		4 114 903	4 216 578
Debt securities issued	33	317 251		317 251	865 255
Hedging derivatives	34	142 258		142 258	101 883
Provisions	35	52 575		52 575	51 054
Current income tax liabilities		1 817		1 817
Deferred income tax liabilities	28	25 793		25 793	4 060
Other liabilities	36	38 789		38 789	61 251
Total Liabilities		7 702 643	0	7 702 643	8 556 285
Shareholders' equity
Share capital	39	476 000		476 000	476 000
Share premium	39	10 109		10 109	10 109
Revaluation reserves	40	- 2 285		- 2 285	- 54 143
Other reserves and retained earnings	41	217 098		217 098	265 642
Income for the period		2 283		2 283	- 31 720
Total Equity		703 205	0	703 205	665 888
Total Liabilities + Equity		8 405 848	0	8 405 848	9 222 173

Income Statement

Individual Income Statement as at 31 December 2014 and 2013

			(€ thousand)
	N o te/ T able A nnex	31-12-2014	31-12-2013
Interest and similar income Interest and similar charges	6 6	256 131 131 408	303 812 182 564
Net interest income		124 723	121 248
Return on equity instruments Fees and commissions received Fees and commission paid Net gains from financial assets at fair value	7 8 8	60 64 007 8 330	49 60 657 8 574
through profit or loss Net gains from available-for-sale financial assets Net gains from foreign exchange differences Gains from the sale of other assets	9 9 10 11	- 3 482 9 549 1 334 - 8 329	- 2 686 11 389 1 288 - 5 241
Other operating income	12	- 7 243	- 6 415
Operating income		172 289	171 715
Personnel expenses General administrative expenses Depreciation and amortization Provisions net of reversals and recoveries Adjustments to loans and advances to customers (net of reversals and recoveries) Impairment of other assets net of reversals and recoveries	13 14 26/27 35 23 29	58 175 50 696 3 848 1 521 59 433 - 6 828	56 309 51 473 5 023 8 563 89 390 12 481
Net income before tax		5 444	- 51 524
Income tax Current tax Deferred tax	15 15	3 161 1 944 1 217	- 19 804 - 957 - 18 847
Net income after taxes		2 283	- 31 720
Of w hich: Net income from discontinued operations		0	0
Net income for the period		2 283	- 31 720
Earnings per share (euro)		0.00	-0.07

Statement of Comprehensive Income

		(€ thousand)
	31-12-2014	31-12-2013
Net income	2 283	- 31 720
Other comprehensive income
Items not reclassified as income
Retirement pensions
Recognition of actuarial gains and losses	- 18 419	- 11 002
	- 18 419	- 11 002
Items reclassified as income
Available-for-sale financial assets
Revaluation of available-for-sale financial assets	70 919	79 172
Tax burden	- 17 466	- 22 452
	53 453	56 720
Income not recognised in the income statement	35 034	45 718
Individual comprehensive income	37 317	13 998

CHIEF ACCOUNTANT THE BOARD OF DIRECTORS

Individual Statement of Changes in Equity

						(€ thousand)
	Share Capital	Share premium	Fair value reserves	Other reserves and retained earnings	Net income	Total
Balance as at 01 January 2013	476 000	10 109	- 110 807	273 896	2 692	651 890
Transferred to reserves				2 692	- 2 692	0
Actuarial gains and losses						0
Others			- 56	56		0
Comprehensive income for the period			56 720	- 11 002	- 31 720	13 998
Balance as at 31 December 2013	476 000	10 109	- 54 143	265 642	- 31 720	665 888
Transferred to reserves				- 31 720	31 720	0
Actuarial gains and losses						0
Others			- 1 595	1 595		0
Comprehensive income for the period			53 453	- 18 419	2 283	37 317
Balance as at 31 December 2014	476 000	10 109	- 2 285	217 098	2 283	703 205

Cash flow Statement

Cash Flow Statements for the periods ended 31 December 2014 and 2013

(€ thousand)

	Notes	31-12-2014	31-12-2013
Cash flow from operating activities
Interest, fees and other income received		269 703	304 097
Interest, fees and other expenses paid		- 119 583	- 136 803
Recovery of outstanding loans and interest		2 981	1 337
Cash paid to suppliers and employees		- 106 337	- 95 787
Contributions to the pension fund	37	- 22 050	- 647
Sub-total		24 714	72 197
Changes in operating assets and liabilities
Loans and advances to central banks		- 80 781	117 729
Financial assets held for trading and at fair value through profit or loss		31 394	- 21 024
Loans and advances to banks		3 229	140 773
Deposits from banks		- 248 913	194 732
Loans and advances to customers		- 346 275	358 014
Deposits from customers		- 91 231	311 562
Risk management derivatives		15 424	- 48 846
Other operating assets and liabilities		- 70 920	- 156 881
Net cash flow from operating activities before
income taxes		- 763 359	968 256
Income tax		- 127	- 1 248
Net cash flow from operating activities		- 763 486	967 008
Cash flow from investment activities
Dividends received		60	49
Purchase of available-for-sale financial assets		- 738 253	-2 980 422
Sale of available-for-sale financial assets		696 096	2 975 761
Held-to-maturity investments		-	301 019
Non-current tangible assets held for sale		204 126	172 561
Purchase and sale of assets		3 610	- 189
Net cash flow from investment activities		165 639	468 779
Cash flow from financing activities
Issue of ow n equity instruments	33	298 622	122 946
Redemption of ow n equity instruments		- 864 601	- 300 192
Net cash flow from financing activities		- 565 979	- 177 246
Net changes in cash and cash equivalents
Cash and cash equivalents at the beginning of the period	46	1 487 896	227 772
Effect of exchange rate fluctuations on cash and cash equivalents		1 346	1 583
Net changes in cash and cash equivalents		-1 163 826	1 258 541
Cash and cash equivalents at the end of the period	46	325 416	1 487 896

Notes to the Financial Statements

NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2014 and 2013

(€ thousand)

1. INTRODUCTION

1.1 Activity

The Bank – then named BNC-Banco Nacional de Crédito Imobiliário – was founded on 2 July 1991, following the authorization given by Decree order No. 155/91, of 26 April, issued by the Ministry for Finances. On 12 September 2005, the name of the Bank was changed to Banco Popular Portugal, S.A.

The Bank is authorized to operate pursuant to the rules and regulations currently applicable to banks in Portugal and its corporate purpose is raising funds from third parties in the form of deposits or other, which it applies, together with its own funds, in granting loans or in other assets, also providing additional banking services in the country and abroad.

The accounts of the Bank are consolidated at the parent company, Banco Popular Español, S.A., ('BPE') whose Head Office is located in Madrid, Spain, at 34 Calle Velázquez.

BPE accounts are available at its respective Head Office as well on its webpage (www.bancopopular.es).

The Bank is not a listed company.

As a result of the restructuring process initiated in previous years, during 2011, the Bank ceased to hold any equity stake in any subsidiary and reclassified 'Class D Notes' issued by Navigator Mortgage Finance No. 1 Plc ('Navigator') into the available-for-sale asset portfolio.

Based on the assumption that the investment in Navigator and its potential impact on the financial statements were considered immaterial, and pursuant to IAS 1 revised, the Bank decided not to prepare consolidated financial statements from 2011 onwards, since that information is not materially relevant for effects of the presentation of the Bank's financial information nor does it influence the decision of the readers of those statements.

Thus, as at 31 December 2014, the Bank detained only one equity stake in the associated company Eurovida – Companhia de Seguros de Vida, S.A. (see Note 25).

2. Summary of the Main Accounting Principles

The main accounting principles and valuation criteria adopted in the preparation of these financial statements are stated below. These principles were consistently applied to every year presented, except when otherwise stated.

2.1 Bases of preparation

Individual financial statements

Individual financial statements for Banco Popular Portugal were prepared in accordance with the Adjusted Accounting Standards ('Normas de Contabilidade Ajustadas' - NCA) as defined by Notice No. 1/2005, of 21 February, and defined in Instructions Nos.9/2005 and 23/2004 issued by the Bank of Portugal.

The Adjusted Accounting Standards fundamentally correspond to the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) pursuant to Regulation (EC) No. 1606/2002, of the European Parliament and of the Council, of 19 July, except for the following matters:

Valuation of loans to customers and other receivables On the date of their first recognition they are booked by their nominal value, while the component of interest, commissions and external expenses is attributable to their respective underlying transactions recognised according to the pro rata temporis rule, when dealing with operations that produce revenue flows over a period of more than one month;
Provisions for loans to customers and other receivables Provisions for this class of financial assets are subject to a minimum framework for the constitution of specific provisions (general and country risk) pursuant to Notice No. 3/95 of the Bank of Portugal;
Tangible assets On the date of initial recognition they are booked at acquisition cost, and subsequently the historical cost is maintained, except in case of legally authorized revaluations.

IFRS Disclosures - New standards as at 31 December 2014

a) Impact of the adoption of standards and interpretations that became effective on 1 January 2014

IAS 32 (amended), Offsetting financial assets and liabilities. This amendment is part of IASB's 'offsetting financial assets and liabilities' project which aims at clarifying the meaning of 'currently has a legally enforceable right to set-off' and also clarifies that some settlement systems which apply gross settlement mechanisms (such as central clearing house systems) may be equivalent to offsetting by their net amounts. The adoption of this amendment did not have any impact on the Bank's Financial Statements.
IAS 36 (amended), Recoverable amount disclosures for non-financial assets. This amendment deals with disclosing information on the amount of impaired assets, when it had been measured based on fair value minus costs of disposal. The adoption of this amendment did not have any impact on the Bank's Financial Statements.
IAS 39 (amended), Novation of derivatives and continuation of hedge accounting. The amendment to IAS 39 enables an Entity to continue hedge accounting, in a situation where a derivative that has been designated as a hedging instrument is novated from one counterparty to a central counterparty, as a consequence of new laws or regulations. The adoption of this amendment did not have any impact on the Bank's Financial Statements.
Amendments to IFRS 10, 12, and IAS 27 'Investment entities'. This amendment defines 'Investment entities' and introduces an exemption from consolidation in the scope of IFRS 10 for entities that qualify as Investment entities, whose investments in subsidiaries must be measured at fair value through profit or loss by reference to IAS 39. Specific disclosures required by IFRS 12. The adoption of these amendments did not have any impact on the Bank's Financial Statements.
IFRS 10 (new), 'Consolidated financial statements'. IFRS 10 replaces all accounting procedures and guidelines regarding control and consolidation included in IAS 27 and SIC 12, changing the definition of control and the criteria applied to determine it. The main principle that a consolidated entity shall present the parent company and its subsidiaries as a single entity remains unaltered. The adoption of this amendment did not have any impact on the Bank's Financial Statements.
IFRS 11 (new), 'Joint arrangements'. IFRS 10 is focused on the rights and obligations of joint arrangements regardless of their legal form. Joint arrangements may be joint operations (rights over assets and liabilities) or joint ventures (rights over net assets by applying the equity method of accounting). Proportional consolidation of joint ventures is no longer allowed. The adoption of this amendment did not have any impact on the Bank's Financial Statements.
IFRS 12 (new), 'Disclosure of interests in other entities'. This standard establishes disclosure requirements for every nature of interest in other entities, such as; subsidiaries, joint arrangements, associates and structured entities, in order to allow for the assessment of the nature, risks and financial effects associated with the Entity's interests. The adoption of this amendment did not have any impact on the Bank's Financial Statements.
Amendments to IFRS 10, 11, and 12 'Transition guidance'. This amendment clarifies that when an accounting treatment differs from IAS 27/SIC 12 guidelines resulting from the adoption of IFRS 10, comparatives only need to be adjusted to the immediately preceding period, and those differences shall be recognised in equity at the beginning of the comparative period . This amendment introduced by IFRS 11 is related with the obligation of testing for impairment the financial investment resulting from discontinuing proportional consolidation. The specific disclosure requirements are included in IFRS 12. The adoption of these amendments did not have any impact on the Bank's Financial Statements.
IAS 27 (revised 2011), 'Separate financial statements'. IAS 27 was revised after IFRS 10 was published and contains recognition and disclosure requirements for investments in subsidiaries, joint ventures and associates when the Entity prepares separate financial statements. The adoption of this amendment did not have any impact on the Bank's Financial Statements.
IAS 28 (revised 2011),'Investments in associates and joint ventures'. IAS 28 was revised following the publication of IFRS 11 and prescribes the accounting treatment for investments in associates and joint ventures, also defining the application of the equity method. The adoption of this amendment did not have any impact on the Bank's Financial Statements.
b) Standards, amendments to existing standards and interpretations that have already been published and whose adoption is mandatory for the Bank, for annual periods beginning on or after 01 July 2014, or on a subsequent date, which the Bank has not adopted in advance.

Standards

IAS 1 (amended), 'Disclosure initiative' (effective for annual periods beginning on or after 1 January 2016). This amendment is still going through the European Union endorsement process. This amendment provides information on materiality and aggregation, the presentation of subtotals, the structure of financial statements, and the disclosure of accounting principles. The adoption of this amendment is not expected to have any materially relevant impact on the Bank's Financial Statements.
IAS 16 and IAS 38 (amended), 'Clarification of acceptable methods of depreciation and amortisation' (effective for annual periods beginning on or after 1 January 2016). This standard is still going through the European Union endorsement process. This amendment clarifies that a revenue-based method is not considered to be an appropriate manifestation of the consumption of the economic benefits embodied in the asset. This amendment has a prospective application. The adoption of this amendment is not expected to have any materially relevant impact on the Bank's Financial Statements.
IAS 19 (amended), 'Defined benefit plans Employee contributions' (effective for annual periods beginning on or after 1 July 2014). This amendment is still going through the European Union endorsement process. The amendment to IAS 19 applies to employee contributions or those made by third parties into defined benefit plans and intends to simplify the accounting for contributions that are independent of the number of years of employee service. The adoption of this amendment is not expected to have any materially relevant impact on the Bank's Financial Statements.
IAS 27 (amended), 'Equity method in separate financial statements' (effective for annual periods beginning on or after 1 January 2016). This standard is still going through the European Union endorsement process. This amendment permits the use of the equity method of accounting in measuring investments in subsidiaries, joint ventures and associates in the separate financial statements. This amendment has a prospective application. The adoption of this amendment is not expected to have any materially relevant impact on the financial statements.
Amendments to IFRS 10 and IAS 28, 'Sales or contributions of assets between an investor and its associate/joint venture' (effective for annual periods beginning on or after 1 January 2016). This standard is still going through the European Union endorsement process. This amendment clarifies that in the sale or contribution of assets between an investor and its associate/joint venture, the gains/losses are fully recognised when the assets transferred constitute a business and only partially recognised (to the extent of the interests of the other venturers) when the assets transferred do not constitute a business. The adoption of this amendment is not expected to have any materially relevant impact on the Bank's Financial Statements.
Amendments to IFRS 10, IFRS 12 and IAS 28 'Investment entities: applying the consolidation exception' (effective for annual periods beginning on or after 1 January 2016). This standard is still going through the European Union endorsement process. This amendment clarifies that the consolidation exception applies to an intermediary parent company that constitutes a subsidiary of an investment entity. Additionally, the option of applying the equity method of accounting, pursuant to IAS 28, may apply to an entity that is not an investment entity but holds interests in a subsidiary or joint venture that is an 'investment entity'. The adoption of this amendment is not expected to have any materially relevant impact on the Bank's Financial Statements.
IFRS 11 (amended),'Accounting for acquisitions of interests in joint operations' (effective for annual periods beginning on or after 1 January 2016). This standard is still going through the European Union endorsement process. This amendment introduced guidelines to account for the acquisition of interests in a joint operation that qualifies as a business, to which the principles of IFRS 3 - 'Business concentrations' are applied. The adoption of this amendment is not expected to have any materially relevant impact on the Bank's Financial Statements.
2010 - 2012 Improvements to Standards (effective, in general, for annual periods beginning on or after 1 July 2014). These improvements are still going through the European Union endorsement process. This improvement cycle affects the following standards: IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24, and IAS 38. The adoption of this amendment is not expected to have any materially relevant impact on the Bank's Financial Statements.
2011 - 2013 Improvements to Standards (effective, in general, for annual periods beginning on or after 1 January 2015). This improvement cycle affects the following standards: IFRS 1, IFRS 3, IFRS 13, and IAS 40. The adoption of this amendment is not expected to have any materially relevant impact on the Bank's Financial Statements.
2012 - 2014 Improvements to Standards (effective, in general, for annual periods beginning on or after 1 January 2016). These improvements are still going through the European Union endorsement process. This improvement cycle affects the following standards: IFRS 5, IFRS 7, IAS 19, and IAS 34. The adoption of this amendment is not expected to have any materially relevant impact on the Bank's Financial Statements.
IFRS 9 (new), 'Financial instruments' (effective for annual periods beginning on or after 1 January 2018). This standard is still going through the European Union endorsement process. IFRS 9 has replaced IAS 39 requirements regarding: (i) the recognition and measurement of financial assets and liabilities; (ii) the recognition credit assets impairment (using the expected loss model); and (iii) the requirements for the recognition and classification of hedge accounting. The adoption of this standard is not expected to have any materially relevant impact on the Bank's Financial Statements.
IFRS 15 (new), 'Revenue from contracts with customers (effective for annual periods beginning on or after 1 January 2017). This standard is still going through the European Union endorsement process. This new standard only applies to contracts for the delivery of products or services, and requires the entity to recognise revenue when the contractual obligation to transfer promised goods or services is satisfied and in the amount that reflects the amount to which the entity is entitled pursuant to the 'five-step model'. The adoption of this standard is not expected to have any materially relevant impact on the Bank's Financial Statements.

Interpretations

IFRIC 21 (new), 'Levies' (effective for annual periods beginning on or after 17 June 2014). IFRIC 21 is an interpretation of IAS 37 and of the recognition of liabilities, identifying the obligation event for the recognition of a liability as the activity that triggers the payment of the levy (except for income tax) in accordance with the relevant legislation. The adoption of this amendment is not expected to have any materially relevant impact on the financial statements.

2.2 Segmental reporting

As of 1 January 2009, the Bank adopted IFRS 8 – Operating Segments for effects of disclosing financial information analysed by operating segments (see note 5).

An operational segment in a business is a group of assets and operations used to provide products or services, subject to risks and benefits that are different from those seen in other segments.

The Bank determines and presents operational segments based on in-house produced management information.

2.3 Equity stakes in associated companies

Associated companies are those in which the Bank has, directly or indirectly, a significant influence over its management and financial policy but does not hold control over the company. It is assumed that the Bank has a significant influence when it holds the power to control over 20% of the voting rights of the associate. Even when voting rights are lower than 20%, the Bank may have significant influence through the participation in management bodies or the composition of the Executive Boards of Directors.

In the Bank's individual financial statements, associated companies are valued at historical cost. The dividends from associated companies are booked in the Bank's individual income on the date they are attributed or received.

In case of objective evidence of impairment, the loss by impairment is recognised in the income statement.

2.4 Foreign currency transactions

a) Functional currency and presentation currency

The financial statements are presented in euros, which is both the functional and presentation currency of the Bank.

b) Transactions and Balances

Foreign currency transactions are translated into the functional currency using indicative exchange rates prevailing on the dates of transactions. Gains and losses resulting from the conversion of foreign currency transactions, deriving from their extinction and conversion into monetary assets and liabilities in foreign currencies at the exchange rate at the end of each period, are recognised in the income statement, except when they are part of cash flow hedges or net investment in foreign currency, which are deferred in equity.

Conversion differences in non-monetary items, such as equity instruments measured at fair value with changes recognised in net income, are booked as gains and losses at fair value. For non-monetary items, such as equity instruments, classified as available for sale, conversion differences are booked in equity, in the fair value reserve.

2.5 Derivative financial instruments

Derivative financial instruments are initially recognised at fair value on trade date and subsequently remeasured at fair value. Fair values are based on quoted market prices, including recent market transactions and evaluation models, namely: discounted cash flow models and option valuation

models. Derivatives are considered assets when their fair value is positive and liabilities when their fair value is negative.

Certain derivatives embedded in other financial instruments – such as debt instruments whose profitability is indexed to share or share index price – are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value and subsequent changes are recognised in the income statement.

The Bank holds: (i) trading derivatives, measured at fair value – gains and losses arising from changes in their fair value are immediately included in the income statement, and (ii) fair value derivatives accounted for in conformity with note 3.1 a).

2.6 Recognition of interest and similar income and interest and similar charges

Interest income and charges are recognised in the income statement for all instruments measured at amortized cost in accordance with the pro rata temporis accrual method.

Once a financial asset or group of financial assets has been written down as a result of an impairment loss, interest income should be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

2.7 Fees and commissions

Fees and commissions are generally recognised using the accrual method when the service has been provided. Revenue from credit line fees, which are expected to originate a loan, is differed (together with any cost directly related) and recognised as an adjustment at the effective interest rate. Fees and commissions on trades, or participation in third party trades – such as purchasing stock or purchasing or selling a business – are recognised as earned when the service has been provided. Portfolio and other management advisory fees are recognised based on the applicable service contracts – usually recognised proportionally to the time elapsed. Asset management fees related to investment funds are recognised rateably over the period the service is provided.

2.8 Financial assets

Financial assets are recognised in the Balance Sheet on trade date – the date on which the Bank commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus direct transaction costs, except for financial assets carried at fair value through profit or loss for which transaction cost are directly recognised in the income statement. Financial assets are derecognised when (i) the rights to receive cash flows from these assets have expired, (ii) the Bank has substantially transferred all risks and rewards of ownership, or (iii) notwithstanding the fact that the Bank may have retained part, but not substantially all, of the risks and benefits associated with holding them, control over the assets was transferred.

Financial assets and liabilities are offset and the net amount booked in the income statement when, and only when, the Bank has a currently enforceable legal right to offset the recognised amounts and intends to settle them on a net basis.

The Bank classifies financial assets into the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. Management determines the classification of the financial instruments at initial recognition.

a) Financial assets at fair value through profit or loss

This category has two sub-categories: Financial assets held for trading, and those designated at fair value through profit or loss. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by Management. Derivative financial assets are also categorised as held for trading unless they qualify for hedge accounting.

The fair value option is only used for financial assets and liabilities in one of the following circumstances:

There is a significant reduction in the measurement inconsistencies that would arise if the related derivatives were treated as held for trading and the underlying financial instruments were carried at amortised cost, such as loans and advances to customers or banks and debt securities;
Certain investments, such as equity investments, that are managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy and reported to management on that basis; and
Financial instruments, such as holdings of debt securities, with one or more embedded derivatives that significantly modify cash flows, are carried at fair value through profit and loss.

These assets are assessed daily or at each reporting date based on fair value. In the case of bonds and other fixed-income securities the balance sheet contains the amount of unpaid accrued interest.

Gains and losses arising from changes in fair value are included directly in the income statement, which also includes interest revenue and dividends on traded assets and liabilities at fair value. Revenue from interest on financial assets at fair value through profit or loss is carried in net interest income.

Gains and losses arising from changes in the fair value of the derivatives that are managed together with designated financial assets and liabilities are included in item 'Income from assets and liabilities at fair value through profit and loss.

b) Loans and receivables

Loans and receivables includes loans to customers and banks, leasing operations, factoring operations, participation in syndicated loans and securitised loans (commercial paper and corporate bonds) that are not traded in an active market and for which there is no selling intention.

Loans and securitised loans traded in an active market are classified as available-for-sale financial assets.

Loans and receivables are initially recognised at fair value. In general, fair value at inception corresponds to transaction value and includes fees, commissions or other credit-related costs and revenues.

Subsequently, loans and receivables are valued at amortised cost based on the effective interest rate method and subject to impairment tests.

Interest, fees, commissions and other credit-related costs and revenues are recognised on an accrual basis over the period of the transactions regardless of the moment when they are charged or actually paid. Fees on loan commitments are recognised on a deferred and linear basis during the lifetime of the commitment.

The Bank classifies as non-performing loans instalments of principal or interest after, at most, thirty days of their due date. In case of litigation, all principal instalments are considered non-performing (current and past due).

Factoring

Credit to customers includes advances within factoring operations with recourse and the amount of the invoices granted without recourse, whose intention is not a short run sale, and is recorded on the date the accounts receivable are assigned by the seller of the product or service who issues the invoice.

Accounts receivables assigned by the issuer of the invoices or other commercial credits for recourse or non-recourse factoring are registered on assets under the item Loans and advances to customers. As a counterpart it changes the item Other liabilities.

When invoices are taken with recourse but cash advances on those respective contracts have not been made yet, they are registered in off-balance sheet accounts on the amount of the invoices that have been received. The off-balance sheet account is rectified as the cash advances are made.

Commitments arising from credit lines to factoring customers that have not been utilized yet are registered in off-balance sheet accounts.

Guarantees granted and irrevocable commitments

Liabilities for guarantees granted and irrevocable commitments are registered in off-balance sheet accounts by the value at risk and interest flows, commissions or other revenues recorded in the income statement during the lifetime of the operations. These operations are subject to impairment tests.

c) Held-to-maturity investments

This item includes non-derivative financial assets with fixed or determinable payments and defined maturities that the Bank has the intention and ability to hold to maturity.

These assets are initially recognised at fair value, minus possible commissions included in the effective rate, plus all direct incremental costs. They are subsequently valued at amortised cost, using the effective interest rate method and subject to impairment tests. If during a subsequent period the amount of the loss of impairment decreases, and that decrease may be objectively tied to an event that happened after the impairment was recognised, this is reversed through the income statement.

d) Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that: (i) the Bank intends to keep for an undetermined period of time, (ii) are recognised as available for sale at inception, or (ii) are not categorized into any of the other categories described above.

This item includes:

Fixed-income securities that have not been classified in the trading book or the credit portfolio, or held-to-maturity investments;
Available-for-sale variable-yield securities; and
Available-for-sale financial asset funds and supplementary funds.

Available-for-sale assets are recognised at fair value, except for equity instruments that are not listed on any active market and whose fair value may not be reliably measured or estimated, in which case they are recognised at cost value.

Gains and losses arising from changes in the fair value of available-for-sale financial assets are directly recognised in equity in item Fair value revaluation reserves, except for impairment losses and foreign exchange gains and losses of monetary assets, until the asset is sold, when the gain or loss previously recognised in equity is carried in the income statement.

Interest from bonds and other fixed-income securities and the differences between acquisition cost and the nominal value (premium or discount) are registered in the income statement using the effective rate method.

Revenue from variable-income securities (dividends in the case of shares) are booked in the income statement on the date they are attributed or received. According to this criterion, interim dividends are recorded as profit in the exercise their distribution is decided.

In case of objective impairment evidence – resulting from a significant and prolonged decline in the fair value of the security or from financial problems on the part of the issuer – the cumulative loss on the fair-value revaluation reserve is removed from equity and recognised in the income statement.

Impairment losses on fixed-income securities may be reversed on the income statement if there is a positive change in the security's fair value as a result of an event that occurred after the initial impairment recognition. Impairment losses on variable-income securities may not be reversed. In the case of impaired securities, subsequent negative fair-value changes are always recognised in the income statement.

Exchange rate fluctuations of non-monetary assets (equity instruments) classified in the available-forsale portfolio are registered in fair-value reserves. Exchange rate fluctuations in the other securities are booked in the income statement.

2.9 Impairment of financial assets

a) Assets carried at amortised cost

The Bank assess on each balance sheet date whether there is objective evidence that a financial asset, or group of financial assets, is impaired. A financial asset, or group of financial assets, is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that event (or events) has an impact on the estimated future cash flows of the financial asset, or group of financial assets, that can be reliably estimated. Objective evidence that an asset, or group of assets, is impaired includes observable data that the Bank is aware of, regarding the following loss events:

(i) significant financial stress of the borrower;

(ii) a breach of contract, such as a default in principal and/or interest payments;
(iii) concessions granted to the borrower, for reasons relating to the borrower's financial difficulty, that the lender would not have otherwise considered;
(iv) probability that the borrower will go into bankruptcy or other financial reorganisation;
(v) disappearance of an active market for that financial asset because of financial difficulties;
(vi) information indicating that there will be a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although that decrease cannot yet be identified with the Bank's assets, including:
adverse changes in the group of financial assets' condition and/or payment capacity;
national or local economic conditions that correlate with defaults on the assets in the portfolio.

The Bank assesses initially whether objective evidence of impairment exists for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes that asset in a group of financial assets with similar credit risk and collectively assesses them for impairment.

If there is objective evidence of an impairment loss on loans and receivables, or held-to-maturity investments, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future impairment losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the provisions account. The Bank may also determine impairment losses through the instrument's fair value at observable market prices.

When analysing impairment in a portfolio, the Bank estimates the probability of an operation or a customer to default during the estimated period between impairment occurrs and the loss is identified.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of similar risk characteristics (i.e., based on the Bank's classification process that takes into account asset type, geographical location, collateral type, past due status and other relevant factors). These characteristics are relevant to estimate future cash flows for groups of financial assets by being indicative of the counterpart's ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted based on current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

If, in a subsequent period, the amount of the impairment loss decreases and that decrease can be related objectively to an event occurring after the impairment was recognised (e.g., improvement in a debtor's credit rating), the previously recognised impairment loss is reversed through the provisions account. The amount of the reversal is recognised directly in the income statement.

Loans to customers whose terms have been renegotiated are no longer considered past due and are treated as new loan contracts. Restructuring procedures include: extended payment conditions, approved management plans, payment change and deferral. Restructuring practices and policies are based on criteria that, from the point of view of the Bank's management, indicate that payment has a high probability of occurring.

b) Assets carried at fair value

The Bank assess at each balance sheet date whether there is objective evidence that a financial asset, or group of financial assets, is impaired. In the case of equity securities classified as availablefor-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, minus any impairment loss on that financial asset previously recognised in the income statement — is removed from equity and recognised in the income statement.

Impairment losses on equity instruments that have been recognised in the income statement are not reversible. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and growth can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the income statement.

2.10 Intangible assets

- Software

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives.

Costs associated with software development and maintenance are recognised as expenses when incurred. Costs directly associated with developing unique and identifiable software, controlled by the Bank and where it is probable that they will generate future economic benefits, are recognised as intangible assets.

Costs associated with software development recognised as assets are amortized during its useful life using the straight-line method.

2.11 Tangible assets

The Bank's property is comprised essentially of offices and branches. All tangible assets are stated at historical cost minus depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the assets.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Land is not depreciated. Depreciation of other tangible assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

	Estimated useful life (years)
Freehold buildings	50
Adaptation works in leasehold property	10, or during the lease period if lower than 10 years
Furniture, fixtures and fittings	5 to 8
Computers and similar equipment	3 to 4
Transport equipment	4
Other tangible assets	4 to 10

Tangible assets subject to depreciation are submitted to impairment tests whenever events or changes in certain circumstances indicate their carrying amount may no longer be recovered. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher between the value in use and the asset's fair value, minus sale costs.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These gains and losses are included in the income statement.

2.12 Tangible assets held for sale

Assets acquired in exchange for loans (real estate property, equipment and other assets) are recorded in the item Tangible assets held for sale by the value stated in the agreement that regulates the asset's delivery, which corresponds to the lower of the outstanding amount of the debt or the asset's evaluation at the time of its delivery.

The Bank's policy for this type of assets is to sell them as soon as possible.

These assets are periodically assessed and impairment losses are recognised whenever the result of that appraisal is lower than the asset's book value (see note 29).

Potential realized gains on these assets are not recorded in the Balance Sheet.

2.13 Leases

a) As lessee

Leases entered by the Bank are essentially related to transport equipment, where there are contracts classified as financial leases and others as operating leases.

Payments made on operating leases are recognised in the income statement.

When an operating lease is terminated before the end of the lease period, any payment required by the lessor, by way of compensation, is recognised as an expense in the period the operation is terminated.

Financial leases are capitalised at the inception of the lease in the respective item of tangible or intangible assets, as a counterpart to the item Other liabilities, at the lower of (i) the fair value of the leased asset and (ii) the present value of the minimum lease payments. Incremental costs paid for leases are added to the recognised asset. Tangible assets are depreciated pursuant to Note 2.11. Rents are comprised of (i) financial cost charged to expenses and (ii) financial depreciation of premium which is deducted from the item Other liabilities. Financial charges are recognised as expenses over the lease term so as to produce a constant periodic interest rate on the remaining balance of the liability for each period. However, when there is no reasonable certainty that the Bank will obtain possession of the asset at the end of the lease, the asset must be totally depreciated during the smaller of the lease period or its useful life.

b) As lessor

Assets held under a financial lease are recognised as an expense in the period to which they relate by the current amount of the payments to be made. The difference between the gross amount receivable and the current balance receivable is recognised as receivable financial income.

Interest included in the rents charged to customers is registered as income, while principal depreciation, also included in the rents, is deducted from the overall amount initially lent. Recognition of the financial income reflects a constant periodical return rate over the remaining net investment of the lessor.

2.14 Provisions

Provisions for other risks and charges

Provisions for restructuring costs and legal proceedings are recognised whenever: the Bank has a legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle that obligation; the amount can be reliably estimated.

Provisions for specific and general credit risks

In the financial statements, the credit and guarantee portfolio is subject to provisioning pursuant to the terms of Notice No. 3/95 issued by the Bank of Portugal, namely for:

past due and non-performing loans;
general credit risks; and
country risk.

These provisions include:

(i) a specific provision for past due credit and interest presented in assets as a deduction to the item Loans and advances to customers, calculated using rates that vary between 0.5% and 100% on past due loan and interest balances, according to risk classification and whether secured or unsecured with collaterals (see note 23);

(ii) a specific provision for doubtful loans, recognised in assets as a deduction from the item Loans and advances to customers, which corresponds to the application of the rates foreseen for nonperformance classes, to instalments reclassified as past due in a single credit operation, as well as its application to the outstanding loan instalments of any single customer, where it was ascertained that the past due instalments of principal and interest exceeded 25% of principal outstanding plus past due interest, of half the provisioning rates applicable to credit past due (see note 23);

(iii) a general provision for credit risks, presented as a liability in item Provisions for risks and charges, corresponding to a minimum of 1% of total outstanding credit, including guarantees and other instruments, except for consumer loans, where the provisioning rate was at least 1.5% of such loans, and for mortgage loans whenever the real estate asset (collateral) was for the borrower's own use, in which case the minimum rate of 0.5% is applied (see note 35); and

(iv) a provision for country risk, constituted to face the risk attached to financial assets and off-balance sheet elements on residents from high risk countries according to Instruction No. 94/96 issued by the Bank of Portugal (see notes 23 and 35).

2.15 Employee benefits

a) Pension liabilities and other post-retirement benefits

In compliance with the Collective Bargaining Agreement (ACT) for the banking sector, the Bank has established a Pension Fund designed to cover retirement benefits on account of age, including disability, and survivor's benefits, set up for the entire work force, calculated based on projected salaries of staff in active employment. The pension fund is supported by the contributions made, based on the amounts determined by periodic actuarial calculations. A defined benefit plan is a pension plan that generally defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

Every year the Bank determines the amount of liabilities for past services using actuarial calculations based on the Project Unit Credit method for liabilities for past services in the case of old age and the Unique Successive Premium to calculate disability and survivor's benefits. The actuarial assumptions (financial and demographic) are based on expectation at the balance sheet date for the growth in salaries and pensions and are based on mortality tables adapted to the Bank's population. The discount rate is determined based on market rates for high quality corporate bonds, with periods to maturity similar to those for settlement of pension liabilities. The assumptions are mutually compatible. The amount of liabilities includes, besides retirement pensions, post-employment medical care (SAMS) and post-retirement death benefits.

Accumulated actuarial gains or losses that did not exceed 10% of the highest of the current value of liabilities for past services or the value of the pension funds were included in the 'corridor'. Actuarial gains and losses in excess of the corridor were recognised against results over the average remaining period of service of the employees covered by the plan.

As at 1 January 2013 the Bank changed its accounting policy of recognising financial and actuarial gains and losses for pension plans and other defined benefit post-employment benefits pursuant to IAS 19 Revised. Financial and actuarial gains and losses are now recognised in the period they occur directly in equity in the Statement of Comprehensive Income.

Increases in past service liabilities resulting from early retirement are fully recognised as expenses in the income statement for the year in which they occur.

Increases in past service liabilities resulting from changes in the conditions of Pension Plans are fully recognised as expenses in the case of acquired benefits or depreciated during the period that remains until those benefits are acquired. The balance of the increases in liabilities not yet recognised as expenses are registered in the item 'Other Assets'.

Past service liabilities (post-employment benefits) are covered by a pension fund. The amount of the pension funds corresponds to the fair value of its assets at the balance sheet date.

The financing regime by the pension fund is established in Notice No. 4/2005 issued by the Bank of Portugal, which determines the compulsory fully financing pension liabilities and a minimum level of 95% financing of past service liabilities for staff in active employment.

In the Bank's financial statements, the amount of past service liabilities for retirement pensions, minus the amount of the pension fund, is stated in item Other Liabilities.

The Bank's income statement includes the following expenses related to retirement and survivor pensions:

Current service cost;
Interest expense on the total outstanding liabilities;
Expected revenue of the pension fund;
Expenses with increases in early retirement liabilities;
'Multiprotecção' life insurance premium (see note 37);
Management fee paid to the fund management company.

On the transition date, the Bank adopted the possibility permitted by IFRS 1 of not recalculating deferred actuarial gains and losses from the beginning of the plans (normally known as the reset option). Thus, deferred actuarial gains and losses recognised in the Bank's accounts as at 31 December 2003 were fully reversed in retained earnings on the transition date – 1 January 2004.

b) Seniority bonuses

In compliance with the Collective Bargaining Agreement (ACT) for the banking sector in Portugal, the Bank has committed to attribute to active staff that complete fifteen, twenty-five and thirty years of good and effective service, a seniority bonus equal, respectively, to one, two or three months of their effective monthly salary on the year of the attribution.

Every year the Bank determines the amount of liabilities for seniority bonuses using actuarial calculations based on the Project Unit Credit method for liabilities for past services. The actuarial assumptions (financial and demographic) are based on expectation at the balance sheet date for the growth in salaries and pensions and are based on mortality tables adapted to the Bank's population. The discount rate is determined based on market rates for high quality corporate bonds, with periods to maturity similar to those for settlement of pension liabilities. The assumptions are mutually compatible.

Liabilities for seniority bonuses are recognised in the item Other Liabilities.

The Bank's income statement includes the following expenses regarding seniority bonus liabilities:

cost of current service (cost of one year);
interest expenses;
gains and losses resulting from actuarial deviations, changes in assumptions or changes in the conditions of the benefits.

2.16 Deferred taxes

Deferred taxes are recognised using the balance sheet debt method, based on temporary differences arising from the differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using the effective tax rate on profits at the balance sheet date which is expected to apply when the deferred tax asset is realised or the deferred tax liability is settled.

Deferred income tax is recognised when it is probable that in the future there is enough tax on profits so that it can be used.

Taxes on profits based on the application of legal rates for each jurisdiction are recognised as expenses in the period when the profit is originated. The tax effects of reportable tax losses are

recognised as an asset when it is likely that the future profitable profit is enough for the reportable tax loss to be utilized.

Deferred tax related to fair value revaluation of an available-for-sale asset, which is charged or credited directly in equity, is also credited or charged in equity and subsequently recognised in the income statement together with deferred gains or losses.

2.17 Financial liabilities

The Bank classifies its financial liabilities into the following categories: held-for-trade financial liabilities, other financial liabilities at fair value through profit and loss, deposits from central banks, deposits from other banks, customer deposits, securitised liabilities, and other subordinated liabilities. Management determines the classification of the financial instruments at initial recognition.

a) Financial liabilities held for trading and at fair value through profit and loss

This item essentially includes deposits whose yield is indexed to stock portfolios or indexes and the negative fair value of derivative contracts. The evaluation of these liabilities is made based on fair value. The balance sheet value of deposits includes the amount in accrued interest not paid.

b) Central banks, other banks, and customer funds

After the initial recognition, deposits and other financial assets from customers, central banks and other banks are revalued at amortized cost based on the effective interest rate method.

c) Securitised liabilities, and other subordinated liabilities

These liabilities are initially recognised at fair value, which is the amount for which they were issued net of transaction costs incurred. These liabilities are subsequently measured at amortized cost and any difference between the net amount received on transaction and their redemption value is recognised in the income statement over the liability period using the effective interest rate method.

If the Bank acquires its own debt, this amount is removed from the balance sheet and the difference between the balance sheet amount of the liability and the amount spent to acquire it is recognised in the income statement.

2.18 Non-current assets held for sale

Non-current assets, or disposal groups, are classified as held for sale whenever their book value is recoverable through sale. This condition can only be met when the sale is highly probable and the asset is available for immediate sale in its current condition. The sale must be performed within one year from the date on which they are included in this item. An extension of the period during which the asset must be sold does not exclude that asset, or a disposal group, from being classified as held for sale if the delay is caused by an event or circumstances that the Bank cannot control and if the selling purpose is maintained. Immediately before the initial classification of the asset, or disposal group, as held for sale, the book value of non-current assets (or of every asset and liability in the group) is carried pursuant to the applicable IFRS. Subsequently these assets, or disposal group, will be remeasured at the lower between the initial carrying amount and the fair value minus selling costs.

3. Financial risk management

3.1 Strategy used for financial instruments

In view of its activity, the Bank raises funds essentially through customer deposits and monetary market operations.

Besides the activities of credit granting, the Bank also applies its funds in financial investments, particularly in the group of investments that currently comprise the Bank's portfolio.

The Bank's portfolio – including available-for-sale financial assets and trading portfolio – amounted to around 1.9 billion euros at the end of 2014, representing around 23% of the Bank's total net assets. The typology of these assets was broken down as follows: public Portuguese debt (0.7%), public Spanish debt (73.2%), banks (21.6%) and others (4.5%).

To hedge its investment against interest rate risk, the Bank carried out interest rate swap operations and monetary market operations, thus trying to control the variability of interest rate risk and the flows generated by these assets.

a) Fair value hedge accounting

Gains and losses resulting from the revaluation of hedge derivatives are recognised in the income statement. Gains and losses deriving from differences in terms of the fair value of hedged financial assets and liabilities, corresponding to the hedged risk, are also recognised in the income statement as a counterpart for the carrying value of the hedged assets and liabilities, in the case of operations at amortized cost, or by counterpart of the reserve for fair value revaluation in the case of available-forsale assets.

Efficacy tests for hedges are accordingly documented on a regular basis, ensuring the existence of proof during the lifetime of the hedged operations. If the hedge no longer meets the criteria demanded by hedge accounting, it shall be prospectively discontinued.

b) Cash flow hedge accounting

In a cash flow hedge, the effective part of the changes in fair value for the hedged derivative is recognised in reserves, and transferred to the income statement in the periods when the respective hedged item affects results. If it is foreseeable that the hedged operation will not take place, the amounts still stated in equity are immediately recognised in the income statement and the hedged instrument is transferred to the trading book.

The Bank is exposed to some cash flow risk as regards open positions in foreign currency. However, in view of the little materiality of the normally existing overall position, no hedge operations are carried out in this case.

3.2 Financial assets and liabilities at fair value

The Board of Directors considered that as at 31 December 2014, the fair value of assets and liabilities at amortised cost did not differ significantly from its book value.

In order to determine the fair value of a financial asset or liability, its market price is applied whenever there is an active market for it. In case there is no active market, which happens with some financial assets and liabilities, generally accepted valuation techniques based on market assumptions are employed.

The net income of financial assets and liabilities at fair value that have not been classified as hedging includes an amount of 8 600 thousand euros (2013: 9 517 thousand euros).

Consequently, the fair value change recognized in the income statement for the period is analysed as follows:

	31-12-2014		31-12-2013
	Fair value	Change	Fair value	Change
Financial assets at fair value through profit or loss
Trading derivatives
Interest rate sw aps	38 745	30 591	25 505	40 114
Futures	734	-	167	-
Options	18	574	70	1 433
Available-for-sale financial assets
Debt instruments issued by residents	36 002	59	92 002	- 29 950
Equity instruments issued by residents	653	-	614	-
Other equity instruments issued by residents	20 504	-
Debt instruments issued by non-residents	1 821 866	9 490	1 611 456	41 339
Equity instruments issued by non-residents	69	-	63	-
Financial liabilities at fair value through profit or loss
Trading derivatives
Interest rate sw aps	43 011	- 32 028	29 456	- 43 240
Futures	817	-	68	-
Options	18	- 86	105	- 179
		8 600		9 517

The table below classifies fair value assessment of the Bank's financial assets and liabilities based on a fair value hierarchy that reflects the significance of the inputs that were used in the assessment, according to the following levels:

Level 1: market prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: different inputs for market prices included in Level 1 that are observable for assets and liabilities either directly (i.e., as prices) or indirectly (i.e. derived from the prices);
Level 3: inputs for assets and liabilities that are not based on observable market data (nonobservable inputs).

	31-12-2014				31-12-2013
Assets and Liabilities at fair value	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Financial assets held
for trading
Variable income securities	2 686	-	36 098	38 784	2 879	-	45 222	48 101
Derivatives	-	39 496	-	39 496	-	25 742	-	25 742
Other financial assets at fair value through profit or loss
Fixed income securities	-	-	-	0	24 983	-	-	24 983
Available-for-sale
financial assets
Debt securities	1 852 969	4 899	-	1 857 868	1 698 580	4 879	-	1 703 459
Equity securities	-	-	21 226	21 226	-		677	677
Hedging derivatives	-	-		0	-	103		103
Total Assets at fair value	1 855 655	44 395	57 324	1 957 374	1 726 442	30 724	45 899	1 803 065
Financial liabilities held
for trading (Derivatives)	-	43 845	-	43 845	-	29 629	-	29 629
Hedging derivatives	-	142 258	-	142 258	-	101 883	-	101 883
Total Liabilities at fair value	0	186 103	0	186 103	0	131 512	0	131 512

3.3 Credit risk

The Bank is exposed to credit risk, which is the possible loss that arises when the Bank's counterparties fail to fulfil their obligations. In the case of lending, it implies the loss of principal, interest and commissions, in the terms regarding amount, period and other conditions set forth in the contracts. Concerning off-balance sheet risks, it derives from the non-compliance of the counterparts regarding their obligations with third parties, which implies that the Bank has to assume as its own certain obligations depending on the contracts.

The Bank structures the levels of credit risk it is exposed to by establishing pre-defined acceptable risk amounts regarding the borrower or group of borrowers and geographical or business activity segments.

Exposure to credit risk is managed through a regular analysis of the capacity of borrowers and potential borrowers of meeting payment obligations for principal and interest, and by changing these loan limits when appropriate. Exposure to credit risk is also managed in part by obtaining collaterals and personal or corporate guarantees.

- Collaterals

The Bank employs a series of policies and practices in order to mitigate credit risk. The most traditional one is securing collaterals at the moment funds are advanced. The Bank implements guidelines regarding the acceptability of specific classes of collaterals or mitigation of credit risk. The main types of collaterals for loans and receivables are:

Property mortgages;
Pledges of operations made within the Bank;
Pledges on assets such as premises, inventory and accounts receivable;
Pledges on financial instruments, such as securities and shares.

loss, at the time an impairment indicator for loans and receivables is identified the Bank tries to obtain additional collaterals from the relevant counterparts.

Collaterals held for financial assets, except for loans and advances, are determined by the nature of the instrument. Debt instruments, treasury bonds and other securities usually are not collateralised.

- Lending commitments

The main objective of these instruments is to ensure that funds are made available to customers as they require them. Loan extension commitments represent non-utilized parts of credit extension authorizations in the form of loans, guarantees or letters of credit. Regarding the credit risk associated with loan extension commitments, the Bank is potentially exposed to a loss in the amount of the total of non-utilized commitments. However, the probable loss amount is much lower than the sum of the nonutilized commitments since loan extension commitments are revocable and depend on a specific customer's credit worthiness. The Bank monitors the maturity of lending commitments since long term commitments usually present a greater credit risk than short term commitments.

- Maximum exposure to credit risk

As at 31 December 2014 and 2013, maximum exposure to credit risk was as follows:

	31-12-2014	31-12-2013
On-balance sheet
Deposits w ith banks	80 219	174 427
Financial assets held for trading	39 496	25 742
Other financial assets at fair value through profit or loss		24 983
Available-for-sale financial assets	1 857 868	1 703 458
Loans and advances to banks	197 962	1 268 822
Loans and advances to customers	5 775 248	5 249 457
Other tangible assets	287 053	247 492
	8 237 846	8 694 381
Off-balance sheet
Financial guarantees	385 722	429 755
Other guarantees	105 972	109 716
Lending commitments	820 518	788 982
Documentary credits	46 531	39 885
	1 358 743	1 368 338
Total	9 596 589	10 062 719

The table above shows the worst case scenario in terms of the level of exposure to credit risk the Bank faced as at 31 December 2014 and 2013, without considering any collateral held or other credit enhancements. For on-balance sheet assets, the above stated exposure is based on their carrying amount on the balance sheet.

As can be seen from the table above, 68.7 % of total maximum exposure results from loans and advances to customers (2013: 60.0%).

The Bank's management trusts its capacity to control and maintain a minimal exposure to credit risk, which results mainly from its customer portfolio, based on the following assumptions:

60.3% of the amount of loans and advances to customers has eligible collaterals;
94.3% of customer credit portfolio is not past due.

- Concentration by activity segment of financial assets with credit risk

The tables below show the exposure of the Bank according to the assets' carrying amount (excluding accrued interest) broken down by activity segment.

	Financial	Public	Property constr.	Other		Private individuals
31- 12- 2014	Institutions	Sector	& development industries		Services		Home loans Other loans
Deposits with banks	80 219
Financial assets held for trading	40 065		22 777	372	15 053		13
Available- for- sale financial assets	434 931	1 417 151			27 012
Loans and advances to banks	197 809
Loans and advances to customers		38 691	806 728	943 418	2 235 304	1 527 335	215 073
Non- current assets held for sale					20 747
Other assets	190 040	97 350
	943 064	1 553 192	829 505	943 790	2 298 116	1 527 335	215 086
	Financial	Public	Property constr.	Other		Private individuals
31- 12- 2013	Financial	Public	& development industries		Services		Home loans Other loans
Deposits with banks	174 427
Financial assets held for trading	48 400		13 862	167	10 224		1 190
Other financial assets at fair value through profit or loss 24 983
Available- for- sale financial assets	382 761	564 912			756 463
Loans and advances to banks	1 268 697
Loans and advances to customers		4 461	847 068	846 768	2 003 430	1 485 564	314 869
Non- current assets held for sale	20 747

Other assets	132 689	18 221

3.4 Geographic breakdown of assets, liabilities and off-balance sheet items

The Bank operates fully on the national market. Therefore, it is not relevant to perform an analysis by geographical sector, since there is no identifiable item within a specific economic environment that is subject to differentiated risks or benefits.

3.5 Market risk

As at 31 December 2014, the Bank's portfolio amounted to around 1.9 billion euros, of which around 39 million were classified as financial assets held for trading and other financial assets at fair value through profit or loss.

- Risk-sensitivity analysis

In the scope of the stress test performed, Banco Popular carries out a sensitivity analysis to a 30% fluctuation in stock indexes. In case of devaluation within such order of magnitude, we can conclude that there is no need for additional capital.

We would also like to add that on that date, market risk represented only around 0.002% of total risk weighted assets (RWA) calculated pursuant to CRD IV/CRR.

3.6 Exchange rate risk

The national currency equivalent, in thousands of euros, of assets and liabilities at sight expressed in foreign currency is as follows:

31-12-2014	USD	GBP	CHF	JPY	CAD	AUD	NOK	Other
Assets
Cash and cash equivalents	1 044	79	224	38	40	3	2	8
Deposits w ith banks	2 118	2 206	256	8	2 706	277	147	136
Available-for-sale financial assets	53	-	-	-	-	-	-	-
Loans and advances to banks	130 354	47 536	-	-	-	4 895	1 129	-
Loans and advances to customers	3 411		-	-	-	-	-	-
Other assets	3 810	26	5	70	5	252	2	-
	140 790	49 847	485	116	2 751	5 427	1 280	144
Liabilities
Deposits from banks	143 954	23 115	55	49	24	6	-	72
Deposits from customers	35 130	26 774	230	5	2 673	5 231	2 733	70
Other liabilities	2 707	138	54	70	200	356	37	52
	181 791	50 027	339	124	2 897	5 593	2 770	194
Net balance sheet position	- 41 001	- 180	146	- 8	- 146	- 166	- 1 490	- 50
Forw ard transactions	41 197		-	-	-	-	1 428	-
Net position	196	- 180	146	- 8	- 146	- 166	- 62	- 50
31-12-2013
Total assets	91 360	20 656	409	52	9 955	5 515	2 060	218
Total liabilities	224 403	20 490	246	39	10 041	5 593	2 052	138
Net balance sheet position	- 133 043	166	163	13	- 86	- 78	8	80
Forw ard transactions	134 047	-	-	-	-	-	-	-
Net position	1 004	166	163	13	- 86	- 78	8	80

- Risk-sensitivity analysis

The activity of Banco Popular Portugal regarding foreign currency consists in making transactions based on customer operations. In this framework, the overall foreign exchange position of the Bank is virtually non-existent.

Thus, as can be seen, whatever the impact of foreign currency prices on foreign exchange terms, it is financially immaterial for the Bank's income, which is why no risk-sensitivity analysis are carried out.

3.7 Interest rate risk

This risk assesses the impact on net interest income and equity as a result in fluctuation in market interest rates.

The interest rate risk of the balance sheet is measured using a repricing gap model applied to assets and liabilities that are susceptible to interest rate fluctuations pursuant to Instruction No. 19/2005 issued by the Bank of Portugal. Briefly, this model groups assets and liabilities that are sensitive to fluctuations at fixed time brackets (maturity dates or the first interest rate revision in case of indexation), from which one calculates the potential impact on the intermediation margin.

M aturity and repricing gap for the Bank's activity as at 31 December 2014

	Up to 1 month	1 to 3 months	3 to 12 months	Over 12 months	Not sensitive	Total
Cash and cash equivalents and Monetary market 362 818		1 100	-	-	48 545	412 463
Loans and advances to customers	1 533 589	2 442 528	1 079 222	376 702	26 742	5 458 783
Securities market	41 209	723 215	336 959	756 485	99 506	1 957 374
Other assets	-	-	-	-	577 228	577 228
Total Assets	1 937 616	3 166 843	1 416 181	1 133 187	752 021	8 405 848
Monetary market	1 615 990	1 012 025	72 996	264 400	-	2 965 411
Deposit market	688 478	438 784	1 340 348	1 605 689	41 604	4 114 903
Securities market	225 000	1 455	13 592	76 282	922	317 251
Other liabilities	-	-	-	-	305 078	305 078
Total Liabilities	2 529 468	1 452 264	1 426 936	1 946 371	347 604	7 702 643
Gap	- 591 852	1 714 579	- 10 755	- 813 184	404 417
Accumulated gap	- 591 852	1 122 727	1 111 972	298 788	703 205
M aturity and repricing gap for the Bank's activity as at 31 December 2013
Gap	-1 283 176	2 608 508	- 586 856	- 658 968	586 380
Accumulated gap	-1 283 176	1 325 332	738 476	79 508	665 888

- Risk-sensitivity analysis

Pursuant to the referred to model, the Bank calculates the potential impact on net interest income and net income.

In the table below, this model considers a potential 1% immediate impact on interest rates, i.e., on the date interest rates are revised.Therefore, the new interest rates will start to show this effect both on assets and liabilities.

	Up to 1 month	1 to 3 months	3 to 12 months	Over 12 months	Not sensitive	Total
Cash and cash equivalents and Monetary market 362 818		1 100	-	-	48 545	412 463
Loans and advances to customers	1 533 589	2 442 528	1 079 222	376 702	26 742	5 458 783
Securities market	41 209	723 215	336 959	756 485	99 506	1 957 374
Other tangible assets	-	-	-	-	577 228	577 228
Total Assets	1 937 616	3 166 843	1 416 181	1 133 187	752 021	8 405 848
Monetary market	1 615 990	1 012 025	72 996	264 400	-	2 965 411
Deposit market	688 478	438 784	1 340 348	1 605 689	41 604	4 114 903
Securities market	225 000	1 455	13 592	76 282	922	317 251
Other liabilities	-	-	-	-	305 078	305 078
Total Liabilities	2 529 468	1 452 264	1 426 936	1 946 371	347 604	7 702 643
Gap	- 591 852	1 714 579	- 10 755	- 813 184	404 417
Accumulated gap	- 591 852	1 122 727	1 111 972	298 788	703 205
Impact of a 1% increase	- 246	- 313	9 592
Accumulated impact	- 246	- 559	9 033
Accumulated effect	9 033
Net interest income	124 723
Accumulated gap	7.24%

3.8 Liquidity risk

The Bank permanently follows the evolution of its liquidity, monitoring cash inflows and outflows at all times. Liquidity projections are prepared in order to allow for careful planning of short and mediumterm funding strategies.

The Bank's primary source of funding are deposits from customers, complemented by access to the capital markets via bond issues and to the interbank market, where we focus on operations with Banco Popular Group. Simultaneously the Bank has tried to ensure other sources of funding, carefully selected for each maturity depending on pricing, stability, speed of access, depth, and compliance with the pre-established risk management policies.

The liquidity management process, as performed by the Bank, includes:

The daily funding needs that are managed by monitoring future cash flows in order to guarantee that the requirements are met. This includes write-backs as loans mature or are granted to customers;
Maintaining a high-liquidity asset portfolio so that these can be easily converted into cash as a protection against any unexpected interruption in cash flows;
Monitoring liquidity ratios taking into account external and internal requirements;
Managing the concentration and profile of debt maturities resorting to the liquidity gap model.

Besides the obligations established by the Bank of Portugal under the terms of Instruction No. 13/2009, the Bank also resorts to the concept of liquidity gap, i.e., from the balance sheet of the Bank as at 31 December 2014, based on the maturities of assets and liabilities it is possible to ascertain the ratio between the referred to maturities (positive or negative) according to residual maturity deadlines called liquidity gaps. The Bank also calculates LCR (Liquidity Coverage Ratio) and NSFR (Net Stable Funding Ratio), with the aim to monitor the evolution of liquidity and report it to the supervising authorities.

The table below presents the Bank's balance sheet (without accrued interest) at the end of December 2014 with the main classes grouped by maturity date:

	Up to 1 month	1 to 3 months	3 to 12 months	1 to 5 years	Over 5 years
Cash and balances w ith central banks	134 282
Deposits w ith banks	80 219
Financial assets held for trading			38 784
Available-for-sale financial assets		92 772	3 361	1 695 992	86 969
Loans and advances to banks	196 651		16		1 143
Loans and advances to customers	814 294	394 518	962 481	1 391 237	1 874 568
Other tangible assets	703	27 539	18 731	192 852	21 539
Total Assets	1 226 149	514 829	1 023 373	3 280 081	1 984 219
Deposits from central banks	900 000
Deposits from banks	1 030 092	584 236	71 862	376 900
Deposits from customers	1 565 070	447 180	1 347 220	727 878
Debt securities issued			237 664	78 665
Current income tax liabilities			1 817
Other liabilities	8 464	3 031	6 051	1 052	7 681
Total Liabilities	3 503 626	1 034 447	1 664 614	1 184 495	7 681
Gap	-2 277 477	- 519 618	- 641 241	2 095 586	1 976 538
Accumulated gap	-2 277 477	-2 797 095	-3 438 336	-1 342 750	633 788
Liquidity gap as at 31 December 2013
Gap	-1 237 767	- 520 090	-1 283 304	835 387	2 639 044
Accumulated gap	-1 237 767	-1 757 857	-3 041 161	-2 205 774	433 270

Liquidity gap of the balance sheet as at 31 December 2014

- Off-balance sheet exposures (Liquidity risk)

As at 31 December 2014, maturities for the contracted amounts of off-balance sheet financial instruments that may commit the Bank to lending and other facilities to customers were as follows:

31-12-2014	Up to 1 month	1 to 3 months	3 to 12 months	1 to 5 years	Over 5 years	Undated
Contingent liabilities:
Documentary credits	-	-	-	-		- 46 531
Guarantees and Sureties	1 421	4 696	148 897	50 875	277 268	8 538
Commitments:
Irrevocable loans	-	-	-	-		- -
Revocable loans	30 230	118 958	311 791	17 107	342 432	-
Total	31 651	123 654	460 688	67 982	619 700	55 069

31-12-2013	Up to 1 month	1 to 3	3 to 12	1 to 5	Over 5	Undated
		months	months	years	years
Contingent liabilities:
Documentary credits	-	-	-	-	-	39 885
Guarantees and Sureties	2 760	7 396	16 174	198 679	2 012	312 449
Commitments:
Irrevocable loans	-	-	-	-	-	-
Revocable loans	51 652	92 439	285 120	8 990	91 501	259 280
Total	54 412	99 835	301 294	207 669	93 513	611 614

3.9 Operational risk

The management process is based on an analysis by functional area listing the risks inherent in the specific functions and tasks of each body in the structure.

Involving the whole organization, the management model is ensured by the following structures:

Executive Committee (CE) – top management structure that is the main responsible for management guidelines and policies, establishing and monitoring risk appetite and risk tolerance limits.

Risk Management (DGR) - Integrates the unit exclusively dedicated to managing operational risk. It is in charge of boosting and coordinating the remaining structures towards the application of methodologies and employment of corporate tools to support the model.

In the process of operational risk management, they also play a key role in the auditing structures, internal control and security of the Bank.

3.10 Fiduciary activities

The Bank provides custody services, guarantees, corporate management services, investment management and third party advisory services. These activities demand the allocation of assets and purchasing and sale transactions regarding a wide range of financial instruments. These assets, which are kept in fiduciary capacity, are not included in these financial statements. As at 31 December 2014, the Bank held investment accounts in the amount of 6 695 936 thousand euros (2013: 5 214 227 thousand euros) and managed estimated financial assets in the amount of 152 112 thousand euros (2013: 121 236 thousand euros).

3.11 Capital management and disclosures

The main objective of capital management at the Bank is meeting the minimum requirements defined by supervisory entities in terms of capital adequacy and ensuring that the strategic objectives of the Bank in terms of capital adequacy are met.

The definition of the strategy to adopt in terms of capital management is in the scope of the Bank's Board of Directors.

In prudential terms, the Bank is subject to the supervision of the Bank of Portugal, which issues the rules and regulations regarding this matter that guide the several institutions under their supervision. These rules and regulations determine a minimum ratio of total own funds in relation to the requirements demanded due to committed risks, that the institutions must abide by.

As at 31 December 2014, Core Tier 1 ratio calculated pursuant to CRD IV/CRR for 2014 stood at 11.5%, which was highly above the minimum regulatory amount of 7%.

	31-12-14
Own funds
Common Equity Tier 1 (CET1)	694,815
Basic ow n funds (Tier 1)	694,815
Eligible ow n funds (Total)	729,007
Risk weighted assets (RWA)	6,033,304
Solvency ratios
CET1	11.5%
Tier 1	11.5%
Total	12.1%

4. Estimates and assumptions in the application of accounting policies

The Bank makes estimates and assumptions with impact on the reported amount of assets and liabilities in the following year. These estimates and assumptions are continuously assessed and conceived based on historical data and other factors, such as expectations regarding future events.

a) Impairment losses on loans

Every month, the Bank assesses its securities portfolio to evaluate potential impairment losses. In determining whether an impairment loss should be recorded in the income statement, the Bank analyses observable data that may be indicative of a measurable decrease in estimated cash flows both of the trading book and of specific individual cases within a trading book. This analysis may indicate, for example, an adverse event in the capacity of a customer to pay a loan or the worsening of macroeconomic conditions and related indicators. The management uses estimates based on historical data available for assets with similar credit risk and possible impairment losses. The methodology and assumptions used to calculate these estimates are revised regularly aiming at reducing any differences between estimated and actual losses.

b) Fair value of derivatives and unlisted financial assets

The fair value of derivatives and unlisted financial assets was determined based on evaluation methods and financial theories whose results depend on the assumptions that have been used.

c) Impairment of equity investments in the portfolio of Available-for-sale financial assets

The Bank determines that there is impairment of equity investments of available-for-sale assets when there has been a significant or prolonged decline in the fair value below its cost. The needed quantification for the expressions 'significant' and 'prolonged' require professional judgement. When making this judgement, the Bank assesses among other factors the normal volatility of share prices. As a complement, impairment should be recognised when there are events that show the deterioration of the viability of the investment, the performance of the industry and the sector, technological changes and operational and financial cash flows.

d) Retirement and survivor's pensions

Liabilities for retirement and survivor's pensions are estimated based on actuarial tables and assumptions on the growth of pensions and salaries. These assumptions are based on the Bank's expectations for the period when the liabilities are to be settled.

e) Deferred taxes

The recognition of a deferred tax asset assumes the existence of profit and a future tax base. Deferred tax assets and liabilities have been determined based on tax legislation currently in effect or on legislation already published for future application. Changes in the interpretation of tax legislation may influence the amount of deferred tax that has been recognised.

5. Segmental reporting

The Bank operates essentially in the financial sector and its activity is targeted at corporate, institutional and private customers.

The products and services offered by the Bank include deposits, loans to companies and private individuals, brokerage and custody services, investment banking services, and selling investment funds and life and non-life insurance. Additionally, the Bank makes short, medium, or long term investments in financial and foreign exchange markets in order to take advantage of price variations or as a means to make the most of available financial assets.

Banco Popular operates in the following segments:

(1) Retail banking , which includes the sub-segments: Private Individuals, Self-employed people, Small and Medium-sized Enterprises, and Private Social Welfare Institutions;
(2) Commercial banking , which includes Large Corporations, Financial Institutions, and the Public Administration Sector;
(3) Other Segments, which groups all the operations that are not included in the other segments, namely operations and management of the Bank's Own Portfolio and Investments in Banks.

Geographically, Banco Popular operates exclusively in Portugal.

31-12-2014	Retail Banking	Commercial Banking	Other Segments	Total
Interest and similar income Interest and similar charges	122 815 71 853	76 092 14 609	57 224 44 946	256 131 131 408
Return on equity instruments	-	-	60	60
Fees and commissions received Fees and commission paid	35 330 1 909	9 345 310	19 332 6 111	64 007 8 330
Income from Financial Operations (net)	214	3	7 184	7 401
Income from the sale of other assets	-	-	- 8 329	- 8 329
Other Operating Income (net)	-	-	- 7 243	- 7 243

Net assets	3 488 204	2 148 172	2 769 472	8 405 848
Liabilities	3 372 861	2 858 965	1 470 817	7 702 643

Segmental reporting is as follows:

	Retail	Commercial	Other
31-12-2013	Banking	Banking	Segments	Total
Interest and similar income	131 372	92 861	79 579	303 812
Interest and similar charges	92 630	28 423	61 511	182 564
Return on equity instruments	-	-	49	49
Fees and commissions received	27 049	8 814	24 794	60 657
Fees and commission paid	706	299	7 569	8 574
Income from Financial Operations (net)	1 251	- 3	8 743	9 991
Income from the sale of other assets	-	-	- 5 241	- 5 241
Other Operating Income (net)	-	-	- 6 145	- 6 145

Net assets	3 396 620	1 949 931	3 875 622	9 222 173
Liabilities	3 223 902	1 379 279	3 953 104	8 556 285

6. Net interest income

This item is broken down as follows:

	31-12-14	31-12-13
Interest and similar income from :
Cash and cash equivalents	113	283
Deposits w ith banks	4 491	2 322
Loans and advances to customers	198 799	224 091
Other financial assets at fair value	117	1 265
Other available-for-sale financial assets	52 326	60 711
Held-to-maturity investments	-	14 921
Other	285	219
	256 131	303 812
Interest and similar charges from:
Deposits from Central Banks	2 220	8 510
Deposits from banks	11 927	12 138
Deposits from customers	74 410	108 599
Debt securities issued	17 974	31 254
Hedging derivatives	24 876	22 063
Other	1	-
	131 408	182 564
Net interest income	124 723	121 248

7. Return on equity instruments

Balance for this item is as follows:

	31-12-14	31-12-13
Available-for-sale financial assets	60	49
	60	49

8. Revenue and expense with fees and commissions

These items are broken down as follows:

	31-12-14	31-12-13
Revenue from Fees and Commissions from:
Loans	13 925	19 575
Guarantees and sureties	6 861	6 063
Means of collection and payment	18 761	16 816
Asset management	4 543	3 473
Insurance brokerage	5 220	2 081
Account maintenance	5 810	5 183
Processing fees	1 632	1 673
Structured operations	2 572	2 310
Other	4 683	3 483
	64 007	60 657
Expenses w ith Fees and Commissions from:
Means of collection and payment	3 768	5 331
Asset management	2 146	2 163
Insurance brokerage	341	329
Other	2 075	751
	8 330	8 574

9. Net income from financial operations

This item is broken down as follows:

	31-12-2014		31-12-2013
	Gains	Losses	Gains	Losses
Financial assets and liabilities held for trading
Variable income securities	181	2 456	411	955
Derivative financial instruments	31 165	32 114	41 547	43 419
	31 346	34 570	41 958	44 374
Assets and liabilities at fair value through profit or loss
Fixed income securities	-	80	428	698
	0	80	428	698
Hedging derivatives at fair value	75 717	75 895	140 098	140 098
Available-for-sale financial assets and liabilities
Fixed income securities	9 702	153	41 347	29 958
	9 702	153	41 347	29 958
Income from financial assets and liabilities held for
trading and at fair value through profit or loss	116 765	110 698	223 831	215 128

During the first half of 2014, the Bank received 46.4 thousand euros in dividends from financial assets held for trading (2013: 52.2 thousand euros). In 2014 and 2013 the Bank did not earn any income from financial assets at fair value through profit or loss.

The effect seen in the item Hedging derivatives at fair value results from fluctuations in the fair value of hedge instruments (interest rate swaps) and variations in the fair value of hedged assets, resulting from the hedged risk (interest rate). Since the hedging instrument is accounted for in the Available-forsale financial assets portfolio, that variation in fair value is carried from Fair value revaluation reserve to the income statement.

10. Net gains from foreign exchange differences

These items are broken down as follows:

	31-12-14	31-12-13
Exchange gains
Spot	3 510	93
Forw ard	1 203	2 953
	4 713	3 046
Exchange losses
Spot	3 317	-
Forw ard	62	1 758
	3 379	1 758
Income from exchange differences (net)	1 334	1 288

11. Net gains from the sale of other assets

This item is broken down as follows:

	31-12-14	31-12-13
Gains from the sale of tangible assets held for sale	1 256	1 433
Gains from other tangible assets	962	3
Gains from held-to-maturity investments	-	5 065
	2 218	6 501
Losses due to credit assignments	563	5 456
Losses due to the sale of tangible assets held for sale	7 866	6 286
Losses due to the sale of other tangible assets	2 118	-
	10 547	11 742
	- 8 329	- 5 241

12. Other operating income

This item is broken down as follows:

	31-12-14	31-12-13
Contributions to the DGF	- 1 022	- 1 033
Contributions to the IIS	- 961	- 1 420
Other operating expenses	- 2 694	- 1 925
Council tax	- 896	- 1 298
Other taxes	- 842	- 911
Contribution on the banking sector	- 4 258	- 3 357
Income from staff transfer	1 230	1 472
Income from property	619	476
Other income and operating revenue	1 581	1 581
	- 7 243	- 6 415

13. Personnel expenses

This item is broken down as follows:

		31-12-14	31-12-13
	Wages and salaries	42 384	41 781
	Compulsory social security charges from:
	- Wages and salaries	11 222	11 126
	- Pension Fund	3 605	2 397
	- Other compulsory social security charges	227	160
Other expenses		737	845
		58 175	56 309
14. General administrative expenses
This item is broken down as follows:
		31-12-14	31-12-13
With supplies
	Water, energy and fuel	1 701	1 773
	Items of regular consumption	292	368
Softw	are licences	368	254
	Other third party supplies	270	347
With services
	Rents and leasing	4 342	4 392
	Communications	4 008	4 164
	Travel, hotel, and representation	1 189	1 134
	Advertising and publicity	4 025	2 700
	Maintenance of premises and equipment	3 761	4 170
	Transports	1 067	1 137
	Fees and regular payment agreements	5 543	6 420
	Legal expenses	1 932	2 473
	IT Services	8 969	8 338
	Security, surveillance, and cleaning	478	1 159
	Temporary w ork	4 447	4 575
	External consultants and auditors	903	1 148
SIBS		1 170	1 259
	Services rendered by the parent company	3 422	3 283
	Other third party services	2 809	2 379
		50 696	51 473

15. Income tax

Income tax for 2014 was calculated based on a nominal rate of 23% over the tax base (25% in 2013). Both in 2014 and 2013, besides the nominal rate, a municipal surcharge of 1.5% was also levied on taxable income, as well as a variable state surcharge that depended on the below indicated tiers:

- Less than 1.5 M €	0%
- Betw een 1.5 M € and 7.5 M €	3%
- Betw een 7.5 M € and 35 M €	5%
- Over 35 M €	7%

As at 31 December 2014 and 2013, tax expenses on net profit, as well as the tax burden, measured by the relation between income taxes and the profit for the year before those taxes may be summed up as follows:

	31-12-14	31-12-13
Current tax on profits
For the year	860	662
Adjustments in respect of prior years	1 084	- 1 619
	1 944	- 957
Deferred taxes
Origination and reversal of temporary differences	1 217	- 18 847
Total tax in the income statement	3 161	- 19 804
Net income before tax	5 444	- 51 524
Tax burden	58.1%	-38.4%

The reconciliation between the nominal tax rate and the tax burden for 2014 and 2013, as well as the reconciliation between tax expense/income and the product of accounting profit multiplied by the nominal tax rate, after deferred tax, is analysed as follows:

	31-12-14		31-12-13
	Tax rate	Amount	Tax rate	Amount
Income before tax		5 444		- 51 524
Tax at nominal rate	23.0%	1 252	25.0%	0
Municipal surcharge after deferred tax	0.0%	0	0.0%	0
Autonomous taxation	15.8%	860	1.3%	662
Tax benefits	-23.7%	- 1 288	0.0%	0
Effect of provisions not acceptable as costs	21.4%	1 167	-17.1%	- 8 824
Realized gains / realized losses	-46.1%	- 2 508	0.0%	0
Other net value adjustments	34.6%	1 884	-6.5%	- 3 349
Contribution on the banking sector	18.0%	979	0.0%	0
Tax loss	-4.9%	- 269	-13.0%	- 6 674
Tax from previous years	19.9%	1 084	-3.1%	- 1 619
	58.1%	3 161	-38.4%	- 19 804

For additional information on deferred tax assets and liabilities see note 28.

16. Financial assets and liabilities classified in accordance with IAS 39 categories

Classification of financial assets and liabilities in accordance with IAS 39 categories has the following structure:

31-12-2014		Booked at fair value	Accounts	Available-for sale	Non-financial
	Traded	Fair value	receivable	financial assets	assets	Total
Assets
Cash and balances w ith central banks			134 283			134 283
Deposits w ith other banks			80 219			80 219
Financial assets held for trading	78 280					78 280
Other fin. assets at fair value thr. prof./loss						0
Available-for-sale financial assets				1 879 094		1 879 094
Loans and advances to banks			197 962			197 962
Loans and advances to customers			5 458 783			5 458 783
Non-current assets held for sale				20 747		20 747
Other assets			261 192		145,794	406 986
	78 280	0	6 132 439	1 899 841	145 794	8 256 354

31-12-2014	Booked at fair value	Other fin.	Hedging	Non-fin.
	Traded	liabilities	derivatives	liabilities	Total
Liabilities
Deposits from central banks		900 003			900 003
Deposits from banks		2 065 409			2 065 409
Financial liabilities held for trading	43 845				43 845
Deposits from customers		4 114 903			4 114 903
Debt securities issued		317 251			317 251
Hedging derivatives			142 258		142 258
Other liabilities		26 284		12 505	38 789
	43 845	7 423 850	142 258	12 505	7 622 458

31-12-2013		Booked at fair value	Accounts	Available-for sale Non-financial
	Traded	Fair value	receivable	financial assets	assets	Total	Total
Assets
Cash and balances w ith central banks			54 114				54 114
Deposits w ith other banks			174 427				174 427
Financial assets held for trading	73 843						73 843
Other fin. assets at fair value thr. prof./loss		24 983					24 983
Available-for-sale financial assets				1 704 136			1 704 136
Loans and advances to banks			1 268 822				1 268 822
Loans and advances to customers			5 249 456				5 249 456
Hedging derivatives					103		103
Non-current assets held for sale				20 747			20 747
Other assets			214 284			278,964	493 248
	73 843	24 983	6 961 103	1 724 883	103	278 964	9 063 879

31-12-2013	Booked at fair value	Other fin.	Hedging	Non-fin.
	Traded	liabilities	derivatives	liabilities	Total
Liabilities
Deposits from central banks		1 306 839			1 306 839
Deposits from banks		1 919 736			1 919 736
Financial liabilities held for trading	29 629				29 629
Deposits from customers		4 216 578			4 216 578
Debt securities issued		865 255			865 255
Hedging derivatives			101 883		101 883
Other liabilities		30 725		30 526	61 251
	29 629	8 339 133	101 883	30 526	8 501 171

17. Cash and balances with Central Banks

The balance of this item is broken down as follows:

	31-12-14	31-12-13
Cash and cash equivalents	48 546	49 158
Demand accounts w ith the Bank of Portugal	85 737	4 956
	134 283	54 114

Deposits with Central Banks include mandatory deposits with the Bank of Portugal intended to meet legal minimum cash requirements.

18. Deposits with banks

Balance for this item is as follows:

	31-12-14	31-12-13
Deposits w ith banks in Portugal
Demand accounts	587	364
Cheques payable	13 650	9 793
Other deposits	686	1 333
	14 923	11 490
Deposits w ith banks abroad
Demand accounts	63 774	160 580
Cheques payable	1 522	2 357
	65 296	162 937
	80 219	174 427

Cheques payable from Portuguese and foreign banks were sent for settlement on the first working day after the reference dates.

19. Financial assets and liabilities held for trading

The Bank uses the following derivatives:

Currency forward represents a contract between two parties for the exchange of currencies at a determined exchange rate established at the moment of the accomplishment of the contract (forward) for a determined future date. These operations have the purpose of hedging and managing currency risk, through the elimination of the uncertainty of the future value of certain exchange rate, which is immediately fixed by the forward operation.

Interest rate swap, which in conceptual terms can be viewed as an agreement between two parties who compromise to exchange (swap) between them, for a specified amount and period of time, periodic payments of fixed rate for floating rate payments. It involves a single currency and consists in the exchange of fixed cash flows for variable ones or vice versa. This kind of instrument is aimed at hedging and managing the interest rate risk, regarding the income of a financial asset or the cost of a loan that a given entity intends to take in a determined future moment.

The fair value of derivative instruments held for trading is set out in the following table:

31-Dec-2014
	Contract value		Fair value
	(Notional amount)	Assets	Liabilities
Trading derivatives
a) Foreign currency derivatives
Currency forw ards	41 191	734	816
b) Interest rate derivatives
Interest rate sw aps	375 525	38 744	43 011
Options	59 164	18	18
Total derivatives held for trading (assets/liabilities)		39 496	43 845

	Contract value	Fair value
	(Notional amount)	Assets	Liabilities
Trading derivatives
a) Foreign currency derivatives
Currency forw ards	145 525	167	68
b) Interest rate derivatives
Interest rate sw aps	448 362	25 505	29 456
Options	63 630	70	105
Total derivatives held for trading (assets/liabilities)		25 742	29 629

As at 31 December 2014, the fair value of other financial assets and liabilities held for trading was as follows:

Other financial assets Variable income securities	31-Dec-2014	31-Dec-2013
Equity stakes	38 784	48 101
	38 784	48 101
Total	38 784	48 101
Total financial assets held for trading Total financial liabilities held for trading	78 280 43 845	73 843 29 629

20. Financial assets and liabilities at fair value through profit or loss

The balance of this item is broken down as follows:

Assets	31-12-14	31-12-13
Fixed income securities
Portuguese government bonds	-	-
Other foreign debt securities	-	24 983
	0	24 983

21. Available-for-sale financial assets

The balance of this item is broken down as follows:

	31-12-14	31-12-13
Securities issued by residents
Government bonds - at fair value	14 015	37 802
Other debt securities - at fair value	21 987	54 200
Equity securities - at fair value	653	615
Equity stakes	20 504	-
	57 159	92 617
Securities issued by non-residents
Government bonds - at fair value	613 402	527 110
Other debt securities - at fair value	1 208 464	1 084 346
Other securities	69	63
	1 821 935	1 611 519
Total	1 879 094	1 704 136

As at 31 December 2014, the Bank had no unlisted equity instruments classified as available-for-sale financial assets, which, since their fair value cannot be reliably measured, were recognised as costs (2013: 0 thousand euros).

The Bank has in its available-for-sale financial assets portfolio an investment of 1 537 thousand euros regarding subordinate bonds (Class D Notes) purchased in June 2002 associated with the securitisation of home loans, in the amount of 250 million euros named Navigator Mortgage Finance No. 1.

In the scope of that securitisation operation, assets were acquired by a loan securitisation fund named Navigator Mortgage Finance No. 1, which simultaneously issued securitisation units fully subscribed by Navigator Mortgage Finance No. 1 Plc, which also issued bonds with the following characteristics:

	Nominal amount		Rating	Interest rate
	thousand euros	Standard & Poors	Moody's	(until May 2035)
Class A Notes (Senior)	230 000	AAA	Aaa	3-month Euribor + 0.21%
Class B Notes (Senior)	10 000	A A	Aa2	3-month Euribor + +0.38%
Class C Notes (Senior)	10 000	A	A 2	3-month Euribor + +0.55%
Class D Notes (Subordinate)	4 630	n.a.	n.a.	n.a.

Under the terms of the agreement that was signed the Bank did not assume any commitment regarding cash availabilities of the issuer, as well as liquidity lines, credits, guarantees, rights and residual profits, or any other risks, besides the Class D Notes.

Intervening entities:

Navigator Mortgage Finance No. 1 Fundo, a Portuguese loan securitization fund that purchased the loans;
Navigator, SGFTC, a loan securitisation fund manager that manages the fund;
Navigator Mortgage Finance No. 1 Plc, the company that purchased the securitization units and issued the notes.

The most relevant financial data extracted from Navigator's unaudited financial statements as at 31 December 2014 were as follows:

31-12-14	31-12-13
53 585	59 267
59 730	64 607
-6 145	-5 340
- 805	-1 327

22. Loans and advances to banks

The nature of loans and advances to banks is as follows:

	31-12-14	31-12-13
Loans and advances to banks in Portugal
Time deposits	43	3 178
Loans	10 048	192
Other	933	73 895
Interest receivable	91	98
	11 115	77 363
Loans and advances to banks abroad
Time deposits	184 758	187 640
Reverse repurchase agreements	-	1 003 792
Other	2 027	-
Interest receivable	62	27
	186 847	1 191 459
	197 962	1 268 822

Set out below is a breakdown of loans and advances to banks by period to maturity:

	31-12-14	31-12-13
Up to 3 months	196 651	1 264 311
From 3 months to 1 year	15	3 238
Over 5 years	1 143	1 148
Interest receivable	153	125
	197 962	1 268 822

23. Lending operations

Loans are granted via loan agreements, including overdraft facilities in demand accounts, and by the discount of effects. Total amounts of loans and advances to customers in the balance sheet, by nature, are as follows:

	31-12-14	31-12-13
Internal credit operations
Public sector	3 150 012	3 056 881
Private individuals	1 879 582	1 851 513
Home loans	1 495 044	1 453 644
Personal and consumer loans	40 270	45 746
Other personal lending	344 268	352 123
	5 029 594	4 908 394
External credit operations
Public sector	31 868	35 173
Private individuals	22 863	18 772
Home loans	16 529	15 247
Personal and consumer loans	35	36
Other personal lending	6 299	3 489
	54 731	53 945
Other loans (represented by securities)	352 773	267 000
Interest and commissions receivable	8 700	8 188
Past-due loans and interest
Due w ithin 90 days	15 526	19 757
Over 90 days	313 924	253 065
	329 450	272 822
Gross Total	5 775 248	5 510 349
Minus:
Provision for doubtful loans Duvidosa	76 268	80 231
Provision for past-due loans and interest	240 196	180 653
Provision for country risk	1	9
	316 465	260 893
Net total	5 458 783	5 249 456

As at 31 December 2014, credit operations included 894 719 thousand euros in mortgage loans assigned to the issuance of mortgage bonds (2013: 907 810 thousand de euros) (note 33).

Set out below is a breakdown of loans and advances to customers by period to maturity:

	31-12-14	31-12-13
Up to 3 months	1 208 812	1 041 601
From 3 months to 1 year	962 481	954 316
1 to 5 years	1 391 237	1 411 894
Over 5 years	1 874 568	1 821 528
Undetermined maturity (past due)	329 450	272 822
Interest and commissions receivable	8 700	8 188
	5 775 248	5 510 349

During 2013, the Bank carried out four credit assignments to the company Consulteam (a subsidiary of BPE in which the Bank has no stake), in the total gross amount of 166.5 million euros for the total amount of 152.8 million euros. These operations had an overall negative result of 2.6 million euros

Still during 2013, the Bank carried out four more credit assignments to Banco Popular Español in the total gross amount of 411.8 million euros for the total amount of 396.4 million euros. These operations had a positive income in the amount of 0.4 million euros due to the cancelling of already constituted provisions

During the first half of 2014, the Bank carried out a credit assignment operation to Banco Popular Español in the total gross amount of 8.06 million euros for the total amount of 7.50 million euros. These operations had an overall negative result of 0.56 million euros

Provisions for customer loan losses

The balance of the provision account for specific credit risks is detailed in the following table:

	31-12-2014	31-12-2013
Balance as at 1 January	260 893	185 144
Appropriations	212 442	241 368
Used	8 330	16 495
Cancelled	148 540	149 124
Balance as at 31 December	316 465	260 893

Appropriations for provisions	212 442	241 368
Write-offs	- 148 540	- 149 124
Recoveries of bad debts	- 4 469	- 2 854
Provisions net of w rite-offs and recoveries of bad debts	59 433	89 390

24. Held-to-maturity investments

In June 2013, the Bank sold 210 million of Spanish debt securities which were classified as held-tomaturity investments. Due to this sale, and pursuant to IAS 39, at the end of June, the Bank reclassified the remaining portfolio as available for sale without going through the profit or loss account.

Still pursuant to IAS 39, the Bank may only hold held-to-maturity instruments in 2016.

25. Non-current assets held for sale

As at 31 December 2014, the Bank only held an equity stake in the associate company Eurovida – Companhia de Seguros de Vida, S.A., booked for 20 747 thousand euros (2013: 20 747 thousand euros).

The most important financial data extracted from the consolidated financial statements of Eurovida, prepared according to the IFRS, as well as the impact of the equity method of accounting, were as follows as at 31 December 2014.

		Financial consolidated results for		Impact of the application
		Eurovida as at 31-12-2014		of the equity method
Effective	Net	Ow ner's Net		On consolidation	On net
stake (%)	Assets	equity	profit	reserves	income
15.9348%	1 046 283	104 140	13 314	-6 274	2 122

26. Other tangible assets

This item is broken down as follows:

	31-12-2014			31-12-2013
			Art and	Assets
	Real estate	Equipment	antiques	in progress	Total	Total
Balance as at 01 January
Acquisition costs	128 018	50 529	149	0	178 696	181,393
Accumulated depreciation	- 41 582	- 48 138		0	- 89 720	-86,794
Accumulated impairment	- 6 595			0	- 6 595	-6,595
Acquisitions		524		927	1 451	388
Transfers
Acquisition costs	- 5 333				- 5 333	- 1 982
Accumulated depreciation	2 097				2 097	1 192
Disposals / Write-offs
Acquisition costs	- 14 453	- 50		- 64	- 14 567	- 1 103
Accumulated depreciation	4 083	50			4 133	781
Impairment depreciation	4 185				4 185
Depreciation for the year	- 2 233	- 1 483			- 3 716	-4,899
Balance as at 31 December
Acquisition cost	108 232	51 003	149	863	160 247	178,696
Accumulated depreciation	- 37 635	- 49 571		0	- 87 206	-89,720
Accumulated impairment	- 2 410				- 2 410	-6,595
Net amount	68 187	1 432	149	863	70 631	82,381

27. Intangible assets

This item is broken down as follows:

		31-12-2014		31-12-2013
	Softw are	Miscellaneous	Total	Total
Balance as at 01 January
Acquisition costs	18 735	2 097	20 832	20 707
Accumulated depreciation	- 18 578	- 2 082	- 20 660	- 20 536
Acquisitions	32		32	125
Transfers
Acquisition cost			0	0
Depreciation for the year	- 122	- 11	- 133	- 124
Balance as at 31 December
Acquisition cost	18 767	2 097	20 864	20 832
Accumulated depreciation	- 18 700	- 2 093	- 20 793	- 20 660
Net amount	67	4	71	172

28. Deferred taxes

Deferred taxes are calculated in respect of all the temporary differences using an effective tax rate of 22.5%, except those regarding tax loss for which a 21% rate was used.

Balances for these items are as follows:

	Balance as at		Equity	Reserves		Balance as at
	31-12-13	Expense	Income	Increase	Decrease	31-12-14
Deferred Tax Assets
Available-for-sale securities	22 227			8 726	4 330	26 623
Tangible assets	3 444	2 593	236			1 087
Taxable provisions	19 235	5 444	6 925			20 716
Fees and commissions	163	20				143
Seniority bonus	993	88	75			980
RGC provisions	12 050	1 198	304			11 156
Other assets/liabilities	7 389	22				7 367
Tax loss	6 674	4 679	5 159			7 154
	72 175	14 044	12 699	8 726	4 330	75 226
Deferred Tax Liabilities
Available-for-sale securities	3 881			5 906	27 768	25 743
Property revaluation	179		129			50 0
	4 060	0	129	5 906	27 768	25 793

29. Other assets

This item is detailed as follows:

	31-12-14	31-12-13
Recoverable government subsidies	-	281
Taxes recoverable	18 558	17 940
Pledge accounts	190 040	133 449
Other debtors	51 890	61 942
Other income receivable	577	547
Expenses w ith deferred charges	4 863	6 063
Asset operations pending settlement - Diverse	23 520	30 517
Assets acquired in exchange for loans	145 921	286 458
Other tangible assets held for sale	283	8 716
Pension liabilities	109	84
Other transactions pending settlement	342	691
	436 103	546 688
Impairment of Assets acquired in exchange for loans	- 27 804	- 48 342
Impairment of Other tangible assets held for sale	- 89	- 4 223
Provisions for other assets	- 1 224	- 875
	406 986	493 248

Balances and movements in the accounts of Provisions for other assets are as follows:
Provisions for other assets	31-12-14	31-12-13
Balance as at 1 January	5 098	4 662
Appropriations	1 116	1 991
Used	4 792	1 512
Cancelled	109	43
Balance as at 31 December	1 313	5 098

Movements in the account Assets acquired in exchange for loans in 2014 were as follows:
-----------------------------------------------------------------------------------------

			31-12-2013
	Available	Properties
	for-sale	not held for	Equipment	Total	Total
	properties	sale
Balance as at 01 January
Gross amount	282 172	3 508	778	286 458	369 100
Accumulated impairment	- 48 232	-	- 110	- 48 342	- 53 598
Net amount	233 940	3 508	668	238 116	315 502
Additions
Acquisitions	71 789	3 312	664	75 765	106 353
Other	1 058	-	-	1 058	1 783
Disposals
Gross amount	- 215 758	-	- 716	- 216 474	- 190 724
Transfers	507	- 1 393		- 886	- 54
Impairment losses	- 2 181	-	- 129	- 2 310	- 16 406
Used	15 873	-	97	15 970	13 958
Reversed	6 849	-	29	6 878	7 704
Balance as at 31 December
Gross amount	139 768	5 427	726	145 921	286 458
Accumulated impairment	- 27 691	0	- 113	- 27 804	- 48 342
Net amount	112 077	5 427	613	118 117	238 116

30. Deposits from central banks

This item is detailed as follows:

	31-12-14	31-12-13
Deposits from central banks
Deposits	900 000	1 295 000
Interest payable	3	11 839
	900 003	1 306 839

In terms of residual maturity, these funds are broken down as follows:

	31-12-14	31-12-13
Forw ard
Up to 3 months	900 000	400 000
1 to 5 years	-	895 000
Interest payable	3	11 839
	900 003	1 306 839

31. Deposits from banks

The balance of this item, spot and forward, is composed as follows in terms of nature:

	31-12-14	31-12-13
Domestic credit institutions
Deposits	332 202	493 782
Interest payable	2 229	2 411
	334 431	496 193
International credit institutions
Loans	112 500	118 750
Deposits	835 650	143 866
Repurchase agreement	781 523	1 160 524
Other funds	1 217	83
Interest payable	88	320
	1 730 978	1 423 543
	2 065 409	1 919 736

The item International banks – Deposits includes essentially deposits made by the shareholder BPE. In terms of residual maturity, these funds are broken down as follows:

	31-12-14	31-12-13
Spot	9 842	10 859
Forw ard
Up to 3 months	1 604 487	1 527 370
From 3 months to 1 year	71 863	260 026
1 to 5 years	376 900	118 750
Interest payable	2 317	2 731
	2 055 567	1 908 877
	2 065 409	1 919 736

32. Customer funds

The balance of this item is composed as follows in terms of nature:
	31-12-14	31-12-13
Resident funds
Demand accounts	875 444	721 998
Time deposits	3 137 391	3 350 764
Savings accounts	4 225	4 902
Cheques payable	5 711	14 087
Other funds	72	40
	4 022 843	4 091 791
Non-resident funds
Demand accounts	31 477	21 943
Time deposits	32 988	64 812
Cheques payable	39	33
	64 504	86 788
Interest payable	27 556	37 999
	4 114 903	4 216 578

In terms of residual maturity, these funds are broken down as follows:

	$31 - 12 - 14$	$31 - 12 - 13$
Spot	906 921	743 941
Forw ard
Up to 3 months	1 105 329	1 587 479
From 3 months to 1 year	1 347 219	1 402 599
1 to 5 years	727 878	444 560
Interest payable	27 556	37 999
	3 207 982	3 472 637
	4 114 903	4 216 578

33. Debt securities issued

The balance of this item is broken down as follows:

	$31 - 12 - 14$	$31 - 12 - 13$
Bonds	2 3 8 3	2 2 9 4
Mortgage bonds	225 000	515 000
Euro Medium Term Note	88 946	346 092
Interest payable	922	1869
	317 251	865 255

During 2010, Banco Popular Portugal constituted a Mortgage Bond Issuance Programme whose maximum amount is 1 500 million euros. In the scope of this programme, the Bank made the first issuance of mortgage bonds in the amount of 130 million euros on 20 December 2010, the second issuance of mortgage bonds in the amount of 225 million euros on 30 June 2011, the third issuance of mortgage bonds in the amount of 160 million euros on 30 December 2011, and the fourth issuance of mortgage bonds in the amount of 300 million euros on 26 September. This last issuance was fully repurchased by the Bank.

These bonds are covered by a group of home loans and other assets that have been segregated as autonomous equity in the Bank's accounts, therefore grating special credit privileges to the holders of these securities over any other creditors. The conditions of the aforementioned issuances are in accordance with Decree-law No. 59/2006, and Notices Nos.5/2006, 6/2006, 7/2006 and 8/2006 and Instruction No. 13/2006 issued by the Bank of Portugal.

On 31 December 2014, the characteristics of these issuances were the following:
Name	Nominal value	Carrying amount	Issue date	Reimbursement date	Interest frequency	Interest rate	DBRS Rating
BAPOP Mortgage bonds 20/12/2013	225 000	225 015	30-06-2011	30-06-2015	Monthly	1M Euribor+1.20%	BBB (high)
BAPOP Mortgage bonds 20/12/2013	300 000	0	26-09-2012	26-09-2015	Monthly	1M Euribor+1.20%	BBB (high)
BAPOP Mortgage bonds 20/12/2013	290 000	0	$30 - 12 - 2014$	30-12-2017	Monthly	1M Euribor+1.20%	BBB (high)

We should also note that the Bank made the second issuance of mortgage bonds under the 'extended maturity date' option, extending the maturity date for another year to June 2015.

On 31 December 2014, autonomous equity assigned to these issuances amounted to 896 224 thousand euros (2013: 913 003 thousand de euros) (see note 23).

During 2011, Banco Popular Portugal constituted a Mortgage Bond Issuance Programme whose maximum amount is 2.5 500 million euros. In the scope of this programme, the Bank has already carried out 36 issuances and as at 31 December 2014, its balance was broken down as follows:

Issue date	Serial number	Amount	Number	Nominal unit value	Reimbursement date
20-04-2012	2ª	10 000	100	100 000	24-04-2015
26-10-2012	10ª	20 000	200	100 000	26-10-2016
26-02-2013	18ª	6 676	6 676	1 000	26-02-2016
26-03-2013	21ª	6 530	6 530	1 000	26-03-2016
30-04-2013	23ª	4 984	4 984	1 000	30-04-2016
28-05-2013	24ª	5 692	5 692	1 000	28-05-2016
25-06-2013	25ª	5 738	5 738	1 000	25-06-2016
30-07-2013	26ª	4 576	4 576	1 000	30-07-2016
27-08-2013	27ª	1 834	1 834	1 000	27-08-2016
30-09-2013	30ª	4 475	4 475	1 000	30-09-2017
21-10-2013	32ª	2 664	2 664	1 000	21-10-2015
30-10-2013	31ª	4 650	4 650	1 000	30-10-2017
29-11-2013	33ª	2 660	2 660	1 000	29-11-2017
30-12-2013	34ª	1 300	1 300	1 000	30-06-2017
10-01-2014	36ª	6 518	6 518	1 000	10-01-2017
23-01-2014	35ª	649	649	1 000	23-01-2017
		88 946

34. Hedging derivatives

The item derivatives is composed as follows:

		31-12-2014			31-12-2013
	Notional	Carrying amount		Notional		Carrying amount
	Amount	Assets	Liabilities	Amount	Assets	Liabilities
Interest rate contracts Sw aps	1 337 000	-	142 258	696 250	103	101 883

As referred to previously, the Bank covers part of its interest rate risk, resulting from any possible decrease in the fair value of fixed interest rate assets, using interest rate swaps. On 31 December 2014, the net fair value of hedging and trading interest rate swaps (see above) was negative (see note 19) in the amount of -146 524 thousand euros (2013: -105 730 thousand euros).

Fluctuations in the fair value associated with hedged assets and their respective hedging derivatives are registered in the income statement under item Net income from financial operations (see note 9).

35. Other provisions

Balances and movements for the Provisions account were as follows:

Other Provisions (Liabilities) - Movements	31-12-14	31-12-13
Balance as at 1 January	51 054	54 588
Appropriations	6 714	25 248
Used	-	12 097
Cancelled	5 193	16 685
Balance as at 31 December	52 575	51 054
Other Provisions (Liabilities) - Balances	31-12-14	31-12-13
Other provisions	258	66
Provisions for general credit risks	49 584	49 186
Other provisions	2 733	1 802
	52 575	51 054

36. Other liabilities

This item is detailed as follows:

	31-12-14	31-12-13
Suppliers of goods	3 913	5 119
Tax w ithheld at source	3 482	5 654
Personnel expenses	12 446	11 964
Other expenses	6 443	7 988
Other revenues w ith deferred income	2 456	2 642
Funding operations pending payment	9 698	27 102
Other accruals and deferred income	351	782
	38 789	61 251

37. Retirement pensions

The Pension Plan of Banco Popular Portugal is a scheme of benefits that comprehends all the benefits foreseen in the Collective Bargaining Agreement that regulates the banking sector in Portugal

The fund assumes the liabilities with past services of former employees in the proportion of their time of service. As a counterpart it from the amount of liabilities we deduct the amount of liabilities with past services of current employees as regards the time of service rendered in other institutions in the banking sector. These liabilities for services rendered are calculated pursuant to IAS 19 Revised.

The Pension Plan of the executive members of the Board of Directors intends to ensure payment for old age pensions, disability pensions and survivor's pensions for the executive members of the Bank's Board of Directors.

With the publication of Decree-law No. 1-A/2011, of 3 January, the employees comprehended by the Collective Bargaining Agreement and in active life on 4 January 2011 started to be comprehended within the General Social Security Scheme ('Regime Geral da Segurança Social' - RGSS) as regards the benefits of old age pensions. Therefore, from that date on the benefits plan defined for employees comprehended in the Collective Bargaining Agreement as regards retirement pensions started to be funded by the Pension Fund and Social Security. However, the Pension Fund still has the responsibility, after 4 January 2011, to cover liabilities on death, disability and survivor's pensions, as well as the old age complement in order to match the retirement of the participants in the Pension Fund to the amounts of the current pension plan.

According to guidelines derived from the Note issued on 26 January 2011 by the National Council of Financial Supervisors, the Bank has kept with reference to 31 December 2010 the recognition and measurement method for past services of active employees regarding the events transferred to the RGSS used in previous years.

In accordance with Decree-law No. 127/2011 of 31 December, Banco Popular Portugal transferred to Social Security the liabilities for pensions in payment on 31 December 2011, as well as the part of the assets contained in the pension fund that already covered such liabilities. The liabilities transferred amounted to 6.3 million euros and have already been fully paid (55% in December 2011 and 45% in March 2012).

This transference was booked in the income statement for the amount of 795 thousand euros due to the allocation of the proportional part of accumulated actuarial deviations and the actuarial deviations originated by the difference in actuarial assumptions used for the calculation of the transferred liabilities. In accordance with Decree-law No. 127/2011 of 31 December, this amount shall be deductible for effects of determining taxable profit, in equal parts, from the fiscal year started on 1

January 2012, regarding the average of the number of years of life expectancy of the pensioners whose responsibilities have been transferred.The respective deferred taxes have been on the amount recognised in the year's net income.

Until 31 December 2012, the Bank recognized the net accumulated amount (after 1 January 2004) of actuarial gains and losses resulting from changes in the financial and actuarial assumptions and differences between the financial and actuarial assumptions used and the actual amounts in the item 'Other Assets or Other Liabilities – Actuarial deviations'. Accumulated actuarial gains or losses that did not exceed 10% of the highest of the current value of liabilities for past services or the value of the pension funds were included in the 'corridor'. Actuarial gains and losses in excess of the corridor were recognised against results over the average remaining period of service of the employees covered by the plan.

As at 1 January 2013 Banco Popular changed its accounting policy of recognising financial and actuarial gains and losses for pension plans and other defined benefit post-employment benefits pursuant to IAS 19 Revised. Financial and actuarial gains and losses are now recognised in the period they occur directly in equity in the Statement of Comprehensive Income.

On 31 December 2014, the number of participants in the fund was 1 129 (2013: 1 141). On this date, there were 41 retired people and 15 pensioners, and the remaining employees were active.

The liabilities assumed for retirement and survivor's pensions are as follows: Past Services	31-12-14	31-12-13
Defined benefit obligation at the beginning of the year	128 411	108 961
Service expenses:
Bank	1 339	1 245
Employees	757	747
Interest expense	4 721	4 975
Pensions paid	- 992	- 901
Actuarial deviations	19 960	13 384
Defined benefit obligation as at 31 December	154 196	128 411
Current amount of liabilities	31-12-14	31-12-13
Past Services
- Old age	136 425	112 235
- Payable pensions	17 771	16 176
	154 196	128 411
Future services
- Old age	42 527	46 793
	42 527	46 793

Current amount of liabilities

Obligations for survival and disability, foreseen in the Collective Bargaining Agreement and insurable are covered by the subscription of a multi-protection life insurance policy for the population at stake, except for those whose urgency of disability or survival is considered unfit to insure.

This is an annual renewable temporary contract in which the Insurance company guarantees the Pension Fund of Banco Popular Portugal, S.A., in case of death or disability assessed at 66% or more according to the National Table for Disability, for any of the people comprehended within the insured group, the payment of the hired premiums.

This insurance contract was signed with Eurovida – Companhia de Seguros de Vida S.A., an insurance company that is an associate of Banco Popular Portugal, SA.

Total Amount of the Fund

Equity amount of the Fund	31-12-14	31-12-13
Amount at the beginning of the year	128 495	121 796
Contributions paid
Employer	22 000	600
Employees	757	747
Return on Fund assets	6 265	7 935
Pensions paid	- 992	- 901
Other net differences	- 2 220	- 1 682
Amount of the Fund as at 31 December	154 305	128 495
Current obligations for past services	154 196	128 411
Coverage level	100.1%	100.1%

The movements occurred in the total amount of the pension fund were as follows:

Evolution of Liabilities and Total Amount of the Fund

The evolution of liabilities and the total amount of the pension fund in the past five years was as follows:

	31-12-14	31-12-13	31-12-12	31-12-11	31-12-10
Current amount of liabilities	154 196	128 411	108 961	94 708	102 746
Equity amount of the Fund	154 305	128 495	121 796	113 703	118 246
Net Assets/(Liabilities)	109	84	12 835	18 995	15 500
Coverage level	100.1%	100.1%	111.8%	120.1%	115.1%

Banco Popular Portugal assesses the recoverability of any eventual excess in the fair value of the assets included in the pension fund when compared with the liabilities for pensions at each reporting date based on the expectation of the reduction in the future necessary contributions.

Structure of the Assets that comprise the Fund

On 31 December, The Pension Fund's portfolio broken down by asset type was as follows:

Type of asset	31-12-2014	31-12-2013
Fixed income securities	46.73%	60.49%
Variable income securities	35.35%	33.49%
Real estate	3.94%	5.04%
Liquidity	13.98%	0.98%
	100.00%	100.00%

Maximum exposure to credit risk

Regarding the credit risk of the assets with debt characteristics that comprise the fund, the exposure by rating had the following structure:

Ratings	31-12-2014	31-12-2013
AAA	12.32%	5.35%
A A	11.75%	10.42%
A	27.07%	19.74%
BBB	31.75%	24.95%
Other (NR)	17.11%	39.54%
	100.00%	100.00%

As at 31 December 2014, the Fund had 1 000 000 BPE Financiaciones bonds issued by Banco Popular Español Portugal in the amount of 1 034 thousand euros. During 2014, these bonds had a positive change in fair value in the amount of 579 thousand euros.

Costs for the year

The amounts recognised as costs for the year are analysed as follows:

Cost for the year	31-12-14	31-12-13
Service Cost	2 096	1 992
Interest expense	4 721	4 975
Expected return on Fund assets	- 4 724	- 5 552
Other	1 462	935
Total	3 555	2 350

Actuarial gains and losses

The amount of actuarial gains and losses for the years 2014 and 2013 are broken down as follows:

Actuarial gains and losses	31-12-14	31-12-13
Actuarial gains/losses as at 1 January	- 10 267	735
Actuarial gains for the year - obligations	- 19 960	- 13 384
Actuarial gains/losses for the year - Fund	1 541	2 382
Actuarial gains/losses as at 31 December	- 28 686	- 10 267

Actuarial assumptions

The main actuarial and financial assumptions used were as follows:

	31-12-14		31-12-13
	Assump.	Real	Assump.	Real
Discount rate	2.40%	2.40%	3.63%	3.63%
Expected return on Fund assets	2.40%	4.85%	3.63%	6.57%
Salaries and other benefits increase rate	0.8%	0.0%	1.5%	0.0%
Pensions increase rate	0.5%	0.0%	1.0%	0.0%
Mortality table	TV 88/90		TV 88/90
Disability table	ERC Frankona		ERC Frankona
Turnover	n.a.	n.a.	n.a.	n.a.

Gains and losses arising from experience adjustments and changes in actuarial assumption are recognised in other comprehensive income in Retained Earnings in the period they occur.

Sensitivity analysis to the Main Assumptions that contribute to the liabilities amount

Taking into consideration the most significant impacts on the amount of liabilities, we have performed a sensitivity analysis through a positive and negative fluctuation in the main assumptions that contribute to the amount of the liabilities, whose impact is analysed as follows:

		Impact on current liabilities
	Assumption change	Assumption increase	Assumption decrease
Discount rate	0.25%	Decrease by 6.2%	Increase by 6.7%
Salaries and other benefits increase rate	0.25%	Increase by 5.1%	Decrease by 4.8%
Pensions increase rate	0.25%	Increase by 2.6%	Decrease by 2.5%

	Increase by 1 year	Decrease by 1 year
Average life expectancy	Increase by 3.5%	Decrease by 3.5%

The sensitivity analyses above are based on the change in a given assumption, keeping all other assumptions equal. In practice, that is very unlikely to occur given the correlations that exist between the several assumptions. When calculating the sensitivity of the amount of liabilities for significant actuarial assumptions we applied the same methods used to calculate the positions in the Balance Sheet.

The methodology used to perform the sensitivity analysis remained unchanged from the previous year.

Qualification of the impacts on the Fund's portfolio of fluctuations in interest rates and in the stock and property markets

With the reference date 31 December 2014, we quantified the impact in the Pension Fund's portfolio, by performing a stress test that might reflect the most significant risks that the Pension Fund is exposed to, taking into consideration fluctuations in interest rates and in the stock and property markets, and compared the resulting amount of the Fund with the minimum level of solvency amount.

For that effect, we considered two types of instantaneous shocks: a moderate shock and a severe shock. The several shocks are thus characterised: the interest rate risk is measured by a parallel shift in the term structure of interest rates, credit risk is assessed based on the standardised approach of

Base II, and market risk is measured by the change in the value of shares and property investment funds.

In the case of the interest rate risk, a risk consists in a moderate increase of five-year spot rates by 20% or a severe increase by 30%. Regarding market risk, we considered a moderate decrease by 20% in the share portfolio and by 15% in the case of properties; we also considered a severe drop by 35% in the share portfolio and 25% in properties.

The impact of a moderate shock to the pension fund's portfolio for the several risks is as follows:

	Moderate shock
Risk factor	Impact	%
Interest rate risk
+20%;	- 216	-0.14
Credit risk: (Basel III)	- 3 181	-2.06
Market risk
Shares
-20%	- 10 957	-7.1
Properties
-15%	- 912	-0.59

Considering all the risks, the impact on the asset portfolio would be -9.89%, which represents -15 266 thousand euros (taking into account the amount of the fund as at 31 December 2014). In this sense, the level of funding for liabilities, considering the minimum solvency level of the Portuguese Insurance Institute would be 196.39%.

For a severe shock, the scenario would be:

Severe shock
Risk factor	Impact	%
Interest rate risk
+30%	- 324	-0.21
Credit risk: (Basel III)	- 6 340	-4.11
Market risk
Shares
-35%	- 19 174	-12.43
Properties
-25%	- 1 520	-0.99

Considering all the risks, the impact on the asset portfolio would be -17.73%, which represents -27 358 thousand euros. In this sense, the level of funding for liabilities, considering the minimum solvency level of the Portuguese Insurance Institute would be 179.31%.

When compared with the previous year, we have seen for both scenarios a decrease in the interest rate risk, a (slight) increase in credit risk, and an increase in market risk.

Financial asset/liability adequacy

With the aim of assessing the adequacy between financial assets and liabilities, we carried out an ALM study on financial flows. For that effect, we projected liabilities in the funding scenario, assuming the current actuarial evaluation assumptions.

We assumed that the current population is a closed group. Based on the liabilities as at 31 December 2014, on normal expected costs to face increased liabilities and on the expected amount of pensions to be paid each year, we estimated the future expected liabilities of each population group that currently exist for a 20-year time frame. We also assumed that the outflows to pensions occur on average in mid-year.

We also projected the fund's assets for each of the years in the referred time frame.For that we estimated the expected cash flow amounts, namely contributions, yield, insurance premium, amounts of pensions paid, and fund commissions for each year. We assumed a future profitability of 2.4%, which corresponds to the assumption used in the assessment.

The results obtained were the following:

By analysing the results we can conclude, with the indicated assumptions, that there may be the need for employees to make future extraordinary contributions in order to ensure the financing of the pension fund's liabilities.

Expected future cash flows

The future undiscounted cash flows of pension benefits are as follows:

	Up to 1 year	1 to 3 years	1 to 5 years	Over 5 years	Total
Benefit (monthly)	119	157	228	3 660	4 164

38. Contingent commitments and liabilities

The following table shows the contractual amount of off-balance financial instruments, which imply lending to customers.

	31-12-14	31-12-13
Contingent liabilities
Guarantees and Sureties	491 694	539 471
Documentary credits	46 531	39 885
Commitments
Irrevocable loans	824 271	1 130 026
Revocable loans	820 518	788 982
	2 183 014	2 498 364

On 31 December 2014, the item Irrevocable loans included the amount of 5 314 thousand euros (2013: 5 314 thousand euros) regarding forward liabilities for the Deposit Guarantee Fund regarding the part of annual contributions which, pursuant to the deliberations of the Fund, were not paid in cash.

	31-12-14	31-12-13
Assets pledged as collateral	1 040 700	1 743 700

The amount of the item Assets pledged as collateral includes 1 040 700 thousand euros from the Bank's own portfolio aimed, almost entirely, at collateralising an irrevocable credit line with the Bank of Portugal pursuant to the large-amount payment system ('Sistema de Pagamentos de Grandes Transacções – SPGT') and the Intervention Operations Market ('Mercado de Operações de Intervenção' - MOI) (2013: 1 743 7 thousand euros).

Additionally, as at 31 December 2014 and 2013, the balances regarding off-balance sheet accounts were as follows:

	31-12-14	31-12-13
Deposit and custody of securities	6 695 936	5 214 227
Amounts received for collection	93 584	92 653
	6 789 520	5 306 880

39. Share capital and share premium

As at 31 December 2014, the Bank's share capital was represented by 476 000 thousand shares with the nominal value of 1 euro each, which was subscribed and fully paid by Banco Popular Español, SA.

The amount recognised in item Share premiums originated in the premiums paid by shareholders in the share capital increases made in 2000, 2003 and 2005.

40. Fair value reserves

	31-12-14	31-12-13
Revaluation reserves and Fair Value
Available-for-sale investments
Net balance as at 1 January	- 56 434	- 113 155
Revaluation at fair value	70 919	79 172
Deferred taxes	- 17 466	- 22 451
Balance as at 31 December	- 2 981	- 56 434
Revaluation reserves ( Legal provisions )	696	2 291
Balance as at 31 December	- 2 285	- 54 143

The movements in this account are detailed on the following table:

Revaluation reserves regarding available-for-sale assets result from the adequacy to the fair value of the securities in the Bank's portfolio. These balances shall be reversed through the income statement at the time the securities that originated them are disposed of or in case there is any impairment.

The revaluation reserve regarding the adequacy to fair value of tangible assets for own use is related to the property on Rua Ramalho Ortigão (note 26).

The revaluation reserve for tangible assets calculated in accordance with Decree-law No. 31/98 shall only be moved when it is considered realized, total or partially, and pursuant to the following priorities:

(i) To correct any excess found on the date of the revaluation between the net book value of the elements being revalued and their current real value;
(ii) To absorb accumulated loss until the revaluation date, inclusively;
(iii) To incorporate in the share capital for the remaining part.

41. Other reserves and retained earnings

The balances of the accounts for other reserves and retained earnings are analysed as follows:

	31-12-14	31-12-13
Statutory reserve	35 221	35 221
Other reserves	290 622	289 026
Retained earnings	- 108 745	- 58 605
	217 098	265 642

The movements in the items reserves and retained earnings were as follows:

	31-12-14	31-12-13
Statutory reserve
Balance as at 1 January	35 221	34 951
Trasnf. Retained earnings	0	270
Balance as at 31 December	35 221	35 221
Other reserves
Balance as at 1 January	289 026	286 548
Trasnf. Retained earnings	0	2 422
Trasnf. Fair value reserves	1 596	56
Balance as at 31 December	290 622	289 026
Retained earnings
Balance as at 1 January	- 58 605	- 47 603
Net income for the previous year	- 31 720	2 692
Actuarial ganis/losses of the Pension Fund	- 18 420	- 11 002
Transf.Legal Reserve	0	- 270
Transf.Other Reserves	0	- 2 422
Balance as at 31 December	- 108 745	- 58 605
	217 098	265 642

- Statutory Reserve

The statutory reserve can only be used to absorb accumulated losses or to increase share capital. Portuguese legislation applicable to the banking sector (Article 97 of Decree-Law No. 298/92, 31 December) requires that 10% of the profit for the year be transferred to the statutory reserve until it is equal to the share capital.

42. Personnel expenses

The number of employees of the Bank according to professional category was as follows:

	31-12-14	31-12-13
Directors	98	95
Management	444	451
Technical personnel	519	517
Clerical staff	238	237
	1 299	1 300

43. Remunerations of the governing bodies and the personnel with responsibility over risk taking and control

The annual amounts earned by the members of the Board of Directors and the Supervisory Board are detailed, individually and in group, on the following table:

	Fixed Remun.	Variable Cash Remun.	Total Remun.
Board of Directors
Rui Manuel Morganho Semedo - Chairman	392	100	492
Carlos Manuel Sobral Cid da Costa Álvares - Member	278	113	391
	670	213	883
Supervisory Board
Rui Manuel Ferreira de Oliveira - Chairman	10	0	10
António José Marques Centúrio Monzelo - Member	6	0	6
Telmo Francisco Salvador Vieira - Member	6	0	6
	22	0	22

The remunerations earned and the number of employees who have responsibilities in terms of risk taking regarding the Bank or its customers as well as those who assume control functions pursuant to Notice 5/2008 issued by the Bank of Portugal are detailed below:

	No. of Benef.	Fixed Remun.	Variable Cash Remun.	Total Remun.
Executive Committee	6	895	163	1 058
Risk Management	1	80	13	93
Compliance	1	57	4	61
Asset Management	1	89	7	96
Auditing	1	64	10	74
	10	1 185	197	1 382

44. Remuneration of the Statutory Auditor

The amounts paid to the Audit Firm PricewaterhouseCoopers in 2014 and 2013 were:

	31-12-14	31-12-13
Statutory audit	122	113
Other guarantee and reliability services	130	242
	252	355

45. Relationship with related companies

As at 31 December 2014 and 2013, the amounts payable and receivable regarding related companies was as follows:

		Credit		Debit	Income		Expense
	31-12-14	31-12-13	31-12-14	31-12-13	31-12-14	31-12-13	31-12-14	31-12-13
Eurovida, SA	4 004	4 006	117 668	147 758	5 971	2 615	6 096	6 451
Popular Gestão de Activos, SA	119	62	2 572	2 147	1 931	1 375	8	2
Popular Factoring, SA	87 321	74 653	35	-	2 195	2 917	267	335
Imopopular Fundo Especial I.I.	4 039	10 253	2	227	238	356	-	-
Popular Arrendamento	4	5	5 061	42 025	91	37	273	57
Popular Seguros, SA	-	-	680	892	748	578	-	20
Popular Predifundo	1 065	-	-	-	75	-	-	-
SPE-Special Pourpuse Entities	1 621	2 437	-	-	810	1 419	-	-
	98 173	91 416	126 018	193 049	12 059	9 297	6 644	6 865
Banco Popular Español, SA	423 029	1 493 141	2 028 211	1 951 901	86 299	166 056	150 293	205 251

As at 31 December 2014, the guarantees pledged by the Bank to related companies amounted to 4 719 thousand euros (2013: 11 273 thousand euros).

As at 31 December 2014, the Bank received deposits from BPE to guarantee the risk associated with loans granted by the Bank in the amount of 88 824 thousand euros (2013: 106 129 thousand euros).

Transactions with related companies are based on common market conditions.

As at 31 December 2014, the members of the Bank's Board of Directors did not hold any deposits or loans with Banco Popular.

46. Cash and cash equivalents

For effects of the cash flow statement, Cash and cash equivalents include the following balances with maturity inferior to 90 days:

	31-12-14	31-12-13
Cash (note 17)	48 546	49 158
Cash and balances w ith banks (note 18)	80 219	174 427
Deposits w ith banks w ith maturities of less than 3 months	196 651	1 264 311
	325 416	1 487 896

47. Measurement of portfolio impairment and respective disclosures (Circular Letter No. 02/2014/DSP issued by the Bank of Portugal)

Qualitative disclosures:

a) Credit risk management policy

The Bank is exposed to credit risk, which is the possible loss that arises when the Bank's counterparts fail to fulfil their obligations. In the case of refundable financing it arises as a consequence of the nonrecovery of principal, interest and commissions, regarding amount, period and other conditions stipulated in the contracts. Concerning off-balance sheet risks, it derives from the non-compliance of the counterparts regarding their obligations with third parties, which implies that the Bank has to assume as its own certain obligations depending on the contracts.

The Bank structures the levels of credit risk it is exposed to by establishing pre-defined acceptable risk limits regarding the borrower or group of borrowers and geographical or business activity segments.

Exposure to credit risk is managed through a regular analysis of the capacity of borrowers and potential borrowers of meeting payment obligations for principal and interest, and by changing these credit limits when appropriate. Exposure to credit risk is also managed in part by obtaining collaterals and personal or corporate guarantees.

Collaterals

Property mortgages;
Pledges of operations made within the Bank;
Pledges on assets such as facilities, inventory and accounts receivable;
Pledges on financial instruments, such as securities and shares.

Long term loans to corporate and private customers usually require a collateral; lower amounts and recurring personal loans generally require no collateral. Additionally, with the intention of minimising loss, at the time an impairment indicator for loans and receivables is identified the Bank tries to obtain additional collaterals from the relevant counterparts.

Lending commitments

Concentration Risk

Concentration risk is managed and monitored by Risk Management that also ensures that adequate policies and procedures are maintained and implemented to monitor and manage credit concentration risk. It is also in charge of monitoring delegated powers in terms of concentration risk and periodically presents reports on concentration risk to the Board of Directors.

The Bank has defined a structure of limits aimed at maintaining an exposure level in line with its risk profile and an adequate diversification of its loan portfolio.

The limits currently approved for credit concentration risk are the following:

i) Risk limit for a Group/Customer

Pursuant to the delegations attributed by Banco Popular Group, the maximum limit for total exposure with a Group/Customer is 10% of GBP's Tier I. The maximum limit for a Group/Customer, except bank and technical guarantees and transactions guaranteed with deposits is 5% of GBP's Tier I.

ii) Risk limit by transaction amount

The maximum amount for a lending transaction is defined.

In case of funding working capital or without a specific destination every risk with that characteristic shall be aggregated.

Regarding project finance and syndicated financing, BAPOP's participation shall not be higher than 25% of the total amount, in case the transaction is higher than the limit defined for this type of lending.

iii) Limit of participation in the Credit Risk Central (CRC)

The maximum limit for participation in the CRC with a Group/Customer shall be the following:

Group/Customer with risks of over € 500 million - Lower than 10% of CRC.

Group/Customer with risks of over € 250 million - Lower than 15% of CRC.

Group/Customer with risks of over € 100 million - Lower than 25% of CRC.

Group/Customer with risks of over € 20 million - Lower than 50% of CRC.

iv) Limit of risk concentration by activity sector

The maximum limits of concentration of total risk by activity sector are the following:

Construction and property development: 25%;
Manufacturing and mining industries: 15%;
Information and communication, education and other services: 5%;
Remaining sectors: 10% (Agriculture, forestry and fisheries; Energy and water supply; Wholesale and retail trade, repair of motor vehicles; Hotels and restaurants; Transport and storage; Banking and insurance; Administrative, professional sanitary and artistic activities).

v) Limit of risk concentration in large companies

There is a maximum limit of 30% of total risk for the Large Companies segment.

vi) Limit of risk concentration by product

There are also defined limits according to the type of product:

Transactions with mortgages on land;
Property development;
Loans to purchase securities.

vii) Assessment of mortgage collaterals

A set of limits is also defined according to the loan to value (LTV) of lending transactions with mortgage collaterals.

b) Loan write-off policy

The loan write-off policy may only be applied when the loan dos not have any real collateral, when it is 100% provisioned and, simultaneously, when Management estimates that there will be no recovery arising from the fact that every due diligence has been taken to collect and recover said loans.

c) Impairment reversion policy

The analysis and subsequent determination of individual impairment of a customer that has shown impairment in previous periods may only result in a reversion in case it is related with the occurrence of an event after the initial recognition (e.g. improvement of the customer's rating or strengthening collaterals).

Additionally, there may be implicit reversions of impairment, resulting from new estimates of collective parameters or changes in the type of customer analysis (individual or collective).

The reversal amount may not be higher than the accumulated impairment amounts previously recorded.

d) Conversion of the debt into debtor's equity policy

The Bank does not usually employ this type of solution and solely holds an exposure on an economic group that was subject to this type of loan restructuring. In this case, the loan is replaced by a position comprised of shares from a Restructuring Fund.

These positions are subject to impairment tests every six months from the moment those shares are included in the Restructuring Fund. For junior debt positions maintained in companies held by these Funds a 100% impairment is estimated regarding their respective exposure.

e) Description of restructuring measures applied and their respective associated risks, as well as control and monitoring mechanisms

The Bank has defined a vast set of restructuring measures, which are negotiated by a large set of Agencies specialising in credit recovery.The most common measures are extending the maturity date of the loan or the inclusion of a grace period.

In terms of characteristics, these restructuring measures are divided into large groups: without overdue credit (with or without strengthening collaterals); and with overdue credit (with or without strengthening collaterals).

The Bank's decision-making body in terms of loan granting shall identify the restructuring operations that result from customers' financial difficulties.These are subsequently classified by the Bank's computer system. Costumers with lending operations that are undergoing a restructuring process are also subject to an internal definition of a loan restrictive classification.Agencies are thus forced to act on this policy, which may imply maintaining, reducing or extinguishing risks.

Regarding monitoring in terms of the loan impairment model, these transactions shall bear the restructuring brand for a two-year healing period pursuant to Instruction No. 32/2013 issued by the Bank of Portugal.

f) Description of the process of assessing and managing collaterals

For situations in which it is admissible that credit recovery shall occur via foreclosure the amounts that shall be considered (market value of the most recent appraisal known with the application of a temporal haircut) are also defined by internal regulations.

Reappraisals of these collaterals are usually done within the time frames defined by Notices Nos.3/95 and 5/2006 issued by the Bank of Portugal. However, in the case of properties related with transactions done with customers with significant exposures (over 1 million euros), reappraisals are carried out more often.

Despite the pre-defined time frames, appraisals are carried out whenever they are considered relevant to monitor the value of the collateral.

The value of the properties considered as collaterals is adjusted to the current macroeconomic scenario through the application of haircuts, based on Management analysis and market practices.

	Haircut
Time frame of the assessment	>= 50% Work completed	< 50% Work completed
Less than 6 months	0%	0%
6 months	5%	5%
From 6 months to 1 year	10%	10%
From 1 to 2 years	15%	20%
From 2 to 3 years	25%	35%
Over 3 years	50%	60%

Regarding financial collaterals and securities, we have defined the periodical monitoring of the lending operations collateralised with this type of assets, and these are regularly reported to Management. Assets used as collateral are indicated, as well as the overall hedging ratio. These amounts are considered in the scope of an individual impairment analysis.

g) Nature of main judgements, estimates and hypotheses used to determine impairment

Losses due to impairment correspond to estimates based on judgements made by top management in view of the facts and circumstances on a given date. Consequently, future events and developments are expected, in some cases, to converge into a different result vis-à-vis the estimate amount.

In order to ensure the adequacy of the impairment model to the macroeconomic scenario, the Bank carries out monthly impairment reviews of its individually analysed customers, as well as reviewing every six months the parameters applied to the collective part of its credit portfolio.

In terms of the individual analysis, impairment depends on the disbursement capacity of the debtor and/or respective guarantors, or the collaterals the Bank has to guarantee the lending transactions, applying the reference criteria described in Circular Letter 02/2014/DSP issued by the Bank of Portugal.

As far as the collective part of the portfolio is concerned and especially the calculation of LGD estimates, these are calculated based on the history of effective recoveries, as well as on conservative assumptions, defined and approved by Management for future estimates.

h) Description of the methods employed to calculate impairment, including the way portfolios are segmented in order to reflect the different characteristics of the lending operations

In compliance with the conceptual model on which impairment calculations are based, every month an analysis is carried out to the overall credit portfolio divided into seven main groups: (i) default loans, (ii) loans in arrears (30- 90 days), (iii) restructured loans, (iv) non-performing loans (with impairment signs), (v) healing loans, (vi) healed loans, and (vii) performing loans.

Definition of default

A loan is considered defaulted whenever it shows at least one of the following signs:

Loans in arrears for more than 90 days;
Customers in insolvency/bankruptcy situations or undergoing a special revitalisation process (PER);
Bank guarantees called in by the beneficiary.

A customer's full exposure is considered defaulted whenever the sum of their transactions in arrears for more than 90 days exceeds 20% of total exposure.

Homogeneous segments result from the creation of transaction groups that have similar credit risks, taking into consideration the Bank's management model. In order to do so, we have defined as relevant segmentation factors some lending transactions characteristics, such as type of customer, materiality of the exposure, type of product and type of associated collateral.

The segmentation currently in force distinguishes between specific PD segmentation and specific LGD segmentation:

PD segmentation	LGD segmentation
	State and Other Public Bodies
Banco Popular Group
Employees
Corporate Customers
Relevant Customers
Credit cards - Private individuals
	Home loans w ith LTV <=80%
Home loans	Home loans w ith LTV > 80%
	Collateralised private individuals
	Consumer credit
Consumer credit	Non-collateralised private individuals
Property development
	Collateralised construction loans
Property construction	Non-collateralised construction loans
	Credit cards - Corporate
Corporate customers	Collateralised companies
	Non-collateralised companies

Probability of default (PD) represents the estimate based on the last 5 years of the Bank's history of the number of transactions with or without impairment signs that can default during a given period of time (emerging period). So that the Bank's history may reflect the current economic conditions, observations obtained are adjusted according to the following weights:

	Year 1	Year 2	Year 3	Year 4	Year 5
Weight	10%	15%	15%	30%	30%

PD is also differentiated according to the classification of each loan: (i) default loans, (ii) loans in arrears (30- 90 days), (iii) restructured loans, (iv) non-performing loans (with impairment signs), (v) healing loans, (vi) healed loans, and (vii) performing loans.

i) Impairment signs by credit segment

The Bank considers that a loan shows impairment signs when one of the following events occurs.

Customers with at least 1 loan of a material amount in arrears for more than 30 days;
Customers in litigation;
Customers with at least 1 loan of a material amount restructured due to financial difficulties of the customer or perspective/request for restructuring;
Customers with at least 1 loan undergoing out of court procedures to regularise their situation (PERSI);
Customers with at least 1 loan of material amount in the banking system in arrears, premium and interest cancelled/annulled or in court, according to information made available by the Central for Credit Liabilities of the Bank of Portugal;
Customers with loan transactions written-off by BAPOP in the past 12 months;
Customers with banking guarantees made by the Bank which have been foreclosed within the past 24 months;
Costumers with pledges or assignments to the Bank in the past 24 months;
Customers with non-performing operations in other entities of Popular Group;
Any other signs that cause a higher probability of defaulting detected in the individual analysis.

j) Limits defined for individual analysis

On each reporting date a set of customers is selected, who due to the materiality of their exposure to the Bank are considered significant. Those customers are subject to an individual analysis procedure in order to conclude whether there is evidence of impairment or to determine the amount of impairment.

Individual analyses are carried out on:

Default customers or customers showing impairment signs with total liabilities of over 750,000 euros;
Significant customer portfolio with no impairment signs and total liabilities of over 2,500,000.

Customer lending subject to individual analysis in which no objective evidence of impairment is identified shall be included in homogeneous risk segments in order to be considered for collective impairment.

k) Policy on internal risk levels, specifying the treatment given to a borrower classified as impaired

Operations that are in arrears for more than 90 days, or in insolvency situations or undergoing a special revitalisation process (PER), or that require more specialised monitoring are regularly migrated to a set of Agencies named Specialised Business Network (RNE).

The mission and objectives of that Network are the rigorous analysis, monitoring and management of customers and risks, carried out by Specialised Managers distributed into 3 segments (Private individuals, Corporate, and Large Risks). From a comprehensive vision of the whole recovery process, we try to find and employ the most adequate solutions for a swift credit recovery.

l) General description of the calculation of the current amount of future cash flows when calculating impairment losses assessed individual and collectively

According to the impairment model used by the Bank, when objective evidence of an event that originated a loss due to impairment is identified, the amount of that loss shall be determined as the difference between the amount on the balance sheet and the present amount of the estimated future cash flows (excluding losses due to events that have not occurred yet), discounted at the original effective interest rate.

Estimated future cash flows included in the calculation regard the contractual amount for the loans, adjusted by any amounts that the Bank expects not to recover and the time frame in which it is foreseeable that those shall be carried out. The time frame for the recovery of cash flows is a very significant variable for the calculation of impairment, since an impairment loss is always recognised, even in the cases in which total recovery of the contractual outstanding cash flows is expected to be received but after the agreed dates. This situation shall not be verified in case the Bank receives compensation in full (for example, as interest or default interest) for the period in which the loan was overdue.

Estimating an amount and the moment future cash flows shall be recovered for a loan involves professional judgement. The best estimate for those, taking into consideration the guidelines defined on Circular Letter No. 02/2014/DSP, is based on reasonable assumptions and on observable data at the date impairment is assessed, on the capacity of a customer to pay or on the possibility of a foreclose on a collateral.

In the case of collective portfolios, a probability of default (PD) and a rate of loss given default (LGD) are applied to each homogeneous segment.

In the case of defaulted loans, PD is 100% and the balance is established at the moment each loan defaults.

LGD is an estimate of loss given default of a customer. For the calculation of this variable, a random sample of the Bank's history is used, based on a trust interval of 95% regarding every customer that has defaulted. Thus, the average loss is calculated for each segment based on every recovery discounted at the effective rate for the month in which that operation defaulted until maturity

date/settlement, as well as possible future estimates for the cases in which operations have not been settled when the analysis is carried out.

Recovery of the loans included in the sample are checked on a case-by-case basis, including:

Historical recoveries via payments made by the debtor (recoveries since the date of default until the date of analysis);
Historical recoveries via foreclosure, deducted from expenses;
Estimates of recoveries after the reference dates used for the analysis;
Recoveries after write-off.

BAPOP's project for calculating LGD based on the whole portfolio and not simply on a sample is almost complete. This project is being internally developed with the support of the Group and shall be independently validated.

m) Description of the emerging period(s) used for the different segments and justification of their adequacy

Emerging periods, which result from internal studies and the estimate of time management in the time frame between the event and default, are the following:

Past-due loans - 30 to 90 days	3
Restructured loans	12
Other signs of default	6
Healing	12
Performing and healed
State and other pulic bodies, Corporate, Relevant customers, Residential loans, Real estate development, Construction and Companies	9
Banco Popular Group, Employees, Consumer credit and Private individual's credit cards	7

n) Detailed description of the cost associated with credit risk, including disclosure of PD, EAD, LGD and healing rates

For restructured or healing loans, average PD is determined for each month of the demarcation stage (24 or 12 months respectively); after that time curves are drawn and applied.

In the segments where those time curves do not show correlations that can be considered explanatory, the PD applied during the demarcation stage results from the weighted average by the total number of restructured or healing loans in each segment and in each month (without attributing different weights to moment PD was observed).

Additionally, from a conservative perspective, the minimum point of each curve may never be lower than the PD obtained for performing loans for the same period.

The following table shows PDs currently used:

	Normal portfolio				PD portfolio
Segment	Regular	Healed	Healing	> 30 days	Other default signs
Credit cards - Private individuals	1.5%	0.0%	[35.1% - 35.1%]	55.9%	9.2%	[1.5% - 24.5%]
Corporate Customers	1.2%	0.0%	[27.1% - 27.1%]	64.2%	12.1%	[1.2% - 45.2%]
Relevant customers	1.5%	10.1%	[43.6% - 43.6%]	59.6%	17.4%	[1.5% - 52.8%]
Property construction	4.0%	3.7%	[4% - 69.6%]	61.6%	27.9%	[4% - 47.7%]
Home loans	0.8%	3.0%	[0.8% - 39.7%]	43.8%	11.8%	[0.8% - 42.4%]
Consumer credit	3.5%	6.2%	[12.2% - 40.7%]	55.1%	18.1%	[3.5% - 44.5%]
Employees	0.0%	0.0%	[3% - 3%]	36.9%	2.0%	[0% - 0%]
Corporate customers	3.0%	3.9%	[9% - 62.2%]	62.6%	23.7%	[3% - 50.5%]
State and Other Public Bodies	0.0%	0.0%	[0% - 0%]	54.0%	0.0%	[0% - 9.3%]
Banco Popular Group	0.0%	0.0%	[0% - 0%]	0.0%	0.0%	[0% - 0%]
Property development	7.0%	5.5%	[7% - 52.8%]	56.0%	28.7%	[7% - 39.2%]

LGDs applied as at 31 December 2014 were the following:

Segment	LGD
Credit cards - Corporate	57.8%
Credit cards - Private individuals	45.0%
Corporate Customers	10.1%
Relevant customers	10.8%
Collateralised construction loans	19.5%
Non-collateralised construction loans	37.2%
Home loans w ith LTV <= 80%	8.3%
Home loans w ith LTV > 80%	10.5%
Consumer credit	47.9%
Employees	6.3%
Collateralised companies	20.5%
Non-collateralised companies	30.8%
State and Other Public Bodies	0.0%
Banco Popular Group	0.0%
Collateralised private individuals	8.6%
Non-collateralised private individuals	32.1%
Property development	8.8%

We would like to stress once more that the project that will allow the Bank to calculate LGD based on the whole portfolio and not simply on a sample is almost complete as mentioned in paragraph (l).

o) Conclusions of the sensitivity analysis to the amount of impairment and changes to the main assumptions

As at 31 December 2014, an increase by 10% in PD would imply an increase by 3.6 million euros in the total amount of impairment. A similar increase in LGD would imply an increase by 17.9 million euros.

An increase by 10% in both variables would imply a 21.8 million euro increase in the total amount of impairment.

Quantitative disclosures:

a) Detailed exposures and impairments by segment

	Detailed exposures and impairments by segment
				Exposure as at 31-12-2014:				Impairment as at 31-12-2014:
Segment:	Total exposure	Performing loans	Of w hich: healed	Of w hich: restructured	Default loans	Of w hich: restructured	Total impairment	Performing loans	Default loans
Corporate	327 602	291 970	9 006	17 716	35 633	10 769	18 081	7 849	10 231
Property construction and CRE	566 275	377 704	1 400	46 597	188 571	71 656	81 799	12 148	69 651
Residential mortgage loans	1 644 327	1 517 039	4 692	94 583	127 288	42 210	19 031	5 162	13 869
Relevant	1 025 171	843 109	6 136	67 902	182 063	67 272	75 776	21 555	54 221
Companies	1 852 826	1 527 137	6 636	33 933	325 689	62 705	134 220	23 411	110 809
Other	359 046	312 175	121	7 016	46 871	6 976	21 093	2 595	18 498
Total	5 775 248	4 869 133	27 992	267 748	906 115	261 587	350 000	72 720	277 280

				Of Total Exposure as at 31/12/2014:					Of Total Impairment as at 31/12/2014:
			Performing loans		Default loans				Performing loans	Default loans
	Total exposure		Days past due < 30	Days past due	Days past due		Total impairm.		Days past due	Days past due
Segment:	31.12.14	Performing	Non-performing betw	een 30-90	<= 90	> 90	31.12.14	< 30	betw een 30-90	<= 90	> 90
Corporate	327 602	237 128	37 062	17 780	13 295	22 337	18 081	2 793	5 056	5 978	4 254
Property construction and CRE	566 275	287 530	81 266	8 908	36 462	152 110	81 799	11 044	1 104	14 404	55 247
Residential mortgage loans	1 644 327	1 273 639	206 220	37 181	7 709	119 579	19 031	3 677	1 485	1 124	12 745
Relevant	1 025 171	694 489	148 619	1	45 894	136 169	75 776	21 554	1	15 867	38 355
Companies	1 852 826	1 408 987	102 969	15 180	64 691	260 998	134 220	21 180	2 232	22 997	87 813
Other	359 046	288 138	20 212	3 825	1 034	45 838	21 093	1 814	781	455	18 042
Total	5 775 248	4 189 911	596 348	82 874	169 084	737 031	350 000	62 062	10 658	60 824	216 456

b) Detailed credit portfolio by segment and year of production

		Corporate		Property construction and CRE				Residential mortgage loans
Production year	Number of transactions	Amount	Constituted impairment	Number of transactions	Amount	Constituted impairment	Number of transactions	Amount	Constituted impairment
<= 2004	0	0	0	139	28 107	4 550	3 408	162 057	2 111
2005	0	0	0	77	15 622	2 574	2 027	112 719	1 534
2006	3	6 914	8	102	18 601	1 358	1 828	101 518	2 483
2007	0	0	0	198	37 837	4 204	2 128	122 404	2 824
2008	13	14 817	35	1 080	23 560	3 673	2 807	169 614	2 085
2009	5	92 231	1 111	508	35 459	8 720	3 264	210 037	2 561
2010	25	36 901	894	805	55 951	13 879	4 232	302 293	2 596
2011	79	15 302	52	1 007	60 844	10 708	2 082	168 838	1 199
2012	22	22 426	5 212	1 083	74 715	10 260	939	78 064	893
2013	49	112 380	6 557	1 160	91 012	10 105	1 095	84 472	485
2014	28	26 631	4 211	3 063	124 567	11 768	1 598	132 312	259
Total	224	327 602	18 081	9 222	566 275	81 799	25 408	1 644 327	19 031

		Relevant			Corporate customers			Other
Production year	Number of transactions	Amount	Constituted impairment	Number of transactions	Amount	Constituted impairment	Number of transactions	Amount	Constituted impairment
<= 2004	13	30 452	1 787	124	9 071	623	798	104 433	263
2005	11	20 205	839	137	10 339	2 903	452	8 380	288
2006	17	53 330	9 131	232	13 542	2 504	1 166	11 705	920
2007	36	92 387	6 526	531	32 069	4 326	1 187	11 102	2 103
2008	51	98 481	7 005	3 689	40 655	6 867	18 157	25 962	3 763
2009	274	100 099	2 865	1 712	65 798	12 470	6 976	23 885	2 795
2010	67	71 840	9 133	3 419	136 284	20 869	9 774	39 668	3 817
2011	88	91 441	9 820	4 377	180 209	17 237	7 356	34 322	3 133
2012	63	96 386	7 063	5 744	269 056	17 818	9 772	16 805	1 087
2013	96	213 853	13 669	7 203	416 788	18 219	9 357	26 513	1 267
2014	157	156 697	7 937	16 758	679 014	30 384	14 354	56 272	1 656
Total	873	1 025 171	75 776	43 926	1 852 826	134 220	79 349	359 046	21 093

c) Detailed amount of gross credit exposure and individual and collectively assessed impairment by segment, business sector and geography

c.1) By segment:

		Corporate	Property construction and CRE		Residential mortgage loans
	Exposure	Impairment	Exposure	Impairment Exposure		Impairment
Assessment
Individual	309 256	18 008	121 530	38 092	11 178	1 449
Collective	18 346	72	444 746	43 707	1 633 149	17 582
Total	327 602	18 081	566 275	81 799	1 644 327	19 031

		Relevant	Companies		Other		Total
	Exposure	Impairment	Exposure	Impairment	Exposure	Impairment	Exposure	Impairment
Assessment
Individual	1 022 671	75 772	120 037	39 814	118 972	61	1 703 645	173 196
Collective	2 500	4	1 732 788	94 406	240 074	21 031	4 071 603	176 803
Total	1 025 171	75 776	1 852 826	134 220	359 046	21 093	5 775 248	350 000

c.2) By business sector:

		Property construction	industries		Commerce
	Exposure	Impairment	Exposure	Impairment	Exposure	Impairment
Assessment
Individual	304 721	59 486	152 219	14 790	115 523	21 889
Collective	207 873	24 676	652 707	30 455	678 018	43 529
Total	512 594	84 162	804 926	45 245	793 541	65 418

	Financial/Insurance Companies		Real Estate Companies		Other		Total
	Exposure	Impairment	Exposure	Impairment	Exposure	Impairment	Exposure	Impairment
Assessment
Individual	445 689	18 914	181 554	23 402	303 620	24 111	1 503 327	162 592
Collective	37 739	1 264	116 580	7 272	502 030	22 819	2 194 946	130 015
Total	483 428	20 179	298 134	30 674	805 650	46 930	3 698 272	292 607

c.3) By geography:

	Portugal
	Exposure	Impairment
Assessment
Individual	1 703 645	173 196
Collective	4 071 603	176 803
Total	5 775 248	350 000

d) Detailed portfolio of restructured loans by applied restructuring measure

					31-12-2014
		Performing loans			Default loans			Total
Measure	Number of transactions	Exposure	Impairment	Number of transactions	Exposure	Impairment	Number of transactions	Exposure	Impairment
Deadline extension	438	84 820	3 969	273	73 031	14 188	711	157 852	18 156
Grace period	1 350	129 352	8 134	1 037	125 196	34 107	2 387	254 547	42 241
Other measures	1 335	53 576	3 714	1 028	63 360	18 104	2 363	116 936	21 818
Total	3 123	267 748	15 816	2 338	261 587	66 399	5 461	529 335	82 215

e) In and out movements in the restructured loan portfolio

	31-12-14
Initial balance of the portfolio of restructured loans (gross of impairment)	551 689
Restructured loans during the period	106 027
Interest from the restructured portfolio	4 071
Settlement of restructured loans (partial of full)	- 91 498
Loans reclassified from 'restructured' to 'performing'	- 43 511
Other	2 512
Final balance of the portfolio of restructured loans (gross of impairment)	529 290

f) Detailed fair value of collaterals underlying the credit portfolio for the Corporate, Construction, Commercial Real Estate (CRE) and Residential segments.

31-12-2014	Corporate				Property construction and CRE			Residential mortgage loans
		Properties		Other real collaterals		Properties		Other real collaterals		Properties		Other real collaterals
Fair value	Number	Amount	Number	Amount	Number	Amount	Number	Amount	Number	Amount	Number	Amount
< 0.5 M€	2	1 144	2	278	1 655	317 660	1 062	58 317	20 411	3 717 667	561	20 638
>= 0.5 M€ and < 1 M€	0	0	2	1 111	151	136 389	22	13 460	220	195 085	4	5 210
>= 1 M€ and < 5 M€	3	10 611	1	3 576	112	358 944	13	26 237	32	66 296	5	7 970
>= 5 M€ and < 10 M€	2	24 582	1	5 997	9	64 974	1	16 994	0	0	0	0
>= 10 M€ and < 20 M€	0	0	2	22 655	3	52 886	0	0	0	0	0	0
>= 20 M€ and < 50 M€	0	0	1	24 303	0	0	0	0	0	0	0	0
>= 50 M€	0	0	0	0	0	0	0	0	0	0	0	0
Total	7	36 337	9	57 920	1 930	930 853	1 098	115 008	20 663	3 979 048	570	33 817

g) LTV ratio for the Corporate, Construction, CRE and Residential segments

	31-12-2014
Segment/Ratio	Number of properties	Performing loans	Default loans	Impairment
Corporate
Without any collateral	n.a.	247 716	30 452	17 114
< 60%	2	4 689	10	6
>= 60% and < 80%	0	35 246	0	265
>= 80% and < 100%	2	9 298	0	11
>= 100%	3	5 021	5 155	684
Property construction and CRE
Without any collateral	n.a.	154 385	102 718	53 245
< 60%	1 262	96 715	27 367	10 106
>= 60% and < 80%	149	35 157	12 036	2 194
>= 80% and < 100%	197	27 272	10 892	3 542
>= 100%	322	64 175	34 714	12 712
Residential mortgage loans
Without any collateral	n.a.	107 671	29 458	4 155
< 60%	9 824	367 916	15 568	2 450
>= 60% and < 80%	5 597	498 664	18 331	2 934
>= 80% and < 100%	4 086	436 077	28 206	4 532
>= 100%	1 157	106 938	35 725	4 961

h) Detailed fair value and net book value of repossessed properties or foreclosed properties, by type of asset or time elapsed

		31-12-2014
	Number of	Fair value
Assets	properties	of the	Book asset
Land
Urban	38	5 937	4 918
Rural	24	6 197	4 912
Properties under development
Residential	388	30 084	29 264
Commercial	24	1 151	962
Other	154	5 812	5 296
Built properties
Residential	348	43 122	39 692
Commercial	75	6 519	5 697
Other	109	20 091	18 503
Other	15	2 917	2 832
	1 175	121 830	112 076

< 1 year	>= 1 year	>= 2.5 years	>= 5	Total

2 219	167	1 656	876	4 918
768	1 950	1 926	268	4 912

7 244	7 284	1 046	13 690	29 264
0	0	0	962	962
626	38	3 708	924	5 296

16 467	13 809	2 909	6 507	39 692
2 140	1 192	407	1 958	5 697
4 618	11 243	1 324	1 318	18 503
144	1 023	1 461	204	2 832
34 226	36 706	14 437	26 707	112 076
		and < 2.5	31-12-2014 and < 5 years	years

i) Distribution of the credit portfolio measured by degrees of internal risks

Banco Popular does not employ internal credit ratings.

j) Disclosure of the risk parameters associated with the impairment model by segment

Risk parameters associated with the impairment model by segment are explained in paragraph (n) of the qualitative disclosures of this note.

48. Reconciliation of AAS accounts with IAS/IFRS (in compliance with No. 2(d) of Instruction No. 18/2005 issued by the Bank of Portugal)

Had the Bank's individual financial statements been prepared according to the International Financial Reporting Standards (IAS/IFRS), they would show the following changes:

1) Description of changes in accounting policies

After applying the IFRS, the accounting policies would reflect the following changes:

a) Loans and advances to customers

According to the IFRS the accounting policies applicable to loans and advances to customers correspond to what is stated on item 2.1 of the Notes to the Financial Statements, except for credit provisioning as foreseen in Notice No. 3/95 issued by the Bank of Portugal, which is replaced by impairment determined according to the model described on note 47.

b) Other tangible assets

With respect to property for own use at the date of transition to IFRS (1 January 2006) we have elected to use the option provided by IFRS 1 using fair value as deemed cost obtained through an assessment made by independent experts, considering the difference between that amount and the property's carrying value in retained earnings minus deferred tax.That amount becomes the cost amount on that date subject to future depreciation.

2) Estimate of material adjustments and reconciliation between the balance sheet, the income statement and the statement of changes in equity

Estimates for material adjustments that would derive from changes in accounting policies alluded to in the previous number, and the reconciliation between the balance sheet, the income statement and the statement of changes in equity in conformity with AAS for the ones resulting from the application of IFRS are presented in the following tables:

Reconciliation of the Balance Sheet as at 31 December 2014 and 2013

						(€ thousand)
		31-12-2014			31-12-2013
	AAS		IFRS	AAS		IFRS
	Net amount	Adjust.	Amount Net	Net amount	Adjust.	Amount Net
Assets
Cash and balances w ith central banks	134 283		134 283	54 114		54 114
Deposits w ith banks	80 219		80 219	174 427		174 427
Financial assets held for trading	78 280		78 280	73 843		73 843
Other financial assets at fair v alue through profit or loss	-		-	24 983		24 983
Av ailable-for-sale financial assets	1 879 094		1 879 094	1 704 136		1 704 136
Loans and adv ances to banks	197 962		197 962	1 268 822		1 268 822
Loans and adv ances to customers	5 458 783	- 36 657	5 422 126	5 249 456	- 45 699	5 203 757
Hedging deriv ativ es	-		-	103		103
Non-current assets held for sale	20 747		20 747	20 747		20 747
Other tangible assets	70 631	9 791	80 422	82 381	9 791	92 172
Intangible assets	71		71	172		172
Current income tax assets	3 566		3 566	3 566		3 566
Deferred income tax assets	75 226	- 2 966	72 260	72 175	- 951	71 224
Other tangible assets	406 986		406 986	493 248		493 248
Total assets	8 405 848	- 29 832	8 376 016	9 222 173	- 36 859	9 185 314
Liabilities
Deposits from central banks	900 003		900 003	1 306 839		1 306 839
Financial liabilities held for trading	43 845		43 845	29 629		29 629
Deposits from banks	2 065 409		2 065 409	1 919 736		1 919 736
Deposits from customers	4 114 903		4 114 903	4 216 578		4 216 578
Debt securities issued	317 251		317 251	865 255		865 255
Hedging deriv ativ es	142 258		142 258	101 883		101 883
Prov isions	52 575	- 49 842	2 733	51 054	- 49 252	1 802
Current income tax liabilities	1 817		1 817	0		0
Deferred income tax liabilities	25 793	2 203	27 996	4 060	2 399	6 459
Other liabilities	38 789		38 789	61 251		61 251
Total Liabilities	7 702 643	- 47 639	7 655 004	8 556 285	- 46 853	8 509 432
Shareholders' equity
Shareholders' equity	476 000		476 000	476 000		476 000
Share premium	10 109		10 109	10 109		10 109
Fair v alue reserv es	- 2 285	6 892	4 607	- 54 143	5 101	- 49 042
Other reserv es and retained earnings	217 098	3 450	220 548	265 642	5 249	270 891
Income for the y ear	2 283	7 465	9 748	- 31 720	- 356	- 32 076
Total Equity	703 205	17 807	721 012	665 888	9 994	675 882
Total Liabilities + Equity	8 405 848	- 29 832	8 376 016	9 222 173	- 36 859	9 185 314

Reconciliation of the Income Statement as at 31 December 2014 and 2013

						(€ thousand)
		31-12-2014			31-12-2013
	AAS	Adjust.	IFRS	AAS	Adjust.	IFRS
Interest and similar income	256 131		256 131	303 812		303 812
Interest and similar charges	131 408		131 408	182 564		182 564
Net interest income	124 723	0	124 723	121 248	0	121 248
Return on equity instruments	60		60	49		49
Fees and commissions receiv ed	64 007		64 007	60 657		60 657
Fees and commission paid	8 330		8 330	8 574		8 574
Net gains from financial assets at fair v alue						0
through profit or loss	- 3 482		- 3 482	- 2 686		- 2 686
Net gains from av ailable-for-sale financial assets	9 549		9 549	11 389		11 389
Net gains from foreign ex change differences	1 334		1 334	1 288		1 288
Income from the sale of other assets	- 8 329		- 8 329	- 5 241		- 5 241
Other operating income	- 7 243		- 7 243	- 6 415		- 6 415
Banking income	172 289	0	172 289	171 715	0	171 715
Personnel ex penses	58 175		58 175	56 309		56 309
General administrativ e ex penses	50 696		50 696	51 473		51 473
Depreciation and amortization	3 848		3 848	5 023		5 023
Prov isions net of rev ersals	1 521	- 590	931	8 563	- 9 880	- 1 317
Adjustments to loans and adv ances to customers
(net of rev ersals)	59 433	- 9 042	50 391	89 390	10 352	99 742
Impairment of other assets net of rev ersals	- 6 828		- 6 828	12 481		12 481
Income before tax	5 444	9 632	15 076	- 51 524	- 472	- 51 996
Income tax	3 161	2 167	5 328	- 19 804	- 116	- 19 920
Current tax	1 944		1 944	- 957		- 957
Deferred tax	1 217	2 167	3 384	- 18 847	- 116	- 18 963
Net income for the period	2 283	7 465	9 748	- 31 720	- 356	- 32 076

Reconciliation of changes in equity as at 31 December 2014 and 2013

						(€ thousand)
	Share Capital	Share premium	Fair value reserves	Other reserves and retained earnings	Net income	Total
Balances as at 31/12/2014 - AAS	476 000	10 109	- 2 285	217 098	2 283	703 205
Credit impairment - Adjustments - regulatory prov isions - Deferred tax				3 553 - 799	9 632 - 2 167	13 185 - 2 966
Valuation of ow n property - Fair v alue			9 095	696		9 791
- Deferred tax			- 2 203			- 2 203
Balances as at 31/12/2014 - IFRS	476 000	10 109	4 607	220 548	9 748	721 012
				Other reserves
	Share Capital	Share premium	Fair value reserves	and retained earnings	Net income	Total
Balances as at 31/12/2013 - AAS	476 000	10 109	- 54 143	265 642	- 31 720	665 888
Credit impairment - Adjustments - regulatory prov isions - Deferred tax				4 025 - 1 067	- 472 116	3 553 - 951
Valuation of ow n property
- Fair v alue - Deferred tax			7 500 - 2 399	2 291		9 791 - 2 399
Balances as at 31/12/2013 - IFRS	476 000	10 109	- 49 042	270 891	- 32 076	675 882

49. Disclosure of information on encumbered assets (Instruction No. 28/2014 issued by the Bank of Portugal)

As at 31 December 2014 the Bank's encumbered and unencumbered assets were as follows:

		Carrying amount of encumbered assets	Fair value of encumbered assets	Carrying amount of unencumbered assets	Fair value of unencumbered assets
		010	040	060	090
010	Assets of the reporting institution	2,407,037		5,998,811
030	Equity instruments	0	0	0	0
040	Debt securities	1,639,752	1,639,752	570,097	570,097
120	Other tangible assets	767,285		5,428,714

Template A - Assets

Template B - Collateral received

		Fair value of	Fair value of
		encumbered	collateral
		collateral	received or ow n
		received or ow n	debt securities
		debt securities	issued available
		issued	for encumbrance
		010	040
130	Collateral received by the reporting institution	0	0
150	Equity instruments	0	0
160	Debt securities	0	0
230	Other collateral received	0	0
	Own debt securities issued other than own covered
240	bonds or ABSs	0	0

Template C - Encumbered assets/collateral received and associated liabilities

		Matching liabilities, contingent liabilities or securities lent	Assets, collateral received and ow n debt securities issued other than ow n covered bond s and ABSs encumbered
		010	030
010	Carrying amount of selected financial liabilities	2,095,855	2,407,037

Template D - Information on importance of encumbrance

a) Most of the Bank's encumbered assets fall into one of three types: repurchase agreements, cash or securities pledged (for financing w ith the ECB due to legal or regulatory provisions for the normal exercise of several banking activities) and the constitution of a collateral in order to issue covered bonds. b) In 2014, the amount of collaterals dropped significantly due to the decrease in terms of liabilities w ith the ECB and the
decrease of repo funding. Throughout the year, the Bank also signed several reverse repo agreements, although it reached the end of the year w ithout this type of operation on its balance sheet. c ) Except for ECB funding and mortgage bonds, most encumbrances result from intragroup transactions, since the Bank's
treasury department is managed in an integrated manner and also because intragroup transactions that reflect the the coverage made by the Group w ith third parties w ere performed.
d) There is an evident overcollateralisation both in terms of ECB collaterals (approximately 112%) and in terms of mortgage loans (over 109%). e) Collaterals for mortgage loans are constituted pursuant to Decree-law No. 59/2006; collaterals for monetary policy
transactions are constituted pursuant to Instruction No. 1/99 issued by the Bank of Portugal; collatererals to guarantee liabilities that result from operations w ith derivatives are constituted in accordance w ith the ISDA Master Agreement and respective protocols.

Corporate Governance Report

(Pursuant to paragraph 2 (b) of Article 70 of the Portuguese Companies Act)

2014

Banco Popular Portugal, S.A. (also named Banco Popular or BAPOP) is fully owned by a sole shareholder, Banco Popular Español, S.A., whose Head Office is located in Madrid, Spain. Banco Popular's shares are not admitted to trading in any regulated market in Portugal.

The Bank's corporate governance bodies are: the Board of the General Meeting, the Board of Directors, the Supervisory Board, and the Statutory Auditor.

I - General Meeting

I. 1 - Members of the Board of the General Meeting

Members of the Board of the General Meeting

Augusto Fernando Correia Aguiar-Branco - Chairman João Carlos de Albuquerque de Moura Navega - Secretary

I.2 – Terms of office of the members of the Board

The current members of the Board of the General Meeting were first elected on 7 May 2007 and reelected for the four-year term of 2011-2014 on 30 May 2011, and their term of office is on 31 December 2014.

I.3 – Remuneration of the Chairman

The Chairman of the Board of the General Meeting earned a monthly salary of 500.00 euros, in a total of 6,000.00 euros; the Secretary earned a monthly salary of 300.00 euros in the annual amount of 3,600.00 euros.

I.4 – Voting rights

Each 500 shares correspond to one vote.

I.5 – Shareholders with special rights

Banco Popular has no shareholders with special rights.

I.6 – Statutory regulations on voting rights

Pursuant to Article 11 of the Articles of Association of Banco Popular, only shareholders that own 500 or more shares have voting rights. There are no other limitations as regards voting rights and no time frame is determined for the exercise of voting rights.

In accordance with Article 14, decisions are made by absolute majority of votes, except in the case of dissolution of the Bank, for which the decision shall be made by a three-fourths majority of the share capital, and in cases when a qualified majority is prescribed by law.

I.7 – Postal voting

There are no statutory restrictions or defined regulations on exercising voting rights by post.

I.8 – Annual General Meeting on the remuneration and performance assessment policies of the members of the Board of Directors

The General Meeting annually approves of the declaration on the remuneration policy for the managing and supervisory bodies presented by the Board of Directors pursuant to Article 2(1) of Law No. 28/2009 of 19 June 2009.

Similarly, the General Meeting annually assesses the performance of the Board of Directors based on the evaluation of the Bank's economic performance in the previous year.

II – Governing bodies

II.1 – Identification and composition of the governing bodies

The governing and supervisory bodies of Banco Popular are the Board of Directors, the Supervisory Board, and the Statutory Auditor, or Audit Firm. These governing bodies were elected for the four-year term of 2011-2014 on 30 May 2011, and shall cease functions with the approval of the accounts for 2014. Except for Carlos Manuel Sobral Cid da Costa Alvares and José Ramón Alonso Lobo, who were elected on 3 May 2013 and 21 March 2013, respectively, and whose term of office also coincides with the approval of the accounts for 2014.

Composition:

Board of Directors

Rui Manuel Morganho Semedo - Chairman Carlos Manuel Sobral Cid da Costa Álvares - Member Tomás Pereira Pena - Member José Ramón Alonso Lobo - Member

Supervisory Board

Rui Manuel Ferreira de Oliveira - Chairman Telmo Francisco Salvador Vieira - Member António José Marques Centúrio Monzelo - Member Ana Cristina Freitas Rebelo Gouveia – Alternate

Statutory Auditor

PricewaterhouseCoopers & Associados, SROC, Lda. Represented by Aurélio Adriano Rangel Amado or José Manuel Henriques Bernardo Alternate Statutory Auditor Jorge Manuel Santos Costa

II.2 – Delegation of powers and the Bank's organizational structure

The Board of Directors has delegated the day-to-day management of the business of Banco Popular to its Chairman, Rui Manuel Morganho Semedo, and the Director, Carlos Manuel Sobral Cid da Costa Álvares, with powers to make decisions and to practice all the acts comprehended in the Bank's social object, within legal limits, namely the following:

a) Acquiring, disposing of and encumbering movable and immovable assets, as well as creating or changing the horizontal property of real estate owned by the Bank;

b) Opening or closing branches;

c) Important extension or reduction of the Bank's activity;

d) Important changes in the Bank's organization;

e) Entering in or terminating any lasting cooperation with another company;

f) Managing the Bank's stakes in other companies, namely appointing the Bank's representatives in their respective governing bodies and defining guidelines for their performance;

g) Hiring, signing, changing or terminating employment contracts and exercising the respective directive and disciplinary powers;

h) Approving of the employees' appointments or changes in their remuneration except those that regard the last level of the Collective Bargaining Agreement table;

i) Contracting, signing, changing and terminating insurance or building contracts, as well as other service contracts;

j) Contracting, signing, changing and terminating rental and lease contracts for immovable or movable property;

l) Representing the Bank in and out of Court, filing criminal complaints, engaging in arbitrations, starting and responding to Court proceedings, with the power to waive, transact and confess in any legal proceedings;

m) Appointing proxies to practice certain acts, or categories of acts, on behalf of the Bank, always defining the extension of their respective powers;

n) Subscribing, acquiring, disposing of or encumbering shareholdings in any companies, as long as the operations are included in the pre-defined business plans;

o) Establishing and organizing working methods, including the elaboration of regulations and determination of instructions they deem necessary.

The above-describe delegated powers shall be enforced by the Chairman of the Board of Directors, Rui Manuel Morganho Semedo, together with the Director Carlos Manuel Sobral Cid da Costa Álvares. Whenever deemed necessary or convenient, throughout the year, the Chairman, Rui Manuel Morganho Semedo, shall inform the Board of Directors of the decisions, acts or agreements signed under the delegated powers.

In terms of Corporate Governance of the Banco Popular, the Executive Committee was created on 1 January 2011, under the framework of the continuous improvement process of the management model of the Bank as a unit of Banco Popular Group.

Without prejudice to the role of the Board of Directors as a statutory management body, the Executive Committee, a non-statutory body, will ensure the day-to-day running of the Bank, within the larger guidelines of the Group and the Board of Directors.

The creation of this Committee, which meets once a week, was aimed at streamlining the decision making process and making its implementation and follow-up more effective in order to face successfully the very demanding circumstances in which the Bank operates.

The Executive Committee is composed of Rui Manuel Morganho Semedo, Chairman of the Board of Directors, who coordinates it, Carlos Manuel Sobral Cid da Costa Álvares, Director and General Business Manager, José António Matos dos Santos Coutinho, Carla Maria da Luz Gouveia, Jorge Miguel Santos Roldão Gomes, Pedro Miguel da Gama Cunha, Carlos Miguel de Paula Martins Roballo and José Luis Castro Cortizo, all of them Central Managers.

The current attribution of functions within the members of the Executive Committee can be seen in the following company structure:

II.3 – Activity Monitoring Committees

Besides the creation of the Executive Committee, which supports the Board of Directors in the day-today running of the Bank, several specialised committees were established to monitor the activity of Banco Popular, namely:

Internal Control and Operating Risk Committee

The Internal Control and Operating Risk Committee is a consultant body, composed by the Heads of several departments: Auditing, Risk Management, Information Technology, Customer Ombudsman, Legal Advice, Human Resources and Compliance/Internal Control. This Committee is coordinated by the Chairman of the Board of Directors.

This Committee meets at least once a month and its main functions are:

protecting the Bank's reputation and minimizing its respective risk;
systematically identifying and analysing the relevant legislation applied to the day-to-day activity of the Bank, detecting existing deficiencies and how to overcome them;
proposing policies, planning and action strategies in order to scrupulously comply with the regulations and Instructions issued by the Bank of Portugal, CMVM and ISP in order to avoid any type of sanctions;

Business Continuity Management Committee

This consultant Committee is comprised of the Heads of several departments: Human Resources, Information Technology, Operating, Risk Management, and Compliance. This Committee is coordinated by the Chairman of the Board of Directors and meets at least once every quarter but it can meet exceptionally whenever necessary. Its functions are observing a set of generic good practices to be implemented and deepened by the Bank in accordance with the characteristics in terms of risk profile, taking into consideration the nature, dimension, business complexity and organizational model, which are reflected in the 'Prudential Recommendations on Business Continuity Management' approved of by the National Council of Financial Supervisors ('Conselho Nacional de Supervisores Financeiros').

II.4 –Annual Report of the Supervisory Body

The annual Report and Opinion written by the Supervisory Body provides a brief description of the supervision activity as regards the annual reporting. This Report is posted on the Bank's internet website together with the financial statements.

II.5 – Internal control and risk management systems

Banco Popular's internal control system is a process implemented by the Board of Directors, the other governing bodies and employees, as part of the Bank's strategic planning, which is sustainable in the long run and conceived to grant a reasonable guarantee that the objectives are met in the following categories:

Operation efficacy and effectiveness;
Reliability of financial reporting;
Compliance with applicable laws and regulations

The internal control system implemented by Banco Popular, in accordance with applicable laws and regulations, is described in the internal standards, namely regarding the responsibilities that are assigned to the Board of Directors and the other governing bodies tied with the control structure.

The functions of the Board of Directors are approving the Bank's strategy and undertaking to see it adequately implemented, as well, as defining, approving of and revising the organizational structure of the Bank and ensuring its adequate implementation and maintenance. The Board of Directors shall promote an internal control culture based on high standards of ethics and integrity, by defining and approving of the adequate codes of conduct, ensuring that all the employees understand their part in the system and may contribute effectively to it.

The duties of the Supervisory Board are ensuring that the Bank implements the necessary procedures deemed relevant to comply, in all the materially relevant aspects, with its internal control system and the requirements described in Notice No. 5/2008 issued by the Bank of Portugal, based namely on the principles of the existence of an adequate control environment, a solid risk management system, an efficient IT and Communications system, and an effective monitoring process, which guarantee that all the objectives in the above-mentioned categories are met.

Namely regarding reliability of financial reporting, the internal control system provides a reasonable guarantee that the preparation of the corresponding reports is in accordance with generally accepted accounting principles and complies with the applicable legal precepts and regulations, that the information therein contained reflects the transactions and underlying events in order to present a reliable and truthful equity and financial position, and that they are clear and informational regarding the matters that may influence their usage, understanding and interpretation.

The risk management function tries to identify, evaluate, monitor and control all the materially relevant risks to which the Bank is exposed, both internal and externally, so as not to let them negatively affect the financial situation of the institution. This is also an area that contributes to create value by enhancing support tools: (i) for credit decision making, (ii) for the definition of pricing adjusted to the risk of the operations, and (iii) for allocating capital.

The risk management structure has adopted the 'three lines of defence' as illustrated and explained by the following image:

Therefore, the three lines of defence are basically represented by the following internal structures: (i) the first line of defence is represented by the Risk Management Department; (ii) the second line of defence by Compliance and the Operational Control area; and (iii) the third line of defence by Auditing.

Reporting and communication lines

Communication lines are established between business units, including auditing, and corresponding monthly reports are sent to Risk Management detailing the state of control mechanisms employed to manage risk and changes in terms of objectives and risks. Risk Management reports to the Executive Committee on the monitoring process regarding the different types of risks.

Functions and responsibilities

The main functions and responsibilities of the different participants in the risk management process are presented below:

a) Board of Directors – Responsibilities include:

i. Defining and reviewing policies aimed at accomplishing the overall goals and specific objectives of each functional area regarding risk profile and the risk tolerance degree;

ii. Approving of concrete, efficient and adequate policies and procedures to identify, assess, monitor and control the risks the Bank is exposed to ensuring these are implemented and accomplished;

iii. Approving, prior to their introduction, new products and activities, as well as the respective risk management policies;

iv. Regularly verifying that the risk tolerance levels and risk management policies and procedures are complied with, assessing their efficacy and continuous suitability to the Bank's activity in the sense of enabling the detection and correction of any deficiencies;

v. Requesting the preparation of accurate and timely reports on the main risks the Bank is exposed to and that identify the control procedures that have been implemented to manage those risks;

vi. Ensuring and monitoring the effective implementation of their guidelines and recommendations on the risk management structure in order to introduce amendments and/or improvements to the risk management system;

vii. Ensuring that risk management activities are granted enough independence, status and visibility and that they are subject to periodical revisions;

viii. Appointing the person in charge of risk management and the person in charge of compliance, and ensuring that those functions have sufficient autonomy to perform their duties objectively and independently, as well as the material and human resources necessary to the performance of their respective tasks;

ix. Supervising and monitoring regulatory compliance;

x. Coordinating the decision making process and the consistency of risk management responses;

xi. Ensuring that the business continuity plan is regularly reviewed and monitored (e.g. every year).

Annual Report and Accounts

b) Risk Management Function – In charge of centralizing risk management, and namely:

i. Defining the Bank's risk policies upon approval of the Board;

ii. Suggesting to the Board of Directors appetite and tolerance levels as regards the main risks the institution is exposed to;

iii. Analysing, monitoring and suggesting guidelines for credit risk;

iv. Analysing, monitoring and suggesting guidelines for interest rate risk, liquidity risk, exchange rate risk, market risk, strategic risk, reputational risk and compliance risk, based on the Group's methodology;

v. Analysing the available data on the risks the Bank is exposed to;

vi. Using existing data to suggest improvements in terms of best practices regarding the Bank's credit and financial risk;

vii. Managing the process of integration of credit models into management practices;

viii. Monitoring and controlling the delegation of powers regarding credit attribution within the Bank's structure.

ix. Controlling the quality of the information that is made available and that serves as the basis for scoring and rating models;

x. Collaborating with the Group towards the development of common methodologies regarding the implementation of credit risk models;

xi. Participating, together with the other areas of the Bank, in Committees and working groups to support Risk Management;

c) Compliance Function – Compliance is in charge of ensuring that all legal requirements are met as well as their respective duties. Thus, their responsibilities are:

i. Possessing a deep knowledge of the Bank's activity, identifying and assessing the applicability and impact of legal rules and regulations together with the other bodies of the Bank and the statutory auditor;

ii. Ensuring the correct and regular functioning of the internal control system in the scope of prevention of money laundering and financing of terrorism (ML/FT), endeavouring to comply with Law No. 25/2008 of 5 June and the objectives described in Notice No. 5/2005 and Notice No. 5/2013, both issued by the Bank of Portugal;

iii. Ensuring that legal requirements are met, as well as regulations and best practices, reconciling, on the one hand, the legal compliance perspective and, on the other, the business perspective;

iv. Monitoring the changes and developments in terms of regulations and assessing the adequacy and efficacy of internal standards and procedures in order to prevent the breach of legal obligations and duties that the institution is bound to pursuant to its activity;

v. Promoting, in the different bodies of the Bank, measures aiming at correcting possible deficiencies that have been detected in terms of legal compliance, and taking preventive actions and verifications to ensure that laws, regulations and best practices are continuously complied with, and aiding in implementing corrective measures;

vi. Advising and assisting the governing bodies in terms of the fulfilment of legal obligations and duties to which the institution is bound as well as immediately informing them about any indication of legal breach, violation of rules of conduct, relationship with customers or any other duties that may lead the institution or its employees to commit any legal violation;

vii. Advising and guiding functional areas as regards legal requirements that are relevant in the context of concrete matters that may arise in the common activity of the Bank;

viii. Keeping a record of breaches and measures suggested and adopted to correct them;

ix. Writing an annual report that shall be presented to the governing and supervisory boards, identifying any breaches and the measures adopted to correct them;

x. Ensuring and in terms of internal control promoting the preparation of reports to be delivered to the supervising entities, namely together namely with the risk management and internal auditing functions;

xi. Acting as the spokesperson in the relationship with regulating entities in order to ensure a good liaison in terms of legal development and evolution, as well as regarding the resolution of detected breaches;

xii. Participating in training actions promoted by the Human Resource Department, thus contributing to raising awareness to the importance of laws, regulations and good practices the Bank is bound to, stressing the performance and behaviour necessary to abide by those legal standards and the consequences of any breach.

d) Operational Control Division – Its main activities are:

i. Developing and monitoring operational controls, as well as those related do contracts and revenues tied with the day-to-day running of the Bank;

ii. Ensuring, together with the remaining functional areas of the Bank, the adequacy and continuous improvement of control procedures, trying to mitigate operational risk.

e) Internal Auditing Function – It has a key role in the assessment of the effectiveness of risk management and control systems. Internal auditors have the following responsibilities:

i. Analysing, by taking random samples, the processing of transactions and assessing their compliance degree with the internal regulations in force in the Bank, the regulations issued by the Supervising Bodies, and other applicable legislation;

ii. Verifying the correct and regular exercise of internal control mechanisms implemented in terms of circuits and routines;

iii. Reporting to the Board of Directors any deficiencies detected during the audit work, indicating recommendations that should be followed to correct them, thus contributing to improve the internal control procedures of the Institution;

iv. Ensuring, in the scope of its attributions, the relationship of the Bank with Legal and Police Authorities, as well as with the Supervising Bodies, by collecting, analysing, and supplying any documentation/information requested by the aforementioned entities that may be necessary to monitor criminal proceedings initiated by the police or taken to trial against the Bank's customers;

v. Making the necessary inquiries and investigations to determine individual liability in every circumstance in which the facts point or prove serious occurrences or practices against internal rules and regulations, the legislation in force, good banking practices, ethics of the Institution and the Financial Sector, that negatively affect the interests of the Bank and the Group's Companies and their customers;

vi. Writing reports on the activities implemented and, at least every year, a report that summarizes the main deficiencies detected in the auditing actions, indicating and identifying the recommendations issued and followed.

f) Risk Coordinators – These are key employees that identify the risks the Bank is exposed to particularly regarding business/unit/department/function. Their functions and responsibilities include:

i. Identifying and assessing risks and risk responses;

ii. Ensuring the consistency of the application of procedures to risk tolerance;

iii. Issuing recommendations for control activities;

iv. Reporting to Risk Management on the results and recommendations regarding the identification and assessment of risk events that have occurred in the Bank

II.6 – Identification the main risks to which Banco Popular is exposed in the course of its activity

In the course of its activity Banco Popular Portugal is exposed to the following risks

Credit Risk

This type of risk arises from the possible loss triggered by the breach of contractual obligations of the Bank's counterparties. In the case of lending, it implies the loss of principal, interest and commissions, regarding amount, period and other conditions set forth in the contracts. Concerning off-balance sheet risks, it derives from the non-compliance of the counterparties regarding their obligations with third parties, which implies that the Bank has to assume as its own certain obligations depending on the contracts.

The organizational structure created to manage and monitor credit risk at Banco Popular Portugal from a macro perspective can be summarized as follows:

The Bank has implemented a risk analysis and assessment circuit based on a formal system of attributions for the authorization of transactions, which depend, among others, from the following factors:

Nature, amount, maturity and interest rate of the transaction;
Customer;
Activity sector;
Current and historical position of the relationship with the Bank and the financial system;
Existing collaterals and their quality; and
Warning signals.

People that have been assigned delegated powers to authorise transactions are integrated into the following areas and bodies of the Bank:

Branches/Corporate and Private Banking;
Commercial South and Commercial North;
Risk Decision, Analysis and Monitoring;
Executive Committee/Board of Directors.

Monitoring risk is a fundamental task when it comes to managing credit risk since it allows the Bank to be aware of the evolution of its customers' repayment capacity and take corrective action on time in order to avoid situations of non-performance. The methodology employed to monitor risks is mostly based on the analysis of a set of variables associated with transactions and customers that allow the Bank to measure the influence these variables might have on the Bank's exposures and accordingly determine the convenience of maintaining, augmenting, reducing or extinguishing risks. In this scope,

the performance of the loan portfolio is regularly analysed in order to set in motion monitoring mechanisms according to the evolution of the overall risk of certain customers and their respective transactions, thus anticipating eventual situations of difficulties by applying preventive measures to current risks.

In 2012, The Bank decided to strengthen its credit recovery actions, and for that purpose nearly all customers with defaulted transactions migrated to an informally called recovery portfolio and the Specialized Business Network (RNE – 'Rede de Negócio Especializado') was created to monitor those customers.

This strategy has continued to bear fruits in the past two year and has allowed for a closer monitoring of higher-risk customers, which was reflected in a swifter detection of potential non-performance situations and the immediate adoption of adequate solutions for each of those situations.

Pursuant to the credit risk control activities, several reports are produced and made available to the Executive Committee/Board of Directors:

Monitoring past-due loans (evolution of past-due loans by geographical area);
Loan portfolio impairment (monthly report);
Information on credit risk (evolution of outstanding and past-due loans by commercial areas, geographical areas, types of product, large customers, etc.);
Controlling concentration limits (detail on exposures that exceed the limits that have been preestablished by the Bank's policy);
Monthly monitoring lending transactions by PD levels;
Stress Testing report (half-yearly).

Concentration Risk

Concentration risk is monitored by Risk Management (RM).

RM ensures that adequate policies and procedures are maintained and implemented to monitor and manage credit concentration risk. It is also in charge of monitoring delegated powers in terms of concentration risk and periodically presents reports on concentration risk to the Board of Directors.

The procedures employed to manage and monitor concentration risk are mostly focused on defining the limits and analysing/reporting periodically. The most important reports produced by Risk Management and reviewed by the Board of Directors can be summarized as follows:

Every month a report is prepared that accompanies the following concentration limits approved by the Bank's Board, namely:
o Customers with risk > 10% TIER I;
o Customers with risk > 5% TIER I, excluding off-balance sheet and transactions guaranteed by deposits;
o Risks > 100 million euros and above 25% of CRC;
o Risks > 20 million euros and 50% of CRC;
o Risks by activity sector;
o LTV first housing above 75%;
o LTV other housing above 60%.

Every year, pursuant to Instruction No. 5/2011, Banco Popular sends the Bank of Portugal information on concentration risk.

Market risk

We would like to highlight the fact that the Bank uses the standardised approach to calculate own funds requirements.

Foreign Exchange Rate Risk

Foreign exchange rate risk is the probability of negative impact on the Bank's earnings or equity due to adverse changes in foreign exchange rates caused by the volatility of the price of instruments that correspond to foreign exchange positions or by any change in the competitive position of the institution due to significant fluctuations in foreign exchange rates.

The Bank also uses the VaR methodology as a management instrument for its foreign currency position using the standard method to calculate own funds requirements.

Operational Risk

Through the network of Operational Risk Managers (RRO) of each functional area, the Bank has identified every operational risk that may affect its performance. In this process, each functional area prepared a document describing their functions and a map of the corresponding operational risks, identifying existing control mechanisms employed to mitigate each risk factor.

For updating purposes, periodical revision cycles are carried out for these qualitative requirements, including organizational changes, and RRO mobility, as well as the assessment of the results obtained in previous cycles according to the experience acquired and functional adjustments that have taken place.

Aiming at fully and correctly identifying, classifying and recording operational risk events the Bank faces in its activity and their respective recoveries, events are automatically recorded on a specific database. A small number of those situations is manually collected by the RRO of each area within their functions.

Each record includes a description, dates (of occurrence, discovery and accounting), amounts (of real loss, potential loss, and recoveries) and classification according to Basel II (activity sector and event type).

Operational risk is assessed and preventive and detection procedures are considered.

In order to assess operational risk quantitative and qualitatively, the Bank considers, among others, the following mechanisms:

a. In the Internal Control and Operational Risk Committee's agenda Operational Risk is a compulsory item; high impact events are presented and discusses and, if necessary, measures are taken to mitigate them;
b. Residual risk is periodically assessed through a self-assessment report on risks and controls identified in each area of the Bank. The self-assessment report includes:
i. Risks: assessment of impact and frequency, maximum and most probable (average);
ii. Controls: assessment of efficacy/design and application/execution.
c. The amounts of actual loss, potential loss, potential recovery, direct recovery, and indirect recovery are recorded regarding each Operational Risk event effectively occurred and detected.

As previously stated, the Bank uses a database shared with Banco Popular Group to record events that correspond to operational losses originating in operational risk events. Losses arising from operational risk are booked not only for the financial amount directly accounted for, but also, whenever possible, taking into consideration other quantifiable costs.

The operational risk of the Bank is permanently monitored and reported to the Board of Directors, via the Executive Committee, to the Internal Control and Operational Risk Committee and to Operational Risk Committee of the Group.

When monitoring operational risk the Bank takes into consideration the following elements among others:

a. Analysing the results contained in risk maps and their respective self-assessment;
b. Recording events maintaining the operational risk events database;
c. Key operational risk indicators (KRIs).

Meetings are held periodically with those in charge of risk at each department, raising awareness to the importance of monitoring and controlling operational risk in order to mitigate its potential impact on all levels of the organization.

The Bank permanently develops and maintains the operational risk events database.

The Bank identifies key risk indicators in areas that are considered sensitive and manages those indicators aided by a specific module of the qualitative management tool (GIRO).

Nature, amount, maturity and interest rate of the transaction;

Customer Ombudsman;
Risk Analysis;
Operations Securities.

The characterization, procedures and responsibilities regarding the processing of key risk indicators are detailed in a specific internal document entitled 'Key Risk Indicators Implementation Plan'.

Structural interest rate risk

Banco Popular Portugal measures its structural interest rate risk by using the repricing gap method. This method consists in measuring exposures by different maturity and repricing dates in asset and liability cash flows. Briefly, this model groups those assets and liabilities into fixed time intervals (maturity date or date of the next interest rate revision when indexed) based on which the potential impact on net interest income is calculated.

Besides regularly assessing the interest rate risk pursuant to Instruction No. 19/2005 issued by the Bank of Portugal - in which the impact of a shift of 200 basis points in the yield curve, both net, and margin is measured - in the scope of the stress test performed, the Bank analyses the sensitivity to the following parameters:

Parallel shift of 100 b.p. in the yield curve;
Fluctuation of 100 b.p. in the steepness of the yield curve.

Liquidity risk

The daily funding needs that are managed by monitoring future cash flows in order to guarantee that the requirements are met. This includes write-backs as loans mature or are granted to customers;
Maintaining a high-liquidity asset portfolio so that these can be easily converted into cash as a protection against any unexpected interruption in cash flows;
Monitoring liquidity ratios taking into account external and internal requirements;
Managing the concentration and profile of debt maturities resorting to the liquidity gap model.

Regarding the analysis of liquidity risk, besides the obligations established by the Bank of Portugal under the terms of Instruction No. 13/2009, the Bank also resorts to the concept of liquidity gap: from the balance sheet of the Bank as at 31 December 2014, based on the maturities of assets and liabilities it is possible to ascertain the ratio between the referred to maturities (positive or negative) according to residual maturity deadlines called liquidity gaps. The Bank also calculates LCR (Liquidity Coverage Ratio) and NSFR (Net Stable Funding Ratio), with the aim to monitor the evolution of liquidity and report it to the supervising authorities.

Reputational and Compliance Risk

Potential adverse impact on the Bank's reputation may arise from failures in terms of management and control of the aforementioned risks. In this scope, the Bank considers that the internal government system, the policies and procedures in force, are adequate and enable the prevention and mitigation of reputational risk in its various forms.

Compliance risk is defined as the probability of negative impacts on income or equity the Bank may suffer as a result of its failure to comply with laws, regulations, specific requirements, agreements, codes of conduct and relationship with its customers, standards of good practices or principles of integrity and fair dealing, which may imply legal sanctions, loss of business opportunities, decreased expansion potential or the inability to demand the fulfilment of contractual obligations.

The main and more easily identifiable source of this type of risk is legal risk, i.e., failing to comply with laws, regulations, codes of conduct and code of 'good practices'. In this regard, Compliance and the Legal Department of Banco Popular Portugal, together with the Internal Control Department, ensure all legal requirements in force are met, assessing and trying to prevent possible relevant risks of material breaches from the economic or reputational standpoint.

Strategic Risk

Strategic risk is defined as the probability of negative impacts on results or equity deriving from inadequate strategic decisions, deficient implementation of decisions, or the inability to respond effectively to market changes and variations, as well as any possible internal restrictions in the context of the Bank's performance.

The following instruments are used to monitor strategic risk:

Balance Sheet Simulations several scenarios are generated for the evolution of the Bank's Balance Sheet taking into consideration assets, liabilities and net income;
Income Account Simulations the adequacy of the profitability and solvency levels is assessed depending on the balance sheet simulations that were performed. Calculating the impacts on net interest income, banking product, operating margin and net income for the period. Taking into consideration the impacts on the main activity ratios particularly solvency, profitability, efficiency, and liquidity ratios;
Mandatory stress tests to which the institution is regularly subjected.
Mandatory Recovery and Resolution plans to which the institution is subjected.

Strategic risk is periodically measured with special emphasis on:

A monthly Management Report that allows to follow and interpret the institution's main management and performance indicators;
Monthly following up and analysis of the main deviations from the objectives written down in the Strategic Plan;
Monthly report with corrective proposals taking into consideration the deviations that occurred;
The Board of Directors follows up Stress Tests and Regulatory Plans.

Property Risk

Property risk is defined as the probability of negative impact on results or equity arising from a general drop in the property portfolio and the inherent volatility of the real estate market.

The Bank is exposed to property risk as a result of its own real estate portfolio. These were assets whose ownership was transferred to the Bank following legal actions or in lieu of payment to settle loan debts (mostly loans for construction/property development and residential mortgage loans). These assets include urban and rural properties, plots of land, finished buildings or parts, and properties under construction.

These assets are managed by IMOB-Imobiliário, whose employees have specialized training in this area.

At the time of transfer in lieu of payment, acquisition or legal award to settle the debt, for the materially relevant transactions external appraisals are always required. After that, new appraisals are carried out according to the time frames established by the Bank of Portugal or in between periods if there is any indication of any property value loss. Those assets are periodically subjected to sensitivity analyses that take into consideration the evolution of the market as perceived by the Bank. Therefore, the Bank considers these assets to be adequately evaluated and booked in its financial statements.

In the scope of the stress test performed, a sensitivity analysis and the impact on capital consumption caused by the decrease in property prices is calculated.

II.7 – Powers of board members, and in particular the power to issue shares

The Board of Directors has no powers to issue shares.

Any share capital increase requires the approval of the General Meeting on proposal of the Board of Directors.

II.8 – Policy on rotation of functions within the Board of Directors

Although not formalized there is, in fact, a policy of periodically rotation of functions within the Executive Committee that supports the Board of Directors in terms of the day-to-day management of the Bank.

II.9 - Rules applicable to appointment and replacement of members of the governing and supervisory bodies

The members of the Board of Directors are elected by the General Meeting for four-year terms, with the possibility of being re-elected. Directors will lose their term if, during it, they miss five consecutive meetings of the Board or seven interpolated with no justification accepted by the Board. The replacement of Directors is made by cooptation pursuant to legal terms, and it shall be submitted to ratification on the following General Meeting.

The members of the Supervisory Board are elected by the General Meeting for four-year terms, with the possibility of being re-elected. The Chairman of the Board of the General Meeting shall verify any possible conflicts of interest among its permanent members and make any moves necessary for replacement by an alternate member.

The Statutory Auditor, or the Audit Firm, is appointed by the General Meeting for a four-year period and an alternate Statutory Auditor, or Audit Firm, is also appointed.

II.10 – Meetings held by the governing and supervisory bodies

The Board of Directors meets ordinarily once a month and extraordinarily at the initiative of the Chairman or two other directors. Minutes from the meetings contain all the decisions taken in those meetings. During 2014, the Board of Directors met 13 times.

The Supervisory Board meets ordinarily at least once every three months and extraordinarily on request of the Chairman or of any other member. Minutes from the meetings contain all the decisions taken in those meetings. In 2014, the Supervisory Board met 5 times.

II.11 – Professional information on the members of the Board of Directors:

Rui Manuel Morganho Semedo - Chairman

Date of first appointment – 5 November 2007

Term of office – 31 December 2014

Professional qualifications: - Degree in Economy

Professional activities in the past 5 years: - Barclays Bank, Portugal - CEO; Barclays Bank, Espanha – CEO.

Does not own any shares in the company.

Functions in other companies belonging to Banco Popular Group: Chairman of the Board of Directors of Popular Gestão de Ativos - Sociedade Gestora de Fundos de Investimento,S.A,. and Popular Factoring, S.A., Member of the Board of Eurovida – Companhia de Seguros de Vida, S.A. and Popular Seguros – Companhia de Seguros, S.A.; Manager of Consulteam – Consultores de Gestão, Lda.

Carlos Manuel Sobral Cid da Costa Álvares - Member

Date of first appointment – 3 May 2013

Term of office – 31 December 2014

Professional qualifications: - Degree in Business Management; High Management Programme - PADE at AESE/Escola de Direção e de Negócios.

Professional activities in the past 5 years: - Grupo Banco Comercial Português –

several management positions

Does not own any shares in the company.

Functions in other companies belonging to Banco Popular Group: - Member of the Board of Directors of Popular Gestão de Ativos, SGFI, S.A.

Tomás Pereira Pena - Member

Date of first appointment – 27 May 2009

Term of office – 31 December 2014

Professional qualifications: - Degree in Law

Professional activities in the past 5 years: - Banco Popular Español, S.A. - Head of Legal Services Does not own any shares in the company.

Functions in other companies belonging to Banco Popular Group: - Head of Legal and Compliance Services at Banco Popular Español, S.A..

José Ramón Alonso Lobo - Member

Date of first appointment – 10 April 2013

Term of office – 31 December 2014

Professional qualifications: - Degree in Business Management by Universidad de Oviedo

Does not own any shares in the company.

Functions in other companies belonging to Banco Popular Group: Executive Director at Banco Popular Portugal, SA; Deputy Director at Banco Popular Español, SA; Member of the Board of Iberia Cards, SA.

II.12 – Identification of the members of the Supervisory Board

Rui Manuel Ferreira de Oliveira - Chairman Telmo Francisco Salvador Vieira - Member António José Marques Centúrio Monzelo - Member Ana Cristina Freitas Rebelo Gouveia – Alternate

According to their own self-assessment, effective Supervisory Board members meet the requirements of incompatibility rules as foreseen by No. 1 of Article 141; and the independence criteria as defined in No. 5 of Article 414, both from the Portuguese Companies Act ('Código das Sociedades Comerciais').

II.13 – Professional information on the members of the Supervisory Board

Rui Manuel Ferreira de Oliveira

Date of first appointment – 7 May 2007 Term of office – 31 December 2014 Professional qualifications: - Degree in Business Management Professional activities in the past 5 years: - Freelance consultant Does not own any shares in the company. Functions in other companies belonging to Banco Popular Group:

Telmo Francisco Salvador Vieira

Date of first appointment – 7 May 2007 Term of office – 31 December 2014 Professional qualifications: Degree in Business Management and MBA; Statutory Auditor; Doctoral Candidate in Business Management at ISEG Professional activities in the past 5 years: - Lecturer at Instituto Superior de Economia e Gestão; consultancy as a partner at Premivalor Consulting Does not own any shares in the company. Functions in other companies belonging to Banco Popular Group:

António José Marques Centúrio Monzelo

Date of first appointment – 7 May 2007 Term of office – 31 December 2014 Professional qualifications: - Degree in Accountancy and Business Management; Statutory Auditor Professional activities in the past 5 years: - Statutory Auditor for several companies Does not own any shares in the company. Functions in other companies belonging to Banco Popular Group:

Ana Cristina Freitas Rebelo Gouveia Date of first appointment – 7 May 2007

Term of office – 31 December 2014

Professional qualifications: - Degree in Auditing; First Degree in Accountancy and Business Administration

Professional activities in the past 5 years: - Assistant Manager in the financial company ENERSIS;

Does not own any shares in the company.

Functions in other companies belonging to Banco Popular Group:

II.14 – remuneration policy for the managing and supervisory bodies

The remuneration of the members of the managing and supervisory bodies is determined by the sole shareholder. Aiming at, on the one hand, abiding by Law No. 28/2009 of 19 June, and, on the other, strengthening the transparency of the process of defining the pay structure for 2014, the following remuneration policy for the members of the governing bodies of Banco Popular Portugal, SA, was approved of at the General Meeting held on 20 March 2014.

1 – Process of setting the remuneration of the members of the governing bodies

Banco Popular Portugal, S.A. is fully owned by Banco Popular Español, S.A., and is therefore included in the Banco Popular Group, which has defined management policies, including remuneration policies, that are uniform and transversal to all the companies that comprise it.

Therefore, the remuneration policy for the members of the managing and supervisory bodies is directly defined by its sole shareholder according to uniform, consistent, fair and balanced criteria adopted by the Group. The existence or not of a variable remuneration is directly associated with the degree of fulfilment of the main objectives established each year for Banco Popular Group and Banco Popular Portugal.

2 – Remuneration of the members of the Supervisory Board

The members of the Supervisory Board earn a monthly fixed salary paid twelve times a year. Remunerations are set at the beginning of term and valid until the term of office.

3 - Remuneration of the Statutory Auditor

The remunerations of the Audit Firm are established at the beginning of each term for service contracts pursuant to common remunerative practices and conditions for similar services.

4 – Remuneration of the members of the Board of Directors

4.1 – Non executive members

Non-executive members of the Board of Directors do not earn any remuneration from Banco Popular Portugal.

4.2 – Executive members

Remuneration structure

The remuneration of executive members of the Board of Directors is fixed annually by the sole shareholder and depends on the economic performance in the previous year of the Banco Popular Group, to which Banco Popular Portugal belongs.

Remuneration is composed of a monthly fixed amount paid on the basis of 14 months/year and a variable amount.

The variable remuneration is paid in cash and no deferred payment of the variable component is provided for in the statutory regulations.

Remuneration limits

The fixed part of the remuneration shall have the limits established by the sole shareholder.

The variable component will fluctuate each year and for each member being, in any case, determined by the sole shareholder.

Criteria for the definition of the variable component of the remuneration

The variable component is established according to the criteria used for the members of governing bodies of the Banco Popular Group in terms of remuneration, depending on the degree of fulfilment of the Group's main objectives.

Other forms of remuneration

No other forms of remuneration besides the aforementioned fixed and variable components are provided for in the rules and regulations.

Pension Plan

The executive members of the Board of Directors exercising their functions on an exclusive basis at Banco Popular Portugal are entitled to receive retirement and survivor's pensions according to the following regulations:

1 – Right to a monthly retirement pension on a 14 month/year basis, corresponding to a percentage of their monthly remuneration, in the case of the Chairman of the Board of Directors, or of a percentage of level 18 of the Collective Bargaining Agreement for the banking sector, in the case of all other members, for each year in function;

2 – Right to a monthly survivor pension paid to the surviving spouse, corresponding to 80% of the pension as defined in number 1;

3 – The rights to the retirement pension and the survivor pension will only become effective if and when the member of the Executive Board of Directors is appointed for a second term and has completed at least four years in the exercise of those functions;

4 – The right to the retirement pension is acquired on the term of office date and shall be calculated and fixed in relation to that date. However, the effective payment of the pension will only begin in the month after the member of the Board of Directors completes 65 years of age.

The Pension Plan for the executive members of the Board of Directors was approved of at the General Meeting.

Compensation due for directors' dismissal without cause

No agreements are foreseen that determine the amounts to pay in case of dismissal of executive members of the Board of Directors besides the provisions of Law.

II.15 – Remunerations earned by the governing and supervisory bodies

The executive members of the Board of Directors earned a total amount of € 882,720 in 2014, which included both fixed and variable components and which was fully paid in cash.

The amounts paid to each member of the Board of Directors are detailed as follows:

				(euros)
	Annual Remuneration
	fixed	variable - cash	senirority bonus	total
Rui Manuel Morganho Semedo	392,002.00	100,000.00	0	0
Carlos Manuel Sobral Cid da Costa Álvares	278,120.00	53,000.00	59,597.00	59,597.00
Tomás Pereira Pena	0	0	0	0
José Ramón Alonso Lobo	0	0	0	0
Total	670,122.00	153,000.00	59,597.00	59,597.00

Other members of the Board of Directors also hold managing positions at Banco Popular Español and are accordingly remunerated by that entity.

The members of the Supervisory Board earned a total fixed amount of € 21,600.00 in 2014. The amounts paid to each member of the Supervisory Board are detailed as follows:

	(euros)
	Annual
	Remuneration
Rui Manuel Ferreira Oliveira	9,600.00
Telmo Francisco Salvador Vieira	6,000.00
António José Marques Centúrio Monzelo	6,000.00
Total	21,600.00

III – Information and Auditing

III.1 – Structure of ownership of Banco Popular Portugal, S.A.

Share capital – € 476.000.000,00, represented by 476.000.000 ordinary shares with the unitary nominal value of € 1.00, not admitted to trading in a regulated market in Portugal.

III.2 – Qualified stakes

Banco Popular Español, S.A. – owns directly 100% of the share capital and of the righting votes of Banco Popular Portugal.

III.3 – Rules applicable to amendments of the Articles of Association

The Bank's Articles of Association may be amended by deliberation of the General Meeting taken by absolute majority of votes.

III.4 – Availability of the annual reports of the Supervisory Board

The annual reports and the opinions issued by the Supervisory Board as regards the Bank's activity are available, together with the annual accounts, at the Bank's website, www.bancopopular.pt.

III.5 – Remunerations paid to the Statutory Auditor

The amounts paid to the Statutory Auditor, PricewaterhouseCoopers, in 2014 were as follows

	(euros)
	Fees
	paid
Statutory audit	121,524.00
Other guarantee and reliability services	130,290.73
Total	251,814.73

Lisbon, 26 February 2015

THE BOARD OF DIRECTORS

Statement of the Board of Directors

BANCO POPULAR PORTUGAL, S.A.

Head Office: R. Ramalho Ortigão, No. 51, 1099-090 Lisbon Share capital: Eur 476,000,000.00 Registered at the Lisbon Commercial Registry under the Taxpayer No. 502.607.084

STATEMENTS REFERRED TO IN ARTICLE 245(1)(c) OF THE PORTUGUESE SECURITIES CODE

Paragraph (c) of article 245(1) of the Portuguese Securities Code states that each of the responsible persons of the entity shall issue a statement as explained therein.

STATEMENT OF THE BOARD OF DIRECTORS

The members of the Board of Directors of Banco Popular Portugal, S.A., identified below by name, have individually signed the following statement:

'Pursuant to paragraph (c) of article 245(1) of the Portuguese Securities Code, I declare that, to the best of my knowledge, the management report, the annual accounts, the statutory audit and auditor's report and other accounting documents disclosed by Banco Popular Portugal, S. A., all referred to 2013, were drawn up in accordance with the applicable accounting standards, providing a true and fair view of the assets and liabilities, the financial position and the results of that entity and that the management report faithfully states the trend of the business, the performance and position of that entity, and contains a description of the principal risks and uncertainties faced.'

Lisbon, 26 February 2015

Board of Directors

Rui Manuel Morganho Semedo	(Chairman)
Tomás Pereira Pena	(Member)
Carlos Manuel Sobral Cid da Costa Alvares (Member)
José Ramón Alonso Lobo	(Member)

Remuneration Policy for the Members of the Managing and Supervisory Bodies

Introduction

The present Remuneration Policy of the members of the managing and supervisory bodies (hereafter abbreviated to 'Remuneration Policy') as adopted by BANCO POPULAR PORTUGAL, SA (hereafter also abbreviated to BANCO POPULAR) is aimed at complying with the provisions set forth in articles 115C to 115G of the Legal Framework of Credit Institutions and Financial Companies ('RGICSF') and ensures that BANCO POPULAR has adopted the highest national and international standards as regards the corporate governance of credit institutions.

Justification

Credit institutions shall have 'remuneration policies and practices that promote and are coherent with sound and prudent risk management practices' (article 14/1i of the RGICSF). Pursuant to Directive No. 2013/36/UE of the European Parliament and of the Council of 26 June 2013 ('CRD IV'), the remuneration policy shall not encourage taking risks at higher levels than those tolerated by each credit institution. Furthermore, it should be compatible with the corporate strategy and aims, values and long-term interests of the institution, as well as include measures to avoid any conflict of interest.

Other necessary attributes of the remuneration policy are recognized in different international texts. The remuneration policy should be clear and aligned with the long-term interests of the credit institution (NAPF, Remuneration principles for building and reinforcing long-term business success, 2013). This policy should, in turn, identify those categories of staff with relevant remuneration status and whose professional activities have a material impact on the bank's risk profile (EBA, Guidelines on Sound Remuneration Policies, 2010). Finally, the remuneration policy should be adapted to the specific characteristics of each credit institution. It should be borne in mind that Banco Popular Portugal, SA, is fully owned by Banco Popular Español, SA, and is therefore part of Banco Popular Group, which has defined management policies, including remuneration policies, that are uniform and transversal to all the companies that comprise it.

The central focus of the remuneration policy, in turn, entails a governance system that ensures the effective enforcement of the best practices in this matter. In this context, the General Meeting has the competence to determine the pay of the members of the governing bodies (article 399, CSC), while the Board of Directors is in charge of determining the pay of the Bank's employees. In addition, the governing bodies and the supervisory bodies of the credit institutions should firstly define and supervise the enforcement of the governance systems that ensure effective and prudent management practices (article 88/1, CRD IV and article 115-A, RGICSF). Furthermore, the Compensation Committee of the parent-company should monitor the process that leads to the preparation, determination and disclosure of such remunerations.

1. Scope and competence for the application

1.1. The present policy shall be applied to the following executives of Banco Popular:
1.1.1. Members of the Board of Directors;
1.1.2. Members of the Supervisory Board;
1.2. For the purpose of the present Policy, by 'executives' we mean the members of the governing bodies referred to in the previous numbers.
1.3. TheComisión de Remuneraciones of Banco Popular Español, S.A. (CRBPE) monitors the enforcement of the present Policy and ensures its full efficacy.

2. Remuneration policy of the members of the Board of Directors

Remuneration structure

2.1. The remuneration of the members of the Board of Directors includes a variable and a fixed component (part of the latter is the base salary and part is a complement due for individual performance).

Variable remuneration component

2.2. The variable remuneration component depends on whether the performance targets set for Banco Popular Group and for Banco Popular Portugal were achieved-
2.3. The performance indicators consider:
a) the performance of the departments or areas the executives are in charge of;
b) the overall performance of the bank and the group to which it belongs.
2.4 The variable component of the remuneration is broken down as follows:
a) 50% is paid in cash;
b) 50% is paid in eligible financial instruments pursuant to the legislation in force.
2.5 The variable component of the remuneration is partially deferred: 50% is paid in the year it was attributed and 50% in three equal conditional successive annual shares.
2.6 The financial instruments attributed pursuant to paragraph (b) of No. 2.4 are not transmissible for a period of three year counted from the date of attribution.
2.7 The instalments referred to in No. 2.5 may only be paid if their sustainability in light of the financial situation of the Bank on the date of payment and its adequacy to the performance of the Bank, the unit or the department the executive member of staff is in charge of is confirmed through a documented opinion of the CRBPE.
2.8 The instalments referred to in No. 2.5 may be subject to reduction or reversal, if the executive:
a) Participated in or was in any way responsible for conduct which resulted in significant losses for the Bank;
b) Participated in or was in any way responsible for fraudulent statements on the Bank's financial information or the adoption of any other unlawful behaviour that has resulted in manipulating or tampering with the performance criteria;
c) Failed to meet appropriate standards of fitness and propriety.
2.9 The variable component of the remuneration may not exceed the amount of the fixed component for each executive member of staff, unless a qualified majority of twothirds of the General Board Meeting decides otherwise.
2.10The variable component of the remuneration may not limit the capacity of Banco Popular to strengthen its own funds basis. Consequently, the performance assessment used to calculate the variable component of the remuneration must foresee adjustments considering the various types of current and future risks, as well as the cost of own funds and the liquidity the credit institution needs.

Pension Plan

2.11The members of the Board of Directors exercising their functions on an exclusive basis at BANCO POPULAR are entitled to receive retirement and survivor's pensions according to the following regulations:

a) Discretionary pension benefits should take the form of eligible financial instruments pursuant to the legislation in force.

b) In case executives leave the Bank before retirement, discretionary pension benefits they are entitled to shall be held by the Bank for a period of five years, at the end of which they become an acquired right and the former executives are entitled to receive their payment.

c) When executives reach retirement, the discretionary pension benefits they are entitled to and whose respective payment right has already been acquired are withheld by the Bank for a period of five years, at the end of which they are paid to the former executives.

For the purpose of the present Policy, by 'discretionary pension benefits' we mean pension benefits that are more advantageous than those foreseen in the general framework of the Bank's retirement pensions granted to the members of the governing or supervisory bodies, or other members of staff, on a discretionary basis, as part of their remuneration and that do not include the benefits obtained by the employees pursuant to the Bank's pension framework.

Compensations due for director's dismissal without due ca u se

2.12 No agreements are foreseen that determine the amounts to pay in case of dismissal of executive members of the Board of Directors without due cause besides the provisions of Law.

Compensations or buy out from contracts in previous employment

2.13 Compensations to be paid to new executives due to termination of activity in previous employment should align with the long-term interests of the Bank and do not involve guaranteed variable remunerations, except in the first year of activity when approved by the CRBPE.

3. Remuneration policy of the members of the Supervisory Board

Remuneration structure

3.1 The remuneration of the members of the Supervisory Board is composed of a single fixed component paid in cash.

4. Revision of the Remuneration Policy

4.1. The CRBPE shall periodically revise the present Remuneration Policy, submitting recommendations to the management body for its respective improvement.
4.2. Upon receiving the Report prepared and presented by the CRBPE, which contains the revision of the present Remuneration Policy referred to in the previous number, the management body shall approve of the recommendations made by the CRBPE or shall present groundings for its refusal, identifying alternative solutions whenever weaknesses have been detected or if the revised policy is not compliant with the applicable legislation, or any recommendations issued by EBA, the Bank of Portugal or CMVM.
4.3. The management body shall annually submit to the General Meeting of the Bank for its final approval the justified recommendations aimed at improving the present Remuneration Policy.

5. Approval, entry into force, and amendments

5.1. The present Policy was approved of by the General Meeting and shall enter into force on 1 April 2015, and it can be amended by decision of said management body.

6. Interpretation

6.1. Any reference to any legal provision, any guidelines or any other text that provides recommendations or has a similar nature should be interpreted as a reference to said provision, guidelines or text with a similar nature according to the wording in force on the date of its respective application, as well as to the other regulations or recommendations that may replace, amend or complement them.

7. Disclosure

7.1. The present Policy is disclosed on Banco Popular's website.

Remuneration Policy for Key Function Holders

Introduction

The present Remuneration Policy for the members of the holders of essential positions (hereafter abbreviated to 'Remuneration Policy') as adopted by BANCO POPULAR PORTUGAL, SA (hereafter also abbreviated to BANCO POPULAR) is aimed at complying with the provisions set forth in articles 115C to 115G of the Legal Framework of Credit Institutions and Financial Companies ('RGICSF') and ensures that BANCO POPULAR has adopted the highest national and international standards as regards the corporate governance of credit institutions.

Justification

Besides the governance bodies already referred, the sound and prudent management of credit institutions is also based on the performance of some particularly relevant functions, such as compliance, internal auditing and risk management. These members of staff are here jointly considered in charge of the internal control system. The fact that these functions are essential justifies that the remuneration status of their respective holders is treated differently in order to adequately ensure their independence. Therefore, and pursuant to the provisions set forth in article 115-C/2 of the RGICSF, the present Policy also encompasses the holders of such functions as well as any employees with a remuneration status equivalent to those of

any other function whose remuneration is comprehended in the present Policy, as long as their professional activities have a material impact on the risk profile of Banco Popular.

1. Scope and competence for the application

1.1. The present policy shall be applied to the following executives of Banco Popular:
1.1.1. Central Managers;
1.1.2. Head of Compliance;
1.1.3. Heads of the Risk Management and Internal Auditing divisions;

1.1.4. Other employees identified by the CRBPE receiving total remuneration that takes them into the same remuneration bracket as that foreseen for the categories stated in the previous paragraphs, as long as their respective professional activities have a material impact on the risk profile of Banco Popular.

1.2. For the purpose of the present Policy, by 'executives' we mean the employees referred to in the previous numbers.
1.3. The Comisión de Remuneraciones of Banco Popular Español, S.A. (CRBPE) monitors the enforcement of the present Policy and ensures its full efficacy.

2. Remuneration policy of the members of Central Management

Remuneration structure

2.1. The remuneration of the members of Central Managers includes a variable and a fixed component (part of the latter is the base salary and part is a complement due for individual performance).

Variable remuneration component

2.2. The variable remuneration component depends on whether the performance targets set for Banco Popular Group and for Banco Popular Portugal were achieved-
2.3. The performance indicators consider:
a) the performance of the departments or areas the executives are in charge of;
b) the overall performance of the bank and the group to which it belongs.
2.4 The variable component of the remuneration is broken down as follows:
a) 50% is paid in cash;
b) 50% is paid in eligible financial instruments pursuant to the legislation in force.
2.5 The variable component of the remuneration is partially deferred: 50% is paid in the year it was attributed and 50% in three equal conditional successive annual shares.
2.6 The financial instruments attributed pursuant to paragraph (b) of No. 2.4 are not transmissible for a period of three year counted from the date of attribution.
2.7 The instalments referred to in No. 2.5 may only be paid if their sustainability in light of the financial situation of the Bank on the date of payment and its adequacy to the performance of the Bank, the unit or the department the executive member of staff is in charge of is confirmed through a documented opinion of the CRBPE.
2.8 The instalments referred to in No. 2.5 may be subject to reduction or reversal, if the executive:
a) Participated in or was in any way responsible for conduct which resulted in significant losses for the Bank;
b) Participated in or was in any way responsible for fraudulent statements on the Bank's financial information or the adoption of any other unlawful behaviour that has resulted in manipulating or tampering with the performance criteria;
c) Failed to meet appropriate standards of fitness and propriety.
2.9 The variable component of the remuneration may not exceed the amount of the fixed component for each central manager, unless a qualified majority of two-thirds of the General Board Meeting decides otherwise.
2.10 The variable component of the remuneration may not limit the capacity of BANCO POPULAR to strengthen its own funds basis. Consequently, the performance assessment used to calculate the variable component of the remuneration must foresee adjustments considering the various types of current and future risks, as well as the cost of own funds and the liquidity the credit institution needs.

Pension Plan

2.11The pension policy is regulated pursuant to the following:

a) Discretionary pension benefits should take the form of eligible financial instruments pursuant to the legislation in force.
b) In case executives leave the Bank before retirement, discretionary pension benefits they are entitled to shall be held by the Bank for a period of five years, at the end of which they become an acquired right and the former executives are entitled to receive their payment.
c) When executives reach retirement, the discretionary pension benefits they are entitled to and whose respective payment right has already been acquired are withheld by the Bank for a period of five years, at the end of which they are paid to the former executives.

Compensations or buy out from previous employment

2.12 Compensations to be paid to new executives due to termination of activity in previous employment should align with the long-term interests of the Bank and do not involve guaranteed variable remunerations, except in the first year of activity when approved by the CRBPE.

3. Remuneration policy of the members of the heads of the internal control system

Remuneration structure and supervision

3.1 The remuneration of the heads of the internal control system includes a variable and a fixed component (part of the latter is the base salary and part is a complement due for individual performance).

3.2 The variable component of the remuneration depends on the objectives associated with their functions, regardless of the performance of the sectors they are in charge of.

3.3 The remuneration of the heads of the internal control system shall be directly supervised by CRBPE.

4. Remuneration policy for other employees that have a material impact on the risk profile

Remuneration structure and supervision

4.1 The remuneration of other employees that have a material impact on the risk profile of the Bank follows, with the necessary adaptations, number 2 above and is directly supervised by the CRBPE.

5. Revision of the Remuneration Policy

5.1. The CRBPE shall periodically revise the present Remuneration Policy, submitting recommendations to the management body for its respective improvement.
5.2. Upon receiving the Report prepared and presented by the CRBPE, which contains the revision of the present Remuneration Policy referred to in the previous number, the Board of Directors shall approve of the amendments suggested by the CRBPE or shall present groundings for their refusal, identifying alternative solutions whenever weaknesses have been detected or if the revised policy is not compliant with the applicable legislation, or any recommendations issued by EBA, the Bank of Portugal or CMVM.

6. Approval, entry into force, and amendments

6.1. The present Policy was approved of by the General Meeting and shall enter into force on 1 April 2015, and it can be amended by decision of said management body.

7. Interpretation

7.1. Any reference to any legal provision, any guidelines or any other text that provides recommendations or has a similar nature should be interpreted as a reference to said provision, guidelines or text with a similar nature according to the wording in force on the date of its respective application, as well as to the other regulations or recommendations that may replace, amend or complement them.

8. Disclosure

8.1. The present Policy is disclosed on Banco Popular's website.

Policy for the Prevention, Communication and Remedy of Conflicts of Interests

1. Object, scope, and competence

1.1. The present document contains the Policy for the Prevention, Communication and Remedy of Conflicts of Interest of BANCO POPULAR ('Conflicts of Interest Policy'), which is alluded to in paragraph 9 of the Selection and Assessment Policy for the members of the managing and supervisory bodies and key function holders at BANCO POPULAR, pursuant to article 30-A/2 of the Legal Framework of Credit Institutions and Financial Companies ('RGICSF').
1.2. The Policy for the Prevention of Conflicts of Interests regarding the financial intermediation activity of BANCO POPULAR is stated on a separate document.
1.3. The present Conflict of Interest Policy aims to prevent the risk of subjecting the members of the managing and supervisory bodies and Key Function Holders atBANCO POPULAR to the undue influence of other persons or entities, as well as to ensure that the preparation, implementation and execution of decisions taken by the Executives of BANCO POPULAR is exclusively targeted at the sound and prudent management of the Bank and is not vulnerable to the personal interests of the Executives or any other entities with which they are direct or indirectly related.
1.4. The present Conflict of Interest Policy shall be applied to the following executives of BANCO POPULAR:
1.4.1. Members of the Board of Directors;
1.4.2. Members of the Supervisory Board;
1.4.3. Key function holders in the credit institution.
1.5. Pursuant to the previous number, the key function holders are:
1.5.1. The Central Managers of the Bank
1.5.2. The Bank's Head of Compliance;
1.5.3. Those in charge of risk management in the Bank;
1.5.4. Those in charge of internal auditing in the Bank;
1.5.5. The remaining members designated as key function holders by the Comisión de Nombramientos of Banco Popular Español S.A. (CNBPE).
1.6. For the purpose of the present Policy, by 'executives' we mean the employees referred to in the previous numbers.
1.7. CRBPE monitors the enforcement of the present Policy and ensures its full efficacy.

2. General principles

2.1. Any Relevant Business between BANCO POPULAR or a company it has a significant stake in ('Investee Company') and a Related Party must be preceded by (i) previous communication to the CNBPE, and (ii) previous opinion issued by the CNBPE.
2.2. Relevant Businesses between BANCO POPULAR or a company it has a significant stake in ('Investee Company') and Related Parties should be conducted under normal market conditions. Namely, lending or financing operations covered by the present Policy should not define preferential conditions when compared with those that would be available to other borrowers in similar circumstances.

3. Definitions

3.1. Investee Company: Companies with which BANCO POPULAR, has an association with pursuant to Article 20 of the Securities Code ('Código dos Valores Mobiliários'), as well as any other entity – regardless of its legal form – upon which BANCO POPULAR has a direct or indirect significant influence;
3.1.1. Relevant Business: Any legal business, regardless of its legal form, or material act that can result or might possibly result, direct or indirectly, individually or in combination with other businesses or material acts that form a unit from a temporal or economic standpoint:
3.1.2. The constitution of a current or contingent obligation in the scope of BANCO POPULAR or an Investee Company, of over € 100,000 (one hundred thousand euros);
3.1.3. The extinction of a legally protected right or interest previously in the scope of BANCO POPULAR or Investee Company, of over € 100,000 (one hundred thousand euros);
3.1.4. The encumbrance of assets that belong to BANCO POPULAR or Investee Company, regardless of their legal form and amount;
3.1.5. In general, any form of appropriation of assets that belong to BANCO POPULAR or Investee Company, of over € 100,000 (one hundred thousand euros).
3.2. Related Party: Besides the Executives themselves, any person or entity, regardless of their legal form, that has a family, legal or business connection with an Executive of any of the following types:
3.2.1. Executive's spouse or domestic partner, children or ancestors in a direct line, collateral relatives to the fourth degree, and any other person with whom the Executive has lived for over a year;
3.2.2. The Investee Companies controlled by the Executive of by any of the people referred to in the previous number pursuant to the meaning defined in paragraph 3.1.
3.2.3. Entities where the Executives hold managing of supervisory positions or in any other way participate in the main management decisions;
3.2.4. Shareholders with stakes higher than 2% at BANCO POPULAR, calculated pursuant to article 20 of the CVM and their investee companies according to the meaning attributed to the expression in paragraph 3.1.
3.2.5. Third parties with whom BANCO POPULAR or its Investee Companies have established relevant commercial relations in terms of the length of time or the amounts involved.

4. Procedures

4.1. In case a Relevant Business is being considered, prepared or negotiated between BANCO POPULAR and a Related Party, the Executive or Executives shall immediately write a Previous Communication of Relevant Business.
4.2. The Previous Communication of Relevant Business shall be delivered to the CNBPE and includes at least the main information on the parties, object, time frame, collaterals, and other relevant elements of the projected Business that allow for the full assessment of the interests involved and the way it will affect the assets and the business plan of BANCO POPULAR or its Investee Company.
4.3. The Previous Communication of Relevant Business may be urgent, in which case the CNBPE will make an effort to issue an opinion in 5 days.
4.4. The CNBPE will rapidly issue a justified opinion on the projected Relevant Business: (a) without any objection; (b) without any objection, but with certain conditions; (c) with objections.
4.5. In the cases foreseen in paragraph (b) of the previous number, the Executive or Executives involved have to provide evidence that the conditions imposed by the CNBPE were met.
4.6. In the cases foreseen in paragraph (c) of the previous number, the Relevant Business is considered rejected, and it shall not even be submitted for approval of the competent bodies.
4.7. In the case foreseen in the previous number, the Executives that might have a conflict of interest in that business are prevented from participating or voting on the decisions of the management board or the Auditing Committee (if applicable).
4.8. The Annual Governance Report of BANCO POPULAR shall include a list of the Relevant Businesses signed between BANCO POPULAR or its Investee Companies and Related Parties, for which the CNBPE has raised objections, as well as the Relevant Businesses for which conditions have been defined pursuant to paragraph 4.4(b). Accordingly, the management board shall identify the reasons and elements that have allowed it to conclude that the said conditions were met.
4.9. Neglecting the duties of previous communication of Relevant Businesses with Related Parties to the CNBPE, as well as conducting a business for which objections

have been raised outside the scope of the cases foreseen in paragraph 4.6 is considered a serious breach of the legal and contractual duties of the Executives.

5. Other conflicts of interests

5.1. Executives shall inform the CNBPE and the respective body or committee as soon as possible regarding any fact that may constitute or most probably cause a conflict of interest with BANCO POPULAR.
5.2. The Executives involved in a conflict of interest may not interfere in the decisionmaking process regarding the act at issue, without prejudice to the duty of providing information or any explanation that the body, committee or respective members request.
5.3. The Executives have cooperation duties in compliance with the present Policy, namely providing information on Relevant Businesses.
5.4. The Compliance Department of BANCO POPULAR shall prepare and update a list of possible conflicts of interest and provide that list to the CNBPE.

6. Approval, entry into force, and amendments

6.1. The present Policy was approved of by the General Meeting and shall enter into force on 1 April 2015, and it can be amended by decision of said management body.

7. Disclosure

7.1. The present Policy is disclosed on Banco Popular's website.

Policy for the Selection and Assessment of the Members of Managing and Supervisory Bodies, and of Key Function Holders

Introduction

The present Policy for the selection and assessment of the members of the managing and supervisory bodies as adopted by BANCO POPULAR (hereafter abbreviated to 'Selection and Assessment Policy') is aimed at complying with the provisions set forth in articles 115C to 115G of the Legal Framework of Credit Institutions and Financial Companies ('RGICSF') and ensures that BANCO POPULAR has adopted the highest national and international standards as regards the corporate governance of credit institutions.

Banco POPULAR (hereafter also 'Bank') had adopted the so-called classic or Latin model in terms of governance structure as described in article 278/1, paragraph (a) of the Commercial Companies Code. In the case of BANCO POPULAR, this model includes a Board of Directors and a Supervisory Board For the purpose of the present Policy, the reference to 'governing bodies' includes the Board of Directors and the Supervisory Board of BANCO POPULAR, as a whole, and the reference to 'members of the governing bodies' includes every member of the Bank's Board of Directors and Supervisory Board, regardless of their status of executive or non-executive director, or of independent or non-independent member.

Justification

Credit institutions should have 'robust governance arrangements, which include a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks they are or might be exposed to, adequate internal control mechanisms, including sound administration and accounting procedures, and remuneration policies and practices that are consistent with and promote sound and effective risk management' (Article 74/1 of Directive No. 2013/36/UE of the European Parliament and of the Council of 26 June 2013: 'CRD IV' and article 14/1 of the RGICSF).

In this context, the management bodies and the supervisory bodies of the credit institutions should firstly define and supervise the enforcement of the governance systems that ensure effective and prudent management practices, including the segregation of duties in the organisation and the prevention of conflicts of interest (article 88/1, CRD IV and article 115-A, RGICSF).

The management body performs these key functions in terms of the governance of the institution, since it simultaneously has the overall responsibility for the institution, and shall define, approve and implement, on the one hand, and oversee, on the other, the strategic objectives of the institution, among which is the adequate and prudent risk management.

The importance of the individual and collective fitness of the members of the management and supervisory bodies becomes evident when the competences of these bodies are taken into consideration (albeit with little detail), as well as the crucial role they perform in the sound and prudent management of credit institutions.

The overall responsibility for the institution includes the definition of the main strategic objectives as far as the banking business is concerned, in general, and the guarantee of financial robustness of the institution, in particular, but also the main decisions regarding hiring more relevant members of staff or structuring a remuneration policy.

In terms of risk, the management body, in its executive capacity, is accountable for the definition and implementation of a risk strategy that is adequate to the overall strategy of the institution, its size and complexity. This overall risk strategy includes, among other aspects, the definition of the institution's risk appetite, the implementation of adequate information channels and the management of the risks assumed. Furthermore, the management body must define internal standards and procedures that promote an institutional risk culture that leads to ethical integrity values, internal scrutiny, and organisational transparency and robustness.

In its supervisory role, the Supervisory Board must be able to monitor the risks and challenges the credit institution faces in its activity, pro-actively and critically examining the decisions that will be taken or that have been taken.

1. Scope and competence for the application

1.1. The present policy shall be applied to the following executives of BANCO POPULAR:
1.1.1. Members of the Board of Directors;
1.1.2. Members of the Supervisory Board;
1.1.3. Key function holders.
1.2. Pursuant to the previous number, the key function holders are:
1.2.1. The Central Managers of the Bank;
1.2.2. The Bank's, Head of Compliance;
1.2.3. Those in charge of risk management in the Bank;
1.2.4. Those in charge of internal auditing in the Bank;
1.2.5. The remaining members designated as key function holders by the Comisión de Nombramientos of Banco Popular Español S.A. (CNBPE).
1.3. For the purpose of the present Policy, by 'executives' we mean the employees referred to in the previous numbers.
1.4. CRBPE monitors the enforcement of the present Policy and ensures its full efficacy.

2. Collective fitness of the management and supervisory bodies

Versatility

2.1. The management and supervisory bodies ofBANCO POPULAR should be composed of members that collectively ensure the sound and prudent management of the Bank.
2.2. The collective composition of the management and supervisory bodies should ensure that decisions taken by these bodies are not dominated by any single individual or small group of individuals to the detriment of the Bank's interests as a whole.
2.3. In particular, the management and supervisory bodies should collectively be composed of members that can ensure:
2.3.1. The definition, approval, implementation and supervision of the strategic objectives of the Bank;
2.3.2. The understanding, definition, implementation, management and supervision of a solid risk culture and strategy for the Bank;
2.3.3. The definition, approval, implementation and supervision of the internal corporate governance structure of the Bank;
2.3.4. The understanding and decision-making process behind the overall business and the operations through which the Bank develops its activity in all its complexity, as well as their corresponding supervision;
2.3.5. The understanding, implementation and supervision of adequate control processes regarding own funds rules, liquidity management and contingency plans of the Bank;
2.3.6. The knowledge, critical analysis, monitoring and adaptation of the structure of the group in which the Bank is included, in order to ensure integrated risk management and supervision, as well as a precise and timely information flow.
2.4. For the purposes of what we have just described, the management and supervisory bodies shall be composed of members that collectively gather knowledge, competences and experience in the following areas of the banking and financial activities, among others
2.4.1. Definition and implementation of business plans, and medium and long-term strategic plans;
2.4.2. Banking and financial operations;
2.4.3. Financial analysis;
2.4.4. Accounting policies;
2.4.5. Financial auditing and operational control;
2.4.6. Own funds requirements and liquidity management;
2.4.7. Risk analysis and management;
2.4.8. Remuneration policies;
2.4.9. Internal and external disclosures;
2.4.10. Legal and regulatory framework;
2.4.11. Governance system.

Availability

2.5. The management and supervisory boards of BANCO POPULARshould be composed of a sufficient number of members with sufficient availability to commit the necessary dedication to perform their management and supervisory functions, taking into consideration the Bank's risk profile, its size and the complexity of its activity.

Diversity

2.6. The selection and assessment of the members of the management and supervisory boards and key function holders highly encourages the diversity of qualifications and necessary skill for the performance of the executive tasks at BANCO POPULAR.
2.7. Although BANCO POPULAR views the diversity of professional qualifications in a good light, as well as geographic and generational diversity, it grants priority to gender diversity in so far as it is a sub-represented group among the Bank's executives pursuant to the Diversity Policy detailed in paragraph 8 below.
2.8. Gender diversity in managing functions is viewed as an instrument that allows BANCO POPULAR to take advantage of its human resources more effectively, as a way to increase the independence of its executives and as a direct contribution to foster gender equality and to be socially aware.

3. Collective fitness of the members of the management and supervisory bodies

3.1. Without prejudice to the final competence of the General Meeting of BANCO POPULAR regarding the appointment of the members of the management and supervisory bodies, the CNBPE is in charge of the initial assessment of new members, as well as their successive individual and collective assessment pursuant to article 30-A/1 of the RGICSF.

Propriety

3.2. A member of the management or supervisory board is considered of good repute when there are no elements regarding their personal or professional conduct that can raise reasonable doubt as to their capacity to ensure the sound and prudent management of the Bank.
3.3. When assessing propriety, the Bank should take into account the way the candidates usually run their professional or personal businesses, how they perform their professional duties, particularly regarding aspects that can reveal their capacity to make sound and judicious decisions, or their tendency to promptly fulfil their obligations or to show a conduct that is compatible with the preservation of market trust, taking into consideration all the circumstances that allow the assessment of the professional behaviour for the functions at issue.
3.4. At the initial and successive propriety assessments of a candidate or member of the management or supervisory board all the relevant and available data shall be taken into consideration, regardless of the legal framework of such data in light of each of the jurisdictions involved and regardless of the place where the actions were performed or their effects occurred.
3.5. When assessing the propriety to which the previous numbers refer, the following elements, among others, are taken into consideration:
3.5.1. Relevant criminal and administrative records and any misdemeanour:
3.5.2. Specific mitigating or aggravating circumstances or others that in any other way may affect the judgement of the fact or event attributed to the candidate;
3.5.3. Any type of incident, albeit minor, but whose context or repetition may cause reasonable doubt regarding the fitness of the candidate.
3.6. During the propriety assessment the previous numbers refer, the following items are also taken into consideration:
3.6.1. The circumstances mentioned in Nos 3, 5 and 6 of article 30-D/3 of the RGICSF, according to the text in force at the time of the assessment, as well as any other similar standards that shall replace, amend or complement said legal standards;
3.6.2. The elements mentioned in paragraphs 13.5 to 13.7 of EBA's Guidelines of 22 November 2012 on the assessment and suitability of the members of the management and supervisory boards and key function holders ('EBA's Guidelines'), pursuant to the text in force at the time of the assessment, as well as any similar recommendations that shall replace, amend or complement EBA's Guidelines.

Experience

3.7. The members of the management and supervisory boards of BANCO POPULAR should possess the necessary experience to perform their duties, taking into account the responsibility that underlies their competences, the complexity of the Bank's activity, its respective size, and the need to ensure the sound and prudent management of the institution in the context of safeguarding the financial system and the interests of their respective customers, depositors, investors and other customers.
3.8. The members of the management or supervisory board are considered to have the necessary experience when their previously held positions - particularly as regards length of service, the responsibilities formal and materially undertook and their level of performance - make them suitable to understand the operation and activity of the Bank, the challenges that BANCO POPULAR faces, the complexity of the operations that BANCO POPULAR is part of, the risks the Bank is exposed to, while being able to critically analyse the decisions taken.
3.9. When assessing the experience of a candidate or a member of the management or supervisory board, the elements mentioned in paragraph 14 of EBA's Guidelines shall be taken into account.

Availability

3.10. The members of the management and supervisory boards must commit to the performance of their duties the adequate availability to the full exercise of their powers, the size of the Bank and its respective activity.
3.11. In cases when the members of the management or supervisory boards accumulate or wish to accumulate the position at the Bank with other management or supervisory positions in other entities, they must present annually an estimation of the number of hours per week that they intend to commit to their functions with the Bank, as well as to the other functions they perform, and also to justify the reasons they believe they will still have the adequate availability pursuant to paragraph 3.10.
3.12. The duties stated in paragraph 3.11 shall prevail even in the cases foreseen in No. 4 and No. 6 of article 33/4 of the RGICSF.

Independence

3.13 The members of the management and supervisory boards shall avoid the risk of undue influence from other persons or entities and shall therefore have the rightful conditions that will allow them to perform their duties impartially.

3.14 During the assessment, all the situations that might affect the independence are taken into consideration, namely the following:

a) Past and present positions held in the Bank or in another credit institution;

b) Family relationships or similar, as well as professional or economic relationships with other members of the management or supervisory boards of the Bank, its parent company or its subsidiaries;

b) Family relationships or similar, as well as professional or economic relationships with a person that has a qualified holding in the Bank, its parent company or its subsidiaries;

4. Selection and assessment process

Initial assessment of individual suitability and selection

4.1. The initial assessment of the individual suitability of the members of the management and supervisory boards should precede their selection or presentation to the General Meeting for approval or their appointment by that body.
4.2. The management board makes pro-active efforts to identify new members for the management and supervisory boards, as well as to timely prepare their respective succession process without prejudice to the competence of the partners and the General Meeting on this matter.
4.3. The inclusion of candidates on lists that shall be submitted to vote at the General Meeting, as well as the presentation of candidates to be appointed by the management board must be preceded by an initial assessment process which ends with the preparation and disclosure of an Initial Assessment Report.
4.4. BANCO POPULAR shall make every effort to amend its statutes, regulations and other documents that regulate the day-to-day management of the Bank, as well as the adopted practices, so that the inclusion of candidates on lists that shall be submitted to vote at the General Meeting by the shareholders, or the presentation of candidates to be appointed by the management board is compulsorily preceded by the Selection and Assessment Process to which the present paragraph refers.
4.5. The initial assessment of the suitability of the members of the management and supervisory boards and the preparation and disclosure of their respective Initial Assessment Report shall be carried out by the CNBPE.
4.6. When a possible candidate to be a member of the management or supervisory board has been identified, the CNBPE promotes the collection of information that will be relevant for the initial assessment of their suitability, which will at least include the elements mentioned in the Questionnaire that is included as Annex 1. The Questionnaire might be filled in by the candidates themselves, by the CNBPE based on the information collected, or by an external entity hired by the CNBPE for that purpose.
4.7. The CNBPE as well as the management board -, may hire external entities that can help them define the candidate's profile, select the best method for their respective identification, and perform the initial assessment and selection. The management

board shall provide the CNBPE with the technical and financial human resources necessary for the Bank's selection and assessment process to be carried out pursuant to the highest standards of quality, thoroughness, transparency, and compliance with national and international standards.

4.8. The Initial Assessment Report on the suitability of the candidate, prepared and presented by the CNBPE pursuant to the previous numbers must contain at least the separate and justified analysis of the following elements:
4.8.1. Experience
4.8.2. Knowledge and skills
4.8.3. Propriety
4.8.4. Availability
4.8.5. Adequacy of the candidates taking into consideration the elements described in paragraphs 4.8.1 to 4.8.4. – for the functions they will perform in the management or supervisory board.
4.8.6. Three preferential areas for the acquisition, maintenance and further development of knowledge and skills, taking into consideration the individual needs of the candidate concerned, the Bank's needs and the innovation trends in the banking and financial sector.
4.9. The information that is considered relevant for the initial assessment of the candidate's suitability shall necessarily be accompanied by supporting documents.
4.10. Upon completion of the Initial Assessment Report, the CNBPE shall inform the shareholder or shareholders that have identified and suggested the candidate, as well as the management board.
4.11. In case the Initial Assessment Report concludes that the candidate is not suitable, their respective proponents may choose to withdraw the application or submit it to the appreciation of the Bank of Portugal pursuant to article 30-B/3 of the RGICSF. In this case, the candidates may only be suggested by the shareholders or by the management board after the assessment of their respective fitness made by the Bank of Portugal and its authorization for the exercise of their functions pursuant to articles 30-B/4 and 30-A/6 of the RGICSF.
4.12. In case the candidate is included on a list submitted to the General Meeting for approval, the CNBPE shall present the Initial Assessment Report to the Chairman of the Board of the General Meeting of the Bank, who shall deliver it to the shareholders in the scope of the preparatory information for the Meeting, as well as inform the shareholders of the adequacy requirements of the people to be appointed, which are included in the present Selection and Assessment Policy.

Successive assessment of individual and collective suitability

4.13. The successive assessment of the individual suitability of the members of the management and supervisory boards shall be performed by the CNBPE.
4.13.1. Annually; and
4.13.2. Whenever new facts or events determine the need for a suitability reassessment. This need may arise from facts that the CNBPE or the management board are made aware of.
4.14. The members of the management and supervisory boards have the duty to inform the Bank immediately (through the Chairman of the CNBPE) of any subsequent fact that comes to their knowledge after the date of appointment and that can change the content of the statements that underlay the Questionnaire referred to in paragraph 4.6 or that changes or might change - according to a reasonable evaluation - the assessment of the member's individual fitness, propriety, experience, competence and knowledge, availability or adequacy to the functions.
4.15. The successive collective assessment of the management and supervisory boards shall also be conducted every year by the CNBPE.
4.16. As a result of the assessment referred to in paragraphs 4.13 and 4.15, the CNBPE shall prepare an Annual Report of Successive Assessment on the individual and collective suitability of the management and supervisory boards, which shall have at least a justified analysis of the following items.

Individual successive assessment

4.16.1. Summarized description of the elements contained in the Individual Assessment Report referred to in paragraph 4.8.
4.16.2. Description of the changes that have occurred regarding the elements contained in the Individual Assessment Report referred to in paragraph 4.8.
4.16.3. Adequacy of the time committed by each individual to the performance of their functions;
4.16.4. Compliance with the annual objectives in terms of acquisition, maintenance and further development of knowledge and skills;
4.16.5. Objectives in terms of acquisition, maintenance and further development of knowledge and skills for the following year pursuant to paragraph 7.6.

Collective successive assessment

4.16.6. Structure, size, composition and performance of the management and supervisory boards;
4.16.7. Adequacy of the time committed in aggregate to the performance of their functions;
4.16.8. Compliance with the diversity objectives detailed in paragraph 8;
4.16.9. Adequacy of aggregate skills, knowledge and experience taking into consideration the Bank's activity.
4.16.10. Compliance with the annual objectives in terms of acquisition, maintenance and further development of knowledge and skills;
4.16.11. The three preferential areas for the acquisition, maintenance and further development of knowledge and skills for the following year;
4.16.12. Recommendations for any possible changes.

5. Individual suitability of key function holders

5.1. The requirements of propriety, experience and availability stated in paragraph 3 shall apply to key function holders with the necessary adaptations.

6. Selection and assessment process for key function holders

Initial assessment of individual suitability and selection

6.1. The initial assessment of the individual suitability of key function holders must precede their recruitment.
6.2. The management board makes every effort to identify possible candidates to key function holders, as well as to timely prepare their respective succession process.
6.3. When a possible candidate to be a key function holder has been identified, the CNBPE promotes the collection of information that will be relevant for the initial assessment of their suitability, which will at least include the elements mentioned in the Questionnaire that is included as Annex 2. The Questionnaire might be filled in by the candidates themselves, by the CNBPE based on the information collected, or by an external entity hired by the CNBPE for that purpose.
6.4. The information that is considered relevant for the initial assessment of the candidate's suitability shall necessarily be accompanied by supporting documents.
6.5. The provisions set forth in paragraph 4.7 shall apply, with the necessary adaptation, to the Initial Assessment Report on the suitability of key function holders that shall be prepared by the CNBPE and presented to the management board.
6.6. In case the management board intents to hire a key function holder that has not been assessed by the CNBPE, the decision to hire him/her as well as the justification for doing so must by included in the minutes of the meeting.
6.7. The justification to which paragraph 6.6 refers must analyse separately at least the reasons considered relevant by the CNBPE in its Assessment Report to conclude on the lack of suitability.

Successive assessment of key function holders

6.8. The successive assessment of key function holders shall be performed by the CNBPE and carried out pursuant to the terms foreseen for the successive assessment of individual suitability of the members of the management and supervisory boards with the necessary adaptation.

7. Continuous Training Programme for members of management and supervisory boards and key function holders

7.1. The Bank allocates the resources and time needed to ensure the acquisition, maintenance and further development of knowledge and skills needed for the full performance of the duties attributed to the management and supervisory boards, as well as to key function holders.

Continuous training of the management and supervisory boards

7.2. In the Report to which paragraph 4.13 refers at least three preferential areas shall be identified regarding the acquisition, maintenance and further development of knowledge and skills of the management and supervisory boards, as a whole, taking into account the Bank's needs and the innovation trends in the banking and financial sector.
7.3. These preferential areas shall be reviewed every year.
7.4. The compliance with these objectives shall be monitored in the Successive Assessment Annual Report for the following year.

Continuous training of the members of the management and supervisory bodies

7.5. During the initial assessment and selection processes of the members of the management and supervisory boards and key function holders described in paragraphs 4 and 6, the Bank shall identify for each member of the management and supervisory boards and key function holder three preferential areas for the acquisition, maintenance and further development of knowledge and skills, taking into account the individual needs of the executive, the needs of the Bank, and the innovation trends in the banking and financial sector.
7.6. During the successive assessment processes of the members of the management and supervisory boards and key function holders described in paragraphs 4 and 6:
7.6.1. Courses, seminars and training programmes, and other means for the acquisition, maintenance and further development of knowledge and skills attended in the past year by the member of the management or supervisory board/ key function holder shall be identified;
- 7.6.1.1. Particularly relevant for this purpose shall be the inclusion of the said identified means in the preferential areas established in the initial assessment process and in its successive revisions;
7.6.2. The means for the acquisition, maintenance and further development of knowledge and skills to be attended by the member of the management or supervisory board/ key function holder in the following year shall be identified (albeit subject to change);
7.6.3. The preferential areas defined in the initial assessment and selection process shall be reviewed taking into consideration the knowledge and skills acquired in the meantime, as well as the Bank's needs and the innovation trends in the banking and financial sector.
7.7. The Bank may count on one or more external entities that help to identify, select and evaluate the means for the acquisition, maintenance and further development of knowledge and skills for their directors, members of the Supervisory Board and key function holders.

8. Diversity policy

Diversity in executive functions

8.1. Banco POPULAR undertakes to have by 1 May 2017 at least 25% women :
8.1.1. In the Board of Directors;
8.1.2. In the Supervisory Board;
8.1.3. In the total number of key function holders.
8.2. In 2022, the CNBPE shall reassess the regime established in the previous number and submit to the General Meeting a proposal for its maintenance, amendment or deletion.

Selection report and short lists

8.3. In its Initial Assessment Report on executives, the CNBPE identifies and recommends candidates for executive positions and assesses the composition of those positions namely in terms of diversity.
8.4. The final short lists of candidates for appointment in executive functions shall always include candidates from both genders.

Meritocracy and non-discrimination

8.5. The remuneration policy of the employees of BANCO POPULAR is based on a principle of recognition of the individual worthiness and the responsibility associated with each function, and strictly forbids namely any remuneration and career advancement gender-based discrimination.

Active parenting

8.6. Besides complying with labour laws in terms of the protection of parental rights BANCO POPULAR promotes a policy of organization of working hours that fosters a balanced conciliation of the private and professional lives and the full exercise of parental rights.

Monitoring programmes for executives

8.7. In order to monitor the implementation of the present Policy as regards gender diversity, and coordinated by a director appointed by the CNBPE, BANCO POPULAR shall develop a monitoring programme for female executives and employees with high potential in the Bank.

9. Prevention, communication and remedy of conflicts of interest

9.1. The prevention, communication and remedy of conflicts of interest policy is part of a separate document, also approved of by the General Meeting of BANCO POPULAR and published ontheBank's website.

10. Revision of the Selection and assessment policy

10.1. The CNBPE shall revise the present Selection and Assessment Policy every two years, submitting recommendations to the managing body for its respective improvement.

10.2. Upon receiving the Report prepared and presented by the CNBPE, which contains the revision of the present Selection and Assessment Policy referred to in the previous number, the managing body shall approve of the recommendations made by the CNBPE or shall present groundings for its refusal, identifying alternative solutions whenever weaknesses have been detected or if the revised policy is not compliant with the applicable legislation, or any recommendations issued by EBA, the Bank of Portugal or CMVM.
10.3. The managing body shall annually submit to the General Meeting of the Bank for its final approval the justified recommendations aimed at improving the present Selection and Assessment Policy.

11. Approval, entry into force, and amendments

11.1. The present Policy was approved of by the General Meeting and shall enter into force on 1 April 2015, and it can be amended by decision of said management body.

12. Disclosure

12.1. The present Policy is disclosed onBanco Popular's WEBSITE.

Statutory Audit and Auditor's Report

PWC – PricewaterhouseCoopers & Associados – Sociedade de Revisores Oficiais de Contas, Lda.

Statutory Audit and Auditor's Report

Introduction

In accordance with the applicable legislation, we present our Statutory Audit and Auditor's Report on the financial information included in the Management Report and in the accompanying financial statements of Banco Popular Portugal, S. A. (hereafter also 'Bank'), which comprise the Balance Sheet as at 31 December 2014 (showing total assets of 8,405,848 thousand euros and total equity of 703,205 thousand euros, including net income of 2,283 thousand euros), the Statements of income, of comprehensive income, of changes in equity, and of cash flows for the year then ended, and the corresponding Notes. These financial statements were prepared in accordance with the Adjusted Accounting Standards introduced by Notice No. 1/2005 issued by the Bank of Portugal, which are based on the International Financial Reporting Standards (IFRS) as adopted by the European Union, with the exceptions referred to in Notices Nos. 1/2005, 4/2005 and 7/2008 issued by the Bank of Portugal.

Responsibilities

The Board of Directors is responsible for (i) preparing the Management Report and the financial statements that present fairly and adequately the financial position of the Bank, the results of its operations, its comprehensive income, its changes in equity and its cash flows; (ii) maintaining historical financial information, prepared in accordance with the Adjusted Accounting Standards issued by the Bank of Portugal, which is complete, true, current, clear, objective and lawful as required by the Portuguese Securities Code ('Código dos Valores Mobiliários'); (iii) adopting adequate accounting policies and criteria; (iv) maintaining an appropriate internal control system; and (v) disclosing any relevant fact that may have influenced the activity of the Bank, its financial position or results.
Our responsibility is to verify the financial information included in the above-referred documents, namely as to whether it is complete, true, current, clear, objective and lawful as required by the Portuguese Securities Code, in order to issue a professional and independent report based on our audit.

Scope

We conducted our audit in accordance with the Technical Standards and Audit Guidelines issued by the Portuguese Institute of Statutory Auditors ('Ordem dos Revisores Oficiais de Contas'), which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. Accordingly our audit included: (i) verifying, on a test basis, the information underlying the figures and its disclosures contained in the financial statements, and assessing the estimates, based on the judgements and criteria defined by the Board of Directors, used in the preparation of the referred financial statements; (ii) evaluating the appropriateness of the accounting policies used and of their disclosure, taking into account the applicable circumstances; (iii) assessing the applicability of the going concern basis of accounting; (iv) assessing the appropriateness of the overall presentation of the financial statements; and (v) assessing whether the financial information is complete, true, current, clear, objective and lawful.
Our audit also included the verification that the financial information included in the Management Report is consistent with the financial statements, as well as the verification of the disclosures required by Nos. 4 and 5 of Article 451 of the Portuguese Companies Act ('Código das Sociedades Comerciais').
We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, the financial statements referred to above present fairly in all material respects the financial position of Banco Popular Portugal, S.A. as at 31 December 2014, the results of its operations, comprehensive income, changes in equity, and cash flows for the year then ended in accordance with the Adjusted Accounting Standards issued by the Bank of Portugal, and the information contained therein is complete, true, current, clear, objective and lawful.

Report on other legal requirements

It is also our opinion that the financial information included in the Management Report is consistent with the financial statements and that the Corporate Governance Report includes the information required by Article 245-A of the Portuguese Securities Market Code.

Lisbon, 31 March 2015

PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. represented by Aurélio Adriano Rangel Amado, Statutory Auditor

Report and Opinion of the Supervisory Board

To the Shareholders of Banco Popular Portugal, S.A.,

In accordance with the law and our mandate, we present our report on our supervisory activity and our opinion on the Management Report and the financial statements presented by the Board of Directors of Banco Popular Portugal, S.A. for the year ended 31 December 2014.
In the course of our activities, we monitored, with the frequency and to the extent that we deemed appropriate, the Bank's activity. We have verified the timeliness and adequacy of the accounting records and supporting documentation, as well as the adequacy and efficiency of the systems of internal control, risk management, and internal audit. We have also monitored compliance with the law and the articles of association.
We have also monitored the work conducted by PricewaterhouseCoopers & Associados – Sociedade de Revisores Oficiais de Contas, Lda. and we assessed the attached Statutory Audit and the Auditor's Report issued by that company with which we are in agreement.
As part of our duties, we have verified that:
i) the Balance Sheet and the Statements of income, of comprehensive income, of changes in equity, of cash flows, and the corresponding Notes, allow for an adequate understanding of the financial position of the Bank, the results and comprehensive income of its operations, of changes in equity, and of cash flows;
ii) the accounting policies and the valuation criteria adopted are adequate;
iii) the Management report is sufficiently illustrative of the evolution of the Bank's operation and its situation highlighting the most significant aspects;
iv) the Corporate governance report includes the information required by Article 245-A of the Portuguese Securities Market Code;
v) the proposal for the appropriation of net income is in accordance with the applicable legal and statutory provisions.
All considered, and taking into consideration the information provided by the Board of Directors and the Services of the Bank, as well as the conclusions stated in the Statutory Audit and Auditor's Report, we are of the opinion that:
i) the Management report is approved;
ii) the Corporate governance report is approved;
iii) the financial statements are approved;

iv) the proposal for the appropriation of net income is approved.

In conclusion, we would like to express our gratitude to the Board of Directors and all the employees of the Bank with whom who had contact, for their precious collaboration.

Lisbon, 31 March 2015

The Chairman of the Supervisory Board Rui Manuel Ferreira de Oliveira

Member António José Marques Centúrio Monzelo

Member Telmo Francisco Salvador Vieira

Statement of the Supervisory Board

BANCO POPULAR PORTUGAL, S.A.

Head Office: R. Ramalho Ortigão, No. 51, 1099-090 Lisbon Share capital: Eur 476,000,000.00 Registered at the Lisbon Commercial Registry under the Taxpayer No. 502.607.084

STATEMENT OF THE SUPERVISORY BOARD

The members of the Supervisory Board of Banco Popular Portugal, S.A., identified below by name, have individually signed the following statement:

'Pursuant to paragraph (c) of article 245(1) of the Portuguese Securities Code, I declare that, to the best of my knowledge, the management report, the annual accounts, the statutory audit and auditor's report and other accounting documents disclosed by Banco Popular Portugal, S. A., all referred to 2014, were drawn up in accordance with the applicable accounting standards, providing a true and fair view of the assets and liabilities, the financial position and the results of that entity and that the management report faithfully states the trend of the business, the performance and position of that entity, and contains a description of the principal risks and uncertainties faced.'

Lisbon, 31 March 2015

Supervisory Board

Rui Manuel Ferreira de Oliveira	(Chairman)
Telmo Francisco Salvador Vieira	(Member)
António José Marques Centúrio Monzelo	(Member)

AI Terminal

Banco Comercial Portugues

1913_10-k_2015-04-30_f70c43c9-f3c1-4d3d-b240-262eb534f7c4.pdf

Banco Popular Portugal, SA

Annual Report and Accounts

General Information

Board and Management

Board of the General Meeting

Executive Board of Directors

Supervisory Board

Statutory Auditor

Banco Popular Portugal Financial Highlights

Management Report

Macroeconomic scenario

Commercial strategy

Income and profitability

Net interest income

Table 3 . Evolution of equity and average annual rates. Margins

Banking income

Operating income

Net income and profitability

Investments and assets

Total assets

Customer funds

Lending operations

Proposal for the appropriation of net income

Outlook for 2015

Risk management

Structure and communication lines

Credit and Concentration risk

Portfolio broken down by type of counterparty

Evolution of non-performing loans

Main areas of activity in 2014

Concentration Risk

Herfindahl Index

Securities portfolio

Market risk

Foreign Exchange Rate Risk

Operational Risk

2. Assessment

3. Monitoring

Quantitative situation

Structural interest rate risk

Liquidity risk

Reputational risk

Property Risk

Quality and Innovation

Social and Corporate Responsibility

Energetic Efficiency: Cost Reduction and Environmental Sustainability

Final note

Annex 2 - Qualifying holdings

Annual Accounts

Balance Sheet

Income Statement

Individual Income Statement as at 31 December 2014 and 2013

Statement of Comprehensive Income

Statement of Comprehensive Income

Individual Statement of Changes in Equity

Individual Statement of Changes in Equity

Cash flow Statement

Cash Flow Statements for the periods ended 31 December 2014 and 2013

Notes to the Financial Statements

1. INTRODUCTION

1.1 Activity

The Bank is not a listed company.

2. Summary of the Main Accounting Principles

2.1 Bases of preparation

Individual financial statements

IFRS Disclosures - New standards as at 31 December 2014

a) Impact of the adoption of standards and interpretations that became effective on 1 January 2014

Standards

Interpretations

2.2 Segmental reporting

2.3 Equity stakes in associated companies

2.4 Foreign currency transactions

a) Functional currency and presentation currency

b) Transactions and Balances

2.5 Derivative financial instruments

2.6 Recognition of interest and similar income and interest and similar charges

2.7 Fees and commissions