MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
1 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Index
01. SOCIAL AND ENVIRONMENTAL RESPONSIBILIY 4
02. DISTRIBUITION NETWORK 7
Point of Sales 7
Diagram of Banif 8
03. HUMAN RESOURCES 9
04. ECONOMIC BACKGROUND 12
05. BANIF MANAGEMENT REPORT 16 ACTIVITY EVOLUTION OF THE FIRST HALF OF 2013 16 STRATEGIC PLAN – MAIN PRIORITIES 17 RECAPITALIZATION PLAN 18 DOMESTIC RETAIL BANKING 19 Commercial activity in the Madeira Autonomous Region 19 Commercial activity in the Azores Autonomous Region 20 Commercial activity in the North 21 Commercial activity in the South 23 Corporate Banking 25 International Activity 26 NEW DISTRIBUTION CHANNELS 27 Electronic and Telephone Banking 27 MARKETING AND PRODUCTS 29 OVERDUE AND LITIGATION CREDIT RECOVERY 36 FINANCIAL MANAGEMENT 36 RISK MANAGEMENT 37 INTERNATIONAL BUSINESS MANAGEMENT 60 Banif Bank (Malta) 60 Banif Bank (Brazil) 62 BCN - Banco Caboverdiano de Negócios 63 SPECIALIZED CREDIT BANKING 64 INVESTMENT BANKING AND ASSET MANAGEMENT 68 PROPERTY MANAGEMENT 76 INSURANCE 79 06. ANALYSIS OF CONSOLIDADTED ACCOUNTS 82
07. OUTLOOK 89
08. RATING 91
09. CONSOLIDATED FINANCIAL STATEMENTS 92
2 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
1. Consolidated Balance Sheet 92 2. Consolidated Income Statement 93 3. Consolidated Statement of Comprehensive Income 94 4. Consolidated Statement of Changes in Equity 95 5. Consolidated Statement of Cash-Flow 96 6. Annex to the Consolidated Financial Statements 97 10. OTHER INFORMATION 157 1. Governance and Statutory Bodies 160 2. Portfolio Own Shares 161 3. Owners of Qualified Social Participation 162 4. Securities issued by Banif – Banco Internacional do Funchal, SA and subsidiaries Banif Financial Group held for Holders Social Bodies 163 5. Recommendations of the FSF and the EBA on Transparency Information and valuation of Assets 167 6. Obligation Statements 179
Limited Revision Report carried out by auditor registered in the CMVM concerning semestral consolidated information
3 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
01 SOCIAL AND ENVIRONMENTAL
RESPONSABILITY
Creating value on the long term by integrating risk and opportunity in an economic, environmental and social sense is Banif Financial Group’s strategic concern regarding its activity as well as its liaisons with the community.
The social aspect, being it internal or external, has always been present in the humanistic matrix of Banif Financial Group. Unifying employees and reinforcing the sense of belonging is the aim of the Sustainability Area which is a part of the Quality and Sustainability Office that created the Volunteer Programme “VAMOS Educar”. This initiative was carried out among the partnership of The Human Resources Department and the Communication and Image Department, and with the cooperation of the Junior Achievement Association. During the present edition the programme “Braço Direito” was implemented, in which a student will accompany a Group’s professional during a day’s work. Communicating this programme meant adapting a corporation identity which was created for the Sustainability Area, - the “VAMOS – Valores mais Humanos” (More Human Values) - a micro-site that works as a main part of the internal communication, such as email sending, production of a film and a proper newsletter.
Regarding the results, the “VAMOS Educar” programme included 52 volunteers, 364 hours of voluntary work that reached 52 secondary school students from all over the country, including the Autonomous Regions of Madeira and Azores. Time spent on Voluntary Programmes, are considered part of the normal working hours.
Education as a crucial part of the struggle against social exclusion and poverty has been one of the Group’s strongest investments, not only through the “VAMOS Educar” Programme but also through the assignment of a scholarship programme called the Schools of the Future. The partnership established with the Entrepreneurs Association for the Social Inclusion aims to support 12 secondary school students of the Mainland and the Autonomous Regions of Madeira and Azores, during the next three years, beginning this school year of 2013/2014.
Concerning the environmental aspect, Climate Changes are in order for Banif Financial Group’s Policy, whether it is under a risk perspective or opportunity perspective. One of the landmarks of this activity is the close interaction with the Carbon Disclosure Project (CDP), which represents around 78 billion dollars of assets and of which Banif is a signatory investor and an annual respondent.
4 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Maintaining the annual commitment regarding this area, the Group was part of the international initiative known as the Earth Hour 2013 that included all of the Group’s companies, including Banif Malta and Banif Brazil, and participated in the National Movement ECO - Enterprises against Fire.
The growing relationship with the relevant stakeholders in this area is easy to be seen especially through the participation in events and developing new partnerships. The Group is a member of the BCSD Portugal – Business Council for Sustainable Development and has been part of several work groups such as the Project “Visão 2020” which aims to gather all the associated companies’ CEO’s around the targets and fulfilments concerning Sustainable Development.
In accordance with the leading position in the Autonomous Regions of Madeira and Azores, Banif has had a very active role in social responsibility in these regions.
In the Madeira Autonomous Region these is a continuous investment in the entrepreneurship with project “rs4e” – road show for entrepreneurship – which rewards the most inventive ideas from the regions students through several actions as well as the presence in one of the most emblematic business initiatives of the region, the Madeira Entrepreneurs Day.
The renewal of the sponsorship to the Annual Tourism Conference also should be mentioned as it is an event that represents a high quality debate and assumes a leading role regarding definition and strategic orientation that the Tourism sector must have in the Madeira Autonomous Region.
In the sports, social and cultural sectors a long work of partnership is continuously carried out with the Marítimo Sport Club and the National Sports Club, through initiatives with children and youths of the several areas of the region. Regarding this segment the Bank has had several initiatives along with ZON Madeira, having organized three football tournaments for starters, involving around 2000 children. Still regarding this area, especial reference should be made to the regional contest of Maths Problems Resolution called “Agent X” that has over 2000 participants during all school year.
In the Azores Autonomous Region, at the beginning of this year, Banif renewed protocols for cooperation with two of the most important show rooms in S. Miguel Island, the Micaelense Coleseum and the Micaelense Theatre.
In April, a long term cooperation protocol was reinforced with the assignment of an Excellence Award for the best student of MBA of the Azores University, in a ceremony which main theme was “Entrepreneurship of Technological Basis”.
Regarding sports and health promotion, Banif has renewed its presence in the event “Sponsor’s Day” organized by the Pauleta Foundation during which a transversal tournament took place within several levels, as well as a game for the children’s parents and a team of parents from Banif. The ZON Kids League took place for the first time in the Azores with Banif’s support.
This semester Banif has intensified its support policy to the Azorean enterprises through the celebration of several amendments to existing institutional protocols in the region, classified in the Azorean Agenda for Job Creation and Entrepreneur Competitiveness, published by the Regional
5 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Government. In April, an amendment to the Microcredit Protocol was signed, that assures the reinforcement of the guarantee made by the Azores Autonomous Region, and in May seven more amendments were celebrated to enlarge the terms of the Regional Restructure Lines I, II and III, Azores Enterprises I and II and Azores Invest I and II.
The growing concern in making ends meet in all interested parties as well as the need to review the strategy of the Policy and Model of the Sustainability Government, ended up with the official launching of the project VAMOS Ouvir, carried out by a focus group and interviews with internal stakeholders. The external stakeholders will be heard during the second semester of.
Regarding accountability and transparency the Group is at present preparing its 6th Sustainability Report which will be disclosed at the beginning of the second semester of 2013.
6 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
02
DISTRIBUTION NETWORK
Mainland Madeira Azores Abroad Total
BANIF Comercial 254 37 44 146 481
1. BANIF 235 36 42 7 320
- Branches 220 33 37 0 290 - Business Center 11 1 3 0 15 - BANIF Privado 3 1 1 0 5 - Call Centre 1 0 0 0 1 - Home Loan shop 0 1 1 0 2 - Representative offices/Other 0 0 0 7 7
2.BANIF MAIS, SGPS 17 1 2 10 30
- BANCO BANIF MAIS 16 1 2 4 23 - Other 1 0 0 6 7
3. BANIF-Banco Internacional do Funchal (Brazil) 0 0 0 7 7
- Branches 0 0 0 6 6 - Other 0 0 0 1 1
4. BANIF International Bank 0 0 0 1 1
5. BANIF BANK (Malta) 0 0 0 10 10
6. Banco Caboverdiano de Negócios 0 0 0 18 18
7. Banca Pueyo (Spain) (*) 0 0 0 92 92
8. Other 2 0 0 1 3
BANIF Investimento 7 0 0 7 14
1. BANIF Banco de Investimento 2 0 0 0 2
2. BANIF Banco de Investimento (Brazil) 0 0 0 3 3
3. Other 5 0 0 4 9
Insurance 30 3 17 0 50
1. CSA (*) 30 3 17 0 50
- Delegations 30 1 17 0 48 - Other 0 2 0 0 2
TOTAL 291 40 61 153 545
(*) Not fully consolidated
7 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 BANIF FINANCIAL GROUP DIAGRAM OF BANIF 30-06-2013
Banif - Banco Internacional do Funchal, SA * Share Capital: 1,370,000,000 Eur
100% 85,92% 47,69% 84% Banif 16% Banif - Banco de Banif Mais - SGPS, SA 7,92% 51,69% Banco Caboverdiano 100% Banif Securities Rentipar Imobiliária, SA Investimento, SA de Negócios Holdings, Ltd Seguros , SGPS, SA Share Capital: 200,000,000 Eur Share Capital: 85,000,000 Eur Share Capital: 20,369,095 Eur Share Capital: 900,000,000 ECV Share Capital: USD 2,108,000 Share Capital: 135,570,000 Eur 100% Numberone Banif Gestão de Banif Bank 100% Companhia de Seguros 100% 100% 0,99% Banco Banif Mais, SA SGPS, Lda Activos 99,01% 78% (Malta) Banif Securities Inc Açoreana, SA Share Capital: 5,000 Eur Share Capital: 2,000,000 Eur Share Capital: 101,000,000 Eur Share Capital: 32,500,000 Eur Share Cap.: USD 8,532,707 Share Capital: 107,500,000 Eur 99% Banif Finance, Ltd MCO2 - Soc. Gestora de Banif Holding 100% 1% 100% Banif Plus Bank ZRT 25% Fundos de Inv. Mobiliário 99,9% (Malta), Ltd Komodo Share Capital: b) Share Capital: 2,950,000 Eur Share C.: HUF 3,000,000,000 Share Cap.: 10,002,000 Eur Share Capital: USD 10,100,256 0,10% Gamma - Soc. TCC Investment Banif (Cayman), Ltd c) 100% 100,0% Banif Rent, SA 90% 100% 100% Titularização de Créditos 10% Luxembourg Banif (Brasil), Ltda Share Capital: 300,000 Eur Share Capital: 250,000 Eur Share Capital: 125,000 Eur Share Capital: USD 42,000,000 Share Capital: R $ 150,000 81% Banif Margem Banif International Banif-Banco Internacional 15% 59,20% Investaçor, SGPS 56,49% 100% Açor Pensões 29,19% 100% Mediaçao de Seguros, Lda Bank, Ltd d) 4% do Funchal (Brasil), SA Share Capital: 10,000,000 Eur 10,81 % Share Capital: 1,850,000 Eur Share Capital: 6,234.97 Eur Share Capital: 25,000,100 Eur Share Cap.: R $ 323,507,497.77 100% Banca Pueyo, SA Banif Capital - Soc. 85% Banif International Banif Banco de 33,32% (Espanha) 100% de Capital de Risco Holdings, Ltd Investimento (Brasil), SA Share Capital: 4,800,000 Eur Share Capital: 750,000 Eur Share Capital: USD 17,657,498 Share Capital: R $ 90,785,158.21 100% Inmobiliaria Vegas Altas Banif International 100% Banif Financial Banif Gestão de Ativos 33,33% (Espanha) 100% Asset Management Services Inc. (Brasil) S. A. Share Capital: 60,330.42 Eur Share Capital: USD 50,000 Share Capital: USD 371,000 Share Capital: R $ 10,787,073.00 100% 11,75% Banif Centaurus Realty Group 100% Banif 7,61% Multi Fund a) Finance (USA) Corp. 25,85% Invest. Imobiliários, SA Share Capital: USD 50,000 Share Capital: USD 6,280,205.09 Share Capital: R$ 33,365,081.00
100% Banif Forfaiting a) Paid-up share capital of USD 100. Company b) Controls 100% of the voting capital, and the share capital Share Capital: USD 250,000 consists of: 100,00 ordinary shares with a unit par value of USD 1 and non-voting preferences shares: d) Controls 100% of the voting capital, and the share capital 50,000 shares-USD 0.01/share and 68,517 shares-EUR 0.01/share. consists of: 25,000,000 ordinary shares with a unit par value of 1.00 and c) Controls 100% of the voting capital, and the share capital 10,000 preference shares with a nominal unit par value of EUR 0.01. consists of: 26,000 ordinary shares with a unit par value of USD 1 and 16,000,000 non-voting preference shares, with a nominal value of USD 1. * The companies most relevant to the group were taken into account.
8 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
03
HUMAN RESOURCES
During the first semester of 2013 Human Resources acted within the following areas: the ongoing programme regarding the company’s staff rationalization, the development of a Programme for Trainees, the development of a Training Programme, the review of the models of human resources management and continuing the restructure of the information system Department.
The rationalization programme of Banif´s staff is ongoing. The number of employees on June 30th 2013 was 2.285 and on the same period of last year was of 2.520. Concerning the whole Group there also was a decrease of staff, with 3.281 employees working which represents 16% less than in June 2012 where there were 3.817 employees. This reduction is a result of a structured policy of contract termination with mutual agreement, pre-retirements and along with employees that simply left in a common manner.
This semester is also marked by an enhancement of the Programme Trainee Evolution, which besides the curricular training provides a professional training. Twenty three youths were trained in Banif for a period of one to six months.
The Human Resources Department – Shared Services has had a transversal role within the Banif Financial Group companies. Regarding this, in 2013 the Training and Development Area identified needs and prepared a Training Plan for the following Group companies: Banif, Banif Mais, Banif Investment Bank, Banif Rent, and Banif Imobiliária. This role stimulates a more global approach to training and development initiatives and fosters the creation of synergy and potential value within the Group.
Regarding Banif, the first semester of 2013, 128 training actions were carried out which represented 5 hours of training per employee. Internal training and e-learning were in order and this same semester some projects caused impact for their innovation and increase of value adding for both the Bank and the Group, such as: the implementation of the new “Plataforma Evoluír” (Evolving Platform), the Learning Talks, the project “Agências Evoluír” (Evolving Branch), training for Banif Managers V+ and the “O Todo Maior que as Partes” (“The whole greater than its parts”).
In April 2013 the new “Platforma Evoluír”, the Banif Financial Group Training Platform was implemented. This tool steps out for its potential regarding the multi company training management and the autonomy if the users, so that the trainees have a more active role by promoting their own development. It represents a new phase regarding training as an engine for individual and team development, turning processes more flexible, easy management of training methods and valuing synergies among the Group companies.
9 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The initiative known as Learning Talks represents a new concept that aims to create informal areas where training and knowhow may be shared, resulting in an internal relationship among employees of different departments and group companies. During the first semester of 2013 nine Learning Talks were carried out in the Mainland, Azores and Madeira, attended by employees from all companies (Banif, Banif Mais, BBI, CSA, Banif Rent and Banif Imobiliária). Several themes were treated such as Business Strategies, Management and Leadership, Products, New Sports Technology.
The project “Agências Evoluír” aims to create School-Branches that can train employees on the job in order to prepare them for their new business function. After the test action carried out in 2012 the necessary adjustments were made, and the project is now being enlarged to the four “Áreas Evoluír” (North and South Mainland, Azores and Madeira) in Ponta Delgada the first action has already taken place.
The project Affluent helped to define a new client segmentation model and restructure the business network. The target is to promote a better commercial monitoring of this segment, so a development programme was implemented to enhance specific features of the V+ Managers function. After training phase 1 in 2012 this semester several mystery client visits took place in order to evaluate present development and possible future improvement areas. Phase 2 was carried out between May and June for 75 Banif V+ Managers to reinforce and sustain the achieved knowhow and identify improvement points regarding the results obtained by the mystery client visits.
Action “O Todo Maior que as Partes” (“The whole greater than its parts”) was attended by about 200 participants from Banif, Banif Mais, BBI, Banif Rent and Banif Imobiliária, from top management to operational and organization levels. This action is transversal and experimental and is particularly relevant as it aligns the targets among the Group companies and the functional areas focusing on team work, cohesion, group spirit in order to promote efficiency and common target orientation. Within the present context in which our activity runs, this alignment is of great importance to maximize the positive results of Banif Financial Group.
Concerning the review of human resources management models, performance evaluation models and central offices incentives are likely to be changed. Quarterly evaluation moments on an annual basis as set in the business areas are to be implemented. A more simple and light function and career model was approved, the number of internal functions was reduced from 72 to 36 and are now structured into 5 functional bands according to the 3 existing professional careers (business, technical and support).
Regarding benefits and compensation areas, Banif and all Group companies in Portugal, now have the Pay Rest Banif Card, allowing employees to have fiscal benefits as well the company itself. During 2013 the Special Conditions for Banif Employees was reviewed for the Banif Financial Group employees that are now entitled to access car leasing and credit as well as insurance.
As for information systems apart from the “Plataforma Evoluír”, it is worth noting the launching of the E-DOC system, which is an electronic application internally developed to allow document
10 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
management avoiding document printing, Paygest 2.0, an upgrade of the existing central human resource software in web format, the creation of an employee web portal on a self-service system (in testing) and new modules of record management, data processing and working time.
11 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
04 ECONOMIC BACKGROUND
International Background
During the first semester of 2013, the world economy remained in a moderate evolution with developed countries showing a mediocre performance, and a group of developing and emerging countries slowing down their growth rates vis a vis the previous semesters. The International Monetary Fund (IMF) reviewed the forecast for World economic growth on a low basis, from 3.3% to 3.1% in 2013, since the developed countries are still suffering the impact caused by recession and financial crisis along with the rebalancing of both families and companies, and also by considering budget and tax consolidation, especially in Europe. In the US, the impact caused by the cut back on public expenditure and private consumption has been mitigated by the recovery of real estate and employment. The wealth effect resulting from the added valuing reported in the stock markets and real estate may well have contributed to the sustainability of private consumption. The euro zone stands out negatively among the main economic blocks, with recent forecasts pointing out for a downturn of the GDP (Gross Domestic Product) in 2013 (-0.6%). This semester there was a slight difference between the so called “peripheral” countries and the “core”, although there is still significant difference concerning the financing capacity of those countries. On the other hand the Japanese economy begins to show the first positive results of the monetary and budget expansionist policies.
The developing countries (or emerging countries) that have been the engine of the global growth in the past recent years are now showing they are cooling down on the back of the euro zone recession, the increase of structural lack of imbalances and larger restriction to accede external capitals. China is presently dealing with the choice of stimulating the economy to decrease the ongoing deceleration, or correct the speculative bubbles in some markets that had excessive amount of credit channelled to.
The monetary conditions have kept themselves generally accommodative, regardless of the tendency of the US Federal Reserve to lower the liquidity injection values in the financial system. In April, the Bank of Japan reinforced the accommodative feature of its policy and commited to duplicate the monetary base in two years, in order to reach the target fixed at 2% for inflation. In the meeting held in May, the European Central Bank (ECB) reduced its reference rate to 0.5%. At the same time the ECB declared being in favour of additional reference interest rates as well as the use of non-conventional instruments such as eventual measures to stimulate credit capacity to small and medium enterprises, that may mitigate the effect of market interest rate increase of some of the euro zone economies.
12 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
National Background
In Portugal the GDP showed a contraction of 4.1% during the first quarter of 2013, according to the INE (National Statistics Institute). This contraction was significantly reduced in the second quarter of 2013, to -2.0%. Regarding the second quarter of the year the GDP showed a positive variation of 1.1% when compared to the first quarter, which means the first quarterly positive variation since the third quarter of 2010.
Despite the measures to reduce public expenditure and increase tax burden which meant an adverse impact in consumption and investment, according to the INE, the positive variation of the GDP is due to a less significant reduction of investment, and the acceleration of export of both goods and services related to the calendar effect of the Easter Period (April 2012 and March 2013).
This performance is accompanied by the evolution of qualitative indicators that show a recovery from the second quarter on. Therefore, the economic climate showed an improvement during the second quarter to the end of May, a tendency of recovery that has been recorded since the second quarter of 2012. At the same time an increase of general confidence indicators is mentioned especially concerning commerce, services and construction.
Regarding employment, the inquiry data related to the second quarter, shows an unemployment rate of 16.4%, an increase of 1.4% considering the information for the same period of 2012, and a decrease of 1.3% considering the previous quarter, where the unemployment rate was of 17.7%, representing a historic record.
According to the information of the Bank of Portugal, Portuguese activity will continue to fall during 2013 although in a more moderate way than the previous year, and a slight recovery is expected for 2014. This progressive recovery should occur along with the expected recovery for the second half of the year for the main countries of the euro zone, as well as the stabilization of monetary and financial conditions in the euro zone and the improvement in the institutional European architecture.
The favourable results from the evaluation related to the PAEF and the expectation that he ECB may launch the programme OMT (Outright Monetary Transactions) for the Portuguese mid-term public debt have contributed for a better perception of Portuguese issue for the financial markets. This lead to the issuing of mid and long term bonds by the Portuguese Treasury. So, last May the Treasury issued a long term public debt (3 billion euros, maturing in 2024 at 5.669% yield) which was well accepted by foreign investors.
Financial Markets
Regarding financial markets, the first quarter of 2013 recorded several aspects that had a significant impact in the investors sentiment.
The positive features were Portugal’s return to the financing markets (last April); the disclosure of economic indicators in the USA revealing encouraging data regarding internal consumption and real estate market; support measures from the ECB reflecting monetary stimulation concerning
13 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
liquidity injection and the decision of decreasing reference interest rate of the refinancing operations down to historic levels.
The negative features are as follows:
- Results of the Italian election and the standby that delayed Government formation; - Cyprus crisis and the impact of the choice of the financial rescue process. The risk of contagion related to Cyprus’ rescue plan is small however it generated a level of uncertainty and suspicion towards the banking system. The model chosen by Cyprus involved the restructure of the banking system and the taxation of deposits above 100 thousand euros. - Disclosure of advanced indicators of economic activity in the euro zone that showed less favourable expectation for the euro zone; - USA Federal Reserve signalled the reduction of long term debt acquisition; - Decision of the Bank of China to stop giving unlimited liquidity to the Chinese banking system in order to control credit growth.
In such context, PSI20 registered a decrease of 1.7% during the first semester of 2013 despite the significant increase between in January and April. In fact the increase of market interest along with the expected slow-down of the monetary stimulation of the Fed, as well as the difficulties regarding the budget consolidation process, interrupted the tendency to decrease spreads and yields of public debt, which pulled PSI20 down to a fall of 4.56% on the second quarter.
Regarding the main international stock market indexes, the positive mark of the semester goes to Nikkei 225 with an appreciation of 33.26%, and the principal US index Dow Jones, S&P 500 and Nasdaq appreciated 13.8%, 12.6% and 12.7% respectively. On a negative point of view the emerging market index such as the Bovespa devaluating 22.1%, the Hang Seng falling to 8.2% and Mexbol to 7.1%.
In the euro zone the main indexes had a mixed performance in the semester with the Dax growing 4.6%, CAC 40 grew 2.7%, Eurostoxx 50 falling 1.3% and Ibex fell 5%.
This mixed behaviour was related to the performance of the second quarter of 2013 which was marked by a high financial market volatility added to the uncertainty of a possible set back of the quantitative easing (QE) of the US Federal Reserve. This unchained an increase of the 10 year term Treasuries’ yields, from 1.85% to 2.487% during the quarter. In the euro zone Bunds yield accompanied this fluctuation with an increase from 1.289% to 1.728%. This context also reflected an appreciation of the US Dollar to the Euro EUR/USD 1.30 and mainly due to the emerging market currency (+10.2% to the Real, USD/BRL 2.229).
The second quarter was also tagged by signs of moderate recovery of USA and Japan and signs of the recession in the euro zone and the other peripheral economies. Liquidity circulation in the euro zone - specially the peripheral zone – still evolved in an unfavourable way. Euribor 3 month rate increased during this quarter, from 0.211% to 0.218%. Regarding this issue, in May the ECB reduced
14 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
the interest rate of the main refinance operations in 25pb to 0.5% and suggested the maintenance of reference interest at a lower level for a longer period of time.
Commodities markets came to see a correction semester and were affected by the feeling of global slowdown which had impact on the principal agriculture commodities (index S&P Agriculture index falling 14.7%) and precious metal (gold was set back 25.6%). Regarding oil there was an appreciation of 5.4% in the semester since crude closed this period at 96.56 dollars per barrel.
15 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
05 BANIF MANAGEMENT REPORT
ACTIVITY EVOLUTION OF THE FIRST HALF OF 2013
The first semester of 2013 is characterized by the accomplishment of structural projects for the Group, as follows: i) recapitalization plan with State participation occurred in January 2013; ii) negotiations between the State and the European Commission regarding the Restructure Plan, which the general broad lines have been already consolidated; iii) preparation of the second phase of capitalization, the capital has already been increased in 200 million euros through the private investment of 100 million euros, paid-in on 26th June, and public investment paid-in July.
In the first semester of 2013 Banif obtained a consolidated negative net result of 196 million euros. The results were highly penalized by the increase in provision and impairments (222.1 million euros) that came from: i) credit operation in Brazil of 78.7 million euros; ii) an additional reinforcement in the domestic activity that resulted from a transversal prudential audit made by the Bank of Portugal to all Banks, in the amount of 61.1 million euros, in the second quarter.
This semester showed, at a consolidated level, an improvement of the financial margin and an increase of the banking product. Concerning domestic activity there was also a significant operational improvement.
The Transformation Ratio of 128.4% during the first quarter was maintained stable when compared to December 2012 and is favourably comparable to March 2013. The capital ratios are still standing at high a level above what was seen in December 2012, the ratio Core Tier 1 closed the semester at 11.24% comfortably above the prudential limit. Considering the paid-in capital increase of July of 100 million euros, the Core Tier 1 ratio would be at 12.2%.
Regarding revenue generating activities it is important to refer that the Group is continuing the deleverage process and is redirecting credit to more competitive sectors and companies of the economy. In terms of cost cut-back, reference should be made to areas that are being restructured since they are likely to obtain a significant level of synergies and consequently cost savings.
These measures are being accompanied by a total reformulation and optimization of the commercial and business strategy of the Group, through the revision of a model of client segmentation and the reorganization of the commercial structure. This will maximize the value generation of the traditional client basis. In addition, and in order to face the high level of over-due credit the Group has been reformulating and reinforcing the structure of risk management and credit recovery.
16 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
It is important to point out the significant effort to reinforce resources and procedures that try to improve the recovery of loans granted by the group, and which aim to promote the adjustment of the existing structures to the demanding high overdue credit levels and reduce overdue ratios.
STRATEGIC PLAN – MAIN PRIORITIES
Along with the Recapitalization Plan, Banif made a commitment to hand in a wide range Restructure Plan to the European Commission, until 31st March 2013.
The Restructure Plan, now in discussion between the Portuguese State and the Directorate General for Competition of the European Commission is a viable plan that will provide the Group with a long term and autonomous strengths without the support of the Portuguese State.
Although the Restructure Plan is not yet closed at the moment it is already possible to present a group of strategic general guidelines that have been established, even though the final design may need some adjustments.
The measures that are written in this plan are meant to allow Banif to repay the public participation in the recapitalization process as soon as possible, by reorganizing the commercial and business strategy towards the client segments that represent larger added value for the Bank and divest all activities that consume capital that do not contribute to profit income (activities that are considered “non-core”). At the same time this divestment will reduce significantly structure costs.
The management of the divestment of activities considered non-core will be done in a progressive way during the next five years, as to allow the best possible results in the process. Below are the restructure measures that are part of the restructure Plan and that must be implemented by the bank for a period of 5 years:
- Focusing on the most profitable business segments for the Group
Banif must maintain and explore a profitable, sustainable and efficient banking business and focused on the main segments of the Group, providing services: (i) to the islands (Autonomous Regions of Madeira and Azores), (ii) to the Portuguese communities of emigrants, and (iii) to the micro enterprises, small and medium enterprises and high level income private clients in the Mainland.
- Divestment of the international units and business not concerning retail banking business
Banif should progressively divest from all business that are considered out of the retail banking business as well as all its international units (not to include representation offices and other forms of action regarding emigration business) by the end of 2017. These divestments must take place during the implementation phase of the Restructure Plan, spaced in time in order to maximize the value for the Group. All types of disposal may be carried out as public or private transactions, negotiated disposals or a combination of both mentioned procedures.
17 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
- Creation of a separate legacy unit
Banif must establish a legacy unit separated from the other units in accountancy and reporting terms but taking part of the same legal reality (Banif Legacy) into which certain assets and business may be transferred as mentioned above.
The objective is to value assets and business of these legacy units as long as they still belong to Banif through an effective asset recovery and divestment.
- Operational platform rationalization
Banif’s operational platform will be simultaneously rationalized and focused on the preservation and attraction of high income private clients from the Mainland and the other segments from the Autonomous Regions, as well as the development of the enterprise business along with the micro enterprises and small and medium enterprises segment.
- Capitalization
Regarding the Recapitalization Plan, Banif was capitalized in order to maintain capital ratios in line with what was defined by the regulations for the next five years, as well as to resist a stress scenario according to the directives of the Bank of Portugal.
- Behaviour commitments
Concerning the Restructure Plan Banif will assume a role of several commitments that will remain until all help received form the State is totally repaid.
Globally all these strategic lines have the aim to assure that the Group’s business model which used to be traditionally set on segments of high financial return such as the SME and the consumers loans, will remain feasible and perfectly adapted to an operational and economic context more challenging than in the recent past.
Once the negotiation comes to a conclusion, the restructure plan must: (i) show the Group’s long term feasibility without the support of the State; (ii) show the present and future contribution of the Group and its shareholders to the effort of recapitalization and restructure; (iii) include measures which prevent eventual distortion in terms of competition that may happen, since the Group received public funds from the Portuguese State.
RECAPITALIZATION PLAN
In order to reinforce the Bank´s ratio Core Tier 1 and this way accomplish the demanding requirements imposed by the Bank of Portugal, as well as to resist a stress scenario according to what is defined by the Bank of Portugal’s directives, a Recapitalization Plan was elaborated and has two phases:
18 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
- Phase 1: Public investment of 1,100 million euros through 700 million euros of the issue of special shares and 400 million euros of CoCos. This phase was achieved on 25th January 2013. - Phase 2: Private shareholders investment of 450 million euros. This phase is ongoing and several capital increases are expected to happen.
The contribution of private shareholders to the capital increase that was mentioned in the recapitalization plan is of great importance to the Board of Directors at Banif Financial Group and is considered a sign of trust in the strategy that was outlined and is presently being implemented. To carry out the reinforcement of solvency, a strategic priority for the Group, the support of the shareholders has always been important since they have supported four capital increases from 2006 to 2010, in a total of 370 million euros.
The Recapitalization Plan’s second phase implies an additional capital increase of 450 million euros to be paid-in through several capital increases. Regarding this second phase of the Recapitalization Plan a capital increase was carried out on 26th June 2013, of 100 million euros subscribed by Açoreana Seguros (a subsidiary of Rentipar Seguros SCPS which is detained by Banif in 47.69%) and by Auto Industrial SCPS for 75 million euros and 25 million euros. As a result of this operation, the capital share increased from 1,270 million euros to 1,370 million euros. By the end of July and beginning of August, two more levels of the second phase of the recapitalization process were completed with the capital increase of public offering for the general public of 100 million euros and a private offering of 40.7 million euros, intended for a group of investors identified as being relevant for the Group’s strategy. When these operations came to an end the capital share was of 1,510.7 million euros
DOMESTIC RETAIL BANKING
Commercial activity in the Madeira Autonomous Region
The regional and national economic contraction along with a political and social instability climate, marked the launching of the activity of Banif – Banco Internacional do Funchal, SA in the Madeira Autonomous Region in the first semester of 2013.
Following the political developments of 2012, the Economic and Financial Adjustment Plan signed by the Regional Government of Madeira still shows some inertia. This Group of factors has a transversal repercussion to all enterprise activity in the Region particularly concerning the Banks business performance due to the strong implementation the Bank has in the region and a high market share.
Regarding these conditions the Madeira Business Department developed a strategic plan according to the general Bank guidelines for 2013. This plan is set on the following vectors: growth of the resources items and commissions, overdue credit recovery and the Department’s costs control.
Despite the strategic orientation the Department was not able to fight against the negative evolution of 3.8% regarding the item “Client’s resources”, for a total of 2,041.4 million euros. This
19 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
decrease was accompanied by funding cost decrease, which contributed to the increase of the global profit level of the Department.
The negative variation of the item “Client’s Resources” is linked to the negative fluctuations of the deposits belonging to Public Institutions and they are a consequence of the transfer of these accounts to the IGCP (Institute for Treasury and Public Credit Management) which began in 2012. This action came as an imposition of the Economic and Financial Adjustment.
Another phenomenon that contributed to this decrease is the general lack of confidence of the emigration segment especially after Portugal´s financial rescue and the volatility of the exchange markets.
Due to this feature the Department still bets on the maintenance and reinforcement of its competitive position in Venezuela and South Africa since these two countries represent a vital importance in this Department’s business.
This bet is shown by the commercial visits that expect to cover a large geographic area and perfectly identified targets - Retail, Private and Corporate.
The active loan portfolio is still showing a tendency to decrease since the access to loans is restricted and demand for bank loans is smaller. Between June 2012 and July 2013 a negative evolution of 7.4% occurred, to a total of 1,290.8 million euros.
Regarding the active accounts portfolio and despite the Department’s effort a decrease of 3.8% down to 101,357 accounts comparing to the same period of last year. This factor is directly related to the growing unemployment rate in the Madeira Region.
(million euros) Jun-13 Jun-12 Variation Resources 2,041 2,122 -3.8% Total Lending 1,291 1,394 -7.4% Active clients 101,357 105,393 -3.8%
Commercial activity in the Azores Autonomous Region
During the first semester of 2013 the Azores Business Department continued its activity in line with the main strategic orientations especially by strengthening the effort to raise funds, to maintain the quality of the loan portfolio and rationalize costs, which is fundamental to reinforce the position as a leader in the regional market.
However and due to the adverse economic and financial situation, the management of the client portfolio has been particularly difficult and has not been able to prevent a portfolio loss of around 5.4% down to a total of 71,704 active clients that are part of the mass market, private and corporate segments.
20 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
In this slowdown scenario the search for bank financing and the cautious way loan granting is being done, the loan portfolio showed a reduction of 5.5% representing 1,475 million euros. Despite de adverse situation, it was possible to restrain the overdue credit portfolio and control the overdue ratio thanks to work carried out in this matter.
Concerning Balance Sheet Funds there was a decrease of about 12.1% compared to the same period last year, standing at 820.5 million euros and part of this decrease occurred from the transfer of funds to out of balance sheet products that showed an increase of 5% during this period. So, despite the effort to attract and maintain the deposit, the slowdown of the economic and financial activity along with the pricing policy and dispersion of savings coming from other banks turned out to be important to the reported evolution.
According to the structure rationalization plan the Hiper Horta branch, a transactional unit, was closed down without affecting the client portfolio. The Bank was able to keep an important geographic coverage in Azores with a total of 37 branches, 3 enterprise centres and a private client agency. The new branch of Água de Pau, in S. Miguel Island opened according to the new strategy of modern means and equipment as has been happening in the main branches.
Água de Pau is the most emblematic presence of Banif in the Azores, since the Bank has been there since January 1995.
Along with national initiatives the Azores Business Department started out a pack of its own initiatives this semester, in order to stimulate not only the business in the regional market but also regarding markets of the overseas residents. The “Visit Azores Campaign” was developed with the partnership of SATA and is directed to attract funds from clients that are resident in Canada and the USA, by offering a voucher that is to be discounted by travelling SATA from those countries to the Azores. Considering a major focus on the regional market, the Bank continued to pay special attention to initiatives to attract funds with campaigns such as “Poupas Comigo” (Save with me) and the Campaign Liga ZON Kids, campaigns regarding means of payment like Pay Rest Cards and Credit Card SATA Gold are also initiatives that are aligned with the strategic orientation guidelines.
(million euros) Jun-13 Jun-12 variation Resources 820,574 933,915 -12.1% Lending 1,475,422 1,561,898 -5.5% Active Clients 71,704 75,806 -5.4%
Commercial Activity in the North
The North Business Department which operates in the northern area of the Mainland is divided in three networks (Retail North Network; Enterprise North Network and Private North Network) and whose activity regards monitoring and stimulating the retail banking, small and medium enterprises and high level of income clients.
21 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
During the present year this Department’s activity has focused on attracting and raising funds, granting loans particularly within the Enterprise network, and the development of cross-selling actions within other Group companies, such as insurance and other types of specialized credit. Another great target was related with overdue credit recovery.
RPN – Northern Private Network
This network closed the first semester of 2013 with 112 Branches. 105 were Standard Branches and 7 were Associated Branches (the latter are smaller branches that sell the same products, provide the same services but depend on a Standard Branch).
During the first semester of 2013, 11 Branches were closed down according to the adjustment plan defined for the Branch Network, without business loss and offering the same level of quality service.
Concerning the segmentation process of active clients which started out in 2012, it is important to mention the creation of Segment V+ designed for clients of medium income. This service provides these clients with a dedicated Manager and offers a wide range of products and services with exclusive conditions.
Based on the strategy to increase and diversify the number of active clients, specifically overseas residents, stimulating actions were implemented for professionals who were contracted in several European countries.
REN – Northern Enterprise Network
This network is composed of 6 Enterprise Centres and is responsible for the stimulation of business regarding enterprises of the North of Portugal.
During this period occurred a change to the model by which the Enterprise Centres were organized, the Client Service Teams were re-activated allowing a closer client follow-up with more visible and satisfying results.
The business action of these 18 teams brought the possibility to increase loan production levels in order to partially respond to the natural portfolio erosion as well as to carry out the ongoing demobilization plans.
CPN – Northern Private Banking Network
This network develops its activity with 8 Private Managers dedicated to managing the investments coming from high income private clients, by identifying opportunities in accordance with each client’s profile.
This Department also includes the activity and stimulation of the Assurfinance Professionals, a network of business professionals previously selected among Açoreana employees, and that are responsible to direct clients and business to the Branches. By the end of June, 416 professionals were registered and had a code allocated.
22 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
It is of great importance to mention the excellent performance of these three networks, concerning debit pre-paid card sales, more specifically the Pay Rest Card.
Regarding the same period of last year the North Business Department registered a negative evolution regarding balance resources of 244 million euros (-10%) having an amount of 2.150 million euros. The item Out of Balance Resources has registered a positive variation of 80 million euros (+33%). Regarding total credit the global amount of the credit portfolio reached 1.791 million euros corresponding to a reduction of about 196 million euros (-10%). The volume of charged commissions in the 1st semester of 2013 was approximately 16 million euros.
The North Business Department closed the 1st semester of 2013 with a portfolio of around 154,000 active clients and a product ratio of 3.62.
(million euros) Jun-13 Jun-12 variation
Resources 2,470 2,634 -6.2%
Lending 1,791 1,987 -9.9%
Active Clients 153,734 157,646 -2.5%
South Business Activity
The South Business Department (DCS) is responsible for the coordination and business stimulation of the southern retail areas, small and medium enterprises (RES), and high income private banking (CPS). It also includes the Factoring Clients Centre which manages transversally the Factoring and Confirming business for the Bank.
PRS – Southern Retail Network
This network is composed by 108 branches and is focused on attracting and maintaining resources and at the same time improve margin and diversify the portfolio. The focus is set on products for small savings and programmed savings as well as the development of cross-selling with other Group companies.
The Affluent segment, directed to clients with medium income is a strong issue for the Bank and is nowadays composed by a team of 22 V+ Managers in the RPS, presently two more Managers have already been nominated to reinforce the team.
Loan granting is still restricted and based on selective policies and strict risk criteria. Recovery of overdue credit is still considered strategic and whenever it seems necessary, it is in order to initiate negotiation with clients that start showing alert signs.
The plan to adjust the Network’s dimension is to be maintained, without forgetting to continue to provide the clients with quality service. During this first semester 10 Branches were closed down.
23 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
RES –Southern Enterprises Network
This network is composed of 5 business units (enterprise centres) and their strategy is based on the control of the loan portfolio’s quality, the improvement of the relationship between credit volume and resources and also on profit increase.
The economic recession the country is going through and the unemployment growth resulting from the constant closing down of companies, have contributed to increase overdue credit. Present risk degradation and the consequent deterioration of the loan portfolio have imposed a strict and permanent follow up of all clients that show alert signs, opening way for negotiating solutions to solve the overdue problems through collateral reinforcement.
The turnover of this client segment was influenced during the first semester, since several clients were allocated to the Corporate Banking Department.
CPS – Southern Private Banking Network
This network develops its activity in Lisbon and Faro, and has 6 Private Managers. This is a business area is dedicated to attract resources from high income private clients, and is especially focused on the portfolio’s profitability. Cross selling along with other Group companies is also a strong commitment for this segment.
Turnover and portfolio was also influenced by the transfer of institutional clients to the Corporate banking Department, during the first semester of 2013.
This Department’s activity, from a global point of view was conditioned by the execution of the PAEF and by news on the feasibility of the Bank’s Capitalization Plan and its consequent capital increase.
Globally and according to the first semester of 2012 this Department recorded a decrease of 735 million euros (-27.3%) of the balance sheet funds lead the portfolio to close at 1,962 million euros by the end of the first semester. This decrease may be explained by the loss of several deposits namely because of lower interest rates and because of the allocation of clients to the Corporate Banking Department.
Equally the total credit portfolio (including commercial paper) represented a fall of 1.125 million euros (-27.4%) having a total of 2.977 million euros by the end of the first semester of 2012 this was due to the reduction of exposure of clients with larger risk, mortgage and consumer credit portfolio erosion and the liquidation of the Commercial Paper Programmes.
The volume of charged commissions during the first semester was of 17,2 million euros.
Regarding the active clients portfolio, the South Retail Department closed the semester with 121.734 clients, representing a fall of 3.4% compared to the first semester of 2012.
24 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
(million euros)
Rubrica Jun-13 Jun-12 Variation
Resources 1,962 2,697 -27.3%
Total Lending 2,977 4,102 -27.4%
Active Clients 121,734 125,989 -3.4%
Factoring Clients Centre
On the first semester of 2012 the activity developed by the Factoring Area and suppliers paying management, showed contraction regarding the gathered invoices, and at the same time a small expansion regarding loan granting.
The fluctuation compared to the same period of last year regarding invoice entries was -14% and granted loans of +2%, by the end of June 2013, it represented 94 million euros and 153 million euros, respectively
Commissions showed a positive evolution of 4% compared to the same period of last year, and was set at 0.55 million euros. Financial margin reached 4 million euros which represents a slight decrease of 2%. This way and during the period we are analysing, the banking product showed a negative evolution of 1% having reached 4.5 million euros.
On the first semester of 2013 no relevant changes took place within the client’s credit portfolio when compared to the end of the 1st semester of 2012, the construction sector still remains showing the greater weight (91%).
Corporate Banking
Corporate Banking Department has the mission of combining the Group’s financial product offer (retail banking, investment banking and insurance) with the Corporate client’s needs (clients such as companies or groups of companies of medium dimension, with an annual business turnover over 50 million euros, resident and non-resident) and institutional entities, using a proactive and coordinated business approach.
This department’s activity during the first semester of 2013 was enhanced by the winning of new clients and the development of the existing ones especially focused on the advantage of their share of wallet, credit products without the contribution of financial intermediaries (bond issue and commercial paper programmes) and also trade finance.
For the second semester of 2013 this department’s activity will still be stimulated by being positioned as a lever of the Bank’s performance, by allowing the following advantages:
25 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
- Contributing for the quality increase of the Bank’s credit portfolio with the companies, since the companies of the Corporate segment have proved to be of minor risk in the past; - Shifting of the Bank’s credit portfolio towards sectors related with industry and export, since it is in the Corporate segment that are more companies with such activity. - Take more advantage of the share of wallet that companies from this segment traditionally provide due to their greater sophistication and need of products of reduced RWA (e.g. Trade Finance) and larger commissioning; - Develop cross-segment, by contracting operations with corporate segment clients it is possible to indirectly reach other segments like small companies (e.g. suppliers or clients with confirming, factoring or trade finance operations) private affluent clients (e.g. company shareholders) and mass market clients (e.g. company employees); - Increase the granted loans without the need of the participation of financial intermediaries since this is simple to do with Corporate clients segment (e.g. commercial paper and bonds); - Contribute to the cross-selling development since this department may well work as a distribution channel of the Banif Group’s products. The Corporate segment has a larger volume of clients that value integrated product offer, linking retail banking, investment banking and insurance.
International Activity
During the first semester of 2013 regarding the international area Banif focused its activity on reinforcing its position within the non-residents and external business.
The Group has a vast presence overseas through other banks, subsidiaries, representing offices and incorporated companies. The ratio is based on the follow up of client’s company internationalization, proximity to the Portuguese communities overseas and access to markets that retain business opportunities and a high level growth potential.
To support the Portuguese communities Banif has a network of representative offices/Incorporated Companies in the USA, Canada, Venezuela and South Africa that have a fundamental role in representing the bank, and also by identifying and facilitating business opportunities for both Banif and/or its clients.
By taking advantage of the synergy that comes from a physical presence, Banif also intends to stimulate the increase of External Commerce through this overseas network, narrowing the relationship between Portuguese companies and the companies within those markets that may belong to Portuguese entrepreneurs and/or descendants, in order to promote the export of national products.
In order to offer a more complete service related to External Commerce, Banif has a range of additional instruments that can support the Portuguese companies that export to high risk
26 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
markets. This can be carried out with help from four Programmes of Trade Finance of Multilateral Institutions for development (BERD, IFC, ADB and IADB).
Despite the existing adversities concerning the present conjuncture, Banif has incremented and diversified its lines of funded and unfunded along with its banking partners. This is essential to support the Portuguese company’s activities that are their clients, in both their business and investment moves and seeking also to have an increasingly important role in their internationalization process, especially with the small and medium enterprises, since these represent the leading engine of the development of the Portuguese economy.
Throughout this semester Banif also negotiated several partnerships with local Banks in the overseas markets where Portuguese companies intend to expand their business, in order to support their internationalization projects.
Besides Trade Finance, the Bank has been focusing on supporting client’s business expansion to markets where Banif detains a physical presence by providing local follow up through the overseas structures and linking the activity with the International Business Department in the Head Office.
Concerning correspondent banking, Banif has had a close relationship with the partners in Europe and USA and has been developing new relationships in the Middle East and Africa. Additionally the bank has also engaged in offering clearing services to other small and medium banks in the markets where it is active, such as Latin America, acting as a euro paying bank in Europe and providing associated services such as remittance discount and cheque clearing.
Although considering the adverse macroeconomic situation, the Bank has been developing its activity, and during the period that has been subject to analysis, there has been great recognition and prominence of the brand “Banif” within the international markets.
NEW DISTRIBUTION CHANNELS
Electronic and Telephone Banking
Telephone Banking
Banif Line reached a volume of received call around 38.000 which is an increase of 10% compared to 2012. Concerning outbound calls made during promotional and commercial campaigns and product releases, a total of 227.500 contacts were made, which represents a decrease of 46.6% compared to the same period last year.
Regarding the activity of Credit Recovery 324.000 contacts were made representing a negative variation of 8% compared to the numbers of 2012.
27 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
1S2013 Banif Line 1S2012
1S2013 Recovery 1S2012
1S2013 Outbound 1S2012
0 100,000 200,000 300,000 400,000 500,000
A detailed analysis to the three areas of telephone banking, the following aspects are in order:
“Inbound”
- Despite the contact growth the number of answered calls during the first 15 seconds were over 92,2% in 2012, now it is set at 95,6%; - A new telephone line was provided, “Banif Real Estate” for people who found themselves interested in real estate that the bank is disposing of, may find the information they need such as mortgage conditions and house visiting. This semester 448 contacts were registered with 153 requests for house visits; - The DRD activated almost 15.500 cards which represents an increase of 25.6% comparing with 2012; - processing system messages (HDBE, Requests, X-SiteBanifast, X-SiteBanif and Info) showed a decrease of 4.3% regarding equal period of last year, 48.500 messages were treated; - An online inquiry was carried out to determine the satisfaction level of the clients that were either contacted or called the service. Approximately 1.650 answers were obtained and an average rate of 9.32 and 9.16 was given to the employees of inbound and outbound respectively.
“Outbound”
- The bank decided to maintain a campaign for attracting funds - Regarding the issue of client satisfaction level inquiry, campaigns were carried out, 4.630 inquiries were obtained in order to measure client’s satisfaction level according to the Quality Management System.
“Credit recovery”
- Banif Imobiliária requested an initiative regarding the lessees in overdue situation. Of 317 records, 145 were recovered; - Over 15 000 recovery processes were registered, the global recovery rate was 7pp positive (ratio between the total processes that entered and the number that were dealt with). This indicator improved in almost all types of credit:
28 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
62% Others 59% 26% Credit Contract 27% 84% Leasing 73% 82% Cards 70% 63% Overdrafts 25% 80% Bill of exch. And promissory notes 72% 79% Guaranteed 72% 85% Cash Management Account 79% 87% Personal Credit 87% 85% Morttgage Loans 78% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% ¢ 1S 2012 ¢ 1S2013
To mention that the total processes registered, around 42.600, represents a decrease of 26% considering the same period of last year. 37.800 of those were recovered, representing a total of 37,520 million euros.
Electronic Banking
Banif@st is a privileged channel regarding a direct and immediate relation with the Bank. During the first semester of 2013, an effort was made to develop the range of products and services available, and reinforce security and safety levels.
Promoting a mass admission to the electronic integrated statement instead of the traditional paper format is still on the move with a total of 112.200 accounts having joined this statement type. This means saving up to over 223.000 euros this semester and, and exceeding 477.000 euros since the beginning of the process in 2012.
By the end of the semester, 17.541 deposits were made via Banif@st, approximately 178 million euros and is a decrease of 6.14% comparing to the same period of 2012, however, the contribution of DP’s Banif@st to the Bank in global terms, grew from 29.2% to 65.5%.
11,456,000 clients used Banif@st, the same as in 2012. Clients carried out 1.292.200 operations representing a variation of 4.4% comparing to the same period of 2012, but even so there was a decrease of 3.46% in profit.
MARKETING AND PRODUCTS
Cross-Selling
The first semester of 2013 showed a great evolution in almost every cross-selling indicators such as selling Products from the other companies associated to the group registered remarkable increase when compared to the same period of last year.
Comparing Securities Investment Funds in a positive way, regards volume and considers the values of the first subscription in 16 million euros (+114%) during this 1st semester of 2013, relatively to the same period of 2012. The number of savers in this investment product increased considering the end of last year, with +1.469 investors (+18%)
29 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Specialized credit accumulated production regarding June 2013 corresponds to more than the double registered during the same period of last year. Accumulated sales grew to 7 million euros, corresponding to a variation of +156% comparing to the previous year.
Up to June 2013 the item Financial Insurance increased 93% comparing to June 2012 having over 11 million euros whether in insurance increase or totally new insurances. This portfolio is now composed of 70 million euros and this type of insurance has revealed itself very important regarding client’s savings.
Concerning Non-Financial Insurance, it is important to mention a non-bound Life Insurance and the vehicle Insurance. These types of insurance, registered accumulated production of 738 to 785 thousand euros respectively, which corresponds to similar variations of the same period of last year of +29% and +4%, respectively.
In order to contribute to the increase of production at Business network level, several initiatives were developed to disclosure top of mind products during short periods of time. Such examples are: Non-binding life insurance that accumulated 208 thousand euros and 5 834 new insurances; the bond campaign for senior Banif USD and EUR, with full placement of both issues in Banif Clients (representing 25 million dollars and 50 million euros) and the Conservative Investment Banif Campaign (Securities Investment Fund) that contributed with an increase of 1.1 million euros in the managing volume.
Commercial and Institutional Protocols
Regarding Commercial Protocols that still represent a significant part of the total clients attracted by the Bank (35.000) last year 600 new clients were brought in, an attractive activity rate of 86%.
There was an agreeable result of an average of 5 products per client regarding the 3 major Salary Protocols.
Among the developed activities concerning commercial protocols, a promotional campaign is being prepared to gain more clients and retain employees from the institutional clients of Azores and SAFIRA by offering miles with the SATA Cards; intensify synergies with Banif Mais to develop an institutional protocol to enable attracting new clients; development of a relationship with the Chambers of Commerce reinforcing Banif’s presence.
Regarding Institutional Protocols, the actions taken have been highly productive and demanding in order to: establish procedures and circuits to apply the several protocols subscribed (presently Banif has around 50 institutional protocols); intermediation of the information flow between the managing entities and the several bank departments; provide daily support to the business units regarding the institutional protocols through training sessions, disclosure and stimulation; cooperation with the Bank’s departments in order to develop procedures that aim to apply the established conditions of each protocol signed by Banif; preparation of monitoring maps of the commercial, technical and executive performance of the institutional protocols.
30 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Market analysis and service quality
Due to the need of market follow up and the development of know-how of the internal client, during the first semester several market analysis were carried out. Several specific and regular benchmarking studies were developed on a national scale, a comparative analysis of the Bank’s product and services portfolio according to the market, and also a specific benchmark for the Affluent, Exclusive, Emigrant, Small Business, Woman segments which aims to measure market potential.
The Internet Banking project was developed, and consisted on the statistic characterization of the Banif@st client, competition analysis, the measurement of technical needs and elaborations of the Executive Commission.
The partnership regarding Banif Real Estate has taken place and campaign and prices analysis have been developed.
Several statistics analysis, were also carried out to discover the market share Banif detains regarding the Portuguese financial sector and the management of the Economic Barometer. Comparative analysis was made to determine Banif’s position in the market regarding interest rates, overdue loan ratios and deposit structure. Studies were carried out concerning International Commerce and the enterprise sector in Portugal.
Concerning Service and Products Catalogue, new products of Deposits, Mortgage, Current Accounts, Protocols and Consumers Credit, new products were created.
Regarding Price List a study was implemented to determine the impact of legislation published by the Bank of Portugal in the Bank’s Price List, namely the regulation (CE) 924/2009, Decree-Laws: DL 226/201, DL 227/2012, DL 42-A/2013, DL 58/2013 and Instruction no. 1/2013 of the CMVM. There was a continuation of the management of the Bank’s Price List especially pointing out the revision of the General Regulation of the Price List – Commissions and Expenses, the annual revision of the Price-List and the preparation of the Price List legislation.
Concerning the Operational Control, the weekly Objective Control Maps are provided as before, in order to allow the follow up of the commercial networks performance, according to the targets previously defined. It was also necessary to maintain the regular follow up, theoretical adjustments and quarterly measurement of the Incentives Model results.
Enterprise Marketing
Concerning Banif’s commitment in supporting national economy enterprises, a bundle of financial support was developed with the designation of Credito Força PME’s Line in a global amount of 500 million euros, it was launched in the first semester of 2013 and involved: a credit line for the Agro- Industrial sector of 100 million euros, a programme of Commercial Enterprises Leads without specific appropriation and all other credit products the Bank provides for the client enterprises.
31 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The credit line for the agro-industrial sector has 3 different sub-limits, one for small producers (entities that benefit from the IFDAP supports, with an appropriation of 5 million euros), one for the support of the exploration of agro-industrial enterprises (food and drink industry, with an appropriation of 100 million euros) and the final one for the protocol PRODER/PROMAR (for entities with eligible and approved operations regarding PRODER with an appropriation of 100 million euros).
The programme Leads Comerciais Empresas levered transversally the business of the enterprise client segment during the first semester of the year. The aim is to potentiate a business action related to enterprises through the credit growth, selling of transactional means, insurance and international business operations, whether carried out with the present bank Clients or by attracting new clients. This programme is composed of 9 different leads, 6 of them started out during the first semester of 2013:
- Banif clients with approved but unused credit lines – 128 companies - Banif clients with 2010,11, 12 credit and without credit – 35 companies - Potential SME (Small and Medium Enterprises) Excellence Clients – 117 companies - Potential SME (Small and Medium Enterprises) Leader Clients 2012 phase 1 – 63 companies - Azores and Madeira companies with business turnover over 50 million – 45 companies - Azores and Madeira SME (Small and Medium Enterprises) Excellence Clients – 44 companies
The remaining 3 have not yet been started (Potential Factoring/ commercial paper Clients with outstanding payments, agro-industrial sector: industrial component and Top Companies).
Regarding “Fundos Revitalizar” a group of clients were identified in order to be included in this product, a capital risk fund, this analysis, carried out by the business units included a qualitative view of the companies they follow up.
The monthly disclosure of the Economic Newsletter (regarding economic issues) and the Business Newsletter (indicators on external commerce) are to be continued.
Segmentation of client and product data base
Concerning the management of client segmentation and the offering value regarding products and services, below is a description by client and business area, of the developed main activities during the first semester of 2013.
From the main activities of the Mass Market, the following are the most important:
Regarding consumer loan granting and in the consumer credit mobility item, the activity regarding the first semester of 2013 was characterized by the contraction of the consumer loans granted to clients due to the escalation of the economic crisis and to the restructure of the products of
32 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
consumer credit, especially those associated to protocols and that had to have their conditions reviewed.
Comparing to the end of 2012, the consumer credit portfolio decreased of 11% and 15% regarding the number of contracts and balance, at the end of the first semester of 2013 it was approximately 175 million euros corresponding to 36.411 active loan contracts.
The Mortgage Portfolio by the end of June 2013 presented a balance of 3.087 million euros which represents a decrease of 3% comparing the same period of the previous year. This decrease is due to the retraction of the construction and real estate sector and also due to the adoption of more demanding policy of loan granting, namely concerning risk evaluation, pricing and reduction of the loan value facing the property evaluation.
Approximately half of the productive activity regards the disposal of own property and the financing of property that were built with the support of construction loans.
According to the recent Deposit offer restructure, during which different savings products were launched according to different client’s profiles, the following actions were carried out:
- Restructure of the deposit products offer for family savings; selling conditions changed allowing the reduction of the minimum amounts to open deposit and savings accounts; - Creation of Banif 25 due to the celebration of Banif’s 25th anniversary. - Launching of the campaign Poupança Nova Geração (New Generation Savings Account) with a Pay Card, exclusive for young clients, this was meant to bring increment the number of clients with savings accounts and also to promote the Pay Card. - Commercial network was encouraged to focus on the selling of savings accounts – family funds retention and attraction products. This portfolio grew 12.9% in number of accounts and 42.2% in amount, comparing to December 2012. - A partnership with Universal Music brought a new line of products (deposit accounts, insurance and cards) with a voucher offer to accede the platform Banifmusic.pt and all included benefits. - Regarding current accounts actions were in order to make these products more efficient.
The Affluent segment known as Banif V+ registered the following initiatives:
- Promotion actions to attract clients of this segment to open Conta V+. This action went on for a month and 1239 accounts were opened during this period. - Soluções V+ was adjusted and completed with the offer of Credit Cards SATA and accounts in foreign currency; - A business and activity monitoring process was implemented for the teams that follow up these client’s in order to guarantee that the level of services required for the Affluent segment is coherent with the importance and value of these clients;
33 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
- Regarding the Affluent segment, several specific training actions were carried out to by specialists in product sales and business attention to clients, to assure a high quality service in this area. - A programme of commercial incentives was implemented to stimulate business and attract clients in this segment. This programme is to be carried out in different phases during 2013.
Actions directed to foreign resident clients, during the 1st semester, are as follows:
- The 1st Forum and Committee of Foreign Residents was carried out to promote the debate and monitor the implementation of the adopted strategy for the segment; - The campaign “Visit Azores” launched in partnership with SATA with the aim to attract clients and funds in the Portuguese communities of the US and Canada.
Regarding small business segment, a business proposal was reviewed for entrepreneurs and small companies and the “Business Solutions” was presented with a bundle of products and services with exclusive conditions for this segment clients.
Other important actions were also taken:
- Campaign TPA Mais that aims to lever TPA’s within the segment; - Study of the organizational structure that enables follow up and supports the clients from this segment; - Implementation of monitoring tools to ease the business evolution; - Review the offer of CCT Products focusing on the adjustment of business conditions.
Payment Means
Regarding this issue, particularly cards the focus was on the development of new products to improve service quality and increase market penetration rate through campaigns and disclosure actions. To point out the following items:
- Pay card launching, a pre-paid card for meal allowance, for private and enterprise clients, this card is designated Pay Rest; - February brought the new SATA Gold Card, co-branded with SATA Airlines, with an associated miles programme; - Banif Music Cards resulted of the partnership with Universal Music, a picture card with images related to music, available in different two types of Music Card, a pay card and a debit card; - This 1st semester the first cards with the contactless technology of low and high value is an ongoing project and will replace the portfolio of Electron Cards in a near future; - The contract with SANRIO was renewed to continue the issue of Hello Kitty cards; - Campaign for attracting clients from Banif Mais for the Simple Card;
34 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
- A new functionality that allows service payment and special service payment with Credit Cards.
Concerning processes the new operative application form SIBS for card issue, regarding all BIN debit, credit and pre-paid cards. Almost concluded this first semester, is the SEPA for Direct Debits which were implemented in the non-client management branch in the DRD and the virtual card certification by Visa Europe.
In this 1st semester the increase of the number of credit cards increased 5.86% compared to December 2012. The debit card portfolio grew 5.71%.
Dec-12 Jun-13 Variation
Credit Credit Credit Number Number Number Portfolio Portfolio Portfolio Credit cards 76,265 44,459,461 € 80,734 45,046,774 € 5.86% 1.32% Debit cards 292,542 N/A 309,241 5.71% - Total cards 368,807 44,459,461 € 389,975 5.74% 1.32%
By the end of the 1st semester there was a record of total profits of 9,2 million euros which represents a growth of 0.5% compared to the same period of last year.
Concerning TPA and ATM management, the following items are to be pointed out, and were implemented during the first semester.
- As a result of the testes carried out by the end of 2012 concerning the cash management provided by SIBS FPS, Banif hired this service for all Automatic Cashiers off-premises; - To attract new clients and to maintain existing ones, a group of initiatives took place to readjust product offering such as the launching of TPA Mais and Temporary TPA which offers more flexibility and at the same time increases profit; - The total volume of TPA increased in the first semester up to 6.353 equipment units compared to 6.281 in December 2012. During the same period, total volume of TPA showed a decrease of 4,19% meaning a reduction of 9,2 thousand euros in result; - By the end of the 1st semester the total AC number decreased with 492 equipment units compared to the 510 that existed by the end of 2012. During the first semester 2013 the process that linked the CA units to SIBS through internal network was finished. Profitability of the CA units was of 0.25 million euros, -16.45% than last year’s same period.
Business information management
This area is essentially focused on the improvement of Business Intelligence applications that are available to the Business areas and data analysis. The following features should be mentioned:
- A protocol was signed between Banif and the Faculty of Science of Porto University to carry out training programmes regarding analysis and data modelling.
35 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
- Improvement in the Management Information System regarding the Incentives Model. - Extraction, data processing and analysis in order to carry out requests from external consultants. - Development of the work regarding the client segmentation portfolio, according to the new methodology. - Integrate Banif Imobiliária in the analysis flow and final view of the workflow. - Development of a specific module that can bring a better monitoring of the loan contracts.
OVERDUE AND LITIGATION CREDIT RECOVERY
According to the Bank of Portugal’s reports overdue credit over 30 days regarding total credit granted, represented 11.9% for non-financial companies and 4.3% for families, in June 2013.
In this context, Banif has developed continuous effort to increase the efficiency of credit recovery already recorded in 2012.
The total amount of overdue credit is mainly similar to the amounts registered in December 2012, approximately 1,894.5 million euros. Total amount of credit, excluding the securitized portfolio, grew to 677.1 million euros (-1% comparing to the same period last year). 663.3 million euros were already affected to the Credit Recovery Department.
Regarding the non-securitised portfolio, provisions increased to 603.5 million euros on the same date (+40.3%) 599.2 million euros of that total regard overdue credit being managed by the DRC (Credit Recovery Department).
In the 1st semester of 2013 the total amount of credit recovered (capital, interest and commissions) was of 262.8 thousand euros (+127%), 65 million (25%) regarded operations of asset disposal.
During the same period 114.6 million euros were provision releases which resulted from the amount recovered and solving of the future situation (90.5 million euros).
FINANCIAL MANAGEMENT
In the beginning of 2013 occurred the liquidation of the 1st phase of the Group’s recapitalization, where the State participated into Banif’s share capital with 1,100 million euros, split in special shares and capital instruments Core Tier 1. A positive impact of 750 million euros, added flexibility to the Group’s treasury management and made possible a review of the pricing policy that was used up to that date. The public debt of approximately 1,000 million euros that arose from the recapitalization process led to a natural need to increase financing from the ECB.
During the second quarter the Bank issued a new securitization (SME2) completely in its own portfolio. This operation, may be open to investors if the Bank wishes to, allowed a net increase of 250 million euros in the value of the collateral pool, of the Bank of Portugal.
36 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The main object of the Group’s financial management relies on the constitution of a liquidity buffer of approximately 10% of the deposits. To achieve this, the bank needs a short term strategy to assure the maintenance of the retail client’s funds that are invested in senior issues which will mature by the end of the year as well as optimize value and cost of the securitization portfolio and illegible bank loans. These guidelines will allow the possibility of facing the Group’s debt wholesale maturity, as presented below:
€M TOTAL 2013 2014 2015 2016 2017
Subordinated Debt 139 12 22 13 92
GGBs (Nominal Value) 1,175 300 875
- GGBs Effective Liquidity Loss 902 178 724
TOTAL 1,041 178 736 22 13 92 Million euros
RISK MANAGEMENT
1. Organizational Model
Risk management at Banif Financial Group sets on the identification, measurement, mitigation and monitoring the exposure to main activity risk to determine the most efficient capital allocation.
The Group assumes complete risk control and management which is a fundamental pillar concerning the guarantee of its sustainability and business profitability. To management is increasingly focused on the acquisition of balance between risk and return as well as the reduction of potential adverse effects that may influence its financial performance.
The function of the Group’s risk management is conducted in accordance with strategies and policies defined by the Board of Directors and the Executive Commission is responsible for its implementation through the Global Risk Department and their management teams.
Banif’s Global Risk Department is competent at Group level regarding this area and depends directly from the Executive Commission. Its structure is framed according to the requirements present in the regulations in force from the Bank of Portugal especially the Notice no. 5/2008 of 25th June 2008.
Governance model of risk management as shown below, considers a transversal control of several Group entities, the Board of Directors is responsible for defining the management and risk control policies.
37 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Management and Risk Measuring, Monitoring Report and Operability of specfic Control Policy and Control strategic decision themes
Board of Directors (Banif SA) Risk Management Risk Committee Group Level Executive Committee (Banif SA)
Work Groups
Board of Directors
Risk Management Individual Level Risk Departments
Executive Committee Hierarchically Dependent Functionally Dependent Report Line
Each Group entity has its own organic structure of risk management with the adequate dimension according to the activity function, the associated risk and the level of material.
The Global Risk Department has a functional relationship with the departments that are designated to manage risk of the Group’s offices or branches.
This relationship occurs through a nominated responsible element and designated representatives to conduct the different issues of risk managing. This is a dynamic and evolutional model which is adjusted whenever necessary to assure perfect and up to date information considering the complexity of the increasing requests in this line of work.
The Risk and Audit Commission was born from the need of changes to the organizational model. This commission that has non-executive administrators is a forum for multidisciplinary debate with strong abilities concerning top management level which analyses, follows up and carries out the recommendations of the Group’s decision parties, this commission is also responsible for the supervision of both financial risks and other risks.
Concerning the organizational part it is important to point out the achievements of ALCO – Assets and Liabilities Committee, which assumes an important management role of a group of several types of risk: liquidity risk, market risk, rate risk and interest rate risk. ALCO is a consultant board that links the action among all the business units and prepares the document with the adequate measures for the Board of Directors as well as the recommendations to have in mind regarding the strategic management of the main consolidated balance sheet items and the management of the Group’s structural risk.
The Group promotes a periodic review of the policies and procedures that are inherent to risk management in order to reflect changes of market, product and best practices. The Board of Directors is responsible for defining the policies and counts on the support of the Global Risk Department regarding risk evaluation and monitoring, following the most significant risks – credit risk, market risk, liquidity risk, operational risk, business/strategy risk and mortgage risk - whenever necessary, it also proposes new policies and measures that contribute to promote prevention and mitigate risk.
38 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
2. Capital Allocation
To clear the risk-weight assets value in order to calculate the funds regulatory requirements as Pillar 1, the Group uses the following methodology:
- Standard method for credit risk; - Indicator method for operational risk; - Market price evaluation method (market to market approach) for market risk.
Regardless to the use of this methodology the Group has carried out optimization programmes regarding the risk-weighted assets (RWA) by obtaining the best eligible collateral level of the assets, major reliability of the collateral data base and also the selective capital consumption for credit operations through a simulation tool that is available to all business networks at Banif.
The Group has an internal model for evaluating its available financial funds and resources – the risk taking capacity – which evaluates the adequacy of economic capital level and existing financial resources to be able to face present risk and consider future ones. The existing model considers the main risks it is exposed to, such as: credit risk, strategy and business risk and mortgage risk among others. These three types of risk represent 78.6% (68.6% in 2011) of total economic capital in 31st December 2012: 1,792 thousand euros (1,670 thousand euros in 2011).
The Group’s risk taking capacity model is set on the caption of economic view associated to each element that is likely to elaborate a source of internal capital as well as the categorization in coverage perspectives and the ranking considering security levels. This ranking is eases the interpretation and implementation of the strategy in terms of its adequacy policy of capital and assumed risk profile.
3. Main activities
Regarding the adverse macro-economic context characterized by the erosion of the financial and economic capacity of both enterprises and private clients whose visible assets quality and consequently on their capital ratios, the recent quarters were mainly dedicated to carry out initiatives that aim to turn the control mechanisms into stronger ones.
- Inspection of the supervision entities are of particular importance for their dimension, complexity and allocated resources, for the ongoing work regarding the Especial Inspection Programme from the Bank of Portugal, carried out under the Programme of Economic and Financial Assistance to Portugal as well as the consequent fulfilment of several action plans in order to send recommendations and improvements identified in the Plan. During the 1st half of 2013 the Transversal Exercise of Impairment Review of the Loan Portfolio was carried out and covered a representative sample of about 33% of total credit belonging to the Banif Group entities were analysed. - In addition, in June 2013 as a result of a request from the Bank of Portugal, External Auditors carried out an audit action to Banif Brazil’s impairment credit portfolio which covered 95% of the exposure (the remaining percentage corresponded to exposure totally
39 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
covered by impairment). In fact the credit portfolio of that entity was deeply evaluated by internal boards as well as by the external auditors, and a thorough diagnosis was carried out along with the individual and group impairment.
The need to reinforce identified impairment as a result of these inspections, were revealed in the Group’s consolidated accounts, of June 30th 2013.
- Information management: ongoing of the initiatives to improve the support basis to information management in order to make it more reliable and comprehensive. The Datawarehouse programme was implemented with the aim to produce a new data base repository that enables a more regular, strong and scalable to allow the risk management to promote a more efficient and timely level of monitoring, control and report. This is a structural project that potentiates the success of many other initiatives that depend on the Group’s information system and which implementation will take place in the following months.
Regarding this matter, work that was developed in previous years was consolidated and key performance indicators as well as periodic analysis for internal and external reports, were updated in order to allow a more comprehensive and efficient risk management from the management board and other stakeholders.
- The completion of an adequacy report of internal funds (ICAAP) and if the market discipline, that refer to Pillar II and Pillar III of Basel II, as well as a report of risk concentration. - Cooperation within the regular year results of funds and liquidity, regarding the Fund an Capital Plan, in both basic and stress scenario; - Construction of a new model to establish credit impairment, in order to overcome the shortcomings that were identified during Workstream 1 (WS1).
4. Risk Management at Banif Financial Group
Credit risk
Credit risk means the possibility of the occurring negative impact in results or capital, due to the inability of one of the counterparts pursuing their financial commitment towards the Bank, including possible restrictions of transfers from the exterior.
Credit risk management has a conservative profile and is based on a pack of policies and guidelines that are applicable to the activity of the credit’s life cycle. Those policies and guidelines are defined accordingly with business strategies, social and economic environment and are reviewed and adjusted whenever it is considered necessary.
Credit granting activity is developed and based on regulations that disciplines the activity and clearly establishes the delegation of responsibility concerning value and profitability according to the client’s implicit risk, segments and operations.
40 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Besides regulatory activity, credit granting is also based on the study of the client’s risk classification which is carried out with the help of scoring and rating models as well as the level of collateral coverage of the operation and property evaluation.
On the other hand the Group’s main entities have a proper system that allows them to identify and classify clients that show a degradation of their credit capacity. This way loan granting process will be carried out on a level of better knowledge in order to improve management and prevent future non-payment and/or overdue.
Regarding risk concentration, the group has a pack of internal measurements that enables the follow up of concentration indexes according to their economic groups, activity sectors, geographic regions, among other items.
During the 1st semester of 2013 regarding the Group’s significant restructure the following initiatives are in order:
- The Overdue Credit Regulation review in order to adjust it to the present conjuncture and define the circuits and rules that govern the overdue credit management processing at Banif SA. - The Alert Signs Rule review aims the definition and detection of possible future non- payment.
Credit risk management
Considering the present economic situation in the country and the euro zone along with funding restrictions that characterized its activity in recent periods, the Group has been organizing its actuation accordingly with more careful criteria and with more conservative loan granting policies.
The portfolio’s profile is monitored and evaluated on a regular basis according to the following: geographic area, client type, distribution channels, activity sector, associated collateral, rating, main exposure once in a regular overdue situation, currency, exposure dimension, collateral coverage, capital consumption, impairment among others on an individual or consolidated level.
Credit risk measurement
The Group has a risk rating model for a significant part of the portfolio of granted credit. The developed models consider different methodologies for each of the segments and/or products and are based on the experience of non-payment clients that for some reason such as socio- demographic, financial and economic and transactional variables allow a more predictive credit evaluation capacity.
The developed risk systems are divided in the categories bellow:
41 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Models
Admission Behavioural Rating Scoring Scoring
Housing Loans Housing Loans SME
Personal Loans Personal Loans
Automobile Loans Automobile Loans
Sma ll Busine sse s Sma ll Busine sse s
Private Clients and Small Businesses Companies
The admission scoring models used at the moment the credit is granted enables you to associate each process to a non-payment probability – probability of default (PD) – as well as classifying each operation considering risk exposure, until the first anniversary.
The behavioural scoring models aim to measure operation retail credit risk through regular or non- regular behaviour analysis of operations over a year old and its borrower.
The model used for rating the enterprises segment, allocates to each client, a specific punctuation associated to a range regarding overdue probability, measuring the risk of the other counterpart’s default through a combination of financial information with data regarding quality, such as variables of relationship and business involvement. At the same time the risk grades given by external rating agencies, are consulted whenever it is applicable.
Credit risk monitoring
Monitoring credit risk is set on the follow up and evolution control of the Group’s credit portfolio risk exposure and the implementation of mitigation actions to preserve the quality of the credit and the established risk limits. It is carried out through the regular preparation of loan quality indicators, automatic production of alert signs and the execution of actions regarding the classification of the referred signs.
Managing the mentioned risk events has a significant relevance which is obtained from the assignment of responsibility in alert sign management, from the assigned competences to those who provide information updates and finally from the identification of the actions that must be undertaken in order to classify the referred signs.
Through the regular preparation of credit quality indicators and the respective segmented portfolios, credit risk monitoring is carried out considering the evaluation of the efficiency of the established policies and the corresponding application of corrective measures.
Credit risk mitigation
The value and nature of collaterals for granted loans as well as the necessary level of coverage depend on the evaluation results of the credit risk of the counterpart. In first place the Group
42 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
evaluates the repayment capacity and the probability of the counterpart’s non-payment, as collaterals are considered as a second option when it comes to payment they are not necessarily the main attribute in evaluation criteria despite the relevance.
The Group has internal procedures that rule the acceptance or not of certain types of collaterals with specific evaluation criteria.
Market risk
Market risk is defined as the probability of negative impact occurring, considering either results or capital, due to unfavourable price fluctuation in instrument markets of the portfolio negotiation. These are usually due to interest rate fluctuation, exchange rates, share quotation or merchandise prices. The market risk mainly comes from the joint position on short term debt issue, currency, merchandise and derivatives.
Market risk management
At Group level, market risk derives essentially from exposure to securities within the negotiation portfolio of the subsidiaries. As a policy the contracted derivatives aim the economic coverage of positions, especially concerning operations regarding clients by carrying out symmetrical operations with other counterparts that may cancel the risk among them as well as the risk of their own portfolio, treasury operations and the Group’s securitization vehicle. This way, regarding the main market risk Banif Financial Group is subject to, are the ones that result from interest rate, exchange rate and market quotation variation.
On 30th June 2013, the market value of the securities portfolio held for negotiation was of 108 million euros composed of 104 million long term positions and 4 million short term positions (not including financial participations detained by Banif Capital of 5 million euros referring to non- quoted entities).
Market risk management is carried out in an autonomous way by the several subsidiaries and reflects the specifications and competitive advantages such as the proximity and local knowledge of the markets they operate on, with a particular focus on the institutions that act in Brazil, namely the investment banking unit operating in this country Banif – Investment Bank (Brazil), S.A. and the retail banking unit: Banif – Banco Internacional do Funchal (Brazil) S.A., in Malta: Banif Bank (Malta) and finally the Banif – Investment Bank, S.A. in Portugal.
In consolidated terms Banif – Investment Bank (Brazil) S.A. including the participated societies represents de largest part of the negotiation portfolio with a weight of 28%, secondly comes Banif – Banco Internacional do Funchal, (Brazil) S.A. with 27%, Banif Bank (Malta) with 22% and finally Banif – Investment Bank, S.A. Portugal also with 22%.
On 30th June 2013 the securities held for negotiation portfolio of the main subsidiaries was as shown below:
43 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
28% 27% 22% 22%
BBI (Brasil) Banif (Brasil) Banif Bank (Malta) BBI (Portugal)
Market risk analysis within the Group is developed with the BarraOne tool that allows the analysis of portfolio risk and it is divided by several risk factors that explain the risk namely by selecting specific risk from global risk (or market risk), and is then unbundled in several parts. Total risk considers the relation between assets at top level and at all levels of risk unbundling. The tool BarraOne has a method that consists on a multi-factor system based on fundamentals that include intuitive economic features, estimate risk with the aim of risk management in a forward looking perspective.
The diagram shown below synthesizes the way tool BarraOne unbundles risk, by carrying out a sensitivity analysis for each item that is applicable to the portfolio:
TOTAL RISK
Local Market Correlation Currency Risk Risk Impact
Common Factor Correlation Specific Risk Risk Impact
Equity Fixed Income
Emerging Specific Risk Markets
Correlation Impact
The calculation value at risk (VaR) is decomposed by the following factors:
Exchange Risk – VaR component attributed to currency risk, implicit or explicit namely through indirect investment. Due to the extreme sensibility of this factor, the model uses history of the last 17 weeks of data.
Local Market Risk - VaR component attributed to market risk per si and excludes exchange risk. The risk regarding each market is divided into three components: global risk, specific risk and correlation.
44 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Global Risk – consists on risk that is explained by common market factors and includes industry, style, interest rate, spread, emerging markets, hedge funds and commodities. It analyses portfolio risk that results from exposure to specific factors of each market/model.
Shares – each asset is classified within the sector it best fits (according to the application methodology), and the VaR is calculated according to the sector. Besides this, the model captures the risk that derives from the asset: detain a great capitalization or a small capitalization; high level growth expectation versus lower evaluation; volatility pattern of long and short term.
Bonds – Assets are analysed in two ways: (i) interest rate (yield curve), which includes the risk that results from the changes of the income curve and the curvature, twist or butterfly; and (i) spread, which analyses the difference between swap curve and public debt curve, and credit events calculating the respective VaR allocation.
Emerging Markets – measures additional risk by the fact of the issuer being an emerging country or the asset having been issued by an emerging country.
Specific Risk - The type of risk that is not explained by the common factors, in other words, it is an exclusive risk regarding each asset and consequently is diversified. This model brings together the estimation of the average level of specific risk with the specific risk value according to fundamental features of the asset.
It is important to point out that the institutions belonging to the Group and operating in Brazil have their own system of management and control of market risk, also using objects of prudential report accordingly with the rules of the local supervision entity – Central Bank of Brazil. In regulation terms, Banif – Banco Internacional do Funchal (Brazil) S.A. doesn´t have a difference between the negotiation portfolio and the banking portfolio and so the VaR calculation is carried out for all positions equally. The MAPS system is an important support tool regarding risk management and control of these two institutions and is a reference in the Brazilian financial market, used by the principal banks in this country, allowing limit control, verification tests, stress tests, report elaboration for management and report to the Central Bank of Brazil.
The following diagram synthesizes how MAPS unbundles risk to calculate VaR:
TOTAL RISK
Currency Risk Equity Derivatives
Funds Fixed Income Commodities
Correlation Impact
45 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Interest Rate Risk
This risk is defined as the possibility of occurring financial losses resulting from the adverse movement of interest rates. In this case, interest rate risk is evaluated on a medium/long term at banking portfolio level, which allows evaluation of the Group’s exposure to this risk and infer the capacity to absorb adverse variation regarding interest rates it is exposed to.
Interest rate Risk management
The interest rate risk management on a systematic basis according to the period of reprising of the assets and the liabilities. The interest rate risk’s sensitivity analysis aims to evaluate the Bank’s exposure to this type of risk and infer according to the capacity to absorb adverse variations regarding the rates that it is exposed to.
Exchange risk
Exchange risk represents the risk of the financial position’s value in foreign currency showing fluctuations due to changes in the exchange rates.
Exchange risk management
The Group monitors the exposure to this type of risk by daily controlling the global exposure of open positions according to currency and adopts global strategies to assure that these positions maintain themselves within the limits defined by the management.
Liquidity risk
Here lies the probability of occurring negative impact resulting from the lack of capacity of the institution to have net funds in order to fulfil the financial obligations. This is managed centrally by the Group.
Liquidity risk management
Monitoring current and structural liquidity levels, that is necessary regarding commitment amounts and terms and the portfolio funds, is made through the identification of liquidity gaps.
Despite the national and international particularly adverse conjuncture concerning liquidity management, liquidity gap and cumulative gap were held within the acceptable limits for the studied periods.
46 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The termination of phase 1 of the Bank’s recapitalization process in January had a significant liquidity impact of 750 million euros. During the 1st semester a new securitization issue (SME2) was carried out which contributed for an increase for 250 million euros t Banif’s treasury.
These two events allowed the accommodation of the deposit’s volume reduction that was a result of the adjustment pricing policy and simultaneously reinforce the liquidity buffer for the Group.
Liquidity risk management is fostered by the concentration of retail clients (which is the opposite with institutional investors), senior debt issues that mature by the end of the year.
Liquidity risk analysis
The liquidity risk evaluation for the group is based on the calculation and analysis of indicators defined by rules and by the supervision authorities as well as other internal measurements for which other exposure limits are defined.
This way, the regular clearing of the position’s evolution of the Group is carried out with the identification of factors that explain the fluctuations that occurred. This control is strengthened with the execution of stress tests in order to characterize the Group’s risk profile, and assure the possibility of their obligations being fulfilled in a scenario of escalation of the liquidity crisis.
The internal liquidity management policy gives great relevance to monitoring and reviewing of the exposure limits as to reflect market conditions at each moment. Regarding current liquidity management framed by a short term financing plan, several qualitative and quantitative analysis have been carried out on a regular basis which allows to identify eventual weaknesses, and recommend corrective measures that will re-establish minimum liquidity reserves whenever I tis considered necessary.
While fulfilling prudential rules from the Bank of Portugal, the Group is forced to keep an adequate balance among financial flows associated to the balance sheet items in order to assure that net funds are available to fulfil financial obligations whenever they mature.
Operational risk
Operational risk is the probability of occurring losses as a result of inadequate or deficient process and procedures caused by staff, internal systems or external events including legal risks.
Operational risk management
Regarding the operational risk management model adopted by the Group, the Organization Department has a leading role considering supervision, validation and coordination of all the information received from all entities. It also assures the reporting system in a global and integrated perspective as well as the support to all relevant training needs, guaranteeing the development and adequate disclosure of the operational risk management within the Group.
The Group identifies and evaluates operational risk in all activity areas and rates it accordingly with risk type determined by the Basel Committee.
47 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Ongoing business system management
The implementation of the recovery plans and ongoing plans of Banif Group’s entities during the first semester of 2013 was highly conditioned by the application of the Group’s restructure and recapitalization measures. Within this period and regarding the entities with head office on national territory, shared services were implemented and we point out the importance of the creation of one only processing centre and the consequent security policies alignment for the several risk scenarios.
At Banif, SA the implementation of a system of ongoing business has been carried out within the expected timings and according to this, recently a recovery strategy was approved. This document resulted from a deep risk and bank processing evaluation.
Still regarding the consolidation perimeter, entities with head office overseas pursued efforts to maintain or even improve the level security of their business critical processing.
Others risks
Concerning the improvement of risk management function, the Group includes in its management the monitoring of other types of risk that although they are not as expressive as the “traditional” ones, still allow a more complete and comprehensive appreciation of the institution’s risk profile obtained through a strict follow up. This way it is possible to include several follow up indicators of risk strategy and business, in the information report structure on risk management.
Quantitative analysis of Banif Financial Group
Credit risk analysis
Exposure to credit risk by accountancy item By 30th June 2013 total Group assets presented the following risk exposure:
(thousand Euros) Jun-13 Dec-12 Maximum1 Net2 Maximum1 Net2 exposure exposure exposure exposure Financial assets held for trading 173,438 173,438 214,725 214,725 Other financial assets at fair value through profit or loss 79,708 79,708 79,287 79,287 Financial assets avilable for sale 1,791,682 1,791,682 755,566 755,566 Credit to clients 9,186,782 4,127,267 9,815,981 4,453,850 Investments held until maturity 24,617 24,617 36,284 36,284 Other assets 860,120 860,120 599,391 599,391 Sub-Total 12,116,347 7,056,832 11,501,234 6,139,103 Contigent liabilities 7,732,970 7,732,970 6,972,638 6,972,638 Assumed commitments 849,405 849,405 601,462 601,462 Sub-Total 8,582,375 8,582,375 7,574,100 7,574,100 Total 20,698,722 15,639,207 19,075,334 13,713,203
Other Balance sheet itens without credit risk 2,376,875 2,376,875 2,491,059 2,491,059
1 maximum exposure: referes to the balance sheet value
2 net exposure: refers to the maximum exposure minus the mitigation effect by relevent collateral, thus not into account surety/ guarantees and other low value
48 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Maximum exposure represents the larger scenario of risk exposure regarding that it doesn’t consider the collaterals and other asset associated mitigation. The values reflect the financial positions pointed out in the consolidated financial statement.
Regarding net exposure the mitigation effect is significant for client´s loans and reflects a major exposure to credit risk of approximately 55%. In terms of coverage degree of the credit portfolio by collateral type, 55% regards mortgage collaterals, 2% refers to financial collaterals and 2% for guarantee issued by institutional entities. A relevant part of the remaining portfolio is covered by the borrowers or other related entities.
Guarantee and commitment
To address the needs of the clients, the Group provides a pack of commitments and contingent liabilities. Although these obligations are not shown in the balance sheet, they represent credit risk, and consequently the Group considers them part of the referred risk.
The maximum exposure values for commitments and assumed guarantees by the Group up to 30th June 2013 as disclosed in Note 24.
Geographic structure of the securities and credit portfolio
According to the credit risk exposure of different markets, considering the geography of the counterparts, on 30th June 2013, financial assets concentration showed the following distribution:
Jun-13 (thousand Euros) North Latin Rest of the Europe Total America america world Financial assets held for trading1 48,184 - 60,360 - 108,544 Other financial assets at fair value through profit or loss 75,673 3,823 - 212 79,708 Financial assets avilable for sale 1,764,326 - 21,120 6,236 1,791,682 Credit to clients 8,525,356 115,494 408,331 137,601 9,186,782 Investments held until maturity 14,813 - 9,696 107 24,617 Total 10,428,353 119,317 499,507 144,156 11,191,332
weight of each geographic area 93% 1% 4% 1%
1 Not inclued derivatives
Dec-12 (thousand Euros)
North Latin Rest of the Europe Total America america world Financial assets held for trading1 31,561 389 75,775 5,344 113,069 Other financial assets at fair value through profit or loss 75,398 3,738 - 152 79,287 Financial assets avilable for sale 676,244 8,846 63,906 6,570 755,566 Credit to clients 9,013,437 136,485 538,509 127,550 9,815,981 Investments held until maturity 15,602 10,136 10,424 122 36,284 Total 9,812,242 159,593 688,614 139,738 10,800,188
weight of each geographic area 91% 1% 6% 1%
1 Not inclued derivatives
Concerning the presented values it is important to refer that the client’s loans have a significant concentration risk in the European market and the Latin-American market, and is 82% total of the financial assets managed in both markets.
49 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
It is important to refer that the financial assets held for negotiation represent a relative weight that is more significant in the Latin-American market, representing 12% of the assets managed in that market.
Geographic structure of the credit portfolio
On 30th June 2013 and 31st December 2012 the credit portfolio exposure by geographic areas is detailed in the following table, being the European market the most significant region with a quotation of 93% in June 2013 compared to 91% registered in December.
(thousand Euros) Jun-13 Dec-12 Maximum Net1 Maximum Net1 exposure exposure exposure exposure Mainland Portugal 5,060,582 55% 2,308,685 56% 5,368,901 55% 2,399,208 54% Autonomous regions 2,614,378 28% 1,048,914 25% 2,755,101 28% 1,118,269 25% European union 823,351 9% 263,751 6% 855,114 9% 291,532 7% rest of Europe 27,045 <1% 610 <1% 34,321 <1% 5,097 <1% North america 115,494 1% 49,685 1% 136,485 1% 63,583 1% Latin America 408,331 4% 380,144 9% 538,509 5% 510,112 11% resto of the world 137,601 1% 75,478 2% 127,550 1% 66,049 1% Total 9,186,782 4,127,267 9,815,981 4,453,850
1net exposure: refers to the maximum exposure minus the mitigation effect by relevent collateral, thus not into guarantees and other low value
Compared to the rest of the markets, the Latin-American market reflects the representativeness the Group has in Brazil with a value of about 4% registered in June 2013 in comparison to 5% in December 2012.
Sectoral structure of the credit portfolio
Up to 30th June 2013 and 31st December 2012 the client loan portfolio has the following sectorial distribution:
(thousand Euros) Jun-13 Dec-12 Exposição Exposição2 Exposição Exposição2 máxima líquida máxima líquida Services¹ 1,426,370 16% 1,010,781 24% 1,554,532 16% 1,083,397 24% Construction 924,508 10% 508,967 12% 1,019,828 10% 542,702 12% Porperty activities 713,343 8% 330,747 8% 813,303 8% 373,743 8% Industry 550,538 6% 394,627 10% 572,134 6% 399,223 9% retail sales 444,069 5% 235,827 6% 471,521 5% 256,795 6% Public sector 221,868 2% 205,641 5% 223,678 2% 205,942 5% Financial Institutions and insurance com 128,056 1% 92,897 2% 129,326 1% 90,164 2% Others sectors 528,226 6% 332,297 8% 579,304 6% 362,297 8% Private Clients 4,249,804 46% 1,015,483 25% 4,452,355 45% 1,139,587 26% Total 9,186,782 4,127,267 9,815,981 4,453,850
1 services include other services provided companies
2net exposure: refers to the maximum exposure minus the mitigation effect by relevent collateral, thus not into account surety/ guarantees and other low value
50 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
On 30th June 2013 and 31st December 2012 the Services segment represented a total of 16% of maximum exposure, followed by the Construction segment that contributed with 10% exposure and finally the Real Estate Activities with 8%.
Regarding risk exposure by sector, it should be enhanced that the risk exposure of the top 20 clients and/or economic groups, increased to 1.126 million euros on 30th June 2013 (it included direct credit and granted bank guarantees)
The credit distribution by the several sectors, regarding the major bank clients, is as follows:
June 2013
others 6% industry 6%
public construction sector 32% 12% TOP 20
property activities 18%
services 26%
Sectoral and geographic structure of the credit portfolio
On 30th June 2013 Group exposure to markets by activity sector presents the following distribution:
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0% Europe north america Latin america rest of the world
Servces* Public Sector Property actiities Construction Financial institutions Industry Retail sales Others Private
* Services includes other services that are given to companies
Average amount by exposure range
On 30th June 2013 and 31st December the average exposure of the loan portfolio by operation value range shows the following amounts:
51 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Jun-13 (thousand euros)
Value Interval per opertion No. Of Clients Credit Average exposure weight
] 0M - 0,5M ] 354,279 5,848,715 17 63.7% ] 0,5M - 2,5M ] 994 1,234,925 1,242 13.4% ] 2,5M - 5M ] 150 572,505 3,817 6.2% ] 5M - 10M ] 81 612,462 7,561 6.7% > 10M 48 918,175 19,129 10.0% Total 355,552 9,186,782
Dec-12 (thousand euros)
Value Interval per opertion No. Of Clients Credit Average exposure weight
] 0M - 0,5M ] 368,162 6,124,789 17 62.4% ] 0,5M - 2,5M ] 1,084 1,393,150 1,285 14.2% ] 2,5M - 5M ] 156 599,346 3,842 6.1% ] 5M - 10M ] 87 652,355 7,498 6.6% > 10M 62 1,046,341 16,876 10.7% Total 369,551 9,815,981
Credit quality and other financial assets
Granted Loans
Regarding sector decomposition we present bellow, credit quality amounts and indicators in the following table:
(thousand euros)
Jun-13 Dec-12 Total exposure Total exposure Gross in default >90 Gross in default >90 exposure* days** exposure* days** Services 1,552,276 223,102 14% 1,670,027 252,696 15% Construction 1,117,775 323,655 29% 1,188,212 327,703 28% Property activities 875,860 246,836 28% 950,168 221,634 23% Industry 658,097 172,846 26% 668,691 186,739 28% Retail sales 527,640 137,065 26% 542,400 126,808 23% Public sector 224,556 8,703 4% 226,322 17,018 8% Financial institutions and insurance companies 146,925 14,503 10% 151,907 13,980 9% Others sectors 676,438 179,701 27% 730,562 209,600 29% Privates clients*** 4,620,148 728,589 16% 4,785,456 726,250 15% Total 10,399,715 2,035,000 20% 10,913,745 2,082,428 19%
* Gross exposure: refers to the balance sheet amount prior to provisions
** total xposure in efault >90 days: refers to the total balance (falling due and overdue) of credit operations that, on the reference date, were in default for over 90 days, according the instruction no. 23/2007 of the Bank of Portugal. *** The Privates who are considered ENI's were allocated to the respective sector.
Besides the degradation of the economic context during the first half of the year, the evolution shown above is equally influenced by the significant reduction of the credit portfolio resulting from the ongoing deleverage process.
Regarding credit quality the indicators present the following values in the periods shown I the table below:
52 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Jun-13 Dec-12 Credit to Client, of which: 10,399,715 10,913,745 Overdue credit and interest2 1,321,810 1,343,500
Credit impairment (1,212,933) (1,097,764)
Indicators (%) credit impairment / Credit to clients 11.7% 10.1% Credit with default/Total credit1;3 15.2% 14.3% Credit with default, net/Total credit,net1;3 4.0% 4.7% Credit in risk/Total credit1 21.4% 20.3% Credit in risk, net/Total credit, net1 11.0% 11.4%
1 Ratios specified in instruction no. 22/2011 of the Bank of Portugal. 2 Overdue credit interest > 90 days 3 The amount of credit in default started to be refined, from March 2013 included, with a different concept from the previous used periods, having the values of December 2012 been re-expressed to be straightly comparable.
The indicators presented, show that for the last 6 months a steep degradation has taken place in the quality indexes due to the degeneration of the economic situation, both national and international - that motivated an increase regarding impairment losses – but also a reduction of absolute value of the credit portfolio.
The credit and overdue interest amounts included, on 30th June 2013, 76.536 thousands of euros of written-off credit regarding individual accounts of the Group’s entities compared to the amount of 70.347 thousands of euros in the individual accounts of the Group’s entities on 31st December 2012.
Impairment evaluation
On 30th June 2013 loss value from collective and individual impairment that does not include off- balance losses, reached 577.531 thousand euros (559.475 thousand euros in December 2012) and 635.402 thousand euros (538.289 thousand euros in December 2012), respectively. The individual analysis is applied to credit of significant amounts, and the collective analysis is applied to lower value loans.
On 30th June 2013 and 31st December 2012, the credit analysed on an individual basis reached 3,329 thousand of million euros and 2,074 thousand of million euros, respectively.
By the end of the analysed periods, the contribution of individual losses towards the total amount of estimated losses for granted loans within the group, and the off-balance liabilities of credit nature is presented as follows:
53 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
100% 90% 80% 49% 52% 70% 60% Individual Losse 50% Collecive Lsses 40% 30% 51% 48% 20% 10% 0% Dec -12 Jun -13
The amount of granted loans regarding estimated losses by segment for the analysed periods, have the following values:
Credit to Clients Credit Impairment
Jun-13 49% 32% 9% 10% Jun-13 64% 5% 22% 9%
Dec-12 49% 31% 9% 11% Dec-12 63% 6% 24% 7%
Companies Private Clients, Property Private Clients, Consumer Private Clients, Other
During the last 6 months, there were no significant fluctuations in the loan portfolio concerning the distribution of losses for impairment, which made the enterprise segment remain as the most significant weight in the Group portfolio.
Granted credit impairment presents de following movements during the analysed periods:
(thousand euros) Private Clients Private Clients Private Clients Companies Total consumer property other Balance sheet 2012 692,400 259,144 66,303 79,918 1,097,764 Reinforcements 283,516 34,847 13,275 32,999 364,637 Utilizations and settlement (77,479) (5,605) (7,714) 3,500 (86,497) Reversals and recoveries (123,752) (18,009) (12,015) (8,394) (162,971) Balanc sheet Jun-13 774,686 270,377 59,848 108,022 1,212,933
Private Clients Private Clients Private Clients Companies Total consumer property other Balance sheet 2011 482,028 238,830 47,685 44,988 813,531 Reinforcements 490,615 81,917 36,242 62,196 670,971 Utilizations and settlement (101,658) (12,185) (4,662) (13,396) (131,901) Reversals and recoveries (178,585) (49,419) (12,963) (13,870) (254,836) Balance sheet 2012 692,400 259,144 66,303 79,918 1,097,764
54 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Overdue Loan and interest
On 30th June 2013 and 31st December 2012 the overdue credit and interest amount for over 30 days according to the overdue classes presents the following breakdown:
Jun-13 (thousand euros)
< 3 Months 3 - 6 Months 6 - 12 Months 1 - 3 Years > 3 Years Total Companies 58,258 101,321 91,885 307,072 303,690 862,225 Private Clients, Consumer 8,413 5,377 14,209 82,131 187,513 297,643 Private Clients, Property 3,915 3,943 6,508 21,949 33,955 70,270 Private Clients, Other 12,966 7,543 8,010 41,009 105,696 175,223 Total1 83,552 118,184 120,612 452,161 630,853 1,405,361 1 The value of credit and due interest is not liquid of impairment.
Dec-12 (thousand euros)
< 3 Months 3 - 6 Months 6 - 12 Months 1 - 3 Years > 3 Years Total Companies 87,686 116,099 165,307 231,913 289,213 890,219 Private Clients, Consumer 26,999 14,482 35,397 82,943 190,274 323,096 Private Clients, Property 13,736 1,371 4,145 11,999 25,840 57,092 Private Clients, Other 16,922 3,877 12,623 32,397 125,619 191,438 Total1 145,343 135,829 217,472 359,253 630,946 1,488,843 1 The value of credit and due interest is not liquid of impairment.
Overdue and litigious credit recovery
To be consistent with the approach that was followed during the last years, the Group pursued the reinforcement of resources, means and models of credit recovery, with the aim to carry out its adjustment to the demands resulting from the steep increase of overdue credit.
During the 1st semester of 2013, the Group continued the initiatives launched in 2012, and that intend to improve the transversal processing and the support tools to the recovery models in which they assumed greater relevance:
- The procedure review, regarding the linkage of the recovery structures with the authorized representatives of the processes, supported on an application that centralizes information trade necessary to the process management; - Reinforcement of the information linkage and share mechanisms among the several entities of the Group, especially concerning clients that are common to two or more entities; - Reinforcement of the incorporation and efficiency level in the performance of procedures regarding the process follow up, recovery/impairment rate estimation and information report.
Restructure credit
The Group monitors its credit portfolio on a regular basis, in order to detect and prevent possible overdue situations. Whenever they it is applicable and adequate loans are restructured, new and more adequate conditions are negotiated in order to adapt to the client’s financial capacity to generate funds.
Regarding the Bank of Portugal’s regulations, the restructured credit operation should be identified and marked as so in the information systems, and are considered as credit operations
55 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
whose initial conditions have been reformulated either in the same operation or in an entirely new one, because of the quality degradation of the client’s credit quality. The loans that are marked as restructured cease to be in that condition if at the end of one year no more overdue has occurred.
The adverse macroeconomic context seen in these last 6 months, reflected in an environment of deep economic contraction with the reduction of private consuming, increase of unemployment level and the consequent speeding up of the credit risk of both enterprises and private clients, has had a strong influence in the restructured credit volume due the client’s financial difficulties, as can be seen in the following table:
(thousand euros)
Jun-13 Dec-12 Gross Restructured Gross Restructured exposure* exposure** exposure* exposure** Residents 8,970,182 1,015,287 11% 9,355,698 946,085 10% Housing 2,975,593 62,099 2% 3,054,010 27,679 1% Consumption and other 1,348,210 136,177 10% 1,419,446 98,889 7% Companies 4,351,371 768,122 18% 4,506,630 778,251 17% Public administration 180,139 48,889 27% 176,412 41,266 23% Others 114,869 - 0% 199,200 - 0% Non-residents 1,429,533 202,881 14% 1,558,047 172,613 11% Total 10,399,715 1,218,168 12% 10,913,745 1,118,698 10%
* Gross exposure : refer to the gross balance sheet value
** Restructured exposure : refer to credit operations whose initial conditions were reformulated consequent to detrioration in the clients' creditworthiness
Interest rate risk analysis
This study is based on the identification of the exposure level, carried out according to the methods and assumptions submitted to approval of the supervision authority, considering a positive and negative standard chock of 200 base points of the interest rate as well as the respective impact on the net situation and financial margin (considering 12 months).
56 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Sensitivity analysis – impact of a positive variation of 200 base points in the interest rate curve, by relevant currency
(thousand euros) Jun-13 Dec-12 EUR USD TOTAL EUR USD TOTAL Up to 1 m 327 -23 304 2,615 154 2,769 1 - 3 m -6,396 122 -6,274 -7,255 221 -7,034 3 - 6 m -14,337 1,190 -13,147 -10,119 1,233 -8,886 6 - 12 m 3,089 1,126 4,215 14,376 1,187 15,563 1 - 5 A 131,599 -223 131,376 10,436 -1,082 9,354 > 5 A -21,829 -9,669 -31,498 -26,340 -14,328 -40,668 Impact on the Net worth 92,453 -7,477 84,976 -16,287 -12,615 -28,902 Impact on the Net worth, in % of own Funds 7.5% -0.6% 6.9% -1.3% -1.0% -2.3%
Up to 1 m -7,921 572 -7,349 -62,868 -3,694 -66,562 1 - 3 m 30,457 -611 29,846 34,935 -1,163 33,772 3 - 6 m 21,724 -1,863 19,861 13,691 -1,934 11,757 6 - 12 m -3,455 -394 -3,849 -6,670 -87 -6,757 Impact on Net Interest Income, at 12 months 40,805 -2,296 38,509 -20,912 -6,878 -27,790 Impact on annual Net Interest Income, in % 30.0% -2.0% 28.0% -12.1% -4.0% -16.1%
Own Funds 1,224,713 1,263,320 Net Interest Income 136,032 172,772
* Note: this analysis takes Own Funds into account after the recapitalization (Dec 12).
The results of the sensitivity analysis to both balance and off-balance elements within the banking portfolio, indicates that an increase in interest rates will produce a positive long term impact on the net situation and a short term impact regarding financial margin.
Exchange rate risk analysis
The major foreign currency credit exposure within the granted credit refers to Brazilian Reals (BRL), as shown in the table below:
(thousand euros)
Jun-13 Dec-12 EUR 8,519,906 8,979,075 BRL 304,543 435,382 USD 188,421 210,344 CVE 78,187 76,946 CHF 21,792 29,745 GBP 38,959 48,455 HUF 27,203 27,356 PLN 7,326 7,874 JPY 415 773 Others 30 31 Total 9,186,782 9,815,981
Liquidity risk analysis
The tables below synthesize maturity profile of cash flow of assets and liabilities of the Group on 30th June 2013 and 31st December 2012 (not considering future interest) respectively:
57 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
(thousand euros) Jun-13 up to 1 MONTH 1-3 MONTHS 3-6 MONTHS 6-12 MONTHS 1-5 YERS >5 YEARS TOTAL
LIABILITIES 4,013,439 1,856,108 1,833,869 3,020,574 1,775,276 1,044,513 13,543,779
Funds from central banks and other Cls 2,600,965 54,525 22,313 1,067,038 158,063 6,770 3,909,674 Funds from clients and other loans 1,186,721 1,572,362 1,383,251 1,561,176 622,583 827,070 7,153,163 Debt represented by securities 75,000 176,658 395,192 329,962 421,343 0 1,398,155 Subordinated liabilities 0 0 18,010 28,218 66,469 116,463 229,160 Othr liabilities 150,753 52,563 15,103 34,180 471,138 93,895 817,632 Provisions 0 0 0 0 35,680 315 35,995 Capital and reserves 0 0 0 -6,355 0 955,798 949,443
TOTAL 4,013,439 1,856,108 1,833,869 3,014,219 1,775,276 2,000,311 14,493,222
ASSETS
Credit on Cls 120,475 211,944 6,039 98,937 5,558 11,002 453,955 Credit to clients 593,900 666,419 570,869 729,293 3,302,778 3,323,523 9,186,782 Financial assets 146,058 24 19,095 367,263 511,397 1,000,991 2,044,828 Investments and tangible and intagible assets 110 701 2,549 7,126 9,070 420,340 439,896 Other assets 257,667 36,219 74,679 236,558 459,234 1,303,404 2,367,761
TOTAL 1,118,210 915,307 673,231 1,439,177 4,288,037 6,059,260 14,493,222
(thousand euros) Dec-12 up to 1 MONTH 1-3 MONTHS 3-6 MONTHS 6-12 MONTHS 1-5 YERS >5 YEARS TOTAL
LIABILITIES 2,771,882 2,217,476 1,915,057 1,625,083 3,309,202 1,777,436 13,616,137
Funds from central banks and other Cls 1,177,355 134,135 92,889 57,833 2,030,973 0 3,493,185 Funds from clients and other loans 1,348,332 2,019,257 1,766,614 1,384,028 559,667 672,532 7,750,430 Debt represented by securities 35,326 24,126 37,289 118,159 513,761 977,770 1,706,431 Subordinated liabilities 0 0 17,871 27,939 60,308 121,996 228,114 Othr liabilities 210,250 39,851 395 37,121 113,973 5,102 406,691 Provisions 619 106 0 3 30,521 37 31,285 Capital and reserves 0 0 0 0 0 376,156 376,156
TOTAL 2,771,882 2,217,476 1,915,057 1,625,083 3,309,202 2,153,593 13,992,293
ASSETS
Credit on Cls 261,337 246,962 8,162 30,285 19,862 11,002 577,609 Credit to clients 541,835 772,955 887,879 840,715 3,383,456 3,389,140 9,815,981 Financial assets 16,913 36,731 190,095 360,520 412,152 33,166 1,049,578 Investments and tangible and intagible assets 572 1,804 2,750 7,194 22,649 416,951 451,919 Other assets 240,107 29,196 48,769 137,766 420,457 1,220,912 2,097,206
TOTAL 1,060,764 1,087,648 1,137,655 1,376,480 4,258,575 5,071,171 13,992,293
The analysis of the gaps seen in the profile of future cash-flow maturity also allows the possibility to check risk concentration in the several terms:
58 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
(thousand euros) Jun-13 % ACCUMULATED ACCUMULATED %GAP /TOTAL GAP GAP /TOTAL GAP ASSETS ASSETS Up to 1 MONTH (2,895,229) (2,895,229) -20.0% -20.0% 1-3 MONTHS (940,801) (3,836,030) -6.5% -26.5% 3-6 MONTHS (1,160,638) (4,996,668) -8.0% -34.5% 6-12 MONTHS (1,575,042) (6,571,710) -10.9% -45.3% 1-5 YEARS 2,512,761 (4,058,949) 17.3% -28.0% >5 YEARS 4,058,949 - 28.0% -
(thousand euros) Dec-12 % ACCUMULATED ACCUMULATED %GAP /TOTAL GAP GAP /TOTAL GAP ASSETS ASSETS Up to 1 MONTH (1,711,118) (1,711,118) -12.2% -12.2% 1-3 MONTHS (1,129,828) (2,840,946) -8.1% -20.3% 3-6 MONTHS (777,402) (3,618,348) -5.6% -25.9% 6-12 MONTHS (248,603) (3,866,951) -1.8% -27.6% 1-5 YEARS 949,373 (2,917,578) 6.8% -20.9% >5 YEARS 2,917,578 - 20.9% -
Regarding the tables above it is important to point out the following:
- Almost the totality (90%) of the negative value seen in the net gap up to one month ago, results of the maturity of ECB financing, and it isn’t likely to find difficulty in its renovation, similar to what has occurred in the past and regarding the differential of 479.761 thousand euros between financing value and pool value (after haircut) of the available assets for discount with the ECB. - The liquidation of the phase 1 of the recapitalization process, reflected in the State’s subscription of special shares (700 million euros) and capital core Tier 1 instruments (400 million euros – registered as other liabilities), had a significant impact in liquidity, which enabled a review of the deposit pricing policy in this period (main responsible for the decrease of clients resources) as well as the acquisition of a public debt portfolio of approximately 1,000 million euros (registered in financial assets). - Materialization of this public debt portfolio and the issue of a new securitization operation contributed to the increase of the existing collaterals with the ECB: - The item “other assets” includes approximately 200 million euros of “Cash availability with central banks”.
The commercial gap is not likely to suffer any kind of aggravation until the end of the year, client´s resources that are not renewed will be compensated by the non-renovation of the client’s credits that mature in the same period. Anyway, it is expected that the great majority of client’s resources that mature during the next months will in fact be renewed.
Sovereign risk analysis
The exposure value assumed by the Group until 30th June 2013 is disclosed in note 37 of the annex “Special conditions of the sovereign risk in Portugal, Greece, Ireland, Italy and Cyprus”.
Operational risk analysis
59 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Registering operational loss events allows reinforcement of the sensibility towards different types of risk and the corresponding mitigation actions, it is also an important instrument to quantify risk exposure and in the future have the ability to support the calculation of economic and regulatory capital.
The caption model of implemented losses consists on the identification of accounted losses and. all documentation that supports that accountancy will be analysed, enabling its record within the automatic tool with high quality information. The records are all rated according to their source and risk category, and actions to correct or improve procedures, are defined in order to mitigate the risk that was in its origin.
INTERNATIONAL BUSINESS BANKING
Banif Bank (Malta)
Activity development
In the 1st semester of 2013 the economic and market environment continued to present important challenges to the development of the banking system activity despite the signs of recovery evidenced by the economy in the euro zone. In local terms a reduced level of economic activity was registered, as a result of the general elections in March that conditioned in a significant way the bank’s activity at both retail and enterprise level.
Even so, the Bank continued to grow regarding credit and deposits, although the growth pace for deposits was superior to that of the credit pace. During the first part of the year, the bank kept focused on getting stronger in retail segments, enterprises and business as a way to achieve the strategic goals and raise its market share.
Financial performance
By the end of June 2013, the assets base of the bank reached 569.9 million euros which represented a raise of 58.5% regarding 359.5 million euros registered in the end of June 2012. The major component of assets is represented by loans and advances to clients, with a value of 329.5 million euros, followed by financial investment and other related financial assets, with a total of 144.0 million euros. Investment in property, industrial facilities and equipment as well as other net intangible assets, reached 7.3 million euros by the end of June 2013. Other assets totalized 89.1 million euros of which 52.3 million euros corresponded to cash and cash available with the Bank of Malta.
Deposits reached 517.6 million euros in June 2013 which means an increase of 71.0% regarding the 302.7 million euros registered in June 2012. This increase resulted in credit, financial investment and balances with the Central Bank of Malta. Credit grew 13% compared to June 2012 (291.7 million euros) to 329.5 million euros in June 2013. This way, the bank was able to reduce the ratio between loans and deposits, as well as improve the quality of its assets and strengthen the balance sheet in terms of risk-weighted assets, in order to obtain capital and liquidity adequacy.
60 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Despite the adversity of economic climate, both on a national and international level, during the period we are analysing, the bank presented results that were better than the expected, although standing below what was registered last year. The first 6 months were marked by an economic activity slow down, as a result of the local general elections and the challenges set by market conditions due to low interest rates and high financing costs due to competition. Regardless of this, banking product increased 11.1% compared to the same period of 2012 (5.147 million euros) to 5.719 million euros.
Net Interest Income reached 3.957 million euros (compared to 3.607 million euros in the same period of 2012).
Income from services and net commissions reached 810 thousand euros (during the same period of 2012 they were 610 thousand euros). Increase of income from services and net commissions were mainly due to higher commissions referring to payments, cards and other banking services. At the same time the bank managed to reduce commissions directly related with processed transactions volume.
The financial operation income stayed almost the same as last year, 953 thousand euros (in 2012 they reached 929 thousand euros). The bank reduced its negotiation activity in the debt market and increased foreign exchange activity by maintaining positions in a determined number of currencies.
Banking product was superior in 396.6 thousand euros regarding operational expenses.
The bank continued to have a tight control over costs, always with the perspective that incurred costs allow to generate value and support the ongoing growth strategy.
Total operational costs which include staff expenses, general administrative expenses and depreciations, increased 16.1%, from 4.584 million euros during the first six months of 2012, to 5.323 million euros on the first semester of 2013. A significant part of this growth is due to the contribution to the deposit guarantee fund (consequence of the deposit portfolio growth) and expenses regarding consulting carried out for the Group’s capitalization process.
Provisions for net impairment increased 25.6% from 403 thousand euros in the first six months of 2012 to 506 thousand euros on the first semester of 2013. This growth is mainly due to provisions growth in the collective analysis as a consequence of the increase of 37.8 million euros of the credit portfolio that reached 329.5 million euros by the end of June 2013.
The net result of the analysed period reached a negative 95 thousand euros compared to the positive result of 110 thousand euros in June 2012.
61 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
(thousand euros)
Jun/13 Jun/12 Variation
Net Asset 569,919 359,508 58.5% Gross loan book 329,511 291,669 13.0% Loans to customers 517,565 302,724 71.0% Equity 20,557 21,438 -4.1% Net Interest Income 3,957 3,607 9.7% Operating income 5,720 5,147 11.1% Net profit before taxes -109 160 - Net profit before taxes -95 110 - Cost to income 93.1% 89.1% 4.00pp ROA -0.04% 0.08% -0.12pp ROE -1.06% 2.24% -3.30pp
Points of sale 10 9 1 Number of employees 168 147 21
Banif Bank (Brazil)
During the first semester of 2013 the BACEN – Central Bank of Brazil, ratified the incorporation of Banif Investment Bank (Brazil), into Banif – Banco Internacional do Funchal, who now holds 100% of its capital share.
The net consolidated result of R$ 346.8 million negative, essentially reflects on one hand, provision for loans reinforcement for the analysed period that totalized the amount of R$535 million, corresponding to 48% of the credit portfolio, and on the other hand it reflects capitalization through (i) debt conversion and (ii) integration of Commercial and Investment Banks enabling this way a better coverage of the operations that are part of the Bank’s portfolio and at the same time may contribute for a larger robustness of the balance sheet.
Consolidated net assets in the period of June 2012 to June 2013 decreased from R$ 2,346 million to R$ 1,406 million, the credit portfolio went from R$1,301 million to R$ 1,119 million and the client’s deposits were R$ 1,087 million to R$ 871 million.
Both the Commercial and the Investment Bank’s consolidated own capital decreased from R$ 291.3% million in June 2012 to R$ 244.5 million on 30th June 2013.
The Basel Index in Group Banif’s (Brazil) consolidated in June 2013 was of 14.16%, superior to the minimum limit imposed by the Central Bank of Brazil (11%) and representing an improvement of 2,05 pp compared to June 2012 when this index was 12.11%.
62 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Main Indicators of Banif Bank Brazil (consolidated):
(thousand reais)
30/Jun/13 30/Jun/12 Variation
Net Asset 1,406,993 2,345,712 -40% Net Loans 584,736 1,221,271 -52% Resources of clients 871,413 1,086,578 -20% Equity 244,537 291,273 -16% Banking revenue (329,666) 24,907 - Operating Cash Flow (12,987) (46,385) -72% Net profit (346,855) (45,189) -
Points of sale 6 18 -12
Number of employees 201 304 -103
(thousand euros)
30/Jun/13 30/Jun/12 Variation
Net Asset 486,866 909,614 -46%
Net Loans 202,338 473,581 -57%
Resources of clients 301,537 421,350 -28%
Equity 84,618 112,949 -25%
Banking revenue (123,549) 10,316 -
Operating Cash Flow (4,867) (19,212) 75%
Net profit (129,991) (18,716) -
Points of sale 6 18 -12
Number of employees 201 304 -103
BCN – Banco Caboverdeano de Negócios, SA
During the first semester of 2013 and regarding the persistence of the international crisis economy, Cape Verde maintained the tendency of 2012 of a slowdown of its growth, motivated by the decrease of internal search for public and private investment the decrease of the IDE (Direct Foreign Investment).
Within this adverse macroeconomic context, the Central bank of Cape Verde kept to the monetary policy measures that aim to restrain credit granting to economy, while trying to obtain greater stability of prices and the maintenance of the level of reserves. These measures result in a growth of cost of funding and additional pressure on liquidity management for all stakeholders, in the financial sector of Cape Verde.
To the BCN and according to the policies adopted during the last two year, the 1st semester of 2013 was marked by the ongoing of the selective policy regarding loan granting which resulted in a
63 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
decrease of 2.5% of the gross credit portfolio, comparing to the same period of the previous year. Concerning credit quality it is observed that the quality has improved since overdue credit has decreased -40% accompanied by the consequent decrease of the overdue credit ratio (in the terms of the Notice of the BCV on this matter) in June 2012 the value was of 9.4% and 5.8% in June 2013. Concerning the resources portfolio on the 1st semester of 2013 the bank registered an increase of approximately 40.5%. This positive variation was essentially a result of a limited group of major clients. This fact reinforced even more the liquidity position the Bank held during 2012, reducing the use of alternative sources such as the interbanking market.
Concerning financial statements the Net Interest Income registered an improvement of 17% that was motivated by the reduction to 18% of interest and similar costs, since interest and similar income were practically on the same level regarding the first semester of the previous year. The complementary margin showed a favourable evolution which was motivated by the positive behaviour of the income from capital instruments (+25%) and of income from services and commissions (11%).
In operational efficiency terms the ratio of cost-to-income decreased from 61% in June 2012 to 55% in June of this year.
To synthesize, during the 1st semester of 2013 Net Results registered a growth of 139% facing the same period of last year, the solvency ratio was set on 13.5% when it was of 8.8% on the first semester of 2012. This positive evolution can be explained by the reinforcement of own funds through the issue of subordinated debt and the non-distribution of dividends during 2012 exercise.
IFRS (thousand euros)
1º Sem 2013 1º Sem 2012 Variation
Net Asset 121,475 106,736 13.8% Gross loans including securitezed loans 88,157 90,444 -2.5% Loans to customers 96,314 68,568 40.5% Equty 12,601 10,793 16.8% Net Interest Income 2,096 1,790 17.1% Operanting income 3,162 2,843 11.2% Operating cash flow 1,680 1,379 21.9% Net profit 1,080 452 139.0% ROA 0.89% 0.42% 0.47pp ROE 8.57% 4.19% 4.38pp Cost to income 54.5% 61.3% -6.85pp Points of sale 18 18 0 Numeber of employees 116 114 2 Solvancy ratio 13.5% 8.8% 4.67pp
SPECIALIZED CREDIT BANKING
Banif Mais, SGPS, S.A.
This society’s activity during the first semester of the year consisted mainly in the management of the financial participations linked to specialized credit, and cross-selling of associated products.
64 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Regarding the principal indicators of the consolidated financial statements of the first semester of 2013 of the Banif Mais sub-group, presents net assets of 634.6 million euros and own capital of 307.5 million euros.
The consolidated net profit of the Banif Mais sub-group in the analysed semester, reached 9 million euros, with 15.8% less than the same period of last year. As for the contribution of the activity of the geographic market for the consolidated net profit, 7.74 million euros were registered in Portugal, -0.05 million euros in Spain, 0.15 million euros in Slovakia, -0.02 million euros in Poland and 1.18 million euros in Hungary.
CONSOLIDATED (base IAS/IFRS) thousand euros
Jun-13 Jun-12 Variation Net asset 634,604 811,719 -21.80%
Liabilities 327,078 504,429 -35.20% Equity 307,525 307,290 0.10%
Net profit 8,993 10,674 -15.80%
Banif Mais, S.A.
Activity in Portugal
Regarding the activity of the Banif Mais, S.A. in Portugal, the 1st semester of this year was marked by a slight recovery in passenger vehicle sales (+21%) although with lower financial value due to the tendency to maintain payment in cash of the total or almost totality of the vehicle’s selling value.
This first semester there was a strong bet on aggressive business agreements with key partners. This strategy, according to ASFAC statistics, during this period, Banif Mais, SA was capable to improve substantially its ranking regarding the financing market of passenger vehicles, from 5th place to 2nd place. The market share regarding the market of used cars financing there was a growth of 52.4%, reaching 15.6% and guaranteeing the 2nd place in ranking. The motorcycle financing market, Banif Mais, SA maintained its leadership position with a market share of 46.9%.
Automobile Market
According to ACAP (Portuguese Association of Commerce Automobile) information after a year of great contraction, in the first half of 2013 there was a slight growth of the sales of passenger vehicles that reached 54.945 vehicles this is an increase of 2.9%. The commercial heavy-weight and light weight vehicles sales continue to fall for the second consecutive year. In the first semester of 2013 7.522 light weight vehicles and 917 heavy weight vehicles were sold, which represents a fall in sales of 4.0% and 8.3% respectively.
65 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Production and Portfolio
In the market context and the mentioned strategic bet, in the first semester of 2013, Banif Mais, SA Portugal celebrated 7.434 contracts in a total amount of 56.9 million euros that represents a growth of 28.2% of financed value in the same period of the previous year.
During the studied period, the bank maintained a restrictive analyses criteria, and continued to give way to the profitability factor, however, and looking at the growth of vehicle sales, the demand of vehicle financing and the increase of the Canal Banco production, an increase of the number and financed amount occurred if compared to the same period of the last year.
In Portugal, the credit portfolio, without impairment, presented a decrease of approximately 20% by the end of June 2013 regarding the same period of the previous year this evolution is explained partially by the impairment reinforcement.
International activity
In Slovakia the new passenger and commercial light weight vehicles market showed a number of 34.47 units sold in the 1st semester of 2013, a decrease of 6.23% comparing with the same period of last year. Regarding the used car market and despite the non-existence of statistics that enable us to have accurate information, the import of used vehicles fell to 23% to 24.391, it is estimated that the retail market of used cars presented a fall of approximately 18% when compared to the same period of last year.
The Slovakian subsidiary showed a growth of 523% of the net results of the year. In the first semester this subsidiary celebrated 514 contracts of a total of 2.4 million euros, that represents a decrease of 10% and 2% in number and value, respectively regarding the equal semester of 2012.
In Poland, in global terms Banif Mais’ activity during the first semester of 2013 was conditioned by the slowdown of this country’s economy that affected in particular the consumer’s component. In this context the number of new passenger vehicles sold to private clients during the first half of the year was of 147.487 a decrease of 0.8% regarding the same period of last year. The number of new vehicles sold to private clients also had a negative evolution with a growth rate of -5.3% representing a small part of the total sales; on the other hand, the sales of vehicles to companies grew 3.1%. However, more recent data point out to a recovery of the new automobile market, since in the month of June 25.203 units were sold, this means an increase of 8% regarding the same month of the previous year.
Considering that there are no data on second hand vehicle sales in the Polish market, as a reference we can present the statistics of second hand vehicle import. In the first half of 2013 the number of imported used vehicles was 349.160, an increase of 7.9% regarding the same period of last year.
In the first half of the year, the subsidiary of Banco Banif Mais in Poland only celebrated 390 new contracts, corresponding to approximately 1.45 million euros of credit, representing a fall of 31% regarding the same period of the previous year.
66 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
According to the existing risk level and the aggravation of the economic situation in Spain, Banif Mais continues to focus on the management of the credit portfolio, with a particular attention the recovery of unpaid credit, and no new credit granting.
(base IAS) Thousand euros
Jun-13 Jun-12 Variation
Net asset 658,326 799,482 -17.70% Total credit 690,996 791,534 -12.70% Equity 251,623 251,954 -0.1% Overall production 60,818 49,432 23.00% Net Interest Income 15,357 14,984 2.50% Operating Income 17,025 22,367 -23.90% Cash Flow 11,062 12,466 -11.30% Net Profit 9,090 8,261 10.00% Personnal costs/ banking revenue 19.20% 17.00% - Cost to income 37.40% 46.40% - Banking revenue / average net asset 1.20% 1.20% - ROE 1.80% 1.10% - ROA 0.7% 0.45% - Pre-taxes income/average net assets 0.8% 0.20% - Pre-taxes income/average equity 2.30% 0.50% - Credit Impairment / total credit 24.10% 21.90% - Solvency ratio 42.40% 34.00% -
Points of sale 22 22 0 Number of employees 253 265 -12
Banif Plus Bank, ZRT
In Hungary sales of new vehicles in May 2013 reached 27.186 units (passenger light-weight vehicles: 22.190; commercial light weight vehicles: 3.803), which represents a decrease of 4.4% compared to 2012. Until May 2013, 233.952 used vehicles were traded, an increase of 12.5% regarding the same period of 2012.
Concerning used vehicles traded through professional car sellers, where the Banks network distribution is settled, 60.532 vehicles were traded between January and May, representing a growth of 3.0% regarding the same period of 2012.
In terms of financed vehicle trades it is important to notice the registered growth during the first quarter of the year (last available data). This increase was significant not only concerning number of contracts (+10% representing 8.516 contracts) but especially in terms of granted loans (+19%, which means 60 million euros), and whose main force were the financing contracts of new vehicles (+24%), a higher performance than the used car segment.
The subsidiary activity of Banif Mais S.A. in Hungary has had a positive performance during the first semester of 2013 having signed 1.524 new contracts, a credit amount of 5.1 million euros. Regarding the same period of last year there is a decrease of 6% concerning the number of contracts, but on the other hand there was an increase 5% of granted loan.
67 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
It is important to point out the present discussion of the Hungarian government about the possible alternatives to solve the problem of foreign currency loans. The decision is likely to be known during the third quarter of this year, and speculations are already being made about the type of impact the decision will bring to the financial markets, due to the dimension of these loans in the banks portfolios, especially those with a high percentage of mortgage contracts in foreign currency.
Lastly we should refer that during the current year, the extinction of the PSZAF (entity that supervises banking in Hungary) is expected to be announced, and the banking supervision will then be of the responsibility of the MNB (National Bank of Hungary).
(base IAS/IFRS) thousand euros
Jun-13 Jun-12 Variation
Net asset 68,416 74,733 -8.50% Total credit 57,617 76,886 -25.10%
Equity 24,206 24,704 -2% Overall production 5,268 5,217 1%
Net Interest Income 3,238 3,634 -10.90%
Operating Income 2,856 3,748 -23.80% Cash Flow 1,619 1,243 30.30%
Net Profit 1,177 1,318 -10.70%
Personnal costs/ banking revenue 21.40% 18.70% -
Cost to income 44.70% 68.70% -
Banking revenue / average net asset 7.80% 7.80% -
ROE 9.00% 10.20% -
ROA 3.20% 2.80% -
Pre-taxes income/average net assets 2.00% 1.70% -
Pre-taxes income/average equity 5.60% 6.30% -
Credit Impairment / total credit 13.30% 17.30% -
Solvency ratio 32.50% 33.10% -
Points of sale 8 8 0
Number of employees 70 72 -2
INVESTMENT BANKING AND ASSET MANAGEMENT
INVESTMENT BANKING
The accounts of the first semester of Banif Investment Bank reflect the reduction of the economic activity in general within the Portuguese market in a context of lack of liquidity e the sovereign risk value which was always high during the period, affecting in a transversal manner the financing costs of the economic agents in general.
In the individual plan, the activity product increased 55% that resulted of the growth of the financial operations that compensated the fall of the profits that came from commissions and the
68 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
decrease on the net interest income (27%), despite their progressive reduction of funding costs, while general costs decreased significantly (24%) according to the same period of the previous year, mainly due to large adjustments carried out on expenses with staff and the providing services to third parties.
In the consolidated plan of the banking activity the product of the captivity grew 41% with big reductions of profits on the several business areas not being sufficiently compensated in the business segments that counteracted the negative tendency. The net appropriations for provisions and impairment reached 5.4 million euros in June 2013, this value is considerably superior to that of the accounts of 2012, and originated a fall on the net result that goes up to approximately to a positive 975 thousand euros.
(thousand euros)
Individual BBI Jun-13 Jun-12 Variation Net asset 720,982.4 1,119,992.7 -36% Equity 78,645.2 88,695.5 -11%
Banking revenue 9,658.6 6,230.7 55% Cash-Flow 5,632.2 894.2 - Net Profit -1,248.6 -2,096.4 -40%
ROA -0.3% -0.4% ROE -3.1% -5.0% Cost-to-Income 47.3% 96.2% Solvency ratio 13.5% 13.2%
(thousand euros)
Contas Pro-Forma Consolidadas BBI Jun-13 Jun-12 Variation
Net asset 719,906.6 1,110,856.8 -35% Equity 91,894.6 103,181.8 -11% Banking revenue 14,956.1 10,613.5 41% Cash-Flow 8,346.2 2,313.2 - Net Profit 974.7 111.7 - ROA 0.2% 0.0% ROE 2.1% 0.2% Cost-to-Income 47.9% 84.7%
1. Corporate Finance
M&A Advisory
The global levels of operations of M&A continued to decrease during the 1st semester of 2013 essentially due to the present context of uncertainty regarding macroeconomic and political matters, the deceleration of the main emerging markets and the implications of inevitable tightening of the fiscal policy.
According to the Mergermarket, during the 1st semester of 2013 the global value of M&A transactions fell 12.5% regarding the previous year. During the same period, Europe recorded 2,308 transactions of M&A, reaching an approximate value of 204 thousand million euros, which represented a decrease of about 13.6% concerning volume, and 24% regarding the 1st semester of the previous year.
69 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Despite the difficult context, the Corporate Finance Department took part in several projects and/or transactions during the 1st semester of 2013, and the most important were the following:
- Financial Advisor of ProA Capital in the identification, evaluation, structuring and negotiating of acquisition opportunities in Brazil; - Financial Advisor to Banif, SEPI, the Cape Verde Red Cross in the alienation process of the BCN; - Financial Advisor of the Regional Government of Azores within the evaluation of EDA – Azores Electricity. - Financial Advisor of the TIIC Fund – Transport Infrastructure and Investment Company, regarding analysis, evaluation and structure of business opportunities; - Financial Advisor of Electricity Company of Madeira in the evaluation of the CLCM – Companhia Logística de Combustíveis da Madeira; - Financial Advisor of the Rotas do Algarve Litoral, (Concessionaire lead by ACS/Dragados and Edifer) regarding the follow up of the Road Sub-concession of Algarve Litoral; - Exclusive Financial Advisor of SPER (Concessionaire lead by the ACS/Dragados and Edifer regarding the follow up of Road Sub-concession of Baixo Alentejo; - Restructure of the credits of Banif Group on Group Lagoa.
Real Estate Finance
The Real Estate Area Finance (REF) focuses its activity on the restructure, taking possession and management of structured credit specially orientated to the real estate market.
During the first semester of 2013, this area’s activity continued to suffer strong impact of the financial and economic situation in Portugal, especially due to the liquidity restrictions and fund cost, which provoked a strong contention of granted credit that reflected in the generation of new business and profitability of the credit portfolio.
The REF has concentrated its activity in the management and optimization of the existing credit with particular emphasis on the restructure and the follow up of the deteriorated credit.
The REF assures the management of several real estate assets and participation in real estate societies.
2. Capital Markets
On the 1st semester of 2013 the capital market – debt area was involved in a total of approximately 342 million euros.
Of the carried out operations, we emphasize the cooperative leadership of the Fixed Rate Bond Issue of the Mota – Engil 2013-2016, of 175 million euros, coordinated with Banco Espirito Santo Investment Bank, Millenium Investment Bank and the Banco Popular. Regarding this issue, Banif – Banco Internacional do Funchal, SA assumed being member of the Consortium of Bond Placing, along with Banif Investment Bank, SA and with the other banks that collaborated.
70 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
It should also be pointed out the organization and leadership of Banif – Banco Internacional do Fuunchal, SA programmes for commercial paper issue for Portuguese enterprises, in the global amount of 42.5million euros.
In addition, Banif Financial Group collaborated with the plan for resources attraction which was noticed in the following transactions structured by the Capital Market Department:
(a) issue of senior Notes for Banif – Banco Internacional do Funchal, SA regarding its EMTN programme in the amount of 20 million euros;
(b) two issues of fixed rate bonds for Banif – Banco Internacional do Funchal, SA regarding its EMTN programme in the amount of 50 million euros and of 25 million USD dollars.
Also deserves highlight, the structured transactions by the Capital Market Department for the societies that are integrated within the Rentipar Group, namely an issue of bonds for Rentiglobo, SCPS, SA in the amount of 35 million euros.
3. Sales & Trading
During the 1st semester of 2013 especially until the end of April, the financial markets evidenced positive upturn in value and volume. This movement was defeated in May, with the speech of the President of the American Federal Reserve, where the downturn of economic stimulation in the US was signalized. This fact has effects on the financial markets provoking a massive sale of assets, especially bonds from the peripheral emerging markets.
The Sales & Trading Department operates on the segment of Assets and Exchange-Traded Funds in the European and North-American markets, for private and institutional clients. In the stock markets a significant increase of traded volume was observed, along with a general valuing of the indexes until the end of April. In this period, the Bank saw its trading volume increase as well as an increase in the number of active accounts.
In the segment Fixed Rent, the Sales & Trading Department develops an activity through the management of a business portfolio, made of securities issue of Portuguese and Brazilian issuers, governments and enterprises. Additionally the activity of commercial enhancement of the product Fixed Rent is done by a team of Sales, resident in Lisbon and in Miami. The Fixed Rent market evolution was positive until mid-May, despite having a low level of transaction volume and of number of stakeholders’. By this time the generalized selling of fixed rent assets following the monetary policy in the USA, provoked steep devaluations in bonds and took volume from the market.
On the 13th May, the Sales & Trading Department implemented successfully the platform Trading on-line – Banif Trader. This new service, for Banif Clients, has the mission of providing on-line market trading and diversified securities, presenting adequate solutions for the competitors offer and stimulating the attraction of new clients regarding on line investment in financial products.
71 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
During the first semester, the Product Distribution Table of the Sales & Trade Department is competent in the distribution of products from Banif, namely commercial paper, primary market bond issue, Bank services among others and has had a strong activity developing over 25 placing operations in institutional clients.
In order to support sales, the Sales & Trade Department is responsible for the elaboration of several daily and weekly newsletters, regarding both shares and fixed rent issues and that are distributed to a large universe of institutional and private clients.
4. Securitization
During the 1st semester of 2013 the bank proceeded to an anticipated reimbursement of the Atlantes operation No.1 after the senior part having been totally reimbursed. In order to optimize the liquidity generated by the related portfolio released after the reimbursement, it was structured a new operation of securitization involving assets originated by Banif. The transaction that originated the name Atlantes No. 2 involved an amount of approximately 800 million euros, having obtained a rating from Standard & Poor’s of “A-“ and of “ (low)(sf)” from DBRS.
During the same period, 50 million euros of the senior tranche of Atlantes Mortgage No. 2, structured by the Bank, were placed with institutional investors. As a result of an improvement in market conditions, namely through the reduction of spreads of the Portuguese bonds, traded in secondary market, lots of investors showed interest in the acquisition of this type of assets. In case a political change is carried out by the ECB, that forces the financial institutions to find alternatives to funding, the bank wants to be prepared,
Simultaneously, a project was developed to value overdue credit in order to improve the procedures and routines so that their management is optimized and maximizes rigour.
Presently, a new securitization operation that will involve assets from Banif and from Banco Mais, is being evaluated. The transaction that will be known as Atlantes Finance No. 6, should be achieved by the end of the second semester of 2013.
Private Clients
During the 1st semester of 2013 the Private Client’s Area maintained its guide lines, supported on a strategy of growth of the client’s database, with a especial focus on the high income segment with the aim to increase the level of profits, by increasing the off-balance assets instead of the liabilities. To point out, the diversification of the client’s portfolios through placing several bond issues in primary market and a greater stimulation of the secondary market.
The framing of the market maintained characterized by a level of risk aversion facing the uncertainty of the European financial markets and the Portuguese ones in particular. In this context, the activity of the Private Client’s Area focused on the decrease of funding through the savings products versus the effort of attracting out of-balance assets such as shares, bonds and investment funds. Additionally the strategy of granted credit was maintained, in order to continue to deleverage the Bank’s balance-sheet.
72 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
ASSETS MANAGEMENT
The activity of assets management is developed by the Investment Bank within the management of institutional and private personal patrimony of the clients. This management is carried out by Banif Asset Management – Sociedade Gestora de Fundos de Investimento Mobiliário, SA (BCA) regarding securities investment funds, property and special investment funds, and by Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA regarding retirement funds.
The market has shown, in the first half of 2013, an increased demand for investment products that provide competitive returns, benefiting the fund sector and, in particular, their more conservative classes.
The amount that is managed by institutions of collective investment in transferable securities and special investment funds rose 10% in June compared to December 2012 to 13,524.8 million euros although there has been a reduction in the number of funds of 273 to 261. In real estate investment funds and special funds of real estate investment the amount under management increased 1.1% in the period to 12,267.7 million euros, recording the reduction of only 1 fund since the end of 2012, remaining 263 funds by the end of June 2013.
A Strategy for Management of Assets for the year 2013 has been based on the following guidelines:
- Adapt product range to the current context, embodied in a reduced supply and a greater focus on domestic assets, including commercial paper and private debt of national issuers; - Rationalize the structure within the corporate restructure ongoing in the Banif Group; - Improving the quality of service, not only with the development of training plans for the affluent segment of Banif SA but also promotional material regarding Funds; - Develop relationships with external investors; - Promote internal implementation process for the UCITS IV, whose implementation come into effect from September.
On 30 June 2013 the volume of assets under management stood at 1,497 million euros, representing an increase of 1.10% compared to the value at the end of the 1st Semester 2012. a) Banif Asset Management (Mutual Funds, Real Estate and Special Investment Funds)
Banif Asset Management was distinguished by World Finance Magazine with the award "Best Investment Management Company, in 2013, Portugal."
The award for Best Asset Management Company by World Finance magazine, reflects the high market confidence in the results and quality of activities undertaken by Banif Asset Management.
The magazine World Finance is one of the most prestigious in the financial world and their awards, presented annually, highlight the excellent companies in various business areas, particularly those engaged in asset management.
73 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
In May 2013, the Banif Asset Management included an innovation network of asset managers, the GBAM (Group of Boutique Asset Managers), an organization that brings diverse international asset management companies, focused on specialized strategies and customized asset management for their clients.
In pursuing the strategy outlined for its activities, the Company continued to monitor market conditions, based on the alignment of investment funds under management to client’s needs by implementing the redesign of its product line. So, on the beginning of May, the Banif Asset Management decided to liquidate the fund Banif Brazil - Special Investment Open Fund, since the economic environment , taxation on financial transactions in Brazil and the reduced volume under management, conditioned the strategy defined investment for the Fund and consequently the interest of participants.
In February 2013 there was a new capital increase of the Closed Fund of Real Estate Property Brisa, totalizing 700 thousand euros.
The Company maintained, in the first half of 2012, the temporary reduction of management fees, of Fund Imogest Banif and Fund Banif Imopredial, in the latter there was temporary reduction in deposit commission.
During the first half of 2013 the fund Art Invest - Closed FEI continued its policy of disinvestment, displaying one more work of Brazilian artist Leonilson at Christie's, but it was not to be sold for not reaching the minimum reserve price. Negotiations for the conclusion of the sale of the various works of the portfolio continued, with several actions to be implemented during the next semester. At the end of the semester the Fund had a decrease of 3.69 % on 30th June 2012.
Following the change of the minister of culture, in November 2012, the issue of the stalemate in capital increases within the Fund for Cinema and Audiovisual (FICA ) was taken at the beginning of the year 2013, although without outcome to this date. As in previous periods, the management of FICA continued its activity following the investment contracts in force.
The market share of Banif Asset Management, has remained practically unchanged at 5.98 % in June 2013 ( from 6,01 % on 30th June 2012 ) .
The net result of Banif Asset Management developed favourably, with a rise of 70.06 % to 1,184.05 thousand euros mainly due to an increase of 12.76 % in the fees charged , and a reduction in provisions made in the amount of 434.49 thousand euros.
(thousand euros)
Jun-13 Jun-12 Variation
Net asset 11.81 10.87 9% Equity 9.47 8.53 11%
Net profit 1.18 0.7 70%
74 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
b ) Banif Açor Pensões ( Pension Funds )
In the first half of the year, the Company continued its commercial activity, essentially keeping interest in the institutional segment and socio-professional associations, continuing to be referenced in transfer situations of participants, for exercising their right to portability of professional pension plans. The Company materialized, another collective membership, the Open Pension Funds Banif Reforma.
All pension funds under management had in the first half of the year, positive returns, with special emphasis on the performances of the open pension funds, joint traded and managed by the company, who obtained interesting profit when compared with the remaining funds from the open market, according to information released by the Portuguese Association of Investment Funds (APFIPP).
The volume of assets under management rose from 256 million euros in June 2012 to 272 million euros at the end of this semester, which represented an increase of 6.2%, mainly resulting from the return achieved in managed funds.
Net profit obtained by the company reached 180 thousand euros, against 137.9 thousand in the same period last year, representing an increase of 30.5%.
(thousand euros)
Jun-13 Jun-12 Variation Net asset 5,606.7 4,850.7 15.6% Equity 4,901.0 4,258.2 15.1%
Net profit 180.0 137.9 30.5%
c) BBI ( Asset Management )
Concerning the activities of Asset Management and Investment Consulting, the most relevant mandates were the pension funds and Açoreana. There was a clear guideline towards the use of existing opportunities in the segment of private debt issuers of Southern Europe that had extremely attractive yields. The focus on the service continued, embodied in regular meetings, the provision of detailed management information to the specific characteristics required by the client (accounting view versus market) and the development of new tools for risk management .
Private Equity
Banif Capital – Risk Capital Company, SA is the main vehicle for achieving Private Equity activity of Banif - Banco de Investimentos , SA . On 1st semester of 2013 Banif Capital remained active in the management of three funds : i ) the Fund CAPVEN, regarding the segment of Small and Medium Enterprises , ii ) Banif Capital Infrastructure Fund, focused on the infrastructure segment and iii ) Banif Global Private equity Fund , a fund of funds capital risk .
During the period, the Fund CAPVEN recorded a slight depreciation of 3%, mainly due to the stability of the value of assets and the running costs of the Fund's activity.
75 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Banif Capital Infrastructure Fund recorded a slight depreciation of 6%, mainly due to the financial costs supported by the Fund, with the management company analysing various options to reduce this cost item.
Banif Global Private Equity Fund - FCR signed all their investment commitments in 2010 and continued to manage their positions and fulfilled the obligations relevant to their assets. In the semester, their capital was reduced by 1.1 million euros, from the distribution of liquidity in approved seat Assembly of Shareholders in April 2013.
In the 1st half of 2013 Banif Capital focused on structuring and management of a new investment fund, following the agreement of recapitalization of Banif SA, which provides for the investment of 10 million euros per year for five years, through a private equity fund. The investment strategy outlined provides for investments in Portuguese medium-sized companies, "mid -cap corporates", mainly from primary and secondary sectors, with potential for growth and recovery.
PROPERTY MANAGEMENT
The first half of 2013 was characterized concerning to the housing market as follows:
- In the national real estate market, both commercial and residential, there was a continuous reduction of liquidity and the implementation of a limited number of low business value ; - The deals closed in the domestic market mainly focused on the residential market using credit lines specifically created for this purpose by the banks; - However, there were some positive signs in demand from international investors for real estate in Portugal, although they have not celebrated large volume of operations ; - With the new law in rents and the creation of special funds for residential lease, the first half of 2013 saw the ongoing of the development of the residential rental market ; - The recovery of the U.S. housing market, particularly in Florida, allowed the achievement of certain sales of real estate assets in the group market.
Banif Estate, in its role of support to the supervision of real estate activity of Banif Group, has stimulated a number of initiatives with the aim of optimizing the management of real estate and its profitability, namely:
1. To enhance national sales, campaigns were launched to promote real estate sales, having used various means of promotion campaigns such as social media and virtual environments; 2. An improvement of the incentive scheme for the commercial real estate marketing through different distribution channels of the group; 3. Continuing of the optimization of real estate assets through the allocation of ownership of real estate, specifically through the sale of residential property for rental housing funds; 4. A set of contracts were negotiated for tourist operation, which allowed an increase in return for the Group and a greater efficiency in the management of these assets;
76 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
5. Progress was made in the development of management tool properties (SGI - Management System properties) with the implementation of the rental modules, condominiums, evaluations, and information management; 6. Virtual networks were developed for the sale of assets, including a real estate website, the new version has started operation in mid- February 2013; 7. Agreements have been reached with asset marketing intermediaries, both national and international.
Exposure to Real Estate
During the first half of 2013, a total of 572 new buildings entered the consolidation perimeter of Banif Group totalizing approximately 89 million euros. Most of this exposure is refers to the product of appropriations in fulfilment of overdue loans.
We carried out the following business (sales and leases in the consolidation perimeter of the Banif Group) during the first half of 2013 regarding real estate area:
(thousand euros)
Amount
national sales 22,410 International sales 9,120 Total sales 31,530 Rentals 16,245 Total business in 2013 47,775
Note: Includes scriptures + CPCV
Results for the 1st half of 2013 of Banif Real Estate
(thousand euros)
Jun/13 Jun/12 Variation
Net asset 654,983 661,768 -1.0%
Equity 138,458 146,561 -5.5%
Net profit -8,280 -50,902 -
Total Assets of BI reached to 654.9 million euros in the first half of 2013, a decrease of 1% compared to the end of 2012. This decrease was mainly due to the devaluation of FII assets in the portfolio of BI and the decrease of liquidity for the payment of interest on Supplies and acquisition of properties.
The BI acquired in the first six months of 2013 a total of 17 residential fractions totalizing 2.7 million euros, and sold to the market 2 million residential properties that generated a capital loss of 0.065 million euros .
77 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
In the first part of the year 2013, total revenue generated amounted to 4,194 thousand euros, mainly from rents, amounting to 2,483 thousand euros, income from financial investments in the amount of 1,012 thousand euros, of services, which amounted to 533 thousand euros and also other financial income in the amount of 167 thousand euros. Total operating costs were of 3,530 thousand euros, for which mainly contributed costs to third parties and staff, amounting to 1,308 thousand euros and mainly the losses decrease in fair value in the amount of 2,031 thousand euros.
Interest paid relating to financing agreements regarding Supplies at the end of the year amounted to 510.75 million euros, accounted for 8,838 thousand euros in the first half. Following the reorganization of the Group and included in the process of the real estate business model, which is focused on BI as a society of auxiliary services for Banif SA, is a unique holder of Supplies from BI, approved the granting of non-burdensome Supplies with effect from 1st July 2013.
Net profit for the year 2012 was – 8.280 thousand euros, and it corresponds essentially to two combined effects: ( i ) the previously mentioned financial costs , (ii ) the net effect of the results of FII held in the portfolio fair value amounting to -1,067 thousand euros (we are including income received by Banif Property FII). This result compares with the same period last year of -11,499 thousand euros, which represents an improvement of results in 39%.
During 2013, continued a series of actions in different areas, destined at valuing and leasing of properties in greater financial expression, and to this effect contacts have been made with the relevant authorities and potential stakeholders, meeting in ongoing negotiations for properties of high amount.
Additionally intensified promotional activities in order to maximize sales and leases of real estate, such as the preparation of brochures for distribution channels by selling properties for large volumes, advertising campaigns relating to Real Estate Portal and campaigns properties at attractive prices.
Expectations in 2013 and beyond
The Banif Group has an ambitious deleverage plan, whether in real estate assets both national and international. These objectives are a main part of the capital plan and funding ("Funding and Capital Plan") Banif Group for the period from 2013 to 2017.
The second part of the year 2013 will be dedicated to the fulfilment of the outlined plan, including the goal of total direct sales in the domestic market by 66 million and international sales of 78 million euros, with special emphasis on American and Brazilian assets.
As in the first half of 2013, BI will continue to enhance its international contacts in order to find international investors interested in investing in real estate assets Portuguese. The contacts made in the first half resulted in a concrete proposal for the acquisition of a portfolio of 500 million real estate asset for commercial purposes however, it wasn’t celebrated due to inability to agree on a common pricing.
78 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Families and businesses will continue to experience, in the coming years, shortages and income inhibitors for the consumption of real estate. These difficulties are very evident in the domestic market and should guide the various stakeholders in the housing market, including Banif Group, to conduct their objectives to take the foreign market as a determinant issue; increasing the rent, maintaining the value of the assets ( mainly land ) still not developed through the elaboration and approval of urban development projects, in anticipation of the resumption of market, and sell " discount" only those goods that do not have nor ever will be able to get better value .
INSURANCE
Insurance Sector
In the 1st half of 2013 , according to data released by the APS - Portuguese Association of Insurers, the insurance sector recorded a growth of premium volume of +26 % , considering the production of investment contracts in Life, purely for financial products.
The Life segment, considering the investment contracts presented by June 2013 had a positive variation in production of 49 %, which contributed significantly to the increase of 60.7% recorded in the financial products, including PPR.
Conditioned by an adverse macroeconomic environment, the non-life insurance registered until June 2013 a negative variation in production of 3.8%, mainly affecting Labouring Accidents (-10.9 %) and Auto (-5.6 %).
Main Lines of Action
The Triennial Strategic Plan 2011-2013 presented as essential formula of action the following equation: R2E2, which translates the objective of Açoreana to achieve levels of profitability in line with "best practices" of the market with regard to ROE, and continue to be an increasing reference in the insurance market through efficiency and effectiveness in service quality, innovation and responsiveness.
In line with the strategic objectives outlined, Açoreana assumed as the main vector in terms of competitive positioning and affirmation in the market, the service provided to its clients and business partners. It was in this context that the Açoreana developed a model for managing innovation, understanding that this is one of the key levers that will enable the Company to maintain in a sustained way, their factors of differentiation from the competition, as well as create new competitive advantages.
The Company continued to focus its activity on a commitment to excellence in the different levels of service. The many activities include the following:
- Regarding products, a new insurance was launched within the Labouring Accidents with an innovative pricing model, which analyses beyond the activity of your history insured risk and safety, maintaining the assumption of quantitative and tangible commitment at service providing level. It has also launched the new Health product,
79 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
characterized by a pricing model based on multi-varied analysis according to the type of risk, the introduction of new coverage, enlargement of access networks, the focus on loyalty and commitments to level of service. - Under the management of accidents, the Clinical Center of Ponta Delgada was opened for the assistance and support of the victims in accidents, personal injury and motor vehicle accidents. This unit continues the project begun in 2011 with the opening of the GIGA, in Lisbon in 2012 and the CRIA in Porto. - Permanent monitoring of evaluation of the Company within the distribution channels and clients in different ways, namely in accident management, the computing platforms of communication with business partners , the range of supply of our products, the value proposition for brokerage network and the level of service provided in commercial assistance . - Integrating actions for dissemination of Risk Management Awards Açoreana, the Economic Daily has begun the cycle of conferences, with initiatives that took place in Oporto and Aveiro, in order to recognize and reward companies and their managers that stand by the best Risk Management practices in their business.
Business Performance and Key Indicators
The turnover Açoreana reached during the 1st half of 2013 the total amount of 185,525 thousand euros, of which 45,989 thousand euros relating to life insurance and 139,536 thousand relating to non-life insurance.
In Non-Life, Açoreana recorded at the end of June 2013, a decrease of the volume of premiums - 5.1% regarding the same period last year, allowing to maintain the market share in non-life at 7%.
In the main types, Labouring and Automobile Accidents, although there was a decline in premium volume , there was also an increase in its market share at the end of the 1st half of 2013 it is set 11.4 % and 8.2 %, respectively, and the Company is positioned as the 2nd largest operator in the Portuguese market in labour accidents.
It should also important to mention the performance recorded by Health and Multiriscos Comércio, with a growth of +3.5 % and +0.8 %, above the variation observed by the market (+2.7 % in Health insurance and -1.4 % in the Multiriscos Comércio).
The Life segment presents a variation of -6.9 % regarding the same period last year. For products considered strategic, the Vida Risco grew by +7.7 % while the PPR 's with a production of about 15 million showed a decrease, over the same period, close to -30% .
The distribution of insurance products is carried out through the mediation network that has about 4100 agents and 95 brokers, branch Banif and 44 branch offices.
The weak macroeconomic environment, marked by a sharp drop in domestic demand and rising unemployment and weathering occurred in January, were the factors that most affected the development of the activity of the insurance industry in this first half of 2013.
80 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The storm occurred on January 19, represented to the Company about 6.3 million of costs related to claims over 2000 claims communicated, affecting negatively the results of the 1st half of 2013 .
In this context Açoreana obtained at the end of June 2013, a net profit of 2.8 million euros, although this represents a decrease of -48.8 % over the same period last year.
Net assets stands at 1.180.920 thousand euros and equity reached the 158.083 thousand euros, representing an increase of 23.3 % over the same period last year.
The solvency margin in June, 2013 exceeds 235%, which gives a very comfortable position to Açoreana Insurance within the market, revealing ability and financial strength of the Company.
Açoreana Insurance had an active participation in the recapitalization of Banif - Banco Internacional do Funchal , SA through the subscription of new shares worth 75 million euros in the capital increase of the Bank which occurred in late June 2013.
(thousand euros) Jun - 13 Jun-12 Variation
Operating 185,525 196,412 -5.5% Life 45,989 49,401 -6.9% Non-life 139,536 147,011 -5.1% Net asset 1,268,284 1,309,302 -3.1% Liabilities 1,089,183 1,169,243 -6.8% Equity 179,101 140,060 27.9% Net profit 575 3,394 -83.1%
81 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
06 CONSOLIDATED ACCOUNTS ANALYSIS
Results The first semester of 2013 was characterized by a significant operational improvement in Banif’s activity, having simultaneously executed processes that were structural for the group, such as follows: (i) recapitalization plan with the aid of the State’s participation, in January; (ii) negotiation between the State and the EC regarding the Restructure Plan which general guidelines are already consolidated, and (iii) preparation for the second phase of the recapitalization process, regarding that the capital has already been increased in 240.7 million euros through the private offer of 100 million euros that took place on 26th June 2013, the public offer of 100 million that happened on 30th July 2013 and the capital increase of 40.7 million euros on 5th August 2013 through private offer.
On the second quarter of this year there was still the tendency of a significant improvement regarding the financial margin, that increased approximately 30% in the first quarter of 2013 to 38 million euros and the banking product in the same period showed an increase of 54.5% to 87 million euros.
By the end of the 1st semester of 2013 the activity product grew slightly 9.6% concerning the same period of the previous year. For this variation several factors were important:
- A reduction of the financial margin to 68.0 million euros (-24.5% of the same period of the previous year) as a result of the contraction of the credit activity in 2013 and of the reduced level of the short term interest rates that are indexes to the credit operations. It is important to mention that the costs that are related to subordinated bonds of contingent conversion (CoCos) correspond to 16.6 million euros. Excluding this effect the Net Interest Income would have been around 6% lower. However, regarding the quarterly period, the Net Interest Income increased approximately 30% in the second quarter of 2013, to 38 million euros, as a result of the pursuit of a cost and financing reduction policy. - A decrease of 10.9% on net commissions to 38.5 million due to the banking activity slowdown. - Results on financial operations in the amount of 29.9 million euros mainly related to gains from the disposal of securities of fixed income (32.4 million euros). - Positive impact of other profits with the amount of 6.0 million euros (+2.6 million euros compared to the first semester of 2012).
82 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Operating Income: Breakdown (millions euro)
9.6% 143.6 131.0
110%
4.2% 2.6% 90% 26.8% 33.0% 70%
20.8%
50%
30% 70.5% 48.2%
10%
-6.1% -10% Jun/12 Jun/13
Net Interest income Net Trading income Fees & Commisions Other operating income
Structure costs (costs with staff and general administrative costs) totalized 126.1 million euros, decreasing 12.6% regarding the 1st semester of 2012, reflecting the fulfilment of the rationalization measures adopted by the group, that were namely the reduction of 37 branches and the reduction of the number of employees.
In addition, excluding the extraordinary costs related with external services of consultants and auditors regarding the recapitalization process, structure costs totalized 120.7 million euros, which means a reduction of 16.7% regarding the 1st semester of 2012.
Provisions and net impairment were 222.1 million in the 1 semester of 2013 and compares to 110.8 million euros registered in the 1st semester of 2012. It is important to point out that the portfolio’s impairment was 198.9 million euros on the 1st semester of 2013 and includes a significant effort related to the activity developed in Brazil of 78.7 million euros, as well as the additional reinforcement in the domestic area that resulted of a prudential transversal audit to all banks, which was carried out by order of the Bank of Portugal, in the amount of 61.1 million euros in the 2nd quarter.
The Group cancelled 12.2 million euros of differed taxation related to fiscal losses regarding the years 2010 and 2012, for which there is no possibility of use.
The net results obtained during the 1st semester of 2013 were -196.0 million euros comparing to - 124.6 million euros in the same period last year and were strongly penalized by the provision
83 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
reinforcement and impairment previously mentioned (222.1 million euros in the 1st semester of 2013 that corresponds to a variation of approximately 100%).
It is still important to refer that the results are within the goals of the recapitalization plan.
Regarding the evolution of the results coming from the business developed on a domestic level, a significant operational improvement was seen in the 1st semester of 2013 if compared to the same period of 2012 since the product of the activity has been practically unaltered and the operational costs decrease 16.5% despite being negatively affected by the extraordinary cost records that occurred during the recapitalization process. The net result was strongly penalized by the effort of an additional provision and net impairment of the 2nd quarter resulting from a transversal and prudential audit to all banks in Portugal.
Domestic Business evolution (millions euro)
D 2013/ Portugal Jun-13 Jun-12 2012
Operating income 146 145 0.8%
Operating costs -118 -142 -16.5%
Results before provisions & impairments 28 3 -
Provisions & impairments -137 -76 79.3%
Net Income -101 -73 -38.2%
Balance sheet Net assets totalized 14,493.2 million euros by 30th June 2013, with a growth of 3.6% compared to the final exercise of 2012. This variation is essentially explained by the acquisition of securities of sovereign Portuguese debt with an approximate value of1.1 million euros coming from the capital increase and the issue of subordinated conversion contingent bonds in January 2013 and related with the recapitalization process. Besides this effect the net assets would have recorded a reduction of 4.3% regarding December 2012. Gross credit granted to clients reached 10,400.0 million euros by 30th June 2013, decreasing about 4.7% in comparison to December 2012. Consumers credit recorded a reduction of 4.7% during the period, down to 4,615 million euros and the credit to enterprises decreased 4.6% to 4,311 million euros. By the end of June 2013 active credit to private clients represented 44.4% of total granted credit while active credit to companies represented 41.5%.
This evolution shows the effort of deleverage carried out by the bank and reflects equally a global context of a minor demand for credit by both families and companies, linked to the present context of recession, particularly to the strong contraction of demand in the internal market that has been inducing the postponing of investment decisions from the enterprise sector and the reduction of consumption of long lasting goods by the families.
84 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
In order to support the financial needs of national companies, a programme was launched by Banif, which offers 500 million euros of financing to PME’s of the industrial and agro-food sectors.
Loans to customers - gross (millions euro)
D 2013/ Jun-13 Dec-12 2012
Corporate 4,311 4,518 -4.6%
Individuals 4,615 4,841 -4.7%
Mortgage Loans 3,130 3,239 -3.4%
Consumer Loans 625 665 -6.0%
Other Loans 860 937 -8.2%
Others 1,474 1,555 -5.2%
Total 10,400 10,914 -4.7%
Banif’s exposure to the corporate segment and especially to the property and construction sectors, deeply affected by the reduction of economic activity and by the contraction of consuming and available income, has affected the quality indicators of the portfolio. However it is of most importance to point out the favourable evolution regarding overdue credit over 90 days facing total credit that in 30th June 2013 reached 12.7% and compares with 12.9% in 31st March 2013 and the reinforcement of the ratio of overdue credit coverage over 90 days for impairment that on 30th June was 91.8% (compared to 84.9% in 31st March 2013).
The customers deposits on 30th June were 7,153 million euros, decreasing 7.7% comparing to December 2012. This reduction is explained by a reduction of deposits from State and central administration entities (by counterpart of the recapitalization operation) and a revision of pricing that lowered the interest rates which was part of the strategy of financial cost reduction.
As for off-balance sheet customer resources their total was of 2,162 million euros by 30th June 2013 therefore, maintained almost unaltered regarding 31st December 2012.
Total customer resources (millions euro)
D 2013/ Jun-13 Dec-12 2012
Total on-balance sheet customer resources 7,978 8,691 -8.2% Deposits 7,153 7,750 -7.7%
Other liabilities 825 941 -12.3%
Total off-balance sheet customer resources 2,162 2,163 0.0% Total 10,141 10,854 -6.6%
85 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Total on-balance customer resources: Breakdown
TOTAL (€M) 8.691 7.978
6,413
5,773
1,337 1,380 941 825
Dec-12 Jun-13
Tim e deposits Term deposits Certificate deposits & other customer funds
Total on-balance sheet customer resources vs Net loan book (millions euro)
8,097 8,031 7,750 7,315 7,153
10,663 10,408 9,816 9,599 9,187 8,895 8,825 8,691 8,340 7,978
Jun/12 Set/12 Dez/12 Mar/13 Jun/13 Jun/12 Set/12 Dez/12 Mar/13 Jun/13
Total resources Deposits
On 30th June 2013, the transformation ratio of deposits into credit (net credit/deposits) was 128.4% that compares to 131.2% on 31st March 2013 and 126.7% on 31st December 2012.
86 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Transformation ratio: evolution
131.7% 131.2%
129.6%
128.4%
126.7%
2Q12 3Q12 4Q12 1Q13 2Q13
The Group’s net exposure towards ECB increased 776.3 million euros, comparing to December 2012, totalizing 3,580.4 million euros by the end of the 1st semester of 2013. The Group had then 600 million euros of assets for discount with the ECB. It is important to point out that the increase of the exposure to ECB in the 1st semester reflects the amortization of a State guaranteed issue in the amount of 300 million euros (not illegible to the ECB but usable in repo operations), and the reduction of deposits from state/central administration around 115 million euros, both as counterpart for the recapitalization operation and the strategy of financial cost reduction.
Total resources: Breakdown
6.7%
25.4%
53.2%
14.6%
Deposits & equivalents Own debt funds Central Banks Equity
Own capital deducted from non-controlled interests showed an increase of 198.4% regarding December 2012 and rising up to 871.3 million euros by the end of the 1st semester of 2013, explained mainly by: capital increase of 700 million euros reserved to the State and 100 million euros reserved to previous shareholders; accumulated result of the 1st semester of 2013 (-196.0 million euros); decrease of revaluation reserves (-24.1 million euros).
87 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Capital On 25th January 2013 to carry out the recapitalization plan approved in the shareholders general assembly of 16th January 2012 the State subscribed:
a) The share capital increase of Banif by paid-in money with suppression of the right of preference, reserved to the State in the amount of 700 million euros through the issue of 70.000.000.000 new shares representing Banif’s share capital (special shares), with an issue amount of 0.01 euros each;
b) The issue of subordinate and convertible instruments qualified as capital Core Tier 1 in the amount of 400 million euros.
As a result of the operation mentioned above in a), the share capital of Banif increased to 1,270 million euros.
On 26th June 2013 there was another share capital increase of 100 million euros of new paid-in money, through the private subscription with suppression of the right of reference of the shareholders, the capital increased to 1,370 million euros.
The ratio Core Tier 1 regarding 30th June 2013 according to the regulations of the Bank of Portugal was 11.24% and compares with 11.16% on 31st December 2012 (considering the effect of the recapitalization approved by the State on 31st December and carried out on 25th January 2013).
Total capital ratio set at 11.79% that is comparable to 11.75% on 31st December 2012 (considering the effect of the recapitalization approved by the State on 31st December and carried out on 25th January 2013).
88 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
07 OUTLOOK
The first semester of 2013 began with the disclosure, on 31st December 2012, of the deal with the Portuguese State to become part of Banif’s recapitalization plan, with access to the Recapitalization Fund of the PAEF (fitted within Law no. 63 – A/2008 of November 24th).
The agreed recapitalization plan includes: (i) a public investment with the amount of 1.100 million euros, composed by Banif’s share capital increase reserved to the State with the amount of 700 million euros and a subordinated and convertible instrument issue, qualified as Core Tier 1 with a total value of 400 million euros; and (ii) Banif’s share capital increase of 450 million euros, to be performed in one or more operations.
The recapitalization process is based on a temporary support from the State, in a 5 year term and involves an ambitious restructuring process of the business model and reinforcement of the main activity segments of the Bank.
This recapitalization plan was approved in a Shareholders General Meeting of 16th January 2013.
After a notification carried out in 11th January 2013 by the Portuguese State, the European Commission evaluated the measures of state aid, concerning their rules in terms of State aids for bank recapitalization during economic crisis. It was considered that the measures were agreeably orientated, limited to the minimum necessary and had enough guarantees to limit competition distortions, so, on 21st January 2013 the EC temporarily authorized the recapitalization in the required terms and according to the EU’s rules regarding state aid.
Within this context the 1st phase of the recapitalization process was concluded on 25th January, with the pending of the public investment of 1,100 million euros.
The 2nd phase of the recapitalization plan implies an increase of additional capital. Regarding this 2nd phase of the recapitalization plan, on 26th June 2013 a capital increase for Banif in the amount of 100 million euros was paid-in, subscribed by Açoreana Seguros (a Rentipar Insurance SGPS subsidiary) and by Auto-Industrial SGPS in 75 million euros and 25 million euros respectively. As a result of this operation, the share capital increased from 1,270 million euros to 1,370 million euros. By the end of July beginning of August, two more phases were concluded of the recapitalization process, with a capital increase through a public offer for the general public, of 100 million euros, and a private offer destined to a group of identified investors, considered of great relevance to the Group, of 40.7 million euros. By the end of these operations, share capital was of 1,510.7 million
89 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
euros. The Board of Directors is fully committed in concluding the capital increase for private shareholders until the end of 2013, according with the recapitalization plan.
Along with the recapitalization plan, Banif committed to deliver a wide range Restructure Plan for the Group, to the European Commission by 31st March 2013.
Despite not being concluded yet, the restructure plan is presently in discussion between the Portuguese State and the Directorate General for Competition of the European Commission, and is a viable plan to provide the Group with autonomous strength to be able to live without the support from the Portuguese state in the future.
This way, the measures that are part of the restructure plan aim to provide Banif with the capacity to repay as quickly as possible the public participation in the recapitalization process and at the same time reorganize the business strategy within the clients segments that represent more value for the Bank, divest capital consuming activities and activities that do not contribute for profit generating (non-core activities) and reduce significantly the structure costs.
At the same time the management of the divestment of the non-core activities, will be made in a progressive way during the next 5 years, in order to allow the best possible results in this matter.
Globally the strategic lines mentioned above have the objective to assure that the business model of the Group, traditionally based on segments with high level return such as the SME’s (small and medium enterprises) keeps viable and is adapted to a more challenging economic and operational context that has been in the recent past.
Although aware that this will necessarily be a complex and long lasting process, the management team maintains the commitment to place Banif Financial Group on a sustainable path in terms of profitability, liquidity and capital. In this regard, it is critical to pursue the ongoing restructure process successfully in order to allow the capital invested by the Portuguese State to be reimbursed within the provided timeframe.
90 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
08
RATING
Banif – Banco Internacional do Funchal SA has a rating grade given by two agencies (Fitch Ratings and Moody’s) since 2003.
As referred before the Group recapitalized with public funds and in this context, last January, the State entered the Bank’s share structure.
Fitch Ratings As a result of this new reality, on 9th January 2013, Fitch Ratings lowered the feasibility level from “c” to “f”, leading the long term rating to “BB” and short term to “B”.
The review of the feasibility is a merely technical procedure in situations of access to recapitalization public funds, such as what happened with other Portuguese and Spanish banks. The review is transitional and the agency may review the feasibility at a higher level since the capitalization process is concluded.
Moody’s Moody’s Investors Service announced, on 15th April the decrease of the long term rating grade from B2 to Caa1 with a negative Outlook, while the index BFSR (Bank Financial Strength Rating) changed from E (Caa2) to E (Ca).
This decrease reflects that the vision Moody’s has, is that the bank may need to plea for additional help, regarding the deterioration of the economic condition of the country, that may put some additional pressure on the indicators of profitability and quality of the Bank’s credit.
Long Short BF SR Outlook VR2 Run Run (BCA)1 MOODY'S Caa1 NP Negative E(ca) - 15 Apr 15, 2013 FITCH RATINGS BB B Negative - F Dec 21, 2012
1 - BFSR (Bank Financial Strength Rating) BCA (Baseline Credit Assessment)
2 - Viability Rating downgrade to F from C on January 9, 2013
91 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
09 CONSOLIDATED FINANCIAL STATEMENTS
1 – Consolidated Balance Sheet
BANIF AND SUBSIDIARIES
Consolidated Balance Sheet
AT 30th JUNE OF 2013 AND 31st DECEMBER OF 2012
(Thousand Euros)
30/06/2013 31/12/2012
Impairment and Notes Gross value Net value Net value Depreciation
Cash and balances at central banks 6 260,379 - 260,379 184,109 Balances at other credit institutions 7 271,979 - 271,979 210,089 Trading securities 8 173,438 - 173,438 214,725 Other Financial assets at fair value through profit or loss 9 79,708 - 79,708 79,287 Financial assets available for sale 10.35 1,839,829 (48,147) 1,791,682 755,566 Due from banks 11 182,002 (26) 181,976 367,520 Loans and advance to customers 12.35 10,399,715 (1,212,933) 9,186,782 9,815,981 Investment securities held to maturity 13 24,617 - 24,617 36,284 Securities subject to repurchase agreements 19,530 - 19,530 26,223 Derivatives held for hedging - - - - Non-current assets held for sale 35 505,690 (34,170) 471,520 403,134 Investment property 14 913,384 - 913,384 924,357 Other tangible assets 15.35 469,059 (175,830) 293,229 307,025 Intangible assets 16 85,808 (61,958) 23,850 26,264 Investments in associates and affiliates excluded from consolidated acc. 17 122,817 - 122,817 118,630 Current tax assets 14,343 - 14,343 17,216 Deferred tax assets 277,353 - 277,353 248,598 Receivables - direct insurance and reinsurance - - - - Other assets 18.35 428,556 (41,921) 386,635 257,285 Payables - direct insurance and reinsurance - - - - Other assets 18.35 428,556 (41,921) 386,635 257,285
Total Assets 16,068,207 (1,574,985) 14,493,222 13,992,293
Deposits from central banks 19 - - 3,580,419 2,804,084 Trading Liabilities - - 69,064 116,204 Financial liabilities at fair value through profit or loss 20 - - 14,590 14,017 Deposits from other banks 21 - - 329,255 689,101 Due to customers 22 - - 7,153,163 7,750,430 Debt securities in issue 23 - - 1,398,155 1,706,431 Financial liabilities linked to transferred assets - - - - Derivatives held for hedging - - - - Non-current liabilities available for sale - - - - Provisions 24 - - 35,996 31,285 Underwriting provisions - - - - Current tax liabilities - - 2,979 5,854 Deferred tax liabilities - - 57,275 63,059 Securities representing equity 25 - - 418,536 2,009 Other subordinated liabilities 26 - - 229,160 228,114 Other liabilities 27 - - 255,187 205,549 Receivables - direct insurance and reinsurance - - - - Other liabilities 27 - - 255,187 205,549
Total Liabilities - - 13,543,779 13,616,137
Issued capital 28 - - 1,370,000 570,000 Share premium 28 - - 104,565 104,565 Other equity instruments 28 - - 95,900 95,900 Treasury shares 28 - - (53) (124) Revaluation reserves 28 - - (26,253) (2,141) Other reserves and retained earnings 28 - - (476,888) 100,100 Profit for the period 28 - - (196,015) (576,353) Interim dividends - - - - Non-controlling interests 29 - - 78,187 84,209 Total Equity - - 949,443 376,156
Total Liabilities + Equity - - 14,493,222 13,992,293
The Accountant The Board of Directors
92 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
2 – Consolidated Income Statement
BANIF AND SUBSIDIARIES
Consolidated Income Statement
AT 30th JUNE OF 2013 AND 2012
(Thousand Euros)
For the six months ended 30 June 2nd Quarter
30-06-2012 30-06-2012 Notes 30/06/2013 30/06/2013 Pro-forma Pró-forma
Interest and similar income 30 304,944 413,116 151,230 196,266 Interest and similar expense 30 (236,928) (323,001) (112,779) (149,956) Net Interest Income 68,016 90,115 38,451 46,310
Dividend Income 1,206 2,204 1,123 2,204 Fees and commission income 31 50,183 61,260 25,164 32,202 Fees and commission expenses 31 (11,685) (18,041) (5,973) (9,724) Income from assets and liabilities valued at fair value through profit or loss 32 2,557 (457) 6,991 2,428 Income from available-for-sale financial assets 32 36,170 (774) 32,336 (1,294) Foreign exchange income 32 (8,827) (6,718) (11,913) (8,721) Income from disposal of other assets - - - - Net reinsurance premiums - - - - Net cost of reinsurance claims - - - - Variation in net underwriting provisions for reinsurance - - - - Other operating income 5,964 3,412 978 360 Net Operating Income 143,584 131,001 87,157 63,765
Personnel expenses 33 (73,724) (84,079) (36,507) (42,863) Overheads 34 (52,356) (60,175) (28,986) (29,079) Depreciation and Amortisation 15.16 (14,376) (16,181) (6,996) (7,891) Provisions net of write-offs 24 (5,497) 476 (4,569) (4,356) Loan impairment net of reversals and recoveries 35 (198,941) (105,154) (125,249) (31,667) Impairment of other financial assets net of reversals and recoveries 35 (5,509) (554) (1,170) (31) Impairment of other assets net of reversals and recoveries 35 (12,114) (5,573) (8,060) (4,047) Negative consolidation differences - - - - Income from associates and joint ventures (equity method) 17 1,086 1,630 1,103 1,965 Profit/loss before tax and non-controlling interests (217,847) (138,609) (123,277) (54,204)
Income Tax 21,051 16,822 (3,433) 7,204 Current (5,191) (6,027) (2,894) (2,658) Deferred 26,242 22,849 (539) 9,862 Profit/loss after tax and before non-controlling interests (196,796) (121,787) (126,710) (47,000) of which: After-tax profits on discontinued operations - - - -
Non-controlling interests 29 781 (2,824) (138) (1,711) Consolidated Profit for the Period (196,015) (124,611) (126,848) (48,711)
Earnings per share (expressed as EUR per share) (0.00) (0.22) (0.00) (0.09) Diluted earnings per share (expressed as EUR per share) (0.00) (0.19) (0.00) (0.08)
The Accountant The Board of Directors
93 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
3 – Consolidated of Comprehensive Income
BANIF AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
AT 30th JUNE OF 2013 AND 2012
(Thousand Euros)
30/06/2012 30/06/2013 Pro-forma
Profit/loss after tax and before non-controlling interests (196,796) (121,787)
Other comprehensive income
Financial assets available for sale Gains / (losses) in fair value (45,939) 24,345 Tax gains / (losses) in fair value 12,900 (6,586) Gains / (losses) on assets of entities consolidated by the equity method 3,673 (187) Tax gains / (losses) on assets of entities consolidated by the equity method (2,255) (1,375)
Gains on property revaluations (2,664) (1,187) Tax gains on property revaluations 187 -
Actuarial gains / (losses) - - Actuarial tax gains / (losses) - -
Of hedge instruments used in cash flow hedging 41 66 Tax on hedge instruments used in cash flow hedging - 43
(34,057) 15,119
Foreign exchange variations 9,945 (2,228)
Total other comprehensive income net of tax, before non-controlling interests (220,908) (108,896)
Non-controlling interests 781 (2,824)
Total other comprehensive income net of tax (220,127) (111,720)
The Accountant The Board of Directors
94 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
4 – Consolidated of Changes in Equity
BANIF AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
AT 30th JUNE OF 2013 AND 2012
(Thousand Euros)
Non-control- Issued Other equity Share Revaluation Retained Other Result for ling Own Share Total Capital instruments Premium reserves Earnings Reserves the year interests
Balances at 31-12-2012 570,000 95,900 (124) 104,565 (2,141) 247,235 (147,135) (576,353) 84,209 376,156 Application of net profit/loss from the previous year Transfer to reserves - - - - - (576,353) - 576,353 - - Increase in capital 800,000 - - - - - (1,261) - - 798,739 Acquisition/disposal of own shares - - 71 ------71 Comprehensive Income - - - - (24,112) - - (196,015) - (220,127) Buy back of own shares ------Operations in non-controlling interests ------(6,022) (6,022) Other changes in equity ------626 - - 626
Balances at 30-06-2013 1,370,000 95,900 (53) 104,565 (26,253) (329,118) (147,770) (196,015) 78,187 949,443
Balances at 31-12-2011 (Pro-forma) 570,000 95,900 (1,086) 104,114 (52,004) 411,754 (135,283) (161,583) 103,104 934,916 Application of net profit/loss from the previous year Transfer to reserves - - - - - (161,583) - 161,583 - - Increase in capital ------Acquisition/disposal of own shares - - 32 ------32 Comprehensive Income - - - - 15,119 - (2,228) (124,611) - (111,720) Buy back of own shares ------Operations in non-controlling interests ------(2,498) (2,498) Other changes in equity ------2,150 - - 2,150
Balances at 30-06-2012 (Pro-forma) 570,000 95,900 (1,054) 104,114 (36,885) 250,171 (135,361) (124,611) 100,606 822,880
The Accountant The Board of Directors
95 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
5 – Consolidated Statement of Cash Flow
BANIF AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
AT 30th JUNE OF 2013 AND 2012
(Thousand Euros)
OPERATING ACTIVITIES
30-06-2012 30/06/2013 Pró-forma
Operating Results:
Net profit/loss for the year (196,015) (124,611) Value adjustments related to loan and advance to customers 198,941 105,154 Other losses through impairment 17,623 6,127 Provisions for the year 5,497 (476) Amortisations and depreciation for the year 14,376 16,181 Income tax for year (21,051) (16,822) non-controling interests (781) 2,824 Derivatives (net) (7,669) (1,186) Profit/loss from non-consolidated companies (1,086) (1,630) Recognised dividends (1,206) (2,204) Interest paid on subordinated liabilities 7,097 7,971 Interest paid on non-subordinated liabilities - 5,557 Interest paid on securities representing equity 16,577 - Unrealised gains on investment properties 3,311 1,550
35,614 (1,565)
Changes to operating assets and liabilities:
(Increase)/Decrease in financial assets held for trading 4,525 59,347 (Increase)/Decrease in financial assets at fair value through profit or loss (421) 65,790 (Increase)/Decrease in financial assets available for sale (1,074,664) (60,213) (Increase)/Decrease in due from banks 185,518 (240,560) (Increase)/Decrease in investments held to maturity 11,667 16,857 (Increase)/Decrease in loans to customers 430,258 367,563 (Increase)/Decrease in non-current assets held for sale (72,337) (69,063) (Increase)/Decrease in assets with repurchase agreements 6,693 10,485 (Increase)/Decrease in other assets (150,598) 115,440 Increase/(Decrease) in deposits from central banks 776,335 464,812 Increase/(Decrease) in financial liabilities held for trading (2,709) 3,912 Increase/(Decrease) in other financial liabilities at fair value through profit or loss 573 (25,978) Increase/(Decrease) in deposits from other credit institutions (359,846) 102,815 Increase/(Decrease) in due to customers (597,267) 66,695 Increase/(Decrease) in debt securities in issue (308,276) (831,749) Increase/(Decrease) in other liabilities 72,594 (133,357)
(1,077,955) (87,204)
Operating Cash Flow (1,042,341) (88,769)
INVESTING ACTIVITIES
Investment in subsidiaries and associates - 261 Acquisition of tangible assets (4,047) (1,053) Disposal of tangible assets 1,545 0 Acquisition of intangible assets (782) (3,875) Acquisition of investment properties (3,870) (20,822) Disposal of investment properties 13,144 12,707 Dividends received 1,206 2,204
Investment cash flow 7,196 (10,578)
FINANCING ACTIVITIES
Increase in share capital 800,000 - Buy back of own shares 71 32 Issue of subordinated liabilities - 36,075 Redemption of subordinated liabilities (3,092) (36,075) Interest paid on subordinated liabilities (7,097) (7,971) Issue of non-subordinated bonds 20,000 40,000 Redemption of non-subordinated bonds (20,000) (40,000) Equity instruments 400,000 (40,000) Interest paid on non-subordinated bonds (16,577) - Dividends paid on ordinary shares and MCS’s - (5,557) Dividends paid on preferential shares - (4,844)
Financing cash flow 1,173,305 (58,340)
138,160 (157,687) VARIATION IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at the beginning of the reporting period 394,198 471,847 Effect of foreign exchange differences on cash and cash equivalent items Cash and cash equivalents at the end of the reporting period 532,358 314,160 138,160 (157,687)
Balance sheet value of cash and cash equivalent items, at 30 June Cash on hand 45,130 44,294 Sight deposits at central banks 215,243 51,373 Sight deposits at other credit institutions 174,487 107,105 Cheques for collection 12,758 14,841 Others 84,740 96,547 532,358 314,160
Cash and cash equivalents not available for use by the entity - -
The Accountant The Board of Directors
96 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
6 – Annex to the Consolidated Financial Statements on 30th June 2013 Banif and Subsidiaries
1. GENERAL INFORMATION
Banif Financial Group is composed by Societies with specialized competences in the banking and insurance sectors, and are supported on a group of other societies which operate in several areas of the financial sector. The main entities of the Group and the nature of the activities that they develop are detailed on Note 4.
Banif – Banco Internacional do Funchal, SA is an open society with Head Office at Rua João Tavira no. 30, 9004-509 Funchal, Portugal and has as object the exercise of the banking activity and all other accessory related transactions that are similar or compatible with that activity the Law permits.
Banif is detained by the Portuguese State in 86.88%, as a result of the recapitalization operation carried out on 25th January 2013.
Banif shares are officially listed in Euronext Lisbon.
On 1st August 2013, the Board of Directors of the Group reviewed and authorized the Financial Statements of 30th June 2013 and on 19th August 2013 the Management Report.
2. PRESENTATION AND ACCOUNTANCY POLICIES BASIS
2.1 Basis of the Presentation
The Group’s consolidated financial statement here presented refers to the period terminated on 30th June 2013, and is prepared according to the IAS 34 – Mid-Term Financial Report.
The mid-term consolidated financial statement does not include all information and disclosures presented in the annual consolidated financial statements, so these should be read at the same time as the consolidated financial statement of 31st December 2012.
The consolidated financial statements of Banif Financial Group were prepared accordingly with the IFRS - International Financial Reporting Standards, as adopted in the European Union, 30th June 2013 regarding he established by Rule (EC) no. 1606/02 of the European Parliament and the Council of 19th July 2002, transcript to the Portuguese Law through Decree-Law no. 35/2005 of 17th February and Notice no. 1/2005 of the Bank of Portugal.
The consolidated financial statements are expressed in thousands of euros, rounded up to the closest thousand. They were prepared according to the historic cost principle with exception to the assets and liabilities registered at fair value, namely assets and liabilities held for negotiation (including derivatives), assets and liabilities at fair value through results, financial assets available
97 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013 for sale, registered property as tangible assets and investment property. The main accountancy policies used by the Group are presented below.
2.2 Comparative Information
Regarding the process of society restructure of Banif Financial Group, Banif incorporated Banif SGPS on 17th December 2012 and became the mother company of Banif Financial Group. The comparative data of the pro-forma income statement refers to the consolidated accounts of Banif SGPS of the same period.
The merge between Banif SGPS and Banif did not alter the structure of the Group nor the Group’s economic reality that exists to the shareholders. Due to lack of clarification from the IFRS concerning the correct way to process business concentration between entities under the same common control, the method of common interest. According to this method the Group’s consolidated accounts remained unaltered, not having been any re-measure or recognition of new assets or liabilities within the consolidated accounts (such as Goodwill).
In general terms, the presented values are compatible in the relevant aspects with those of the previous exercise.
2.3 Use of estimations regarding the preparation of the Financial Statements
The preparation of the financial statements according to the IFRS requires that the Group carries out estimations and judgments that affect the application of the accountancy policies, the value of the assets and liabilities, revenues and costs as well as disclosed contingent liabilities. Regarding the aggregation of the estimations, the Group’s management used its judgment and the available information on the date of the preparation of the financial statements. Regardless to this, the values that will effectively be performed in the future may well differ of the estimations previously made.
The themes that involve a greater level of judgment or where significant assumption and estimation are used in the preparation of the consolidated financial statements are as follows:
Ongoing Operations The financial statements were prepared according to the principle of continuity, since the Group’s management considers that the Group has means and capacity to continue to develop its activity in the predictable future. For this judgment, the Group Management considered several information on the present conditions and future projections on profitability, cash-flows and capital.
98 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Fair value of financial instruments The Fair Value is based on market quotations, when available. However, in the absence of quotation, it is determined based on evaluation methodologies based on market to model cash-flow techniques, considering market conditions, volatility factors, correlation, not to forget time value.
Impairment in client´s loans The Group evaluates the credit portfolio on a periodic basis, as so to evaluate the existence of impairment evidence.
In this context, clients that are identified with overdue credit and whose total responsibilities are considered as a significant amount for the Group are object of individual analysis to evaluate the needs of impairment for losses.
These estimations are based on assumptions about a group of factors that may be modified in the future and consequently change the impairment amounts. Additionally a collective analysis of impairment is also carried out to the rest of the credit operations that have not been individually analysed, through the allocation of such operations in credit segments with similar features and risks. Collective losses for impairment are estimated with a calculation that is based on the historic behaviour of losses for the same type of assets.
The credits individually analysed that had no evidence of objective existence of impairment, are grouped regarding similar risk features and evaluated collectively for impairment effect.
Whenever a credit is considered unrecoverable and its loss for impairment estimated in 100% of the amount of the loan, it is removed from the accounts with counterpart of the value of the loss. This way the credit is considered written-off.
If written-off credits are recovered in the future, the recovered amount is credited as result in the item “Credit net impairment of recovery and reversions”.
Impairment of financial assets available for sale – capital instruments The Group determines that there is impairment of its financial assets available for sale when a significant or long lasting devaluation with its fair value takes place, below cost price or when it is predicted that to be an impact on future cash-flows of those assets.
This determination requires judgment and the Group has all the available information in the market and out of market to carry it out. As a result of the market volatility the Group considers there exists objective evidence of impairment, or as mentioned, a significant or long lasting devaluation, whenever the following are seen:
ü Decline of the fair value of a capital instrument equal or above 30%; or ü Decline for a period over 1 year. Impairment of financial assets available for sale is presented on note 35.
99 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Property assets evaluation Evaluation services are provided by external companies, independent and registered in the CMVM, with qualifications, recognized competence and professional experience, adequate to the performance of their functions.
The reports follow the requirements established by CMVM, the Bank of Portugal and the Portuguese Insurance Institute, as well as the criteria defined by the Rules of European Accountancy and the guidelines of the international institutions such as RICS and TECoVA.
The procedures of evaluation assume a gathering of rigorous information of up to date documentation, whether it concerns a property inspection and involving area, a matter of the municipality and other institutions or market analysis, transactions, supply/demand and development perspectives.
Processing this information, areas and uses and market values, allow the adoption of base value for calculation by applying methods and their comparison.
The comparative method is always used directly or as base of development cash-flows, updated on the date of the evaluation with rates that include the projects risks. The method of the reposition cost is also directly used in the valuing of property with continuous use and is an essential contribution in the mentioned development scenarios. The property subject to exploration, effectively rented or with valuing depending on its potential income, capital income is updated according to yields that reflect behavior and main market indicators.
All reports are analyzed and validated by the internal technical structure and the evaluations for these assets were carried out from June 2012 and December 2012 and reflect present market conditions.
The releasable value of these assets depend on the evolution of real estate market conditions.
Property assets are registered in non-current assets held for sale, investment properties and property for own use.
Assets by differed tax The group recognizes assets by differed tax for reportable fiscal losses when it is estimated that positive results may exist in a near future, established by Law. For this effect judgments are made in order to determine the amount of differed active taxes that may be recognized based on the level of expected future tax results.
100 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Retirement benefits The Group determines the responsibilities for retirement pensions and the income of the Pension Fund constituted to cover these responsibilities, based on actuarial tables and the pension’s growth assumption and asset returns, which compose the Pension Fund.
According to the long term nature of the pension plans these estimations are subject to significant uncertainties.
Consolidation of entities with special purposes (SPE) The Group recorre the constitution of Special Purpose Entities with the aim to carry out securitization operations of assets or debt issue.
The Group does not consolidate the SPE which they have no control over. Since it may be difficult to determine if the control is being carried out over an SPE, a judgment is carried out in order to determine the possibility of exposure of the Group to risks and benefits that are inherent to the activities of the SPE and to acknowledge if it has the power of decision in that same SPE.
The decision that a SPE must be consolidated by the group requires the use of assumptions and estimations to follow up residual gains and losses and determine who retains the majority of those gains and losses. Other assumptions and estimations could lead to a different consolidation perimeter of the Group
The entities that wit special purposes included in the consolidation are presented in Note 4.
2.4 Consolidation Principles Consolidated financial statements include Banif accounts and those of the entities they control, called subsidiaries, including investment funds in which the group detains over 50% of the SPE prepared for the same reference date of the present consolidated financial Statements.
It is considered to exist control whenever the group has the possibility to determine the operational and financial policies of an entity in order to obtain benefits out of its activities, which normally happens when the group has at least 50% of the rights to vote of those entities.
The SPE over which the group has the majority of the risks and benefits according to its activity, are also included in the perimeter of consolidation. In this context are included essentially entities used by the group and that are part of securitized credit operations and the issue of structured debt.
Whenever it is applicable, the subsidiary accounts are adjusted as to reflect the use of accountancy policies of the group.
Balances and transactions between group entities, resulting of operations within the group are eliminated in the process of consolidation.
101 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The value that corresponds to the participation of third parties within the subsidiaries is presented in the item “Non-controlling interests”.
2.5 Enterprise activity concentration and goodwill The group registers the acquisition of subsidiaries by the purchase method. The acquisition cost corresponds to the fair value on the date of the transaction, of the delivered assets, the assumed liabilities, the own capital instruments issued increased of any costs directly attributed to other transaction. The assets, liabilities and identified contingent liabilities of the entity are measured by their fair value on the acquisition date.
The goodwill corresponds to the difference between acquisition cost and the proportion acquired by the group of the asset’s fair value, liabilities and identified contingent liabilities.
Whenever the fair value exceeds acquisition cost (negative goodwill), the difference is recognized in results.
When the acquisition cost exceeds the assets fair value, liabilities and contingent liabilities the goodwill is positive and registered in the assets, but it is not amortized. However, it is testes for impairment on an annual basis and eventual losses are obtained.
For the purposes of performing the impairment test, the goodwill recorded is attributed to each of the cash generating units (CGU) that benefited from the merge. The goodwill allocated to each unit is subject to impairment testing on an annual basis or whenever there is an indication that impairment may exist.
The impairment of goodwill is determined by calculating the recoverable amount of each CGU or group CGU to which the goodwill relates. When the recoverable amount of the CGU is less than the amount recorded impairment is identified.
Impairment losses on goodwill cannot be reversed in future periods.
2.6 Investments in associates All entities are classified as associates, over which the Group has the power to exercise significant influence on their financial and operating policies, although it does not hold control, and which are neither subsidiaries nor joint ventures, or holdings through investment funds, venture capital or banks (seed capital), or classified on initial recognition as financial instruments at fair value through profit or loss.
The Group considers that there is significant influence whenever it holds, directly or indirectly, more than 20 % of the voting rights and representation in the governing body.
102 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Investments in associates are accounted for in the consolidated financial statements of the Group by the equity method, from the moment that the Group obtains significant influence until the moment it ceases. The book value of investments in associates includes the value of the respective goodwill determined on acquisitions and is shown net of impairment losses.
The initial registration of the investment is carried out at acquisition cost, which is incremented or decremented by the recognition of subsequent changes in the portion held in equity of the associate. Any negative goodwill is immediately recognized in results.
The investment value is subject to annual impairment tests.
Similar to the procedure followed regarding subsidiaries, where applicable the accounts of associates are adjusted to reflect the Group's accounting policies.
2.7 Joint Ventures Joint ventures are considered as investments in entities over which the Group shares control with another party. This sharing is formalized by a contract agreement, in which financial and operational strategic decisions related to the activity, require the unanimous consent of the parties sharing control.
The Group's interests in joint ventures are recognized using the proportionate consolidation method.
Under this method of consolidation, there are no non-controlling interests.
2.8 Foreign currency transactions Transactions in foreign currency are recorded on an indicative exchange rates basis of the functional currency on the transaction date.
On the balance sheet’s date, monetary assets and liabilities expressed in foreign currencies are converted into euros at the closing exchange rate. Non-monetary items that are measured at fair value are translated using the exchange rate in effect on the last valuation date. Non-monetary items which are maintained at historical cost are kept to the original exchange rate.
Exchange rate differences arising on conversion are recognized as gains or losses for the period in the financial statement, except for those arising from non-monetary financial instruments classified as available for sale, which are recognized in a separate equity item until the disposal of the asset.
Financial statements of subsidiaries and associated companies expressed in foreign currency
At balance sheet date, assets and liabilities denominated in a currency other than Euro are converted using the exchange rate at the balance sheet date, while income and expense items are
103 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013 converted at the average rate for the period. The differences that result from using the closing rate and average rate are recorded without tax effect, against a specific heading of equity until the disposal of the respective entities.
2.9 Cash and cash equivalents For purposes of cash flows statements, cash and cash equivalents include amounts recorded in the balance of domestic and foreign currencies, which include cash, current accounts with central banks, current accounts with other credit institutions in the country and abroad, checks for cashing from other banks.
2.10 Financial Instruments
2.10.1 Initial recognition and measurement of financial instruments Purchases and sales of financial assets that require delivery of assets according with the deadlines established by regulation or market convention are recognized on trade date, as to say the date on which the commitment was made buy or sell. This situation occurs also for financial derivatives.
The classification of financial instruments at the date of initial recognition depends on the characteristics and intent that led to its acquisition.
All financial instruments are initially measured at fair value incremented by any costs directly attributable to the acquisition or issuance, except in the case of assets and liabilities at fair value through profit or loss where such costs are directly recognized in the financial statement.
2.10.2 Subsequent measurement of financial instruments
Financial assets and liabilities held for trading
Assets and liabilities classified as assets and liabilities held for trading are acquired for the purpose of selling in the short term and making profits from fluctuations in price or dealer's margin.
In this class is also included derivative financial instruments which are not considered as hedging derivatives.
After initial recognition, gains and losses arising from subsequent measurement of fair value are recorded in the financial statement. In the case of derivatives, the positive fair values calculated are recorded as assets and hence negative fair values as liabilities.
Interest and dividend income or charges are recorded in the statement of income when the right to payment is established.
Trading financial liabilities are overdraft securities sales. These transactions are recorded on the balance sheet at fair value with subsequent changes in fair value disclosed in the financial
104 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013 statement, under the respective heading "Results of assets and liabilities at fair value through profit or loss".
Financial assets and liabilities at fair value through profit
The assets and liabilities included in this category are financial assets and liabilities designated upon initial recognition at fair value, with changes recognized in earnings under the option provided for in IAS 39 - fair value option.
The Group designates at inception, certain financial assets and liabilities at fair value, provided that the expected conditions for its recognition are satisfied: ü the designation eliminates or significantly reduces measurement inconsistencies of assets and liabilities and recognition of their gains or losses ( accounting mismatch ); ü assets and liabilities are part of a group of assets or liabilities or both, whose performances are evaluated on a fair value basis, in accordance with an investment strategy and risk management documented, or ü The financial instrument contains one or more embedded derivatives, except where the embedded derivative does not significantly modify the cash flows inherent in the contract, or with little or no analysis and that the separation of embedded derivatives cannot be made.
After initial recognition, gains and losses arising from subsequent measurement of fair value of assets and liabilities are reflected in the income statement under "Income from financial assets and liabilities at fair value through profit or loss”.
The Group classifies financial assets at fair value through income the securities whose management and performance evaluation are based on the fair value, and as liabilities in debt instruments (subordinated and unsubordinated) with one or more embedded derivatives.
Financial assets available for sale
Financial assets are classified under this heading, and may be subject to disposition in response to or in anticipation of liquidity needs or changes in interest rates, exchange rates or changes in its market price.
To date, the Group has classified this category fixed income securities, equity considered strategic and equity instruments for which it is not possible to obtain reliable valuations.
After initial recognition, they are subsequently measured at fair value, or maintained at cost.
Gains and losses are recognized in "Revaluation reserves" until its sale (or the recognition of impairment losses), at which time the accumulated value is transferred to the income statement under the item "income from financial assets available for sale."
105 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Interest on financial assets is calculated according to the effective interest rate method and recognized in the caption "Interest and similar income" and dividends are recognized in the caption "Income from equity instruments", when the right to receipt is established.
For debt instruments issued in foreign currency, the exchange differences are recognized in the income statement under "Net gains from foreign exchange."
Each reference date of the financial statements, the Group assesses the existence of situations of objective evidence that financial assets available for sale are impaired, considering the information available in the market and the available information about issuers.
When there is objective evidence that a financial asset available for sale is impaired, losses are recognized in the caption "Impairment of other assets net of reversals."
Financial assets held to maturity
In this category non-derivative financial assets with fixed or determinable payments and maturities Are classified, which the Group has the intention and ability to hold to maturity.
These assets are measured at amortized cost, using the method of effective interest rate and are subject to impairment tests. Amortized cost is calculated taking into account the discount at the date of acquisition, and other costs directly allocated to the purchase as part of the effective interest rate. Amortization is recognized in the caption “Interest and similar income".
Impairment losses are recognized in the caption "Impairment of other assets net of reversals."
Assets with repurchase agreement
In this section are classified, the purchase value of the assets plus interest implicit in the resale price recognized in accordance with the principle of accrual.
Applications in other Institutions and Loans to customers
The Group records in these applications that have items with credit institutions, the total value of loans to customers and purchase transactions with resale agreement.
These assets are classified as financial assets with fixed or determinable payments that are not quoted in an active market, provided they are not assets that have been purchased or acquired with the intention of sale in the short term (held for trading) or assets that on initial recognition, have been classified as financial assets at fair value through profit or loss.
106 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
After initial recognition the amount disbursed, which includes all costs related to the transaction, including fees charged, do not have the nature of service are measured at amortized cost, through the effective interest rate method and are subject to impairment tests.
Amortized cost is calculated in accordance with the income and expenses, directly attributable to the origination of the asset as part of the effective interest rate. The amortization of these charges or income is recognized in the caption "Interest and similar income" or "Interest expense" . Impairment losses are recognized in the income statement under the heading "Loan impairment net of reversals and recoveries”.
When, at one point the Group considers that there is no expectation for recovery on a particular loan or set of loans, these are written-off.
This review is independent of existing procedures, regarding this subject. Concerning individual accounts of subsidiaries, specifications of local regulations are in order.
Deposits from other credit institutions, resources and other loans / debt securities issued and Subordinated debt
The other financial liabilities, which mainly include resources from banks, customer deposits and debt issues not designated as financial liabilities at fair value through profit, and whose contractual terms result in the obligation to deliver to the holder of funds or financial assets, are initially recognized at the consideration received net of costs referring to directly attributable transaction and subsequently measured at amortized cost using the effective interest method. Amortization is recognized in the caption "Interest expense".
Fair value As mentioned above, the financial instruments recorded in the categories of financial assets and liabilities at fair value through profit or loss and financial assets available for sale are measured at fair value.
The fair value of a financial instrument is the amount at which an asset or liability can be sold or settled between independent, informed and interested parts, in the completion of the transaction at normal market conditions.
The Group determines the fair value of its financial assets and liabilities held for trading and available for sale in accordance with the following criteria:
ü For instruments traded in active markets, fair value is determined based on the closing price of the last transaction price or the value of the last bid ( " Bid " ) known; ü For instruments not traded in active markets, fair value is determined using valuation techniques, including prices of recent transactions for instruments and other valuation methods commonly used by market ("discounted cash flow" models option valuation, etc.).
107 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The variable income assets (e.g. shares) and derivatives, which possesses them as a underlying asset, for which it is not possible to obtain reliable valuations, are stated at cost, an deducted of any impairment losses.
2.10.3 Impairment of financial assets
Financial assets at amortized cost
The Group assesses whether there is objective evidence of impairment on financial assets carried at amortized cost including deposits in credit institutions, instruments held to maturity, loans and receivables. Impairment losses identified are recorded in the financial statement.
In a subsequent period, whenever there is a decrease of the loss value due to estimated impairment, the amount previously recognized is reverted directly by adjustment of the account of loss through impairment. The amount of the reversion is directly recognized in the financial statement in the same section.
A credit or a loan portfolio of clients, defined as a set of credits with similar risk features, is impaired when:
ü objective evidence of impairment as a result of one or more events that occurred after its initial recognition and , ü whenever that event ( or events) has an impact on the recoverable value of the future cash flows of the loan or portfolio of loans to customers , and whose measurement can be reasonably estimated.
For determination of impairment losses there are two methods of analysis: a) Individual analysis The assessment of the existence of impairment losses on individual terms is accomplished through a detailed analysis of the situation of clients with total credit exposure considered significant. For each client, the Group assesses at each balance sheet date, the existence of objective evidence of impairment particularly considering the following factors:
ü economic and financial situation of the client; ü global exposure of the client and the existence of overdue credits in the Group and the financial system; ü commercial information relating to the customer; ü analysis of the sector in which the client is incorporated, when applicable ; ü the links with the client group to which it the client belongs, when applicable, and analysis for the variables mentioned above in terms of client individually considered.
108 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
In determining impairment losses on individual terms considers the following factors:
ü The financial viability of the client to generate sufficient cash flow to cover debt service in the future; ü The value of the collateral and the associated amount and timing of expected recoveries ; ü The assets available on liquidation or bankruptcy and the existence of preferred creditors.
Credits analyzed individually, for which there has been the existence of impairment are grouped together based on similar risk characteristics and collectively assessed for impairment.
Credits analyzed individually for which it has been estimated an impairment loss are not included for the purpose of collective evaluation.
Whenever impairment is identified regarding loss on loans to customers individually assessed the amount of the loss is measured as the difference between the book value and the present value of the credit of its estimated future cash flows, discounted at the original interest rate of the contract. Customer loans presented in the balance sheet is reduced through the use of an account of impairment losses and the amount recognized in the income statement under the heading "Loan impairment net of reversals and recoveries." For loans with a variable interest rate the discount rate used to determine any impairment loss is the effective annual rate, determined by the contract.
The calculation of the present value of estimated future cash flows of a collateralized loan, reflects the cash flows that may result of the recovery and sale of the collateral, deducted of the costs inherent to the recovery and sale. b) Collective Analysis Credits assessed on a collective basis are grouped by segments with similar characteristics and risks . Impairment losses for these loans are estimated considering the historical loss experience in portfolios of similar risk, the economic environment and its influence on the level of historical losses. The Group periodically updates the historical parameters used to estimate losses on a collective basis.
When a loan is considered uncollectible, and its estimated impairment loss is of 100 % of the credit´s value, it is cancelled through the counterpart of the value of the loss. This way the credit is written-off.
If written-off credits are recovered, the amount recovered is credited in the financial statement in the same item "Loan impairment net of reversals and recoveries" above.
Financial assets available for sale
109 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
In addition to the evidence of impairment for financial assets carried at amortized cost, the IAS 39 foresees the following specific indications for impairment of equity instruments:
ü Information about significant changes with an adverse effect in the technological market, economic or legal environment in which the issuer operates, indicating that the cost of the investment will not be fully recovered; ü A significant or prolonged decline in market value below cost price.
On each balance sheet date, financial assets available for sale are analyzed, verifying the record of signs of impairment, particularly when a significant or prolonged decline in fair value below the cost price is in order. The definition of the level of decline in which it is considered significant or prolonged requires judgment. The Group considers that a decline in the fair value of an equity instrument equal to or greater than 30% (30 % in 2012) or a decline of more than one year (one year in 2012) can be considered significant or prolonged .
Whenever there is objective evidence of impairment, accumulated losses that have been recognized in reserves are transferred to cost of exercise in the form of impairment losses and are recorded in the item "Impairment of other assets net of reversals."
Impairment losses recognized in equity instruments cannot be reversed and any eventual gains arising after recognition of impairment losses are reflected in "Fair value reserve" .If subsequently additional losses are determined, it is always considered that there is impairment, and is reflected in the financial statement.
For financial assets registered as costs, including unlisted equity instruments whose fair value cannot be reliably measured, the Group also performs periodic impairment analysis. The recoverable amount is the best estimate of future cash flows to be received from the asset, discounted at a rate that adequately reflects the risk associated with its holding.
The amount of impairment loss is recognized directly in the financial statement. Impairment losses on these assets cannot equally be reversed.
2.10.4 Derivatives In its current activities, the Group uses certain derivative financial instruments, or to meet the needs of its customers, and to manage their own risk positions interest rate or other market risks. These instruments involve varying degrees of credit risk (maximum potential accounting loss due to possible failure of counterparties of their contractual obligations) and market risk (maximum potential loss due to the change in value of a financial instrument as a result of changes in exchange interest rates, exchange rates and prices).
The notional amounts of derivative transactions, recorded in off balance sheet are used to calculate the flows to be exchanged under the contract. For derivatives interest rate or rates,
110 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013 credit risk is measured by the cost of replacing the current market prices of the contracts that holds a potential gain ( positive market value ) if the counterparty enter into failure .
Derivatives embedded in other financial instruments are separated from the host instrument, when their risks and characteristics are not closely related to the host contract. In these situations, the valuation at fair value through profit or loss, is not done on the entire instrument.
Derivative instruments used by the Group to manage exposure to financial and market risks are accounted for as hedging derivatives according to the criteria defined by IAS 39. If this does not occur, the derivatives are considered at their fair value as assets or financial liabilities held for trading, as have, respectively, positive or negative fair value.
Hedge accounting
Derivative financial instruments used for hedging purposes are classified as hedges provided they comply with the following conditions:
- On the start date of the transaction, the hedge relationship is identified and documented, including the identification of the hedged item and the hedging instrument, and the evaluation of the effectiveness of the hedge; - there is an expectation that the hedging relationship is highly effective on the date of transaction , and throughout the life of the operation ; - the effectiveness of the hedge can be reliably measured , on the start date of the transaction , and throughout the life of the operation ; - For operations of hedges of the cash flows are highly probable of occurring.
At each balance sheet date , the Group tests the effectiveness of the hedge by comparing the fair value of the hedged item, attributable to the hedged risk, with the change in fair value of the hedging derivative the relationship between them lie in the range between 80% and 125%.
Coverage of Fair Value
In an operation of fair value hedges, the carrying amount of the asset or liability, based on the respective accounting policy, is adjusted to reflect the change in fair value attributable to the hedged risk. Changes in the fair value of hedging derivatives are recognized in earnings and also the changes in fair value of the assets or liabilities hedged, attributable to the hedged risk.
If the hedging relationship ceases to exist due to the relative change in fair value of derivatives and hedged instruments being outside the range between 80 % and 125%, derivatives are reclassified to the trading portfolio and the amount of the revaluation of the instruments covered is recognized in earnings during the remaining term of the transaction .
The group has no hedging of fair value referring to 30/06/2013.
111 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Coverage of Cash Flows
An operation of hedge of exposure to variability in future cash flows with high probability, the effective portion of changes in fair value of the hedging derivative is recognized in reserves being transferred to the income in the periods in which the hedged item affects the financial statement. The ineffective portion of the hedge is recognized in the financial statement.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the changes in fair value of derivative accumulated in reserves are recognized in earnings when the hedged transaction also affects results.
If it is foreseeable that the hedged transaction will not take place, the cumulative reported in equity is recognized immediately in the income statement and the hedging instrument is transferred to the trading portfolio.
2.10.5 Derecognition of financial assets and liabilities
Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of financial assets) is derecognised when:
ü The rights to receive cash flows from the asset expire , or ü The rights to receive cash flows have been transferred or have assumed the obligation to pay in full the cash flows receivable without significant delay to a third party under an agreement "pass-through", and ü The risks and benefits of the asset are substantially transferred, or the risks and benefits have not been transferred or retained, but the control over the asset was transferred.
If the rights to receive cash flows have been transferred or have concluded an agreement to pass- through and have not yet been transferred nor retained substantially all the risks and benefits of the asset nor has the control been transferred, the financial asset is recognized to the extent of continuing involvement, which is measured at the lower of the original value of the asset and the maximum payment amount that the Group may be required pay.
When continuing involvement takes the form of a purchase option on the transferred asset, the extent of continuing involvement is the amount of assets that can be repurchased, except in the case of put option measured at fair value where the value of continued involvement is limited to the lower of the fair value of the asset and the exercise price of the option.
Liabilities
A financial liability is derecognized when the underlying obligation expires or is cancelled.
112 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
When an existing financial liability is replaced by another with the same counterparty on substantially different terms from those initially established, or the initial terms are substantially modified such replacement or modification is treated as a derecognition of the original liability and the recognition of a new liability. In case there is difference between the values, the difference is recognized in the financial statement.
2.10.6 Reclassification between categories of financial instruments
In October 2008 the IASB issued amendments to IAS 39 - Reclassification of Financial Instruments. This change allows, according to certain circumstances, an entity to transfer from the categories of financial instruments Financial Assets held for trading and financial assets available for sale, to the categories of Other loans and receivables or financial assets held to maturity provided that these financial assets have the same features to fit in each category.
The Group adopted this possibility for a group of financial assets from July to October 2008.
The reclassifications were recorded at the fair value of the instruments on reclassification date placing this value as the value of the new amortized cost categories for which the assets were reclassified.
A financial asset reclassified in the category of financial assets available for sale, the gains or losses recorded in that financial asset previously recognized in reserves are amortized in the income statement over the remaining life of the financial asset, using the method of effective interest rate. In the case of the existence of impairment on these assets, the amount that is still recognized in reserves is recognized in the financial statement.
The Group may reclassify financial assets held for trading unless they are derived, for the category of Other loans and receivables provided these assets fit into the features of that class.
Nevertheless, if a financial asset is reclassified to another category of asset , and subsequently the Group estimates an increase in future cash flows as a result of a better prospect of recovery of those cash receipts, the effect of this increase is recorded as an adjustment of the effective rate from the date of change in estimate .
2.11 Non-current assets held for sale
Non-current assets are classified as held for sale when it is determined that their book value will be recovered through sale. This condition occurs only when the sale is highly probable and the asset is available for immediate sale in its present state.
The sale is expected to occur up to a maximum period of one year after the classification. An extension of the period during which requires the sale to be completed, does not exclude that the
113 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013 asset (or disposal group) is classified as held for sale, if the delay is caused by events or circumstances beyond control of the Group and the committed to sell the asset remains .
The Group recognizes in this item mainly property received in settlement of debts related to loans. These assets are recorded at the time the initial amount agreed in the settlement agreement, which corresponds to the lower of the outstanding debt or the valuation of the property on the date of the agreement.
Assets in this category are subject to periodic evaluations performed by independent evaluators that give way to the record of impairment for losses whenever the value from these evaluations, net of costs incurred on the sale, is less than the value at which they are accounted for.
2.12 Investment Properties
The properties held by the Group are recognized as investment properties, when they are aimed at capital appreciation over the long term and not the short-term sale or are intended for sale in the ordinary course of business or for your use.
These investments are initially recognized at cost, including transaction costs, and are subsequently re-valued to fair value.
The fair value of investment property must reflect market conditions at the balance sheet date. The changes in fair value are recognized in the financial statement under “Other operating income”.
Investment properties are derecognized, when they are sold or no longer expected future economic benefits of their detention.
At the time of sale, the difference between the net disposal and the registered amount of the asset is recognized in profits.
Transfers, to and from the item "Investment Properties", can occur whenever there is a change regarding its use. When transfering from investment property to property for own use, the estimated cost for accounting statement, is the fair value at the date of change. If a property for own use is classified as investment property, the Group registers that asset in accordance with the policy applicable to the real estate for own use, until the date of their transfer to investment properties.
2.13 Other tangible fixed assets This item includes property for own use by the Group in the development of their business, vehicles and other equipment.
114 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The property for own use are valued at fair value, determined on evaluations by independent experts, deducted of accumulated depreciation and impairment losses.
The property for own Group are frequently evaluated so that the book amounts do not differ materially from their fair value on the balance sheet date, using as reference a period of three years between revaluations.
The positive changes in fair value are credited under "Revaluation reserves", included in equity except until the extent that this variation constitutes reversal of losses of the same asset, recognized in earnings.
Negative changes in fair value are recognized in the income statement except to the extent that these variations can be compensated with the registration of existing positive revaluation reserves for that same asset.
The remaining fixed tangible assets are stated at cost, deducted of accumulated depreciation and impairment losses. Repair and maintenance costs and other expenses associated with their use, are recognized as expense when incurred.
Tangible assets are depreciated on a straight-line basis according to their expected useful life, as follows: Properties [ 10-50 ] years Vehicles 4 years Other equipment [ 2-15 ] years
At the transition date, the Group used the option allowed by IAS to consider as "estimated cost" the tangible assets’ fair value or in some cases, the balance sheet value resulting from legal revaluations until 1st January 2004, according to the Portuguese law.
A tangible asset is derecognized when it is disposed of, or when it is expected the existence of future economic benefits through its use or sale. On derecognition date, the gain or loss measured by the difference between the net sales and the net book value, is recognized in the item "Other operating income".
2.14 Leasing The Group classifies its operations as finance leasing or operating leasing, depending on their substance and not their legal form, in accordance with IAS 17 – Leasing criteria. Operations are classified as finance leasing transactions in which the risks and benefits of ownership of an asset are transferred to the lessee. All other leasing are classified as operating leasing.
Operating leasing
ü As lessee
115 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The payments made by the Group regarding operating leasing are recognized in expenses in the periods in which they relate.
ü As lessor
Assets under operating leasing are essentially vehicles and are recorded in the item "Other tangible assets" at cost, deducted of depreciation and impairment losses. Rents relating to operating leasing are recognized in income in the period they occur.
Finance leases
ü As lessee
The leasing contracts are recorded at their beginning date, both under assets and liabilities at the acquisition cost of the leased property, which is equivalent to the present value of future leasing payments. Rents are composed of:
- The finance charge, subsumed into results; - Amortization of capital is deducted from liabilities.
Finance charges are recognized as costs over the leasing period, so as to obtain a constant interest rate during the leasing and until the data of maturity.
Assets under finance leasing are depreciated over their useful life.
However, if there is reasonable certainty that the Group will obtain ownership by the end of the lease, the amortization of the asset is carried at the lower of the asset's useful life or the financial lease contract.
ü As lessor
Assets under finance leases are recognized in the balance sheet as loans granted, by an amount equal to the net investment in leased assets, which is repaid through the repayment of capital in the plan of financial contracts. Interest that is included in the rents, is recorded as financial income in accordance with the effective interest rate of the contract.
2.15 Intangible Assets Intangible assets, which are essentially regarding software, are stated at cost, deducted from the accumulated depreciation and accumulated impairment for losses. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets which is currently between 3 and 6 years.
116 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The period and the amortization method for intangible assets are reviewed at the end of each year. Changes in the estimated useful life or pattern of consumption of future economic benefits are treated as changes in estimates. Depreciation is recognized in the respective section of the income statement.
Intangible assets may include values of capitalized internal expenses, in particular with the internal software development. For this purpose, the costs are only capitalized from the moment when the conditions of the IAS 38 are present, including the requirements inherent to the development phase.
2.16 Income Tax The expenses or income taxes recognized in the income, equals the sum of expense or income recognized in current income tax expense or income and recognized as deferred tax.
Current tax is calculated at the tax rate in force.
The Group also records as liabilities or deferred tax assets, the figures for the recognition of taxes payable / recoverable in the future arising from temporary differences taxable / deductible, including related provisions, employee benefits and financial assets available for sale.
Assets and deferred tax liabilities are calculated and evaluated on an annual basis, using the tax rates that are expected to be in force at the date of reversal of temporary differences, that correspond to the rates approved or substantively approved at the balance sheet date. The deferred tax liabilities are always recorded. The deferred tax assets are recorded only to the extent that it is probable that future taxable profits that allow their use.
Taxes on income are recognized in the financial statement, except in situations where the events that caused them have been reflected in a specific line of equity, particularly with regard to the valuation of available for sale assets and employee benefits. In this case, the tax effect associated with valuations is also reflected against equity, not affecting net income.
2.17 Employee Benefits Liabilities regarding employee benefits are recognized in accordance with the rules defined by IAS 19. This way, the policies reflected in the consolidated accounts at 30th June 2013 are as follows:
Pension liabilities and healthcare At Group level there are several pension plans, including defined benefit plans and defined contribution plans. These responsibilities are usually financed through pension funds or payments to insurance companies.
The Group entities identified below, have responsibilities regarding the payment of pensions:
a) Banif - Banco Internacional do Funchal, SA
117 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Liabilities for employee benefits are recognized in accordance with the rules defined by IAS 19. Thus, the policies reflected in the accounts at 30 June 2013 are as follows:
Pension liabilities and healthcare Employees of Banif are integrated in the General Social Security since admission, with the exception of employees that were included following the merge by incorporation of Banco Banif and Comercial dos Açores, SA (BBCA), on 1st January 2009, which were in a social security substitute that is part of the ACT banking sector and only began to be integrated in the General Social Security as of 1st January 2011, pursuant to Decree - Law no. 1-A/2011 of 3rd January.
Under that regulation, the General Social Security ensures the protection of employees in BBCA for maternity, paternity, adoption and old age, remaining under the Company's responsibility to protect sickness , disability, survivors and death. The contribution rate is 26,6 % of which 23,6 % by the employer and 3 % by the workers instead of the Box Family Allowance for Bank Employees ( CAFEB ), which was extinguished. In consequence of this change the pension rights of active employees of the BBCA is now covered under the terms defined by the General Social Security, taking into account the length of service from 1st January 2011 until retirement age. After it will be the Society to bear the difference for the pension guaranteed under the Collective Bargaining Agreement (ACT). According to the guidance issued in Notice of the National Council of Financial Supervisors, attached to message fax no. 11/11/DSPDR of 2011/01/26, from the Bank of Portugal regarding that the plan remained unchanged from the ACT and there was no reduction of benefits from the perspective of the beneficiary, the past service responsibilities remained unchanged on 31st December 2010.
On 31st December 2011, following the Decree - Law n º 127/2011, of 31st December the transfer to the scope of Social Security pensioners and pensioners BBCA was carried out to all who were in the social security system substitute of the ACT banking sector as the burden of responsibility for pensions and survival, remained within the responsibility of credit institutions, through their pension funds, payment of amount updating pensions, the benefits of complementary nature, retirement and survivors pensions assumed by the Social Security, contribution for Care Services Medical Social ( SAMS ) on retirement and survivors pensions regarding death benefit, survivor's pension to the surviving spouse and children that of the same worker and survivor's pension payable to retired family present. The conditions for granting must occur from 1st January 2012 (survivor's pension deferred).
The medical care of bank employees is ensured by the Office of Medical-Social (SAMS), an autonomous entity managed by their union. SAMS provides to its beneficiaries services and / or reimbursement of expenses in the field of medical care, diagnosis tests, medication, hospitalizations and surgeries, in accordance with internal regulations.
In 2008, the Company entered into an Enterprise Agreement (EA ) with the sector trade unions, which established important changes concerning the career and social security for their
118 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013 employees, with the exception of the following integrated merger of BBCA, that are not covered by this EA.
Following the entry into force of EA on 1st October 2008, the previous fund Banif was transformed into a mixed fund with three Pension Plans, Pension Plans designated I, II and III.
Until 28th December 2012, the liabilities of the Company were financed through two autonomous pension funds:
- Banif Pension Fund, which funded Pension Plans I, II and III; - BBCA Pension Fund, which financed the Pension Plan BBCA.
On 28th December 2012 after authorization by the Insurance Institute of Portugal ( ISP ) and having no interest in maintaining two separate pension funds, regarding that there is only one single business reality regardless of whether they can differentiate two distinct populations in terms of their socio-professional environment, either within the EA, whether under the Banking ACT, which determines the existence of some different retirement benefits, although separable they were under the same law, the extinction pension Fund and Banif Banco Comercial dos Açores SA, for incorporation into the pension fund Banif, with a corresponding transfer of all its assets and liabilities to the latter pension fund.
The incorporation of the Pension Fund and Banif Banco Comercial dos Açores in pension fund Banif, conditioned the amendment of the Pension Plan Fund I of the latter, in order to accommodate the new population and corresponding benefits, without any loss of rights, expectations and benefits for Participants and Beneficiaries transferred.
This way, Banif offers its employees the following benefits with pensions and health care:
- Pension Plan I (defined benefit), under which Banif assumes responsibility with the following benefits set to:
- The subpopulation A, population coming from the previous Plan I of Banif Pension Fund, ( i ) the payment of pensions for disability, presumptive disability and survival as EA and its pension plan, under complementarity of Social Security and ( ii ) for future payment of compulsory contributions to post-employment medical care for the SAMS, autonomous entity managed by the unions, under the following conditions :
- for employees eligible for retirement pension, Banif makes a contribution of 6,50 % of their pensions; - for the remaining employees associated with defined contribution plans, this benefit will changed to an own capital on retirement date , corresponding to 6.50 % of the capital made , based on the initial contribution of the added value of defined contribution future .
119 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
- Subpopulation B, the extinct population coming Pension Fund and Banif Banco Comercial dos Açores, SA closed to new members, for the payment of retirement, disability, survivor and presumed disability to employees and pensioners of BBCA on the merge date, or their families, in accordance with the ACT and the regimes introduced by Decree -Law no. 1-A/2011, 3rd January, and Decree - Law No. 127/2011 of 31st December. In addition to the benefits provided under the pension plan, Banif takes responsibility for settlement of mandatory contributions to SAMS, with a contribution rate of 6.5 %, and the Death Benefit under ACTV;
- Pension Plan II (defined contribution), under which Banif undertakes to contribute monthly with an amount equivalent to 4,5 % of retribution incidence and an initial contribution made on the date of incorporation of the Plan and which integrates all employees in active service before 1st January 2007, not having deceased, retired or terminated until the date of entry into force of EA, with the exception of the following integrated merge of BBCA, which are not covered by EA. The initial contribution, allocated to their individual accounts, was calculated as ( i ) occupational pensions age estimated in the assessment of responsibilities undertaken by the Responsible Actuary Pension Plan on 31st December 2006 and duly reported to the Insurance Institute of Portugal and the Bank of Portugal, and ( ii ) the present value of future contributions;
- Pension Plan III ( defined contribution ) , under which Banif undertakes to contribute monthly with an amount equivalent to 1,5 % of retribution incidence and covering all employees in active service of the Company after 1st January 2007, not having deceased, retired or terminated until the date of entry into force of AE;
Pension Plans I, II and III are funded through pension fund Banif, which is a separate fund.
The liabilities arising from the Plan I are determined annually by independent actuaries using the method "Projected Unit Credit" actuarial assumptions that are considered adequate. The updating of responsibilities is made based on a discount rate that reflects the market interest rates on corporate bonds of high quality, denominated in the currency in which the liabilities are payable , and with maturity terms similar to the settlement of liabilities pensions.
In 2011, Banif decided to change the accounting policy for recognizing actuarial gains and losses, failing to use the corridor method (IAS 19 § 92) and decided to use the method of recognizing actuarial gains and losses on own capital in the Statement Comprehensive Income (OCI - Other Comprehensive lncome (IAS 19 § 93rd).
According to the method of recognizing actuarial gains and losses in an immediately and comprehensive income: - the liability or asset recognized in the balance is the difference between the present value of pension obligations and the fair value of the assets of pension funds ;
120 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
- gains and losses resulting from differences between actuarial and financial assumptions used and actual values with regard to the responsibilities and performance of the pension fund are recognized in full in equity in the reserve account for actuarial gains and losses .
The increased responsibilities of early retirement, which corresponds to an increase in liabilities for retirement occurs before the employee reaches 65 years of age, are recognized in costs.
The costs of the defined contribution plans are recognized as an expense in the respective year.
On the date of transition to IAS / IFRS, the Group adopted the option allowed under IFRS 1 not to recalculate the deferred actuarial gains and losses since the beginning of the plans (option usually designated " reset").
The Group evaluates the recoverability for the defined benefit plan, the recoverability of any excess of the fund in relation to the defined benefit pension plans, based on the expected reduction in necessary future contribution.
Other long-term benefits In addition to the previously mentioned benefits, Banif also assumed other liabilities for employee benefits relating to long service awards provided for in the ACT, and medical care under SAMS, with workers who terminated the employment contract by mutual agreement, in the process of restructuring implemented in 2012, to their reemployment of consider their retirement.
The liability for these benefits are also determined on actuarial valuations, similar to pension obligations and recorded under "Other liabilities" in the item of results.
b) Other Group entities
Companies Banif - Banco de Investimentos, SA, Banif Asset Management - Investment Manager of Mutual Funds, SA, Banif Açor Pensions - Management Company Pension Funds SA, Banif Capital - Venture Capital Company, SA, Banco Banif Mais, SA, Margin - Insurance Mediation Ltd and Banif Rent - Rental Management and Trade of Motor Vehicles, SA provide their employees pension plans, defined contribution funded through pension funds.
2.18 Provisions and contingent liabilities The Group recognizes provisions when there is a present obligation (legal or constructive) arising from past events where it is probable future expenditure of resources, and this can be determined with feasibility. The provision represents the best estimate of the Group of the amounts that would be required to disburse to settle the liability at the balance sheet date. If time effect of money cost is material, provisions are discounted using an interest rate before tax that reflects the risk specific of the liability. In these cases the increase in the provision due to passage of time is recognized in finance costs.
121 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
If there is no probable future outflow of resources it is a contingent liability. Contingent liabilities are only disclosed if the possibility of it being carried out is remote.
Provisions and contingent liabilities are presented in Note 24.
2.19 Dividends The Group recognizes dividends as a liability and deducted from the item "Capital" when they are approved by shareholders. The dividends for the year, approved by the Board of Directors, after the reference date of the financial statements, are disclosed in the Notes to Financial Statements.
2.20 Recognition of income and costs In general income and expenses are recognized on the basis of term of operations in accordance with the principle of accrual accounting, or in other words, they are recorded as they are generated regardless of when they are received or paid. Profits are recognized to the extent that it is probable that future economic benefits associated with the transaction will flow to the Group and the amount of benefits can be measured in a reliable way.
For financial instruments measured at amortized cost and for financial instruments classified as "Financial assets available for sale", interest is recognized using the effective interest method, which is the rate that discounts exactly the group of receipts or payments of future cash until maturity or until the next repricing date, to the amount currently recorded as net asset or liability. When calculated the effective interest rate future cash flows are estimated considering all contractual terms and considering the remaining income or charges directly attributable to contracts.
Dividends are recognized when the right to receive payment is established.
2.21 income and charges for services and commissions The Group charges fees to its clients for providing a wide range of services. In this group commissions are included for providing continued services for which customers are debited periodically, or commissions charged for a certain significant act.
The fees charged for services provided during a given period are recognized over the period of the service. Fees relating to the achievement of a significant act are recognized at the time the act occurs.
The commissions and charges regarding financial instruments are included in the effective interest rate of the instrument.
2.22 Financial Guarantees Financial guarantees are recognized initially as a liability at fair value. Subsequently the liability is carried at the amount of estimated future costs to settle the obligation at the balance sheet date.
122 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Commissions obtained by the provision of financial guarantees are recognized in the financial statement under "Income from services and commissions" during the period they refer to.
3. ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS NEW OR REVIEWED
During the year there were no voluntary changes in accounting policies regarding those used in the preparation of the financial information presented in the previous year, in comparatives.
123 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
4. GROUP COMPANIES On 30th June 2013 and 31st December 2012, the Group companies included in the consolidation using the purchase method were as follows:
30/06/2013 31/12/2012
Registered % effective Non-controlling % effective Non-controlling Company name Shareholder offices holding interests holding interests
Banif - Banco Internacional do Funchal, S.A. Banif Finance, Ltd. Cayman Islands 100.00% 0.00% 100.00% 0.00% Numberone, SGPS, Lda
Banif & Comercial Açores, Inc San José USA Banif - Banco Internacional do Funchal, S.A. 100.00% 0.00% 100.00% 0.00%
Banif & Comercial Açores, Inc Fall River USA Banif - Banco Internacional do Funchal, S.A. 100.00% 0.00% 100.00% 0.00%
Investaçor, SGPS, S.A. Portugal Banif - Banco Internacional do Funchal, S.A. 59.20% 40.80% 59.20% 40.80%
Investaçor Hoteis S.A. Portugal Investaçor, SGPS, SA 59.20% 40.80% 59.20% 40.80%
Açortur Investimentos Turísticos dos Açores, S.A. Portugal Investaçor, SGPS, SA 49.37% 50.63% 49.37% 50.63%
Turotel, Turismo e Hoteis dos Açores, S.A. Portugal Investaçor, SGPS, SA 58.07% 41.93% 58.07% 41.93%
Investimentos Turísticos e Similares e Apart-Hotel Pico Lda. Portugal Açortur Investimentos Turísticos dos Açores, S.A. 49.37% 50.63% 49.37% 50.63%
Banif Rent - Aluguer Gestão e Comercio de Veículos Automóveis Portugal Banif - Banco Internacional do Funchal, S.A. 100.00% 0.00% 100.00% 0.00%
Banif - Banco Internacional do Funchal, S.A. Banif - Banco Internacional do Funchal (Brasil), S.A. Brazil 99.40% 0.60% 98.50% 1.50% Banif International Holdings, Ltd
Banif - Banco de Investimento, S.A. Portugal Banif - Banco Internacional do Funchal, S.A. 100.00% 0.00% 100.00% 0.00%
Banif Gestão Activos - Soc. Gestora de Fundos de Investimento Mobiliario, S.A. Portugal Banif - Banco de Investimento, S.A. 100.00% 0.00% 100.00% 0.00%
Banif - Banco Internacional do Funchal, S.A. Banif Açor Pensões - Soc. Gestora Fundos Pensões, S.A. Portugal 67.30% 32.70% 67.30% 32.70% Banif - Banco de Investimento, S.A.
Banif Capital - Soc. de Capital. de Risco S.A. Portugal Banif - Banco de Investimento, S.A. 100.00% 0.00% 100.00% 0.00%
Gamma - Soc. Titularização de Créditos, S.A. Portugal Banif - Banco de Investimento, S.A. 100.00% 0.00% 100.00% 0.00%
Numberone SGPS, Lda Portugal Banif - Banco Internacional do Funchal, S.A. 100.00% 0.00% 100.00% 0.00%
Banif International Asset Management Ltd. Cayman Islands Banif - Banco de Investimento, S.A. 100.00% 0.00% 100.00% 0.00%
Banif Multifund Ltd. Cayman Islands Banif International Asset Management Ltd. 100.00% 0.00% 100.00% 0.00%
Banif - Banco Internacional do Funchal (Cayman) Ltd Cayman Islands Banif - Banco Internacional do Funchal, S.A. 100.00% 0.00% 100.00% 0.00%
Banif Internacional Holdings, Ltd Cayman Islands Banif - Banco Internacional do Funchal, S.A. 85.00% 15.00% 85.00% 15.00%
Banif Financial Services, Inc USA Banif Internacional Holdings Ltd 85.00% 15.00% 85.00% 15.00%
Banif Finance (USA) corp. USA Banif Internacional Holdings Ltd 85.00% 15.00% 85.00% 15.00%
Banif Forfaiting Company, Ltd. Bahamas Banif Internacional Holdings Ltd 85.00% 15.00% 85.00% 15.00%
Banif Securities, Inc. USA Banif Securities Holding, Ltd 100.00% 0.00% 100.00% 0.00%
Banif Securities Holding, Ltd Cayman Islands Banif - Banco Internacional do Funchal, S.A. 100.00% 0.00% 100.00% 0.00%
Banif ( Brasil), Ltd. Brazil Banif - Banco Internacional do Funchal, S.A. 100.00% 0.00% 100.00% 0.00%
Banif International Bank, Ltd Bahamas Banif - Banco Internacional do Funchal, S.A. 100.00% 0.00% 100.00% 0.00%
Banif - Banco Internacional do Funchal, S.A. Banif - Banco de Investimento (Brasil), SA Brazil 99.40% 0.60% 100.00% 0.00% Banif Securities Holding, Ltd
Banif US Real Estate Cayman Islands Banif - Banco de Investimento, S.A. 100.00% 0.00% 100.00% 0.00%
Banif Gestão de Activos (Brasil), S.A. Brazil Banif - Banco de Investimento (Brasil), S.A. 99.40% 0.60% 100.00% 0.00%
Banif - Banco Internacional do Funchal, S.A. Banif - Imobiliária, S.A. Portugal 100.00% 0.00% 100.00% 0.00% Banif - Banco de Investimento, S.A.
Sociedade Imobiliária Piedade, S.A. Portugal Banif - Imobiliária, S.A. 100.00% 0.00% 100.00% 0.00%
Banif Bank (Malta) PLC Malta Banif - Banco Internacional do Funchal, S.A. 78.00% 22.00% 78.00% 22.00%
Banco Caboverdiano de Negócios S.A. Cape Verde Banif - Banco Internacional do Funchal, S.A. 51.69% 48.31% 51.69% 48.31%
Banif - Banco Internacional do Funchal, S.A. Banif Holding (Malta) PLC Malta 100.00% 0.00% 100.00% 0.00% Banif - Banco Internacional do Funchal (Cayman)
Banif Mais, SGPS, SA Portugal Banif - Banco Internacional do Funchal, S.A. 85.92% 14.08% 85.92% 14.08%
Banif Mais, SGPS, SA Banco Mais, SA Portugal 86.06% 13.94% 86.06% 13.94% Banif - Banco Internacional do Funchal, S.A.
Banif Plus Bank ZRT Hungary Banco Mais SA 86.06% 13.94% 86.06% 13.94%
Margem Mediação de Seguros, Lda Portugal Banif Mais, SGPS, SA 85.92% 14.08% 85.92% 14.08%
Banif Mais, SGPS, SA TCC Investments Luxembourg Luxembourg 86.05% 13.95% 86.05% 13.95% Banco Mais, SA
Beta Securitizadora Brazil FIP Banif Real Estate 99.40% 0.60% 99.25% 0.75%
30/06/2013 31/12/2012
Registered % effective Non-controlling % effective Non-controlling Company name Shareholder offices holding interests holding interests
Banif - Banco Internacional do Funchal (Brasil ) S.A. FIP Banif Real Estate Brazil 99.40% 0.00% 99.25% 0.00% Banif - Banco de Investimento (Brasil) S.A.
Art Invest Portugal Banif - Banco de Investimento S.A. 62.58% 0.00% 62.58% 0.00%
Banif Fortuny Portugal Banif - Banco de Investimento S.A. 100.00% 0.00% 100.00% 0.00%
Banif - Banco Internacional do Funchal, S.A. Infra Invest FEIA Portugal 100.00% 0.00% 100.00% 0.00% Banif - Banco de Investimento, S.A. Banif - Imobiliária, S.A. Imogest Portugal 80.48% 0.00% 80.48% 0.00% Banif - Banco de Investimento, S.A. Banif - Banco Internacional do Funchal, S.A. Capven Portugal 67.98% 0.00% 67.98% 0.00% Banif Capital - Soc. de Capital. de Risco S.A Banif - Imobiliária, S.A. Banif Renda Habitação Portugal 100.00% 0.00% 100.00% 0.00% Banif - Banco Internacional do Funchal, S.A.
Banif Gestão Imobiliária Portugal Banif - Imobiliária, S.A. 100.00% 0.00% 100.00% 0.00%
Gestarquipark Portugal Imogest 80.48% 19.52% 80.48% 19.52%
ZACF - Participações Ltda Brazil Banif - Banco Internacional do Funchal (Brasil), S.A. 99.40% 0.60% 98.50% 1.50%
Banif Real Estate Polska Poland Imopredial 96.79% 3.21% 95.29% 4.71%
Tiner Polska Poland Imopredial 91.95% 8.05% 90.53% 9.47%
Banif - Imobiliária, S.A. Imopredial Portugal Banif - Banco de Investimento, S.A. 96.79% 0.00% 95.29% 0.00% Banif - Banco Internacional do Funchal, S.A. Banif - Imobiliária, S.A. Banif Property Portugal 93.83% 0.00% 93.76% 0.00% Banif - Banco Internacional do Funchal, S.A.
Achala Brazil Banif ( Brasil), Ltd. 100.00% 0.00% 100.00% 0.00%
Komodo USA Banif Securities Holding, Ltd 100.00% 0.00% 100.00% 0.00%
Banif - Banco de Investimento, S.A. Worldvilas Portugal 100.00% 0.00% 100.00% 0.00% Banif Capital - Soc. de Capital. de Risco S.A.
Turirent Portugal Banif - Banco de Investimento, S.A. 100.00% 0.00% 100.00% 0.00%
Banif - Banco Internacional do Funchal, S.A. Wil Portugal 95.00% 5.00% 95.00% 5.00% Banif Capital - Soc. de Capital. de Risco S.A Banif Finance USA Indigo Cayman Islands 93.21% 6.79% Banif International Bank, Ltd
SPE Panorama Brazil FIP Banif Real Estate - - 99.25% 0.75%
Ecoprogresso Trading, SA Portugal Banif - Banco de Investimento S.A. 99.40% 0.60% 50.00% 50.00%
Banif Inv. Conservador Portugal Banif - Banco de Investimento S.A. 55.68% 0.00% 82.89% 0.00% Banif Inv. Moderado Portugal Banif - Banco de Investimento S.A. 29.90% 0.00% 70.05% 0.00%
124 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The detail of associated entities is disclosed in Note 17.
On 30th June 2013 and 31st December 2012 the special purpose entities included in the consolidation were as follows:
30/06/2013 31/12/2012
Company Name Nature % holding % holding
Atlantes Mortgage Nº1 plc Securitisation Vehicles 100.00% 100.00% Atlantes Mortgage Nº2 plc Securitisation Vehicles 100.00% 100.00% Atlantes Mortgage Nº3 plc Securitisation Vehicles 100.00% 100.00% Atlantes Mortgage Nº4 plc Securitisation Vehicles 100.00% 100.00% Atlantes Mortgage Nº5 plc Securitisation Vehicles 100.00% 100.00% Atlantes Mortgage Nº6 plc Securitisation Vehicles 100.00% 100.00% Atlantes Mortgage Nº7 plc Securitisation Vehicles 100.00% 100.00% Azor Mortgage Nº 1 Securitisation Vehicles 100.00% 100.00% Azor Mortgage Nº 2 Securitisation Vehicles 100.00% 100.00% BMORE Finance No. 4 plc Securitisation Vehicles 100.00% 100.00% BMORE Finance No. 5 plc Securitisation Vehicles 100.00% 100.00% Euro Invest Series 3A e 3B Structured Debt Issue 100.00% 100.00% Atlantes Finance Nº4 Securitisation Vehicles 100.00% 100.00% Atlantes Finance Nº5 Securitisation Vehicles 100.00% 100.00% Atlantes NPL 1 Securitisation Vehicles 100.00% 100.00% Atlantes N.1 Securitisation Vehicles - 100.00% Atlantes SME N.2 Securitisation Vehicles 100.00% -
5. SEGMENT REPORTING
Banif Financial Group is organized by autonomous areas of business, commercial banking and credit specialized area of investment banking and other financial activities.
Accordingly, and as required by IFRS 8, the disclosures of the Group's operating segments correspond to the way the information is reviewed by the Management Group:
Commercial Banking - Covers fundraising and loan products specific for individuals, companies and institutions, as Mortgage, Consumer Credit products for entrepreneurs (ENI) and small companies, Factoring, Treasury and Credit Facilities Import and Export.
Investment Banking - Covers the activity intervention in primary and secondary capital markets for its own account or for third parties such as transactions, corporate finance, merges and acquisitions.
Asset Management - covers the supply of investment products and related management services to individuals and business as well as other financial services. This segment includes investment funds managed by Group entities in which the Group holds the majority of its units.
Others - Covers all transactions that do not fall in any of the operating segments described above.
125 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The reports used by management are based on the accounting information in accordance with IAS/IFRS. Business Segments
30/06/2013
Investment Retail Banking Asset Management Holdings and others TOTAL Banking
Cash and balances at central banks 259,859 515 - 5 260,379 Balances at other credit institutions 248,506 19,909 3,484 80 271,979 Financial assets held for trading 61,733 111,553 152 - 173,438 Other financial assets at fair value through profit or loss 22,431 16,499 36,955 3,823 79,708 Financial assets available for sale 1,722,266 38,259 - 31,157 1,791,682 Investments at credit institutions 181,375 601 - - 181,976 Loans to customers 8,822,060 359,085 2,337 3,300 9,186,782 Investments held to maturity 24,617 - - - 24,617 Assets with repurchase agreement - 19,530 - - 19,530 Hedging derivatives - - - - - Non-current assets held for sale 433,047 7,595 - 30,878 471,520 Investment property 156,887 - 652,324 104,173 913,384 Other tangible assets 61,990 9,915 134,485 86,839 293,229 Intangible assets 20,870 2,947 1 32 23,850 Investments in non-consolidated subsidiaries and associate companies 32,580 521 - 89,716 122,817 Current tax assets 8,525 4,077 129 1,612 14,343 Deferred tax assets 256,233 19,046 203 1,871 277,353 Underwriting provisions for reinsurance receivables - - - - - Other assets 304,756 28,339 30,713 22,827 386,635
Total Assets 12,617,735 638,391 860,783 376,313 14,493,222
Deposits from central banks 3,448,363 132,056 - - 3,580,419 Financial liabilities held for trading 10,756 58,308 - - 69,064 Other financial liabilities at fair value through profit or loss 14,590 - - - 14,590 Deposits from other credit institutions 230,795 59,843 35,896 2,721 329,255 Customer funds and other loans 6,963,350 188,768 - 1,045 7,153,163 Debt securities in issue 1,341,523 56,632 - - 1,398,155 Financial liabilities associated with transferred assets - - - - - Hedging derivatives - - - - - Non-current assets held for sale - - - - - Provisions 29,625 342 5,416 613 35,996 Underwriting provisions - - - - - Current tax liabilities 2,336 301 327 15 2,979 Deferred tax liabilities 48,586 2,305 99 6,285 57,275 Equity instruments 418,536 - - - 418,536 Other subordinated liabilities 227,418 1,742 - - 229,160 Other liabilities 228,476 11,055 8,551 7,105 255,187
Total Liabilities 12,964,354 511,352 50,289 17,784 13,543,779
31/12/2012 Investment Retail Banking Asset Management Holdings and others TOTAL Banking
Cash and balances at central banks 180,847 3,257 - 5 184,109 Balances at other credit institutions 182,488 23,946 3,573 82 210,089 Financial assets held for trading 57,054 157,511 160 - 214,725 Other financial assets at fair value through profit or loss 19,060 17,759 38,773 3,695 79,287 Financial assets available for sale 463,353 261,056 - 31,157 755,566 Investments at credit institutions 365,542 1,978 - - 367,520 Loans to customers 9,384,237 429,035 2,639 70 9,815,981 Investments held to maturity 10,546 25,738 - - 36,284 Assets with repurchase agreement 1,213 25,010 - - 26,223 Hedging derivatives - - - - - Non-current assets held for sale 363,381 7,810 - 31,943 403,134 Investment property 160,576 - 657,306 106,475 924,357 Other tangible assets 65,247 10,392 136,359 95,027 307,025 Intangible assets 22,922 3,256 1 85 26,264 Investments in non-consolidated subsidiaries and associate companies 59,403 282 - 58,945 118,630 Current tax assets 10,655 4,805 416 1,340 17,216 Deferred tax assets 227,670 18,670 292 1,966 248,598 Underwriting provisions for reinsurance receivables - - - - - Other assets 182,543 18,830 31,612 24,300 257,285
Total Assets 11,756,737 1,009,335 871,131 355,090 13,992,293
Deposits from central banks 2,469,263 334,821 - - 2,804,084 Financial liabilities held for trading 15,142 101,062 - - 116,204 Other financial liabilities at fair value through profit or loss 14,017 - - - 14,017 Deposits from other credit institutions 519,996 106,940 44,995 17,170 689,101 Customer funds and other loans 7,556,450 192,395 - 1,585 7,750,430 Debt securities in issue 1,633,515 72,916 - - 1,706,431 Financial liabilities associated with transferred assets - - - - - Hedging derivatives - - - - - Non-current assets held for sale - - - - - Provisions 24,237 965 5,662 421 31,285 Underwriting provisions - - - - - Current tax liabilities 4,865 530 416 43 5,854 Deferred tax liabilities 54,157 2,561 56 6,285 63,059 Equity instruments 2,009 - - - 2,009 Other subordinated liabilities 226,370 1,744 - - 228,114 Other liabilities 184,716 - 12,111 8,722 205,549
Total Liabilities 12,704,737 813,934 63,240 34,226 13,616,137
126 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
30/06/2013 Investment Retail Banking Asset Management Holdings and others TOTAL Banking Interest margin: External customers 63,809 5,132 (818) (107) 68,016 Interest margin: Inter-Segment 14,105 (604) (2,348) (11,153) - Interest margin 77,914 4,528 (3,166) (11,260) 68,016
Income from equity instruments 904 302 - - 1,206 Fee and commission income - External Customers 45,105 3,766 1,312 - 50,183 Fee and commission income - Inter-Segment 4,044 1,028 2,989 - 8,061 Fee and commission income 49,150 4,794 4,301 - 58,245 Fee and commission expenses - External customers (10,644) (648) (373) (20) (11,685) Fee and commission expenses - Inter-Segment (1,100) (5) (4,146) (69) (5,320) Fee and commission expenses (11,744) (653) (4,519) (89) (17,005) Profit/loss from Assets and Liabilities valued at Fair Value through profit or loss 6,206 (3,367) (463) 181 2,557 Profit/Loss from Financial Assets available for sale 32,589 3,581 - - 36,170 Profit/Loss from Foreign Currency Revaluation (8,964) 112 (7) 32 (8,827) Other Operating Income 113 1,357 8,431 3,624 13,525 Banking Revenue 146,168 10,654 4,577 (7,512) 153,887
Staff Costs (64,773) (5,360) (2,058) (1,533) (73,724) Other administrative costs (54,645) (3,401) (3,005) (1,608) (62,659) Amortisations for the year (11,816) (693) (868) (999) (14,376) Provisions net of write-offs (6,040) 543 - - (5,497) Impairment of loans and advances net of reversals and recoveries (189,195) (9,230) (31) (485) (198,941) Impairment of other financial assets net of reversals and recoveries (3,819) (1,690) - - (5,509) Impairment of other assets net of reversals and recoveries (12,011) 19 (646) 524 (12,114) Negative Goodwill - - - - - Profit/loss from associates and joint ventures (Equity Method) 724 23 - 339 1,086 Profit/loss before tax and non-controlling interests (195,407) (9,135) (2,031) (11,274) (217,847)
Taxes 20,971 1,004 (463) (461) 21,051 Current (3,902) (596) (327) (366) (5,191) Deferred 24,873 1,600 (136) (95) 26,242 Profit/loss after tax and before non-controlling interests (174,436) (8,131) (2,494) (11,735) (196,796)
Non-controlling interests 193 (48) 184 452 781 Profit/loss for the year (174,243) (8,179) (2,310) (11,283) (196,015)
30/06/2012
Investment Retail Banking Asset Management Holdings and others TOTAL Banking
Interest margin: External customers 93,137 8,582 (1,500) (10,104) 90,115 Interest margin: Inter-Segment 39,154 (1,563) (1,873) (35,718) - Interest margin 132,291 7,019 (3,373) (45,822) 90,115
Income from equity instruments 1,717 487 - - 2,204 Fee and commission income - External Customers 52,149 7,295 1,389 427 61,260 Fee and commission income - Inter-Segment 6,794 885 2,443 - 10,122 Fee and commission income 58,942 8,181 3,821 568 71,512 Fee and commission expenses - External customers (17,006) (677) (302) (56) (18,041) Fee and commission expenses - Inter-Segment (3,559) - (3,539) (250) (7,348) Fee and commission expenses (20,565) (677) (3,833) (314) (25,389) Profit/loss from Assets and Liabilities valued at Fair Value through profit or loss 2,784 (2,306) (743) (192) (457) Profit/Loss from Financial Assets available for sale (713) (61) - - (774) Profit/Loss from Foreign Currency Revaluation (7,121) 561 (35) (123) (6,718) Other Operating Income 2,759 2,112 6,427 3,715 15,013 Banking Revenue 170,094 15,316 2,264 (42,168) 145,506
Staff Costs (73,527) (7,784) (728) (2,040) (84,079) Other administrative costs (61,172) (5,529) (5,425) (2,554) (74,680) Amortisations for the year (13,129) (1,017) (930) (1,105) (16,181) Provisions net of write-offs 564 (258) 170 - 476 Impairment of loans and advances net of reversals and recoveries (102,966) (1,514) (32) (642) (105,154) Impairment of other financial assets net of reversals and recoveries - (554) - - (554) Impairment of other assets net of reversals and recoveries (4,962) 80 (691) - (5,573) Negative Goodwill - - - - - Profit/loss from associates and joint ventures (Equity Method) 836 (833) - 1,627 1,630 Profit/loss before tax and non-controlling interests (84,262) (2,093) (5,372) (46,882) (138,609)
Taxes 18,240 285 (296) (1,407) 16,822 Current (4,623) (1,144) (260) - (6,027) Deferred 22,863 1,429 (36) (1,407) 22,849 Profit/loss after tax and before non-controlling interests (66,022) (1,808) (5,668) (48,289) (121,787)
Non-controlling interests (3,475) (45) 856 (160) (2,824) Profit/loss for the year (69,497) (1,853) (4,812) (48,449) (124,611)
127 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
6. CASH AND CASH EQUIVALENTS AT CENTRAL BANKS
This item has the following composition:
Description 30/06/2013 31/12/2012
Cash on hand 45,130 53,364 Sight deposits at Central Banks 215,243 130,742 Interest on liquid assets 6 3
260,379 184,109
Overnight deposits at central banks include the amount of 164,148 thousand euros (124.903 thousand euros on 31/12/2012), that aim to meet the legal requirements for the establishment of minimum cash with the Bank of Portugal. According to Notice of Bank of Portugal No. 7/94 of 19th October and Circular Letter No. 5/2011/DMR of 20/12/2011, the coefficient to be applied is 1% of the eligible liabilities. These deposits began to be paid from 1st January 1999.
7. DEPOSITS WITH BANKS
This item has the following composition:
Description 30/06/2013 31/12/2012
Cheques for collection In Portugal 11,955 15,330 Abroad 803 228
Sight deposits In Portugal 2,834 2,099 Abroad 171,653 97,970
Other 84,734 94,462
271,979 210,089
Checks for collection of credit institutions in the country on 30th June 2013 were offset by the Clearing Chamber in the first days of July 2013.
8. FINANCIAL ASSETS HELD FOR TRADING This item has the following composition:
128 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Description 30/06/2013 31/12/2012
Financial derivative instruments with positive fair value 64,894 101,657 Debt instruments 78,535 80,671 Equity instruments 30,009 32,397
173,438 214,725 Debt instruments in the amount of 256 thousand euros 61,193 thousand euros and 10 thousand euros are used as collateral for refinancing operations with the ECB, as collateral operations Repos's and as security to the Guarantee Fund deposit , respectively.
9. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT This item has the following composition:
Description 30/06/2013 31/12/2012
Equity instruments 79,627 78,284 Debt instruments 81 1,003
79,708 79,287
Debt instruments in the amount of 80 thousand euros (83 thousand euros in 2012) correspond to "Assets pledged" that are the irrevocable pledge to the Fund Deposit Guarantee and 320 thousand euros to bail out the system Investor Compensation.
10. FINANCIAL ASSETS AVAILABLE FOR SALE
This item has the following composition:
Description 30/06/2013 31/12/2012
Debt instruments 1,533,776 533,084 Equity instruments 306,053 266,924 Impairment of debt instruments (630) (630) Impairment of capital instruments (47,517) (43,812)
1,791,682 755,566
The movement of impairment of financial assets available for sale are presented in Note 35.
The amount of 12,787 thousand euros (14,105 thousand euros in 2012) of Treasury bonds correspond to "Assets pledged" that are the irrevocable pledge to the Fund Deposit Guarantee and Investor Compensation Scheme.
Bonds in the amount of 1,364,630 thousand euros (468,385 thousand euros in 2012) are used as collateral for refinancing operations with the ECB.
129 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Equity instruments in the amount of 2 thousand euros are to pledge the Society of Mutual Guarantee.
11. APPLICATIONS IN FINANCIAL INSTITUTIONS
This item has the following composition:
Description 30/06/2013 31/12/2012
Interbanking money market - - Purchase operations with resale agreement In Portugal 22,550 220,111 Abroad 9,345 2,296 Deposits In Portugal 22,178 21,616 Abroad 84,965 78,252 Loans In Portugal 380 2,393 Abroad 4,955 12,739 Very short-term investments In Portugal - - Abroad 8,108 11,112 Other 29,521 19,001
Impairment (26) -
181,976 367,520
Debt instruments associated with the purchase with resale agreements, amounting to 22,500 thousand euros, are used as collateral for refinancing operations with the ECB.
12. CUSTOMER LOANS
This item has the following composition:
130 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Description 30/06/2013 31/12/2012
Corporate Loans Current accounts 939,849 1,104,893 Discount and other credit represented by bills 170,460 147,528 Loans 2,476,958 2,434,681 Overdrafts 53,917 43,617 Factoring 156,546 178,406 Finance Leases 207,331 239,207 Other 170,985 269,684 Private Loans Housing 3,133,662 3,252,752 Consumer 610,133 671,395 Other purposes Loans 574,026 620,080 Current accounts 131,258 135,671 Discount and other credit represented by bills 4,894 5,990 Finance leases 23,308 20,601 Overdrafts 35,296 35,762 Other 127,588 156,433
Other credit and securitised receivables 193,022 187,743
Loans and overdue interest 1,321,810 1,343,500
Income receivable 80,095 78,302 Costs with deferred income 144 219 Income from deferred income (11,567) (12,719)
Impairment on loans (1,212,933) (1,097,764)
9,186,782 9,815,981 Client loans, the amount of 1,773 million euros (2,180 million euros on 31/12/2012), is being used as collateral for refinancing operations and the ECB, as described in Note 19.
The item "Overdue loans" includes payments overdue over 90 days. The installments are due between 30 and 90 days, corresponding to 83,551 thousand euros (145,343 thousand euros on 31/12/2012).
The balance of loans to clients includes the amount of 3,722,021 thousand euros of loans securitized.
Were transferred to investment funds credits in nominal value of 103,846 thousand euros, in the following amounts:
Nominal value of Fund Impairment Price of sale (loss) / Profit credit amount
ECS - FR 4,862 3,359 729 (774) Oxycapital - FRE 796 - 796 - Explorer - Discovery 97,280 14,513 92,393 9,626 Vallis 908 231 898 221
103,846 18,103 94,816 9,073
In terms of the assignment of receivables, the Group transferred all rights, benefits and risks associated with loans, including collaterals. Within the scope of these operations, the Group acquired financial assets (participation units of collective investment funds) whose features, risks and expected cash flows are substantially different compared to the transferred financial assets.
131 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
In this context and in accordance with IAS 39, paragraphs 20 a), 21, 23 and 25, these operations allow the derecognition of the transferred assets (loans) and financial assets acquired (UPs) were recognized at their fair value at the date of transfer and classified as financial assets available for sale, since the Company has no control or significant influence in such collective investment funds.
13. INVESTMENTS HELD TO MATURITY
This item has the following composition:
Description 30/06/2013 31/12/2012
Debt instruments 24,617 36,284 Impairment - -
24,617 36,284 Bonds in the amount of 18,172 thousand euros (17,530 thousand euros in 2012) are used as collateral for refinancing operations with the ECB.
14. INVESTMENT PROPERTIES
This section presented the following motion:
Entities Transfers Exchange Balance at within the Balance Acquisitio rate Asset category 31-12- consolidation Revaluations Disposals Assets at 30- ns Other difference 2012 perimeter for Own-use held for 06-2013 assets s the first time properties sale
Buildings and land 924,357 - 3,870 (3,311) (13,144) 1,112 3,040 - (2,540) 913,384
924,357 - 3,870 (3,311) (13,144) 1,112 3,040 - (2,540) 913,384
Entities Transfers Exchange Balance at within the Balance Acquisitio rate Asset category 31-12- consolidation Revaluations Disposals Assets at 31- ns Other difference 2011 perimeter for Own-use held for 12-2012 assets s the first time properties sale
Buildings and land 844,026 26,287 42,497 (52,725) (21,801) 3,732 79,613 10,189 (7,461) 924,357
844,026 26,287 42,497 (52,725) (21,801) 3,732 79,613 10,189 (7,461) 924,357
Evaluations of investment properties are carried out by independent experts in accordance with the generally accepted criteria and methodologies for this purpose, by incorporating analysis by cost method and the market method, the fair value is defined as the amount that can be reasonably expected by the transaction between a buyer and a willing seller, with equity between both, neither being forced to buy or sell and both being knowledgeable of all factors relevant to a particular date, as described in Note 2.3.
15. OTHER TANGIBLE
As mentioned in Note 2.13, the property for own service are recorded at fair value, updated every 3 years. The last revaluation was carried out with reference to 31/12/2012.
132 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
15.1 - Movements:
the Exchange Net balance Increases Transfer Net balance consolidation Depreciation Impairment Write- Adjust- rate Asset category at s Disposals at perimeter for Revaluations for the year for the year Offs ments difference 31-12-2012 Acquisitions 30-06-2013 the first time (net) s
Property 227,669 - 867 - (1,112) (4,803) 493 - - (1,091) (4) 222,019 Equipment 14,986 - 1,270 - 303 (2,654) - (1) (357) (6) (210) 13,331 Assets under operating leases 27,377 - - - (2,760) (3,467) (103) (1,544) - - - 19,503 Assets under finance leases ------Tangible assets under construction 34,851 - 1,448 - (331) - - - - (419) - 35,549 Other tangible assets 2,142 - 462 - 445 (222) - - - - - 2,827 307,025 - 4,047 - (3,455) (11,146) 390 (1,545) (357) (1,516) (214) 293,229
Entities within Exchange Net balance Increases Transfer Net balance the Depreciation Impairment Write- Adjust- rate Asset category at s Disposals at consolidation Revaluations for the year for the year Offs ments difference 31-12-2011 Acquisitions 31-12-2012 perimeter for (net) s
Property 260,385 17 290 (8,607) (3,993) (10,005) (4,092) (4,085) (1,864) (378) 1 227,669 Equipment 21,144 130 1,746 - 526 (6,751) - (525) (156) - (1,128) 14,986 Assets under operating leases 52,475 - 15 - (9,311) (9,512) (405) (5,885) - - - 27,377 Assets under finance leases ------Tangible assets under construction 33,104 - 3,705 - (1,958) ------34,851 Other tangible assets 2,084 - 25 - 555 (508) - - (14) -- 2,142 369,192 147 5,781 (8,607) (14,181) (26,776) (4,497) (10,495) (2,034) (378) (1,127) 307,025
16. GOODWILL AND OTHER INTANGIBLE ASSETS
The movement was:
Entities within the Exchange Net balance Net balance at Acquisitio Amortisations Deductio Asset category consolidation Transfers Impairment rate at 31-12-2012 ns for the year ns (net) perimeter for differences 30-06-2013 the first time
Goodwill 1,905 ------1,905 Intangible fixed assets under construction 9,289 - 659 - - - - - 9,948 Automatic data handling systems (software) 14,474 - 55 - (2,886) - - 99 11,742 Other intangible assets 596 - 68 - (344) - (65) - 255
26,264 - 782 - (3,230) - (65) 99 23,850
Entities within the Exchange Net balance Net balance at Acquisitio Amortisations Deductio Asset category consolidation Transfers Impairment rate at 31-12-2011 ns for the year ns (net) perimeter for differences 31-12-2012 the first time
Goodwill 2,933 - - - - (1,028) - - 1,905 Intangible fixed assets under construction 13,618 - 2,684 (7,013) - - - - 9,289 Automatic data handling systems (software) 9,901 16 3,971 6,860 (6,401) - (10) 137 14,474 Other intangible assets 1,004 - - - (408) - - - 596 27,456 - 6,655 (153) (6,809) (1,028) (10) 137 26,264
Regarding the goodwill recorded on 30th June 2013:
For society Investaçor, SGPS, SA, was carried out an initial study, which justifies the goodwill recognized (in the amount of 2,218 thousand euros), and in 2012 was made an update of it. In 2010 it was recorded an impairment of 313 thousand euros. This analysis method was used Discounted Cash Flows, based on a prospective analysis of future activity of the company, and its business embodied in economic and financial projections in the medium and long term (6 years) and the determination of their financial flows estimates. In the evaluation 2012, we used the following parameters:
133 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
- Inflation rate: 2.00% (2011: 2.00%) - Rate of real income: 3.85% (2011: 4.18%) - Risk rate: 3.14% (2011: 3.07%) - Discount rate: 9.25% (2011: 9.53%) - Rate risk (perpetuity): 1.00% (2011: 1.00%) - Capitalization rate: 8.18% (2011: 8.45%)
Evaluation to goodwill were developed based on the assumption of continuity of operations and the historical elements and accounting evaluated entities. The methodologies and key assumptions used in the evaluations are commonly accepted for the evaluation of companies, and their application was made in accordance with international practice of business evaluations and accepted by the Management Group. Possible changes in key assumptions justifying the quantification of their impacts were not identified, as required by paragraph 134 (f) of IAS 36.
In the period ended 30th June 2013, impairment losses were not registered.
17. INVESTMENTS IN ASSOCIATES
On 30th June 2013 and 31st December 2012, the balance of investments in associates is as follows:
% of Value of Total Net Net Company Name Registered Offices Main business activity Holder of capital Goodwill holding holding Equity Profit/Loss Contribution
Rentipar Seguros, Avenida Barbosa du Insurance Banif, SA 47.69% 87,431 - 183,335 827 395 SGPS, SA Bocage, 85
Virgen de Guadalupe , 2 Banca Pueyo Villanuea de la Serena, Banking Banif, SA 33.32% 32,188 - 96,601 2,171 723 Badajoz
Parque de la nmobiliaria Vegas Altas Constitución, 9 Real estate Banif, SA 33.33% 2,676 - 8,027 132 44 Villanueva de la Serena
Av. Barbosa do Bocage Espaço 10 Real estate Banif, SA 25.00% - - (1,569) (397) (99) 83-85, 1050-050 Lisboa
Rua Tierno Galvan, Banif - Banco de MCO2 Torre 3, 10.º Piso Investiment Management 25.00% 522 - 2,082 93 23 Investimento, SA Amoreiras, Lisboa
Pedidos Liz Portugal Investment Fund Imogest 40.24% - - 1 (1) - 122,817 - 288,477 2,825 1,086
% of Value of Total Net Net Company Name Registered Offices Main business activity Holder of capital Goodwill holding holding Equity Profit/Loss Contribution
Rentipar Seguros, Avenida Barbosa du Insurance Banif, SA 47.69% 83,840 - 176,252 6,212 2,962 SGPS, SA Bocage, 85
Virgen de Guadalupe , 2 Banca Pueyo Villanuea de la Serena, Banking Banif, SA 33.32% 31,662 - 95,024 2,999 999 Badajoz
Parque de la nmobiliaria Vegas Altas Constitución, 9 Real estate Banif, SA 33.33% 2,631 - 7,894 87 29 Villanueva de la Serena
Av. Barbosa do Bocage Espaço 10 Real estate Banif, SA 25.00% - - (1,171) (141) (35) 83-85, 1050-050 Lisboa
Rua Tierno Galvan, Banif - Banco de MCO2 Torre 3, 10.º Piso Investiment Management 25.00% 497 - 1,989 (3,016) (754) Investimento, SA Amoreiras, Lisboa
Pedidos Liz Portugal Investment Fund Imogest 40.24% - - 1 (1) -
Travessera de Gràcia, Bankpime nº 11 Banking Banif - SGPS, SA 0.00% - - - - (2,121) Barcelona 118,630 - 279,989 6,140 1,080
Societies registered under the equity patromonial method, report their data in accordance with the accounting policies of Banif Financial Group (Note 2), with no problems in the harmonization of accounting policies.
134 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
18. OTHER ASSETS
This item has the following composition:
Description 30/06/2013 31/12/2012
Gold 22 22 Other precious metals, coins and medals 498 498 Other liquid assets with residents 1 1 521 521
Bonuses receivable 12,230 11,963 12,230 11,963
Shareholder loans 40,803 42,889 Sundry debtors 173,838 105,141 Public administration sector 12,517 13,493 Other receivables 1,487 1,647 Pension Fund (Note 47) 8,960 7,102 Securities operations awaiting settlement 7,806 - Insurance 1,021 731 Foreign currency position 4,808 3,554 Investments – security account 8,793 9,627 Other assets 155,772 97,857 415,805 282,041
Impairment losses (41,921) (37,240)
386,635 257,285 The item "several debtors" includes the amount of 92.652 thousand euros for the acquisition of units of the fund Discovery Portugal Real Estate Fund, as a result of compromise credit Banif to this fund, which were not issued at the time of financial statements.
19. RESOURCES OF CENTRAL BANKS
This item has the following composition:
Description 30/06/2013 31/12/2012
Deposits from central banks 3,570,395 2,798,702 Interest on central bank deposits 11,062 9,463 Expenditure with deferred costs (1,038) (4,081)
3,580,419 2,804,084
The "Resources of Central Banks" correspond to refinancing operations with the European Central Bank (ECB), in the context of liquidity-providing operations, secured by a pledge of eligible assets.
20. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT
Financial liabilities at fair value through profit respect to debt instruments issued by the Group with one or more embedded derivatives that, according to the text of the amendment to IAS 39 - "Fair Value Option", were designated on initial recognition to fair value through profit or loss.
135 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
This item has the following composition by issuer:
Description 30/06/2013 31/12/2012
Euro Invest Série 3a) 7,851 7,849 Euro Invest Série 3b) 6,027 5,736 Banif - Banco Internacional do Funchal (Brasil) 37,341 35,169
Held by Banif Financial Group (36,629) (34,737)
14,590 14,017
On 30th June 2013, the liabilities issued by the Group have the following condition:
Value in Fair Value derivative Fair value financial Balance Name Issue date Redemption date Interest rate Held by the Group circulation component liability component sheet value
Euro Invest S3a) 12/11/2003 perpetual 5% 7,830 19 2 (604) 7,247 Euro Invest S3b) 12/11/2003 perpetual 5% 5,311 639 77 (144) 5,883 Banco Banif Brasil 31/08/2012 31/08/2019 10.0% 31,161 - - (31,161) - Banco Banif Brasil 17/12/2004 17/12/2014 USD Libor + 4,5% 6,180 - - (4,720) 1,460 50,482 658 79 (36,629) 14,590
21. RESOURCES WITH OTHER BANKS
This item has the following composition:
Description 30/06/2013 31/12/2012
From in-country credit institutions Deposits 118,148 112,026 Loans 125,066 190,543 Other 26,892 4,123 270,106 306,692
From foreign credit institutions Deposits 3,505 10,898 Loans 11,959 18,378 Sales operations with repurchase agreement 30,134 330,594 Other 11,221 19,952 56,819 379,822
Financial costs 2,330 2,587
329,255 689,101
136 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
22. CUSTOMER FUNDS AND OTHER LOANS
This item has the following composition:
Description 30/06/2013 31/12/2012
Deposits Sight 1,380,208 1,336,966 Term 4,724,294 5,627,064 Savings 101,400 96,998 Others 875,328 601,253 7,081,230 7,662,281
Other debits Loans 1,044 1,081 Others 70,889 87,068 71,933 88,149
7,153,163 7,750,430
23. DEBT SECURITIES
This item has the following composition by issuer:
Description 30/06/2013 31/12/2012
Banif Finance 175,275 174,582 Banif 1,324,862 1,582,853 Atlantes N.º 1 - 714,970 Atlantes Mortgage N.º3 491,270 512,234 Atlantes Mortgage N.º2 269,038 279,203 Atlantes Mortgage N.º4 560,201 582,524 Atlantes Mortgage N.º5 525,422 552,875 Atlantes Mortgage N.º6 78,578 80,899 Atlantes Mortgage N.º7 403,718 417,749 Azor Mortgage N.º2 226,067 232,224 Atlantes Mortgage N.º1 146,226 168,378 Azor Mortgage N.º1 70,317 73,391 Atlantes Finance N.º4 160,435 190,369 Atlantes Finance N.º5 146,407 183,889 Atlantes NPL N.º1 174,011 213,000 Atlantes SME N.º2 834,000 - Banco Banif Brasil 8,415 8,343 Beta Securitizadora 41,309 43,608 Banif Mais SGPS Group 99,516 127,179 Banif - Banco de Investimento 150,000 150,000
Debt reacquired (1,073,100) (1,373,300) Held by Banif Financial Group (3,711,760) (3,681,151)
1,100,207 1,233,819
Deposit certificates 321,739 499,948 Financial costs (23,791) (27,336)
1,398,155 1,706,431
137 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
On 30th June 2013, the liabilities issued by the Group have the following conditions:
Balance Name Issue date Redemption date Interest rate Value in circulation Repurchased Held by the Group sheet value
Banif Finance 2010-2013 EUR 23/10/2010 23/10/2013 6,00% 40,000 - (271) 39,729
Banif Finance 2010-2013 USD 23/10/2010 23/10/2013 5,00% 38,226 - (1,197) 37,029
Banif Finance 2012-2014 EUR 30/07/2012 30/01/2014 5.75% 55,000 - - 55,000
Banif Finance 2012-2014 USD 30/07/2012 30/01/2014 5% 42,049 - - 42,049
Atlantes Mortgage Nº1 classe A 01/02/2003 17/07/2036 Euribor 3 month plus 0,27% 93,326 - (15,296) 78,030
Atlantes Mortgage Nº1 classe B 01/02/2003 17/07/2036 Euribor 3 month plus 0,65% 22,500 - - 22,500
Atlantes Mortgage Nº1 classe C 01/02/2003 17/07/2036 Euribor 3 month plus 1,30% 12,500 - - 12,500
Atlantes Mortgage Nº1 classe D 01/02/2003 17/07/2036 Euribor 3 month plus 3,75% 2,500 - - 2,500
Atlantes Mortgage Nº1 classe E 01/02/2003 17/07/2036 - 15,400 - (15,400) -
Azor Mortgage Nº1 classe A 25/11/2004 20/09/2047 Euribor 3 month plus 0,15% 32,317 - (6,557) 25,760 Azor Mortgage Nº1 classe B 25/11/2004 20/09/2047 Euribor 3 month plus 0,38% 19,000 - - 19,000 Azor Mortgage Nº1 classe C 25/11/2004 20/09/2047 Euribor 3 month plus 0,75% 9,000 - (2,000) 7,000 Azor Mortgage Nº1 classe D 25/11/2004 20/09/2047 - 10,000 - (10,000) - Atlantes Mortgage Nº2 classe A 05/03/2008 18/09/2060 Euribor 3 month plus 0,33% 230,381 - (197,384) 32,997 Atlantes Mortgage Nº2 classe B 05/03/2008 18/09/2060 Euribor 3 month plus 0,95% 16,007 - (16,007) - Atlantes Mortgage Nº2 classe C 05/03/2008 18/09/2060 Euribor 3 month plus 1,65% 6,525 - (6,525) - Atlantes Mortgage Nº2 classe D 05/03/2008 18/09/2060 - 16,125 - (16,125) - Azor Mortgage Nº2 classe A 24/07/2008 21/10/2065 Euribor 3 month plus 0,3% 174,969 - (174,969) - Azor Mortgage Nº2 classe B 24/07/2008 21/10/2065 Euribor 3 month plus 0,8% 44,348 - (44,348) - Azor Mortgage Nº2 classe C 24/07/2008 21/10/2065 - 6,750 - (6,750) - Atlantes Mortgage Nº3 classe A 30/10/2008 20/08/2061 Euribor 3 month plus 0,2% 393,084 - (393,084) - Atlantes Mortgage Nº3 classe B 30/10/2008 20/08/2061 Euribor 3 month plus 0,5% 40,519 - (40,519) - Atlantes Mortgage Nº3 classe C 30/10/2008 20/08/2061 - 57,667 - (57,667) - Atlantes Mortgage Nº4 classe A 16/02/2009 20/03/2064 Euribor 3 month plus 0,15% 450,201 - (450,201) - Atlantes Mortgage Nº4 classe B 16/02/2009 20/03/2064 Euribor 3 month plus 0,3% 35,750 - (35,750) - Atlantes Mortgage Nº4 classe C 16/02/2009 20/03/2064 - 74,250 - (74,250) - Atlantes Mortgage Nº5 classe A 19/12/2009 23/11/2068 Euribor 3 month plus 0,15% 414,172 - (414,172) - Atlantes Mortgage Nº5 classe B 19/12/2009 23/11/2068 Euribor 3 month plus 0,3% 45,000 - (45,000) - Atlantes Mortgage Nº5 classe C 19/12/2009 23/11/2068 - 66,250 - (66,250) - Atlantes Mortgage Nº6 classe A 30/06/2010 23/10/2016 4,5% 56,578 - (56,578) - Atlantes Mortgage Nº6 classe B 30/06/2010 23/10/2016 - 22,000 - (22,000) - Atlantes Mortgage Nº7 classe A 19/11/2010 19/11/2066 Euribor 3 month plus 0,15% 300,475 - (300,475) - Atlantes Mortgage Nº7 classe B 19/11/2010 19/11/2066 Euribor 3 month plus 0,30% 39,700 - (39,700) - Atlantes Mortgage Nº7 classe C 19/11/2010 19/11/2066 - 63,543 - (63,543) - Atlantes Finance N.º4 classe A 20/12/2011 19/06/2032 Euribor 3 month plus 1,5% 90,635 - - 90,635 Atlantes Finance N.º4 classe B 20/12/2011 19/06/2032 Euribor 3 month plus 2,25% 20,300 - (20,300) - Atlantes Finance N.º4 classe C 20/12/2011 19/06/2032 Euribor 3 month plus 3% 37,100 - (37,100) - Atlantes Finance N.º4 classe D 20/12/2011 19/06/2032 - 12,400 - (12,400) - Atlantes Finance N.º5 classe A 16/07/2012 16/12/2025 Euribor 3 month plus 2,75% 84,476 - - 84,476 Atlantes Finance N.º5 classe B 16/07/2012 16/12/2025 Euribor 3 month plus 3% 39,600 - (39,600) - Atlantes Finance N.º5 classe C 16/07/2012 16/12/2025 - 9,895 - (9,895) - Atlantes Finance N.º5 classe S 16/07/2012 16/12/2025 - 12,436 - (12,436) - Atlantes NPL 1 classe A 21/12/2012 15/12/2018 6.00% 129,011 - (129,011) - Atlantes NPL 1 classe B 21/12/2012 15/12/2018 - 45,000 - (45,000) - Atlantes SME 2 Classe A 29/05/2013 25/08/2042 Euribor 3 month plus 2% 441,300 - (441,300) - Atlantes SME 2 Classe B 29/05/2013 25/08/2042 Euribor 3 month plus 2% 361,100 - (361,100) - Atlantes SME 2 Classe C 29/05/2013 25/08/2042 - 10,400 - (10,400) - Atlantes SME 2 Classe S 29/05/2013 25/08/2042 - 21,200 - (21,200) - Banco Banif Brasil 2016 15/02/2012 15/02/2016 CDI 469 - - 469 Banco Banif Brasil 2017 21/03/2012 21/03/2017 IPCA - 8,25% 1,655 - - 1,655 Banco Banif Brasil 2017 21/03/2012 21/03/2017 IPCA - 8,25% 1,655 - - 1,655 Banco Banif Brasil 2021 19/12/2011 19/12/2021 17.00% 4,636 - - 4,636 Banif SA 2010 - 2013 21/12/2010 21/12/2013 6,00% 50,000 (100) - 49,900 Banif SA 2011 - 2013 03/03/2011 21/12/2013 6.00% 50,000 - - 50,000 Banif SA 2011 - 2013 09/08/2011 09/08/2013 7.00% 75,000 - - 75,000 Beta Securitizadora 2010 10/09/2025 6.77% 10,924 - - 10,924 Beta Securitizadora 2011 01/09/2021 6.25% 9,605 - - 9,605 Beta Securitizadora 2011 01/09/2021 6.73% 10,350 - - 10,350 Beta Securitizadora 2012 01/09/2021 6.73% 1,069 - - 1,069 Beta Securitizadora 2012 14/08/2027 4.66% 9,361 - - 9,361 BMORE Finance N.º5 plc 01/11/2007 01/11/2017 Conduit +1% 74,321 - - 74,321 Banco Mais 2011-2014 (25M) com 19/07/2011 19/07/2014 Euribor 3 months +4,95% 25,000 (25,000) - - garantia da Republica Portuguesa BMORE N.º4 Class D Secured Floating 01/05/2004 01/05/2014 Euribor 3 months +0,94% 195 - - 195 Banif Banco de Investimento 2011-2014 19/07/2011 19/07/2014 Euribor 3 months +4,95% 55,000 (55,000) - - Banif Banco de Investimento 2011-2014 22/12/2011 22/12/2014 Euribor 3 months +12% 95,000 (95,000) - - Banif Float 2014 29/07/2011 29/07/2014 Euribor 3 months +1,6% 85,000 (85,000) - - Banif Float 2014 21/10/2011 21/10/2014 Euribor 3 months +1,6% 50,000 (50,000) - - Banif 2011-2014 - Garantia 19/07/2011 19/07/2014 EURIBOR 3 months +4.95% 200,000 (200,000) - - Banif 2011 500M Garantia 22/12/2011 22/12/2014 Euribor 3 months +12% 500,000 (500,000) - - Ob CX Banif 2012-2015 Fungíveis 20/06/2012 31/05/2015 5.75% 63,000 (63,000) - - Ob CX Banif 2012-2015 31/05/2012 31/05/2015 5.75% 47,600 - - 47,600 Ob CX Banif 2012-2015 USD 31/05/2012 31/05/2015 5.00% 9,633 - - 9,633 Banif 2012/2014 08/11/2012 08/11/2014 5.75% 96,860 - - 96,860 Banif 2012/2014 08/11/2012 08/11/2014 5.75% 28,656 - - 28,656 Banif 2013/2014 USD 20/03/2013 20/09/2014 4.50% 19,113 - - 19,113 Banif 2013/2014 20/03/2013 20/09/2014 4.50% 50,000 - - 50,000
5,885,067 (1,073,100) (3,711,760) 1,100,207
138 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
On the 1st semester 2013 was repaid the following issue: - Atlantes No.1 class A in the amount of 90,665 thousand euros.
Securitization Operations The Group held for securitization consumer credit and mortgage through the sale of these assets to special purpose entities (vehicles) constituted for that purpose.
Securitization transactions are presented as follows:
Atlantes Mortgage No. 1 In operation Atlantes Mortgage No.1, were assigned only to housing credit agreements Banif, SA, amounting to 500 million Euros. Under the legislation, was constituted a Fund Securitization called Atlantes Mortgage Fund No. 1, which acquired the transferor credit agreements and issued housing units subscribed by the Irish company Atlantes Mortgage No. 1 Plc. to finance the company Atlantes Mortgage No. 1 Plc issued bonds totalizing 500 million euros.
Azor Mortgage No. 1 The Azor Mortgages, beginning in November 2004, were disposed of mortgages originated by previous BBCA a total value of 281 million Euros. In Azor Mortgages, under the legislation in force, the loans sold were initially acquired by Sagres - Sociedade Securitisation, which issued the bonds Azor Notes entirely subscribed by a company incorporated under Irish law called Azor Mortgages Plc to finance the society Azor Mortgages Plc issued bonds totalizing 281 million Euros . In December 2006, under the estimated objectives for the company consists of securitization Group, Gamma STC, were transferred to this company Azor the Notes as well as their rights to receive payment credits and duties to the company Azor Mortgages plc, originally belonging to Sagres STC. This transfer was the agreement of the originator of receivables, the Group's original securitization, rating agencies, CMVM, investors, and other entities involved in the operation, after evaluation of the Gamma good capacity to administer the same.
Atlantes Mortgage No. 2 In operation Atlantes Mortgage No. 2, were assigned only to housing credit agreements Banif, SA, amounting to 375 million euros. Under the legislation, was constituted a Fund Securitization called Atlantes Mortgage No.2 Fund, administered by Gamma - Securitization Company, SA, which acquired the transferor credit agreements and issued housing units subscribed by Atlantes Mortgage No. 2 Plc to finance the company Atlantes Mortgage No. 2 Plc issued bonds totalizing 375 million euros.
Azor Mortgage No. 2 In July 2008, began the Azor Mortgages No. 2, a bond issue securitized collateralized by a portfolio of mortgage loans originated by the previous BBCA. Unlike previous issues involving
139 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
vehicles based abroad, this issue was made directly by Gamma STC not involving any other vehicle outside the national territory. In this issue, BBCA yielded to Gamma STC a portfolio of 300 million Euros. This acquisition, as well as the establishment of the necessary cash reserves, were financed through the issuance of bonds securitized Azor Mortgages No. 2 Class A, B and C in a total nominal amount of 306.75 euros.
Atlantes Mortgage No. 3 At the end of October 2008 was realized a new operation , in this case the Atlantes Mortgage No. 3 , with the issuance of securitized bonds , involving a mortgage portfolio originated by Banif, SA . The Bank assigned to Gamma a portfolio of mortgage loans, whose value amounted to 600 million Euros. This acquisition, as well as the establishment of the necessary cash reserves, were financed through the issuance of bonds securitized Atlantes Mortgage No. 3 Class A, B and C with an aggregate nominal value of 623.7 million euros.
Atlantes Mortgage No. 4 In February 2009, the transaction is completed Atlantes Mortgage n. 4, under which the Banif gave the Gamma one mortgage portfolio, whose value amounted in this case to 550 million Euros, which were financed by the issuance of securitized bonds Atlantes Mortgage No. 4, Class A, B and C with an aggregate nominal value of 567.2 million euros. Atlantes Mortgage No. 5 In December 2009, the transaction is completed Atlantes Mortgage no. 5, under which Banif gave the Gamma one mortgage portfolio, whose value amounted in this case to 500 million Euros, which were financed by the issuance of securitized bonds Atlantes Mortgage No. 5, Class A, B and C with an aggregate nominal value of 520.5 million euros.
Atlantes Mortgage No. 6 In June 2010, was completed operation Atlantes Mortgage No. 6, under which Banif gave the Gamma one mortgage portfolio, whose value amounted in this case to 91 million Euros, which were financed by the issuance of securitized bonds Atlantes Mortgage No. 6, Class A and B with an aggregate nominal value of 113 million euros.
Atlantes Mortgage No. 7 In November 2010, was completed operation Atlantes Mortgage n. 7, under which Banif yielded to Gamma a portfolio of residential mortgage loan whose value amounted to 397 million Euros, which were financed by the issuance of securitized bonds Atlantes Mortgage No. 7, Class A, B and C with an aggregate nominal value of 460.55 million euros.
Atlantes Finance No. 4 In December 2011, the operation was completed Atlantes Finance No. 4, under which Banco Banif and Banif Mais Gamma yielded to a portfolio of consumer loans whose value amounted to 110.2 million euros and 137.3 million of euros, respectively, which were financed by the
140 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
issuance of securitized bonds Atlantes Finance No. 4, Class A, B, C and D with an aggregate nominal value of 260.0 million euros.
Atlantes Finance No. 5 In July 2012, the operation was completed Atlantes Finance No. 5, under which Banco Banif and Banif Mais Gamma yielded to a portfolio of consumer loans whose value amounted to 115.5 million euros and 82.4 million euros, respectively, which were financed by the issuance of securitized bonds Atlantes Finance No. 5, Class A, B, C and S with an aggregate nominal value of 226.4 million euros.
Atlantes NPL No. 1 In December 2012, the operation was completed Atlantes NPL No. 1, under which Banco Banif and Banif Mais Gamma yielded to a portfolio of mortgage loans, whose value in this case amounted to 168 million Euros, which were funded through the issuance of securitized bonds Atlantes NPL No. 1, Class A and B with an aggregate nominal value of 213 million euros.
BMORE Finance No. 4 plc The securitization transaction BMORE Finance No. 4 plc was made on May 18, 2004 with a Special Purpose Entity (SPE) based in Dublin, under which the Banco Mais (now Banco Banif Mais) sold credit agreements consumption, financial leases and rental agreements in various financial tranches. The total operation time is 10 years, with a revolving period of 3 years and a maximum operation set at 400 million euros.
BMORE Finance No. 5 Plc The securitization transaction BMORE Finance No. 5 plc was made on December 7, 2007, under which the Bank More (now Banco Banif Mais ) sold consumer credit contracts , lease contracts and rental contracts in financial several tranches . This is an integrated, in two phases, the first one ramp-up asset backed commercial paper with a revolving period of three years which corresponds to the period of this phase and the second phase of a program of asset backed securitization, with a term of 10 years. The limit of the operation was set at 400 million euros.
Atlantes SME No. 2 In May 2013, was completed operation Atlantes SME n. 2, under which Banif yielded to Gamma a portfolio of corporate loans whose value amounted to 802 million Euros which were financed by the issuance of securitized bonds Atlantes SME No. 2, Class A, B, C and S with an aggregate nominal value of 834 million euros.
The bonds issued under Atlantes Mortgage No. 1, Atlantes Mortgage No. 2, Atlantes Mortgage No. 3 , Atlantes Mortgage No. 4 , Atlantes Mortgage No. 5 , Atlantes Mortgage No. 7 , No. 2 Azor Mortgage and SME Atlantes No. 2 are held by group entities, partially used as collateral in refinancing operations with the ECB.
141 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
24. PROVISIONS AND CONTINGENT LIABILITIES
The movement in provisions for the period ended June 30, 2013 was as follows:
Balance at Uses and Reversals and Balance at Description Increases 31-12-2012 adjustments recoveries 30-06-2013
Provisions for guarantees and commitments 14,228 3,788 - - 18,016 Fiscal contingencies 5,556 503 3 (86) 5,976 Other provisions 11,501 1,451 (789) (159) 12,004
31,285 5,742 (786) (245) 35,996
Given the high uncertainty regarding the period of payment of accrued contingent situations, was not considered any time discount.
Below is presented a more detailed description of the nature of the obligations in question:
Tax contingencies: there is a present obligation arising from past events where probable future outflow of resources related to income taxes.
Provision for guarantees and commitments: there is a present obligation arising from past events where probable future outflow of resources related to guarantees and commitments.
Other provisions: there is a present obligation arising from past events where it is probable the future expenditure of resources (legal proceedings against the Group and other banking risks).
Operations not included in the balance sheet: - Guarantees given correspond to the following nominal values recorded on the trade:
Description 30/06/2013 31/12/2012
Guarantees given (of which:) 436,098 447,883 Guarantees and sureties 394,063 405,605 Open documentary credit 42,035 42,278
- Contingencies and commitments to third parties other than those recognized in the Financial Statements as on 30th June 2013 and 31st December 2012 were as follows:
Description 30/06/2013 31/12/2012
Other contingent liabilities (of which) 7,296,872 6,524,755 Sureties and Compensations 0 0 Assets given as guarantee 7,296,872 6,524,755 Commitments to third parties 849,405 601,462 Irrevocable commitments 323,367 139,723 Revocable commitments 526,038 461,739
8,146,277 7,126,217
142 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The "Assets pledged" correspond to credits , securities pledged as repo 's and Treasury bonds , which are a pledge for irrevocable commitments to the Fund Deposit Guarantee System of Compensation to Investors, the Intraday Credit with the Bank of Portugal and refinancing transactions with the European Central Bank .
25. EQUITY INSTRUMENTS
The caption "Equity instruments" correspond to the following situations:
o Fixed remuneration of MCSs (fixed: 0.03 euros per MCSs / year). Banif has recorded a liability in the amount of 2,070 thousand euros (2,009 thousand euros at December 2012) relating to this fixed remuneration of MCSs (description of MCSs presented in note 28).
o Instruments Core Tier 1 Capital subscribed by the State ( " Portugal " ) on 25th January 2013, in the amount of 400 million euros, with an initial annual interest rate of 9.5% (accrued interest: 16,466 thousand euros.) These instruments present as final investment date 25.01.2018.
26. OTHER LIABILITIES SUBORDINATES
This item has the following composition by issuer:
Description 30/06/2013 31/12/2012
Banif - Banco de Investimento 17,465 17,465 Banco Mais 6,000 6,000 Banif - Banco Internacional do Funchal 206,242 206,464 Banif Finance Ltd 102,834 102,834 Banif Bank Malta 5,000 5,000 Banco Caboverdiano Negócios 1,000 1,000
Held by Banif Financial Group (69,000) (66,130)
269,541 272,633
Financial charges and deferred charges (40,381) (44,519)
229,160 228,114
143 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
On 30th June 2013 the liabilities issued by the Group have the following conditions:
Balance Redemption Value in Held by the Name Issue date Interest rate sheet date circulation Group value Primeiros 5 anos: Euribor 6 month plus 0,875%, restantes Banif - Banco de Investimento 2006 - 2016 29/06/2006 29/06/2016 15,000 (15,000) - anos: Euribor 6 month plus 1,15%
Banif - Banco de Investimento 2007 - perpétua 05/05/2007 perpetual Euribor 3 month plus 1,35% 2,465 (726) 1,739
até 30/12/2010: Euribor 3 month plus 0,75%; restante Banif - Banco Internacional do Funchal 2005 - 2015 30/12/2005 30/12/2015 20,749 - 20,749 período: Euribor 3 month plus 1,25% até 22/12/2014: Euribor 3 month plus 1%, restante período: Banif - Banco Internacional do Funchal 2006 - perpétua 22/06/2006 perpetual 7,366 (7,366) - Euribor 3 month plus 2% até 22/12/2011: Euribor 3 month plus 0,75%, restante Banif - Banco Internacional do Funchal 2006 - 2016 22/12/2006 22/12/2016 11,040 (11,040) - período: Euribor 3 month plus 1,25% até 22/12/2016: Euribor 3 month plus 1,37%, restante Banif - Banco Internacional do Funchal SFE 2007 22/12/2007 perpetual 9,215 (9,215) - período: Euribor 3 month plus 2,37% até 28/12/2017: Euribor 3 month plus 3,0362%, restante Banif - Banco Internacional do Funchal SFE 2008 30/06/2008 perpetual 95 (95) - período: Euribor 3 month plus 4,0362% 1º ano: 6,25%; até 11º cupão: Euribor 6 month plus 1%, Banif - Banco Internacional do Funchal 2008 - 2018 18/08/2008 18/08/2018 21,664 (507) 21,157 restante período: Euribor 6 month plus 1,15% até 30/06/2014: 4,5%, restante período: Euribor 6 month Banif - Banco Internacional do Funchal 2009 - 2019 30/06/2009 31/12/2019 10,216 - 10,216 plus 2,75% até 09/01/2017: taxa fixa de 6,875%, restante período: Banif 2012 - 2019 09/01/2012 09/01/2019 87,123 - 87,123 7,875% - emissão a 70% primeiros 5 anos: Euribor 6 month plus 1%, restantes anos: BBCA 2006 - 2016 23/10/2006 23/10/2016 19,293 (1,488) 17,805 Euribor 6 month plus 1,25% até ao 11º cupão: Euribor 6 month plus 1%, restantes anos: BBCA 2007 - 2017 25/09/2007 25/09/2017 9,481 (613) 8,868 Euribor 6 month plus 1,25% até 28/12/2017: Euribor 3 month plus 3,0362%, restante BBCA 2008 - perpétua 30/06/2008 perpetual 10,000 (10,000) - período: Euribor 3 month plus 4,0362%
Banif Go 2005 -2015 (Banif Mais) 30/06/2005 30/06/2015 Euribor 12 month plus 1,5% 6,000 (6,000) -
até ao 21º cupão: Euribor 3 month plus 0,80%; restante Banif Finance 2004 - 2014 29/12/2004 29/12/2014 8,856 (500) 8,356 período: Euribor 3 month plus 1,30% até 22 de Dezembro de 2016: Euribor 3 month plus 1,37%; Banif Finance 2006 - perpétua 22/12/2006 perpetual 9,215 - 9,215 restante período: Euribor 3 month plus 2,37% até 22 de Dezembro de 2011: Euribor 3 month plus 0,75%; Banif Finance 2006 - 2016 22/12/2006 22/12/2016 11,040 - 11,040 restante período: Euribor 3 month plus 1,25%.
Banif Finance 2009 - 2019 31/12/2009 31/12/2019 3%, Passivo emitido a 75% e 50% 73,723 (450) 73,273
Banif Bank Malta 30/08/2012 30/08/2017 10% 5,000 (5,000) -
Banco Caboverdiano Negócios 30/08/2012 30/08/2019 10% 1,000 (1,000) -
338,541 (69,000) 269,541
27. OTHER LIABILITIES
This item has the following composition:
Description 30/06/2013 31/12/2012
Creditors and other funds 49,999 35,612 For staff costs 27,464 27,365 For general administrative costs 4,740 5,512 Other interest and similar charges 12 18 Securities operations awaiting settlement 5,072 654 Guarantees given and other contingent liabilities 63 98 Foreign currency position 2,174 687 Public administration sector 23,788 27,790 Investment Funds 41,295 46,540 Others 100,580 61,273
255,187 205,549
The item "Investment Funds" reflects the units of investment funds, which are included in the consolidation held by entities outside the Group. IAS 32 indicates that, despite being of residual interests in these funds, they constitute an obligation of the Group (through the investment fund) liquidate these liabilities if so required by the holders of units ("puttable interest").
144 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
28. OPERATIONS OF EQUITY
On 30th June 2013 and 31st December 2012, the balances equity was as follows:
Description 30/06/2013 31/12/2012
Issued capital 1,370,000 570,000 Share premium 104,565 104,565 Other equity instruments 95,900 95,900 Own shares (53) (124) Revaluation reserves (26,253) (2,141) Legal Reserve 50,727 50,727 Other reserves and retained earnings (free) (527,615) 49,373 Profit/loss for the Year (196,015) (576,353) Interim dividends - - Non-controlling interests 78,187 84,209
949,443 376,156
The share capital consists of 80,570,000,000 shares, without par value, it is fully paid-in.
On 25th January 2013, pursuant to the recapitalization plan approved at the general meeting of 16 January 2013, the state has subscribed:
a) The capital increase of Banif, by contribution in cash, with elimination of preemptive rights reserved by the State in the amount of 700,000,000.00 euros, by issuing 70.000.000.000 new shares representing the capital Banif (special actions) with an emission unit 0.01 euros; b) The issuance of subordinated and convertible instruments, qualified as core tier 1 capital in the amount of 400,000,000.00 euros.
As a result of the operation in the above in a), the capital of Banif increased to EUR 1,270,000,000.00.
On June 26, 2013 was made a capital increase of Euro 100,000,000.00, by new cash through private subscription with suppression of pre-emptive rights of shareholders, and the capital of the company increased to 1,370,000,000.00 euros.
"Other equity instruments" refers to the issuance of 70,000,000 of mandatory convertible securities (" MCSs ") with a nominal value of EUR 1 each (70,000,000 MCSs valued by the price of shares of Banif SGPS, SA on 30/06/2009 – 1.37 euros / share). The date of conversion of these instruments is 30/09/2013.
The MCSs also confer the right to annual remuneration paid in arrears on 30 September each year. The remuneration of MCSs is the sum of the fixed and variable components (fixed: 0.03 euros by MCSs / year variable: indexed to the annual dividend of the year preceding the date of payment). Banif has recorded liabilities an amount of 2.070 thousand euros relating to fixed remuneration of MCSs (Note 25).
145 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Revaluation reserves comprise the following:
- Assets available for sale: -33,082 thousand euros ( -1,460 thousand euros at 31/12/2012 ) - Derivatives of cash flows: -65 thousand euros (-106 thousand euros at 31/12/2012). - Property revaluation own service: 13,099 thousand euros ( 15,575 thousand euros at 31/12/2012 ) - Actuarial Losses: -16.150 thousand euros (-16,150 thousand euros at 31/12/2012). - Reserves associated with currency differences: 9,945 thousand euros
Information on the regulatory capital, is presented in Chapter Analysis to the Consolidated Accounts of this report.
29. NON-CONTROLLING INTERESTS
On June 30, 2013 and December 31, 2012, the balance of non-controlling interests is as follows:
30/06/2013 31/12/2012 30/06/2013 30/06/2012 Entity Balance sheet value Balance sheet value Profit/loss Profit/loss
Banif Mais SGPS 42,917 43,289 (1,294) (377) Banif Finance 23,698 27,176 - (4,482) Banco Caboverdiano de Negocios 6,080 5,255 (406) (218) Banif Bank (Malta) 4,417 4,740 21 123 Açortur - Investimentos Turísticos dos Açores 3,384 3,437 48 63 Investaçor Hoteis SA 2,664 2,808 93 141 Investaçor SGPS SA 2,269 2,384 37 12 Banif Açor Pensões 1,603 1,551 (59) (45) Tiner Polska 897 896 (1) (15) Turotel - turismo e Hóteis dos Açores 400 499 82 81 Hotel Pico 433 434 1 1 Banif Financial Services Inc 26 29 3 (2) Gestarquipark 19 5 (14) (24) Beta Securitizadora 4 4 - (19) Wil (114) (63) 1 99 Banif Banco Internacional do Funchal (Brasil) (882) (403) 430 406 Banif International Holdings (1,216) (1,015) 191 346 Banif Forfaiting Company (2,750) (2,578) 128 565 Banif Finance (USA) (5,744) (4,239) 1,462 531 Banif Real Estate Polska 4 - (4) (10) SPE Panorama - - - - BBI Brasil 91 - 50 - Indigo (13) - 12 -
78,187 84,209 781 (2,824)
The balance of non-controlling interests related to Banif Finance consists of:
- Broadcast on 22nd December 2004, Guaranteed Perpetual Preferred Shares with a liquidation preference value of 1,000 euros, amounting to 75 million euros. The preferred dividends are paid to holders of preference shares, if and when declared by the Board of Directors of the Group, quarterly in arrears. Banif Finance may make early repayment of issuance , in whole or in part by your preferred liquidation value ( " call option " ), on any dividend payment date from the first repayment date ( December 22, 2014 ) plus: (i) an amount equal to the preferred dividend accrued and unpaid for the period of preferential dividend latest, declared or not, before the date fixed for redemption, and (ii) any additional amounts, if previously authorized by the Bank of Portugal, the Guarantor Issue
146 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
(Banif - Banco Internacional do Funchal), and in accordance with the requirements of the Law of the Cayman Islands. Repurchases were made in the amount of 68.3 million euros.
- Issue on 28th December 2007, Guaranteed Perpetual Preferred Shares with a liquidation preference value of 1,000 euros, amounting to 25 million euros. The preferred dividends are paid to holders of preference shares, if and when declared by the Board of Directors of the Group, quarterly in arrears. Banif Finance may make early repayment of issuance, in whole or in part by your preferred liquidation value (" call option "), on any dividend payment date from the first repayment date (December 28, 2017) . The exercise of this reimbursement is subject to the prior consent of the Bank of Portugal and the requirements of the Law of the Cayman Islands repurchases were made in the amount of 18.3 million euros.
- Issue on 29th December 2008, Guaranteed Perpetual Preferred Shares with a liquidation preference value of 1,000 euros, amounting to 20 million euros. The preferred dividends are paid to holders of preference shares, if and when declared by the Board of Directors of the Group, quarterly in arrears. Banif Finance may make early repayment of issuance, in whole or in part by your preferred liquidation value ("call option"), on any dividend payment date from the first repayment date ( December 29, 2018 ). The exercise of this reimbursement is subject to the prior consent of the Bank of Portugal and the requirements of the Law of the Cayman Islands. Repurchases were made of the whole issue in the amount of 20 million euros in 2012.
- Issue on 29th December 2008, Guaranteed Perpetual Preferred Shares with a liquidation preference value of 1,000 euros, amounting to 35 million U.S. Dollars. The preferred dividends are paid to holders of preference shares, if and when declared by the Board of Directors of the Group, quarterly in arrears. Banif Finance may make early repayment of issuance, in whole or in part by your preferred liquidation value (" call option "), on any dividend payment date from the first repayment date (December 29, 2018). The exercise of this reimbursement is subject to the prior consent of the Bank of Portugal and the requirements of the Law of the Cayman Islands. Repurchases were made of the whole issue in the amount of 35 million U.S. Dollars in 2012.
- Issue on 31st December 2008, Guaranteed Perpetual Preferred Shares with a liquidation preference value of 1,000 euros, amounting to 25 million euros. The preferred dividends are paid to holders of preference shares, if and when declared by the Board of Directors of the Group, quarterly in arrears. Banif Finance may make early repayment of issuance, in whole or in part by your preferred liquidation value (" call option "), on any dividend payment date from the first repayment date (December 31, 2018). The exercise of this reimbursement is subject to the prior consent of the Bank of Portugal and the requirements of the Law of the Cayman Islands. Repurchases were made of the whole issue in the amount of 25 million euros in 2012.
- Issued on 30th June 2009 Guaranteed Perpetual Preferred Shares with a liquidation value of preferred unit $ 1,000, amounting to 15 million U.S. Dollars. The preferred dividends are
147 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
paid to holders of preference shares, if and when declared by the Board of Directors of the Group annually in arrears. Banif Finance may make early repayment of the total emission at your preferred liquidation value (" call option "), on any date for payment of dividends from the first repayment date (June 30, 2019). The exercise of this reimbursement is subject to the prior consent of the Bank of Portugal and the requirements of the Law of the Cayman Islands. Repurchases were made in the amount of 0.7 million U.S. Dollars in 2012.
- Issued on 30th June 2009 Guaranteed Perpetual Preferred Shares with a liquidation preference value of 1,000 euros, amounting to 10 million euros. The preferred dividends are paid to holders of preference shares, if and when declared by the Board of Directors of the Group annually. Banif Finance may make early repayment of issuance, in whole or in part by your preferred liquidation value (" call option "), on any dividend payment date from the first repayment date (June 30, 2019). The exercise of this reimbursement is subject to the prior consent of the Bank of Portugal and the requirements of the Law of the Cayman Islands. Repurchases were made in the amount of 8.6 million Euros.
30. INTEREST INCOME AND INTEREST EXPENSE
This item has the following composition:
Description 30/06/2013 30/06/2012
Interest and similar income Interest on liquid assets 346 491 Interest on investments at CI 3,233 8,186 Interest on loans to customers 239,233 310,545 Interest on overdue loans 11,508 7,852 Interest and similar income on other assets 45,945 81,059 Fees received in association with amortised cost 4,679 4,983 304,944 413,116
Interest payable and similar expenses Interest on funds from central banks 10,039 10,711 Interest on funds at other CI 8,741 22,277 Interest on customer funds 109,601 165,504 Interest on loans 58 3,694 Interest liabilities on non-subordinated securities 53,676 56,802 Interest and similar charges on other financial liabilities 9,325 25,322 Interest on subordinated liabilities 23,674 7,971 Fees paid in association with amortised cost 5,148 4,822 Others 16,666 25,898 236,928 323,001
148 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
31. INCOME AND CHARGES WITH COMMISSIONS
This item has the following composition
Description 30/06/2013 30/06/2012
Income from commissions Guarantees given 5,384 6,333 Credit operations 800 885 Annuities 1,996 1,740 Card management 6,034 5,917 Transfer of securities 295 436 Collective investment arrangements in securities 1,731 1,919 Administration of securities 508 553 Collection of securities 2,185 2,739 Deposit and custody of securities 188 159 Other services provided 5,947 9,293 Other fees received 25,115 31,286 50,183 61,260
Cost of fees Guarantees received 5,189 7,349 For other services received 5,071 7,514 Other commissions paid 1,425 3,178 11,685 18,041
32. RESULTS FINANCIAL OPERATIONS
This item has the following composition:
Description 30/06/2013 30/06/2012
Gains on financial operations
Gains on other financial assets at fair value through profit and loss 833 5,664 Gains on financial assets held for trading 83,332 68,622 Gains on financial assets available for sale 36,255 1,162 Gains on exchange rate differences 76,094 105,159 196,514 180,607
Losses on financial operations
Losses on other financial assets at fair value through profit and loss 2,474 11,546 Losses on financial assets held for trading 79,134 63,197 Losses on financial assets available for sale 85 1,936 Losses on exchange rate differences 84,921 111,877 166,614 188,556
149 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
33. STAFF COSTS
This item has the following composition:
Description 30/06/2013 30/06/2012
Remuneration of management and supervisory bodies 3,084 4,395 Remuneration of employees 52,123 57,593 55,207 61,988
Social securities costs: Costs relating to remuneration 13,924 15,314 Pension costs: - Defined benefit plan 1,530 1,692 Other social security costs 876 1,136 16,330 18,142
Other staff costs 2,187 3,949
73,724 84,079 34. GENERAL AND ADMINISTRATIVE EXPENSES
This item has the following composition:
Description 30/06/2013 30/06/2012
Specialised services 20,553 23,348 Communications 4,038 5,038 Publicity and publications 2,850 3,181 Travel, subsistence and representation 1,505 1,932 Maintenance and repair 4,309 4,455 Water, electricity and fuel 3,052 3,091 Rents and leases 4,354 6,566 Insurance 1,363 1,649 Transport 810 1,116 Consumables 368 465 Staff training 106 100 Others 9,048 9,234
52,356 60,175 35. IMPAIRMENT IN OTHER ASSETS AND CREDIT
The movement in impairment on loans and advances to customers in the period ended 30th June 2013 was as follows:
Entities within the Balance at consolidation Uses and Reversals and Balance at Description Increases 31-12-2012 perimeter for the adjustments recoveries 30-06-2013 first time
Impairment on loans 1,097,764 - 364,637 (86,497) (162,971) 1,212,933
1,097,764 - 364,637 (86,497) (162,971) 1,212,933 In the period ended 30/06/2013, the Group recovered the amount of 2.725 thousand euros of bad debts.
150 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The movement in impairment of other assets in the period ended 30th June 2013 was as follows:
Entities within Balance at the consolidation Uses and Reversals and Balance at Description Increases 31-12-2012 perimeter for the adjustments recoveries 30-06-2013 first time
Financial assets available for sale 44,442 - 5,709 (1,804) (200) 48,147 Non-current assets held for sale 30,219 - 7,411 (2,524) (936) 34,170 Other tangible assets 4,698 - 211 (174) (601) 4,134 Goodwill 1,399 - - (1,085) - 314 Debtors and other investments 37,240 - 8,414 (1,348) (2,385) 41,921
117,998 - 21,745 (6,935) (4,122) 128,686
36. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
In the normal course of its financial activity, the Group enters into transactions with related parties. These include credit and banking applications, deposits, supplies, guarantees and other banking operations and services.
The balance of these transactions, with related parties on the balance sheet and their income and expenses for the year ended are as follows:
Family members close Description Key management staff to key management Associates Other entities staff 30/06/2013 31/12/2012 30/06/2013 31/12/2012 30/06/2013 31/12/2012 30/06/2013 31/12/2012
Loans and applications 838 863 536 1,457 89,072 144,486 157,778 113,764 Deposits 986 4,258 501 861 24,818 140,472 30,621 57,192 Shareholder loans - - - - 13,524 13,261 10,875 16,750 Loans obtained ------Guarantees given - 52 - - 1,766 - 5,500 6,234
30/06/2013 30/06/2012 30/06/2013 30/06/2012 30/06/2013 30/06/2012 30/06/2013 30/06/2012
Commissions and services provided 1 - - - 513 696 273 - Interest and similar charges 13 21 10 30 1,466 1,318 985 4,209 Interest and similar income 5 5 2 16 1,454 639 4,332 3,234
Transactions with related parties are analyzed in accordance with the criteria applicable to similar transactions with third parties, and are carried out under normal market. These operations are subject to the approval of the Board of Directors.
In the year end, no specific provisions were made to balances with related parties. The related parties of Banif Financial Group are as follows:
Key elements of management: Dr. Luís Filipe Marques Amado Dr. Jorge Humberto Correia Tomé Dr.ª Maria Teresa Henriques da Silva Moura Roque dal Fabbro Dr. António Carlos Custódio de Morais Varela Dr. Carlos Eduardo Pais e Jorge Engº Diogo António Rodrigues da Silveira Dr. Gonçalo Vaz Gago da Câmara de Medeiros Botelho Dr. João José Gonçalves de Sousa Dr. João Paulo Pereira Marques de Almeida Dr. José António Vinhas Mouquinho
151 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Dr. Nuno José Roquette Teixeira Dr. Vítor Manuel Farinha Nunes
Close family members of key management elements: Marta do Patrocínio Oliveira de Castro Amado Carlos António de Castro Amado Maria Carolina de Castro Amado Isabel Maria da Silva Pedro Gomes Carolina Pedro Gomes Tomé Lorenzo Roque Dal Fabbro Bianca Maria Roque Dal Fabbro Maria José Botelho de Vasconcellos e Melo de Morais Varela Matilde de Vasconcellos Morais Varela João de Vasconcellos Morais Varela Francisco de Vasconcellos Morais Varela Maria do Carmo Barroso de Oliveira Pais Jorge Matilde Barroso de Oliveira Pais Jorge Mariana Barroso de Oliveira Pais Jorge Maria do Carmo Barroso de Oliveira Pais Jorge Catherine Thérèse Laurence Jouven da Silveira Alexandre Tiago da Silveira Heloïse Maria da Silveira Gaspar Antoine da Silveira Maria João Ferreira Pena Chancerelle de Machete de Medeiros Botelho Gonçalo Vaz de Machete Gago da Câmara do Botelho Miguel António de Machete Gago da Câmara do Botelho Marta Maria Pena de Machete Contreras do Botelho Maria Luísa Pereira Silva Sousa João Nuno da Silva e Sousa Joana Filipa da Silva e Sousa Helena Veiga Martins de Almeida Catarina Martins Marques de Almeida Margarida Martins Marques de Almeida Domingas da Conceição Clérigo Barradas Mouquinho Inês Sofia Barradas Mouquinho Sara Dolores Militão Silva de Cima Sobral Roquette Teixeira Maria Cima Sobral Roquette Teixeira José Maria Cima Sobral Roquette Teixeira Isabel Maria Cima Sobral Roquette Teixeira Ana Cristina dos Santos de Figueiredo e Sousa Nunes Sofia Farinha de Figueiredo e Sousa Nunes Tomás Farinha de Figueiredo e Sousa Nunes Francisco Farinha de Figueiredo e Sousa Nunes
152 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Associated Entities: Rentipar Seguros, S.G.P.S., S.A. Companhia de Seguros Açoreana, S.A. Espaço Dez – Sociedade Imobiliária, Lda Banca Pueyo Inmobiliaria Vegas Altas, S.A. MCO2 - SGFIM, S.A Pedidos Liz, Lda
Other Entities : Rentipar Financeira, SGPS, S.A. Vestiban – Gestão e Investimentos, S.A. Auto-Industrial – Investimentos e Participações, SGPS, S.A. Renticapital, Investimentos Financeiros, S.A. Rentipar Investimentos, SGPS, S.A. Rentipar Industria SGPS, S.A. Rentiglobo, SGPS, S.A. Empresa Madeirense de Tabacos SIET – Sociedade Imobiliária de Empreendimentos Turísticos Savoi, S.A. DISMADE – Distribuição de Madeira VITECAF – Fabrica Rações da Madeira, S.A. RAMA – Rações para Animais, S.A. SODIPRAVE – Soc. Dist. De Produtos Avícolas Avipérola Aviatlântico – Avicultura, S.A. SOIL, SGPS, S.A. Rentimundi – Investimentos Imobiliários, S.A. Mundiglobo – Habitação e Investimentos, S.A. Habiprede – Sociedade de Construções Genius – Mediação de Seguros, S.A. Rentimedis – Mediação de Seguros, S.A. MS MUNDI – Serviços Técnicos de Gestão e Consultoria, S.A. RENTICONTROL – Controlo e Gestão de Contabilidade, S.A. Fundo de pensões de colaboradores do Grupo FN Participações SGPS, SA GESCONFER – Gestão e Contabilidade, Lda Coeprimob Promoção Imobiliária, S.A. SSl – Serviços e investimentos, S.A. PADORE Reflorestamento, Lda. Centaurus Realty Group Invest. Imobiliários S.A
153 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
37. SPECIAL CONDITIONS ON SOVEREIGN RISK OF PORTUGAL, GREECE, IRELAND, SPAIN, ITALY AND CYPRUS
The emergence of the sovereign debt crisis in some euro zone countries led, in conjunction with the International Monetary Fund, to develop a range of support mechanisms for the formulation and implementation of adjustment plans in Greece, and later to Ireland and Portugal.
In May 2010, the governments of the euro zone and the IMF pledged an aid program of 110 billion euros to Greece in exchange for a commitment to reduce the public sector deficit. During the first half of 2011, the European authorities reaffirmed their support to Greece, which led to conversations on the implementation of a second aid program with the support of the private sector. This development led to the adoption by the 17 euro zone members, of a second support program for Greece amounting set of 130 billion euros, which included a Greek debt restructuring in accordance with a bond exchange offer. In February 2012, were announced the terms of the agreement on private sector involvement in restructuring Greece's public debt, resulting in the exchange of securities held by Banif December 31, 2011, recorded in the portfolio of assets available for sales by new bonds issued by Greece.
The principal terms of the agreement were announced as follows:
- forgive of debt of 53.5% of the nominal value of government bonds issued by Greece held by private entities; - exchange for 46.5% of the previous government bonds issued by Greece for new government bonds issued by Greece with maturity between 2023 and 2042, and bonds from the European Financial Stability with maturities between 6 months and two years; - issue of the Greek Republic (" Detachable GDP- Linked Securities"), whose compensation and amortization, is dependent on the Greek economy to achieve certain goals.
Banif decided to accept the terms of the exchange, having recorded a loss of 558 thousand euros in 2012, and assigned a null value to the titles of contingent consideration. It is important to refer that in 2011 the Greek bonds, according to the recommendations of the ESMA , were recorded at fair value , and had been recorded impairments of 941 thousand euros.
In December 2012 was released by the Greek government, with support from the European Financial Stability Facility (EFSF), a program of debt buyback. This process covered bonds maturing between 2023 and 2042, with the exception of "Detachable GDP- Linked Securities", and whose terms of trade varied depending on the maturities of the bonds between a minimum of 30.2 % up to 40.1% of nominal. In return, the private received EFSF bonds maturing in six months.
Banif accepted the terms of the repurchase presented, having recorded a capital gain of 101 million euros in 2012 and maintained the impairment of the entire nominal "Detachable GDP- Linked Securities" in the amount of 630 thousand euros.
154 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The support plan for Ireland was adopted in November 2010 in the amount of 85 billion euros, and for Portugal a plan was adopted in May 2011 and provided a total of 78 billion euros of support.
With the aggravation of the crisis in 2012 the sovereign debt and banking systems of some countries, Spain formally requested funding support for the recapitalization of the banking system and Cyprus negotiated a financial aid plan, implemented in 2013. Italy is also affected by the instability in European sovereign debt markets.
The Group does not expect any additional impairment for direct exposure to the risk of Ireland, Portugal, Spain, Cyprus and Italy.
Group exposures:
Residual Maturity
Provisions/Imp Maximum 1 year 2 years 3 years 5 years > 5 years Total (net) Reserve JV airment Exposure
Portugal Financial assets available for sale Central Government 126,622 68,803 201,389 222,973 862,602 1,482,389 - (49,081) 1,531,470 Local and Regional Governments ------Banks 924 - 528 - - 1,452 - 14 1,438 Public Companies - - - - 4,497 4,497 - 75 4,422 127,546 68,803 201,917 222,973 867,099 1,488,338 - (48,992) 1,537,330
Investments held to maturity Central Government ------Local and Regional Governments ------Banks 2,434 - - - - 2,434 - - 2,434 Public Companies ------0 - - 2,434 - - 2,434
Loans Central Government 1,276 334 681 2,710 63,714 68,715 - - 68,715 Local and Regional Governments 53,252 - - - 18,962 72,214 - - 72,214 Banks ------Public Companies 1 - - 7,304 29,893 37,198 - - 37,198 54,529 334 681 10,014 112,569 178,127 - - 178,127
184,509 69,137 202,598 232,987 979,668 1,668,899 - (48,992) 1,717,891
Greece Activos financeiros Disp Venda Governo Central ------(630) - 630 Governos Locais e Regionais ------Bancos ------Empresas Públicas ------(630) - 630
------(630) - 630
Irlanda Financial assets available for sale Central Government - - - - 12,014 12,014 - (12) 12,026 Local and Regional Governments ------Banks ------Public Companies ------12,014 12,014 - (12) 12,026
Italy Financial assets available for sale Central Government - - - - 2,122 2,122 - 4 2,118 Local and Regional Governments ------Banks ------Public Companies ------2,122 2,122 - 4 2,118
Spain Financial assets available for sale Central Government - - - - 3,229 3,229 - 24 3,205 Local and Regional Governments - - - - 431 431 - (9) 440 Banks 412 - - - 212 624 - 4 620 Public Companies ------412 - - - 3,872 4,284 - 19 4,265
Investments held to maturity Central Government ------Local and Regional Governments ------Banks - 2,628 - - - 2,628 - - 2,628 Public Companies ------2,628 - - - 2,628 - - 2,628
412 2,628 - - 3,872 6,912 - 19 6,893 184,921 71,765 202,598 232,987 997,676 1,689,947 (630) (48,981) 1,739,558
38. EVENTS AFTER THE BALANCE SHEET DATE
At the date of approval of these financial statements by the Board of Directors of Banif no subsequent event was detected by 30th June 2013, the reference date of these financial
155 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013 statements, which would require adjustments or changes in the values of assets and liabilities in accordance with IAS 10 - Events after the balance sheet date.
On 30th July 2013 was registered in the Commercial Registry corresponding increase in the share capital of Banif in the amount of 100,000,000 euros for new cash through public subscription, and the capital of the company increased to 1,470,000,000 euros, with the consequent amendment of Articles 5 and 6 of the articles of association.
On 5th August 2013, Banif concluded further increase its share capital, amounting to 40,700,000 euros, which increased to EUR 1,510,700,000. This operation of capital increase was made for private offer, in accordance with the authorization in the Articles of Association and the resolution of the suppression of pre-emptive rights of the shareholders approved at the General Meeting of 25th June 2013.
Note that the process of negotiating with the Directorate - General for Competition of the European Commission 's final restructuring plan as part of the recapitalization process took place during the first half of 2013 , and the final version, yet to be approved , contain the elements Banif competitive repositioning of the Portuguese financial system .
156 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
10 OTHER INFORMATION
At the General Meeting of Shareholders of Banif - Banco Internacional do Funchal, SA (Banif), held on January 16, 2013, the following was decided:
- approve the capitalization reinforcement of Banif that includes access to public investment, according to Law no. 63-A/2008 of 24 November, and in this context to approve the recapitalization plan Banif, along with its commitments related obligations, including operations of capital increase planned for the first and second phases of the recapitalization (both part of the recapitalization plan), and providing a mandate to the Board of Directors for all acts or steps for development of measures for completion of the recapitalization plan, as well as their eventual adjustment in accordance with the ministerial Order referred to in Article 13 of Law no. 63-A/2008 of 24th November. - Approve the amendment of Article 5 of the Articles of Association of the Company by inserting a new paragraph no. 1A, as follows: "1A. After the injection of public funds corresponding to the first phase of recapitalization, approved by the General Meeting on 16th January 2013, the Board of Directors shall decide to increase the share capital of 450,000,000.00 euros by paid-in capital until June 30, 2013 through one or more capital increases." - approve the suppression of pre-emption rights of the shareholders in the capital increase reserved to the State, up to700 million euros, by issuing 70,000,000,000 new shares designated as special in Article no.4 of the Law no. 63 / A 2008, of 24 November, with an unit issue value of 0.01 euros. It was also decided to suppress pre-emption rights of shareholders in a capital increase to act once or more times on behalf of the Board, with the prior approval of the Supervisory Board, by cash entry in the amount of 450 million euros through initial public offering, to be completed by 30th June 2013. - approve the issue of subordinated convertible financial instruments into shares, that qualify as Core Tier 1 capital, in the amount for 400 million euros, and capital increase in the amount of 700 million euros, through the issue of 70,000,000,000 new shares designated as special in Article no. 4 of the Law no. 63-A/2008 of 24 November, 44,511,019,900 shares with voting rights to be fully exercised, and 25.488.980.100 shares with voting rights subject to the limitation provided for in Article 4 - no. 8 of the same law, with an issue unit value of 0.01 euros, in both cases integrating public investment particularly for subscription by the State under the terms and conditions of the recapitalization plan. - approve the capital increase to the amount of 450 million euros under the terms and conditions of the recapitalization plan, in any case, granting powers to the Board of Directors to fix the remaining terms of issues.
157 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
In the edition of 24th January 2013 of the Series II of Diário da República (No. 17), 2nd Supplement an Order was published with no. 1527-B/2013 of the Minister of State and Finance, under which was approved an operation of capitalization of the Bank for the purposes referred to in no. 1 of Article 13th of Law no. 63-A/2008 through which the State agrees and settles four hundred million euros in equity instruments Core Tier 1 capital subscribed by the State (the instruments), as well as subscribes and settles seven hundred million euros in special shares of the Bank (the special Actions) .
Within the implementation of the recapitalization plan approved at the general meeting of 16th January 2013, which foresees to public investment under Law no. 63 A/2008 of 24 November (Legal Regime of Recapitalization) the Portuguese State carried out on 25th January 2013: i) the subscription of the capital increase of Banif, through paid-in with suppression of pre-emption rights reserved to the State in the amount of 70,000,000.00 euros, by issuing 70,000,000,000 new shares representing the capital of Banif (Special Shares), the unit issue price of 0.01 euros; ii) the issue of subordinated and convertible instruments, qualified as Core Tier 1 capital in the amount of 400,000,000.00 euros.
As a result of the transaction referred to above in i), the capital of Banif increased to EUR 1,270,000,000.00.
In the issue of 4th March 2013 of Series II of “Diário de República” (No. 44) Order no. 3454-A/2013 of the Minister of State of Finance was published, in terms of which were appointed "with effect from 22nd February 2013, Dr. António Carlos Custódio de Morais Varela as a non-executive member of the Board of Directors of the Bank and Dr. Rogério Pereira Rodrigues as a member of the Supervisory Board of the Bank, regarding no. 2 of Article 14th of Law no. 63-A/2008 63 and the no.10 of Order 1527-B/2013, and with respect for all legal regulations, including the mentioned on Articles 30th and 33rd of the General Regime of Credit Institutions and Financial Companies, approved by Decree - Law no. 298/92 of 31st December last amended by Decree -Law n . º 18/2013 of 6th February."
The mentioned members of the Board of Directors and Fiscal Council initiated the tasks for which they were appointed on 26th March 2013.
On 5th March 2013, Drª Maria Teresa Henriques da Silva Moura Roque dal Fabbro and Mr. José António Vinhas Mouquinho were appointed to the Board of Directors of the Bank following the merge by incorporation of Banif SGPS, SA, and began their duties, as soon as the registration procedures with the Bank of Portugal were in order.
At the General Meeting of the Company held on 30th May 2013 the following was resolved:
- approve the appointment of company auditors Ernst & Young Audit & Associados - Chartered Accountants, SA ( SROC no. 178 ) represented by Dra. Ana Rosa Montes Salcedas
158 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Ribeiro Pinto (ROC no. 1230) to perform the duties provided for in Article 446 of the Code of Commercial Companies and the no. 4 of article 27th of Association Contract for a period of one year, with reference to the year 2013. - elect Dr. António Carlos Custódio Morais Varela, a non-executive member of the Board appointed by Order No. 3454-a/2013 on 4th March, of the Minister of State and Finance, to take part in the Remuneration Committee of the company for a the three-year period 2012-2014, following the resignation of Dr. Enrique Santos, from that statutory body, that has now the following composition:
Chairman: Dr. António Gonçalves Monteiro Members: Dr. Filipe de Andrade e Silva Lowndes Marques Dr. António Carlos Custódio Morais Varela
At the General Meeting of the company held on 25th June 2013, the following was decided:
- approve the amendment of Article 5th No. 1A of Banif’s articles of association, which is replaced by the following: "1A. The Board of Directors is authorized to increase the company's share capital by up to EUR 450,000,000 with cash payments through one or more capital increases." - approve the suppression of pre-emption rights of shareholders in a capital increase to be held in cash, once or more times and resolved by the Board of Directors, pursuant to the authorization contained in Banif’s articles of association.
On 26th June 2013 a capital increase of 100,000,000.00 took place, through new cash of private subscription with suppression of pre-emption rights of shareholders, the capital of the company was increased to 1,370,000,00.00 euros with the consequent amendment of Articles 5th and 6th of the articles of association.
This restructuring capital increase was carried out by private offer, within which were fully subscribed 10.000.000.000 new shares at a price of 0.01 euros and was the result of the General Shareholders Meeting on 25th June 2013 and the Board of Directors of the same date .
On 30th June 2013, in according to paragraph a) of Article 3rd of CMVM Regulation no. 5/2008 and by virtue of resignation duly presented, Mr. Carlos Manuel de Carvalho Fernandes ceased functions as a non-executive member, he had been performing on the Board of Directors of Banif - Banco Internacional do Funchal, SA, and for which he had been elected in the General Meeting of the Company, on 2th March 2012.
With the completion of the capital increase of Banif - Banco Internacional do Funchal , SA from 1,270,000,000 euros to 1,370,000,000 euros, carried out on 26th June 2013, the shareholder Portuguese State reduced its holding of shares corresponding to 70,000,000,000 that were held the company’s share capital to 86.881% shareholder Undivided Inheritance of Horácio da Silva Roque
159 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
(considering all the companies controlled by it ) now has a qualified holding of more than 5 % in the share capital of Banif. For this effect the participation of Açoreana Seguros SA has been relevant for the acquisition of 7,500,000,000 shares in the capital increase mentioned above. Similarly, the shareholder Auto - Industrial Investments and Holdings SGPS, SA holds a qualified holding over 2% in Banif.
It is important to point out that at the date of this report and following the capital increase operation carried out after 30th June 2013, the capital of Banif - Banco Internacional do Funchal SA rose to 1,510,700,000 euros, with consequent adjustment of the qualifying participations referred above.
1. GOVERNANCE AND STATUTORY BODIES
On at 30th June 2013, the composition of the governing and statutory bodies is as follows:
GENERAL MEETING BOARD
Chairman: Dr. Miguel José Luís de Sousa Secretary: Dr. Bruno Miguel dos Santos de Jesus
BOARD OF DIRECTORS
Chairman: Dr. Luís Filipe Marques Amado Vice-Chairmen: Dra. Maria Teresa Henriques da Silva Moura Roque dal Fabbro Dr. Jorge Humberto Correia Tomé Directors: Eng.º Diogo António Rodrigues da Silveira Dr. Vítor Manuel Farinha Nunes Dr. Nuno José Roquette Teixeira Dr. João Paulo Pereira Marques de Almeida Dr. José António Vinhas Mouquinho Dr. Carlos Eduardo Pais Jorge Dr. João José Gonçalves de Sousa Dr. Gonçalo Vaz Gago da Câmara de Medeiros Botelho Dr. António Carlos Custódio de Morais Varela
AUDIT BOARD
Chairman: Prof. Doutor Fernando Mário Teixeira de Almeida Efective members: Dr. António Ernesto Neto da Silva Dr. Thomaz de Mello Paes de Vasconcellos Dr. Rogério Pereira Rodrigues Alternate member: Dr. José Pedro Lopes Trindade
160 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
STRATEGIC BOARD
Chairman: Dra. Maria Teresa Henriques da Silva Moura Roque dal Fabbro Vice-Chairman: Dr. Mário Raúl Leite Santos Directors: Professor Doutor António Soares Pinto Barbosa Dr. Fernando José Inverno da Piedade Dr. Jorge Humberto Correia Tomé Dr. José Marques de Almeida Dr. José Paulo Baptista Fontes Dr. Mário Henrique de Almeida Santos David Dr.ª Paula Cristina Moura Roque
REMUNERATION COMMITTEE Chairman: Dr. António Gonçalves Monteiro Members Dr. Enrique Santos Dr. António Carlos Custódio de Morais Varela
SOCIETY SECRETARY Efective: Dr. Bruno Miguel dos Santos de Jesus Alternate: Dr.ª Ângela Maria Simões Cardoso Seabra Lourenço
2. PORTFOLIO OF OWN SHARES
During the 1st semester of 2013, Banif - Banco de Investimento SA, a company controlled by Banif - Banco Internacional do Funchal, SA ( Banif, SA ) carried out the transactions described below regarding Banif’s shares, which were performed on Euronext Lisbon (Stock Exchange operations) regarding the implementation of the Liquidity Contract celebrated between that bank and Euronext Lisbon, which was extinguished in the General Meeting of Banif SA occurred on 30/05/2013, not being approved the renewal authorization of the acquisition and disposal of own shares, given the commitments regarding the Recapitalisation Plan.
Concerning article No. 325 - A of the Companies Act, such shares are considered treasury shares of the dominant society. Type of Security Date Stock Exchange Quantity Unit Price Transaction
Banif Shares Acquisition 28-Mar-13 Euronext Lisboa 100 0.12000
Banif Shares Disposal 28-Mar-13 Euronext Lisboa 100 0.12000
Banif Shares Disposal 30-May-13 Euronext Lisboa 30,000 0.11000
Banif Shares Disposal 30-May-13 Euronext Lisboa 290,908 0.11000
Banif Shares Acquisition 30-May-13 Euronext Lisboa 31,531 0.11000
Banif Shares Acquisition 31-May-13 Euronext Lisboa 3,000 0.11000
161 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
As a result of the transactions identified above, the total number of shares on 30th June 2013 was 565,574 shares held by Banif - Banco de Investimento SA.
3. OWNERS OF QUALIFIED SOCIAL PARTICIPATIONS
Pursuant to article 9th, no. 1 c) of Regulation no. 5/ 2008 of the CMVM, regarding the holders of qualifying holdings we inform that as on 30th June 2013 and in accordance with Article 20th of the Securities Code, and concerning the existing elements in this society at the date of the production of this information: i) The Portuguese government was holding 70,000,000,000 shares of Banif - Banco Internacional do Funchal, SA. To that participation corresponds on the reference date, 80,810 % of voting rights in all matters not provided for in paragraph 8 of Article 4th of Law No. 63-A/2008 of November 24th and 86.881 % in the matters foreseen. ii) Undivided Inheritance of HORÁCIO DA SILVA ROQUE, directly owned 808.888 shares of Banif - Banco Internacional do Funchal, SA, corresponding to 0.001 % of the share capital and voting rights of Banif - Banco Internacional do Funchal, SA, voting rights corresponding to a total of 7,837,073,868 shares of Banif - Banco Internacional do Funchal, SA, were also attributable, corresponding to 14.226 % of voting rights in all matters not provided for in paragraph 8 of Article 4th of Law No. 63 - a / 2008 November 24, and 9,726 % in matters foressen, as follows:
- 307,063,133 shares of Banif - Banco Internacional do Funchal, SA, held by Rentipar Financial SGPS, SA, a company controlled (pursuant to article no. 20, No. 1, b) and 21st) both of the CVM) by Undivided Inherance of Horácio da Silva Roque. To this participation corresponds 0.557 % of voting rights in all matters not provided for in paragraph 8 of Article 4 of Law No. 63-A/2008 of November 24 and 0.381 % in the subjects therein. - 1,152,997 shares of Banif - Banco Internacional do Funchal, SA, which were held by the members of the Board of Directors of Financial Rentipar, SGPS, SA1 - Dr. Fernando José Inverno da Piedade : 20,082 shares; Dr. José Marques de Almeida: 1,117,440 shares; Vitor Hugo Simons: 15,475 shares - ( article 20th no. 1, b), d) and i) of the CVM). To this participation corresponds 0.002 % voting rights in all matters not provided for in paragraph 8 of Article 4 of Law No. 63-A/2008 of November 24 and 0.001 % in the subjects therein. - 27,583,051 shares of Banif - Banco Internacional do Funchal, SA, held by Vestiban - Gestão e Investimentos, SA, a company controlled by Undivided Inherance of Horácio da Silva Roque (Article 20th No. 1 b) and no. 21st of the CVM). To this participation corresponds 0.050 %
1 At the date of preparation of this information, Banif noted that the Annual General Meeting of Rentipar Financial SGPS SA, held on May 31, 2013 Dr. Fernando José Inverno da Piedade and Dr. José Marques de Almeida were not reappointed to their positions, leaving the board of directors of that company. As at 30th June 2013, the corresponding records to the competent authorities (CRC and BP) had not been met. At this date, those administrators are no longer included in the permanent certificate of society, still finding pending completion of the registration endorsement of termination of service with the Bank of Portugal. Regarding to Mr. Victor Hugo Simons, he was reappointed administrator of Rentipar Financial SGPS SA and holds 15.475 shares in the ownership of Banif, SA.
162 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
voting rights in all matters not provided for in paragraph 8 of Article 4 of Law No. 63- A/2008 of November 24 and 0.034 % in the subjects therein. - 267,750 shares of Banif - Banco Internacional do Funchal, SA, that holds the Espaço Dez - Real Estate Company Ltd, a controlled company (pursuant to article 20th No. 1, b) and 21st both of the CVM) by Undivided Inherance of Horácio da Silva Roque. To this participation corresponds 0.0000 % of voting rights in all matters not provided for in paragraph 8 of Article 4 of Law No. 63-A/2008 of November 24 and 0,000 % in the subjects therein. - 162,049 shares of Banif - Banco Internacional do Funchal, SA, held by Renticapital - Financial Investments, SA, a company controlled (pursuant to article 20th No. 1, b ) and i) and article 21st both of the CVM ) by Undivided Inherance of Horácio da Silva Roque. To this participation corresponds 0.000 % of voting rights in all matters not provided for in paragraph 8 of Article 4 of Law No. 63-A/2008 of November 24 and 0,000 % in the subjects therein. - 7,500,000,000 shares of Banif - Banco Internacional do Funchal, SA, held by Açoreana Seguros, SA, a company controlled (pursuant to article 20th No. 1, b) and i) and article 21st both of the CVM ) Undivided Inherance of Horácio da Silva Roque. To this participation corresponds 13.616 % voting rights in all matters not provided for in paragraph 8 of Article 4 of Law No. 63-A/2008 of 24thNovember and 9.309 matters set therein. iii) AUTO INDUSTRIAL, INVESTIMENTOS E PARTICIPAÇÕES, SGPS, SA, TAX NO. 505025752, with Head Office in Av. Fontes Pereira de Melo, no. 14, Lisbon held 2,576,377,857 shares from Banif – Banco Internacional do Funchal, SA, corresponding to 4.677% of rights to vote in all matters not provided for in paragraph no. 8 article 4th of Law no. 63-A/2008 of 24th November and 3.198% matters therein.
4. SECURITIES ISSUED BY BANIF – BANCO INTERNACIONAL DO FUNCHAL, SA AND SUBSIDIARIES OF BANIF FINANCIAL GROUP HELD FOR HOLDERS OF SOCIAL BODIES
In accordance with the defined in article 9th no. 1, paragraph a) of Regulation no. 5/2008, information is disclosed on the number of securities issued by Banif - Banco Internacional do Funchal, SA and the societies that are with it in a control or group relation held, acquired, transferred by company officers, during the period referred to in this report (1st semester 2013).
GENERAL MEETING BOARD Dr. Miguel José Luís de Sousa - In personal terms, he was the holder of 741 shares of Banif - Banco Internacional do Funchal, SA. - Did not trade directly or through related entity(ies), any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and/or financial instruments related with them) and/or companies with which they are in a control or group relation, in the reference period.
163 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Dr. Bruno Miguel dos Santos de Jesus - Not a holder, directly or through related entity(ies), of any securities issued by Banif - Banco Internacional do Funchal , SA ( including shares and / or financial instruments related with them ) and / or by companies related to it in a controlling or group relation. - Did not trade directly or through related entity (ies ), any securities issued by Banif - Banco Internacional do Funchal , SA ( including shares and / or financial instruments related with them ) and / or companies with which they are in a control or group relation, in the reference period.
BOARD OF DIRECTORS
Luís Filipe Marques Amado - Not a holder directly or through related entity (ies ), of any securities issued by Banif - Banco Internacional do Funchal, SA ( including shares and / or financial instruments related with them ) and / or companies with which they are in a control or group relation. - Did not trade directly or through related entity (ies ), any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and / or financial instruments related thereto) and / or companies with which they are in a control or group relation, in the reference period.
Dr.ª Maria Teresa Henriques da Silva Moura Roque dal Fabbro - One of the two heirs to the undivided inheritance of “Comendador” Horácio da Silva Roque, which holds, directly and indirectly the shares identified in paragraph 3 ii). - During the reference period, she not trade, directly or through related entity (ies), any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and/or financial instruments related with them) and/or companies with which they are in a control or group relation, with the exception of the above mentioned operation of equity participation by Açoreana Seguros SA for the acquisition of 7,500,000,000 shares in the capital increase of Banif - Banco Internacional do Funchal , SA from 1,270,000,000 euros , to 1,370,000,000 euros achieved on 26th June 2013 .
Dr. Jorge Humberto Correia Tomé - In personal terms he owned four shares of Banif - Banco Internacional do Funchal ( Brazil ) SA. - Did not trade directly or through related entity (ies ), any securities issued by Banif - Banco Internacional do Funchal, SA ( including shares and / or financial instruments related thereto ) and / or companies with which they are in a control or group relation, in the reference period.
164 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Eng º António Rodrigues Diogo da Silveira Was not a holder, directly or through related entity(ies), of any securities issued by Banif - Banco Internacional do Funchal , SA. (including shares and / or financial instruments related to them) and / or companies with which they are in a control or group relation. - did not trade directly or through related entity(ies), securities issued by Banif , SA (including shares and / or financial instruments related to them ) and / or companies with which they are in a dominant or group relation, during the period under reference.
Dr. Vítor Manuel Farinha Nunes - In personal terms did not hold, on the reference date, any shares of Banif - Banco Internacional do Funchal, SA. Indirectly, through the Society FN Participações, SA , which he controlled , held a total of 1.836.504 shares and 1.820.000 VMOC . - did not trade directly or through related entity (ies), any securities issued by Banif - Banco Internacional do Funchal , SA , ( including shares and / or financial instruments related to them) and / or companies with which are in a controlling or group relation, in the reference period.
Dr. José Roquette Nuno Teixeira - Personally he owned four shares of Banif - Banco Internacional do Funchal ( Brazil ) SA. - Did not trade directly or through related entity (ies ), any securities issued by Banif - Banco Internacional do Funchal , SA ( including shares and / or financial instruments related to them) and / or companies with which they are in a control or group relation, in the reference period .
Dr. João Paulo Pereira Marques de Almeida - In personal terms, held 24,807 shares of Banif - Banco Internacional do Funchal, SA. - Did not trade directly or through related entity (ies), any securities issued by Banif - Banco Internacional do Funchal, SA ( including shares and / or financial instruments related to them) and / or companies with which they are in a control or group relation, in the reference period.
Dr. José António Vinhas Mouquinho - Indirectly, he held 67.200 shares of Banif - Banco Internacional do Funchal , SA , held by his spouse Drª Domingas Conceição Clérigo Barradas Mouquinho . - not traded directly or through related entity (ies), any securities issued by Banif - Banco Internacional do Funchal, SA ( including shares and / or financial instruments related to them) and / or companies with which they are in a control or group relation, in the reference period .
Dr. Carlos Eduardo Pais Jorge - In personal terms, he owned four shares of Banif - Banco Internacional do Funchal (Brazil) SA.
165 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
- Did not trade directly or through related entity (ies ), any securities issued by Banif - Banco Internacional do Funchal, SA ( including shares and / or financial instruments related to them) and / or companies with which they are in a control or group relation, in the reference period.
João José Gonçalves de Sousa - Was not a holder, directly or through related entity (ies), of any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and / or financial instruments related to them) and / or companies with which they are in a control or group relation. - Did not traded directly or through related entity (ies ), any securities issued by Banif - Banco Internacional do Funchal, SA ( including shares and / or financial instruments related to them) and/or companies with which they are in a control or group relation, in the reference period.
Dr. Gonçalo Vaz Gago Câmara Medeiros Botelho - was not a holder, directly or through entity(ies) related, of any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and /or financial instruments related thereto) and / or companies with which they are in a control or group relation. - did not trade directly or through related entity(ies) any securities issued by Banif - Banco Internacional do Funchal , SA ( including shares and / or financial instruments related thereto ) and / or companies with which they are in a control or group relation, in the reference period .
António Carlos Custódio de Morais Varela - Personally he owned 25,000 preferred shares Banif Finance Perpetual 07 and 50 bonds 08 / 18 subordinated cash. - did not trade directly or through related entity(ies), any securities issued by Banif - Banco Internacional do Funchal , SA ( including shares and / or financial instruments related thereto ) and / or companies with which they are in a control or group relation, in the reference period.
AUDIT BOARD
Prof. Dr. Fernando Mário Teixeira de Almeida - In personal terms held 213.847 shares of Banif - Banco Internacional do Funchal, SA. - Society Quinta do Sourinho - Agriculture and Tourism Ltd, owned by the above mentioned and by individuals mentioned in paragraphs a) and b) of paragraph 2 of article 447 of the Código das Sociedades, it held 220.238 shares of Banif - Banco Internacional do Funchal SA. - did not trade directly or through related entity(ies), any securities issued by Banif - Banco Internacional do Funchal, SA ( including shares and / or financial instruments related thereto ) and / or companies with which they are in a control or group relation, in the reference period .
166 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Dr. Ernesto Neto António da Silva - was not a holder, directly or through related entity (ies), of any securities issued by Banif - Banco Internacional do Funchal , SA ( including shares and / or financial instruments related thereto ) and / or by companies with it are in a controlling or group relation. - did not trade directly or through related entity(ies), any securities issued by Banif - Banco Internacional do Funchal, SA ( including shares and / or financial instruments related thereto ) and / or companies with which they are in a control or group relation, in the reference period.
Dr. Thomaz de Mello Paes de Vasconcellos - was not a holder, directly or through related entity (ies), of any securities issued by Banif - Banco Internacional do Funchal, SA ( including shares and / or financial instruments related thereto ) and / or by companies with it are in a controlling or group relation. - did not trade directly or through related entity(ies ), any securities issued by Banif - Banco Internacional do Funchal, SA ( including shares and / or financial instruments related thereto ) and / or companies with which they are in a control or group relation, in the reference period.
Dr. Rogério Pereira Rodrigues - was not a holder, directly or through related entity (ies), of any securities issued by Banif - Banco Internacional do Funchal , SA ( including shares and / or financial instruments related thereto ) and / or by companies with it are in a controlling or group relation. - did not trade directly or through related entity(ies), any securities issued by Banif - Banco Internacional do Funchal , SA ( including shares and / or financial instruments related thereto ) and / or companies with which they are in a control or group relation, in the reference period.
5. RECOMMENDATIONS FROM THE FSF AND OF THE EBA ON TRANSPARENCY OF INFORMATION AND VALUATION OF ASSETS
The Bank of Portugal , through Circular Letter No. 58/2009/DSB of 5/8/2009, reinforced the need to continue to fulfil the recommendations of the Financial Stability Forum ( FSF ) and of the European Banking Authority ( EBA ), an entity created on 1st January 2011 and that assumed all tasks and responsibilities of the Committee of European Banking Supervisors ( CEBS ), related to information transparency and the valuation of assets, taking into account the principle of proportionality described in the Circular Letter No. 46/08/DSBDR of 15/7/2008 and Circular Letter No. 97/2008/DSB of 3/12/2008.
Most of the information object of the recommendations has already been disclosed, in the Management Report or in the item “6 - Notes to the Consolidated Financial Statements", of part “9 -
167 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Consolidated Financial Statements" (hereafter designated as Annex), so when necessary, we will remit to these documents.
I. Business Model
1. Description of the business model
The business model of the Group is described in detail in the "05 - Management Report of Banif”. The evolution of the main business areas (operating segments) of the Group is presented in note "5. SEGMENT REPORTING" of the Annex.
2. Description of strategies and objectives
The strategies and objectives of the Group are described in the "05 Banif Management Report". The strategies and objectives specifically related to securitization operations and structured products are described in the notes "23 DEBT SECURITIES" and "20 OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT” of the Annex.
3. Description of the importance of activities and their contribution to the business
The activities developed by the Group and their contribution to the business are described in detail in the "05 Banif Management Report".
4. Description of the type of developed activities including a description of the instruments, their functioning and qualifying criteria that products/ investments have to meet.
The type of activities that are developed, instruments and products / investments are described in detail in the "05 Management Report of the Banif ".
5. Description of the purpose and extent of involvement of the institution (eg. commitments and obligations), for each activity.
The aims and institution´s involvement regarding each developed activity, are described in the "05 Management Report of the Banif ".
II. Risks and Risk Management
6. Description of nature and extent of risks incurred regarding the activities and instruments used.
168 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The nature and extent of risks incurred in the various activities and instruments used by the Group, are described in detail in "Risk Management" of "05 . Banif Management Report”.
7. Description of risk management practices (including in particular, in the current environment the liquidity risk) relevant to the activities, description of any shortcomings / weaknesses identified and adopted corrective actions.
The risk management practises are described in detail under "Risk Management" from "05.Banif Management Report of the Banif".
III. Impact of the financial turmoil in the results
8. Qualitative and quantitative description of the results, with emphasis on losses (where applicable) and the impact of "write- downs" in the results.
Description is presented in the following section.
9. Breakdown of the "write- downs" / losses by types of products and instruments affected by the turbulence period, namely the following: commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS), collateralised debt obligations (CDO), asset- backed securities (ABS).
In the map below are represented the values recorded in results (potential and realized) and in reserves by defined type of product, namely: commercial mortgage- backed securities ( CMBS ), residential mortgage- backed securities ( RMBS ), collateralised debt obligations (CDO) and asset- backed securities (ABS) for the periods in question.
( euros) 30/06/12 30/06/13 Product type Potencial gain / loss Actual gain / loss reserves Potencial gain / loss Actual gain / loss Reserves ABS 0 0 0 0 0 0 CDO 0 0 0 0 0 0 CLO -840,500 0 655,573 0 -328,750 0 CMBS -1,380,129 0 77,636 0 -1,641,763 0 RMBS -435,292 0 16,729 0 0 0 Grand Total -2,655,922 0 749,938 0 -1,970,513 0
10. Description of the responsible motives and factors for suffered impact.
The losses in the U.S. market for sub -prime mortgages were the main factor that triggered the crisis that started in the summer of 2007, which resulted in a sharp widening of spreads and generalized reduction in market liquidity, with heavy losses in particular, to the assets complex structures. The risk aversion of investors has grown substantially, resulting in an enormous reluctance to transact all kinds of structured instruments - the market has become illiquid -, increasing the pressure on the respective market prices. The collapse of Lehman Brothers in September 2008 has aggravated the situation even more, triggering an unparalleled crisis in the
169 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
financial sector, with particular impact on the liquidity side, resulting in a continuous increase in credit spreads and historical levels of risk of the investors aversion, with particular impact on the financial sector and greater complexity assets, including structured products and asset securitization.
At Banif Group level, one of the main impacts resulting from the turmoil in the financial markets came from the market risk inherent to exposures within structured products, fully revalued marked to-market until the first half of 2008, this reflected in sharp devaluation in this asset class, with negative impact on the results and equity of the Group.
The first years post - crisis In 2009, we assisted in global terms, to a strong recovery of the market of structured products, particularly in the segment of CDOs. Notwithstanding the first four dormant months, these products experienced high transaction volumes in the secondary market throughout the year, with a sharp drop in spreads since May. Default rates in CLOs that were rising continuously from 2008 to the early months of 2009, showed a gradual decline thereafter. Reflecting an impressive rally during the year, especially from the second half, the majority of assets arising from securitizations in 2009 offered a return much higher than the investment in investment grade bonds.
2010 was also a year of transversal recovery to various classes of asset securitized both in absolute and relative terms, although with different rhythms between the various types of products. In the America ABS consumer finance, markets returned almost to pre-crisis levels in terms of spreads and new issue RMBS prices experienced a strong appreciation, and CMBS, CLOs and European ABS, occupied an intermediate position in terms of performance. Globally, the accommodative and plentiful policy in terms of injection of liquidity by central banks contributed to positive returns on risk assets, but the assets securitization (asset-backed securities , or ABS , in the broadest sense) registered superior performance in terms of total return above the credit Investment Grade ( IG ) and even High Yield ( HY ) . The first half was characterized by maintaining the positive trend started in 2009 that meant the narrowing of spreads on structured products and the corresponding price increase. This improvement in the market was also reflected in the growth of the placement of new transactions in third-party investors, by international issuers, with the amount issued in March 2010 to reach the highest level since December 2007.
In the second half of 2010 spreads on ABS remained at constant levels and quite stable, except with regard to the narrowing of spreads in CMBS, in contrast to the volatility in corporate bond and CDS markets. However, this stability was merely a reflection of the reduced liquidity and secondary market inactivity. At the end of the year, the spreads of RMBS in some peripheral euro zone countries with larger fiscal imbalance, remained at levels higher than those achieved after the bankruptcy of Lehman Brothers in September 2008. Indeed, the securitization market remained low in 2010, reflecting in reduced levels of issue volumes in the ABS market, which fell to the lowest level since 2003.
170 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The volatile year 2011 For the third consecutive year, since the intensification of the financial turmoil in the autumn of 2008, the risk remained high in the euro area, particularly regarding the risk of transmission from peripheral countries to the more developed economies, focusing once again, the interconnection between financial and sovereign sectors. In 2011, the market for structured products continued a gradual recovery from the sharp drop in 2008-2009, in line with the general development of the markets, but with increased volatility and negative environmental pressure. The volume of new issues was something short from the previous year, but the number of transactions exceeded those recorded in 2010.
Macroeconomic events contributed negatively on product markets securitization in 2011, and the year was marked by greater volatility than initially expected. Overall, there was a downward trend in the price of these assets, despite the existence of peaks in a few months, especially between February and April, and have been utilized for the massive sale of assets held in the portfolio of this nature in the Banif Group, part of the overall strategy of deleveraging.
With regard to the market for ABS, both primary and secondary activity remained low in 2011, limiting this way the ability of banks to finance themselves by issuing these instruments, with particular emphasis concerning the institutions whose ratings fell to below investment grade (eg Greece and Portugal). The issue of ABS, which would be retained in portfolio by the banks, in their large majority to be used as collateral in refinancing operations of the Eurosystem has been significantly reduced, largely due to the tightening of the eligibility criteria for the ECB. Regulatory requirements regarding banks with penalty at the risk-weight of structured products also placed these titles under great pressure. The sector faces potential negative impacts of a regulatory and somewhat uncertain punitive regime, particularly the implementation of the Volker rule and the Basel III law on the retention of risk and capital requirements, affected the liquidity, volatility and relative value between the various asset classes securitization, especially evident in the securities with higher credit risk.
The spreads of RMBS continued to be characterized by a high differentiation between the various countries of the Eurozone, with the affected countries either by severe economic recessions or affected by bubbles in the housing market, to trade at higher spreads while other countries with a more benevolent economic situation, showed a downward trend. Indeed, the residential segment faced a phase of over-correction, reflecting a general increase in indicators of delinquency as a result of the economic downturn (in some cases, even recession) and the increase in unemployment, especially in Europe.
The erosion of liquidity in the market, combined with the widespread deleveraging strategies for parts of banks, strongly influenced the behaviour of these markets, emphasizing the negative forced sales of real estate assets with impact on the CMBS. In terms of doctrine, it may be regarded that the key market of commercial real estate, follows the economy to the extent that the economic slowdown and recession reflect negatively on the values of the leases and occupancy rates. Thus, the negative changes in the macroeconomic outlook of Eurozone countries throughout
171 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
2011 respectively were reflected in widening spreads on CMBS. The year was also marked by several restructuring needs of the CMBS, with servicers having in their agenda a wide range of problematic credit to deal with, and showing a large request for term extensions.
Maintenance of spreads of the ABS at low levels is a necessary condition for the recovery of the securitization market as a source of funding, it is important to note that the highest amounts of new issues were seen in markets with lower spreads, e.g. ABS collateralized by auto finance and RMBS issued by banks with high ratings.
The last year in review The first half of 2012 year was marked by the debt crisis in Europe, contagious to Spain and Italy, and saw credit spreads widen considerably, in the first case a specific plan was eventually designed for financing the banking sector.
In an environment of high risk aversion following the sovereign crisis in Europe and the consequent radical change in the perception of investors for assets considered riskless, witnessed a movement of flight-to-quality that drove Treasuries and Bunds, while assets refuge, to renew historical decreases in terms of yields. In this context, securitization products, particularly subprime RMBS and agency MBS, performed well in the first half of the year. This was the result, on the one hand, of the low yields on Treasuries that went to the rates of the mortgage loans, which provided a stimulus to the U.S. economy and residential market. On the other, the erosion yields of Treasuries and Bunds led to an increased demand for higher yielding assets, showing some lack of alternatives, which was reflected in the increase of prices of ABS. With effect, in some classes of these assets, spreads reached levels comparable to 2007, and in a transversal way, spreads narrowed significantly in 2012 to levels between 30 and -70 % .
In the overall context, since the outbreak of the sub -prime crisis, the good environment in this asset class in recent times, allowed the cancellation of losses of the previous years, and in 2010 there was a reversal of the potential results in the portfolio of structured products of the Banif Group, in particular stocks, which rose for the first time for positive values since the post Lehman crisis.
As mentioned, in 2011 regarding the overall strategy of deleveraging of balance an taking advantage of the peaks this year, the Banif Group undertook a substantive sale securitization positions held in the portfolio with special relevance in the first half of the year, which was consolidated in global terms, with the materialization of the potential gains in effective gains. In 2012, already with the ABS portfolio at very low levels, we proceeded with the sales, and at the end of the year there was only one active security in the portfolio. Additionally, as a negative relevant fact, it was during this year's event of default of a CMBS held in the portfolio of Banif Group with a nominal outstanding value of EUR 1.7 million and book value of EUR 1.6 million, that was fully provisioned so that the net exposure for this security at the end of the year was void.
172 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
The first half of 2013 was the highlight of the extinction of the portfolio´s securitization position, having conducted the sale of the last remaining asset in the portfolio, following the aim of capital optimization. This way, on 30th June 2013, Banif Group did not hold any asset of this nature. It is important to note that the write-off of the asset that had suffered the event default but was totally covered by impairment conveniently constructed, so the net impact of the results of the bank was void.
11. Comparison of i) impacts between (relevant) periods and ii) financial statements before and after the impact of the crisis.
A comparison of the impacts between (relevant) periods is presented in Section 9 of this Annex. The balance sheet items and financial statement which reflected these impacts are developed in detail in the notes "8 FINANCIAL ASSETS HELD FOR TRADING" , "9 OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT " and " 10 FINANCIAL ASSETS AVAILABLE FOR SALE " Annex.
12. Decomposition of the "write- downs" between subscribed and unsubscribed amounts
Information presented in Section 9 of this Annex.
13. Description of the influence of the financial turmoil in the share price of the entity
During the 1st half of 2013 there were several events with significant impact on equity markets On the positive side there is the return of Portugal to finance markets ( April ); disclosure of economic indicators in the U.S. have shown encouraging signs of the level of domestic demand and the housing market; support measures by the ECB in terms of monetary stimulus, particularly in terms of liquidity injection and decision on the descent of the reference interest rate for refinancing operations to historic minimums.
On the negative side, it is worth mentioning the following events:
- Election Results in Italy and deadlock that occurred in the formation of the Government; - Crisis in Cyprus and impact of the choice of its bailout process. The risk of infection associated with the bailout of Cyprus appears to be reduced, but generated a high level of uncertainty, as well as uncertainty of the banking system. To be noticed that the model followed in Cyprus directly involved the restructuring of the banking system and included the taxation of deposits in excess of 100 thousand euro; - Disclosure of leading indicators of economic activity in the Eurozone that showed less favourable prospects for the Eurozone economy. - Statement of the U.S. Federal Reserve on reducing programs to purchase long-term debt ; - Decision of the Bank of China to refrain from granting unlimited liquidity to the Chinese banking system, in order to control lending.
173 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
Specifically in Portugal, the effort of fiscal consolidation to fight the high public deficit and strict rules regarding loan granting continued and should be highlighted.
In this context, the PSI 20 fell by 1.7 % in the 1st half of 2013, despite the significant gains that occurred in January and April.
Banif shares ended the 1st half of 2013 with a decline of 36.3 %. The behaviour of Banif shares was affected by the impact of the above factors, as well as the announcement of the recapitalization process on 31st December 2012. Additionally, it is important to note that the banking business in Portugal is developing in a particularly adverse and demanding market in macroeconomic, financial and regulatory terms that places remarkable challenges on the level of structural profitability of the sector.
The recapitalization process of Banif, which is justified by the need to strengthen the Core Tier I ratio of the Bank, and consequently meet the demanding regulatory requirements imposed by the Bank of Portugal, as well as withstand a stress scenario as defined by the guidelines of the Bank of Portugal, comprises two phases:
- Phase 1: Public investment in the amount of EUR 1,100 million ; - Phase 2: Investment by private shareholders in the amount of 450 million euros to perform various operations through capital increase.
Phase 1 was completed on 25th January 2013 and through i) the issue of CoCos in the amount of 400 million euros and ii) an increase of share capital, through cash-suppressed pre-emption rights reserved to the State in the amount of 700 million euros through the issue of 70,000,000,000 shares with a special unit value of EUR 0.01.
Regarding the 2nd phase of the Recapitalization Plan, a capital increase was carried out on 26th June 2013, reserved for the shareholders in the amount of 100 million euros by issuing 10,000,000,000 ordinary shares with a par value of EUR 0.01.
Evolution of the Banif shares:
0.2 Capital Increase GM Change in Board of reserved to 1Q2013 Results (16 Jan.) Directors Portuguese State and (6 May.) issue of Cocos (5 Mar.) (25 Jan.) Capital Increase (reserved to reference shareholders) (26 Jun.)
Maintenance of 0.1 Rating by Fitch (9 Jan.) 2012FY Results (8 Fev.) Downgrade of rating AGM by Moody's (16 Autorization (30 May.) (temporary) Abp.) Recapitalization Plan by EC GM (21 Jan.) (25 Jun.)
0 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13
174 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
On 30th June 2013, the share capital of Banif was of to 1.370.000.000 euros, represented by 80.570.000.000 shares without par value. Of these shares, the Portuguese State holds 70.00.000.000 special shares and 44.511.019.900 shares with voting rights (these calculations have been carried out under the provisions of Ministerial Order. 150-A/2012 of May 17, as amended by Decree no. 42- A/2012 of 21 December), and 25.488.980.100 shares have limited voting rights to statutory changes, merges, transformation, dissolution and other decisions requiring a qualified majority for approval.
The total amount, of ordinary shares that represent the share capital (10.570.000.000) are admitted to trading on the regulatory market, Euronext Lisbon. Note that the admission to trading of 10.000.000.000 shares representing the share capital of Banif, issued under the capital increase on 26th June 2013 and subscribed by shareholders, occurred 31st July 2013.
Banif Share
Stock Exchange: NYSE Euronext ISIN: PTBAFOAM0002
Bloomberg: BANIF PL Reuters: BANIF.LS
Shareholder structure as at 30th June 2013:
Shareholders No.of Shares % of share capital % of voting rights
Portuguese State 70,000,000,000 86.881% 80.810% Undivided inheritanc e of Horác io da Silva Roque 7,837,073,868 9.726% 14.226% Auto-Industrial SGPS 2,576,377,857 3.198% 4.677%
14. Disclosure of maximum loss risk and description of how the institution's situation could be affected by prolonging or aggravation of the crisis or the market recovery.
On 30th June 2013, the portfolio of structured products of Banif Group, which is kept at Banif Investment Bank (BBI) in Portugal, was void. To note that the bank has embarked on a massive sale of such assets during the first half of 2011 - enclosed in the deleveraging strategy of the investment bank - and secondly, amortization and repayments regarding securities in some cases in anticipation, showing the good credit quality of the original portfolio, also explains an important part of reducing exposure.
In retrospective terms, compared with a peak in June 2007 in which the Group's exposure to structured products had reached nearly EUR 114 million in nominal value and market value, the trend of the last four years has been decreasing at a rapid pace, after having reached a marginal value in late 2012, culminated in the first half of 2013, with a void exposure.
175 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
It´s important to note that having found that the structured products no longer have an active market, reflected in extreme illiquidity and on the amendments to IAS 39 issued by the IASB in October 2008 - "Amendments to IAS 39 Financial Instruments: Recognition "- the bank reclassified the vast majority of structured products held to the LaR portfolio (Loans and Receivables), considering the purpose of keeping them in the long term portfolio (foreseeable future) and its credit quality, taking advantage of an accounting treatment identical to a credit portfolio.
This, way, there was a significant change in terms of this portfolio’s impact, since the group ceased to be subject to variations of price of these securities, not being affected in terms of market risk but just in terms of credit risk, in other words, within the possibility of losses due to securities default.
Notwithstanding the accounting treatment, capital allocation to the portfolio of structured products within Banif Group has been performed based on the prudential capital requirements to cover specific credit risk to this type of asset, according with the current rules of Basel II, which is a more conservative position than the allocation of capital based on the capital requirements to cover market risk, which is in line with the recommendations of the FSF report published in April 2008.
In June 2010, the Basel Committee announced some adjustments to Basel II, including the securitization processing held in the trading portfolio in a manner similar to that of other portfolios, e.g. the adoption of a unified capital processing and allocation to securitization positions. The introduction of this measure had no impact on the capital allocation of positions held in portfolio by the Banif Group. Similarly, the new rules that increase the risk-weight applicable to positions that meet the definition of re-securitizations, had no impact on the consumption of capital, as none of the assets held in the portfolio fits this definition.
The bank's total output of such assets through an outlined and progressive sale, after 2011 as explained in the previous section, went further away from the principles of risk-return, as to say, from capital optimization.
15. Disclosure of the impact of spreads evolution, linked to responsibilities the institution had on results, as well as the methods used to determine this impact.
The analysis of the categories of financial liabilities recognized at fair value in the financial statements as of 30th June 2013 and their valuation methods:
(thousand euros) Valuation methodos
Market or Market Description Others Total listed value analysis
30/06/2013 30/06/2013 30/06/2013 30/06/2013 Liabilities
Financial liabilities held for trading - 29,420 39,644 69,064 Other Fiancial liabilities at fair value through profit or loss - 14,590 - 14,590
176 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
In internal valuation models of financial instruments for trading and at fair value through profit or loss, interest rates are determined based on information disclosed by Bloomberg. The maturities up to one year refer to market rates of the interbank money market, while the maturities of over one year are through the prices of interest rate swaps. The interest rate curve obtained is adjusted against the value of future interest rate short term. Interest rates for specific periods are determined by interpolation methods. The same interest rate curves are used in the projection of cash flows that are not deterministic such as indexes.
IV. Types and levels of exposures, affected by the turmoil period
16. Nominal value (or amortized cost) and fair value of "live" exposures. Detail of the nominal value (outstanding) and fair value of "live" positions in the instruments identified above.
(euros) 30/06/12 30/06/13 Product type Market value Nominal value Market value Nominal value ABS 0 0 0 0 CDO 0 0 0 0 CLO 2,750,000 5,000,000 0 0 CMBS 34,421 1,721,051 0 0 RMBS 1,394,082 1,767,440 0 0 Grand Total 4,178,503 8,488,491 0 0
17. Information on credit risk mitigation (e.g. through credit default swaps) and its effect on exposures.
On 30th June 2013 there was no buying live protection for the instruments in question.
18. Detailed disclosure on exposure
On 30th June 2013, Banif Group had no exposure to securitization assets 19. Movements in exposures between relevant reporting periods and the underlying reasons for those variations (sales, "write-downs", shopping, etc…)
These were the movements that occurred during the referred periods:
(euros) Product type Transation type 30/06/12 30/06/13 CLO SALE 0 3,750,000 CMBS WRITE-OFF 0 1,641,763
20. Discussion of exposures (including "vehicle" and in this case, the respective activities) that have not been consolidated (or which have been recognized during the crisis) and the associated reasons
No exposures were recorded in this situation.
177 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
21. Exposure to insurance companies such as "monoline" and quality of insured assets.
Not applicable.
V. Accounting policies and valuation methods 22. Classification of transactions and structured products for accounting purposes and the related accounting treatment.
The political grading of financial instruments is described in note "3.10 financial instruments" in the Annex.
23. Consolidation of Special Purpose Entities (SPEs) and of other "vehicles" and their reconciliation with the structured products affected by turmoil period.
The SPE and other "vehicles" included in the consolidation perimeter are detailed in note "4. GROUP COMPANIES" in the Annex.
24. Detailed disclosure of the fair value of financial instruments.
- Financial instruments for which fair value is applied; - Fair value hierarchy (a decomposition of all the exposures measured at fair value in the fair value hierarchy, and a breakdown between cash and derivative instruments as well as disclosures on migrations between levels of the hierarchy); - Processing of "day 1 profits" (including quantitative information); - Use of the fair value option (including the conditions for their use) and related amounts (with appropriate breakdowns).
The criteria for determining the fair value of financial instruments are described in Note "3.10 financial instruments" of item "6 Notes to Financial Statements", in part "IV CONSOLIDATED FINANCIAL STATEMENTS."
Financial instruments recognized at fair value in the financial statements as at June 30, 2013 and their valuation methods.
178 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
(thousand euros) Valuation methodos
Market or Market Description Others Total listed value analysis
30/06/2013 30/06/2013 30/06/2013 30/06/2013 Assets
Financial assets held for trading 82,555 27,658 63,225 173,438 Other financial assets at fair value through profit or loss 11,330 23,826 44,552 79,708 Financial assets avaiable for sale 1,557,774 - 233,908 1,791,682
Liabilities
Financial liabilities held for trading - 29,420 39,644 69,064 Other Fiancial liabilities at fair value through profit or loss - 14,590 - 14,590
The unlisted equity instruments recognized on financial assets available at acquisition cost, because it is not possible to determine reliable valuations, are in the "other" column.
In internal valuation models of financial instruments for trading and at fair value through profit or loss, interest rates are determined based on information disclosed by Bloomberg. The maturities up to one year are related to market rates of the interbank money market, while the maturities of over one year are through the prices of interest rate swaps. The interest rate curve obtained is adjusted against the value of future interest rate short term. Interest rates for specific periods are determined by interpolation methods. The same interest rate curves are used in the projection of cash flows that are not deterministic, such as indexes.
25. Description of the modeling techniques used to value financial instruments.
Information included in the previous item.
VI. Other aspects, that are relevant in the disclosure
26. Description of disclosure policies and principles that are used for the reporting of disclosures and financial reporting
Policies, principles and procedures for financial reporting are described in section "3.16. Reference to the existence of an Investor Support Office or other similar service" of part" 13. REPORT ON CORPORATE GOVERNANCE " of the" Management Report and Accounts 2012 " of Banif, SA.
6. OBLIGATORY STATEMENTS
Under the terms and for the purposes of c) of no. 1 of article 246th of the Portuguese Securities Code (Código de Valores Mobiliários), each member of the Board of Directors, signatories of this document identified below, declare under their own individual responsibility, that to the best of their knowledge, the condensed financial statements have been prepared in accordance with applicable accounting standards, give a true and fair view of the assets and liabilities, financial
179 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513 MANAGEMENT REPORT AND ACCOUNTS - 1ºHALF 2013
position and results of Banif - Banco Internacional do Funchal SA and the companies included in the consolidation perimeter, and that the management faithfully reports the business evolution, the indication of important events that occurred in the period to which it relates to, and their impact on the financial statements and contains a description of the main risks and uncertainties for the remaining six months.
In the terms of no. 3 of article 8th of the Portuguese Securities Code (Código dos Valores Mobiliários) it is stated further that the present mid-term information was not subject to audit or limited review.
Lisbon, 19th August 2013
THE BOARD OF DIRECTORS
Chairman Dr. Luís Filipe Marques Amado
Vice-chairman Dra. Maria Teresa Henriques da Silva Moura Roque dal Fabbro Dr. Jorge Humberto Correia Tomé
Directors Eng.º Diogo António Rodrigues da Silveira Dr. Vítor Manuel Farinha Nunes Dr. Nuno José Roquette Teixeira Dr. João Paulo Pereira Marques de Almeida Dr. José António Vinhas Mouquinho Dr. Carlos Eduardo Pais Jorge Dr. João José Gonçalves de Sousa Dr. Gonçalo Vaz Gago da Câmara de Medeiros Botelho Dr. António Carlos Custódio de Morais Varela
180 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513
Ernst & Young Tel: +351 217 912 000 Audit & Associados - SROC, S.A. Fax: +351 217 957 586 Avenida da República, 90-6º www.ey.com 1600-206 Lisboa Portugal
Limited Review report on the interim consolidated financial information prepared by the Auditor registered in the CMVM
Introduction
1. Under the terms of the Portuguese Securities Market Code (Código dos Valores Mobiliários), we present our Limited Review Report on the interim consolidated financial information for the six-months period ended 30 June 2013, for BANIF – Banco Internacional do Funchal, S.A. (“Bank”) included in the: management report, consolidated balance sheet (which presents total assets of 14.493.222 thousand Euros and total equity of 949.443 thousand Euros, including a net loss attributable to the equity holders of the bank of 196.015 thousand Euros), the consolidated statements of income, comprehensive income, changes in equity and cash flows for the six-months period then ended, and the corresponding notes.
2. The amounts included in the financial statements and in the additional financial information were derived from the accounting records.
Responsibilities
3. The Board of Directors of the Bank is responsible for:
a) the preparation of consolidated financial statements that give a true and fair view of the financial position of the companies included in the consolidation, the consolidated result and comprehensive income from their operations, the changes in their consolidated equity and their consolidated cash flows; b) the historic financial information, which is prepared in accordance with generally accepted accounting principles and is complete, true, current, clear, objective and lawful, as required by the Securities Code; c) the adoption of appropriate accounting policies and criteria; d) maintaining an appropriate system of internal control; e) reporting on any relevant fact which has influenced the activities of the group of companies included in the consolidation, their financial position or results.
4. Our responsibility is to verify the financial information included in the financial statements referred to above, namely if it is complete, true, current, clear, objective and lawful, as required by the Portuguese Securities Market Code, in order to issue a professional and independent report based on our work.
Sociedade Anónima - Capital Social 1.105.000 euros - Inscrição n.º 178 na Ordem dos Revisores Oficiais de Contas - Inscrição N.º 9011 na Comissão do Mercado de Valores Mobiliários Contribuinte N.º 505 988 283 - C. R. Comercial de Lisboa sob o mesmo número A member firm of Ernst & Young Global Limited WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513
Scope
5. The work we have performed had the purpose of obtaining a moderate level of assurance whether the financial information referred to above is free of material misstatements. Our work was performed based on the Technical Standards and Review/Audit guidelines issued by the Portuguese Institute of Statutory Auditors (“Ordem dos Revisores Oficiais de Contas”), planned in accordance with that purpose, and consisted:
a) mainly in inquires and analytical procedures performed to review: - the reliability of the assertions included in the financial information; - the adequacy of the accounting policies adopted under the circumstances and the consistency of their application; - the application, or not of the going concern principle; - the presentation of the financial information; - if the consolidated financial information is complete, true, current, clear, objective and lawful. b) Substantive tests on non current material transactions.
6. Our work also included the verification that the financial information contained in the management report is consistent with that presented in the remaining documents above mentioned.
7. We believe that our work provides a reasonable basis to issue our report on the interim consolidated financial statements.
Conclusion
8. Based on our work, which was performed with the purpose of obtaining moderate assurance, nothing came to our attention that causes us to believe that the interim consolidated financial information for the six-months period ended 30 June 2013, is not free of material misstatements that affects its compliance with the International Financial Reporting Standards as adopted by the European Union, mainly its presentation in accordance with the requirements of IAS 34 – Interim financial reporting, and that is not complete, true, current, clear, objective and lawful.
Emphasis
9. Without affecting the opinion on the consolidated financial information, we draw the attention to that, as disclosed in Note 38 of the Annex to the interim consolidated financial statements on "Events after the balance sheet date" and on chapters 5 and 7 of the management report about, respectively, "Strategic plan - main priorities" and "Future prospects", in the context of the recapitalization process of the Bank contacts are continuing with the European Commission for finishing the final restructuring plan of the Group, which would provide for a review of its business model and update of the Funding and WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513
Capital Plan. At this date, it is not possible to anticipate eventual future implications in the financial position of the Group resulting from the completion of this process.
Report on other legal requirements
10. It is also our opinion that the financial information contained in the management report is consistent with the financial statements for the six-months period ended 30 June 2013.
Lisbon, 21 August 2013
Ernst & Young Audit & Associados – SROC, S.A. Official Auditors (nº 178) Registered with the Security Markets Commission under no. 9011 Represented by:
Ana Rosa Ribeiro Salcedas Montes Pinto (ROC nº 1230) WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513
Banif SA Public Limited Company Registered Offices: Rua de João Tavira, 30 – 9004-509 Funchal Share Capital: 1,510,700,000 Euros Registered at the Commercial Registry of Funchal 511 202 008
181 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513
182 WorldReginfo - a0f09811-916b-4cde-b5f4-b86e699ae513