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Banco Popular Portugal, SA
Interim Report
and
Accounts
2014
Half-Year
Interim Report and Accounts - Half-Year
This is a mere translation of the original Portuguese documents prepared by Banco Popular Portugal,
S.A., which was made with the single purpose of simplifying their consultation to English speaking
stakeholders. In case of any doubt or contradiction between these and the original documents, their
Portuguese version prevails.
2
Interim Report and Accounts - Half-Year
Table of Contents
Page
General Information ................................................................................................................ 4
Board and Management ......................................................................................................... 5
Banco Popular Portugal Financial Highlights .......................................................................... 6
Interim Management Report ................................................................................................... 7
Macroeconomic scenario..................................................................................................... 8
Commercial strategy ........................................................................................................... 9
Income and profitability...................................................................................................... 10
Net interest income ........................................................................................................ 10
Banking income ............................................................................................................. 12
Operating income ........................................................................................................... 13
Net income ..................................................................................................................... 15
Loans and deposits ........................................................................................................... 15
Total assets.................................................................................................................... 15
Customer funds .............................................................................................................. 16
Loans and advances to customers ................................................................................. 18
Main Risks and Uncertainties ............................................................................................ 19
Qualifying holdings ............................................................................................................ 21
Declaration of compliance of the financial information .......................................................... 22
Half-Year Accounts............................................................................................................... 23
Balance sheet ................................................................................................................ 23
Income Statement .......................................................................................................... 24
Statement of Comprehensive Income ............................................................................ 25
Individual Statement of Changes in Equity ..................................................................... 25
Cash FlowStatement ...................................................................................................... 26
Notes to the Financial Statements.................................................................................. 27
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Interim Report and Accounts - Half-Year
General Information
Banco Popular Portugal, S.A., was founded on 2 July 1991. The head office is located at 51
Ramalho Ortigão in Lisbon. It is registered at the Lisbon Commercial Registry under the
taxpayer No. 502.607.084. The Bank adopted its current corporate name in September 2005
to the detriment of its former name 'BNC-Banco Nacional de Crédito, S.A.' Banco Popular
Portugal is a member of the Deposit Guarantee Fund and it has a share capital of 476 million
euros.
The financial and statistical data provided herein were prepared according to analytical
criteria based on the utmost objectivity, detail, reporting transparency and consistency over
time, from the financial information periodically sent to the Bank of Portugal. The financial
statements are presented in accordance with the legislation in force in 2014, particularly
those issued by the Bank of Portugal regarding the presentation of accounting information.
Pursuant to article 8(3) of the Portuguese Securities Market Code, the half-year information
contained herein was not submitted to any auditing or limited reviewing.
The interim management report, the half-year accounts and its accompanying documents are
available at Banco Popular Portugal’s Internet website: www.bancopopular.pt.
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Interim Report and Accounts - Half-Year
Board and Management
Board of the General Meeting
Augusto Fernando Correia Aguiar-Branco - Chairman
João Carlos de Albuquerque de Moura Navega - Secretary
Board of Directors
Rui Manuel Morganho Semedo - Chairman
Carlos Manuel Sobral Cid da Costa Álvares - Member
Tomás Pereira Pena - Member
José Ramón Alonso Lobo - Member
Supervisory Board
Rui Manuel Ferreira de Oliveira - Chairman
Telmo Francisco Salvador Vieira
António José Marques Centúrio Monzelo
Ana Cristina Freitas Rebelo Gouveia – Alternate
Statutory Auditor
PricewaterhouseCoopers & Associados, Sociedade de Revisores Oficiais de Contas, Lda.,
represented by Aurélio Adriano Rangel Amado or by José Manuel Henriques Bernardo
Alternate Statutory Auditor
Jorge Manuel Santos Costa, Statutory Auditor
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Interim Report and Accounts - Half-Year
Banco Popular Portugal Financial Highlights
(million euros, unless otherwise stated)
Jun-14
Var.
(% and
p.p.)
jun-13
Turnover
Total assets managed
On-balance sheet total assets
Own funds (a)
Customer funds:
on balance sheet
other intermediated customer funds
Loans and advances to customers
Contingent risks
10 318
9 333
712
4 980
3 995
985
5 649
569
0.1%
-2.6%
4.8%
1.2%
-4.6%
35.0%
-4.3%
-6.0%
10 311
9 581
680
4 919
4 190
730
5 905
605
Solvency
Solvency ratio-BP
Tier 1
Core Tier 1
11.3%
11.3%
11.6%
0.2
0.2
0.2
11.1%
11.1%
11.4%
6 218
309
285
5.5%
111.9%
-4.5%
23.0%
25.7%
1.2
7.7
6 510
251
227
4.2%
104.2%
62.1
92.3
34.4
1.3
1.2
-3.3%
1.6%
-2.7%
-61.7%
-41.3%
64.2
90.9
35.4
3.3
2.0
9 619
696
0.03%
0.35%
60.5%
4.7%
3.9%
-0.02
-0.27
2.19
9 186
670
0.04%
0.62%
58.3%
Per share data
Final number of shares (millions)
Average number of shares (millions)
Share book value (€)
Earnings per share (€)
476
476
1.497
0.003
0.0%
0.0%
4.8%
-41.3%
476
476
1.428
0.004
Other data
Number of employees
Number of branches
Employees per branch
1 295
172
7.5
-0.8%
-2.8%
2.1%
1 305
177
7.4
Risk Management
Total risks
Non-performing loans
Non-performing loans for more than 90 days
Non-performing loan ratio (%)
Non-performing hedging ratio
Earnings
Net interest income
Banking income
Operating income
Net income before tax
Net income
Profitability and efficiency
Average net assets
Average own assets
ROA (%)
ROE (%)
Cost to income (%)
(a) After appropriation of results for each year
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Interim Report and Accounts - Half-Year
Interim Management Report
As at June 2014, Banco Popular Portugal, S.A., reported shareholder’s equity of 712,434
thousand euros, a network of 172 branches and a team of 1,295 staff. The Bank had over
400 thousand customers and managed around 10.3 billion euros of total assets, including
customer funds in the amount of 5 billion euros. At the end of the first half of 2014, the Bank's
total net assets amounted to 9.3 billion euros.
The Bank operates in Portugal offering a full range of products: Deposits, Retail Credit,
Corporate Credit, Life and Non-life Insurance, Asset Management and Factoring. The Bank's
activities are supported by the following companies:
- Popular Gestão de Ativos, SA – fully owned by Banco Popular Español S.A. (BPE) is a
Fund Management Company that manages, among others, the securities commercialized by
the Bank;
- Popular Factoring, S.A., 99.8% held by BPE, is a credit institution that provides Factoring
services;
- Eurovida - Companhia de Seguros de Vida, S.A., is an insurance company that provides life
and capitalisation insurance, and is 84.1% held by BPE and 15.9% held by the Bank;
- Popular Seguros - Companhia de Seguros, S.A., is wholly owned by Eurovida, and trades
in non-life insurance products.
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Interim Report and Accounts - Half-Year
Macroeconomic scenario
In the second quarter of 2014, according to the first data available, Gross Domestic Product
increased by 0.8 % when compared with the same period last year, with a quarterly change
of 0.6%, thus recovering from the drop in the first quarter (-0.6 % quarter-on-quarter). This
performance of the national economy, which will have been lower than in the first quarter (1.3
%) when compared with the same period last year, was constrained by the decrease in
Exports of Goods and Services and by the evolution of Investment which is at the base of the
smaller contribution of domestic demand to GDP. Projections for the 2014-2016 period point
towards a gradual recovery of the economic activity. However, there are still some
uncertainties for 2014 regarding the 1.1% real GDP growth projection arising from the growth
capacity of exports, the continuous recovery of private consumption, the recovery of the
financial system and the external framework, namely in the Euro area.
Domestic demand maintained the recovery trend initiated in the 2nd quarter of 2013, driven
by investment and private consumption, although in this past quarter there have been some
signs of downturn, for example the deceleration of the Retail Trade Turnover Index, which
went down from a change by 1.8% in May to 0.1% in June when compared with the same
period last year. The Consumer Confidence Indicator increased in June, continuing the
strong upward trend that started at the beginning of 2013, peaking since 2007. In the past
few months, this indicator has benefited from the positive performance of every component,
mostly due to the outlook on the evolution of unemployment.
According to the National Institute for Statistics (INE), the unemployment rate in Portugal
stood at 13.9% at the end of the 2nd quarter. The unemployment rate has been moderately
and uninterruptedly decreasing this year. However, it is the 5th highest unemployment rate in
Europe.
In June 2014, the Harmonised Consumer Price Index recorded a -0.2% year-on-year rate of
change, reflecting the lower slowdown of the price of goods and a deceleration of the prices
of services.
The European Central Bank lowered its reference interest rate in June to a new low of 0.15%.
According to the Council of the European Central Bank, the economy in the Euro area shall
recover moderately in this context of low inflation and weakness of the monetary and credit
conditions.
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Interim Report and Accounts - Half-Year
Commercial strategy
During the first half-year, Banco Popular has continued its strategy of being a leading Bank
for Companies while still providing a universal offer with a customer-centred approach and
prepared for their everyday needs. On the other hand, the Bank has maintained its focus on
providing customer services with a view to accompanying their life-cycle and with a better
interaction between channels to create a relationship and generate business opportunities.
Proving the dynamics of its commercial activity, Banco Popular has managed to attract 15
thousand new customers,of which 11,213 are private individuals and 3,749 are companies. In
both segments, it was evident the effort of increasing the transactionality and loyalty.
Corporate lending, namely by supporting internationalisation and offering a wide range of
products and services were two major priorities for this segment during the first half of the
year. We would like to highlight the Bank's dynamism in terms of credit placement through
Linhas PME Crescimento targeted at SMEs and the increased market share in terms of
Leasing.
The communication strategy has accompanied and reflected the strategic positioning of the
Bank, which was made clear in a multimedia communication campaign launched in the first
half of the year.
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Interim Report and Accounts - Half-Year
Income and profitability
The statement of income is summarised in table 1, based on the first half of 2014 and the
corresponding period of 2013 pursuant to regulations issued by the Bank of Portugal.
Table 1 . Individual Income Statement
(€ thousand)
jun-14
jun-13
Change
Amount
%
1
Interest and similar income
133 481
161 149
- 27 668
-17.2
2
Interest and similar charges
71 407
96 986
- 25 579
-26.4
3
Net interest income (1-2)
62 074
64 163
- 2 089
-3.3
4
Return on equity instruments
58
47
11
23.3
5
Net fees and commissions
29 819
24 698
5 121
20.7
6
Income from financial transactions (net)
8 765
2 506
6 259
249.8
7
Income from the sale of other assets
- 5 181
2 614
- 7 795
-298.2
8
Other operating income
- 3 214
- 3 138
- 76
-2.4
9
Banking income (3+4+5+6+7+8)
92 320
90 890
1 431
1.6
10
Personnel expenses
28 585
27 913
672
2.4
11
General administrative expenses
27 293
25 112
2 181
8.7
12
Depreciation
13
Operating income(9-10-11-12)
14
Provisions net of reversals and recoveries
15
Value adjustments net of loans and advances to customers
16
Impairment and other net provisions
17
Profit before tax (13-14-15-16)
18
Income tax
19
Net income for the period (17-18)
2 003
2 483
- 480
-19.3
34 440
35 382
- 942
-2.7
337
- 2 129
2 466
115.8
35 866
32 184
3 682
11.4
- 3 040
1 993
- 5 033
-252.5
1 277
3 334
- 2 057
-61.7
74
1 285
- 1 210
-94.2
1 202
2 049
- 847
-41.3
Table 1 – Individual income statement
Net interest income
At the end of the first half of 2014, net interest income amounted to 62 million euros,
reflecting a decrease by approximately 2.1 million euros, i.e., 3.3% less when compared with
the same period of 2013. This decrease was due, as can be seen in table 2 on the Assets
side, to the combined effect of credit granted (-16.6 million euros via the reduction of the
average volume but mostly via the reduction of the interest rates) and the financial asset
portfolio (-12.7 million euros via the reduction in the interest rates of these operations). These
negative effects were almost fully offset by the favourable effects of volume and price of
customer funds and by the lower cost of funds from banks, thus translating in savings of 25.6
million euros). In this context, the strategy of reducing the cost of resources was fundamental
to offset the reductions in terms of volume and price of the loans granted.
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Interim Report and Accounts - Half-Year
Table 2 . Annual changes in net interest income - Causal analysis Jun/2014 - Jun/2013
(€ thousand)
Due to changes in
turnover
Changes in:
Loans and advances to customers
Deposits with banks
Financial assets
Other assets
Due to changes in
interest rate
Due to changes in
period
Total
change
- 5 813
2 242
- 978
- 15
- 10 747
- 752
- 11 740
135
-
- 16 560
1 490
- 12 718
120
- 4 564
- 23 104
-
- 27 668
- 5 127
2 399
0
90
- 17 980
- 5 057
0
96
-
- 23 107
- 2 658
0
186
Total Assets
- 2 638
- 22 941
-
- 25 579
Net interest income
- 1 926
- 163
Total net investments
Deposits from customers
Deposits from banks
Own assets
Other liabilities
- 2 089
Overall, the effect of volume of activity was larger, both due to the reduction in the loans
granted and the drop in customer funds, underscoring an efficient management of interest
rates.
Table 2 – Annual changes in net interest income
As shown on table 3, the average assets of the Bank in the first half of 2014 were backed by
customer funds (48.4%) and deposits from banks (41.6%), mostly deposits from Banco
Popular Group. Loans and advances to customers is still their main component, representing
around 58.1% of total average assets.
Table 3 . Table – Evolution of equity and average annual rates Margins
(€ thousand and %)
Jun-14
Average
Balance
Dist.
(%)
Income
or expense
Jun-13
Average
Rate (%)
Average
Balance
Dist.
(%)
Income
or expense
Average
Rate (%)
Loans and advances to customers (a)
Deposits with banks
Financial assets
Other assets
5 590 467
1 312 320
2 303 632
412 640
58.1%
13.6%
23.9%
4.3%
102 279
2 932
28 061
209
3.69
0.45
2.46
0.10
5 888 236
449 572
2 361 598
486 166
64.1%
4.9%
25.7%
5.3%
118 838
1 442
40 779
89
4.07
0.65
3.48
0.04
Total Assets ( b )
9 619 059
100%
133 481
2.80
9 185 570
100%
161 149
3.54
Deposits from customers ( c )
Deposits from banks
Equity accounts
Other liabilities
4 657 488
3 998 949
695 979
266 643
48.4%
41.6%
7.2%
2.8%
50 942
9 078
0
11 387
2.21
0.46
0.00
8.61
5 026 637
3 226 520
670 023
262 390
54.7%
35.1%
7.3%
2.9%
74 049
11 736
0
11 201
2.97
0.73
0.00
8.61
9 619 059
100%
71 407
1.50
9 185 570
100%
96 986
2.13
Total Liabilities and Equity (d)
Customer spread (a - c)
Net Interest Income (b - d)
1.48
1.30
1.10
1.41
Taking into consideration the evolution of the average annual interest rates of loans and
deposits, we would like to stress that the average assets, which amounted to 9,619 million
euros, posted an overall profitability of 2.8%, which, when compared with the average cost of
11
Interim Report and Accounts - Half-Year
total resources allocated to the financing of assets(1.5%), has enabled an annual net interest
income of 1.30%, 11 basis points lower than in the same period last year.
This strategy of reducing of the cost of funds both from customers (77 basis points) and
banks, has allowed the Bank to decrease by 63 basis points the average annual rate of
liabilities, which stood at 1.50% and compares with 2.13% in the same period last year (table
3a).
The reduction in the average balance of loans is justified by some sales occurred in 2013,
having the annual average rate of loans dropped by 38 basis points, from 4.07% to 3.69%.
Due to this combined effect, customer spread also increased by 38 basis points to 1.48%.
Table 3a . Evolution of annual average rates. Margins
Average annual rate
Jun-14
(%)
Average annual rate
Jun-13
(%)
Change
Jun-14 / Jun-13
(p.p.)
Loans and advances to customers (a)
Deposits with banks
Financial assets
Other assets
3.69
0.45
2.46
0.10
4.07
0.65
3.48
0.04
-0.38
-0.20
-1.03
0.07
Total Assets ( b )
2.80
3.54
-0.74
Deposits from customers ( c )
Deposits from banks
Equity accounts
Other liabilities
2.21
0.46
0.00
8.61
2.97
0.73
0.00
8.61
-0.77
-0.28
0.00
0.00
Total Liabilities and Equity (d)
1.50
2.13
-0.63
Customer spread (a - c)
Net Interest Income (b - d)
1.48
1.30
1.10
1.41
0.38
-0.11
Fig. 1 - Customer spread
Fig. 2 - Net interest income
Banking income
In the first half of 2014, net fees and commissions charged to customers for the sale of
products and services totalled 29.8 million euros, rising by over 5 million euros, or 20.7%,
when compared with the first half of 2013. Table 4 details the main items that have
contributed to changes in net fees and commissions during the first half of the year, which
were, on the negative side, fees and commissions on lending transactions with 1.5 million
euros less, -18.5%, and, on the positive side, fees and commissions on insurance brokerage
with 3.2 million euros more, i.e., 357% more, and fees and commissions on collection and
payment methods with 1.8 million euros more, or 30.2%.
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Interim Report and Accounts - Half-Year
Table 4 . Net fees and commissions
(€ thousand)
Jun-14
Jun-13
Change
Amount
%
Commissions from lending
6 776
8 310
- 1 534
-18.5
Commissions from guarantees
3 486
3 671
- 185
-5.0
Commissions from collection and payment handling (net)
7 683
5 899
1 784
30.2
Commissions from asset management (net)
1 180
518
662 127.7
Commissions from insurance sales
4 196
918
3 278 357.0
Commissions from account management
2 918
2 538
380
15.0
791
821
- 30
-3.6
Commissions from processing services
Other commissions (net)
2 961
2 182
779
35.7
Fees paid to promoters and agents
- 172
- 159
- 13
-8.2
29 819
24 698
5 121
20.7
Total
Table 3
Net fees and commissions
Regarding the remaining items of banking product, we would like to highlight the increase by
6.3 million euros in terms of financial transactions due to the improved performance of the
financial assets in the portfolio, which did not offset the -7.8 million euros that resulted from
the sale of other assets, mostly properties.
At the end of the first half of the year, banking product was 1.4 million euros higher when
compared with the same period last year, which corresponds to a positive change of 1.6%.
Operating income
In the first half of 2014, operating expenses totalled 57.9 million euros, which represents an
increase by 2.4 million euros, or 4.3%, when compared with the same period last year as can
be seen in table 5.
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Interim Report and Accounts - Half-Year
Table 5 . Operating Expenses
(€ thousand)
Change
Amount
%
jun-14
jun-13
Personnel expenses (a)
Wages and salaries
Social security charges
Pension Fund
Other expenses
28 585
21 088
5 689
1 465
343
27 913
20 844
5 950
549
570
672
244
- 261
916
- 227
2.4
1.2
-4.4
167.0
-39.8
General administrative expenses (b)
External supplies
Rents and leasing
Communications
Travel, hotel and representation
Advertising and publications
Maintenance of premises and equipment
Transports
Fees and regular payment agreements
Legal expenses
IT Services
Security, surveillance and cleaning
Temporary work
External consultants and auditors
External real estate appraisers
Services rendered by Banco Popular Group
Other services
27 293
1 309
2 175
2 222
578
1 892
1 709
560
3 228
959
6 414
465
2 317
337
54
1 685
1 389
25 112
1 337
2 249
2 033
516
1 160
2 024
522
3 202
1 296
3 881
590
2 214
347
147
1 676
1 918
2 181
- 28
- 74
189
62
732
- 315
38
26
- 337
2 533
- 125
103
- 10
- 93
9
- 529
8.7
-2.1
-3.3
9.3
11.9
63.1
-15.6
7.2
0.8
-26.0
65.3
-21.2
4.6
-2.7
-63.3
0.5
-27.6
Operating expenses (c=a+b)
55 878
53 025
2 853
5.4
Depreciation (d)
2 003
2 483
- 480
-19.3
Total (c+d)
57 881
55 508
2 373
4.3
Personnel expenses amounted to 28.6 million euros, which corresponds to an increase by
2.4%. This increase was due to a larger transfer to the Pension Fund in the amount of around
0.9 million euros.
If this transfer hadn't taken place personnel expenses would have
maintained its decreasing trend.
General administrative expenses totalled around 27.3 million euros, which corresponds to a
2.2 million euro increase (+8.7%) when compared with the same period last year. This
increase in terms of expenses was mostly due to an increase in the items 'IT services' (+2.5
million euros, or 65.3%) and 'Advertising and publications' (+0.7 million euros, or 63.1%).
In terms of allocations for depreciation of fixed assets we have witnessed a positive
performance (-0.5 million euros, or -19.3%), which went slightly over 2 million euros.
14
Interim Report and Accounts - Half-Year
The cost-to-income ratio, which corresponds to the part of banking income consumed by
operating expenses stood at 62.7% (3 pp less when compared with 2013 year-end). The
weight of personnel expenses in banking income totalled 31%, which was lower than the
32.8% seen at the end of 2013.
Operating income thus amounted to approximately 34.4 million euros, around 2.7% lower
than in the same period last year.
Net income
As at 30 June 2014, Net Income for the period exceeded 1.2 million euros, 0.8 million euros
less than in the same period last year. This reduction was achieved mostly due to the 2.1
million euro drop in Net Interest Income and the 2.2 million increase in general administrative
expenses.
Loans and deposits
Total assets
As at 30 June 2014, Banco Popular’s net assets amounted to 9,333 million euros, 248
million euros less than in the same period last year, which corresponds to a decrease by
around 2.6%.
The Bank also manages other customer funds applied in investment, saving and retirement
instruments, which amounted to 985 million euros at the end of the first half of the year,
representing a 35% increase when compared with the same period last year.
Therefore, total assets managed by the Bank amounted to 10,318 million euros at the end
of the first half of the year, which represents a 0.1% increase when compared with the
previous year.
15
Interim Report and Accounts - Half-Year
Customer funds
As at 30 June 2014, the total amount of on- and off-balance sheet customer funds
amounted to 4,980 million euros, 1.2% more when compared with the same period last
year.
On-balance sheet funds, comprised mostly of customer deposits, totalled 3,995 million
euros, which corresponds to a decrease by 4.6% when compared with June 2013.
Demand accounts increased by 153.7 million euros, or 21.5%, from 715.5 million euros to
869.2 million euros.
Table 6. Customer funds
(€ thousand)
Jun-14
Jun-13 Change
Amount
%
CUSTOMER FUNDS:
Deposits
3 949 199
869 211
3 075 531
4 457
4 135 003
715 529
3 413 996
5 478
- 185 804
153 682
- 338 465
- 1 021
-4.5
21.5
-9.9
-18.6
Cheques, payment orders and other funds
12 175
12 055
120
1.0
Interest payable
33 800
42 547
- 8 747
-20.6
3 995 174
4 189 605
- 194 431
-4.6
307 259
501 366
87 501
88 783
198 819
378 615
91 367
60 897
108 440
122 751
54.5
32.4
- 3 866
27 886
-4.2
45.8
OFF-BALANCE SHEET FUNDS ( b )
984 909
729 698
255 211
35.0
TOTAL CUSTOMER FUNDS ( a + b )
4 980 083
4 919 303
60 780
1.2
Demand accounts
Time deposits
Savings accounts
ON-BALANCE SHEET FUNDS ( a )
Disintermediation funds
Investment funds
Investment and capitalisation insurance
Retirement insurance plans
Customer portfolio under management
Off-balance sheet funds – which include investment fund applications, retirement plans,
funds raised through investment insurance products, and assets managed through private
banking – increased by 35%, rising from 729.7 million euros on 30 June 2013 to 984.9
million euros at the end of the first half of 2014. The positive performance of this item is
mostly due to growth in investment funds by over 54.5%, in portfolio management by
16
Interim Report and Accounts - Half-Year
45.8%, and in investment and capitalisation insurance by over 32.4%. The evolution of
these funds is shown at the bottom of the previous table.
As at 30 June 2014, Banco Popular Portugal was the depositary of 17 investment funds
managed by Popular Gestão de Activos, whose total portfolio amounted to 307 million
euros on that date. Table 7 shows the composition of each fund managed as at 30 June
2014 and 2013.
Table 7. Investment Fund Portfolio ( asset value)
(€ thousand)
Jun-14
Funds
Popular Valor
Popular Acções
Popular Euro Obrigações
Popular Global 25
Popular Global 50
Popular Global 75
Popular Tesouraria
Popular Economias Emergentes I
Popular Economias Emergentes II
Popular Multiactivos (*)
Popular obrig. Ind.Emp. Germany and USA
Popular obrig.Ind.Ouro (London)
Fundurbe
Imourbe
ImoPopular
ImoPortugal
Popular Predifundo
Popular Objectivo Rendimento 2015
Popular Objectivo Rendimento 2021
Popular Arrendamento
Total
Jun-13 Change
Amount
0
10 787
25 610
29 133
24 820
14 239
8 349
0
9 959
3 114
5 978
3 981
0
12 628
21 548
22 734
12 001
2 379
1 323
98 676
2 549
2 505
12 162
8 171
4 330
2 551
3 955
8 250
9 923
4 047
5 627
3 927
10 359
10 441
25 468
24 210
13 173
2 454
0
44 718
- 2 549
8 283
13 448
20 963
20 491
11 688
4 394
- 8 250
35
- 933
351
54
- 10 359
2 186
- 3 920
- 1 476
- 1 171
- 75
53 958
-100.0
330.7
110.6
256.6
473.3
458.1
111.1
-100.0
0.4
-23.1
6.2
1.4
-100.0
20.9
-15.4
-6.1
-8.9
-3.1
>
120.7
307 259
198 819
107 117
54.5
(*) Popular Multiactivos results from the merger by incorporation of Popular Multiactivos I,
Popular Multiactivos II and Popular Multiactivos III.
17
%
Interim Report and Accounts - Half-Year
Loans and advances to customers
As at 30 June 2014, loans and advances to customers totalled around 5,649 million euros,
representing 60.5% of total assets, or 57.4% if provisions for past-due loans are deducted.
Loans and advances to corporate customers and the public sector amounted to 3,108 million
euros (excluding other securitised loans and overdue loans), which corresponds to 62.4% of
total lending transactions.
The following table shows the distribution of loans and advances to customers as at 30
June 2014 and 2013.
Table 8. Loan Transactions
(€ thousand)
Jun-14
Jun-13
Change
Amount
%
Loans and advances to customers (a)
Public sector
Private customers
Residential mortgage loans
Personal and consumer loans
Other personal lending
Total
Other loans (represented by securities) (b)
Interest and commissions receivable (c)
Past-due loans and interest (d)
Due within 90 days
Over 90 days
Total
Total Gross Lending ( a + b + c + d )
Specific Loan Provisions
Total Net Lending
3 108 726
1 873 358
1 475 228
3 483 422
1 874 025
1 462 556
- 374 696
- 668
12 672
41 461
356 669
4 982 084
50 051
361 419
5 357 448
- 8 590
- 4 750
- 375 364
10.8
0.0
0.9
17.2
-1.3
-7.0
350 398
272 300
78 098
28.7
7 836
24 168
- 16 332
67.6
23 522
285 113
308 635
23 963
226 886
250 849
- 441
58 227
57 785
-1.8
25.7
23.0
5 648 953
5 904 765
- 255 812
-4.3
295 177
211 713
83 464
39.4
5 353 776
5 693 052
- 339 276
-6.0
Table 4 –Loan Transactions
The decrease in the amount of loans and advances to customers was due to a drop by
10.8% in lending to companies and public bodies, or 375 million euros. Lending to private
individuals represented 37.6% of total lending and posted a slight drop of 668 thousand
euros when compared with the same period last year. This decrease was mostly due to a
18
Interim Report and Accounts - Half-Year
drop by over 13.3 million euros in items 'Personal and consumer loans' and 'Other lending'
which was offset almost entirely by an increase by 12.7 million euros in 'Residential mortgage
loans'.
The amount of past-due loans and interest reached 308.6 million euros at the end of the first
half of the year, i.e., 23% more when compared with the same period last year. As seen on
the following table, this item represented 5.46% of total lending operations. Taking into
consideration only loans that have been non-performing for more than 90 days this indicator
stands at 5.05%.
Total non-performing loans amounted to 441.7 million euros as at 30 June 2014, which
represents 7.82% of total lending operations.
Quadro 11 - Crédito vencido Table
e Crédito
9. Past-due
em incumprimento
Loans and Non-performing Loans
(€ thousand)
Jun-14
Jun-13
Change
Amount
% / p.p.
Past-due loans and interest
308 635
250 849
57 785
23.04
Past-due loans by more than 90 days(a)
285 113
226 886
58 227
25.66
Doubtful loans reclassified as past-due loans (b)
156 647
141 496
15 152
10.71
Non-performing loans (a+b)
441 760
368 382
73 378
19.92
Past-due loans / total loans (%)
5.46
4.25
1.22
Past-due loans over 90 days / total lending (%)
5.05
3.84
1.20
Non-performing loans / total lending (%)
7.82
6.24
1.58
Net non-performing loans / total net lending (%)
2.88
2.81
0.07
345 293
111.9
261 274
104.2
84 019
32.16
7.72
5 648 953
5 904 765
- 255 812
-4.33
Provisions for credit risks
Hedging ratio (%)
Memorandum item:
Total lending
At the end of the first half of 2014, provisions for credit risks amounted to 345.3 million
euros, ensuring a hedging ratio of 111.9%, which compares with 104.2% in 2013.
Main Risks and Uncertainties
In spite of the recent signs of improvement of the economic situation of the country,
reflected in the slight GDP growth and the drop in the unemployment rate, the country as a
whole and the banking sector in particular still have many challenges to face.
19
Interim Report and Accounts - Half-Year
At this point, we would like to identify the main risks that may have an impact on the activity
of the Bank during the second half of 2014 and that may lead future results to be materially
different from those expected, namely:

Despite some positive signs in the main Global and European economies, there are
still some uncertainties, which have led to more modest growth forecasts.

The frailty of the national economy, which is strongly tied with a restrictive budgetary
policy.
In spite of GDP improvement, explained by the recovery of domestic
demand, the continuous positive trend of net external demand and the drop in
interest rates, these indicators will have to be consolidated in times to come.

The European Central Bank has maintained an accommodative monetary policy, by
keeping the reference interest rate at low levels for a long period of time and
enforced a policy on refinancing lines for banks.

Future regulatory developments that may introduce additional challenges for the
banking sector on the short term.
Risks associated with the Bank's activity
Despite the several control mechanisms and the measures implemented to mitigate them, the
Bank is exposed to specific risks in its activity, namely:

Credit and Concentration Risk - This is the main risk that the Bank is exposed to; we
cannot exclude the possibility of a decline in the quality of its assets.

Market Risk - The Bank's trading portfolio is not very significant, thus we do not
expect any relevant impact via this type of risk during the second half of 2014.

Liquidity Risk - In the past few years, the Bank has significantly reduced its liquidity
dependence on the parent company. However, in a possible crisis scenario, it might
be more difficult to obtain funding via the financial markets; the impossibility of
resorting to this financing source might have implications on the capacity of the
Bank to finance itself.

Interest Rate Risk - Although not expected, a significant change in interest rates
might have a relevant impact on net interest income and the bank's equity.

Exchange Rate Risk - The global currency position tends to be null and therefore
any impact on the Bank’s earnings as a result of fluctuations in exchange rates is
immaterial.

Operational Risk - According to the latest self-assessment exercise regarding
operational risks inherent to each area in the Bank, residual risk is concentrated
mostly in a low-risk category. Quantitatively, losses due to operational risk in the first
half of the year compare favourably with the same period last year and we expect a
similar behaviour in the second half of the year.
20
Interim Report and Accounts - Half-Year

Reputational and Compliance Risk - These are risks to which the Bank is exposed,
although the internal governance system reduces the probability of occurrence of
events with impact on the results.

Other Risks - The Bank is also exposed to other risks (for example, technological
risk, real estate risk or the risk inherent to the application of its strategy). However,
we do not anticipate that these risks shall have a significant influence on the Bank's
activity and its results during the second half of the year.
In the Notes to the Financial Statements, the above-mentioned risks are more detailed.
Qualifying holdings
(Article 448 of the Commercial Companies Code and Article 20 of the Securities Code
‘Código dos Valores Mobiliários’)
Shareholders
Banco Popular Español, SA
No. of Shares
Shareholding
position
%
Voting
rights
%
476 000 000
100%
100%
Lisbon, 31 July 2014
The Board of Directors
21
Interim Report and Accounts - Half-Year
Declaration of compliance of the financial
information
STATEMENT REFERRED TO IN ARTICLE 246(1)(c)
OF THE PORTUGUESE SECURITIES CODE
Paragraph (c) of article 246(1) of the Portuguese Securities Code states that each of the responsible
persons shall issue a statement as explained therein.
STATEMENT OF THE BOARD OF DIRECTORS
The members of the Board of Directors of Banco Popular Portugal, S.A., identified below by name,
have individually signed the following statement:
'Pursuant to paragraph (c) of article 246(1) of the Portuguese Securities Code, I declare that, to the
best of my knowledge, the condensed financial statements of Banco Popular Portugal, S.A. referred to
the first half of 2014, were drawn up in accordance with the applicable accounting standards, providing
a true and fair view of the assets and liabilities, the financial position and the results of that entity and
that the interim management report faithfully states the information required in accordance with article
246(2) of the Portuguese Securities Code.'
Lisbon, 31 July 2014
The Board of Directors
Rui Manuel Morganho Semedo - Chairman
Carlos Manuel Sobral Cid da Costa Álvares - Member
Tomás Pereira Pena - Member
José Ramón Alonso Lobo - Member
22
Interim Report and Accounts - Half-Year
Half-Year Accounts
Balance sheet
Individual Balance Sheet as at 30 June 2014 and 2013
(€ thousand)
N o te/
T a ble
A nne x
3 0 - 0 6 - 2 0 14
A m o unt be f o re
pro v is io ns
P ro v is io ns ,
im pa irm e nt
im pa irm e nt
& de pre c ia t io n & de pre c ia t io n
1
2
3 0 - 0 6 - 2 0 13
N e t a m o unt
3 = 1- 2
Assets
Cash and balances w ith central banks
17
Deposits w ith banks
18
Financial assets held for trading
19
Other financial assets at fair value through profit or loss 20
Available-for-sale financial assets
21
Loans and advances to banks
22
Loans and advances to customers
23
Non-current assets held for sale
25
Other tangible assets
26
Intangible assets
27
Current income tax assets
15
Deferred income tax assets
28
Other assets
29
50 712
66 622
103 903
1 869 916
1 260 684
5 648 953
20 747
177 580
20 832
3 566
78 458
484 418
Total Assets
9 786 391
39 961
50 712
66 622
103 903
0
1 869 916
1 260 684
5 353 776
20 747
79 820
111
3 566
78 458
444 457
52 219
68 853
55 107
32 320
2 256 880
677 770
5 693 052
22 579
85 324
202
3 053
72 160
561 518
453 619
9 332 772
9 581 037
1 307 918
36 184
2 333 034
3 995 174
711 299
119 294
51 391
528
24 749
40 767
1 609 046
32 296
1 807 930
4 189 605
1 066 572
89 064
52 459
1 860
15 218
37 281
8 620 338
8 901 331
476 000
10 109
- 8 760
233 883
1 202
476 000
10 109
- 82 585
274 133
2 049
295 177
97 760
20 721
Liabilities
Deposits from central banks
Financial liabilities held for trading
Deposits from banks
Deposits from customers
Debt securities issued
Hedging derivatives
Provisions
Current income tax liabilities
Deferred income tax liabilities
Other liabilities
30
19
31
32
33
34
35
15
28
36
1 307 918
36 184
2 333 034
3 995 174
711 299
119 294
51 391
528
24 749
40 767
Total Liabilities
8 620 338
0
Equity
Share capital
Share premium
Fair value reserves
Other reserves and retained earnings
Income for the year
39
39
40
41
476 000
10 109
- 8 760
233 883
1 202
Total Equity
Total Liabilities + Equity
712 434
0
712 434
679 706
9 332 772
0
9 332 772
9 581 037
0
THE BOARD OF DIRECTORS
CHIEF ACCOUNTANT
23
0
Interim Report and Accounts - Half-Year
Income Statement
Individual Income Statement as at 30 June 2014 and 2013
(€ thousand)
N o te/
T a ble
A nne x
3 0 - 0 6 - 2 0 14
3 0 - 0 6 - 2 0 13
Interest and similar income
6
133 481
161 149
Interest and similar charges
6
71 407
96 986
62 074
64 163
Net interest incom e
Return on equity instruments
Fees and commissions received
Fees and commission paid
Net gains from financial assets at fair value
through profit or loss
Net gains from available-for-sale financial assets
Net gains from foreign exchange differences
Gains from the sale of other assets
7
8
8
58
34 168
4 349
47
29 081
4 383
9
9
10
11
- 1 499
9 702
562
- 5 182
769
1 064
673
2 614
Other operating income
12
- 3 214
- 3 138
92 320
90 890
28 585
27 293
2 003
337
27 913
25 112
2 483
- 2 129
23
35 866
32 184
29
- 3 040
1 993
1 276
3 334
74
1 285
Operating incom e
Personnel expenses
General administrative expenses
Depreciation and amortization
Provisions net of reversals and recoveries
Adjustments to loans and advances to customers
(net of reversals and recoveries)
Impairment of other assets net of reversals and recoveries
13
14
26/27
35
Net incom e before tax
Income tax
Current tax
15
587
218
Deferred tax
15
- 513
1 067
1 202
2 049
0
0
1 202
2 049
Net incom e after taxes
Of w hich: Net income from discontinued operations
Net incom e for the period
Earnings per share (euro)
CHIEF ACCOUNTANT
0.00
0.00
476 000
451 000
THE BOARD OF DIRECTORS
24
Interim Report and Accounts - Half-Year
Statement of Comprehensive Income
Individual Statement of Comprehensive Income
(€ thousand)
30-06-2014
30-06-2013
Net incom e
1 202
2 049
Other com prehensive incom e
Item s not reclassified as incom e
Retirement pensions
Recognition of actuarial gains and losses
- 340
1 004
- 340
1 004
Item s reclassified as incom e
Available-for-sale financial assets
Revaluation of available-for-sale financial assets
Tax burden
60 602
38 474
- 14 918
- 10 195
45 684
28 279
Incom e not recognised in the incom e statem ent
45 344
29 283
Individual com prehensive incom e
46 546
31 332
CHIEF ACCOUNTANT
THE BOARD OF DIRECTORS
Individual Statement of Changes in Equity
Individual Statement of Changes in Equity
(€ thousand)
Balance as at 01 January 2013
Share
Capital
Share
prem ium
Fair value
reserves
476 000
10 109
- 110 807
Transferred to reserves
Actuarial gains and losses
Others
Comprehensive income for the period
Balance as at 31 Decem ber 2013
-56
56 720
476 000
10 109
- 54 143
Transferred to reserves
Actuarial gains and losses
Others
Comprehensive income for the period
Balance as at 30 June 2014
- 301
45 684
476 000
10 109
CHIEF ACCOUNTANT
- 8 760
Other
reserves
and
retained
earnings
Net
incom e
273 896
2 692
651 890
2 692
- 11 002
56
- 2 692
- 31 720
0
- 11 002
0
25 000
265 642
- 31 720
665 888
- 31 720
31 720
0
1 202
- 340
0
46 886
1 202
712 434
- 340
301
233 883
THE BOARD OF DIRECTORS
25
Total
Interim Report and Accounts - Half-Year
Cash Flow Statement
Individual Cash Flow Statements for the periods ended 30 June 2014 and 2013
(€ thousand)
Notes
30-06-2014
30-06-2013
Operating activities
Interest, fees and other income received
140 585
148 332
Interest, fees and other expenses paid
- 56 059
- 67 509
Recovery of outstanding loans and interest
Cash paid to suppliers and employees
Contributions to the pension fund
37
Sub-total
2 185
576
- 55 627
- 50 768
- 1 524
81
29 560
30 712
- 6 580
111 814
Changes in operating assets and liabilities
Deposits from central banks
Financial assets held for trading and available for sale
Loans and advances to banks
Deposits from banks
- 35
- 4 187
-1 070 137
- 254 688
412 446
384 072
Loans and advances to customers
- 177 718
61 564
Deposits from customers
- 217 204
280 041
Risk management derivatives
6 128
Other operating assets and liabilities
- 41 813
- 24 990
-1 065 353
584 338
- 59
- 51
-1 065 412
584 287
Net cash flow from operating activities before
incom e taxes
Income tax
Net cash flow from operating activities
Investm ent activities
Dividends received
Purchase of available-for-sale financial assets
Sale of available-for-sale financial assets
Held-to-maturity investments
Non-current tangible assets held for sale
Purchase and sale of assets
Net cash flow from investm ent activities
58
47
- 714 254
- 910 139
646 722
- 25 656
0
542 167
101 054
0
- 351
50 483
33 229
- 343 098
Cash flow from financing activities
Issue of ow n equity instruments
8 622
56 208
Redemption of ow n equity instruments
33
- 173 158
- 16 917
Net cash flow from financing activities
- 164 536
39 291
1 487 896
227 772
659
382
-1 196 719
280 480
291 836
508 634
Net changes in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
46
Effect of exchange rate fluctuations on cash and cash equivalents
Net changes in cash and cash equivalents
Cash and cash equivalents at the end of the period
46
CHIEF ACCOUNTANT
THE BOARD OF DIRECTORS
26
Interim Report and Accounts - Half-Year
Notes to the Financial Statements
NOTES TO THE INDIVIDUAL FINANCIAL STATEMENTS AS AT 30 JUNE 2014 and 2013
(€ thousand)
1. INTRODUCTION
1.1 Activity
The Bank – then named BNC-Banco Nacional de Crédito Imobiliário – was founded on 2 July
1991, following the authorization given by Decree order No. 155/91, of 26 April, issued by the
Ministry for Finances. On 12 September 2005, the name of the Bank was changed to Banco
Popular Portugal, S.A.
The Bank is authorized to operate pursuant to the rules and regulations currently applicable
to banks in Portugal and its corporate purpose is raising funds from third parties in the form of
deposits or other, which it applies, together with its own funds, in granting loans or in other
assets, also providing additional banking services in the country and abroad.
The accounts of the Bank are consolidated at the parent company, Banco Popular Español,
S.A., (‘BPE’) whose Head Office is located in Madrid, Spain, at 34 Calle Velázquez.
PE accounts are available at its respective Head Office as well on its webpage
(www.bancopopular.es).
The Bank is not a listed company.
1.2 Bank Structure
As a result of the restructuring process initiated in previous years, during 2011, the Bank
ceased to hold any equity stake in any subsidiary and ceased to reclassify 'Class D Notes'
issued by Navigator Mortgage Finance Nº 1 Plc (‘Navigator’) into the available-for-sale asset
portfolio.
Based on the assumption that the investment in Navigator and its potential impact on the
financial statements were considered immaterial, and pursuant to IAS 1 revised, the Bank
decided not to prepare consolidated financial statements from 2011 onwards, since that
information is not materially relevant for effects of the presentation of the Bank’s financial
information nor does it influence the decision of the readers of those statements.
Thus, as at 30 June 2014, the Bank detains only one equity stake in the associated company
– Companhia de Seguros de Vida, S.A. (see note 25).
27
Interim Report and Accounts - Half-Year
2. Summary of the Main Accounting Principles
The main accounting principles and valuation criteria adopted in the preparation of these
financial statements are stated below. These principles were consistently applied to every
year presented, except when otherwise stated.
2.1 Basis of preparation
Individual financial statements
Individual financial statements for Banco Popular Portugal were prepared in accordance with
the Adjusted Accounting Standards (‘Normas de Contabilidade Ajustadas’ - NCA) as defined
by Notice No. 1/2005, of 21 February, and defined in Instructions Nos.9/2005 and 23/2004
issued by the Bank of Portugal.
The Adjusted Accounting Standards fundamentally correspond to the International Financial
Reporting Standards (IFRS) as adopted by the European Union (EU) pursuant to Regulation
(EC) No. 1606/2002, of the European Parliament and of the Council, of 19 July, except for
the following matters:

Valuation of loans to customers and other receivables – On the date of their first
recognition they are booked by their nominal value, while the component of
interest, commissions and external expenses is attributable to their respective
underlying transactions recognised according to the pro rata temporis rule, when
dealing with operations that produce revenue flows over a period of more than one
month;

Provisions for loans to customers and other receivables – Provisions for this class
of financial assets are subject to a minimum framework for the constitution of
specific provisions (general and country risk) pursuant to Notice No. 3/95 of the
Bank of Portugal;

Tangible assets – On the date of initial recognition they are booked at acquisition
cost, and subsequently the historical cost is maintained, except in case of legally
authorized revaluations.
2.2 Segment reporting
As of 1 January 2009, the Bank adopted IFRS 8 – Operating Segments for effects of
disclosing financial information analysed by operating segments (see note 5).
An operational segment in a business is a group of assets and operations used to provide
products or services, subject to risks and benefits that are different from those seen in other
segments.
The Bank determines and presents operational segments based on in-house produced
management information.
28
Interim Report and Accounts - Half-Year
2.3 Equity stakes in associated companies
Associated companies are those in which the Bank has, directly or indirectly, a significant
influence over its management and financial policy but does not hold control over the
company. It is assumed that the Bank has a significant influence when it holds the power to
control over 20% of the voting rights of the associate. Even when voting rights are lower than
20%, the Bank may have significant influence through the participation in managing bodies or
the composition of the Executive Boards of Directors.
In the Bank’s individual financial statements, associated companies are valued at historical
cost. The dividends from associated companies are booked in the Bank’s individual results
on the date they are attributed or received.
In case of objective evidence of impairment, the loss by impairment is recognised in the
income statement.
2.4 Transactions in foreign currency
a) Functional currency and presentation currency
The financial statements are presented in euros, which is both the functional and
presentation currency of the Bank.
b) Transactions and Balances
Foreign currency transactions are translated into the functional currency using indicative
exchange rates prevailing on the dates of transactions. Gains and losses resulting from the
conversion of foreign currency transactions, deriving from their extinction and conversion into
monetary assets and liabilities in foreign currencies at the exchange rate at the end of each
period, are recognised in the income statement, except when they are part of cash flow
hedges or net investment in foreign currency, which are deferred in equity.
Conversion differences in non-monetary items, such as equity instruments measured at fair
value with changes recognised in net income, are booked as gains and losses at fair value.
For non-monetary items, such as equity instruments, classified as available for sale,
conversion differences are booked in equity, in the fair value reserve.
2.5 Derivative financial instruments
Derivative financial instruments are initially recognised at fair value on trade date and
subsequently remeasured at fair value. Fair values are based on quoted market prices,
including recent market transactions and evaluation models, namely: discounted cash flow
models and option valuation models. Derivatives are considered assets when their fair value
is positive and liabilities when their fair value is negative.
Certain derivatives embedded in other financial instruments – such as debt instruments
whose profitability is indexed to share or share index price – are treated as separate
derivatives when their economic characteristics and risks are not closely related to those of
the host contract and the host contract is not carried at fair value through profit or loss. These
embedded derivatives are measured at fair value with changes in fair value recognised in the
income statement.
29
Interim Report and Accounts - Half-Year
The Bank holds: (i) trading derivatives, measured at fair value – gains and losses arising from
changes in their fair value are immediately included in the income statement, and (ii) fair
value derivatives accounted for in conformity with note 3.1 a).
2.6 Recognition of interest and similar income and interest and similar charges
Interest income and charges are recognised in the income statement for all instruments
measured at amortized cost in accordance with the pro rata temporis accrual method.
Once a financial asset or group of financial assets has been written down as a result of an
impairment loss, interest income is recognised using the rate of interest used to discount the
future cash flows for the purpose of measuring the impairment loss.
2.7 Fees and commissions
Fees and commissions are generally recognised using the accrual method when the service
has been provided. Revenue from credit line fees, which are expected to originate a loan, is
differed (together with any cost directly related) and recognised as an adjustment at the
effective interest rate. Fees and commissions on trades, or participation in third party trades –
such as purchasing stock or purchasing or selling a business – are recognised as earned
when the service has been provided. Portfolio and other management advisory fees are
recognised based on the applicable service contracts – usually recognised proportionally to
the time elapsed. Asset management fees related to investment funds are recognised
rateably over the period the service is provided.
2.8 Financial assets
Financial assets are recognised in the Balance Sheet on trade date – the date on which the
Bank commits to purchase or sell the asset. Financial assets are initially recognised at fair
value plus direct transaction costs, except for financial assets carried at fair value through
profit or loss for which transaction cost are directly recognised in the income statement.
Financial assets are derecognised when (i) the rights to receive cash flows from these assets
have expired, (ii) the Bank has substantially transferred all risks and rewards of ownership, or
(iii) notwithstanding the fact that the Bank may have retained part, but not substantially all, of
the risks and benefits associated with holding them, control over the assets was transferred.
Financial assets and liabilities are offset and the net amount booked in the income statement
when, and only when, the Bank has a currently enforceable legal right to offset the
recognised amounts and intends to settle them on a net basis.
The Bank classifies its financial assets into the following categories: at fair value through
profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale
financial assets. Management determines the classification of the financial instruments at
initial recognition.
a) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and those designated
at fair value through profit or loss. A financial asset is classified in this category if acquired
principally for the purpose of selling in the short term or if so designated by Management.
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Interim Report and Accounts - Half-Year
Derivative financial assets are also categorised as held for trading unless they qualify for
hedge accounting.
The fair value option is only used for financial assets and liabilities in one of the following
circumstances:

There is a significant reduction in the measurement inconsistencies that would arise if
the related derivatives were treated as held for trading and the underlying financial
instruments were carried at amortised cost, such as loans and advances to customers
or banks and debt securities;

Certain investments, such as equity investments, that are managed and evaluated on a
fair value basis in accordance with a documented risk management or investment
strategy and reported to management on that basis; and

Financial instruments, such as holdings of debt securities, with one or more embedded
derivatives that significantly modify cash flows, are carried at fair value through profit
and loss.
These assets are assessed daily or at each reporting date based on fair value. In the case of
bonds and other fixed-income securities the balance sheet contains the amount of unpaid
accrued interest.
Gains and losses arising from changes in fair value are included directly in the income
statement, which also includes interest revenue and dividends on traded assets and liabilities
at fair value. Revenue from interest on financial assets at fair value through profit or loss is
carried in net interest income.
Gains and losses arising from changes in the fair value of the derivatives that are managed
together with designated financial assets and liabilities are included in item ‘Income from
assets and liabilities assessed at fair value through profit and loss’.
b) Loans and receivables
Loans and receivables includes loans to customers and banks, leasing operations, factoring
operations, participation in syndicated loans and securitised loans (commercial paper and
corporate bonds) that are not traded in an active market and for which there is no selling
intention.
Loans and securitised loans traded in an active market are classified as available-for-sale
financial assets.
Loans and receivables are initially recognised at fair value. In general, fair value at inception
corresponds to transaction value and includes fees, commissions or other credit-related costs
and revenues.
Subsequently, loans and receivables are valued at amortised cost based on the effective
interest rate method and subject to impairment tests.
Interest, fees, commissions and other credit-related costs and revenues are recognised on an
accrual basis over the period of the transactions regardless of the moment when they are
charged or actually paid. Fees on loan commitments are recognised on a deferred and linear
basis during the lifetime of the commitment.
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Interim Report and Accounts - Half-Year
The Bank classifies as non-performing loans instalments of principal or interest after, at most,
thirty days of their due date. In case of litigation, all principal instalments are considered nonperforming (current and past due).
Factoring
Credit to customers includes advances within factoring operations with recourse and the
amount of the invoices granted without recourse, whose intention is not a short run sale, and
is recorded on the date the accounts receivable are assigned by the seller of the product or
service who issues the invoice.
Accounts receivables assigned by the issuer of the invoices or other commercial credits for
recourse or non-recourse factoring are registered on assets under the item Loans and
advances to customers. As a counterpart it changes the item 'Other liabilities'.
When invoices are taken with recourse but cash advances on those respective contracts
have not been made yet, they are registered in off-balance sheet accounts on the amount of
the invoices that have been received. The off-balance sheet account is rectified as the cash
advances are made.
Commitments arising from credit lines to factoring customers that have not been utilized yet
are registered in off-balance sheet accounts.
Guarantees granted and irrevocable commitments
Liabilities for guarantees granted and irrevocable commitments are registered in off-balance
sheet accounts by the value at risk and interest flows, commissions or other revenues
recorded in the income statement during the lifetime of the operations. These operations are
subject to impairment tests.
c) Held-to-maturity investments
This item includes non-derivative financial assets with fixed or determinable payments and
defined maturities that the Bank has the intention and ability to hold to maturity.
These assets are initially recognised at fair value, minus possible commissions included in
the effective rate, plus all direct incremental costs. They are subsequently valued at
amortised cost, using the effective interest rate method and subject to impairment tests. If
during a subsequent period the amount of the loss of impairment decreases, and that
decrease may be objectively tied to an event that happened after the impairment was
recognised, this is reversed through the income statement.
d) Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that: (i) the Bank intends
to keep for an undetermined period of time, (ii) are recognised as available for sale at
inception, or (ii) are not categorized into any of the other categories described above.
This item includes:

Fixed-income securities that have not been classified in the trading book or the credit
portfolio, or held-to-maturity investments;
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Interim Report and Accounts - Half-Year


Available-for-sale variable-yield securities; and
Available-for-sale financial asset funds and supplementary funds.
Available-for-sale assets are recognised at fair value, except for equity instruments that are
not listed on any active market and whose fair value may not be reliably measured or
estimated, in which case they are recognised at cost value.
Gains and losses arising from changes in the fair value of available-for-sale financial assets
are directly recognised in equity in item Fair value revaluation reserves, except for
impairment losses and foreign exchange gains and losses of monetary assets, until the asset
is sold, when the gain or loss previously recognised in equity is carried in the income
statement.
Interest from bonds and other fixed-income securities and the differences between
acquisition cost and the nominal value (premium or discount) are registered in the income
statement using the effective rate method.
Revenue from variable-income securities (dividends in the case of shares) are booked in the
income statement on the date they are attributed or received. According to this criterion,
interim dividends are recorded as profit in the exercise their distribution is decided.
In case of objective impairment evidence – resulting from a significant and prolonged decline
in the fair value of the security or from financial problems on the part of the issuer – the
cumulative loss on the fair-value revaluation reserve is removed from equity and recognised
in the income statement.
Impairment losses on fixed-income securities may be reversed on the income statement if
there is a positive change in the security’s fair value as a result of an event that occurred after
the initial impairment recognition. Impairment losses on variable-income securities may not
be reversed. In the case of impaired securities, subsequent negative fair-value changes are
always recognised in the income statement.
Exchange rate fluctuations of non-monetary assets (equity instruments) classified in the
available-for-sale portfolio are registered in fair-value reserves. Exchange rate fluctuations in
the other securities are recorded in the income statement.
2.9 Impairment of financial assets
a) Assets carried at amortised cost
The Bank assess on each balance sheet date whether there is objective evidence that a
financial asset, or group of financial assets, is impaired. A financial asset, or group of
financial assets, is impaired and impairment losses are incurred if, and only if, there is
objective evidence of impairment as a result of one or more events that occurred after the
initial recognition of the asset and that event (or events) has an impact on the estimated
future cash flows of the financial asset, or group of financial assets, that can be reliably
estimated. Objective evidence that an asset, or group of assets, is impaired, includes
observable data, that the Bank is aware of, regarding the following loss events:
(i) significant financial stress of the borrower;
(ii) a breach of contract, such as a default in principal and/or interest payments;
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Interim Report and Accounts - Half-Year
(iii) concessions granted to the borrower, for reasons relating to the borrower’s financial
difficulty, that the lender would not have otherwise considered;
(iv) high probability that the borrower will go into bankruptcy or other financial
reorganisation;
(v) disappearance of an active market for that financial asset because of financial
difficulties;
(vi) information indicating that there will be a measurable decrease in the estimated future
cash flows from a group of financial assets since the initial recognition of those assets,
although that decrease cannot yet be identified with the Bank’s assets, including:
– adverse changes in the group of financial assets’ condition and/or payment capacity;
– national or local economic conditions that correlate with defaults on the assets in the
portfolio.
The Bank initially assesses whether objective evidence of impairment exists for financial
assets that are individually significant, and individually or collectively for financial assets that
are not individually significant. If the Bank determines that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, it
includes that asset in a group of financial assets with similar credit risk and collectively
assesses them for impairment.
If there is objective evidence of an impairment loss on loans and receivables, or held-tomaturity investments, the amount of the loss is measured as the difference between the
asset's carrying amount and the present value of estimated future cash flows (excluding
future impairment losses that have not been incurred) discounted at the financial asset's
original effective interest rate. The carrying amount of the asset is reduced and the amount of
the loss is recognised in the provisions account. The Bank may also determine impairment
losses through the instrument’s fair value at observable market prices.
When analysing impairment in a portfolio, the Bank estimates the probability of an operation
or a customer to default during the estimated period between impairment occurring and the
loss being identified. Usually, the time frame used by the Bank is of around 6 months.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the
basis of similar risk characteristics (i.e., based on the Bank’s classification process that takes
into account asset type, geographical location, collateral type, past due status and other
relevant factors). These characteristics are relevant to estimate future cash flows for groups
of financial assets by being indicative of the counterpart's ability to pay all amounts due
according to the contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment
are estimated on the basis of the contractual cash flows of the assets in the group and
historical loss experience for assets with credit risk characteristics similar to those in the
group. Historical loss experience is adjusted based on current observable data to reflect the
effects of current conditions that did not affect the period on which the historical loss
experience is based and to remove the effects of conditions in the historical period that do not
currently exist.
If, in a subsequent period, the amount of the impairment loss decreases and that decrease
can be related objectively to an event occurring after the impairment was recognised (e.g.,
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Interim Report and Accounts - Half-Year
improvement in a debtor’s credit rating), the previously recognised impairment loss is
reversed through the provisions account. The amount of the reversal is recognised directly in
the income statement.
Loans to customers whose terms have been renegotiated are no longer considered past due
and are treated as new loan contracts. Restructuring practices may include; extension of
payment conditions, approval of management plans, payment change and deferral.
Restructuring practices and policies are based on criteria that, from the point of view of the
Bank’s management, indicate that payment has a high probability of occurring.
b) Assets carried at fair value
The Bank assess at each balance sheet date whether there is objective evidence that a
financial asset, or group of financial assets, is impaired. In the case of equity securities
classified as available-for-sale, a significant or prolonged decline in the fair value of the
security below its cost is considered in determining whether the securities are impaired. If any
such evidence exists for available-for-sale financial assets, the cumulative loss — measured
as the difference between the acquisition cost and the current fair value, minus any
impairment loss on that financial asset previously recognised in the income statement — is
removed from equity and recognised in the income statement.
Impairment losses on equity instruments that have been recognised in the income statement
are not reversible. If, in a subsequent period, the fair value of a debt instrument classified as
available for sale increases and growth can be objectively related to an event occurring after
the impairment loss was recognised, the impairment loss is reversed through the income
statement.
2.10. Intangible assets
- Software
Acquired computer software licences are capitalised on the basis of the costs incurred to
acquire and bring to use the specific software. These costs are amortised over their estimated
useful lives.
Costs associated with software development and maintenance are recognised as expenses
when incurred. Costs directly associated with developing unique and identifiable software,
controlled by the Bank and where it is probable that they will generate future economic
benefits, are recognised as intangible assets.
Costs associated with software development recognised as assets are amortized during its
useful life using the straight-line method.
2.11 Tangible assets
The Bank’s property is comprised essentially of offices and branches. All tangible assets are
stated at historical cost minus depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the assets.
Subsequent costs are included in the asset's carrying amount or recognised as a separate
asset, only when it is probable that future economic benefits associated with the item will flow
to the Bank and the cost of the item can be measured reliably. All other repairs and
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Interim Report and Accounts - Half-Year
maintenance are charged to the income statement during the financial period in which they
are incurred.
Land is not depreciated. Depreciation of other tangible assets is calculated using the straightline method to allocate their cost to their residual values over their estimated useful lives, as
follows:
Freehold buildings
Adaptation works in leasehold
property
Furniture, fixtures and fittings
Computers and similar
equipment
Transport equipment
Other tangible assets
Estimated useful life (years)
50
10, or during the lease period if lower than 10
years
5 to 8
3 to 4
4
4 to 10
Tangible assets subject to depreciation are submitted to impairment tests whenever events or
changes in certain circumstances indicate their carrying amount may no longer be recovered.
An asset's carrying amount is written down immediately to its recoverable amount if the
asset's carrying amount is greater than its estimated recoverable amount. The recoverable
amount is the higher between the value in use and the asset’s fair value, minus sale costs.
Gains and losses on disposals are determined by comparing proceeds with carrying amount.
These gains and losses are included in the income statement.
2.12 Tangible assets held for sale
Assets acquired in exchange for loans (real estate property, equipment and other assets) are
recorded in the item Tangible assets held for sale by the value stated in the agreement that
regulates the asset’s delivery, which corresponds to the lower of the outstanding amount of
the debt or the asset’s evaluation at the time of its delivery.
The Bank’s policy for this type of assets is to sell them as soon as possible.
These assets are periodically assessed and impairment losses are recognised whenever the
result of that appraisal is lower than the asset’s book value (see note 29).
Potential realised gains on these assets are not recorded in the Balance Sheet.
2.13
Leases
a) As lessee
Leases entered by the Bank are essentially related to transport equipment, where there are
contracts classified as financial leases and others as operating leases.
Payments made on operating leases are recognised in the income statement.
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Interim Report and Accounts - Half-Year
When an operating lease is terminated before the end of the lease period, any payment
required by the lessor, by way of compensation, is recognised as an expense in the period
the operation is terminated.
Financial leases are capitalised at the inception of the lease in the respective item of tangible
or intangible assets, as a counterpart to the item Other liabilities, at the lower of (i) the fair
value of the leased asset and (ii) the present value of the minimum lease payments.
Incremental costs paid for leases are added to the recognised asset. Tangible assets are
depreciated pursuant to note 2.11. Rents are comprised of (i) financial cost charged to
expenses and (ii) financial depreciation of premium which is deducted from the item Other
liabilities. Financial charges are recognised as expenses over the lease term so as to
produce a constant periodic interest rate on the remaining balance of the liability for each
period. However, when there is no reasonable certainty that the Bank will obtain possession
of the asset at the end of the lease, the asset must be totally depreciated during the smaller
of the lease period or its useful life.
b) As lessor
Assets held under a financial lease are recognised as an expense in the period to which they
relate by the current amount of the payments to be made. The difference between the gross
amount receivable and the current balance receivable is recognised as receivable financial
income.
Interest included in the rents charged to customers is registered as income, while principal
depreciation, also included in the rents, is deducted from the overall amount initially lent.
Recognition of the financial result reflects a constant periodical return rate over the remaining
net investment of the lessor.
2.14
Provisions
Provisions for other risks and charges
Provisions for restructuring costs and legal expenses are recognised whenever: the Bank has
a legal or constructive obligation as a result of past events; it is more likely than not that an
outflow of resources will be required to settle that obligation; the amount can be reliably
estimated.
Provisions for specific and general credit risks
In the financial statements, the credit and guarantee portfolio is subject to provisioning
pursuant to the terms of Notice No. 3/95 issued by the Bank of Portugal, namely for:



past due and non-performing loans;
general credit risks; and
country risk.
These provisions include:
(i) a specific provision for past due credit and interest presented in assets as a deduction to
the item Loans and advances to customers, calculated using rates that vary between 0.5%
and 100% on past due loan and interest balances, according to risk classification and
whether secured or unsecured with collaterals (see note 23);
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Interim Report and Accounts - Half-Year
(ii) a specific provision for doubtful loans, recognised in assets as a deduction from the item
Loans and advances to customers, which corresponds to the application of the rates
foreseen for non-performance classes, to instalments reclassified as past due in a single
credit operation, as well as its application to the outstanding loan instalments of any single
customer, where it was ascertained that the past due instalments of principal and interest
exceeded 25% of principal outstanding plus past due interest, of half the provisioning rates
applicable to credit past due (see note 23);
(iii) a general provision for credit risks, presented as a liability in item Provisions for risks and
charges, corresponding to a minimum of 1% of total outstanding credit, including guarantees
and other instruments, except for consumer loans, where the provisioning rate was at least
1.5% of such loans, and for mortgage loans whenever the real estate asset (collateral) was
for the borrower’s own use, in which case the minimum rate of 0.5% is applied (see note 35);
and
(iv) a provision for country risk, constituted to face the risk attached to financial assets and
off-balance sheet elements on residents from high risk countries according to Instruction No.
94/96 issued by the Bank of Portugal (see notes 23 and 35).
2.15 Employee benefits
a) Pension liabilities and other post-retirement benefits
In compliance with the Collective Bargaining Agreement (ACT) for the banking sector, the
Bank has established a Pension Fund designed to cover retirement benefits on account of
age, including disability, and survivor’s benefits, set up for the entire work force, calculated
based on projected salaries of staff in active employment. The pension fund is supported by
the contributions made, based on the amounts determined by periodic actuarial calculations.
A defined benefit plan is a pension plan that generally defines an amount of pension benefit
that an employee will receive on retirement, usually dependent on one or more factors such
as age, years of service and compensation.
Every year the Bank determines the amount of liabilities for past services using actuarial
calculations based on the Project Unit Credit method for liabilities for past services in the
case of old age and the Unique Successive Premium to calculate disability and survivor’s
benefits. The actuarial assumptions (financial and demographic) are based on expectation at
the balance sheet date for the growth in salaries and pensions and are based on mortality
tables adapted to the Bank’s population. The discount rate is determined based on market
rates for high quality corporate bonds, with periods to maturity similar to those for settlement
of pension liabilities. The assumptions are mutually compatible. The amount of liabilities
includes, besides retirement pensions, post-employment medical care (SAMS) and postretirement death benefits.
Until 31 December 2012, the Bank recognized the net accumulated amount (after 1 January
2004) of actuarial gains and losses resulting from changes in the financial and actuarial
assumptions and differences between the financial and actuarial assumptions used and the
actual amounts in the item Other Assets or Other Liabilities – Actuarial deviations.
Accumulated actuarial gains or losses that did not exceed 10% of the highest of the current
value of liabilities for past services or the value of the pension funds were included in the
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Interim Report and Accounts - Half-Year
'corridor'. Actuarial gains and losses in excess of the corridor were recognised against results
over the average remaining period of service of the employees covered by the plan.
As at 1 January 2013 the Bank changed its accounting policy of recognising financial and
actuarial gains and losses for pension plans and other defined benefit post-employment
benefits (see 2.15 Employee Benefits) according to IAS 19 Revised. Financial and actuarial
gains and losses are now recognised in the period they occur directly in equity in the
Statement of Comprehensive Income.
Increases in past service liabilities resulting from early retirement are fully recognised as
expenses in the income statement for the year in which they occur.
Increases in past service liabilities resulting from changes in the conditions of Pension Plans
are fully recognised as expenses in the case of acquired benefits or depreciated during the
period that remains until those benefits are acquired. The balance of the increases in
liabilities not yet recognised as expenses are registered in the item 'Other Assets'.
Past service liabilities (post-employment benefits) are covered by a pension fund. The
amount of the pension funds corresponds to the fair value of its assets at the balance sheet
date.
The financing regime by the pension fund is established in Notice No. 4/2005 issued by the
Bank of Portugal, which determines the compulsory fully financing pension liabilities and a
minimum level of 95% financing of past service liabilities for staff in active employment.
In the Bank’s financial statements, the amount of past service liabilities for retirement
pensions, minus the amount of the pension fund, is stated in item Other Liabilities.
The Bank’s income statement includes the following expenses related to retirement and
survivor pensions:






current service cost;
interest expense on the total outstanding liabilities;
expected revenue of the pension fund;
expenses with increases in early retirement liabilities;
'Multiprotecção' life insurance premium (see note 37);
management fee paid to the fund management company.
On the transition date, the Bank adopted the possibility permitted by IFRS 1 of not
recalculating deferred actuarial gains and losses from the beginning of the plans (normally
known as the reset option). Thus, deferred actuarial gains and losses recognised in the
Bank’s accounts as at 31 December 2003 were fully reversed in retained earnings on the
transition date – 1 January 2004.
b) Seniority bonuses
In compliance with the Collective Bargaining Agreement (ACT) for the banking sector in
Portugal, the Bank has committed to attribute to active staff that complete fifteen, twenty-five
and thirty years of good and effective service, a seniority bonus equal, respectively, to one,
two or three months of their effective monthly salary on the year of the attribution.
Every year the Bank determines the amount of liabilities for seniority bonuses using actuarial
calculations based on the Project Unit Credit method for liabilities for past services. The
actuarial assumptions (financial and demographic) are based on expectation at the balance
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Interim Report and Accounts - Half-Year
sheet date for the growth in salaries and pensions and are based on mortality tables adapted
to the Bank’s population. The discount rate is determined based on market rates for high
quality corporate bonds, with periods to maturity similar to those for settlement of pension
liabilities. The assumptions are mutually compatible.
Liabilities for seniority bonuses are recognised in the item 'Other Liabilities'.
The Bank’s income statement includes the following expenses regarding seniority bonus
liabilities:



2.16
cost of current service (cost of one year);
interest expenses;
gains and losses resulting from actuarial deviations, changes in assumptions or
changes in the conditions of the benefits.
Deferred taxes
Deferred taxes are recognised using the balance sheet debt method, based on temporary
differences arising from the differences between the tax bases of assets and liabilities and
their carrying amounts in the financial statements. Deferred income tax is determined using
the effective tax rate on profits at the balance sheet date which is expected to apply when the
deferred tax asset is realised or the deferred tax liability is settled.
Deferred income tax is recognised when it is probable that in the future there is enough tax
on profits so that it can be used.
Taxes on profits based on the application of legal rates for each jurisdiction are recognised as
expenses in the period when the profit is originated. The tax effect of reportable tax losses
are recognised as an asset when it is likely that the future profitable profit is enough for the
reportable tax loss to be utilized.
Deferred tax related to fair value revaluation of an available-for-sale asset, which is charged
or credited directly in equity, is also credited or charged in equity and subsequently
recognised in the income statement together with deferred gains or losses.
2.17
Financial liabilities
The Bank classifies its financial liabilities into the following categories: held-for-trade financial
liabilities, other financial liabilities at fair value through profit and loss, deposits from central
bank, deposits from other banks, customer deposits, securitised liabilities and other
subordinated liabilities. Management determines the classification of the financial instruments
at initial recognition.
a) Financial liabilities held for trading and at fair value through profit and loss
This item essentially includes deposits whose yield is indexed to stock portfolios or indexes
and the negative fair value of derivative contracts. The evaluation of these liabilities is made
based on fair value. The balance sheet value of deposits includes the amount in accrued
interest not paid.
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Interim Report and Accounts - Half-Year
b) Central banks, other banks and customer funds
After the initial recognition, deposits and other financial assets from customers, central banks
and other banks are revalued at amortized cost based on the effective interest rate method.
c) Securitised liabilities and other subordinated liabilities
These liabilities are initially recognised at fair value, which is the amount for which they were
issued net of transaction costs incurred. These liabilities are subsequently measured at
amortized cost and any difference between the net amount received on transaction and their
redemption value is recognised in the income statement over the liability period using the
effective interest rate method.
If the Bank acquires its own debt, this amount is removed from the balance sheet and the
difference between the balance sheet amount of the liability and the amount spent to acquire
it is recognised in the income statement.
2.18
Non-current assets held for sale
Non-current assets, or disposal groups, are classified as held for sale whenever their book
value is recoverable through sale. This condition can only be met when the sale is highly
probable and the asset is available for immediate sale in its current condition. The sale must
be performed within one year from the date on which they are included in this item. An
extension of the period during which the asset must be sold does not exclude that asset, or a
disposal group, from being classified as held for sale if the delay is caused by an event or
circumstances that the Bank cannot control and if the selling purpose is maintained.
Immediately before the initial classification of the asset, or disposal group, as held for sale,
the book value of non-current assets (or of every asset and liability in the group) is carried
pursuant to the applicable IFRS. Subsequently these assets, or disposal group, will be
remeasured at the lower between the initial carrying amount and the fair value minus selling
costs.
3. Financial risk management
3.1 Strategy used for financial instruments
In view of its activity, the Bank raises funds essentially through customer deposits and
monetary market operations.
Besides the activities of credit granting, the Bank also applies its funds in financial
investments, particularly in the group of investments that currently comprise the Bank’s
portfolio.
The Bank’s portfolio – including available-for-sale financial assets and trading portfolio –
amounted to around 1.96 billion euros at the end of the first half of 2014, representing around
21% of the Bank's total net assets. The typology of these assets was broken down as follows:
public Portuguese debt (0.7%), public Spanish debt (71.6%), banks (23.2%) and others
(4.5%).
To hedge its investment against interest rate risk, the Bank carried out interest rate swap
operations and monetary market operations, thus trying to control the variability of interest
rate risk and the flows generated by these assets.
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Interim Report and Accounts - Half-Year
a) Fair value hedge accounting
Gains and losses resulting from the revaluation of hedge derivatives are recognised in the
income statement. Gains and losses deriving from differences in terms of the fair value of
hedged financial assets and liabilities, corresponding to the hedged risk, are also recognised
in the income statement as a counterpart for the carrying value of the hedged assets and
liabilities, in the case of operations at amortized cost, or by counterpart of the reserve for fair
value revaluation in the case of available-for-sale assets.
Efficacy tests for hedges are accordingly documented on a regular basis, ensuring the
existence of proof during the lifetime of the hedged operations. If the hedge no longer meets
the criteria demanded by hedge accounting, it shall be prospectively discontinued.
b) Cash flow hedge accounting
In a cash flow hedge, the effective part of the changes in fair value for the hedged derivative
is recognised in reserves, and transferred to the income statement in the periods when the
respective hedged item affects results. If it is foreseeable that the hedged operation will not
take place, the amounts still stated in equity are immediately recognised in the income
statement and the hedged instrument is transferred to the trading book.
The Bank is exposed to a certain cash flow risk as regards open positions in foreign currency.
However, in view of the little materiality of the normally existing overall position, no hedge
operations are carried out in this case.
3.2 Financial assets and liabilities at fair value
The Board of Directors considered that as at 30 June 2014, the fair value of assets and
liabilities at amortised cost did not differ significantly from its book value.
In order to determine the fair value of a financial asset or liability, its market price is applied
whenever there is an active market for it. In case there is no active market, which happens
with some financial assets and liabilities, generally accepted valuation techniques based on
market assumptions are employed.
The net income of financial assets and liabilities at fair value that have not been classified as
hedging includes an amount of 9 275 thousand euros (2013: 2 005 thousand euros).
Consequently, the fair value change recognized in the income statement for the period is
analysed as follows:
42
Interim Report and Accounts - Half-Year
30-06-2014
Fair value
Change
30-06-2013
Fair value
Change
Financial assets at fair value through profit or loss
Trading derivatives
Interest rate sw aps
Futures
Options
32 498
79
11
13 974
393
31 598
34
82
26 579
825
47 151
653
1 822 048
63
212
9 490
-
622 831
612
1 633 371
65
1 064
-
36 053
112
19
- 14 721
- 73
32 190
23
83
- 26 372
- 91
Available-for-sale financial assets
Debt instruments issued by residents
Equity instruments issued by residents
Debt instruments issued by non-residents
Equity instruments issued by non-residents
Financial liabilities at fair value through profit or loss
Trading derivatives
Interest rate sw aps
Futures
Options
9 275
2 005
The table below classifies fair value assessment of the Bank’s financial assets and liabilities
based on a fair value hierarchy that reflects the significance of the inputs that were used in
the assessment, according to the following levels:
- Level 1: market prices (unadjusted) in active markets for identical assets of liabilities;
- Level 2: different inputs for market prices included in Level 1 that are observable for
assets and liabilities either directly (i.e., as prices) or indirectly (i.e. derived from the
prices);
- Level 3: inputs for assets and liabilities that are not based on observable market data
(non-observable inputs).
30-06-2014
Assets and liabilities at fair
value
Financial assets held for trading
Variable income securities
Derivatives
Level 1
30-06-2013
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
2 692
-
32 588
68 622
-
71 314
32 588
2 792
-
31 714
20 601
-
23 393
31 714
-
-
-
0
32 319
-
-
32 319
1 864 032
-
5 168
-
716
1 869 200
716
2 250 980
-
5 223
677
2 256 203
677
1 866 724
37 756
69 338
1 973 818
2 286 091
36 937
21 278
2 344 306
-
36 184
119 295
-
36 184
119 295
-
32 296
89 064
-
32 296
89 064
0
155 479
0
155 479
0
121 360
0
121 360
Other financial assets at fair value
through profit or loss
Fixed income securities
Available-for-sale financial assets
Debt securities
Equity securities
Total assets at fair value
Financial liabilities held for trading
(Derivatives)
Hedging derivatives
Total liabilities at fair value
43
Interim Report and Accounts - Half-Year
3.3 Credit risk
The Bank is exposed to credit risk, which is the possible loss that arises when the Bank’s
counterparts fail to fulfil their obligations. In the case of lending, it implies the loss of principal,
interest and commissions, in the terms regarding amount, period and other conditions set
forth in the contracts. Concerning off-balance sheet risks, it derives from the non-compliance
of the counterparts regarding their obligations with third parties, which implies that the Bank
has to assume as its own certain obligations depending on the contracts.
The Bank structures the levels of credit risk it is exposed to by establishing pre-defined
acceptable risk amounts regarding the borrower or group of borrowers and geographical or
business activity segments.
Exposure to credit risk is managed through a regular analysis of the capacity of borrowers
and potential borrowers of meeting payment obligations for principal and interest, and by
changing these loan limits when appropriate. Exposure to credit risk is also managed in part
by obtaining collaterals and personal or corporate guarantees.
- Collaterals
The Bank employs a series of policies and practices in order to mitigate credit risk. The most
traditional one is securing collaterals at the moment funds are advanced. The Bank
implements guidelines regarding the acceptability of specific classes of collaterals or
mitigation of credit risk. The main types of collaterals for loans and receivables are:
- Property mortgages;
- Pledges of operations made within the Bank;
- Pledges on assets such as facilities, inventory and accounts receivable;
- Pledges on financial instruments, such as securities and shares.
Long term loans to corporate and private customers usually require a collateral; lower
amounts and recurring personal loans generally require no collateral. Additionally, with the
intention of minimising loss, at the time an impairment indicator for loans and receivables is
identified the Bank tries to obtain additional collaterals from the relevant counterparts.
Collaterals held for financial assets, except for loans and advances, are determined by the
nature of the instrument. Debt instruments, treasury bonds and other securities usually are
not collateralised.
- Lending commitments
The main objective of these instruments is to ensure that funds are made available to
customers as they require them. Loan extension commitments represent non-utilized parts of
credit extension authorizations in the form of loans, guarantees or letters of credit. Regarding
the credit risk associated with loan extension commitments, the Bank is potentially exposed
to a loss in the amount of the total of non-utilized commitments. However, the probable loss
amount is much lower than the sum of the non-utilized commitments since loan extension
commitments are revocable and depend on a specific customer’s credit worthiness. The
Bank monitors the maturity of lending commitments since long term commitments usually
present a greater credit risk than short term commitments.
- Maximum exposure to credit risk
As at 30 June 2014 and 2013, maximum exposure to credit risk was as follows:
44
Interim Report and Accounts - Half-Year
On-balance sheet
Deposits w ith banks
Financial assets held for trading
Other financial assets at fair value through profit or loss
Available-for-sale financial assets
Loans and advances to banks
Loans and advances to customers
Other assets
Off-balance sheet
Financial guarantees
Other guarantees
Lending commitments
Documentary credits
Total
30-06-2014
30-06-2013
66 622
32 588
1 869 200
1 260 684
5 353 776
262 883
68 853
31 714
32 320
2 256 202
677 770
5 693 052
222 622
8 845 753
8 982 533
420 400
108 615
828 153
39 633
445 858
113 979
662 387
45 400
1 396 801
1 267 624
10 242 554
10 250 157
The table above shows the worst case scenario in terms of the level of exposure to credit risk
the Bank faced as at 30 June 2014 and 2013, without considering any collateral held or other
credit enhancements. For on-balance sheet assets, the above stated exposure is based on
their carrying amount on the balance sheet.
As can be seen on the table above, 60.4 % of total maximum exposure results from loans
and advances to customers (2013: 62.0%).
The Bank’s management trusts its capacity to control and maintain a minimal exposure to
credit risk, which results mainly from its customer portfolio, based on the following
assumptions:
- 57% of the amount of loans and advances to customers has eligible collaterals;
- 95% of customer credit portfolio is not past due.
- Concentration by activity segment of financial assets with credit risk
The tables below show the exposure of the Bank according to the assets’ carrying amount
(excluding accrued interest) broken down by activity segment.
45
Interim Report and Accounts - Half-Year
3 0 - 0 6 - 2 0 14
Deposits with banks
Financial assets held for trading
Available- for- sale financial assets
Loans and advances to banks
Loans and advances to customers
Non- current assets held for sale
Other assets
3 0 - 0 6 - 2 0 13
Deposits with banks
Financial assets held for trading
Other financial assets at fair value through profit or loss
Available- for- sale financial assets
Loans and advances to banks
Loans and advances to customers
Other assets
Financial
Institutions
66 622
72 506
424 758
1 260 561
Public
Sector
3 601
18 210
2 003 528
1 440 492
Public
Sector
68 853
25 343
24 695
647 297
677 770
Other
industries
18 554
60
12 783
26 476
833 816
886 548
2 171 180
1 491 505
254 467
852 370
886 608
2 210 439
1 491 505
254 467
Property constr.
& Development
Other
industries
Services
14 910
28
14 710
1 418 681
20 747
158 334
Financial
Institutions
Property constr.
& Development
7 624
1 580 023
Services
Private individuals
Home loans Other loans
Private individuals
Home loans Other loans
116
29 560
32 185
90 875
1 160 451
847 452
2 114 893
1 479 534
246 083
120 806
1 564 764
1 710 707
1 175 361
847 480
2 159 163
1 479 534
246 199
3.4 Geographic breakdown of assets, liabilities and off-balance sheet items
The Bank operates fully on the national market. Therefore, it is not relevant to perform an
analysis by geographical sector, since there is no identifiable item within a specific economic
environment that is subject to differentiated risks or benefits.
3.5 Market risk
Market Risk is the probability of negative impact on the Bank’s earnings or capital due to
adverse changes in the market prices of the instruments in the trading book, caused by the
volatility of equity prices, interest rates and foreign exchange rates.
As at 30 June 2014, the Bank’s portfolio amounted to around 1.96 billion euros, of which
around 71 million were classified as financial assets held for trading and other financial
assets at fair value through profit or loss. The Bank uses value at risk (VaR) as an instrument
to manage the trading portfolio risk.
- Risk-sensitivity analysis
In the scope of the stress test performed, Banco Popular carries out a sensitivity analysis to a
30% fluctuation in stock indexes.
We would like to add that on that date, market risk (debt instruments) represented around
0.2% of capital requirements, calculated pursuant to Instruction No. 23/2007 issued by the
Bank of Portugal.
3.6 Exchange rate risk
The national currency equivalent, in thousands of euros, of assets and liabilities at sight
expressed in foreign currency is as follows:
46
Interim Report and Accounts - Half-Year
30 June 2014
USD
GBP
CHF
JPY
CAD
Other
Assets
Cash and cash equivalents
Deposits w ith banks
Available-for-sale financial assets
Loans and advances to banks
Loans and advances to customers
Other assets
314
19 392
47
66 114
1 725
1 141
88 733
131
1 371
1 809
7
12
3 330
320
248
4
572
43
8
51
13
521
5
539
80
1 074
252
1 406
68 856
42 524
508
111 888
13 975
8 380
363
22 718
190
221
8
419
58
5
63
25
551
2
578
60
6 938
251
7 249
- 23 155
- 19 388
153
- 12
- 39
- 5 843
Liabilities
Deposits from banks
Due to customers
Other liabilities
Net balance sheet position
Forw ard transactions
Net balance sheet position
30 June 2013
Total Assets
Total liabilities
Net balance sheet position
Forw ard transactions
Net balance sheet position
22 024
19 305
-
-
-
-
- 1 131
- 83
153
- 12
- 39
- 5 843
30 323
21 791
342
43
11 476
11 509
139 372
21 976
217
31
11 401
11 594
- 109 049
- 185
125
12
75
- 85
106 807
-
-
-
-
-
- 2 242
- 185
125
12
75
- 85
- Risk-sensitivity analysis
The activity of Banco Popular Portugal regarding foreign currency consists in making
transactions based on customer operations. In this framework, the overall foreign exchange
position of the Bank is virtually non-existent.
Thus, as can be seen, whatever the impact of foreign currency prices on foreign exchange
terms, it is financially immaterial for the Bank’s income, which is why no risk-sensitivity
analysis are carried out.
3.7 Interest rate risk
This risk assesses the impact on net interest income and equity as a result in fluctuation in
market interest rates.
The interest rate risk of the balance sheet is measured using a repricing gap model applied to
assets and liabilities that are susceptible to interest rate fluctuations pursuant to Instruction
No. 19/2005 issued by the Bank of Portugal. Briefly, this model groups assets and liabilities
that are sensitive to fluctuations at fixed time brackets (maturity dates or the first interest rate
revision in case of indexation), from which one calculates the potential impact on the
intermediation margin.
47
Interim Report and Accounts - Half-Year
M aturity and repricing gap for the Bank's activity as at 30 June 2014
Up to 1 month
1 to 3
months
3 to 12
months
1 to 5
years
Not sensitive
Total
Monetary market
Loans and advances to customers
Securities market
Other assets
Total Assets
332 590
1 516 863
52 904
1 902 357
2 348
2 422 988
731 051
3 156 387
995 832
1 141 080
343 947
2 480 859
240 829
748 427
989 256
47 248
32 016
97 489
627 160
803 913
1 378 018
5 353 776
1 973 818
627 160
9 332 772
Monetary market
Deposit market
Securities market
Other liabilities
Total Liabilities
2 856 654
378 583
520 093
3 755 330
338 621
471 302
6 881
816 804
317 541
1 666 110
67 604
2 051 255
118 750
1 434 894
114 555
1 668 199
9 385
44 286
2 166
272 913
328 750
3 640 951
3 995 175
711 299
272 913
8 620 338
Gap
-1 852 973
2 339 583
429 604
- 678 943
475 163
Accumulated gap
-1 852 973
486 610
916 214
237 271
712 434
M aturity and repricing gap for the Bank's activity as at 30 June 2013
Gap
- 448 940
1 726 282
793 659
-2 074 160
682 865
Accumulated gap
- 448 940
1 277 342
2 071 001
- 3 159
679 706
- Risk-sensitivity analysis
Pursuant to the referred to model, the Bank calculates the potential impact on net interest
income and net income.
In the table below, this model considers a potential 1% immediate impact on interest rates,
i.e., on the date interest rates are revised. Therefore, the new interest rates will start to show
this effect both on assets and liabilities.
48
Interim Report and Accounts - Half-Year
Up to 1 month
1 to 3
months
3 to 12
months
Over 12
months
Not sensitive
Total
Monetary market
Loans and advances to customers
Securities market
Other assets
Total Assets
332 590
1 516 863
52 904
1 902 357
2 348
2 422 988
731 051
3 156 387
995 832
1 141 080
343 947
2 480 859
240 829
748 427
989 256
47 248
32 016
97 489
627 160
803 913
1 378 018
5 353 776
1 973 818
627 160
9 332 772
Monetary market
Deposit market
Securities market
Other liabilities
Total Liabilities
2 856 654
378 583
520 093
3 755 330
338 621
471 302
6 881
816 804
317 541
1 666 110
67 604
2 051 255
118 750
1 434 894
114 555
1 668 199
9 385
44 286
2 166
272 913
328 750
3 640 951
3 995 175
711 299
272 913
8 620 338
Gap
-1 852 973
2 339 583
429 604
- 678 943
475 163
Accumulated gap
-1 852 973
486 610
916 214
237 271
712 434
Impact of a 1% increase
- 772
- 1 575
6 252
Accumulated impact
- 772
- 2 347
3 905
Accumulated effect
Net interest income
Accumulated gap
3 905
124 148
3.15%
3.8. Liquidity risk
Liquidity risk is controlled in order to ensure that the institution will have liquid funds to meet
its payment obligations at all times. The Bank is exposed to daily requests of cash available
in current accounts, loans and guarantees, margin account needs and other needs related to
cash equivalents.
The Bank does not have cash to meet all these needs, since its experience reveals that the
proportion of funds that will be reinvested on the maturity date may be forecast with a high
degree of certainty. Management policy defines limits for the minimum proportion of available
funds to meet requests and for the minimum level of interbank facilities and other loans that
have to be available to cover withdrawals and unexpected demand levels.
The liquidity management process, as performed by the Bank, includes:
- The daily funding needs that are managed by monitoring future cash flows in order to
guarantee that the requirements are met. This includes write-backs as loans mature or
are granted to customers;
- Maintaining a high-liquidity asset portfolio so that these can be easily converted into cash
as a protection against any unexpected interruption in cash flows;
- Monitoring liquidity ratios taking into account external and internal requirements;
- Managing the concentration and profile of debt maturities resorting to the liquidity gap
model.
Monitoring and reporting assume the form of cash flow measurement and projection reports
for the following day, week and month, since these are important time brackets in terms of
liquidity management. The starting point for these projections is an analysis of the contractual
maturity of financial liabilities and the expected date for asset cash flows. The cash flow also
monitors the degree of non-utilized loan commitments, the use of overdraft facilities and the
impact of contingent liabilities such as letters of credit and guarantees.
49
Interim Report and Accounts - Half-Year
Regarding the analysis of liquidity risk, besides the obligations established by the Bank of
Portugal under the terms of Instruction No. 13/2009, the Bank also resorts to the concept of
liquidity gap, i.e., from the balance sheet of the Bank as at 30 June 2014, based on the
maturities of assets and liabilities it is possible to ascertain the ratio between the referred to
maturities (positive or negative) according to residual maturity deadlines called liquidity gaps.
The table below presents the Bank’s balance sheet (without accrued interest) at the end of
June 2014 with the main classes grouped by maturity date:
Liquidity gap of the balance sheet as at 30 June 2014
Up to 1 month
1 to 3
months
3 to 12
months
1 to 5
years
Over 5
years
Cash and balances w ith central banks
Deposits w ith banks
Financial assets held for trading
Available-for-sale financial assets
Loans and advances to banks
Loans and advances to customers
Other assets
Total Assets
50 712
66 622
1 134
5 898
184 765
735 164
451
1 044 746
4
1 272
442 815
297
444 388
73 660
102 169
1 073 424
990 991
22 850
2 263 094
12 237
1 088 378
1 339 923
203 566
2 644 104
15 070
673 470
1 100
1 823 589
214
2 513 443
Deposits from central banks
Financial liabilities held for trading
Deposits from banks
Due to customers
Debt securities issued
Current income tax liabilities
Other liabilities
Total Liabilities
400 000
3 800
1 561 246
1 205 845
5 093
5 152
3 181 136
12
338 176
511 571
5 426
4 763
859 948
895 000
4 713
311 279
1 598 670
575 000
528
12 326
3 397 516
18 025
118 750
645 288
123 614
606
906 283
50 313
6 770
57 083
Gap
-2 136 390
- 415 560
-1 134 422
1 737 821
2 456 360
Accumulated gap
-2 136 390
-2 551 950
-3 686 372
-1 948 551
507 809
Gap
-1 411 990
- 772 852
-1 155 280
1 178 716
2 464 842
Accumulated gap
-1 411 990
-2 184 842
-3 340 122
-2 161 406
303 436
Liquidity gap as at 30 June 2013
- Off-balance sheet exposures (Liquidity risk)
As at 30 June 2014, maturities for the contracted amounts of off-balance sheet financial
instruments that may commit the Bank to lending and other facilities to customers were as
follows:
30-06-2014
Contingent liabilities:
Documentary credits
Guarantees and Sureties
Commitments:
Irrevocable loans
Revocable loans
Total
Up to 1 month
1 to 3
months
3 to 12
months
1 to 5
years
Over 5
years
Undated
645
8 448
10 551
200 278
2 047
39 633
307 046
72 347
60 882
309 929
95 131
38 034
251 830
72 992
69 330
320 480
295 409
40 081
598 509
50
Interim Report and Accounts - Half-Year
30-06-2013
Contingent liabilities:
Documentary credits
Guarantees and Sureties
Up to 1 month
4 106
1 to 3
months
3 to 12
months
9 265
1 to 5
years
7 921
Over 5
years
164 427
Undated
44 975
45 400
329 143
Commitments:
Irrevocable loans
-
-
-
-
-
-
Revocable loans
30 296
44 938
201 248
20 388
102 128
263 389
34 402
54 203
209 169
184 815
147 103
637 932
Total
3.9 Operational risk
Banco Popular Portugal interprets Operational Risk as defined in the Basel II Accord, i.e., as
the risk of loss resulting from inadequate or failed internal processes, people and systems or
from external events.
The management process is based on an analysis by functional area listing the risks inherent
in the specific functions and tasks of each body in the structure.
Involving the whole organization, the management model is ensured by the following
structures:
Executive Committee (CE) – top management structure that is the main responsible for
management guidelines and policies, establishing and monitoring risk appetite and risk
tolerance limits.
Risk Management Department (DGR) – integrates the unit exclusively dedicated to
managing operational risk. It is in charge of boosting and coordinating the remaining
structures towards the application of methodologies and employment of corporate tools to
support the model.
Heads of Operational Risk (RRO) – corresponding to the basis of the organization, these
are elements appointed by the hierarchies of each organic unit who have the role of
facilitators and promoters of the operational risk management model.
In the process of operational risk management, they also play a key role the auditing
structures, internal control and security of the Bank.
3.10 Fiduciary activities
The Bank provides custody services, guarantees, corporate management services,
investment management and third party advisory services. These activities demand the
allocation of assets and purchasing and sale transactions regarding a wide range of financial
instruments. These assets, which are kept in fiduciary capacity are not included in these
financial statements. As at 30 June 2014, the Bank held investment accounts in the amount
of 7 815 939 thousand euros (2013: 4 583 404 thousand euros) and managed estimated
financial assets in the amount of 139 386 thousand euros (2013: 118 488 thousand euros).
51
Interim Report and Accounts - Half-Year
3.11 Capital management and disclosures
The main objective of capital management at the Bank is meeting the minimum requirements
defined by supervisory entities in terms of capital adequacy and ensuring that the strategic
objectives of the Bank in terms of capital adequacy are met.
The definition of the strategy to adopt in terms of capital management is in the scope of the
Bank’s Executive Board of Directors.
In prudential terms, the Bank is subject to the supervision of the Bank of Portugal, which
issues the rules and regulations regarding this matter that guide the several institutions under
their supervision. These rules and regulations determine a minimum ratio of total own funds
in relation to the requirements demanded due to committed risks, that the institutions must
abide by.
As at 30 June 2014, Core Tier 1 ratio, calculated pursuant to the rules issued by CRD
IV/CRR for 2014, stood at 12.4%, which was highly above the minimum regulatory amount of
8%.
30-06-14
Ow n funds
Common Equity Tier 1 (CET1)
Basic ow n funds (Tier 1)
Eligible ow n funds (Total)
Risk w eighted assets (RWA)
Solvency ratios
CET1
Tier 1
Total
718,366
718,366
748,990
5,811,538
12.4%
12.4%
12.9%
4. Estimates and assumptions in the application of accounting policies
The Bank makes estimates and assumptions with impact on the reported amount of assets
and liabilities in the following year. These estimates and assumptions are continuously
assessed and conceived based on historical data and other factors, such as expectations
regarding future events.
a) Impairment losses on loans
Every month, the Bank assesses its securities portfolio to evaluate potential impairment
losses. In determining whether an impairment loss should be recorded in the income
statement, the Bank analyses observable data that may be indicative of a measurable
decrease in estimated cash flows both of the trading book and of specific individual cases
within a trading book. This analysis may indicate, for example, an adverse event in the
capacity of a customer to pay a loan or the worsening of macroeconomic conditions and
related indicators. Management uses estimates based on historical data available for assets
with similar credit risk and possible impairment losses. The methodology and assumptions
used to calculate these estimates are revised regularly aiming at reducing any differences
between estimated and actual losses.
52
Interim Report and Accounts - Half-Year
b) Fair value of derivatives and unlisted financial assets
The fair value of derivatives and unlisted financial assets was determined based on
evaluation methods and financial theories whose results depend on the assumptions that
have been used.
c) Impairment of equity investments in the portfolio of Available-for-sale financial
assets
The Bank determines that there is impairment of equity investments of available-for-sale
assets when there has been a significant or prolonged decline in the fair value below its cost.
The needed quantification for the expressions ‘significant’ and ‘prolonged’ require
professional judgement. When making this judgement, the Bank assesses among other
factors the normal volatility of share prices. As a complement, impairment should be
recognised when there are events that show the deterioration of the viability of the
investment, the performance of the industry and the sector, technological changes and
operational and financial cash flows.
d) Retirement and survivor’s pensions
Liabilities for retirement and survivor’s pensions are estimated based on actuarial tables and
assumptions on the growth of pensions and salaries. These assumptions are based on the
Bank’s expectations for the period when the liabilities are to be settled.
e) Deferred taxes
The recognition of a deferred tax asset assumes the existence of profit and a future tax base.
Deferred tax assets and liabilities have been determined based on tax legislation currently in
effect or on legislation already published for future application. Changes in the interpretation
of tax legislation may influence the amount of deferred tax that has been recognised.
5. Segmental reporting
The Bank operates essentially in the financial sector and its activity is targeted at corporate,
institutional and private customers.
The products and services offered by the Bank include deposits, loans to companies and
private individuals, brokerage and custody services, investment banking services, and selling
investment funds and life and non-life insurance. Additionally, the Bank makes short,
medium, or long term investments in financial and foreign exchange markets in order to take
advantage of price variations or as a means to make the most of available financial assets.
Banco Popular operates in the following segments:
(1) Retail banking, which includes the sub-segments: Private Individuals, Self-employed
people, Small and Medium-sized Enterprises, and Private Social Solidarity
Institutions;
(2) Commercial banking, which includes Large Corporations, Financial Institutions, and
Public Administration Sector;
53
Interim Report and Accounts - Half-Year
(3) Other Segments, which groups all the operations not included in the other segments,
namely operations and management of the Bank’s Own Portfolio and Investments in
Banks.
Geographically, Banco Popular operates exclusively in Portugal.
Segmental reporting is as follows:
30-06-2014
Interest and similar income
Interest and similar charges
Retail
Banking
Commercial
Banking
60 924
38 113
Return on equity instruments
41 313
9 483
Other
Segments
31 244
23 811
Total
133 481
71 407
-
-
58
58
16 486
983
6 579
225
11 103
3 141
34 168
4 349
107
- 551
9 209
8 765
Gains from the sale of other assets
-
-
- 5 182
- 5 182
Other Operating Income (net)
-
-
- 3 214
- 3 214
Net assets
3 371 364
2 073 031
3 888 377
9 332 772
Liabilities
3 174 576
1 227 865
4 217 897
8 620 338
Fees and commissions received
Fees and commission paid
Income from Financial Operations (net)
30-06-2013
Interest and similar income
Interest and similar charges
Retail
Banking
Commercial
Banking
Other
Segments
Total
62 750
42 650
57 172
21 499
41 227
32 837
161 149
96 986
-
-
47
47
12 270
- 382
5 137
74
11 674
4 691
29 081
4 383
88
- 20
2 438
2 506
Gains from the sale of other assets
-
-
2 614
2 614
Other Operating Income (net)
-
-
- 3 138
- 3 138
Net assets
3 364 096
2 437 002
3 779 939
9 581 037
Liabilities
2 630 853
1 647 400
4 623 078
8 901 331
Return on equity instruments
Fees and commissions received
Fees and commission paid
Income from Financial Operations (net)
6. Net interest income
This item is broken down as follows:
54
Interim Report and Accounts - Half-Year
30-06-14
30-06-13
77
2 855
102 279
117
27 944
209
172
1 270
118 838
669
25 190
14 921
89
133 481
161 149
1 531
7 547
40 362
10 580
11 387
5 361
6 375
58 015
16 034
11 201
71 407
96 986
62 074
64 163
Interest and similar income from :
Cash and cash equivalents
Deposits w ith banks
Loans and advances to customers
Other financial assets at fair value
Other available-for-sale financial assets
Held-to-maturity investments
Other
Interest and similar charges from:
Deposits from Central Banks
Deposits from banks
Due to customers
Debt securities issued
Hedging derivatives
Net interest incom e
7. Return on equity instruments
Balance for this item is as follows:
Available-for-sale financial assets
30-06-14
30-06-13
58
47
58
47
8. Revenue and expense with fees and commissions
These items are broken down as follows:
Revenue from Fees and Commissions from:
Loans
Guarantees and sureties
Means of collection and payment
Asset management
Insurance brokerage
Account maintenance
Processing fees
Structured operations
Other
Expenses w ith Fees and Commissions from:
Means of collection and payment
Asset management
Insurance brokerage
Sale of repossessed properties
Other
55
30-06-14
30-06-13
6 776
3 486
9 620
2 339
4 196
2 918
791
1 470
2 572
8 310
3 671
8 745
1 752
918
2 538
821
913
1 413
34 168
29 081
1 937
1 159
172
810
271
2 846
1 234
159
144
4 349
4 383
Interim Report and Accounts - Half-Year
9. Net income from financial operations
This item is broken down as follows:
30-06-2014
Gains
Losses
30-06-2013
Gains
Losses
128
14 366
1 120
14 793
214
27 403
430
26 463
14 494
15 913
27 617
26 893
-
80
428
383
0
80
428
383
48 545
48 545
97 557
97 557
9 702
-
1 064
-
9 702
0
1 064
0
72 741
64 538
126 666
124 833
Financial assets and liabilities held for trading
Fixed income securities
Variable income securities
Derivative financial instruments
Assets and liabilities at fair value through profit or loss
Fixed income securities
Hedging derivatives at fair value
Available-for-sale financial assets and liabilities
Fixed income securities
Financial liabilities at fair value
through profit or loss
During the first half of 2014, the Bank received 2.3 thousand euros in dividends from financial
assets held for trading (2013: 22.5 thousand euros). In 2014 and 2013 the Bank did not earn
any income from financial assets at fair value through profit or loss.
The effect seen in item Hedging derivatives at fair value results from fluctuations in the fair
value of hedge instruments (interest rate swaps) and variations in the fair value of hedged
assets, resulting from the hedged risk (interest rate). Since the hedging instrument is
accounted for in the Available-for-sale financial assets portfolio, that variation in fair value is
carried from Fair value revaluation reserve to the income statement.
10. Net gains from foreign exchange differences
These items are broken down as follows:
Exchange gains
Spot
Forw ard
Exchange losses
Forw ard
Incom e from exchange differences (net)
11. Income from the sale of other assets
This item is broken down as follows:
56
30-06-14
30-06-13
61
3 351
40
1 611
3 412
1 651
2 850
978
2 850
978
562
673
Interim Report and Accounts - Half-Year
Gains from the sale of held-for-sale tangible assets
Gains from held-to-maturity investments
Losses due to credit assignments
Losses from the sale of held-for-sale tangible assets
30-06-14
30-06-13
637
-
401
5 065
637
5 466
563
5 256
2 852
5 819
2 852
- 5 182
2 614
12. Other operating income
This item is broken down as follows:
Contributions to the DGF
Contributions to the Resolution Fund
Other operating expenses
Other taxes
Contribution on the banking sector
Income from staff transfer
Income from property
Other income and operating revenue
30-06-14
30-06-13
- 515
- 436
- 1 043
- 963
- 2 005
607
306
835
- 583
- 83
- 1 352
- 1 235
- 1 679
832
174
788
- 3 214
- 3 138
13. Personnel expenses
This item is broken down as follows:
Wages and salaries
Obligatory social security charges from:
- Wages and salaries
- Pension Fund
- Other obligatory social security charges
Other expenses
14. General administrative expenses
This item is broken down as follows:
57
30-06-14
30-06-13
21 088
20 844
5 577
1 465
112
5 863
549
87
343
570
28 585
27 913
Interim Report and Accounts - Half-Year
30-06-14
30-06-13
828
166
161
154
866
207
115
149
2 175
2 222
578
1 892
1 709
560
3 228
959
6 414
465
2 317
337
500
54
1 685
889
2 249
2 033
516
1 160
2 024
522
3 202
1 296
3 881
590
2 214
347
612
147
1 676
1 306
27 293
25 112
With supplies
Water, energy and fuel
Items of regular consumption
Softw are licences
Other third party supplies
With services
Rents and leasing
Communications
Travel, hotel and representation
Advertising and publications
Maintenance of premises and equipment
Transports
Fees and regular payment agreements
Legal expenses
IT Services
Security, surveillance and cleaning
Temporary w ork
External consultants and auditors
SIBS
External real estate appraisers
Services rendered by the parent company
Other third party services
15. Income tax
Income tax calculation for the first half of 2014 was made based on a nominal tax rate of 23%
calculated over the tax base. In the first half of 2013, that rate was 25%. Both in 2014 and
2013, a municipal surcharge of 1.5% was applied to the nominal tax rate – levied on taxable
income – as well as a state surcharge of 3% also levied on taxable income from 1.5 to 10
million euros, and of 5% on the remaining amount.
As at 30 June 201a and 2013, tax expenses on net profit, as well as the tax burden,
measured by the relation between income taxes and the profit for the year before those taxes
may be summed up as follows:
30-06-14
30-06-13
614
- 27
1 911
- 1 693
587
218
- 513
1 067
74
1 285
Net income before tax
1 276
3 334
Tax burden
5.8%
38.5%
Current tax on profits
For the year
Adjustments in respect of prior years
Deferred taxes
Origination and reversal of temporary differences
Total tax in the income statement
The reconciliation between the nominal tax rate and the tax burden for the first half of 2014
and 2013, as well as the reconciliation between tax expense/income and the product of
accounting profit multiplied by the nominal tax rate, after deferred tax, is analysed as follows:
58
Interim Report and Accounts - Half-Year
30-06-14
Tax rate
Net income before tax
Tax at nominal rate
Municipal surcharge after deferred tax
Autonomous taxation
Tax benefits
Effect of provisions not acceptable as costs
Other net value adjustments
Contribution on the banking sector
Tax from previous years
Am ount
30-06-13
Tax rate
Am ount
23.0%
4.0%
24.5%
-9.3%
-111.3%
115.4%
36.1%
-76.6%
1 276
293
51
313
- 119
- 1 420
1 473
461
- 978
25.0%
6.5%
5.9%
-4.0%
3.1%
40.2%
12.6%
-50.8%
3 334
834
218
197
- 132
102
1 339
420
- 1 693
5.8%
74
38.5%
1 285
For additional information on deferred tax assets and liabilities see note 28.
16. Financial assets and liabilities classified in accordance with IAS 39 categories
Classification of financial assets and liabilities in accordance with IAS 39 categories has the
following structure:
30-06-2014
Booked at fair value
Traded
Fair value
Assets
Cash and balances w ith central banks
Deposits w ith other banks
Financial assets held for trading
103 903
Other fin. assets at fair value thr. prof./loss
Available-for-sale financial assets
Loans and advances to banks
Loans and advances to customers
Non-current assets held for sale
Other assets
Liabilities
Deposits from central banks
Deposits from banks
Financial liabilities held for trading
Due to customers
Debt securities issued
Hedging derivatives
Other liabilities
Available-for-sale
Financial Assets
Non-fin.
Assets
50 712
66 622
216,959
216 959
9 170 817
1 869 916
20 747
227 498
0
Booked at fair value
Traded
6 959 292
1 890 663
Other Financial
Hedging
Liabilities
Derivatives
Non-financial
Liabilities
1 307 918
2 333 034
11 150
11 150
8 543 670
3 995 174
711 299
119 294
36 184
59
8 377 042
119 294
Total
1 307 918
2 333 034
36 184
3 995 174
711 299
119 294
40 767
36 184
29 617
Total
50 712
66 622
103 903
0
1 869 916
1 260 684
5 353 776
20 747
444 457
1 260 684
5 353 776
103 903
30-06-2014
Accounts
receivable
Interim Report and Accounts - Half-Year
30-06-2013
Booked at fair value
Traded
Fair value
Assets
Cash and balances w ith central banks
Deposits w ith other banks
Financial assets held for trading
55 107
Other fin. assets at fair value thr. prof./loss
Available-for-sale financial assets
Loans and advances to banks
Loans and advances to customers
Other assets
32 320
55 107
32 320
30-06-2013
Available-for-sale
Financial Assets
Non-fin.
Assets
52 219
68 853
6 689 529
2 256 879
Other Financial
Hedging
Liabilities
Derivatives
363,883
363 883
9 397 718
Non-financial
Liabilities
1 609 046
1 807 930
10 756
10 756
8 831 794
4 189 605
1 066 572
89 064
32 296
8 699 678
89 064
Total
1 609 046
1 807 930
32 296
4 189 605
1 066 572
89 064
37 281
32 296
26 525
Total
52 219
68 853
55 107
32 320
2 256 879
677 770
5 693 052
561 518
2 256 879
677 770
5 693 052
197 635
Booked at fair value
Traded
Liabilities
Deposits from central banks
Deposits from banks
Financial liabilities held for trading
Due to customers
Debt securities issued
Hedging derivatives
Other liabilities
Accounts
receivable
17. Cash and balances with Central Banks
The balance of this item is broken down as follows:
Cash and cash equivalents
Demand accounts w ith the Bank of Portugal
30-06-14
30-06-13
39 176
11 536
41 348
10 871
50 712
52 219
Deposits with Central Banks include mandatory deposits with the Bank of Portugal intended
to meet legal minimum cash requirements.
18. Deposits with banks
Balance for this item is as follows:
60
Interim Report and Accounts - Half-Year
Deposits w ith banks in Portugal
Demand accounts
Cheques payable
Other deposits
Deposits w ith banks abroad
Demand accounts
Cheques payable
30-06-14
30-06-13
725
23 901
2 145
368
6 893
687
26 771
7 948
38 605
1 246
58 696
2 209
39 851
66 622
60 905
68 853
Cheques payable from Portuguese and foreign banks were sent for settlement on the first
working day after the reference dates.
19. Financial assets and liabilities held for trading
The Bank uses the following derivatives:
Currency forward represents a contract between two parties for the exchange of currencies
at a determined exchange rate established at the moment of the accomplishment of the
contract (forward) for a determined future date. These operations have the purpose of
hedging and managing currency risk, through the elimination of the uncertainty of the future
value of certain exchange rate, which is immediately fixed by the forward operation.
Interest rate swap, which in conceptual terms can be seen as an agreement between two
parties who compromise to exchange (swap) between them, for a specified amount and
period of time, periodic payments of fixed rate for floating rate payments. It involves a single
currency and consists in the exchange of fixed cash flows for variable ones or vice versa .
This kind of instrument is aimed at hedging and managing the interest rate risk, regarding the
income of a financial asset or the cost of a loan that a given entity intends to take in a
determined future moment.
The fair value of derivative instruments held for trading is set out in the following table:
61
Interim Report and Accounts - Half-Year
30-Jun-2014
Contract value
(Notional amount)
Trading derivatives
a) Foreign currency derivatives
Currency forw ards
b) Interest rate derivatives
Interest rate sw aps
Options
Fair value
Assets
Liabilities
56 086
79
112
394 624
64 363
32 498
11
36 053
19
32 588
36 184
Total derivatives held for trading (assets/liabilities)
30-Jun-2013
Contract value
(Notional amount)
Trading derivatives
a) Foreign currency derivatives
Currency forw ards
b) Interest rate derivatives
Interest rate sw aps
Options
Fair value
Assets
Liabilities
5 989
34
23
425 671
59 782
31 598
82
32 190
83
31 714
32 296
Total derivatives held for trading (assets/liabilities)
As at 30 June 2014, the fair value of other financial assets and liabilities held for trading was
as follows:
30-jun-2014
Other financial assets
Variable incom e securities
Equity stakes
Total
Total financial assets held for trading
Total financial liabilities held for trading
30-jun-2013
71 315
71 315
23 393
23 393
71 315
23 393
103 903
36 184
55 107
32 296
20. Financial assets and liabilities at fair value through profit or loss
Set out below is a breakdown of these items:
Assets
30-06-14
30-06-13
-
7 625
24 695
0
32 320
Fixed incom e securities
Portuguese government bonds
Other foreign debt securities
62
Interim Report and Accounts - Half-Year
The item 'Other foreign debt securities' refers to mortgage bonds issued by Grupo Popular
Español.
Public debt securities, as well as mortgage bonds, are managed, and their performance is
assessed, taking into consideration their fair value and in accordance with risk strategies and
policies, and the information on those items is reported to the Board on that basis.
The Bank does not hold financial liabilities at fair value through profit or loss.
21. Available-for-sale financial assets
As at 30 June 2014, the Bank had no unlisted equity instruments classified as available-forsale financial assets, which, since their fair value cannot be reliably measured, were
recognised as costs (2013: 0 thousand euros).
The balance of this item is broken down as follows:
Securities issued by residents
Government bonds - at fair value
Other debt securities - at fair value
Equity securities - at fair value
Securities issued by non-residents
Government bonds - at fair value
Other debt securities - at fair value
Equity securities - at fair value
Other securities
Total
30-06-14
30-06-13
13 361
33 791
653
569 588
53 243
612
47 805
623 443
617 652
1 204 396
63
1 010 435
622 936
66
-
1 822 111
1 633 437
1 869 916
2 256 880
The Bank has in its available-for-sale financial assets portfolio an investment of 1 785
thousand euros regarding subordinate bonds (Class D Notes) purchased in June 2002
associated with the securitisation of home loans, in the amount of 250 million euros named
Navigator Mortgage Finance No. 1.
In the scope of that securitisation operation, assets were acquired by a loan securitisation
fund named Navigator Mortgage Finance No. 1, which simultaneously issued securitisation
units fully subscribed by Navigator Mortgage Finance No. 1 Plc, which also issued bonds
with the following characteristics:
Nominal amount
Rating
Standard &
thousand euros
Moody's
Poors
Class
Class
Class
Class
A Notes (Senior)
B Notes (Senior)
C Notes (Senior)
D Notes (Subordinate)
230 000
10 000
10 000
4 630
AAA
AA
A
n.a.
Aaa
Aa2
A2
n.a.
Interest rate
(until May 2035)
3-month Euribor + 0.21%
3-month Euribor + 0.38%
3-month Euribor + 0.55%
n.a.
Under the terms of the agreement that was signed the Bank did not assume any commitment
regarding cash availabilities of the issuer, as well as liquidity lines, credits, guarantees, rights
and residual profits, or any other risks, besides the Class D Notes.
Intervening entities:
63
Interim Report and Accounts - Half-Year

Navigator Mortgage Finance No. 1 Fundo, a Portuguese loan securitisation fund
that purchased the loans;

Navigator, SGFTC, a loan securitisation fund manager that manages the fund;

Navigator Mortgage Finance No. 1 Plc, the company that purchased the
securitisation units and issued the notes.
The most relevant financial data extracted from Navigator’s unaudited financial statements
are as follows:
30-06-14
Net assets
Liabilities
Equity
Income for the year
56 675
62 312
-5 637
- 297
22. Loans and advances to banks
The nature of loans and advances to banks is as follows:
Loans and advances to banks in Portugal
Time deposits
Loans
Other
Interest receivable
Loans and advances to banks abroad
Time deposits
Reverse repurchase agreements
Other
Interest receivable
30-06-14
30-06-13
45
10 121
77 510
91
3 173
10 000
93 399
98
87 767
106 670
176 805
995 832
248
32
292 455
277 996
557
92
1 172 917
1 260 684
571 100
677 770
Set out below is a breakdown of loans and advances to banks by period to maturity:
Up to 3 months
From 3 months to 1 year
Over 5 years
Interest receivable
30-06-14
30-06-13
186 037
1 073 424
1 100
123
676 429
1 151
190
1 260 684
677 770
23. Loans and advances to customers
Loans are granted via loan agreements, including overdraft facilities in demand accounts,
and by the discount of effects. Total amounts of loans and advances to customers in the
balance sheet, by nature, is as follows:
64
Interim Report and Accounts - Half-Year
Internal credit operations
Public sector
Private individuals
Home loans
Personal and consumer loans
Other personal lending
External credit operations
Public sector
Private individuals
Home loans
Personal and consumer loans
Other personal lending
Other loans (represented by securities)
Interest and com m issions receivable
Past-due loans and interest
Due w ithin 90 days
Over 90 days
Gross Total
Minus:
Provision for doubtful loans
Provision for past-due loans and interest
Provision for country risk
Net total
30-06-14
30-06-13
3 077 105
1 852 836
1 459 107
41 417
352 312
3 430 120
1 855 077
1 446 928
50 002
358 147
4 929 941
5 285 197
31 621
20 522
16 121
44
4 357
53 302
18 949
15 628
49
3 272
52 143
72 251
350 398
272 300
7 836
24 168
23 522
285 113
23 963
226 886
308 635
250 849
5 648 953
5 904 765
82 165
213 012
-
63 970
147 728
15
295 177
211 713
5 353 776
5 693 052
As at 30 June 2014, credit operations included 866 152 thousand euros in mortgage loans
assigned to the issuance of mortgage bonds (2013: 867 064 thousand de euros) (note 33).
Set out below is a breakdown of loans and advances to customers by period to maturity:
Up to 3 months
3 months to 1 year
1 to 5 years
Over 5 years
Undetermined maturity (past due)
Interest and commissions receivable
30-06-14
30-06-13
1 177 979
990 991
1 339 923
1 823 589
308 635
7 836
1 202 470
972 739
1 511 423
1 943 116
250 849
24 168
5 648 953
5 904 765
During 2013, the Bank carried out four credit assignments to the company Consulteam (a
subsidiary of BPE in which the Bank has no stake), in the total gross amount of 166.5 million
euros for the total amount of 152.8 million euros. These operations had an overall negative
result of 2.6 million euros
Still during 2013, the Bank carried out four more credit assignments to Banco Popular
Español in the total gross amount of 411.8 million euros for the total amount of 396.4 million
euros. These operations had a positive income in the amount of 0.4 million euros due to the
cancelling of already constituted provisions
During the first half of 2014, the Bank carried out a credit assignment operation to Banco
Popular Español in the total gross amount of 8.06 million euros for the total amount of 7.50
million euros. These operations had an overall negative result of 0.56 million euros
65
Interim Report and Accounts - Half-Year
Provisions for customer loan losses
The balance of the provision account for specific credit risks is detailed in the following
table:
30-06-2014
30-06-2013
Balance as at 1 January
Appropriations
Used
Cancelled
260 893
120 608
4 506
81 818
185 144
114 230
7 205
80 456
Balance as at 30 June
295 177
211 713
Appropriations for provisions
Write-offs
Loan recoveries
120 608
- 81 818
- 2 924
114 230
- 80 456
- 1 590
35 866
32 184
Provisions net of w rite-offs and recoveries of bad debts
24. Held-to-maturity investments
In June 2013, the Bank sold 210 million of Spanish debt securities which were classified as
held-to-maturity investments. Due to this sale, and pursuant to IAS 39, at the end of June, the
Bank reclassified the remaining portfolio as available for sale without going through the profit
or loss account.
Still pursuant to IAS 39, the Bank may only hold held-to-maturity instruments in 2016.
25. Non-current assets held for sale
As at 30 June 2014, the Bank only held an equity stake in the associate company Eurovida –
Companhia de Seguros de Vida, S.A., booked for 20 747 thousand euros (2013: 22 579
thousand euros).
The most important financial data extracted from the consolidated financial statements of
Eurovida, prepared according to the IFRS, as well as the impact of the equity method of
accounting, were as follows, as at 30 June 2014.
Effective
stake (%)
15.9348%
Financial consolidated results for
Eurovida as at 30-06-2014
Net
Ow ner's
Net
Assets
equity
profit
975 940
99 746
7 948
26. Other tangible assets
This item is broken down as follows:
66
Impact of the application
of the equity method
On consolidation
On net
reserves
income
-7 951
1 266
Interim Report and Accounts - Half-Year
30-06-2014
Art and Construction
Real estate Equipment antiques in progress
Balance as at 01 January
Acquisition costs
Accumulated depreciation
Accumulated impairment
Acquisitions
Transfers
Acquisition costs
Accumulated depreciation
Disposals / Write-offs
Acquisition costs
Accumulated depreciation
Depreciation for the year
Balance as at 30 June
Acquisition costs
Accumulated depreciation
Accumulated impairment
Net am ount
128 018
- 41 582
- 6 595
50 529
- 48 138
149
0
0
0
351
- 1 428
458
- 39
39
- 721
- 1 221
126 590
- 42 345
- 6 595
77 650
50 841
- 48 820
149
0
0
2 021
149
0
30-06-2013
Total
Total
178 696
- 89 720
- 6 595
181,394
-86,794
-6,595
351
68
- 1 428
458
- 752
752
- 39
39
- 1 942
- 1 043
722
-2,428
177 580
- 91 165
- 6 595
79 820
179,667
-87,748
-6,595
85,324
27. Intangible assets
This item is broken down as follows:
Softw are
Balance as at 01 January
Acquisition costs
Accumulated depreciation
Acquisitions
Transfers
Acquisition costs
Depreciation for the year
Balance as at 30 June
Acquisition costs
Accumulated depreciation
Net am ount
18 735
- 18 578
30-06-2014
Diverse
2 097
- 2 082
Total
30-06-2013
Total
20 832
- 20 660
20 707
- 20 536
0
87
- 55
- 6
0
- 61
0
- 56
18 735
- 18 633
2 097
- 2 088
20 832
- 20 721
20 794
- 20 592
102
9
111
202
28. Deferred taxes
Deferred taxes are calculated in respect of all the temporary differences using an effective tax
rate of 24.5%, except those regarding tax loss for which a 23% rate was used.
Balances for these items are as follows:
67
Interim Report and Accounts - Half-Year
Balance as at
Equity
31-12-13 Expense Incom e
Deferred Tax Assets
Available-for-sale securities
Intangible assets
Taxable provisions
Fees and commissions
Seniority bonus
RGC provisions
Other assets/liabilities
Tax loss
Deferred Tax Liabilities
Available-for-sale securities
Retirement pensions
Property reappraisal
Shareholdings
22 227
3 444
19 235
162
994
12 051
7 389
6 674
72 176
1 238
2 804
4
5 892
103
5 892
103
1 424
22 132
1 424
22 132
28 016
2 206
20 376
158
1 032
12 246
7 385
7 039
78 458
3 945
38
195
4
2 525
6 575
2 890
7 068
3 881
179
4 060
Reserves
Balance as at
Increase
Decrease
30-06-14
24 589
0
160
0
24 749
19
0
19
29. Other assets
This item is detailed as follows:
30-06-14
30-06-13
Recoverable government subsidies
Taxes recoverable
Pledge accounts
Other debtors
Other income receivable
Expenses w ith deferred charges
Asset operations pending settlement - Diverse
Assets acquired in exchange for loans
Other tangible assets held for sale
Pension liabilities
Other transactions pending settlement
79
18 131
159 012
49 528
623
9 292
24 996
208 971
5 321
8 465
395
15 267
121 333
60 311
1 077
9 607
12 868
362 175
8 779
13 210
11 028
484 418
616 050
Assets acquired in exchange for loans
- 36 157
- 49 619
- 2 930
- 874
- 4 039
- 874
444 457
561 518
Impairment of other tangible assets held for sale
Provisions for other assets
Balances and movements in the accounts of 'Provisions for other assets' are as follows:
Provisions for other assets
30-06-14
30-06-13
Balance as at 1 January
Appropriations
Used
Cancelled
874
-
859
15
-
Balance as at 30 June
874
874
68
Interim Report and Accounts - Half-Year
Movements in the account 'Assets acquired in exchange for loans' in 2014 and 2013 were as
follows:
Availablefor-sale
properties
Balance as at 01 January
Gross amount
Accumulated impairment
Net result
Additions
Acquisitions
Other
Disposals
Gross amount
Transfers
Impairment losses
Used
Reversed
Balance as at 30 June
Gross amount
Accumulated impairment
Net result
30-06-2014
Properties
not held for
Equipment
sale
30-06-2013
Total
Total
282 172
- 48 232
233 940
3 508
3 508
778
- 110
668
286 458
- 48 342
238 116
369 100
- 53 598
315 502
33 192
167
996
-
162
-
34 350
167
48 517
1 173
- 111 457
678
- 1 006
8 531
4 615
- 935
-
- 290
- 17
44
18
- 111 747
- 257
- 1 023
8 575
4 633
- 56 615
0
- 2 778
4 862
1 895
204 752
- 36 092
3 569
0
650
- 65
208 971
- 36 157
362 175
- 49 619
168 660
3 569
585
172 814
312 556
30. Deposits from central banks
This item is detailed as follows:
Deposits from central banks
Deposits
Interest payable
30-06-14
30-06-13
1 295 000
12 918
1 595 000
14 046
1 307 918
1 609 046
In terms of residual maturity, these funds are broken down as follows:
Forw ard
Up to 3 months
3 months to 1 year
1 to 5 years
Interest payable
30-06-14
30-06-13
400 000
895 000
12 918
400 000
1 195 000
14 046
1 307 918
1 609 046
31. Deposits from banks
The balance of this item, spot and forward, is composed as follows in terms of nature:
69
Interim Report and Accounts - Half-Year
Domestic credit institutions
Deposits
Interest payable
International credit institutions
Loans
Deposits
Repurchase agreement
Other funds
Interest payable
30-06-14
30-06-13
487 115
3 407
152 072
1 334
490 522
153 406
118 750
381 469
1 339 188
2 929
176
125 000
509 123
1 019 646
503
252
1 842 512
2 333 034
1 654 524
1 807 930
The item International banks – Deposits includes essentially deposits made by the
shareholder BPE.
In terms of residual maturity, these funds are broken down as follows:
Spot
Forw ard
Up to 3 months
3 months to 1 year
1 to 5 years
Interest payable
30-06-14
30-06-13
5 248
8 007
1 894 174
311 279
118 750
3 583
1 598 930
74 407
125 000
1 586
2 327 786
2 333 034
1 799 923
1 807 930
32. Customer funds
The balance of this item is composed as follows in terms of nature:
Resident funds
Demand accounts
Time deposits
Savings accounts
Cheques payable
Other funds
Non-resident funds
Demand accounts
Time deposits
Cheques payable
Interest payable
30-06-14
30-06-13
842 219
3 051 820
4 457
12 158
13
690 478
3 328 047
5 478
12 023
31
3 910 667
4 036 057
26 992
23 711
4
25 051
85 949
1
50 707
111 001
33 800
3 995 174
42 547
4 189 605
In terms of residual maturity, these funds are broken down as follows:
70
Interim Report and Accounts - Half-Year
30-06-14
Spot
Forw ard
Up to 3 months
3 months to 1 year
1 to 5 years
Interest payable
30-06-13
869 211
715 529
848 205
1 598 670
645 288
33 800
1 476 253
1 687 942
267 334
42 547
3 125 963
3 995 174
3 474 076
4 189 605
33. Debt securities issued
The balance of this item is broken down as follows:
30-06-14
30-06-13
3 749
515 000
190 384
2 166
711 299
515 000
545 611
5 961
1 066 572
Cash bonds
Mortgage bonds
Euro Medium Term Note
Interest payable
During 2010, Banco Popular Portugal constituted a Mortgage Bond Issuance Programme
whose maximum amount is 1 500 million euros. In the scope of this programme, the Bank
made the first issuance of mortgage bonds in the amount of 130 million euros on 20
December 2010, the second issuance of mortgage bonds in the amount of 225 million euros
on 30 June 2011, the third issuance of mortgage bonds in the amount of 160 million euros on
30 December 2011, and the fourth issuance of mortgage bonds in the amount of 300 million
euros on 26 September. This last issuance was fully repurchased by the Bank.
These bonds are covered by a group of home loans and other assets that have been
segregated as autonomous equity in the Bank’s accounts, therefore grating special credit
privileges to the holders of these securities over any other creditors. The conditions of the
aforementioned issuances are in accordance with Decree-law No. 59/2006, and Notices
Nos.5/2006, 6/2006, 7/2006 and 8/2006 and Instruction No. 13/2006 issued by the Bank of
Portugal.
On 30 June 2014, the characteristics of these issuances were the following:
N ame
B A P OP Obrgs hipo tecárias 20/12/2013
N o minal
value
C ar r ying
amo unt
Issue
d at e
R eimb ur sement
d at e
Int er est
f r eq uency
Int er est r at e
R at ing
DBRS
130 000
130 055
20-12-2010
20-12-2014
M o nthly
1M Euribo r+1.20%
BBB
B A P OP Obrgs hipo tecárias 30/06/2015 225 000
225 000
30-06-2011
30-06-2015
M o nthly
1M Euribo r+1.20%
BBB
B A P OP Obrgs hipo tecárias 30/12/2014
160 000
160 000
30-12-2011
30-12-2014
M o nthly
1M Euribo r+1.20%
BBB
B A P OP Obrgs hipo tecárias 26/09/2015 300 000
0
26-09-2012
26-09-2015
M o nthly
1M Euribo r+1.20%
BBB
We should also note that the Bank made the first and second issuances of mortgage bonds
under the 'extended maturity date' option, extending the maturity dates to December 2014
and June 2015.
On 30 June 2014, autonomous equity assigned to these issuances amounted to 867 979
thousand euros (2013: 872 059 thousand de euros) (see note 23).
During 2011, Banco Popular Portugal constituted a Mortgage Bond Issuance Programme
whose maximum amount is 2.5 billion euros. In the scope of this programme, the Bank has
71
Interim Report and Accounts - Half-Year
already carried out 36 issuances and as at 30 June 2014, its balance was broken down as
follows:
Issue date
Serial
number
29-12-2011
20-04-2012
17-09-2012
26-10-2012
26-02-2013
26-03-2013
12-04-2013
30-04-2013
28-05-2013
25-06-2013
30-07-2013
27-08-2013
13-09-2013
19-09-2013
30-09-2013
21-10-2013
30-10-2013
29-11-2013
30-12-2013
10-01-2014
23-01-2014
1st
2nd
4th
10th
18th
21st
22nd
23rd
24th
25th
26th
27th
29th
28th
30th
32th
31st
33rd
34th
36th
35th
Amount
Number
50 000
10 000
4 060
20 000
6 676
6 530
5 093
4 984
5 692
5 738
4 586
1 834
40 000
2 275
4 475
2 664
4 650
2 660
1 300
6 518
649
500
100
4 060
200
6 676
6 530
5 093
4 984
5 692
5 738
4 586
1 834
4 000
2 275
4 475
2 664
4 650
2 660
1 300
6 518
649
Nominal
unit value
Reimbursement
date
100 000
100 000
1 000
100 000
1 000
1 000
1 000
1 000
1 000
1 000
1 000
1 000
10 000
1 000
1 000
1 000
1 000
1 000
1 000
1 000
1 000
29-12-2014
24-04-2015
17-09-2014
26-10-2016
26-02-2016
26-03-2016
12-07-2014
30-04-2016
28-05-2016
25-06-2016
30-07-2016
27-08-2016
13-09-2015
19-09-2015
30-09-2017
21-10-2015
30-10-2017
29-11-2017
30-06-2017
10-01-2017
23-01-2017
190 384
34. Hedging derivatives
The item ‘Hedging derivatives’ is composed as follows:
30-06-2014
Notional
Am ount
Liabilities
Interest rate contracts
Sw aps
978 000
119 294
30-06-2013
Notional
Am ount
Liabilities
696 250
119 294
89 064
89 064
As referred to previously, the Bank covers part of its interest rate risk, resulting from any
possible decrease in the fair value of fixed interest rate assets, using interest rate swaps. On
30 June 2014, the net fair value of hedging and trading interest rate swaps (see above) was
negative (see note 19) in the amount of -122 849 thousand euros (2013: -89 656 thousand
euros).
Fluctuations in the fair value associated with hedged assets and their respective hedging
derivatives are registered in the income statement under item 'Net income from financial
operations' (see note 9).
35. Other provisions
Balances and movements in the Provisions account were as follows:
72
Interim Report and Accounts - Half-Year
Other Provisions (Liabilities) - Movem ents
30-06-14
30-06-13
Balance as at 1 January
Appropriations
Cancelled
51 054
1 594
1 257
54 588
1 285
3 414
Balance as at 30 June
51 391
52 459
Other Provisions (Liabilities) - Balances
Other provisions
Provisions for general credit risks
Other provisions
30-06-14
30-06-13
64
49 350
1 977
257
49 575
2 627
51 391
52 459
36. Other liabilities
This item is detailed as follows:
Suppliers of goods
Tax w ithheld at source
Personnel expenses
Other expenses
Other revenues w ith deferred income
Debit instructions charged
Funding operations pending payment
Other accruals and deferred income
30-06-14
30-06-13
1 797
3 414
11 459
13 145
2 616
7 958
378
4 113
3 569
11 144
6 477
1 855
627
8 274
1 222
40 767
37 281
37. Retirement pensions
The Pension Plan of Banco Popular Portugal is a scheme of benefits that comprehends all
the benefits foreseen in the Collective Bargaining Agreement that regulates the banking
sector in Portugal
The fund assumes the liabilities with past services of former employees in the proportion of
their time of service. As a counterpart, from the amount of liabilities we deduct the amount of
liabilities with past services of current employees as regards the time of service rendered in
other institutions in the banking sector. These liabilities for services rendered are calculated
pursuant to IAS 19 Revised.
The Pension Plan of the executive members of the Board of Directors intends to ensure
payment for old age pensions, disability pensions and survivor’s pensions for the executive
members of the Bank’s Board of Directors.
With the publication of Decree-law No.1-A/2011, of 3 January, the employees comprehended
by the Collective Bargaining Agreement and in active life on 4 January 2011 started to be
comprehended within the General Social Security Scheme (‘Regime Geral da Segurança
Social’ - RGSS) as regards the benefits of old age pensions. Therefore, from that date on the
73
Interim Report and Accounts - Half-Year
benefits plan defined for employees comprehended in the Collective Bargaining Agreement
as regards retirement pensions started to be funded by the Pension Fund and Social
Security. However, the Pension Fund still has the responsibility, after 4 January 2011, to
cover liabilities on death, disability and survivor’s pensions, as well as the old age
complement in order to match the retirement of the participants in the Pension Fund to the
amounts of the current pension plan.
According to guidelines derived from the Note issued on 26 January 2011 by the National
Council of Financial Supervisors, the Bank has kept with reference to 31 December 2010 the
recognition and measurement method for past services of active employees regarding the
events transferred to the RGSS used in previous years.
In accordance with Decree-law No.127/2011 of 31 December, Banco Popular Portugal
transferred to Social Security the liabilities for pensions in payment on 31 December 2011, as
well as the part of the assets contained in the pension fund that already covered such
liabilities. The liabilities transferred amounted to 6.3 million euros and have already been fully
paid (55% in December 2011 and 45% in March 2012).
This transference was recorded in the income statement in the amount of 795 thousand
euros due to the allocation of the proportional part of accumulated actuarial deviations and
the actuarial deviations originated by the difference in actuarial assumptions used for the
calculation of the transferred liabilities. In accordance with Decree-law No. 127/2011 of 31
December, this amount shall be deductible for effects of determining taxable profit, in equal
parts, from the fiscal year started on 1 January 2012, regarding the average of the number of
years of life expectancy of the pensioners whose responsibilities have been transferred. The
respective deferred taxes have been on the amount recognised in the year's net income.
Until 31 December 2012, the Bank recognized the net accumulated amount (after 1 January
2004) of actuarial gains and losses resulting from changes in the financial and actuarial
assumptions and differences between the financial and actuarial assumptions used and the
actual amounts in the item 'Other Assets or Other Liabilities – Actuarial deviations'.
Accumulated actuarial gains or losses that did not exceed 10% of the highest of the current
value of liabilities for past services or the value of the pension funds were included in the
'corridor'. Actuarial gains and losses in excess of the corridor were recognised against results
over the average remaining period of service of the employees covered by the plan.
As at 1 January 2013 the Bank changed its accounting policy of recognising financial and
actuarial gains and losses for pension plans and other defined benefit post-employment
benefits (see 2.15 Employee Benefits) according to IAS 19 Revised. Financial and actuarial
gains and losses are now recognised in the period they occur directly in equity in the
Statement of Comprehensive Income.
On 30 June 2014, the number of participants in the fund was 1 139 (2013: 1 147). On this
date, there were 39 retired people and 11 pensioners, and the remaining employees were
active.
Current amount of liabilities
The liabilities assumed for retirement and survivor’s pensions are as follows:
74
Interim Report and Accounts - Half-Year
Past Services
30-06-14
Defined benefit obligation at the beginning of the year
Service expenses:
Bank
Employees
Interest expense
Pensions paid
Actuarial deviations
Balance as at 30 June
30-06-13
128 411
108 961
670
378
2 360
- 479
1 418
618
378
2 488
- 431
- 1 564
132 758
110 450
Every year the Bank determines the amount of liabilities for past services using actuarial
calculations based on the Project Unit Credit method for liabilities for past services in the
case of old age and the Unique Successive Premium to calculate disability and survivor’s
benefits. The discount rate is determined based on market rates for high quality corporate
bonds, with periods to maturity similar to those for settlement of pension liabilities.
Obligations for survival and disability, foreseen in the Collective Bargaining Agreement and
insurable are covered by the subscription of a multi-protection life insurance policy for the
population at stake, except for those whose urgency of disability or survival is considered
unfit to insure.
This is an annual renewable temporary contract in which the Insurance company guarantees
the Pension Fund of Banco Popular Portugal, S.A., in case of death or disability assessed at
66% or more according to the National Table for Disability, for any of the people
comprehended within the insured group, the payment of the hired premiums.
This insurance contract was signed with Eurovida – Companhia de Seguros de Vida S.A., an
insurance company that is an associate of Banco Popular Portugal, SA.
Equity amount of the Fund
The movements occurred in the total amount of the pension fund were as follows:
Total Fund Am ount
30-06-14
Am ount at the beginning of the year
30-06-13
128 495
121 796
1 500
378
3 440
- 479
- 773
378
2 217
- 431
- 300
Am ount of the Fund as at 30 June
132 561
123 660
Current obligations for past services
132 758
110 450
99.9%
112.0%
Contributions paid
Employer
Employees
Return on Fund assets
Pensions paid
Other net differences
Coverage level
Evolution of Liabilities and Total Fund Amount
The evolution of liabilities and the total amount of the pension fund in the past five years was
as follows:
75
Interim Report and Accounts - Half-Year
30-06-14
31-12-13
31-12-12
Current amount of liabilities
132 758
128 411
Total Fund Amount
132 561
128 495
- 197
99.9%
(Net) Assets/Liabilities
Coverage level
31-12-11
31-12-10
108 961
94 708
102 746
121 796
113 703
118 246
84
12 835
18 995
15 500
100.1%
111.8%
120.1%
115.1%
Banco Popular Portugal assesses the recoverability of any eventual excess in the fair value
of the assets included in the pension fund when compared with the liabilities for pensions at
each reporting date based on the expectation of the reduction in the future necessary
contributions.
Structure of the Assets that comprise the Fund
On 30 June, The Pension Fund’s portfolio broken down by asset type was as follows:
TYPES OF ASSETS
Fixed income securities
Variable income securities
Real estate
Liquidity
30-06-2014
31-12-2013
44.28%
45.55%
4.68%
5.49%
100.00%
60.49%
33.49%
5.04%
0.98%
100.00%
Exposure to credit risk
Regarding the credit risk of the assets with debt characteristics that comprise the fund, the
exposure by rating had the following structure:
Ratings
30-06-2014
31-12-2013
AAA
0.74%
5.35%
AA
3.63%
10.42%
A
13.76%
19.74%
BBB
34.80%
24.95%
Others (NR)
47.07%
39.54%
100.00%
100.00%
As at 30 June 2014, the Fund had 50 Euro Medium Term Notes (1st Series) issued on 29
December 2011 by Banco Popular Portugal in the amount of 5 126 thousand euros. During
the first half of 2014, these Euro Medium Term Notes had a negative change in fair value in
the amount of 68 thousand euros.
Cost for the year
The amounts recognised as costs for the year are analysed as follows:
Costs for the period
30-06-14
30-06-13
Service Cost
Interest expense
Expected return on Fund assets
Other
1 048
2 360
- 2 362
395
996
2 488
- 2 776
- 182
Total
1 441
526
76
Interim Report and Accounts - Half-Year
Actuarial assumptions
The main actuarial and financial assumptions used were as follows:
30-06-14
Assump.
Real
Discount rate
Expected return of Fund assets
Salaries and other benefits increase rate
Pensions increase rate
Mortality table
Disability table
Turnover
30-06-13
Assump.
Real
3.63%
3.63%
3.63%
2.68%
1.5%
0.0%
1.0%
0.0%
TV 88/90
ERC Frankona
n.a.
n.a.
4.50%
4.50%
4.50%
1.82%
2.0%
0.0%
1.0%
0.0%
TV 88/90
ERC Frankona
n.a.
n.a.
Gains and losses arising from experience adjustments and changes in actuarial assumption
are recognised in other comprehensive income in Retained Earnings in the period they occur.
Sensitivity analysis to the Main Assumptions that contribute to the liabilities amount
Taking into consideration the most significant impacts on the amount of liabilities, we have
performed a sensitivity analysis through a positive and negative fluctuation in the main
assumptions that contribute to the amount of the liabilities, whose impact is analysed as
follows:
Im pact on current liabilities
Increase in
assum ption
Change
Decrease in
assum ption
Discount rate
0.25%
Decrease by 6.2%
Increase by 6.7%
Salaries and other benefits increase rate
0.25%
Increase by 5.1%
Decrease by 4.8%
Pensions increase rate
0.25%
Increase by 2.6%
Decrease by 2.5%
Increase by 1
year
Decrease
by 1 year
Increase by 3.2%
Decrease by 3.3%
Average life expectancy
The sensitivity analyses above are based on the change in a given assumption, keeping all
other assumptions equal. In practice, that is very unlikely to occur given the correlations that
exist between the several assumptions. When calculating the sensitivity of the amount of
liabilities for significant actuarial assumptions we applied the same methods used to calculate
the positions in the Balance Sheet.
The methodology used to perform the sensitivity analysis remained unchanged from the
previous year.
Expected future cash flows
The future undiscounted cash flows of pension benefits are as follows:
Up to 1 year
Benefiit (monthly)
119
1 to 3 years
157
77
3 to 5 years
232
Over 5 years
Total
5 085
5 593
Interim Report and Accounts - Half-Year
38. Contingent commitments and liabilities
The following table shows the contractual amount of off-balance financial instruments, which
imply lending to customers.
30-06-14
Contingent liabilities
Guarantees and Sureties
Documentary credits
Commitments
Irrevocable loans
Revocable loans
30-06-13
529 015
39 633
559 837
45 400
833 134
828 153
763 543
662 387
2 229 935
2 031 167
On 30 June 2014, the item Irrevocable loans included the amount of 5 314 thousand euros
(2013: 5 314 thousand euros) regarding forward liabilities for the Deposit Guarantee Fund
regarding the part of annual contributions which, pursuant to the deliberations of the Fund,
were not paid in cash.
Assets pledged as collateral
30-06-14
30-06-13
1 744 700
3 179 265
The amount of the item 'Assets pledged as collateral' includes 1 744.7 thousand euros from
the Bank’s own portfolio aimed, almost entirely, at collateralising an irrevocable credit line
with the Bank of Portugal pursuant to the large-amount payment system (‘Sistema de
Pagamentos de Grandes Transacções – SPGT’) and the Intervention Operations Market
(‘Mercado de Operações de Intervenção’ - MOI) (2013: 1 522.7 thousand euros).
Additionally, as at 30 June 2014 and 2013, the balances regarding off-balance sheet
accounts were as follows:
Deposit and custody of securities
Amounts received for collection
30-06-14
30-06-13
7 815 938
92 189
4 583 404
95 738
7 908 127
4 679 142
39. Share capital and share premium
As at 30 June 2014, the Bank’s share capital was represented by 476 000 thousand shares
with the nominal value of 1 euro each, which was subscribed and fully paid by Banco Popular
Español, SA.
The amount recognised in item Share premiums originated in the premiums paid by
shareholders in the share capital increases made in 2000, 2003 and 2005.
40. Revaluation reserves
The movements in this account are detailed on the following table:
78
Interim Report and Accounts - Half-Year
30-06-14
30-06-13
Revaluation reserves and Fair Value
Available-for-sale investm ents
Net balance as at 1 January
Revaluation at fair value
Deferred taxes
Balance as at 30 June
Revaluation reserves ( Legal provisions )
Balance as at 30 June
- 56 434
60 602
- 14 918
- 113 155
38 474
- 10 195
- 10 750
- 84 876
1 990
2 291
- 8 760
- 82 585
Revaluation reserves regarding available-for-sale assets result from the adequacy to the fair
value of the securities in the Bank’s portfolio. These balances shall be reversed through the
income statement at the time the securities that originated them are disposed of or in case
there is any impairment.
The revaluation reserve regarding the adequacy to fair value of tangible assets for own use is
related to the property on Rua Ramalho Ortigão (note 26).
The revaluation reserve for tangible assets calculated in accordance with Decree-law No.
31/98 shall only be moved when it is considered realized, total or partially, and pursuant to
the following priorities:
(i) To correct any excess found on the date of the revaluation between the net book value
of the elements being revalued and their current real value;
(ii) To absorb accumulated loss until the revaluation date, inclusively;
(iii) To incorporate in the share capital for the remaining part.
41. Other reserves and retained earnings
The balances of the accounts for other reserves and retained earnings are analysed as
follows:
30-06-14
Statutory reserve
Other reserves
Retained earnings
30-06-13
35 221
289 328
- 90 666
35 221
289 027
- 50 115
233 883
274 133
The movements in the items reserves and retained earnings were as follows:
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Interim Report and Accounts - Half-Year
30-06-14
30-06-13
Statutory reserve
Balance as at 1 January
Transf. Retained earnings
35 221
0
34 951
270
Balance as at 30 June
35 221
35 221
289 027
0
301
286 548
2 422
57
289 328
289 027
- 58 606
- 31 720
- 340
0
0
- 51 119
2 692
1 004
- 270
- 2 422
- 90 666
- 50 115
233 883
274 133
Other reserves
Balance as at 1 January
Transf. Retained earnings
Transf. Revaluation reserves
Balance as at 30 June
Retained earnings
Balance as at 1 January
Net income for the previous year
Diff. from changes in accounting princ. (IFRS)
Legal reserve transf.
Other reserves transf.
Balance as at 30 June
- Legal Reserve
The legal reserve can only be used to absorb accumulated losses or to increase share
capital. Portuguese legislation applicable to the banking sector (Article 97 of Decree-Law
No. 298/92, 31 December) requires that 10% of the profit for the year be transferred to the
legal reserve until it is equal to the share capital.
42. Personnel expenses
The number of employees of the Bank according to professional category was as follows:
30-06-14
Directors
Management
Technical personnel
Clerical staff
30-06-13
95
453
517
232
94
457
517
237
1 297
1 305
43. Remunerations of the governing bodies and the personnel with responsibility over
risk taking and control
The annual amounts earned by the members of the Board of Directors and the Supervisory
Board are detailed, individually and in group, on the following table:
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Interim Report and Accounts - Half-Year
Fixed
Rem un.
Variable Rem un.
Cash
Total
Rem un.
Board of Directors
Rui Manuel Morganho Semedo - Chairman
Carlos Manuel Sobral Cid da Costa Álvares
195
139
100
113
295
252
334
213
547
5
3
3
0
0
0
5
3
3
11
0
11
Supervisory Board
Rui Manuel Ferreira de Oliveira - Chairman
António José Marques Centúrio Monzelo - Member
Telmo Francisco Salvador Vieira - Member
The remunerations earned and the number of number of employees who have
responsibilities in terms of risk taking regarding the Bank or its customers as well as those
who assume control functions pursuant to Notice 5/2008 issued by the Bank of Portugal are
detailed below:
No. of
Benef.
Executive Committee
Risk Management
Compliance
Asset Management
Auditing
Fixed
Rem un.
Variable
Cash Rem un.
Total
Rem un.
6
1
1
1
1
444
48
32
44
29
150
7
4
7
10
594
55
36
51
39
10
597
178
775
44. Remuneration of the Statutory Auditor
The amounts paid to the Audit Firm PricewaterhouseCoopers in the first half of 2014 and
2013 were:
Statutory audit
Other guarantee and reliability services
30-06-14
30-06-13
74
47
76
108
121
184
45. Relationship with related companies
As at 30 June 2014 and 2013, the amounts payable and receivable regarding related
companies was as follows:
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Interim Report and Accounts - Half-Year
Credit
30-06-14
30-06-13
Debit
30-06-14
30-06-13
4 023
157
78 836
7 927
8
1 475
1 879
4 025
97 862
12 703
3
2 699
143 960
2 164
19
47 120
1 711
-
113 883
1 890
208
679
-
4 493
939
1 268
152
49
372
38
-
1 206
677
1 504
162
13
281
948
3 070
3
335
223
-
3 231
1
187
3
15
-
94 305
117 292
194 974
116 660
7 311
4 791
3 631
3 437
1 356 424
499 272
2 391 938
2 197 193
53 705
17 894
87 782
132 441
Eurovida, SA
Popular Gestão de Activos, SA
Popular Factoring, SA
Imopopular Fundo Especial I.I.
Popular Arrendamento
Popular Seguros, SA
Popular Predifundo
SPE-Special Pourpuse Entities
Banco Popular Español, SA
Incom e
30-06-14 30-06-13
Expense
30-06-14
30-06-13
As at 30 June 2014, the guarantees pledged by the Bank to related companies amounted to
5 472 thousand euros (2013: 8 431 thousand euros).
As at 30 June 2014, the Bank received deposits from BPE to guarantee the risk associated
with loans granted by the Bank in the amount of 103 526 thousand euros (2013: 172 491
thousand euros).
Transactions with related companies are based on common market conditions.
As at 30 June 2014, the members of the Bank's Board of Directors did not hold any deposits
or loans with Banco Popular.
46. Cash and cash equivalents
For effects of the cash flow statement, Cash and cash equivalents include the following
balances with maturity inferior to 90 days:
Cash (note 17)
Cash and balances w ith banks (note 18)
Deposits w ith banks w ith maturities of less than 3 months
30-06-14
30-06-13
39 177
66 622
186 037
41 348
68 853
398 433
291 836
508 634
47. Measurement of portfolio impairment and respective disclosures (Circular Letter
No. 02/2014/DSP issued by the Bank of Portugal)
Qualitative disclosures:
a) Credit risk management policy
The Bank is exposed to credit risk, which is the possible loss that arises when the Bank’s
counterparts fail to fulfil their obligations. In the case of refundable financing it arises as a
consequence of the non-recovery of principal, interest and commissions, regarding amount,
period and other conditions stipulated in the contracts. Concerning off-balance sheet risks, it
derives from the non-compliance of the counterparts regarding their obligations with third
parties, which implies that the Bank has to assume as its own certain obligations depending
on the contracts.
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Interim Report and Accounts - Half-Year
The Bank structures the levels of credit risk it is exposed to by establishing pre-defined
acceptable risk limits regarding the borrower or group of borrowers and geographical or
business activity segments.
Exposure to credit risk is managed through a regular analysis of the capacity of borrowers
and potential borrowers of meeting payment obligations for principal and interest, and by
changing these credit limits when appropriate. Exposure to credit risk is also managed in part
by obtaining collaterals and personal or corporate guarantees.

Collaterals
The Bank employs a series of policies and practices in order to mitigate credit risk. The most
traditional one is securing collaterals at the moment funds are advanced. The Bank
implements guidelines regarding the acceptability of specific classes of collaterals or
mitigation of credit risk. The main types of collaterals for loans and receivables are the
following:
- Property mortgages;
- Pledges of operations made within the Bank;
- Pledges on assets such as facilities, inventory and accounts receivable;
- Pledges on financial instruments, such as securities and shares.
Long term loans to corporate and private customers usually require a collateral; lower
amounts and recurring personal loans generally require no collateral. Additionally, with the
intention of minimising loss, at the time an impairment indicator for loans and receivables is
identified the Bank tries to obtain additional collaterals from the relevant counterparts.
Collaterals held for financial assets, except for loans and advances, are determined by the
nature of the instrument. Debt instruments, treasury bonds and other securities usually are
not collateralised.

Lending commitments
The main objective of these instruments is to ensure that funds are made available to
customers as they require them. Loan extension commitments represent non-utilized parts of
credit extension authorizations in the form of loans, guarantees or letters of credit. Regarding
the credit risk associated with loan extension commitments, the Bank is potentially exposed
to a loss in the amount of the total of non-utilized commitments. However, the probable loss
amount is much lower than the sum of the non-utilized commitments since loan extension
commitments are revocable and depend on a specific customer’s credit worthiness. The
Bank monitors the maturity of lending commitments since long term commitments usually
present a greater credit risk than short term commitments.

Concentration Risk
The Risk Management Department manages and monitors concentration risk and ensures
that adequate policies and procedures are maintained and implemented to monitor and
manage credit concentration risk. It is also in charge of monitoring delegated powers in
terms of concentration risk and periodically presents reports on concentration risk to the
Board of Directors.
The Bank has defined a structure of limits aimed at maintaining an exposure level in line with
its risk profile and an adequate diversification of its loan portfolio.
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Interim Report and Accounts - Half-Year
The limits currently approved for credit concentration risk are the following:
i)
Risk limit for a Group/Customer
Pursuant to the delegations attributed by BAPOP to the Bank, the maximum limit for total
exposure with a Group/Customer is 10% of GBP's Tier I. The maximum limit for a
Group/Customer, except bank and technical guarantees and transactions guaranteed with
deposits is 5% of GBP's Tier I.
ii)
Risk limit by transaction amount
The maximum amount for a lending transaction is defined.
In case of funding working capital or without a specific destination every risk with that
characteristic shall be aggregated.
Regarding project finance and syndicated financing, the Bank's participation shall not be
higher than 25% of the total amount, in case the transaction is higher than the limit defined
for this type of lending.
iii)
Limit of participation in the Credit Risk Central (CRC)
The maximum limit for participation in the CRC with a Group/Customer shall be the
following:
Group/Customer with risks of over € 500 million - Lower than 10% of CRC.
Group/Customer with risks of over € 250 million - Lower than 15% of CRC.
Group/Customer with risks of over € 100 million - Lower than 25% of CRC.
Group/Customer with risks of over € 20 million - Lower than 50% of CRC.
iv)
Limit of risk concentration by activity sector
The maximum limits of concentration of total risk by activity sector are the following:

Construction and property development: 25%;

Manufacturing and mining industries: 15%;

Information and communication, education and other services: 5%;
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Interim Report and Accounts - Half-Year

Remaining sectors: 10% (Agriculture, forestry and fisheries; Energy and water supply;
Wholesale and retail trade, repair of motor vehicles; Hotels and restaurants; Transport
and storage; Banking and insurance; Administrative, professional sanitary and artistic
activities).
v)
Limit of risk concentration in large companies
There is a maximum limit of 30% of total risk for the Large Companies segment.
vi)
Limit of risk concentration by product
There are also defined limits according to the type of product:

Transactions with mortgages on land;

Property development;

Loans to purchase securities.
vii)
Assessment of mortgage collaterals
A set of limits is also defined according to the loan to value (LTV) of lending transactions
with mortgage collaterals.
b) Loan write-off policy.
The loan write-off policy may only be applied when the loan dos not have any real
collateral, when it is 100% provisioned and, simultaneously, when Management estimates
that there will be no recovery arising from the fact that every due diligence has been taken
to collect and recover said loan.
c) Impairment reversion policy.
The analysis and subsequent determination of individual impairment of a customer that has
shown impairment in previous periods may only result in a reversion in case it is related
with the occurrence of an event after the initial recognition (e.g. improvement of the
customer's rating or strengthening collaterals).
Additionally, there may be implicit reversions of impairment, resulting from new estimates of
collective parameters or changes in the type of customer analysis (individual or collective).
The reversal amount may not be higher than the accumulated impairment amounts
previously recorded.
d) Conversion of the debt into debtor's equity.
The Bank does not usually employ this type of solution and solely holds an exposure on an
economic group that was subject to this type of loan restructuring. In this case, the loan is
replaced by a position comprised of shares from a Restructuring Fund.
These positions are subject to impairment tests every six months from the moment those
shares are included in the Restructuring Fund. For junior debt positions maintained in
companies held by these Funds a 100% impairment is estimated regarding their respective
exposure.
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Interim Report and Accounts - Half-Year
e) Description of restructuring measures applied and their respective associated
risks, as well as control and monitoring mechanisms.
The Bank has defined a vast set of restructuring measures, which are negotiated by a large
set of Agencies specialising in credit recovery. The most common measures are extending
the maturity date of the loan or the inclusion of a grace period.
In terms of characteristics, these restructuring operations are divided into large groups:
without past-due loans (with or without collateral strengthening) and with past-due loans (with
or without collateral strengthening).
The Bank's decision-making body in terms of loan granting shall identify the restructuring
operations that result from customers' financial difficulties. These are subsequently classified
by the Bank's computer system. Costumers with lending operations that are undergoing a
restructuring process are also subject to an internal definition of a loan restrictive
classification. Agencies are thus forced to act on this policy, which may imply maintaining,
reducing or extinguishing risks.
Regarding monitoring in terms of the loan impairment model, these transactions shall bear
the restructuring brand for a two-year healing period pursuant to Instruction No. 32/2013
issued by the Bank of Portugal.
f) Description of the process of assessing and managing collaterals.
For situations in which it is admissible that credit recovery shall occur via foreclosure the
amounts that shall be considered (market value of the most recent appraisal known with the
application of a temporal haircut) are also defined by internal regulations.
Reappraisals of these collaterals are usually done within the time frames defined by Notices
Nos. 3/95 and 5/2006 issued by the Bank of Portugal. However, in the case of properties
related with transactions done with customers with significant exposures (over 1 million
euros), reappraisals are carried out more often.
Despite the pre-defined time frames, appraisals are carried out whenever they are
considered relevant to monitor the value of the collateral.
The value of the properties considered as collaterals is adjusted to the current
macroeconomic scenario through the application of haircuts, based on Management analysis
and market practices.
Haircut
Tim e fram e of the assessm ent
Less than 6 months
6 months
From 6 months to 1 year
From 1 to 2 years
From 2 to 3 years
Over 3 years
>= 50% Work
completed
< 50% Work
completed
0%
5%
10%
15%
25%
50%
0%
5%
10%
20%
35%
60%
Regarding financial collaterals and securities, we have defined the periodical monitoring of
the lending operations collateralised with this type of assets, and these are regularly reported
to Management. Assets used as collateral are indicated, as well as the overall hedging ratio.
These amounts are considered in the scope of an individual impairment analysis.
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Interim Report and Accounts - Half-Year
g) Nature of main judgements, estimates and hypotheses used to determine
impairment.
Losses due to impairment correspond to estimates based on judgements made by top
management in view of the facts and circumstances on a given date. As such, future events
and developments are expected, in some cases, to converge into a different result vis-à-vis
the estimate amount.
In order to ensure the adequacy of the impairment model to the macroeconomic scenario, the
Bank carries out monthly impairment reviews of its individually analysed customers, as well
as reviewing every six months the parameters applied to the collective part of its credit
portfolio.
In terms of the individual analysis, impairment depends on the disbursement capacity of the
debtor and/or respective guarantors, or the collaterals the Bank has to guarantee the lending
transactions, applying the reference criteria described in Circular Letter 02/2014/DSP issued
by the Bank of Portugal.
As far as the collective part of the portfolio is concerned and especially the calculation of LGD
estimates, these are calculated based on the history of effective recoveries, as well as on
conservative assumptions, defined and approved by Management for future estimates.
h) Description of the methods employed to calculate impairment, including the way
portfolios are segmented in order to reflect the different characteristics of the
lending operations.
In compliance with the conceptual model on which impairment calculations are based, every
month an analysis is carried out to the overall credit portfolio divided into seven main groups:
(i) default loans, (ii) loans in arrears (30- 90 days), (iii) restructured loans, (iv) non-performing
loans (with impairment signs), (v) healing loans, (vi) healed loans, and (vii) performing loans.
Definition of default
A loan is considered defaulted whenever it shows at least one of the following signs:
- Loans in arrears for more than 90 days;
- Customers in insolvency/bankruptcy situations or undergoing a special revitalisation
process (PER);
- Bank guarantees called in by the beneficiary.
A customer's full exposure is considered defaulted whenever the sum of their transactions in
arrears for more than 90 days exceeds 20% of total exposure.
Homogeneous segments result from the creation of transaction groups that have similar
credit risks, taking into consideration the Bank's management model. In order to do so, we
have defined as relevant segmentation factors some lending transactions characteristics,
such as type of customer, materiality of the exposure, type of product and type of associated
collateral.
The segmentation currently in force distinguishes between specific PD segmentation and
specific LGD segmentation:
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Interim Report and Accounts - Half-Year
PD segm entation
LGD segm entation
State and other public bodies
Banco Popular Group
Employees
Corporate Customers
Relevant customers
Credit cards - Private customers
Home loans w ith LTV <=80%
Home loans
Home loans w ith LTV >80%
Private customers w ith real collateral
Consumer credit
Consumer credit
Collateralised private customers
Property development
Collateralised property loans
Property constr.
Non-collateralised property loans
Credit cards - Corporate
Corporate customers
Collateralised companies
Non-collateralised companies
Probability of default (PD) represents the estimate based on the last 5 years of the Bank's
history of the number of transactions with or without impairment signs that can default during
a given period of time (emerging period). So that the Bank's history may reflect the current
economic conditions, observations obtained are adjusted according to the following weights:
Weight
Year 1
Year 2
Year 3
Year 4
Year 5
10%
15%
15%
30%
30%
PD is also differentiated according to the classification of each loan: (i) default loans, (ii) loans
in arrears (30- 90 days), (iii) restructured loans, (iv) non-performing loans (with impairment
signs), (v) healing loans, (vi) healed loans, and (vii) performing loans.
i)
Impairment signs by credit segment.
The Bank considers that a loan shows impairment signs when one of the following events
occurs.
- Customers with at least 1 loan of a material amount in arrears for more than 30 days;
- Customers in litigation;
- Customers with at least 1 loan of a material amount restructured due to financial
difficulties of the customer or perspective/request for restructuring;
- Customers with at least 1 loan undergoing out of court procedures to regularise their
situation (PERSI);
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Interim Report and Accounts - Half-Year
- Customers with at least 1 loan of material amount in the banking system in arrears,
premium and interest cancelled/annulled or in court, according to information made
available by the Central for Credit Liabilities of the Bank of Portugal;
- Customers with loan transactions written-off by BAPOP in the past 12 months;
- Customers with banking guarantees made by the Bank which have been foreclosed
within the past 24 months;
- Costumers with pledges or assignments to the Bank in the past 24 months;
- Customers with non-performing operations in other entities of Popular Group;
- Any other signs that cause a higher probability of defaulting detected in the individual
analysis.
j)
Limits defined for individual analysis.
On each reporting date a set of customers is selected, who due to the materiality of their
exposure to the Bank are considered significant. Those customers are subject to an
individual analysis procedure in order to conclude whether there is evidence of impairment or
to determine the amount of impairment.
Individual analysis are carried out on:
- Default customers or customers showing impairment signs with total liabilities of over
750,000 euros;
- Significant customer portfolio with no impairment signs and total liabilities of over
2,500,000.
Customer lending subject to individual analysis in which no objective evidence of impairment
is identified shall be included in homogeneous risk segments in order to be considered for
collective impairment.
k) Policy on internal risk levels, specifying the treatment given to a borrower
classified as impaired.
Operations that are in arrears for more than 90 days, or in insolvency situations or
undergoing a special revitalisation process (PER), or that require more specialised monitoring
are regularly migrated to a set of Agencies named Specialised Business Network (RNE).
The mission and objectives of that Network are the rigorous analysis, monitoring and
management of customers and risks, carried out by Specialised Managers distributed into 3
segments (Private individuals, Corporate, and Large Risks). From a comprehensive vision of
the whole recovery process, we try to find and employ the most adequate solutions for a
quick credit recovery.
l)
General description of the calculation of the current amount of future cash flows
when calculating impairment losses assessed individual and collectively.
According to the impairment model used by the Bank, when objective evidence of an event
that originated a loss due to impairment is identified, the amount of that loss shall be
determined as the difference between the amount on the balance sheet and the present
amount of the estimated future cash flows (excluding losses due to events that have not
occurred yet), discounted at the original effective interest rate.
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Interim Report and Accounts - Half-Year
Estimated future cash flows included in the calculation regard the contractual amount for the
loans, adjusted by any amounts that the Bank expects not to recover and the time frame in
which it is foreseeable that those shall be carried out. The time frame for the recovery of
cash flows is a very significant variable for the calculation of impairment, since an impairment
loss is always recognised, even in the cases in which total recovery of the contractual
outstanding cash flows is expected to be received but after the agreed dates. This situation
shall not be verified in case the Bank receives compensation in full (for example, as interest
or default interest) for the period in which the loan was overdue.
Estimating an amount and the moment future cash flows shall be recovered for a loan
involves professional judgement. The best estimate for those, taking into consideration the
guidelines defined on Circular Letter No. 02/2014/DSP, is based on reasonable assumptions
and on observable data at the date impairment is assessed, on the capacity of a customer to
pay or on the possibility of a foreclose on a collateral.
In the case of collective portfolios, a probability of default (PD) and a rate of loss given default
(LGD) are applied to each homogeneous segment.
In the case of defaulted loans, PD is 100% and the balance is established at the moment
each loan defaults.
LGD is an estimate of loss given default of a customer. For the calculation of this variable, a
random sample of the Bank's history is used, based on a trust interval of 95% regarding
every customer that has defaulted. Thus, the average loss is calculated for each segment
based on every recovery discounted at the effective rate for the month in which that operation
defaulted until maturity date/settlement, as well as possible future estimates for the cases in
which operations have not been settled when the analysis is carried out.
Recovery of the loans included in the sample are checked on a case-by-case basis,
including:
- Historical recoveries via payments made by the debtor (recoveries since the date of
default until the date of analysis);
- Historical recoveries via foreclosure, deducted from expenses;
- Estimates of recoveries after the reference dates used for the analysis;
- Recoveries after write-off.
m) Description of the emerging period(s) used for the different segments and
justification of their adequacy.
Emerging periods, which result from internal studies and the estimate of time management in
the time frame between the event and default, are the following:
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Interim Report and Accounts - Half-Year
Past-due loans - 30 to 90 days
3
Restructured loans
12
Show ing default signs
6
Healing
12
Performing and healed
State and other public bodies, Corporate, Relevant
customers, Residential loans, Real estate development,
Construction and Companies
9
Banco Popular Group, Employees, Consumer credit and
Private individual's credit cards
7
n) Detailed description of the cost associated with credit risk, including disclosure of
PD, EAD, LGD and healing rates.
For restructured or healing loans, average PD is determined for each month of the
demarcation stage (24 or 12 months respectively); after that time curves are drawn and
applied.
In the segments where those time curves do not show correlations that can be considered
explanatory, the PD applied during the demarcation stage results from the weighted average
by the total number of restructured or healing loans in each segment and in each month
(without attributing different weights to moment PD was observed).
Additionally, from a conservative perspective, the minimum point of each curve may never be
lower than the PD obtained for performing loans for the same period.
The following tables show the main points of the respective curves applied to restructured or
healing loans and are as follows:

Performing operations or with impairment signs
Segment
Credit cards - Private individuals
Corporate customers
Relevant customers
Property construction
Residential
Consumer credit
Employees
Companies
State and other public bodies
Banco Popular Group
Property development

Normal portfolio
Performing
Healed
1.7%
1.6%
1.6%
4.5%
0.9%
3.8%
0.0%
3.6%
0.0%
0.0%
7.9%
Restructured operations
91
0.0%
0.0%
8.0%
5.0%
3.0%
6.2%
0.0%
3.7%
0.0%
0.0%
5.6%
Default portfolio
> 30 days
Other signs
58.0%
61.9%
60.4%
61.8%
43.8%
55.0%
32.8%
62.1%
52.5%
0.0%
55.1%
10.4%
12.3%
17.5%
29.1%
12.0%
20.6%
2.0%
24.5%
0.0%
0.0%
28.5%
Interim Report and Accounts - Half-Year
Segment
Credit cards - Private individuals
Corporate customers
Relevant customers
Property construction
Residential
Consumer credit
Employees
Companies
State and other public bodies
Banco Popular Group
Property development
Segment
Credit cards - Private individuals
Corporate customers
Relevant customers
Property construction
Residential
Consumer credit
Employees
Companies
State and other public bodies
Banco Popular Group
Property development

Time frame of the restructuring process (months)
n+4
n+5
n+6
n+7
n+8
n+9
n+1
n+2
n+3
31.8%
59.8%
63.6%
49.9%
42.6%
61.7%
0.1%
48.5%
0.0%
0.0%
40.3%
31.8%
59.8%
49.2%
44.5%
38.5%
48.2%
0.1%
44.2%
0.0%
0.0%
36.8%
31.8%
59.8%
40.8%
39.9%
34.5%
40.3%
0.1%
40.1%
0.0%
0.0%
33.4%
31.8%
59.8%
34.9%
36.1%
30.9%
34.7%
0.1%
36.2%
0.0%
0.0%
30.2%
n+13
n+14
n+15
Time frame of the restructuring process (months)
n+16
n+17
n+18
n+19
n+20
n+21
n+22
n+23
n+24
31.8%
59.8%
10.5%
23.0%
6.7%
11.7%
0.1%
10.2%
0.0%
0.0%
8.1%
31.8%
59.8%
9.0%
22.4%
5.0%
10.2%
0.1%
8.3%
0.0%
0.0%
7.9%
31.8%
59.8%
7.6%
21.7%
3.6%
8.9%
0.1%
6.6%
0.0%
0.0%
7.9%
31.8%
59.8%
6.2%
20.8%
2.3%
7.6%
0.1%
5.2%
0.0%
0.0%
7.9%
31.8%
59.8%
1.6%
6.5%
1.0%
3.9%
0.1%
3.4%
0.0%
0.0%
7.9%
31.8%
59.8%
1.6%
4.5%
1.0%
3.9%
0.1%
3.4%
0.0%
0.0%
7.9%
31.8%
59.8%
1.6%
4.5%
1.0%
3.9%
0.1%
3.4%
0.0%
0.0%
7.9%
n+1
n+2
n+3
n+10
n+11
n+12
42.5%
51.0%
38.4%
61.3%
39.5%
52.1%
0.1%
57.8%
0.0%
0.0%
63.2%
42.5%
51.0%
38.4%
47.3%
35.8%
48.2%
0.1%
52.8%
0.0%
0.0%
59.5%
42.5%
51.0%
38.4%
35.0%
32.2%
46.0%
0.1%
47.7%
0.0%
0.0%
55.9%
42.5%
51.0%
38.4%
4.5%
6.7%
39.3%
0.1%
12.6%
0.0%
0.0%
30.0%
42.5%
51.0%
38.4%
4.5%
3.1%
38.8%
0.1%
7.6%
0.0%
0.0%
26.3%
42.5%
51.0%
38.4%
4.5%
1.0%
38.3%
0.1%
3.4%
0.0%
0.0%
22.7%
31.8%
59.8%
30.3%
32.9%
27.4%
30.3%
0.1%
32.5%
0.0%
0.0%
27.1%
31.8%
59.8%
5.0%
19.6%
1.3%
6.4%
0.1%
3.9%
0.0%
0.0%
7.9%
31.8%
59.8%
26.5%
30.4%
24.1%
26.7%
0.1%
29.0%
0.0%
0.0%
24.2%
31.8%
59.8%
3.8%
18.0%
1.0%
5.3%
0.1%
3.4%
0.0%
0.0%
7.9%
31.8%
59.8%
23.3%
28.4%
21.0%
23.7%
0.1%
25.7%
0.0%
0.0%
21.5%
31.8%
59.8%
2.7%
16.0%
1.0%
4.3%
0.1%
3.4%
0.0%
0.0%
7.9%
31.8%
59.8%
20.6%
26.9%
18.1%
21.1%
0.1%
22.6%
0.0%
0.0%
18.9%
31.8%
59.8%
1.6%
13.5%
1.0%
3.9%
0.1%
3.4%
0.0%
0.0%
7.9%
31.8%
59.8%
18.1%
25.7%
15.4%
18.8%
0.1%
19.7%
0.0%
0.0%
16.4%
31.8%
59.8%
1.6%
10.3%
1.0%
3.9%
0.1%
3.4%
0.0%
0.0%
7.9%
n+10
n+11
n+12
31.8%
59.8%
16.0%
24.8%
12.9%
16.8%
0.1%
17.0%
0.0%
0.0%
14.1%
31.8%
59.8%
14.0%
24.1%
10.7%
14.9%
0.1%
14.6%
0.0%
0.0%
11.9%
31.8%
59.8%
12.2%
23.5%
8.6%
13.2%
0.1%
12.3%
0.0%
0.0%
9.9%
Healing operations
Segment
Credit cards - Private individuals
Corporate customers
Relevant customers
Property construction
Residential
Consumer credit
Employees
Companies
State and other public bodies
Banco Popular Group
Property development
Time frame of the healing process (months)
n+4
n+5
n+6
n+7
n+8
n+9
42.5%
51.0%
38.4%
24.5%
28.6%
44.4%
0.1%
42.7%
0.0%
0.0%
52.2%
42.5%
51.0%
38.4%
15.7%
24.9%
43.1%
0.1%
37.7%
0.0%
0.0%
48.5%
42.5%
51.0%
38.4%
8.8%
21.3%
42.1%
0.1%
32.7%
0.0%
0.0%
44.8%
42.5%
51.0%
38.4%
4.5%
17.6%
41.3%
0.1%
27.7%
0.0%
0.0%
41.1%
LGD applied as at June 2014 was the following:
92
42.5%
51.0%
38.4%
4.5%
14.0%
40.5%
0.1%
22.7%
0.0%
0.0%
37.4%
42.5%
51.0%
38.4%
4.5%
10.3%
39.9%
0.1%
17.7%
0.0%
0.0%
33.7%
Interim Report and Accounts - Half-Year
Segment
LGD
Credit cards - Corporate
Credit cards - Private individuals
Corporate customers
Relevant customers
Collateralised property loans
Non-collateralised property loans
Home loans w ith LTV <=80%
Home loans w ith LTV > 80%
Consumer credit
Employees
Collateralised companies
Non-collateralised companies
State and other public bodies
Banco Popular Group
Collateralised private individuals
Non-collateralised private individuals
Property development
57.8%
45.0%
10.1%
10.8%
19.5%
37.2%
8.3%
10.5%
47.9%
6.3%
20.5%
30.8%
0.0%
0.0%
8.6%
32.1%
8.8%
o) Conclusions of the sensitivity analysis to the amount of impairment and changes
to the main assumptions.
As at June 30 2014, an increase by 10% in PD would imply an increase by 4.1 million euros
in the total amount of impairment. A similar increase in LGD would imply an increase by 17.9
million euros.
An increase by 10% in both variables would imply a 22.4 million euros increase in the total
amount of impairment.
Quantitative disclosures:
a) Detailed exposures and impairments by segment.
Total
exposure
Segm ent
Corporate
Property construction and CRE
Residential
Relevant
Companies
Other
Total
Segm ent
Impaired
loans
Exposure as at 30/06/2014
Of w hich:
Of w hich:
Default loans
healed
restructured
Of w hich:
restructured
Im pairm ent as at 30/06/2014
Total
Performing
Default loans
impairment
loans
492 923
544 386
1 612 409
983 597
1 760 387
255 251
447 917
358 920
1 483 539
792 591
1 455 272
208 390
5 461
1 239
5 083
6 342
5 701
106
30 123
56 709
99 213
60 853
36 933
7 019
45 006
185 466
128 870
191 006
305 115
46 861
12 516
73 643
35 320
87 138
56 438
6 493
33 004
76 954
19 503
62 114
128 467
21 598
20 489
14 264
5 411
9 367
25 006
3 091
12 515
62 690
14 092
52 747
103 461
18 507
5 648 953
4 746 629
23 932
290 850
902 324
271 548
341 640
77 628
264 012
Of Total Exposure as at 30-06-2014:
Performing loans
Default loans
Total Exposure
Days past-due <30
Days past-due
Days past-due
30.06.14
With no default signs With default signs betw een 30-90
<= 90
> 90
Total impairment
30.06.14
Of Total Im pairm ent as at 30-06-2014:
Performing loans
Default loans
Days past-due
Days past-due
< 30
entre 30 - 90
<= 90
> 90
Corporate
Property Construction and CRE
Residential
Relevant
Companies
Other
492 923
544 386
1 612 409
983 597
1 760 387
255 251
342 774
252 976
1 225 123
631 630
1 317 581
185 028
104 413
94 041
220 492
145 018
108 830
18 841
730
11 903
37 924
15 943
28 861
4 521
15 294
33 052
7 103
52 624
56 132
743
29 712
152 414
121 767
138 382
248 983
46 118
33 004
76 954
19 503
62 114
128 467
21 598
19 807
12 676
3 939
9 339
21 043
2 181
682
1 588
1 472
28
3 963
910
5 402
12 139
911
16 911
19 612
309
7 113
50 551
13 181
35 836
83 849
18 198
Total
5 648 953
3 955 112
691 635
99 882
164 948
737 376
341 640
68 985
8 643
55 284
208 728
93
Interim Report and Accounts - Half-Year
b) Detailed credit portfolio by segment and year of production.
Corporate
Production
year
Number of
transactions
Amount
<= 2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
5
1
23
15
48
102
52
109
49
12 534
959
16 423
103 190
59 510
51 037
40 263
162 261
46 746
Total
405
492 923
Constituted
impairment
Property construction and CRE
Number of
Constituted
Amount
transactions
impairment
1
Number of
transactions
Amount
Amount
Constituted
impairment
20
1
546
1 854
3 785
7 516
5 274
9 442
4 566
149
85
121
254
1 270
708
1 192
1 258
1 485
1 479
1 328
30 656
16 449
23 239
47 585
27 997
39 905
61 164
64 812
85 451
92 324
54 804
4 690
1 605
1 743
4 441
4 216
9 226
13 924
11 025
11 165
10 136
4 783
3 469
2 058
1 850
2 157
2 837
3 314
4 286
2 103
976
1 107
673
168 603
116 673
104 150
128 407
174 478
216 075
308 940
172 642
80 714
85 814
55 913
2 272
1 578
2 467
3 012
2 062
2 525
2 920
1 217
868
467
115
33 004
9 329
544 386
76 954
24 830
1 612 409
19 503
Relevant
Production
year
Residential
Number of
transactions
Com panies
Constituted
impairment
Number of
transactions
Amount
Other
Constituted
impairment
Number of
transactions
Amount
Constituted
impairment
<= 2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
16
14
15
34
62
286
78
92
62
112
114
35 859
25 126
44 338
93 456
112 119
85 330
87 677
116 866
117 242
221 247
44 337
2 796
1 575
8 467
6 352
7 978
2 946
7 885
1 772
8 108
9 490
4 744
161
197
340
848
4 364
2 671
4 967
5 692
7 482
9 139
9 423
10 143
14 065
15 876
39 201
42 973
77 954
165 365
227 366
325 879
471 735
369 830
930
3 566
2 762
4 985
7 392
13 536
21 683
19 976
20 256
19 253
14 129
946
552
1 389
1 866
19 601
8 952
11 740
8 488
11 944
10 655
4 740
19 439
8 718
12 229
11 922
27 360
26 306
43 314
37 058
19 332
33 037
16 536
246
304
934
2 204
3 868
2 970
4 193
3 444
1 323
1 392
720
Total
885
983 597
62 113
45 284
1 760 387
128 468
80 873
255 251
21 598
c) Detailed amount of gross credit exposure and individual and collectively assessed
impairment by segment, business sector and geography.
c.1) By segment:
30-06-2014
Assessm ent
Individual
Collective
Total
Corporate
Exposure
Impairment
Prop. Constr. and CRE
Exposure
Impairment
Residential
Exposure
Impairment
455 242
37 681
32 058
946
128 531
415 855
33 749
43 205
12 795
1 599 614
2 049
17 454
492 923
33 004
544 386
76 954
1 612 409
19 503
94
Interim Report and Accounts - Half-Year
30-06-2014
Relevant
Exposure
Impairment
Assessm ent
Individual
Collective
Total
Com panies
Exposure
Impairment
Other
Exposure
Impairment
Total
Exposure
Impairment
983 597
62 114
113 590
1 646 797
34 815
93 652
12 024
243 227
51
21 547
1 705 779
3 943 174
164 836
176 804
983 597
62 114
1 760 387
128 467
255 251
21 598
5 648 953
341 640
c.2) By business sector:
30-06-2014
Property constr.
Exposure
Impairment
Assessm ent
Individual
Collective
Total
Total
Com m erce
Exposure
Impairment
339 140
210 298
57 000
25 009
144 131
624 317
13 083
30 667
134 786
660 123
20 189
43 120
549 438
82 009
768 448
43 750
794 909
63 309
30-06-2014 Banks/Insurance Com p.
Exposure
Impairment
Assessm ent
Individual
Collective
Industries
Exposure
Impairment
Real estate
Exposure
Impairment
Other
Exposure
Impairment
Total
Exposure
Impairment
381 761
34 967
19 852
1 332
213 576
110 023
22 656
7 758
333 426
496 141
25 876
23 584
1 546 820
2 135 869
158 656
131 470
416 728
21 184
323 599
30 414
829 567
49 460
3 682 689
290 126
c.3) By geography:
30-06-2014
Portugal
Exposure
Impairment
Assessm ent
Individual
1 705 779
Collective
3 943 174
Total
164 836
176 804
5 648 953
341 640
d) Detailed portfolio of restructured loans by applied restructuring measure
30-06-2014
Default loans
Impaired loans
Number of
transactions
Measure
Deadline extension
Grace period
Other measures
Total
Exposure
Impairment
Number of
transactions
Exposure
Total
Impairment
Number of
transactions
Exposure
Impairment
506
1 238
1 602
95 783
50 567
144 500
3 872
2 760
6 991
244
864
992
83 684
55 984
131 880
11 387
15 287
35 695
750
2 102
2 594
179 467
106 551
276 380
15 259
18 047
42 686
3 346
290 850
13 623
2 100
271 548
62 369
5 446
562 398
75 992
e) In and out movements in the restructured loan portfolio.
30-06-14
Initial balance of the portfolio of restructured loans (gross of im pairm ent)
Restructured loans during the period
Interest from the restructured portfolio
Settlement of restructured loans (partial of full)
Loans reclassified from 'restructured' to 'performing'
Other
551 689
61 903
4 296
- 52 664
- 8 512
5 686
Final balance of the portfolio of restructured loans (gross of im pairm ent)
562 398
95
Interim Report and Accounts - Half-Year
f)
Detailed fair value of collaterals underlying the credit portfolio for the Corporate,
Construction, Commercial Real Estate (CRE) and Residential segments.
30-06-2014
Fair value
Corporate
Real estate
Other real collaterals
No.
Amount
No.
Amount
< 0.5 M€
>= 0.5 M€ and < 1 M€
>= 1 M€ and < 5 M€
>= 5 M€ and < 10 M€
>= 10 M€ and < 20 M€
>= 20 M€ and < 50 M€
>= 50 M€
1
425
2
2
1
6 708
13 071
12 501
2
476 892
Total
8
509 597
Property construction and CRE
Real estate
Other real collaterals
No.
Amount
No.
Amount
Residential
Real estate
Other real collaterals
No.
Amount
No.
Amount
3
3
2
1
2
1
375
1 611
4 656
5 997
22 655
24 303
1 137
159
122
9
162 650
111 031
231 357
54 639
987
32
17
52 946
20 146
33 399
18 384
212
31
2 584 820
136 549
48 986
503
3
5
21 770
1 750
7 970
12
59 597
1 427
559 677
1 036
106 491
18 627
2 770 355
511
31 490
g) LTV ratio for the Corporate, Construction, CRE and Residential segments.
Segm ent/Ratio
Corporate
Without any collateral
< 60%
>= 60% and < 80%
>= 80% and < 100%
>= 100%
Property construction and CRE
Without any collateral
< 60%
>= 60% and < 80%
>= 80% and < 100%
>= 100%
Residential
Without any collateral
< 60%
>= 60% and < 80%
>= 80% and < 100%
>= 100%
Number of
properties
30-06-2014
Performing
Default loans
loans
Impairment
n.a.
3
3
1
1
373 241
25 580
38 056
4 089
6 952
20 698
8 043
22 236
7 473
685
7
2 603
n.a.
8 644
5 181
4 334
1 308
150 286
477 567
511 745
477 214
166 436
100 379
41 503
24 911
43 176
60 097
49 532
9 378
4 194
6 955
14 207
n.a.
448
51
22
66
2 173
29 276
15 622
4 093
8 048
3 198
17 946
9 313
7 959
5 854
2 863
4 005
1 837
1 187
2 298
16 265
h) Detailed fair value and net book value of repossessed properties or foreclosed
properties, by type of asset or time elapsed.
96
Interim Report and Accounts - Half-Year
30-06-2014
Number of
properties
Assets
Land
Urban
Rural
Fair value
of the
asset
Book value
94
21
12 267
5 556
10 438
4 311
Properties under developm ent
Residential
Commercial
Other
391
25
123
34 377
1 776
4 604
33 797
1 587
4 124
Built properties
Residential
Commercial
Other
553
136
179
72 603
14 787
26 325
68 632
13 695
24 168
38
8 401
7 908
1 560
180 696
168 660
Other
30-06-2014
Tim e elapsed
since repossession/foreclosure
< 1 year
>= 2.5
years and
< 5 years
< 5 years
Total
Land
Urban
Rural
1 071
46
2 252
3 754
2 573
244
4 542
267
10 438
4 311
Properties under developm ent
Residential
Commercial
Other
625
5 273
0
0
11 411
0
0
473
3 708
961
16 640
416
1 586
33 797
4 124
4 453
28 595
10 719
3 560
26 372
8 856
1 992
6 949
2 923
3 690
6 716
1 671
13 695
68 632
24 169
Built properties
Residential
Commercial
Other
Other
i)
>= 1 year
and < 2.5
years
4 494
3 037
173
204
7 908
55 276
59 242
19 035
35 107
168 660
Distribution of the credit portfolio measured by degrees of internal risks.
Banco Popular does not employ internal credit ratings.
j)
Disclosure of the risk parameters associated with the impairment model by
segment
Risk parameters associated with the impairment model by segment are explained in
paragraph (n) of the qualitative disclosures of this note.
48. Reconciliation of AAS accounts with IAS/IFRS (in compliance with No. 2(d) of
Instruction No. 18/2005 issued by the Bank of Portugal)
97
Interim Report and Accounts - Half-Year
Had the Bank’s individual financial statements been prepared according to the International
Financial Reporting Standards (IAS/IFRS), they would show the following changes:
1) Description of changes in accounting policies
After applying the IFRS, the accounting policies would reflect the following changes:
a) Loans and advances to customers
According to the IFRS the accounting policies applicable to loans and advances to customers
correspond to what is stated on item 2.1 of the Notes to the Financial Statements, except for
credit provisioning as foreseen in Notice No. 3/95 issued by the Bank of Portugal, which is
replaced by impairment determined according to the model described on note 47.
b) Other tangible assets
With respect to property for own use at the date of transition to IFRS (1 January 2006) we
have elected to use the option provided by IFRS 1 using fair value as deemed cost obtained
through an assessment made by independent experts, considering the difference between
that amount and the property’s carrying value in retained earnings minus deferred tax. That
amount becomes the cost amount on that date subject to future depreciation.
2) Estimate of material adjustments and reconciliation between the balance sheet, the
income statement and the statement of changes in equity
Estimates for material adjustments that would derive from changes in accounting policies
alluded to in the previous number, and the reconciliation between the balance sheet, the
income statement and the statement of changes in equity in conformity with AAS for the ones
resulting from the application of IFRS are presented in the following tables:
98
Interim Report and Accounts - Half-Year
Reconciliation of the Balance Sheet as at 30 June 2014 and 2013
(€ thousand)
30-06-2014
AAS
Net amount
30-06-2013
IFRS
Net amount
AAS
Net amount
50 712
66 622
103 903
0
1 869 916
1 260 684
5 307 313
20 747
89 611
111
3 566
78 339
444 457
52 219
68 853
55 107
32 320
2 256 880
677 770
5 693 052
22 579
85 324
202
3 053
72 160
561 518
- 47 356
9 295 981
9 581 037
- 37 898
1 307 918
36 184
2 333 034
3 995 174
711 299
119 294
4 442
528
27 148
40 767
1 609 046
32 296
1 807 930
4 189 605
1 066 572
89 064
52 459
1 860
15 218
37 281
- 44 550
8 575 788
8 901 331
Adjust.
Adjust.
IFRS
Net amount
Assets
Cash and balances w ith central banks
Deposits w ith banks
Financial assets held for trading
Other financial assets at fair v alue through profit or loss
Av ailable-for-sale financial assets
Loans and adv ances to banks
Loans and adv ances to customers
Non-current assets held for sale
Other tangible assets
Intangible assets
Current income tax assets
Deferred income tax assets
Other assets
Total Assets
50 712
66 622
103 903
0
1 869 916
1 260 684
5 353 776
20 747
79 820
111
3 566
78 458
444 457
- 46 463
9 332 772
- 36 791
9 791
- 119
9 791
- 333
52 219
68 853
55 107
32 320
2 256 880
677 770
5 645 696
22 579
95 115
202
3 053
71 827
561 518
9 543 139
Liabilities
Deposits from central banks
Financial liabilities held for trading
Deposits from banks
Due to customers
Debt securities issued
Hedging deriv ativ es
Prov isions
Current income tax liabilities
Deferred income tax liabilities
Other liabilities
Total Liabilities
1 307 918
36 184
2 333 034
3 995 174
711 299
119 294
51 391
528
24 749
40 767
- 46 949
2 399
8 620 338
- 48 612
2 594
1 609 046
32 296
1 807 930
4 189 605
1 066 572
89 064
3 847
1 860
17 812
37 281
- 46 018
8 855 313
476 000
10 109
- 82 585
274 133
2 049
4 905
5 250
- 2 035
476 000
10 109
- 77 680
279 383
14
Equity
Share capital
Share premium
Fair v alue reserv es
Other reserv es and retained earnings
Income for the period
476 000
10 109
- 8 760
233 883
1 202
5 402
4 673
- 2 316
476 000
10 109
- 3 358
238 556
- 1 114
Total Equity
712 434
7 759
720 193
679 706
8 120
687 826
9 332 772
- 36 791
9 295 981
9 581 037
- 37 898
9 543 139
Total Liabilities + Equity
99
Interim Report and Accounts - Half-Year
Reconciliation of the Incom e Statem ent as at 30 June 2014 and 2013
(€ thousand)
30-06-2014
AAS
Adjust.
30-06-2013
IFRS
AAS
Adjust.
IFRS
Interest and similar income
133 481
133 481
161 149
161 149
Interest and similar charges
71 407
71 407
96 986
96 986
Net interest income
62 074
62 074
64 163
Return on equity instruments
Fees and commissions receiv ed
Fees and commission paid
Net gains from financial assets at fair v alue
through profit or loss
Net gains from av ailable-for-sale financial assets
Net gains from foreign ex change differences
Net gains from the sale of other assets
58
34 168
4 349
58
34 168
4 349
47
29 081
4 383
- 1 499
9 702
562
- 5 182
- 1 499
9 702
562
- 5 182
769
1 064
673
2 614
Other operating income
- 3 214
- 3 214
- 3 138
Operating income
92 320
92 320
90 890
Personnel ex penses
General administrativ e ex penses
Depreciation and amortization
Prov isions net of rev ersals
Adjustments to loans and adv ances to customers
(net of rev ersals)
28 585
27 293
2 003
337
28 585
27 293
2 003
337
27 913
25 112
2 483
- 2 129
Impairment of other assets net of rev ersals
- 3 040
Net income before tax
35 866
Deferred tax
Net income for the period
0
3 068
38 934
32 185
- 3 040
1 992
0
64 163
47
29 081
4 383
0
769
1 064
673
2 614
- 3 138
0
90 890
27 913
25 112
2 483
- 2 129
2 769
34 954
1 992
1 276
- 3 068
- 1 792
3 334
- 2 769
565
74
- 752
- 678
1 285
- 734
551
587
218
Income tax
Current tax
0
587
218
- 513
- 752
- 1 265
1 067
- 734
333
1 202
- 2 316
- 1 114
2 049
- 2 035
14
100
Interim Report and Accounts - Half-Year
Reconciliation of changes in equity as at 30 June 2014 and 2013
(€ thousand)
Other
Share
Share
Fair value
Capital
premium
reserves
reserves
and
retained
Net
income
Total
earnings
Balances as at 30/06/2014 - AAS
476 000
10 109
- 8 760
Credit impairment
- Adjustments - regulatory prov isions
- Deferred tax
Valuation of ow n property
- Fair v alue
- Deferred tax
Balances as at 30/06/2014 - IFRS
476 000
10 109
233 883
1 202
712 434
3 553
- 870
- 3 067
751
486
- 119
7 801
- 2 399
1 990
- 3 358
238 556
9 791
- 2 399
- 1 114
720 193
Other
Share
Share
Revaluation
Capital
premium
reserves
reserves
and
retained
Net
income
Total
earnings
Balances as at 30/06/2013 - AAS
476 000
10 109
- 82 585
Credit impairment
- Adjustments - regulatory prov isions
- Deferred tax
Valuation of ow n property
- Fair v alue
- Deferred tax
Balances as at 30/06/2013 - IFRS
476 000
10 109
CHIEF ACCOUNTANT
274 133
2 049
679 706
4 025
- 2 769
734
- 2 769
4 759
7 500
- 2 595
2 291
- 1 066
- 77 680
279 383
9 791
- 3 661
14
687 826
THE BOARD OF DIRECTORS
101