For the first time since 1981, when the Portuguese Investment Company was founded, the initial message of this report is not signed by the founder of the project, Artur Santos Silva, currently serving as Banco BPI's Honorary Chairman. My initial words are for him. Of tribute for his vision, courage, leadership, capacity to execute and accomplish.
Of gratitude for his leadership, loyalty, rigour, transparency, and for the ability to mobilise shareholders, employees and customers at all times.
The year 2017 will be an exceptional period in BPI's journey. On 5 January, the sale of 2% of Banco de Fomento Angola (BFA) to Unitel was completed, with BPI now holding a 48.1% interest, and a new shareholders' agreement was signed that eliminated any participation of the Bank in the executive management of BFA. Accordingly, BPI complied with the ECB's determinations on exceeding the limit for limit for large exposures (Angolan public debt held by BFA, which until then BPI had consolidated in its accounts).
The takeover bid launched by CaixaBank was completed on 8 February 2017, enabling it to increase its stake in BPI's capital from 45% to 84.51%. Since then, BPI has been part of the CaixaBank Group, one of the main European financial institutions and a market leader in Spain in the most relevant commercial banking and insurance businesses: 30% of Spaniards have an account with CaixaBank and 27% consider it their main bank.
CaixaBank has been committed to BPI for more than 22 years, has supported the its endeavours and management at all times, some of which have not been easy, having gradually increased its shareholding from the initial 10% to the 44.5% it had when it launched the takeover bid. This is a natural evolution that will enable BPI to continue on its path, benefiting from all the strength and capabilities of the CaixaBank Group, an institution that has always guided its conduct by the same ethical and social responsibility values that have guided BPI's path since 1981.
On 26 April, the General Meeting of Shareholders elected a new Board of Directors for the three-year period 2017-2019, which would take office at the end of July after obtaining the authorisations of the Bank of Portugal and the European Central Bank.
Between February and July, the Bank experienced a period of transition with regard to changes in the Board of Directors and executive management. I have no doubt that this transition has been carried out in an exemplary manner, thanks to the farsightedness and commitment demonstrated by all those who have experienced it, whether they come from CaixaBank or BPI. The best proof of this is the excellent commercial results that the bank has achieved on all fronts despite the demands that such a process entails.
An important milestone in BPI's activity in 2017 was the programme to reduce employee headcount through early retirements and buyout agreements. As a result of this programme, 432 people left the Bank in 2017, plus 114 people whose departure was agreed in 2016 or 2017 before the programme. There will be an additional 83 departures in 2018, totalling 515 employees who have departed under such programme.
In total, since 2008 BPI has reduced the number of Employees in domestic activity from 7,767 to 4,930, a decrease of 37% (2,837 fewer people). This path, driven by new technologies and the evolution of customer behaviour, has been fundamental to ensure the Bank's profitability. As always, I would like to highlight the manner in which the process took place and the Bank's ability to provide excellent service despite the significant reduction in the number of employees.
The Bank's activity in 2017 continued to benefit from the recovery of the Portuguese economy that began in mid-2014. During the seven-year period between 2008 and 2014, Portuguese GDP fell 6.9% or about 1.0% per annum. In the three-year period between 2015 and 2017, GDP grew by 6.2% and was up 2.7% in 2017. The positive momentum of the Portuguese economy, in tandem with those of European Union countries, is expected to continue apace, which will be very positive for banking activity, whose profitability should continue to improve despite the low level of interest rates.
Finally, I would like to express my thanks for the efforts and dedication of all the great team that works at BPI and the trust that has been placed in us by customers and shareholders alike.
It is with great pleasure that I present Banco BPI’s management report for 2018, a year in which the Bank achieved its highest results ever.
During this year, which was one of great effort, challenge and strong pressure from our competitors, we had the satisfaction of maintaining the lead in values as important for the Group as service quality, reputation, and the confidence of our Clients in Portugal.
The excellent commercial results achieved in 2018, as reflected in an increase in recurring gross income in Portugal of 9%, were supported by strong commercial activity in Portugal and increasingly closer proximity to the Clients: Customer deposits, the Bank’s most stable source of funding, increased by circa €1 800 million (+9.3%); and the total loan portfolio expanded by 5.7%, underpinned by a 16.1% increase in loans to companies in Portugal (+1 136 million). In turn, the Bank increased new production of residential mortgage loans, and personal loans and car financing by 21% and 27%, respectively, surpassing the previous year’s growth.
In the Portuguese market Banco BPI attained market shares of 9.9% in deposits, 15.2% in capitalisation insurance, and 10.1% in credit, consistently gaining market share in loans to companies (+1.1 p.p. to 9.5%) and raising the market share in residential mortgage loans to 11.4% (+0.2 p.p.).
Driven by its commercial dynamics, the Bank pursued its digital transformation path, being leader in homebanking penetration and continuing to equip its commercial teams and networks with all the means required to provide an increasingly high-quality and closer service to the Clients.
In our activity in Portugal, BPI reported a recurring net profit, i.e., excluding the extraordinary gains on the sale of equity holdings, of €218 million (+28.5%). These results correspond to a return on tangible equity (ROTE) of 8.8%.
Following a year when costs were cut by 5.3%, the growth of results in 2018 was mostly determined by the growth of income: recurring gross income increased by 9%, supported by the decisive contribution of net interest income, up by 8.8%, and fee and commission income, which increased by 5.6%. Notwithstanding the activity growth, recurring costs contracted by 0.1%, while the Bank continued to stand out for the excellent quality of its loan portfolio.
2018 was also marked by important developments for BPI Group, which will have implications in the future and in the manner in which it will face new challenges in the coming years.
The holding in BFA, probably the best bank in Angola, deserves a special note. On the one hand, amidst a particularly challenging economic environment, marked by a sharp devaluation of the local currency (-47.5% against the euro) and high average inflation (19.6%), BFA, thanks to the quality of its management team, obtained the highest profit in its history, of which €212 million would be attributed to BPI. On the other hand, BPI changed the accounting classification of this holding from "associated company" to "shares at fair value through other comprehensive income", leading to a negative impact of €139 million on BFA’s contribution to the Group’s results. BPI believes that this is the more prudent accounting option and that it adequately reflects its current position in BFA (with no significant influence). After this change, the net profit of Banco BPI will reflect only BFA’s dividends distributed to BPI instead of the appropriation of profits.
Concerning the Bank’s strength, its high capitalisation levels deserve a note: the CET 1 and total capital ratios (fully loaded), considering the dividend distribution proposal, both increased by 1.5 p.p, to 13.8% and 15.5%, respectively.
Also worth stressing was the fact that in 2018 the three main international rating agencies raised their rating notations on BPI’s long-term debt, which are currently ‘investment grade’ by Moody’s, S&P and Fitch Ratings.
As to the public recognition earned by the Bank, I would highlight some of the many accolades received in 2018: BPI was elected "Best Bank in Portugal" in Euromoney excellence awards, and also "Trusted Brand in Banking" and "Brand of Excellence in Portugal", both for the fifth consecutive year, amongst many others received for its positioning in the digital area.
The Portuguese economy has pursued its recovery, however the general backdrop remains challenging on account of the level of interest rates and the competitive pressures.
2018 also saw the completion of the 2019-2021 Strategic Plan: a Plan that combines ambition and values, built around the motto "Creating Value with Values", and benefiting from the integration in the CaixaBank Group. Some of the Bank’s main objectives are to achieve sustained profitability growth, the transformation of the Customer’s experience, human capital development, improved efficiency and consolidation of the Bank’s reputation. The challenge is to promote businesses with growth potential and profitability, leverage the Group’s innovation capacity to maintain the lead of the digital transformation
process in banking, provide a better experience to the Customer and pursue in the path of growth and conquest of market share gains.
BPI’s mission will be to contribute to the financial well-being of its Clients and assert its role as a benchmark in socially responsible banking, based on the values of trust, service quality and social commitment.
Finally, I would like to express my recognition and gratitude to all those who daily allow ambitions to turn into successes: firstly, our Customers, who inspire us to be the reference bank in Portugal by honouring us with their preference and confidence, and all our Employees, for the dedication and competence with which they perform their functions in such a demanding context.
| ||2014 ||2015 ||2016 ||2017 ||2018 |
| ||(163.6) ||236.4 ||313.2 ||10.2 ||490.6 |
|Adjusted operating expenses as % of commercial banking gross income ||73% ||64% ||68% ||65% ||60% |
|Return on total assets (ROA) ||(0.1%) ||0.9% ||1.2% ||0.0% ||1.6% |
|Return on tangible equity (ROTE) 2 ||(7.2%) ||10.6% ||13.5% ||0.4% ||16.3% |
|Net profit per share (euros) ||(0.12) ||0.16 ||0.22 ||0.01 ||0.34 |
|Weighted average number of shares (in million) ||1 422.3 ||1 450.4 ||1 451.0 ||1 456.2 ||1 456.8 |
|Total assets (net) ||42 629 ||40 673 ||38 285 ||29 640 ||31 568 |
|Loans to Customers (gross) ||26 261 ||25 225 ||23 401 ||22 223 ||23 487 |
|Deposits and retail bonds ||27 391 ||26 108 ||19 724 ||20 719 ||20 052 |
|Total Customer Resources ||39 430 ||39 643 ||32 940 ||32 624 ||33 195 |
|Loan to deposit ratio ||85% ||88% ||110% ||99% ||100% |
|NPE ratio 3 ||7.5% ||6.6% ||6.6% ||5.1% ||3.5% |
|NPE coverage by impairments 4 ||41% ||48% ||39% ||43% ||53% |
|Cost of credit risk 5 ||0.70% ||0.48% ||0.09% ||(0.02%) ||(0.20%) |
|Total past service liabilities ||1 278 ||1 280 ||1 463 ||1 601 ||1 639 |
|Coverage ratio of Employee pension liabilities 6 ||98% ||109% ||98% ||98% ||99% |
|Shareholders' equity attributable to BPI shareholders ||2 127 ||2 407 ||2 440 ||2 824 ||3 206 |
|Common Equity Tier I ratio, fully loaded ||8.6% ||9.8% ||11.1% ||12.3% ||13.8%8 |
|Total capital ratio, fully loaded ||8.7% 7 ||10.2% ||11.2% ||14.0% ||15.5%8 |
|Leverage ratio (CRD IV / CRR), fully loaded ||5.2% 7 ||6.4% ||7.4% ||6.8% ||7.3%8 |
|Distribution network (no. units) 9 ||835 ||788 ||736 ||507 ||495 |
|BPI Group Employees (no.) 10 ||8 506 ||8 529 ||8 157 ||4 931 ||4 888 |
Note: the comparability of the consolidated amounts with the historical series prior to 31 Dec. 2015 is biased due to the deconsolidation of BFA (until then fully consolidated).
From 31 December 2016 the consolidated amounts of most of the balance sheet and income statement items are equal or very similar to those
for the activity in Portugal, since:
- BFA was classified as a discontinued operation on 31 Dec. 2016; in 2017, following the reduction of the equity holding to 48.1%, BFA was equity accounted, and at the end of 2018 it was reclassified to financial investments at fair value through other comprehensive income.
- BCI Mozambique is equity accounted.
1 The average equity considered in the calculation of ROTE is deducted from the average balance of intangible assets and goodwill of equity holdings.
2 Proforma considering the sale of BPI Gestão de Ativos and BPI GIF.
3 Non performing exposures (NPE) in accordance with the EBA criteria.
4 Coverage by impairments for loans and guarantees accumulated on the balance sheet, without considering coverage by collaterals associated with these loans.
5 Impairment losses and provisions for loans and guarantees, net of loan recoveries previously written off from assets / Average value in the period of the performing loans portfolio.
6 The value of the pension funds considered includes contributions transferred to Employees’ pension funds at the beginning of the following year (€47.0 million in 2014, €1.3 million in 2015, €75.5 million in 2016, €9.0 million in 2017 and €5.5 million in 2018).
7 Proforma figures considering the adherence to the special regime applied to deferred tax assets (DTA) and the change in the risk weights applied to BFA’s exposure to the Angolan State and to BNA.
8 Capital ratios at 31 December 2018 considering the Board of Directors’ dividend distribution proposal (€140 million), which is an integral part of this Management Report. The reported capital ratios for 31 December 2018 – CET1 and Tier1 of 13.2%, total ratio of 14.9% and leverage ratio of 7.0% – consider the upper limit (payout of 50%) foreseen in Banco BPI’s dividend policy, as laid down in Article 2 (4, 5 and 6) of Delegated Regulation no. 241 / 2014.
9 Until Dec. 16, it included BFA’s distribution network.
10 Staff (excludes temporary work) of fully consolidated subsidiaries. Until Dec. 16, includes BFA staff.