Download - Portuguese economy and the banking sector
Banco de Portugal
VÍTOR CONSTÂNCIO
January 2007
TheThe economyeconomy and and thethe bankingbankingsector: sector: recentrecent developmentsdevelopments
• Moderate but consistent economic recovery
• Consolidation of Public Finance
• Banking and Financial Stability
• Structural reforms and long term economic potential
Bank of Portugal’s Economic Forecasts
Growth rates (%)2005 2006(e) 2007
GDP 0.4 1.2 1.8
1.50.00.01.1
6.2
3.5
Inflation rate (HICP) 2.1 3.0 2.3 2.4
2.1
1.2-0.2-3.10.1
9.3
4.3
1.71.9-2.60.6
1.0
1.6
2008
Private Consumption 1.7Public Consumption 0.3Gross Fixed Investment 3.9
Exports of goods and services 6.1
1.9
4.7
Domestic Demand
Imports of goods and services
GDP growth rates
-3
-2
-1
0
1
2
3
4
5
96 97 98 99 2000 2001 2002 2003 2004 2005 2006 2007 2008
Euro Area
Portugal
Differential
Growth rates of GDP, Domestic Demandand External Demand
-14
-9
-4
1
6
11
16
90 91 92 93 94 95 96 97 98 99 2000 2001 2002 2003 2004 2005 2006 2007 2008
Domestic demand
GDP
External demand
External netborrowing in %
of GDP
INVESTMENT COMPONENTS: CONTRIBUTION TO GDP GROWTH (in p.p.)
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
2000
2001
2002
2003
2004
2005
2006
(e)
2007
(p)
2008
(p)
CorporatePublicHousingTotal (%)
INVESTMENT BY SECTOR (in % of GDP)
0
4
8
12
16
20
24
2819
95
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
(e)
2007
(p)
2008
(p)
0
2
4
6
8
10
12
14
Corporate (lhs)Public (rhs)Housing (rhs)Total (lhs)
EXPORTS AND EXTERNAL DEMAND
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2000
2001
2002
2003
2004
2005
2006
(e)20
07(p)
2008
(p)
Market shareExports of goods and servicesExternal demand
80
90
100
110
120
130
140
150
160
170
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
(Source: BP, AMECO and OECD)
80
90
100
110
120
130
140
150
160
170
ULC's (total)
CPI
Export prices
ULC's (manufacturing)
(a): 13 countries until 1999 and 22 countries after 1999.
Competitiveness: real exchange rates in terms of relative CPI, ULC’s and relative export prices (a) (1985=100)
Inflation and ULC’s differentials in relation to the euro area(in %)
Average of 1999-2005 CumulativeInflation ULC'S Inflation ULC'S
Portugal 1 2.1 6.2% 13.3%Greece 1.2 1.3 7.4% 8.1%Spain 1.1 1.5 6.8% 9.3%Italy 0.3 1 1.8% 6.2%Irleand 1.5 0.8 9.3% 4.9%Belgium -0.1 0 -0.6% 0.0%Germany -0.6 -1.1 -3.5% -6.4%France -0.2 -0.2 -1.2% -1.2%Austria -0.3 -0.8 -1.8% -4.7%Finland -0.4 -0.2 -2.4% -1.2%
Export quotas in U.E.-15 (in %)
0
1
2
3
4
5
6
7
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Spain
Portugal
Italy
Greece
China
10NM
(Source: BP based on Eurostat Comext)
Export quotas in U.E.-15 (Index 1995=100)
50
75
100
125
150
175
200
225
250
275
300
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Spain
Portugal
10 N. Members
Italy
China
Greecea
(Source: BP based on Eurostat Comext)
Structure of Exports
1986-1989 2005 Variação
Food, wood products, cork, paper, leather, textiles , clothing, footwear 61,1 % 35,0% -26,1 p,p
Machinery, optical & precision, transport equipment, rubberproducts, chemical, energy, plastics 28,0 % 48,4% +20,4 p,p
16,6% +5,7 p,p10,9 %Other
• Moderate but consistent economic recovery
• Consolidation of Public Finance
• Banking and Financial Stability
• Structural reforms and long term economic potential
Public Administration AccountsIn % of GDP
Annualgrowthrates1995-20056.67.1
6.7
7.1
9.5
9.47.17.0
5.7-2.14.3
5.6
Capital expenditures 5.3 4.5BUDGET DEFICIT -5.5 -6.0
GDP 100 100
1995 2005
39.6 41.936.4
47,9
43,4
22.1
18.01.614.6
4.02.7
Tax receipts 33.5
of which: to households 13.2
Staff expenditures 13.6
Interest payments 6.3
Total Expenditure 45
Current transfers 16.2
33.5
1.3
3.7
Total Revenues
Current expenditures
to firms
Intermediate consumption
Macroeconomic policy
02468
101214161820
-3 -2 -1 0 1 2Primary deficit (cyclically adjusted without one-off measures)
Shor
t ter
m in
tere
st ra
t 1990
1995
1997
1999
20012002
1993
2003
1992
1991
2000
20042005 2006
Variation of primary deficits, revenues and expenditures, cyclically adjusted and without one-off measures
-1.5 -1 -0.5 0 0.5 1 1.5
2006
2005
2004
2003
2002
2001
2000
Var Pr Def Var revenues Var expenditures
• Moderate but consistent economic recovery
• Consolidation of Public Finance
• Banking and Financial Stability– Financial Sector Assessment Program with the IMF
• Structural reforms and long term economic potential
IMF Financial System Stability Assessment
«Overall, Portugal’s financial system is sound, well managed and competitive, with shorter-term risks and vulnerabilities quite well contained for now, and with the system buttressed by a strong financial policy framework. Despite being relatively small and concentrated, Portugal’s banking system generally compares well with other European Union (EU) countries in terms of efficiency, profitability, and asset quality, with solvency also close to European levels.»
…..«Regulation and supervisionSupervision of financial institutions is active,
professional, well organized, and highly compliant with international standards.»
Source: IMF «Portugal: Financial System Stability Assessment », September 2006
Compliance with Basel Core Principles for EffectivweBanking Supervision
Portugal UK Italy Holland France SpainSeptember
2006July2003
May2004
September2004
June2005
June2006
Compliant 28 26 24 24 29 26LargelyCompliant 2 4 5 6 1 4MateriallyNonCompliant 0 0 0 0 0 0
Non Compliant 0 0 1 0 0 0
Source: IMF several Financial System Stability Assessment Reports
2004 2005
Capital Adequacy Ratio 10.2% 11,3%
Tier 1 Capital 7.0% 7.1%
109.1%
Liquid Assets to short term liabilities– Domestic Banks
127.3 % 126.5%
1.6 %
2.1%
0.6%
12.5%
99%
1.5%
2.2%
1.0%
16.9%
Liquid Assets to short term liabilities– total system
NPLs to gross loans (% do total)
Net Interest Margin (% of Assets
Return on Assets (ROA)
Return on Equity (ROE)
Banking Sector Indicators
Source: IMF «Portugal: Financial System Stability Assessment », September 2006
Capital Adequacy ratio (%)
14.1
11.811.3
11.711.1
10.8
9.29.5 9.8 10.0
10.4
10.2
11.3
8.0
9.0
10.0
11.0
12.0
13.0
14.0
15.0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: IMF «Portugal: Financial System Stability Assessment », September 2006
Source: IMF «Portugal: Financial System Stability Assessment », September 2006
Portugal: Banking System Indicators, 2005
Source: IMF «Portugal: Financial System Stability Assessment », September 2006
Portugal: Banking System Indicators, 2005
Source: IMF «Portugal: Financial System Stability Assessment », September 2006
Portugal: Banking System Indicators, 2005
Source: IMF «Portugal: Financial System Stability Assessment », September 2006
CREDIT GROWTH (annual rates in %)
05
10152025303540
Dez-95
Dez-96
Dez-97
Dez-98
Dez-99
Dez-00
Dez-01
Dez-02
Dez-03
Dez-04
Dez-05
Dez-06
Total HouseholdsHouseholdsHousingHousing
Non-financialfirms
Source: European Commission (2006) “The EU economy 2006 review: Adjustment dynamicsin the euro area”
Source: European Commission (2006) “The EU economy 2006 review: Adjustment dynamicsin the euro area”
Source: European Commission (2006) “The EU economy 2006 review: Adjustment dynamicsin the euro area”
Scenario 1 ofDisruptive adjustment
Scenario 2 of Cyclicalasynchrony
Deviations in p.p from the baseline scenario
2006 2007
-1.7 -1.7
-1.5
0
0
1.1
-1.2
+24
-30
1.4
2008 2006
-1.4 -1.0
1.4
0
0
-2.6
-1.5
0
0
0.2
2007
2008
Real GDP growth -1.6
3-month interest rates 1.9 2.5
Dollar/euro exchange rate 0 0
0
Total credit -5.1 -5.9
-1.5
0Stock prices
Stress Tests Scenarios
Source: IMF «Portugal: Financial System Stability Assessment », September 2006
Source: IMF «Portugal: Financial System Stability Assessment », September 2006
Source: IMF «Portugal: Financial System Stability Assessment », September 2006
• Moderate but consistent economic recovery
• Consolidation of Public Finance
• Banking and Financial Stability– Financial Sector Assessment Program with the IMF
• Structural reforms and long term economic potential
1998 2003
General Index of product marketsPortugal 2.2 1.6
OECD average 2.1 1.5
Index of barriers to trade and investment
Portugal 1.2 0.8
OECD average 1.5 1.0
Portugal 1.8 1.3
Index of barriers to entreperneuship
1.9 1.5OECD average
Regulation Indexes of OECD
Source: Conway, P. Veronique Janod and G. Nicoletti (2003) «Product and market regulationin OECD countries: 1998 to 2003» OECD WP nº 419
Portugal: Comparison with OECD average (lower Bar)
World Bank Governance index (2005)
Percentile 85
Percentile 83
Percentile 84
Percentile 88
Percentile 99
Source: World Bank
World Bank Governance index (2005)
Percentile 68
Percentile 70
Percentile 88
Percentile 92
Percentile 95