A&M The Pulse of Portuguese Banking

The Pulse of Portuguese Banking ("O Pulso") will be a semiannual report that examines the seven largest Portuguese banks ("top seven") in terms of their activities within Portugal along with highlighting the main performance indicators of the Portuguese banking sector. O Pulso's goal is to help the banking sector and board members stay abreast of industry trends.
All data used in this report have been obtained from public sources.

What we analyze: The in-country business of Portgual’s seven largest banks 

Caixa Geral, Millenium BCP, Santander Totta, Banco BPI, Novobanco, Credito Agricola and Banco Montepio.

Executive Summary

The study analyzes the evolution of the top seven Portuguese banks in terms of growth, liquidity, efficiency, risk, profitability and solvency throughout the first half of 2022. It highlights the key performance indicators of the industry and scories them according to the key performance indicators (KPI) relative to each area of analysis.  Additionally, the report provides and a side-by-side analysis of Portuguese Banks with Spanish Banks along with the impact of moratoriums and public guarantee schemes. 

The report reveals that, during the first half of the year, the banks’ return on equity (ROE) stood at 9.4 percent. In the second quarter banks’ ROE increased due to an improvement in cost to income ratio (CIR) and lower cost of risk (COR). Portuguese banks have doubled their profitability levels from 2021 and remain above the European average of 6.6 percent.  Resilience remains strong with the non-performing loan (NPL) (ratio decreasing to 3.78 percent, and solvency ratio CET increasing to 14.9 percent. Portuguese banks will have to measure their solvency and resilience levels comparative to European banks in the 2023 stress tests.

A&M's analysis shows that net interest income (NIM) increased compared to the previous quarter to 1.19 percent.  It is expected that from the second half of 2022 the revaluation of the euro interbank offered rate (EURIBOR) will have a positive impact. As of mid-year 2022, the EURIBOR exceeded its negative range standing well above 2 percent. Caixa Geral and Montepio show the largest increase in NIM, while Santander Totta and Novobanco have decreased their NIM.

The sector's operating income (OI) fell by 2.8 percent throughout the second quarter, due to a contraction in seasonal financial operations. In relative terms BPI, Caixa Geral, Credito Agricola and Novobanco managed to improve income on assets during the quarter.

Industry efficiency increased by 139 basis points compared to the first quarter, standing at 48.96 percent. Millenium BCP, Santander and BPI are the only banks that fell short of the long-term 45 percent optimal target established for the industry by A&M.

A&M observed a higher productivity per branch of all entities. Santander and Millenium BCP have the highest productivity in terms of business volume, credits plus deposits, per branch, derived from the increase in business volumes and the closure of branches over the last quarters. Digitalization of products, services and processes will favor further increases in branch productivity. Inflation and costs will increase pressure on efficiency gains during 2023.

During the second quarter of 2022, the NPL ratio has been reduced across all entities excluding Montepio and BPI. Novobanco and Credito Agricola which have NPL ratios over 5 percent. Coverage remains high at 81.8 percent levels. Compared to the European average of 1.9 percent, NPLs remain high but coverage levels are almost 2x the European average of 44.9 percent. COR across all entities stands at 0.11 percent, lower that previous quarter, due to the release of provisions in Caixa Geral during the Q2.

Caixa Geral, Santander, Novobanco and BPI have achieved double digit ROE in the first half of the year, with Novobanco showing the strongest ROE with 16.6 percent

Solvency Ratio levels of 14.9 percent are at European levels of 15.0 percent., However, different capital leverage strategies are visible with Santander, Caixa Geral and Credito Agricola with CET ratios above 18 percent and Millenium and Novobanco with below 12 percent levels. 

Alvarez & Marsal's ranking for the 2Q2022 is headed by Caixa Geral, Santander Totta and BPI.

Additional topics included in this edition of The Pulse of Banking

The first topic is a comparative analysis of moratoriums and government-guaranteed loans of five-euro zone countries Portugal, Germany, France, Italy, and Spain. This analysis revealed, relative to the moratoriums already expired, that Portugal has the second largest stage 2 + stage 3 level with 30 percent behind Italy’s 33 percent. Coverage of Stage 3 level aligns with Portgual’s European peers at 32 percent.

Regarding public guaranteed loans, Portugal shows the second largest stage 2 + stage 3 level with 28 percent only behind France at 42 percent. Coverage of stage 3 is the second lowest standing at 14.8 percent, only above France at 9.8 percent. The evolution of loans amidst the economic downturn will pose significant banking challenges in 2023.

The second topic focuses on A&M’s report, on the entities’ readiness to capture opportunities, entitled Green PACE (Products, Alignment, Clients and Execution). After climate stress tests are completed during the first half of the year, banks can begin to focus on the transformation and ESG transition business opportunities. The attributes measured in this analysis are "Green Products", "Alignment to Net Zero", "Customer Orientation and Information" and "Execution of Transition Plans". With this metric, banks can be evaluated regarding their level of preparation to capture this revenue opportunity, estimated at 295 trillion euros globally, over the next 10 years. 

The third topic provides a side by side comparison of Portuguese banking sector with Spanish banking sector for the first half of 2022. This comparison show is that Portuguese banks outperform their Spanish peers in 15 of the 19 profitability and resilience KPIs. Cost of funds, non-interest income, branch productivity, NPL Ratio are the only KPIs where Spanish banks outperform their Portuguese counterparts. A&M’s score of Portuguese banks is 1.7 vs 2.3 for Spanish banks. 

If you would like a copy of the report, you can request it here.

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CONTACTO: Mónica Pastor / Juan Jorganes

KREAB: 691435500 / 645803881

mpastor@kreab.com / jjorganes@kreab.com