banco bpi 2002 · 2005-01-17 · leading business indicators (consolidated figures in millions of...

Banco BPI 2002

Report

Index

REPORTLeading business indicators 4

Introduction 6

Governing bodies 11

Historical milestones 12

The identity of BPI 14

The BPI brand 15

Corporate governance at the BPI Group 16

Social investment 18

Financial and business structure 20

Distribution channels 21

Human resources 22

Technology 25

Operations 35

Highlights of 2002 38

Background to operations 40

Domestic Commercial Banking 48

International Commercial Banking 62

Insurance 65

Asset Management 66

Investment Banking 72

Private Equity 75

Financial review 77

Risk management 108

Rating 120

BPI shares 122

Shareholders 125

Shareholders value creation 126

Final acknowledgements 127

Proposed appropriation of net profit 128

CONSOLIDATED FINANCIAL STATEMENTS AND NOTESConsolidated financial statements 129

Notes to the consolidated financial statements 137

Legal certification of accounts and audit report 195

Auditor's report 197

Report and opinion of the Audit Board 198

ANNEXESThe BPI Group's Corporate Governance Report 201

Trading information 223

Appendices

Definitions, acronyms and abbreviations 226

Glossary 228

Formulary 230

Methodological notes 231

Index of figures, tables, charts and "boxes" 232

General index 234

Miscellaneous information 237

Leading business indicators

(Consolidated figures in millions of euro, except where indicated otherwise)

4 Banco BPI | Annual Report 2002

1) Administrative overheads (personnel costs and outside supplies and services) as % of operating income from banking.2) Administrative overheads and depreciation as % of operating income from banking, excluding profits from financial operations.3) Calculated in accordance with the Portuguese Central Bank's rules governing minimum own funds requirements (Notice 7 / 96).4) Pension liabilities recognised in the balance sheet.5) Adjusted for capital increase, re-denomination and re-nominalisation.6) Includes traditional branches (508 in 2001 and 483 in 2002), housing shops, in-store branches, investment centres and automatic shops.7) Distribution network specialising in serving medium-sized companies (44 Corporate Centres), large companies (7 Corporate Centres), 4 Wholesale Centres,

1 Project Finance Centre and Institutionals (5 Centres).8) Group staff complement in the domestic and international activities. Includes term Employees and temporary workers.

20022001 ∆% 01 / 02200019991998

Total assets 15 579.9 16 550.5 21 907.4 24 792.9 25 669.1 3.5%

Total assets plus disintermediation 19 885.2 20 758.0 26 335.8 29 127.7 29 605.6 1.6%

Shareholders’ equity 566.4 650.7 930.0 908.7 1 168.9 28.6%

Loans to Customers (gross) and guarantees 9 903.6 12 023.4 16 542.8 18 768.9 19 738.0 5.2%

Customer deposits 9 053.6 9 458.5 10 463.7 11 494.3 12 224.6 6.4%

Total Customer resources 13 909.8 14 806.0 16 507.8 17 402.9 17 647.5 1.4%

Assets under management 7 009 7 249 7 639 7 545 7 513 (0.4%)

Operating cash flow 227.2 207.2 278.6 327.0 310.4 (5.1%)

Net operating income 159.2 139.6 152.5 190.6 192.1 0.7%

Net profit 137.0 124.8 152.4 133.3 140.1 5.1%

Cash flow after taxation 205.0 192.3 278.5 269.6 258.4 (4.2%)

Return on average total assets (ROA) 0.8% 0.8% 0.8% 0.6% 0.6%

Return on Shareholders’ equity (ROE) 25.6% 22.4% 21.6% 14.7% 13.5%

Cost-to-income1 61.7% 65.0% 60.7% 58.1% 58.7%

Efficiency ratio2 74.5% 79.6% 71.9% 68.3% 67.1%

Ratio of own funds requirements3 11.1% 11.6% 9.8% 9.2% 10.2%

Tier I3 6.0% 6.8% 6.7% 5.9% 7.3%

Loans in arrears for more than 90 days as % of Customer loans 1.8% 1.4% 1.0% 0.9% 1.3%

Provisioning cover for arrear loans 141.0% 157.3% 194.2% 210.0% 153.0%

Cover of pension obligations4 101.7% 102.4% 101.6% 100.0% 100.1%

Data per share adjusted (euro)5

Cash flow after taxation 0.35 0.32 0.45 0.40 0.36 (10.7%)

Net profit 0.24 0.21 0.24 0.20 0.19 (2.0%)

Dividend 0.07 0.09 0.09 0.08 0.08 (2.4%)

Book value 0.97 1.05 1.37 1.34 1.54 14.9%

Weighted average no. of shares (in millions)5 584.0 603.8 626.3 679.0 728.3 7.3%

Closing price (euro)5 3.86 3.86 3.18 2.15 2.18 1.5%

Total Shareholder return 31.2% 2.5% (16.0%) (30.4%) 3.0%

Stock market capitalisation at year end 2 252.7 2 390.0 2 156.4 1 459.1 1 656.8 13.5%

Dividend yield 2.5% 2.4% 2.4% 2.7% 3.9%

Individuals and small businesses distribution network (retail branches)6 487 592 592 584 564 (3.4%)

Corporate and institutionals centres network7 53 54 63 63 61 (3.2%)

BPI Group staff complement (number)8 7 695 8 239 8 359 8 106 7 576 (6.5%)

Table 1

Net total assets1

Disintermediation2

Net total assets plusdisintermediation

1) Corrected for duplication ofbalances.

2) Off-balance sheet Customerresources.

32

24

16

8

00199

Bi.€

98 00 02

Loans and Customerresources

0199

Bi.€

98 00 02

Total Customer resources1

Loans to Customers

20

15

10

5

0

Net profit per share€

0.28

0.21

0.14

0.07

0.00

Net profitM.€

160

120

80

40

0

6

4

2

0

-2

Quality of loan portfolio%

Ratio of loans in arrears1

Loans in arrears1 net ofprovisions, as % of loans

to Customers

1) Loans in arrears for more than90 days.

2.0

1.5

1.0

0.5

0

Own funds and own fundsrequirements

Bi.€

Own fundsOwn funds requirements

BPI RatingsIssuer

Stock market capitalisationBi.€2.8

2.1

1.4

0.7

0

Fitch Ratings13 Jan. 03*

Moody’s7 Jan. 03*

Standard & Poor’s20 Dec. 02*

A+Stable

A2Stable

A-Stable Long-term rating notations

* last revision

1) Corrected for duplication ofbalances.

019998 00 02 019998 00 02

019998 00 02 019998 00 02

019998 00 02

Report | Leading business indicators 5

GROWTH, PROFITABILITY, STRENGTH AND VALUE

Figure 1

The BPI Group’s performance in 2002, marked by an important reorganisation of its system of

governance, confirms the satisfactory execution of the strategy mapped out for the three-year

period 2002-2004. This approach is based on a programme of selective and more efficient

growth, not only from the viewpoint of operating costs, but also in terms of capital allocation.

In 2002, BPI managed to surpass the targets set for cost containment, while simultaneously

achieving robust growth in its domestic activity. It continued to present risk and financial base

indicators within the best in the Portuguese banking system. Net profit posted a rise of 5%, in

spite of the pressure exerted on net interest income by the decline in interest rates.

The objectives for 2003 and 2004 have been revised in the light of the predictable impact of

the negative economic environment on the growth in demand and GDP. The new goals

envisage nil growth in both years in administrative overheads, defined as the sum of personnel

costs, other administrative costs and depreciation and amortisation. Considering that these

items had already registered a decline in 2002 of 2.8%, the revised objectives constitute an

even more demanding challenge. On the other side, the target set for gross operating income

from banking (excluding profits from financial operations) remains unaltered, that is, this item

is still projected to rise at a rate of 5% in 2003 and 2004, after having fallen slightly (1%) in

the year under review. As a consequence of this trend in costs and revenues, the new goal laid

down for the ratio administrative overheads / operating income from banking (excluding profits

from financial operations) is 61% in 2004, against 67% in 2002; in turn, the cost-to-income

ratio, which is calculated by expressing personnel costs and other administrative costs as a

percentage of operating income from banking, should decline from 58.7% in 2002 to 53% in

2004, thus confirming the Bank’s commitment to improve the efficiency and profitability of its

business operations.

Selective growth

Net profit from domestic operations (including the Madrid branch and banking services to

emigrant communities), climbed 17% in 2002 and accounted for 87% of the Group’s

consolidated profit. This in turn is explained by around 103% by commercial banking (with an

ROE of 15%) and helped to compensate for the negative contribution from participating

interests. Investment banking’s share was situated at 6%, corresponding to a return on capital

of 33%.

Net interest income in narrow sense generated by domestic activity rose by 3%, while

commissions from commercial banking grew by 7%, with very significant increases in net

income from insurance brokerage (+80%), transfers and payment orders (+11%), operations

relating to loans and guarantees (+9%) and cards (+7.5%).

Introduction

ON THE RIGHT COURSE


There was also a slight decrease (-4%) in asset management commissions,

a result that can be considered favourable in the light of the situation

pervading the markets and the lesser importance of investment banking

commissions (-27%). The latter were influenced significantly by the slump

in commissions from brokerage and capital market operations, which

dropped 48% as a consequence of the negative climate enveloping the

major stock markets.

The Group’s good operating performance, notably in commercial banking,

was mirrored in the trend in deposits, which expanded by 6.4% and so

outpacing the market average, and the 7.2% growth in global lending. This

index reflects highly contrasting patterns among broad Customer and

product segments: whilst the large companies’ loan portfolio registered a

year-on-year fall of 9% in line with the strategy subordinated to criteria

relating to returns on allocated capital, lending to individuals and small

businesses climbed 19%, with a strong impulse from home loans (which

expanded 26%, against an estimated market growth rate of 16%). This

translated itself into a new market share gain, replicating the trend since

1999. In just three years, BPI’s mortgage-loan portfolio market share has

increased by more than 50% to stand at 10% at the end of 2002. This

performance illustrates the competitive capacity that the Group has been

building in the principal specialised markets of commercial banking

following the 1998 merger, having captured positions well above its natural

market share in the financing of investment, housing loans, motor car

finance, credit cards and unit trust funds.

Another noteworthy development was the evolution of business activity

in the Angolan market, which constitutes the most important area of

the Group’s international involvement. Banco de Fomento de Angola

(100% owned by BPI) became a local-law bank in July 2002 and

carried out a major expansion programme during the year. It now boasts

the country’s second biggest banking network with 17 branches. This

expansion has enabled the bank to conquer second place in deposit-

-taking and third place in lending business. These activities are

complemented by an expressive participation in the Angolan economy’s

external transactions. BPI’s international presence (which includes

Banco de Fomento de Mozambique and a 17% stake in Rumania’s

Report | Introduction 7

Chairman of the Management Board

Artur Santos Silva

Banc Post) contributed 13% to consolidated earnings, absorbing approximately 6% of the

Group’s shareholders’ equity.

Efficiency and modernisation

The Group’s increasing competitiveness has been permanently accompanied by a qualitative

thrust centred on three focal points: absolute reduction in operating costs through the

elimination of unwarranted expenses, improved capacity to automate through technological

investment, and human resource upgrading induced by the rejuvenation of work teams and

vocational training.

The strict execution of the rationalisation programme in the operations’ arena announced for

the period 2002-2004, paved the way for a 3% reduction in the Group’s administrative

overheads (personnel costs, outside supplies and services, depreciation and amortisation), with

decreases of 1% in personnel costs, 6% in other administrative costs and 3.2% in

depreciation and amortisation. These savings led to an improvement from 68.3 to 67% in the

efficiency indicator, expressed by the quotient of administrative overheads over recurring

income (defined as operating income from banking excluding profits from financial

operations). A combination of factors contributed to this result, amongst which were the

intensified migration of transactions to virtual channels, the automation of operating

processes, the active management of the branch network (reflected in the net decrease of

25 points of sale), the integration of leasing and factoring into the commercial bank’s

structure, and an ambitious plan for early retirements. This plan, which involved 22% of the

Group’s senior management, made it possible to reduce the overall number of Employees by

around 9%. It should be emphasised that the impact on costs arising from this reduction in

staffing is progressive, that is, it was not fully reflected in the past year; furthermore, in spite

of being apparently inconsiderable as regards the number of early retirements, the saving in

total personnel costs more than cancels out the rise stemming from the collective employment

agreement that had a global effect of close to 4%.

In the sphere of modernisation of processes with repercussions on operations rationalisation,

automation and the ability to improve future income-generating capabilities, meriting special

reference are the structural refinements which started to be introduced into the Group’s

distribution systems and which are organised into two main camps:

– overhaul of the branch image and space, conceived to boost the sales and Customer

relationship capability at the expense of transaction flow, and increasingly directed at the

remote channels and automated zones available 24 hours a day, where it is possible to carry

out all the banking operations not requiring personal contact;


– service specialisation by segment and by product, flowing from the reinforcement of the

small business team, the opening of Investment Centres designed to cater for the

commercial bank’s high-income Customers, and the extension of the dedicated attendance

capability with the consolidation of the Housing Shops and the branch spaces reserved for

mortgage loans and the Internet.

By the end of 2003, at least eight Investment Centres and 18 Housing Shops should be

working, while 100 branches are expected to benefit from the new lay-out, with the

consequent extension of the methods and equipment that have made possible the intensive

migration of transactions and simple operations to automated banking under a specific project

with specific goals managed by its own section head.

A decisive factor for the success of this transformation process has been staff rejuvenation and

training, especially in the case of those working at the Individuals and Small Business Banking

networks. In 2002, this universe benefited from a behavioural training programme devoted to

boosting Customer-attendance quality and which involved more than three thousand

Employees. The average age at these networks (whose staff have mostly been trained at the

Bank) fell from 43 to 40 in the period 1999-2002.

Report | Introduction 9

Executive Members

of the Board

Manuel Ferreira da Silva

(Deputy-chairman) Fernando Ulrich

(Chairman) Artur Santos Silva

António Domingues

António Farinha Morais

Maria Celeste Hagatong

José Pena do Amaral

Strength and confidence

BPI’s rationalisation and renovation has been carried out without ever losing sight of the crucial

elements that ensure the Group’s sound financial base. In an economic environment – domestic

and external – that is indubitably depressive and with a tendency to deteriorate, the quality of

the loan portfolio depicts a slight deterioration, but nonetheless continues to present the

market’s best indicators: at 31 December 2002 the consolidated ratios of loans in arrears for

more than 90 days was situated at 1.3%, with a provisioning level of 153%. Overall, the

specific provisions for loans in arrears more than doubled in 2002. Roughly half of this increase

was earmarked to cover a specific default situation, excluding which the loans in arrears for

more than 90 days would have declined to 1.1%.

At the end of 2002, the capital adequacy ratio was situated at 11.4% using the BIS (Bank of

International Settlements) criterion, and 10.2% using Bank of Portugal rules, with Tier 1

calculated at 7.4 and 7.3%, respectively, thereby confirming the Bank’s healthy financial

situation. In similar vein was the return of 3.3% earned by the pension funds, which compares

very favourably with the market, preserving a unutilised margin of EUR 25 million in the 10%

"corridor" envisaged by the Bank of Portugal for accommodating the actuarial and income

variances without affecting net profit.

2002 will be primarily recalled in BPI’s history for the far-reaching corporate reorganisation

concluded at the end of the year, with important effects on the Group’s system of governance.

The principal and most visible alteration entailed the incorporation of Banco BPI in BPI SGPS,

which simultaneously assumed the corporate object of a commercial bank and adopted the

name of the incorporated institution – Banco BPI – assuming the mantle of the entity at the

head of the Group and is listed on the stock exchange. In the same step, companies were

extinguished which had hitherto headed important specialised activities that are now integrated

in the Group’s two banks: Leasing and Factoring at the commercial bank, Brokerage and

Development Capital at the investment bank. This restructuring brought about a definite

simplification of the Group’s organisation structure and was responsible for an important

reduction of the management structure and the attainment of considerable gains in terms of

efficiency and operating expenditure.

This potential was acknowledged by the rating agencies Moody’s, Standard & Poor’s and Fitch,

which confirmed BPI’s previous ratings and the stable outlook grading – the best classification

amongst the universe of Portuguese banks. The success attained in 2002 in terms of operating

efficiency, newly-manifested commercial ability and the principal indices of financial strength

confirmed that BPI is on the right course for securing the best conditions of competitiveness

and profitability in a future that is predicted to become increasingly demanding.


1) Co-opted to fill the vacancy left by António Seruca Salgado's renouncement; the registration process with the relevant authorities is currently being attended to.

2) Succeeded Corporació de Participacions Estrangeres, S.L. – which was 100% held – as a consequence of a merger.

Report | Governing bodies 11

Governing bodies

General MeetingChairman Rui Manuel Chancerelle de Machete

Deputy-Chairman Vasco Manuel Airão Marques

Secretaries Galucho – Indústrias Metalomecânicas, S.A. Vitalina Justino AntunesProdutos Sarcol, Lda. Estela M. Barbot

Company secretary Rui de Faria Lélis

Management BoardChairman Artur Santos Silva

Deputy-Chairmen Carlos da Câmara PestanaFernando UlrichRuy Octávio Matos de Carvalho

Members Alfredo Rezende de AlmeidaAntónio DominguesAntónio Farinha Morais1

Armando Leite de PinhoCaixa Holding, S.A., Sociedad Unipersonal2 Fernando RamirezIsidro Fainé CasasJoão Sanguinetti TaloneJosé Pena do AmaralKlaus DührkopManuel de Oliveira ViolasManuel Ferreira da SilvaMaria Celeste HagatongRiunione Adriática di Sicurtá Diethart BreipohlRoberto Egydio SetúbalTomaz Jervell

Executive Committeeof Management Board

Chairman Artur Santos SilvaDeputy-Chairman Fernando Ulrich

Members António DominguesJosé Pena do AmaralMaria Celeste HagatongManuel Ferreira da SilvaAntónio Farinha Morais

Audit BoardChairman Jorge de Figueiredo Dias

Members José Ferreira AmorimMagalhães, Neves e Associados, SROC Augusta FranciscoAntónio Dias & Associados, SROC (alternate) António Dias

Remunerations CommitteeChairman Itaúsa Portugal – Sociedade Gestora de Participações Sociais, S.A.

Members Cotesi – Companhia de Têxteis Sintéticos, S.A.Arsopi – Indústrias Metalúrgicas Arlindo Soares de Pinho, S.A.

Internal Control CommitteeChairman Ruy Octávio Matos de Carvalho

Members Carlos da Câmara PestanaAlfredo Rezende de AlmeidaCaixa Holding, S.A., Sociedad Unipersonal2 Fernando Ramirez

Figure 2

Historical milestones

LEADERSHIP, INNOVATION AND GROWTH

Sociedade Portuguesa de Investimentos was conceived in 1981

with a well-defined project for a decade that had just started: to

finance investment projects launched by the private sector, to

participate in the creation of a dynamic capital market and to

contribute to the country’s industry modernisation. BPI counted

on a diversified shareholder base that included a strong domestic

component, represented by 100 of the most dynamic companies

in the country, and five of the most prominent international

financial institutions.

SPI was transformed into an investment bank in 1985, thereby

allowing it to attract sight and term deposits, grant short-term

loans, participate in the interbank markets and engage in

currency operations. A year later, in 1986, the bank’s future

direction was marked by the opening of its capital to the general

public and the listing of its shares on the Lisbon and Oporto

Stock Exchanges.

In 1991, a decade after its formation, BPI had already conquered

an undisputed leadership in the principal areas of Investment

Banking and assumed its ambition to consolidate its position as

one of the country’s premier financial groups. It was in this spirit

that it resolved to acquire Banco Fonsecas & Burnay marking

BPI’s entry into the Commercial Banking arena, affording it a

substantial gain in size in preparation for the corporate

concentration process in the Portuguese financial system. It was

the Group’s overriding objective to guarantee the provision of the

complete range of financial services for companies and

individuals alike. An alliance was then forged with Banco Itaú,

initially through its equity participation in BFB. In 1994, this

interest was converted into a direct shareholding in BPI, following

which Banco Itaú became one of the key shareholders.

The Institution’s composition was reorganised in 1995: the

original BPI was transformed into an SGPS (holding company),

following which it was the only Group company listed on the

stock exchange, controlling Banco Fonsecas & Burnay and Banco

Português de Investimento, in the meantime formed through the

transfer of the assets and liabilities allocated to the business

activity traditionally conducted by this type of institution and

hitherto undertaken by BPI.

This reorganisation precipitated the specialisation of the Group’s

various units and was accompanied by an important

reinforcement of its shareholder structure with the entry of two

new strategic partners of considerable size to team up with the

Itaú Group: La Caja de Ahorros y Pensiones de Barcelona ("La

Caixa"), and the German insurance group Allianz.

A year later (in 1996) the acquisition of Banco de Fomento and

Banco Borges was the beginning of a process that would

culminate, two years later, with the creation of Banco BPI,

providing it with the largest single-brand banking network in

Portugal. Banco BPI was formed, in 1998, by the merging of

Banco Fonsecas & Burnay (BFB), Banco de Fomento e Exterior

(BFE) and Banco Borges & Irmão (BBI), to be joined later that

year by Banco Universo (an in-store bank), acquired in the

meantime. After the merger, the structure was significantly

simplified: BPI SGPS now comprises just two banking

institutions: Banco Português de Investimento, named BPI

–Investimentos, and a new commercial bank called Banco BPI.


Report | Historical milestones 13

The next three years – 1999 to 2001 – have confirmed BPI’s

potential for growth, modernisation and structural reinforcement

engendered by the 1998 merger: the Group has boosted market

shares in all the key areas of commercial banking, it has

expanded and streamlined its distribution structure, rapidly

transforming itself into a multi-channel bank, it has thoroughly

renovated its technological capability and built up one of the

financial system’s most dynamic brand names.

In 2002, BPI concluded an important internal reorganisation

programme that substantially altered its societary structure and

the manner in which it is governed. In essence, the programme

involved the centralisation of commercial banking at Banco BPI,

while the investment bank focused on its natural business

vocation. BPI SGPS incorporated Banco BPI and, simultaneously,

assumed the core business mission of a commercial bank,

adopting the name Banco BPI and in simultaneous assuming the

role as the entity at the Group’s helm. These alterations endowed

BPI with a simplified legal configuration, more attuned to its

present business model: it will enable BPI to secure cost savings

and efficiency gains in the Group’s functioning over the next few

years.

In parallel, BPI intensified the programme – permanently being

implemented – aimed at the rationalisation, rejuvenation and

qualification of its human resources, with the overriding object of

equipping the Bank with a staff structure that is properly

dimensioned and armed with the essential skills required for it to

affirm the objectives that form the basis for the Bank’s future

programme: efficiency, quality and service.

Total assets plus disintermediation (left-hand scale)Stock market capitalisation (right-hand scale)

Growth through asset consolidation

30 000

22 500

15 000

7 500

081

Chart 1

3 000

2 250

1 500

750

0

M.€

82 83 84 0185 86 87 88 89 90 91 92 93 94 95 96 97 98 99

M.€

00 02

The identity of BPI


A company is just like a person: it has its own identity and personality, it stands out for its character, its

principles, its way of doing, its objectives.

Banco BPI’s identity is marked by the financial and business culture of Banco Português de Investimento. The

essential traits of this culture are management independence, organisational flexibility, team work, recognition of

merit, the ability to anticipate, strict management of risks and the secure creation of value.

Earning a just return from the Bank’s business operations through the adoption of superior management and

service practices constitutes a fundamental goal of our activity. The safeguarding of Customer interests, with

dedication, loyalty and confidentiality, is one the core principles of the business ethics and code of conduct

assumed by the Bank’s Employees.

An institution’s personality asserts itself through its own attributes, which gain consistency and credibility in its

daily interaction with Customers and the community. In particular, BPI values two of these attributes: Experience

and Harmony.

Experience is the reflection of the training undergone by our teams and the important professional capital

accumulated during the history of each one of the institutions which gave rise to the Bank. It translates itself

into the dimension of our commercial presence, the soundness of our financial indicators, the security of our

growth and in our proven ability to achieve and lead.

We wish to combine Experience with Harmony, which expresses the permanent ambition of serving our

Customers and the community with the highest standards of ethics and quality. It is a projected aspiration for

the future, always open-ended, imposed by the constant desire to refine so that we do better. It is our most

challenging mission that, in the final analysis, justifies all others.

Report | The identity of BPI and the BPI brand 15

The BPI brand

In 2002, BPI Brand maintained its third place in the ranking

of Portuguese banking brands according to the «spontaneous

awareness» indicator included in the Estudo Base sobre o

Sistema Financeiro (Basef) published by the independent

company Marktest. This result is confirmed by the Bank’s

own polls and by the Publivaga polls carried out by Marktest

which assess the impact of advertising campaigns conducted

during the course of the year.

Notoriety

The results achieved enabled BPI to realise (for the third

consecutive year) one of the principal objectives of its

brand-management policy: to be situated amongst the top

three places in the spontaneous awareness (top-of-mind

reference) category. The BPI brand strengthened slightly in

absolute terms and improved vis-à-vis the second and

fourth-ranked banks. Accordingly, this performance confirms

the consistent improvement in this domain in a year marked

once again by a significant decrease in advertising

expenditure. In comparison with the preceding financial

year, BPI reduced its advertising spend by two thirds, falling

from fifth to seventh place in the table of financial sector

advertisers.

Efficiency

According to data supplied by Publivaga, the only

multimedia campaign conducted by the Bank in 2002 –

BPI Automóvel,– attained high spontaneous and proven

recollection levels. The same source places the Bank in the

number one position in the 2002 classification for proven

recollection in Television advertising, and second in terms of

total spontaneous recollection taking into consideration all

media channels. Besides the high degree of efficacy

mirrored in these indices, BPI once again presented the

best efficiency index for advertising investment within the

financial system, as expressed by the relationship between

the amount of space bought at market prices and the

recollection level attained.

Satisfaction

On another plane, very positive results were obtained in the

surveys carried out by the bank and by independent entities

covering the trend in service quality, a crucial benchmark in

brand positioning strategy. In this arena, BPI secured top place

amongst the largest banks in the National Index of Customer

Satisfaction, which was based on a poll conducted in the last

quarter of 2002. This annual index, which has been built up

regularly since 1999, is founded on an European wide model

and is managed by two international organisations – the

European Foundation for Quality Management and the European

Organization for Quality. In Portugal, the index is compiled by a

partnership of entities independent from the financial sector,

involving the Instituto Português da Qualidade (Portuguese

Quality Institute), the Associação Portuguesa para a Qualidade

(Portuguese Association for Quality) and Instituto Superior de

Estatística (Higher Institute for Statistics) and the Universidade

Nova de Lisboa’s Information Management Centre.


Corporate governance at the BPI Group

At the end of 2002, the BPI Group concluded an important

process of internal reorganisation, the principal aims of

which were simplifying the legal structure and streamlining

its governance model. BPI’s principles, policies and practices

relating to the set of issues associated with the manner in

which it is managed and supervised are described in the

section dealing with the BPI Group’s corporate governance,

which is presented as an annex1 to the Management Board’s

Report.

Corporate and management reorganisation

In December 2002, the BPI Group finalised an extensive

internal reorganisation programme that essentially involved

the following facets.

– the concentration at Banco BPI and Banco Português de

Investimento of typical commercial and investment

banking activities, respectively. With this end in mind,

certain specific business areas were incorporated into

these banks’ structures, entailing the consequent

extinction of the companies which had hitherto conducted

the aforementioned business activities.

– Banco BPI’s positioning at the head of the Group (Banco

BPI was incorporated by BPI SGPS which simultaneously

assumed the business object of a commercial bank and

adopted the name Banco BPI).

– the creation, modification and closing down of a

considerable number of divisions, with the consequent

redistribution of areas of responsibility and the change in

the directors and managers attached to these.

Report on the BPI Group’s corporate governance

The set of practices and guiding principles – whose

application ensures a diligent, efficacious and balanced

management of the interests of the company and of all its

shareholders – is described in the Report on the BPI Group’s

corporate governance. In this regard, we highlight:

– the equilibrium in the management body between the

number of directors representing key shareholders, the

number of independent non-executive directors and the

number of executive directors;

– the binding observance by members of management bodies

and Employees of the Group’s various companies of a set

of internal rules which, in certain cases, are more onerous

than those imposed by law and professional associations;

– the existence since 1999 of an Internal Control

Committee, which is composed of members with non-

-executive functions, reinforces its independence and the

effective compliance with its objectives;

– the functioning since 1993 of a structure dedicated

exclusively to relations with investors and the market.

Insofar as shareholder participation in the company’s affairs

is concerned and, more specifically, the exercise of voting

rights, BPI consistently pursues information dissemination

practices which are aimed at stimulating shareholder

participation by means of the ample disclosure (by post,

electronic mail and the Internet) of the holding of general

meetings, the matters to be dealt with and the different ways

of exercising votes.

1) See pages 201 to 222.

Report | Corporate governance at the BPI Group 17

Within the ambit of BPI’s Corporate Governance practices, it

is also worth noting:

– the provision of detailed information about the policy and

remuneration paid to the members of Banco BPI’s

Management Board, including the stock incentive and

option programmes for Executive Directors and Employees;

– the existence of an institutional website (www.bpi.pt),

where information supplied to the market by BPI is

permanently available in Portuguese and English (press

releases, report and accounts, presentations etc.), and

specific information about events of paramount importance

for shareholders, such as the preparatory documents for

general meetings, important data relating share capital

increases or dividend payments.

Public recognition

Within the ambit of the XVth edition of the awards for the

best annual reports published by companies listed on the

Portuguese stock exchange, BPI was distinguished in 2002

with the prize for the best financial sector annual report (for

the seventh time) and the prize – created for the first time –

for the best report covering Corporate Governance amongst

all the companies listed on Euronext Lisbon. These awards

constitute unequivocal public acknowledgement of the

exhaustive and all-embracing manner in which BPI transmits

information to the market addressing not only financial and

management aspects, but also the way in which it is

governed and controlled.


Social investment

CULTURE, RESEARCH, EDUCATION AND SOCIAL SOLIDARITY

In the 2002 financial year, patronage in the cultural,

education, research and social solidarity fields continued to

receive the BPI Group’s attention in projects and initiatives

which showed themselves to be properly structured and of

undoubted merit.

In the cultural arena, the BPI Group renewed the Protocol

signed with the Serralves Foundation and continued to lend

support to the following Foundations: António de Almeida;

Eugénio de Andrade, Júlio Resende, Luís Miguel Nava and

Maria Isabel Guerra Junqueiro.

The protocol with the Calouste Gulbenkian Foundation providing

support for the cycle of "Great World Orchestras" was also

renewed. Of particular significance was the participation involving

the concerts promoted by the Fundations Casa de Mateus and

Casas de Fronteira and Alorna, as well as those which took place

at the Associação Cultural Monte de Fralães and the Oporto

Musical Culture Circle. Also worth noting was the sponsorship

forthcoming since 1998 of the Oporto Internal Music Contest.

Still in the cultural field, the highlights included the

acquisition and placing of the work by Pedro Calapez, offered

by the BPI Group to the Jerónimos Monastery, the purchase of

a tiled panel conceived by José de Guimarães, destined for the

Deutsche Oper station in Berlin, and the support for the

exhibition of paintings by Francisco Laranjo.

Giving continuity to BPI’s sponsorship of the collection of books

on the work of Portuguese artists, a book was published entitled

"Mário Botas – o pintor e o mito", an anthology of the artist’s

works. Assistance was also given to the publication of the book

"Domingo de Manhã" with photographs by Jorge Henriques.

The Centro Nacional de Cultura (National Culture Centre) was

the recipeint of the BPI Group’s patronage for the publication

of the book "Pensar o Milénio com Edgar Morin", as well as for

the Associação Amigos de Yehudi Menuhin Portugal.

Support continued to be granted to Cultur Porto – Associação

de Produção Cultural; Associação Comercial do Porto, for the

publication of "O Tripeiro"; Associação da Casa Museu Abel

Salazar; Ateneu Comercial do Porto; Centro Social Cultural e

Recreativo Abel Varzim; CRAT-Centro Regional de Artes

Tradicionais, of the Oporto Municipal Council; Associação

Divulgadora da Vida e Obra de Teixeira de Pascoaes – Marãnus.

In the learning and research areas, the Group continued to

dispense support for institutions of acknowledged merit, with

special emphasis on the Oporto and Coimbra Universities, the

Universidade Católica Portuguesa in both Oporto and Lisbon

and the Universidade Técnica de Lisboa. BPI once again

sponsored the magazine for past students – "Uporto". Also

sponsored were the exhibition of Dr.ª Beatriz Gentil at the Fine

Arts Faculty and the publication of the book paying homage to

Professor Edgar Cardoso at the Engineering Faculty.

At the Coimbra University the Group continued to sponsor the

Teixeira Ribeiro Prize, the creation of the research institute Jus

Gentium Conimbrigae and the participation in the activities of

the Instituto de Direito Bancário, Bolsa e Seguros.

As in previous years, the BPI Group was also heavily involved

at the Catholic University, above all in the creation of the

Universidade Católica Portuguesa Foundation with a

commitment to continued backing until 2011.

Report | Social investment 19

Support was also received by AR.CO Centro de Arte &

Comunicação Visual; CITEX Centro de Formação Profissional da

Indústria Textil and Colégio Universitário de Montes Claros.

In the social solidarity area, assistance was given to the Banco

Alimentar contra a Fome (Anti-hunger food bank), to Abraço, to

ASAS, to Cerci, to Clube Stress, to Liga dos Amigos das

Crianças do Hospital Maria Pia, to Liga Portuguesa Contra o

Cancro, to Fundação Pro Dignitate and to União das

Misericórdias Portuguesas.

Through the auspices of Banco de Fomento in Angola, a

partnership accord was forged to give aid to the activities

envisaged under the "Projecto de Alfabetização para Crianças,

Jovens e Mulheres na Província de Kuanza Norte" (a project

promoting literacy amongst children, adolescents and women

in the province of Kuanza Norte).

Still in Angola, Banco de Fomento contributed on the basis of

the protocol established with the Ministério da Assistência e

Reinserção Social, for the financial effort made towards the

peace process.

In the same manner, another important initiative was the

participation in the campaign "Vencer a Fome, Consolidar a

Paz – Angola 2002" (Conquering Hunger, Peace Consolidation

– Angola 2002) which the Fundação Pro Dignitate conducted

in that country.

Substantial assistance was once again given to Mozambique

through the Presidência da República (the Republic’s Presidency)

and the Comissão Especial de Ajuda Humanitária a Moçambique

(Special Commission for Humanitarian Aid to Mozambique).

Banco BPI continued to support the activities of the Fundação

Portugal África (Portugal-Africa Foundation), of which it is the

principal founder. 2002 will be remembered as the year in

which the foundation’s new headquarters were inaugurated.

This event inspired BPI to donate the works of art and

furnishings which adorn the workplace and exhibition areas, as

well as an important collection of documents dealing with the

theme Economic Development. Moreover, the Bank offered the

services of four of its Employees, which is equivalent to an

annual contribution of around EUR 250 000.

The programme of the Fundação Portugal África’s activities for

2002 included initiatives such as reactivating the teaching of

arts and crafts in Mozambique, the Programa de

Desenvolvimento Agrário Integrado da Região do Chóckwè (an

integrated agrarian development programme for the Chóchuè

region), the projects Observatório de África and Diáspora

Africana, the database project Memória de África, the

dissemination of an AIDS prevention programme and the

scheme supporting small investment projects in Cape Verde.

An important contribution was also made to the project aimed

at teaching Portuguese in the Diocese de Baucau (Timor).

Also in the domain of social solidarity, support was given to the

Diplomatic Corps Bazaar with the high patronage of the

Republic’s Presidency.


Financial structure and business

The BPI Group – headed by Banco BPI – is a universal

financial and mutli-specialist group, focusing predominantly

on commercial banking business and on domestic activity, to

which are allocated 94% of its capital.

Banco BPI serves more than 1.3 million Customers –

individuals, companies and institutions – by means of a

multichannel distribution network comprising approximately

500 retail branches, a homebanking service (BPI Net),

telephone banking (BPI Directo), specialist branches and

structures dedicated to the corporate and institutional

segment.

Banco Português de Investimento, the BPI Group’s original

matrix, is engaged in investment banking business –

Equities, Corporate Finance and Private Banking – in which

BPI occupies a leading position. Private Equity business is

conducted through a subsidiary company (84% controlled).

In asset management activity, BPI is a prime player in the

management of unit trust (mutual) funds, pension funds and

life-capitalisation insurance.

International commercial banking business (which accounts

for 6% of allotted capital) is essentially carried out by Banco

de Fomento Angola and Banco de Fomento Mozambique.

In the insurance sector, BPI operates in partnership with

Allianz through a 35% stake in Allianz Portugal, as well as

via an insurance distribution agreement covering the Bank’s

commercial network. BPI also owns a 50% interest in a

credit insurance company.

Asset Management Private EquityInvestment Banking

Banco BPI

InternationalCommercial banking

Insurance

Banco BPICayman 100%

Banco Portuguêsde Investimento 100%

Domestic Commercial Bankingand financial investments

Banco de FomentoAngola 100%

Banco de FomentoMozambique 100%

Banc Post17%

BPI Fundos100%

BPI Pensões100%

BPI Vida100%

Inter-Risco84%

Allianz Portugal35%

Cosec50%

Main units of the BPI Group1

1) Effective direct / indirect participations. Figure 3

Report | Financial structure and business and distribution channels 21

Distribution channels

Physical network

Remote channels

Clients

Corporate Banking, Institutional Banking and Project FinanceIndividuals Banking and Small Businesses

BPI distribution channels in mailand Portugal

Turnover betweenEUR 1.25 million andEUR 25 million

Turnover aboveEUR 25 million

Wholesale

Traditional branches 483

Housing areas 64

BPI Net areas 228

In-store 13

70 biggest businessgroups

Large companies Medium-sizedcompanies

Investment centres 3

Housing shops 18

Automatic branches 47

Automatic Bank (ATM) 1 007

1) Local authorities, autonomous regions, social security system, universities, public utility associations and other non-profit entities.

Banco Electrónico BPI

BPI Net empresaswww.bpinetempresas.pt

Project Finance Institutional1

Wholesalecentres

Medium-sizedcompanies centres

Largecompanies centres

4 7 44

ProjectFinance centres

Institutionalcentres

1 5

Turnover belowEUR 2.5 million

Individuals Small Businesses

BPI Directo (telephone banking)808 200 500

350 thousand subscribers

BPI Net (homebanking)www.bpinet.pt

350 thousand subscribers

BPI Imobiliáriowww.bpiimobiliario.pt

200 th. real estate properties announced

BPI Online (brokerage)www.bpionline.pt

12 largest world-wide markets

Banks

Representativeoffices

Overseas branches

Overseas distribution network

Investment BankingCommercial Banking

Santiago de Compostela

Madrid

BPI Suisse (Private Banking)

Paris (9 branches)

Madrid

S.ta Maria – Azores (offshore branch)

Funchal – Madeira (offshore branch)

Paris

Geneva

Hambourg

Newark

Caracas

Johannesbourg

Banco de Fomento, SARL (17 branches)Angola

Banco de Fomento, SARL (7 branches)Mozambique

Banco BPI Cayman

Banc Post1

1) 17% shareholding.2) Distribution agreements with banks or post offices (marked with a *) and agent networks.

Distribution agreements2

Canada (Montreal banc)*

Luxembourg*

Belgium*

Sweden*

United Kingdom*

Australia

Brazil

The Netherlands

Figure 4


Human resources

RATIONALISATION, REJUVENATION AND QUALIFICATION

The BPI Group’s human resources policy remained

concentrated on the execution of the strategic programme

directed at cost reduction and efficiency enhancement for

the three-year period 2002-2004. The implementation of

rationalisation, rejuvenation and qualification measures

contributed decisively to the continued and gradual

qualitative improvement in human resources.

The internal reorganisation carried out by BPI during 2002

with the aim of simplifying and boosting the flexibility of its

organisation whilst at the same time reducing its operating

costs, involved the redistribution of the areas of

responsibility and changes in the directors and managers

associated therewith that resulted in a net reduction of 30

Employees (22%) with top management functions.

At the end of 2002, the BPI Group’s workforce numbered

7 007 in Portugal and a total of 7 576, of whom 6 583

were employed at BPI, 200 at the investment bank and 224

at various subsidiary companies, while 569 were deployed in

overseas operations.

1) Includes limited-term contracts and temporary employment of people having no binding work contracts. Note: at 31 December 2000, 2001 and 2002 the number of Employees with limited-term contracts in Portugal stood at 570, 569 and 359, respectively, while in the same years the corresponding numbers relating to overseas activity were 23, 22 and 15. On the other hand, there were 166 people working on a temporary basis in December 2000, 111 in December 2001and 46 in December 2002.

2) Activity with non residents, namely, emigrant communities; includes branches in France and Spain and representative offices. 3) Banco de Fomento Angola and Banco de Fomento Mozambique.

BPI Group Employees1

Period average figures

2002 ∆% 01 / 0220012000

End-of-period figures

Dec 2002 ∆% 01 / 02Dec 2001Dec 2000

Banco BPI 7 035 6 699 6 583 (1.7%) 7 187 6 958 6 494 (6.6%)

Banco Português de Investimento 427 453 200 (55.8%) 398 444 433 (2.5%)

Other subsidiary companies 459 450 224 (50.2%) 474 436 414 (5.0%)

Activity in Portugal 7 921 7 602 7 007 (7.8%) 8 059 7 838 7 345 (6.3%)

Overseas branches and representative offices2 160 163 162 (0.6%) 161 150 164 9.6%

Overseas banks3 278 341 407 19.4% 257 314 370 17.8%

Overseas activity 438 504 569 12.9% 417 464 534 15.2%

Total1 8 359 8 106 7 576 (6.5%) 8 476 8 302 7 879 5.1%

Table 2

BPI Group staff complementsNo.

10 000

9 000

8 000

7 000

6 000Chart 296 98 00 01 02

Activity abroadActivity inPortugal

97 99

8 995

8 123

7 695

8 2398 359

8 106

7 576

Report | Human resources 23

BANCO BPI

The human resources policy adopted – bearing in mind that

the banking sector is associated with more demanding

quality standards and where competitiveness is ever

increasing – had as its chief goal securing productivity gains.

Following the organisational restructuring concluded in

2002, of the 6 583 Employees working at Banco BPI �

at the end of 2002, 4 605 were integrated in commercial

activity and 1 978 in central services.

Of the 385 integrated into Banco BPI by reason of merger or

demerger, at the close of 2002 379 were attached to areas

included in "central services".

The thrust to attain the goal of enhancing productivity and

competitiveness levels led to the recruitment of 153

Employees – the vast majority with higher academic

qualifications –, at the same time providing a strong

incentive for internal mobility amongst personnel.

On the other hand, 500 Employees with an average age of

56.0 years left the company’s employment owing to early

retirement, pre-retirement or the attainment of retirement

age. These Employees had worked in the banking sector for

an average of 33 years, while their academic background

was largely primary or secondary schooling.

1) Telephone Banking, Internet, Protocol Banking and Automated Banking.

2) Cards, mortgage loan finance (which includes 18 housing shops), personalloans and motor car finance.

Note i: the criterion used for classifying Employees by operational areas wasaltered. In terms of the new classification system, in addition to personnelattached to the branch network and the corporate centres (previousconcept of the commercial network), Employees allocated to the non--traditional channels, product factories and marketing are now consideredto be deployed in commercial activity. According to the previous criterion,the number of commercial network Employees dropped from 3 848 to 3 697, while the number of central services Employees rose from 2 851 to2 886.

Note ii: does not include overseas activity.Note iii: includes temporary workers: 149 in 2000, 92 in 2001 and 43 in 2002.

Retail branches and corporate centres network 3 697 57Non-traditional channels1 296 4Products factories2 519 8Marketing 93 1Central services 1 978 30

Banco BPI Staff ComplementDistribution by area of activity

Chart 3

Commercial activity (70%)4 605

Central services (30%)1 978

Areas 2002 %

Banco BPI staffcomplementUniversity degree andaverage age1

%

50

40

30

20

10Chart 498 99 00 01 02

50

45

40

35

30

1) Figures adjusted by thenumber of years elapsedbetween each year and2002.

Staff with universitydegree as a % of total(left-hand scale)Average age1

(right-hand scale)

47.045.3

43.742.5

40.5

22%25%

28%

32%35%


Training

In 2002, BPI continued to pay special attention to training

as a tool promoting the development of skills and the

consolidation of attitudes and behaviour.

In this context, the main initiatives involved training

programmes focusing on attendance, sales and sales teams

with the object of enhancing operating efficiency and raising

service standards. These courses were attended by all the

personnel attached to the individuals and small businesses

network, including branch managers (departmental heads).

A total of 3 036 people attended 258 training sessions which

extended over 72 400 hours. This programme is scheduled to

continue this year to cover newly-admitted staff and others

whose careers fall within this ambit.

Behavioural training was extended to other areas of the Bank,

with special emphasis placed on themes such as team

management, team work and telephone attendance, all of

which entailed an additional 2 200 training hours.

As part of the process to strengthen staffing at the individuals

network, three training bursaries were initiated. The 25-week

programme covers theoretical-practical classroom instruction,

complemented by on-the-job training. This programme, which

is expected to finish in the first quarter of 2003, embraces

74 university graduates and occupies 64 200 training hours.

In summary, 3 857 Employees (60% of the total workforce)

participated in training courses during 2002 in a total of

105 thousand training hours.

In order to foster the personal and professional advancement of

its Employees, Banco BPI pursued a policy of giving support to

staff taking courses that confer university degrees. In this

regard, BPI gave its support to 140 graduates and 40 post-

-graduate and masters degree candidates, principally in the

academic fields of business management and information

systems.

Banco BPI’s Employees – selected indicators

20022001

Employees 6 699 6 583

Higher education 31.8% 34.5%

Average age 41.5 40.5

Average period of service 16.1 15.4

Men 53.6% 52.8%

Women 46.4% 47.2%

Employees / Branch 6.0 6.2

Note 1: does not include automated branches and includes 3 investment centres.

Note 2: in 2002 includes 385 Employees integrated into Banco BPI by force of merger or demerger of the Group companies.

Table 3

This trend was responsible for the number of Employees with

higher educational training rising to 34.5% (28.4% in 2000

and 31.8% in 2001). It also had an important impact on the

individuals’ network, where personnel with academic training

rose to 26.5% and, despite the passage of yet another year,

the average age fell to 40.1.

Technology

BPI’s information systems are based on a multi-channel

architecture, robust and scalable, and on the full integration

of Web technology and corporate transaction platforms. The

Bank has its own information and transaction intranet,

universally available, which constitutes a common interface

for an increasingly significant number of internal and

business processes. The support for business management,

marketing and sales, and for the control and management of

processes, as well as the front-end, Customer relationship

management and financial management solutions, are

available in a technologically innovative form that is

integrated with the traditional applications. High levels of

performance and robustness are central objectives in the

design and maintenance of the information systems,

translating themselves in this fashion into significant

efficiency and availability indices.

Report | Technology 25

Principal indicators of efficiency, availability and performance

Processing capacity (mainframe) 610 MIPS

Storage capacity (in Terabytes) 15.4 Tb

PCs per Employee 1.2

Employees with access to Intranet and e-mail 100%

Number of processes "intranetised" 62%

Page views in the Intranet 330 000 / day

Availability of transaction sites 99.8%

Employees with access to the Internet 20%

Page views in the Internet (all BPI sites) 33 500 / day

Branches: opening before 8h30 99.2%

Real-time Cards: from 7h00 till 4h00 100%

Response time to transactions at the branches 99.85% less than 3 seconds

Transactions on the multi-channel platform 200 000 / day

Technological help desk: resolution of problems 98% less than 2 hours

Table 4


Activity in the information systems’ areas during 2002

revolved around five main aspects:

Support for business and sales

The core objective of BPI’s information systems is to provide

a response to business needs. Amongst the priorities of

2002, the most noteworthy were the ongoing development of

sales-support solutions, namely, making available more

integrated information about Customers and products; the

upgrading and optimisation of management-decision

systems, the response to the needs stemming from Corporate

Banking’s new organisation and the evolution noted in the

operating applications solutions designed to handle and

control national and international payments.

Availability of structural solutions

Of the work embarked on in 2001 which extended into

2002, mention is made of the entry into service of a new

multi-channel platform at Telephone Banking (BPI Directo)

and at Online Banking (BPI Net, Individuals and

Companies), the development of the Group’s SIP project –

Sistema de Informação de Pessoas (People Information

System) – and the new global interface and operations

storage model, Operational Data Store, which involves all the

Group’s operational applications (in other words, information

factories).

Security

Special attention was paid during the year to the further

evolvement and consolidation of the disaster recovery project

and business continuity, as well as the revision and

implementation of internal control mechanisms for the use of

computer-based resources and the launch of the GAS project

– Gestão de Acessos e Segurança (Access and Security

Management).

Enhanced internal efficiency

Work continued on the projects aimed at the implementation

and consolidation of the IT rationalisation programmes and

the reorganisation of the in-house teams.

The BPI Group’s restructuring

The operating reorganisation that involved several business

areas, but in special the merger of companies into the

Group’s banks entailed a considerable adjustment of

informative systems supporting those business.

BUSINESS AND SALES SUPPORT

Opportunities Server

The Opportunities Server, one of the chief pillars supporting

the Bank’s commercial activities and functioning since

2000, was the object of major improvements in 2002 as

regards the information about Customers and products, as

well as the functionalities available, in particular, with

respect to the integration and updating of opportunities.



Centred on the Customer, the Opportunities Server is a system

designed to support and manage the Bank’s commercial

activity, from the standpoint of both the networks and the

direct channels. More than 1 million contacts originated by the

Opportunities Server were made in 2002.

The Opportunities Server is built on a database organised

according to the products and services which are considered to

constitute Customer sales opportunities. The system also

functions as a tool for managing contacts, controlling

commercial activity and providing general backing in dealings

with Customers. The principal focus is on Customer retention,

service quality and fostering existing Customer relations,

although it also acts as an instrument for managing contacts

with potential Customers.

The Opportunities Server essentially provides information

stored in the data warehouse about products, services,

transactions and Customer profiles. Data mining of this

information is effected and automatic business rules defined

that result in the identification of opportunities.

This information is accessed via the intranet, enabling the

selection of Customers for the execution of commercial action,

recording the results and controlling the effect of sales

campaigns and activities.

On the other side, the Opportunities Server is a source and

means of controlling the results of all direct marketing and

telemarketing activity.

Data warehouseData Mining(Marketing)

Opportunities detectedby the network

Products (Cards,Loans, Funds,...)

Channels (Net,Directo, Branches,...)

Business ProcessManagers

SimulatorsCustomer requests

Automatic rulesUser defined rules

Opportunities Base

Selection of opportunities by the userOpportunity

Operations transaction(Intranet, Internet, Call-center, ATM)

Sales force management

Search instigated bySalesperson

(via any network)

Search instigated byCustomer

(via any channel)

Search instigated byMarketing

(for any product / service)

Campaign managementOpportunities

Contacts management

Figure 5

The integrated attendance solutions for special Customer

segments – Private Banking and Institutional Clients –

benefited from developments in the field of analysis and

negotiation. These areas can now count upon platforms that

integrate all the information flowing from the relationship

with the Bank: ranging from operations to contacts,

including the respective dealings. The operating and support

systems for discretionary portfolio management and

monitoring, were also subjected to a series of improvements.

Management of business processes

The support systems for management decisions benefited in

2002 from important developments: the efficiency and

quality of the processes were improved and control boosted,

while operations have become more standardised and

simplified. In parallel, new applications models were

launched.

GPC Home loans

BPI’s pioneer module in the area of process managers (GPC)

was the target of numerous interventions with the object of

simplifying and optimising the relevant circuits, tasks and

procedures. The application was also adapted from a legal

and commercial perspective, and the interfaces with the

operational systems optimised. The alterations introduced

paved the way for costs to be reduced, internal productivity

raised and the quality of service offered to Customers

enhanced.

In 2002, the three modules described below were made

available.

GPC Personal loans

This module is designed to handle all the non-mortgage

credit on offer to individuals, whether Customers or non-

-Customers. It integrates a specific internal scoring module

and interacts directly with central applications, thereby

permitting the management of the whole process, starting

from simulation right through to the release of funds.

GPC Motor car finance

This application was developed with the aim of handling all

motor-car financing processes, both in partnerships (via

extranet) and at all the internal networks. The simulation /

/ decision component for ALD (long-term rental), Leasing and

Credit entered into service. This is a system integrated with

the Bank’s various business partners, incorporating the

unique characteristics of the respective brands and products,

as well as the existing bilateral agreements. The next stages

being developed seek to implement the handling of

proposals right through to contracting, the integration into

the operational systems and the extension to the other

channels.

GPC Cards

Designed to handle the capture of the entire range of BPI

credit cards (personal and corporate), it is characterised by

the large volume of processes handled. This constitutes an

additional challenge in the implementation of the IT

solution, since it entails the incorporation of automatic

decision criteria and specially-prepared channelling filters.



Loans process management

GPC is a system that administers the entire lending process,

from the first contact by the Customer right through to the

signing of the respective operation, including the simulation,

sale, decision, operating tasks contracting, registrations and

overall control.

This is a completely Web-based, multi-channel system,

integrated with the other operational systems, available on the

Bank’s intranet, accessible by Customers on the Internet and

on the extranet for the entities with whom the Bank possesses

credit agreements, at the point of sale.

The infrastructure created is global. The aim is that all the

loan products are handled by this system so as to create a

common repository for operations, rules for decisions, business

and credit control. In the case of standard products

(consumption, cards, housing, motor car), the objective is that

loan decisions be taken in real time, at the moment when the

operation is initiated.

The computerised implementation of these concepts

presupposes a comprehensive review of the business processes

and the ex-ante conceptualisation of all the decision rules,

elements and flows. This represents an even more complex

challenge than the actual implementation of the technological

solution itself.

At the present time, the modules in service are those relating

to Housing (since 2000 and the object of permanent upgrades

and new functionalities), Consumption, Cards and Motor Car

(these launched during 2002). The strategy followed since the

conception of the GPC has been confirmed to the extent that

superior efficiency and quality, added control, cost reduction,

operating standardisation and simplification are assured.

The widespread application of this concept to Companies and

Small Businesses was the object of analysis, taking into

account the specific nature of these segments. 2002 also saw

the implementation of the first system that will permit this

model’s start-up: the Limits Management application.

People informationSystem

Data warehouse

Simulation /Application

Decision(+Scoring)

Proposal Final decision Contracting Post contracting

Simulations Loan Process Management Link to Operations


Information for Management

CustomersAccounts

LoansInsurance

Security / guaranteesReal estate

House loans

Personal loans

Motor carfinance

Credit cards

Intranet

Internet

Extranet

Other

Figure 6

Business support solutions for companies

Several IT projects were developed with the aim of making

available an application architecture integrating risk analysis

and the management of information, thereby making the

loan-decision process more flexible and improving control,

the monitoring of operations and the interaction with

Customers.

Groups of companies

This module allows defining and managing groups of

companies, since it is capable of representing various types

of associations and relationships with the attributes and

specific features of each situation.

Credit limits

This system permits the recording of approved limits

according to the class of risk relating to groups and entities,

the use and control at the various levels for complying with

the internal rules of the general credit regulations, the

gathering of utilisation proposals and the implementation of

the decision workflow, operational control and routing. It

stores the commercial information of the Groups and

Companies, and is interconnected to the document

management and Customer information system.

Information management

Information aggregated by groups of entities has now become

available, namely, that relating to the status of integrated

involvement with the Bank, rating information and various

grades.

BPI Net Empresas

This is a new service provided via the Internet and directed

at Companies. It is currently in the final phase of quality

testing. The goal is to provide an access platform to the

Bank with a view to the execution of operations and

consultation. It integrates existing IT solutions at both

technological and applications levels.

Other business support solutions

The speed of execution and the capacity to control national

payment orders, namely, those received through the remote

channels, benefited from major IT application developments.

On the other side, the handling of international payment

orders has now become fully automated. This will permit

greater speed of execution, more rigour and security. These

objectives were similarly behind the optimisation of the

applications for processing documentary operations.

AVAILABILITY OF STRUCTURAL SOLUTIONS

Multi-channel platform

This is a new transaction-access platform for the Bank’s

systems through the various remote channels, which are now

more robust and scalable, and offering better performance.

The objective is, besides guaranteeing the technological

evolution of the infrastructural solutions, to ensure the

adaptation to the increased interactivity with Customers, not

only through the remote channels, but also in the future via

the traditional channels.



Multi-channel platform

Objectives

Banco BPI has had a single platform for the remote access,

call centre and BPI NET channels since February 2000. The

choice of this platform resulted, amongst other factors, from

the need to respond in a short period of time to the need to

boost the bank’s traditional business through the medium of

non-conventional channels.

According to the strategy for the evolution of the technological

infrastructures, it was decided to design and implement a

solution based on a new architecture that is more robust,

scalable and with a better performance capability. At the same

time, it had to ensure adaptation to the growth in Customers’

contacts with the Bank via all the remote channels and branch

network. The first phase of the integration of the remote

channels was concluded with success. The prototype that will

lead to the complete integration of the branch solution into the

multi-channel platform is presently being implemented.

Features

It is a platform which aggregates the operations flowing from

the various distribution channels. It functions as a go-between

the front ends and the operational applications. This new

solution’s main characteristics are the recording of the

operations originating from the various channels, the validation

of business rules, security in accessing information, extensive

availability, greater scalability and the modular architecture.

The new platform permits:

– responding more rapidly to business needs;

– obtaining an integrated vision of operations carried out with

Customers through the various channels;

– making available new functionalities without interrupting

service in the various channels.

Implementation plan

For security reasons and in order to minimise the impact on

existing solutions, a phased migration plan was formulated.

BPI Directo was the first channel to be integrated since it

constitutes the environment with the most control and can only

be accessed internally. Then followed the integration of BPI

Net (Individuals and Small Businesses) and the new channel

dedicated to companies: BPI Net Empresas.

Results

The new multi-channel platform has been providing superior

levels of efficiency, scalability and service, while preserving the

high standards of quality: in 2002, the number of transactions

per second achieved was 100% more than the previous year’s

figure, with a total daily volume in the order of 200 thousand

transactions being recorded.

Partners

Microsoft was the key partner in the platform’s design and

implementation, as was the case in other projects involving

Banco BPI’s technological infrastructure.

Call-center

12 August2002

BPI NetIndividualsand SmallBusinesses

30 November2002

BPI NetCompanies

February2003

Prototypeof the NewBranchPlatform

April2003

Figure 7


Data warehouse

BPI’s data warehouse is founded on a number of structured,

coherent and integrated databases, updated daily, and which

brings together the information relating to the characteristics

and flows of all the products and all the data relating to

Customers.

All this information is then made available on the various

channels. In this fashion, it is possible to analyse the

information from both a static and time span perspective when

the approach is made according to Customer, channels,

products or transactions.

This information can be accessed in three ways:

– the web pages on the Intranet permit permanent consultation

of reports, which are thus available to all Employees,

although different access levels have naturally been

established;

– the tools for exploring information, data mining or the

production of reports, are available to specialised users,

namely, from the marketing and planning areas;

– contribution of information for the other application solutions

with special functions, amongst which we highlight the

applications for analysing profitability and risk, and the

applications for producing official reports.

Amongst the Intranet pages that are permanently available, the

following are worth noting:

– the integrated position relating to Customers and groups of

Customers, with varying levels of aggregation and detail,

including internal information concerning the products and

services of various Group entities and external information,

for example, obligations at the Bank of Portugal);

– management information, with details of timings (daily

production and time-based evolution), commercial hierarchy,

products, situations (levels of compliance), amounts and

prices;

– the specific web schedules, for predetermined purposes,

always with an integrated perception of the Customer, such

as the case of the control of defaults, the future maturity of

financial placements or the product penetration rates;

– the sporadic integrated views of Customers, groups,

contracts, products or services which are available on the

pages of other systems, such the GPC, Opportunities Server,

Credit Limits, Guarantees and others.

The data warehouse also plays a decisive role in the new

application solutions, as is the case for example of the loan

and sales areas, as well as that of support for direct marketing

and telemarketing.

Management Control

MIS – Management InformationSystem

EIS – Executive Information System

Profitability Analysis

Risk Management

Information management

Customer information

Group information

Accounts information

Contract information

Integrated Products Position

Integrated Services Position

Front-End

Accounting Control

Information for Auditors

Bank of Portugal Statistics

Economic Forecasts

Tax Information

Statistics, Grading and Control


Commercial Action Plan

Loan Process Management

Credit Limit Management

Company Ratings

Company Profitability

Business support

Data warehouse

Figure 8


Global model of banking operations and interface subsystem

BPI currently possesses a powerful data warehouse that is

updated daily from all the operational applications. This

facility constitutes a source of commercial, risk-control and

Customer information. The more intensive use and increased

demand for detailed information led the Bank to conceive a

new model for storing operations, capable of responding to

all commercial, accounting and statistical information,

thereby creating an interface layer between the operational

systems and the storage model.

People Information System

One of the central elements of the applications’ architecture

is the SIP – People Information System, currently in the

implementation phase. This system will place at BPI’s

disposal a single and all-embracing information database

relating to people, Customers and other entities with whom

the Bank already maintains or could establish commercial or

institutional relations. This new system’s architecture will

equip the Bank with greater capacity to respond to mounting

commercial and management needs in general, and will

launch the bases for the various refinements to our

information systems’ architecture. Some of the system’s

modules, namely, these designed to handle groups of entities

and hierarchies within the ambit of the applications’

remodelling relating to Corporate Banking, have already

commenced functioning.

SECURITY

The permanent attention devoted to operational security and

stability were at the origin of numerous initiatives, amongst

which:

– the launching of an ambitious project in the area of Access

Management, the design of which is based on the

implementation of rules capable of regulating the access to

and operation of all of BPI’s IT systems, as well as the

creation of IT platforms geared to supporting the system’s

operation and audit;

– the institution of rules and processes relating to computer

resources. By way of example, we refer to the active

filtration of electronic mail content and Internet accesses,

the rationalisation of diskette and CD_ROM reading

devices, and the drafting and publication of regulations

relating to the use of the information systems;

– the remodelling and expansion of the Bank’s principal

data-processing centre (CPD), where the majority of the

technological support systems are located. This project was

aimed at obtaining substantial improvements in the

conditions for equipment installation and functioning

through the doubling of the area available and the

implementation of new electrical feed solutions,

climatisation and physical security;

– the revision and updating of BPI’s contingency procedures

as concerns the computer systems. This project, which is

expected to be concluded in 2003, covers all the

technological platforms. It is not limited to the central

systems, but extends to all the processing and

telecommunication resources housed in the Bank’s various

buildings. Of course, the interaction with the underlying

business processes and the respective continuity planning

are assured.

INCREASE IN INTERNAL EFFICIENCY

The implementation and consolidation of the IT

rationalisation programme – primordial objectives in the field

of information systems – gave rise to several initiatives, as

described below.

– management of the installed capacity, thanks to the

introduction of metrical scanning which permits a thorough

assessment of the present situation and the preparation of

growth estimates with a high degree of realism and

precision;

– management of work posts (desktops), taking into account

a more correct dimensioning of the resources available to

Employees;

– renegotiation of contracts. A systematic and in-depth

analysis of the principal contracts relating to the supply of

goods and services was conducted. This review led, firstly,

to the reassessment of necessity and degree of utilisation

of the goods and services, and subsequently, to the

renegotiation of contracts with the respective suppliers,

with the object of optimising the financial aspects and

operating conditions.

Intimately linked to the goal of computer equipment

rationalisation, another initiative centred on the

rationalisation of BPI’s internal teams. The aim was to

achieve a more specialised and flexible structure, geared to

respond in a pragmatic manner to the challenges posed

today by such a complex area undergoing constant change,

as is the case with the IT sector. This restructuring led

therefore to the composition and organisation of the teams

to cover two major areas:

– applications’ development and technological infrastructure,

with a mission to analyse and develop projects, at the

same time as maintaining and providing support for the

solutions already implemented;

– planning and control, horizontally aggregating functions,

namely, management and monitoring of request for IT

assistance, quality testing, security and planning.

THE GROUP’S RESTRUCTURING

The operations flowing from the BPI Group’s restructuring had

an appreciable impact on the various areas of information

systems; from the management of infrastructure, systems and

operations (which were centralised) through to application

solutions, adapted and developed in such a way as to ensure

the integration with the Bank’s applications’ architecture.


Report | Operations 35

Operations

Priority activity in the operations area in 2002 focused

attention on the rationalisation of resources through the

analysis of means and processes. As a result, it was possible

to reduce permanent staff by 30% – 114 employees

attached to these functions – as well as liberating occupied

space with an area of 5 000 m2.

Negotiation with the Group’s main partners and suppliers, in

conjunction with the implementation of a strong cost-cutting

policy, brought about a significant decrease in operating

costs, the most noteworthy being:

– a decrease of 13% in printing and finishing costs with the

elimination of print-outs considered to be unessential and

the changeover of the integrated statement from a monthly

to a quarterly one;

– a 49% reduction in voice communication costs – as a

result of the rationalisation of accesses to the telephone

network and the implantation of links at central buildings

in such a way as to transform fixed-to-mobile into mobile-

-to-mobile communications. At the commercial network,

mechanisms were created aimed at reducing voice

communication costs to the various mobile operators;

– a saving of 22% in computer-equipment rental costs. The

contract portfolio was the object of an in-depth review and

readjusted to the Bank’s real requirements. In parallel,

contracts were terminated where the attendant costs were

higher than the expected benefits;

– 12% cut in the amount spent on office stationery and

materials. A standardisation project was implemented for

office materials, forms, refreshment and hygiene articles,

thereby avoiding expenditure on materials considered to be

surplus to the Bank’s operations. At the same time, the

single supplier model was adopted in terms of which one

firm is responsible for the entire supply process, from

production through to the distribution to the Bank’s various

premises. In addition, a start was made to the

rationalisation of forms so as to reduce their diversity and

the range of alternative stationery;

– an 11% decrease in postage costs. The rationalisation of

integrated-statement mailings led to a decline in the

amount outlaid on postal services.

Furthermore, continuity was given to the programme initiated

in 2000 for the outsourcing of activities. The underlying

philosophy is aimed not only at precluding the Bank from

becoming involved in activities that do not fall within its core

business activity, but also to create the conditions for the

progressive reduction in operating costs and for improving

the quality of the services which are now measured and

subjected to written contracts.

In this context and via an initiative of the interbank system

strongly backed by Banco BPI, the Bank’s clearing area was

transferred to SIBS Processos. This step will enable BPI to

free a considerable number of resources, as well as a

significant amount of floor space situated at a prime location

in downtown Lisbon.

Notwithstanding the reduction in the size of the Bank’s

motor vehicle fleet in recent years – roughly 27% – a start

was made in 2002 to transferring its fleet-management

department to an outside entity by resource to operating

rental contracts rather than direct acquisitions by the Bank.

This measure was preceded by the definition of a disciplined

and strict policy relating to motor-fleet costs.


In addition, a considerable part of the cleaning services was

outsourced – about 50% – with this process scheduled for

conclusion next year.

The production of micro files was also one of the activities

transferred to an external entity during the year, leading to

an appreciable saving of more than 40% in deployed

resources.

At the end of the year and in the wake of the Group’s

restructuring, Banco BPI’s operations integrated the

corresponding areas of Banco Português de Investimento

and other companies. The resulting centralisation of these

operations led to tangible productivity and efficiency gains.

Similarly, the areas relating to works and maintenance,

buildings and security were integrated within a same single

command unit of the operations area.

Reorganisation of the procurement areas

Under the project launched in the first half of 2001, the Bank

grouped the various purchasing areas that previously existed at

Banco BPI – responsible for the acquisition of goods and

services in the market and scant connection between them –

under a new structure functioning as part of the Operations

and Procurement Division.

This stage was preceded by the design of the organic and

functional structure, the allocation of the necessary human

resources and the preparation of functional descriptions for

back-up services.

In practice, the purchasing function was centralised, not only

in organic terms but also geographically, with clear savings

being made in deployed resources and improved interaction

with the Bank’s partners and suppliers, who now have just one

BPI department to deal with.

At a later stage, a strategy was formulated for the acquisition

of goods and services based on previously analysed processes

and underpinned by the policies pertaining to sourcing, stocks

and distribution.

In this regard, the range of products to be acquired was

analysed taking into consideration the respective degree of

risk: i) probability and impact of a failure in distribution; ii)

relevance for the final product; iii) impact on Customers; and

iv) market volatility and annual expenditure.

From this review, it was concluded that there exists a spectrum

of products with low risks and high costs, in relation to which

the fundamental aspects are the negotiation of price and

service levels.

This model embraces furniture, fixtures and fittings, stationery

(office materials and printed matter), refreshments, cleaning

and hygiene, which were adjudicated to single suppliers. The

management of stocks and distribution was also transferred to

these suppliers.

Insofar as high-risk and high-cost products are concerned, the

most important issues refer to price, duration of the contract,

service levels, stock management and distribution, with the

Bank opting progressively for strategic partnerships.

Report | Operations 37

As concerns policy on stocks, the Bank has its objective a zero

stock level bearing in mind that these do not add value and

constitute a heavy burden on the cost structure, notably, in

products where the risk is deemed to be low.

The path followed as regards non-critical products entailed

transferring these to partners and suppliers.

As for distribution, various transportation models were studied

– direct, assembly and milk run, taking into consideration the

number of suppliers needed to respond to product requisitions.

The Bank basically functioned on an assembly distribution

model, that is, products were delivered by a number of

suppliers to a centralised location of the Bank, with the Bank

subsequently taking on the task of distributing these items

amongst the various users.

The model adopted, namely, for specific items of stationery

(forms and office materials), hygiene, cleaning and staff

refreshments, is founded on the system under which the

partner supplying these goods is responsible for distribution.

As far as the other articles are concerned, in particular, those

relating IT systems, the assembly distribution model was

retained.

In parallel with these initiatives, other projects were launched

aimed at standardising in-house products. This entailed

selecting and defining the basic products consumed by the

Bank, flowing from which an expressive number of items were

eliminated, as well as the elimination and standardisation of

forms and the selection of alternative, less expensive products.

These measures resulted in a 20% reduction in articles used.

In order to support the procurement area, consideration was

given to the acquisition of an ERP system (Enterprise Resource

Planning) with a view to providing complete and integrated

support for the processes designed during the course of the

project. Subsequently, given the simplicity of the processes

defined, the decision was taken to opt for in-house

development using an existing platform and resorting to Web

technology. The development of the solution that will permit

automating and integrating an array of tasks is scheduled for

2003 after the completion of the rationalisation and

simplification of processes.

In a period of eighteen months, the structure dedicated to

purchasing underwent a 58% decrease in manpower, at the

same time as the occupied floor area was cut by around

4 000 m2, notably in storage space.

As regards costs incurred with stationery (office materials and

printed matter), staff refreshments, hygiene and cleaning,

savings of around 12% were achieved.


Highlights of 2002

January, 16 BPI informs the market of the implementation of a stock (share) incentive and options programme (named RVA –

Remuneração Variável em Acções – Variable Remuneration in Shares), linking in this manner a portion of

Employees’ remuneration to the appreciation in the price of BPI shares. Applicable since the 2001 financial year,

the programme encompasses the Directors and an expressive number of Employees.

January, 31 Banco BPI acquires from the Portuguese State the EFTA Fund’s loan portfolio (a fund promoting Portugal’s

industrial development) following the fund’s cessation of activity on 31 January, after 25 years of making an

exemplary contribution to the modernisation of Portugal’s manufacturing capability. During this time, the fund

contributed to the creation of 15 thousand new jobs and the stabilisation of a further 174 thousand.

February, 7 BPI releases the consolidated results for 2001 financial year. Posted a net profit of EUR 133.3 million and ROE

of 14.7%.

March BPI launches a new site dedicated to information of an institutional nature about the Group, available

simultaneously in Portuguese and English and accessible at www.bpi.pt

March, 13 The Executive Committee of BPI SGPS stages the II Annual Conference for Analysts and Investors at the Centro

Cultural de Belém in Lisbon, at which the BPI Group’s operations, prospects and strategy were debated.

April, 3 The Annual General Meeting, at which shareholders were present or represented holding 57.2% of the voting rights,

approved (with 99.8% votes in favour) the annual report and accounts, the dividend, the governing bodies for the

three-year period 2002-2004 and the increase in share capital from EUR 645 625 000 to EUR 760 million.

April, 24 BPI presents the results for the 1st quarter. Net profit earned of EUR 42.3 million, giving a ROE of 18.2%

April, 26 BPI pays a dividend of 9 cents per share, unchanged from the previous year, corresponding to a payout of 43.6%

and a dividend yield of 4%

May Share capital increased to EUR 760 million, through the issue of 114 375 000 shares reserved for shareholders at

a price of EUR 1.75, fully subscribed and paid-up. The cash proceeds raised amounted to EUR 200.2 million. The

public deed was signed on 3 June.

July, 1 BPI opens the first Investment Centre, at Marquês de Pombal in Lisbon. This innovative "product" is based on the

concept of a specialised and personalised service targeted at high net-worth Customers or those with a strong

potential for accumulating wealth.

July, 1 Formation of Banco de Fomento, SARL, in Angola, with a share capital of kwanza 1 305 561 thousand (EUR 30

million), 100% owned by the BPI Group. This company resulted from the transformation of Banco BPI’s Luanda

branch into an Angolan-law bank.

July, 25 BPI presents the results for the first half of the year. Net profit was EUR 70.8 million, giving a ROE of 14.9%.

Report | Highlights of 2002 39

July, 25 BPI SGPS’ Management Board announces the Group’s restructuring project to be concluded in 2002.

October Banco Português de Investimento absorbed via merger BPI Dealer – Sociedade Financeira de Corretagem. For

accounting purposes, the merger produced effects as from 1 January 2002.

Constitution of BPI Suisse, S.A., a company providing Private Banking services, with BPI owning 99.9% of the

capital.

October, 24 BPI presents the results for the nine months ended 30 September. Net profit stood at EUR 97.6 million, giving a

ROE of 13%.

October, 31 Banco BPI holds a press conference unveiling the Novo Balcão BPI (new BPI branch model), based a new concept

of Customer service which contemplates an ample automated zone that is easily accessible and available 24 hours

per day, and a personal attendance area that offers the Customer greater privacy and comfort.

November Prize for the best Annual Report and the best Corporate Governance report – BPI was distinguished with the prize

for the best Annual Report in the financial sector for the 7th time (second consecutive year), as well as the prize –

the first time to be awarded – for the best Corporate Governance Report of all the companies listed on the Euronext

Lisbon stock market.

November, 8 The General Meeting of BPI SGPS, at which shareholders were present or represented holding 60.4% of the voting

rights, unanimously approves the BPI Group’s proposed restructuring with the object of simplifying and adjusting the

Group’s legal configuration to its present business model, as well as procuring additional costs savings and

efficiency gains through the rationalisation and concentration of operating activities.

December Conclusion of the BPI Group’s restructuring, with the relevant deed being signed on 19 December. The process

culminated with the incorporation of Banco BPI into BPI SGPS which, simultaneously, assumed the corporate object

of a commercial bank and adopted the name Banco BPI. As a consequence, the reference to BPI shares traded on

the Euronext Lisbon’s official quotations market was changed to "Banco BPI" as from 23 December.

Standard & Poor’s, Moody’s and Fitch Ratings confirmed BPI’s "A" rating and maintained the outlook as stable,

underscoring the benefits of a much simpler structure and the potential for cost savings flowing from the Group’s

restructuring in 2002.

BPI launches the Fundo Caravela – a venture capital fund, with an initial capital allocation of EUR 20 million,

whose chief mission is to invest in national small and medium-sized companies. The Fund is managed by Inter

Risco and counts upon the participation of the European Investment Fund.

The BPI Group posts a consolidated net profit for the year of EUR 140.1 million, which corresponds to a return on

shareholders’ equity of 13.5%.


Background to operations

Macroeconomic background

Economic performance in 2002, both at the national and

international levels, fell well short of the expectations

prevailing at the end of the previous year. The prospects for

economic growth remained weak, at the same time as the

margin for manoeuvring in the policy-making area began to be

severely limited. In the US, the intensive recourse to

monetary and fiscal expansionism engendered some improved

performance over the short term but exacerbated the external

imbalance, thereby undermining the dollar’s strength and the

budgetary position. By contrast, in Europe the dominant

position was the opposition to the activism in short-term

economic policies, leading to mediocre growth and even a

sharp fall in economic agents’ confidence and corporate

investment. �

By the end of the year, the climate of uncertainty had worsened

not only as a result of heightened geo-political risks, but also

due to the persistence of gloomy prospects for the

strengthening of economic growth in Europe. Economies which

represent Portugal’s most important markets, such as Germany

or France, continued to be virtually stagnant. In these

countries, as well as in Spain and in the United Kingdom,

growth of domestic product continued its decelerating trend at

the end of 2002 and, in particular in the first-mentioned case,

was at the origin of the deterioration in the respective

budgetary situation, thereby dissipating even further the

prospect of a more stimulatory economic policy in 2003.

Despite the unfavourable international climate, Portugal saw

itself forced to implement far-reaching budget adjustments,

provoked by the overshooting in 2001 of the maximum deficit

permitted under the Stability and Growth Pact. The rise in

taxes, the reduction of expenses (in particular, investment) and

the likelihood of a non-accommodating posture, for example,

with regard to new recruits and salaries in the civil service,

resulted in a further plunge in consumer and corporate

confidence throughout the year.

The conjugation of this scenario with the negative effect of the

external background led to a new fall in gross fixed capital

formation, both in construction and investment. At the same

time, private consumption and investment in housing virtually

stagnated, while export forecasts were successively revised

downwards. In the closing stages of the year, the

unemployment rate rose, partly as a result of the closing down

of foreign companies operating in Portugal’s traditional sectors

motivated by their quest for increased profitability, notably in

Eastern European markets.

Real GDP growthYear-on-year variation rates

%

6

4

2

0

-2

Chart 5

USAEuro ZonePortugal

SpainFrance

6

4

2

0

-21998 1999 2000 2001 2002

Upper quadrant Lower quadrant

PortugalGermany

Portugal is facing a period of structural transformation, whereby

the labour-intensive tasks carried out in branches of traditional

industries will tend to migrate to lower-income countries. At the

same time, residential construction is approximating saturation

point, while the public sector is no longer in a position to

continue absorbing employment. Expenditure on infrastructures

will, in the meantime, have to continue in the transport and

communications fields, where much has still to be done so that

Portugal can take its proper place in the trans-European

networks. Such spending should, therefore, ensure that the

country has the proper conditions to attract new industrial and

service activities or to develop existing ones.

At the same time, public-private partnerships need to be

fostered so as to release the State from the tariffs that have

become a burden on the Budget but which cannot, for this

reason, cease to be provided, with health care and assistance

to the aged being paradigmatic in this domain.

All this presupposes the economy’s capacity to generate income

and wealth. To this end, it needs to attract private investment

in high value-added activities. The stabilisation of budgetary

policy (now being pursued with firm resolve) is a factor in this

arena. The private sector, buoyed by the support of the

financial system, will have to respond to this scenario in areas

such as higher and technological learning, scientific research,

the funding of pensions or the public-private partnerships

referred to earlier.

This will result in a significant alteration in banking activity,

entailing a diminution in the relative weight of property

financing, the greater emphasis on personal loans for the

purposes of funding, for example, tertiary education, in tandem

with the growing importance of capturing long-term funds in

order to complement pensions. The prevalence of low inflation

rates assured by the single currency and budgetary discipline,

coupled with the further development of the European financial

markets, will be other crucial elements for the financial

system’s evolution in coming years.

In 2002, the unfavourable environment reflected itself

primarily in the marked deceleration in loans to companies

which, at the end of the year, posted an annual growth rate

of 5%, against 13.3% in December 2001. Conversely, loans

to individuals, the expansion of which had contracted sharply

in 2001, remained steady and even accelerated slightly in

2002 (10.6% in November against 10.1% at the end of the

previous year).

Report | Background to operations 41

Banks lending growthYear-on-year variation rates

Chart 6Non-financial companiesIndividuals

%

40

30

20

10

01998 1999 2000 2001 200219971996

Bank deposits growthYear-on-year variation rates

Chart 7Total depositsTerm deposits

%

16

12

8

4

0

-4

-81998 1999 2000 2001 200219971996


On the other hand, total residents’ deposits tended to

stagnate in 2002 (with an expansion rate of 0.3% in

November) after having decelerated strongly in 2001, thus

denoting a further drop in household savings in the light of

the unfavourable trend in disposable income.

From the standpoint of the financial sector and the evolution

of the economy, 2002 and 2003 must be viewed as

transition years, subject also to the major international

uncertainties, none of which herald a benign climate. In

Portugal, growth will be subdued in these two years, inflation

will abate and unemployment will continue to climb. During

the course of 2003, however, the clarification of the global

situation and the improved outlook in the budgetary arena

commencing in 2004 should begin to mark the desired

turning point for a new period of growth founded on more

solid supports.

Detailed forecasts for Portugal and the euro zone Growth rates in %

1) Bank of Portugal, Economic Bulletin, December 2002.2) European Commission, Autumn Forecasts, November 2002. The forecasts for exports and imports refer only to goods, while those

of the Bank of Portugal include services.3) Harmonised Index of Consumer Prices.4) As a percentage of GDP. The Bank of Portugal’s forecasts also include the balance on capital account, the most significant component

of which are community transfers, previously integrated into the current account of the balance of payments.

2003

BP EC2 EC2

Portugal Euro Zone

2002

BP1 EC2 EC2

Portugal Euro Zone

Private consumption 0 : 3/4 1.0 0.6 1/4 : 1 1/4 0.9 1.7

Public consumption 1.5 1.4 2.0 -1.0 0.2 1.4

Fixed investment -5 : -3 -3.5 -1.9 -4 1/4 : -1/4 -1.0 2.0

Exports 1 : 2 2.9 0.7 5 : 6 1/2 5.0 4.9

Imports -2 1/4 : -1/4 0.2 -0.7 1/4 : 3 1/4 1.8 5.5

GDP 1/4 : 3/4 0.7 0.8 1/4 : 1 1/4 1.2 1.8

Inflation3 3.7 3.5 2.3 2.4 : 3.4 2.9 2.0

Current account balance4 -6 1/2 : -5 1/2 -7.8 0.6 -6 : -4 -6.8 0.7

Table 5

Currency market

The euro’s recovery against the American dollar dominated

2002, with the European currency appreciating 16%. In the

period to mid-July, we observed a sharp gain in the

EUR/USD (peaking at 1.014 versus 0.904 in January)

triggered by expectations of an acceleration in the EMU’s

economic revival at a time when the US was facing a crisis

in stock market confidence, leading to a slowdown in the

inflow of the foreign capital needed to finance the current

account balance deficit. However, in the third quarter, the

European currency’s vigour petered out (the exchange rate

falling to 0.968). The deterioration in global economic

conditions, the recognition of the EMU’s inability to

substitute the US as the motor behind worldwide growth, the

escalation in geo-political risks and the widespread increased

aversion to risk favoured the dollar, which benefited from its

status of a refuge currency.

At year’s end, the proactive posture of the North American

authorities, who were more receptive to the progressive

abandonment of the "strong dollar" policy, together with the

potential difficulties of America’s external imbalance due to

the decline in the inflow of capital into the US, weighed

decisively against the American dollar. The EUR/USD rate

soared to levels above 1.05 at the beginning of 2003,

revisiting values last seen in October 1999. The American

authorities’ drive to guarantee the momentum of the

economic recovery, resorting to all the instruments of

monetary policy, coupled with North America’s high external

deficit, will tend to sustain the consolidation of the European

currency’s upward movement. However, despite the euro’s

appreciation being beneficial for keeping inflation in check,

the debility of the principal European economies and the

importance of external demand for ensuring an upturn should

prevent the European authorities from welcoming rapid rises

in the euro above the 1.10 level.


Euro exchange rates in 2002

128

124

120

116

112

108

104

100

Chart 8

1.08

1.04

1.00

0.96

0.92

0.88

0.84

0.80

Source: BCE, Reuters.1) USD fall aided by renewed stock market retreat (0.8578).2) The euro’s sustained rise above parity (1.0086).3) The euro resumes its strong trend (0.9871).

EUR/USD (right-hand scale)EUR/JPY (left-hand scale)

Jan. Dec.Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov.

1

2

3

JPY USD

Money market

The early months of 2002 were influenced by the prospect of

an end to the downward cycle in benchmark rates. Twelve-

-month rates climbed by around 60 basis points (b.p) in the

US and by 45 b.p. in Europe, while the three-month rates

fluctuated by a mere 15 b.p., discounting the aggressive hikes

in intervention rates. However, throughout the year the

retreating stock markets (and the attendant adverse impact on

consumer confidence), in tandem with the downward revision

of growth forecasts in an environment of controlled inflation,

rekindled expectations of further cuts in key rates. Thus, in

November and eleven months after its last cut, the Federal

Reserve lowered the fed funds rate by 50 basis points to a

historic minimum of 1.25%. In December, the fragile state of

the European economy justified a reduction of 50 b.p. in the

ECB’s refinancing rate to 2.75%, three months after the

previous cut. In the meantime, American and European six-

-month rates which in June were situated at 2% and 3.5%,

respectively, had eased to 1.4% and 2.8% at the end of

the year.

Important risk factors shroud the consensual scenario of

moderate economic growth and low inflation with uncertainty.

In addition to the geo-political risks and the spectre of high

oil prices which, in turn, are responsible for the

postponement of consumption and investment decisions, the

declining inflationary tendency, the lacklustre European

economy, constraints on budgetary policy, the declining

inflationary trend and the euro’s recent appreciation are

conducive to further cuts in the ECB’s refinancing rate during

the first half of 2003. In the US, the monetary authorities

will tend to maintain their policy unchanged. However, a

possible deterioration in economic conditions and / or military

intervention in Iraq (with its unforeseeable consequences)

could warrant the adoption of additional monetary measures.

Should the dominant economic expectations for 2003

materialise, the reversal in the present cycle of declining

short-term interest rates should not take place before the end

of the year. However, the anticipation of this movement will

tend to induce a progressive rise vis-à-vis interest rates for

periods exceeding six months.


Six-month interest rates in 2002

4.0

3.5

3.0

2.5

2.0

1.5

1.0

Chart 9

Source: BPI, Reuters.1) The FED cuts the fed funds rate from 1.75% to 1.25%.2) The ECB cuts the refinancing rate from 3.25% to 2.75%.

EuriborLibor USD

Jan. Dec.Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov.

1

2

%

Bond market

The first months of 2002 saw a significant rise in long-term

interest rates anchored to projections of an acceleration in

economic activity. However, the subsequent confirmation of

waning economic recovery, the financial scandals and the

sliding stock markets precipitated an important flight to

quality. Benefiting from public debt’s status as a safe haven,

the yields registered further falls to new cycle lows. In the

US, yields on 10-year paper, which in January touched

5.13% and climbed to 5.5% in March, had slipped to 3.6%

in September, being situated at 3.80% at the end of the

year. In Europe, the trend was similar with 10-year rates

oscillating between 5.30% in January and 4.20% in

December. In terms of the yield curve’s slope, the early

months of the year were characterised by its flatter profile,

after which curves tended to move in an upward direction.

The North American public-debt market remains vulnerable to

the extent that the yields on maturities for periods shorter than

five years presuppose the crystallisation of a deflationary

scenario in the next few years, a situation not reflected in the

current central backdrop of modest growth. In addition, the

confirmation of brisker economic activity or the degradation of

growth prospects tend to lead to a rise in long-term interest

rates owing, respectively, to the dissipation of prospects for

further declines in short-term interest rates or the projections

for debt supply rise as a result of the worsening of public

deficits. In Europe, the fact that public debt has not attained

excessive proportions, coupled with the greater likelihood of

further cuts in key rates, tend to induce lower yields. Hence,

during 2003 there may be a decrease or even a reversal in the

present negative spread between North American and

European debt. In reality, this differential in 10-year rates,

which was situated at 17 b.p. at the beginning of 2002,

dropped to -40 b.p. in December after having attained a

minimum of -72 b.p. in October. Turning to the rates

differential between Portuguese and German public debt

(10-year stock), it should be pointed out that during the

course of 2002 the spread narrowed progressively from 30

b.p. in January to 13 b.p. by year’s end, with this trend

expected to stabilise or even decrease slightly during 2003.

The miscellaneous debt market has been progressively

gaining more importance, with these instruments serving as

substitutes for investments in equities in periods of greater

aversion to risk, benefiting from the advantage of offering a

steady income stream and capital gains when there are

perceptions of improvements in companies’ abilities to meet

their commitments. According to Standard & Poors’, a total of

194 defaults were recorded in 2002 while the credit ratio

(relationship between downgrades and upgrades) reached 4.2,

which compares favourably with 5.1 in 2001. However,

notwithstanding the considerable number of defaults and

widely-publicised bankruptcies, the credit risk premiums fell

appreciably at the end of the year, essentially due to the

lower aversion to risk, the growing optimism regarding

corporate earnings and the prospects of adjustments to


Source: BPI, Reuters.1) Maximum (high) = 5.44%; Expectations of strong economic revival.2) Minimum (low) = 3.59%; Weak growth, falling (tumbling) stock market

and low inflation.

Ten-year interest rates in 2002

6.0

5.5

5.0

4.5

4.0

3.5

Chart 10

Jan. Dec.

2

1

Portugal (EUR)Germany (EUR)USA (USD)

Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov.

%

companies’ capital structures. In 2003, despite the

anticipation of continuing high default levels, companies are

expected to continue favouring cost rationalisation and debt-

-reduction policies, focusing on the consolidation of the

movement to crush credit risk premiums.

Equities market

In line with what happened in 2000, 2001 was negative for

the world’s (including Portugal’s) stock markets. Despite a

promising start to the year in anticipation of an upturn in the

world economy in 2002, the principal international bourses

ended the year in negative territory, reflecting:

– the successive downward revisions to corporate earnings;

– the retraction in consumer and investor confidence indicators,

the latter in the wake of numerous financial fraud cases,

particularly in the US;

– the lower values of insurance companies’ investment

portfolios, leading in certain cases to the need to their

recapitalisation via the injection of funds;

– the deterioration in the debt-risk ratings of the world’s leading

companies;

– ongoing global geo-political instability after September 11

2001 and the outbreak of the Iraq crisis;

– the rise in raw material prices, in particular, crude oil;

– and in the particular case of the Iberian Peninsula, the

situation in Latin America (economic turmoil in Argentina and

presidential elections in Brazil), as well as Portugal’s

macroeconomic situation.


Source: Goldman Sachs, Bloomberg.

Credit risk premiums in 2002Euro-denominated issues

b.p.

250

200

150

100

50

0

Chart 11

Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

BBBAAAAAA


The Portuguese stock exchange’s liquidity mirrored the

market’s lacklustre performance. The average daily volume

was situated at EUR 87 million, down 32% on the 2001

average. This fact is even more cause for concern bearing in

mind that the average volume in 2001 had already suffered

a plunge of 45% relative to 2000.

2002 saw no primary market operations in Portugal,

reflecting the lack of investor confidence and the change in

government which, in turn, was responsible for the delay in

some privatisation operations, notably, Portucel and Galp

Energia.

In Europe, the principal primary market operations were

chiefly directed at reinforcing the share capitals of certain

listed companies and the sale of investments held by

companies experiencing financial difficulties. The total value

of primary market operations in Europe fell 28% relative to

2001 to EUR 66 billion, with secondary offerings (including

capital increases) representing 78% of this figure. In the

year under review, the only important initial public offerings

were in defensive sectors (the privatisation of a motorway-

-concession operator in France – ASF, and the IPO of a

natural-gas infrastructure company in Spain – Enagas).

The Portuguese stock market posted a negative performance for

the third consecutive year. The PSI-20 index shed 26% in the

period. It is interesting to note that the PSI-20 at the end of

2002 was just 12% higher than its value in December 1996,

which translates itself into an annual average return of a mere

2% (excluding dividends). The end result is that the losses of

the last three years have practically wiped out the gains of the

previous three years. This phenomenon is very much in line

with the evolution observed in other developed markets.

Source: Bloomberg, BPI.Note: local currency indices.1) Compounded Annual Growth Rate.

Equities market indices

CAGR1 97 / 02200220012000199919981997

PSI-20 71% 25% 9% (13%) (25%) (26%) 2%

Ibex 35 41% 36% 18% (22%) (8%) (28%) 3%

Eurostoxx 50 37% 32% 47% (3%) (20%) (37%) 4%

Dow Jones 23% 16% 25% (6%) (6%) (17%) 5%

Nasdaq 22% 40% 86% (39%) (20%) (32%) 1%

Table 6

Main international stock market indices in 2002

120

110

100

90

80

70

60

Chart 12Standard & Poor's 500PSI-20Dow Jones STOXX 600 BanksDow Jones STOXX 600

Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

Domestic Commercial Banking

INDIVIDUALS AND SMALL BUSINESSES BANKING

In 2002, Individuals and Small Businesses Banking benefited from a considerable number of changes that were responsible for the

improvement in the functioning and support model providing management information to the branch network, as well as for the

intensification of the commercial network’s rationalisation.


Banco BPI’s Individuals and Small Businesses Banking was

responsible for loan portfolio totalling EUR 8 956 million

and resources of EUR 13 868.2 million at the end of 2002.

The annual rate of growth in 2002 was 18.5% for loans and

2.8% for resources.

Structural alterations at Individuals Banking

The reorganisation of the individuals and small businesses

network involved an increase in the number of first-line

personnel responsible for the handling of these business

operations, as well as the launching midway in the year of

BPI’s Investment Centres. This network is specifically geared

to high net-worth or potentially wealthy Customers – a segment

regarded as a priority pillar for Banco BPI’s growth strategy. By

the end of June 2003, the network will comprise a total of

eight Centres: two in Lisbon, two in Oporto and one

respectively in the cities of Aveiro, Braga, Coimbra and Leiria.

The Individuals and Small Businesses Marketing Division was

split into two divisions – Strategic Marketing and Operational

Marketing – with the object of improving the commercial

process so as to better cater for Customers’ needs. The

Strategic Marketing Division will focus on Banco BPI’s

Customer relationship management, while the Operational

Marketing Division will assume total responsibility for the

coordination of sales at Individuals and Small Businesses

Banking.

The management of Customer resources has now been

transferred to a single structure which integrates all the

investment product "factories". This new structure’s prime

objectives are the following:

– to manage in a dynamic and integrated manner the range of

the Bank’s liabilities-side products, adapting these to market

conditions and Customers’ needs;

– to improve Customer service, contributing to the provision of

advisory services tailored to the various profiles of investors;

– to improve the support given to the branch network by way of

a training and sales support team with involvement in a

range of products under its responsibility, in such a way as to

ensure commercial message coherence;

– to optimise internal and external communications relating to

liabilities-side products, with the aim of ensuring greater

clarity and transparency in the information destined for

Customers, and better preparation of sales staff for their

functions.

1) Subscribers with altered password.

Individuals Banking and Small Businesses principal indicators

∆%20022001

Loan portfolio (M. euro) 7 557 8 956 18.5%

Total Customer resources (M.euro) 13 488 13 868 2.8%

Customers (million) 1.3

Internet and telephone bankingCustomers1 (thousand) 290

Table 7

Report | Domestic Commercial Banking 49

Intensification of rationalisation processes

The migration of operations to automatic channels led to a

reduction in the number of transactions effected at the

branches and which, in line with the simplification of

processes, paved the way for enhancing the profitability of

operating processes and boosting sales.

The installation of intelligent deposit machines at 51 branches

resulted in an average transaction migration of more than

50%. The cheque-dispensing machines installed at just three

branches made possible an average migration rate of some

90%, with the result that this type of equipment is scheduled

to be installed at a further 50 branches by the end of 2003.

BPI Net and BPI Directo also contributed to reducing the

volume of transactions carried out at the branches, with some

150 and 290 thousand Customers, respectively, having

adhered to these virtual channels.

The operational rationalisation drive also encompassed the

renovation of a further 24 branches where there are now fewer

physical barriers between the Customer and bank staff and,

consequently, leading to greater interaction which is conducive

to improved productivity and service quality. Moreover, all

these branches have 24-hour zones which are equipped with

ATMs, intelligent deposit machines, access to all of BPI’s sites

via the Internet, and access to BPI Directo. This branch

renovation process commenced in September 2001 and will be

extended to 100 branches by the end of 2003.

During the course of 2002, rationalisation of the commercial

network led to the closure of 25 branches, bringing the total

number of traditional BPI branches to 483.

Contributing to the simplification of processes was the

installation of cash dispensers at 40 branches and extending

the centralisation of telephone calls to 279 branches, which

corresponds to an increase of 19% over 2001.

Improvement in management information

With the goal of upgrading the quality of management

information transmitted to the commercial network, a

Management Information site was launched on the Bank’s

intranet that will permit the daily monitoring each branch’s

portfolio, the placement of products, sales campaigns and the

results obtained in the incentives and motivation system at

Individuals and Small Businesses Banking.


1) Includes outstanding credit of non-Bank Customers, i.e. holders of credit cards co-issued by BPI.2) Includes commercial loans and guarantees given.3) The figures refer to 20 December 2002.

LOANS TO CUSTOMERS

The portfolio of loans to individuals and small businesses

expanded by 18.5% in 2002 to EUR 8 956 million, due �

above all to the expansion of the mortgage loan portfolio,

which posted an annual growth rate of 26.6%.

Individuals and Small Businesses Banking – loans to Customers Amounts expressed in millions of euro

%2002 ∆%%2001

Mortgage loans 5 144.6 68.1% 6 512.1 72.7% 26.6%

Personal loans 493.4 6.5% 451.3 5.0% (8.5%)

Credit cards1 132.5 1.8% 138.1 1.5% 4.2%

Loans to small businesses2 1 284.7 17.0% 1 317.4 14.7% 2.5%

Car finance3 194.1 2.6% 215.1 2.4% 10.8%

Equipment and property leasing3 307.3 4.1% 321.9 3.6% 4.7%

Total 7 556.6 100.0% 8 956.0 100.0% 18.5%

Table 8

Individuals and SmallBusinesses banking loansand guarantees1,2

Bi.€

10.0

7.5

5

2.5

0

Chart 13

98 99 00 01 02

3.4

4.3

5.9

7.6

9.0

1) Performing loans.2) Includes leasing and

long-term rental (LTR).

Individuals and SmallBusinesses bankingmortgage loans

Bi.€

8

6

4

2

0

Chart 14

98 99 00 01 02

2.0

2.8

3.8

5.1

6.5

Home loans

The volume of mortgage-loan contracting attained EUR

1 934.6 million in 2002 (7.4% more than in 2001), thereby

allowing BPI to reach a market share of 12.3% in new

business contracted and secure an accumulated share of

9.3%, up 0.8 p.p. on December 2001.

It should be highlighted that in response to the unfavourable

evolution of the economic landscape, BPI adopted a more

conservative approach with respect to its loan approval

criteria, especially as concerns the relationship between the

amount financed and the associated security, which is now

subject to a maximum ceiling of 90%.

The contribution from the channels specialising in mortgage

finance – Housing Areas at the branches, Housing Shops and

the Estate Agents Channel – was instrumental in the above-

mentioned performance, bearing in mind the annual growth

rates registered in annual contracting of 39%, 20% and

37% respectively.

New mortgage loans contracted byspecialised channels Amounts expressed in millions of euro

∆%20022001

Housing Areas 247.7 344.0 38.9%

Housing Shops 124.1 149.4 20.3%

Estate agents 233.3 320.1 37.2%

Table 9

During the course of 2002, BPI continued to reinforce its

position as a specialist in home loans, backed by a

dedicated network of 18 Housing Shops and 64 branches

with special home-loan counters (11 more than in 2001).

BPI also consolidated its prominent market position in

Internet operations through its site BPI Imobiliário – the

country’s largest on-line real estate and property

developments database – which now boasts 1 200 partners

and 200 thousand property announcements (up 67% and

45% respectively). An average of 1.9 million page views per

month was recorded in 2002.

In the wake of the good results obtained by the channels

specialising in mortgage finance, BPI started in September

the third phase of the expansion of Housing Areas at the

branches – with the projected opening of 15 new dedicated

counters. This initiative saw the inauguration of two new

Housing Shops (in Viseu and in the Almada Forum Shopping

Mall), as well as the signing of more protocols with real

estate agents.

At the same time, there was growing adherence to the

services associated with BPI Home Loans, in particular, to

the Documents Service, which attracted 60% of Customers

in 2002, who benefited from the professional support and

greater speed in the contracting process.

BPI is, therefore, the only bank in Portugal to make available a

network composed of 82 easily-accessible points of sale,

offering specialised and exclusive services in mortgage finance.

In order to speed up the communication of loan decisions to

Customers, the use of scoring at the Loan Process

Management System – GPC Home loans – was consolidated.

This system allows Employees at the branches, telephone

banking and virtual (Internet) banking, to inform Customers

at www.bpinet.pt as to whether their loan applications have

been approved.

Following the alteration in September to the Subsidised Home

Loan Regime and the Youth Subsidised Home Loan Regime,

that is, in the wake of the extinction of State subsidies for

loans contracted with effect from 30 September, BPI adapted

the product. This entailed extending the loan term to 50 years,

although imposing a limit of 70 years of age for applicants at

the end of loan period, at the same time fixing specific limits

for the maximum ratio between the amount financed and the

underlying security. In December, around 20% of applications

already involved loan terms in excess of 30 years.

Motor car finance

Motor car finance advanced to individuals and small

businesses totalled EUR 215.1 million at the end of 2002,

10.8% more than in December 2001. This result is

particularly positive if one considers that motor car sales in

the national market registered a fall of more than 13% in

the period under review.

Cards

At the end of 2002, the number of cards placed with Banco

BPI Customers exceeded 716 thousand debit cards and

375 thousand credit cards. There was an increase of 7.8%

in relation to 2001 as a result of the 10.1% increase in the

number of debit cards and 3.6% in the number of credit

cards, giving BPI a market share of 9.4%. In billings,

there was also a positive trend in both card categories:

Eur 2 464 million in debit cards, corresponding to a rise of

19.3%, and EUR 695 million in credit cards, corresponding

to an increase of more than 7%.



Individuals and SmallBusinesses bankingCustomer resources

Bi.€

16

12

8

4

0

Chart 15

98 99 00 01 02

Off-balance sheet resourcesOn-balance sheet resources

10.911.7

12.4

13.5 13.9

CLIENTS RESOURCES

The overall increase in Customer resources was positively

influenced in 2002 by the trend in off-balance sheet

resources which recorded annual growth of 3.9%.

This in turn is primarily due to the 21% growth in the

capitalisation insurance portfolio.

The volume of capitalisation insurance subscriptions rose by

106% when compared with 2001, with the respective

amount contracted in 2002 totalling EUR 207 million.

The portfolio of unit trust (mutual) funds placed with

Individuals and Small Businesses Banking Customers

attained in December 2002 an amount of close to

EUR 2 billion, unchanged from the figure at the end of

2001. This performance meant that the BPI Group had the

fourth biggest market share (16.9%) at the end of 2002.

As regards the value-added funds – funds with interest-rate,

currency and equities risk – BPI achieved a market share of

19.8%, giving it second place in the ranking.

1) Does not include securities portfolio.

Individuals and Small Businesses Banking – Customer resources1 Amounts expressed in millions of euro

%2002 ∆%%2001

Balance sheet

Sight deposits 2 609.4 19.3% 2 594.4 18.7% (0.6%)

Time deposits 5 696.3 42.2% 5 904.0 42.6% 3.6%

Interest-bearing bonds 491.6 3.6% 585.3 4.2% 19.1%

Equity linked structured products 853.4 6.3% 796.1 5.7% (6.7%)

Subtotal 9 650.7 71.5% 9 879.7 71.2% 2.4%

Off-balance sheet

Unit trust (mutual) funds 1 982.4 14.7% 1 983.0 14.3% 0.0%

Retirement and equity savings plans 1 105.9 8.2% 1 095.9 7.9% (0.9%)

Capitalisation insurance 749.1 5.6% 909.7 6.6% 21.4%

Subtotal 3 837.4 28.5% 3 988.5 28.8% 3.9%

Total Customer resources 13 488.1 100.0% 13 868.2 100.0% 2.8%

Table 10


BPI Net and BPI Directo for individuals

The number of users of Banco BPI’s homebanking service for

individuals – BPI Net and the telephone banking service BPI

Directo – continued to register growth. Innovations during the

year included the launching of new functionalities in the Cards

and Payments areas. In quantitative terms, the key year-end

figures were as follows:

– 290 thousand active subscribers to BPI Net / BPI Directo

services;

– 150 thousand regular users at BPI Net;

– 650 thousand visits per month1 to BPI Net;

– 1.6 million transactions per month1 through BPI Net;

– 67% of the Bank’s stock exchange operations are effected

via BPI Net;

– 2.2 million calls received through BPI Directo;

– 7.8 thousand calls received on average per weekday through

BPI Directo;

– 77% of the calls received are attended in less than 20

seconds at BPI Directo;

– 66% of the calls received at BPI Directo are dealt with by

the automatic attendance mode;

Availability of information

The increase in the amount of information available via the

remote channels – Sites and Information Lines –, was another

crucial factor behind the increase in Customer relationship

activity in 2002, as evidenced by the following statistics:

– 13.2 million pages visited (refers to all BPI sites);

– 200 thousand properties available at the site BPI Imobiliário;

– 735 thousand emails sent to subscribers of Alert Service at

the site BPI Imobiliário;

– 15 thousand requests to visit properties made via the site

BPI Imobiliário (in 2002) and forwarded to the Real Estate

Partners, principally Estate Agents.

In respect to BPI Directo service, worth mention:

– availability of specific information lines for loan products

(Home Loans, Consumer Credit, Motor Car Finance), unit

trust funds; investment products and internet sites.

– 83 thousand calls received on the information lines.

1) December 2002.

BPI Net and BPI DirectoSubscribers with altered password1

Thousandsubscribers

320

240

160

80

0

Chart 16

259276 284

220230

1) A single contract and password, valid simultaneously for BPI Net and BPI Directo.2) In August 2001, it was made the write-off of all subscriptions of Clients that until

15 March 2001 had never accessed to BPI Net / BPI Directo or, even having,done no consulting or operation in those channels during the 6 months before.There were in this situation around 90 000 Clients.

233250

271292

Mar. Mar. Jun.Sep.2Dec. Dec.Mar Jun. Sep.Jun. Dec.Sep.

208

146

82

00 01 02

1) By month.

BPI Group sitesPages viewed1

Millionpages

16

12

8

4

0

Chart 17

Mar. Mar. Jun. Sep.Dec.

1.2

6.3

4.4

6.67.7

Dec.Mar. Jun. Sep.

8.89.8

13.2

Jun. Dec.Sep.

2.9

4.3

9.4 9.4

00 01 02

Concentration of call attendance at the Call Centre

In this domain, work continued on the process of centralising

telephone calls to the Branches and other BPI Areas and

Companies at the Call Centre, leading to:

– extension to 279 branches (more than 50% of the total

number of Banco BPI branches) of the centralised call

system. This system redirects to the Call Centre the calls to

the branches made by Customers who have no account

manager. During 2002, some 315 thousand such calls were

transferred to the Call Centre. It is worth pointing out that

this project contributed very positively to raising the

commercial network’s efficiency. It enabled branch staff to

devote more time to Customers’ affairs, as well as to the

execution of commercial initiatives. In parallel, Customer

satisfaction improved appreciably as a result of the much

shorter waiting period before being attended;

– broadening of the Call Centre’s sphere of activity, leading to

the integration of other attendance services, both internal

and external, notably:

– integration of the attendance team giving support to the

branches;

– integration of the attendance service for BPI Rent

Customers.

Sale of Products and Services

2002 saw sales activity via the Telephone maintain its

intensive rhythm – more than 2 million telephone contacts with

Customers were made –, with sales promotion by Email being

introduced in the last quarter, during which period more than

200 thousand Customers were contacted through this medium.

Integration of Divisions

Within the ambit of the BPI Group’s reorganisation, the last

quarter of 2002 witnessed an important rationalisation of the

three Divisions responsible for the management of the Remote

Channels, culminating in the integration of the BPI Internet,

Telephone Banking and Electronic Banking Divisions into a

single unit; the New Channels Division.

New BPI Branch

The New BPI Branch explores and evolves the concept of the

branch as a privileged place for fostering contact with the Customer

with a view to promoting sales. The new layout affords ideal

conditions for personalised attendance, and offers the Customer

privacy and comfort. The new-look branch also has a fully-

-automated section that is easily accessible 24 hours a day, where

Customers can avail themselves of a wide range of banking service

and operations at their leisure and convenience, and benefiting

from an attractive pricing, thereby stimulating the migration of low

value-added transactions to the alternative channels.

The attendance zone is designed to provide greater interaction

with the Customer – through the removal of virtually all physical

barriers – and a one-to-one interaction in the more time-

-consuming and / or complex banking operations, while offering

the Customer more privacy and comfort. The automatic zone is

made up of last generation equipment which permits the access

to a vast array of banking services and operations:

– an Internet space providing access to BPI Net – Banco BPI’s

homebanking service – and, therefore, the opportunity to take

advantage of practically all the Bank’s products and services,

as well as access to the BPI Group’s other sites;

– the BPI Directo service, the telephone banking service which

permits, besides consultations, the carrying out of more

involved transactions, such as the payment of services or the

execution of stock market operations;

– cheque distribution and processing machine, which

dispenses immediately crossed cheques and has the

following additional functionalities: cheque requisitions and

cheque deposits which are immediately receipted and

recorded in accounts, account transfers and consultation of

account movements and NIB.

– intelligent deposit machine, which certifies and immediately

records the movements in the Customer’s account;

– automatic teller machine (ATM)

Banco BPI’s new branch model is being implemented in a

gradual fashion. At the end of 2002, 24 branches had been

remodelled, with this figure expected to reach 100 units by the

end of 2003.


CORPORATE BANKING, INSTITUTIONAL BANKING AND PROJECT FINANCE


The trend in Corporate and Institutional Banking’s loan and

guarantee portfolio in 2002 was affected by the increased

selectivity in lending, subordinated to stricter criteria as

regards the return on shareholders’ equity and attendant risk,

in tandem with the strategy aimed at the concentration of

lending activity in the domestic market.

This policy had a greater impact on the reduction of loan

and guarantee portfolios relating to the wholesale and large

companies’ segments, which was partially offset by the

activity expansion in Project Finance and Institutional

Banking business. The loan and guarantee portfolio fell by

roughly 4% in 2002. The total resources taken by Corporate

Banking amounted to EUR 1 682 at the end of December

2002, 1.7% higher than in December 2001. At the same

time, it is worth noting the growth of around 12% in

commissions received from Customers.

Corporate Banking, Institutional Banking and Project Financeloans and guarantees Amounts expressed in millions of euro

∆%20022001

Loans and guarantees

Wholesale Banking 4 214.0 3 622.6 (14.2%)

Large companies 2 416.0 2 275.6 (5.8%)

Medium-sized companies 2 292.0 2 239.6 (2.3%)

Project Finance 383.7 623.2 62.4%

Institutional Banking 422.0 569.0 34.8%

Loans and guarantees 9 727.7 9 329.9 (4.1%)

Leasing, Factoring and LTR 785.9 810.9 3.2%

Total 10 513.6 10 140.8 (3.5%)

Table 11

Corporate Banking,Institutional Banking andProject Finance loans andguarantees

Bi.€

12

9

6

3

0

Chart 18

98 99 00 01 02

GuaranteesLoan portfolio

5.5

6.5

9.39.6

9.3

Corporate Banking,Institutional Banking andProject Finance Customerresources

Bi.€

2.4

1.8

1.2

0.6

0

Chart 19

98 99 00 01 02

0.9

1.2

1.7 1.6 1.7


Physical network

Corporate Banking, Institutional Banking and Project Finance

manage in an integrated manner the Bank’s relationship with

some 14 thousand BPI corporate and institutional Customers

and the respective product range. Following the autonomy of

the Wholesale Banking area in the second half of 2002,

Customers have been separated into five segments in

accordance with their respective business turnovers –

Wholesale Banking, Large Companies and Medium-sized

Companies –, and according to their specific business mission

– Project Finance and Institutional Banking –, with the

overriding objective of tailoring the Group’s products and

services to each segment’s characteristics and requirements.

Corporate Banking and Institutional Banking have their own

dedicated commercial networks – the corporate and

institutional centres – which ensure proximity, concentration

and efficiency in the service offered to Customers. The Project

Finance area is dedicated to the organisation, mounting and

participation in project finance operations and public-private

partnerships, as well as in other structured finance deals.

Virtual channels

During 2002 the Electronic Banking service for Companies

continued to expand in terms of the number of users, reaching

around 4 300 active Customers and recording a monthly1

figure for payments and collections of EUR 840 million.

In tandem with this growth, Banco BPI prepared the launching

of a new service – BPI Net Empresas – a Web solution that will

become operational in the first quarter of 2003.

For Banco BPI Customers, the service is much simpler to use

and offers a greater number of functionalities. For Banco BPI,

because the new platform is supported by the same

infrastructure as that of BPI Net and BPI Directo to

individuals, it creates synergies that result in cost savings in

terms of development and maintenance.

Physical network

Customers Centres (no.)

Wholesale1 4

Large companies2 7

Medium-sized companies3 44

Project Finance 1

Institutionals4 5

Virtual channels

BPI Net Empresas

www.bpinetempresas.pt

BPI Electronic bank

1) 70 biggest business groups.2) Turnover above EUR 25 million.3) Turnover between EUR 1.25 million and EUR 25 million.4) Local authorities, autonomous regions, social security system, universities,

public utility associations and other non-profit entities.

1) In December 2002.

WHOLESALE BANKING, LARGE AND MEDIUM-SIZED

COMPANIES

Created in the first half of 2002, the Wholesale Banking

Division manages a commercial relationship with the

70 biggest business groups through its 4 corporate centres.

Large Companies Banking, directed at the segment where

corporate Customers have turnovers in excess of EUR

25 million, is supported by a network of 7 specialised

centres. The Medium-sized Companies Banking area –

whose exclusive network of 32 centres (and 12 additional

specialised areas at the retail branches) ensures it national

coverage – caters for companies with annual sales of

between EUR 1.25 and EUR 25 million.

At the end of 2002, the creation of the Credit Risks Division

started the process of granting autonomy to the risk-

-management function in the large and medium-sized

companies segments. This functional specialisation seeks

to create the conditions for the intensification of the

commercial activity undertaken by the network dedicated

to these segments.

The slowdown in economic activity and the consequent

deterioration in the corporate world’s operating conditions

led to greater selectivity in the Bank’s lending policy, with

particular emphasis on the large business groups and major

companies. This policy privileged the Customers with whom

the Bank can foster an in-depth and more encompassing

relationship, thereby contributing to profitability increase

boosted by the selective lending policy pursued.

The volume of the ALD, factoring, real estate and equipment

leasing portfolio in the corporate segment totalled EUR

735.9 million at the end of 2002.

Of the commercial activity conducted in 2002, the following

operations merit special mention:

– adjudication by Carris of a mandate to BPI, jointly with the

La Caixa Group and Depfa Bank, for the mounting,

organisation and underwriting of a EUR 100 million bond

issue guaranteed by the State;

– advising REFER in the analysis of proposals and mounting

of medium and long-term structured financing in the

amount of EUR 500 million, including giving support in

the "shadow rating" process in association with two of the

world’s leading rating agencies.

Investment support

BPI maintained its prominent position in lending support for

productive investment in 2002, having signed protocols and

negotiated credit lines earmarked for supporting the funding

of investment and development projects.

Protocol within the ambit of the Programa Operacional da

Economia

Banco BPI has had an extremely active involvement in the

launching and dynamic promotion of the Programa

Operacional da Economia (POE – a programme offering

financial grants for business investment projects). In this

context, the bank signed a protocol for the reception and

financing of candidatures to the Sistema de Incentivo à

Modernização Empresarial (SIME – incentive scheme for

business modernisation) and organised a gathering of some

800 businessmen for the purpose of disseminating the

Programme. Banco BPI was indicated as the support bank in

some 25% of the grant applications submitted under the

SIME programme to the coordinating bodies until the end of

2002.



EFTA Fund

The EFTA Fund for the Industrial Development of Portugal

ceased its activity on 31 January 2002.

During its 25-year existence, the Fund contributed decisively to

the modernisation of Portugal’s manufacturing capability.

Starting with an amount of USD 100 million placed at Portugal’s

disposal by the Contributor States, the Fund supported 1 747

projects on the mainland and in the Autonomous Regions

(Madeira and the Azores) providing some EUR 789 million, and

was responsible for the creation of more than 14 000 new jobs.

Since the 6th year of its activity the EFTA Fund has generated

funds which permitted reimbursing and providing an adequate

return on the investment made by the Contributor States. At

the time of its extinction and in terms of its statutes, the EFTA

Fund handed over to the Portuguese State net assets worthing

about EUR 150 million more.

At the beginning of the year, Banco BPI acquired from the

Portuguese State the EFTA Fund’s loan portfolio, which was

then incorporated into the Bank’s company loans portfolio.

The closure of the Fund’s activity was marked by the final

meeting of the Steering Committee in Lisbon and a ceremony

attended by representatives from the Portuguese government

and the Contributor States who have been associated to the

Fund’s creation in 1977, as well as from other entities that

contributed to the success of its functioning.

Protocol with the Instituto de Financiamento e Apoio ao Turismo

A protocol was signed at the end of the year with the

Instituto de Financiamento e Apoio ao Turismo (IFT – an

institute providing finance and support for tourism) setting

up a credit line of EUR 50 million for supporting companies

in the tourism sector.

EIB and KFW credit lines

A new credit line was contracted with the European

Investment Bank (EIB) for a global amount of EUR 50

million. Furthermore, a new line totalling EUR 100 million

was contracted with the KFW.

Principal indicators of the EFTA Fund's global activity

No. of projects financed 1 747

Amount financed (EUR million) 789

Investment amount (EUR million) 3 082

No. of work positions created 14 414

No. of work positions stabilised 174 000

Accumulated results (EUR million) 150

Table 12

PROJECT FINANCE

In Portugal, 2002 was characterised by an slowdown in the

rhythm of new infrastructural projects launched. This

deceleration can be ascribed on the one hand, to the

domestic political and economic situation that led to the

holding of elections in March and the implementation by the

new government of a restrictive budgetary and financial

policy, and on the other, to the weak economic growth.

Notwithstanding this unfavourable scenario, the portfolio of

loans contracted in the form of project finance grew by 32%

in 2002 to around EUR 950 million. BPI continued to mark

a strong presence in the project finance market in Portugal.

Amongst the most noteworthy operations were the structuring

and mounting (in its capacity as lead arranger) of the

financing required for the extension of the Vialitoral

concession under the virtual toll regime on the island of

Madeira, and the support given to the MTS Consortium

(comprising the Barraqueiro Group, Siemens, MotaEngil,

Teixeira Duarte and Sopol), winner of the tender for the

construction, operation and maintenance of the Tejo South

Bank light-rail system, and to Ferrovial in the tender

integrated in the National Roads Programme for the Greater

Oporto district.

BPI’s Project Finance area also bolstered its activities in the

structuring of public-private partnerships and in the

conception of structured finance solutions for the

administrative and business public sector, in close

collaboration with the Institutional Banking and Wholesale

Banking areas.

In the sphere of public-private and public administration

partnerships, the following initiatives warrant special

reference:

– consultancy services to Parcerias.Saúde (Ministry of

Health), with a view to defining and structuring a public-

-private model to adopt within the scope of the programme

approved by the government for the construction of ten

new hospitals;

– financial advisory services rendered to the Azores regional

government for the structuring, launch and negotiation of

the motorway concession on the island of São Miguel. At

the present moment, the bids submitted under the

respective international public tender are being appraised;

– financial advisory services provided to the IGA –

Investimentos e Gestão da Água, the entity responsible for

the supply of high-level water in the autonomous region of

Madeira, for the purpose of studying alternative models for

organising and structuring the water-supply sector in the

region;

– financial advisory services provided to the Administração

do Porto de Lisboa (Lisbon Port Authority) within the ambit

of the concessions entered into its area of influence.


As regards the Bank’s involvement in the structuring and

mounting of financial restructurings and financing solutions

in the Public Business Sector, the most noteworthy

operations were the participation at various levels in the

organisation and mounting of financing of the new football

stadiums for the Euro 2004 tournament; consultancy work to

CLC Madeira (Galp Group) for the structuring and mounting

of financing the project for the installation of a logistical fuel

facility in Madeira; and furthermore, the permanent financial

advisory mandates to Transgás (monitoring and updating the

concession’s economic and financial model) and to AdP

(support in the structuring of the finance for the multi-

-municipal systems, with special reference to the

negotiations with the European Investment Bank).

In the municipal arena, BPI pursued its activity directed at

supporting and advising several municipalities, namely, in

the conduct of studies and involvement in the negotiations

with municipal service concessionaires, in particular, those

in the water and sanitation sector, as well as support for the

structuring of urban re-grading and conservation

programmes.

On the international front, the highlight was the provision of

financial consultancy services in Angola to the Luanda

Provincial Government within the ambit of the structuring of

a public-private partnership model in the sector for the

collection, transportation and treatment of solid waste and

sanitation in association with the GIBB, and BPI’s

participation in the syndication phase of the following

financing deals:

– Infraspeed B.V., concessionaire of the High Speed Link

railway project (connection between Amsterdam and the

Belgium border and an integral part of the Trans-European

Network), promoted by Holland in a public-private

partnership / project finance regime;

– Tubelines, concessionaire responsible for the renovation

and maintenance of three London underground lines.


INSTITUTIONAL BANKING

BPI’s Institutional Banking Division concentrates on the sale

via the commercial network of specially-designed financial

products and services to meet the needs of local authorities,

Autonomous Regions, Central Administration services and

institutes, including Universities and the Social Security

Department, public utility associations and other non-profit

entities. Its activity is backed by a network comprising five

institutional centres – North, Centre, South, Madeira and the

Azores. In 2002, BPI paid special attention to the quality of

its services, thereby enabling it to consolidate its image and

broaden its Customer base. The portfolio of loans (including

leasing and factoring) and guarantees conceded by

Institutional Banking expanded by 38% in 2002 to EUR

643.6 million, while resources taken totalled EUR 198.5

million.

In the present context of curbs on local finances, the Bank

gave priority to identifying cooperation opportunities which

permit local authorities to maintain to the extent possible an

adequate level of service quality to citizens and the normal

realisation of investment projects under way.

The loans advanced and guarantees issued – associated in

particular with the investment made by local authorities

under the 3rd Community Support Framework and social

housing projects – maintained a positive evolution, with a

substantial increase being observed in leasing and factoring

activity.

The attraction of resources was naturally affected by the

progressive realisation of legal enactments which attribute to

the Directorate-General for the Treasury the role of the

"State’s Bank", responsible for the direct management of the

Central Administration’s financial resources and the State’s

funds and autonomous services. Despite these factors, the

movement remained stable in comparison with the previous

year given the growth noted in Institutional Banking’s

Customer base.

In 2002, BPI lead-managed a series of important operations,

amongst which the following:

– a long-term structured loan of EUR 80 million to the

Lisbon Municipal Council made by BPI jointly with

Invercaixa (of the La Caixa group) – as lead managers –,

Depfa Bank and Caixa Galicia, which won the biggest

municipal loan operation of 2002 in an international

tender. This group of banks was responsible for the

operation’s mounting, organisation and underwriting;

– advising in the updating of the Lisbon Municipal Council’s

international rating and in the Autonomous Region of

Madeira’s procurement of an international rating and the

reception of new advisory mandates in the attribution of

international ratings for the municipal councils of Oporto,

Sintra and Vila Nova de Gaia;

– medium and long-term loan operations involving large

amounts for the financing of social housing projects under

the III Community Support Framework, as well as for major

municipal works forming part of the Euro 2004 event –

the European Football Championship, currently being

undertaken by the country’s main local authorities.


International Commercial Banking

BANCO DE FOMENTO ANGOLA

Banco de Fomento Angola (BFA) is an Angolan-law bank and

resulted from the transformation in July 2002 of the former

Banco BPI' overseas branch. The bank was incorporated with

an initial capital of USD 30 million, all of which is owned by

the BPI Group.

Banco de Fomento has been present in Angola since 1993

and has been owned by the BPI Group since 1996, year in

which Banco de Fomento e Exterior was acquired.

At 31 December 2002, the shareholders’ equity invested in

BFA totalled EUR 40.7 million, which corresponded to 3.5%

of the BPI Group’s shareholders’ equity.

BFA’s activity is predominantly directed at providing support

for Angola’s business sector, namely, support for external

trade and investment, reorganisation and modernisation

projects. The attraction of resources also plays a very

important role in the bank’s business. At the end of 2002,

BFA was second-ranked bank with a market share of more

than 25%.

BFA’s network – in continuous expansion over the last 10

years – comprised 17 branches at the end of 2002, making

it the country’s second largest banking network.

In 2002, BFA registered increases in assets and Customer

resources of 11% and 14%, respectively. However, the most

pronounced growth was recorded in its loan portfolio (net), in

the order of 54%, of which only 1.3% are loans in arrears.

This reflects the strict policy which has been followed in the

concession of loans.

The end of the war in Angola and the inherent prospects for

the normalisation of civil and economic life in the country,

justify the optimistic outlook for the future of banking

activity in the next few years.

The ongoing expansion of Banco Fomento de Angola’s

commercial network– a further 13 branches are scheduled

to be opened in 2003, 10 of which outside of Luanda –

coupled with the technical experience accumulated by its

human resources, place the bank in a favourable position to

take advantage of these expectations.


Banco de Fomento Angola principal indicators Amounts expressed in millions of euro

PositionShare1∆%120022001

Assets 503.8 557.4 11% 23.9% -

Loans to Customers (net) 53.9 82.8 54% 19.9% #3

Customer deposits 353.2 401.8 14% 27.9% #1

Contribution to BPI Group consolidated net profit2 25.9 16.6 (36%) - -

No. of Employees 228 286 25% - #2

Branches 16 17 6% - #2

1) At the end of October 2002, except for the caption Assetswhose market share refers to March 2002

2) Contribution of the former Banco BPI's branch until June 2002 and Banco de Fomento Angola since then.

Table 13

Report | International Commercial Banking 63

BANCO DE FOMENTO MOZAMBIQUE

Banco de Fomento Mozambique (BFM) is a local-law

commercial bank, 100%-controlled by the BPI Group since

1996 when Banco de Fomento e Exterior was acquired.

BFM essentially focuses on the corporate and medium-high

and high-income individuals’ segments.

At the end of 2002, BFM’s shareholders’ equity amounted to

EUR 13.3 million – equivalent to 1.1% of the BPI Group’s

shareholders’ equity – occupying 5th position in general

terms in the Mozambican banking system.

The volume of Customer deposits was EUR 77 million at the

end of 2002, and the loan portfolio (net) EUR 42 million.

On the same date, BFM had a network comprising

7 branches and a staff complement of 121.

Banco de Fomento Mozambique’s performance in 2002 was

affected by the adverse macroeconomic background.

Nonetheless, BFM was able to preserve its base of recurring

revenues, at the same time as additional income was derived

from the efforts made to recover loans in arrears. As a result,

the contribution to the Group consolidated net profit for the

year increased from EUR 0.5 million in 2001 to EUR 2.3

million in 2002.

On the operating front, the most noteworthy developments

were the intense work aimed at the installation of ATMs and

POS at the principal focal and retail points in Maputo, and

the participation of BPI Dealer Moçambique – wholly-owned

BPI Group subsidiary – in the Public Offer for Sale of the

company Cervejas de Moçambique and in the subscription of

Mozambique State treasury bonds.

Finally, the prestigious magazine "The Banker" rated Banco

de Fomento Mozambique "Bank of the year" in Mozambique

in 2002.

Banco de Fomento Mozambique principal indicators Amounts expressed in millions of euro

Position1Share1∆%20022001

Assets 109.7 102.8 (6%) 6.9% #5

Loans to Customers (net) 48.4 42.4 (13%) 9.8% #4

Customer deposits 85.0 77.1 (9%) 8.4% #5

Contribution to BPI Group consolidated net profit 0.5 2.3 346% - -

No. of Employees 113 121 7% - #5

Branches 5 7 40% - #5

1) Sectorial data referring to December 2002, except for Banco Austral, whose figures refer to the end of 2001.

Table 14

In February 2003, the Chairmen of the Management Boards of

the BPI Group and Caixa Geral de Depósitos Group (Portugal’s

largest financial group) presented to the Mozambican

authorities a proposed merger of the activities of Banco de

Fomento Mozambique and Banco Comercial e de Investimentos

(BCI), the latter being the 4th largest credit institution presently

operating in Mozambique.

The realisation of this merger will give origin to a bank that will

have a network of 31 branches and a market share of almost

20%, thereby transforming it into the 2nd biggest credit

institution within the Mozambican banking system. The merger

will benefit from the complementarity that currently exists

between the banks’ commercial networks and the positions

held in the various market segments.

Projected merger between Banco de Fomento Mozambique and Banco Comercial e de Investimentos


BANC POST

BPI has owned a shareholding of 17% in the Rumanian

commercial bank, Banc Post, S.A. since 1999. The amount

of this investment is EUR 17.4 million.

Formerly a public-sector bank, Banc Post became a fully-

-fledged privatised bank in November 2002. Its principal

shareholders include, besides BPI, Bank Eurobank EFG

Ergasias, one of Greece’s major financial groups.

Banc Post holds a prominent position in the segments

comprising small and medium-sized companies and

individuals in the medium-high income bracket.

The bank has its own network of 151 branches and a further

748 points of sale within the ambit of the partnership

accord with the Rumanian postal services. Banc Post also

boasts the largest network of ATMs and POS in Rumania. At

the end of 2002, there were more than 1 million of the

bank’s credit cards in circulation.

Banc Post’s activity has benefited from Rumania’s economic

convergence with the European Union, in line with its

candidacy for accession.

Banc Post principal indicators1 Amounts expressed in millions of euro

PositionShare∆%20022001

Assets 577.7 623.4 8% 4.1% #7

Loans to Customers 152.0 173.3 14% 3.8% #7

Customer deposits 382.7 436.3 14% 4.6% #7

Contribution to BPI Groupconsolidated net profit2 3.3 (0.3) (110%) - -

No. of Employees 3 440 3 451 0.3% - -

Branches 126 151 20% 14% #4

1) Prepared in accordance with IAS – International Accounting Standards.2) Share in net profit corresponding to the BPI Group 17% shareholding.

Table 15

Insurance

Report | Insurance 65

In the insurance area BPI has a strategic partnership with

the world wide sector leader – the German group Allianz.

This association has been cemented through BPI’s 35%

stake in Allianz Portugal and the distribution agreement

under which insurance cover is marketed via the Bank’s

commercial network.

Thus, BPI Customers have at their disposal a comprehensive

array of insurance products ranging from non-life cover –

motor car, household all risks, fire, building works and

installations, public liability and theft, personal accident,

sickness, unemployment, hospitalisation and dental

treatment – to life assurance – death and disability.

BPI Customer Global Satisfaction Index

2002

Chart 20

66% 68% 70% 72% 74% 76%

2001 69%

74%

Increase in the level of global satisfaction of BPI Customers

According to the results of a study covering bancassurance

Customer satisfaction conducted by a renowned multinational

market survey company – sigma.dos – the level of global

satisfaction of BPI Customers who had subscribed for

insurance cover from Allianz attained a value of 74% in 2002

(69% in 2001). In similar vein, Allianz obtained very

encouraging results in the individualised analysis of each one

of the attributes considered – «Efficiency in service provided»,

«Speed in resolution of claims», «Company’s prestige», etc. –

having evolved more favourably than its competition in 7 of the

survey’s 8 attributes.

The positive results achieved are reflected in the levels of

activity, revenues and penetration levels registered: in 2002,

the amount of commissions earned rose by 75% to EUR

10.6 million. Life assurance and general insurance

premiums in 2002 were respectively EUR 24.9 million and

EUR 24.0 million. The growth rates for these premiums

compare very favourably with the average growth recorded by

the sector, outstripping this average by 23 p.p. in the life

assurance segment and by 29 p.p. in the non-life (general)

insurance segment.

The insurance penetration rate amongst BPI’s individual

Customer base has also evolved positively, to be situated in

2002 at 22% in the life assurance segment (19% in 2001)

and 14% (11% in 2001) in the non-life (general) insurance

segment.

CommissionsIntermediation of insuranceproducts

M.€

12

9

6

3

0

Chart 21

98 99 00 01 02

1.2

2.1

3.4

6.0

10.6

Asset Management

OVERVIEW

The volume of assets managed by BPI remained virtually

unchanged in 2002, standing at EUR 7 513 million at 31

December. This trend is indeed particularly positive when

one considers that 2002 was characterised by the continuing

adverse climate for asset management activity, notably, as

regards those products which have greater exposure to �

the instability pervading the equities markets. This situation

led investors to opt for more conservative investments, such

as life assurance or money market funds. Products designed

for the setting up of Retirement / Education Savings Plans

represented, at the end of 2002, 24% of the universe of

unit trust (mutual) funds and capitalisation insurance.


1) Corrected for double recording.

Creation of a risk management area

Within the ambit of Asset Management activity, a Risk

Management Area was created in 2002 with the objective of

optimising the use of techniques for adjusting risks to the

commercial goals of financial products; a new unit that

results in an increase in the value of the service provided to

Customers and in management capability. This unit, which is

independent from the Portfolio Management Area, reports

directly to Management and has as its mission supporting

the decision-making process and contributing to a better

insight into risks and their impact.

BPI developed specific tools for the analysis, classification

and quantification of the different risks attaching to the

portfolios under management, and therefore enabling the

portfolio management team, as well as the compliance team,

to monitor the risks defined.

The increase in demand for unit trust (mutual) funds with a

more conservative profile gave origin to an increase in the

relative importance of bond funds. Operations in this area

also entailed boosting credit risk control over the bond

component of portfolios. One of the methods resorted to was

evaluating the bankruptcy probabilities supplied by KMV, one

of the world’s top specialists in credit risk.

Assets under management Amounts expressed in millions of euro

2002 ∆% 01 / 022001200019991998

Unit trust (mutual) funds 3 752 3 776 3 787 3 748 3 505 (6.5%)

Pension funds 1 672 1 795 1 893 1 984 1 980 (0.2%)

Life assurance 956 994 1 046 963 1 170 21.5%

Institutions 339 345 338 316 238 (24.7%)

Private Banking 1 340 1 417 1 546 1 382 1 264 (8.5%)

Assets under management1 7 009 7 249 7 639 7 545 7 513 (0.4%)

Table 16

Assets undermanagement

Bi.€

8.0

7.5

7.0

6.5

6.0

Chart 22

98 99 00 01 02

7.0

7.2

7.67.5 7.5

Report | Asset management 67

UNIT TRUST FUNDS

Despite the steep declines posted by the equities markets

(in the great majority of cases in excess of 30%), which had

a strong impact not only on the capital growth of the assets

under unit trust fund management, but also on investors’

demand for other alternatives for their investments, BPI’s

portfolio of unit trust (mutual) funds declined only 6.5% �

to EUR 3 505 million at the end of 2002. Taking into

consideration only those funds domiciled in Portugal, BPI

Fundos presented a market share of 16.9% at the end of

2002, placing it in fourth position in the ranking of

Portuguese fund management companies.

Of BPI’s total unit trust funds, 13% are placed with the

Investment Bank’s Private Banking Clients, while 84% �

form part of the portfolios of Banco BPI individual

Customers.

Trend in volume of BPI unit trust funds Amounts expressed in millions of euro

2001 2002200019991998

Bonds and money market 1 158 1 253 1 126 1 487 1 631

Capital growth (equities) 435 504 528 334 192

Tax efficiency (PPR/E and PPA) 971 1 089 1 125 1 163 1 142

Diversification 1 141 893 964 764 541

Total 3 705 3 740 3 743 3 748 3 505

Funds of funds 47 36 43 0 0

Table 17

Distribution of BPI unit trust funds Amounts expressed in millions of euro

2002 %2001 %2000 %

Banco BPI individual Customers 2 955 78% 2 968 79% 2 955 84%

Private Banking 635 17% 580 15% 454 13%

Other 197 5% 200 6% 96 3%

Total 3 787 100% 3 748 100% 3 505 100%

Table 18

Unit trust funds undermanagement

Bi.€

4.0

3.5

3.0

2.5

2.0

Chart 23

98 99 00 01 02

3.793.75 3.78 3.75

3.51

Individuals Banking (84%)Private Banking (13%)Other (3%)

Distribution of BPI unittrust fundsAt 31 December 2002

Chart 24


CAPITALISATION LIFE ASSURANCE

Business written by BPI Vida at the close of 2002 was

EUR 211.9 million, which corresponds to growth of 67%

relative to 2001. �

The less appealing behaviour of the stock markets was

beneficial for the selling of guaranteed-capital and profit-

-sharing products (BPI Novo Aforro Familiar).

The increase in new business written by BPI Vida is due to

the following factors:

– the significant increase in sales (net of redemptions /

/ withdrawals) of BPI Novo Aforro Familiar when compared

to the same period of 2001 (+100%), thanks to the

continuing commercial drive embarked on in 2001 and

to Customers’ interest in risk-free products at a time of

appreciable instability on the stock markets;

– extending the offer of insurance in participating units, with

Customers being given the possibility of managing their

investments in a flexible manner through the selection of

funds with varying risk profiles, managed either by BPI

Vida (seven funds) or by the world’s most reputable fund

management companies, namely, Merrill Lynch, Goldman

Sachs, UBS, Schroders and Fidelity, (18 funds);

1) Does not include reinvestments in capitalisation insurance (BPI Guaranteed Rate 3 years – Roll-over).

Capitalisation life assurance business written Amounts expressed in millions of euro

2001 2002200019991998

BPI Taxas Garantidas 2.9 73.0 41.4 40.7 34.8

BPI Novo Aforro Familiar 12.1 21.7 8.5 65.3 130.4

Other 41.0 6.7 5.9 20.71 46.6

Total 56.0 101.4 55.8 126.7 211.9

Table 19

INSTITUTIONAL CLIENTS

The total assets of institutional Clients under management

with discretionary and advisory mandates totalled EUR 238

million at the end of 2002, or 24.7% less than at the end of

2001. This decrease is due on the one hand to the

behaviour of the stock markets, which was responsible for

the decline in asset values and, on the other, to the

departure of three Clients. �

Of the Clients who left, two did so as a result of a change in

their ownership structures, with control being taken over by

competitor financial institutions. The other Client (a Public

Administration body) was the object of internal restructuring,

in terms of which it assumed responsibility for the

independent management of these funds.

– the sales launch of Renda Garantida, a life assurance

product which guarantees the payment of periodic

instalments of a guaranteed amount and which constitutes

an extension of BPI Vida’s product range.

Capitalisation lifeassuranceNew business per year

M.€

250

200

150

100

50

0

Chart 25

98 99 00 01 02

56.0

101.4

55.8

126.7

211.9


BPI Vida had in 2002 one of its most profitable years since its formation and continues to develop innovative new products.

BPI Vida Capitalização – Private Banking

Is an insurance product in participating units conceived for

Private Banking Clients, which allows the Client by means of a

single policy to choose his risk profile and to invest in the

different funds – Ultra-Conservative, Conservative, Balanced

and Aggressive – with an associated dynamic management.

BPI Vida Unit-Linked

This insurance product in participating units allows the Client

to link the advantages of life assurance to the possibility of

opting for diversifying his investments into more than 18

international funds of the most renowned international

investment management companies, namely, Merrill Lynch,

Goldman Sachs, UBS, Schroders and Fidelity.

Renda Garantida

As a result of the BPI Group’s vast experience in the

management of guaranteed rate assets, BPI Vida launched

Renda Garantida (guaranteed income), a life assurance policy

which guarantees the payment of periodic instalments of a

guaranteed sum. BPI Vida also offers its corporate Customers a

supplementary service with the payment of periodic

instalments, payments to the Social Security scheme and the

respective withholding of IRS (personal income tax), thereby

releasing the company from the responsibility to its former

Employees.

PENSION FUNDS

BPI Pensões managed at 31 December 2002 pension fund

financial assets amounting to EUR 1 980 million, a figure

which is practically stationary with that registered at the end of

the preceding year.

At 31 December 2002, BPI Pensões was responsible for the

management of 28 pension funds, of which two were open

funds representing 3.3% of the total amount of assets under

management. The two open funds present different investment

strategies and, consequently, financial placements with varying

degrees of risk, thereby permitting BPI Pensões Clients to

select those most suited to the own risk profile.

The open pension funds have presented a highly positive trend

in recent years, both in value and in the number of members,

collective and individuals. At 31 December, these funds

boasted net assets of EUR 65.8 million relating to 48

collective (corporate) and 327 individual members.

Insofar as BPI Pensões’ operations during the year are

concerned, the main development was the drive to improve

the service offered to Clients, not only in the area of actuarial

management, but also in the arena of managing contributions

and the processing of pension payments, as well as the

upgrading of the company’s site, through which complete and

clear information is channelled to Clients about respective

funds management.

During the year under review, some 70 company pension funds

were the object of actuarial monitoring, pensions were

processed and paid to 14 130 retirees and pensioners

(involving an amount of EUR 132 million), and the

maintenance assured of 2 300 accounts of defined-

-contribution pension plan participants.

Pension Fund Returns

Through the properly structured implementation of

investment policies founded on the permanent control of risk

and global asset allocation, it has been possible to enhance

the long-term performance of pension funds under BPI

Pensões management.


Pension funds undermanagement

2.4

1.8

1.2

0.6

0

Chart 26

98 99 00 01 02

Bi.€

Assets under management

1.71.8

1.92.0 2.0

Open pension funds undermanagement

M.€

80

60

40

20

0

Chart 27

Assets under management

98 99 00 01 02

44

53 53

6366

Pension fundslong-term return

%

10.0

7.5

5.0

2.5

0Chart 28 98-02 96-02 93-02

Median of BPI pensionfunds returnChange in Consumer PriceIndex

3.3 3.2

7.6

3.0

9.1

3.7

Long-term return, calculated

on the basis of the median of

the pension funds’ returns,

over five, seven and ten years,

compared with the change in

the Consumer Price Index


Fixed-rate funds: the best market yields

Banco BPI’s fixed-rate funds, BPI Taxa Fixa PPR/E and BPI Euro Taxa Fixa, posted the best yields amongst the universe of unit trust funds

managed by Portuguese companies (8.78% and 7.40% respectively).

In the category of European Union, Swedish and Norwegian equity funds, BPI Europa Valor and BPI Europa Crescimento presented the

best and third best returns, -24.39% and -28.29% respectively, which compare with the fall of -30.86% that occurred on the European

equities market (MSCI – Morgan Stanley Capital International Europe).

Biggest Poupança Reforma / Educação (Retirement / Education Savings Fund)

At the end of 2002, BPI Reforma PPR/E was the largest investment fund in the category of retirement / education savings

plans, with a volume of managed assets of EUR 616 million.

BPI Liquidez: one of the unit trust funds market’s biggest increases

The demand for low risk investments led to an increase of EUR 278 million in BPI Liquidez (up 37.1% relative to the 2001 portfolio), one

of the biggest volume increases recorded by unit trust funds in the national market.

Life assurance doubles in 2002

In the area of capitalisation life assurance, the portfolio of products offering guaranteed capital and profit sharing doubled in size, with the

universe of portfolios managed by BPI Vida expanded by EUR 207 million.

BPI novo aforro familiar (new family savings): 4.06% in 2002

The capitalisation life assurance Novo Aforro Familiar achieved net subscriptions of EUR 120 million, and generated earnings which

yielded its participants a return of 4.06%, net of commissions.

The results obtained by BPI’s Asset Management area in a year marked by the stock markets’ poor performance around the globe and

against a backdrop of historically very low interest rates, confirms the importance of a proper diversification of investment portfolios

and the advantages of a specialised and experienced management.

Investment Banking

CORPORATE FINANCE


2002 witnessed a slowdown in economic activity, a real

decline in investment and deterioration in the level of

economic agents’ confidence. In tandem with the negative

behaviour of the stock markets, these factors were

responsible for the retraction in the demand for Corporate

Finance services, as regards both the advisory component

and the organisation of market operations.

BPI’s permanent attention paid to satisfying Customers’

requirements and the quality of the solutions proposed –

reflected in the growing loyalty of a diversified group of

Clients – and in spite of the forementioned overriding factors

and the keenly competitive environment, permitted the Bank

to provide, amongst others, the following services in 2002.

Mergers, acquisitions, restructurings and consultancy

Portucel: advising on the reorganisation of the pulp and paper

sector.

Portucel Group: advising on the analysis of investment

decisions and on the preparation of a forestry development

plan.

Unicer: advising on the restructuring of Unicer Águas and on

the analysis of investment decisions.

Partex Oil and Gas (Holdings) Corporation: advising on the

valuation of their oil & gas assets.

Vodafone Telecel: advising on the structuring of a joint venture

with Optimus for the towering activity, and in the process of

the consolidation of Portugal’s mobile telecommunications

sector.

Sonae.Com: organisation, mounting and placing of the capital

increase and the listing of the new shares.

Vizzavi Portugal: advising on sale of the virtual internet service

provider business.

Edinfor: advising on the company’s organisational restructuring.

ACE: advising on the analysis of investment decisions.

Cofina: advising on the valuation of the company’s assets in

the media and Internet and giving support in the acquisition of

TvGuia.

Soares da Costa: advising on the restructuring of the

company’s organisation.

Auto Sueco: advising on the valuation of the company’s

business segments and providing consultancy services in the

restructuring process.

Metro do Porto: advising on the launching of public tenders for

the construction and operation of the second phase of the

surface metro system for the Oporto metropolitan area.

ANA – Aeroportos de Portugal: advising on the preparation of a

feasibility study for the investment project at the Francisco Sá

Carneiro airport, and in the mobilisation of funds from the

European Investment Bank.

ANAM – Aeroportos e Navegação Aérea da Madeira: advising

on the financing of Madeira’s airport

TAP – Air Portugal: support given in the process involving the

reprivatisation of the company’s capital.

Ricon: advising in the restructuring of the company’s

organisation.

As was the case in 2001 and 2000, the negative

background registered in the equities market in 2002 –

the PSI-20 index retreated 26% in this period, while the

Euronext Lisbon’s cash market suffered a year-on-year drop

of 29% in trading volume – was mirrored in the BPI’s

equities business. The PSI-20 has posted an accumulated

decline of 53% since December 1999.

Primary equities market

The primary market was virtually inactive in the period. The

only operations recorded were a few capital increases

reserved for shareholders (one of which involved BPI itself),

Sonae.com’s capital increase reserved for shareholders and

institutional investors lead managed by BPI, and an offer of

securities mandatorily convertible into shares. Another

operation effected was the placing of convertible bonds for

Brisa.

Secondary equities market

The merger by incorporation of BPI Dealer into BPI took

place in 2002. BPI generated commissions of EUR 3.7

million on the secondary market (a negative year-on-year

variation of 25%). Around 92% of this amount refers to the

broking of equities transactions and reflects the increased

weight of commissions earned from equity dealing on foreign

stock exchanges. The market share brokered by BPI Dealer

in the period on Euronext Lisbon was 6.1% in the equities

segment, or virtually unchanged from the 6.2% recorded in

2001.

During this period, BPI continued to organise road shows for

Portuguese and Spanish companies, namely, for Portugal

Telecom, Telecel, Mota-Engil, Gamesa, Banco Popular,

Logista, Ebro Puleva, NH Hoteles and Bankinter.

It is now possible to trade approximately 1,000 financial

instruments on the domestic and international markets via

BPI Online, BPI’s online stockbroking service. BPI started to

offer real-time share dealing on international stock markets

in 2002. In January 2003, this service covered 580

international stocks forming part of the Ibex Geral, CAC 40,

AEX25, MIB30, DAX, OMX (Sweden), BEL20, SMI

(Switzerland), DJIA, Nasdaq-100 and FTSE indices.

Research

Research coverage at the end of 2002 embraced 31

Portuguese companies (99.9% of the PSI-20’s capitalisation

together with 11 small caps) and 45 Spanish companies

(92% of the Ibex’s capitalisation together with 17 small

caps).The principal additions to the list of companies

covered since January 2002 were TPI, Enagás, Aldeasa,

Cepsa and Dragados. Already in January 2003, the following

companies began to be covered: Acerinox in Spain and

Novabase in Portugal.

Trading

Despite the cash market’s negative behaviour, trading activity

(including arbitrage) made a positive contribution of EUR

1.7 million to 2002 results, reversing the situation in 2001.

On the futures market, and in terms of activity on behalf of

Customers and dealing for own account, BPI increased

market share relative to 2001 in PSI-20 index futures (18%

of market share and second position in the ranking) and in

equity futures (60% of market share and undisputed first

place in the ranking). BPI was also a dominant leader

amongst domestic operators in the trading of index futures

and options on the MEFF (Spanish Derivatives Exchange).

Report | Investment banking 73

EQUITIES

BPI’s Private Banking’s service concentrated in 2002 on

broadening the product range and adapting it to the scenario of

steep falls in the capital markets and the succession of

downward revisions to the growth projections for the world’s

leading economies. This concern – to protect and achieve

capital growth from a medium and long-term perspective for

Clients’ assets – is evidenced by the adoption of an investment

and advisory policy that favoured the selection of more stable

income-earning assets as opposed to exposure to higher-risk

assets. �

The total volume of managed assets and loans advanced by

BPI Private Banking at 31 December 2002 amounted to EUR

1 650 million, which represents a decrease of 6% when

compared with the preceding year. Of this figure, EUR 1 264

million refers to assets under discretionary management or

effective advisory mandates (down 9%), EUR 316 million was

associated with stable investments under custody and EUR

70 million represented loans advanced to Clients.

PRIVATE BANKING


BPI (Suisse), S.A.

In July 2002, the physical presence of BPI Private Banking’s

service extended abroad with the creation of BPI (Suisse),

S.A. – a Swiss-law wealth-management company geared to

serving individual high net-worth Clients. �

Investment centres

Within the ambit of BPI’s multi-channel distribution strategy,

a new network was created in 2002 – Investment Centres –

to cater for individual Clients with assets worth more than

EUR 100 thousand.

This new structure – manned by a team of highly qualified

and experienced professionals – has as its mission offering

Clients, in addition to traditional banking services, a

personalised service in investment-decision making.

Principal Private Banking indicators Amounts expressed in millions of euro

2001 2002200019991998

Assets under management 1 340 1 413 1 546 1 382 1 264

Discretionary management 655 729 697 518 511

Advisory services 685 684 849 864 753

Stable investments under custody 338 452 334 373 316

Loans advanced – 58 82 71 70

Table 20

Private Equity

At the end of 2002, the BPI Group’s Private Equity area

managed a group of assets which totalled some EUR 115

million (at balance sheet values).

In the wake of the BPI Group’s restructuring, December saw

the merger by incorporation of one of the area’s vehicles –

BPI Ventures, SGPS, S.A. – into the present Banco BPI,

S.A., in terms of which the latter has assumed by virtue of

the merger the entire universe of the incorporated company’s

legal relationships, both asset and liability-related. The

Private Equity area will continue, however, to manage the

Group’s Private Equity investments through Inter-Risco.

Another noteworthy event was the constitution at the end of

2002 of the Fundo Caravela –a venture capital fund

promoted by the BPI Group –, whose management will be

entrusted to Inter-Risco. This Fund has an initial capital

allocation of EUR 20 million, to be increased to EUR 50

million in the future. Amongst the Fundo Caravela’s array of

investors is the EIF – European Investment Fund. This was

the first operation of its kind realised by the EIF in Portugal.

It should be pointed out that the EIF is today an important

catalyst and key institutional investor in the sphere of

European venture capital, participating in some 185 venture

capital funds in the European Union with a global

investment volume of EUR 2.5 billion.

2002 was marked by a pronounced containment of

investment as a result of the steep downturn in general

economic activity, with special incidence on Private Equity

activity, as evidenced by data characterising venture capital

activity in Portugal and the European Union.

Nevertheless, more than 80 projects were received and

analysed during 2002 by BPI’s Private Equity area,

representing investment intentions in the order of EUR 180

million – corresponding to around 2/3 of the previous year’s

figure. There was an increase in the relative importance of

expansion projects at the expense of proposed start-ups.

In view of prevailing market conditions, there was of course

greater selectivity in the approval and realisation of new

investments.

Accordingly, a mere EUR 2 million was invested during

2002, essentially directed at the reinforcement of existing

investments.

Notwithstanding the scarcity of disinvestment opportunities

as a result of the subdued activity in merger and acquisition

deals, as well as the adverse behaviour of the stock markets,

disposals amounting to EUR 10 million were effected (at

balance sheet values). These related essentially to certain

holdings in small caps and minor investments not

conforming with the area’s present investment policy. Six

shareholdings were sold off completely.

Market

Available indicators relating to Private Equity activity in

Portugal for the first half of 2002 point to growth in

investment vis-à-vis 2001, contrary to the trend noted at

European level. It is important to bear in mind, however, that

the comparative analysis could be distorted by the fact that

a substantial part of the investment made refers to equity

loans (shareholdings with pre-established repurchase prices)

and not pure equity (pure venture capital operations). It is

possible, however, that in the overall analysis for 2002, the

sector recorded in general terms a stabilisation in pure

equity investments, with these relating primarily to ongoing

investments or to the reinforcement of existing

shareholdings.

Report | Private Equity 75

At the end of the year, new legislation was published which

sets out the legal framework for venture capital activity in

Portugal – that could prove to be extremely beneficial for the

sector –, in conjunction with numerous specific support

programmes promoted by national authorities.

Investment strategy

Investment strategy continued to favour projects led by

professional management teams possessing a strategic

business vision, with high growth potential, and equipped

with adequate management information systems. The same

strategy will be follow within the ambit of the Fundo

Caravela’s management.

Investments

The current investment portfolio presents a healthy balance

as regards the various appraisal components: sector,

geographical area and nature of investment.


1) Corresponds to the direct shareholding of Banco BPI (12.28%), of Inter Risco (5.11%), which is 83.64% owned by BPI Group and to the direct shareholding of Fundo FRIE (1.89%), of which Inter Risco is entrusted for its management and it is not reflected in the BPI Group investment portfolio.

2) Corresponds to the direct shareholding of Banco BPI (6.33%) and the indirect shareholding (6.65%) owned through IES.3) Corresponds to the direct shareholding of Inter Risco.

Final consumer (34%)Other manufacturers (19%)Conglomerates (12%)Retailing (11%)IT products and services (11%)Financial services (7%)Other sectors (6%)

Portfolio of Private Equityinvestments by sector of activityAt 31 December 2002

Chart 29

Principal Private Equity holdings

Company % held Activity

Barbosa & Almeida 14.5% Manufacture and sale of glass containers.

Vista Alegre Atlantis1 19.27% Manufacture and sale of table and decorative ware (in porcelain, glazed earthenware, crystal and glass).

Cofina 8.71% Media, ceramics and glass, cellulose.

Ibersol2 12.98% Fast food outlets (Pizza Hut, Goody’s, KFC, O’Kilo, Pasta Café, Frangão,…).

Ensitel 10.78% Retailer of telecommunications equipment.

ParaRede 3.85% Information technology services and products.

Arco Bodegas Unidas3 2.14% Production and commercialisation of wines from the Rioja region.

Fernando & Irmãos (Aveleda) 19.9% Wine production and sales.

Ricon 17.02% Manufacture and specialist retailer of menswear (Gant and Decenio shops).

Altitude Software 9.66% Manufacture and sale of software for contact centres.

Caravela Gest 20.0% Food retailer (Häagen Dazs).

Tecmic 24.45% Microelectronics.

ChipIdea 4.76% Provision of services to the semiconductor / chip design industry.

Multitema 30.23% Printing and production of multimedia content.

WhatEverNet 13.0% Resale of Sun MicroSystems products and provider of services in Java, Internet and systems integration.

TVTEL 25.0% Cable television.

Brasopi 15.03% Specialised menswear retailer (Boxer Shorts by Throttleman shops).

Caderno Verde 23.86% Publishing group in the area of entrepreneurial capacity and the environment.

Teleman 48.89% Provision of services to companies by recourse to teleworking.

Table 21

Financial review

CONSOLIDATED RESULTS

Report | Financial review 77

Overview

BPI’s consolidated net profit in 2002 was EUR 140.1

million, an improvement of 5.1% on 2001. Net profit from

domestic activity grew by 18% and excluding the

contribution from insurance activity increased by 22%.

Earnings per share were situated at 19.2 euro cents

(19.6 cents in 2001).

The growth in consolidated net profit reflects the 9.9%

increase in the contribution from domestic Commercial

Banking activity, which totalled EUR 126.3 million. The

contribution from international Commercial Banking

operations declined by 38% to EUR 18.5 million. The

Investment Banking, Private Equity and other investments

areas were influenced by the negative behaviour of the

capital markets.

The loan portfolio expanded 7.2%, a figure which reflects a

different approach in the segments where BPI operates: the

priority given to mortgage finance continued, while credit

selectivity, in particular in the large corporates segment,

increased. Consequently, mortgage loans grew by 25.6%,

whereas the large companies’ loan portfolio declined 10.7%.

For their part, deposits posted a rise of 6.4%.

Operating income from domestic Commercial Banking rose

by 2.7% to EUR 653.0 million. The decrease in operating

income from banking generated by International Commercial

Banking operations and by the Private Equity and Other

Investments area was responsible for consolidated operating

income from banking falling by 3.8% to EUR 751.0 million.

Administrative overheads, depreciation and amortisation

decreased by EUR 14.3 million (-2.8%), reflecting the

execution of the strategic programme aimed at cost

reduction and greater efficiency. Personnel costs declined

0.9%, outside supplies and services fell 6.1% and

depreciation and amortisation decreased by 3.2%.

Accordingly, the efficiency ratio1 continued to show an

improvement, falling from 68.3% in 2001 to 67.1% in

2002.

At the close of 2002, the ratio of loans in arrears for more

than 90 days was situated at 1.3% (0.9% in 2001), while

the respective provisioning cover stood at 153%.

At 31 December 2002, the ratio of own funds requirements,

calculated in accordance with the Bank of Portugal’s rules,

was 10.2% and 7.3% for Tier I (ratios of 11.4% and Tier I

of 7.4%, according to the BIS international requirements).

1) Relationship between administrative overheads plus depreciation, and operating income from banking, excluding profits from financial operations.

Net profitM.€

160

120

80

40

0

Chart 30

98 99 00 01 02

137.0

124.8

152.4

133.3140.1


Consolidated income statement Amounts expressed in millions of euro

2002 ∆%2001

Net interest income (narrow meaning) 479.7 477.2 (0.5%)

Income from securities (variable yield) 15.9 10.4 (34.7%)

Net interest income 495.6 487.6 (1.6%)

Commissions and other similar income (net) 225.3 229.2 1.7%

Recovery of loans in arrears written-off 18.9 14.7 (22.2%)

Profits from financial operations (net) 40.6 19.5 (51.9%)

Operating income from banking 780.3 751.0 (3.8%)

Personnel costs 288.3 285.7 (0.9%)

Other administrative overheads 165.0 155.0 (6.1%)

Depreciation and amortisation 51.8 50.2 (3.2%)

Administrative overheads and depreciation 505.1 490.8 (2.8%)

Net operating income before provisions 275.2 260.2 (5.5%)

Provisions (net) 84.5 68.1 (19.4%)

Net operating income 190.6 192.1 0.7%

Net extraordinary items 5.0 (5.3) (205.7%)

Profit before taxation 195.7 186.7 (4.6%)

Corporate income tax 59.6 44.7 (25.0%)

Profit after taxation 136.0 142.0 4.4%

Equity-accounted results of subsidiaries 14.5 7.9 (45.6%)

Minority shareholders’ share of profit 17.3 9.8 (43.2%)

Net profit 133.3 140.1 5.1%

After-tax cash flow 269.6 258.4 (4.2%)

Table 22


For purposes of segmental analysis, four business areas have

been defined: domestic Commercial Banking, international

Commercial Banking, Investment Banking and Private Equity

and other Investments. Domestic Commercial Banking

business corresponds to banking activity carried out with

companies and individuals in Portugal and includes the

provision of banking services to non residents, namely to

emigrant communities and the Madrid branch. International

Commercial Banking activity refers principally to business

operations conducted by Banco de Fomento Angola and by

Banco de Fomento Mozambique, including also the

incorporation of results corresponding to the 17%

shareholding in Romania’s Banc Post. At 31 December 2002,

the book value of shareholders’ equity employed in Commercial

Banking activity abroad was EUR 71.4 million, that is,

6.1% of the Group’s shareholders’ equity.

Results by business areas

Domestic Commercial Banking activity posted a growth in

net profit of 9.9% in 2002 to EUR 126.3 million which, in

turn, can be attributed to the higher operating income

banking and the reduction in costs. These two factors

compensated for the higher level of provisioning when

compared to the preceding year.

The contribution from international Commercial Banking

operations to consolidated net profit fell by 38% in 2002

which reflects the negative effect of the currency revaluation

of the aforementioned equity participations.

Investment Banking contributed EUR 2.9 million to the

Group’s net profit, whilst Private Equity and other

investments made a negative contribution of EUR 7.7

million (EUR -13.9 million in 2001).

Contributions by business area to 2002 net profitM.€

160

120

80

40

0

Chart 31

DomesticCommercialBanking

Consolidatednet profit

InternationalCommercialBanking

InvestmentBanking

Private Equityand otherinvestments

126.3

18.5 2.9 -7.7140.1


Note: For the purpose of computing the return on shareholders’ equity (ROE) by business area, the Group’s companies are divided into four areas: domestic Commercial Banking, international Commercial Banking, Investment Banking, Private Equity and Other Investments. The companies’ contributions to consolidated net profit, shareholders’ equity and weighted assets are, based on this classification, apportioned to each one of the above areas. In determining the capital allocated to each area, it is assumed that each one uses the exact same amount of capital as the Group’s average capital employed. In this manner, the amount of capital allocated to each area is calculated by multiplying the weighted assets by the quotient between shareholders’ equity and the Group’s weighted assets. Whenever the shareholders’ equity of a business area is more (or less) than the allocated capital, it is assumed that there has been a redistribution of capital, whereby that area’scontribution is adjusted by the costs (revenue) resulting from the increase (decrease) in outside resources by virtue of the capital reallocation. The return generated by each area results from the quotient between the adjusted contribution and the capital allocated to the area.

Profitability by business areas

In 2002, the average return on the Group’s shareholders’

equity (ROE) was 13.5%. The ROE from Domestic

Commercial Banking was situated at 13.7%, while

Investment Banking recorded a ROE of 33.4% by virtue

of its relatively minor capital consumption. �

In order to determine profitability, the shareholders’ equity

allocated to each business is adjusted. Taking into account

this adjustment, almost all of the Group’s capital is allocated

to domestic Commercial Banking (93.1% of average capital

in 2002). 1.0% of the Group’s average capital was allocated

in 2002 to international Commercial Banking; 2.3% to

Investment Banking, and 3.6% of capital to the Private

Equity and other investments area.

ROE by business areas Amounts expressed in millions of euro

BPI Group(consolidated)

2001 2002

Private Equity andother investments

2001 2002

Investment Banking

2001 2002

InternationalCommercial Banking

2001 2002

DomesticCommercial Banking

2001 2002

Capital allocated (adjusted) 831.4 965.7 7.6 10.1 24.4 24.3 41.3 37.5 904.7 1 037.6

Net profit 115.0 126.3 29.7 18.5 2.4 2.9 (13.9) (7.7) 133.3 140.1

Adjustment to profit due to capital reallocation 8.5 5.6 (2.6) (1.8) 7.0 5.2 (12.9) (9.1) - -

Net profit (adjusted) 123.5 132.0 27.1 16.7 9.5 8.1 (26.8) (16.8) 133.3 140.1

ROE 14.9% 13.7% 354.4% 165.3% 38.8% 33.4% neg. neg. 14.7% 13.5%

Table 23


Net interest income

M.€

600

450

300

150

0

Chart 33

98 99 00 01 02

338.1 341.1

442.8

495.6 487.6

Loans to CustomersYear-end balance

Bi.€

20

15

10

5

0

Chart 32

98 99 00 01 02

7.5

9.4

13.3

15.316.4

Credit intermediation(82%)Bond portfolio (12.1%)Hedging, treasurymanagement, tradingand other (5.8%)

Net interest incomegeneration2002

Chart 34

Net interest income

Narrow net interest income (excludes dividends) generated

by domestic activity grew by 2.7%, or EUR 11.6 million.

However, the decreases in net interest income from

international operations (by EUR 14.1 million) and in

dividends received (by EUR 5.5 million) were responsible for

consolidated net interest income decreasing by 1.6% in

relation to 2001 (absolute decline of EUR 8.0 million).

Net interest income benefited from the expansion in

business volume, as evidenced by the growth of 6.9% and

6.0% in average remunerated assets and liabilities, which

generated a positive impact on narrow net interest income

(consolidated) of EUR 41.8 million. The rise of 10% in the

average balance on the loan portfolio was the factor behind

the expansion in interest-earning assets.

1) In 2001, included dividends received of EUR 5.5 million from IMC. This investment was sold at the end of 2001.

Net interest income Amounts expressed in millions of euro

∆%20022001

Net interest income (narrow meaning)

Domestic activity 427.5 439.1 2.7%

International activity 52.1 38.1 (27.0%)

Narrow net interest income (consolidated) 479.7 477.2 (0.5%)

Income from securities (variable yield)1 15.9 10.4 (34.7%)

Net interest income (consolidated) 495.6 487.6 (1.6%)

Table 24


1) In relation to the annual average of the 3-month Euribor: interest-earning assets = average rate - Euribor 3Minterest-bearing liabilities = Euribor 3M - average rate

The decrease of 0.29 percentage points in the average

spread between remunerated assets and liabilities had, on

the other hand, a negative impact of EUR 42.7 million

(taking into consideration the increase of EUR 17.2 million

in gains from hedging operations using swaps).

The narrowing of the spread between interest-earning assets

and interest-bearing liabilities resulted from the decrease of

0.25 percentage points in the average spread on resources1,

whereas the interest-earning assets evidenced only a minor

contraction of 0.04 percentage points1.

The diminution in spreads on the resources side was

essentially associated with the reinforcement of the medium

and long-term funding component (which was reflected in

the maintenance of the average costs of debt securities) and

with the background of falling interest rates, particularly

intense in 2001 (the average Euribor three-month interest

rate declined from 4.3% in 2001 to 3.3% in 2002), bearing

in mind that a part of resources, namely, sight deposits, earn

no or close to zero interest.

About 31% of the increase in the average portfolio was

financed by resources taken from Customers – deposits and

structured products – and 45% through issues of medium

and long-term debt.

1) Average spread in relation to the annual average of the 3-month Euribor.

Average interest rates on remunerated assets and liabilities Amounts expressed in millions of euro

2002 Change inaveragespread Average balance Average rate Average spread1

2001

Average balance Average rate Average spread1

Placements with credit institutions 3 401.2 4.6% 0.3% 3 491.8 3.1% (0.2%) -0.54 p.p.

Loans to Customers 14 524.9 6.3% 2.0% 15 984.5 5.3% 2.0% -0.03 p.p.

Bonds and other fixed-income securities 2 514.8 6.7% 2.4% 2 383.7 6.3% 3.0% + 0.52 p.p.

Interest-earning assets 20 441.0 6.0% 1.8% 21 860.0 5.1% 1.7% -0.04 p.p.

Amounts owed to credit institutions 6 251.7 4.7% (0.4%) 6 388.5 3.6% (0.3%) + 0.11 p.p.

Amounts owed to Customers 11 388.0 2.9% 1.4% 11 892.2 2.2% 1.1% -0.27 p.p.

Debt securities 2 772.0 3.1% 1.1% 3 446.9 3.1% 0.2% -0.91 p.p.

Subordinated debt 688.4 5.0% (0.8%) 629.6 4.6% (1.3%) -0.47 p.p.

Interest-bearing liabilities 21 100.1 3.5% 0.8% 22 357.2 2.8% 0.5% -0.25 p.p.

Average spread between remunerated assets and liabilities 2.5% 2.3% -0.29 p.p.

Note: Euribor 3M 4.3% 3.3%

Average total assets 23 462.4 24 996.6

Table 25

Loans to CustomersEuribor 3 monthsDeposits and other remunerated amounts owed to Customers

Interest rates for loans and resourcesQuarterly average interest rates

%

10

8

6

4

2

0

Chart 35

98 99 00 0201

8.15

6.61

3.65

5.22

2.77

3.73

5.28

1.85

3.43

6.49

2.93

5.035.80

2.46

3.45

5.32

2.14

3.12


1) Reconciliation line for the sum of the volume, price and residual effects of the components of remunerated assets and liabilities relative to the value of these effects calculated for the aggregate of remunerated assets and liabilities, by virtue of the fact that the last-mentioned are also influenced by the change in the structure of placements and resources, the effect of which is not evidenced by the sum of the effects of their components.

2) Interest income on liquid and other assets, net of the contributions to the deposit guarantee fund and interest expense on other liabilities.

The following table presents the trends in revenue from interest earned on remunerated assets and the interest cost of

remunerated liabilities.

Trend in interest income and expense Amounts expressed in millions of euro

Residual effect Total change 2002Rate effectBalance effect 2001

Interest-earning assets

Placements with credit institutions 155.5 4.1 (50.4) (1.3) (47.6) 107.8

Loans to Customers 910.5 91.5 (141.2) (14.2) (63.9) 846.6

Bonds and other fixed-income securities 168.6 (8.8) (10.8) 0.6 (19.0) 149.6

Correction by the structure effect1 - (1.1) 0.2 0.9 - -

Income from interest-earning assets 1 234.6 85.7 (202.3) (14.0) (130.6) 1 104.0

Interest-bearing liabilities

Amounts owed to credit institutions 291.0 6.4 (65.9) (1.4) (61.0) 230.0

Amounts owed to Customers 324.8 14.4 (76.5) (3.4) (65.5) 259.3

Debt securities 86.6 21.1 (1.0) (0.2) 19.9 106.5

Subordinated debt 34.8 (3.0) (3.3) 0.3 (5.9) 28.8

Correction by the structure effect1 - 5.1 (1.0) (4.0) - -

Cost of interest-bearing liabilities 737.1 43.9 (147.7) (8.8) (112.5) 624.5

Subtotal 497.5 41.8 (54.6) (5.2) (18.1) 479.4

Other income and costs2 (26.3) (1.6) (27.9)

Net income from swaps and other off-balance sheet operations 8.5 17.2 25.7

Net interest income (narrow meaning) 479.7 (2.5) 477.2

Income from securities (variable yield) 15.9 (5.5) 10.4

Net interest income 495.6 (8.0) 487.6

Table 26


Commissions

Commissions and other similar income from Commercial

Banking posted overall growth of 7.2%, the main highlight

being the higher commission revenues from loans and

guarantees (+9.0%), cards (+7.5%) and insurance broking

(+81%).

The overall trend in commissions and other similar income

(+1.7%) was, however, adversely affected by the decrease in

commissions more directly associated with the equities

markets. Commissions earned from asset management

business fell by 4.1% (EUR -1.1 million) relative to 2001,

but the steepest decline was recorded by commissions from

Investment Banking (-26.7%, or EUR 7.3 million), an area

deeply affected by the slump in commissions earned from

stockbroking and capital market operations, which declined

EUR 3.6 million.

Commissions and othersimilar income (net)

M.€

250

200

150

100

50

098 99 00 01 02

202.2190.7

219.9 225.3

Commercial BankingAsset ManagementInvestment Banking

Chart 36

229.2

Commissions and other income (net) Amounts expressed in millions of euro

∆%2002 %2001 %

Commercial Banking commissions

Commissions associated with loans and guarantees 50.4 22% 55.0 24% 9.0%

Income from cards 38.7 17% 41.6 18% 7.5%

Cheques, transfers and payment orders 16.9 8% 17.1 7% 0.8%

Placement of unit trust funds and depositary services 16.7 7% 14.1 6% (16.0%)

Intermediation of insurance products 5.5 2% 9.9 4% 81.0%

Other Commercial Banking commissions 42.3 19% 45.3 20% 7.2%

Commercial Banking commissions and other income 170.5 76% 182.9 80% 7.2%

Asset Management commissions 27.5 12% 26.3 11% (4.1%)

Investment Banking commissions

Consultancy and valuations 10.5 5% 8.8 4% (15.8%)

Placement of unit trust funds and depositary services 6.0 3% 4.7 2% (21.1%)

Brokerage 5.2 2% 3.9 2% (26.4%)

Portfolio management and advisory mandates 2.6 1% 2.8 1% 8.8%

Primary equities market operations 2.2 1% 0.0 0% (99.7%)

Other Investment Banking commissions 0.8 0% (0.2) 0% (131.5%)

Investment Banking commissions and other income 27.3 12% 20.0 9% (26.7%)

Total 225.3 100% 229.2 100% 1.7%

Table 27


1) In 2001, includes a capital gain of EUR 31.2 million realised on the sale of a participating interest in IMC – Investimentos, Media e Comunicação.

Profits from financial operations

Profits from financial operations amounted to EUR 19.5

million, down 52% (EUR -21.1 million) on 2001. It should

be noted, however, that trading profits in 2001 included the

capital gain of EUR 31.2 million realised on the sale of a

participating interest.

In 2002, the most significant contributions emanated from

gains on fixed-rate instruments (EUR 22.3 million), and

gains from trading in equities and futures (EUR 1.5 million)

and from structured products (EUR 3.1 million).

The gains from equities and equity futures were primarily

derived from domestic trading operations. On the other hand,

trading activity involving interest-rate instruments is centred

on market operations in the euro zone, USA, United

Kingdom, converging European markets.

Profits from financial operations%

24

18

12

6

0

-6

Chart 37

1998 1999 2000 2001 2002

Profits from financial operations1 (left-hand scale)Profits from financial operations as % of operatingincome from banking (right-hand scale)

M.€

40

30

20

10

0

-10

1) Quarterly figures.

Profits from financial operations Amounts expressed in millions of euro

∆ M.€2002 %2001 %

Interest rate instruments 9.7 24% 22.3 114% 12.7

Equities and equity futures (4.4) (11%) 1.5 8% 5.9

Structured products 1.0 2% 3.1 16% 2.1

Private Equity1 33.5 82% (4.7) (24%) (38.1)

Currency gains 0.3 1% (0.7) (4%) (1.1)

Other 0.7 2% (1.9) (10%) (2.6)

Total 40.6 100% 19.5 100% (21.1)

Table 28


Administrative overheads, depreciation and amortisation

The 2.8% decrease in administrative overheads, depreciation

and amortisation when compared with 2001 reflects the

impact of the rigorous execution of the operational

rationalisation programme in progress in the period

2002-2004. This involves the reduction in the number of

staff, the proactive management of the branch network, the

simplification and automation of operating processes, and

the intensified use of virtual channels.

The indicator "administrative overheads, depreciation and

amortisation as a percentage of recurring income" (operating

income from banking excluding profits from financial

operations) improved from 68.3% in 2001 to 67.1% in

2002, in other words, it fell by 1.2 percentage points.

Personnel costs

Personnel costs decreased by 0.9% when compared to

2001. This trend reflects the ongoing implementation of the

rejuvenation and rationalisation programme directed at

Employees deployed in domestic activity and which resulted

in a reduction of 5.3% in the average number of staff. As a

consequence, the costs of domestic activity fell by 1.4%,

despite the 2002 salary scale update and the revision of the

regime governing the granting of long-service bonuses, both

stemming from the ACTV (Collective Employment Agreement

for the Banking Sector), the actual impact of which on

personnel costs was in the order of 4%.

Administrative overheads, depreciation and amortisation Amounts expressed in millions of euro

∆%20022001

Personnel costs 288.3 285.7 (0.9%)

Outside supplies and services 165.0 155.0 (6.1%)

Administrative overheads 453.3 440.7 (2.8%)

Depreciation and amortisation 51.8 50.2 (3.2%)

Administrative overheads, depreciation and amortisation 505.1 490.8 (2.8%)

Administrative overheads as % of operating income from banking 58.1% 58.7%

Administrative overheads, depreciation and amortisation as % of operating income from banking, excluding from financial operations 68.3% 67.1%

Table 29

Efficiency ratio andcost-to-income

%

90

80

70

60

50Chart 3898 99 00 01 02

1) Administrative overheadsdepreciation and amortisation as % of operating income frombanking, excluding profits fromfinancial operations.

2) Administrative overheads as% of operating income frombanking.

Efficiency ratio1

Cost-to-income2

61.765.0

60.7

58.1 58.7

74.5

79.6

71.9

68.3 67.1

Fixed costs (60.1%)Variable costs (13.3%)Social charges (21.9%)Other (4.6%)

Personnel costs2002

Chart 39


For its part, international activity entailed an increase in

costs of EUR 1.4 million (+19.4%) as a result of the

Angolan operation’s reinforced structure.

In 2002, the staff complement employed in domestic

activity was reduced by 519 Employees (-6.9%), 440 �

of whom by reason of early retirements (in 2001, 315 early

retirement agreements were concluded).

The impact of early retirements realised in 2002 on the

decrease in personnel costs is still not fully reflected in the

income statement given that staff departures occurred in

average terms in August 2002, with the result that these

Employees ceased to contribute to personnel costs during

just 1/3 of the year.1) Banco de Fomento Angola and Banco de Fomento Mozambique

personnel costs.

Personnel costs Amounts expressed in millions of euro

∆%20022001

Domestic activity 281.3 277.3 (1.4%)

International activity1 7.0 8.3 19.4%

Total 288.3 285.7 (0.9%)

Table 30

Note: Does not include temporary workers. Those costs are recorded in the item outside supplies and services.1) At the end of 2002, and following the Group’s reorganisation, Banco BPI’s staff complement increased by 385 Employees as a result of the merger of

certain subsidiaries with Banco BPI and the transfer of Employees from the investment bank.2) Staff complement of Banco de Fomento Angola and Banco de Fomento Mozambique.

Employees of fully-consolidated Group companies

No. of Employees at end of the year

2001 2002 ∆%

Average no. of Employees

2001 2002 ∆%

Banco BPI in Portugal 6 844 6 429 (6.1%) 6 607 6 5401 (1.0%)

Investment bank 441 437 (1.0%) 452 2001 (55.8%)

Other subsidiaries in Portugal 256 252 (1.6%) 270 711 (73.7%)

Activity in Portugal 7 541 7 117 (5.6%) 7 329 6 811 (7.1%)

Overseas branches and representative offices 150 164 9.6% 163 162 (0.6%)

Domestic activity 7 691 7 282 (5.3%) 7 492 6 973 (6.9%)

International activity2 314 370 17.8% 341 407 19.4%

Employees of fully-consolidated companies 8 005 7 652 (4.4%) 7 833 7 380 (5.8%)

Table 31


1) The increase is mainly explained by the execution of the outsourcing programme for certain activities.

1) The costs of institutional and product advertising campaigns are deferred and written off over 3 years on the grounds that the benefits flowing therefrom extend over a number offinancial years (and not only in the year in which they are incurred), with the result that the charge of EUR 12.9 million recognised in the 2002 income statement includes EUR 11.7million corresponding to the deferral of previous years’ costs.

Outside supplies and services

The costs of outside supplies and services were 6.1% lower

than in 2001, with the main contributions coming from

third-party supplies (-31.2%), communication and �

dispatching expenses (-22.3%), advertising and publishing

costs (-5.8%).

It is Important to mention that the trend in advertising costs

recognised in the income statement was negatively

influenced in 2002 by the deferral of the expenditure on

institutional advertising campaigns1, bearing in mind that,

despite the investment in campaigns having decreased to

EUR 4.0 million (EUR 9.8 million in 2001), the cost

recognised in the income statement for the year fell by a

mere 1.2%, totalling EUR 12.9 million in 2002.

Outside supplies and services Amounts expressed in millions of euro

% ∆%2002%2001

Outside supplies

Water, power and fuel 5.9 4% 6.1 4% 2.8%

Forms and materials consumed 5.9 4% 2.1 1% (63.8%)

Other third party supplies 2.2 1% 1.4 1% (35.8%)

Subtotal 14.1 9% 9.7 6% (31.2%)

Outside services

Letting and rentals 25.8 16% 25.2 16% (2.3%)

Of which, rentals 19.2 12% 20.1 13% 4.8%

Communication and dispatch costs 25.9 16% 20.1 13% (22.3%)

Advertising and publishing 23.5 14% 22.1 14% (5.8%)

Of which, cost relating to the deferral of advertising campaign costs 13.0 8% 12.9 8% (1.2%)

Professional retainers and fees 5.1 3% 6.0 4% 18.3%

Conservation and repairs 11.7 7% 11.6 8% (0.4%)

Specialised services1 38.2 23% 40.2 26% 5.4%

Other third party services 20.9 13% 20.0 13% (4.2%)

Subtotal 151.0 91% 145.3 94% (3.7%)

Total 165.0 100% 155.0 100% (6.1%)

Table 32


Also worthy of mention was the extension of the outsourcing

programme embarked on in 2002, and which was practically

concluded at the close of the year. Consequently, outsourcing

costs rose by EUR 4.4 million in 2002 to EUR 9.3 million. �

The following table presents the expenditure on institutional

and product advertising campaigns, as well as the impact of

the deferral of the respective cost on the income statement.

At the end of 2002, the amount to be imputed to future

financial years was EUR 9.5 million.

Deferral of advertising campaign costs Amounts expressed in millions of euro

Cost recognised in the year

1999

Amount not yet recognised

31 Dec. 20022000 2001 2002Advertising campaigns Total cost

1999 14.1 2.1 4.7 4.7 2.6 -

2000 17.3 - 3.1 5.8 5.8 2.7

2001 9.8 - - 2.6 3.3 4.0

2002 4.0 - - - 1.2 2.9

Total 45.3 2.1 7.8 13.0 12.9 9.5

Table 33


Depreciation and amortisation

Depreciation and amortisation decreased by 3.2%, that is,

EUR 1.6 million, reflecting the deceleration in capital

expenditure following the sizeable investments of recent

years, notably in 1999 and 2000, with the 20% �

expansion of the traditional branch network, the launch and

development of the virtual channels, and the preparation of

IT systems for year 2000 and the euro’s introduction.

The biggest decreases in depreciation and amortisation

charges in 2002 occurred in intangible assets (EUR -0.8

million) and computer hardware (EUR -1.4 million), given �

that as a result of the much shorter depreciation and

amortisation periods, the slowdown in capital expenditure is

mirrored more rapidly in the income statement.

Additions and transfers, net of disposals and scrappings (net of depreciation) Amounts expressed in millions of euro

2001 200220001999

Intangible assets 14.8 16.3 10.1 6.5

Tangible fixed assets

Premises 8.9 13.1 6.5 0.3

Computer hardware 16.6 13.6 10.9 6.3

Other tangible fixed assets 21.3 20.2 17.7 11.2

Capital expenditure in progress 33.6 (7.1) (6.8) 7.5

Of which, equipment 2.0 (3.7) 0.4 5.4

Tangible fixed assets 80.5 39.8 28.3 25.2

Total 95.3 56.1 38.4 31.6

Table 34

Depreciation and amortisation of intangible and tangible fixed assets Amounts expressed in millions of euro

Depreciation and amortisation in the year Net fixed assets

31 Dec. 20022001 2002 ∆%

Intangible assets 12.6 11.8 (5.9%) 15.5

Tangible fixed assets

Premises 9.7 10.1 3.4% 177.6

Computer hardware 14.8 13.4 (9.1%) 19.5

Other fixed assets 14.8 14.9 0.9% 58.5

Capital expenditure in progress - - - 35.5

Of which, equipment - - - 7.8

Tangible fixed assets 39.3 38.4 (2.3%) 291.1

Total 51.8 50.2 (3.2%) 306.6

Table 35


Provisions

Loan provisions increased by EUR 25.8 million to EUR

66.1 million, which corresponds to 25.4% of net operating

income before provisions. Provisioning for specific loan

default situations entailed setting aside (net of reversals) a

further EUR 58.6 million, or EUR 39.3 million more than in

2001. Of this amount, some EUR 20 million corresponds to

the provisioning of a specific Customer loan in default.

On the other side, provisions for general credit risks were

responsible for the increased provisioning in the more

buoyant growth phases of lending1, since they are indexed to

the expansion in the loan portfolio. The amounts set aside

for general credit risks, therefore, totalled EUR 7.5 million in

2002, which represents a decrease of EUR 13.5 million in

relation to the year before.

The amounts provided for diminution in the value of

securities and investments and charged in the income

statement was EUR 19.5 million. Of this figure, EUR 2.6

million refers to the provisioning of unrealised losses on

investments, as required under Bank of Portugal Notice

4 / 2002.

In addition, in terms of the transitional regime for the

provisioning of unrealised losses, at 30 June 2002 (date the

regime came into force) and with respect to investments

acquired up till 31 December 2001, provisions were created

in the amount of EUR 19.0 million by charging reserves and,

therefore, had no impact on net profit for 2002.

In 2002 country-risk provisions totalling EUR 27.8 million,

which had been created to cover the shareholders’ equity of

the former Luanda branch of Banco BPI, were reversed. This

reversal is explained by the fact that, within the ambit of the

transformation of the forementioned branch into a bank

subject to local law, part of the shareholders’ equity was

converted into a loan of EUR 60 million from Banco BPI to

the new bank. This loan is guaranteed by a deposit in euro of

the same amount.

This loan is to be repaid in 10 equal and consecutive six-

-monthly instalments, the first of which took place in

December 2002.

Provisions (profit and loss account) Amounts expressed in millions of euro

∆%20022001

Specific loan provisions 19.2 58.6 204.7%

General loan provisions 21.1 7.5 (64.2%)

Total provisions for Customer loans 40.3 66.1 64.1%

For unrealised losses on securities andparticipating interests 10.7 19.5

For country risk (2.0) (29.4)

For sundry risks 33.1 1.7

Other 2.4 10.2

Total 84.5 68.1 (19.4%)

Table 36

1) The growth in the loan portfolio requires the compulsory creation of provisions for general credit risks equivalent to 1% of the new loans advanced (1.5%, in the case of consumer credit).


Net extraordinary items

Net extraordinary items in 2002 were negative to the extent

of EUR 5.3 million, compared with a positive figure of EUR

5.0 million in the preceding year.

The behaviour of net extraordinary items essentially reflects:

– capital gains of EUR 22.0 million realised in 2002 from

the sale of the participating interests in Brisa and BVLP;

– the increase in pension-related costs, from EUR 9.0

million in 2001 to EUR 32.0 million in 2002.

The impact on 2002’s results of early-retirement costs

amounted to EUR 23.4 million, of which EUR 18.8 million

refers to those concluded in 2002 (440 early retirements)

and EUR 4.5 million corresponding to the annual write-down

of the accrual of the additional obligations arising from the

early retirements realised in the second half of 20011.

Net extraordinary items in 2002 also include, for the first

time, a cost of EUR 8.5 million relating to the pension fund

contributions to cover the increase in obligations stemming

from the non-utilisation, in the actuarial calculation, of the

disability decreases, in accordance to the Bank of Portugal

new regulations, which were issued in 2001 and came into

force in 2002.

1) In 2001, 67 early retirement accords were concluded in the first half of the year and 248 in the second.In June 2001, the full amortisation (against reserves) was effected of the contributions to cover the additional obligations associated with the early retirements concluded in 1999, 2000and the first half of 2001, and which had not yet been recognised as costs, with the result that the charge recognised in 2001 refers only to early retirements concluded in the secondhalf of the year.

Net extraordinary items Amounts expressed in millions of euro

20022001

Capital gains on the sale of fixed assets 7.9 21.0

Pension-related costs

Incentives for early retirement (4.5) (13.0)

Amortisation of additional pension obligations due to early retirements (4.5) (10.4)

Of which, relating to those concluded in 2001 (4.5) (4.5)

Of which, relating to those concluded in 2002 - (5.9)

Amortisation of the additional pension obligations due to non-utilisation of disability decreases - (8.5)

Other pension-related costs (0.1) (0.2)

Pension-related costs (9.0) (32.0)

Other 6.2 5.7

Total 5.0 (5.3)

Table 37

At the end of 2002, the following had still to be recognised

in the income statement:

– EUR 90.8 million is being and will be recognised as a

charge over a maximum period of 10 years, of which

EUR 87.0 million refers to the additional obligations

stemming from early retirements;

– EUR 87.9 million refers to the additional obligations

stemming from the non-utilisation, in the actuarial

calculation, of the disability decreases. This amount is

being funded and recognised in the financial statements

up until 2021 by means of a uniform instalment plan.


Results of equity-accounted subsidiaries

Subsidiaries consolidated using the equity method made a

contribution of EUR 7.9 million to consolidated earnings,

whereas in 2001 this contribution had been EUR 14.5

million.

The biggest contribution (EUR 4.4 million) was generated

in 2002 by asset management activity carried out by BPI

Pensões (pension fund management) and BPI Vida

(capitalisation insurance).

Minority shareholders’ interests

Minority shareholders’ share of profit amounted to EUR 9.8

million in 2002 (EUR 17.3 million in 2001). This decrease

is explained by the lower dividends paid on the preference

shares issued by BPI Capital Finance (EUR 9.9 million in

2002 against EUR 17.5 million in 2001) due to the dollar’s

depreciation against the euro.


1) Customer deposits and other resources, namely, cheques and payment orders, securities sales with repurchase agreements.2) The amount of unit trust funds included in these resources has been corrected for fund units held in the portfolios of the Group’s banks.

BALANCE SHEET

Net total assets at 31 December 2002 totalled EUR

25 669.1 million, which corresponds to an increase of

3.5% vis-à-vis the end of 2001.

The Customer loan portfolio grew 7.2% to EUR 16 472.6

million, accounting for 64% of total assets at the end of �

2002. Mortgage loans (which expanded 25.6%) were the

most dynamic component of the loan portfolio, accounting

for roughly 40% of the consolidated loan portfolio at the end

of 2002.

Balance sheet Amounts expressed in millions of euro

2002 ∆%2001

Assets (net)

Liquid assets 860.4 854.2 (0.7%)

Loans to credit institutions 3 512.3 3 168.2 (9.8%)

Loans to Customers 15 372.1 16 472.6 7.2%

Bonds portfolio 2 704.9 2 856.8 5.6%

Equities portfolio 155.4 149.7 (3.7%)

Investments 827.1 641.1 (22.5%)

Fixed assets 325.1 306.6 (5.7%)

Sundry assets 1 035.5 1 219.9 17.8%

Total assets 24 792.9 25 669.1 3.5%

Liabilities and shareholders’ equity

Amounts owed to credit institutions 6 692.8 6 627.3 (1.0%)

Amounts owed to Customers1 12 053.1 12 330.9 2.3%

Debt securities 3 121.7 3 541.4 13.4%

Sundry liabilities 828.9 901.8 8.8%

Provisions and fund for general banking risks 251.7 220.0 (12.6%)

Subordinated debt 631.1 625.7 (0.9%)

Minority shareholders’ interests 304.9 253.1 (17.0%)

Subscribed share capital 645.6 760.0 17.7%

Reserves 129.8 268.8 107.1%

Net profit 133.3 140.1 5.1%

Total shareholders’ equity 908.7 1 168.9 28.6%

Total liabilities and shareholders’ equity 24 792.9 25 669.1 3.5%

Note

Average total assets 23 462.4 24 996.6 6.5%

Off-balance sheet Customer resources taken2 4 753.0 4 716.5 (0.8%)

Table 38


The 4.9% increase in Customers resources carried in the

balance sheet (deposits, structured products and fixed-rate

bonds placed with Customers) was accompanied by the issue

of medium and long-term debt placed with institutional

Clients. At the end of 2002, the transformation ratio of more

stable resources (Customer resources and medium and long-

-term issues) into credit was 101.4%. For their part, off-

-balance sheet resources (chiefly, unit trust funds) registered

a drop of 0.8%.

Loans to Customers

The loan portfolio grew 7.2%, reflecting the differentiated

approach by segments, namely, the continued priority

attributed to mortgage loans and greater lending selectivity,

in particular, in the large corporates segment. Underlying the

strategy adopted was the quest for securing a return on

shareholder’s equity employed that is commensurate with the

risk assumed, taking into consideration the deceleration in

economic activity and the consequent deterioration in the

business environment for companies. The mortgage finance

portfolio rose by 25.6%, by far outpacing the estimated

average market growth of 15.7%1. The weight of mortgage

finance relative to the total performing loan portfolio climbed

from 34% in 2001 to 40% in 2002.

Loans to large companies (including wholesale banking)

declined by 10.7% (the estimated market growth in loans to

non-financial companies was 5.3%1) and constituted the

principal factor contributing to the deceleration in the overall

portfolio’s growth rate.

1) Year-on-year changes in December 2002; source: Bank of Portugal, "Economic indicators, January 2003".

Net total assets anddisintermediation

Bi.€

32

24

16

8

098 99 00 01 02

Net total assets1

Disintermediation

Chart 40

1) Corrected for duplicationof balances.

19.920.8

26.3

29.1 29.6

Loans1 to Customers andguarantees

Bi.€

24

18

12

6

098 99 00 01 02

Chart 41

1) Gross loan portfolio.

Other loans to CustomersMortgage loansGuarantees

19.718.8

9.9

12.0

16.5

Loans to Customers (64.2%)Bonds and equitiesportfolio (11.7%)Investments (2.5%)Fixed assets and other(5.9%)Liquidity assets and loansto credit institutions(15.7%)

Net total assetsbreakdown2002

Chart 42

Liabilities and Shareholders’equity breakdown2002

Amounts owed to Customers(48.0%)Debt securities (13.8%)Other liabilities (4.4%)Shareholders’ equity,minority interests andsubordinated debt (8.0%)Amounts owed to creditinstitutions (25.8%)

Chart 43


At the end of 2002, the portfolio of variable-rate mortgage

loans represented 98.5% of the total portfolio. Variable-rate

finance is indexed directly to market rates, with an average

repricing period of about six months.

1) Loans granted by equity-accounted Group companies, with the result that the amount of the respective credit granted is not reflected in the consolidated balance sheet. Motor car finance business in the form of long-term rental is conducted exclusively by BPI Rent.

Customer loan portfolio Amounts expressed in millions of euro

% ∆%2002%2001

Corporate and Institutional Banking and Project Finance

Wholesale Banking 2 435.7 16% 2 128.4 13% (12.6%)

Large companies 1 399.8 9% 1 296.7 8% (7.4%)

Medium-sized companies 1 869.5 12% 1 811.5 11% (3.1%)

Project Finance 271.6 2% 356.4 2% 31.2%

Institutional Banking 361.4 2% 499.0 3% 38.1%

Subtotal 6 338.1 41% 6 092.1 37% (3.9%)

Loans to individuals and small businesses

Mortgage loans 5 187.2 34% 6 515.5 40% 25.6%

Loans to individuals – other purposes 662.5 4% 650.7 4% (1.8%)

Loans to small businesses 1 160.9 8% 1 172.5 7% 1.0%

Subtotal 7 010.6 46% 8 338.7 51% 18.9%

Leasing 1 013.5 7% 996.3 6% (1.7%)

Factoring 300.9 2% 305.8 2% 1.6%

Other 633.6 4% 628.3 4% (0.8%)

Portfolio of performing loans 15 296.6 100% 16 361.2 100% 7.0%

Total loans in arrears 174.4 254.0 45.6%

Specific provisions 98.9 142.6 44.2%

Consolidated net loan portfolio 15 372.1 16 472.6 7.2%

Motor car and equipment finance (long term rental)1 273.1 266.1 (2.5%)

Bank guarantees 3 297.9 3 122.8 (5.3%)

Table 39

Mortgage loans – breakdown by type of rate

20022001

Variable rate 98.2% 98.5%

Fixed rate 1.8% 1.5%

Total 100% 100%

Table 40


Portfolio of securities and participating interests

At 31 December 2002, the BPI Group’s portfolio of

securities and participating interests amounted to

EUR 3 660.2 million, that is, 0.6% less than at the end

of 2001.

The most salient aspects relating to the portfolio’s

performance were the following:

– the increase in the bonds of public-sector issuers in the

dealing and investment portfolios, notably in the final

quarter of 2002, associated with the increase in trading

activity and the management of structural balance sheet

positions;

– the reduction during the year of EUR 331.7 million in the

bonds and commercial paper portfolio (of the investment

portfolio) of national private issuers, associated with the

management of credit exposures and portfolio returns /

/ risk;

– the sale of the participating interests in Brisa and BVLP,

the balance sheet value of which was EUR 158.5 million

and generated capital gains of EUR 22.0 million.

At the end of 2002, the dealing portfolio represented 5.7%

of total assets, the investment portfolio 6.0% and the

participating interests’ portfolio 2.5%.

1) Investments in associated companies and other participating interests.2) Recorded in the item "other assets"; does not include loans.

Securities and participating interests portfolio Amounts expressed in millions of euro

∆%2002 %2001 %

Dealing portfolio

Bonds of public-sector issuers 1 068.2 29% 1 384.0 38% 29.6%

Bonds of other issuers 0.5 0% 0.6 0% 6.1%

Equities and other variable-yield securities 54.8 1% 73.1 2% 33.3%

Subtotal 1 123.6 31% 1 457.7 40% 29.7%

Investment portfolio

Bonds of public-sector issuers 450.1 12% 761.0 21% 69.1%

Bonds of international financial bodies 166.7 5% 160.0 4% (4.0%)

Bonds of other issuers 1 019.3 28% 551.2 15% (45.9%)

Equities and other variable-yield securities 100.6 3% 76.6 2% (23.9%)

Subtotal 1 736.7 47% 1 548.8 42% (10.8%)

Participating interests

Investments1 777.3 21% 592.1 16% (23.8%)

Other financial assets2 44.1 1% 61.6 2% 39.7%

Subtotal 821.4 22% 653.7 18% (20.4%)

Total 3 681.7 100% 3 660.2 100% (0.6%)

Table 41


1) The usable corridor corresponds to 15% of the gross balance sheet value, net of deferred capital gains.

In 2002, in terms of the transitional regime contemplated in

Notice no. 4 / 2002, provisions were created in the amount

of EUR 19 million, by a direct charge against reserves (and,

therefore, with no impact on the income statement), and

provisions of EUR 2.6 million charged directly to the income

statement. On the other hand, only for purposes of

calculating the capital adequacy ratio, EUR 33.1 million

own funds (Tier II) were written off. The overall amount

deducted from own funds in 2002 (including the above-

mentioned provisions) was, therefore, EUR 54.7 million.

At 31 December, after the abovementioned deductions and

in terms of Notice 4 / 2002, the amount to be written off

against own funds was EUR 57 million by means of

provisions and EUR 87.4 million by way of a write-off from

Tier II, in the calculation of the capital adequacy ratio,

thereby making a total of EUR 144.4 million. BPI envisages

setting aside the forementioned provisions in full in 2003

and effecting the write-off from Tier II in such a manner as

to meet the percentage cover prescribed in Notice 4 / 2002:

50% in 2003, 75% in 2004, 90% in 2005, 100% in

2006.

Coverage of unrealised capital losses in participating interests underBank of Portugal notice 4 / 2002 Amounts expressed in millions of euro

31 December 2002

Gross balance sheet value (net of deferred capital gains) 507.9

Unrealised losses 278.7

Corridor1 used 75.6

Provisions 25.7

Of which, accumulated at 31 Dec. 01 4.1

Amounts provided in 2002 21.6

Losses after use of the corridor and net of provisions 177.5

Deduction to own funds for the purposes of calculating the own funds requirements ratio 33.1

Losses to be covered (under the transitional regime) 144.4

Of which, amount of provisions to be set aside 57.0

Amount to be deducted to own funds (from 2003 to 2006) 87.4

Table 42

A new regime came into effect in June 2002 requiring the

provisioning and the deduction from own funds of unrealised

losses in the portfolio of participating interests, in entities not

subject to supervision by the Bank of Portugal or the Insurance

Institute of Portugal, whenever such losses exceed 15% of the

corresponding acquisition amount (Bank of Portugal Notice

4 / 2002).

Of the amount of unrealised losses which exceed 15% of the

acquisition value, a minimum of 40% must be covered by

provisions, while the remainder has to be deducted from own

funds for purposes of calculating the own funds requirements

ratio.

For the losses at 30 June 2002 (date on which Notice

4 / 2002 came into force) on participating interests acquired

up until 31 December 2001, a transitional regime was

defined. The transitional regime establishes minimum and

gradual provisioning levels and deductions for own funds up

until 2006.

The transitional regime permits that in 2002 and 2003

provisions can be created by charging reserves directly, with

the result that there is no impact in the income statements.


Note: total resources corrected for duplication.1) Placements in deposits of the unit trust funds and of a company

managing capitalisation products.

Customer resources

Customer resources carried in the balance sheet grew 4.9%

as a consequence of the 6.4% rise in deposits.

The base of outside resources has been complemented by

the issue of medium and long-term debt placed with

institutional investors. At the end of 2002, total resources

taken stood at EUR 16 391.7 million, up 7.5% on the 2001

figure. At the end of 2002, loans to Customers (gross) were

equivalent to 101.4% of the more stable outside resources.

The globally negative behaviour of the equities market

continued to influence the growth of off-balance sheet

resources, in particular, equity and balanced unit trust

funds, by favouring the investment in lower-risk products,

namely, money market funds and capitalisation insurance.

The same factor also gave origin to the re-intermediation of

certain resources through the transfer of placements to

deposits.

Total Customerresources1

Bi.€

20

15

10

5

098 99 00 01 02 Chart 44

1) Corrected for duplicationof balances.

Off-balance sheetCustomer resourcesOn-balance sheetCustomer resources

13.914.8

16.517.4 17.6

Total balance sheet resources Amounts expressed in millions of euro

% ∆%2002%2001

Customer resources

Sight deposits 4 706.0 31% 4 922.1 30% 4.6%

Term and savings deposits 6 788.3 45% 7 302.4 45% 7.6%

Structured products – guaranteed capital / limited risk, and fixed-rate bonds 1 573.8 10% 1 486.3 9% (5.6%)

Customer resources 13 068.1 86% 13 710.9 84% 4.9%

Debt securities placed with institutional investors 1 547.9 10% 2 055.1 13% 32.8%

Subordinated debt 631.1 4% 625.7 4% (0.9%)

Total balance sheet resources 15 247.2 100% 16 391.7 100% 7.5%

Transformation ratio of total resources into loans 101.5% 101.4%

Table 43

Total Customer resources Amounts expressed in millions of euro

∆%20022001

On-balance sheet resources 13 068.1 13 710.9 4.9%

Off-balance sheet resourcesUnit trust (mutual) funds 2 670.3 2 458.3 (7.9%)

Retirement (PPR) and equity (PPA) savings plans 1 203.9 1 194.4 (0.8%)

Capitalisation insurance 878.9 1 063.8 21.0%

Subtotal 4 753.0 4 716.5 (0.8%)

Elimination of double recording1 (418.3) (780.0)

Total Customer resources 17 402.9 17 647.5 1.4%

Table 44


Shareholders’ equity

Shareholders’ equity totalled EUR 1 168.9 million at the

end of 2002.

1) After deduction of dividends payable for the year (does not include revaluation reserves).

Shareholders’ equity Amounts expressed in millions of euro

20022001

Shareholders’ equity at beginning of the year 930.0 908.7

Previous year’s dividends paid (58.1) (57.9)

Net profit 133.3 140.1

Cash proceeds from capital increase in May 2002 - 200.2

Provisions for participating interests (Notice no. 4 / 2002) - (19.0)

Amortisation of pension fund contributions dueto early retirements (80.4) -

Goodwill paid on the acquisition of participating interests (14.7) -

Other (1.4) (3.1)

Shareholders’ equity at the end of the year 908.7 1 168.9

Of which: capital, reserves and retained earnings1 1 106.7

Dividend declared for the year 60.8

Revaluation reserves 1.4

Table 45

908.7

Shareholders’ equity evolution in 2002M.€

1 600

1 200

800

400

0

Chart 45

Shareholders’equity atDec. 01

Shareholders’equity atDec. 02

Capitalincrease

Netprofit

2001dividendspayment

Other

200.2140.1 57.9

-22.2 1 168.9


Own funds

The principal factors behind the trend in own funds were:

– having a positive impact: the net profit for the year and

proceeds from the capital increase;

– having a negative impact: cover for the unrealised losses

on participating interests (with an impact of the capital

base of EUR 54.7 million1) and the conclusion in the year

of 440 early retirements, which entailed contributions to

the pension funds in order to cover the increased

obligations in the amount of EUR 57.4 million2.

1) The impact on basis own funds was EUR 21.6 million through the creation of provisions (EUR 2.6 million set aside against earnings and provisions of EUR 19.0 million set aside againstreserves, in accordance with the transitional regime) and the write-off of EUR 33.1 million from complementary own funds for purposes of calculating the ratio.

2) The contributions relating to the early retirements concluded are being recognised in the income statement over a maximum period of 10 years. For purposes of calculating regulatoryown funds, the contributions to the pension fund relating to early retirements, as regards that portion still not disclosed as a cost, are written off against basis own funds. In 2002, of theamount of EUR 57.4 million of contributions to the pension fund, EUR 5.9 million has already been recognised in the income statement.

1) After deduction of dividend payable for the year.

Own funds Amounts expressed in millions of euro

2001 2002

Share capital, reserves and earnings1 827.9 1 106.7

Minority interests 287.4 243.2

Of which, preference shares 282.5 238.4

Fund for general banking risks - 1.0

Contributions to the pension fund still not disclosed as cost (41.3) (89.3)

Intangible assets (44.1) (29.1)

Treasury stock (1.7) (3.0)

Basis own funds 1 028.3 1 229.5

Revaluation reserves 22.6 1.4

Perpetual subordinated debt 139.4 135.1

Participating units 17.7 16.4

Non-perpetual subordinated debt 439.1 409.5

Complementary own funds 618.8 562.4

Deduction of participating interests (31.7) (31.6)

Securities acquired in securitisation operations (5.7) (4.8)

Unrealised losses in participating interests not provided for - (33.1)

Other deductions (8.8) (10.5)

Deductions (46.1) (80.0)

Supplementary own funds 1.2 -

Total own funds 1 602.1 1 711.9

Table 46

Own funds requirements

The loan portfolio, which expanded 7.2%, required a further

EUR 31.7 million in own funds (+3.3%), which reflects on

the one hand the rise in mortgage lending, which is

characterised by a lower consumption of capital, and on the

other, the reduction in lending to companies. Total own

funds requirements decreased 4.0% (EUR -55.7 million) as

a result chiefly of the reduction in the bond portfolio’s

own funds needs and the decrease in the portfolio of

participating interests and market risks.

The capital required to cover the risks associated with the

dealing portfolio and the positions in foreign currency

represents only 1.5% of total own funds requirements.


Own funds requirements Amounts expressed in millions of euro

2002

Assets (net)(balance sheet

value)

Weightedaverage

coefficient

Risk-weightedassets

2001

Assets (net)(balance sheet

value)

Weightedaverage

coefficient

Risk-weightedassets

Liquid assets 866.0 8.2% 70.7 855.5 7.7% 66.0

Loans to credit institutions 2 322.0 17.6% 409.4 1 794.8 20.4% 367.0

Loans to Customers 15 372.1 78.9% 12 127.9 16 472.6 76.0% 12 524.1

Bonds and equities portfolio 1 625.3 59.0% 958.3 1 541.9 35.4% 546.2

Investments 798.9 100.0% 798.9 654.5 100.0% 654.5

Tangible fixed assets 304.3 100.0% 304.3 291.1 100.0% 291.1

Sundry assets 468.4 76.4% 358.1 442.0 56.9% 251.4

Assets 21 757.1 69.1% 15 027.6 22 052.4 66.7% 14 700.3

Off-balance sheet items 2 075.1 1 984.9

(-) Provisions for general credit risks (180.9) (188.4)

Risk weighted assets 16 921.8 16 496.8

Credit risks (weighted assets x 8%) 1 353.7 1 319.7

Securitisation operations 9.7 2.7

Market risks 35.3 20.7

Total own funds requirements 1 398.8 1 343.1

Total requirements x 12.5 17 484.6 16 788.6

Table 47

Own funds requirements ratio

At 31 December 2002, the own funds requirements ratio

was situated at 10.2% and the Tier I ratio at 7.3%.

The capital adequacy ratio calculated according to BIS

(Bank of International Settlements) rules stood at 11.4% at

31 December 2002 and Tier I at 7.4%.


Own funds requirementsratioAt 31 December 2002

Chart 47

Bank of Portugal BIS

5.9% 6.0%

1.4% 1.4%

2.9%4.0%10.2%11.4%

Core CapitalPreference sharesTier II

Own funds and own fundsrequirements

Bi.€

2.0

1.5

1.0

0.5

098 99 00 01 02

Chart 46

Own fundsOwn funds requirements

1.71.6

1.5

1.3

1.1

Own funds requirements ratio Amounts expressed in millions of euro

20022001

Total own funds 1 602.1 1 711.9

Of which, basis own funds 1 028.3 1 229.5

Total own funds requirements 1 398.8 1 343.1

Total own funds requirements x 12.5 17 484.6 16 788.6

Own funds requirements ratio 9.2% 10.2%

Tier I 5.9% 7.3%

Table 48

Pension obligations

At 31 December 2002, the Group’s pension funds had net

assets which guaranteed the complete financing of pension

obligations recognised in the balance sheet and 94.0% of

total pension obligations.

At the end of 2001 with the entry into force of the present

regulatory framework relating to cover of pension obligations

(Bank of Portugal Notice no. 12 / 2001), it ceased to be

possible to use the disability decreases in the calculation of

the present value of obligations.

The alteration cited above gave origin to an increase in the

present value of pension obligations, which is being funded

and recognised in the financial statements by way of a plan of

uniform instalments commencing in 2002 and extending over

a maximum period of 20 years. At 31 December 2002, the

amount still to be funded was EUR 87.9 million.


In 2002, the pension funds achieved an annual average

return of 3.1%, which entailed extraordinary contributions of

EUR 49.2 million earmarked to overcome the negative

variance between the funds’ actual returns and the actuarial

and financial assumptions. These contributions fall within

the "corridor" contemplated by the regime for pension-

-obligation cover for the purpose of accommodating these

variances. Consequently, they do not give rise to any impact

in the income statement.

At 31 December 2002, of the usable corridor of EUR 145.0

million, EUR 120.4 million had been used (EUR 71.2

million in negative variances recorded in 2001 and EUR

49.2 million in 2002), thus leaving a margin not yet used of

EUR 24.6 million in the corridor.

1) Taking into account the disability decreases in the calculation of the obligations.

Pension obligations cover Amounts expressed in millions of euro

2001 2002

Obligations for current pensions under payment 1 014.3 1 134.3

Obligations for past services of current Employees 335.5 315.4

Total pensions obligations1 1 349.8 1 449.7

Disability decreases 90.1 87.9

Total obligations recognised in the balance sheet 1 259.7 1 361.8

Pension funds 1 256.6 1 363.3

Contributions to be transferred to the fund 3.2 0.0

Total financing 1 259.8 1 363.4

Financing of obligations recognised in the balance sheet 100.0% 100.1%

Financing of total pension obligations 93.3% 94.0%

Table 49


Pension obligations – Regulatory framework

The most significant aspects of the present regulatory

framework relating to pension obligations’ cover (Bank of

Portugal Notices 12 / 2001 and 7 / 2002) in force since the

end of 2001, are:

– the mandatory requirement that the net assets of the funds

guarantee a minimum cover of 100% of current pensions,

whilst in the case of obligations for past services, a minimum

cover of 95% was laid down;

– the non-usage of the disability decreases1, in the calculation

of the present value of the obligations for past services of

current Employees;

– the increases in obligations for early retirements and changes

to actuarial assumptions are recorded as a deferred cost in

the accruals and deferral account. These amounts are

recognised as a cost in the extraordinary items account, at

least for 10%, starting in the following year to the one in

which they are identified;

– the losses and gains resulting from the variance between the

actuarial assumptions2 and the actual values (actuarial gains

and losses) have two distinct accounting treatments

depending on whether the accumulated figure exceeds or not

a predetermined interval ("corridor"). The "corridor"

corresponds to 10% of the greater of the amounts of pension

obligations or the pension funds’ net assets (with reference

to the end of each year).

In this regard, the actuarial losses (gains) identified:

– are recorded under the caption "valuation fluctuations" (in

the accrual and deferral accounts), until the accumulated

amount is equal to the limit defined by the "corridor", and do

not give rise to any impact in the income statement;

– the portion situated outside the interval is recorded as a

deferred cost or income item (in the accrual, deferral and

other accounts) and recognised in the income statement at

least for 10%, starting in the following year to the one in

which it is computed.

1) Decrease in the present value of obligations as a result of taking into account the probability of Employees ceasing to form part of the staff complement as a result of disability before thenormal retirement age.

2) In the same manner, the decreases in the amount of pension obligations which resulted from changes to the actuarial assumptions are disclosed as income in the income statement overa maximum period of 10 years.


BPI Group pension funds

In terms of Bank of Portugal rules, banks are required to

guarantee that pension obligations are funded exclusively by

way of pension funds. Other financial companies must ensure

full cover of retirement obligations by pension funds or by an

insurance contract serving the same purpose, while the

unfunded portion must be covered by provisions carried in the

balance sheet.

The Group’s pension funds fully guarantee the old age,

disability and survivors’ pensions of the banks’ Employees and

former Employees (Banco BPI and Banco Português de

Investimento) and of the subsidiaries which adhered to the

Vertical Collective Employment Agreement (BPI Fundos and

Inter-Risco).

At the end of 2002, the net assets of the funds totalled EUR

1.363.3 million (which exceeds the Group’s shareholders’

equity of EUR 1 168.9 million on the same date) and

encompassed a universe of 6 786 current Employees 6 165

pensioners and 970 former Employees.

Recapitalisation of the pension funds

When the Group ventured into Commercial Banking in 1991

with the acquisition of Banco Fonsecas & Burnay (BFB), BFB

had a pension fund shortfall of EUR 128 million (of which

EUR 89 million refers to obligations for current pension

payments and EUR 39 million to pension obligations for the

past services of current Employees). Hence at the time of the

acquisition, the shortfall in pension fund net assets to meet

the obligations of current pension payments was covered by

provisions carried in the balance sheet.

As a consequence of the considerable financial effort made, at

the end of 1995 the pension funds fully covered the

obligations for current pension payments, while 100% cover

for the retirement obligations relating to current Employees was

achieved at the end of 1998.

Early retirements

Following the acquisition of the commercial banks (BFB in

1991 and BFE and BBI in 1996), intensive programmes were

implemented directed at modernising and enhancing the

efficiency and competitiveness of the structures acquired.

Workforce rationalisation and rejuvenation was one the

priorities assumed, translating itself into the implementation of

an early-retirement programme. This entailed a large financial

commitment aimed at covering the increase in pension

obligations. In the period 1995 to 2002, a total of 2 942 early

retirements have been realised that led to an increase of EUR

422 million in pension obligations.

Within the ambit of the strategic programme for the period

2002-2004, aimed at reducing costs and improve efficiency is

under way an early-retirements programme, following which, in

2002, have already been concluded 440.

1) The cover shortfall related with the past services liabilities for BFB Employees in the payroll at 31 December 1994 was being financed over a 20 year period according to Bank ofPortugal requirements.

Pension fundsPast service liabilities to be covered in the year

Pension funds assets and BPI Group Employees pensionliabilities

Chart 48

91

1 400

1 050

700

350

092 93 94 95 96 97 98 99 00 01 02

M.€


Returns

In 2002 the BPI Group’s pension funds achieved an annual

average return of 3.3%. This result can be considered as being

very positive when viewed against the background of

historically low interest rates and the negative performance of

the equity markets (which, when measured by the Dow Jones

STOXX 600 index, registered a fall of 32.5%).

Since 31 December 1991, the Group’s pension funds have

earned an annual average return of 11.0%, while with the pay

increases awarded under the Banking Sector’s ACTV salary

scale averaged 4.4% and the pension fund market’s return

median was 8.3%.

At 31 December 2002, the Banco BPI Pension Fund’s

portfolio, which corresponded to 98% of the total net assets

of the Group’s pension funds, presented the following

composition:

BPI Group Employees pension funds returnACTV salary scale reviewInflation rate

BPI Group Employees pension fundsReturn vs inflation and ACTV salary scale review

%

25

20

15

10

5

092

Chart 50

0293 94 95 96 97 98 99 00 01

16.1

10.5

8.9

18.3

6.5

5.5

5.7

5.24.0

10.9

4.1

16.0

3.12.2

19.9

14.1

2.8 2.3

8.6

7.4

2.9

4.4

1.9

3.6

3.3

4.53.3 3.0 3.3 3.3 3.9

3.9

3.2

BPI Group Employees pension funds returnPension funds market’s return median

BPI Group Employees pension fundsReturn vs. market performance

%

25

20

15

10

5

0

-592

Chart 51

0293 94 95 96 97 98 99 00 01

19.9

14.4

16.1

16.1

18.3

17.3

6.7

11.5

10.9

16.0

13.2

5.7

14.1

11.38.6

6.9

7.4

1.2

1.9 3.3

-2.0-3.3

Liquidity (26.4%)Variable-rate bonds (13.6%)Fixed-rate bonds (27.6%)Foreign equities (5.9%)Domestic equities (13.1%)Real estate (13.5%)

Breakdown of Banco BPI Employeespension funds assetsAt 31 December 2002

Chart 49

Risk management

Risk management at the BPI Group is based on the

permanent identification and analysis of exposure to

different risks – counterparty risk, country risk, market risks,

liquidity risk, operating and legal risks – and on the adoption

of strategies aimed at maximising profitability within

predefined and duly supervised limits. Management is

complemented a posteriori by analysis of performance

indicators.

CREDIT RISK

Management process

Credit risk associated with the possibility of actual default by

a counterparty (or with the change in the economic value of

a given instrument or portfolio stemming from a deterioration

in the risk quality of a counterparty) constitutes the primary

risk factor inherent in the BPI Group’s business spectrum.

Exposure to this risk is evaluated using different

complementary methods (expert system, ratings, scorings,

filters, others). In addition to the routine review of Customer

selection filters and scorings for consumption and credit

cards, a review is currently under way of the rating system

for companies with a view to adapting it to the Basel II

requirements, coupled with the introduction of ratings and

scorings in the other segments of activity in accordance with

the same requirements.

After an evaluation of exposure, specific approval for credit

operations follows the principles and procedures laid down in

the Credit Regulations. For each one of the different

divisions involved, the relevant hierarchical levels for the

approval of credit according to their characteristics have

been defined with the object of decentralising decisions and,

therefore, ensuring processing speed and efficacy. Operations

must fall within the pre-determined limits and must conform

to the desired levels of return on the capital employed.

The approval of credit operations falls within various

strategies, including diversification by geographic area,

sector, counterparty and maturity; the use of guarantees /

/ collateral and margins; periodic payment / repayment

schemes; legal preference clauses of the ISDA –

International Swaps and Derivatives Association – and

guarantees CSA – Credit Support Annex – in derivatives;

credit derivates or settlement clauses.

Prescribed counterparty, market, maturity, product or

currency limits are adhered to taking into account the degree

of risk, the Customer’s borrowing capacity, relationship with

the Bank (including past experience relating to the use of

limits and Customer profitability), as well as BPI’s own size.


Subsequently, the Bank maintains constant vigilance over

the evolution of its exposure (including resorting to a warning

system in the case of companies) and the results and

profitability indices achieved vis-à-vis the risks assumed.

Moreover, problematic credit situations, provisioning �

cover indices, write-offs and recoveries are analysed every

month. The alert signalling non-performing loans is available

on-line via the internal network for the information of the

Bank’s managers.

On maturity and up to 30th dayThe commercial divisions areresponsible for recovery.

Up until 30 daysThe unpaid loan is classified as“loans in arrears”. The outstandinginterest is reversed and interestceases to be accrued.

Maturity

After 60 daysThe loan becomes the responsability ofthe Credit Risk Division’s Recovery Area,which submits to the Loans Committee aproposed rescheduling or legal action(execution) plan.

After 30th day and up to 60th dayThe Credit Risks Divisions – MonitoringArea analyses the situation in liaison withthe commercial divisions with a viewto recovery.

30 days 60 days

Procedures adopted in relation to non-performing corporate loans

Report | Risk management 109

An estimate is also made of the actual (or near actual) losses

arising from default (named "economic provisions") in such a

way as to assess the adequacy of accounting provisions. The

economic provisions are object of a monthly assessment by

the Executive Commission of the Management Board

(Executive Commission for Credit Risks) and audited

annually by the external auditors. These reports are also

regularly reviewed by Internal Control Committee.

Recovery is the responsibility of either the Credit Risks

Division (in the case of loans to companies and institutional

Clients) or the Division which granted the loan (in the case

of loans to individuals and small businesses), both of which

use their own legal structures whenever necessary.

Functioning as agents controlling this entire management

process, besides the Management Board, the Internal Control

Committee and the Executive Commission for Credit Risks,

are the Risk Control and Analysis Advisory Unit, the Internal

and External Auditors and the Bank of Portugal for whom the

external auditors of the banks prepare, since 2002, a half-

year report on the adequacy of accounting provisions vis-à-vis

economic provisions.

Figure 9


Evaluation of credit risk exposure – companies, institutions,

specialised finance

Credit operations involving companies, institutions and

project finance are evaluated by specialist analysts.

BPI also uses an internal rating system for companies, with

five grades for evaluating loans, guarantees and securities of

medium-sized and large companies. The classification grade

is determined on the basis of economic and financial ratios,

as well as indicators that take into account past experience,

commercial concept, incidents and risks associated with the

market / sector in which the company operates.

The Credit Risks Division or, in the final instance, the

Executive Committee for Credit Risks, complement this

information on the probability of default with a qualitative

analysis of the company’s strategy and management (which

results in a possible overrule of the calculated rating), and

with an analysis of the information concerning the expected

or potential loss in the event of default (including in

particular the analysis of collateral).

Credit Risks Division

In 2002, Banco BPI implemented a new model for the analysis

and concession of credit risks at Corporate Banking. To this

end, the Credit Risks Division was created which assumed

responsibility for the control of credit risk at Corporate

Banking. The new Division started functioning at the beginning

of December.

The Credit Risks Division’s organisation is based on the model

created by Oliver & Wyman – the world leader in financial

services consultancy – which has been implemented

successfully at international level.

Within the context of global economic deceleration, endeavours

were made to boost the quality of the loan portfolio through the

setting up of this new Division, imposing greater discipline and

independence in the analysis of credit risk. Another objective

was to prepare the Bank for the recommendations of the Basle

II Committee.

The Credit Risks Division is composed of three areas:

Loan concession – responsible for loan concession analysis and

decisions.

Monitoring – responsible for the prevention of default

situations through the permanent oversight of the loan

portfolio, and for follow-up procedures in coordination with the

commercial divisions in cases of default for up to 60 days.

Recovery – responsible for recovery of non-performing loans

outstanding for more than 60 days, backed by strong legal

support.

The commercial divisions continue to play an important role in

the decision process, having analysed only those proposals

which warranted approval. This will have to include qualitative

information, chiefly on companies which are Customers, their

shareholders and managers.


According to the method for assessing risks and loan

approvals, the portfolio’s average risk is 46.1 – grade A,

which compares with 43.1 in 2001.

These counterparty risk evaluation systems are complemented

by others, in particular, by the identification of major risks

(concentration of exposure in a counterparty or Group) and by

the calculation of capital at risk, in accordance with the

valuation enshrined in the regulation governing the capital

adequacy ratio or inspired from it. The portfolio is also globally

evaluated by the respective degree of geographical, sectorial

and maturity diversification.

Evaluation of credit risk exposure – individuals and small

businesses

In the individuals segment, there are different scoring

systems and Customer selection filters. In the case of loans

backed by specific guarantees (housing, motor car), the

probable loss is extremely low considering the financing /

/ guarantee ratio.

As regards other loans to individuals, Customer selection is

primarily based on the assessment of the probability of

default, and loans are extended within predetermined limits.

The overall acceptance or rejection indices are associated

with the desired minimum returns after taking into account

the attendant risks.

The analysis of counterparty risk in the small business

segment is conducted by the so-called expert system

involving, besides the analysis of the required guarantee /

/ collateral, a subjective opinion concerning the probability of

default by the counterparty or the entity providing the

guarantee.

Home loans

The robust growth in this loan segment on the Portuguese

market in recent years (repeated once more in 2002) can be

ascribed to the non-existence of a developed rental market; to

the structural shock associated with the steep fall in interest

rates (substantially raising individuals’ disposable incomes);

and to the high confidence indices associated with low

unemployment rates, which only began to change direction in

2001 / 2002. Furthermore, the expansion in home loans at

BPI is due to the general quality of the service provided,

innovations in the product and associated services, and the

competitive pricing levels which conform with the varying risk

levels (see chapter entitled Individuals Banking).

The risk assessment of home loan operations in 2002 was kept

within conservative and uniform patterns. On the other side,

BPI began IN 2002 to require a lower maximum limit in the

financing / guarantee ratio (90%), in harmony with the less

favourable evolution of the economic landscape in general, and

the property market in particular. In 2002 BPI also introduced

as compulsory requirement the credit protection insurance

(providing unemployment and hospitalisation cover) for

personal loans.

Internal rating for companies – breakdown of exposure by classes of risk

Classes of risk 200220012000

AAA (<10) 11.9% 12.6% 17.7%

AA (10-30) 18.6% 10.7% 7.3%

A (30-50) 37.9% 37.1% 23.2%

B (50-70) 28.5% 34.1% 38.6%

C (70-100) 3.1% 5.5% 13.2%

Total 100% 100% 100%

Average points 41.3 43.1 46.1

Table 50


Notes: The total substitution value is the sum of the substitution values of thecounterparties, when positive. It does not include options inserted into bonds issued orbought. The substitution value incorporates the effect of the risk reduction that resultsfrom the set-off of credit and debit balances between the same counterparties whichserve as guarantee for compliance with obligations.

Evaluation of credit risk exposure – derivate operations

Given the specific manner in which they are valued, credit

risk stemming from derivative operations are accorded

special treatment. This has as its base the concept of the

substitution value, which is estimated daily by the risk-

-management support system (AACR).

In order to mitigate derivatives credit risk, besides resorting

to contracts containing clauses which permit the setting off

of obligations in the event of default (even in the event of

insolvency), the Group has entered into credit-risk limitation

agreements with its most important counterparties in these

markets. These agreements, which entail the receipt (and

payment) of collateral amounts for hedging risks between

counterparties, permitted a reduction in the substitution

value of the derivatives portfolio of some EUR 192 million

at the end of 2002.

This form of evaluating exposure to counterparty risk is

supplemented by the traditional regulatory approach and

anticipates, to a certain extent, the best practices of the new

Basel accord.

Evaluation of credit risk exposure – short-term interbank

credit

Interbank counterparty risk is evaluated by the International

Division based on external ratings. The limits are defined in

accordance with this risk, the institution’s size and the past

history of limits, and in conformity with BPI’s own size.

The concentration indicators are not material, demonstrating

a clear diversification of the interbank investments (by

quality counterparties with low risk).

Bond and fixed-interest securities’ investment portfolio1 Amounts expressed in millions of euro

%2002Rating

Aaa 258.8 29.7%

Aa 87.0 10.0%

A 195.3 22.4%

Baa 83.5 9.6%

Other / without rating (NR) 91.3 10.5%

Commercial paper (NR)2 157 18.0%

Total 872.9 100.0%

1) Includes preference shares which are recorded in the equities portfolio.

2) Non-rated commercial paper is guaranteed by credit institutions.

Table 51

Current credit risk – substitution value of derivatives by type of counterparty Amounts expressed in millions of euro

Counterparty %2002%2001

BPI Group 5.6 3.1% 33.3 15.8%

Unit trust / pension funds 5.8 3.2% 0.0 0.0%

Companies 10.7 5.9% 14.0 6.6%

Banks 159.0 87.8% 164.1 77.6%

Total 181.1 100.0% 211.3 100.0%

Table 52

Evaluation of credit risk exposure – securities portfolio

Turning to the respective securities portfolio, BPI resorts

primarily to information obtained from external rating

reports. The investment portfolio is predominantly composed

of the securities of low credit-risk issuers.


Default, provisioning and recovery levels

The choice of the exposure profiles using the evaluation

methods described before, together with the low average age

of the portfolio (fruit of loan expansion), have resulted in the

portfolio’s good performance indicator and, in particular, in

the minimal default levels.

Globally, taking into account the defaults registered in the

different segments (companies, individuals, small

businesses), the loans in arrears for more than 90 days

amounted to EUR 216 million at the end of 2002,

corresponding to 1.3% of the gross loan portfolio, and was

153% covered by provisions. Recoveries of arrear loans

previously written off totalled EUR 14.7 million, against

EUR 18.9 million in 2001.

In this way, the increase in loans in arrears during the year

(adjusted for write-offs and recoveries) amounted to 0.63%

of the performing loan portfolio at the beginning of the year.

Ratio of loans to Customersin arrears

%

4

3

2

1

0

Chart 52

98 99 00 01 02

Loans in arrears for more than30 daysLoans in arrears for more than90 days

1.8

1.4

1.00.9

1.3

2.1

1.7

1.1 1.1

1.5

Provisioning cover of loansto Customers in arrears

%

240

180

120

60

0

Chart 53

98 99 00 01 02

Loans in arrears for morethan 90 daysLoans in arrears for morethan 30 days

141.0

121.4

157.3

135.8

170.0

194.2210.0

160.4153.0

130.3

Net credit loss

%

2.0

1.5

1.0

0.5

0.0

-0.5

Chart 54

92 02

Annual variation in loans in arrears for more than 30 days,adjusted by write-offsNet credit loss1

93 94 95 96 97 98 99 00 01

Note: as percentage of performing loan portfolio at the beginningof the year.1) Annual variation in loans in arrears, adjusted by write-offs, less

recoveries of loans in arrears previously written-off.

1.33

1.14

1.34

1.04

0.37

0.53

0.29

0.15

0.39

0.13

0.83

0.54

0.54

0.18

0.29

-0.05

0.12

-0.08

0.29

0.15

0.71

0.61


Loans to Customers in arrears and provisions Amounts expressed in millions of euro

20022001

Customer loans portfolio at the end of the year (gross) 15 471.0 16 615.2

Loans in arrears for more than 90 days at the beginning of the year 135.8 133.2

Net increase in loans in arrears 17.2 111.5

Write-offs (19.7) (28.5)

Loans in arrears for more than 90 days at the end of the year 133.2 216.3

Recoveries 18.9 14.7

Total loan provisions at the beginning of the year 263.7 279.8

Increases (net of reversals)

Specific for arrear loans and doubtful debts 19.2 58.6

Country risk (2.1) (1.6)

General provisions 21.1 7.5

Transfer, currency revaluation and acquisition of credit from the EFTA Fund (2.4) 15.1

Write-offs (19.7) (28.5)

Total loan provisions at the end of the year 279.8 331.0

Ratio of loans in arrears for more than 90 days 0.9% 1.3%

Of loans in arrears for more than 90 days 210% 153%

Loan loss in the year

Net increase in loans in arrears for more than 90 days / Performing loan portfolio at beginning of the year 0.13% 0.73%

(Net increase in loans in arrears for more than 90 days, recoveries of loans in arrears) / / Performing loan portfolio at beginning of the year (0.01%) 0.63%

Table 53


The amount set aside for specific provisions for loans in

arrears and doubtful debts (net of reversals) was EUR 58.6

million in 2002. At the end of 2002, Customer loans in

arrears for more than one year represented 48.6% of the

total amount of loans in arrears and were covered to the

extent of 75% by specific provisions.

The following table presents the ratios of loans in arrears by

market segment, as well as each segment’s contribution to

the gross loan portfolio. In global terms, non-performing

credit institution loans, portfolio securities and derivatives

are insignificant. The total of arrear loans to credit

institutions refers to loans granted to a central bank. �

This overdue credit was carried in the balance sheets of the

commercial banks at the time of the acquisition by the

Group in 1991 and 1996. This loan was subsequently

rescheduled, but is currently in default.

1) The amount of non-performing loans in the factoring segment is essentially attributable to technical delays and, therefore, there is no real collection risk. The ratio of factoring debt in arrears for more than 90 days was situated at 0.4% in 2002 and 0.3% in 2001.

Table 54

Loans in arrears for more than 30 days by market segments

2002

Loan portfolio (gross) as% of the consolidated

loan portfolio

Ratio ofloans inarrears

2001

Loan portfolio (gross) as% of the consolidated

loan portfolio

Ratio ofloans inarrears

Corporate and Institutional Banking

Wholesale Banking 16% 0.8% 13% 1.9%

Large companies 9% 0.5% 8% 1.3%

Medium-sized companies 12% 2.3% 11% 2.9%

Project Finance 2% 0.0% 2% 0.0%

Institutional banking 2% 0.0% 3% 0.0%

Subtotal 41% 1.1% 37% 1.8%

Loans to individuals and small businesses

Mortgage loans 34% 0.5% 39% 0.7%

Loans to individuals – other purposes 4% 2.0% 4% 2.8%

Loans to small companies and businesses 8% 2.3% 7% 2.9%

Subtotal 46% 0.9% 51% 1.2%

Leasing 7% 1.2% 6% 1.5%

Factoring 2% 1.7% 2% 3.3%

Other 4% 3.1% 4% 2.9%

100% 1.1% 100% 1.5%

Table 55

Age analysis of Customer loans in arrears (at 31 December 2002) Amounts expressed in millions of euro

Total> 3 years1-3 years6-12 months3-6 months< 3 months

Loans in arrears 38.0 27.0 65.5 85.5 37.9 254.0

% total 15.0% 10.6% 25.8% 33.7% 14.9% 100%

Acumulated specific provisions 0.4 5.2 22.1 57.9 34.5 120.1


Excluding this exposure, the Bank also has direct country-risk exposure through its international financial holdings and its

trading activity.

1) Net of residents’ guarantees, namely, the National Export Credit Agency, exporters or deposits.2) Short-term financing operations for external trade, operations with multilateral Development Banks or those covered by

political-risk insurance, are not subject to country-risk provisioning requirements.3) Algeria, Panama, Cape Verde and Mozambique.

Table 56

Country-risk exposure (at 31 December 2002) Amounts expressed in millions of euro

CountryExposure

net ofprovisions

Exposuresubject toprovisions

ProvisionsExposure not subject toprovisions (short-term

trade finance)2

Exposure net of

guarantees1

Angola 99.8 99.8 99.8

Brazil 85.2 85.2

Hungary 3.9 3.9 0.4 3.5

Morocco 2.2 2.2 0.2 2.0

Turkey 3.3 3.3

Other3 24.1 23.8 0.3 0.1 0.2

Total 218.5 112.3 106.2 100.5 5.7

COUNTRY RISK

Country risk is very similar in terms of the respective effects to

counterparty risk and is associated with the changes or specific

disturbances of a political, economic or financial nature in the

places where the counterparties operate (or, more rarely, in a

third country where the business takes place), which impede

full compliance with the contract, irrespective of the

counterparties’ will or capacity. The "country-risk" designation is

also used to classify the counterparty risk involved in loans to

state entities, given the similarity between the analysis methods

for county risk and those for a state’s counterparty risk

(sovereign risk).

Country-risk evaluation is carried out by the Bank’s

International Division, which resorts to published external

ratings, and external and in-house studies. The Management

Board Executive Committee approves the list of countries in

respect of which country-risk exposure is authorised. Eligible

countries considered are large-scale emerging markets which

embrace market economy principles, are open to international

trade and are of strategic importance within the framework of

the West’s politics.

In addition, the operations defined as eligible are short-term

external trade finance, loans to certain multilateral banks,

medium-term operations with political risk cover or those

which, due to their structuring, are not subject to transfer risk.

Of the country-risk exposure (net of guarantees) in the amount

of EUR 218.5 million, roughly 51% (EUR 112.3 million) is

exempt from provisioning requirements under the regulations by

virtue of the fact that they represent short-term external trade

financing operations, operations concluded with multilateral

development banks, or are covered by political-risk insurance.

However, pursuant to Bank of Portugal regulations governing

country-risk provisioning and internal prudential measures,

another part of the exposure has been amply provided for

(94.6%), with net exposure amounting to EUR 5.7 million,

corresponding to 0.5% of the Group’s shareholders’ equity. The

suspension of trade finance lines with Turkey and Brazil,

coupled with the euro’s appreciation vis-à-vis the dollar, explain

the continuing decrease in exposure which occurred in 2002

(gross exposure of EUR 218.5 million in December 2002,

against EUR 417 million in December 2001).


MARKET RISKS

Market or price risk (interest rates, foreign exchange rates,

equity prices, commodity prices, others) is defined as the

possibility of incurring losses due to unexpected variations in

the price of instruments or operations.

The assessment of treasury positions (short term) and

structural risk positions relating to interest or foreign

exchange rates (long term) is based on gap schedules

(currency gaps, maturity gaps, duration gaps).

To complement this evaluation process, and especially in

the case of assessing exposure in trading operations, the

Risk Control and Analysis Advisory Unit computes on a daily

basis the VaR – Value at Risk – in accordance with

standardised assumptions, in general, forming part of the

BIS’s set of recommendations (normal distribution of

changes in prices, indices and interest rates); evaluation of

the potential loss over a period of two weeks; 99%

confidence level; overall risk dependent upon correlations

between variations in prices, indices or interest rates). The

exposure arising from options is controlled using specific

models. The information produced by the Risk Evaluation

and Control System is available on-line to authorised users.

1) Maximum potential loss, with a 99% confidence level, resulting from an adverse movement in prices, indices and interest rates over a period of two weeks, taking into consideration in the calculation of the overall risk the effect of the correlations of the returns. A normal distribution of returns is assumed.

Table 57

Overall market risk1 Amounts expressed in millions of euro

20021st quarter 2nd quarter 3rd quarter 4th quarter

VaR (monthly average) 3.1 2.6 3.4 7.2 4.1

Interest rate risk 2.9 2.1 3.0 6.7 3.7

Currency risk 0.3 0.2 0.9 1.6 0.8

Equities risk 1.7 1.9 1.5 1.6 1.7

Commodities 0.0 0.0 0.0 0.0 0.0

VaR (maximum) 3.8 5.7 6.8 18.3 18.3

The trading positions are managed independently by traders

and kept within the exposure limits fixed and periodically

reviewed for each market or product. There are varying

exposure limits, including overall VaR limits prescribed by

the Market Risks Executive Committee, that are

subsequently distributed autonomously amongst the

various books by the divisions involved in trading activity.

Furthermore, stop-loss limits have also been laid down.

The management of treasury positions has been delegated to

the Financial Divisions, within the limits defined by the

Management Board / Market Risks Executive Committee.

The long-term structural positions (interest rate or currency

risk) are managed in conformity with directives laid down by

the Market Risks Executive Committee. A more proactive

management of this exposure in the realm of interest rate

risk is at the core of the controlled increase in the VaR in

2002, with the attendant positive results (profits of EUR 5.1

million). Anticipating the dollar’s weakening, BPI opted in

the meantime, bearing in mind its investment in banking

activity in Angola, to hedge against its structural currency

exposure.

As concerns its structural position resulting from the

Investments portfolio, its market risk is not easily measured

by recourse to traditional methods such as the VaR, given

the investment’s time horizon, or its lack of a quoted price

on the equities market. This portfolio’s performance and the

relevant provisions are analysed in the financial review

chapter.

LIQUIDITY RISK

Liquidity risk is monitored in its two facets: i) from the

standpoint of the tradability of the different assets; ii) from a

global perspective, whereby liquidity risk is defined

according to the (in)ability to keep pace with the asset’s

growth and to satisfy treasury needs without incurring

abnormal losses.

From the standpoint of the different assets, the various

managers keep a constant watch over the transaction levels

of the various instruments according to a series of indicators

(BPI’s market share, number of days to unwind positions,

size and volatility of spreads…), duly confined within the

operating limits set for each market.

At global level, exposure assessment is conducted according

to a liquidity schedule that permits the timely identification

of gaps and their dynamic hedging. Moreover, the indicators

relating to funding diversification by counterparties,

maturities and financial markets, are analyses. Managing this

risk is the responsibility of the Group’s Market Risk Executive

Committee and the Financial Division.

As for the overall management of liquidity, of particular note

in 2002 was the selective growth in loans subordinated to

criteria relating to returns on shareholders’ equity and risk,

accompanied by the expansion in the solid base of Customer

resources (+4.9%) and the funding components with longer

maturities. In this domain, a programme of medium and

long-term issues was embarked on in 2002, with around

EUR 509 million having been raised. Medium and long-term

debt now totals an overall figure of EUR 2 681 million. At

the end of 2002, loans to Customers (gross) represented

almost 100% of the more stable outside (third party)

resources (Customer resources, debt securities and

subordinated debt floated on the market).

In the domain of interbank credit, the chief aim was

ensuring the greater diversification of counterparties with the

object of guaranteeing more intense and diversified

continuous financing lines.

OPERATING RISKS

Operating risks are defined as possible unexpected losses

arising from human failure, shortcomings in internal control

procedures and failures in the information systems or

external causes. The definition excludes strategic errors and

reputation risks.

The responsibilities in the area of operating risks belong to

all the Bank’s departments and, in particular, to the

Organisation Division.

In this arena, management is founded primarily on the

training / quality of the human resources and on the

respective proper organisation, namely the segregation of

functions, the definition of responsibility, procedures and

supervision. This is undertaken by two central units (one

geared to the distribution channels and the other to the

other structures), as well as by the work of the internal and

external auditors and the central management of alerts.

The BPI Group also places special emphasis on the prior

identification of critical points of operational dependency.

There is a "Business continuity plan", anchored to the

contingency programme for the most crucial central


information systems. In the case of necessity caused by

equipment breakdown or by a major incident, it is possible

to recover these systems on site or at an alternative location

after a period of time that varies according to the type of

risk. Also guaranteed, even under extreme conditions, is

minimum functioning under an exceptional situation. The

same method applies in the case of the main

telecommunications equipment. The voice and data service

at the BPI Group’s main buildings is guaranteed through the

recourse to alternative equipment, in accordance with formal

disaster-recovery processes. The BPI Group has also

identified alternative procedures for each one of its most

critical operations in the event of a failure in the systems

supporting its day-to-day operations. A database is on stand-

-by which identifies all these procedures, thereby enabling

these to be activated at any point in time. These disaster

recovery schemes are tested and subjected to periodic

reviews.

Finally, the BPI Group reviews annually its insurance policy

cover, adjusting its operating requirements and market

conditions with the object of obtaining an appropriate level

of outside protection against risks.

LEGAL RISKS

Legal risks are related to the unexpected losses associated

with shortcomings in the legal situation applicable to

contracts / positions to be established or any changes to this

legal context.

Particular attention is paid in the sphere of legal risks to

reviewing the legal situation and the identification of any

regulatory discrepancy; to analysing the prospects of altering

the legal framework and respective consequences; to

clarifying the nature of contractual relations and their

interpretation by counterparties; product analysis, their legal

status, centralisation of communications with supervisory

entities and the drawing up of the respective processes with

these entities; and to the identification / proposal of the

measures capable of minimising risks of litigation.



Rating

The BPI Group’s strategy, competitive position, solid

financial base and capacity to generate earnings continued

to merit high credit ratings from independent and reputable

entities – Fitch Ratings, Moody’s and Standard & Poor’s.

The rating agencies highlight in broad terms the successful

growth strategy implemented by BPI, materialising in the

acquisition of four banks – Banco Fonsecas & Burnay, Banco

Borges & Irmão, Banco de Fomento e Exterior and Banco

Universo – and their correct integration. They also underline

the high quality of the Group’s assets and earnings.

Following the BPI Group’s restructuring in 2002, the rating

agencies Moody’s, Standard & Poor’s and Fitch Ratings

confirmed BPI’s rating classifications and maintained their

outlook as "stable", highlighting the benefits to be reaped

from the much simpler structure, as well as the potential for

cost savings engendered by the reorganisation.

Rating classifications

OutlookShort termLong termLatest research

ActionDate

Banco BPI

Moody's 7 Jan. 03 Hold A2 P-1 Stable

Fitch Ratings 13 Jan. 03 Hold A+ F1 Stable

Standard & Poor's 20 Dec. 02 Hold A- A-2 Stable

BPI Investimentos

Fitch Ratings 13 Jan. 03 Hold A+ F1 Stable

Standard & Poor's 20 Dec. 02 Hold A- A-2 Stable

Moody’s: Bonds which are rated "A" possess very favourable attributes and are considered as superior-medium grade investments. (the modifier 2 denotes a middle position in category A).

Fitch Ratings: A+ High credit quality. A ratings denote a low expectation of credit risk.(the modifier + denotes a higher position within category A).

Standard & Poor’s: A– An entity with an A rating possesses a strong capacity to meet its financial commitments.(the modifier – denotes a lower position in category A).

Table 58

Report | Rating 121

RATING REPORTS

Moody’s, 7 January 2003

"The A2/P-1/C+ ratings of Banco BPI ("BPI") reflect its position

as the fourth largest private banking group in Portugal with a

market share of some 10%, its improving financial condition

and its successful transformation into a universal banking

group by developing its previously limited retail operations. The

ratings also take into account its strategy of remaining a mainly

domestic-oriented group, which may limit its growth

opportunities, and the challenges that it will face in a more

consolidated and increasingly competitive environment as well

as the implications of the rapid growth in credit throughout the

Portuguese market in the context of a slowing economy.

The stable outlook reflects both the improving credit profile of

the group and the challenges it faces in a consolidated and

increasingly competitive industry in the context of a slowing

economy."

Fitch Ratings, June 2002 and 13 January 2003

“BPI’s ratings reflect management track record in delivering

good results, the group sound asset quality, generally

conservative risk profile and strong franchise in certain

business areas.”

“Banco BPI and its subsidiaries represent the fifth largest

banking group in Portugal with consolidated equity of Eur 1.4

billion and total assets of Eur 24.9 billion at end September

2002. As the above (“above” refers to the reorganisation of the

group’s structure in 2002) are purely internal, involving

subsidiaries directly or indirectly owned by the BPI Group,

there has been no material impact on the consolidated figures

on the group.”

Standard & Poor’s, 20 December 2002

“Although the economic environment will remain challenging

and will likely continue to pressure the BPI banking group's

financials, the degree of deterioration of both asset quality and

profitability is expected to remain within reasonable levels. The

group is expected to maintain its policy of streamlining

expenses. Actual results from continuous staff reductions are

expected to bear fruit, helping, to some extent, to offset

declines in other items of BPI's consolidated income

statement.”

BPI shares


Return on investment

Banco BPI1 shares closed 2002 with a gain2 of 1.5%, a

performance that is extremely positive when one considers that

in the same period European banks shed 26.8%3. In general

terms, the equities market fell 25.6% in Portugal4 and 32.5%

in Europe5. The return on investment (ROI) in BPI shares –

which takes into consideration the share’s stock market

appreciation and assumes the reinvestment of dividends in

new BPI shares – was situated at 3.0%.

Earnings per share

Earnings per BPI Group share in 2002 stood at EUR 0.192

(EUR 0.196 in 2001). Net book value per share at the end of

December 2002 was EUR 1.54.

Dividends

The dividend proposed to the Shareholders’ General Meeting is

EUR 0.08, attributable to each one of the 760 000 000

shares in issue at 31 December 2002. The total amount to be

distributed is EUR 60.8 million.

Liquidity

In 2002, BPI shares generated a trading volume of EUR 602

million, corresponding to an increase of 54% compared to

2001. Daily average share dealings amounted to EUR 2.4

million.

Stock market capitalisation

On the basis of its stock market capitalisation, using the

closing price at the last stock exchange session of 2002, the

BPI Group’s market value was EUR 1 657 million, 14% higher

than in 2001. BPI was, at the end of 2002, the ninth largest

company listed on the Euronext Lisbon, accounting for 3.7% of

the market’s global capitalisation.

Market multiples

The price earnings ratio6 fluctuated during the course of

2002 between a minimum of 9.0 and a maximum of 13.7,

to be fixed at 11.3 at the end of 2002. The price cash flow7

indicator in 2002 bottomed at 4.9 and peaked at 7.4. The

price-book value8 figure was situated at 1.4 at the end of the

year.

Share capital

In May 2002, BPI SGPS (subsequently renamed Banco BPI)

increased its share capital from EUR 645 625 000 to EUR

760 000 000 through the issue of 114 375 000 nominative

and dematerialised (book-entry) ordinary shares, with a nominal

value of one euro each and entitled to the full dividend relating

to 2002 and following years. The operation was realised by

means of a public subscription reserved for shareholders at a

price of EUR 1.75 per share. The shares representing Banco

BPI’s share capital are all quoted on the Euronext market.

1) On 20 December 2002, BPI SGPS absorbed by way of merger Banco BPI and changed its name to Banco BPI, maintaining the status of the company at the head of the group and theonly BPI Group company with shares listed on the Euronext Lisbon market.

2) Adjusted by the capital increase realised in May3) Taking as the reference the Dow Jones Europe STOXX Bank index.4) Taking into consideration the trend in the PSI-20 index.5) Based on the evolution of the Dow Jones STOXX 600 index.6) Price as a multiple of net profit per share.7) Price as a multiple of cash flow after taxation per share.8) Price as a multiple of book value per share.

1) BPI shares’ trend in relation to 31 December 2001.2) Adjusted for the capital increase realised in May 2002.

Banco BPI shares and key indices performance1

Jan.

Chart 55

2.79

2.58

2.36

2.15

1.93

1.72

1.50

1.29

30

20

10

0

-10

-20

-30

-40Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

Ban

co B

PI s

hare

s’ p

rice2

Banco BPI

DJ Europe STOXX Banks

PSI-20

€∆%

Report | BPI shares 123

Principal BPI shares indicators Amounts expressed in euro and millions of euro

20022001200019991998

Stock exchange price of BPI shares1 (euros)

Highest price 6.03 4.56 4.10 3.83 2.63

Average price 4.21 3.69 3.50 2.65 2.34

Lowest price 2.60 3.03 3.09 1.81 1.74

Closing price 3.86 3.86 3.18 2.15 2.18

Changes in price and key indices

Variation in Banco BPI shares price 29.5% (0.1%) (17.6%) (32.3%) 1.5%

Variation in PSI-20 index 24.9% 8.7% (13.0%) (24.7%) (25.6%)

Variation in Dow Jones STOXX 600 index 18.4% 35.9% (5.2%) (17.0%) (32.5%)

Variation in Dow Jones Europe STOXX Bank index 10.3% 18.5% 9.3% (9.5%) (26.8%)

Shareholder's overall return (ROI)

Shareholder's overall return 31.2% 2.5% (16.0%) (30.4%) 3.0%

BPI Group's market value

No. of shares at the end of the year (in millions) 77.9 565.02 645.6 645.6 760.0

Stock market capitalisation at the end of the year (M.euro) 2 252.7 2 390.0 2 156.4 1 459.1 1 656.8

Data per share (euro)

Cash flow after taxation 0.351 0.319 0.445 0.397 0.355

Net profit 0.235 0.207 0.243 0.196 0.192

Dividend 0.073 0.094 0.093 0.086 0.0833

Book value 0.970 1.050 1.370 1.338 1.538

Weighted average no. of shares (in millions) 584.0 603.8 626.3 679.0 728.3

Market valuation

Price as a multiple of:

After cash flow after taxation 11.0 12.1 7.1 5.4 6.1

Net profit 16.4 18.7 13.1 10.9 11.3

Book value 4.0 3.7 2.3 1.6 1.4

Dividend yield 2.5% 2.4% 2.4% 2.7% 3.9%

Earnings yield 7.9% 5.4% 6.3% 6.2% 9.0%

Liquidity

Annual trading volume (M.euro) 2 100.0 1 495.0 992.9 390.8 602.0

Share capital rotation 85.4% 70.2% 45.2% 21.7% 87.2%

Daily average trading volume (M.euro) 8.5 6.0 4.1 1.6 2.4

Dividends

Net profit (M.euro) 137.0 124.8 152.4 133.3 140.1

Distributed earnings (M.euro) 42.8 56.5 58.1 58.1 60.8

Pay-out ratio 31.2% 45.3% 38.1% 43.6% 43.4%

Dividend per share (euro) 0.073 0.094 0.093 0.086 0.083

Dividend yield 2.5% 2.4% 2.4% 2.7% 3.9%

1) Source: Bloomberg2) In 1999, the capital was increased from 77.9 million shares to 113 million shares which generated a cash inflow of EUR 125.4 million. Subsequently, a stock split

of BPI SGPS shares was carried out through the substitution of each existing share (with a nominal value of 5 euros each) by 5 new shares with a nominal value of 1 euro each.3) The dividend per share in respect to 2002 exercise is equivalent to the adjusted dividend of 2001. The difference between both figures is due to the fact that, for purposes of the

dividend payment, all the shares in issue at the end of 2002 (760 million) were taken into account, as opposed to the weighted average number of shares (728.3 million), as well as thefact that it was decided to round off the dividend per share to the euro cent.

Table 59

Treasury stock

In 2002, Banco BPI (previously named BPI SGPS) acquired

on the stock exchange 3 667 489 shares at an average price

of EUR 2.57 (for a total cost of EUR 9 438 613), and sold,

also on the stock exchange, 1 626 389 shares at an average

price of EUR 2.05 (for a total amount of EUR 3 337 529).

Additionally, in the over-the-counter market, it acquired

2 852 shares at an average price of EUR 2.39 euros (at a

total cost of EUR 6 826) and sold 615 289 shares at an

average price of EUR 2.67 (for a total amount of EUR

1 643 961). These transactions corresponded to 0.9% of

Banco BPI’s share capital and were destined exclusively for

the execution of the 2001 variable remuneration programme

for Employees and directors through the granting of shares

and share options (Portuguese initials RVA).

For its part, Banco Português de Investimento, S.A., –

100% owned by Banco BPI – acquired on the stock

exchange 4 114 577 shares at an average price of EUR

2.48 (for a total cost of EUR 10 203 532), and sold, also

on the stock exchange, 4 577 736 shares at an average

price of 2.51 (for a total amount of EUR 11 476 306). In

the over-the-counter market, it acquired 49 510 shares at

an average price of EUR 2.19 (for a total cost of EUR

108 427). These transactions corresponded to 1.3% of

Banco BPI’s share capital, with 37% of the quantity traded

being earmarked to hedge positions in PSI-20 futures.

At 31 December 2002, Banco BPI held 1 428 663 own

shares, or 0.2% of capital, reserved exclusively for covering

the stock incentive and options part of the variable

remuneration programme. Of this figure, 1 057 669 shares

are destined to provide cover for the stock options plan and

370 994 shares to provide cover for the shares awarded

under the condition precedent scheme. For its part, Banco

Português de Investimento, held at 31 December 2002,

341 784 Banco BPI shares or 0.04% of capital, all of which

earmarked for hedging positions in PSI-20 futures.

The other subsidiaries over which Banco BPI has effective

management control did not acquire or sell any share

representing its share capital and, at the end of December

2002, did not hold any Banco BPI shares in their portfolios.


STRUCTURE AND PRINCIPAL SHAREHOLDERS

Shareholders

Report | Shareholders 125

On 31 December 2002 Banco BPI’s capital was held by

24 364 shareholders, of whom 23 792 were individuals �

holding 13.3% of the equity, while 86.7% was in the hands

of 572 institutional investors and companies.

Distribution of Banco BPI share capital1 At 31 December 2002

1) The distribution of Banco BPI ’s capital is based on information received from the securities clearing house (Central de Valores Mobiliários), which reflects the registration of EUR 759 943 580, or 99.99% of Banco BPI’s share capital (which is EUR 760 000 000).

2) The distribution amongst types of shareholders is as concerns foreigners merely indicative. BPI does not have information that permits it to identify the holders of shares registered in the name of foreign custodian banks.

3) Includes the direct holdings of BPI’s key institutional shareholders, companies’ holdings and shares in the name of custodian banks.

1) In terms of the company’s statutes, the exercise of voting rights is limited to 12.5%.2) Through IPI – Itaúsa Portugal SGPS, S.A., 100% controlled.3) Through Caixa Holding, S.A., Sociedad Unipersonal 100% controlled.4) Through RAS International, N.V., 100% controlled, Companhia de Seguros Allianz Portugal (0.22%) and Fundo de Pensões Allianz Portugal (0.004%)5) Shares held directly by Banco Totta & Açores S.A. and by companies which Banco BPI is aware of that fall within one of the situations contemplated in article 20

of the Securities Code. Does not include 27 689 939 shares held directly by Banco Totta & Açores, S.A. through its London branch, acquired within the scope of a repurchase operation entered into with Sonae Investments BV, as described in note 6 of this table.

6) 5 082 619 shares (0.67%) through Sonae Investments BV and 27 689 939 shares (3.64%) the object of a repurchase contract entered into between Sonae Investments BV and Banco Totta & Açores, S.A. In terms of the aforesaid repurchase contract, and according to an announcement by Sonae and Banco Totta, the sale of 27 689 939 shares is purely transitional, whereby the shares are to be repurchased at any moment at Sonae Investments BV’s initiative prior to the date the contract expires. Banco Totta e Açores S.A. and Sonae Investments BV agreed that the latter retains the right to exercise the voting rights attaching to the abovementioned shares under the terms of an irrevocable mandate.

7) Custodian bank.

Type of shareholders

Nationals

% of capital held

No. ofshareholders

Foreign2

% of capital held

No. ofshareholders

Total

% of capital held

No. ofshareholders

Table 60

Shareholders owning more than 2% of Banco BPI’s share capital At 31 December 2002

Shareholder No. of shares held % of capital held % voting rights (according to Securities Code)

Itaú Group1,2 114 619 877 15.08% 15.12%

La Caixa Group1,3 113 956 379 14.99% 15.03%

Allianz Group4 67 381 096 8.87% 8.89%

Totta Group5 63 110 094 8.30% 8.32%

Sonae Group6 32 772 558 4.31% 4.32%

Clearstream Banking S.A., Luxembourg7 30 823 510 4.06% 4.07%

BCP Group 29 305 391 3.86% 3.87%

Caixa Geral de Depósitos Group 23 695 426 3.12% 3.13%

Arsopi Group 22 547 249 2.97% 2.97%

Violas Group 21 681 062 2.85% 2.86%

Table 61

Individuals 23 571 13.2 221 0.1 23 792 13.3

Pension funds 57 7.6 - - 57 7.6

Unit trust funds 27 1.6 - - 27 1.6

Other institutionals3 284 31.5 204 45.9 488 77.4

Total 23 939 54.0 425 46.0 24 364 100.0

Shareholders value creation


Return on Investment (ROI)

The appreciation in the price of BPI shares has been

consistent: the shareholder who subscribed for shares in the

share capital increase realised by way of initial public

offering in October 1986, achieved an average annual return

on his investment of 10.5% until 2002. The return obtained

by the IPO shareholders has been on average 1 p.p. higher

than that shareholders would have earned had they opted to

invest in other Portuguese stocks, as measured by the PSI

index.

The accompanying table shows, by line, the various average

annual returns earned by a shareholder who, having invested

the same in BPI shares at the beginning of the year,

disinvested at the end of the same year or at the end of each

one of the following years.

Creation of value for BPI Shareholders1 (1981-2002) Return on percentage (annual average rates)

1) The calculations were based on the assumption that during the investment period the shareholder in question reinvested his dividend on the day immediately after receipt thereof to acquire new BPI shares. It was also assumed that the same shareholder participated in all capital increases and convertible debt issues reserved for shareholders, subscribing for the maximum quantity to which he was entitled to.

2) Entry (at the beginning of the year).3) Exit (at the end of the year).4) Entry in October 1986 at the initial public offering.

Exit3Entry2 20022001200019991998199719961995199419931992199119901989198819871986

1981 56.0 70.6 50.0 43.2 31.5 25.6 22.9 27.5 16.2 12.5 14.3 26.7 27.2 24.4 19.5 12.3 11.1

19864 3 089 319.2 93.2 61.3 34.5 25.0 21.7 27.7 14.4 10.8 12.9 26.7 27.2 24.2 19.0 11.6 10.5

1987 148.4 39.2 29.3 15.0 11.4 11.5 18.6 8.2 5.9 8.6 21.7 22.7 20.4 16.0 9.6 8.8

1988 (16.2) (2.9) (6.5) (4.2) (0.5) 8.6 0.3 (0.7) 2.9 16.2 17.8 16.1 12.4 6.7 6.3

1989 12.6 (1.8) (0.5) 3.0 13.2 2.6 1.1 4.8 19.4 20.8 18.5 14.1 7.8 7.2

1990 (12.3) (5.3) 0.7 13.4 1.2 (0.1) 4.1 20.0 21.4 18.9 14.2 7.6 7.1

1991 0.5 4.9 19.8 3.3 1.3 5.7 23.3 24.4 21.3 15.8 8.5 7.8

1992 9.6 30.8 4.3 1.5 6.6 27.1 27.8 23.6 17.2 9.1 8.2

1993 56.2 1.8 (0.9) 6.0 30.3 30.5 25.4 18.0 9.1 8.2

1994 (30.9) (19.1) (4.8) 25.5 26.8 21.8 14.6 5.9 5.5

1995 (5.6) 9.6 49.0 43.9 33.4 22.1 10.4 9.1

1996 22.6 76.9 59.4 41.7 26.2 12.1 10.3

1997 139.9 77.5 47.2 26.8 10.5 8.9

1998 31.2 15.7 3.5 (7.2) (4.9)

1999 2.5 (7.4) (16.3) (11.3)

2000 (16.0) (23.8) (15.1)

2001 (30.4) (14.7)

2002 3.0

Table 62

Final acknowledgements

Report | Shareholders value creation and Final acknowledgements 127

Despite the particularly difficult background which characterised 2002, the BPI Group was able to post highly

satisfactory business indicators and to execute an ambitious rationalisation plan for its organisation and functioning.

Without the dedicated commitment of its Employees, the support and understanding of its Customers, the

cooperation of the Monetary and Financial Authorities and the attentive interest of its Shareholders, it would not have

been possible to realise these goals.

The Management Board would for this reason like to express its sincere gratitude.

A special word of appreciation is due to Drs. Jorge Holtreman Roquette and António Seruca Salgado who during the

year and of their own accord ceased to form part of the Management Board. Both gentlemen will remain etched in

BPI’s history as memorable references. They merit full recognition for their decisive contribution to the Group’s

development and for the affirmation of their professional and entrepreneurial acumen. Both formed part of the

founding nucleus that gave rise to BPI – Dr. Jorge Roquette since 1981, when Sociedade Portuguesa de

Investimentos was born, and Dr. António Seruca Salgado from 1984, a year before the company’s transformation into

an investment bank. Their professional careers concentrated above all on the corporate banking business, first at the

investment bank and later, at the commercial banking arm, in tandem with the Group’s expansion and consolidation.

But their invaluable contributions, always manifested at the highest levels of responsibility, will forever be associated

with all the major strides in BPI’s history, bearing the hallmark of professionalism, competence and loyalty.

Also in the year under review, Eng.s Sérgio Sawaya and Luís Mira Amaral ceased to form part of Banco BPI’s and

Banco Português de Investimento’s Management Boards, respectively. The Board also expresses its appreciation for

the dedication, commitment and competence in which they performed their respective functions.

Oporto, 27 February 2003.

Management Board

Proposed appropriation of net profit


Banco BPI, S.A. made a consolidated net profit in 2002 of EUR 140 069 454 and an individual net

profit of EUR 39 535 403.59.

The Management Board proposes that, in relation to the 2002 financial year, a dividend of EUR 0.08

(8 euro cents) be distributed for each one of the 760 000 000 shares representing the share capital at

31 December 2002.

The proposed dividend per share is, in terms adjusted for the share capital which took place in May

2002 and formalised by the public deed on 3 June 2002, equivalent to the dividend distributed in the

preceding year and implies a distribution of earnings corresponding to 43% of consolidated net income

for the year.

In the individual accounts, Banco BPI must, in terms of article 97(1) of the General Regime for Credit

Institutions and Financial Companies, transfer 10% of net profit to the legal reserve. Consequently, the

distribution of the proposed dividend implies the distribution of free reserves in the amount of EUR

25 218 136.77 in order to complement the partial application of individual net profit.

In the consolidated accounts and after taking into account the proposed dividend, the portion of

consolidated net profit retained in the amount of EUR 79 269 454 results in an increase in reserves to

EUR 348 075 600.

Accordingly, in the exercise of the powers conferred on it by article 16(2)(b) of the Statutes, the

Management Board proposes the following appropriation of individual net income for the financial year:

Appropriation of individual net profit EUR 39 535 403.59

Of which: To legal reserve EUR 3 953 540.36

For dividends EUR 35 581 863.23

Distribution of free reserves EUR 25 218 136.771

Dividends to distribute EUR 60 800 000.00

Oporto, 27 February 2003

Management Board

1) After deducting the amount relating to the dividend notionally attributable to the treasury stock held by the Bank.

Consolidated financial statements

CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER, 2002 AND 2001


The Accountant

ASSETS

2001

Net Net

2002

GrossNotes Depreciationand provisions

Cash and deposits at Central Banks 4.1 524 106 524 106 506 726

Loans and advances to credit institutions repayable on demand 4.2 330 065 330 065 353 688

Other loans and advances to credit institutions 4.3 3 267 999 99 818 3 168 181 3 512 320

Loans and advances to Customers 4.4 16 615 194 142 602 16 472 592 15 372 139

Bonds and other fixed income securities

Issued by government entities 4.5 2 145 049 2 2 145 047 1 518 313

Issued by other entities 4.5 717 709 5 932 711 777 1 186 574

Shares and other variable-yield securities 4.6 224 706 75 006 149 700 155 438

Investments in associated companies 4.7 108 143 1 182 106 961 105 375

Investments in subsidiary companies excluded from the consolidation 4.8 48 999 48 999 49 820

Other investments 4.9 509 036 23 872 485 164 671 949

Intangible assets 4.10 104 119 88 630 15 489 20 855

Tangible fixed assets 4.11 621 367 330 290 291 077 304 268

Of which: [Premises] [298 030] [114 715] [183 315] [191 902]

Treasury stock 3 044 3 044 1 707

Other assets 4.12 265 621 13 939 251 682 264 924

Accruals, deferrals and others 4.13 965 190 965 190 768 849

Total assets 26 450 347 781 273 25 669 074 24 792 945

OFF BALANCE SHEET ITEMS

Guarantees provided and other contingent liabilities 4.28 3 122 781 3 297 860

Of which:

[Guarantees and sureties] [3 045 337] [3 224 501]

[Others] [77 444] [73 359]

Commitments 4.28 3 146 468 3 335 548

Consolidated financial statements 131

The accompanying notes form an integral part of these balance sheets.

(Amounts expressed in thousands of euro)

The Board of Directors

LIABILITIES AND SHAREHOLDERS’ EQUITY 20012002Notes

Amounts owed to credit institutions

Repayable on demand 4.14 45 748 43 577

Term or notice deposits 4.14 6 581 508 6 649 267

Amount owed to Customers

Savings deposits 4.15 868 361 833 304

Other debts

Repayable on demand 4.15 4 922 142 4 706 046

Term or notice 4.15 6 540 427 6 513 766

Debt securities

Outstanding bonds 4.16 3 541 429 3 121 750

Other liabilities 4.17 198 097 206 690

Accruals, deferrals and others 4.18 703 666 622 170

Provisions for sundry risks

Provisions for retirement benefits 4.19 14 541 9 442

Other provisions 4.19 200 439 235 576

Fund for general banking risks 4.19 5 059 6 658

Subordinated debt 4.21 625 676 631 097

Minority interests 4.22 253 106 304 915

Subscribed share capital 4.23 760 000 645 625

Share premium account 4.24 286 833 201 052

Reserves 4.25 (18 027) (71 273)

Consolidated net profit for the year 4.36 140 069 133 283

Total liabilities and shareholders' equity 25 669 074 24 792 945

CONSOLIDATED STATEMENTS OF INCOME BY NATUREFOR THE YEARS ENDED 31 DECEMBER, 2002 AND 2001


EXPENSES 20012002Notes

Interest and similar expenses 4.29 1 127 657 1 204 612

Commissions 4.30 21 975 17 231

Losses on financial operations 4.31 994 458 1 018 043

General and administrative expenses

Personnel costs 4.32 285 661 288 277

Other administrative expenses 154 990 165 025

Depreciation 4.10 / 4.11 50 198 51 834

Other operating expenses 4.33 7 886 8 105

Provisions for overdue loans and other risks 4.27 126 494 109 713

Provisions for investments 4.27 4 232 5 395

Extraordinary expenses 4.34 48 562 79 460

Income tax 4.35 44 743 59 630

Other taxes 1 620 3 393

Minority interests in the consolidated net profit for the year 4.22 9 802 17 257

Consolidated net profit for the year 4.36 140 069 133 283

3 018 347 3 161 258

The Accountant


INCOME 20012002Notes

Interest and similar income 4.29 1 604 857 1 684 268

Income from securities 4.29 10 393 15 908

Commissions 4.30 207 064 210 102

Gains on financial operations 4.31 1 014 006 1 058 674

Reversal of provisions 4.27 62 617 30 582

Earnings of associated companies and subsidiaries excluded from the consolidation 7 885 14 491

Other operating income 4.33 68 287 62 737

Extraordinary income 4.34 43 238 84 496

3 018 347 3 161 258



The accompanying notes form an integral part of these statements.

CONSOLIDATED STATEMENTS OF INCOME BY FUNCTIONSFOR THE YEARS ENDED 31 DECEMBER, 2002 AND 2001


20012002

Financial margin 477 200 479 656

Provisions for credit risk (35 857) (37 630)

Credit recoveries 14 678 18 855

Net financial margin 456 021 460 881

Net commissions 185 089 192 871

Other net operating results 48 507 37 947

Services margin 233 596 230 818

Income from securities 10 393 15 908

Earnings of companies recorded by the equity method 7 885 14 491

Net gains on financial operations 19 548 40 631

Provisions for unrealised losses on securities (17 225) (5 374)

Investment margin 20 601 65 656

Other costs (4 404) (5 563)

Income before transformation costs 705 814 751 792

Personnel costs (285 661) (288 277)

Other administrative expenses (154 990) (165 025)

Depreciation (50 198) (51 834)

Transformation costs (490 849) (505 136)

Operational result 214 965 246 656

Other provisions (15 027) (41 521)

Net gains on the sale of investments 20 256 6 166

Other extraordinary results (25 580) (1 131)

Profit before taxes and minority interests 194 614 210 170

Taxes (44 743) (59 630)

Minority interests (9 802) (17 257)

Consolidated net profit for the year 140 069 133 283



The Accountant The Board of Directors


CONSOLIDATED STATEMENTS OF CASH FLOWS FOR YEARSENDED 31 DECEMBER, 2002 AND 2001

20012002

Operating activities

Interest, commissions and similar income received 2 175 430 2 635 433

Interest, commissions and similar expenses paid (1 393 113) (1 763 993)

Payments to personnel and suppliers (7 268) (410 050)

Recovery of loans and interest in arrears 14 678 18 855

Net extraordinary operating expenses (461 197) 1 217

Net cash flow from income and expenses 328 530 481 462

Decreases (increases) in:

Other loans and advances to credit institutions 345 114 (821 721)

Loans and advances to Customers (1 155 626) (1 998 396)

Bonds and other fixed income securities (101 014) (255 021)

Shares and other variable-yield securities (9 728) 21 533

Other assets, accruals, deferrals and others 23 285 63 474

Net cash flow from operating assets (897 969) (2 990 131)

Increases (decreases) in:

Amounts owed to credit institutions – term or notice deposits (67 759) 740 248

Amounts owed to Customers 277 814 937 268

Other liabilities, accruals, deferrals and others (33 678) (22 772)

Net cash flow from operating liabilities 176 377 1 654 744

Contributions to the pension funds (140 574) (140 416)

Income tax paid (78 462) (35 736)

(612 098) (1 030 077)

Investing activities

Purchase / incorporation of equity investments:

Aquapor – Serviços, S.A. (1 740) (9 831)

Douro – Sociedade Gestora de Participações Sociais, S.A. (3 592)

Viacer – Sociedade Gestora de Participações Sociais, S.A. (25 481)

Solo – Investimentos em Comunicação, S.G.P.S., S.A. (7 223)

Other (200)

Sale of equity investments:

Luságua – Gestão de Águas, S.A. 5 986

Purchase of other investments (31 964) (12 538)

Sale of other investments 239 312 13 311

Purchase of tangible fixed assets and intangible assets (44 151) (42 540)

Sale of tangible fixed assets:

Premises for own activities 1 913 3 613

Other 689 1 810

Dividends received and other income 10 258 13 156

167 094 (56 306)




20012002

Financing activities

Issuance of debt securities and subordinated debt 927 650 1 718 696

Redemption of debt securities (569 358) (357 915)

Purchase and sale of own debt securities and subordinated debt 75 775 (135 725)

Capital increase

Nominal value 114 375

Share premium account 85 781

Interest on debt securities and subordinated debt (129 630) (111 537)

Dividends paid on preference shares (9 568) (17 923)

Distribution of prior year profit (57 875) (58 097)

437 150 1 037 499

Net increase (decrease) in cash and equivalents (7 854) (48 884)

Cash and equivalents at the beginning of the year 816 837 865 721

Changes in BPI Group companies (560)

Cash and equivalents at the end of the year 808 423 816 837



The Accountant

Alberto Pitôrra


President Artur Santos Silva

Vice-Presidents Carlos da Câmara PestanaFernando UlrichRuy Matos de Carvalho

Members Alfredo Rezende de AlmeidaAntónio DominguesAntónio Farinha MoraisArmando Leite de PinhoFernando RamirezIsidro Fainé CasasJoão Sanguinetti TaloneJosé Pena do AmaralKlaus DührkopManuel de Oliveira ViolasManuel Ferreira da SilvaMaria Celeste HagatongDiethart BreipohlRoberto Egydio SetúbalTomaz Jervell

Notes to the consolidated financial statements

Notes to the consolidated financial statementsas of 31 December, 2002 and 2001


(Unless otherwise indicated, all amounts are expressed in thousands of euro – th. euro)

Banco BPI, S.A. (Banco BPI) is a company that resulted from

the transformation of BPI SGPS, S.A. (BPI SGPS), through

change of its corporate name and purpose – that became

banking activities – and incorporation of the net assets and

operations of Banco BPI, S.A., which was subsequently

extinguished.

The transformation became effective on 20 December, 2002,

the date on which the operations involving the corporate

reorganisation of the BPI Group were registered in the

commercial registry. The reorganisation also included:

– the merger of BPI Ventures, SGPS, S.A., as of 1 January,

2002, and Dixit Investimentos Estratégicos, SGPS, S.A. into

BPI SGPS;

– the spin-off of part of the net assets of Banco Português de

Investimento, S.A (BPI Investimentos) and their incorporation

into BPI SGPS; and,

– the merger of BPI Leasing – Sociedade Portuguesa de Locação

Financeira, S.A., BPI Factor – Sociedade Portuguesa de

Factoring, S.A. and Estratégia SGPS, S.A. into Banco BPI.

The BPI Group started operating in 1981 with the founding of

SPI – Sociedade Portuguesa de Investimentos, S.A.R.L. By public

deed dated December 1984, that company changed its corporate

name to BPI – Banco Português de Investimento, S.A., which was

the first private investment bank created after the re-opening, in

1984, of the Portuguese banking sector to private investment.

BPI – SGPS, S.A. ("BPI SGPS") was a holding company that

resulted from the transformation of BPI – Banco Português de

Investimento, S.A. on 30 November, 1995, its exclusive purpose

being to act as the BPI Group’s holding company.

Banco BPI is the central entity of a financial group dedicated to

the banking business, which offers a diversified range of

financial services and products to companies, institutional

investors and individuals. Banco BPI has been listed on the

stock exchange since 1986.

At 31 December, 2002 the banking business of the Group was

carried out by two banks: Banco Português de Investimento, S.A.

(BPI Investimentos), in investment banking; and Banco BPI,

S.A. (Banco BPI), in retail banking. BPI Investimentos is fully

owned by Banco BPI.

Banco BPI has direct and indirect investments in subsidiary and

associated companies. Subsidiary companies are those in which

the participating interest exceeds 50% of the subsidiary’s share

capital. Associated companies are those in which the

participating interest is between 20% and 50% of their share

capital, or where Banco BPI has direct or indirect significant

influence over their management and financial policy (note 4.7).

During 2001, the BPI Group increased its participation in Douro

– Sociedade Gestora de Participações Sociais, S.A. to 100%,

through a public tender offer on the shares of that company, by

direct acquisition and compulsory acquisition, in accordance

with article 194 of the Portuguese Securities Market Code

("Código de Valores Mobiliários").

During 2001, the BPI Group subscribed for part of a capital

increase of Viacer – Sociedade Gestora de Participações Sociais,

Lda., increasing it participation in that company to 26%.

During 2001, BPI – Capital SGPS, S.A., BPI Participações –

SGPS, S.A. and BPI Private Equity, SGPS, S.A. were merged

into Banco BPI. For accounting purposes, the merger was

considered to take place on 1 July, 2001.

During 2001, the BPI Group sold its 30% participation in

Luságua – Gestão de Águas, S.A.

During 2001, Banco BPI founded BPI – Madeira, SGPS,

Unipessoal. The share capital of that company is th. euro

150 000 and is fully owned by the BPI Group.

During 2001, Banco BPI’s investment in Digimarket – Sistemas

de Informação, S.A. was considered as being part of the BPI

Group. In the second half of 2002, Banco BPI reduced its

participating interest in that company to 9.9% and so the

company stopped being considered as part of the BPI Group.

During 2002, the BPI Group founded BPI (Suisse), S.A. The

share capital of that company amounts to 1 500 000 Swiss

francs, and the BPI Group’s participation therein is 99.87%.

1. THE FINANCIAL GROUP

Consolidated financial statements | Notes 139

During the first half of 2002, Banco BPI subscribed for, and

paid up, the full amount of the capital increase of BPI –

Ventures, SGPS, S.A. from th. euro 25 000 to th. euro 65 000,

by conversion of supplementary capital contributions.

During the second half of 2002, BFE Investimentos – Sociedade

de Investimentos, S.A. changed its activity to become a holding

company and corporate name to Estratégia, SGPS, S.A.

During the second half of 2002, BPI Dealer – Sociedade

Financeira de Corretagem, S.A. was merged into BPI

Investimentos. For accounting purposes, the merger was

considered to take place on 1 January, 2002.

Banco de Fomento S.A.R.L. was incorporated during the second

half of 2002, with head office in Angola and share capital of

1 305 561 thousand kwanzas, being fully owned by the BPI

Group. The company resulted from the transformation of Banco

BPI’s Luanda Branch into a bank, under Angolan legislation.

During the second half of 2002, the process of incorporation of

BPI Cayman, Ltd. was completed and it was authorised to

operate as a bank. The share capital of that bank is th. euro

150 000 and is fully owned by the BPI Group.

During the second half of 2002, the sale option, issued by the

BPI Group, over 55% of the share capital of Solo –

Investimentos em Comunicações, SGPS, S.A. was exercised and

therefore that company became fully owned by Banco BPI.


At 31 December, 2002, the companies that make up the BPI Group are:

Note: Unless otherwise indicated, all amounts are as of 31 December, 2002 (accounting balances before consolidation adjustments).1) Net profit for the year includes net profit of the new Banco BPI as from 20 December, 2002 and net profit of BPI SGPS and BPI Ventures until that date. Net profit of Banco BPI for

the period from 1 January, 2002 to 20 December, 2002 was th. euro 69 920. 2) Banco BPI holds 1 305 473 shares. The share capital of this company is 1 305 561 shares, fully owned by the BPI Group. 3) The share capital is made up of 5 000 ordinary shares with a nominal value of 1 US dollar each, and 10 000 000 non-voting preference shares with a nominal valueof 25 US dollars

each. The BPI Group's effective participation corresponds to 0.002% considering the preference shares.4) These amounts refer to balances at 30 September, 2002, translated from US dollars at the exchange rate as of 31 December, 2002.

Consolidationmethod

Effectiveparticipation

Directparticipation

Net profit(loss) for

the period

Totalassets

Share--holders'

equityHead Office

Banks

Banco BPI, S.A.1 Portugal 1 160 499 26 813 261 39 535

Banco Português de Investimento, S.A. Portugal 31 771 3 058 786 11 174 100.0% 100.0% Full consolid.

Banco de Fomento, S.A.R.L. Mozambique 13 264 102 819 4 347 98.0% 100.0% Full consolid.

Banco de Fomento, S.A.R.L.2 Angola 40 728 557 391 11 205 100.0% 100.0% Full consolid.

Banc Post S.A. Romania 102 492 623 420 4 990 17.0% 17.0% Equity method

BPI Cayman, Ltd. Cayman Islands 150 000 150 102 100.0% Integr. global

Specialised loan companies

BPI Rent – Comércio e Aluguer de Bens, Lda. Portugal (4 222) 376 427 (8 119) 100.0% 100.0% Equity method

Eurolocação – Comércio e Aluguer de Veículos e Equipamento, S.A. Portugal 464 479 66 100.0% 100.0% Equity method

BPI Locação de Equipamentos, Lda. Portugal (5 263) 42 327 (2 987) 100.0% 100.0% Equity method

Asset management companies and dealers

BPI Dealer – Sociedade Financeira de Corretagem(Moçambique), S.A.R.L. Mozambique 66 217 12.5% 100.0% Full consolid.

BPI Fundos – Gestão de Fundos de InvestimentoMobiliários, S.A. Portugal 18 005 22 500 12 643 100.0% 100.0% Full consolid.

BPI – Global Investment Fund Management Company, S.A. Luxembourg 976 1 003 812 100.0% 100.0% Full consolid.

BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A. Portugal 4 758 5 875 1 983 100.0% 100.0% Equity method

Sofinac – Sociedade Gestora de Fundos de InvestimentoImobiliário, S.A. Portugal 1 093 1 270 193 100.0% 100.0% Full consolid.

BPI (Suisse), S.A. Switzerland 670 724 (363) 99.87% Full consolid.

Venture capital companies

F. Turismo – Capital de Risco, S.A. Portugal 5 361 5 443 217 25.0% 25.0% Equity method

Inter-Risco – Sociedade de Capital de Risco, S.A. Portugal 21 413 27 078 (1 838) 83.7% 83.7% Full consolid.

Solo – Investimentos em Comunicação, SGPS, S.A. Portugal 17 114 443 (23) 100.0% 100.0% Full consolid.

Insurance companies

BPI Vida – Companhia de Seguros de Vida, S.A. Portugal 34 196 1 224 464 2 407 100.0% 100.0% Equity method

Cosec – Companhia de Seguros de Crédito, S.A. Portugal 23 165 109 397 1 446 50.0% 50.0% Equity method

Companhia de Seguros Allianz Portugal, S.A. Portugal 107 811 829 995 (3 801) 35.0% 35.0% Equity method

Others

BPI Capital Finance Ltd.3 Cayman Islands 293 295 248 295 9 894 100.0% 100.0% Full consolid.

BPI, Inc.4 U.S.A. 117 274 8 100.0% 100.0% Equity method

BPI Madeira, SGPS, Unipessoal, S.A. Portugal 149 998 150 024 (2) 100.0% 100.0% Full consolid.

CrediUniverso – Serviços de Marketing, S.A. Portugal 2 062 7 858 402 50.0% 50.0% Full consolid.

Douro – Sociedade Gestora de Participações Sociais, S.A. Portugal 3 797 3 852 (54) 100.0% 100.0% Equity method

Finangeste – Empresa Financeira de Gestão e Desenvolvimento, S.A. Portugal 36 209 182 571 1 489 32.8% 32.8% Equity method

Promática – Sociedade de Informação e de Organização de Empresas, S.A. Portugal 1 113 1 436 229 100.0% 100.0% Equity method

Simofer – Sociedade de Empreendimentos Imobiliáriose Construção Civil, Lda. Portugal (5 077) 1 370 (20) 100.0% 100.0% Equity method

Viacer – Sociedade Gestora de Participações Sociais, Lda. Portugal 57 830 61 964 12 720 26.0% 26.0% Equity method


2. INFORMATION COMPARABILITY, BASIS OF PRESENTATION, CONSOLIDATION PRINCIPLES AND PRINCIPALACCOUNTING POLICIES

INFORMATION COMPARABILITY

The consolidated financial statements as of 31 December, 2001

reflect the charge against reserves of the unamortized deferred

costs as of that date, relating to the coverage of the increased

liability due to early retirements in 1999 and 2000, as well as

the increased liability due to early retirements during the first

half of 2001.

This procedure was approved by the Bank of Portugal and had

the following effect on the balance sheet:

BASIS OF PRESENTATION

The consolidated financial statements were prepared from the

accounting records of Banco BPI and its subsidiary and associated

companies. The accounting records are maintained in accordance

with the Chart of Accounts for the Portuguese Banking System

established by the Bank of Portugal pursuant to the authority

conferred upon it by item 1 of Article 115 of the General Regime

for Credit Institutions and Financial Companies ("Regime Geral

das Instituições de Crédito e Sociedades Financeiras"), approved

by Decree-Law 298 / 92 of 31 December (with the changes

introduced by Decree-Law 246 / 95 of 14 September, Decree-Law

232 / 94 of 5 December, Decree-Law 222 / 99 of 22 June,

Decree-Law 250 / 00 of 13 October, Decree-Law 285 / 2001 of

30 November and Decree-Law 201 / 2002 of 26 September), as

well as the rules established in Decree-Law 36 / 92 of 28 March.

In addition, consolidation adjustments were made in order to

correct the application of some accounting principles.

CONSOLIDATION PRINCIPLES

The financial statements of subsidiary companies were

consolidated using the full consolidation method, except if their

consolidation would impair achievement of the objective of

presenting a true and fair view of the equity, financial position

and results of the BPI Group (item 1 of Article 5 of Decree-Law

36 / 92 of 28 March). All significant inter-group transactions

and account balances were eliminated in the consolidation

process. The amount of share capital, reserves and net results

corresponding to third party participation in these subsidiaries is

reflected in the caption MINORITY INTERESTS.

The investments in subsidiary companies which meet the

conditions described in item 1 of Article 5 of the above

mentioned Decree-Law, as well as investments in associated

companies, are recorded based on the equity method. The

carrying value of these investments corresponds to the

percentage of share capital, reserves and results of these

companies, equivalent to Banco BPI’s direct or indirect

participation in them.

The financial statements of non-operating subsidiary or

associated companies, companies in liquidation, those in which

the investment is of a development nature, or those that are

likely to be sold, were excluded from the consolidation and from

application of the equity method.

The financial statements, expressed in foreign currencies, were

included in the consolidation after being translated to euro at

the exchange rates published by the Bank of Portugal, the

exchange differences resulting from the translation being

recognised in the income statement.

In the case of financial statements prepared in accordance with

International Accounting Standard 29 for hyperinflationary

economies, the impact of adjusting shareholders’ equity to

current prices is reclassified, before consolidation, to the income

statement.

Goodwill and negative goodwill arising from the difference

between cost and the corresponding equity value of subsidiary

and associated companies as of the date of the first

consolidation were fully amortised against reserves in the year of

acquisition, or of the first consolidation.

Consolidated net profit is the sum of Banco BPI’s individual net

result and the percentage of net results of the other Group

companies, equivalent to Banco BPI’s effective participation in

them, considering the period they are held, after elimination of

income and expenses resulting from inter-group transactions.

Equity investments, which were not consolidated by the full

consolidation method or accounted for under the equity method,

are stated in accordance with principles described in note 2.4.

Reserves (80 402)

Accruals, deferrals and others (assets) (80 402)

PRINCIPAL ACCOUNTING POLICIES

The following accounting policies are applicable to the

consolidated financial statements as of 31 December, 2002

and 2001.

2.1. Accruals basis

Interest income and expenses are recognised in accordance with

the principle of accrual-based accounting, being recorded in the

period to which they relate, regardless of when they are received

or paid. However, interest overdue is recorded as interest in

arrears at the due date, awaiting settlement for a maximum

period of 30 days. After this period, interest stops being accrued

on principal recorded as overdue and all interest accrued is

reversed, except for interest on mortgage loans which remains

recorded up to the date it is sent for collection through legal

channels.

Expenditure on advertising campaigns involving the launching of

medium and long-term products and the Banco BPI brand are

recorded as deferred costs when incurred and recognised as

outside supplies and services in the income statement over the

following thirty six months.

Dividends are recognised when they are declared or received. In

accordance with this procedure, interim dividends are recorded

as income in the period in which they are declared.

Other income and expense items are also recognised on an

accruals basis, except for pension liabilities, which are recorded

as explained in note 2.12.

2.2. Tangible fixed assets

Tangible fixed assets are stated at cost or at revalued amounts,

calculated in accordance with the applicable legislation. The net

surplus arising from the revaluations is recorded in the

shareholders’ equity caption REVALUATION RESERVES.

Depreciation is provided on a straight-line annual basis or on a

reducing rate basis using the maximum rates allowed by

prevailing tax legislation, which reflect the following estimated

useful lives of the assets:

In accordance with current tax legislation, 40% of the additional

depreciation charge resulting from the revaluation of fixed assets

is not deductible for income tax purposes. The resulting deferred

tax liability is not recorded.

Property received as settlement of defaulting loans is recorded in

the caption OTHER ASSETS by the amount stated in the settlement

agreement, which is the lower of the amount of the outstanding

debt or the appraisal value as of the date of the agreement.

These properties remain stated as assets until they are sold, and

are subject to periodic appraisals, with provisions being recorded

whenever the appraisal value is lower than their book value.

Non-recoverable expenditure on leasehold improvements is

amortised according to its estimated useful life, or the remaining

period of the lease contract, with a maximum period of 10 years.

2.3. Intangible assets

The BPI Group records, in this caption, notary, registration and

other expenses relating to share capital increases as well as

expenses with studies and projects (namely consulting studies

and software) undertaken by third parties, if their impact

extends beyond the financial year in which they are incurred.

Intangible assets are amortised on a straight-line monthly basis

using the maximum rates allowed by prevailing tax legislation,

which, in general, correspond to a period of three years.

2.4. Equity investments

Investments in companies that are not consolidated nor

accounted for under the equity method are recorded at cost.


Useful life (years)

Premises 20 to 50

Improvements in premises for own use 10 to 50

Non-recoverable expenditure on leaseholdimprovements 3 to 10

Equipment 3 to 12

Other fixed assets 3 to 10

Up to 30 June, 2002 provisions for unrealised losses on

investments were recorded in accordance with Bank of Portugal

Notice 3 / 95 of 30 June, which establishes that provisions are

not required unless one of the following situations applies:

– the company has incurred losses in three years during the last

five years; and,

– the company is insolvent, has been declared bankrupt, has

been subject to some company recovery measure or ceased

operating.

As from 30 June, 2002 (inclusive) provisions for unrealised

losses on equity investments have been recorded in accordance

with Bank of Portugal Notices 3 / 95 and 4 / 2002 of 30 June

and 25 June, respectively. Therefore, the previous regime was

maintained for the investments that meet the conditions referred

to above and, in addition, provisions for unrealised losses on the

remaining investments became mandatory. When the unrealised

loss on an investment – determined using the average of the

daily market prices for the last six months for listed companies,

or using the company’s equity value multiplied by the factor

1.5 for unlisted companies – exceeds 15% of the corresponding

book value of the investment, a minimum provision of 40% of

that excess is required.

Under the provisions of Bank of Portugal Notice 4 / 2002 of

25 June a transitory regime applies to the investments that were

already in the portfolio as of 31 December, 2001. Under this

special regime, provisions and charges to own funds resulting

from unrealised losses on those investments will be gradually

made up to 2006, if the investments relate to companies that

are not subject to Bank of Portugal or Portuguese Insurance

Institute supervision, and up to 2011 if the investments are in

companies supervised by those entities. Provisions recorded

during 2002 and 2003 may be charged against reserves. Under

this transitory regime, at 31 December, 2002 Banco BPI

recorded provisions corresponding to 25% of the amount that

must be provided for up to the end of the transitory regime for

investments in companies that are not subject to Bank of

Portugal or Portuguese Insurance Institute supervision, and 10%

in the case of investments in companies subject to their

supervision.

2.5. Bonds, shares and other fixed or variable-yield securities

Purchases and sales of securities are recorded on the transaction

dates except where, by force of the contractual terms or of any

legal provision or regulation, the rights and obligations inherent

to the securities are transferred at a different date, in which

case the operations are only recorded on the date the transfer

occurs.

The procedures for recording securities differ depending on their

characteristics and the intention when they are purchased.

i) Trading securities

Securities bought for subsequent resale within a period of six

months, with the objective of obtaining a capital gain, are

classified as trading securities, provided that their nature and

volume do not raise doubts as to their negotiability, taking into

consideration market conditions.

Bonds and other fixed income securities are recorded at cost and

revalued daily based on their market value, plus accrued

interest. Unlisted bonds and other fixed income securities are

recorded at cost plus accrued interest. Any negative or positive

differences arising from the application of these criteria are

recognised as losses or gains, respectively (notes 2.8 and 4.5).

Shares are recorded at market value or, in the case of unlisted

shares, at the lower of cost or estimated market value.

Differences between cost and the market value of shares

included in the composition of the BVL30 or PSI-20 indexes

(Euronext) and shares with adequate liquidity are recorded as

expense or income. Differences between cost and the market

value of other shares are recorded in the asset or liability

balance sheet caption ACCRUALS, DEFERRALS AND OTHERS,

depending on whether they represent unrealised losses or gains.

Where they correspond to unrealised losses, a provision is

recorded (notes 2.8 and 4.6).

Treasury stock is recorded as explained above, except for

treasury stock relating to the RVA (Remuneração variável em

acções) programme (Variable Remuneration in shares).


ii) Investment securities

Securities acquired with the purpose of being held for a period

of more than six months are classified as investment securities.

Securities issued at a discount are valued at their redemption

price (nominal value). The difference between nominal value and

cost is recorded as deferred income. The interest accrued on

these securities is recorded as income on a monthly basis, in

accordance with the implicit interest rate determined on a

compound basis.

Bonds and other fixed income securities issued at their nominal

value are recorded at cost. Accrued interest is accounted for as

interest receivable. The difference between the original cost of

the securities and their redemption value – which represents the

premium or discount at the time of purchase – is recorded as an

expense or income over the period to maturity

Any positive difference between cost (corrected for the premium

or discount already recognised as expense or income, as

appropriate) and the market value of bonds and other fixed

income securities is fully provided for (notes 2.8 and 4.5). In

case of bonds and other fixed income securities hedged with off-

-balance sheet items, the corresponding market value is

corrected by the implied credit risk.

The carrying value of securities with interest capitalisation

incorporates the accrued interest.

Shares and other variable income securities are recorded at cost.

Whenever the market value (or estimated market value, in the

case of unlisted securities) is lower than cost, a provision is

recorded (notes 2.8 and 4.6).

Treasury stock is recorded as explained above.

iii) Short-selling of securities

Sales of securities that result in short positions are credited to

the caption short-selling of securities, which is reflected under

the balance sheet caption AMOUNTS OWED TO CREDIT INSTITUTIONS OR

TO CUSTOMERS, depending upon the counter-party.

Securities purchased to cover short positions arising from the

short selling of securities are debited to the caption short-selling

of securities.

The balance of the short-selling of securities account is adjusted

daily based on the market value of the securities sold, the

valuation differences being recorded as expenses or income or

deferred in the caption ACCRUALS, DEFERRAL AND OTHERS,

depending on the valuation criteria applicable to these securities

if they were part of the own trading portfolio.

iv) Treasury Stock relating to the RVA programme (Variable

remuneration in shares)

Treasury stock granted under a suspense condition, not yet

transmitted to the beneficiaries, is recorded at the value of the

grant, in the balance sheet asset caption ACCRUALS, DEFERRALS AND

OTHERS, and is not revalued to market value. As the difference

between the cost of the shares and value of the grant is recorded

as expense or income, the book value corresponds to the sale

value (value of the grant).

Treasury stock held to hedge the risk resulting from changes in

the value of share options sold is recorded as trading securities

while it is related to this programme. Such stock is revalued to

market value and the valuation differences are recorded in the

caption ACCRUALS, DEFERRALS AND OTHERS. Where the net amount

of these differences and the revaluation of the share options

correspond to a loss, a provision of the same amount is

recorded.

2.6. Foreign currency operations

Foreign currency operations are recorded in conformity with the

"multi-currency" system, that is in their original currencies.

The accounting procedures differ depending on the effect the

operations have on the foreign exchange position. While operations

which cause a change in a foreign currency’s net balance (for

example purchases, sales and incorporation of results in a foreign

currency) have a corresponding entry to the foreign exchange

position, the setting up or acceptance of deposits and the granting

or collection of loans have no effect on the foreign exchange

position.

i) Foreign exchange position and foreign currency swaps

The content and revaluation criteria of foreign currency bills

and coins and foreign exchange position, are as follows:

Foreign currency bills and coins

Foreign currency bills and coins are revalued daily using the

fixing exchange rates published by the Bank of Portugal.

Differences arising from the revaluations are recorded as income

or expense for the year.


Spot position

The spot position in any particular currency is the net balance of

all assets and liabilities denominated in that currency, plus the

amount of spot transactions pending settlement and all forward

operations maturing in the ensuing two business days. The spot

foreign exchange position is revalued using the daily fixing

exchange rates published by the Bank of Portugal. The resulting

foreign exchange differences (in national currency) are recorded

in the foreign exchange position account, with a balancing entry

to losses or gains.

Forward position

The forward position in any particular currency is the net

balance of forward operations pending settlement, excluding

those that mature in the ensuing two business days. All

contracts relating to these operations are revalued at market

forward rates or in their absence, at forward rates calculated

using the interest rates of the respective currencies applicable

for the time period remaining to maturity. Differences arising

between the corresponding amounts in euro after applying the

forward rates and the contracted exchange rates represent the

loss or profit resulting from the revaluation of the forward

position and are recorded in a foreign exchange position

revaluation account (in the accruals, deferrals and others

caption) with a balancing entry to expenses or income.

Foreign currency swaps

Swaps and other foreign exchange rate hedging operations are

not included in the revaluation of spot and forward positions.

The premiums and discounts on these operations are amortised

on a straight line basis over the period to maturity, the

corresponding gain or loss being duly recognised.

ii) Translation to euro of balances expressed in foreign currencies

Assets and liabilities expressed in foreign currencies are

translated to euro at the official market rates published by the

Bank of Portugal.

iii) Translation to euro of income and expenses expressed in

foreign currencies

Income and expenses expressed in foreign currencies are

translated to euro at the exchange rates in force on the dates

they are recognised.

2.7. Provisions for specific credit risk

Provisions are recorded for specific credit risk on loans,

securities and interest in arrears, as well as for other credits of

doubtful collection, in accordance with Bank of Portugal Notice

3 / 95, of 30 June.

The purpose of the provisions for loans, securities and interest in

arrears is to cover the risk of non-collection of overdue

instalments of principal or interest (notes 4.3, 4.4, 4.5 and

4.27). The amounts provided depend on the existence of any

collateral, and increase in proportion to the period of time that

has elapsed since the default started.

The purpose of the provisions for other doubtful debts is to cover

the risk of non-collection of future instalments relating to the

following: principal not yet due on operations with overdue

instalments exceeding 25% of the total principal plus overdue

interest; and principal not yet due on all loans to a Customer

when the overdue instalments of that Customer represent at

least 25% of the loans granted plus overdue interest (notes 4.4,

4.12 and 4.27).

The Group banks carry out monthly risk assessments of all loans

and guarantees provided and not yet matured, as well as of their

securities portfolios, in order to assess the adequacy of the

provisions recorded.

2.8. Provisions for unrealised losses on securities and other

assets

Provisions for unrealised losses on securities and other assets are

recorded in order to cover all unrealised losses arising from the

valuation criteria adopted for bonds, shares, other fixed and

variable income securities and other assets (notes 2.4, 2.5, 4.5,

4.6, 4.9, 4.12 and 4.27).

2.9. Provisions for country risk

The purpose of these provisions is to cover the risks associated

with financial assets and off-balance sheet items over countries

considered to be of risk (notes 4.3, 4.4, 4.5, 4.12 and 4.27).

These provisions are recorded in accordance with the rules

established by Bank of Portugal Notice 3 / 95 of 30 June, Bank

of Portugal Instruction 94 / 96, published in the Bulletin of Rules

and Information no. 1 of 17 June, 1996 and the Bank of

Portugal Bulletin under the reference 4903 / 02 / DSBDR of 12

June, 2002.

2.10. Provisions for sundry risks

i) General credit risks

The BPI Group's credit institutions subject to Bank of Portugal

Notice 3 / 95, of 30 June, with the modifications introduced by

Bank of Portugal Notice 2 / 99, of 26 January, record a provision

for general credit risks of 1.5% of consumer credit and loans to

individuals for unspecified purposes and of 1% of other credit

granted, including that represented by acceptances, guarantees

and other instruments of a similar nature (notes 4.19 and 4.27).


In accordance with tax legislation, only 50% of the increases in

this provision in 2002 and 2001 are accepted as tax-deductible

costs. Increases in this provision as from 1 January, 2003 are

not accepted as tax-deductible costs.

ii) Other risks

This caption includes provisions to cover other specific risks

(notes 4.19 and 4.27).

2.11. Fund for general banking risks

The purpose of this provision is to cover unspecified risks

associated with the operations of the BPI Group (notes 4.19

and 4.27).

2.12. Retirement and survivor pensions

The majority of Employees of the BPI Group are not covered by

the Portuguese Social Security system. However, the BPI Group

companies that have adhered to the Collective Vertical Labour

Agreement (Acordo Colectivo de Trabalho Vertical) for the

Banking Sector have assumed the commitment to pay their

Employees or their families’ pensions for retirement due to age

or incapacity, pensions for early retirement or survivor pensions.

The pensions consist of a percentage, which increases with the

number of years of service, applied to their salaries.

The regime for calculating, recording, funding and expensing the

liability for retirement and survivor pensions is established in

Bank of Portugal Notice 12 / 2001 of 23 November. This regime

came into force on 31 December, 2001 and introduced several

changes in relation to the previous regime:

– requirement to fully fund the pensions under payment and a

minimum of 95% of the past service liability for current

personnel;

– establishment of a 10% corridor based on the higher of the

present value of the past service liability or the amount of the

pension fund, so that the actuarial gains and losses resulting

from differences between the actuarial and financial

assumptions used and the actual amounts are not reflected in

the statement of profit and loss, provided that the net

accumulated amount is within this limit; and,

– non utilisation, in the calculation of the present value of the

past service liability of current personnel, of decreases

resulting from incapacity, unless that amount includes the

present value of the past service liability relating to the

guarantee of pensions due to incapacity or if the risk of

incapacity is fully transferred to an insurance company.

The past service liability (including the increased liability due to

early retirements) is covered by Pension Funds.

Under the provisions of Bank of Portugal Notice 12 / 2001, with

the modifications introduced by Bank of Portugal Notice 7 /

2002 of 31 December, the net accumulated amount of the

actuarial gains and losses resulting from changes in the actuarial

and financial assumptions and changes in the general conditions

of the pension plans, as well as amounts which exceed the

corridor relating to differences between the actuarial and

financial assumptions used and the actual amounts, can be

recorded as deferred expenses or deferred income and must be

amortised at a rate of at least 10% per year, as from the year

subsequent to that in which they were determined. At 31

December, 2002 and 2001 the BPI Group recorded, as deferred

expenses, actuarial losses resulting from changes in the actuarial

and financial assumptions and changes in the general conditions

of the pension plans, as well as amounts which exceed the

corridor relating to differences between the actuarial and

financial assumptions used and the actual amounts; and the

amount that can be allocated to the corridor was recorded in

valuation fluctuations (note 4.13). At 31 December, 2002 and

2001 the BPI Group recorded, as deferred income, actuarial

gains resulting from changes in the actuarial and financial

assumptions and changes in the general conditions of the

pension plans, as well differences between the actuarial and

financial assumptions used and the actual amounts (note 4.18).

Under the provisions of Bank of Portugal Notice 12 / 2001, the

increase in the past service liability resulting from early

retirements must be fully covered by a corresponding

contribution to the Pension Fund, such contribution having to be

expensed over a maximum period of 10 years, not exceeding the

fourth year following that in which the retirement would

presumably have occurred. At 31 December, 2002 and 2001

the BPI Group recorded, in deferred expenses, the balance of

the contributions to the Pension Fund resulting from the

increase in the liability due to early retirements not yet charged

to expenses (note 4.13).


The increase in the past service liability for current Employees,

due to non utilisation of the decreases resulting from incapacity,

will be recognised as a cost and funded in accordance with a

plan of uniform annual instalments over a maximum period of

20 years as from the year 2002. The plan was approved by the

Bank of Portugal. At 31 December, 2002 and 2001 the BPI

Group recorded, in off balance sheet accounts, the increase in

the liability resulting from the above matter, not yet amortised or

funded (note 4.28).

2.13. Income tax

All the Group companies are subject to income tax individually.

Banco BPI and its subsidiary and associated companies with

head offices in Portugal are subject to the tax regimes

established in the Corporate Income Tax Code (Portuguese

initials – CIRC) and in the Statute of Tax Benefits.

Banco BPI and its subsidiaries do not record deferred tax assets,

namely those arising from tax losses carried forward, except for

associated companies, where that is authorised by the

Portuguese Official Chart of Accounts ("Plano Oficial de

Contabilidade") or by the Portuguese Insurance Institute. Also,

the BPI Group does not record deferred tax liabilities resulting

from the suspension, from taxation, of gains on the sale of

equity investments up to 31 December, 2000, as it is expected

that such taxes will not have to be paid, due to reinvestment in

assets that are eligible for tax purposes, and the possibility of

using the Group’s tax losses carried forward.

2.14. Financial Leasing

As lessee

Leased tangible fixed assets are depreciated in accordance with

the procedures described in note 2.2. Lease instalments

comprise an interest charge (financial expense) and a principal

repayment component. Interest is recorded in the statement of

income during the term of the lease in such a manner as to

produce a constant interest rate charge on the outstanding

balance for each period. Liabilities are reduced by the amounts

corresponding to the principal repayment component of each of

the instalments.

As lessor

Assets held under financial lease are recorded in the balance

sheet as loans granted and are carried at the net amount paid on

the date the assets are acquired. The lease instalments are

composed of an interest income component and a principal

repayment component. The interest income component for each

period reflects a constant rate of return on the outstanding

principal amount.

2.15. Factoring

Assets resulting from factoring operations with recourse are

recorded in the balance sheet, as loans granted, by the amount

advanced on account under the terms of the corresponding

contracts.

Assets resulting from factoring operations without recourse are

recorded in the balance sheet, as loans granted, by the amount

of the credit taken, with a corresponding entry to the liability

caption CREDITORS FOR FACTORING CONTRACTS. The amounts

advanced under the contracts are debited to the caption

CREDITORS FOR FACTORING CONTRACTS.

The invoices received under factoring contracts with recourse, in

which amounts are not advanced, are recorded in the off-balance

sheet caption, CONTRACTS WITH RECOURSE – invoices not financed,

by the amount of the invoices received. The balance of this

caption is reduced as the invoices are settled.

Commitments under unused credit lines are recorded as off-

-balance sheet items.

2.16. Derivatives

Interest rate swaps

Interest rate swaps are realised for hedging purposes and are

recorded as off-balance sheet items at their notional value.

Interest income and expenses are recorded in the statement

of income on an accruals basis. Swaps are revalued only if

provisions are recorded for losses on the assets hedged.

Forward rate agreements

Forward rate agreements (FRA) are recorded, at their notional

value, in off-balance sheet accounts classified as to whether

they are realised for hedging or trading purposes. The entry is

reversed at the settlement date.


In the case of hedging agreements the net interest received or

paid on the settlement date is recognised over the period of the

operation and charged or credited to the expense or income

accounts associated with the hedged liabilities or assets.

Trading agreements are revalued monthly based on the loss or

profit that would result if settlement occurred on the revaluation

date. The resulting negative or positive differences are recorded

as losses or gains, with a corresponding entry to the accruals,

deferrals and others captions.

Futures

Futures contracts entered into for trading purposes and for the

proprietary account are recorded as off-balance sheet items at

their notional value on the date of the first acquisition. This

entry is reversed on the date the positions are closed.

These positions are revalued daily, based on the market price or

at the closing-out price (in the case of closed positions), with

profits and losses being recorded in the statement of income

with a corresponding entry to other assets (profits) and other

liabilities (losses). The balances on these accounts are cleared

by corresponding entry to the financial movements arising daily

by the settlement of the market price variations.

Options

Options contracts are recorded as off-balance sheet items at

their notional value and are classified according to their nature

(hedging or trading).

Trading options are revalued monthly, based on the available

market quotations, with profits and losses being recorded in the

statement of income with a corresponding entry to other assets

and other liabilities accounts. Premiums received on options

sold or paid on options bought are recorded as deferred income

or expenses up to the strike data of the option.

Options on indexes for hedging purposes are revalued monthly

based on the evolution of the underlying indexes with profits and

losses being recorded in the statement of income with a

corresponding entry to the captions ACCRUALS, DEFERRALS AND

OTHERS. These profits and losses are offset by the opposite

results of the operations covered. Premiums paid on options

purchased and premiums received on options sold are recorded

as deferred costs and deferred income and amortised over the

period of the contracts.

2.17. Third party securities received for safekeeping

Third party securities received for safekeeping are recorded as

off-balance sheet items at their market value or, in its absence,

at their nominal value (for fixed income securities), at cost (for

variable income securities) or at their equity value (for

participating units in investment funds).



3. BREAKDOWN OF APPLICATIONS BY BUSINESS SECTOR AND PORTFOLIO OF SECURITIES AND EQUITYINVESTMENTS

3.1. Breakdown of applications by business sector

At 31 December, 2002 the applications of the BPI Group companies consolidated by the full consolidation method, broken down by

business sector were as follows:

1) The loans overdue refer to loans granted to costumers.2) Includes guarantees and sureties, open documentary credits, stand-by letters of credit, guarantee deposits and indemnities and acceptances and endorsements.3) Does not include bonds issued by government entities.4) Includes quotas, participating units and other items.

TotalShares4Bonds3Guarantees

given2Loans1 and se-curities overdueLoans

Amount % Amount % Amount % Amount % Amount % Amount %

Agriculture, forestry and fishing 64 266 0.4 2 192 0.9 7 065 0.2 73 523 0.4

Mining 57 817 0.4 171 0.1 8 465 0.3 66 453 0.3

Manufacturing industries

Beverage, tobacco and food 281 940 1.7 3 335 1.3 53 375 1.7 3 481 0.5 11 342 142 1.8

Textiles and clothing 308 230 1.9 18 442 7.2 47 997 1.5 799 0.1 2 504 1.1 377 972 1.8

Leather and related products 39 707 0.2 4 811 1.9 2 831 0.1 4 47 353 0.2

Wood and cork 116 349 0.7 4 441 1.7 42 797 1.4 3 370 0.5 166 957 0.8

Pulp, paper and cardboard and graphic arts 123 167 0.7 4 130 1.6 66 093 2.1 0.1 107 193 497 0.9

Coke, oil products and nuclear fuel 911 42 8 387 0.3 9 340

Chemical and synthetic or artificial fibres 65 634 0.4 740 0.3 30 982 1.0 249 25 97 630 0.5

Rubber and plastic materials 67 292 0.4 4 173 1.6 12 725 0.4 216 84 406 0.4

Other mineral non-metallic products 323 997 2.0 1 024 0.4 56 495 1.8 4 428 0.6 350 0.2 386 294 1.9

Metalworking industries 168 552 1.0 4 006 1.6 57 337 1.8 5 500 0.8 61 0.1 235 456 1.1

Manufacturing of machinery and equipment 91 100 0.6 1 976 0.8 32 543 1.1 89 125 708 0.6

Manufacturing of electrical and optical equipment 43 763 0.3 2 957 1.2 39 388 1.3 1 746 0.2 2 933 1.3 90 787 0.5

Manufacturing of transport material 96 699 0.6 1 355 0.5 76 746 2.5 5 000 0.7 658 0.3 180 458 0.9

Other manufacturing industries 73 515 0.4 3 993 1.6 10 239 0.3 8 87 755 0.4

Electricity, gas and water 272 452 1.7 871 0.3 324 415 10.4 68 259 9.5 1 543 0.7 667 540 3.2

Construction 715 364 4.4 46 713 18.2 698 780 22.4 16 230 2.3 1 256 0.5 1 478 343 7.2

Wholesale and retail trading 1 191 390 7.3 28 851 11.3 449 681 14.4 13 723 1.9 3 898 1.7 1 687 543 8.2

Restaurants and hotels 138 640 0.8 1 890 0.7 26 160 0.8 1 250 0.2 149 0.1 168 089 0.8

Transport, warehousing and communication 511 815 3.1 3 178 1.2 224 200 7.2 2 344 0.3 3 434 1.5 744 971 3.6

Banks and other credit institutions 940 340 0.1 53 740 1.7 22 730 3.2 3 665 1.6 81 415 0.4

Other financial institutions andinsurance companies 407 787 2.5 125 9 074 0.3 9 25 320 11.3 442 315 2.1

Investment holding companies 550 545 3.4 3 145 1.2 197 108 6.3 69 434 9.7 3 097 1.4 823 329 4.0

Real estate, rental and servicesprovided to companies 859 632 5.3 6 948 2.7 205 780 6.6 17 077 7.6 1 089 437 5.3

Public administration, defence andmandatory social security 436 551 2.7 133 0.1 68 548 2.2 505 232 2.4

Education, health care and welfare 249 694 1.5 3 113 1.2 35 724 1.1 967 0.4 289 498 1.4

Leisure, cultural and sports activities 63 887 0.4 194 0.1 66 852 2.1 63 337 28.2 194 270 0.9

Other service companies 34 615 0.2 488 0.2 1 374 40 0.1 36 517 0.2

Individuals

Housing loans 5 560 609 34.0 42 069 16.4 5 602 678 27.1

Others 2 290 584 14.0 50 656 19.8 43 558 1.4 2 384 798 11.5

Multinational financial institutions 4 037 4 037

Other sectors 2 647 119 46 4 107 1.8 6 919

Non-residents 1 147 038 7.0 9 765 3.8 164 276 5.3 496 583 69.4 90 066 40.1 1 907 728 9.2

16 361 166 100.0 256 386 100.0 3 122 781 100.0 715 351 100.0 224 706 100.0 20 680 390 100.0

3.2 Securities and equity investments

At 31 December, 2002 securities and equity investments owned by the BPI Group companies consolidated by the full consolidation

method were as follows:


Nature of securities ProvisionsGross

Book valueMarket

ValueAverage

CostNominal

ValueQuantity

euro th. euro

TRADING SECURITIESBonds and other fixed income securities – issued by residentsIssued by Portuguese government entitiesTreasury Bonds

TB 3.625% August 1999 / 2004 16 020 666 795 0.01 0.01 0.01 164 518

TB 4.8125% April 1998 / 2003 2 345 765 975 0.01 0.01 0.01 24 371

TB 4.875% August 2002 / 2007 1 854 149 095 0.01 0.01 0.01 19 909

TB 5.45% September 1998 / 2013 5 958 860 428 0.01 0.01 0.01 65 272

TB 6.625% February 1997 / 2007 2 000 017 730 0.01 0.01 0.01 23 571

TB 8.875% January 1994 / 2004 11 032 900 0.01 0.01 0.01 127

TB 9.5% February 1996 / 2006 97 336 996 0.01 0.01 0.01 1 232

TB 11.875% February 1995 / 2005 269 607 959 0.01 0.01 0.01 3 460

302 460

Bonds and other fixed income securities – issued by non-residentsIssued by foreign government entitiesBonds

National Bank of Angola 240 000 16.39 13.67 13.67 3 933

Belgium Kingdom – 4.75% (28/09/2006) 20 400 000 1.00 1.04 1.05 21 719

Belgium Kingdom – 5% (28/09/2012) 25 220 1 000.00 1 043.74 1 051.90 26 854

Belgium Kingdom – 6.25% (28/03/2007) 3 470 000 000 0.01 0.01 0.01 40 186

Belgium Kingdom – 7.5% (29/07/2008) 880 000 000 0.01 0.01 0.01 10 744

Belgium Kingdom – 8% (24/12/2012) 230 000 000 0.01 0.01 0.01 2 975

Belgium Kingdom – 8.5% (01/10/2007) 835 000 000 0.01 0.01 0.01 10 313

Bundesobligation – 4.5% (17/08/2007) 1 010 000 000 0.01 0.01 0.01 10 947

Bundesobligation – 5% (04/07/2012) 150 000 000 0.01 0.01 0.01 1 627

Bundersrepublik Deutschl 3.75% (04/01/2009) 125 000 000 0.01 0.01 0.01 1 300

Bundersrepublik Deutschl 4.5% (04/07/2009) 1 890 000 000 0.01 0.01 0.01 20 060

Bundersrepublik Deutschl 5.625% 4 / 28 490 000 000 0.01 0.01 0.01 5 708

Bundesschatzanweisungen – 4% (25/06/2004) 1 140 000 000 0.01 0.01 0.01 11 842

Buonni Poliennali – 3.5% (15/09/2005) 46 550 1 000.00 1 008.16 1 013.10 47 633

Buonni Poliennali – 4.5% (01/05/2009) 5 201 000 000 0.01 0.01 0.01 54 282

Buonni Poliennali – 5% – (01/05/2008) 4 000 000 000 0.01 0.01 0.01 42 961

Buonni Poliennali – 5.25% – (15/12/2005) 10 000 1 000.00 1 044.30 1 061.50 10 637



Buonni Poliennali – 7.75% – (01/11/2006) 1 945 000 000 0.01 0.01 0.01 22 771

Fed Home Loan MTG Corp – 2.875% (15/09/2005) 7 750 953.56 966.48 972.92 7 617

Fed Home Loan MTG Corp – 3.125% (30/12/2005) 2 500 953.56 953.10 953.28 2 383

Fed Home Loan MTG Corp – 4.625% (15/05/2005) 8 700 1 000.00 1 030.50 1 036.20 9 268

Fed Home Loan MTG Corp – 4.625% (15/02/2007) 5 000 1 000.00 1 030.85 1 042.90 5 417

France (Govt of) – 4.75% – (25/10/2012) 15 750 000 1.00 1.02 1.04 16 469

France (Govt of) – 5% – (25/04/2012) 25 150 000 1.00 1.04 1.06 27 465

France (Govt of) – 5% – (25/10/2011) 9 850 000 1.00 1.04 1.06 10 531

France OAT – 4% – (25/10/2009) 66 800 000 1.00 0.99 1.01 67 805

Netherlands Government – 3.75% (15/07/2009) 10 100 000 1.00 0.98 1.00 10 236

Netherlands Government – 5% (15/07/2011) 20 150 000 1.00 1.05 1.06 21 817

Netherlands Government – 5.5% (15/07/2010) 4 350 000 1.00 1.08 1.10 4 875

Obligac. Del Estado – 4.25% (31/10/2007) 69 200 1 000.00 1 018.27 1 034.80 72 100

Obligac. Del Estado – 4.5% (30/07/2004) 52 0.01 0.01 0.01




Book valueMarket

ValueAverage

CostNominal

ValueQuantity

euro th. euro

Bonds and other fixed income securities – issued by non-residentsIssued by foreign government entities (cont.)Bonds (cont.)

Obligac. Del Estado – 5% (30/07/2012) 9 700 1 000.00 1 049.12 1 054.20 10 430

Obligac. Del Estado – 5.15% (30/07/2009) 1 314 201 176 0.01 0.01 0.01 14 412




Rep. Greece – 4.65% (21/06/2005) 21 000 1 000.00 1 029.75 1 038.50 22 587

Rep. Greece – 5.25% (18/05/2012) 34 100 1 000.00 1 046.24 1 060.20 37 860

Rep. Greece – 5.35% (18/05/2011) 5 750 1 000.00 1 048.70 1 071.10 6 350

Rep. Greece – 5.95% (24/03/2005) 5 000 000 000 0.01 0.01 0.01 55 521

Rep. Greece – 6% (19/02/2006) 1 000 000 000 0.01 0.01 0.01 11 340

Rep. Greece – 6.3% (29/01/2009) 1 142 0.01 0.01 0.01

Rep. Greece – 7.5% (20/05/2013) 763 000 000 0.01 0.01 0.01 9 849

Rep. of Ireland – 4.6% (18/04/2016) 250 000 000 0.01 0.01 0.01 2 586

Rep. of Austria – 4% (15/07/2009) 14 900 1 000.00 988.62 1 009.40 15 316

Rep. of Austria – 5.25% (04/01/2011) 30 000 1 000.00 1 064.24 1 075.60 33 826

Rep. of Austria – 5.5% (15/01/2010) 46 600 1 000.00 1 080.57 1 092.90 53 387

Rep. of Austria – 5.875% (15/07/2006) 1 050 000 000 0.01 0.01 0.01 11 704

U.S. Treasury – 5.625% (15/05/2008) 11 150 953.56 1 068.88 1 084.94 12 172

U.S. Treasury – 5.875% (15/11/2004) 3 750 953.56 1 025.81 1 030.55 3 891

U.S. Treasury – 6.5% (15/02/2010) 2 300 953.56 1 120.89 1 144.27 2 685

U.S. Treasury – 6.5% (15/10/2006) 2 500 953.56 1 092.01 1 097.49 2 776

U.S. Treasury – 6.75% (15/05/2005) 10 000 953.56 1 057.46 1 063.97 10 721

U.S. Treasury – 6.875% (15/05/2006) 7 300 953.56 1 088.48 1 098.98 8 083

1 081 566

Issued by other foreign entitiesOther bonds

Cimentos Bonds / 2002 100 000 4.13 4.13 413

TDM 2001 47 050 3 098.02 3.10 161

574

Shares and other variable-yield securities – issued by residentsShares

Banco Comercial Português – Nom. 641 192 1.00 2.45 2.28 1 462

Banco Espírito Santo – Nom. 87 912 5.00 10.97 12.50 1 099

Brisa – Priv. 151 168 1.00 5.18 5.28 798

Brisa – Particulares 18 360 1.00 4.52 4.89 83

Cimpor – Cim. de Portugal – SGPS 19 891 5.00 17.66 16.00 318

Cofina – SGPS 22 560 0.50 2.22 2.33 53

EDP – Electricidade de Portugal – Nom. 893 447 1.00 1.64 1.59 1 421

Ibersol – SGPS 1 221 1.00 3.33 3.50 4

Impresa – SGPS 40 103 1.00 1.87 1.90 76

Jerónimo Martins – SGPS 17 296 5.00 6.56 6.95 120

Novabase, SGPS 10 152 0.50 5.63 5.80 59

Pararede – SGPS 56 212 0.40 0.24 0.20 11

Portucel Industrial – Nom. 91 744 1.00 1.24 1.16 106

Portugal Telecom – Nom. 153 376 1.00 6.55 6.55 1 005

PT Multimédia, SGPS – NOM. 29 200 0.50 9.54 10.02 293

SAG GEST – Soluções Autom. Globais, SGPS 16 920 1.00 1.75 1.48 25

Semapa – Soc. de Inv. e Gestão – SGPS 20 516 1.00 4.28 3.30 68

SIC – Soc. Independente de Comunicação 321 963 5.00 194.45 62 607 48 181

Sonae.Com., SGPS 25 380 1.00 1.89 1.57 40



Book valueMarket

ValueAverage

CostNominal

ValueQuantity

euro th. euro

Shares and other variable-yield securities – issued by residentsShares (cont.)

Sonae SGPS 1 719 664 1.00 0.41 0.40 688

Vodafone-Telecel – Comunicações Pessoais – Nom. 60 092 0.50 8.51 7.40 445

70 781 48 181

Shares and other variable-yield securities – issued by non-residentsShares

Banco Bilbao Vizcaya Argentaria 50 000 0.49 9.57 9.12 455

Banco Santander Central Hispano 1 400 0.50 6.66 6.54 9

Banco Santander Central Hispano (Euronext) – N 98 038 0.50 6.47 6.52 633

Endesa – Empresa Nacional Electricidade 11 000 1.20 11.40 11.15 122

Telefonica 71 600 1.00 8.53 8.53 611

1 830

Participating units

Rydex Consumer Products 8 108 108 0.01 58

Rydex Leisure Fund 9 600 000 0.01 57

Rydex Series Trust Healthcare Fund 6 543 075 0.01 57

Rydex Transportation Fund 10 810 811 0.01 57

Rydex US Government Money Mark Fund 244 517 450 0.00 233

462

Treasury stock

Banco BPI (RVA 2001)1 1 057 669 1.00 2.19 2.18 2 316

Banco BPI 180 466 1.00 2.12 2.18 394

2 710

1 460 383 48 181

INVESTMENT SECURITIESFixed income securities – issued by government entitiesIssued by Portuguese government entitiesTreasury bonds

TB 4.8125% April 1998 / 2003 15 000 087 0.01 0.01 0.01 150

TB 5% June 2002 / 2012 50 000 000 000 0.01 0.01 0.01 511 138

TB 5.25% October 2000 / 2005 7 650 000 000 0.01 0.01 0.01 80 450

TB 10.625% June 1993 / 2003 6 725 403 383 0.01 0.01 0.01 67 614

TB 11.875% February 1995 / 2005 445 669 088 0.01 0.01 0.01 4 638

TB 3.625% August 2004 260 004 000 0.01 0.01 0.01 2 563

OTRV 1996 / 2003 86 784 008 0.01 0.01 0.01 867

667 420

Other bonds

Portuguese Republic – USD – 5.75% (8/10/2003) 60 000 953.56 953.56 985.65 57 214

57 214

Issued by other Portuguese government entitiesBonds

Governo Regional da Madeira / 1994 float. 8 167 816 0.01 0.01 0.01 82 1

82 1

Issued by foreign government entitiesBonds

National Bank of Hungary – DEM / 1993 – 8.75% (08/09/2003) 8 000 511.29 511.29 529.70 4 090

Gov. Spain – JPY / 1995 – 4.75% (14/03/2005) 100 80 392.31 80 392.31 88 628.51 8 039

Greece Republic – EUR / 1998 – 5.75% (31/03/2008) 15 000 000 1.00 0.99 1.00 14 894

Greece Republic – JPY / 1999 – 0.76% (29/01/2004) 1 000 8 039.23 8 027.69 8 039.23 8 037

Xunta de Galicia – PTE / 1996 Float. Rate (04/07/2003) 2 500 498.80 498.67 498.30 1 247 1

36 307 1

1) The difference between the average acquisition cost and the market value is recorded in the balance sheet caption ACCRUALS, DEFERRALS AND OTHERS (Note 2.5).



Book valueMarket

ValueAverage

CostNominal

ValueQuantity

euro th. euro

Fixed income – other issuersIssued by other Portuguese entitiesCash bonds

Banco Alves Ribeiro / 1999 – A Series – Cash bonds 30 000 50.00 50.00 50.00 1 500

Banco Alves Ribeiro / 2001 – 1st Issue – Cash bonds 500 5 000.00 5 000.00 2 500

Credifin / 2000 – 1st Issue – 1st Serie – Cash bonds 150 000 50.00 50.00 50.00 7 500

Leasimo / 98 – 1st Issue – Cash bonds 249 398 949 0.01 0.01 0.01 2 494

13 994

Other bonds

Auto Sueco / 1999 896 000 5.00 5.00 5.00 4 480

Auto Sueco / 2000 1 000 000 5.00 5.00 5.00 5 000

Cofina SGPS / 98 (Obrig. s/ warrants) 13 020 4.99 4.99 4.91 65 1

Est. Jer. Martins & F.º / 1996 (Warrant) 425 963 827 0.01 0.01 0.01 4 230 119

Fábrica Textil de Vizela / 1987 (Ac. Cred.) 127 800 4.41 4.18 542 317

Fábrica Vidros Barbosa & Almeida / 1997 698 317 056 0.01 0.01 0.01 4 074 83

Fapobol / 1995 200 000 1.24 2.14 216

Foncar 73 800 3.12 3.12 257 29

Imoloc, SGPS 180 000 1.87 1.87 334

Imparsa / 1998 (Obrig. s/ war.) 949 711 0.01 0.01 0.01 9 1

Jerónimo Martins / 97 404 087 649 0.01 0.01 0.01 5 353 440

Lisnave – Estaleiros Navais de Lisboa 1992 9 854 251 0.01 0.01 0.01 81

Modelo Continente SGPS 95 / 03 11 072 316 0.01 0.01 0.00 55

Pargeste / 1996 700 000 4.99 4.96 4.99 3 485

Polimaia / 89 – Série C 4 000 2.49 1.85 10

Salvador Caetano / 2002 – 1st Issue 500 000 10.00 10.00 10.00 5 000

Secil Prebetão – Prefabricados de Betão, S.A. 53 066 909 0.01 0.01 0.01 354

Semapa – Soc. Inv. Gestão, SGPS 1 706 886 404 0.01 0.01 0.01 17 069 256

Soares da Costa / 2000 1 250 000 5.00 4.98 5.00 6 230

Solidal / 1998 350 000 4.99 4.99 4.99 1 746

Somague SGPS / 1998 115 084 4.99 4.99 3.42 574 180

59 164 1 426

Commercial paper

Climaespaço 24th 1 559

Comp. Port. Computador Em 11th 2 369

Comp. Port. Computador Em 26th 1 250

Conduril 18th 2 500

Conduril 19th 7 500

Finantel SGPS 6th 1 665

Incompol 5th 623

Isar Rakoll – 29th Issue 249

J.B.Fernandes – 43th Issue 500

JMR Gestão Emp Retalho 10 9 650

JMR Gestão Emp Retalho 15 3 500

Jomar Issue 106 300

Jomar Issue 108 3 070

M&J Pestana – 109th 1 250

Manuel Poças Junior 5th 469

RAR Issue 97 2 700

Recheio SGPS 8th 8 200

Ren-Rede Elec Nac 41st 20 000

Ren-Rede Elec Nac 42nd 26 650

Ren-Rede Elec Nac 53rd 10 350



Book valueMarket

ValueAverage

CostNominal

ValueQuantity

euro th. euro

Commercial paper (cont.)

Ren-Rede Elec Nac 54th 5 700

Ren-Rede Elec Nac 55th 4 000

Soc. Franc. Man. Santos 9th 10 510

Soc. Vi. Terras Valdigem 6th 312

Solverde 116th 5 000

Tertir 12nd 2 344

Vic SGPS Issue 62 4 988

137 208

Issued by foreign entitiesIssued by international financial entitiesBonds

BEI – PTE / 1995 – Float. rate (Mar. 2005) 5 226 600 4.99 5.00 4.86 26 072 685

BEI – PTE / 1995 – Zero coupon (Aug. 2003) 23 548 395 143 4.99 0.00 117 459

BEI – PTE / 1996 F.R.N. (Dec. 2006) 3 299 500 4.99 4.99 4.98 16 458 34

159 989 719

Issued by other foreign entitiesOther bonds

Aegis SRL – CL 1 Float. Rate (01/06/2016) 50 65 083.44 65 083.44 64 758.02 3 254 17

Allianz Fin. II B. V. – 6.125% (31/05/2022) 2 500 1 000.00 989.50 998.00 2 474

Argentaria Global Finance – PTE / 1997 (27/02/2007) 300 498.80 498.80 540.75 150

Avalon Capital Ltd. 2 – Float. Rate (24/05/2012) 4 000 953.56 953.56 953.56 3 814

Avalon Capital Ltd. 2 – Float. Rate (24/05/2012) 10 000 953.56 952.83 925.38 9 530 276

Brazil Div Pymt rights – Float. Rate (20/03/2007) 10 000 953.56 953.56 953.56 9 536

CaixaVigo – PTE / 1998 – Float. Rate (27/03/2003) 500 000 4.99 4.99 4.99 2 495

Crediop Overseas Bank Limited – PTE / 1996 – F. Rate (30/06/2003) 1 000 000 4.99 4.99 4.99 4 988

Crédit Local France Zero Coupon – PTE / 2007 25 000 498.80 532.37 757.67 17 270

CVRD Finance Ltd. Float. Rate (15/10/2007) 30 95 356.16 95 356.17 96 658.21 2 861

Deutshe Telekom Int Fin – 5.875 (11.07.06) 2 500 1 000.00 1 018.80 1 030.20 2 546

Dutch Mor. Port. Loans (15.9.34) – O. Hip – Cl. B 8 500 000.00 500 850.00 500 625.00 4 006 1

EFG Hellas PLC – Float. Rate (07/02/2003) 11 250 1 000.00 996.90 1 000.55 11 249

EFG Ora Funding Ltd. – 2% – conv. (04/05/2005) 25 000 1 000.00 1 000.00 1 000.00 25 000

El Monte Int Finance – Float. Rate (12/12/2005) 5 000 1 000.00 998.48 999.10 4 993

Eurofima – PTE / 1994 – Float. Rate (17/08/2004) 2 632 000 4.99 4.99 5.01 13 128

Eurofima – PTE / 1995 – Float. Rate (19/01/2005) 6 000 000 4.99 4.99 4.98 29 928 75

Eurofima – PTE / 1998 – Float. Rate (28/05/2008) 1 564 4 987.98 4 987.98 4 918.65 7 801 108

Euro Vip – USD / 1990 – Float. Rate (23/11/2030) 6 000 953.56 953.56 762.85 5 721 1 144

Finbnk Trd & Div Pymt – Tr-Tv (15/03/2005) 5 000 692.31 692.31 692.31 3 461

France Telecom – 5.75% (14/03/2004) 5 000 1 000.00 1 021.90 1 023.55 5 106

France Telecom – 7% (23/12/2009) 2 500 1 000.00 1 001.50 1 015.40 2 504

Goldman Sachs Group – PTE / 1997 – Float. Rate (24/04/2007) 10 000 498.80 498.80 489.45 4 988 94

Hfc Bank PLC – Float. Rate (02/05/2006) 50 100 000.00 99 777.00 95 685.00 4 993 208

Ibercaja Finance – EUR / 1998 – Float. Rate (07/07/2003) 5 000 1 000.00 998.05 999.40 4 999 2

Imperial Tobacco Canada – 5.125% (14/11/2006) 2 500 1 000.00 1 030.30 1 033.25 2 575

Imperial Tobacco Canada – 5.75% (06/06/2005) 2 500 1 000.00 1 034.00 1 040.10 2 584

International Endesa BV – 5.25 (22/02/2006) 2 500 1 000.00 1 032.20 1 034.95 2 580

Italease Finance Spa (10/03/2011) O. Hip. – Cl. A 5 000 1 000.00 998.90 1 000.00 4 995

Lafarge – 5.125% (26/06/2006) 4 000 1 000.00 1 025.12 1 030.65 4 100

Lone Star Industr. Inc. 5.875% (08/11/2004) 5 000 1 000.00 995.02 922.70 4 991 377

Madison Avenue C.Ltd. (24/03/2014) – O. Hip. Cl. A 10 476 780.78 476 780.80 470 389.55 4 768 64

MPS Capital Trust I – Perp. Bonds 6 200 1 000.00 1 042.20 1 048.74 6 447

NBG Finance PLC – Float. Rate (25/06/2012) 7 500 1 000.00 993.95 991.00 7 455 22



Book valueMarket

ValueAverage

CostNominal

ValueQuantity

euro th. euro

Issued by other foreign entities

Other bonds (cont.)

OTE PLC 10 000 1 000.00 982.38 1 067.45 9 884

Public Power Corp. – 6.25% (08/11/2010) 10 000 1 000.00 1 002.00 1 000.00 10 016 16

Public Power Corp. – ITL / 1999 – Float. Rate (08/01/2004) 16 200 516.46 515.32 517.75 8 363

Repsol Intl. Finance – 3.75% (23/02/2004) 25 200 000.00 197 250.00 197 550.00 4 934

Royal KPN NV – 3.5% – Conv. (24/11/2005) 10 000 1 000.00 1 000.00 972.00 10 000 280

Skandinaviska Enskilda – 6.75% (29/06/2049) 480 25.00 22.69 23.88 11

Standard Chartered Cap Trust – Perp. Bonds 10 000 1 000.00 1 028.50 1 100.34 10 267

Stichting Eurostar CDO (10/03/2013) O.H – Cl – A1 10 493 925.16 493 925.16 487 923.97 4 939 60

Tafisa, S.A. 80 60 100.16 60 101.21 4 808

Telecom Italia SPA – 6.25% (01/02/2012) 2 500 1 000.00 1 043.10 1 050.21 2 607

Telefonica Eespanha – 4.5% (14/04/2009) 120 10 000.00 9 660.00 9 788.49 1 159

Telefonica Europe – USD / 1997 – 6.375% (08/01/2003) 19 236 953.56 901.89 954.52 18 337

Union Fenosa Finance – 4.25% (02/11/2004) 25 100 000.00 99 900.00 99 972.00 2 497

315 112 2 744

Commercial paper

Brazcomp One Ltd. 5th Issue 19 833

19 833

Variable-yield securities – Issued by Portuguese entitiesAcções

Alar – Emp. Ibérica de Material Aeronautico, S.A. 2 200 4.99 9.02 20

Apis – Soc. Ind. Parquetes Azarujense 65 000 4.99

Boavista Futebol Clube 21 900 5.00 5.00 110

Brasopi – Comércio de Vestuário 649 420 1.00 3.99 2 591 1 944

Brisa (Privatizadas) 72 616 1.00 5.32 5.28 368

Buciqueira – SGPS – Cap. Red. – Issue 2001 8 5.00 112.23 1

Caderno Verde S.A. 18 065 4.99 53.51 967 725

Carmo & Braz 65 000 4.99

Casa Hipólito, S.A. 17 789 4.99 4.99 89

Change SGPS, S.A. 3 740 000 1.00 1.00 3 740

Chipidea – Microelectrónica, S.A. 79 883 0.50 15.47 1 237

Cimpor – Cimentos de Portugal, S.A. 2 630 5.00 15.50 16.00 37

Companhia Águas da Fonte Santa de Monfortinho, S.A. 10 5.00 4.50

Companhia Aurifícia, S.A. 578 7.48 41.42 24

Companhia Aurifícia, S.A. 30 3.74 20.80 1

Companhia de Diamantes de Angola 167 716 2.49

Companhia de Fiação e Tecidos de Fafe, S.A. 240 4.99 1.25

Companhia Portuguesa do Cobre – Imobiliária, S.A. 57 200 4.99 0.07 4

Comundo – Consórcio Mundial de Import.e Export., S.A. 3 269 0.50 1.74 6 4

Corticeira Amorim – SGPS 127 419 1.00 2.47 0.80 315 213

Cosec 251 110 5.00 17.84 4 479

Empresa Cinematográfica S. Pedro – Águeda 100 4.99 4.99

Empresa O Comércio do Porto, S.A. 50 2.49 15.56 1

Esence – Soc. Nac. Corticeira – Nom. 54 545 4.99

Estamparia Império – Emp. Industriais e Imobiliários, S.A. 170 4.99 7.89 1

Eurofil – Ind. de Petróleos, Plástico e Filamentos, S.A. 11 280 4.99 2.21 25

Eurominas – Electro Metalurgia, S.A. 23 4.99 5.00

Fábricas Vasco da Gama – Ind. Transformadoras, S.A. 33 4.99 22.82 1

Fernando & Irmão, Lda. 41 190 100.00 100.00 4 119

Finantel, SGPS 3 335 840 0.50 2.19 7 305 3 000

Fit – Fomento e Industria do Tomate, S.A. 148 4.99 16.95 3



Book valueMarket

ValueAverage

CostNominal

ValueQuantity

euro th. euro

Variable-yield securities – Issued by Portuguese entitiesShares (cont.)

Foncar – Org. Industrial Com. Textil, S.A. 6 4.99 4.11

Futebol Clube do Porto 105 000 5.00 5.13 3.31 539 192

Gap – Gestão Agro-Pecuária, SGPS, S.A. 548 4.99 4.99 3

GEIE – Gestão de Espaços de Incub. Empres. S.A. 12 500 1.00 1.00 13

Gregório & Ca. 1 510 4.99 2.89 4

Ibersol SGPS 104 473 1.00 4.91 3.50 512 147

Impresa – SGPS 270 713 1.00 5.68 1.90 602 88

Incal – Indústria e Comércio de Alimentação, S.A. 2 514 1.13 0.89 2

Intersis, S.A. 42 147 4.99 31.01 1 307 1 307

Investimento Directo – Soc. Corretora, S.A. 300 000 10.00 12.43 3 729 845

J. Soares Correia – Armazéns de Ferro, S.A. 84 5.00 21.16 2

Jotocar – João Tomás Cardoso, S.A. 3 020 4.99 2.49 8

Lisnave – Est. Navais 180 5.00 4.99 1

Matur – Sociedade de Empreend. Tur. da Madeira, S.A. 13 435 4.99 10.85 146 142

Matur – Sociedade de Empreend. Tur. da Madeira, S.A. 4 5.00

Maxstor 8 190 4.99 4.99 41 41

Metalurgia Casal, S.A. 127 4.99 4.94 1

Multitema 405 379 1.00 1.34 542

Myplace – Conteúdos Imobiliários Internet 16 667 1.00 1.00 17 17

Nutroton – Industrias da Avicultura 11 395 5.00 4.38 50

Pema, S.A. 532 2.49 0.07

Pirites Alentejanas, S.A. 78 473 5.00 0.00

Porto de Cavaleiros, SGPS 2 4.99

Portugal Telecom – N 4 080 1.00 14.04 6.55 57 31

Ricon 76 923 5.00 32.42 2 494

Salvador Caetano, Ind. Maq. e Veic. de Transp., S.A. 161 925 1.00 4.70 3.00 638 152

Salvor – Soc. Investimentos Hoteleiros, S.A. 10 5.00

Secca – Construções Metálicas – Ac. Ord. Issue 92 3 627 4.99 4.99 18 18

Secca – Pref. S/ Voto – Issue 92 3 627 4.99 4.99 18 18

Semapa – Soc. Inv. Gestão – SGPS – Stock Split 728 1.00 4.34 3.30 3

Senal – Soc. Nacional de Promoção de Empresas, S.A. 450 0.50

Sociedade de Construções ERG 50 4.99 7.38 0.90

Sociedade Industrial Aliança, S.A. 1 2.49 2.00

Somotel – Soc. Portuguesa de Moteis, S.A. 40 2.50 2.49

Sonae SGPS 51 868 1.00 2.55 0.40 132 112

Sopeal – Soc. Promoção Educacional Alcacerense, S.A. 100 4.99 4.99

Sorefame – Socs. Reunidas Fabricações Metálicas, S.A. 31 5.00 9.81

SPC – Serviço Português de Contentores, S.A. 2 4.99 4.99

Sport Lisboa e Benfica (Pub. Geral) 16 010 5.00 4.99 80

Star – Turismo, S.A. 533 4.99 4.99 3

SVB, SGPS, S.A. 1 250 4.99 5.00 6

TECMIC 11 324 5.00 121.13 1 372

Telecine Moro, S.A. 170 4.99 6.48 1 1

Terologos – Tecnologias de Manutenção – P 7 960 4.99 4.98 40

Textil Lopes da Costa, S.A. 4 900 4.99 1.70 8 8

Turopa – Operadores Turisticos, S.A. 5 4.99 4.98

TVTEL – G.P. 191 250 4.98 7.18 1 374

Unicer – União Cervejeira, S.A. 1 002 1.00 8.07 8

Whatevernet 132 600 0.50 9.78 1 297

Xelb Cork – Co. e Ind. Cortiça 87 4.99 4.99

40 512 9 005



Book valueMarket

ValueAverage

CostNominal

ValueQuantity

euro th. euro

Variable-yield securities – Issued by Portuguese entities (cont.)

Participating units

Frie BPI 1 600 000 4.99 4.99 2 993 306

Frie – IPE Capital Retex / Paiep 20 24 939.89 24 939.89 499

Frie – Norpedip – Fundo de Reest. Intern. Empresarial 575 000 4.99 4.99 2 868 1 332

Frie – Sulpedip – Fundo de Reest. Intern. Empresarial 575 000 4.99 4.99 2 868 540

Frie – Sulpedip – Retex 200 000 4.99 4.99 998 185

Fundo BPI – América 200 000 0.01 4.98 997

Fundo Grupo BFE Imobiliário 73 707 4.99 5.01 5.74 371

11 594 2 363

Other

Atlântis – Incorporations Rights Issue 97 1

Banco BPI – Incorporation Rights 94 1

Oliva – Reduction Rights 100 0.44

Cimpor – Cim. Portugal – SGPS – Inc. rights Issue 99 1

Cofina SGPS – warrant (obrig. 98) 13 020 1.55

Fabricas Triunfo – Dir. reduçao Issue 2001 8 4.99

Soc. Construções Erg / 93 3

Somague – SGPS – Warrant (Obgs. 98) 115 015 0.35

Sonae Industria – SGPS – Inc. Rights Issue – 2nd 1

Variable-yield – Issued by foreign entitiesShares

Altitude Software 5 984 560 0.04 2.32 13 911 11 340

BPI Strategies, LTD. – Class B 5 000 0.01 953.56 974.13 4 768

Cis Corporation 39 512 4.49 4.67 0.24 155 145

European Investment Fund 6 1 000 000.00 1 000 000.00 6 000

Growela Cabo Verde 19 000 4.99 7.34 139 139

Liaoyang EFACEC 1 700 0.95 696.82 1 185 1 185

Multiwave 151 516 0.00 1.88 284

Parques Reunidos 304 140 0.25 5.19 2.35 1 580 865

Sofaris 13 49.55 94.75 1

Unirisco Galicia 80 1 202.00 1 202.03 96

28 119 13 674

Variable-yield – Issued by foreign entitiesPreference shares / Perp.

Anglo Irish Cap Funding – Pref. Perp. – 7.75% 36 660 25.00 24.46 25.82 897

BBVA Cap Fund. Cayman – Pref. Perp. – 6.35% 52 800 51.13 44.99 44.50 2 376 26

BBVA International Ltd. – Pref. Perp. – 7% 50 000 100.00 98.43 100.00 4 922

BCH Eurocapital – Pref. B. – 97 / 2049 – Float. Rate 56 739 23.84 21.36 16.21 1 212 292

BCI Funding Acções Pref. Perp. 12 800 1 000.00 981.74 950.00 12 566 406

BES Overseas Sr. A. – Acções Pref. Perp. 917 400 23.84 23.60 22.89 21 651 656

Central Hispano Euroc. – Acç. Pref. S/ voto – A 200 000 23.84 24.29 23.55 4 858 148

Deutsche BK Cap Fund III – Pref. Perp. 6.6% 100 000 100.00 101.35 101.25 10 135 10

Erste Finance (Jersey) – 6.625% Pref. Perp. 101 820 25.00 23.11 23.00 2 353 12

Espirito Santo F. Group – Acções Pref. Perp. 5 000 511.29 509.25 462.72 2 546 233

K2 Corporation – Float. Rate – Pref. Perp. 5 000 953.56 953.56 953.55 4 768

68 284 1 783

Participating units

Fundo BPI – Europa (Luxemburgo) 23 405 0.01 7.32 171

Fundo E Millenium 2 821 312 1.00 2 821

Scudder New Europe Fund Inc. 10 000 9.54 11.91 17.76 119

3 111



Book valueMarket

ValueAverage

CostNominal

ValueQuantity

euro th. euro

Subordinated securities

BNU – PTE / 1998 – Float Rate (15/10/2008) Sub. Cash Bond 947 716 004 0.01 0.01 0.01 9 477 293

9 477 293

Treasury stock

Banco BPI 161 318 1.00 2.13 2.18 334

334

1 627 754 32 009

EQUITY INVESTMENTSInvestments in associated companiesInvestments subject to the transitory regime established by the Bank of Portugal Notice 4 / 2002

Aquapor – Serviços, S.A. 323 400 5.00 35.78 11 572 502

Banc Post, S.A. 113 015 995 0.04 0.05 17 424

Caravela Gest, SGPS, S.A. 108 572 5.00 4.99 542

Companhia de Seguros Allianz Portugal, S.A. 2 768 178 5.00 15.06 37 734

Cosec – Companhia de Seguros de Crédito, S.A. 750 000 5.00 9.40 11 610

F.Turismo – Capital de Risco, S.A. 250 000 5.00 4.98 1 338

Finangeste – Emp. Financeira de Gestão e Desenvolvimento, S.A. 1 814 125 5.00 14.90 11 807

Telemanutenção – Assistência Remota e Computadores, S.A. 4 900 4.99 49.88 244 122

Vera Cruz Exportação – Indústria e Comércio, S.A. 689 145 0.27 0.81 558 558

Viacer – Sociedade Gestora de Participações Sociais, Lda. 54 446 783.25 15 314

108 143 1 182

Investments in subsidiary companies excluded from the consolidationInvestments subject to the transitory regime established by the Bank of Portugal Notice 4 / 2002

BPI, Inc. 300 15.89 117

BPI Locação de Equipamentos, Lda. 150 000.00

BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A. 200 000 5.00 7.23 4 757

BPI Rent – Comércio e Aluguer de Bens, Lda. 2 492 286.55 4 596

BPI Strategies Ltd. 1 000 0.01 0.01

BPI Vida – Companhia de Seguros de Vida, S.A. 3 597 510 5.00 5.57 34 196

Douro – Sociedade Gestora de Participações Sociais, S.A. 3 580 088 5.00 3.48 3 797

Eurolocação – Comércio e Aluguer de Veículos e Equipamento, S.A. 30 000 5.00 3.54 470

Promática – Soc. Informação e de Organização de Empresas, S.A. 150 000 5.00 5.71 1 066

Simofer – Soc. de Empreendimentos Imobiliários e Construção Civil, Lda. 8 510.49

48 999

Other investmentsInvestments subject to the transitory regime established by the Bank of Portugal Notice 4 / 2002Other Portuguese financial entities

SPGM – Sociedade de Investimentos, S.A. 1 936 300 1.00 1.00 1 932

Other Portuguese companies

Alberto Gaspar, S.A. 60 000 4.99 4.99 299 107

Arco Bodegas Unidas 63 382 6.01 69.41 4 400 50

Barbosa & Almeida 1 090 493 5.00 14.71 16.48 16 039

Cofina SGPS 4 354 960 0.50 2.75 2.09 12 018 111

Conduril – Construtora Duriense, S.A. 184 262 5.00 4.37 4.50 805

Digitmarket – Sistemas de Informação, S.A. 742 500 1.00 1.00 764 718

EIA – Ensino, Investigação e Administração, S.A. 10 000 4.99 4.98 50 4

Ibersol – SGPS, S.A. 1 265 930 1.00 4.30 3.10 5 443 70

IES – A 266 000 4.99 4.99 1 327

Impresa – Sociedade Gestora de Participações Sociais, S.A. 7 380 687 1.00 10.25 1.94 61 265 3 776

International Factors Group 12 50.00 50.00 1

Mimalha, S.A. 40 557 4.99 8.27 336 336

NET – Novas Empresas e Tecnologias, S.A. 6 099 4.99 0.51 3

Pararede – SGPS, S.A. 4 811 910 0.40 1.44 0.20 6 951 3 053



Book valueMarket

ValueAverage

CostNominal

ValueQuantity

euro th. euro

Other Portuguese companies (cont.)

PME Capital – Sociedade Portuguesa de Capital de Risco, S.A. 261 250 5.00 4.99 1 303

PME Investimentos – Sociedade de Investimentos S.A. 261 250 5.00 4.98 1 303

Portugal Telecom, S.A. 20 743 391 1.00 10.75 6.11 223 197 6 298

Ricardo Gallo – Vidro de Embalagem, S.A. 39 600 5.00 7.27 288 72

SIBS – Sociedade Interbancária de Serviços, S.A. 738 455 5.00 4.22 3 115

SIC – Sociedade Independente de Comunicação, S.A. 997 657 4.99 194.45 145 281 7 784

Soc. Portuguesa de Inovação, Consultoria Empresarial eFomento da Inovação, S.A. 8 580 5.00 4.98 43 1

Soset – Sociedade Desenvolvimento Regional Peninsula Setúbal, S.A. 68 000 4.99 4.99 339 175

Tagusparque – Sociedade de Promoção e Desenvolvimento do Parque, S.A. 480 000 5.00 4.99 2 394

Unicre – Cartão Internacional de Crédito 299 265 5.00 3.52 1 057

VAA – Vista Alegre Atlantis SGPS (Merge) 8 391 597 1.00 1.43 0.75 12 036 394

VAA – Vista Alegre Atlantis SGPS (St. Split.) 988 485 1.00 2.71 0.75 2 680 902

Vista Alegre Investimentos, SGPS, S.A. 1 025 4.99 4.99 5

Other foreign companies

CLD – Credit Logement Developpment 100 15.24 15.25 1

Empresa Prestadora de Serviços aos Bancos 76

InterBancos 42 500 900.62 0.90 38

Nasdaq Europe SA / VN 100 250.31 25 21

Swift – Society for Worldwide Inf. Dev 5 123.95 1 234.51 6

Tharwa Finance (dirhams) 20 895 9.39 196

505 016 23 872

Investments excluded from the transitory regime established by the Bank of Portugal Notice 4 / 2002Other Portuguese companies

Plastrade – Com. Inter. Plásticos – S.A. 19 200 5.00 96

Other foreign companies

Euronext 190 000 1.00 20.64 21 3 924

4 020

Other financial assets

Guarantees 384

Subordinated loans 128

Supplementary capital contributions

Plastrade 154

Shareholders' loan contracts

Acesa 16

Auto Estradas do Atlântico 9 144

Caderno Verde 150 113

Caravela Gest SGPS, S.A. 1 354

Digitmarket – Sistemas de Informação, S.A. 879

GEIE – Gestão de Espaços de Incb. 10

IES – A 267

IES – B 401

InterBancos 224

Intersis 50 50

Maxstor – Suportes e Matrizes Informáticos, S.A. 957 957

Myplace 1 378 1 378

Sociedade Imobiliária Urbanização do Parque, S.A. 137

SVB SGPS, S.A. 2 301

ViaLitoral – Conc. Rodoviária da Madeira 975

18 243 2 498



Book valueMarket

ValueAverage

CostNominal

ValueQuantity

euro th. euro

OtherInvestments subject to the transitory regime established by the Bank of Portugal Notice 4 / 2002

Ambelis – Agência p/ Modernização Economica de Lisboa, S.A. 400 49.88 49.88 20

Amsco – African Management Services Com 1 807 953.56 527.70 954 954

Apor – Agência p/ Modernização do Porto – Cl. B 2 400 4.99 4.99 12

Associação para Escola Gestão do Porto / 2000 2 24 939.89 50 4

Auto-Estradas Atlantico II – Conc. Serviços 1 000 5.00 5.00 5

Auto-Estradas Atlantico 1 100 000 5.00 4.98 5 487

Citeve – Cent. Tec. Ind. Tex. Vest. Portugal 20 498.80 10

Club Financiero Vigo 1 15 626.31 17 730.00 18 2

Coimbravita – Agência Desenvolvimento Regional 15 000 4.99 75

FIEP – Fundo para a Internacionalização das Empresas Portuguesas SGPS, S.A. 3 900 000 4.99 4.22 5.05 19 465

Frie Ipe Capital – Retex / Paiep 20 24 939.89 25 439.98 499

Frie – PME Capital – Retex 200 000 4.98 998 110

Fundo Inv. Capital de Risco – F. Turismo 43 24 939.89 25 222.90 1 084 196

Fundo Inv. Imobiliário Margueira Capital 2 949 761 4.99 14 713

Gestinsua – Aq. Al. Patrimonio 430 5.00 5.00 0.01 2 2

Margueira – Soc. Gestora de Fundos Investimento Imobiliário, S.A. 3 362 5.00 4.99 17

Parque Industrial da Matola – MZM 295 384 0.04 0.04 12

Parque Industrial da Matola – PTE 10 384 620 0.00 52 3

Porticentro – Sociedade de Construção, Gestão e Turismo, Lda. 100 100

Primus – Prom. e Desenvolvimento Regional, S.A. 8 000 4.99 4.99 40 17

Ricardo Gallo – Vidro de Embalagem, S.A. 100 100 5.00 0.79 793

Sanjimo – Sociedade Imobiliária 1 620 4.99 4.99 8 8

SIC – Sociedade Independente de Comunicação 585

Socera – Investimentos e Projectos 1 950 24.94 20.78 40

Sociedade Imobiliária Urbanização do Parque, S.A. 11 350 1.00 1.00 11 11

Spidouro – Sociedade Promoção e Investimento Douro e Tras-os-Montes 15 000 4.99 4.99 75 41

SUBLOC – Locação de submarinos, S.A. 2 500 10.00 10.00 25

Swift – Society for Worldwide Inf. Dev 57 123.95 235.02 41

ViaLitoral – Conc. Rodoviária da Madeira 4 750 161.25 166.64 791 80

Investments excluded from the transitory regime established by the Bank of Portugal Notice 4 / 2002

Auto-Estradas Atlantico 1 100 000 5.00 16.45 18 104 2 615

Auto-Estradas Atlantico II – Conc. Serviços 1 000 5.00 5.00 5 2

Fundo Inv. Imobiliário Margueira Cap. 130 730 4.99 4.99 652

Garval – Sociedade de Garantia Mutua 62 500 1.00 1.00 62

Margueira – Soc. Gestora de Fundos Investimento Imobiliário, S.A. 149 4.99 1

SDEM – Soc. de Desenvolvimento Empr. Madeira, SGPS 937 500 1.00 1.00 937

Sociedade Imobiliária Urbanização do Parque, S.A. 2 670 1.00 1.00 3 3

65 746 4 148

84 655 6 646

750 833 31 700


At 31 December, 2002, the book and market values (or estimated values, if market values do not exist) of the main investments owned

by the BPI Group were:

1) The investment in Viacer – Sociedade Gestora de Participações Sociais, S.A. is included within the BPI Group and therefore is recorded based on the equity method.2) The gross book value corresponds to cost or, in the case of investments recorded based on the equity method, to BPI’s percentage of the company’s equity value.3) The deferred gains should be deducted from the gross book value, as those amounts were not recognized in the income statement.4) The market value corresponds to the average of the last six months daily market values for listed investments.5) Except for Viacer – Sociedade Gestora de Participações Sociais, S.A. and SIC – Sociedade Independente de Comunicação, S.A., the estimated value corresponds to the BPI percentage

on the company’s equity value multiplied by the factor 1.5. The estimated value of Viacer corresponds to a BPI’s valuation. The estimated value of SIC depends on Impresa’s marketvalue and corresponds to the percentage of the value attributed to SIC in the value of that company for the purpose of its Public Tender Offer.

Marketvalue4

EstimatedValue5

UnrealisedGain /(Loss)

Provisions NetDeferredGains3

Gross2

Book Value

Investments in associated companies

Aquapor – Serviços, S.A. 11 572 502 11 070 4 818 (6 252)

Caravela Gest, SGPS, S.A. 542 542 500 (42)

Telemanutenção – Assistência Remota e Computadores, S.A. 244 122 122 100 (22)

Viacer – Sociedade Gestora de Participações Sociais, S.A.1 15 314 15 314 130 000 114 686

Vera Cruz Exportação – Indústria e Comércio, S.A. 558 558

28 230 1 182 27 048 135 418 108 370

Other investments

Alberto Gaspar, S.A. 299 107 192 192

Arco Bodegas Unidas 4 400 50 4 350 3 243 (1 107)

Barbosa & Almeida 16 905 866 16 039 17 971 1 932

CLD – Credit Logement Developpment 2 2 3 1

Cofina SGPS 13 239 1 221 111 11 907 9 102 (2 805)

Conduril – Construtora Duriense, S.A. 805 805 829 24

Digitmarket – Sistemas de Informação, S.A. 742 (22) 718 46 47 1

EIA – Ensino, Investigação e Administração, S.A. 50 4 46 (46)

Empresa Prestadora de Serviços aos Bancos 76 76 76

Euronext 3 924 3 924 3 912 (12)

Ibersol – SGPS, S.A. 5 475 32 70 5 373 3 924 (1 449)

IES 2 815 1 488 1 327 2 051 724

Impresa – Sociedade Gestora de Participações Sociais, S.A. 75 653 14 388 3 776 57 489 14 319 (43 170)

InterBancos 38 38 64 26

International Factors Group 1 1 (1)

Mimalha, S.A. 336 336

Nasdaq Europe SA / VN 24 21 3 4 1

NET – Novas Empresas e Tecnologias, S.A. 3 3 42 39

Pararede – SGPS, S.A. 10 081 3 130 3 053 3 898 962 (2 936)

Plastrade – Com. Intern. Plasticos – S.A. 96 96 144 48

PME Capital – Sociedade Portuguesa de Capital de Risco, S.A. 1 303 1 303 1 748 445

PME Investimentos – Sociedade de Investimentos S.A. 1 303 1 303 1 387 84

Portugal Telecom, S.A. 223 197 6 298 216 899 126 742 (90 157)

Ricardo Gallo – Vidro de Embalagem, S.A. 288 72 216 216

SIBS – Sociedade Interbancária de Serviços, S.A. 3 115 3 115 11 253 8 138

SIC – Sociedade Independente de Comunicação, S.A. 193 997 48 716 7 784 137 497 45 643 (91 854)

Soc. Port. Inovação, Consultoria Empresarial e Fomento Inovação, S.A. 43 1 42 27 (15)

Soset – Sociedade Desenvolvimento Regional Peninsula Setúbal, S.A. 339 175 164 164

Swift – Society for Worldwide Inf. Dev 6 6 11 5

SPGM – Sociedade de Investimentos, S.A. – N 1 932 1 932 3 031 1 099

Tagusparque – Sociedade de Promoção e Desenvolvimento Parque, S.A. 2 394 2 394 8 252 5 858

Tharwa Finance (dirhams) 196 196 298 102

Unicre – Cartão Internacional de Crédito 1 421 364 1 057 5 841 4 784

VAA – Vista Alegre Atlantis SGPS (Merge) 11 259 (777) 394 11 642 6 294 (5 348)

VAA – Vista Alegre Atlantis SGPS (St. Split.) 3 295 615 902 1 778 741 (1 037)

Vista Alegre Investimentos, SGPS, S.A. 5 5 (5)

579 057 70 021 23 872 485 164 180 884 87 649 (216 631)

607 287 70 021 25 054 512 212 180 884 223 067 (108 261)


4. NOTES

4.1. Cash and deposits at central banks

This caption is made up as follows:

The caption DEMAND DEPOSITS AT THE BANK OF PORTUGAL includes

deposits made to comply with the minimum cash reserve

requirements of the European Central Bank System. These

deposits bear interest and correspond to 2% of the amount of

Customers’ deposits and debt securities maturing in up to 2

years, excluding deposits and debt securities of entities subject

to the ECBS minimum cash reserves regime.

4.2. Loans and advances to Credit Institutions repayable on

demand


Cheques for collection from domestic Credit Institutions

correspond to cheques drawn by third parties against domestic

credit institutions, which in general do not remain in this

account for more than one business day.

The deposit certificates correspond to deposits at the Bank of

Portugal, in dematerialised form, subscribed for in amounts

established by the Central Bank under the process of change in

the regime of minimum cash reserves that came into force on

1 November, 1994. At 31 December, 2002 and 2001 these

certificates earned interest at annual rates of 3.28% and

3.76%, respectively.

The caption LOANS AND INTEREST IN ARREARS refers to loans to the

Central Bank of a foreign country.

The movement in the provisions during 2002 and 2001 is

shown in note 4.27.

At 31 December, 2002 and 2001 this caption is made up as

follows, by residual period to maturity:

4.3. Other loans and advances to credit institutions


20012002

Cash 152 525 166 217

Demand deposits at the Bank of Portugal 310 569 283 359

Demand deposits at foreign central banks 61 012 57 150

524 106 506 726

20012002

Domestic credit institutions

Demand deposits 30 869 24 469

Cheques for collection 180 631 223 888

Other 12 295 14 989

Credit institutions abroad

Demand deposits 98 112 85 336

Cheques for collection 8 158 4 976

Other 30

330 065 353 688

20012002

Placements with central banks

Bank of Portugal

Deposit certificates 186 638 273 044

Other 4 172 1 000

Foreign central banks 724

190 810 274 768

Placements with other monetary institutions

Interbank money market 44 000 33 000

Other 100 087 123 182

144 087 156 182

Placements with other credit institutions

Domestic 619 878 425 257

Abroad 2 213 205 2 655 734

2 833 083 3 080 991

3 167 980 3 511 941

Loans and interest in arrears 100 019 119 334

Provisions for loans and interest in arrears (99 790) (118 928)

Provisions for country risk (28) (27)

(99 818) (118 955)

3 168 181 3 512 320

20012002

Up to 3 months 2 510 173 2 731 412

From 3 months to 1 year 339 304 390 073

From 1 year to 5 years 300 385 362 176

More than 5 years 11 804 14 076

Undefined 6 314 14 204

3 167 980 3 511 941

Note: Does not include overdue loans and interest


4.4. Loans and advances to Customers

This caption is made up as follows: The movement in the provisions during 2002 and 2001 is

shown in note 4.27.

At 31 December, 2002 and 2001 this caption is made up as

follows, by residual period to maturity:

20012002

Up to 3 months 2 416 919 1 985 142

From 3 months to 1 year 2 266 076 1 746 317

From 1 year to 5 years 2 892 975 4 225 505

More than 5 years 8 393 941 6 814 123

Undefined 391 255 525 512

16 361 166 15 296 599

Note: Does not include overdue loans and interest

20012002

Short-term loansDomestic

Discount 370 923 379 655

Loans and advances covered by notes 307 050 309 539

Credits in current accounts 2 709 102 1 622 006

Demand deposits – overdrafts 521 559 621 024

Invoices received – factoring 305 682 300 283

Other loans and advances 7 212 9 336

Foreign 257 766 313 174

4 479 294 3 555 017

Medium and long term loansDomestic

Discount 23 111 29 698

LoansReal estate 5 537 166 4 489 727

Others 4 228 502 3 920 983

Loans and advances covered by notes 15 186 17 856

Credits in current accounts 174 738 1 238 352

Other loans and advances 1 874 4 300

Foreign 884 484 1 011 604

10 865 061 10 712 520

Financial leasing 594 348 647 207

Real estate leasing 401 945 369 917

Subordinated loans 19 892 11 242

Placement of consigned resources 626 696

16 361 166 15 296 599

Loans and interest in arrears 254 028 174 414

Provisions for doubtful debts (21 383) (4 403)

Provisions for loans and interest in arrears (120 077) (91 756)

Provisions for country risk (1 142) (2 715)

(142 602) (98 874)

16 472 592 15 372 139


4.5. Bonds and other fixed income securities


Market value

2002 2001

Book value

2002 2001

A. Issued by government entitiesListed securities

Trading securitiesBonds issued by Portuguese government entities

Fixed rate 302 460 169 458 302 460 169 458

Bonds issued by foreign governments entities 1 081 566 897 826 1 081 566 897 826

Investment securities

Bonds issued by Portuguese government entities

Fixed rate 723 767 277 993 742 725 303 698

Floating rate 949 66 765 949 66 775

Bonds issued by foreign governments entities 36 307 57 473 37 385 59 848

Provisions for unrealised losses on securities (2) (22)

2 145 047 1 469 493 2 165 085 1 497 605

Unlisted securitiesTrading securities

Bonds issued by foreign governments entities 509

Other securities issued by foreign government entities 426


Bonds issued by foreign governments entities 47 885

0 48 820

2 145 047 1 518 313

B. Issued by other entitiesListed securities


Bonds issued by other domestic entities 69 298 241 486 68 246 240 361

Bonds issued by international financial organisations 42 530 49 239 41 811 49 108

Bonds issued by other foreign entities 310 304 375 788 311 180 378 310

Subordinated debt securities 9 477 24 806 9 184 24 219


426 773 688 112 430 421 691 998


Bonds issued by other foreign entities 574 541


Bonds issued by other domestic entities 141 068 300 614

Bonds issued by international financial organisations 117 459 117 459

Bonds issued by other foreign entities 24 641 80 567

Provisions for unrealised losses on securities (346) (393)

283 396 498 788

Provisions for country risk (409) (409)

Securities and interest in arrears 2 358 522

Provisions for securities and interest in arrears (341) (439)

2 017 83

711 777 1 186 574

At 31 December, 2002 and 2001 the investment portfolio

caption BONDS ISSUED BY OTHER DOMESTIC ENTITIES – UNLISTED

includes th. euro 137 208 and th. euro 292 899, respectively,

relating to commercial paper. At 31 December, 2002 and 2001

the investment portfolio caption BONDS ISSUED BY OTHER FOREIGN

ENTITIES – UNLISTED includes th. euro 19 833 and th. euro

56 725, respectively, relating to commercial paper.

At 31 December, 2002 and 2001 the bonds classified in the

investment portfolio correspond in part to bonds hedging

liabilities and off–balance sheet items. At 31 December, 2002

this portfolio corresponds in part to bonds hedged by off–balance

sheet items.


shown in note 4.27.


4.6. Shares and other variable yield securities


Market value

2002 2001

Book value

2002 2001

Listed securitiesTrading securities

Shares 10 004 53 336 10 017 53 336

Participating units 462 1 489 462 1 490

Value fluctuations 13 1


Shares 9 707 20 462 7 886 14 654

Preference shares 68 284 23 973 66 629 23 721

Other participating units 490 764 601 686

Other 53


85 232 93 798 85 595 93 940


Shares 62 607

Investment securitiesShares 58 924 57 454

Participating units in FRIEs 10 225 10 225

Other participating units 3 990 3 881


64 468 61 640

149 700 155 438

The movement in the provisions during 2002 and 2001 is shown in note 4.27.

4.7. Investments in associated companies

This caption is made up of investments in the following companies:

Note: The book value of the associated companies of the BPI Group (note 1) corresponds to the amount of the investment valued under the equity method.1) This investment was excluded from the consolidation because the BPI Group holds a put option sell it.2) This investment was sold during 2002. At 31 December, 2001 this investment was fully provided for.3) At 31 December, 2002 this investment is reflected in the investment portfolio caption OTHER INVESTMENTS because Banco BPI decreased its participating interest to 9.9% of the share

capital of this company (note 4.9).4) The BPI Group first acquired all the share capital of Solo – Investimentos em Comunicação, SGPS, S.A. and then sold 55% of the participation and issued a sale option in favour of

the purchaser, covering all the share capital sold. During 2002, the sale option was exercised and the BPI Group’s participating interest in the share capital of Solo – Investimentosem Comunicações, SGPS, S.A. increased to 100%. Therefore, at 31 December, 2002 this investment was consolidated by the full consolidation method.

5) This investment is fully provided for.

Book value (net)

2002 2001

Effective participation (%)

2002 2001

Aquapor – Serviços, S.A.1 24.5 24.5 11 070 9 831

Banc Post, S.A. 17.0 17.0 17 424 17 915

Caravela Gest, SGPS, S.A. 16.7 16.7 542 542

Centro de Educação Integral, S.A.2 19.7

Companhia de Seguros Allianz Portugal, S.A. 35.0 35.0 37 734 38 819

Cosec – Companhia de Seguros de Crédito, S.A. 50.0 50.0 11 610 12 600

Digitmarket – Sistemas de Informação, S.A.3 25.0 641

F. Turismo – Capital de Risco, S.A. 25.0 25.0 1 338 1 311

Finangeste – Empresa Financeira de Gestão e Desenvolvimento, S.A. 32.8 32.8 11 807 11 382

Solo – Investimentos em Comunicação, SGPS, S.A.4 45.0 21

Telemanutenção – Assistência Remota a Computadores, S.A. 22.8 22.8 122 122

Vera Cruz Exportação – Indústria e Comércio, S.A.5 20.9 20.9

Viacer – Sociedade Gestora de Participações Sociais, Lda. 26.0 26.0 15 314 12 191

106 961 105 375



shown in note 4.27.

At 31 December, 2002 the balances relating to operations with

associated companies were as follows:

4.8. Investments in subsidiary companies excluded from the consolidation

The investments in subsidiary companies excluded from the consolidation correspond to:

Loans granted 1

Deposits 15 250

Creditors 1

Guarantees provided 391

Note: The book values of the subsidiary companies of the BPI Group (note 1) correspond to the amount of the investments valued under the equity method.1) The book value of this investment is nil, since the shareholders’ equity value is negative. According to BPI policies, the negative shareholders’ equity of the company is reflected in the

caption ACCRUALS, DEFERRALS AND OTHERS (liabilities) (note 4.18).2) The amount of this investment for consolidation purposes is null, as there is a provision (in the caption OTHER PROVISIONS – OTHER RISKS) to cover the accumulated losses of the

company.

Book value (net)

2002 2001


2002 2001

BPI, Inc. 100.0 100.0 117 128

BPI Locação de Equipamentos, Lda.1 100.0 100.0

BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A. 100.0 100.0 4 758 5 131

BPI Rent – Comércio e Aluguer de Bens, Lda. 100.0 100.0 4 596 4 279

BPI Strategies, Ltd. 100.0 100.0

BPI Vida – Companhia de Seguros de Vida, S.A. 100.0 100.0 34 196 34 934

Douro – Sociedade Gestora de Participações Sociais, S.A. 100.0 100.0 3 797 3 858

Eurolocação – Comércio e Aluguer de Veículos e Equipamento, S.A. 100.0 100.0 470 448

Promática – Sociedade de Informação e de Organização de Empresas, S.A. 100.0 100.0 1 065 1 042

Simofer – Sociedade de Empreendimentos Imobiliários e Construção Civil, Lda.2 100.0 100.0

48 999 49 820

At 31 December, 2002 the balances relating to operations with

subsidiary companies not consolidated by the full consolidation

method were as follows:

Loans granted 134 396

Deposits 9 449

Guarantees provided 15 266

4.9. Other investments


20012002

Listed securities

Shares 341 678 436 155

Other 79 862

341 678 516 017

Unlisted securities

Shares 167 358 162 375

Other 25

167 358 162 400

509 036 678 417

Provisions for unrealised losses on other investments (23 872) (6 468)

485 164 671 949


The movement in the provisions during 2002 and 2001 is shown in note 4.27. At 31 December, 2002 and 2001 this caption was

made up as follows:

Note: This table shows all investments with a book value, net of provisions, over th. euro 500.1) This investment was sold during 2002.

Book value (net)

2002 2001


2002 2001

Arco Bodegas Unidas 1.8 1.8 4 350 4 399

B.A. – Fábrica de Vidros Barbosa & Almeida, S.A. 14.5 14.5 16 039 16 039

Brisa – Autoestradas de Portugal, S.A.1 5.6 158 130

Cofina, SGPS, S.A. 8.7 8.7 11 907 12 018

Conduril – Construtora Duriense, S.A. 7.7 7.7 805 805

Euronext 0.2 3 924

Ibersol – SGPS, S.A. 6.3 6.3 5 373 5 444

IES – Indústria, Engenharia e Serviços, SGPS, S.A. 13.3 13.3 1 327 1 327

Impresa – Sociedade Gestora de Participações Sociais, S.A. 10.3 10.3 57 489 75 652

Pararede – SGPS, S.A. 3.8 9.3 3 898 5 296

PME Capital – Sociedade Portuguesa de Capital de Risco, S.A. 4.8 4.8 1 303 926

PME Investimentos – Sociedade de Investimentos, S.A. 4.8 4.8 1 303 926

Portugal Telecom, S.A. 1.7 1.7 216 899 223 197

SIBS – Sociedade Interbancária de Serviços, S.A. 15.0 15.0 3 115 3 115

SIC – Sociedade Independente de Comunicação, S.A. 19.9 14.7 137 497 142 774

Sonae, SGPS, S.A.1 0.0 573

S.P.G.M. – Sociedade de Investimentos, S.A. 15.5 16.2 1 932 2 017

Tagusparque, S.A. 11.0 11.0 2 394 2 394

Tharwa Finance 19.9 13.1 196 1 026

Unicre – Cartão Internacional de Crédito, S.A. 17.6 17.6 1 057 1 057

VAA – Vista Alegre Atlantis, SGPS, S.A. 16.6 16.4 13 420 13 813

Other 936 1 021

485 164 671 949


4.10. Intangible assets


Gross

DisposalsTransfers

and othersBalances at

31-12-02AdditionsBalances at

31-12-01

Leasehold rights 268 376 (66) 578

Start-up expenses 15 039 282 (803) (1 515) 13 003

Deferred costs 3 784 455 (298) (95) 3 846

Research and development expenses 19 906 2 406 22 312

Software 47 697 3 845 (1 348) 812 51 006

Other intangible assets 13 192 480 (626) 86 13 132

99 886 5 438 (3 075) 1 628 103 877

Work in progress 2 389 1 084 (3 231) 242

102 275 6 522 (3 075) (1 603) 104 119

Gross

DisposalsTransfers


31-12-02AdditionsBalances at

31-12-01

Premises

Premises for own use 204 356 531 (217) (1 333) 203 337

Other premises 6 674 7 (2 196) 2 194 6 679

Leasehold improvements 85 588 546 (5 533) 1 659 82 260

Work in progress

Premises for own use 2 336 2 459 (2 131) 2 664

Other premises 157 (157)

Leasehold improvements 2 259 3 619 (2 788) 3 090

301 213 7 319 (7 946) (2 556) 298 030

Equipment

Furnitures and fixtures 37 117 1 732 (965) (18) 37 866

Machinery and tools 14 868 524 (793) 193 14 792

Computer hardware 130 676 6 089 (12 758) (495) 123 512

Interior installations 56 793 3 013 (1 206) 5 860 64 460

Vehicles 20 191 2 172 (3 643) (331) 18 389

Security equipment 15 839 744 (418) 205 16 370

Other equipment 257 3 (1) (10) 249

275 741 14 277 (19 784) 5 404 275 638

Other fixed assets

Art collections 1 856 149 (36) 1 969

Other leased assets 1 700 17 (40) 1 677

Others 15 279 62 (652) (354) 14 335

18 835 228 (652) (430) 17 981

Work in progress

Equipment 2 364 10 448 (5 053) 7 759

Other fixed assets 123 17 (81) 59

Advances on account of fixed assets 20 927 1 526 (553) 21 900

23 414 11 991 (5 687) 29 718

619 203 33 815 (28 382) (3 269) 621 367

4.11. Tangible fixed assets



Amortisation

DisposalsTransfers


31-12-02Amortisation for the year

Balances at31-12-01

Net

Balances at 31-12-01

Balances at31-12-02

80 124 (80) 124 454 188

14 561 344 (803) (1 564) 12 538 465 478

3 228 420 (298) (21) 3 329 517 556

12 458 4 148 1 012 17 618 4 694 7 448

40 318 5 307 (1 348) (869) 43 408 7 598 7 379

10 775 1 492 (625) (29) 11 613 1 519 2 417

81 420 11 835 (3 074) (1 551) 88 630 15 247 18 466

242 2 389

81 420 11 835 (3 074) (1 551) 88 630 15 489 20 855

Depreciation

DisposalsTransfers


31-12-02Depreciation for the year

Balances at31-12-01

Net

Balances at 31-12-01

Balances at31-12-02

60 783 3 399 (14) (824) 63 344 139 993 143 573

1 583 106 (487) 648 1 850 4 829 5 091

46 945 6 546 (3 807) (163) 49 521 32 739 38 643

2 664 2 336

3 090 2 259

109 311 10 051 (4 308) (339) 114 715 183 315 191 902

24 914 2 614 (926) (24) 26 578 11 288 12 203

11 803 1 003 (792) 346 12 360 2 432 3 065

103 973 13 420 (12 733) (684) 103 976 19 536 26 703

35 522 3 776 (857) 1 436 39 877 24 583 21 271

11 317 3 918 (3 005) (233) 11 997 6 392 8 874

9 836 1 567 (359) 3 11 047 5 323 6 003

210 94 (1) (87) 216 33 47

197 575 26 392 (18 673) 757 206 051 69 587 78 166

1 969 1 856

441 646 (10) 1 077 600 1 259

7 608 1 274 (377) (58) 8 447 5 888 7 671

8 049 1 920 (377) (68) 9 524 8 457 10 786

7 759 2 364

59 123

21 900 20 927

29 718 23 414

314 935 38 363 (23 358) 350 330 290 291 077 304 268


4.12. Other assets


4.13. Accruals, deferrals and others (assets)


Other financial assets owned by the BPI Group at 31 December,

2002 are shown in note 3.2.


shown in note 4.27.

20012002

Gold, precious metals and coin collections 1 321 1 045

Other available funds 83 4 596

Debtors

Loan interest subsidy receivable 44 612 45 020

BPI Taxa Garantida advances 37 168 40 517

Loans ceded to Finangeste 7 515 14 725

Taxes recoverable 10 962 8 767

Others 22 197 36 077

Property received as settlement of defaulting loans

Real estate 35 002 32 825

Others 3 062 2 567

Margins on futures and options operations 1 857 2 143

Other placements 17 187 552

Other financial assets 84 655 113 430

265 621 302 264

Provisions for doubtful debtors (55) (21)

Provisions for property received assettlement of defaulting loans (7 238) (6 872)

Provisions for country risk (27 821)

Provisions for unrealised losseson other financial assets (6 646) (2 626)

(13 939) (37 340)

251 682 264 924

20012002

Accrued income

From placements with credit institutions 9 366 13 115

From loans 67 879 71 283

From securities 35 888 28 157

From foreign exchange andinterest rate swaps 360 559 253 386

Revaluation of Capital Seguro andRisco Limitado bonds 72 860 1 005

Others 41 537 34 254

588 089 401 200

Deferred costs

Debt securities 6 939 8 854

Advertising campaigns 9 527 18 603

Contributions to the pension funds 90 835 41 367

Premiums on options relating toCapital Seguro operations 61 676 94 436

Swaps operations 8 305 11 094

Other off-balance sheet operations 37 55

Others 9 408 10 534

186 727 184 943

Valuation fluctuations

Pension funds 120 390 71 179

Other 243 139

Other accounts

Antecipated dividends onpreference shares 9 568 17 046

Stock exchange operations pending settlement 3 148

Other operations pending settlement 45 593 53 575

Revaluation of options relating toCapital Seguro operations 4 928 28 085

Others 6 504 1 030

190 374 171 054

Other internal accounts (note 2.6) 11 652

965 190 768 849

At 31 December, 2002 and 2001 the deferred costs caption

ADVERTISING CAMPAIGNS results from the following:

20012002

Balance at beginning of the year 18 603 21 593

Expenses incurred during the year 3 809 10 050

Amortisation recorded during the year (12 885) (13 040)

Balance at end of the year 9 527 18 603


At 31 December, 2002 and 2001 the deferred costs caption

CONTRIBUTIONS TO THE PENSION FUNDS includes the following

balances (note 4.20):

At 31 December, 2002 and 2001 the placements of other

foreign credit institutions include th. euro 391 896 and th. euro

221 596, respectively, relating to placements in the off-shore

branches of the Group Banks.

The term or notice amounts owed to Credit Institutions, by

residual period to maturity, are as follows:

At 31 December, 2002 and 2001 the caption VALUATION

FLUCTUATIONS / PENSION FUNDS corresponds to the actuarial losses

relating to the coverage of the liability for retirement and survivor

pensions, resulting from the differences between the actuarial

and financial assumptions and the actual amounts (by the

amount included in the corridor), in accordance with the

provisions of Bank of Portugal Notice 12 / 2001 of

23 November.

At 31 December, 2002 and 2001 the caption STOCK EXCHANGE

OPERATIONS PENDING SETTLEMENT corresponds to the net value of

the operations on securities recorded from the date of the

transaction to the date of financial settlement established in the

respective regulations (note 4.18).

The caption OTHER OPERATIONS PENDING SETTLEMENT at 31

December, 2002 includes th. euro 14 306 relating to taxes

under dispute, paid in accordance with Decree-Law 248 –

A / 02 of 14 November.

20012002

Repayable on demand

Domestic 31 133 29 839

Foreign 14 615 13 738

45 748 43 577

Term or notice

Deposit securities sold to the Bank of Portugal, with repurchase option

Term deposits of the Bank of Portugal 38 512

0 38 512

Placements of other monetary institutions

Interbank money market 219 000 329 780

Term or notice deposits 278 401 185 078

Other 31 913 20 927

529 314 535 785

Placements of other credit institutions

Domestic

Term or notice deposits 13 851 576

Other 5 9

Foreign

International financial organisations 264 970 234 813

Term or notice deposits 3 211 722 3 772 371

Margins for hedging derivatives 216 283 150 760

Other 1 003 697 879 927

4 710 528 5 038 456

Short selling of securities 1 341 666 1 036 514

6 581 508 6 649 267

6 627 256 6 692 844

20012002

Up to 3 months 5 363 623 4 121 274

From 3 months to 1 year 1 807 713

From 1 to 5 years 525 290 554 779

More than 5 years 325 135 125 130

Undefined 367 460 40 371

6 581 508 6 649 267

4.14. Amounts owed to credit institutions


20012002

Excess coverage of pension funds 93

Increase in the liability resultingfrom early retirements 87 027 40 004

Losses resulting from differences between theactuarial and financial assumptions used and theactual amounts (amount that exceeds the corridor) 65 1 270

Losses from changes in theactuarial assumptions 2 204

Transfer from otherliabilities (debit balances) 1 539

90 835 41 367


4.15. Amounts owed to Customers


At 31 December, 2002 and 2001, the caption AMOUNTS OWED TO

CUSTOMERS includes th. euro 779 956 and th. euro 418 269,

respectively, relating to deposits of investment funds managed

by the BPI Group, as well as deposits of BPI Vida (the company

that processes the capitalisation insurance products sold by the

BPI Group).

The term or notice amounts owed to costumers, including saving

deposits, are made up as follows, by residual period to maturity:

20012002

Savings deposits 868 361 833 304

Other debts

Repayable on demand 4 922 142 4 706 046

Term or notice

Deposits 6 434 065 5 954 955

Loans 11 959 3 382

Other liabilities

Cheques and orders payable 68 641 86 620

Sales operations with repurchaseagreements – securities 441 198

Funds obtained through futures and options 5 853 2 336

Other 19 909 25 275

6 540 427 6 513 766

12 330 930 12 053 116

20012002

Up to 3 months 4 062 898 4 309 802

From 3 months to 1 year 2 538 029 2 578 998

From 1 to 5 years 583 803 430 265

More than 5 years 9 259 5 179

Undefined 214 799 22 826

7 408 788 7 347 070

4.16. Debt securities


20012002

Fixed rate cash bonds

BPI 95 / Zero Coupon 5 544 5 544

BPI 96 – 1st Issue / Zero Coupon 2 032 2 032

BPI 97 – 1st Issue / Zero Coupon 768 768

BPI Fixed yield 2 years 4.00% 3 623

BPI Fixed yield 2 years 4.10% 500 4 808




BPI Fixed yield 3 years 3.50% 1 889 1 236










BPI Increasing fixed yield 3 years 21 539 22 733

BPI Placement 4.1% 46 032

BPI Placement 4.1% – 2nd Issue 70 101

BPI Fixed yield 5 years 4.04% 750

BPI 20/02/2001-2006 4.28% 5 000 5 000



BBPI Cayman EMT 4% 28/05/2005 USD 39 979

BPI Cayman 08/03/2001 – 2007 4.25% 5 000 5 000



BPI Fixed yield 2 years 4.32% 500





Variable rate cash bonds

BFE 9th Issue – B Series 1 702

BBPI Cay USD 20/10/2010 Series 1 19 071

BBPI Cay USD 20/10/2010 Series 2 28 607

BPI Cayman 26/02/2001-2003 100 000 100 000

BBPI Cayman EMT 15/11/2005 15 000

BBPI Cayman EMT 15/11/2005 FUNG 7 500

BPI Cayman 18/03/2002-2005 400 000

BPI Cayman 09/02/2001-2004 400 000 400 000

BPI Cayman 28/07/2000-2003 300 000 300 000

BPI Cayman EMT 30/05/2006 10 000

BPI Cayman 01/03/2001-2006 15 000 15 000

BPI Cayman 03/05/2001-2006 600 000 600 000


20012002

Variable-yield cash bonds1

BPI Capital Seguro 10 Uncommon Values USD / 2000 3 566 5 483

BPI Capital Seguro Biotecnologia USD / 2000 4 796 6 438

BPI Capital Seguro Cinco Mais 2002 19 766

BPI Capital Seguro Comunicações MóveisEUR / 2000 2nd Issue 49 470 48 780

BPI Capital Seguro Comunicações Móveis EUR / 2000 3rd Issue 54 029 53 457

BPI Capital Seguro Comunicações Móveis EUR / 2000 4th Issue 50 813 50 688

BPI Capital Seguro Comunicações Móveis EUR / 2000 49 212 48 506

BPI Capital Seguro Comunicações Móveis USD / 2000 5 406 10 697

BPI Capital Seguro Directo 2001 1 268 1 312

BPI Capital Seguro Euro BPI 2000-2003 2 500 2 500

BPI Capital Seguro Euro Imobiliário 2002-2007 5 860

BPI Capital Seguro Eurostoxx 50 2005 1 490 1 935

BPI Capital Seguro Eurostoxx 50 / 2008 2 500 2 500

BPI Capital Seguro Healthcare 2001-2006 5 203 5 300

BPI Capital Seguro Healthcare 2006 – 2nd Issue 2 498 2 500

BPI Capital Seguro Euro Imobiliário 2002-2007 42 700

BPI Capital Seguro Índices Mundiais 2001 38 880 40 153

BPI Capital Seguro Internet Euro / 99 32 778 32 325

BPI Capital Seguro Internet Euro / 99 – 2nd Issue 14 632 14 753

BPI Capital Seguro Internet USD / 99 3 711 5 395

BPI Capital Seguro PTNC 2004 4 285 4 325

BPI Capital Seguro Quattro 2004 25 047 26 581

BPI Capital Seguro Rendimento Máximo 27.5% 2002-2005 24 250

BPI Capital Seguro Rendimento Máximo 25% 2002-2005 5 583

BPI Capital Seguro Rendimento Máximo 5% 2002 38 640

BPI Capital Seguro Rendimento Euribor 5.75% 2001 37 638 39 669

BBPI CS REVERSE LIBOR USD 2002-07 38 142

BPI Capital Seguro Selecção Europa 2003 – 2nd Issue 27 470 27 492

BPI Capital Seguro Selecção Europa 2003 – 1st Issue 30 605 29 992

BPI Capital Seguro Zona Euro 2006 – 2nd Issue 22 796 24 153

BPI Capital Seguro Zona Euro 2005 2nd Issue 44 547 47 245

BPI Capital Seguro Zona Euro 2007 29 548 30 608




BBPI Cash Bonds INFL Z Euro 2002 / 2012 10 000

BPI Capital Seguro Rendimento Máximo 27.5% 2001-2004 7 659 7 861

BPI Capital Seguro Brasil / 99 1 578 1 826


BPI Capital Seguro Eurostoxx 50 2001-2004 650 1 150

BPI Capital Seguro Multinacionais / 1999 43 841 45 895

BPI Capital Seguro Portugal / 1999 11 998 12 723


BPI Risco Limitado Biotecnologia USD / 2000 13 571

BPI Risco Limitado Sector 10 Uncommon Values USD / 2000 3 051 8 377

20012002

Variable-yield cash bonds (cont.)1

BPI Risco Limitado 10 Uncommon Values USD / 2000 3 390

BPI Risco Limitado Sector Biotecnologia USD / 2000 8 375 8 475

BPI Risco Limitado Sector Comunicações Móveis USD / 2000 2 109

BPI Risco Limitado Comunicações Móveis USD / 2000 20 341 35 065

BPI Risco Limitado Euro PT 2000 – 2nd Issue 1 460 5 000

BPI Risco Limitado Portugal Telecom 2002 9 164

BPI Risco Limitado Eurostoxx 50 2005 2 980 2 980

BPI Risco Limitado Euro Telefonica 2000 4 610 6 002

BPI Risco Limitado Sector Internet USD / 2000 4 520

BPI Risco Limitado Sector Nasdaq-100 USD / 2000 4 520

BPI Risco Limitado Portugal Telecom 2001 6 500 5 000

BPI Risco Limitado PT 2001 1 500

BPI Risco Limitado Portugal Telecom 2002-2004 2 500

BPI Risco Limitado Tecnologia 2001 7 140 7 444

BFB Capital Seguro Europa – 100 / 98 33 750 36 995

BFB Capital Seguro França / 98 16 117 18 123

BFB Capital Seguro Itália / 98 16 563 16 316

BFB Capital Seguro Japão / 98 26 922 25 405

BFB Capital Seguro Portugal / 98 81 063 78 224

BFB Risco Limitado Europa & América / 98 337 1 506

BPI Cayman 18/11/2001-2005 7 500 30 000

BPI Cayman 18/10/2001-2006 63 525 63 525

BPI Risco PT 2000-2002 2 750

BFB Capital Seguro Espanha / 97 4 001

BFE Capital Seguro Alemanha / 97 9 713

BFE Capital Seguro América do Sul / 97 20 284

BFB Risco Limitado Portugal / 97 4 112

BFB Risco Limitado Europa-100 / 97 10 645

BPI Risco Limitado Euro PT 2000 16 905

BPI Euro PT – 1999 – 1st and 2nd Issue 11 488

BPI Capital Seguro Zona Euro 2002 12 577

BPI Capital Seguro Eurostoxx 50 / 2000 2 867

BPI Capital Seguro Empresas Internacionais / 1999 30 044

BPI Capital Seguro Bolsas Mundiais / 1999 42 377

3 541 429 3 121 750

1) The BPI Group has options to hedge the risk resulting from cost variations associatedwith these bonds.

At 31 December, 2002 the conditions of these securities were as follows:


Maturity dateInterest rate

as of 31.12.02 (%)

RemunerationNominal Value

Fixed rate cash bonds

BPI 95 / Zero Coupon 5 544 Difference between the redemption December, 2003value and the issue price (th. euro 2 494)

BPI 96 – 1st Issue / Zero Coupon 2 032 Difference between the redemption April, 2003value and the issue price (th. euro 998)

BPI 97 – 1st Issue / Zero Coupon 768 Difference between the redemption November, 2005value and the issue price (th. euro 499)

BPI Fixed yield – 2 years 4.% (2 issues) 3 698 Fixed rate of 4.0% 4.0 Between March, 2004and April, 2003

BPI Fixed yield – 5 years 4.1% (3 issues) 75 150 Fixed rate of 4.1% 4.1 October, 2004

BPI Fixed yield – 3 years 4.1% (3 issues) 26 058 Fixed rate of 4.1% 4.1 Between February, 2003and September, 2004

BPI Fixed yield – 5 years 4.5% (2 issues) 4 182 Fixed rate of 4.5% 4.5 February, 2005

BPI Fixed yield – 3 years 4.0% (10 issues) 41 553 Fixed rate of 4.0% 4.0 Between March, 2003and August, 2005

BPI Fixed yield – 5 years 4.4% (2 issues) 937 Fixed rate of 4.4% 4.4 March, 2005

BPI Fixed yield – 3 years 4.2% (4 issues) 18 291 Fixed rate of 4.2% 4.2 Between May, 2003and February, 2004

BPI Fixed yield – 3 years 4.25% (17 issues) 87 722 Fixed rate of 4.25% 4.25 Between February and August, 2005

BPI Fixed yield – 2 years 4.1% 500 Fixed rate of 4.1% 4.1 April, 2004

BPI Fixed yield – 3 years 3.6% (2 issues) 40 165 Fixed rate of 3.6% 3.6 October, 2005

BPI Fixed yield – 3 years 4.65% 1 377 Fixed rate of 4.65% 4.65 January, 2003

BPI Fixed yield – 3 years 3.85% (2 issues) 38 762 Fixed rate of 3.85% 3.85 September, 2005

BPI Fixed yield – 3 years 4.4% (2 issues) 13 468 Fixed rate of 4.4% 4.4 Between July, 2003and August, 2003

BPI Fixed yield – 3 years 3.4% (2 issues) 10 894 Fixed rate of 3.4% 3.4 November, 2005

BPI Increasing Fixed yield (8 issues) 23 895 Fixed rate of 4.0% (2001), 4.5% (2002) 5.5 Between September andand 5.5% (2003) December, 2003

BPI Fixed yield – 7 years 4.04% 750 Fixed rate of 4.04% 4.04 October, 2009

BPI 2006 5 000 Fixed rate of 4.28% 4.28 August, 2006

BPI Cayman 2007 5 000 Fixed rate of 4.25% 4.25 August, 2007

BPI Fixed yield – 3 years 3.5% (2 issues) 1 935 Fixed rate of 3.5% 3.5 Between November, 2004and February, 2005

BPI Fixed yield – 3 years 3.1% 751 Fixed rate of 3.1% 3.1 December, 2004

BPI Fixed yield – 3 years 3.25% (3 issues) 6 959 Fixed rate of 3.25% 3.25 Between January, 2005and December, 2005

BPI Fixed yield – 3 years 3.75% 1 730 Fixed rate of 3.75% 3.75 March, 2005

BPI Cayman USD 28/05/02-2005 4% 41 045 Fixed rate of 4% 4.0 May, 2005(USD 43 044 000)

Variable rate cash bonds

BPI Cayman 28/07/2000-2003 300 000 Indexed to the 3 month Euribor rate 3.577 July, 2003

BPI Cayman 09/02/2001-2004 400 000 Indexed to the 3 month Euribor rate 3.564 February, 2004

BPI Cayman 26/02/2001-2003 100 000 Indexed to the 3 month Euribor rate 3.588 June, 2003

BPI Cayman 01/03/2001-2006 15 000 Indexed to the 3 month Euribor rate 3.604 April, 2006

BPI Cayman 03/05/2001-2006 600 000 Indexed to the 3 month Euribor rate 3.61 May, 2006

BPI Cayman EMT 30/05/2006 10 000 Indexed to the 6 month Euribor rate 3.594 May, 2006

BPI Cayman EMT 15/11/2005 22 500 Indexed to the 3 month Euribor rate 4.8 November, 2005

BPI Cayman 18/03/2002-2005 400 000 Indexed to the 3 month Euribor rate 3.092 March, 2005

BPI Cayman USD 20/10/2010 (2 issues) 47 678 Indexed to USD – Libor – BBA 1.62105 October, 2010

(USD 50 000 000)

Variable yield cash bonds

BFB Risco Limitado Europa & América / 98 4 988 Linked to the BPI Europa & América Index. The lower January, 2003and upper limits are -4.99 euro and 34.92 euro, respectively

BFB Capital Seguro Europa & América / 98 2 494 Linked to the BPI Europa & América Index. January, 2003The lower and upper limits are zero and 80%



as of 31.12.02 (%)


Variable yield cash bonds (cont.)

BFB Capital Seguro Europa – 100 / 98 109 736 Linked to the FTSE Eurotop-100 Index. The lower February, 2003and upper limits are zero and 34.92 euro, respectively

BFB Capital Seguro Japão / 98 34 916 Linked to the NIKKEI 225 Index. The lower and March, 2003upper limits are zero and 39.90 euro, respectively

BFB Capital Seguro Portugal / 98 124 699 Linked to the PSI-20 Index. The lower and upper March, 2003limits are zero and 27.43 euro, respectively

BFB Capital Seguro Itália / 98 39 904 Linked to the MIB30 Index. The lower and upper April, 2003limits are zero and 24.94 euro, respectively

BFB Capital Seguro França / 98 50 129 Linked to the CAC 40 Index. The lower and upper May, 2003limits are zero and 24.94 euro, respectively

BPI Capital Seguro Portugal / 1999 15 000 Linked to the PSI-20 Index. The lower April, 2004limit is zero per bond

BPI Capital Seguro Multinacionais / 1999 50 000 Linked to an index composed by a basket of shares June, 2004of multinational companies listed on International Stock Exchanges. The lower limit is zero per bond

BPI Capital Seguro Brasil / 99 7 500 25% of the nominal value on the maturity date or July, 2004zero if there is any non-compliance of conditions by the Federal Republic of Brazil

BPI Capital Seguro Zona Euro 2004 25 000 Linked to the DJ Eurostoxx 50 Price Index. The July, 2004lower limit is zero per bond

BPI Capital Seguro Zona Euro 2007 39 500 Linked to the DJ Eurostoxx 50 Price Index. The August, 2007lower limit is 0.16 euro per bond

BPI Capital Seguro Internet USD / 99 24 793 Linked to the DJ Internet Composite Index. The October, 2004(USD 26 000 000) lower limit is zero per bond

BPI Capital Seguro Internet Euro / 99 35 000 Linked to the DJ Internet Composite Index. The November, 2004lower limit is zero per bond

BPI Capital Seguro Internet Euro / 99 15 000 Linked to the DJ Internet Composite Index. The November, 2004– 2nd Issue lower limit is zero per bond

BPI Risco Limitado Comunicações Móveis 31 229 Linked to the BPI Comunicações Móveis Index. The January, 2005USD / 2000 (USD 32 750 000) lower limit is USD -0.1 per bond

BPI Capital Seguro Comunicações Móveis 12 635 Linked to the BPI Comunicações Móveis Index. The January, 2005USD / 2000 (USD 13 250 000) lower limit is zero per bond

BPI Capital Seguro Comunicações Móveis 50 250 Linked to the BPI Comunicações Móveis Index. The February, 2005EUR / 2000 lower limit is zero per bond

BPI Capital Seguro Comunicações Móveis 50 750 Linked to the BPI Comunicações Móveis Index (2nd Issue). March, 2005EUR / 2000 – 2nd Issue The lower limit is zero per bond

BPI Risco Limitado Sector Nasdaq-100 3 814 Linked to the Nasdaq-100 Index. The lower limit is March, 2005USD / 2000 (USD 4 000 000) USD -0.1 per bond

BPI Risco Limitado Sector Comunicações 3 814 Linked to the BPI Comunicações Móveis Index. The March, 2003Móveis USD / 2000 (USD 4 000 000) lower limit is USD -0.1 per bond

BPI Risco Limitado Sector Internet 3 814 Linked to the Dow Jones Internet Composite Index. March, 2005USD / 2000 (USD 4 000 000) The lower limit is USD -0.1 per bond

BPI Risco Limitado Sector 10 Uncommon 2 861 Linked to the 10 Uncommon Values Index. The March, 2005Values USD / 2000 (USD 3 000 000) lower limit is USD -0.1 per bond

BPI Risco Limitado Sector Biotecnologia 7 152 Linked to the Amex Biotechnology Index. The lower March, 2005USD / 2000 (USD 7 500 000) limit is USD -0.1 per bond

BPI Capital Seguro Comunicações Móveis 55 200 Linked to the BPI Comunicações Móveis Index (3rd March, 2005EUR / 2000 – 3rd Issue Issue). The lower limit is zero per bond

BPI Capital Seguro Biotecnologia 7 724 Linked to the Amex Biotechnology Index. The lower March, 2005USD / 2000 (USD 8 100 000) limit is zero per bond

BPI Risco Limitado Biotecnologia 21 646 Linked to the Amex Biotechnology Index. The lower March, 2005USD / 2000 (USD 22 700 000) limit is USD -0.1 per bond

BPI Risco Limitado 10 Uncommon Values 8 487 Linked to the 10 Uncommon Values Index. The April, 2005USD / 2000 (USD 8 900 000) lower limit is USD -0.1 per bond

BPI Capital Seguro Comunicações Móveis 51 250 Linked to the BPI Comunicações Móveis Index (4th April, 2005EUR / 2000 – 4th Issue Issue). The lower limit is zero per bond

BPI Capital Seguro 10 Uncommon Values 5 840 Linked to the 10 Uncommon Values Index. The April, 2005USD / 2000 (USD 6 125 000) lower limit is zero per bond

BPI Capital Seguro Zona Euro 2005 50 000 Linked to the Dow Jones Eurostoxx 50 Price Index. June, 2005– 2nd Issue The lower limit is zero per bond



as of 31.12.02 (%)



BPI Capital Seguro Eurostoxx 50 / 2008 2 500 Linked to the Dow Jones Eurostoxx 50 Price Index. July, 2008The lower limit is 0.05 euro per bond

BPI Risco Limitado Euro Telefonica 2000 10 520 Linked to the valuation of the Telefonica shares on July, 2003the Madrid Stock Exchange. The lower and upper limits are -0.73 euro and 0.27 euro, per bond

BPI Risco Limitado Eurostoxx 50 2005 3 000 Linked to the Dow Jones Eurostoxx 50 Price Index. August, 2005The lower limit is -0.1 euro per bond

BPI Capital Seguro Eurostoxx 50 2005 2 125 Linked to the Dow Jones Eurostoxx 50 Price Index. August, 2005The lower limit is zero per bond

BPI Capital Seguro Selecção Europa 2003 31 154 Linked to the 10 Uncommon Values Index. The August, 2003lower limit is zero per bond

BPI Capital Seguro Selecção Europa 2003 28 085 Linked to the 10 Uncommon Values Index. The September, 2003– 2nd Issue lower limit is zero per bond

BPI Capital Seguro Zona Euro 2003 50 000 Linked to the Dow Jones Eurostoxx 50 Price Index. October, 2003The lower limit is 9 euro per bond

BPI Capital Seguro Euro BPI 2000-2003 2 500 Linked to the valuation of Banco BPI shares on the Euronext. December, 2003The lower and upper limits are zero and 16.5 per bond

BPI Risco Limitado Euro PT 2000 5 000 Linked to the valuation of Portugal Telecom shares on the Euronext. January, 2003– 2nd Issue The lower and upper limits are -80 euro and 20 euro, per bond

BPI Capital Seguro Eurostoxx 50 / 2003 7 500 Linked to the Dow Jones Eurostoxx 50 Price Index. The lower April, 2003and upper limits are zero and 16 euro per bond

BPI Capital Seguro Eurostoxx 50 2001-2007 10 000 Linked to the Dow Jones Eurostoxx 50 Price Index. April, 2007The lower limit is zero per bond

BPI Capital Seguro Índices Mundiais 2001 50 000 Linked to the Nikkei 225, FTSE 100, Dow Jones March, 2006Eurostoxx 50, Nasdaq-100 and S&P 500 Price Index. The lower limit is zero per bond

BPI Capital Seguro Rendimento Euribor 40 000 Indexed to the 1 year Euribor rate March, 20045.75% 2001

BPI Risco Limitado Portugal Telecom 2001 5 000 Linked to the valuation of Portugal Telecom shares March, 2003and to the three month Euribor rate

BPI Risco Limitado Tecnologia 2001 7 450 Linked to the Nasdaq-100 Index. The lower and April, 2003upper limits are -70 and 20 euro per bond

BPI Risco Limitado PT 2001 6 500 Linked to the valuation of Portugal Telecom shares. April, 2003The lower limit is 20 euro per bond

BPI Capital Seguro Zona Euro 2006 25 000 Linked to the Dow Jones Eurostoxx 50 Price Index. May, 2006The lower and upper limits are -80 and 20 euro per bond.

BPI Capital Seguro PTNC 2004 4 325 Linked to the valuation of Portugal Telecom, May, 2004Telefonica, Nokia and Cisco shares. The lower and upper limits are 9 and 22 euro per bond

BPI Capital Seguro Zona Euro 2006 – 2nd Issue 25 000 Linked to the Dow Jones Eurostoxx 50 Price Index. June, 2006The lower limit is 10 euro per bond

BPI Capital Seguro Quattro 2004 27 100 Linked to the valuation of Portugal Telecom, June, 2004Telefonica, Nokia and Cisco shares. The lower and upper limits are 6 and 25 euro per bond

BPI Capital Seguro Rendimento Máximo 8 000 Linked to the valuation of Portugal Telecom, July, 200427.5% 2001-2004 Telefonica, Axa and Bayer shares. The lower and

upper limits are 6 and 27.5 euro per bond

BPI Capital Seguro Directo 2001 2 500 Linked to the valuation of Portugal Telecom, December, 2004Telefonica, Nokia and Cisco shares. The lower and upper limits are 6 and 20 euro per bond

BPI Capital Seguro Healthcare 2001-2006 5 300 Linked to the Dow Jones Healthcare Price Index. December, 2006The lower limit is zero per bond

BPI Capital Seguro Healthcare 2006 – 2nd Issue 2 500 Linked to the Dow Jones Europe Stoxx Healthcare December, 2006Price Index. The lower limit is zero per bond

BPI Capital Seguro Eurostoxx 50 2001-2004 1 150 Linked to the Dow Jones Eurostoxx 50 Price Index. December, 2004The lower limit is 3 euro per bond

BPI Cayman 2006 63 525 Linked to a basket of indexes October, 2006

BPI Cayman 2005 7 500 Linked to a basket of Dow Jones indexes November, 2005

BPI Cayman 2007 38 142 Fixed rate of 5.4% until 25 November, 2003 and November, 2007(USD 40 000 000) thereafter linked to the 12 month USD Libor rate



as of 31.12.02 (%)



BPI Capital Seguro Imobiliário 2002 50 000 Linked to the European Public Real Estate Index. June, 2007The lower limit is 10 euro per bond

BPI Capital Seguro Euro Imobiliário 6 000 Linked to the European Public Real Estate Index. May, 20072002-2007 The lower limit is 8 euro per bond

BPI Capital Seguro Cinco Mais 2002 25 000 Linked to the valuation of Endesa, JP Morgan June, 2007Chase, Nestlé, Portugal Telecom and Royal Dutch Petroleum shares. The lower limit is zeroper bond.

BPI Risco Limitado Portugal Telecom 2002 2 500 Linked to the valuation of Portugal Telecom shares March, 2004

BPI Risco Limitado Euro Portugal Telecom 9 950 Linked to the valuation of Portugal Telecom shares. March, 20042002-2004 The upper limit is 17 euro per bond

BPI Capital Seguro Rendimento Máximo 5% 2002 39 600 Indexed to the 6 month USD Libor rate March, 2005

BPI Capital Seguro Rendimento Máximo 25% 5 750 Linked to the valuation of Acesa, Aegon NV, Bayer March, 20052002-2005 and British American Tobacco shares

BPI Inflação Zona Euro 10 000 Linked to the HICP Index (Euro harmonized October, 2012consumer index price, excluding tobacco)

BPI Capital Seguro Rendimento Máximo 25 000 Linked to the valuation of Intel, AT&T, Hewlett- May, 200527.5% 2002-2005 -Packard and Deutsche Telekom shares

4.17. Other liabilities


At 31 December, 2002 and 2001 the caption OTHER CREDITORS

includes th. euro 35 894 and th. euro 39 707, respectively,

relating to collections from Customers of Banco de Fomento,

S.A.R.L. (Angola) and of Banco BPI’s Luanda Branch, which are

awaiting authorisation from the National Bank of Angola for the

issue of the payment order.

20012002

Creditors

Suppliers 8 840 26 194

Creditors for factoring contracts 11 544 14 496

Other creditors 145 579 102 384

Other liabilities

State administrative sector

Income tax 7 713 38 983

Taxes withheld at source 12 709 13 468

Other 8 056 3 450

Contributions to the pension funds 48 3 230

Others 3 608 4 485

198 097 206 690

4.18. Accruals, deferrals and others (liabilities)


20012002

Accrued expenses

On funds from credit institutions 35 208 57 462

On deposits 61 889 61 163

On debt securities 41 072 36 498

Administrative costs

Variable personnel costs 27 314 27 141

Other 41 820 42 963

On foreign-exchange andinterest rate swaps 207 914 132 595

Revaluation of Capital Seguro and Risco Limitado bonds 86 223 21 820

Other 9 312 19 177

510 752 398 819

Deferred income

On securities issued at a discount 7 547 18 278

Pension funds 655 758

Premiums on options sold relatingto Capital Seguro operations 1 739 5 578

Swaps operations 16 886 20 614

Other off-balance sheet operations 2 698 2 609

Other 14 376 9 450

43 901 57 287

Value fluctuations 13 10

Other accounts

Stock exchange operations pending settlement 152 21 461

Operations pending settlement 57 889 63 528

Revaluation of options relating to Capital Seguro operations 11 820 10 055

Corporate income tax – payments on account 7 011 733

Other 10 602 70 277

87 474 166 054

Other internal accounts (Nota 2.6) 61 526

703 666 622 170


The caption OTHER DEFERRED INCOME at 31 December, 2002,

includes th. euro 6 309 relating to the purchase of Fundo EFTA.

This amount results from credits owned by the Fund that were

bought by BPI at below their nominal value.

At 31 December, 2002 and 2001 the caption SECURITIES

OPERATIONS PENDING SETTLEMENT corresponds to the net value of

the operations on securities recorded from the date of the

transaction to the date of financial settlement established in the

respective regulations (note 4.13).

At 31 December, 2001 the caption OTHER ACCOUNTS includes

th. euro 63 104 relating to the gain on the sale of 30% of the

share capital of IMC – Investimentos, Média e Conteúdos, SGPS,

S.A (IMC). This gain has been deferred as the BPI Group has

acquired the investments previously held by IMC in Impresa –

Sociedade Gestora de Participações Sociais, S.A. (Impresa) and

SIC – Sociedade Independente de Comunicação, S.A. (SIC). The

amounts to be considered in determining the results of an

eventual sale of the investments in Impresa and SIC are th. euro

14 388 and th. euro 48 716, respectively (note 3.2). At 31

December, 2002 these amounts have been deducted from the

cost of the investments in Impresa and SIC (note 3.2).

4.19. Provisions for sundry risks and fund for general banking

risks

These captions are made up as follows:

This liability is being expensed through a plan of uniform annual

instalments at a rate of 7% over the remaining service lives of the

individuals covered. At 31 December, 2002 and 2001 the

caption PROVISIONS FOR RETIREMENT BENEFITS includes th. euro

8 786 and th. euro 5 480, respectively, to cover this liability.

At 31 December, 2002 and 2001 the caption PROVISIONS FOR

RETIREMENT BENEFITS also includes th. euro 5 755 and th. euro

3 962, respectively, relating to the past service liability of

Employees of the Madrid Branch of Banco BPI, the Employees of

Banco Fomento, S.A.R.L. (Mozambique) and the Employees of

Banco Fomento S.A.R.L. (Angola).

The movement in the provisions during 2002 and 2001 is shown

in note 4.27.

4.20. Liabilities for retirement and survivor pensions

The past service liability relating to pensioners and current

Employees that are, or have been, Employees of BPI Group

companies1, and which is covered by Pension Funds, is

calculated in accordance with the requirements of Bank of

Portugal Notice 12 / 2001 of 23 November, with the changes

introduced by Bank of Portugal Notice 7 / 2002 of 31 December.

BPI Pensões is the entity responsible for the actuarial

calculations necessary to determine the amount of the retirement

and survivor pension liability, as well as to manage the respective

Pension Funds.

The "Projected Unit Credit" method was used to calculate the

normal cost and the past service liability due to age and the

Single Successive Premiums are used for the calculation of the

cost of the incapacity and survivor benefits.

The members of the executive board of Banco BPI, S.A., as well

as the board members of BPI Investimentos are entitled to

retirement and survivor pensions. The present value of the past

service liability of the pension plan at 31 December, 2002 and

2001 amounts to th. euro 12 208 and th. euro 10 478,

respectively.

20012002

Provisions for retirement benefits 14 541 9 442

Other provisions (note 2.10)

For general credit risks 188 397 180 896

For other risks 12 042 54 680

200 439 235 576

Fund for general banking risks (note 2.11) 5 059 6 658

220 039 251 676

1) Companies consolidated by full consolidation method (At 31 December, 2001: BPI SGPS, BPI Investimentos, Banco BPI, BPI Dealer, BPI Factor, BPI Fundos and BPI Leasing; at 31December, 2002: Banco BPI, BPI Investimentos, BPI Fundos and Inter-Risco).


At 31 December, 2002 and 2001, the pensioners and

Employees who are beneficiaries of the Pension Funds are as

follows:

The main actuarial and financial assumptions used to calculate

the liability for pensions are as follows:

At 31 December, 2002 and 2001 the amount of the retirement

and survivor pension liabilities was as follows:

20012002

Retirement pensioners 5 300 4 866

Survivor pensioners 865 836

Current Employees 6 786 7 305

Former Employees (article 137.ª A and 140.ª) 970 615

13 921 13 622

20012002

A. Past service liability

Liability for pensions under payment 1 134 265 1 014 257

Of which: [increase in the liabilityresulting from early retirements during the year] [57 387] [53 984]

Past service liability ofcurrent Employees 315 445 335 538

1 449 710 1 349 795

B. Past service liability to be recognised onthe balance sheet until the year 2021 87 880 90 077

C. Past service liability recognised onthe balance sheet (A-B) 1 361 830 1 259 718

D. Future service liability 306 601 314 591

E. Total past and future service liability (A+D) 1 756 311 1 664 386

1) The increase in the liability resulting from not using the incapacity decreases is notincluded.

20012002

A. Past service liability recognised in the balance sheet1 1 361 830 1 259 718

B. Net assets of the pension funds

Opening balance 1 256 581 1 162 342

Contributions of BPI Group companies

Related to current costs 19 566 17 822

Extraordinary 121 008 122 554

Other 0 39

Contributions of Employees 1 477 1 459

Net income of the funds 41 890 20 584

Pensions paid out of the funds (77 196) (68 219)

1 363 326 1 256 581

C. Contributions to be transferred tothe pension funds (note 4.17) 48 3 230

D. Total coverage (B+C) 1 363 374 1 259 811

E. Excess coverage (D-A) 1 544 93

F. Coverage degree (D/A) 100% 100%

Since 31 December, 2001, in accordance with the procedures

established in Bank of Portugal Notice 12 / 2001, incapacity

decreases are not used in the calculation of the past service

liability for current Employees. This change resulted in an

increase in responsibilities, as of that date, of th. euro 90 077

which, following Bank of Portugal agreement, will be recognised

in the balance sheet and funded in accordance with a plan of

equal annual instalments over a maximum period of 20 years as

from the year 2002 (note 4.28).

At 31 December, 2002 and 2001 the past service liability was

funded as follows:

In 2002, the contributions to the Pension Funds were made in

cash. In 2001 the contributions to the Pension Funds were

made in cash (th. euro 124 749) and through the transfer of

bonds (th. euro 17 125).

At 31 December, 2002 and 2001 the investments of Pension

Funds included th. euro 86 645 and th. euro 86 556,

respectively, of properties rented to BPI Group companies.

Used

20012002

Assumptions

Mortality Table TV – 73 / 77 - -

Incapacity Table EKV 80 - -

Discount Rate 7.0% - -

Pension Fund Income Rate 7.0% 3.1% 1.8%

Pensionable salary growth rate 4.0% 3.5% 5.25%

Pension growth rate 3.0% 3.2% 3.9%

Personnel turnover rate 0% - -

Decreases By mortality - -


At 31 December, 2002 and 2001, the past service liability

(excluding the increased liability resulting from non utilization of

incapacity decreases) not yet expensed is as follows:

At 31 December, 2002 and 2001, the increase in the liability

resulting from not using the incapacity decreases amounted to

th. euro 87 880 and th. euro 90 077, respectively.

At 30 June, 2001, the BPI Group amortised, by charge to

reserves, the total amount of the deferred costs relating to the

coverage of the increased liability due to early retirements

occurred in 1999 and 2000, and not yet amortised on 31

December, 2000, as well as the increased liability due to early

retirements made during the first half of 2001 (th. euro

80 402).

At 31 December, 2002 and 2001, the consolidated statements

of income reflect costs relating to the pensions liability as shown

below:

20012002

A. Increased liability due toearly retirements 87 027 40 004

B. Actuarial losses (gains) related tochanges in actuarial assumptions

B1. Recognised as deferred costs 2 204

B2. Recognised as deferred income (655) (655)

C. Actuarial losses (gains) related to differencesbetween actuarial and financial assumptionsand actual values

C1. Recognised as valuation fluctuations 120 390 71 179

C2. Recognised as deferred costs 65 1 270

C3. Recognised as deferred income (103)

D. Liability not yet expensed (A+B+C2+C3) 88 641 40 516

4.21. Subordinated debt


1) In 2001, this caption corresponds to amortisation of the increased liability due to earlyretirements occurred in the second half of 2001.

20012002

Personnel costs

Current costs 19 566 17 822

Extraordinary losses (gains)

Increased liability resulting fromnon using of incapacity decreases 8 503

Amortisation of early retirement costs1 10 364 4 512

Amortisation of actuarial losses (gains) related to:

– Differences between actuarial and financialassumptions and actual values 130

– Changes on actuarial assumptions 169 (73)

19 036 4 569

20012002

Participating bonds

BFE 87 participating bonds – 1st Issue 8 673 9 397

BFE 87 participating bonds – 2nd Issue 7 740 8 317

Subordinated loans

BPI 94 subordinated cash bonds 49 880 49 880

BPI 96 subordinated cash bonds 74 820 74 820

BPI 96 subordinated perpetual bonds 74 820 74 820

BPI 96 subordinated perpetual bonds in Yens 60 294 64 549

BFB 1997 / 2007 subordinated cash bonds 74 820 74 820

BBI / 92 subordinated cash bonds 24 697 24 697

BPI 2001 "Rendimento Mais" subordinated cash bonds 99 932 99 797

BPI 2001 / 2011 subordinated cash bonds 150 000 150 000

625 676 631 097


At 31 December, 2002 these securities had the following characteristics:


as of 31.12.02(%)

Interest rateNominal Value

Participating bonds

BFE 87 participating bonds – 1st Issue 14 209 Linked to the 1 year Euribor rate and to Banco BPI's profits

BFE 87 participating bonds – 2nd Issue 13 872 Linked to the 1 year Euribor rate and to Banco BPI's profits

Subordinated loans

BPI 94 subordinated cash bonds 49 880 Linked to the 6 month Euribor rate 3.909 October, 2004

BPI 96 subordinated cash bonds 74 820 Linked to the 6 month Euribor rate 3.084 June, 2006

BPI 96 subordinated perpetual bonds 74 820 Linked to the 3 month Euribor rate 3.683

BPI 96 subordinated 60 294 4% until November 2011 and thereafter indexed to the rate 4.0perpetual bonds in Yens (7 500 millions JPY) of the 5 year securities issued by the Japanese government

BFB 1997 / 2007 subordinated 74 820 Linked to the 3 month Euribor rate 3.4625 November, 2007cash bonds

BBI / 92 subordinated cash bonds 24 940 Indexed to the TBA rate, an interest rate calculated 3.0625 June, 2003and published by the Bank of Portugal

BPI 2001 "Rendimento Mais" 100 000 Linked to the 6 month Euribor rate 4.405 July, 2011subordinated cash bonds

BPI 2001 / 2011 subordinated 150 000 5% in first year, 5.1% in the second year, 5.2% in the third 5.1 July, 2011cash bonds year, 5.3% in the fourth year, 5.4% in the fifth year, 5.5% in

the sixth year, 5.85% in the seventh year, 6.2% in the eighth year, 6.55% in the ninth year and 7% in the tenth year

The Bank of Portugal considers that the funds resulting from these liabilities are equivalent, for purposes of computing the solvency

ratio, to own funds subject to a program of gradual reduction of the amounts during the five years preceding their repayment.

4.22. Minority interests


Income statement

2002 2001

Balance sheet

2002 2001

Minority shareholders of:

BPI Capital Finance Ltd. 248 290 300 007 9 893 17 478

CrediUniverso – Serviços de Marketing, S.A. 1 031 848 201 116

Inter-Risco – Sociedade de Capital de Risco, S.A. 3 784 4 060 (280) (337)

BPI (Suisse), S.A. 1 (1)

Solo – Investimentos em Comunicação, S.A.1 (11)

253 106 304 915 9 802 17 257

At 31 December, 2002 minority interests in BPI Capital Finance

Ltd. includes th. euro 238 390 corresponding to the value in

euro of 6 000 000 Series A preference shares and 4 000 000

Series B preference shares. Both the A and B Series shares carry

no voting rights, have a nominal value of 25 US Dollars each

and were issued by that subsidiary of Banco BPI in December

1996.

Dividend payments and redemption of the preference shares are

guaranteed by Banco BPI.

The A Series preference shares entitle holders to receive a non-

-cumulative preference cash dividend calculated at a rate equal

to the three month US Dollar London Interbank Offered Rate

("Libor"), plus a spread of 1.95 percentage points on the

nominal value. This dividend is payable quarterly on 18 March,

18 June, 18 September and 18 December. The B Series

preference shares entitle the holders to receive a non-cumulative

dividend computed by application to their nominal value of an

annual rate equivalent to the three month USD Libor rate, plus a

spread of 1.15 percentage points (up to 19 December, 2001)

1) Results acquired from minority shareholders.

and 2.65 percentage points (after 19 December, 2001) of their

nominal value. This dividend is payable on a quarterly basis on

19 March, 19 June, 19 September and 19 December.

During 2002 dividends paid in advance by BPI Capital Finance

to these preference shareholders amounted to th. euro 9 568.

The A Series preference shares are redeemable in whole or in

part at their nominal value, at the option of BPI Capital Finance,

Ltd. on any dividend payment date as from December 2003,

subject to prior consent of the Bank of Portugal and Banco BPI.

The B Series preference shares are redeemable in whole or in

part at their nominal value at the option of BPI Capital Finance

Ltd. subject to prior consent of the Bank of Portugal and

Banco BPI.

These shares are subordinated to all liabilities of Banco BPI and

"pari passu" to any other preference shares that may me issued

by the Group in the future.

4.23. Subscribed share capital

By public deed dated 3 June, 2002, Banco BPI' share capital

was increased from th. euro 645 625 to th. euro 760 000 by

the issuance of 114 375 000 nominal shares of 1 euro each for

public subscription restricted to the shareholders. The shares

were paid at a subscription price of 1.75 euro each,

corresponding to a share premium of 0.75 euro per share

(note 4.24).

The Shareholders' General Meeting held on 3 April, 2002

empowered Banco BPI' Board of Directors to do the following

during a period of 18 months:

a) a) buy up to 10% of Banco BPI’s own shares on organised

markets at prices not exceeding 110% of the cumulative

weighted average of the daily weighted average prices of

Banco BPI' shares on the 20 stock exchange sessions

preceding the date of purchase, and not lower than 1 euro;

b) b) sell Banco BPI shares and share options to Employees and

Directors of Banco BPI and subsidiaries, under the terms and

conditions established in the regulations for the Variable

Remuneration Programme (RVA);

c) sell to third parties at a minimum price of 10% below the

weighted average prices of Banco BPI' shares on the 20 stock

exchange sessions preceding the date of sale. Those sales

should be carried out on the stock exchange, except if related

to ADR’s (American Depositary Receipts) placing in the

United States of America.

At 31 December, 2002 Banco BPI' share capital was made up

of 760 000 000 fully paid shares with a nominal value of 1 euro

each.

4.24. Share premium account

From 31 December, 2000 to 31 December, 2002 the movement

in this caption was as follows:

In accordance with Decree 408 / 99, of 4 June, published in the

Diário da República – 1st B Series, 129, the share premium

account may not be distributed and may not be used for the

acquisition of own shares.

4.25. Reserves


In accordance with Article 97 of the General Regime for Credit

Institutions and Financial Companies, approved by Decree-Law

298 / 91 of 31 December and changed by Decree-Law 201 /

2002 of 25 September, Banco BPI must appropriate at least

10% of its net income each year to a legal reserve until the

amount of such reserve equals the greater of the amount of

share capital or the sum of the free reserves plus retained

earnings.

The merger reserves at 31 December, 2002 include the effect of

the merger of Banco BPI, BPI Factor, BPI Leasing, Estratégia,

Dixit and BPI Ventures into BPI SGPS and the spin-off of part of

the net assets of BPI Investimentos into BPI SGPS.

Subsequently, BPI SGPS changed its name to Banco BPI and its

corporate purpose to the banking business. The merger reserves

at 31 December, 2001 resulted from the merger of BPI Capital,

BPI Participações and BPI Private Equity into BPI SGPS.


Share premium account as of 31 December, 2000 201 052

Capital increase in June, 2002(by public deed dated 3 June, 2002)Share premium on shares issued (note 4.23) 85 781

Share premium account as of 31 December, 2002 286 833

20012002

Legal reserve 21 416 19 201

Free reserves 45 457 81 543

Merger reserves 7 360 156 256

74 233 257 000

Consolidation reserves (92 260) (328 273)

(18 027) (71 273)


At 31 December, 2002 and 2001 the share premium account

and legal reserves of the subsidiaries consolidated by the full

consolidation method which, under applicable regulation may

not be distributed, amount to th. euro 128 789 and th. euro

291 833, respectively. These balances, weighted by Banco BPI’s

effective holding in the subsidiaries, amount to th. euro 41 448

and th. euro 208 222, respectively, and are included in the

caption CONSOLIDATION RESERVES.

At 31 December, 2002 and 2001 the revaluation reserves of the

subsidiaries consolidated by the full consolidation method

amounted th. euro 1 383 and th. euro 21 550, respectively.

These reserves are included in the caption CONSOLIDATION

RESERVES.

The caption CONSOLIDATION RESERVES reflects the difference

between the amount corresponding to Banco BPI’s effective

participation in the equity of the associated and subsidiary

companies and the cost of the investments, after making the

adjustments considered necessary.

From 31 December, 2000 to 31 December, 2002 the movement

in this caption was as follows:

Reserves as of 31 December, 2000 (69 042)

Consolidated net profit for 2000 152 355

Dividends paid in 2001 (58 097)

Goodwill on the acquisition of a 8.4% participation in Viacer (15 298)

Goodwill on the acquisition of a 20.1% participation in Douro SGPS (2 798)

Badwill on the acquisition of a 17.0% participation in Banc Post 3 368

Amortisation of early retirements (80 402)

Changes in the revaluation reserves of the insurance companies 33

Results' distribution to the Board of Directors (1 201)

Others (191)


Consolidated net profit for 2001 133 283

Dividends paid in 2002 (57 875)

Provisions for equity investments (Notice 4 / 2002) (19 000)

Changes in the revaluation reserves of the insurance companies (3 123)

Results' distribution to the Board of Directors (50)

Other 11


4.26. Goodwill

Goodwill on the acquisition by BPI Ventures of an 8%

participation in the share capital of Viacer during 2001 was

determined as follows:

Increase in shareholders' equity of Viacer 42 579

Shareholders' equity acquired byBPI Ventures (8.4%) 10 183

Cost of the investment acquired by BPI Ventures (25 481)

Goodwill on Viacer (15 298)

Shareholders' equity of Douro SGPS 3 961

Shareholders' equity of Douro SGPS acquired byby Banco BPI (18.8%) 794

Cost of the investment acquired by Banco BPI (3 592)

Goodwill on Douro SGPS (2 798)

Goodwill on the acquisition by Banco BPI of a 20% participation

in the share capital of Douro SGPS in 2001 was determined as

follows:

Shareholders' equity of Banc Post 87 815

Shareholders' equity of Banc Post acquiredby BPI Investmentos (17.0%) 14 928

Cost of the investment acquired by BPI Investimentos (11 560)

Badwill on Banc Post 3 368

Badwill on the acquisition by BPI Investimentos of a 17%

participation in the share capital of Banc Post was determined

as follows:


4.27. Provisions

The movement in the Group's provisions during 2002 was as follows:

The reversal in the caption PROVISIONS FOR COUNTRY RISK – OTHER

PLACEMENTS at 31 December, 2002 corresponds to the reversal of

a provision to cover the transfer risk of the shareholders’ equity

of the Luanda Branch of Banco BPI. The reversal is due to the

fact that, in the transformation of Banco BPI’s Luanda Branch

into an Angolan bank, Banco BPI converted part of the net

assets transferred into a credit over the new bank, which is

guaranteed by a deposit in euros.

The amounts in the currency fluctuations and others column at

31 December, 2002 for the captions PROVISIONS FOR UNREALISED

LOSSES ON ASSOCIATED COMPANIES and PROVISIONS FOR UNREALISED

LOSSES ON OTHER FINANCIAL ASSETS include th. euro 19 000 relating

to provisions recorded by charge against reserves, under the

terms established by Bank of Portugal Notice 4 / 2002 (notes

2.5 and 4.25). As explained in note 2.4, in accordance with the

transitory regime allowed by the Notice, that amount will be

supplemented in 2003 by additional provisions of th. euro

57 000, calculated based on the average daily market prices

during the second half of 2002, to be recorded by charge

against reserves.

At 31 December, 2002 currency fluctuations and others

includes th. euro 18 492 relating to the acquisition of Fundo

EFTA’s credits.

Balancesat

31-12-02

Currencyfluctuationsand others

ReversalsWrite offsTransfersIncreasesBalances at

31-12-01

Provisions for doubtful debts

For loans and advances to Customers (note 4.4) 4 403 7 319 (562) (6 192) 16 415 21 383

For debtors and other placements (note 4.12) 21 34 55

Provisions for credit and interest in arrears

For loans and advances to credit institutions (note 4.3) 118 928 (322) (975) (17 841) 99 790

For loans and advances to Customers (note 4.4) 91 756 65 769 262 (28 464) (8 327) (919) 120 077

For securities (note 4.5) 439 217 (297) (9) (9) 341

Provisions for country risk

For loans and advances to credit institutions (note 4.3) 27 5 (4) 28

For loans and advances to Customers (note 4.4) 2 715 50 (1 623) 1 142

For securities (note 4.5) 409 409

For other placements (note 4.12) 27 821 (27 821) 0

Provisions for unrealised losses on bondsand other fixed income securities (note 4.5) 3 622 2 251 (1) (689) 1 5 184

Provisions for unrealised losses on sharesand other variable-yield securities (note 4.6) 16 147 17 516 44 139 (782) (1 986) (28) 75 006

Provisions for unrealised losses on associated companies 938 (258) 502 1 182

Provisions for unrealised losses on

Other investments (note 4.9) 6 468 45 (22) (1 847) 19 228 23 872

Other financial assets (note 4.12) 2 626 4 187 (167) 6 646

Provisions for property received as settlement of defaulting loans (note 4.12) 6 872 536 (38) (132) 7 238

Provisions for retirement and survivor benefits (note 4.19) 9 442 4 546 553 14 541

Provisions for general credit risks (note 4.19) 180 896 19 280 299 (11 732) (346) 188 397

Provisions for other risks (note 4.19) 54 680 2 908 (44 138) (178) (1 230) 12 042

Fund for general banking risks (note 4.19) 6 658 6 063 (7 552) (50) (60) 5 059

534 868 130 726 0 (37 914) (62 617) 17 329 582 392


The movement in the Group's provisions during 2001 was as follows:

The provisions used during 2002 and 2001 for loans and

advances to Customers and for securities correspond to write-offs

in these periods.

At 31 December, 2001 reversals in the caption PROVISIONS FOR

OTHER RISKS include th. euro 12 141 corresponding to the

reversal of part of the provision for deferred tax liabilities on

unrealised gains on derivative operations, which are payable in

the year the operations are settled (notes 2.10).

Balancesat

31-12-02

Currencyfluctuationsand others

ReversalsWrite offsTransfersIncreasesBalances at

31-12-01

Provisions for doubtful debts

For loans and advances to Customers (note 4.4) 2 271 2 362 (86) (144) 4 403

For debtors and other placements (note 4.12) 947 (926) 21

Provisions for credit and interest in arrears

For loans and advances to credit institutions (note 4.3) 113 130 306 5 492 118 928

For loans and advances to Customers (note 4.4) 96 057 18 479 437 (19 692) (1 473) (2 052) 91 756

For securities (note 4.5) 1 198 31 (790) 439

Provisions for country risk

For loans and advances to credit institutions (note 4.3) 21 6 27

For loans and advances to Customers (note 4.4) 4 769 (2 054) 2 715

For securities (note 4.5) 409 409

For other placements (note 4.12) 27 821 27 821

Provisions for unrealised losses on bondsand other fixed income securities (note 4.5) 3 370 818 (1) (565) 3 622

Provisions for unrealised losses on sharesand other variable-yield securities (note 4.6) 14 231 9 074 (444) (2 750) (3 972) 8 16 147

Provisions for unrealised losses on associated companies 567 371 938

Provisions for unrealised losses on

Other investments (note 4.9) 3 974 3 946 902 (2 361) 7 6 468

Other financial assets (note 4.12) 1 951 1 078 (458) 55 2 626

Provisions for property received as settlement of defaulting loans (note 4.12) 9 744 15 (58) (2 829) 6 872

Provisions for retirement and survivor benefits (note 4.19) 5 886 3 753 (197) 9 442

Provisions for general credit risks (note 4.19) 160 579 24 196 (3 134) (745) 180 896

Provisions for other risks (note 4.19) 22 194 46 623 (653) (13 484) 54 680

Fund for general banking risks (note 4.19) 5 679 4 050 (351) (644) (2 008) (68) 6 658

474 798 115 108 0 (26 949) (30 582) 2 493 534 868


4.28. Off-balance sheet items


The BPI Group carries out derivative operations in the normal

course of its business, managing its own positions based on the

expected evolution of the markets, to meet the specific needs of

its Clients, or in order to hedge its exposure.

The BPI Group operates with financial derivatives, namely

foreign exchange contracts, interest rate contracts, commodities

contracts and contracts on shares or indexes. These operations

are carried out in over-the-counter (OTC) markets and in

organised markets (especially stock exchanges).

The guarantee given to the EIB for loans granted substitutes the

guarantee of a second signature (first class bank or the

Portuguese State) required by that institution.

At 31 December, 2002 and 2001 the caption RESPONSIBILITIES

FOR RETIREMENT PENSIONS NOT COVERED BY THE PENSION FUNDS

corresponds in full to the increase in the liability resulting from

non utilization of incapacity decreases in the calculation of the

past service liability relating to current Employees (note 4.20).

At 31 December, 2002 and 2001 the caption COMMITMENTS TO

THE DEPOSIT GUARANTEE FUND corresponds to BPI’s irrevocable

responsibility to pay the Fund, upon request by it, the part of the

annual contributions not yet paid and expensed.

At 31 December 2002 and 2001 the caption POTENTIAL

COMMITMENTS TO THE INVESTOR INDEMNITY SYSTEM corresponds to the

irrevocable obligation assumed by BPI, under the applicable

legislation, to pay the System, if required to do so, the amounts

necessary to indemnify the investors.

The caption OTHER IRREVOCABLE COMMITMENTS at 31 December,

2002 includes th. euro 10 127 relating to share options issued

by the BPI Group under the Variable Remuneration Programme

(RVA).

At 31 December, 2002 the BPI Group had the following third

party assets under its management:

At 31 December, 2002 the caption ASSETS GIVEN AS COLLATERAL

includes:

– th. euro 126 218 relating to securities given in guarantee of

loans from the European Investment Bank (EIB) to Banco BPI;

– th. euro 81 806 relating to securities given in guarantee of

interest rate swaps between the EIB and Banco BPI;

– th. euro 78 337 relating to securities given in guarantee to the

Bank of Portugal to operate on the System for Settlement of

Large Transactions (Sistema de Pagamento de Grandes

Transacções);

– th. euro 25 726 relating to securities given as guarantee to the

Deposit Guarantee Fund, and

– th. euro 1 606 relating to securities given in guarantee to

Euronext to carry out derivate operations.

20012002

Guarantees provided and other contingent liabilities

Guarantees and sureties 3 045 337 3 224 501

Documentary credits 77 010 72 889

Acceptances and endorsements 368 146

Stand-by letters of credit 260

Sureties and indemnities 66 51

Other contingent liabilities 13

3 122 781 3 297 860

Assets given as collateral 322 910 395 993

Commitments to third parties

Irrevocable commitments

Irrevocable credit lines 54 475 115 573

Underwriting commitment 24 500 26 688

Responsibilities for retirementpensions (note 4.20) 87 880 90 077

Commitments to the DepositGuarantee Fund 25 621 18 629

Potential commitments to theInvestor Indemnity System 9 957 11 677

Other irrevocable commitments 14 848 5 869

Revocable commitments 2 929 187 3 067 035

3 146 468 3 335 548

Responsibilities for services provided

Custody and safekeeping 19 172 830 22 156 887

Amounts for collection 286 213 257 732

Assets managed by the institution 3 482 376 3 688 465

Other 11 795 12 031

22 953 214 26 115 115

1) Includes the Group companies' Pension Funds.

Investment Funds and PPRs (Retirement Plan Funds) 3 652 714

Pension funds1 1 979 934

Capitalisation products 1 063 794


through financial settlement. For medium and long term

derivatives, contracts usually anticipate the possibility of netting

outstanding balances with the same counterparty, which

eliminates or reduces the credit risk. Additionally, in order to

reduce the credit risk in OTC derivatives, some agreements have

been signed under which the Bank receives from (or transfers to)

the counterparty, assets (in cash or in securities) to guarantee

the fulfilment of its obligations.

Derivative operations are mostly associated with other operations

relating to assets and liabilities included in the financial

statements. The evaluation of these operations must take this

association into account.

Derivatives are negotiated in organised markets in accordance

with those markets’ own rules. Derivatives are negotiated in the

OTC market, normally based on a standard bilateral contract

(an ISDA contract in the case of interprofessional transactions

and a contract prepared by BPI in the case of transactions with

Customers) which covers the derivative operations between the

parties and establishes the compensation of responsibilities in

the case of non compliance (the extent of the compensation

being covered by the contract and regulated by law).

These transactions can be recorded by their book value, gross

replacement value and net market value. The book value is

based on the notional amount used in the calculation of the

cash flows resulting from the underlying operations. The gross

replacement value corresponds to the present value of the

estimated loss, should the counterparty of each derivative

transaction fail to meet its obligations. In the case of a

derivative contract that provides for the compensation of

responsibilities in the event of non-compliance, the gross

replacement value is the sum of the market values of the

operations covered by the contract, when positive. In case of

operations where the contract does not establish the

compensation of responsibilities (usually for short-term

derivatives), the gross replacement value is equal to the sum of

each individual transaction market value, if positive. The scope

of the compensation clauses, in case of default, is considered by

the BPI Group in a conservative perspective, considering that, in

case of doubt, compensation does not exist. The net market

value (fair value) corresponds to the value of the derivatives if

they were sold or purchased in the market place on the reference

date.

Whereas in normal loan operations the market value corresponds

directly to the amount loaned, in derivatives operations, with

determined cash flows, the market value is based on the net

present value of those cash flows, given the market yield curve

at the time of the calculation (swaps and forward contracts) or is

determined by the market (futures). In the case of options,

market value is determined through the application of models

that reflect the price and the price volatility of the underlying

assets at the time of the calculation and the characteristics

inherent to those options (strike price and maturity).

The book value of derivative operations is merely a volume

measure for the different markets, and it is not possible to

establish a direct connection between this value and the credit

risk of the operation. The credit risk of derivative operations is

given by the positive gross replacement value. In futures

contracts, the stock markets being the counterparties for the

BPI Group’s operations, the credit risk is eliminated daily


At 31 December, 2002 and 2001 the BPI Group's derivative operations were as follows:

1) Sum of the replacement amounts of the counterparties, considering compensation terms, when they exist.2) Sum of the market values of the operations at the reference date (does not correspond to the impact on the financial statements of the revaluation of those operations).3) The replacement cost of the futures is zero, because they are traded on organised stock exchanges.4) Does not include options on bonds sold or bought. The net market value of these options is related principally to the variations in the remuneration of the Capital Seguro and Risco

Limitado bonds issued by the Group.5) Effect of compensating replacement values with the same counterparty, but recorded on different lines in the table.

2001

Net market value2

Book value

2002

Book value

Gross replacementvalue1

Currency contracts

OTC

Outright forwards 154 177 1 499 (5 778) 163 418

Currency swaps 2 575 810 19 322 (54 499) 1 928 728

Medium and long term swaps 90 802 1 541 (8 297) 230 390

2 820 789 22 362 (68 574) 2 322 536

Interest rate contracts

OTC

FRA (forward rate agreements) 100 000 (10) 193 000

Medium and long term interest rate swaps 11 484 972 388 934 265 278 7 398 309

Options bought 3 750 109 109 3 750

Options sold 24 940

Traded on stock exchanges

Futures3 714 873 0 (1 538) 253 399

12 303 595 389 043 263 839 7 873 398

Contracts on shares

OTC

Options bought4 916 630 14 797 14 797 960 525

Options sold4 76 309 (13 164) 116 827


Futures3 12 697 131 62 602

1 005 636 14 797 1 764 1 139 954

Contracts on commodities


Futures3 81 2

81 0 2 0

16 130 101 426 202 197 031 11 335 888

Credit risk reduction agreements on derivatives (215 311)

Netting effect5 (22 402)

16 130 101 188 489 197 031 11 335 888


At 31 December, 2002 the book value by term remaining to maturity was as follows:

< = 3 months > 3 months< = 6 months

> 6 months< = 1 year

> 1 year< = 5 years > 5 years Total

Currency contracts

OTC

Outright forwards 143 429 4 866 3 347 2 535 154 177

Currency swaps 2 279 209 138 173 158 428 2 575 810

Medium and long term swaps 73 432 17 370 90 802

2 422 638 143 039 235 207 19 905 2 820 789

Interest rate contracts

OTC

FRA (forward rate agreements) 50 000 50 000 100 000

Medium and long term interest rate swaps 1 917 632 833 742 1 407 458 5 800 188 1 525 952 11 484 972

Options bought 3 750 3 750


Futures 278 148 25 675 187 350 223 700 714 873

2 245 780 859 417 1 644 808 6 027 638 1 525 952 12 303 595

Contracts on shares

OTC

Options bought 218 534 16 184 52 025 628 012 1 875 916 630

Options sold 43 744 13 650 4 615 14 300 76 309


Futures 12 697 12 697

274 975 29 834 56 640 642 312 1 875 1 005 636

Contracts on commodities 81 81

4 943 474 1 032 290 1 936 655 6 689 855 1 527 827 16 130 101

At 31 December, 2002 the profile of derivative operations by

counterparty was as follows:

%Book value

Currency contracts

OTC with financial institutions 2 591 697 16

OTC with Customers 229 092 2

2 820 789 18

Interest rate swaps

OTC with financial institutions 11 024 925 68

OTC with Customers 563 797 3

On the Stock Exchange 714 873 5

12 303 595 76

Contracts on shares

OTC with financial institutions 992 939 6

On the Stock Exchange 12 697

1 005 636 6

Contracts on commodities

On the Stock Exchange 81

16 130 101 100

At 31 December, 2002 the profile of derivative operations by

counterparty external rating was as follows:

Net marketvalue

Grossreplacement

value

Book value

Traded on OTC

AAA 1 220 809 19 424 (57 011)

AA 5 383 862 123 428 52 943

A 7 745 700 209 410 165 018

BBB 66 099 373 304

N.R. 985 980 51 165 37 182

15 402 450 403 800 198 436

Traded on stock exchanges 727 651 0 (1 405)

16 130 101 403 800 197 031

Credit risk reduction agreementson derivatives (215 311)

16 130 101 188 489 197 031

Note: The amounts were accumulated by rating levels of the counterparties, consideringthe senior medium and long term debt ratings attributed by the Moody, Standard & Poorand Fitch agencies as of the reference date. The selection of a rating for a givencounterparty follows the rules recommended by the Basel Committee in force on thereference date (where there are diverging ratings it was selected the second best). Interms of mapping it was considered a perfect correspondence between the levelsattributed by the three agencies as from the top (Aaa = AAA; Aa1 = AA+; etc). Theoperations with entities without ratings (N.R.) correspond essentially to Clients withinternal ratings.


4.29. Financial margin


20012002

Interest and similar income

Interest on placements

With credit institutions 107 832 155 452

Loans 838 276 903 658

Securities 152 233 171 533

Other assets 808 1 898

Credit in arrears 8 308 6 874

Interest on swap operations 469 174 418 021

Other interest and similar income 28 226 26 832

1 604 857 1 684 268

Income from securities 10 393 15 908

Interest an similar expenses

Interest expense on funds raised

With credit institutions 229 953 290 952

Deposits 258 560 318 376

Debt securities 106 485 86 588

Other resources 898 6 882

Interest expense on own funds and equivalents 28 808 34 758

Contributions to the Deposit Guarantee Fund 2 331 1 692

Interest on swap operations 460 975 424 298

Other interest and similar expenses 39 647 41 066

1 127 657 1 204 612

4.30. Net commissions


20012002

Commissions received

On guarantees provided 22 679 19 444

On commitments to third parties 4 886 5 720

On banking services provided 143 003 144 661

On factoring operations 2 966 3 169

On operations realised on behalf of third parties 14 517 15 525

Other 19 013 21 583

207 064 210 102

Commissions paid

On banking services provided by third parties 12 869 10 226

On operations realised by third parties 7 882 5 640

Other 1 224 1 365

21 975 17 231

4.31. Net profit on financial operations


The caption GAINS ON OFF-BALANCE SHEET OPERATIONS at 31

December, 2002 includes th. euro 20 127 relating to premiums

received due to early step-up and renegotiation of swap

conditions.

At 31 December, 2002 the caption OTHER GAINS ON FINANCIAL

OPERATIONS and OTHER LOSSES ON FINANCIAL OPERATIONS, include

th. euro 96 125 and th. euro 96 047, respectively, related to

the operations Capital Seguro and Risco Limitado.

4.32. Personnel costs


The caption PERSONNEL COSTS at 31 December, 2002 and 2001

includes the full amount of the variable remuneration cost,

namely the cost of implementing the Variable Remuneration

Programme (RVA) in the years 2002 and 2001. This programme

is part of a remuneration and share incentive plan with two

20012002

Gains on financial operations

Gains and differences on the revaluation of theforeign exchange position 194 933 134 790

Gains and differences on the revaluation of placements 330 351 324 753

Differences on the revaluation of third party resources 236 309 185 381

Gains on off-balance sheet operations 48 285 18 101

Other 204 128 395 649

1 014 006 1 058 674

Losses on financial operations

Losses and differences on the revaluationof the foreign exchange position 196 761 133 968

Losses and differences on the revaluation of placements 291 051 296 336

Differences on the revaluation of third party resources 277 904 185 475

Losses on off-balance sheet operations 52 382 14 045

Other 176 360 388 219

994 458 1 018 043

20012002

Remuneration of management and supervisory bodies 8 317 9 068

Employee remuneration 209 810 212 443

Social charges

Mandatory 59 858 58 840

Optional 2 790 2 857

Other personnel costs 4 886 5 069

285 661 288 277


components – the granting of shares and options over shares –

and covers Executive Directors and Group Employees with

variable remuneration equal to or exceeding 2 500 euros

(note 2.5).

20012002

Other operating income

Income from real estate 1 118 1 209

Remuneration from serving on management bodies 16 19

Sundry services rendered 9 352 1 706

Reimbursement of expenses 28 956 27 552

Gains on leased assets 942 781

Recovery of loans and interest in arrears 14 678 18 855

Other 13 225 12 615

68 287 62 737

Other operating expenses

Subscriptions and donations 2 784 2 170

Remuneration of participating securities 140 140

Losses on leased assets 804 1 778

Other 4 158 4 017

7 886 8 105

4.33. Other operating income and other operating expenses


4.34. Extraordinary income and expenses


20012002

Extraordinary income

Gains on the sale of investments and fixed assets 24 923 8 144

Indemnities due to non-compliance with contracts 96 115

Other prior year income 16 689 74 056

Other extraordinary income 1 530 2 181

43 238 84 496

Extraordinary expenses

Losses on the sale of fixed assets 3 942 278

Other losses on fixed assets 2 421 296

Fines and other legal penalties 112 118

Losses arising from theft, loss and falsification 363 151

Indemnities due to non-compliance with contracts 32 5

Prior year expenses 20 858 69 940

Other extraordinary expenses 20 834 8 672

48 562 79 460

At 31 December, 2002 the caption GAINS ON THE SALE OF

INVESTMENTS AND FIXED ASSETS includes th. euro 12 107 and

th. euro 9 892 relating to gains on the sale of BPI Group

investments in Brisa and BVLP, respectively.

Profits generated by the Off-shore Financial Branches of the

Group during 2002 and 2001, which are exempt from taxation,

were as follows:

The tax losses of Banco BPI available to be carried forward at

31 December, 2002 amounted to th. euro 43 845.

At 31 December, 2001 the caption OTHER PRIOR YEAR INCOME

and PRIOR YEAR EXPENSES, include th. euro 64 024 and th. euro

64 479, respectively, relating to the revaluation of the

components of Capital Seguro’s operations.

At 31 December, 2002 and 2001 the caption OTHER

EXTRAORDINARY EXPENSES includes th. euro 19 036 and th. euro

4 569 relating to the coverage of the liability for retirement and

survivor pensions, respectively (note 4.20). At 31 December,

2002 and 2001, the caption OTHER EXTRAORDINARY EXPENSES also

includes th. euro 12 978 and th. euro 4 456 corresponding to

other costs relating to early retirements in 2002 and 2001,

respectively.

4.35. Income tax

The tax rate, measured by the relationship between the provision

for income tax and profit before income tax, was as follows:

20012002

Income tax 44 743 59 630

Profit for the year before income tax1 186 729 195 679

Effective tax rate 24.0% 30.5%

1) Includes profit before income tax and minority interests and excludes profits onsubsidiary companies excluded from the consolidation.

20012002

Funchal Financial Branch 7 836 15 338

Santa Maria Financial Branch 2 821 16 407


4.36. Consolidated net profit

Consolidated net profit for 2002 and 2001 is made up as follows:

20012002

Banco BPI’ net profit (non-consolidated)1 118 018 124 682

BPI Investimentos’ net profit (non-consolidated) 11 174 (479)

Banco Fomento S.A R.L.’s (Mozambique) net profit (non-consolidated) 4 347 2 855

Banco de Fomento S.A.R.L.’s (Angola) net profit (non-consolidated)2 11 205

Banc Post net profit (non-consolidated) 848 1 208

Contribution of Banco BPI’ subsidiary and associated companies (excluding the banks) to the consolidated net profit 20 172 28 185

Profit / (loss) generated by recovery of the adjustments considered in the goodwill paid on the acquisition of BFE relating to:

– Unrealized gains on securities (293)

– Sundry provisions 132 925

Reversal of the amortisation of the contributions to the pension fund resulting from early retirements in Banco BPI 14 685 14 696

Recovery of the adjustments considered in the goodwill paid on the acquisition of Universo Banco Directo 33

Elimination of dividends (41 204) (55 700)

Elimination of gains and losses on transactions between Group companies (761) 44 088

Other consolidation adjustments 1 453 (26 917)

140 069 133 283

1) Net profit includes the net results of all the companies incorporated within Banco BPI at 31 December, 2002.2) The net result of Banco de Fomento S.A.R.L (Angola) corresponds to its operations in the second half of 2002; net results of operations in 2001 and the first half of 2002 are included in

Banco BPI’s net profit.


The contribution of Banco BPI and its subsidiary and associated companies to the consolidated net profit of 2002 and 2001, is as

follows:

1) Adjusted profit.2) In 2001, Banco BPI’s net profit corresponds to the sum of the contributions of BPI SGPS, Banco BPI, BPI Ventures SGPS, Dixit SGPS, Estratégia SGPS, BPI Leasing and BPI Factor.3) In 2002, BPI Dealer merged into Banco Português de Investimentos.

2001

Amount %

2002

Amount %

Banks

Banco BPI, S.A.1, 2 110 489 78.9 107 295 80.5

Banco Português de Investimento, S.A.1,3 (3 220) (2.2) (4 972) (3.7)

Banco de Fomento S.A.R.L. (Mozambique)1 2 274 1.6 510 0.4

Banco de Fomento S.A.R.L. (Angola)1 10 539 7.5

Banco Post S.A.1 (330) (0.2) 3 348 2.5

Specialised loan companies

BPI Locação de Equipamentos, Lda. 15 0.0 (18) 0.0

BPI Rent – Comércio e Aluguer de Bens, Lda. 318 0.2 909 0.7

Eurolocação – Comércio e Aluguer de Veículos e Equipamentos, S.A. 57 0.0 12 0.0

Asset management companies and dealers

BPI Dealer – Sociedade Financeira de Corretagem, S.A.3 0.0 1 529 1.1

BPI Dealer – Sociedade Financeira de Corretagem (Mozambique), S.A.R.L.1 (13) 0.0 (29) 0.0

BPI Fundos – Gestão de Fundos de Investimento Mobiliários, S.A. 12 643 9.0 12 380 9.3

BPI – Global Investment Fund Management Company, S.A. 812 0.6 1 239 0.9

BPI Pensões – Sociedade Gestora de Fundos de Pensões, S.A. 1 983 1.4 2 358 1.8

Sofinac – Sociedade Gestora de Fundos de Investimento Imobiliário, S.A. 193 0.1 116 0.1

BPI (Suisse), S.A.1 (353) (0.2)

Venture capital companies

F. Turismo – Capital de Risco, S.A. 52 0.0 29 0.0

Inter-Risco – Sociedade de Capital de Risco, S.A.1 (1 299) (0.9) (1 655) (1.2)

Solo – Investimentos em Comunicação, SGPS, S.A. (10) 0.0 (1) 0.0

Insurance companies

BPI Vida – Companhia de Seguros de Vida, S.A. 2 407 1.7 1 502 1.1

Cosec – Companhia de Seguros de Crédito, S.A. 750 0.5 1 035 0.8

Companhia de Seguros Allianz Portugal, S.A. (808) (0.6) 2 536 1.9

Others

BPI, Inc.1 (12) 0.0 17 0.0

BPI Madeira, SGPS, Unipessoal, S.A. (2) 0.0

CrediUniverso – Serviços de Marketing, S.A. 201 0.1 116 0.1

Douro SGPS, S.A. (54) 0.0 1 797 1.3

Finangeste – Empresa Financeira de Gestão e Desenvolvimento, S.A. 425 0.3 422 0.3

Promática – Sociedade de Informação e Organização de Empresas, S.A. 229 0.2 216 0.2

Simofer – Sociedade de Empreendimentos Imobiliários e Construção Civil, Lda. (20) 0.0 (218) (0.2)

Digitmarket – Serviços de Informação, S.A.1 (595) (0.4) (1 233) (0.9)

Viacer – Sociedade Gestora de Participações Sociais, Lda. 3 398 2.4 4 043 3.0

140 069 100.0 133 283 100.0


The net results of the companies extinguished under the

corporate reorganisation carried out on 20 December, 2002 are

as follows:

4.37. Personnel

The average and end of period number of Employees1, during

2002 and 2001 is as follows:

4.38. Loans and advances to the Directors of Banco BPI

In accordance with the Company’s policy the members of the

Executive Committee of the Board of Directors of Banco BPI are

entitled to participate in the Subsidised Housing Loan Scheme

available to all the banks’ Employees. At 31 December, 2002

the outstanding mortgage own housing loans granted to the

members of the Executive Committee of the Board of Directors

by banks of the Group amounted to th. euro 1 025.

5. Explanation added for translation

The accompanying financial statements are a translation of

financial statements originally issued in Portuguese in

accordance with generally accepted accounting principles in

Portugal and the disclosures required by the Portuguese Chart of

Accounts for the Banking System, some of which may not

conform with or be required by generally accepted accounting

principles in other countries. In the event of discrepancies, the

Portuguese language version prevails.

1) Until 20 December, 2002.

1) Employees of the Group companies consolidated by the full consolidation method.Employees of foreign branches of Banco BPI are also included.

200120021

Banco BPI, S.A. 69 920 107 755

BPI Leasing 6 156 6 794

BPI Factor 2 285 1 894

BPI Ventures (7 181) (39 770)

Dixit SGPS / BPI Sfac (74) (178)

Estratégia SGPS 196 474

2001

End of the period

Average ofthe period

2002

End of the period

Average ofthe period

Members of the Board of Directors 17 14 18 18

Management staff 545 504 557 571

Other staff 3 220 3 177 3 325 3 293

Other Employees 3 870 3 685 4 105 3 951

7 652 7 380 8 005 7 833

Legal certification of accounts and audit reports | 195

Legal certification of accounts and audit report

MAGALHÃES, NEVES E ASSOCIADOS

Sociedade de Revisores Oficiais de ContasInscrição n.º 95

Registo na CMVM n.º 223NIPC 502 558 610

LEGAL CERTIFICATION OF ACCOUNTS AND AUDIT REPORTCONSOLIDATED ACCOUNTS

(Amounts expressed in thousands of euro – th. euro)

Introduction1. Pursuant to the applicable legislation, we present our Legal Certification of Accounts and Audit Report on the

consolidated financial information included in the Directors’ Report and the accompanying consolidated financialstatements of Banco BPI, S.A. (previously named BPI – SGPS, S.A., its corporate name and purpose having beenchanged on 20 December, 2002 – note 1) for 2002, which comprise the consolidated balance sheet as of 31December, 2002, which reflects a total of th. euro 25,669,074 and shareholders’ equity of th. euro 1 168 875,including net profit for the year of th. euro 140 069, the consolidated statements of income by nature and byfunctions and the consolidated statement of cash flows for the year then ended and the corresponding notes.

Responsibilities2. The Board of Directors of Banco BPI, S.A. ("the Bank") is responsible for: (i) the preparation of consolidated

financial statements that present a true and fair view of the financial position of the companies included in theconsolidation, the consolidated results of their operations and their consolidated cash flows; (ii) the preparation ofhistorical financial information in accordance with generally accepted accounting principles and that is complete,true, up-to-date, clear, objective and licit, as required by the Securities Market Code (Código dos ValoresMobiliários); (iii) adopting adequate accounting policies and criteria and maintaining appropriate systems of internalcontrol; and (iv) informing of any significant facts that have influenced the operations of the companies included inthe consolidation, their financial position or results of operations.

3. Our responsibility is to examine the financial information contained in the documents of account referred to above,including verification that, in all material respects, the information is complete, true, up-to-date, clear, objectiveand licit, as required by the Securities Market Code, and to issue a professional and independent report based onour examination.

Scope4. Our examination was performed in accordance with the auditing standards ("Normas Técnicas e Directrizes de

Revisão / Auditoria") issued by the Portuguese Institute of Statutory Auditors ("Ordem dos Revisores Oficiais deContas"), which require that the audit be planned and performed with the objective of obtaining reasonableassurance about whether the consolidated financial statements are free of material misstatement. Our examinationincluded verifying, on a test basis, evidence supporting the amounts and disclosures in the financial statements andassessing the significant estimates, based on judgements and criteria defined by the Board of Directors, used intheir preparation. Our examination also included verifying the consolidation procedures, application of the equitymethod and verifying that the financial statements of the companies included in the consolidation were adequatelyexamined, assessing the adequacy of the accounting principles used, their uniform application and their disclosureconsidering the circumstances, verifying the applicability of the going concern concept, assessing the adequacy ofthe overall presentation of the consolidated financial statements, and verifying that, in all material respects, thefinancial information is complete, true, up-to-date, clear, objective and licit. Our examination also included verifyingthat the consolidated financial information included in the Directors’ Report is consistent with the otherconsolidated documents of account. We believe that our examination provides a reasonable basis for expressing ouropinion.

Sede em Lisboa: Amoreiras – Torre 1 – 7.º – 1070-101 Lisboa Telefone 21 387 00 15Escritório no Porto: Av. da Boavista, 3523 – 1.º – 4100-139 Porto Telefone 22 610 11 79

MAGALHÃES, NEVES E ASSOCIADOS– 2 –

Opinion5. In our opinion, the consolidated financial statements referred to in paragraph 1 above, present fairly, in all material

respects, the consolidated financial position of Banco BPI, S.A. as of 31 December, 2002 and the consolidatedresults of its operations and its consolidated cash flows for the year then ended in conformity with generallyaccepted accounting principles in Portugal for the banking sector, which, except for the change referred to inparagraph 6 below, have been applied on a basis consistent with that of the preceding year, and the informationincluded therein is complete, true, up-to-date, clear, objective and licit in accordance with the definitions includedin the standards referred to in paragraph 4 above.

Emphases6. As explained in note 2.4, in the year 2002 Bank of Portugal, through its Notice 4 / 2002 of 25 June, introduced a

new methodology for determining unrealised losses on equity investments and the respective provisions required. Atransitory regime was established for recording the provisions for equity investments that were already in theportfolio at 31 December, 2001 on a gradual basis over a period of five years. The provisions recorded in 2002under this new regime amounted to th. euro 21 616, th. euro 19 000 having been recorded by charge againstreserves, under the terms established by the transitory regime referred to above (notes 3.2, 4.25 and 4.27).

7. The consolidated financial statements for the year ended 31 December, 2001 are presented by the Bank in order tocomply with the requirements for publication of accounts. We have examined these financial statements and ouropinion thereon, expressed in our report dated 28 February, 2002, includes an emphasis paragraph regarding thechanges in the methodology for calculating and recording the liability for retirement pensions introduced by Bank ofPortugal’s Notice 12 / 2001 of 23 November (notes 2.12, 4.13, 4.20 and 4.28) and the amortisation of deferredearly retirement costs directly to reserves (notes 2 and 4.25).

Oporto, 28 February, 2003

Magalhães, Neves e Associados – SROCRepresented by Maria Augusta Cardador Francisco


Auditor's report | 197

To the Shareholders ofBanco BPI, S.A.

(Amounts expressed in thousands of euro – th. euro)

1. We have audited the accompanying consolidated financial statements of Banco BPI, S.A. (previously named BPI – SGPS, S.A., its corporate name and purpose having been changed on 20 December, 2002), which comprisethe consolidated balance sheet as of 31 December, 2002, the consolidated statements of income by nature and byfunctions and the consolidated statement of cash flows for the year then ended and the corresponding notes. Thesefinancial statements are the responsibility of the Board of Directors of Banco BPI, S.A. ("the Bank"). Ourresponsibility is to express an opinion on these consolidated financial statements based on our audit.

2. Our audit was performed in accordance with generally accepted auditing standards in Portugal, which require thatthe audit be planned and performed with the objective of obtaining reasonable assurance about whether thefinancial statements are free of material misstatement. Our audit included verifying, on a test basis, evidencesupporting the amounts and disclosures in the consolidated financial statements and assessing the significantestimates, based on the judgement of and criteria defined by the Board of Directors, used in their preparation. Ouraudit also included verifying the adequacy of the accounting principles used and their disclosure, taking intoconsideration the circumstances, verifying the applicability of the going concern concept and evaluating the overallpresentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for ouropinion.

3. In our opinion, the consolidated financial statements referred to in paragraph 1 above, present fairly, in all materialrespects, the consolidated financial position of Banco BPI, S.A. as of 31 December, 2002 and the consolidatedresults of its operations and its consolidated cash flows for the year then ended, in conformity with generallyaccepted accounting principles in Portugal for the banking sector, which, except for the change referred to inparagraph 4 below, have been applied on a basis consistent with that of the preceding year.

4. As explained in note 2.4, in the year 2002 Bank of Portugal, through its Notice 4 / 2002 of 25 June, introduced anew methodology for determining unrealised losses on equity investments and the respective provisions required. A transitory regime was established for recording the provisions for equity investments that were already in theportfolio at 31 December, 2001 on a gradual basis over a period of five years. The provisions recorded in 2002under this new regime amounted to th. euro 21 616, th. euro 19 000 having been recorded by charge againstreserves, under the terms established by the transitory regime referred to above (notes 3.2, 4.25 and 4.27).

5. The consolidated financial statements for the year ended 31 December, 2001 are presented by the Bank in order tocomply with the requirements for publication of accounts. The auditors’ report on these financial statements, dated28 February, 2002, includes an emphasis paragraph regarding the changes in the methodology for calculating andrecording the liability for retirement pensions introduced by Bank of Portugal’s Notice 12 / 2001 of 23 November(notes 2.12, 4.13, 4.20 and 4.28) and the amortisation of deferred early retirement costs directly to reserves (notes 2 and 4.25).


Auditor’s report

Report and opinion of the Audit Board


REPORT AND OPINION OF THE AUDIT BOARDCONSOLIDATED ACCOUNTS

To the Shareholders ofBanco BPI, S.A.

In conformity with current legislation and our mandate, we present our Report and Opinion which covers the workperformed by us and the consolidated documents of account of Banco BPI, S.A. (previously named BPI – SGPS, S.A.,its corporate name and purpose having been changed on 20 December, 2002) for the year ended 31 December, 2002,for which the Board of Directors is responsible.

During 2002 we accompanied the evolution of the activities and business of Banco BPI, S.A. and its principalparticipated companies, the adequacy of their accounting records and their compliance with the requirements of theirrespective articles of association, having obtained from the Board of Directors and Employees of the Bank and from thestatutory boards and Employees of the principal participated companies the information and explanations requested.

Within the scope of our functions we examined the consolidated balance sheet as of 31 December, 2002, theconsolidated statements of income by nature and by functions, the consolidated statement of cash flows and theaccompanying notes, as well as the Directors’ Report prepared by the Board of Directors for the year then ended. Inaddition, we reviewed the Legal Certification of Accounts and Audit Report, prepared by the Statutory Auditor who is amember of this Board, with which we are in agreement.

Based on the above it is our opinion that, after considering the matter described in paragraph 6 of the LegalCertification of Accounts and Audit Report, the above mentioned consolidated financial statements and Directors’Report, as well as the proposal included therein, are in compliance with the applicable accounting requirements andprovisions of the articles of association and therefore can be approved by the Shareholders’ General Meeting.

We wish to thank the Board of Directors and Employees of Banco BPI, S.A. for their co-operation.


Jorge Figueiredo DiasPresident

José Ferreira AmorimMember

Magalhães, Neves e Associados – SROCRepresented by Maria Augusta Cardador Francisco

Member

Annexes

200 Banco BPI | Annual report 2002

Points in the Report on the BPI Group's Governance and chapters in the Directors' Report where it is possible to find information

conforming to the model report contained in the CMVM's Regulation 07/2001 – Corporate Governance, and in the document entitled

"CMVM Recommendations on Corporate Governance – December 2001"

Points in the Report on the BPI Group's Governance Chapters in the Directors' Report

I – Disclosure of Information 2.1, 2.2, 3.2, 8.1, 8.2, 8.3, 9.1 and 9.2 «Banco BPI shares»

II – Exercise of voting rights and shareholder representation 5.1, 5.2, 5.3, 5.4 and 5.5

III – Corporate rules 2.2.4, 4.1, 4.2 and 7.1 «Risk Management»

IV – Management Body 2.2.3, 2.2.4, 2.2.6, 2.2.7, 3.1, 3.2 and Appendix

V – Institutional investors 6.1

The BPI Group’s Corporate Governance Report

Annexes | The BPI Group’s Corporate Governance Report 201

1. Reorganisation of the BPI Group

1.1. Corporate reorganisation 202

1.2. Management reorganisation 203

2. Structure, division of duties and functioning of the BPI Group's

principal management and control bodies

2.1. The principal structure of the Group's governance and supervision 204

2.2. General Meeting and the Group's principal management and supervisory bodies 205

2.2.1. General Meeting 205

2.2.2. Audit Board 206

2.2.3. Management Board 206

2.2.4. Internal Control Committee 208

2.2.5. Remuneration Committee 209

2.2.6. Executive Committee 209

2.2.7. Banco Português de Investimento's Management 211

2.2.8. The Group’s functional organisation chart 212

3. Remuneration

3.1. Remuneration of members of Banco BPI and

Banco Português de Investimento Management Boards 214

3.2. Share incentive scheme (Portuguese initials "RVA") 214

4. Shareholder control and transferability of shares

4.1. Shareholder control 217

4.2. Shareholder agreements relating to the exercise of

company rights or to the transferability of shares 217

5. Exercise of voting rights and Shareholder representation

5.1. Encouraging the exercise of voting rights 217

5.2. Attribution of voting rights 218

5.3. Procedures relating to proxy representation 218

5.4. Procedures relating to postal voting 218

5.5. Voting via electronic mail 218

6. Institutional investors

6.1. Diligent, efficient and critical exercise of company rights 218

7. Code of ethics and professional conduct

7.1. Safeguarding against conflicts of interest, violation of professional confidentiality

and respect for the codes of ethics and professional conduct 218

8. Communication with the market

8.1. Investor Relations Division 219

8.2. Representative for market relations 220

8.3. Use of the new information technologies in the disclosure of financial information

and preparatory documents for General Meetings 220

9. Banco BPI share performance and dividend policy

9.1. Banco BPI share performance 221

9.2. Dividend policy 221

10. Appendix of the BPI Group’s corporate governance report

10.1. Other management or supervisory positions occupied by members

of Banco BPI's Management Board in other companies 222


within BPI SGPS, which at the same time altered its business

object in order to engage in banking activity and changing its

name to "Banco BPI". In this way, the BPI Group ceased to be

headed by an investment holding company (SGPS), to be

replaced by its commercial bank – Banco BPI. In conformity

with this new status, Banco BPI is now the BPI Group company

listed on the Euronext market, as well as the entity responsible

for the Group’s strategic command.

Another aspect marking the reorganisation programme was the

concentration at Banco BPI and at Banco Português de

Investimento of typical commercial and investment banking

activities, respectively. In this context and as regards commercial

banking, the Leasing and Factoring areas were integrated into

Banco BPI’s structure, with the consequent extinction of the

companies that had until then conducted these activities, i.e.

BPI Leasing and BPI Factor, respectively. Insofar as the other

specialised credit companies are concerned – BPI Rent,

Eurolocação and BPI Locação de Equipamentos – their products

were integrated into Banco BPI’s commercial product range, with

the result that the independent existence of the above-

-mentioned companies will no longer be justified once the

contracts that they are presently bound to expire.

The reorganisation carried out entailed as its principal and most

visible alteration Banco BPI's incorporation, by merger, �

These changes are fundamentally aimed at attaining the

following objectives:

� simplifying the Group’s legal structure, making it easier

for the market to understand;

� refining the Group’s governance model;

� endowing BPI with a more flexible organisation;

� optimising the allocation of human resources;

� reducing operating costs.

1. REORGANISATION OF THE BPI GROUP

1.1. Corporate reorganisation

Banco BPI’s appreciable weight in the Group’s activities, the

revised tax treatment of SGPS’s (investment holding companies),

penalising their tax burden, and the need to improve the BPI

Group’s capacity to respond to the challenges posed by an

increasingly competitive market, were key factors behind the

significant internal reorganisation initiative. This process was

concluded at the end of 2002, giving rise to meaningful changes

in terms of the company and its organisational and governance

structure.

REPORT

THE BPI GROUP’S PRINCIPAL STRUCTURE AT 31 DECEMBER 2002 (post reorganisation)

Asset Management Private EquityInvestment Banking

Banco BPI

InternationalCommercial banking

Insurance

Banco BPICayman 100%

Banco Portuguêsde Investimento 100%

Domestic Commercial Bankingand financial investments

Banco de FomentoAngola 100%

Banco de FomentoMozambique 100%

BPI Fundos100%

BPI Pensões100%

BPI Vida100%

Inter-Risco84%

Allianz Portugal35%

Cosec50%


As concerns investment banking, of particular note was the

incorporation of stockbroking activity into the investment bank

through the merger, by incorporation, of BPI Dealer into Banco

Português de Investimento, as well as Banco BPI’s takeover of

certain commercial banking activities that had hitherto been

undertaken by the investment bank.

The reorganisation process also extended to the private equity

area: BPI Ventures, the company whose business object was the

management of investments in the development capital sector,

was incorporated within BPI SGPS (now Banco BPI), similar to

what occurred in August 2001 with the companies BPI

Participações, BPI Private Equity and BPI Capital. In this

manner, Banco BPI now aggregates all the private equity

investments, except those allocated to Inter-Risco which,

because it is a company with a very specific legal form – venture

capital company – and operational framework – partnership with

IAPMEI –, meant that it has maintained its legal autonomy.

1.2. Management reorganisation

The change to the Group’s corporate structure and, in particular,

the merging of BPI SGPS and Banco BPI into a single entity, led

to a readjustment of the top management structure. The

Executive Committee of Banco BPI’s Management Board is

responsible for the conduct of the BPI Group’s business,

subdivided into four specialised executive committees:

commercial banking, investment banking, credit risks and

market risks, which meet every week. These committees are

composed not only of members of Banco BPI’s Executive

Committee, but also of central managers and other personnel

occupying senior management positions in the matters under

discussion. This subdivision has contributed to delving deep into

the level of reflection and raising the quality of the decision-

-making process.

At the investment bank, the Management Board created an

executive committee to which the bank’s day-to-day management

has been delegated. The Executive Committee is made up of

four executive directors. Its meetings are also attended by three

central managers (two from the investment bank and the

manager in charge of the private equity area). The Management

Board meets once a month.

Finally, it should be noted that the reorganisation process had an

overall impact on the Group’s architecture that was not limited

to a redefinition of the top management tier. Indeed, a

substantial number of divisions were created, modified and

extinguished, with a consequent redistribution of areas of

responsibility, management positions and the human resources

allocated thereto.


2. STRUCTURE, DIVISION OF DUTIES AND FUNCTIONING

OF THE BPI GROUP'S PRINCIPAL MANAGEMENT AND

CONTROL BODIES

2.1. The principal structure of the Group's governance and

supervision

The BPI Group's major strategic guidelines are defined by Banco

BPI's Management Board. These guidelines, which are

periodically sanctioned by the Shareholders' General Meeting, are

then implemented by the Executive Committee of Banco BPI’s

Management Board and whose activity is systematically

monitored by the latter. Thus, the Management Board assesses

the Group’s performance against the operating plan, evaluates the

BPI Group’s position relative to its main competitors and analyses

all the opinions of rating agencies, supervisory entities and

financial analysts with respect to the BPI Group’s activity. At the

plenary meetings – in 2002 six such meetings were held – the

Group’s quarterly results and respective market announcements

are approved.

The Executive Committee of Banco BPI’s Management Board is

the executive body responsible for the management of the

Group’s business operations. Its most important functions include

the allocation of capital, evaluating the profitability of the main

business areas, financial risk management, deciding on and

monitoring credit risks (when exposure exceeds EUR 25 million),

making decisions concerning investment or disinvestment in

equity interests and defining human resources policy.

In order to ensure that all of the BPI Group’s risk areas are

monitored at close quarters, the Management Board set up an

Internal Control Committee in 1999 which includes four non-

executive directors, two of whom are deputy-chairmen of the

Management Board. This committee has as its chief duties the

appointment of the external auditors, the formulation of annual

programmes for the internal and external audits, the monitoring

of internal control procedures at the Group’s two Portuguese

banks, and overseeing the areas whose activities give rise to the

most operating risks borne by the BPI Group.

The Audit Board is responsible for monitoring all of Banco BPI’s

activity, ensuring compliance with the law and the company’s

statutes.

The Remuneration Committee fixes the remuneration of the

members of Banco BPI’s governing bodies, and assesses data

furnished by the Executive Committee of Banco BPI’s

Management Board and Banco Português de Investimento’s

Management Board for the purpose of calculating the respective

annual variable remuneration.

The Company Secretary, besides performing the functions

contemplated by the law, is responsible for relations with the

various supervisory authorities, namely, the Bank of Portugal,

CMVM (Securities Market Commission), Instituto de Seguros de

Portugal (Insurance Institute of Portugal) and the Direcção Geral

de Impostos e Inspecção de Finanças (Tax Department). Banco

BPI’s Secretary also has to prepare the minutes of Management

Board and Executive Committee meetings, and then circulating

these amongst all the members, while ensuring that supporting

documents are made available at the Management Board

meetings.

THE BPI GROUP’S PRINCIPAL GOVERNANCE AND SUPERVISORY STRUCTURE

Banco BPI

Shareholders’General Meeting

Banco BPI’sManagement Board

Executive Committeefor Credit Risks

Executive Committeefor Market Risks

Executive Committeefor Commercial Banking

Banco BPI’sExecutive Committee

Banco Português deInvestimento

Internal ControlCommittee

CompanySecretary

RemunerationCommittee

AuditBoard

BPI’sManagement Board

Executive Committeefor Investment Banking


2.2. General Meeting and the Group's principal management and

supervisory bodies

2.2.1. General Meeting

Banco BPI’s General Meeting (GM) is the governing body that

assembles together all the Shareholders entitled to vote, that is,

those owning at least one thousand Banco BPI shares.

Shareholders owning less than this number of shares can group

together for the purpose of attaining this number and, in this

manner, acquire the right to vote. Shareholders have three ways

to participate at GM's: personal attendance, representation (by

other shareholders or third parties) or postal voting.

In terms of the Company's statutes, the votes cast by one single

shareholder, whether in his own name or as the representative of

another or others, that exceed twelve and a half per cent of the

company's share capital, shall not be taken into account.

In 2002, the General Meeting met twice:

a) BPI SGPS’s Shareholders’ General Meeting was held in Oporto

on 3 April, at which shareholders corresponding to 57.2% of

the voting rights were present or represented. The proposals

relating to the following matters were approved with 99.8% of

votes in favour:

– the individual and consolidated annual reports and accounts

of BPI SGPS (now Banco BPI) for the 2001 financial year;

– appropriation of net profit for 2001, including the

distribution of a dividend of 9 cents for each one of the

645 625 000 shares representing the share capital at

31 December 2001;

– vote of confidence and praise to the Management Board and

to the other governing bodies for the manner in which they

carried out their respective mandates during 2001;

– election of the members to the governing bodies for the

mandate term 2002 / 2004;

– increase in the company’s share capital from 645 625 000

to 760 000 000 euro, in cash and through the issue of

114 375 000 shares reserved for the shareholders at a

price of EUR 1.75 per share;

– acquisition and sale of treasury stock destined for the share

incentive scheme - RVA – covering employees and directors

with executive functions.

b) On 8 November, BPI SGPS’s Shareholders’ General Meeting

met again in Oporto, at which shareholders corresponding to

60.4% of the voting rights were present or represented. The

General Meeting unanimously approved the proposals

submitted relating to:

– proposed merger by incorporation of BPI Ventures, SGPS,

S.A. and Dixit – Investimentos Estratégicos, S.A. into BPI

SGPS, S.A;

– proposed demerger of Banco Português de Investimento,

S.A., in the form of a merger-demerger, involving the

transfer of part of the respective net assets to BPI SGPS,

S.A. In accordance with the relevant project, this demerger

also entailed a reduction in Banco Português de

Investimento, S.A.’s share capital from 175 180 000 to

20 000 000 euro, and the corresponding amendment to

article 4 of the demerged company’s statutes;

General Meeting

Chairman

Rui Manuel Chancerelle de Machete

Deputy-Chairman

Vasco Manuel Airão Marques

Secretaries

Galucho – Indústrias Metalomecânicas, S.A.

(Vitalina Justino Antunes)

Produtos Sarcol, Lda. (Estela M. Barbot)

Company Secretary

Rui de Faria Lélis

It is the General Meeting's function:

� to consider the Company's management and supervision;

� to elect the members of the Management Board, the

Audit Board and the Remuneration Committee;

� to consider the Management Board's report, to discuss

and vote on the consolidated and individual accounts, as

well as on the Audit Board's opinion;

� To decide upon the appropriation of the annual results,

capital increases and the issue of bonds convertible into

shares or with the right to subscribe for shares;

� to decide upon changes to the statutes.


– proposed merger by incorporation of Banco BPI, S.A. into

BPI SGPS, S.A. and the consequent amendment to articles

1, name (transformation of the BPI SGPS name to Banco

BPI), 3, business object (banking) and 8 of BPI SGPS,

S.A.’s memorandum and articles of association for the

purpose of allowing this company to issue covered warrants;

– proposed merger by incorporation of BPI Factor - Sociedade

Portuguesa de Factoring, S.A., BPI Leasing - Sociedade de

Locação Financeira, S.A. and Estratégia, SGPS, S.A. into

BPI SGPS, S.A.

2.2.2. Audit Board

It is the Audit Board's function to supervise the Company's

affairs and to verify strict compliance with the law and its

statutes. Consequently, the Audit Board prepares an annual

report on its work and issues an opinion on the annual report

and accounts, as well as on the proposed appropriation of net

profit / loss, presented to the General Meeting by the

Management Board.

Audit Board

Chairman

Jorge de Figueiredo Dias

Members

José Ferreira Amorim

Magalhães, Neves & Associados, SROC (Augusta Francisco)

António Dias & Associados, SROC (alternate) (António Dias)

2.2.3. Banco BPI’s Management Board

Banco BPI’s Management Board is the governing body charged

with pursuing the company’s general interests and safeguarding

the management of its business operations, notably, by means of

the coordination, synchronisation and control of the activities of

the companies held directly or indirectly. It is also the

Management Board’s duty to regulate its internal functioning,

including drawing up and approving the regulations for the

Management Board and the Executive Committee. These

regulations were last revised on 21 April 1999.

The Board is composed of nineteen members. Of these, twelve

are non-executive directors: ten represent shareholders owning

47.1% of Banco BPI's share capital and two are independent

(i.e. not representing directly or indirectly key shareholders). The

Executive Committee comprises seven executive directors who

between them held 0.2% of the share capital at 31 December

2002.

The Management Board can only adopt resolutions when the

majority of its members are present or represented, with

resolutions being passed by an absolute majority of votes cast:

the Chairman has the casting vote. Any member of the

Management Board can be represented by another Management

Board member, but none may represent at any meeting more

than one member.

Members of the Management Board are elected for three-year

periods, with re-election always being permitted.

It is a legal requirement that one permanent member and one

alternate member of the Audit Board must be statutory auditors

(or a firm of such auditors).

The Audit Board met five times during 2002.


1) Co-opted to fill vacancy left by António Seruca Salgado’s renouncement: the registration process with the relevant authorities is currently being attended to. 2) Representing Caixa Holding, S.A.3) Representing RAS International, N.V.4) Representing IPI – Itaúsa Portugal SGPS, S.A.5) Representing Cotesi – Companhia de Têxteis Sintéticos, S.A.6) Representing Arsopi – Indústria Metalúrgica Arlindo Soares de Pinho, S.A.

Structure of Banco BPI’s Management Board

Management Board

ExecutiveCommittee

Non-executivedirectors

Non-executivedirectors

(independent)

Internal Control

Committee

RemunerationsCommittee

Chairman

Artur Santos Silva Chairman

Deputy-Chairmen

Carlos da Câmara Pestana � � Chairman4

Fernando Ulrich Deputy-Chairman

Rui Octávio Matos de Carvalho � Chairman

Members

Alfredo Rezende de Almeida � � �5

António Domingues �

António Farinha Morais1 �

Armando Leite de Pinho � �6

Fernando Ramirez2� �

Isidro Fainé Casas �

João Sanguinetti Talone �

José Pena do Amaral �

Klaus Dührkop �

Manuel de Oliveira Violas �

Manuel Ferreira da Silva �

Maria Celeste Hagatong �

Diethart Breipohl3 �

Roberto Egydio Setúbal �

Tomaz Jervell �

Banco BPI’s Management Board is responsible for:

� appointing members to the Executive Committee and

systematically monitoring its activity;

� approving the strategic plan, as well as the BPI Group’s

annual operating plan and budget, and attentively

overseeing its execution;

� approving and monitoring risk exposures in excess of

15% of shareholders’ equity;

� annually evaluating the Bank’s internal rating system

applied to large and medium-sized companies;

� monitoring the BPI Group’s principal financial holdings;

� making decisions regarding strategic investments and

partnerships, that is, in the financial area;

� preparing the annual report and accounts and proposals

for the appropriation of net profit for submission to the

General Meeting;

� monitoring the evolution of the liabilities and assets of

the Group’s staff pension funds;

� proposing to the General Meeting any alterations to the

memorandum and articles of association, share capital

increases and bond issues which fall outside its

jurisdiction (bonds convertible into shares and bonds

with the right to subscribe for shares);

� decide on the issue of bonds when this falls within its

authority;

� approve the code of conduct of the companies controlled

by the Group.


The Committee has as its objectives:

� evaluating the Group’s efficiency in the employment of

its resources and in the setting of controls which protect

against any possible losses arising from the conduct of

its activity, namely, credit, market, liquidity and operating

risks;

� ensuring the integrity, reliability and up-to-date status of

the accounting and financial information that serves as

the basis for management-information systems;

� verifying the conformity of the Bank's operations and

business with legal provisions and other standards issued

by the supervisory authorities, as well as with the BPI

Group's internal regulations and policy;

� overseeing the internal audit of the Group's principal

banks and holding company, approving and monitoring

the execution of the internal and external auditors'

activity plans;

� monitoring the execution of external and audit

programmes, in particular, considering the

recommendations made by the external auditors with

respect to changes to control procedures;

� approving the internal control report of the Group’s two

Portuguese banks;

� reviewing the doubtful debt provisions relating to the loan

portfolio based on economic criteria and the specific

provisions for financial investments and the securities

portfolios;

Details of the other positions occupied by members of Banco

BPI's Management Board at BPI Group or other companies are

presented in the appendix at the end of this report.

During 2002, Banco BPI's Management Board met six times.

2.2.4. Internal Control Committee

The Internal Control Committee set up within the ambit of the

Management Board has been functioning since 1999 and

comprises four non-executive directors. Its mission is to

supervise the conduct of internal and external audits and ensure

actual compliance with the goals of the internal control system.

Internal Control Committee

Chairman

Ruy Octávio Matos de Carvalho

Members

Carlos da Câmara Pestana

Alfredo Rezende de Almeida

Caixa Holding, S.A., Sociedad Unipersonal

(Fernando Ramirez)


In terms of the Management Board's regulations, the Internal

Control Committee may only comprise members with non-

executive functions. The independence of this Committee’s

members vis-à-vis the Executive Committee is aimed at ensuring

compliance with its objectives.

The internal and external auditors of the Group’s banks attend

the meetings of the Internal Control Committee and collaborate

directly with it.

The internal and external auditors, the Management Board

Chairman, as well as the directors and central managers

responsible for the areas analysed at the meetings also attend

and lend support to the Internal Control Committee’s meetings.

The Internal Control Committee met four times during the course

of 2002.

2.2.5. Remuneration Committee

The Remuneration Committee's function is to fix the

remuneration of the members of Banco BPI's governing bodies,

and to formulate the remuneration policy and the retirement

regime to apply to members of Banco BPI's Executive Committee

and to members of Banco Português de Investimento's

Management Board.

The Remuneration Committee is composed of three shareholders

elected for three-year terms by the General Meeting, and who in

turn elect a Chairman (who has the casting vote).

The Remuneration Committee met twice in 2002.

2.2.6. Executive Committee

Banco BPI’s Executive Committee is the body responsible for the

overall management of the Group’s business activity. All the

members of the Executive Committee play an active role in the

day-to-day management of the Group’s business, and are

responsible for one or more specific business areas in

accordance with their profile and their individual specialist

areas. Without prejudice to the greater or lesser focus of one or

other member in a particular area, the decision-making process

in matters relating to the Group’s strategic direction is done on a

collective basis.

Remuneration Committee

Chairman

Itaúsa Portugal – Sociedade Gestora de Participações

Sociais, S.A.

Members

Cotesi – Companhia de Têxteis Sintéticos, S.A.

Arsopi – Industrias Metalúrgicas Arlindo Soares de Pinho, S.A.

Members of Banco BPI’s Executive Committee

Chairman

Artur Santos Silva

Deputy-Chairman

Fernando Ulrich

Members

António Domingues

José Pena do Amaral

Maria Celeste Hagatong

Manuel Ferreira da Silva

António Farinha Morais

� analysing loss incidents arising from customer or

employee fraud;

� reviewing credit risk exposures falling between 5% and

15% of Banco BPI’s consolidated shareholders’ equity;

� analysing default situations exceeding 90 days relating to

credit risk exposures above EUR 500 000;

� monitoring unrealised losses pertaining to the securities

and financial holdings portfolio;

� keeping abreast of the situation of the BPI Group’s staff

pension fund;

� analysing customers’ complaints systematically reported

in the reports prepared by the Quality Division.


Principal areas of responsibility of Banco BPI’s Executive

Committee

� allocation of capital and assessment of the profitability of

the Group's main business operations;

� management of market risks;

� deciding on and monitoring loan risks;

� deciding upon investing or disinvesting in other

companies;

� defining human resources policy, monitoring its

execution;

� appraisal of the BPI Group’s top management;

� disciplinary power over the BPI Group’s employees.

With the object of keeping the non-executive directors

permanently abreast of the Group's affairs, they are sent monthly

information concerning the Group's consolidated economic and

financial situation, as well as the performance of the principal

business units. This information gives an account of the most

important changes that took place and compares monthly and

accumulated trends with budgeted and previous-year figures. In

parallel, the non-executive directors are regularly informed of the

main decisions taken by the Executive Committee, when prior to

2002 this same information was only provided at the

Management Board’s plenary quarterly meetings.

The Executive Committee can only adopt resolutions when the

majority of its members are present, with such decisions

requiring an absolute of the votes. The Chairman has the casting

vote. Proxy voting is not permitted. The directors who are

members of the Executive Committee relinquish their positions

on the Committee once the accounts relating to the financial

year in which they celebrate their sixty-second birthday are

approved. The Executive Committee met thirty three times in

2002.

The Executive Committee meets at least once a month for the

purpose of dealing with matters of general interest relating to

Banco BPI and its subsidiaries. It is involved on a weekly basis

with the specialised areas of the Group’s management, for which

three specific committees were created:

a) Executive Committee for Commercial Banking

The Executive Committee for Commercial Banking is presided

over by the Deputy-Chairman of the Executive Committee of

Banco BPI’s Management Board. It is the body responsible for

managing the technological infrastructure, the central support

structures of the commercial networks and for the activity

relating to following customer segments: Individuals, Small

Businesses and Companies.

The Committee is composed of five Banco BPI Executive

Directors, a non-Executive Director of the investment bank

(Manuel Menezes) and two central managers from Banco BPI

(Benjamim Pinho and Pedro Barreto).

Wide powers are also vested in the Executive Committee of

Banco BPI’s Management Board, within the ambit of

managing the participating interests, such as those:

� to represent the Company in and out of court;

� to acquire, dispose of or encumber any assets or rights;

� to appoint persons to serve on the governing bodies to

which the Company has been elected;

� to give binding instructions to the companies that are

under BPI's full control.

Areas of responsibility

Fernando Ulrich (Chairman) Asset Management, Accounting and Planning, Property Financing

António Domingues Financial area, Cards, Information Systems, Operations and Procurement, Security, Premises and Fixed Assets, and the International Division

José Pena do Amaral Communication, Brand, Quality, Training, Insurance, Protocol Banking, Automated Banking, Motor Car Finance and Personal Credit

Maria Celeste Hagatong Corporate Banking, Wholesale Banking, Corporate Marketing, Institutional Banking and Project Finance

António Farinha Morais Individuals and Small Businesses Network, Credit Risks – Individuals, Emigration

Manuel Menezes Audit and Inspection, Securities and Transfer, Organisation, Equipment Leasing, Factoring,Documentary Credits and Customer Resources

Benjamim Pinho Credit Risks – Companies

Pedro Barreto Operational and Strategic Marketing and New Channels (Internet, Telephone Banking and Electronic Banking)

Principal areas of responsibility of Commercial Banking’s Executive Committee


b) Executive Committee for Credit Risks

The Executive Committee for Credit Risks is the body that takes

the principal decisions relating to aspects referring to the

concession, monitoring and recovery of loans. This body includes

– besides members of Banco BPI’s Executive Committee – two

directors of the investment bank – Francisco Costa and Maria do

Carmo Oliveira, responsible for the South and North Wholesale

Banking areas, respectively – and the central managers of Banco

BPI – Benjamim de Pinho and Filipe Cartaxo, responsible for the

Credit Risk and Project Finance Division, respectively, as well as

the central managers of Corporate Banking - Maria Isabel

Lacerda (Large Companies Northern Division), João Alvares

Ribeiro (Medium-sized Companies Northern Division), João

Coutinho (Large Companies Southern Division) and Joaquim

Pinheiro (Medium-sized Companies Southern Division).

c) Executive Committee for Market Risks

The Executive Committee for Market Risks is the body charged

with analysing the conformity of the positions and mechanisms

associated with the evaluation of interest, currency and equities

risks. This body comprises, besides members of Banco BPI’s

Executive Committee, the director of the investment bank Rui

Martins dos Santos, responsible for the Risk Analysis and

Control areas and the Department of Economic and Financial

Studies, and the central manager Isabel Castelo Branco,

responsible for the Financial Divisions of the Group’s two banks

and the central manager José Manuel Toscano, head of the

Group’s International Division.

The policy, procedures and allocation of powers amongst the

Group’s various bodies and departments on matters relating to

the control and management of the Group’s risks – credit risk,

market risk, liquidity risk and operational risk, are described in

detail in a separate chapter of the directors’ report.

2.2.7. Banco Português de Investimento’s Management

Banco Português de Investimento is the Group unit specialising

in investment banking, namely, Private Banking, Equities and

Corporate Finance.

Banco Português de Investimento’s Management Board is made

up of 11 members – with its chairman and deputy-chairman

being the same as those on Banco BPI’s Executive Committee –

5 executive directors and 4 non-executive directors. The day-to-

day business management is delegated to an Executive

Committee composed of 4 executive directors and three central

managers. This body is presided over by Manuel Ferreira da

Silva, who is also is a director sitting on Banco BPI’s Executive

Committee.

Banco Português de Investimento’s Management Board

Members Non-executiveExecutive

Artur Santos Silva Chairman

Fernando Ulrich Deputy-Chairman

Manuel Ferreira da Silva �

Rui Lélis �

José Carlos Agrellos �

António Borges de Assunção �

Rui Martins dos Santos �

Maria Celeste Hagatong �

Francisco Costa �

Maria do Carmo Oliveira �

Manuel Meneses �

Banco Português de Investimento’s Executive Committee

Members Areas of responsibility

Manuel Ferreira da Silva Chairman

Rui Lélis Legal

José Carlos Agrellos Private Banking

António Borges de Assunção Corporate Finance

Carlos Casqueiro Corporate Finance

Henrique Cabral Meneses Equity

Rui Ferreira Private Equity

2.2.8. The Group’s functional organisation chart

The BPI Group’s organisational business model is based on the

interaction of three key concepts: multi-specialisation,

segmentation of the customer base and multi-channel

distribution.

Executive management, supervision and control

The composition and functions of the BPI Group’s management,

supervisory and control bodies are detailed in points 2.1 to

2.2.7 of this report.

Central structures

This group embraces the entire universe of shared services (of

the back-office kind) which acts as direct support to the Group’s

other units by undertaking the development and maintenance of

its operational, physical and technological infrastructure.

Corporate functions

The units grouped around the "corporate functions" are

associated with functions under the direct command of Banco

BPI’s Executive Committee.

Marketing

The marketing function is carried out in a segregated manner

according to the segmentation between Individuals, Small

Businesses and Companies. In the case of Individuals and Small

Businesses Marketing, this function is undertaken by two Divisions

which report to the same executive head: Strategic Marketing –

concentrated above all on CRM (Customer Relationship

Management) solutions – and Operational Marketing – focusing on

the coordination of the sales function. The Marketing Division –

Companies handles all aspects relating to communication,

information and the management of databases associated with

commercial activity directed at corporate customers.

Credit risks

The Executive Committee for Credit Risks is the body that takes

the principal decisions concerning the aspects relating to the

concession, monitoring and recovery of lending operations. At a

more operational level, credit risk management is segregated by

four segments: individuals, small businesses, companies and

securities. The manner in which the various risks are managed at

the BPI Group is comprehensively dealt with in a separate

chapter in the Directors’ Report.

Product factories

The development of the banks’ commercial products and services is

segregated by specialised Divisions (product factories), part of

which – property financing, motor vehicle leasing and factoring –

simultaneously serving the individuals, small businesses and

companies segments. A new unit was formed at the end of 2002

called "Customer Resources", at which all the Bank’s liability-side

products are concentrated, such as time deposits, unit trust funds,

structured products and capitalisation insurance.

Channels

BPI possesses a multi-channel distribution network, fully

integrated, composed of approximately 500 retail branches,

homebanking services (BPI Net), telephone banking (BPI

Directo), specialised branches and structures dedicated to the

corporate and institutional segment. Outside Portugal, BPI is

engaged in commercial banking business in Angola and

Mozambique, through two local-law banks. BPI has also a

number of branches and representative offices which essentially

provide support to Portuguese emigrant communities.

Business support

This block encompasses three areas – Quality, Training, Brand

Communication and Management – managed in an integrated

fashion under the command of the same member of Banco BPI’s

Executive Committee with a view to realising the BPI Group’s

objective of positioning itself as a market benchmark in terms of

quality and services. This implies the close coordination of the

programmes covering quality, technical and behavioural training,

brand communication and development.


Corporative functions

Human ResourcesFinancial ManagementRisk Analysis and ControlInvestor RelationsAccounting and PlanningPublic RelationsLegal

Banco BPI

Banco BPI’sManagement Board

Banco BPI’sExecutive Committee

CompanySecretary

General Meeting

Audit Board

Internal ControlCommittee

Executive Committeefor Credit Risks

Executive Committeefor Market Risks

Executive Committeefor Investment Banking

Central structuresBusinessAreas

InvestmentBanking

PrivateEquity

AssetManagement

DomesticCommercial Banking

OverseasCommercial Banking

EquitiesCorporate FinancePrivate Banking

Internal Auditors

BPI Suisse

Individuals and SmallBusinesses Banking

Santiago de CompostelaMadrid

Paris

ParisGenevaHamburgNewarkCaracasJohannesburg

Banco BPI Cayman

Banco de FomentoAngola

Banco de FomentoMozambique

Banks

Branches

Corporate Banking,Institutional Bankingand Project Finance

Marketing

Operational MarketingStrategic Marketing

Marketing – Companies

Credit Risks

Individuals and SmallBusinesses

Product Factories

Customer ResourcesPersonal LoansCards

Real Estate FinancingMotor Car Financing

Leasing, Factoring and Documentary Credits

Large and Medium-sizedCompanies, WholesaleBanking, Institutional Banking,Project Finance, International

Channels

Traditional networkInvestment CentresIn-StoreAutomated BankingTelephone BankingInternetHousing shopsOther Real Estate ChannelsEmigration International

Corporate CentresInstitutional BankingElectronic Banking

Business support

Brand Communication and ManagementQualityTraining

Information SystemsOrganizationSecurities, Transfers and LoansOperations and ProcurementPremises and Fixed AssetsSecurities

External Auditors

Representativeoffices

Executive Committeefor Commercial Banking


THE GROUP’S FUNCTIONAL ORGANISATION CHART


3. REMUNERATION

3.1. Remuneration of members of Banco BPI and Banco

Português de Investimento Management Boards

The remuneration of members of Banco BPI and Banco

Português de Investimento Management Boards is fixed by the

Remuneration Committee, a body which is, as mentioned earlier,

composed of three Banco BPI shareholders elected for three-year

terms by the General Meeting.

The variable part of remuneration of the Chairman and Deputy-

Chairman of the Executive Committee of Banco BPI's

Management Board is calculated by applying a formula which

essentially takes into consideration the evolution of the

consolidated results and the provisions not allotted to specific

risks.

In the case of the remaining members of Banco BPI's Executive

Committee and the members of the Banco Português de

Investimento’s Management Board, the amount paid as variable

remuneration is defined by the Remuneration Committee

following a proposal of the Chairman of Banco BPI's

Management Board which is based on the Group's and their

individual performances.

The non-executive directors are paid in the form of fixed monthly

salaries and attendance vouchers.

The following remuneration was paid to the members of Banco

BPI's Management Board for the exercise of their functions in

2001, with estimated figures for 2002:

3.2. Share incentive scheme (Portuguese initials – RVA)

Description

A share incentive scheme (RVA) has been in force at the BPI

Group since the 2001 financial year. It is essentially a

remuneration scheme, the income from which is intrinsically

linked to the stock market appreciation in Banco BPI shares. In

this way, the RVA constitutes an important instrument of the

Group's human resources management policy in that it bonds

together employees' and directors' interests with those of its

Shareholders.

The programme encompasses all the executive directors of

Banco BPI and the directors of Banco Português de

Investimento, and all employees whose annual variable

remuneration is equal to or exceeds EUR 2 500.

The characteristics of the RVA – 2002 were essentially identical

to those of the RVA – 2001 programme, with the exception of

the form in which the shares were attributed. In terms of a

resolution of the Executive Committee of Banco BPI’s

Management Board, the shares were only awarded under a

condition subsequent whereas in the RVA-2001 programme the

shares were awarded under the condition subsequent or

precedent regime.

The variable component of remuneration, which up until 2000

was paid wholly in cash, began to be paid with effect from 2001

to Directors and Employees covered by the RVA partly in cash

and partly in shares and options. For these, the portion of the

share and options component (RVA) of variable remuneration

varies between a minimum of 10% and a maximum of 50%,

with the percentage rising commensurately with the level of the

employee’s or director’s responsibility.

The RVA contemplates two modes: awarding of share and share

purchase options. Each one of these represents approximately

half of the overall amount of the incentive that is attributed in

the following manner:

– attribution of Banco BPI shares, the availability of which takes

place in a phased manner at four points in time: 25%

becomes freely available at the time of the award; thereafter,

the remaining 75% become available at the end of the first,

second and third years;

– attribution of Banco BPI share purchase options that can be

exercised between the first and fifth year of being awarded.

Remuneration of members of Banco BPI Management Board1,2

Total

2002

Fixed VariableTotal

2001

Fixed Variable

Executive3 1 569.84 2 524.3 4 094.1 1 668.0 2 524.0 4 192.0

Non Executive 486.8 0 486.8 486.8 0 486.8

Total 2 056.6 2 524.3 4 580.9 2 154.8 2 524.0 4 678.8

Note: figures in thousands of euro.1) Designated until 21 December 2002 as BPI SGPS’s Management Board2) The variable portion of Banco BPI executive directors' remuneration is fixed by the

Remuneration Committee subsequent to the holding of the Annual General Meeting.The information presented relating to 2002 constitutes an estimate. The amounts thatthe Remuneration Committee finally attributes may differ slightly from this estimate.

3) Remuneration received for functions performed on the Management Boards of BPISGPS, Banco BPI and Banco Português de Investimento.

4) The fixed remuneration was altered in March 2001 with the result that in 2002 suchchanges apply to the whole year.


2001 and 2002 share incentive programmes

The number of executive directors of the banks, managers and

employees of the BPI Group covered by the RVA-2002 was

2 157, or 33% of the Group's permanent workforce in Portugal.

The amount of variable remuneration paid to directors, managers

and employees in 2002, both in cash and under the RVA

incentive programme (shares and options), totalled EUR 25.2

million. The part of variable remuneration attributed to

employees through the RVA incentive scheme was EUR 3.5

million, that is, 14% of the total variable remuneration paid to

employees.

The amount of variable remuneration attributed to members of

the Executive Committee of Banco BPI's Management Board and

to the directors of Banco Português de Investimento is defined

by the Banco BPI’s Remuneration Committee, which only takes a

decision after the holding of Banco BPI’s Shareholders’ General

Meeting. Accordingly, at the date of this report, it is not possible

to determine the number and overall value of the shares and

options to be awarded to these executives. The figures indicated

for the members of Banco BPI’s Executive Committee and for

the members of Banco Português de Investimento’s Management

Board with respect to 2002 are an estimate.

In 2001, there was a reduction of 15% in the variable

remuneration paid to the directors with executive functions in

line with the trend in the Group’s results.

It is estimated that the members of the Executive Committee of

Banco BPI’s Management Board earned EUR 2.5 million in the

form of variable remuneration in respect of 2002. Of this figure,

it is estimated that EUR 1.1 million refers to RVA incentives, i.e.

44% of the amount of variable remuneration.

Share incentive scheme

The estimated number of shares to be awarded to Banco BPI

executive directors under the 2002 RVA programme is about

259 thousand. The attribution date for purposes of the RVA

regulations is 22 February 2003 and the value placed on the

shares for purposes of calculating the number of shares is

EUR 2.14.

No. of persons covered

RVA 2001 RVA 2002

% of the RVA invariable

remuneration

Chairman and Deputy-Chairman of Banco BPI Executive Committee1 50% 2 2

Other directors of Banco BPI Executive Committee1 40% 5 5

Directors of Banco Português de Investimento2 35% 8 8

Managerial staff, of whom: 498 482

Central managers 30% 45 38

Deputy central managers 25% 61 59

Managers 20% 73 78

Assistant and deputy managers 15% 319 307

Other employees 10% 1 566 1 660

Total - 2 079 2 157

Share attribution programme RVA 20021RVA 2001RVA 2001

(Figures adjusted for dividends and the2002 share capital increase)

Attribution date 21-Mar-02 22-Feb-03

Price2 2.67 euro 2.54 euro3 2.14 euro

No. of shares attributed4

Banco BPI Executive Committee5 215 875 218 996 259 th.

Banco Português de Investimento’s Management Board6 86 888 89 452 69 th.

Managerial staff and other Group employees 635 217 679 497 816 096

1) The number of shares attributed or to be attributed under the RVA-2002 programme corresponds: for managerial staff and Group employees, to the effective attribution value; for BancoBPI’s Executive Committee and for Banco Português de Investimento’s Management Board, at estimated value, still subject to a decision of the Remuneration Committee.

2) Results from the weighted average of the Banco BPI share price at the last 10 stock exchange sessions prior to the date the RVA benefits are awarded.3) Attribution price of the RVA 2001 adjusted for the capital increase realised in May 2002.4) The number of shares initially attributed under the RVA 2001 was adjusted by the payment of dividends and by the share capital increase realised by BPI SGPS (now Banco BPI) in May

2002. The adjustments entailed the attribution of an additional 37 211 shares (against the payment of EUR 1.75 per share) to directors, managerial staff and employees as anadjustment for the capital increase realised and 12 754 shares as adjustment for the distribution of dividends in respect of the 2001 financial year. In this last point, it is important tonote that only the director or employees who opted for the suspensive condition regime – in terms of which the shares in a captive situation remain in legal terms the Bank’s property –were the object of the forementioned adjustment. Those members who opted for the condition subsequent regime received a dividend relating to all the shares – captive and available –in cash.

5) BPI SGPS’s Executive Directors in 2001 and up until 20 December 2002.6) Other directors of Banco BPI and Banco Português de Investimento in 2001 and up until 20 December 2002.

1) Executive directors of BPI SGPS in 2001 and up until 20 December 2001.2) Other directors of Banco BPI and Banco Português de Investimento in 2001 and

up until 20 December 2002.


The following is the calendar for the availability of the shares

awarded under the RVA 2001 and 2002 programme:

Programme for the attribution of share purchase options

The estimated number of options to be attributed to Banco BPI’s

executive directors under the 2002 programme is 1.7 million. As

is the case with the share award programme, the date for the

awarding of the options was 22 February and the exercise price

fixed at EUR 2.14. The option value was set at EUR 0.33.

Availability RVA 2002RVA 2001

25% 21 March 2002 -

25% 21 March 2003 22 February 2003

25% 21 March 2004 22 February 2004

25% 21 March 2005 22 February 2005

25% - 22 February 2006

1) The effective availability occurs after compliance with the essential procedures for thecontracting of the award operation.

Share options scheme RVA 20022RVA 2001RVA 2001

(Figures adjusted by the 2002share capital increase)1

Attribution date 21-Mar-02 22-Feb-03

Exercise period 21-Mar-03 to 21-Mar-07 22-Feb-04 to 22-Feb-08

No. of shares that may be acquired for each option held 1 1 1

Exercise price3 2.67 euro 2.54 euro 2.14 euro

Value of each option 0.65 euro 0.62 euro 0.33 euro

No. of options granted

Banco BPI Executive Committee4 859 725 904 216 1.7 million

Banco Português de Investimento’s Management Board5 346 818 364 767 448 th.

Managerial staff and other Group employees 2 606 474 2 741 681 5 286 397

1) As a consequence of BPI SGPS’s share capital increase (now Banco BPI) realised in May 2002, the exercise price of the options resulting from the RVA 2001 was adjusted from EUR2.67 to EUR 2.54 and the number of options attributed under the RVA 2001 programme increased by 5%.

2) The number of shares attributed or to be attributed under the RVA-2002 programme corresponds: for managerial staff and Group employees, to the effective attribution value; for BancoBPI’s Executive Committee and for Banco Português de Investimento’s Management Board, at estimated value, still subject to a decision of the Remuneration Committee .

3) Results from the weighted average of the Banco BPI share price at the last 10 stock exchange sessions prior to the date the RVA benefits are awarded.4) BPI SGPS’ Executive Directors in 2001 and up until 20 December 2002.5) Other directors of Banco BPI and Banco Português de Investimento in 2001 and up until 20 December 2002.

Managers and other employees

Executive Committee of Banco BPI1, 2

Banco Português deInvestimento’s Management

Board1, 3

RVA-2001 (number of options)

Granted in March 20024, 5 904 216 364 767 2 741 681

Exercised in 2002 0 0 0

Extinguished in 2002 0 0 24 131

RVA 2001 options do existing at 31 Dec. 02 904 216 364 767 2 717 550

RVA 2001 exercisable options at 31 Dec. 02 0 0 150 648

RVA-2002 (number of options)

Granted in February 20035 1.7 million 448 th. 5 286 397

Exercisable in 2003 0 0 0

Extinguished in 2003 - - -

RVA 2002 options existing at 31 Dec. 036 1.7 million 448 th. 5 286 397

Total RVA Programme

Number of options

Options existing in Feb. 037 2.6 million 812 th. 8 003 947

Options not exercisable until 31 Dec. 03 1.7 million 448 th. 5 286 397

Options exercisable until 31 Dec. 03 904 216 364 767 2 717 550

Number of shares needed for the exercise of:

Options granted (and not exercised)

At beginning of 2003 904 216 364 767 2 566 902

At the end of 20036 1.7 million 448 th. 5 286 397

Options to be exercised

At beginning of 2003 0 0 150 648

At the end of 20036 904 216 364 767 2 717 550

1) Actual value of RVA 2001 and estimated value for RVA 2002.2) BPI SGPS Executive Directors in 2001 and up until 20 December 2002 (date on which BPI SGPS was transformed into Banco BPI).3) Other directors of Banco BPI and Banco Português de Investimento in 2001 and up until 20 December 20024) Number of options granted adjusted for BPI SGPS’s (now Banco BPI) share capital increase realised in May 2002.5) In terms of the RVA regulations, the number of shares which are object of the options granted in the year cannot exceed 1% of Banco BPI’s share capital at the date of the attribution of

the forementioned incentives. Simultaneously, the total number of shares which are object of the options in force (matured or not) cannot exceed at any point in time 5% of Banco BPI’sshare capital.

6) Assuming that no options are exercised or extinguished during 2003.7) After the attribution of the RVA 2002 options.

Programme for the attribution of share purchase options – 2001 and 2002

The BPI Group carries out (using an in-house model based on

the Black-Scholes model) its own hedging operations for the

share incentive scheme (RVA). To this end, it holds share

portfolios allocated to hedging the obligations arising from the

awarding of shares under the suspensive condition within the

ambit of the RVA 2001 and options.

Powers of the Executive Committee for the execution /

modification of the RVA incentive scheme

In the regulations of the RVA share incentive scheme, the

principal functions attributed to the Executive Committee for the

programme's execution / modification are:

– fixing the maximum number of shares and options to be

awarded each year, as well as the criteria (of which the

evaluation of each employee always forms part) and the

conditions underlying the distribution of these benefits

amongst the Group's employees;

– interpreting the RVA regulations and covering any loopholes;

– making occasional changes to the RVA's contractual provisions,

such as for example, bringing forward the option maturity

dates or dispensing with the verification of the suspensive

conditions.

4. SHAREHOLDER CONTROL AND TRANSFERABILITY OF

SHARES

4.1. Shareholder control

Banco BPI has not adopted any defensive clause impeding the

free transferability of the shares and the unrestricted review by

shareholders of the performance of Board members.

At 31 December 2002, the share capital held by shareholders

represented on the Management Board and on the Audit Board

stood at 47.8%. The percentage of the corresponding voting

rights, taking into account own shares held by the Group and the

statutory limitation, was 42.9%. Banco BPI’s capital at that date

was held by 24 364 shareholders.

Banco BPI's statutes stipulate that the votes cast by a single

shareholder, in his own name and also as the representative of

another or others, which exceed 12.5% of the company's total

votes, shall not be counted.

4.2. Shareholders agreements relating to the exercise of

company rights or to the transferability of shares

There are no shareholder agreements of the type referred to in

article 19 of the Securities Code relating to the exercise of

company rights, or to the transferability of Banco BPI shares; in

particular, there is no voting or defence agreement for warding

off takeover bids.

A preferential rights' agreement was entered into in 1986

between certain of BPI's most significant shareholders, and has

been successively renewed for three-year periods.

Any of the contracting parties wishing to transfer all or part of

the shares covered by the agreement is bound to give preference

on such disposal to the other contracting parties, upon the same

terms and conditions.

The forementioned agreement (revalidated in August 2000), is

presently subscribed by 6 Banco BPI shareholders: at 31

December 2002, the agreement covered shares representing

42.6% of Banco BPI's share capital.

5. EXERCISE OF VOTING RIGHTS AND SHAREHOLDER

REPRESENTATION

5.1. Encouraging the exercise of voting rights

Banco BPI actively encourages the exercise of voting rights by

means of:

– ample disclosure of the convening of General Meetings (by

mail, electronic mail and by the Internet), the topics to be

discussed thereat and the different ways of exercising the right

to vote;

– the description in the meeting notices sent to shareholders of

the procedures to be adopted for those opting for postal or

proxy voting (regime enshrined in the statutes).

The proposals to be submitted for consideration and deliberation

at the Meeting, as well as any other preparatory information, are

placed up to 15 days prior to the date set for the meeting, at the

disposal of shareholders at Banco BPI’s head office (Rua

Tenente Valadim, 284, Oporto) and on the site www.bpi.pt. The

sending of any one of the above-mentioned material, including

copies of ballot (voting) papers for the exercise of postal voting,

may also be requested via a publicly-disclosed e-mail address.


5.2. Attribution of voting rights

A shareholder can vote provided he owns at least 1 000 Banco

BPI shares on the 15th day prior to the date set for the General

Meeting. The registration of ownership must be proved to Banco

BPI by 6 p.m. of the fifth working day prior to the date set for

the meeting. Every 1 000 shares correspond to one vote.

5.3. Procedures relating to proxy representation

At its own initiative BPI pursues a policy of sending to

shareholders the full content of proposed matters to be included

in the order of business, as well as proxy forms, accompanied by

a self-addressed postage-paid envelope.

Proxy representations must be communicated by letter addressed

to the Chairman of the General Meeting Board, with the

signature duly certified (by a notary, lawyer or legal clerk or by

the company). Each letter must be received at Banco BPI’s head

office by 6 p.m. on the fifth day prior to the date set for the

General Meeting.

The Chairman of the Shareholders' General Meeting Committee

is as a rule available to represent shareholders, expressing in a

clear manner his voting intentions where the shareholder does

not stipulate any specific instructions.

5.4. Procedures relating to postal voting

BPI sends annexed to the notice convening the General Meeting,

ballot papers addressed to the Chairman of the General Meeting

Board, by means of which the shareholder can express in a clear

form his vote. Each ballot paper must be signed and this

signature duly certified (by a notary, lawyer or legal clerk). Ballot

papers must be received at Banco BPI’s head office by 6 p.m.

on the fifth working day prior to the date set for the General

Meeting.

Postal votes count towards the constitution of the General

Meeting quorum, and the respective ballot papers shall be

opened by the Chairman of the General Meeting Committee, who

must check that they are authentic and valid, after counting the

physical voting for each one of the proposals. The postal vote

cast by a shareholder who is present or represented at the

General Meeting shall be ignored.

5.5. Voting via electronic mail

BPI believes that at the present moment, all the necessary

conditions are not yet present that permit a high degree of

operating security and reliability in the reception of votes cast by

way of electronic mail.

6. INSTITUTIONAL INVESTORS

6.1. Diligent, efficient and critical exercise of company rights

The BPI Group's entities operating on the market as institutional

investors – the fund-management companies, the pension-fund

management company, the investment bank and the

development capital companies – are bound to the rules

designed to ensure the diligent, efficient and critical use of the

rights attaching to the negotiable securities of which they are the

holders or whose management has been entrusted to them,

namely as concerns information and voting rights.

7. CODE OF ETHICS AND PROFESSIONAL CONDUCT

7.1. Safeguarding against conflicts of interest, violation of

professional confidentiality and respect for the codes of

ethics and professional conduct

With the aim of safeguarding absolute respect for all the

standards of an ethical and professional conduct nature at each

of the BPI Group's companies, employees, members of governing

bodies, service providers and external consultants are obliged to

declare in writing that they have full knowledge of the norms

included in:

– codes of conduct of the respective associations;

– BPI's own codes, adapted in accordance with the type of

activity carried out by each one of the banks and investee

companies, and which in certain instances contain even more

restrictive rules than those embodied in directives issued by

the associations to which they belong and/or by the supervisory

authorities.

The ethical and professional conduct regulations imposed upon

those who work for the BPI Group are intended to guarantee

professional confidentiality, the defence of Customers' interests

and the prohibited use of privileged information for personal

gain.


The dealing limits are particularly strict in all matters relating to

the execution of securities operations for one’s own account (and

that of families), especially at the companies directly involved in

this type of activity, such as Banco de Investimento and BPI

Fundos. By way of example, any stocks acquired by employees

and by members of these companies’ governing bodies may only

be sold 30 days after they were acquired. This constitutes an

effective limitation of the risk of improper involvement in

operations of a speculative nature.

In general terms, it is important to stress the obligation imposed

on all the Group’s employees and directors to communicate

within 24 hours to management, all the operations realised

involving securities, except in the case where the Group’s

stockbroking channels have been used (which is tantamount to

communication of the operation for this purpose). In the case of

employees involved in stockbroking activity, use of the Group’s

stockbroking channels is compulsory.

In the case of BPI shares, the requirements are even tighter.

Members of management or others with a professional category

on a par with or above a manager, as well as those employees

involved in the preparation of the annual report and accounts or

the issue of shares or securities convertible into shares, are

prohibited from dealing in Banco BPI shares, as well as in

securities convertible into shares or those which confer such

rights:

– in the period falling between the 15th day before the end of

each quarter or each financial year, and the day the

corresponding results are disclosed;

– in the period falling between the decision of BPI’s

management to propose the issue of shares representing its

share capital or of securities convertible into shares or those

which confer such rights, and the respective public

announcement.

Finally, it is worth mentioning that the codes of conduct in force

at the BPI Group are available on request from the Investor

Relations Office.

8. COMMUNICATION WITH THE MARKET

8.1. Investor Relations Division

Banco BPI attaches special importance to the maintenance of a

frank and transparent relationship with financial analysts,

investors, shareholders, authorities, mass media and other

market participants.

Stemming from this permanent preoccupation, BPI set up in

1993 a structure exclusively dedicated to relations with investors

and with the market. The Investor Relations Division reports

directly to Banco BPI's Executive Committee and has as its

mission providing the market with accurate, regular, timely and

unbiased information concerning the BPI Group, with particular

emphasis on information that could have a material impact on

the Banco BPI share price.

The Investor Relations Division has as its principal functions

guaranteeing, to the Authorities and to the market, compliance

with legal and regulatory reporting obligations to which Banco

BPI is bound, responding to the information needs of investors,

financial analysts and other interested parties, and lending

support to the Executive Committee in aspects relating to Banco

BPI's presence on the market as a listed entity.

Within the scope of the first-mentioned responsibilities, of

particular importance is the disclosure of information classified

as "relevant fact" or "other communications", the furnishing of

quarterly information concerning the Group's activity and results,

and the preparation of the annual and interim reports and

accounts.

In the sphere of advisory support given to the Executive

Committee, we highlight the monitoring of the Banco BPI share

price in its multiple facets, backing in the direct contact that

the Executive Committee regularly has with financial analysts

and institutional investors (national and foreign), covering both

conferences and road shows and individual (one-on-one)

meetings.

In this respect, we refer to the Conference for Investors and

Financial Analysts which the Executive Committee has been

staging every year since 2001. BPI has a policy of informing the

market of important issues presented at these gatherings and

making available on its website details of presentations made to

analysts and institutional investors.


It is important to underline the fact that since the last quarter of

1991, BPI has been disclosing information relating to its activity

and consolidated earnings on a quarterly basis. For a number of

years now BPI has pursued a policy of publishing a half-yearly

report and accounts. These accounts are subjected to a full-

scope external audit when the law requires merely a limited

review.

The Investor Relations Division contact details are frequent and

widely broadcast. All the information of a public nature

regarding the BPI Group can be requested from the Investor

Relations Office via the contact page at the site www.bpi.pt, by

telephone (22 607 33 37), e-mail ([email protected]),

fax (22 600 47 38) or by letter (Rua Tenente Valadim, 284,

4100-476 Porto).

8.2. Representative for Market Relations

Mr. Rui de Faria Lélis is Banco BPI representative for Market

Relations.

8.3. Use of the new information technologies in the disclosure

of financial information and preparatory documents for

General Meetings

Institutional site – www.bpi.pt

BPI has a site (www.bpi.pt) dedicated to the dissemination of

information about the Group. The site, which is available in

Portuguese and English, was widely used in 2002 for disclosing

important facts for the market. In the case of the events

«General Meetings», «Distribution of Dividends» and «Capital

Increase», specific web pages were created for disseminating

more detailed information concerning these.

The site also contains general information about the BPI Group,

such as news, governing bodies, historical milestones, corporate

governance, shareholder structure, distribution channels and

financial information, in particular, the reports and accounts,

press releases (including the disclosure of results),

presentations, information about Banco BPI’s business

operations, financial indicators, rating classifications and events

calendar.

The number of pages viewed on the site www.bpi.pt in 2002 was

three million, while the site was visited 427 thousand times.

Electronic mail

In parallel, the quarterly announcement of the BPI Group's

results – the most important periodic communication with the

market – is founded primarily on electronic mail dissemination,

addressed to the supervisory authorities, the media, analysts, as

well as all institutional investors and to individuals who expressly

request this information.

Generally speaking, all the documents issued in paper form

(including preparatory documents for the General Meetings) are

available for dispatch in electronic format upon request.



9.2. Dividend policy

The essential elements of the BPI Group's dividend policy are:

– the Group's consolidated net profit serves as the basis for

calculating the dividend payment;

– maintenance of a historical pay-out of not less than 30%,

while retaining earnings that ensure the availability of the

financial resources required for the Group's growth;

– fixing the dividend per share in adjusted terms by taking into

account capital increases (in cash or by the incorporation of

reserves) and stock splits.

Trend in Banco BPI’s share price in 2002Communication of important facts to the market

€

2.80

2.60

2.40

2.20

2.00

1.80

1.60January February March April May June July August September October November December

1

2.15

2.18

Annual variation

+1.5%

2/3 4 5 6 7 8 9 10/11/12 13 14

9. BANCO BPI SHARE PERFORMANCE AND DIVIDEND POLICY

In the chapter entitled "Banco BPI Shares", a detailed account is

presented of the stock market behaviour of Banco BPI shares,

which includes figures relating to earnings per share, dividends

paid, shareholders' returns, liquidity data and stock market

capitalisation and market appreciation indicators for the last

five years. These historical series have been adjusted for

important events (capital increases and stock splits) so

as to ensure comparability.

9.1. Banco BPI share performance

The graph presented below depicts Banco BPI's share price

trend in 2002 as well as the relevant communication flow to the

market. The market prices are adjusted for the capital increase

which took place in May 2002.

Date event communicated to the market

EventNo.

1st stock exchange sessionafter communication

Event

Communication of important facts to the market

1 07 Feb 02 08 Feb 02 Disclosure of earnings relating to 2001

2 22 Feb 02 25 Feb 02 Announcement of proposed dividend payment and share capital increase

3 25 Feb 02 26 Feb 02 Notice of the General Meeting

4 13 Mar 02 14 Mar 02 Announcement of the new strategic objectives for the three-year period 2002 / 2004

5 18 Mar 02 19 Mar 02 Sale of a 5.6% shareholding in Brisa to Acesa

6 22 Mar 02 25 Mar 02 Banco BPI acquires from ACESA a 10% shareholding in Auto-Estradas do Atlântico, raising its stake to 20%

7 03 Apr 02 04 Apr 02 Decisions and results of the Shareholders' General Meeting

8 16 Apr 02 17 Apr 02 BPI discloses the composition of its governing bodies for the three-year period 2002 / 2004

9 24 Apr 02 26 Apr 02 Release of earnings for the 1st quarter of 2002

10 25 Jul 02 26 Jul 02 Release of earnings for the 1st half of 2002

11 25 Jul 02 26 Jul 02 BPI informs the market about the BPI Group's activity in Angola

12 25 Jul 02 26 Jul 02 Announcement of the BPI Group's proposed reorganisation

13 24 Oct 02 25 Oct 02 Release of earnings for the 3rd quarter of 2002

14 08 Nov 02 11 Nov 02 The BPI Group's proposed reorganisation is unanimously approved at a Shareholders' General Meeting

Notes: a) The above communications were sent to the CMVM for publication via the information dissemination system on the Internet;b) BPI adheres to a policy of disclosing important facts after the closing of the day's stock exchange session, with the result that any possible effect on share prices is only

felt in the next session;c) The share prices shown in the chart have been adjusted for the capital increase realised in May 2002.


10. APPENDIX OF THE BPI GROUP’S CORPORATEGOVERNANCE REPORT

10.1. Other management or supervisory positions occupied bymembers of Banco BPI's Management Board in othercompanies

Artur Santos Silva, aged 61, has been performing executive functions at theBPI Group for 21 years. He is Chairman of the Management Boards of BancoPortuguês de Investimento, SA, Banco de Fomento, SARL (Angola), Bancode Fomento, SARL (Mozambique), Banco BPI Cayman Ltd, BPI MadeiraSGPS, SA and Inter-Risco – Sociedade de Capital de Risco, SA. He is also adirector of Viacer – Sociedade Gestora de Participações Sociais, Lda.

Carlos da Câmara Pestana, aged 71, is a member of the Management Boardof Banco Itaú, S.A. (Brazil), member of the Management Board of ItaúsaPortugal, SGPS, S.A. (Portugal), Deputy-Chairman of the Management Boardof Banco Itaú Europa, S.A. (Portugal), member of the Board of Directors ofItaúsa Madeira - Investimentos, SGPS, Lda, member of the Board ofDirectors of IPI - Itaúsa Portugal Investimentos, SGPS, Lda, member of theBoard of Directors of Itaú Europa, SGPS, Lda and member of the Board ofDirectors of Cashedge - Consultores e Serviços, Lda.

Fernando Ulrich, aged 50, has been performing executive functions at theBPI Group for 19 years. He is Deputy-Chairman of the Management Boardsof Banco Português de Investimento, S.A. and Banco de Fomento, SARL(Mozambique); Chairman of the Management Boards of BPI Capital FinanceLimited, BPI Fundos – Gestão de Fundos de Investimento Mobiliário, S.A.,BPI Global Investment Fund Management Company, S.A., BPI Pensões –Sociedade Gestora de Fundos de Pensões, S.A., BPI Vida – Companhia deSeguros de Vida, S.A. and Solo – Investimentos em Comunicação, SGPS, SA.He is also a member of the Management Boards of Banco BPI Cayman, Ltd,Banco de Fomento, SARL (Angola), BPI Madeira SGPS, S.A., Companhia deSeguros Allianz Portugal, S.A., Inter-Risco – Sociedade de Capital de Risco,SA, Impresa-SGPS, S.A. and SIC – Sociedade Independente deComunicação, S.A. In addition, he is a non-executive member of theManagement Boards of Portugal Telecom, S.A. and PT Multimédia, S.A.

Ruy Octávio Matos de Carvalho, aged 70, is the Chairman of the Audit Boardof EFACEC, Deputy-Chairman of Yura International and Vittoria Capital andmember of the Management Board of João Marques Pinto – InvestimentosImobiliários, S.A.

Alfredo Costa Rezende de Almeida, aged 69, is Chairman of theManagement Boards of Arco-Têxteis – Empresa Industrial de Santo Tirso,S.A., and Arco-Fio – Fiação, S.A., Deputy-Chairman of the ManagementBoard of Arcotinto – Tinturaria, S.A., member of the Management Board ofFábrica do Arco – Recursos Energéticos, S.A and Member-Director of Casa deArdias - Sociedade Agrícola e Comercial, Lda.

António Domingues, aged 46, has been performing executive functions at theBPI Group for 13 years. He is Chairman of the Management Board ofCrediuniverso – Serviços de Marketing, SA. He is also a member of theManagement Boards of Banco de Fomento, SARL (Angola), Banco BPICayman, Ltd, BPI Capital Finance Limited, BPI Madeira SGPS, SA,Digitmarket – Sistemas de Informação, SA, SIBS – Sociedade Interbancáriade Serviços, SA and Unicre – Cartão Internacional de Crédito, SA.

António Farinha Morais, aged 51, has been performing executive functions atthe BPI Group following the acquisition of the former BFE in 1996.Previously, he had been working at BFE since 1978. He is a member of theManagement Boards of BPI Global Investment Fund Management Company,S.A. and BPI Fundos – Gestão de Fundos de Investimento Mobiliário, S.A.

Armando Costa Leite de Pinho, aged 68, is Chairman of the ManagementBoards of Arsopi – Indústrias Metalúrgicas Arlindo S. Pinho, S.A. and Arsopi– Holding, SGPS, S.A., A.P. Invest, SGPS, S.A. He is also Deputy-Chairmanof the Management Board of Unicer – Bebidas de Portugal, SGPS, S.A., aswell as member of the Management Boards of Plurimodus –SociedadeImobiliária, S.A., Pluricasas – Sociedade Imobiliária, S.A., and PluridomusTurismo, S.A. He is also a director of Arsopi-Thermal, Equipamentos Térmico,Lda., Tecnocon-Teconologia e Sistemas de Controle, Lda., Equitrade-Equipamentos e Tecnologia Industrial, Lda., Acinox-Acessórios Inoxidáveis,Lda., Viacer- Sociedade Gestora de Participações Sociais, Lda. and IPA –Imobiliária Pinhos & Antunes, Lda.

Caixa Holding S.A. Sociedade Unipersonal – represented by FernandoRamirez, aged 49, Deputy Director General of Caja de Ahorros y Pensionesde Barcelona, "la Caixa", Chairman of the Management Board of InvercaixaHolding, S.A., Deputy-Chairman of the Management Board of MEFF,Sociedad Holding de Productos Financieros Derivados and member of theManagement Boards of Servicio de Compensación y Liquidación de Valores,

Sociéte Monegasque de Banque Privée, Bolsa de Barcelona, E-lacaixa,Caixabank Banque Privée (Suïsse), Iberclear, Bolsas y Mercados Españoles -Sociedad Holding de Mercados y Sistemas Financieros, S.A.

Isidro Fainé Casas, aged 60, is Director General of Caixa de Ahorros yPensiones de Barcelona, "la Caixa", Chairman of Acesa Infraestructuras, S.A.,Inversiones Autopistas, S.L. and Deputy-Chairman of Telefónica, S.A., andÁguas de Barcelona, S.A. He is also member of the Management Boards ofGas Natural, S.A., Sociedad de Aparcamientos de Barcelona, S.A. (Saba),Inmobiliaria Colonial, S.A. (Incosa), Caixaholding, S.A. – SociedadUnipersonal, Caixabank Andorra and Caixabank France.

João Sanguinetti Talone, aged 79, does not perform other functions at othercompanies. He is a member of the Management Board of Banco BPI, S.A.

José Alberto Ferreira Pena do Amaral, aged 47, has been performingexecutive functions at the BPI Group for 16 years. He is Chairman of theManagement Board of Eurolocação – Comércio e Aluguer de Veículos eEquipamentos, SA, member of the Management Boards of BPI Madeira,SGPS and Companhia de Seguros Allianz Portugal, SA. He is also a Directorof BPI Locação de Equipamentos, Lda and BPI Rent – Comércio e Aluguerde Bens , Lda.

Klaus Dührkop, aged 50, is Executive Deputy-Chairman of the ManagementBoard of Allianz, AG and Member of the Management Boards of RAS (Italy),Lloyd Adriatico (Italy), Allianz Portugal, S.A., Allianz Greece, AssurancesFederales (France) and Koc Allianz (Turkey).

Manuel Ferreira da Silva – aged 45, has been performing executive functionsat the BPI Group for 19 years. He is a Member of the Management Boards ofBanco Português de Investimento, S.A., Inter-Risco, Sociedade de Capital deRisco, S.A. and BPI Madeira SGPS, SA.

Manuel Soares de Oliveira Violas, aged 44, is the Chairman of theManagement Boards of Violas – SGPS, S.A., Cotesi – Companhia de TêxteisSintéticos, S.A., Solverde – Sociedade de Investimentos Turísticos da CostaVerde, S.A., Sociedade Imobiliária da Praia da Rocha, S.A., I.I.I. –Investimentos Industriais e Imobiliários, S.A., Corfi - Organizações IndustriaisTêxteis Manuel de Oliveira Violas, S.A. and Clip – Colégio Luso Internacionaldo Porto. He is also Deputy-Chairman of the Oporto Golf Club and member ofthe General Board of the Associação Empresarial de Portugal.

Maria Celeste Hagatong, aged 50, has been performing executive functionsat the BPI Group for 17 years. She is a non-executive member of theManagement Boards of Banco Português de Investimento, S.A. and CVP -Sociedade de Gestão Hospitalar, S.A. She is also a Member of theManagement Board of BPI Madeira SGPS, S.A.

Riunione Adriática di Sicurtá, represented by Diethart Breipohl, aged 63,Member of the Supervisory Boards of Allianz AG (München), Beiersdorf AG(Hamburg), Continental AG, (Hannover), Karstadt Quelle AG (Essen), MgTechnologies AG, (Frankfurt), KM Europa Metal AG (Osnabrück) and memberof the Management Boards of Crédit Lyonnais (Paris), Assurances Généralesde France AGF (Paris), Banco Popular Español (Madrid) and Euler & Hermes(Paris).

Roberto Egydio Setúbal – aged 48, is Deputy-Chairman of the ManagementBoard, Director Chairman, Director General and member of the InternationalConsultative Council of Banco Itaú Holding Financeira, S.A., DirectorChairman and Director General of Banco Itaú S.A., Executive DirectorDeputy-Chairman of Itaúsa - Investimentos Itaú, S.A., Chairman of theManagement Boards and Director Chairman of Banco Bemge, S.A., BancoBeg S.A., Banco Banestado, S.A., Itaú Banco de Investimento, S.A., CIAItauleasing de Arendamento Mercantil, Investimentos Bemge S.A., ItauintItaú Participações Internacionais S.A. and Itaú Administradora de ConsórciosLtda. He is Director Chairman of Banco Banerj, S.A., Itaú Capitalização,S.A., Itaú Previdencia e Seguros, S.A., Itaucard Financeira S.A. Crédito,Financiamento e Investimento, Banco Itaú Europa, S.A., Itau Bank, Ltd. andBanco Itaú Buen Ayre, S.A. He is also a Director of Itaúsa Portugal SGPS,S.A.

Tomaz Jervell, aged 59, is Chairman of the Board of Directors of Auto-Sueco,Lda., Chairman of the Management Boards of Norbase, SGPS, S.A., Auto-Sueco (Angola) S.A.R.L., Auto-Sueco (Minho), S.A., Soma, S.A., Biosafe,S.A., Vellar SGPS, S.A. and member of the Board of Directors of Auto-Sueco(Coimbra), Lda. He is also the Consul of Sweden and Norway.

Trading information

Annexes | Trading information 223

ARTUR SANTOS SILVA – Acquired on 29 April 2002, under the RVA scheme,55 280 shares at an exercise price per share of €2.58, a portion of whichis subject to a condition subsequent in terms of the respectiveregulations. Subscribed for 114 726 shares in BPI-SGPS, S.A.’s capitalincrease, of which he was allotted 4 000. Under the RVA scheme, on 21 March 2002 and following BPI SGPS’s capital increase, he wasattributed 219 664 and 11 367 options to buy BPI shares, respectively.

CARLOS DA CÂMARA PESTANA – Subscribed for 53 230 shares in BPI – SGPS,S.A.’s capital increase. Sold: on 3 June 2002, 10 000 shares at a priceof €2.47; on 4 June 2002, 5 000 shares at a price of €2.45, on 5 June2002, 10 000 shares at a price of €2.50 and on 7 June 2002, 18 230shares at a price of €2.46.

IPI Itaúsa Portugal SGPS, Lda., of which he is a member of itsManagement Board, subscribed for 17 776 127 shares in BPI – SGPS,S.A.’s capital increase. On 31 December 2002, this company held 114 619 877 shares.

FERNANDO ULRICH – Acquired on 29 April 2002, under the RVA scheme, 49 178 shares at an exercise price per share of €2.58, a portion of whichis subject to a condition subsequent in terms of the respectiveregulations. Subscribed for 57 544 shares in BPI – SGPS, S.A.’s capitalincrease, of which he was allotted 2 006. Sold: on 9 September, 5 000shares at a price of €2.26; on 10 September, 5 000 shares at a price of€2.24, on 11 September, 5 000 shares at a price of €2.24, on 12September, 5 000 shares at a price of €2.24, on 13 September, 5 000shares at a price of €2.24, on 11 November, 3 455 shares at a price of€2.04, on 12 November, 6 667 shares at a price of €2.02, 15 078shares at a price of €2.03, on 13 November, 12 600 shares at a price of€2.01, on 14 November, 12 600 shares at a price of €2.01 and on 15November, 12 600 shares at a price of €2.02. Under the RVA scheme,on 21 March 2002 and following BPI SGPS’s capital increase, he was

attributed 195 417 and 10 113 options to buy BPI shares, respectively.

RUY DE CARVALHO – Subscribed for 21 334 shares in BPI – SGPS, S.A.’scapital increase, of which he was allotted 92. Sold: on 27 May 2002, 19 295 shares at a price of €2.46 and on 29 May 2002, 1 852 sharesat a price of €2.48.

ALFREDO REZENDE DE ALMEIDA – Subscribed for 203 093 shares in BPI –SGPS, S.A.’s capital increase, of which he was allotted 7 082. Bought:On 3 September 2002, 1 907 shares at a price of €2.21; on 30September 2002, 3 000 shares at a price of €1.99 and 2 000 shares ata price of €1.98; on 18 de October 2002, 847 shares at a price of€1.82 and on 22 October 2002, 9 153 shares at a price of €1.81. Sold:on 14 de May 2002, 10.000 shares at a price of €2.43, and on 4 June2002, 40 000 shares at a price of €2.53.

Arcotêxteis – Empresa Industrial de S. Tirso, S.A., of which he isChairman of its Management Board, subscribed for 171 920 shares inBPI – SGPS, S.A.’s capital increase, of which it was allotted 5 995. Sold:on 23 January 2002, 100 000 shares at a price of €2.50; on 25 January2002, 1 950 shares at a price of €2.58, 100 000 at a price of €2.55and 100 000 shares at a price of €2.52; 28 January 2002, 800 sharesat a price of €2.61, 50 000 shares at a price of €2.59, 48 050 sharesat a price of €2.58 and 29 200 shares at a price of €2.61, on 11February 2002, 10 000 shares at a price of €2.58, on 14 February2002, 10 000 shares at a price of €2.62; on 15 February 2002, 10 000shares at a price of €2.64, on 18 February 2002, 9 753 shares at aprice of €2.69, on 19 February 2002, 247 shares at a price of €2.69and on 4 June, 20 000 shares at a price of €2.55. On 31 December2002, this company held 1 888 540 shares.

1) Succeeded BPI – SGPS, S.A. following the merger by incorporation (notarial deed signed on 19 December 2002).2) Renounced office with effect from 1 December 2002. 3) Co-opted to fill vacancy left by António Seruca Salgado’s renouncement: the registration process with the relevant authorities is currently being attended to. 4) Shares held on the date he was co-opted (11 December 2002). Notes: a) all the prices indicated are price per share.b) the subscription for shares in the capital increase from €645 625 000 to €760 000 000 was effected at the price of €1.75 per share.c) RVA – Share Incentive Scheme reserved for BPI Group employees.

Management Board Members

Management Board Members’ shareholdings in Banco BPI, S.A.1

Subscribed Sold Total on 31-12-02

Shares

Shareholdingon 31-12-01

Acquired

Artur Santos Silva 569 750 55 280 114 726 739 756

Carlos da Câmara Pestana 290 000 53 230 43 230 300 000

Fernando Ulrich 264 325 49 178 57 544 88 000 283 047

Ruy de Carvalho 119 905 21 334 21 147 120 092

Alfredo Rezende de Almeida 1 510 000 16 908 203 093 50 000 1 680 000

António Seruca Salgado2 4 881 21 340 3 780 30 001

António Domingues 4 306 34 472 6 870 45 648

Armando Leite de Pinho 4 969 743 912 219 5 881 962

Fernando Ramirez 4 148 734 4 882

Isidro Fainé Casas 0 0

João Sanguinetti Talone 10 173 24 1 803 12 000

José Pena do Amaral 34 101 16 416 8 214 58 731

Klaus Dührkop 0 0

Manuel de Oliveira Violas 26 772 4 914 31 686

Diethart Breipohl 4 148 734 4 882

Roberto Egydio Setúbal 0 0

Tomaz Jervell 7 256 1 285 8 541

Maria Celeste Hagatong 59 340 4 945 11 388 5 000 70 673

Manuel Ferreira da Silva 12 000 19 895 5 854 37 749

António Farinha Morais3 26 2914 26 291


Arcofio – Fiação, S.A. of which he is the Chairman of its ManagementBoard, subscribed for 53 230 shares in BPI – SGPS, S.A.’s capitalincrease, of which it was allotted 1 856. On 31 December 2002, thiscompany held 743 230 shares.

Arcotinto – Tinturaria, S.A. subscribed for 69 750 shares in BPI – SGPS,S.A.’s capital increase, of which it was allotted 2 432. On 31 December2002 this company held 849 750 shares.

ANTÓNIO SERUCA SALGADO – A correction has been made to the balanceindicated in the previous Report. Acquired on 29 April 2002, under theRVA scheme, 21 340 shares valued at €2.58, a portion of which issubject to a condition subsequent, in terms of the respective regulations.Subscribed for 3 780 shares in BPI – SGPS, S.A.’s capital increase.Under the RVA scheme, on 21 March 2002 and following BPI SGPS’scapital increase, he was attributed 84 796 and 4 388 options to buy BPIshares, respectively.

ANTÓNIO DOMINGUES – Acquired on 29 April 2002, under the RVA scheme,34 472 shares at an exercise price per share of €2.58, a portion ofwhich is subject to a condition subsequent in terms of the respectiveregulations. Subscribed for 6 870 shares in BPI – SGPS, S.A.’s capitalincrease. Under the RVA scheme, on 21 March 2002 and following BPISGPS’s capital increase, he was attributed 136 978 and 7 089 options tobuy BPI shares, respectively.

ARMANDO LEITE DE PINHO – Subscribed for 912 219 shares in BPI – SGPS,S.A.’s capital.

Arsopi – Indústrias Metalúrgicas Arlindo S. Pinho, S.A. of which he is theChairman of its Management Board, subscribed for 348 678 shares inBPI-SGPS, S.A.’s capital increase. On 31 December 2002 this companyheld 2 248 271 shares.

FERNANDO RAMIREZ – Subscribed for 734 shares in BPI – SGPS, S.A.’scapital increase.

Corporació de Participacions Estrangeres, S.L. subscribed for 14 269 701shares in BPI – SGPS, S.A.’s capital increase. On 15 July 2002,Corporació, owned 100% by Caixa Holding, S.A., Sociedad Unipersonal,was absorbed by the latter by way of merger. Consequently, Caixa Holdingnow holds all the BPI – SGPS, S.A. shares which belonged to the now--extinct absorbed company, bringing its shareholding in BPI’s capital at31 December to 113 956 379 shares.

ISIDRO FAINÉ CASAS – Does not hold any shares.

Caixa Holding, S.A. Sociedade Unipersonal, of which he is a member ofits Management Board, subscribed for 2 879 83 shares in BPI – SGPS,S.A.’s capital increase. On 15 July 2002, Caixa Holding which held100% of Corporació de Participacions Estrangeres, S.L., absorbed thiscompany by way of merger. Consequently, Caixa Holding now holds theBPI – SGPS, S.A. shares which belonged to the absorbed company.Accordingly, on 31 December 2002, this company held 113 956 379shares.

JOÃO SANGUINETTI TALONE – Acquired on 9 May 2002, 24 shares at a priceof €2.39. Subscribed for 1 803 shares on 21 May 2002 in BPI – SGPS,S.A.’s capital increase.

JOSÉ PENA DO AMARAL – Acquired on 29 April 2002, under the RVA scheme,16 416 shares at an exercise price per share of €2.58, a portion of whichis subject to a condition subsequent in terms of the respectiveregulations. Subscribed for 8 214 shares in BPI – SGPS, S.A.’s capitalincrease. Under the RVA scheme, on 21 March 2002 and following BPISGPS’s capital increase, he was attributed 65 228 and 3 376 options tobuy BPI shares, respectively.

KLAUS DÜHRKOP – Does not hold shares.

MANUEL DE OLIVEIRA VIOLAS – Subscribed for 4 914 shares in BPI – SGPS,S.A.’s capital increase, of which he was allotted 171.

Violas-SGPS, S.A, of which he is member of its Management Board,subscribed for 3 372 579 shares in BPI – SGPS, S.A.’s capital increase,of which he was allotted 117 605. Sold on 29 May 2002, 65 228 sharesat a price of €2.50. On 31 December 2002, this company held 21 681 062 shares.

DIETHART BREIPOHL – Subscribed for 734 shares in BPI – SGPS, S.A.’scapital increase.

RAS International NAVE, which nominated him to BPI – SGPS, S.A.’sManagement Board, subscribed for 8 870 369 shares in BPI – SGPS,S.A.’s capital increase. On 31 December 2002, this company held 65 659 233 shares.

ROBERTO SETÚBAL – Does not hold any shares.

TOMAZ JERVELL – Subscribed for 1 285 shares in BPI-SGPS, S.A.’s capitalincrease.

Norsócia SGPS, S.A., of which he is a member of its Management Board,sold in the capital increase, the subscription rights attaching to the sharesit held. On 31 December 2002, this company held 6 018 395 shares.Auto Maquinaria Tea Aloya, of which he is a member of its ManagementBoard, sold in the capital increase the subscription rights attaching to theshares it held. On 31 December 2002, this company held 6 037 256shares.

MARIA CELESTE HAGATONG – Acquired on 29 April 2002, under the RVAscheme, 4 945 shares at an exercise price per share of €2.62.Subscribed for 11 388 shares in BPI – SGPS, S.A.’s capital increase.Sold on 01 August 2002, 5 000 shares at a price of €2.35.Under the RVA scheme, on 21 March 2002 and following BPI SGPS’scapital increase, she was attributed 78 586 and 4 067 options to buyBPI shares, respectively.

MANUEL FERREIRA DA SILVA – Acquired on 29 April 2002, under the RVAscheme, 19 895 shares at an exercise price per share of €2.58, a portionof which is subject to a condition subsequent in terms of the respectiveregulations. Subscribed for 5 854 shares in BPI – SGPS, S.A.’s capitalincrease, of which he was allotted 204. Under the RVA scheme, on 21March 2002 and following BPI SGPS’s capital increase, he was attributed79 056 and 4 091 options to buy BPI shares, respectively.

ANTÓNIO FARINHA MORAIS – Made no transactions.

RVA 2001 – Options

The options to buy the BPI shares attributed to the

executive directors under the RVA 2001 scheme have the

following characteristics:

– attribution date: 21 March 2002;

– number of shares acquired for each option held: 1;

– exercise price: €2.67 per share (adjusted to €2.54 per

share following the capital increase);

– exercise period: 21 March 2003 to 21 March 2007;

– value of each option: €0.65.

Annexes | Trading information 225

JORGE DE FIGUEIREDO DIAS – Does not hold any shares.

JOSÉ FERREIRA AMORIM – Acquired: on 11 January 2002, 10 000 shares ata price of €2.20; on 12 March 2002, 20 000 shares at a price of€2.60, on 4 April, 50 000 shares at a price of €2.70 and by inheritance 276 976 shares, on 24 July 2002, 40 000 shares at a price of €2.35;on 6 August, 25 000 shares at a price of €2.18, on 18 September 2002,

6 100 shares at a price of €2.15, on 23 September, 10 000 shares at aprice of €2.10 and on 30 September, 10 000 shares at a price of €1.98.Subscribed for 758 207 shares in BPI SGPS’s capital increase.

MAGALHÃES NEVES & ASSOCIADOS – Do not hold any shares.

Note: the prices indicated are those per share.The subscription of shares in the capital increase from €645 625 000 to €760 000 000 was effected at a price of €1.75 per share.

Audit board Subscribed Sold Held on31-12-02

Shares

Shareholdingon 31-12-01

Acquired

Jorge de Figueiredo Dias 0 0 0 0 0

José Ferreira Amorim 3 773 717 448 076 758 207 0 4 980 000

Statutory auditors: Magalhães, Neves & Associados 0 0 0 0 0

Audit Board Members’ shareholdings in Banco BPI, S.A.

Appendices

DEFINITIONS, ACRONYMS AND ABBREVIATIONS


ACRONYMS

Entities

BIS Bank of International SettlementsBVLP Bolsa de Valores de Lisboa e Porto (Lisbon and

Oporto Stock Exchange)CMVM Comissão do Mercado de Valores Mobiliários

(Securities Market Commission)ECB European Central BankEFTA European Free Trade AssociationEIB European Investment BankEMU Economic and Monetary UnionEU European UnionFED Federal Reserve System IAPMEI Instituto de Apoio às Pequenas e Médias

Empresas e ao Investimento (Portuguese institutefor the support of small and medium-sizedcompanies)

SIBS Sociedade Interbancária de Serviços (InterbankServices Society)

Miscellaneous

ACTV Acordo Colectivo de Trabalho Vertical (VerticalCollective Employment Agreement)

AEX25 Shares indexBEL20 Shares indexCAC 40 Shares indexCRM Customer Relationship ManagementDAX Shares indexDJIA Shares indexECBS European Central Banks' SystemFTSE Shares indexFRIE Fundo de Restruturação e Internacionalização

Empresarial (Fund for Business Restructuring andInternationalisation)

Ibex Geral Shares indexIPO Initial Public Offering

IRC Imposto sobre o Rendimento das Pessoas Colectivas (corporate income tax)

LIBOR London Interbank Offered RateLTR Long Term RentalMIB30 Shares indexNasdaq-100 Shares indexOMX Shares indexOTC Over-the-counterOT Obrigações do Tesouro de taxa fixa (Fixed yield

government bonds)OTRV Obrigações do Tesouro de Rendimento Variável

(Variable yield government bonds)POE Plano Operacional da Economia (Economy

Operating Plan)POS Public Offer for SalePPA Plano Poupança Acções (equities savings plan)PPR Plano Poupança Reforma (retirement savings

plan)PPR/E Plano Poupança Reforma/Educação

(retirement/education savings plan)PSI-20 Shares indexSGPS Sociedade Gestora de Participações Sociais

(Investment Holding Company) SME Small and medium-sized enterprisesSMI Shares indexSROC Sociedade de Revisores Oficiais de Contas

(Portuguese Statutory Auditing Firm)USA United States of America

Financial

EPS Earnings per shareROA Return on AssetsROE Return on EquityROI Return on Investment VaR Value at Risk

DEFINITIONS

BPI Group entities – some definitions used

BPI Group / BPI, if the framework so permits

The financial group with format defined on pages 20, 138, 139 and 140.

Banco BPI / Banco BPI, S.A. / the Bank, the Commercial Bank, if the framework so permits

Head of the BPI Group and responsible for conducting the Commercial Bankingbusiness; listed on the stock exchange.

Banco Português de Investimento / Banco Português de Investimento, S.A. / / BPI or the Banco de Investimento, if the framework so permits

The group's investment bank.

BPI SGPS / BPI – SGPS, S.A.

The entity heading the BPI Group until 20 December 2002, responsible for theholding and strategic command functions. At 21 December 2002, incorporatedBanco BPI by merger, changed its object to "bank" and its name to Banco BPI.

Annexes | Appendices 227

ABBREVIATIONS

Units€, EUR euro Bi.€ billions of eurom.€, m. euros – th. thousands of euroM.€, M. euros millions of eurob.p. basis pointsp.p. percentage points103 thousand106 millionBillion thousand millionTrillion thousand billion

Conventional signs. decimal point% percentage∆ variation.., nd – .., na not available0 nil or negligible-, nr irrelevant< minor than> greater than

CurrenciesEUR euroJPY Japanese yenGBP Pound sterling (UK)USD United States dollar

OtherDec. Decembere.g. exempli gratiaetc. et caeteraLda. limitedm2 square metreno. numberneg. negativeNet InternetS.A. Public held companyun. unitv. vide (see)vs. versus1/2 one half1/4 one quarter3/4 three quarters

American Depositary Receipts (ADR) – negotiable certificates of deposit,issued by US banks, representing the shares held in custody of non-US--based companies. These certificates entitle the holders thereof todividends and capital gains.

Benchmark – a widely-accepted market reference value used in thevaluation of securities (assets) and the assessment of an investment’sperformance.

BIS ratio – an internationally-accepted capital adequacy ratio,corresponding to the relationship between total own funds and the total ofassets and off-balance sheet items, weighted according to their respectiverisk (credit risk attached to the investment portfolio, market risks attachedto the dealing portfolio). The minimum figure prescribed is 8%.

Bond with cap or floor – variable-interest rate bonds with a coupon calleda cap (floor) which can be traded separately. The cap is an agreement interms of which the issuer sets, in exchange for a premium (correspondingto the implicit interest rate in the cap added to the bond issue’s interestrate), a maximum rate of interest for the issue. The floor is an agreementin terms of which the issuer sets, in exchange for a premium(corresponding to the implicit interest rate in the floor deducted from thebond issue’s interest rate), a minimum interest rate.

Callable bond – a bond which is redeemable at the issuer’s option underpredetermined conditions (time period for exercising the option, price,etc.). The option attached to the bond cannot be traded separately fromthe bond. The callable bond is commonly associated with a step-up whichprovides for an increase in the interest rate if the agreed-to earlyredemption option is not exercised before a future date.

Call-option – an agreement between two parties in terms of which thebuyer acquires, against payment of a monetary consideration (premium),the right to buy from the seller at a specified future date (or up to aspecified future date) the underlying security at an agreed price.

Capital rotation – the relationship between the number of shares tradedand the average number of shares listed on the stock exchange.

Country-risk – the probability of loss arising from exposure of assets andoff-balance sheet items as a result of a default in the contracted financialobligations by a counterparty who is resident in a country which, owing to its political and economic situation, is considered to bear an elementof risk.

Credit rating – classification attributed to an institution by a specialisedand independent entity (rating agency) with the object of assessing theinstitution’s capacity to meet its short or long-term obligations.

Day-trade – buying and selling of negotiable securities during the courseof the same stock market session so that at the end of the trading day,the investor has no open position, nor has any change taken place in thecomposition of his portfolio.

Disability decreases – reduction in the calculated amount of pensionobligations for current employees’ past services resulting from therecourse to, in calculating these amounts, the probability of currentemployees ceasing to remain on the payroll due to disability, that is,before the normal retirement period. Pension obligations arising fromdisability are lower than those relating to normal retirement due to oldage, given that old-age and disability pensions are defined as aprogressive percentage of salary depending on the number of yearsservice.

Economic provisions – term given to the estimate of actual (or almostactual) effective losses arising from loan defaults. They are used to assessthe adequacy of accounting provisions.

Emerging markets – financial markets with strong growth potential andevolving rapidly to higher levels of maturity and development. Thesemarkets are essentially located in Asia and South America.

Equity method – method used for recognising an investment in theconsolidated accounts. The investment is recorded at the amount of theinvestor company’s direct or indirect proportional interest in the investeecompany’s net assets and net income.

Euribor – the average of the interest rates supplied by a panel comprisingthe European Union’s 57 largest banks. This benchmark rate is calculatedand published daily.

Forward contract (currency) – an agreement between two parties in termsof which a rate of exchange is fixed for a specified future date andamount of the currency concerned.

Forward rate agreements (FRA) – an agreement between two parties interms of which the rate of interest is fixed for a specified future date,amount and maturity period.

Futures contract – a standard contract traded on a stock exchange interms of which the two parties fix the price of an underlying asset for a specified future date.

Guaranteed capital / limited-risk structured product – variable-incomedebt securities, the yield on which is indexed wholly or partially to theprice of equities or to equity indices. Where the prices of assets whichserve as the index benchmark become negative, the investor is guaranteedat maturity date the repayment of the total capital invested (guaranteedcapital) or the limiting of any losses to a predetermined amount (limited risk).

Hedging – the strategy adopted by a trader to minimise the potential riskof adverse changes in a given asset’s market price. A perfect hedgingoperation eliminates any future capital loss or gain.

Investment grade – classification attributed to all those bond issuerswhose credit rating is equal to or higher than BBB or Baa.

Market-maker – the member of a stock exchange who undertakes thefunction of promoting liquidity by maintaining bid and asked prices forspecified securities at which these securities are bought and sold (undercertain conditions).

Mismatch – Disparity between the maturity and interest-payment periodsfor interest-earning assets on the one hand, and deposits and otherinterest-bearing liabilities, on the other. One of the major concerns of acredit institution’s treasury management (usually interest-earning assetshave longer maturity periods than interest-bearing liabilities) is reducingthe risk exposure associated with adverse changes in interest rates andensuring that there are adequate funds to meet the payment of liabilitiesas and when they fall due.

Non-voting preference share – a security representing a share in theequity of the issuing company. It entitles the holder (i.e. the preferenceshareholder) to receive a dividend (at a predetermined rate) and to share proportionately in the company's residual assets in the event ofliquidation, in both cases in precedence to the holders of ordinary shares.


GLOSSARY

Notional value (of a derivative) – the current price on the spot market ofthe asset underlying the derivative financial instrument.

Ordinary share with voting rights – a security representing a share in the equity (i.e. net assets) of the issuing company. The principal rightsconferred on the holder (i.e. the shareholder) are the entitlement toreceive a dividend, to participate in and vote at Shareholders’ GeneralMeetings, and to share proportionately in the company's residual assets in the event of liquidation.

Perpetual bonds – a debt security having no maturity date and which doesnot confer upon the holder the right to repayment of the nominal value ofthe debt.

Placement syndicate – a group of financial entities which jointly organisesand places an issue of negotiable securities.

Private Equity – form of financing companies during the start-up of theirbusiness, in a strong growth phase or undergoing restructuring, by meansof a participating interest in their capital, as a general rule with a view tothe subsequent dispersion of equity on the capital market.

Project Finance – investment in which the debt service is financed by theproject own cash flows; also used to define this type of financing.

Put-option – an agreement between two parties in terms of which the buyer of the contract acquires, against payment of a monetaryconsideration (premium), the right to sell to the seller of the put-optioncontract at a specified future date (or up to a specified future date) theunderlying security at the price specified in the contract.

Repurchase agreement – an agreement between the two parties to asecurities transaction, whereby the seller undertakes to repurchase thesecurities at a specified price and date. The operation involves theadvancing of funds (usually for a short term) whereby the security servesas collateral, yielding an implicit rate of interest. It is an instrumentcommonly used by central banks in interbank money market operations.

Reserves incorporation – share capital increase (i.e. bonus orcapitalisation issue) effected by way of the transfer of undistributedprofits from reserves to subscribed capital. Since the issue of the newshares to shareholders does not entail any payment on the part ofshareholders, this operation has no effect on the company’s share capitalor net worth.

Separate warrant (shares) – negotiable contract issued by financialinstitutions that confers upon the holder thereof the right to purchase(call warrant) or the sell (put warrant) a financial assets, known as theunderlying assets, under predetermined conditions (conversion period,conversion prices etc.). The most common underlying assets are equitiesand equity indices.

Solvency ratio – (Bank of Portugal solvency ratio rules) – relationshipbetween total own funds and the total of assets and off-balance sheetitems, weighted according to their respective risk (credit risk attached tothe investment portfolio, market risks attaching to the dealing portfolio).The minimum figure prescribed is 8%. It aims at ensuring that theinstitution has a minimum of own funds to cover the total potential losses stemming from assets and off-balance sheet resources, therebyguaranteeing the institution’s ability to satisfy all of its liabilities. It is verysimilar to the BIS ratio in that it adopts the same principles andmethodology, differing only in the treatment given to certain componentsof own funds and in the calculation of certain assets and off-balancesheet risks.

Start-up – new or very recent company which is normally involved inmodern/emerging business ventures, and which are almost alwaysfinanced by venture/development capital companies and by recourse tothe capital market.

Stop-loss – definition of the price at which a financial asset must be sold(by reference to market prices) with the object of either limiting losses inthe event of an asset depreciating or protecting gains already made.

Subordinated bond (long-term debt) – a debt security, the redemption ofwhich in the event of the issuer’s bankruptcy or liquidation, is dependentupon the prior repayment of all non-subordinated (i.e. senior) creditors (orat least certain types of creditors).

Subscription reserved for shareholders – share capital increase, either by incorporation of reserves or against a cash payment, reserved forshareholders. In a subscription reserved for shareholders, the issue price is normally set below the ruling market price.

Swap (currency / interest rate) – an agreement between two parties interms of which they exchange (swap) between them, for a specifiedamount and period of time, periodic payments of fixed rate for floatingrate payments, in the case of interest rate swaps, or one currency foranother currency, in the case of currency swaps. Usually one of thecounterparties is a financial institution acting as an intermediary.

Traditional warrant (shares) – negotiable contract that confers upon theholder thereof the right to convert into shares of the issuing companyunder predetermined conditions (conversion period, conversion pricesetc.). Conversion normally implies an increase in the company’s sharecapital. The most common situation is the concurrent issue of bonds,thereby making the issue more attractive.

Treasury bills – short-term public-debt bonds issued by the Treasury, witha maturity period of less than one year. This instrument is issued at adiscount and redeemed at its nominal value on maturity date.

Underwriting – an agreement between the issuer and the financialinstitutions responsible for selling (placing) the negotiable securitiesobject of the issue, in terms of which the underwriting financialinstitutions are committed to purchase, against payment, any unsoldsecurities not subscribed for in the placement, thereby eliminating therisk of the operation being unsuccessful.

Value at Risk (value at market risk) – corresponds to the maximumpotential loss in the value of assets held resulting from an unfavourabledirection in markets and prices over a predetermined time span. Thevalue-at-risk is calculated by way of models which are based on specificassumptions, namely, with regard to the distribution of probabilities of theprice variations, correlations between price variations and statisticalconfidence level.

Volatility – a measure of the degree to which the market price of assetsfluctuates, namely, from the viewpoint of extent and frequency.

Write-offs – accounting write-off of non-performing loans recorded asassets, which have been provided for in full and in respect of which thereis no prospect of recovery. The loan is written off directly against therespective provision account, with the result that this entry has no impactin the income statement.


Total assets plus disintermediation:

Total assets (net)1 + Off-balance sheet Customer resources

1) Corrected for duplication of balances.

Total Customer resources:

Resources on the balance sheet + Off-balance sheet resources

Off-balance sheet customer resources:

Unit trust funds + Retirements savings and equity savings plans + + Capitalisation insurance

Operating income from banking:

Net interest income + Commissions and other operating income (net) ++ Profits from financial operations

Administrative overheads:

Personnel costs + Outside supplies and services

Cost-to-income:

Administrative overheads

Operating income from banking

Administrative overheads plus depreciation:

Personnel costs + Outside supplies and services + Depreciation

Efficiency ratio:

Administrative overheads + depreciation

Operating income from banking – Profits from financial operations

Operating cash-flow:

Operating income from banking – Administrative overheads

Net profit attributable to BPI Group Shareholders:

Profits before taxation – Corporate income tax – Minority Shareholdersshare of profit + Equity accounted results of subsidiaries

Cash flow after taxation:

Net profit attributable to BPI Group Shareholders + Depreciation + + Provisions net of reversals

Return on average total assets (ROA):

Net profit attributable to BPI Group shareholders x 100

Weighted (monthly) average total assets (net)

Return on Shareholders’ equity (ROE):

Net profit attributable to BPI Group Shareholdersx 100

Weighted (monthly) average book value

Total loans in arrears, for more than 30 days, as % of Customer loans:

Loans to Customers and interest in arrears for longer than 30 daysx 100

Customer loans (gross)

Provisioning cover for arrear loans:

Provisions for loans and interest in arrears ++ Provisions for general credit risk

x 100Loans and interest in arrears for longer than 30 days

Pension liabilities cover:

Pension fundsx 100

Pension liabilities with retired and past services of current employees

Data per share:

Cash flow, net profit or dividend

Weighted average number of shares

Book value

Final number of shares*

* Adjusted by the effects of Capital increases reserved for Shareholders

Weighted average number of shares:

Weighted average number of shares ranking for dividends**

** Adjusted by the effects of capital increases reserved for Shareholders. It’s assumed

that the capital increase occurs in the day the shares start ranking for dividends

Total shareholder return:

Appreciation of the shares on the stock exchange + Appreciation of thedividends reinvested on shares

Price as a multiple of...

Closing adjusted price at 31 December

Cash flow, net profit or Book value per share

Dividend yield (%):

Dividend per share for the year (paid next year)x 100


Earnings yield (%):

Net profit per sharex 100



FORMULARY


CREATING SHAREHOLDER VALUEThe most appropriate measure of shareholder value added is achieved byconducting an analysis from the shareholder's own perspective. When aninvestor acquires shares he does so in the expectation that he will securea capital gain that is higher than that which he would have achieved in analternative investment with a similar degree of risk.

Shareholder’s gainShareholder's gain per share = Selling price - Cost price + Dividend

The shareholder's overall gain is the sum of the capital gain, which results from the share's appreciation on the stock exchange, and theappropriation of the company's earnings in the form of dividends received.

Shareholder's rate of returnThe rate of return calculation takes into consideration the investment timespan in order to establish a relationship between the capital employed inthe acquisition of shares and the gain obtained, and permits an analysisto be made of the investment return by comparing this with alternativeinvestment opportunities.

In the rate of return calculation, given that the cash flows occur atdifferent time intervals, the internal rate of return (IRR) method isutilised. The rate of return is hence the average rate of the investmentperiod which equates the present value of the incoming flows resultingfrom the sale of shares and the dividend paid to the present value of the capital invested.

CFj∑ = 0

(1 + Shareholder's annual average rate of return) (dj-d0) / 365

CFj – Cash flow at the moment j (incoming flows are registered as positivefigure and outgoing flows as negative figure)

dj – which corresponds to the moment jd0 – date in relation to which cash flows are converted to present values

and corresponds to the moment in which the first capital investmentis made

Based on the assumption that all years have 365 days.

The investment in any particular share produces different rates of returndepending on the moment chosen for making the investment and thecorresponding disinvestment.

Matrix of spreads on a shareholder's nominal annual average returnThe yield matrix presents various annual average rates of return obtainedby the BPI shareholder according to the investment time span.

The shareholder considered makes an initial investment in BPI SGPSnominative shares with dividend rights. During the investment period he reinvests the dividends in new BPI SGPS shares in the day followingtheir receipt, and participates in all share capital increases andconvertible-debt issues reserved for shareholders, subscribing for themaximum quantity he is entitled to.

SHARE INDICATORSThe "Earnings per share (EPS)" ratio is an extremely important figurewhen evaluating a particular share investment.

The principal reason for this is the fact that this indicator is, in turn, the denominator of the relationship between the share price and the netincome1 attributable to it, otherwise commonly termed P/E or PER ("Priceto Earnings Ratio"). The prospective P/E is probably the indicator mostoften used by the market when assessing the appeal of a given investmentin that it expresses the price at a specific moment and the estimatedfuture profit flows of the company concerned.

In building the EPS indicator, the only matter that has to be resolved isthe ascertainment of the number of shares to be used as the denominator– the weighted average number of shares with dividend rights in issueduring the relevant period – in such a manner as to ensure comparabilityof past EPS data.

A number of events can signify that the number of shares has to be adjusted; the most common are share-capital increases, be it anincorporation of reserves (a bonus/capitalisation issue) or a subscriptionreserved for shareholders (a rights issue).

The fact that the issue price is below the ruling market price (a verycommon procedure) means that the shareholder's right to subscribe for new shares has an asset-related content that is detachable from the share and negotiable on the market. This constituent element is calledthe subscription right.

In practical terms, a share issue reserved for shareholders can, and shouldtherefore, be subdivided into an incorporation of reserves (theoretical)2

followed by a share issue at the price which theoretically would be struckon the market after the capital increase.

For purposes of determining the weighted average number of shares:

– when an incorporation of reserves takes place, whether theoretical(stemming from the above-mentioned subdivision) or real, this shouldbe deemed to have occurred on the first day of the financial year;

– the number of shares issued at "market price" in a subscription reservedfor shareholders should be weighted on a time basis to reflect the periodduring which the proceeds from the capital increase contributed to theyear's earnings.

When the shares issued in a year do not confer any dividend rights inrespect of that year – only the right to dividends in ensuing years – theappropriate procedure in such circumstances is, for all intents andpurposes, to consider that the share-capital increase took place on thefirst day of the following year, maintaining the basic method outlinedabove3.

1) The net earnings figure used in EPS calculations is susceptible to various adjustments. In this report, the figure employed is always the BPI Group's net accounting profit without anyadjustments.

2) A share-capital increase by way of the incorporation of reserves involves the mere book-entry transfer of amounts from one accounting component of shareholders' equity (net assets) toanother, and does not entail any payment on the part of shareholders.

3) A different scenario is where the number of shares to be used is required for calculating the "book value per share" indicator as at 31 December of a financial year which precedes thatin which the share-capital increase is realised. In this case, the two aggregates are static, with the result that the number to be used is the final number of shares in existence on thatdate, adjusted only by subsequent events.

METHODOLOGICAL NOTES

No. FIGURES Page

01 Growth, profitability, strength and value 502 Governing Bodies 1103 The BPI Group financial structure and business (main units);

effective direct / indirect participations 2004 Distribution channels 2105 Opportunities Server 2706 Loans process management 2907 Multi-channel platform 3108 Data warehouse 3209 Procedures adopted in relation to non-performing corporate loans 109

No. TABLES01 Leading business indicators 402 BPI Group Employees 2203 Banco BPI’s Employees – selected indicators 2404 Principal indicators of efficiency, availability and performance 2505 Detailed forecasts for Portugal and the euro zone 4206 Equities market indices 4707 Individuals Banking and Small Businesses principal indicators 4808 Individuals and Small Businesses Banking – loans to Customers 5009 New mortgage loans contracted by specialised channels 5010 Individuals and Small Businesses Banking – Customer resources 5211 Corporate Banking, Institutional Banking and Project Finance

loans and guarantees 5512 Principal indicators of the EFTA Fund's global activity 5813 Banco de Fomento Angola principal indicators 6214 Banco de Fomento Mozambique principal indicators 6315 Banc Post principal indicators 6416 Assets under management 6617 Trend in volume of BPI unit trust funds 6718 Distribution of BPI unit trust funds 6719 Capitalisation life assurance business written 6820 Principal Private Banking indicators 7421 Principal Private Equity holdings 7622 Consolidated income statement 7823 ROE by business areas 8024 Net interest income 8125 Average interest rates on remunerated assets and liabilities 8226 Trend in interest income and expense 8327 Commissions and other income (net) 8428 Profits from financial operations 8529 Administrative overheads, depreciation and amortisation 8630 Personnel costs 8731 Employees of fully-consolidated Group companies 8732 Outside supplies and services 8833 Deferral of advertising campaign costs 8934 Additions and transfers, net of disposals and scrappings 9035 Depreciation and amortisation of intangible and

tangible fixed assets 9036 Provisions (profit and loss account) 9137 Net extraordinary items 9238 Balance sheet 9439 Customer loan portfolio 9640 Mortgage loans – breakdown by type of rate 9641 Securities and participating interests portfolio 9742 Coverage of unrealised capital losses in participating interests

under Bank of Portugal notice 4 / 2002 9843 Total balance sheet resources 9944 Total Customer resources 9945 Shareholders’ equity 10046 Own funds 10147 Own funds requirements 10248 Own funds requirements ratio 103

No. Page

49 Pension obligations cover 10450 Internal rating for companies – breakdown of

exposure by classes of risk 11151 Bond and fixed-interest securities’ investment portfolio 11252 Current credit risk – substitution value of derivatives

by type of counterparty 11253 Loans to Customers in arrears and provisions 11454 Loans in arrears for more than 30 days by market segments 11555 Age analysis of Customer loans in arrears 11556 Country-risk exposure 11657 Overall market risk 11758 Rating classifications 12059 Principal BPI shares indicators 12360 Distribution of Banco BPI share capital 12561 Shareholders owning more than 2% of Banco BPI’s

share capital 12562 Creation of value for BPI Shareholders 126

No. CHARTS01 Growth through asset consolidation 1302 BPI Group staff complements 2203 Banco BPI Staff Complement – distribution by area of activity 2304 Banco BPI Staff Complement – University degree and

average age 2305 Real GDP growth 4006 Banks lending growth 4107 Bank deposits growth 4108 Euro exchange rates in 2002 4309 Six-month interest rates in 2002 4410 Ten-year interest rates in 2002 4511 Credit risk premiums in 2002 4612 Main international stock market indices in 2002 4713 Individuals and Small Businesses banking loans and guarantees 5014 Individuals and Small Businesses banking mortgage loans 5015 Individuals and Small Businesses banking Customer resources16 BPI Net and BPI Directo – subscribers with altered password 5317 BPI Group sites – pages viewed 5318 Corporate Banking, Institutional Banking and

Project Finance loans and guarantees 5519 Corporate Banking, Institutional Banking and

Project Finance Customer resources 5520 BPI Customer Global Satisfaction Index 6521 Commissions – intermediation of insurance products 6522 Assets under management 6623 Unit trust funds under management 6724 Distribution of BPI unit trust funds 6725 Capitalisation life assurance – new business per year 6826 Pension funds under management 7027 Open funds under management 7028 Pension funds long-term return 7029 Portfolio of Private Equity investments by sector of activity 7630 Net profit 7731 Contributions by business area to 2002 net profit 7932 Loans to Customers – year-end balance 8133 Net interest income 8134 Net interest income generation 8135 Interest rates for loans and resources 8236 Commissions and other similar income (net) 8437 Profits from financial operations 8538 Efficiency ratio and cost-to-income 8639 Personnel costs 8640 Net total assets and disintermediation 9541 Loans to Customers and guarantees 95


INDEX OF FIGURES, TABLES, CHARTS AND "BOXES"

No. CHARTS (cont.) Page

42 Net total assets breakdown 9543 Liabilities and Shareholders’ equity breakdown 9544 Total Customer resources 9945 Shareholders’ equity evolution in 2002 10046 Own funds and own funds requirements 10347 Own funds requirements ratio 10348 Pension funds assets and BPI Group Employees

pension liabilities 10649 Breakdown of Banco BPI Employees pension funds assets 10750 BPI Group Employees pension funds –

return vs. inflation and ACTV salary scale review 10751 BPI Group Employees pension funds –

return vs. market performance 10752 Ratio of loans to Customers in arrears 11353 Provisioning cover of loans to Customers in arrears 11354 Net credit loss 11355 Banco BPI shares and key indices performance 122

"BOXES"Historical milestones 12 Our identity 14Social investment 18 Training (of human resources) 24Opportunities Server 27Loans process management 29Multi-channel platform 31Data warehouse 32Reorganisation of the procurement areas 36 Highlights of 2002 38 Structural alterations at Individuals Banking 48BPI Net and BPI Directo Particulares 53New BPI Branch 54Corporate Banking, Institutional Banking and Project Finance networks 56EFTA Fund 58Projected merger between Banco de Fomento Mozambique and Banco Comercial e de Investimentos 63Increase in the level of global satisfaction of BPI Customers 65BPI Vida offer 69BPI asset management 71Mergers, acquisitions, restructurings and consultancy 72Bank of Portugal notice 4 / 2002 (participating interests) 98Pension obligations – Regulatory framework 105BPI Group pension funds 106 Credit Risks Division 110Home loans – credit risk 111Rating reports 121


Page

REPORTLeading business indicators 4

Growth, profitability, strength and value 5Introduction 6

On the right course 6Selective growth 6Efficiency and modernisation 8Strength and confidence 10

Governing bodies 11Historical milestones 12

Leadership, innovation and growth 12The identity of BPI 14The BPI brand 15

Notoriety 15Efficiency 15Satisfaction 15

Corporate governance at the BPI Group 16Corporate and management reorganisation 16Report on the BPI Group’s corporate governance 16Public recognition 17

Social investment 18Culture, research, education and social solidarity 18

Financial structure and business 20Distribution channels 21Human resources 22

Rationalisation, rejuvenation and qualification 22Banco BPI 23

Technology 25Business and sales support 27

Opportunities Server 27Management of business processes 28

GPC Home loans 28GPC Personal loans 28GPC Motor car finance 28GPC Cards 28

Business support solutions for companies 30Groups of companies 30Credit limits 30Information management 30BPI Net Empresas 30

Other business support solutions 30Availability of structural solutions 30

Multi-channel platform 30Global model of banking operations and interface subsystem 33People Information System 33

Security 33Increase in internal efficiency 34The group’s restructuring 34

Operations 35Highlights of 2002 38Background to operations 40

Macroeconomic background 40Currency market 43Money market 44Bond market 45Equities market 46

Domestic Commercial Banking 48Individuals and Small Businesses banking 48

Loans to Customers 50Home loans 50Motor car finance 51Cards 51

Clients resources 52

Page

Corporate Banking, Institutional Banking and Project Finance 55Wholesale Banking, Large and Medium-sized companies 57

Investment support 57Protocol within the ambit of the Programa Operacional da Economia 57Protocol with the Instituto de Financiamento e Apoio ao Turismo 58EIB and KFW credit lines 58

Project Finance 59Institutional Banking 61

International Commercial Banking 62Banco de Fomento Angola 62Banco de Fomento Mozambique 63Banc Post 64

Insurance 65Asset Management 66

Overview 66Creation of a risk management area 66

Unit trust funds 67Institutional clients 68Capitalisation life assurance 68Pension funds 70

Pension Fund Returns 70Investment Banking 72

Corporate Finance 72Equities 73

Primary equities market 73Secondary equities market 73Research 73Trading 73

Private Banking 74BPI (Suisse), S.A. 74Investment centres 74

Private Equity 75Market 75Investment strategy 76Investments 76

Financial review 77Consolidated results 77

Overview 77Results by business areas 79Profitability by business areas 80Net interest income 81Commissions 84Profits from financial operations 85Administrative overheads, depreciation and amortisation 86Personnel costs 86Outside supplies and services 88Depreciation and amortisation 90Provisions 91Net extraordinary items 92Results of equity-accounted subsidiaries 93Minority shareholders’ interests 93

Balance sheet 94Loans to Customers 95Portfolio of securities and participating interests 97Customer resources 99Shareholders’ equity 100Own funds 101Own funds requirements 102Own funds requirements ratio 103Pension obligations 104

Risk management 108Credit risk 108


GENERAL INDEX

Page

Management process 108Evaluation of credit risk exposure – companies, institutions, specialised finance 110Evaluation of credit risk exposure – individuals and small businesses 111Evaluation of credit risk exposure – securities portfolio 112Evaluation of credit risk exposure – short-term interbank credit 112Evaluation of credit risk exposure – derivate operations 112Default, provisioning and recovery levels 113

Country risk 116Market risks 117Liquidity risk 118Operating risks 118Legal risks 119

Rating 120BPI shares 122

Return on investment 122Earnings per share 122Dividends 122Liquidity 122Stock market capitalisation 122Market multiples 122Share capital 122Treasury stock 124

Shareholders 125Structure and principal shareholders 125

Shareholders value creation 126Return on Investment (ROI) 126

Final acknowledgements 127Proposed appropriation of net profit 128

CONSOLIDATED FINANCIAL STATEMENTSConsolidated balance sheets as of 31 December, 2002 and 2001 130Consolidated statements of income by nature for the years ended 31 December, 2002 and 2001 132Consolidated statements of income by functions for the years ended 31 December, 2002 and 2001 134Consolidated statements of cash flows for years ended 31 December, 2002 and 2001 135

Notes to the consolidated financial statements 137Notes to the consolidated financial statements as of 31 December, 2002 and 2001 138

1. The financial group 1382. Information comparability, basis of presentation,

consolidation principles and principal accounting policies 141Information comparability 141Basis of presentation 141Consolidation principles 141Principal accounting policies 142

2.1. Accruals basis 1422.2. Tangible fixed assets 1422.3. Intangible assets 1422.4. Equity investments 1422.5. Bonds, shares and other fixed or

variable-yield securities 143i) Trading securities 143ii) Investment securities 144iii) Short-selling of securities 144iv) Treasury Stock relating to the RVA programme

(Variable remuneration in shares) 144

Page

2.6. Foreign currency operations 144i) Foreign exchange position and foreign currency swaps 144

Foreign currency bills and coins 144Spot position 145Forward position 145Foreign currency swaps 145

ii) Translation to euro of balances expressed in foreign currencies 145

iii) Translation to euro of income and expenses expressed in foreign currencies 145

2.7. Provisions for specific credit risk 1452.8. Provisions for unrealised losses on securities

and other assets 1452.9. Provisions for country risk 1452.10. Provisions for sundry risks 145

i) General credit risks 145ii) Other risks 146

2.11. Fund for general banking risks 1462.12. Retirement and survivor pensions 1462.13. Income tax 1472.14. Financial Leasing 147

As lessee 147As lessor 147

2.15. Factoring 1472.16. Derivatives 147

Interest rate swaps 147Forward rate agreements 147Futures 148Options 148

2.17. Third party securities received for safekeeping 1483. Breakdown of applications by business sector and

portfolio of securities and equity investments 1493.1. Breakdown of applications by business sector 1493.2. Securities and equity investments 150

4. Notes 1624.1. Cash and deposits at central banks 1624.2. Loans and advances to Credit Institutions

repayable on demand 1624.3. Other loans and advances to credit institutions 1624.4. Loans and advances to Customers 1634.5. Bonds and other fixed income securities 1644.6. Shares and other variable yield securities 1654.7. Investments in associated companies 1654.8. Investments in subsidiary companies excluded

from the consolidation 1664.9. Other investments 1664.10. Intangible assets 1684.11. Tangible fixed assets 1684.12. Other assets 1704.13. Accruals, deferrals and others (assets) 1704.14. Amounts owed to credit institutions 1714.15. Amounts owed to Customers 1724.16. Debt securities 1724.17. Other liabilities 1774.18. Accruals, deferrals and others (liabilities) 1774.19. Provisions for sundry risks and fund for

general banking risks 1784.20. Liabilities for retirement and survivor pensions 1784.21. Subordinated debt 1804.22. Minority interests 1814.23. Subscribed share capital 1824.24. Share premium account 1824.25. Reserves 182


26. Goodwill 1834.27. Provisions 1844.28. Off-balance sheet items 1864.29. Financial margin 1904.30. Net commissions 1904.31. Net profit on financial operations 1904.32. Personnel costs 1904.33. Other operating income and

other operating expenses 1914.34. Extraordinary income and expenses 1914.35. Income tax 1914.36. Consolidated net profit 1924.37. Personnel 1944.38. Loans and advances to the Directors of Banco BPI 194

5. Explanation added for translation 194Legal certification of accounts and audit report 195Auditor’s report 197Report and opinion of the Audit Board 198

ANNEXESThe BPI Group’s Corporate Governance Report 201

1. Reorganisation of the BPI Group 2022. Structure, division of duties and functioning of the

BPI Group's principal management and control bodies 2043. Remuneration 2144. Shareholder control and transferability of shares 2175. Exercise of voting rights and shareholder representation 2176. Institutional investors 2187. Code of ethics and professional conduct 2188. Communication with the market 2199. Banco BPI share performance and dividend policy 22110. Appendix of the BPI Group’s corporate governance report 222

Trading information 223

AppendicesDefinitions, acronyms and abbreviations 226Glossary 228Formulary 230Methodological notes 231Index of figures, tables, charts and "boxes" 232General index 234Miscellaneous information 237


Miscellaneous information

Shareholder and Investor Services

Public information on BPI Group is available upon request at the

Investor Relations Office cited above or by filling and sending

the detachable below.

Releases

In addition to its annual report and accounts Banco BPI

publishes a half-year report and accounts and releases its

quarterly results.

Electronic editions

This report and other BPI Group publications are available at

www.bpi.pt for download in the PDF format. They can also be

obtained by request at the Investor Relations Office.

Business address of Banco BPI Governing Body Members

The business address of each Member of Banco BPI, S.A.

governing bodies for the purpose hereof is:

Rua Tenente Valadim, 284

4100-476 Porto

INFORMATION ON BANCO BPI SHARES

At 31 December 2002, Banco BPI, S.A. share capital is

represented by 760 000 000 ordinary nominative shares with a

nominal value of EUR 1 each. Banco BPI shares are listed in the

Euronext Lisbon.

Codes

SIIB: 65096902 CVM: BPI AM

Tickers

Reuters: BPIN.IN Bloomberg: BPIN.PL

�

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Site on the Internet, available in Portuguese and in English, used

by BPI to disseminate information of an institutional nature about

the Group, such as: preparatory documents for Shareholders’

General Meetings, announcements and press releases (including

the disclosure of results), presentations, information concerning

dividends and Banco BPI shares, etc.

INVESTOR RELATIONS OFFICE


4100-476 Porto

Telephone: 22 607 33 37

Facsimile: 22 600 47 38

E-mail: [email protected]

Information request:

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BANCO BPI, S.A.

INVESTOR RELATIONS OFFICE


4100-476 Porto

PORTUGAL

BANCO BPI, S.A.

Public held company

Tax identification number 501 214 534

Registered in Oporto C.R.C., under the number 35 619

Headquarters: Rua Tenente Valadim, n.º 284, 4100-476 Porto, PORTUGAL

Share capital: EUR 760 000 000