13MANAGEMENT REPORT AND ACCOUNTS | 13 MANAGEMENT REPORT AND ACCOUNTS | 13 MANAGEMENT REPORT AND ACCOUNTS MANAGEMENT REPORT AND ACCOUNTS 2013
Index
Board and Officers 4
01. JOINT MESSAGE FROM THE CHAIR OF THE BOARD OF DIRECTORS AND THE CHAIR OF
THE EXCEUTIVE COMMITTEE 6
02. SOCIAL AND ENVIRONMENTAL RESPONSIBILITY 9
03. DISTRBUTION NETWORKS 16
Points of Sales 17
Diagram of Holdings 18
04. HUMAN RESOURCES 19
05. ECONOMIC BACKGROUND 24
06. BANIF MANAGEMENT REPORT 38 1. BUSINESS ACTIVITY IN 2013 39 2. RECAPITALIZATION PLAN – KEY POINTS 40 3. RESTRUCTURING PLAN 42 4. DOMESTIC COMMERCIAL BANKING 43 Personal Banking 43 Business Banking 46 Corporate Banking 48 International Area 49 Commercial Networks 50 Telephone and Electronic Banking 56 Payment Products and Means of Payment 58 Recovery of Overdue Loans and Loans in Litigation 59 5. INTERNATIONAL COMMERCIAL BANKING 60 Banif Bank (Malta) 60 Banif Brasil 62 Banco Caboverdiano de Negócios 63 6. SPECIALISED CREDIT 65 7. INVESTMENT BANKING 68 8. REAL ESTATE MANAGEMENT 76 9. INSURANCE 79 10. FINANCIAL MANAGEMENT 82 11. RISK MANAGEMENT 83 07. ANALYSIS OF THE CONSOLIDATED ACCOUNTS AND SEPARARATE 126 1. ANALYSIS OF THE CONSOLIDATED ACCOUNTS 127 2. ANALYSIS OF THE SEPARATE ACCOUNTS 132 08. OUTLOOK 141
09. RATING 143
10. PROPOSAL OF ALLOCATION OF PROFITS 145
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MANAGEMENT REPORT AND ACCOUNTS 2013
11. FINAL REMARKS 147
12. FINANCIAL STATEMENTS 153 1. CONSOLIDATED FINANCIAL STATEMENTS 154 1.1 Consolidated Balance Sheet 154 1.2 Consolidated Income Statement 155 1.3 Consolidated Statement of Comprehensive Income 156 1.4 Consolidated Statement of Changes in Equity 157 1.5 Consolidated Cash Flow Statement 158 1.6 Notes to the Consolidated Financial Statements 159 2. SEPARATE FINANCIAL STATEMENTS 271 2.1 Balance Sheet 271 2.2 Income Statement 272 2.3 Statement of Comprehensive Income 273 2.4 Statement of Changes in Equity 274 2.5 Cash Flow Statement 275 2.6 Notes to the Separate Financial Statements 276 13. COPPORATE GOVERNANCE REPORT 372
14. ADDITIONAL DISCLOSURES 468 1. Disclosures Required under Article 447 of the Commercial Companies Code 469
2. Disclosures about Shares and Obligations of Companies in the Banif Financial Group Traded and/or Owned, during 2013, by Companies in the same Group 469 3. Disclosures Required under Article 448 of the Commercial Companies Code 473 4. Qualifying Holdings 473 5. Disclosures Required under Article 486.3 of the Art Commercial Companies Code 475 6. Information on Own Shares under Article 324.2 of the Commercial Companies Code 475 7. FSF and EBA Recommendations on Transparency of Information and Asset Valuation 477
Report and Opinion of the Audit Board 481 Legal Accounts Certificate and Audit Report - Consolidated Legal Accounts Certificate and Audit Report
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MANAGEMENT REPORT AND ACCOUNTS 2013
Board and Officers
GENERAL MEETING Chair Dr. Miguel José Luís de Sousa Secretary Dr. Bruno Miguel dos Santos de Jesus
BOARD OF DIRECTORS Chair Dr. Luís Filipe Marques Amado Vice-Chair Dr. Jorge Humberto Correia Tomé Dra. Maria Teresa Henriques da Silva Moura Roque
Full Members Dr. António Carlos Custódio de Morais Varela (1) Eng. Diogo António Rodrigues da Silveira Dr. João José Gonçalves de Sousa Dr. João Paulo Pereira Marques de Almeida Dr. Nuno José Roquette Teixeira Dr. Vítor Manuel Farinha Nunes
Standing (left to right): Eng. Diogo António Rodrigues da Silveira, Dr. João José Gonçalves de Sousa, Dr. Nuno José Roquette Teixeira, Dr. Vítor Manuel Farinha Nunes, Dr. João Paulo Pereira Marques de Almeida, Dr. António Carlos Custódio de Morais Varela
Seated (left to right): Dra. Maria Teresa Henriques da Silva Moura Roque, Dr. Luís Filipe Marques Amado, Dr. Jorge Humberto Correia Tomé
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MANAGEMENT REPORT AND ACCOUNTS 2013
EXECUTIVE COMMITTEE Chair Dr. Jorge Humberto Correia Tomé Dr. João José Gonçalves de Sousa Dr. João Paulo Pereira Marques de Almeida Dr. Nuno José Roquette Teixeira Dr. Vítor Manuel Farinha Nunes
AUDIT BOARD Chair Prof. Doutor Fernando Mário Teixeira de Almeida Dr. António Ernesto Neto da Silva Dr. Rogério Pereira Rodrigues (2) Dr. Thomaz de Mello Paes de Vasconcellos
Alternate Member Dr. José Pedro Lopes Trindade
STRATEGY BOARD Chair Dra. Maria Teresa Henriques da Silva Moura Roque Vice-Chair Dr. Mário Raúl Leite Santos
Full Members Prof. 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 Dra. Paula Cristina Moura Roque
Society Secretary Dr. Bruno Miguel dos Santos de Jesus Alternate Society Secretary Dra. Ângela Maria Simões Cardoso Seabra Lourenço
(1 Member of the Board of Directors appointed by the Minister of State and Finance (Order no. 3454-A/2013, March 1st).
(2) Member of the Board of Directors appointed by the Minister of State and Finance (Order no. 3454-A/2013, March 1st).
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01|Joint Message from the Chair of the Board of Directors and the Chair of the Executive Committee MANAGEMENT REPORT AND ACCOUNTS 2013
01|Joint Message from the Chair of the Board of Directors and the Chair of the Executive Committee
In 2013, both the Portuguese and the Eurozone economies turned a corner. Although, as a whole, it was a year of recession (-1.4%), the Portuguese economy showed clear signs of recovery from the 2nd quarter onwards. This improvement was driven by higher internal demand and continuingly strong exports. One of the main imbalances in the Portuguese economy, the external balance of payments, was rectified over the year and Portugal closed out 2013 with a current and capital account surplus of 2.6% of GDP. For the first time in several decades, the goods and services account was also in the black (1.7% of GDP).
In conjunction with the improved economic sentiment, there was also improved sentiment in the financial markets. The stabilisation of the Eurozone was positively reflected in Portugal’s reduced country risk, and the concomitant lower yields on treasury bonds and “spreads”, when compared to countries with better risk ratings. This had the effect of making it possible for the state to borrow from the markets. Additionally, the European Union took positive steps towards the establishment of a banking union, with the paving of the way for a single regulator for EU banks This supervisory body is due to begin its work in November 2014, following an assessment of bank assets and a series of stress tests based on extreme scenarios. The current expectation is that this process will both allow a gradual lessening of the degree of fragmentation found in monetary markets and ease the way for a return to fully functioning markets capable of offering large-scale financing of financial institutions.
The transition process started in 2012 meant that Banif had a number of major challenges to deal with in 2013, all of which required the group to operate at peak implementation and delivery capacity.
Following the announcement, in late 2012, of the state-backed recapitalisation of Banif, a general shareholder’s meeting was held on 16 January 2013. This meeting approved both the bank’s recapitalisation plan and the plan for the state to become a holder of Banif capital stock. This latter was to be achieved through a 700-million euro subscription to special shares and a 400-million euro subscription to contingent convertible subordinated debt instruments that qualified as Core Tier 1 capital. The meeting also authorised the board of directors to decide on a privately placed 450-million euro capital increase. The general meeting held on 25 June 2013 authorised the breaking down of this placement into a number of phased operations.
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MANAGEMENT REPORT AND ACCOUNTS 2013
We met the challenge of recapitalising through private investor placement by setting up a number of capital increase operations. The most prominent of these, in terms of the external perception of the bank, was the public subscription offer, aimed at the general public and held in July 2013. This operation, which ran between the 8 and 19 July, was designed to raise 100 million euros but was, in fact, 1.6 times oversubscribed. It attracted around 17,000 new investors and left the group with a more widely based footprint in the capital market. The number of shareholders with a stake in the group rose from 5,500, at the end of 2012, to about 27,000, by the end of 2013. The overall effect was to give the group fresh impetus in the capital market and, concomitantly, to extend its responsibilities to cover a much wider pool of shareholders.
The economic adjustment process in Portugal, marked by the deleveraging of both families and companies, imposed complex operational conditions on the banking business and resulted in an unavoidable move to restructure and resize Banif’s operation. To this end, the group has been engaged in an organisational transformation centred on 4 main priorities: - lower structural costs; - simplified corporate and governance models; - simplified systems architectures and processes and a reoriented and repositioned commercial stance.
This process, begun in 2012, was continued and accelerated in 2013 and has resulted in a number of notable achievements. With fewer branches and staff, structural costs were brought down by 12.8% in 2013. The simplification of the organisational structure and the resizing of the executive committee (from 8 to 5) and the board of directors (from 13 to 9) were other high impact measures of note. In commercial terms, we redirected our marketing efforts towards those segments of most value to the group, namely wealth management clients, private banking services and emigrants. We also refocused our lending activities, to concentrate on SME and micro-businesses in the industrial and agro-food sectors. This allowed us to recover our net interest income and net operating income levels in 2013.
Another factor worth mentioning was our success in accessing the international financial markets, to place the securities relating to a securitisation operation involving consumer and car loan portfolios, worth some 180 million euros. This was the first operation of its kind to take place in the Portuguese market since 2008 and opens up the possibility of a gradual reduction of the reliance on the European Central Bank for funding and the progressive substitution of this with market sourcing
The priority actions for this year are to complete the recapitalisation, conclude the agreement with the European Commission on the bank’s restructuring plan and continue working on our main initiatives for transforming Banif. A number of key objectives have already been met, but the next few years are likely to be highly challenging. The board of directors is aware of the difficulties ahead and is determined to attain the objectives in question. We will be guided in this by our resolve to look after the interests of our shareholders, depositors, clients and other stakeholders.
Jorge Humberto Correia Tomé Luís Filipe Marques Amado Chair of the Executive Committee and Vice-chair Chair of the Board of Directors of the Board of Directors.
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02|Social and Environmental Responsibility MANAGEMENT REPORT AND ACCOUNTS 2013
02|Social and Environmental Responsibility
The Banif Financial group sees sustainability as an inseparable aspect of its core business and as a factor in both differentiation and value creation. It is a strategic and central option that is common to all the businesses in the group, one in which the economic, environmental and social risks and opportunities are measured in our business dealings and in our links with the community. We have mapped out a carefully structured path that we take seriously and that relies on the active participation of each of the companies and the involvement of our stakeholders.
Social and environmental responsibility highlights and key indicators for 2013
Priority areas 2013 highlights 2013 key indicators First sustainability survey of interested parties in the Banif 287 stakeholders surveyed Financial Group Assessment of Banif’s level of Review of the sustainability “environmental responsibility”: Business sustainability governance model and of the strategic 7.43 (scale of 1 to 10) aspects of the sustainability policy Assessment of Banif’s level of Signing of a protocol for the marketing of “solidarity”: 7.38 complex financial products from Banif SA and BBI (partnership with APB and CMVM) 3.196 FTE; 2.628 FTE in Portugal Implementation of the ‘Humanism Training: 6,750 sessions; 39,400 hours Fund’ Humanism Fund: 314 staff VAMOS Educar (LET’S Educate): involved; 11,519 euros collected; Commitment to staff implementation of the Company 18 staff members helped; 43.554 Volunteer Programme “Braço Direito” euros distributed (Right Arm) in partnership with Junior VAMOS Educar: 390 hours of Achievement company volunteering; 52 volunteers from around the country 45.9 million euros in managed assets in environmental funds The Banif Financial Group was an (Luso Carbon Fund and New investor signatory to the Carbon Energy Fund) Disclosure Project. 42% of BBI’s project finance loan Commitment to the Adherence to “Earth Hour” portfolio is invested in renewable environment Support for the ECO (Companies energies Against Fires) movement 2 million euros of loans for Signing up, as a stakeholder, to the environmental products
Eco Compatible Life Project CO2 emissions – Scope 1: 3,040 t CO2
CO2 emissions – Scope 2: 4,323 t CO2
CO2 emissions – Scope 3: 659 t CO2 661 thousand euros invested in the community Junior Achievement Portugal (JAP) 26.7 million euros of social loans recognised the Banif Financial Group to individual customers as an example of good practice in its 122.7 million euros of social loans implementation of its VAMOS Educar to companies Commitment to society volunteer programme 458 million euros in the social Cooperation agreement with EPIS – savings account portfolio Schools of the Future, to support its VAMOS Educar: 25 schools Social Scholarship Programme covered; 52 students helped 12 social scholarships for students across the country Scope 1 emissions – direct greenhouse gas emissions Scope 2 emissions – indirect greenhouse gas emissions from energy purchases Scope 3 emissions – other indirect greenhouse gas emissions
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MANAGEMENT REPORT AND ACCOUNTS 2013
Sustainability and business activity The integration of sustainability into the group’s core business is leveraged by the governance model, under which the board of directors is ultimately responsible for this issue. To put this integration into practice, the group has a sustainability area that coordinates and manages the group’s sustainability policy across all business activities. This unit oversees the work of the six taskforces, each of which focuses on one of the strategic aspects of sustainability: codes of conduct and of business principles, human resource policy, environmental policy, strategic philanthropy, environmental and social risks and financial products of an environmental or social nature.
The strategic guidelines and the sustainability governance model were reviewed in 2013, in a process that included contributions from interested parties both inside and outside the group. By the end of 2013, the Banif Financial Group had completed its first ever survey designed to provide an in-depth view of stakeholder perceptions of the role the Banif Financial Group plays in society. This project, called LET’S Listen, identified the main sustainability expectations and concerns of all the interested parties. This information was then used to revise the strategic priorities of the sustainability policy and the respective governance model.
Our closer relationship with key stakeholders in this area is clear to see, particularly as regards attendance at events and the setting up of partnerships. The group is a member of BCSD Portugal – the Business Council for Sustainable Development and has taken part in the “Development” working group, which aims to use the SROI - Social Return on Investment method to create a tool for measuring the social impact of projects.
Commitment to staff One of the main foundations on which the group has been built is our staff and the formation of a first-class team through the efficient application of our human resources policy. This policy has three main aspects: social, career enhancement and improved productivity and internal efficiency. Various initiatives addressed these priority areas in 2013, including Developing Internships, an overhaul of the internship programme. As a result of this, interns are now recruited for paid internships at the various group companies. Another initiative was the setting up of Learning Talks, a new concept designed to provide informal opportunities for training and the sharing of knowledge. This initiative has the additional benefit of helping build the relationships between staff from different directorates and companies. The Development Platform was also launched in 2013. This facility offers staff the possibility of greater autonomy and self-management and allows all trainees to play a more active role in designing the training plan for the jobs they carry out.
The Banif Financial Group wants humanism, one of the group’s founding values and a recognisable trait, to be both lived and stimulated through meaningful activities. This is why, in late 2012, we set up the Humanism Fund, as a key representative feature of the group’s humanist aspirations. The fund, which receives contributions from both the group and staff, supports employees who are socially or financially challenged. The fund, initially set up with 50,000 euros, received a further 11,519 euros from 314 staff members. In 2013, these contributions allowed the fund to disburse 43,554 euros in support of 18 individual employees.
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MANAGEMENT REPORT AND ACCOUNTS 2013
The group is also concerned to ensure staff wellbeing and job satisfaction. Employees have access to a range of financial products and services with special conditions, subsidised training, family health insurance and a pension fund, amongst other benefits. In late 2013, we opened our One-Stop Desk for staff, providing them with a special channel through which they can manage all their financial affairs and be sure of a quality service, thanks to a dedicated team of managers who are able to offer an exclusive set of products and services.
Club Banif, which operates at all group companies, is a truly unique organisation that promotes sporting, cultural and recreational activities for staff. In 2013, the club had a membership of 2,553 and ran a total of 93 events of varying types (cultural sporting and adventure events, amongst others).
Commitment to the Environment The Banif Financial Group’s environmental policy aims to contribute to the protection and management of our environmental resources and encourage environmentally responsible behaviours, as regards both the financial products and services we offer the market and the management of our everyday activity. It also seeks to raise the level of environmental awareness of our staff, clients and society as a whole.
Our asset management business area offers a number of environmentally tuned products, including the New Energy Fund (NEF) and the Luso Carbon Fund (LCF), both special closed-end investment funds. Banif – Banco de Investimento, SA has a 25% holding in MCO2 – Sociedade Gestora de Fundos de Investimento Mobiliário, SA, the current manager of these funds, and the bank also serves as depository for NEF and LCF.
The New Energy Fund, launched in late 2007 by Banif – Gestão de Activos makes investments in the renewable energy market, covering the whole value chain. The Luso Carbon Fund, which makes investments in the carbon market by purchasing Kyoto Protocol credits for reducing greenhouse gas emissions, is currently committed to over 16 million tons of carbon credits. On 31 December 2013, the NEF managed assets of 16 million euros and the LCF 29.9 million euros.
The retail banking arm of Banif offers various environment-linked loan products to both individuals and companies, including Crédito Pessoal Mais Ambiente (More Environmental Personal Loans) and Crédito Investimento Mais Ambiente (More Environmental Investment Loans). At 31 December 2013, a total of 2 million euros had been loaned through these schemes, which underwrite the acquisition of more ecological solutions.
In terms of project finance, over 40% of the Banif – Banco de Investimento, SA loan portfolio was renewable energy related. This portfolio included the financing of five solar energy operations, with a total output of 34 MW, and a 704 MW wind farm.
Our eco-efficiency has been improved through the implementation of a set of measures designed to reduce resource consumption. These include the dematerialisation/optimisation of material consumption and energy efficiency schemes. The group has progressively dematerialised its client
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MANAGEMENT REPORT AND ACCOUNTS 2013 and intermediary communications and has encouraged the separation and recycling of waste. The energy efficiency initiatives that have been implemented include lighting sensors in intermittently occupied workspaces at central services, programming of the schedules for domotic lighting and air- conditioning controllers, cutting back on the use of lighted signs and replacing normal light bulbs with more efficient LED bulbs and much else besides.
On the institutional front, and in compliance with its commitments, the group accepted the invitation from an international community of over 722 private and institutional Carbon Disclosure Project (CDP) investors to join this programme as an investor signatory. By joining this community, the group reinforced its belief that financial markets can play a fundamental role in promoting environmental wellbeing. Similarly, the group once again filled out the annual CDP questionnaire, through which it transparently reported all its climate change related initiatives and indicators.
The group has also taken it upon itself to raise awareness amongst its internal and external stakeholders of more environmentally responsible behaviours. The group signed up again for the international “Earth Hour” initiative, which involved all group companies, including Banif Bank (Malta) and Banif Brazil. It also participated in Movimento ECO – Empresas Contra os Fogos (ECO Movement – Companies Against Fires), which aims to raise awareness regarding the prevention and combat of forest fires. The group also frequently offers its staff “sustainability” messages and tips.
At the end of 2013, Banif became a stakeholder in the Eco Compatible Life Project, at the invitation of the Madeira Natural Park. This project aims to encourage and enhance the compatibility of socioeconomic and cultural activities and nature tourism, through the management of the nature reserves, classified areas, habitats and species that sustain the European ecological network Natura 2000.
Commitment to society The Banif Financial Group seeks to contribute to the communities of which it is part, adapting its product and service offer and meeting the specific needs of these communities. We have designed products that create value for specific segments, such as young people and students, residents of sparsely populated areas and islands, small and midsized companies, entrepreneurs and clients at risk of social exclusion. In 2013, these products resulted in 26.7 million euros in personal loans and 122.7 million euros in business loans.
The Banif Financial Group has focused its community involvement on fostering literacy, education and entrepreneurship, getting more involved with disadvantaged communities, encouraging culture, sport and a healthy lifestyle and interacting with emigrant communities.
In terms of financial literacy, Banif took part in the “Boas Práticas Boas Contas (Good Practices Good Accounts)” project launched by the Portuguese Association of Banks in 2013. This joint undertaking, the first financial education initiative from the banking sector, is a learning project that aims to provide the public with useful and accessible information on banking services, through practical, illustrative and realistic case studies that reflect the everyday realities of most families and with which people can easily identify.
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MANAGEMENT REPORT AND ACCOUNTS 2013
Our educational work involves partnerships with a number of organisations, including Junior Achievement Portugal (JAP) and the Business Association for Social Inclusion (EPIS).
In partnership with Junior Achievement, we launched another chapter in our business volunteer programme VAMOS Educar (LET’S Educate). In 2013, the group welcomed students from schools across the country, including, for the first time, from the Azores, to our “Braço Direito (Right Arm)”programme. Under this scheme, participants shadow an employee for a day and gain insights into a company's organisational structure and its culture, work ethic and various career opportunities. 52 students from 25 schools were received by 52 Banif, BBI and Banif Mais volunteers, for a total of 390 hours of volunteer shadowing. The results were so good that JAP declared that the Banif Financial Group offered an excellent example of best practice in the implementation of our VAMOS Educar volunteer programme. The group was awarded the “Enterprising Company” seal of approval.
The agreement signed with EPIS seeks to encourage education as a way of combating exclusion and poverty, through the EPIS Social Scholarship Programme – Schools of the Future. Banif agreed to support the programme for three years, starting in 2013/2014, by providing 12 scholarships to students from the mainland, Madeira and the Azores.
For many years, Banif has supported two entrepreneurial projects in Madeira: the rs4e project – road show for entrepreneurship, which promotes entrepreneurship in schools, and the Entrepreneurship Award from the Young Madeira Business Association (AJEM), which helps young business people set up and run start-ups.
Also in the educational field, Banif offered an award for the best MBA student from the University of the Azores, at a ceremony entitled “Technology-based Entrepreneurship”, in which a number of guest speakers participated. In partnership with the Regional Directorate for Education, Science and Culture and Atlânticoline, the bank offered prizes to the best 11th year students at each school in the region.
In 2013, Club Banif and the companies Banif, SA, Banif – Banco de Investimento and Banif Mais once again got together for a VAMOS Doar (LET’S Donate) initiative. This initiative, which involved collecting donations in kind from four of the country’s regions, for four different charities, appealed strongly to our staff’s caring instincts. The donations went to the Comunidade Vida e Paz (Life and Peace Community - Lisbon), Obra do Frei Gil (The Brother Gil Charity - Porto), the Vila Mar establishment (Funchal) and Associação Solidariedarte/Rede de Lojas Eco-Solidárias (The Art Solidarity Association/Network of Eco-Solidarity Shops - Ponta Delgada). Over 3,600 articles, (including clothes, food, hygiene products, toys and school materials) were collected for these associations. Banif hopes that such initiatives will not only help the communities in which we work but will also help a culture of solidarity and caring to take root.
In terms of sponsorships and donations, the group continued to support and encourage sport, culture and a healthy lifestyle. We sponsored sport for young people, in the form of the Zon – Banif Soccer Challenge, and supported other sports events, such as the 8th Women’s Race, the 23rd Lisbon
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MANAGEMENT REPORT AND ACCOUNTS 2013
Half Marathon, the 31st Bells Run and the 1st Lisbon Rock’n’Roll Marathon, amongst others. We also renewed our partnership with the Pauleta Foundation and, for the first time, the Zon Kids League, in the Azores, was sponsored by Banif.
Integrating economic, environmental and social issues into our core business and into our involvement with our stakeholders has been a priority concern of the Banif Financial Group’s approach to sustainability.
With our entrenched belief in the principles of transparency and accountability, we published our seventh consecutive sustainability report in 2014. This report, which covers 2013, adheres to the internationally recognised guidelines “Sustainability Report Preparation Directives (G4)” published by the multi-stakeholder organisation the Global Reporting Initiative (GRI). The report details the initiatives, indicators and commitments pertaining to sustainability.
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03|Distribution Networks MANAGEMENT REPORT AND ACCOUNTS 2013
03|Distribution Networks
AT 31 DECEMBER 2013
Mainland Madeira Azores Abroad Total
Banif 227 35 41 6 309 Branches 208 32 36 _ 276 Business Centres 11 1 3 _ 15 Banif Privado 7 1 1 _9 Call Centre 1 _ _ _ 1 Home Loan shops _ 1 1 2 Representative offices/other _ _ _ 6 6
Banif Mais, SGPS 17 1 2 10 30 Branches 16 1 2 4 23 Other 1 _ _ 6 7
Banif - Banco de Investimento 6 _ _ 4 10
Açoreana Seguros (*) 28 3 17 _ 48 Delegations 28 1 17 _ 46 Other _ 2 _ _ 2
Banif Imobiliária 1 _ _ _ 1
Banif Rent 1 _ _ _ 1
Banif-Banco Internacional do Funchal (Brazil) _ _ _ 3 3 Branches _ _ _ 2 2 Other _ _ _ 1 1
Banif Finance (USA) _ _ _ 1 1
Banif International Bank (USA) _ _ _ 1 1
Banif Bank (Malta) _ _ _ 10 10
Banco Caboverdiano de Negócios (Cape Verde) _ _ _ 18 18
Banca Pueyo (spain) (*) _ _ _ 100 100
Total 280 39 60 153 532 (*) Not fully consolidated
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BANIF - GRUPO FINANCEIRO DIAGRAM OF HOLDINGS 31-12-2013
Banif - Banco Internacional do Funchal, SA * Share Capital: EUR 1,582,195,220
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 Cap.: EUR 200,000,000 Share Cap.: EUR 85,000,000 Share Cap.: EUR 20,369,095 Share Capital: CVE 900,000,000 Share Cap.: USD 2,108,000 Share Cap.: EUR 135,570,000 100% 100% Numberone 100% Banif Gestão de 0,99% Banif Bank 100% Companhia de Seguros Banco Banif Mais, SA SGPS, Lda Activos 99,01% 78% (Malta) Banif Securities Inc Açoreana, SA Share Cap.: EUR 5,000 Share Cap.: EUR 2,000,000 Share Cap.: EUR 101,000,000 Share Cap.: EUR 32,500,000 Share Cap: USD 8,532,707 Share Cap.: EUR 107,500,000 99% 1% Banif Finance, Ltd MCO2 - Soc. Gestora de 100% Banif Holding 100% Banif Plus Bank ZRT 25% Fundos de Inv. Mobiliário 99,9% (Malta), Ltd Komodo Share Cap.: b) Share Cap.: EUR 2,950,000 Share Cap.: HUF 3,000,000,000 Share Cap.: EUR 10,002,000.00 Share Cap: USD 10,100,256 0,10% 100,0% Gamma - Soc. 90% TCC Investment 100% Banif (Cayman),Ltd c) 100% Banif Rent, SA 100% Titularização de Créditos 10% Luxembourg Banif (Brasil), Ltda Share Cap.: EUR 300,000 Share Cap.: EUR 250,000 Share Cap.: EUR 125,000 Share Cap.: USD 42,000,000 Share Cap.: BRL 150,000 94.38% 59,20% 56,49% Banif Margem 100% Banif International Banif-Banco Internacional 4.65% Investaçor, SGPS Açor Pensões 29,19% 100% Mediaçao de Seguros, Lda Bank, Ltd d) 0.97% do Funchal (Brasil), SA Share Cap.: EUR 10,000,000 10.81% Share Cap.: EUR 1,850,000 Share Cap.: EUR 6,234.97 Share Cap.: EUR 25,000,100 Share Cap.: BRL 707,883,592 100% Banca Pueyo, SA Banif Capital - Soc. 85% Banif International Banif Banco de 33,32% (Spain) 100% de Capital de Risco Holdings, Ltd Investimento (Brasil), SA Share Cap.: EUR 4,800,000 Share Cap.: EUR 750,000 Share Cap.: USD 17,657,498 Share Cap.: BRL 90,785,158.21 100% Inmobiliaria Vegas Altas Banif International 100% Banif Financial Banif Gestão de Ativos 33,33% (Spain) 100% Asset Management Services Inc. (Brasil) S. A. Share Cap.: EUR 60,330.42 Share Cap.: USD 50,000 Share Cap.: USD 371,000 Share Cap.: BRL 10,787,073 100% 3.27% Banif 100% Banif LDI Desenvolvimento Imobiliário SA 2.12% Multi Fund a) Finance (USA) Corp. 7.20% Share Cap.: USD 50,000 Share Cap.: USD 6,280,205.09 Share Cap.: BRL 154,175,615
14,24% 9.19% 100% Banif Forfaiting Banif Real Estate (Brasil) a) Paid-up share capital USD 100 Company b) The controlling percentage of the voting capital is 100%, and the share capital Share Cap.: USD 250,000 Share Cap.: BRL 74,746,824 comprises: 100,000 ordinary shares with a unit par value of USD 1 and 100,00% 42.8% preferred shares without voting rights: d) The controlling percentage of the voting capital is 100%, and the share capital Santa Ester 21.8% 7,302 shares – USD 0.01/share and 7,950 shares - EUR 0.01/share. comprises: 25,000,000 ordinary shares with a unit par value of EUR 1.00 and 35.4% c) The controlling percentage of the voting capital is 100%, and the share capital 10,000 preferred shares with a unit par value of EUR 0.01. Share Cap.: BRL 73,653,927 comprises: 26,000,000 ordinary shares with a par value of USD 1 and 16,000,000 preferred shares without voting rights, with a par value of USD 1. * The companies of greatest importance for the Group were considered This company returned its banking licence on 21/12/2012 and as such no longer conducts banking activities. 04|Human Resources MANAGEMENT REPORT AND ACCOUNTS 2013
04|Human Resources
Given its across-the-board role at the various companies in the Banif Financial Group, the human resources area took a more holistic approach to its communication, training, career management and staff development initiatives in 2013, encouraging the creation of synergies and maximising use of the group’s internal potential. Alongside these initiatives, the area also worked on strengthening the policies for harmonising pay and benefit practices and improving the integration of the human resource management models and of the IT systems that support relations and communications with staff. In 2013, the Human Resources Directorate also took on responsibility for safety and the group’s own assets. This allowed the directorate a more complete and integrated overview of the group, which it then used in its management of our human and material resources in Portugal.
Indicators
The ongoing restructuring and streamlining of the group’s workforce led to a fall in the number of FTE (Full-Time Equivalent – the equivalent number of full-time employees at a company) at the Banif Financial Group. At the end of 2013, the group employed 3196 FTE, compared to 3375 in 2012, a drop of 5.6%. At Banif, SA, the largest company in the group, there was also a significant fall in employee numbers, which stood at 2328 FTE at 31 December 2013, 3.1% fewer than in December 2012, when there were 2409 FTE. This staff reduction came about through a structured policy of voluntary redundancies, pre-retirement plans, retirements and natural wastage.
Identity
In 2013, Banif Financial Group created a new identity for our human resources area, backed by a brand and internal communication signature associated with the initiatives and processes that aim to understand, involve, inspire and develop our staff.
([WE] BANIF THE FORCE FROM WITHIN)
This new identity aims to strengthen our unity and cohesion and the sense of togetherness, protection, joint purpose and involvement felt by all group staff.
The launch event for this new identity was the first [DESAFIOS] BANIF (BANIF CHALLENGES), which took place in Vimeiro in November. Over 500 people came to this day of socialising and sport, from companies across the Banif Financial Group and from many different locations, both on the mainland and the islands. The [NÓS] BANIF concept was well represented on a day that resulted in enhanced feelings of unity, cohesion and togetherness for all those who participated.
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MANAGEMENT REPORT AND ACCOUNTS 2013
Process Improvement
Our continuing concern with process streamlining and simplification was evidenced through our development and implementation of such applications as the Staff Portal, the E-Doc-Workflow tool and the Development Platform. These applications will grow dynamically, incorporating an increasing number of functions and new developments.
The E-Doc-Workflow application is used to manage multiple processes electronically. Documents including statements, staff rotas, information and letters to staff concerning transfers, nominations, changes in function and promotions can be signed electronically, digitally filed and sent by email.
The first stage of development of the staff portal was completed in 2013. From January 2014, the portal will simplify and streamline human resources procedures and help staff relations flow more smoothly. The portal can be used for recording working hours and absences, booking or changing holidays, accessing information in one’s own personnel file and checking salary slips, income tax declarations and various other types of information.
The implementation of the new Development Platform, the Banif Financial Group’s training platform, also ushered in a new era for training. This is important because we see training as a driver of individual and team development, greater user autonomy, streamlined processes and records, facilitated management of all training methods and as a way of benefitting from the synergies created between group companies.
Training and Development
In 2013, the training and development area prepared and oversaw the training plan for Banif Financial Group companies, namely: Banif SA, Banif – Banco de Investimento, Banif Açor Pensões, Banif – Gestão de Activos, Banif Mais, Banif Rent and Banif Imobiliária. For the year as a whole, there were 6,750 participations in training sessions over 39,400 hours, which is equivalent to about 15 training hours per employee. The more significant of the year’s training projects are described below.
The strategic focus on internal training and eLearning contents was maintained in 2013. Since 2011, 71 in- house staff have qualified as trainers and 21 as e-tutors, all of whom are now part of the Trainers Development team. Courses were run on a variety of topics, including financial markets, external trade operations, payment methods and renting, institutional protocols, venture capital funds, leads, factoring and trade finance. In total, 33 courses were run for 612 participants over 3,204 hours. eLearning courses run over the year included those focusing on the New Staff Portal and the New Loans Workflow.
The experiential training course, The Whole, Greater than the Sum of the Parts, was attended by some 200 staff selected from the talent pools at Banif, Banif Mais, BBI, Banif Rent and Banif Imobiliária. Participants ranged from senior management to frontline operators. This course, designed to bring both group companies and functional areas into closer alignment, addressed such areas as teamwork, cohesion, team spirit, building efficiency and effectiveness and working towards common goals.
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MANAGEMENT REPORT AND ACCOUNTS 2013
As part of the Affluent project, an initiative was set up to develop the commercial competences and specific behaviours of Banif V+ Managers. The initial training, implemented in the previous year, was followed up in 2013 by mystery client visits to these managers and then by a further training course for 75 Banif V+ Managers. The course aimed to consolidate and build on previously acquired competences and also focused on improvement opportunities identified by the mystery clients.
The Learning Talks programme is a new idea that involves arranging informal opportunities for training and knowledge sharing, whilst also fostering internal relationship building between staff from different group bodies and companies. In 2013, twelve learning talks, attended by 451 staff from across the Banif Financial Group, were held on the mainland and Madeira and in the Azores. The talks covered a range of topics, including business strategies, products, management and leadership, new technologies, sport, the visual arts and personal development.
The objective of the Branch Development project is to set up branch schools that can offer on-the- job training to staff who are taking on new duties. Following the pilot project in 2012, and the resulting necessary adjustments, the project was expanded to the four development areas (north and south mainland, Madeira and the Azores). Eight sessions were run at five branch schools, to give a total of 343 training hours.
Performance and Incentives Management Model
In 2013, we introduced a new performance assessment model, designed to provide a more objective assessment in line with the results achieved over the year. The model, which primarily serves as a management tool for department heads, can be used for an objective and quantifiable assessment of an employee’s performance and their contribution to achieving company objectives.
The development and implementation of the incentives model for central services, which had not previously been covered by any incentive scheme, was based on this objective assessment tool. It is expected that this system will be a determining factor in optimising the support services that central directorates provide for the bank’s commercial and operational activities.
Career Management
2013 also saw the implementation of the Internship Development programme that now offers professional internships, in addition to curricular ones. Curricular internships last 3 to 6 months and professional internships last 6 months to 1 year. At a time at which new recruitment is largely on hold, these internships will allow Banif to stay in touch with this source of knowledge and irreverence, something that is key to the success of any organisation. Over the year, there were 31 curricular interns and 27 professional interns at Banif Financial Group companies.
A new functions and career model for Banif, SA was also approved in 2013. This model has streamlined and simplified the organisation, bringing down the number of internal functions from 72 to 36 and structuring these into 5 functional bands according to the 3 existing career strands (commercial, technical and support).
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MANAGEMENT REPORT AND ACCOUNTS 2013
Pay, Benefits
Banif, and all group companies is Portugal, have implemented the Banif Pay Rest Card. The cards are charged up with participating staff’s meal subsidies, which results in tax benefits for both the staff and the companies. In 2013, the preferential conditions for Banif Financial Group staff were revised and employees can now use the cards for car loans and leasing and insurance, in addition to the products and services already provided by group companies. At the end of the year, the One-Stop Desk for staff was inaugurated. This new facility allows Banif Financial Group employees to manage all their financial affairs in an integrated fashion.
Safety
A range of initiatives was implemented in the two main safety-related areas of safety at work and personal and property safety. These initiatives, based on the approved strategic plan, were structured into six main implementation strands: professional risk prevention, emergency preparation and response, communication and consultation, safety training, coordination and reporting and the provision of services by Banif SA to other Banif group companies.
Specific health and safety at work objectives were defined for each intervention strand. These were then implemented through such initiatives as the workplace risk assessment visits made to 33 business units and 2 central buildings, covering a total of 351 job positions. Changes to the applicable legal framework were also identified and publicised throughout the group, employees were consulted through periodic meetings with staff safety representatives and the psychosocial risk factors and the ergonomics of the workplace were assessed. “Health and Safety at Work” and “Personal and Property Safety” eLearning courses were run, based on the Development Platform training concept, as a way of building staff competences in safety matters and complying with legal requirements.
As regards building fire safety measures, the safety plans for the central buildings were updated and fire drills were held at all buildings on the mainland. The operational structure for responses to emergencies was modified to reflect the organisational changes that have taken place. A safety head and deputies were appointed for each establishment and first aid training was given to new emergency team members.
Steps were taken to ensure the operational readiness of the protection and intervention equipment that constitutes the integrated safety systems in central buildings and at all business units. These steps included the management of preventive and corrective maintenance contracts, the remote control of these systems from Banif’s Safety Centre and regular testing and auditing, designed to monitor the operational status of the equipment and detect any anomalies.
Assets
The assets area took on a number of wide-ranging responsibilities, particularly as regards engineering and projects, maintenance and construction management, licensing and the management of the property and other assets belonging to the Banif Financial Group. In 2013, the reorganisation of the bank and the group required the remodelling of the 24 July building in Lisbon and the Solmar building in the Azores.
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05|Economic Background MANAGEMENT REPORT AND ACCOUNTS 2013
05|Economic Background
International Context
2103 was a transitional year for the world economy, with gradual growth in developed countries and a slowdown of the growth rates seen in emerging and developing economies in previous years. According to the IMF, global growth was slightly lower in 2013 than in 2012 (3.0% rather than 3.1%), despite the fact that global trade and business activity picked up in the second half of the year.
GDP growth rates in the major economic blocks
10
8
6
4
2
0 2005 2006 2007 2008 2009 2010 2011 2012 2013 -2
-4
-6
World Advanced Economies Emerging Economies
Source: IMF
In fact, the slowdown in activity was more marked in the first half of the year, as developed countries continued to suffer the recessive effects of the financial crisis, in the form of the rebalancing of household and business budgets and the consolidation of state budgets, particularly in Europe.
The US economy was also affected by the significant budgetary consolidation that followed the automatic sequestering of public expenditure. This had a knock-on effect on private consumption that was partly mitigated by recoveries in the real estate market and employment figures. For the year as a whole, the North American economy grew by 1.9%, somewhat less than the 2.8% growth seen in 2012.
However, the economic recovery gained a firmer foothold in the second half of the year, with GDP growing at an average of over 3.5% in the 3rd and 4th quarters compared to 1.75% in the first half of the year. Of the main components of GDP, consumption and business spending rose significantly during the period, tracking the diminishing fallout from fiscal tightening. The wealth effect generated by rises in the stock and real estate markets also contributed to the sustainability of the increase in private consumption. Similarly, business investment started the year modestly but then
25
MANAGEMENT REPORT AND ACCOUNTS 2013 bounced back in the second half of the year, reflecting improved sales outlooks, higher confidence levels and more favourable borrowing conditions.
Inflation kept to reasonable levels, with the overall and core change in the personal spending deflator standing at 1% for 2013, below the FED’s target of 2%. In terms of jobs, improved business activity in the second half of the year resulted in an increase in the rate of job creation across all economic sectors. However, the unemployment rate, which averaged 7.5% for 2013, remains high.
In terms of monetary policy, the FED continued to implement its non-traditional policies of quantitative easing and forward guidance over the greater part of the year, in the wake of the near- zero interest rates that have prevailed since late 2008. Both instruments exert a downward pressure on long-term interest rates and bolster the price of financial assets, thus counterbalancing the contractive effects of the tighter budgetary policy. However, as the recovery gained momentum, with more stable prices and better employment figures, arguments began to appear for cutting back on the rate of asset purchases. This discussion, which began in May, caused an immediate increase in financial market volatility, particularly in emerging and developing countries and especially in those that had higher external deficits (including India, Indonesia and Brazil). In December, the FED ushered in a modest cutback in its asset-purchasing programme, from 45 to 40 billion dollars of long- term debt securities and from 40 to 35 billion dollars of mortgage debt securities.
Of the major economic blocks, the Eurozone performed weakly over the year, with the IMF forecasting a -0.4% contraction in GDP for 2013, following on from the -0.7% contraction seen in 2012. In 2013, the growth differential between the “peripheral” and “core” countries narrowed, although there are still significant differences as to the financing capabilities of these economies. However, there was a notable recovery in the second half of the year, corroborated by economic sentiment indicators that appear to be converging with their average long-term values. This recovery was aided by higher external demand, lower fiscal impact and better borrowing conditions. However, lending to the private sector is still decreasing, unemployment is stabilising and the rise in the euro is acting as a brake on growth.
In terms of monetary policy, the European Central Bank (ECB) cut its main reference rate to 0.5%, following its meeting in May. At the same time, it indicated that it favoured further cuts in its key interest rates, which came about in November when it cut the rate to 0.25%. In addition to conventional measures, the ECB also pondered the use of non-conventional instruments, including measures to stimulate lending to small and midsized business by offsetting the effect of the rises in market interest rates seen in a number of euro area economies.
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MANAGEMENT REPORT AND ACCOUNTS 2013
Key ECB Rates
6,0
5,0
4,0
3,0
2,0
1,0
0,0 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14
Absorção Refi Facilidade
Source: Reuters Datastream
A certain amount of progress towards banking union was made over the year. Such a union will reduce the risk of fragmentation in the eurozone. The progress made so far has led to improved borrowing conditions on the financial markets and lower risk premiums, particularly for the peripheral countries that have been more affected by the sovereign debt crisis.
In the Japanese economy, which grew by 1.7%, the expansionist monetary and budgetary policies, or so-called “Abenomics”, clearly had a positive impact over the year. More specifically, the Bank of Japan strengthened the accommodative nature of its policy in April, undertaking to double the monetary base in two years so as to be able to meet the previously fixed 2% inflation target. The government also announced a fiscal stimulus package equivalent to 1.4% of GDP. Both of these measures were designed to end deflation and drive economic growth forward. According to the IMF, the policies boosted GDP by 1%, although this increase was not passed on to wages.
The emerging and developing countries, which have driven global growth in recent years, showed signs of slowing down in 2013, given the recession in the Eurozone, the build-up of structural imbalances and the more restricted access to external capital. According to the IMF, economic growth for this group of countries fell from 4.9% in 2012 to 4.7% in 2013. The drop was particularly noticeable in Latin America (3.0% to 2.6%), Russia (3.4% to 1.5%) and in the Southeast Asian economies1 (6.2% to 5.9%). The volatility of capital flows, which increased after financial markets begin anticipating the reduction in North American stimulus measures, had a significant effect on various more vulnerable economies that had accumulated a number of imbalances over recent years. This was particularly true of the economies with high levels of private debt, high foreign currency debts or large external deficits.
There were two key aspects to the Chinese economy in 2013. On the one hand, as the main driver of growth, it supported the global economy but, on the other, it presented as a risk factor. The doubts
1 The ASEAN-5 includes the economies of Indonesia, Malaysia, the Philippines, Thailand and Vietnam
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MANAGEMENT REPORT AND ACCOUNTS 2013 felt at the beginning of the year about the sustainability of Chinese growth and the possibility of a “hard landing” dissipated as the economy recovered in the second half of the year. According to the IMF, growth in China in 2013 was the same as it had been in 2012, 7.7% China faces the dilemma of choosing between stimulating the economy and, so, halting the current slowdown, or of correcting the speculative bubbles in certain markets, to which excessive amounts of credit have been channelled through so-called “shadow banking”.
Domestic Context
According to the flash estimate from the National Institute for Statistics (INE), GDP volume in Portugal shrank by 1.4% in 2013. This contraction reflects a sharp fall in the rate of economic slowdown, compared to 2012 (-3.2%), and a notable recovery from the second quarter onwards, with GDP registering successive gains in the 2nd, 3rd and 4th quarters of 1.1%, 0.3% and 0.5%, respectively. As a result, year-on-year GDP was up for the 4th quarter, at 1.6%, something that had not happened since the 4th quarter of 2010.
GDP Growth (quarterly)
1.5 1.08 1 0.54 0.5 0.3
0 -0.08 -0.08 -0.5 -0.33 -0.48 -1 -0.82 -0.97 -1.5
-2 -1.75 -1.93
-2.5 May 11 Aug 11 Nov 11 Feb 12 May 12 Aug 12 Nov 12 Feb 13 May 13 Aug 13 Nov 13
Portugal PIB trimestral (Vt, %)
Source: Reuters Datastream
The economic recovery that took hold from the second quarter of the year is closely related to the performance of domestic demand. Domestic demand had slumped significantly since the end of 2010, falling about 13%, with consumption and investment down 11% and 27%, respectively. This trend was reversed from the 2nd quarter of 2013 on, with domestic demand growing in the 2nd and 3rd quarters and, most likely in the 4th quarter, too (although the INE flash estimate does not break demand down by component). This performance augmented the positive contribution made by net exports and helped pull the economy into positive territory.
Nevertheless, the Portuguese economy remains hampered by a number of structural constraints that will continue to limit its growth potential. These problems include the high indebtedness of various institutional sectors, the still relatively unqualified workforce and the significant segmentation of the job market, which encourages long-term unemployment and a high churn of
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MANAGEMENT REPORT AND ACCOUNTS 2013 certain types of workers. Thus, the correction of such imbalances, which have been accumulated over recent decades, should be pursued in the coming years and the adjustment process should be seen as a work in progress.
In fact, and despite the recovery in domestic demand from the end of the 1st quarter of 2013 onwards, particularly as regards private and public consumption, any such recovery will continue to be hindered by fiscal consolidation priorities, the deleveraging of the private sector and the persistence of unfavourable job market conditions. Exports, on the other hand, should continue to grow strongly, supported by the recovery in external demand, and are expected to play a much larger role as the Portuguese economy adjusts. Thus, exports, which already represented 41% of GDP in 2013, will continue to make an increasing contribution, whereas domestic demand will fall and partially correct the upward trend seen over the last decade. At the same time, household indebtedness and savings rates will contract.
The recovery in domestic demand can be seen in the economic sentiment indicators, particularly that of consumer confidence, which rose from -56 points in January to -36 in December. In year-on-year terms, the coincident indicator for private consumption went from -4.2% in January to plus 0.6% in December and the retail trade index moved in a similar direction, from -4.1% to 0.7%, over the same period. The most significant turnaround was seen in passenger car sales, which showed 35.8% year- on-year growth in December 2013.
Investment indicators also recovered strongly, with the industrial production index for capital goods growing, in year-on-year terms, from -9.1% in January 2013 to +10% in December. Similarly, industrial turnover for capital goods rose from -8.6% in January 2013 to +8.6% in December. Investment in transport performed exceptionally well, although from a very low starting point. Sales of light and heavy goods vehicles finished the year with year-on-year rises of 54.6% and 268.8%, respectively. Construction investment indices also showed signs of recovery, although not enough to take them into positive territory, with year-on-year cement sales rising from -37% in January to -1.5% in December.
Since 2011, net external demand has been the mainstay of economic activity and 2013 was no exception to this rule. In fact, despite external limitations, particularly the constraints affecting the EU market and the growing tensions in the emerging economies, goods exports (nominal) grew by 8% year-on-year, in December, while imports went up by 3.5%. For the year as a whole, exports grew by 4.9% and imports by 0.8%. If fuels are excluded, exports and imports rose by 2.1% and 1.9%, respectively, in annual terms. As regards international trade in services, year-on-year exports and imports for December 2013 were up by 15.1% and 4.0%, and, for the whole year, by 7.7% and 2.2%, respectively.
This growth meant that the persistent deficit in the current account balance was finally turned around, with a deficit of 3,331.5 million euros in 2012 becoming a surplus of 880.9 million euros in 2013. The improvement in the current account more than made up for the fall-off in the capital account (of 457.9 million euros) and the joint balance of the current and capital accounts rose by 3,754.6 million euros in 2013 to 4,293.4 million euros.
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MANAGEMENT REPORT AND ACCOUNTS 2013
1. Job market
According to the INE’s employment survey, the unemployment rate was 15.3% in the 4th quarter of 2013, which is 1.6 pp lower than in the same quarter of the previous year and 0.3 pp lower than the previous quarter. The number of people without a job fell 10.5% over the year, with a 3.7% fall in the 3rd quarter alone. In the 4th quarter, overall employment rose 0.7%, year-on-year, with the number of employed workers increasing by 1.9% and the numbers of all other types of workers falling by 3.9%.
The average unemployment rate for the year was 16.3%, which is 0.6 pp higher than in 2012. The number of people out of work was 875.9 thousand, 1.8% higher than in the previous year (an extra 15.8 thousand people). The average number of people in work for the year fell by 2.6% (121.2 thousand fewer people).
In 2013, the working population shrank by 1.9% (or 105.4 thousand people), compared to the year before, with the percentage of people of working age being 60.2%, or 0.8% less than in 2012. The inactivity rate was, therefore, 39.8%, 0.8 pp higher than in the previous year.
Unemployment Rate
20 18 16 14 12 10 8 6 4 2 0 Feb Feb Feb Feb Feb Feb Feb Feb Feb Feb Feb Feb Feb Feb Feb Feb Feb Feb 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Taxa Desemprego
Source: Reuters Datastream
2. Prices
Price trends in 2013 were shaped by a context in which domestic and external inflationary pressures were largely held in check, thanks to the moderate recovery in global business activity and the ongoing adjustments being made to the Portuguese economy. Thus, the harmonised index of consumer prices (IHPC), and most of its constituent components, showed signs of slowing down over the year, when compared to 2012. This was particularly true of energy goods, which actually made a negative contribution to inflation. The average inflation level for the year was 0.4% (2.5% in 2012), with the IHPC falling to 0.2% in December.
In terms of index components, there were various year-on-year falls in December 2013, including for industrial goods (-0.8%), whether energy (-0.8%) or non-energy (-0.7%), while foodstuff prices
30
MANAGEMENT REPORT AND ACCOUNTS 2013 remained unchanged (0%). Clothing and footwear prices fell sharply (-2.7%), whereas alcoholic beverage (+4.2%) and health product (+3.1%) prices both rose significantly.
Inflation (IHPC)
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0 Feb 08 Aug 08 Feb 09 Aug 09 Feb 10 Aug 10 Feb 11 Aug 11 Feb 12 Aug 12 Feb 13 Aug 13
IHPC Vm% IHPC Vh%
Source: Reuters Datastream
3. Balance of Payments and International Investment Position
In 2013, the Portuguese economy recorded a net external lending position – measured by the joint balance of the current and capital accounts – of 4.3 thousand million euros, or 2.6% of GDP, a continuation of the positive trend seen since 2009. The joint balance of the current and capital accounts rose by 2.3 pp of GDP, with respect to 2012. This growth is explained by the 1.1 pp fall in the goods account deficit and of 0.6 pp in the income account, together with increased surpluses in the services account (+0.7 pp) and in current transfers (+0.1 pp).
There was a trade balance surplus of 2.8 thousand million euros, resulting from a 5.7% rise in goods and service exports and a 1.1% rise in imports. The goods account deficit fell by around 20%, to -7 thousand million euros in 2013, thanks to the 4.9% growth in goods exports and the small 0.8% increase in imports. The services account showed a surplus of 9.9 thousand million euros, an increase of 1.2 thousand million euros with respect to 2012. This was attributable to the positive performance of all the constituent components.
The net lending position of the Portuguese economy was reflected in the increase in Portugal’s net assets, vis-à-vis the external market. In this context, the amortisation of the liabilities of the other financial and monetary institutions was higher than the reduction in loans and deposit assets for this sector. The increase in foreign direct nonfinancial investment in Portugal in 2013 resulted in investment making a negative contribution to the change in net foreign assets.
Notwithstanding Portugal’s increase in net foreign assets, its international investment position (IIP), measured as the difference between its financial asset stock and its liabilities, worsened by 2.7 pp, compared to the end of 2012. At the end of 2013, the IIP stood at -196.6 thousand million euros, or - 118.9% of GDP. This deterioration in the IIP results from the increase in value of liabilities held by non-
31
MANAGEMENT REPORT AND ACCOUNTS 2013 residents, specifically the debt securities issued by the Portuguese state and the shares of nonfinancial resident banks and companies. The fall in the price of gold also had the effect of decreasing the value of the Bank of Portugal’s reserves.
At the end of 2013, net external debt stood at 170.4 thousand million euros (103% of GDP), 0.5 pp lower than at the end of 2012.
4. Credit and Resources
Bank lending decreased for the third year in a row in 2013, although the rate of decrease was lower than it had been in the previous year (-9.7% against -5.6%). Domestic lending stood at 330.8 thousand million euros at the end of 2013, 13.6 thousand million euros less than it had been at the end of 2012. The reduction in lending was general across all sectors, with lending to nonfinancial companies falling by 7.6 thousand million euros and personal lending decreasing by 5.9 thousand million euros. Lending to the non-monetary financial sector remained practically unchanged, whilst lending to public administrations came to 39.9 thousand million euros, 0.2 thousand million euros less than in 2012.
The fall in lending meant that the net assets (of liabilities) of the foreign monetary sector increased by about 3.2 thousand million euros, as a result of the contribution from the banks and the Bank of Portugal, which went up by 2.5 and 0.7 thousand million euros, respectively. However, the net foreign position of the monetary sector remained negative, totalling -26.9 thousand million euros in December 2013. This figure largely reflects the negative net foreign assets of the Bank of Portugal (-28.3 thousand million euros) and broadly equates to Eurosystem lending to resident banks. This lending is carried as a Bank of Portugal liability, owed to the Eurosystem, and as an asset by resident banks.
Portuguese banks borrowed less from the Eurosystem in 2013, following the increases seen in 2007 and 2012. At the end of 2013, this borrowing stood at 47.9 thousand million euros, 4.9 thousand million euros less than in the year before.
There was a 2.6 thousand million euro increase in deposits in 2013, to give a total of 225.6 thousand million euros. All sectors contributed to this growth, except non-monetary financial institutions. Deposits of nonfinancial companies rose 2.5 thousand million euros. Personal deposits and those of public administrations each rose by 1.6 thousand million euros while deposits from non-monetary financial institutions fell by 3.1 thousand million euros. In the case of public administrations, it should be noted that the increase in deposits was largely the result of the 2.4 thousand million more euros that this sector deposited with the Bank of Portugal. These deposits equate to unused funds received under the Financial and Economic Assistance Programme to Portugal (at 31/12/2013).
As in recent years, the increasing preference for channelling personal deposits to instruments with terms of over 2 years was maintained. Such deposits increased by 3.1 thousand million euros and account for 30.8% of all deposits for this sector. Deposits with shorter terms fell by 1.5 thousand million euros.
32
MANAGEMENT REPORT AND ACCOUNTS 2013
Securities issued by resident banks decreased by 13.3 thousand million euros in 2013, reversing the growth trend evidenced since 2006. A total of 86 thousand million euros in securities were issued, 56% of which remained in the portfolios of the monetary sector itself.
5. Interest rates and market indices
In 2013, interest rates for new loans fell, prolonging a trend that started in 2012. This reduction was most noticeable in new loans made to nonfinancial companies, which attracted average rates of 5.08% in December 2013, 61 base points lower than in the year before. At the same date, interest rates on personal loans averaged 6.1%, 7 bp lower than in December 2012.
Deposit rates also came down in 2013, again following on from what happened in 2012. In December 2013, interest rates on personal deposits and those made by nonfinancial companies stood at 1.86% and 1.32%, respectively.
Euribor rates remained practically unchanged throughout 2013. The ECB’s key reference rate was cut by 25 bp in both May and November, thus falling from 0.75% at the beginning of the year to 0.25% in December.
Euribor rates
2.5
2
1.5
1
0.5
0 May 11 Aug 11 Nov 11 Feb 12 May 12 Aug 12 Nov 12 Feb 13 May 13 Aug 13 Nov 13
EURIBOR 1M EURIBOR 3M EURIBOR 6M EURIBOR 12M
Source: Reuters Datastream
The regular assessments held as part of the Financial and Economic Adjustment Programme (PAEF) had favourable outcomes and the possibility was floated of the ECB instigating its Outright Monetary Transactions (OMT) programme for medium-term Portuguese public debt. These two factors contributed to an improved financial market perception of the risk of Portuguese issuers, a situation that the Portuguese treasury took advantage of to issue medium and long-term bonds. In May, the treasury issued a new long-term public debt bond (3 thousand million euros, maturity in 2024 and yield of 5.669%) that was well received by foreign investors.
33
MANAGEMENT REPORT AND ACCOUNTS 2013
6. Budgetary Policy
In terms of budgetary policy, the strategy of consolidating public accounts was sustained in 2013. The limits for the budget deficit were revised during the 7th regular assessment under the programme, from 4.5% to 5.5% of GDP for 2013 and from 2.5% to 4.0% for 2014. This revision was necessary to allow the stabilisers in the economy to operate, given the less favourable labour market and the negative contribution of domestic demand.
The budgetary adjustment in 2013 results from the consolidation measures, equal to 3.2% of GDP, included in the 2013 state budget plus the additional measures, worth 0.8% of GDP, in the revised state budget, which was largely aimed at offsetting the Constitutional Court decision of 5 April. Following this decision, the government restored the holiday subsidies of civil servants and pensioners plus any other payments relating to the 14th month. It also revised the application of social security payments for illness and unemployment benefits.
In total, the measures implemented in 2013 to ensure compliance with the agreed deficit targets amounted to 3.4% of GDP and were largely revenue-based. They included a restructuring of income tax, increases in special consumer taxes, a revision of the taxing of real estate assets and an increase in beneficiary contributions to health protection schemes. In terms of cutting back on expenditure, the public sector wages bill was brought down by reducing the number of civil servants, restricting hiring and increasing the normal working week from 35 to 40 hours, reducing intermediate consumption and making savings in public-private partnerships.
The most recent budgetary data published by the Ministry of Finance, for December 2013, show that the public administration deficit, in public accounting terms, was around 8,731 million euros, which is lower than the value that had been estimated in the 2014 budget report (10,993.8 million euros). According to these data, the GDP deficit target of 5.5% had been comfortably met.
This objective was met because of the significant increase in tax income, which rose 13.1% in 2013 (or 10.1% if the effect of the tax amnesty is excluded). Direct tax income rose particularly sharply, by 27.6% (or 22.3% if corrected for the tax amnesty effect), with strong contributions from both income tax (+35.5%) and corporate tax (+18.8%). Indirect taxes rose 2.4% (1.0% excluding tax amnesty income), mostly due to VAT which brought in an extra 3.5%.
Public expenditure increased by 3.4% in 2013, with the wages bill rising 6.6% as a result of the payment of holiday and Christmas subsidies. Current transfers changed little from the previous year (+1.0%), largely as a result of the underlying effects of the large additional sums transferred to the National Health Service in 2012, for the payment of suppliers.
Social security contributions increased by 2.5% in 2013, (0.7% without the tax amnesty effect) while pension costs rose by 5.7%, due to the increased number of pensioners and the full payment of holiday and Christmas subsidies in 2013. The cost of unemployment and employment support benefits increased significantly in 2013 (+5.1%), although this increase slowed down over the year. Other expenditure fell, particularly the cost of the Social Integration Income scheme (-18.8%) and sick
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MANAGEMENT REPORT AND ACCOUNTS 2013 pay (-6.9%). Pensions and benefits paid by the Caixa Geral de Aposentações (Civil Servant Pensions Scheme) increased considerably (+16.4%), mostly as a result of the full payment of holiday and Christmas subsidies to scheme beneficiaries.
According to the IMF (in the 10th PAEF assessment report), public debt stood at 129.5% of GDP in 2013 (124.1% in 2012). This figure, which was higher than forecast, is justified by the accumulation of liquidity “cushions”. Thus, net debt, excluding central administration deposits, will have come to about 120% of GDP in 2013. This change can largely be explained by the interest rate effect, that is, by the positive difference between the interest rate implicit in the debt and the nominal GDP growth rate. In 2013, the primary deficit also contributed to the increase in debt, although this was partially offset by other reductive deficit-debt adjustments, namely the revenue from the sale of ANA and the use of the Social Security Financial Stabilisation Fund to bring down public debt.
Financial Markets
In 2013, a number of events had significant impacts on investor sentiment in the financial markets.
A number of events positively affected sentiment. These included Portugal’s return to market borrowing (in April) and the publication of economic indicators in the USA that contained encouraging signs for domestic demand and the real estate market. There was also the support of the ECB’s monetary stimulus measures, particularly in terms of its injection of liquidity and its decision to cut key interest rates for refinancing operations to a historically low level. Finally, there was Ireland’s decision to exit the adjustment programme without a precautionary credit line.
On the negative side, there was a set of events that primarily made themselves felt during the first half of the year:
The election outcome in Italy and the impasse in forming a new government. The crisis in Cyprus and the impact of the choice of financial rescue plan. The risk of contagion associated with Cyprus’s bailout plan was low, but it did generate a high level of uncertainty and a certain distrust of the banking system. The model applied in Cyprus involved a direct restructuring of the banking system and the taxing of deposits over 100 thousand euros. Statements, in May, from the US Federal Reserve regarding the reduction in the programmes for purchasing long-term debt. Decision by the Bank of China to stop providing unlimited liquidity to the Chinese banking system, so as to control lending. The Fed began to cut back on its quantitative easing programme in December.
The PSI (Lisbon stock index) climbed 16% in 2013, mostly thanks to significant gains in the second half of the year, after the negative performance of the first half. In fact, the rise in market interest rates plus the anticipated downsizing of the Fed’s monetary stimuli, as well as the difficulties experienced by the budgetary consolidation process, checked the downward trend of the spreads
35
MANAGEMENT REPORT AND ACCOUNTS 2013 and yields on public debt in the first half of the year and provoked a 4.56% fall in the PSI-20 in the second quarter.
In terms of positive growth in the main international stock indices, the Greek ASE rose 28.1%, followed by the German Dax (+25.5%) and the Spanish IBEX (+21.4%). The main North American indices, S&P 500 and NASDAQ, grew by 29.6% and 38.3%, respectively. On the down side, many emerging market indices fell, including the Bovespa (-15.5%), Istanbul (-13.3%), Mexbol (-2.2%) and Jakarta (-1.0%).
The volatility in the financial markets, which increased in the 2nd quarter of the year, fed by the uncertainty surrounding the possible scaling back of the Fed’s quantitative easing programme (QE), affected the emerging and developing economies the most, as it implied less accessible liquidity. As a consequence, the Brazilian real fell around 13% against the dollar and 17% against the euro and the Bovespa index fell back 15.5% over the year.
The circulation of liquidity in the Eurozone – and particularly in the periphery – continued its downward tendency. The Euribor 3-month rate rose over the year, from 0.19% to 0.27%, despite the two reductions in interest rates for major refinancing operations, which came down 50 bp to 0.25%, thus suggesting that reference interest rates are likely to stay low for the foreseeable future. The euro appreciated in value against other major currencies over the year, rising from 1.319 to 1.379 against the dollar (+4.5%) and 113.6 to 144.7 against the yen (+27.3%).
In the public debt market, with the economic recovery in the second half of the year and the indication by the Fed that QE could be curtailed, the yields for 10-year North American and German debt over the year rose from 1.75% to 3.03% and from 1.3% to 1.9%, respectively.
Inside the Eurozone, bonds from Southern European countries performed well, with significant reductions in yields in Spain, Italy and Portugal. This performance was underpinned by improved economic indicators and by the steps taken towards building the architecture of the Eurozone banking union, plus the existence of a credible backstop, the EC’s OMT. Thus, the return on Portuguese 10-year bonds fell from 7.25% at the end of December 2012 to 6.04% at the end of December 2013.
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MANAGEMENT REPORT AND ACCOUNTS 2013
Returns on Treasury Bonds
25
20
15
10
5
0 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14
2 Years 5 Years 10 Years Source: Reuters Datastream
Over the year, there was some correction in the commodities market, affected by the sentiment attached to the global slowdown, with the main agricultural, industrial and precious metal commodities all being affected. In fact, the fall in metal prices is as much due to the increased mining that has taken place in recent years as it is to the slowdown in China’s real estate market. According to the IMF, the correlation between the growth in commodity prices and macroeconomic growth in emerging markets is particularly high (0.8). The Economist’s raw material price index has shown negative year-on-year comparisons since March 2013, with this trend resulting in a -12.3% difference in December. Brent oil was -5.5% down on the previous year, in euro terms, in December, with crude closing out this period at 110.7 dollars per barrel.
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06|Banif Management Report MANAGEMENT REPORT AND ACCOUNTS 2013
06|Banif Management Report
1. BUSINESS ACTIVITY IN 2013
In 2013, our business activity focused on projects affecting the group’s structure as a whole. These included the state-backed recapitalisation plan, implemented in January, through which the state invested 700 million euros in special shares and 400 million euros in contingent convertible subordinated debt instruments (CoCo). The State and the European Commission also engaged in negotiations regarding the restructuring plan for the group. In the second phase of the recapitalisation process, aimed at private investors and designed to raise 450 million euros in extra capital, the four capital increase operations run between June and October 2013 resulted in such investors subscribing to 311.5 million euros of new capital. Additionally, the group began the process of reimbursing the Portuguese state for the capital it had invested. At the end of the first half of the year, and according to the specific conditions of the CoCo instruments, the repurchase of the 1st tranche of these state-owned bonds was requested, as the first step in an operation that was concluded in August.
In operational terms, we continued to implement the structural measures contained in the restructuring plan that was rolled out in the second half of 2012. This plan is helping us to adapt to the new reality, in which we carry out our banking activities and will place us firmly on a path to sustainable profitability.
Thus, on the commercial side, the bank continued its repositioning to focus on supporting small and midsized businesses in the agro-food and industrial sectors, making use of a series of commercial “leads” to identify and then systematically approach companies in these sectors. We also continued with our segmentation of private clients around the V+ concept, a segment we set up with a specific value offer for more affluent clients.
The bank also worked on bringing down costs and streamlining our distribution structure, by concentrating our geographical presence. This course of action involved the closure of 36 branches in 2013, following on from the 30 closures in 2012. Over the last two years, we have managed to trim 611 staff, 179 of which were in 2013.
In terms of interest rate policy, we pursued a strategy of bringing down funding costs, with lower interest rates on deposits resulting in a recovery in net interest income. Nevertheless, there was an overall drop in the amount held on deposit of clients from segments that are more volatile and sensitive to the level of remuneration attracted by such liabilities. However, the overall amount of structural deposits increased, thus creating greater stability in the bank’s resource base. The move towards lower funding costs was affected, though, by the negative impact of the CoCo costs, on which interest was paid at 9.5% in 2013. On the other hand, the bank’s exposure to fixed rate
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MANAGEMENT REPORT AND ACCOUNTS 2013 sovereign debt assets increased following application of the amounts received through the public recapitalisation operation.
Moreover, the process of disposing of the controlling interests in Banif – Banco Internacional do Funchal (Brazil), SA, Banif Bank (Malta), PLC and Banco Caboverdiano de Negócios (BCN) is currently ongoing and should be completed in 2014. These business units will then be carried as discontinued operations.
Operating costs fell by 34.7 million euros (-12.8%) year-on-year, to 236.8 million euros, as a result of the streamlining and optimisation measures implemented by the group and described above.
Net consolidated profits for 2013 were -470.3 million euros, compared to -584.2 million euros in 2012. Profits were significantly impacted by increased provisions and impairments (366.1 million euros), the results of the discontinued operations, particularly the unit in Brazil, which contributed a loss of 95.8 million euros and by a number of other factors, including the interest costs of the CoCo (30.6 million euros) and the costs involved in the recapitalisation process (13.2 million euros).
As regards liquidity and funding, we carried out a successful securitisation operation in December, with the placement of around 180 million euros worth of securities based on consumer and car loan portfolios from Banif and Banif Mais. Additionally, our credit-deposit ratio in 2013 stood at 126.4%.
Our Core Tier I ratio at 31 December 2013, under Banco de Portugal rules, was 11.16%, the same as it had been at 31 December 2012 on the assumption that the state-backed recapitalisation operation, announced at 31 December 2012, in the amount of 1,100 million euros, and comprised of 700 million euros of capital raised through the issue of special shares and 400 million euros of convertible subordinated instruments, was actually completed on that date (considering the effect of the recapitalisation which occurred in 25 January 2013).
2. RECAPITALISATION PLAN – KEY POINTS
The bank’s recapitalisation plan, approved at January 2013 by the Ministry of Finance, is designed to ensure compliance with the regulatory capital requirements applicable to the sector. It will strengthen Banif’s capital base and dilute the state’s holding, thus rebalancing the shareholder structure between the state and private investors. Banif’s management team is fully committed to implementing all and any necessary measures to ensure the success of the recapitalisation plan agreed with the authorities. The plan is split into two phases of public and private investment.
The 1st phase of the recapitalisation plan was completed in January 2013, with the Portuguese state subscribing to (i) a 700 million Euro increase in capital, achieved through the issue of (non-listed) special shares, and (ii) contingent convertible (CoCo) subordinated debt instruments in the amount of 400 million Euros. 150 million Euros worth of these instruments were bought back in August 2013. By the end of this first phase, the Portuguese state was owner of 99.2% of Banif’s share capital, equivalent to 98.7% of voting rights in current matters.
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MANAGEMENT REPORT AND ACCOUNTS 2013
The 2nd phase of the recapitalisation plan took the form of a capital increase of up to 450 million Euros, involving private investors and a number of different capital market operations. Of this target amount, investors actually subscribed to a total of 311.5 million Euros, through 4 operations run between June and October 2013:
June: 100 million Euros through a private placement to key shareholders. This was taken up by Açoreana Seguros (a subsidiary of Rentipar Seguros SGPS) and Auto-Industrial SGPS, who subscribed with 75 million Euros and 25 million Euros, respectively. July: 100 million Euros in a public share offering. August: 40.7 million Euros through a private placement to a group of mainly Portuguese investors. The board of directors sees the entry of this group into the Banif shareholder base as being of strategic interest to the bank. October: 70.8 million Euros through securities for Banif shares swap.
These placements, particularly the one of the public share offering, were notably successful, given the fact that the operations took place at a time when investors were highly risk averse. Essentially, the operation was run over the summer, amidst a backdrop of significant political instability in Portugal. This instability impacted significantly on the financial markets and led to increased spreads on sovereign debt and a sharp correction of the stock market, which itself had a considerable knock- on effect on the international market. Despite this highly adverse situation, the 16,246 investors interested in Banif shares ensured that demand outstripped supply by 61.8%
Once these operations had been completed, and at 31/12/2013, the total amount of capital that private investors had subscribed to and paid up during the second phase of Banif’s recapitalisation came to 311.5 million Euros. Banif’s share capital stood at 1,582,195,220.43 Euros, represented by 101,789,522,043 shares with no par value. These operations resulted in the Portuguese state’s holding being reduced to 68.769% of the share capital, equivalent to 58.336% of the voting rights in current matters. By the end of the 2nd phase, the state’s holding will be further reduced to 60.533% of Banif’s share capital, or 49.374% of the voting rights.
The board of directors believes that the participation of private investors in the equity operations that took place under the recapitalisation plan is of crucial importance and serves as an unequivocal indication of their confidence in the strategy that has been set out and is currently being implemented. The operations carried out to date in this 2nd phase have contributed to a considerable increase in Banif’s stock market presence and liquidity. The company’s stock market capitalisation, just taking into account the shares listed on the NYSE Euronext Lisbon exchange, stood at 333.8 million Euros at 31 December 2013. The operations have also resulted in a broader and more diversified shareholder base. At the end of 2013, Banif had some 27,000 shareholders (compared to 5,500 at the end of 2012).
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MANAGEMENT REPORT AND ACCOUNTS 2013
3. RESTRUCTURING PLAN
The bank’s use of the Recapitalisation Fund, approved at the end of 2012 by the Ministry of Finance, led to a series of negotiations with the General Directorate for Competition (“DGComp”), the European Commission body responsible for analysing member state support for banks. These negotiations resulted in the drawing up of a restructuring plan. Taking into account the key guideline features of the recapitalisation plan (deleveraging, operational restructuring and simplification of corporate structures), the proposal of restructuring plan submitted by Banif has helped channel the bank’s focus onto the more profitable business segments, in the geographical areas that make the most sense for the group. It has also brought in a greater streamlining of our operational platform and a specific management model for the assets that are to be divested.
Given the reality within which the bank operates and the objectives stipulated by DGComp, complying with the restructuring plan will mean transforming Banif. We have planned a broad range of initiatives to ensure that this transformation is a successful one. These initiatives will be implemented during the restructuring process and applied throughout and across the whole group.
The Programme Management Office was set up in July 2013 to oversee the smooth running of this implementation. Its mission is to ensure that the necessary changes are brought in as quickly as possible. Its main objectives are:
to direct the setting up and implementation of a robust transformation plan based on clearly defined initiatives to facilitate the design and implementation of these initiatives, ensuring they are mutually coherent, and working to remove any obstacles to monitor the implementation of the initiatives, identifying any departure from the stipulated objectives of the restructuring plan, and supporting the necessary corrective actions.
A number of the initiatives implemented in 2013 had measurable outcomes in the same year:
new management structure, with fewer directors capital increase programme successfully completed (312 million Euros) new business strategy drawn up closure of sales points .
Besides these, various other more complex transformation initiatives were launched. Although these initiatives required considerably more groundwork, implementation is planned to begin in 2014.
The bank still awaits DGComp’s approval of the restructuring plan.
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MANAGEMENT REPORT AND ACCOUNTS 2013
4. DOMESTIC COMMERCIAL BANKING
Personal Banking
Our personal banking activities cover 4 client segments, each with a different product and service value proposition.
Mass-market Segment Lending to the mass-market segment focused mainly on consumer and property loans.
Consumer credit lending, in the form of personal loans, was lower in 2013, due to the worsening economic situation and the restructuring of the conditions that apply to our personal loan products that are associated with commercial protocols.
Compared to the end of 2012, the number of personal loan contracts and the overall portfolio balance were 19.5% and 18.4% lower at the end of 2013, respectively. The portfolio of approximately 167 million euros contained 33,037 active loan contracts.
The real estate loan portfolio had an end-of-year value in 2013 of 2.94 thousand million euros, a 10% drop with respect to the end of the previous year. This fall was not only a result of the downturn in the property sector but was also due to our implementation of more demanding loan concession policies, namely as regards risk assessment, pricing and a reduction in the percentage loaned as a function of the guarantee value.
Most of the production in this area was related to the sale of properties in our own portfolio.
In terms of fundraising, the restructuring of our deposits offer and the commercial networks’ drive to market savings (products designed to bring in and retain family resources) resulted in year-on- year growth of 18.7% in the number of contracts and of 71.4% in the overall balance.
A number of savings products were offered in 2013, including: Launch of Depósito Banif 25, to commemorate Banif’s 25th anniversary Launch of the Campanha Poupança Nova Geração (New Generation Savings campaign) with a Cartão Pay (Pay Card), exclusively for the youth segment. The aim was to increase the number of clients saving with us and to leverage awareness and use of the Pay card Through our partnership with Universal Music, we implemented a product (deposits, cards and insurance) placement drive that included vouchers for the Banifmusic.pt platform, amongst other benefits Launch of our World Day of the Child campaign Launch of our World Savings Day campaign Launch of our medium to long-term fundraising product - Depósito Poupança Mais; Launch of our Personal Revolving Loan campaign Launch of our Personal Preapproved Loan campaign
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MANAGEMENT REPORT AND ACCOUNTS 2013
We implemented a number of operational initiatives pertaining to the management of sight deposit accounts, with a view to maximising client returns.
As regards means of payment, Banif brought out new debit and credit cards in 2013. These were designed to provide a wider offer and improved quality of service to the client. This strategy did not quite offset the reduction in the number of cards issued to this segment, with the total number of credit cards falling by 220 and debit cards by 2,084.
With the aim of increasing penetration rates, promotional and publicity campaigns were used to launch a number of initiatives including: Launch of prepaid institutional Pay cards, for personal and corporate clients Launch of a prepaid card, called Pay Test, for the payment of meal allowances Launch of the SATA Imagine Gold card, a card co-branded with the SATA airline and offering an air miles scheme Air miles campaign for SATA Imagine and SATA Imagine Gold credit cards The Banif Music card was launched through a partnership with Universal Music. This card, which has a musical design, is available in prepaid, debit and credit forms and makes use of picture card technology. We began issuing contactless cards, certified for low and high value expenditures. This was accompanied by a phasing out of Electron cards. We renewed our contract with SANRIO for the marketing of the Hello Kitty credit card. Launch of the Simple Cards campaign, aimed at potential Banif Mais clients Back to School campaign, for the placement and activation of prepaid Banif Music cards Launch campaign for the prepaid Hello Kitty card Deployment of the Service Payment and Special Services functions for credit cards
To help leverage the placement and use of certain credit cards, we implemented a loyalty programme for personal clients. This served to strengthen Banif’s means of payment positioning.
Affluent Segment The affluent segment is a key segment for the bank’s positioning strategy. During 2013, the value proposition was built up, managers selected and trained and new clients brought on board. A number of initiatives were implemented in this segment, known as Banif V+, over the year, including: A campaign to attract new V+ account clients, promoting the upselling and acquisition of clients from this segment Adjustments were made to the “V+ Solutions” value proposition, including the introduction of SATA credit cards and foreign currency deposits. Implementation of a process for monitoring the business and activity of the sales teams working the segment, ensuring that service levels match the importance and value that we attach to our affluent clients Running of specific training programmes, with the help of specialist product sales and customer service teams, to emphasise the importance of our re-segmentation project to our commercial network and to maximise product placement with our affluent clients
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MANAGEMENT REPORT AND ACCOUNTS 2013
Implementation of a sales initiative programme, phased in along the year, that was designed to drive and maximise the inflow of business from the affluent segment Launch of a client acquisition and loyalty campaign, the Christmas V+ Campaign, with the aim of encouraging resource inflow and the direct deposit of income.
Private Segment Our closeness to clients and the quality of our services generated significant satisfaction, which, in turn, helped support the sustainability and growth of this business area. We were able to take advantage of a generalised improvement in confidence levels.
In the private segment, known commercially as Banif Privado, we implemented the following initiatives:
Use of the Platinum account exclusive to private clients) to anchor the client’s relationship with the bank, by encouraging loyalty and, thus, increasing client retention in this segment All our private banking managers participated in recurring training courses that aimed to improve their customer service skills and across-the-board understanding of the client offer. Four successful investor forums were held in partnership with Banif - Banco de Investimento in Lisbon, Porto, Funchal and Ponta Delgada. High-value clients were invited to participate in these forums.
The private banking area also made a significant contribution to the private segment, helping to ensure the success of Banif SA’s placement of a public offer of sale and exchange, which was part of our recapitalisation plan.
Residents Abroad (RE) Segment The bank has made a strategic investment in the residents abroad segment, a decision that paid off well in 2013. We held our 1st Residents Abroad Forum, attended by representatives from all our offices, which aimed to encourage discussion and monitoring of the implementation of the strategy we have drawn up for this sector. The “residents abroad” committee has oversight for this business area.
Specific initiatives were designed for the RE segment, with the purpose of increasing our ability to acquire and retain clients, raise funds and increase the average number of products per client. These initiatives included:
Launch of the “Visit Azores” campaign, in partnership with SATA. This campaign aimed to increase fundraising amongst the Portuguese community living in the USA and Canada Implementation of the “Conta D.O. RE” account, a cross-border product designed to meet client needs and compete with other offers on the market. This is a sight deposit account, in various currencies, that offers advantageous conditions and a range of Banif products and services We launched our “Summer in Portugal” campaign, based on a Summer RE term deposit, to coincide with the return home of many emigrants during the holiday period
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MANAGEMENT REPORT AND ACCOUNTS 2013
Launch of the “Depósito Reis Magos” (Wise Kings Deposit), a savings product with a free gift (a Christmas hamper) Launch of savings solutions, including the “Depósito a Prazo RE 6+6” (2nd edition) – a term deposit account.
This segment also played a part in the placement of the public offers of sale and exchange that were part of our recapitalisation plan. Our offices in Venezuela and South Africa were particularly active in this respect.
Business Banking
SME Segment In 2013, Banif continued its policy of investing in Portuguese companies. We developed a bundle of financial support tools called “Linhas de Crédito Força PME’s” (Credit Lines to Boost SMEs) with a total value of 500 million euros.
We launched this package during the first half of the year. It included: 100 million euros in credit lines for the agro-industrial sector All other loan products that the bank offers businesses A commercial leads programme for businesses, with no specific budget.
The credit lines for the agro-industrial sector are subdivided into three distinct scopes: Small producers, for entities receiving support from the Agriculture and Fisheries Financing Institute. The line budget is 5 million euros Export cycle support for agro-industrial businesses, with a line budget of 100 million euros The PRODER/PROMAR protocol, aimed at entities with eligible and approved operations under the Rural Development programme (PRODER) and the Fisheries Operational Programme (PROMAR). The line budget is 100 million euros
The main objective of the Leads Programme is to drive business opportunity across all segments. For the business segment, the programme focuses on a commercial initiative aimed at SME. This involves increased credit facilities, the sale of transactional resources and insurance and international trade operations. The initiative is directed at both existing and potential clients.
The programme currently incorporates 12 distinct leads, nine of which were launched in 2013:
Banif clients with unused credit lines Banif clients with loans in 2010, 2011 and 2012, but no current loans Potential SME Excellence Clients 2012 Potential SME Leader Clients 2012 Potential factoring debtor clients Potential clients in the agro-industrial sector, on the industrial side
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MANAGEMENT REPORT AND ACCOUNTS 2013
Potential clients in the Azores and Madeira Banif clients with interest in the Revitalise Funds Banif clients without Açoreana insurance – 828 companies.
The remaining leads – bank suppliers, top companies and municipal councils – will be introduced shortly.
We continued to publish our monthly economic newsletter, which reports on the economic situation, and our international trade newsletter, which lists the main international trade indicators.
Over 200 staff attended sessions as part of our new training programme for the commercial network. This training has four main objectives: To train the commercial networks in our main institutional protocols and encourage them to convert these into business opportunities. To provide the commercial networks with a better understanding of the objectives and the operation of the Revitalise Fund. To improve the dissemination of the factoring product as an alternative financial solution for managing short-term cash flows. To promote the new product, Banifast Pay, as a flexible and innovative payment solution.
Small Business Segment We produced “Business Solutions”, a revamp of the value proposition in our offer to small businesses and entrepreneurs. This bundle of Banif Group products and services comes with exclusive conditions for clients in this segment.
In terms of transactional services, and in addition to cheques, cards and Banif@st, we also launched the Conta D.O. Business (sight deposit account), with the following features:
Insurance - Accidents at work - Company heald - Multi-risks -Car -Life
Transactional/Daily Business - Balance management - Automatic payment terminal Business -Cheques - Transfers Account - Prepaid cards - Debit cards - Credit cards - Banif@st and Banif@st Pay
Business Credit lines - CCC, Guarantees, Commercial discount, Overdraft -Factoring - Trade Finance
As with the business segment, the Leads programme for the small business segment has focused on commercial initiatives of benefit to micro and small businesses. It involves increased credit facilities
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MANAGEMENT REPORT AND ACCOUNTS 2013 and the sale of transactional resources and insurance and is directed at both existing and potential clients.
In 2013, the Leads Programme consisted of six different leads: Potential SME Excellence Clients 2012 Potential SME Leader Clients 2012 Potential clients in the agro-industrial sector who receive IFAP subsidies Potential clients in the agro-industrial sector, on the industrial side Potential clients without a business account Banif clients without Açoreana insurance
Corporate Banking
The Corporate Banking Department was set up with the aim of providing specialised support to clients in the corporate segment (companies with an individual or group annual turnover of 50 million euros or more) and also institutional clients. These clients are served by two offices, one in Lisbon and the other in Porto.
In 2013 we focused on making the most of the bank’s existing portfolio of clients in this segment, by working to increase our share of wallet. Considerable effort was also put into acquiring new clients with good risk levels and strong business potential.
Thus, the strategy followed in 2013 allowed us to increase our loan portfolio by 20% (including our commercial paper programmes), with respect to 2012. Direct credit products, principally commercial paper programmes and bonds, were the most dynamically developed credit instruments over the year, thanks to our close cooperation with our investment bank partners.
The funds raised from the segments looked after by this department rose sharply in 2013, compared to 2012. This resulted in a significant improvement of the credit to funds ratio and also of our net interest income.
The client acquisition strategy allowed the department to close out the year with 411 active clients. Client acquisition efforts focused on the industrial and agricultural sectors and also on export- oriented businesses, which helped us to diversify the sectors in our client portfolio.
The effort to improve our share of wallet from clients in the segments covered by this department was focused not just on cross-selling products (e.g. leasing, insurance, commercial paper and bonds) but also on new products (e.g. Pay Rest cards).
In 2013, this department made a considerable contribution to the capital increase operations in the 2nd phase of the bank’s recapitalisation plan, particularly the private offer held in August and the public offer of exchange held in October.
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MANAGEMENT REPORT AND ACCOUNTS 2013
International Area
In 2013, we focused our international area work on strengthening our positioning in the non-resident and foreign trade businesses.
The Banif Group has a significant foreign presence, through banks, branches, representatives and incorporated companies. The aim of this network is to allow us to support the internationalisation of our client companies, to build close relations with expatriate Portuguese communities and to access markets where there are business opportunities and a high growth potential.
Banif has set up offices / incorporated companies in the USA, Canada, Venezuela and South Africa to support the Portuguese communities living in these countries. These offices and companies play a key role in representing the bank and in identifying and facilitating opportunities for the Banif Group and our clients.
Banif has made the most of the synergies provided by our international presence to increase the work we do in the area of foreign trade. We have helped to develop the working relationship between Portuguese companies and companies in the markets where we have a presence. We favour companies owned by Portuguese nationals or their descendants, as we see this as a clear way of boosting Portuguese exports.
In ensuring that our clients have access to a complete foreign trade service, Banif also offers additional support instruments to Portuguese companies exporting to higher risk markets. These instruments make use of trade finance programmes offered by multilateral development institutions (BERD, IFC, ADB and IADB).
Despite the current economic difficulties, we have increased and diversified our funded and unfunded lines with our banking partners, which has allowed us to support our Portuguese business clients with both their commercial and their investment needs. We aim to play an expanded role as these clients internationalise their businesses, focusing particularly on those small and midsized companies who are the main driving force behind the Portuguese economy.
Over the years, Banif has negotiated a range of partnerships with local banks in markets targeted for business expansion by our Portuguese client companies. These partnerships form a solid basis from which we can effectively support such internationalisation.
In addition to trade finance, the bank has also focused on supporting our clients as they expand into foreign markets in which Banif has a physical presence. The International Business Department, working out of our head office, coordinates the on-the-ground support we offer these clients through our local structures.
In terms of correspondent banking, we have maintained relationships with our main partners in Europe and the USA and have developed new relationships in the Middle East and Africa. We have also sought to offer clearing services to small and midsized banks in markets in which we are active,
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MANAGEMENT REPORT AND ACCOUNTS 2013 particularly in Latin America. We work as their euro-paying bank in Europe and also offer associated complementary services, such as remittance discounting and cheque clearing.
Despite the macroeconomic environment in which the bank had to work over the year, the “Banif” brand became significantly better known and more widely acknowledged in the international markets.
Commercial Networks
a) Azores
In 2013, the Azores Commercial Department followed our main strategic guidelines, by increasing fundraising, maintaining the quality of credit and containing costs. These are all essential components of our efforts to consolidate our leading position in the regional market.
Despite this effort, and due to the unfavourable economic environment, it proved particularly hard to manage our client portfolio and we were unable to avoid a 5.9% drop in clients. The portfolio now has 69,666 active clients, distributed across the mass market, private and corporate sectors.
With the slowdown in demand for bank lending and a prudent management of loan concessions, there was a fall in the loans portfolio of some 8.3%, to 1,394 million euros. Despite the economic difficulties, we were able to control levels of nonperforming loans and even reduce the directorate’s portfolio of overdue loans, thanks to the excellent work put into this area.
There was a 12.6% year-on-year drop in balance sheet funds, to 759.7 million euros. Part of this decrease resulted from the transfer of funds to off-balance sheet products, mostly securities, following Banif’s capital increase operation in July. Even so, and despite the efforts made to attract and retain deposits, the economic slowdown plus the trend of distributing savings across various other credit institutions proved to be decisive factors in determining the decline seen at the bank.
As part of the plan to streamline structures, two business units were closed in the Azores: the Hiper Horta shop, which provided transactional services only, in June, and the Santa Maria Airport branch, in December. Our geographical coverage of the region remains comprehensive, through our 36 branches, 3 business centres and 1 private centre. We also opened the refurbished Água de Pau branch on São Miguel Island, as part of the resources and equipment modernisation programme that we have been implementing at some of our main branches.
In addition to the countrywide initiatives, the directorate has brought in a number of its own initiatives this year, with the aim of building up business, not just in the regional market but also in emigrant markets. One example of this was our “Visit the Azores Campaign”, aimed at raising funds from clients resident in the United States and Canada. This campaign was run in partnership with SATA, with the offer of a voucher that could be used for travelling with the airline. Of more impact on the regional market, and in accordance with our strategic guidelines, we continued to focus on
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MANAGEMENT REPORT AND ACCOUNTS 2013 fundraising initiatives, such as the re-launch of the “Poupas Comigo” (Save with Me) and the Liga ZON Kids (Zon Kids League) campaigns. We also concentrated on means of payment, particularly our Pay Rest cards and the SATA Gold credit card. Towards the end of the year, we also launched a campaign specifically directed at Banif Mais products, with the aim of increasing our car loan and leasing business.
Of all our regional initiatives the most important, without doubt, was the October launch of the Azores Institutional Protocols initiative. This TOP salary-based protocol offers special conditions to the employees of the regional institutions in question, In addition to the advantages of the salary-based protocol, we also launched a promotional campaign offering SATA frequent flyer programme air miles to clients who directly deposit their salaries in Banif for a period of at least 24 months. The Azores Institutional Protocol is, thus, based on two different foundations, client acquisition and client loyalty, and is directed at a segment that has been much courted by the competition in recent years.
(in million de euros) Item 2013 2012 Variation Resources* 760 869 -12.6% Credit** 1,394 1,519 -8.2%
Active Customer Base 69,666 74,011 -5.9% * On-balance sheet resources ** credit Granted
b) Madeira
2013 was marked by the ongoing recession felt by the country as a whole, and by the Autonomous Region of Madeira (ARM) in particular. The Financial and Economic Adjustment Programme for ARM continued to limit growth in the local economy and held back the production of the Madeira Commercial Department (DCM).
This crisis, which has hit all the main sectors of economic activity in the region, meant that the department had to concentrate its efforts on adapting to the prevailing limitations.
The department’s priorities continued to be the recovery of overdue loans, cost containment and the sale of real estate assets. It also worked to defend the position of our clients’ deposits and of the net interest income accruing from funds and loans.
In the midst of all this, the department endeavoured to participate actively in the various phases of the bank’s recapitalisation process, which set highly demanding goals for both internal and external structures. The capital increase, the public bond exchange operation and the public bond subscription offer were demanding processes that required continual and carefully planned work to ensure that were able to reach all resident, non-resident and emigrant clients in our portfolio.
3,536 new client accounts were added to the portfolio in 2013 and the average number of products per client was 3.15.
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MANAGEMENT REPORT AND ACCOUNTS 2013
During the year, the loans made and client funds items both fell, by -9.9% and -3.7%, respectively.
The DCM quite naturally extended fewer loans to clients, due to lower overall demand from families and companies and the fall-off in public investment.
The decrease in client funds is principally a result of the growing inability of clients to save, because of the country’s economic and social situation, the reduced fiscal benefits of the Madeira Free Zone and the effect of exchange rates on the dollar portfolio.
In order to make the most of Banif’s physical and human structures in ARM, the Machico Torre and Quinta Deão branches were closed. Despite this, and as the leading bank in the ARM market, we continued to ensure that we kept up our social responsibility projects, which focus on entrepreneurship, learning and sport. We feel that it is in this way that we best show the success of bank’s policy of operating deep inside our communities.
At this time of recession, the question of emigration is increasingly important in the directorate’s strategy planning. We have maintained a strong commercial concern for these markets and our ambitious programme of visits to markets with Portuguese communities in Venezuela and South Africa is still ongoing.
(in million euros) Item 2013 2012 Variation On-balance sheet resources 1,999 2,075 -3.7% Total Credit 1,192 1,323 -9.9%
Active Customer Base 98,605 103,620 -4.8%
c) North
The North Commercial Department consists of three networks (RPN – North Private Client Network, REN – North Corporate Network and CPN – North Private Client Centre). These networks oversee and foster the work of the retail, small and medium-sized company and affluent client segments.
Over the current year, the North Commercial Department focused on bringing in new funds, fund loyalty, extending loans, particularly to the business, micro-business and entrepreneur segment, and cross-selling with other group companies, particularly as regards insurance and specialised credit. Recovery of overdue credit was another major business concern pursued during the year.
RPN – North Private Client Network: RPN closed out the year with 106 branches, of which 101 were standard branches and five associate branches (smaller dependencies of standard branches that market the same products and provide the same services as the other branches).
Over the year, 17 branches were closed under the programme to resize the network to match our current reality. This was achieved without a material impact on the business or quality of customer service. In 2013, we continued the process of segmenting our clients and bringing them into
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MANAGEMENT REPORT AND ACCOUNTS 2013 portfolios, particularly as regards the affluent segment. This offer is known internally as V+ and is aimed at individual clients with average incomes. These clients are assigned an account manager and are presented with a specific value proposition. There are currently thirty-one V+ managers in the various RPN branches.
The number of business managers in the branches was increased to twenty-eight, to ensure that we were able to provide a comprehensive service to micro-businesses in the area.
REN – North Corporate Network: REN comprises the six corporate centres that are responsible for driving our corporate business in the northern part of the country.
In 2013, this structure worked closely with companies in the region, setting up lending operations to support the company’s operational cycles and exports as well as their investment needs, particularly through loan protocol schemes.
CPN – North Private Client Centre: CPN works through eight private client managers who manage the assets of wealthy private clients who will benefit from personal oversight. The managers identify opportunities according to each client’s profile and needs.
The North Commercial Department closed out its year with balance sheet funds of 2,059 million euros and off-balance sheet funds of 21 million euros. The loans portfolio stood at 1,661 million euros. Commission earned in 2013 came to 36 million euros. The client portfolio contained around 162,000 active clients with an average of 3.67 products each at the end of the year.
(in million euros) Item 2013 2012 Variation On-balance sheet resources 2,059 2,374 -13.3% Total Credit 1,661 1,857 -10.6% Active Customer Base 162,000 154,369 4.9%
d) South
Overall, and in comparison to the year before, DCS balance sheet funds fell by 549 million euros, to give a portfolio value of 1,900 million euros at the end of 2013. This decrease was caused by the loss of a number of deposits, following the cut in rates designed to shadow Banco de Portugal reference rates. It was also the result of some clients moving their business to the Corporate Banking Department and of the transfer of our own staff accounts portfolio to the Direct Network Department.
Similarly, the total loans portfolio (including commercial paper programmes) fell by 395 million euros, to 2,816 million euros at the end of 2013. The main reason behind this was the reduced exposure to
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MANAGEMENT REPORT AND ACCOUNTS 2013 high-risk clients, the thinning out of the mortgage and personal loans portfolios and the payment of commercial paper programmes.
South Private Client Network (RPS) The 102-branch South Private Client Network prioritised raising and retaining funds, whilst also focusing on improving margins and diversifying the portfolio. We continued to concentrate on products for small savers and programmed savings, as well as cross-selling to other group companies.
The RPS affluent segment is staffed by 24 V+ managers. Four of these managers were appointed during the year, but overall staff numbers were maintained.
The Small Business segment was also set up in 2013. This segment is aimed at company and entrepreneur clients (ENI) with turnovers of 2 million euros or under. RPS currently supports this segment through its 34 small business managers.
The number of private segment clients, and the associated turnover, was also affected by the transfer of our own staff’s account portfolio to the Direct Network Department (One-Stop Desk).
Lending remains tightly controlled and is based on selective policies and narrow risk criteria. The recovery and settlement of overdue loans remains a strategic priority and we make every effort to start negotiating early with clients who show warning signs. We do this in collaboration with the department’s loans monitoring office, which works with all the DCS networks.
During 2013, 16 branches were closed, in keeping with the plan to resize our network and preserve profitability and client service quality.
South Corporate Network (RES) The South Corporate Network comprises five corporate centres hosting 13 client service teams. The network’s strategy is based on controlling the quality of the lending portfolio, improving the ratio between lending and funding volumes and increasing portfolio profitability.
The current economic crisis, the rise in unemployment and increased company closures have contributed to higher levels of overdue credit. We have responded to the degradation in current risk, and the consequent deterioration in the loans portfolio, with closer oversight of clients that show warning signs. We negotiate non-performance issues with such clients and seek to strengthen the guarantees we have received.
In the first half of the year, the transfer of accounts to the Corporate Banking Department also influenced corporate segment turnover and client numbers.
South Private Client Centre (CPS) The South Private Client Centre has a staff of six private client managers who work out of offices in Lisbon and Faro.
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MANAGEMENT REPORT AND ACCOUNTS 2013
This business area is aimed at high-income clients. Through a specific bank account – Conta Banif Platinum (Banif Platinum Account), these clients receive a personalised service and access to a wide range of products and services relating to savings, investment funds, capital debt/brokerage markets and retirement solutions.
This segment also concentrated heavily on cross-selling within the group, in the areas of (financial and non-financial) insurance, specialised lending (leasing, renting) and asset management (investment funds, pension funds, property management).
This segment made good use of the launch of the Banif Trader platform.
In the first half of the year, the transfer of accounts to the Corporate Banking Department also influenced corporate segment turnover and client numbers.
Total commissions in 2013 amounted to 31.6 million euros.
The South Commercial Department closed out the year with 131,941 clients, a year-on-year increase of 4.3%.
Two important milestones in 2013 were the South Commercial Department’s close involvement in the bank’s capital increase operations and the sale of Imóveis Banif (Banif Real Estate).
(in million euros) Item 2013 2012 Variation On-balance sheet resources 1,900 2,449 -22.4% Total Credit 2,816 3,211 -12.3% Active Customer Base 131,941 126,549 4.3%
Factoring Office In 2013, business levels in the factoring and supplier payment management area were down on the previous year, in terms of both concession volume and advances.
The year-on-year decreases for concession volume and average advance balance were 32% and 48%, to give year-end values of 207 million euros and 83 million euros, respectively.
In line with the office’s overall turnover figures, commissions fell by 6%, to 1.1 million euros. Net interest income came to 6.7 million euros, a drop of 16%. Thus, banking revenue in 2013 slipped 15% to 7.8 million euros.
The structure of the client loan portfolio also changed significantly. Although construction remained the largest sector, its overall preponderance fell from 81% in 2012 to 70%. The next largest areas were metal manufacturing and wholesale businesses, at 17% and 4%, respectively.
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MANAGEMENT REPORT AND ACCOUNTS 2013
One key development for the factoring office during the year was its involvement in the setting up and development of the new online company support product, Banif@st Pay.
This groundbreaking solution offers companies flexible and innovative payments management. Suppliers now know that receivables will be paid on the due date and that funds can even be advanced, with advantages for both purchaser and seller.
Telephone and Electronic Banking
Telephone Banking Linha Banif (Banif Line) took around 76,000 calls, a fall of about 6.5%, when compared to 2012. 405,000 outbound calls were made in support of product promotion and placement campaigns, a year-on-year decrease of 28%. Around 570,000 calls were made in support of loan recovery operations, a year-on-year increase of 6%.
2013 Banif Line 2012
2013 Recovery 2012
2013 Outbound 2012
0 200000 400000 600000
The following details of each of the three telephone banking areas are of particular note:
Inbound: The service level remained at 95%, the same as in 2012.
New client support lines were introduced during the year. These included the Banif Real Estate line, for clients interested in Banif properties, the Banif Malta Line, which clients could use to cancel their cards at times when the support line in Malta was not open, and also international freephone numbers for 6 countries: Luxemburg, Switzerland, Venezuela, Canada, the USA and South Africa.
In mid-2013, the in-person answering hours of the Banif Lines were extended from 8 am to 10 pm on business days to 7 am to 3 am on business days, 10 am to 9 pm on weekends and 8 am to 10 pm on holidays.
2,087 clients took part on an online satisfaction survey and gave the Banif Line an NPS (Net Promoter Score) of 77.34%.
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MANAGEMENT REPORT AND ACCOUNTS 2013
Outbound: In late 2013, a prearranged personal loan campaign was launched. The resulting uptake was 3.4 million euros.
In accordance with our business realignment plan, we maintained our focus on card activation, with the support of rolling marketing campaigns.
Fundraising campaigns also represented a large part of the service’s work in 2013.
9,200 surveys were carried out in order to assess client satisfaction and positioning, 50% more than in the previous year.
Loan Recovery: Despite the challenge of the ongoing crisis and highly adverse conditions, overall recovery rates (the ratio of settled processes to the total number of incoming/worked processes) improved during the year:
69% Others 57% 86% Credit Contract 77% 89% Real Estate Leasing 89% 33% Cards 23% 62% Overdrafts 43% 90% Bills of exch. and Promissory notes 78% 91% Guaranteed 75% 85% CGT 77% 89% Personal Credit 82% 91% Mortgage Loans 83% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 2013
Electronic Banking New functions brought online in 2013 included the launch of the sign-up module for the new stock trading platform Banif Trader, the Banif@st Pay service and the mobile channel for Banif@st home banking.
In terms of security measures, the number of operations that require SMS code validation was increased.
The service continued its role as a major fundraiser, thanks to the marketing of such exclusively online products as “Poupe Hoje” (Save Today), “Super Depósito Banif@st” (Banif@st Super Deposit) and “Dia Mundial da Poupança” (World Savings Day). By the end of 2013, term deposits of some 362 million euros had been made via Banif@st, a slight decrease compared to the 372 million euros that came in during 2012.
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MANAGEMENT REPORT AND ACCOUNTS 2013
29% of clients regularly use the service (28% in 2012). This increase in frequent use, plus the new functions, resulted in a year-on-year increase of 6% in the number of operations.
One-Stop Desk The one-stop desk for staff was opened towards the end of 2013. Under the aegis of the Direct Network Department, a single business unit is now responsible for managing all staff accounts.
Payment Products and Means of Payment
Means of Payment The work done by the Means of Payment area in 2013 focused on broadening the portfolio base of card products and optimising processes to provide clients with service quality improvements.
Cards The cards portfolio was extended through the inclusion of new products, namely the PayRest card, the Prepaid Pay cards – institutional version, aimed at the private client, corporate and non-client segments and the Banif Music cards, which come in debit, credit and prepaid versions.
In March 2013, Banif began issuing contactless cards certified for high and low-value transactions. We renewed our credit card contract with SANRIO and deployed the service and special service payment functions for credit cards.
Over the year, we optimised our range of Visa BINs, with the implementation in May of the new operator for the card issue SIBS (ELCB) for all debit, credit and prepaid cards.
In terms of marketing, we launched two promotions in partnership with SATA in 2013. We also implemented a drive to revise credit limits, in collaboration with the commercial areas. Banif Mais ran two campaigns through its branches to bring in new basic card clients, based on its existing client portfolio. We also launched the credit card loyalty programme and centralised the non-client management desk within the Direct Network Department. Additionally, we reviewed the insurance packages linked to our cards.
Over the year, there was a 7.01% year-on-year rise in the card portfolio as a whole. Given the economic situation, there was a slightly upwards trend in non-performing loans. Loans used rose by 11.39%.
Dec-2012 Dec-2013 Variation Credit Number Number Credit Portfolio Number Credit Portfolio Portfolio
Credit Cards 76,240 44,459,461 Eur 79,556 49,411,918 Eur 4.35% 11.39%
Debit Cards 292,542 N/A 315,105 N/A 7.71% N/A
Total Cards 368,782 44,459,461 Eur 394,661 49,411,918 Eur 7.01% 11.39%
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MANAGEMENT REPORT AND ACCOUNTS 2013
Automatic Payment Terminals and ATMs In the first half of the year, we launched a number of initiatives designed to fine-tune the automatic payment terminal (TPA) product offer, particularly as regards TPA Mais and TPA Temporário. Between May and July, we ran a client acquisition initiative for TPA Mais through the commercial network.
At the end of 2013, the overall number of TPAs in the bank’s portfolio fell to 6,218 units, compared to the 6,281 units supported at the end of 2012. This channel continues to act as a key resource for acquiring and retaining clients, which is why we launched a set of initiatives designed to maximise the return on our client portfolio. These efforts focused on improving the return on our current equipment and optimising our operating processes.
We continued to implement our policy of limiting the number of ATMs that are installed off-premises and concentrated on improving returns from the existing units and optimising our operating processes. At the end of the year, the downward trend in the total number of units was confirmed, as the number of Banif ATMs stood at 488 (compared to 510 at the close of 2012).
Banif contracted SIBS’ cash management service for all our off-premise ATMs. The ATMs were also connected to SIBS via the internal network. As branches were being closed down along the year, we managed our ATMs on an individual and case-by-case basis, reallocating them according to such criteria as obsolescence, vandalism damage, etc.
Recovery of Overdue Loans and Loans in Litigation
In 2013, there were positive developments as regards overdue and at-risk loans and the upward trend in these items evidenced over the last few years was reversed.
At the end of 2013, total overdue loans stood at 773.0 million euros, a 1.8% fall with respect to 2012. The total for at-risk loans by year-end, 1,409.3 million euros, was 9.6% lower than it had been in the previous year.
This positive outcome was largely driven by the consolidation of the loan recovery model, introduced in 2012. This model ensured that the whole organisation was engaged in the loan recovery process, through the implementation of the following action points: Discipline, consistency and systematic management of overdue and at-risk loans Clear allocation of responsibilities to the various departments involved Approaches to loan recovery that were fine-tuned to client profiles Efficient and streamlined processes Ongoing monitoring of performance and an incentives system indexed to results.
In overall terms, the DRC was able to recover 532.8 million euros in overdue loans in 2013.
The performance in this area served to confirm the appropriateness of the selected strategy and ushered in a new cycle of overdue and in-litigation loan management. From this point, our attention
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MANAGEMENT REPORT AND ACCOUNTS 2013 shall be even more tightly focused on managing at-risk loans or those in the early stages of non- performance.
Thus, Banif will continue to work with the procedures developed over recent years. In 2014, we will follow through with a further set of initiatives in this area, with the aim of adjusting the loan recovery model to our operating reality.
5. INTERNATIONAL COMMERCIAL BANKING
Banif Bank (Malta)
2013 was a year of complex challenges for Banif Bank (Malta). In the first part of the year, business slowed because of the Maltese general election, held in March. As is generally the case, the election caused delays or postponements of investment decisions, which, in turn, led to lower demand for credit. This fall-off in business was also felt as a lack of growth in the volume of loans. In 2013, Malta suffered its lowest rate of growth for bank loans since 2008. Moreover, Eurozone central banks continued to implement their economic stimulus measures, particularly in the form of cuts to interest rates. The European Central Bank’s key rate hit an all-time low of 0.25%. This whole situation affected the bank’s performance by heightening the pressure on borrowing rates while, at the same time, the cost of capital remained high, due to the delayed effect of the new term deposit rates.
Financial analysis In 2013, the bank had net profits after tax of 124 thousand euros (2012: 173 thousand euros). Operating income covered 102.13% of operating costs and expenses, including the net provision for impairments (2012: 102.38%). The ratio remained at 2012 levels, principally due to higher provisions for impairment. The bank managed to offset this situation by increasing operating profits and, simultaneously, continuing to keep a tight control of operating costs.
The loans, deposits and main income flow portfolios all continued to grow. Total assets rose by 117.584 million euros to reach 596.280 million euros, by the end of 2013. This increase is mainly due to the fact that the bank was, once again, able to achieve significant growth in client deposits. Excess liquidity not turned into loans was put into sovereign debt and the bank signed repurchase agreements with other credit institutions, using the sovereign debt as guarantee. It also held funds from other credit institutions related to, and from, the Central Bank of Malta.
Loans and advances to clients increased 26.584 million euros, to 343.076 million euros, by the end of 2013, while funds grew by 123.011 million euros, to reach 554.007 million euros at the end of the year. This larger increase in funds meant that the bank was able to improve its loan-to-deposit ratio from 73% in 2012 to 62% at the end of 2013.
Banif BanK (Malta) earned total operating profits of 12.113 million euros, which is 12.67% above the 10.751 million euros earned in the previous year. Net interest income from business with banks and non-financial institutions came to 8.127 million euros (2012: 6.799 million euros). This increase can be
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MANAGEMENT REPORT AND ACCOUNTS 2013 largely attributed to the rises in the loans and deposits portfolios and the correction to net interest income.
Net commissions totalled 1.694 million euros (2012: 1.348 million euros). This increase was mainly due to the rise in the number of operational transactions processed. There was also growth in net commissions from other retail banking services. Such commissions account for 24.6% of the total net commission revenue (2012: 18.4%).
This all translates into a much higher ratio of net commissions to net interest income. At the end of 2013, net commissions made up 20.8% of net interest income (2012: 19.8%), driven by the bank’s decision to increase new revenue streams by broadening the range of retail banking services we offer.
Income from financial operations came to 2.102 million euros (2012: 2.604 million euros). The bank increased the volume of foreign currency transactions and, as a result, exchange rate operations generated revenues that rose by 45.2%. Revenue from exchange rate operations accounted for 42.2% of financial income (2012: 23.5%). Nevertheless, this rise was offset by a fall in income from the trading of sovereign debt securities and local and foreign business debt securities. The bank opted to set a lower risk level for its securities portfolio, to ease the impact of risk-weighted assets. The securities (mainly sovereign debt) in the current portfolio will generate less income through to maturity than the 2012 portfolio would have done.
Operating costs, excluding impairments, increased 9.8%, from 9.599 million euros in 2012 to 10.540 million euros in the year in question. Staff salary and benefits costs, including those of directors, accounted for 49.0% (2012: 49.3%) of all operating costs. The largest rise in costs, of 10.8%, was in general administrative costs, which rose from 4.196 million euros in 2012 to 4,651 million euros in 2013. This increase mostly reflected a number of one-off costs pertaining to various operating and regulatory initiatives.
(Thousand euros)
2013 2012 Variation
Total Assets 596,280 478,696 24.56% Gross Loans and Advances 343,076 316,492 8.40% Customers Deposits 554,007 430,996 28.54% Equity / Own Capital 21,718 21,545 0.80% Net Interest Income 2.30% 2.35% -0.05 pp Operating Income 12,112.55 10,751.57 12.66% Cost-to-Income 87.00% 89.30% -2.30 pp Non-performing Credit / Total Credit 6.05% 4.02% 2.03 pp Net Result before Taxes 253,090 249,840 1.30% ROA 0.04% 0.05% -0.01 pp ROE -0.0117 1.16% -2.33 pp
Number of Branches 10 9 1 Number of Employees 156 151 5 Note: This table was determined according to local accounting regulations
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MANAGEMENT REPORT AND ACCOUNTS 2013
Banif Brasil
Banif Brasil’s commercial banking and investment structures continue to operate out of our head office in São Paulo.
For Banif Brasil, the key enterprise of the year was the major restructuring operation that focused on streamlining the organisational structure, with the aim of maximising operational efficiency. One example of this was the incorporation of the assets of Banif – Banco de Investimento (Brasil) into Banif – Banco Internacional do Funchal (Brasil). This lead to a reduction in costs of around 33%, compared to the previous year.
Net losses at Banif Brasil were R$ 391.2 million. This result essentially reflects the R$ 359.3 million strengthening of provisions, which proved necessary following our review of the risk criteria applied to discontinued business segment portfolios (vehicle finance, consigned and retail operation credit operations). These measures led to an increase in the portfolio coverage ratio, which stood at 108% in 2013.
At the same time, and in order to ensure an appropriate level of economic liquidity, the bank converted US$ 173.5 million (or R$ 384.4 million) of the Level 1 capital in its debts to the group, including subordinated debt.
Following these measures, the Basel III ratio of Banif (Brasil) stood at 14.49% at 31 December 2013, considerably higher than the minimum required by the regulator (11%) and an improvement on the previous year.
The management team at Banif (Brasil) decided not to activate a significant part of the fiscal credit for the period in question, retaining the right entered in the bank’s tax books (LALUR). This decision was in line with our prudent and conservative approach to managing the bank’s own accounts and took into account the increase in the debt coverage ratio, notwithstanding the potential fiscal benefit of the high volumes of provisions created.
This set of strategic measures, particularly the improved coverage ratio for the asset portfolio, the increase in capital and our greater operational efficiency (a significant lowering of client acquisition costs and of administrative expenditure) resulted in a more robust operation, with Banif (Brasil) being able to position itself as a prudent and sustainable player in our target segments.
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MANAGEMENT REPORT AND ACCOUNTS 2013
(thousand euros)
2013 2012 Variation
Net Assets 1,194,381 1,733,536 -31% Net Loans 473,931 1,019,800 -54% Customer resources 792,488 1,020,805 -22% Equity 200,315 208,171 -4% Operating income -318,366 -76,225 - Operating Cash Flow -41,445 -30,214 37% Net Profit -391,248 -132,848 - Basel Index 14.49% 13.63% 0.86 pp
Points of Sale 5 6 -1 Number of Employees 173 233 -60
(thousand euros)
2013 2012 Variation
Net Assets 370,328 643,385 -42% Net Loans 146,946 378,489 -61% Customer resources 245,717 378,862 -35% Equity 62,109 77,261 -20% Operating income -98,712 -28,290 - Operating Cash Flow -12,850 -11,214 15% Net Profit -121,310 -49,305 - Basel Index 14.49% 13.63% 0.86 pp
Points of Sale 5 6 -1 Number of Employees 173 233 -60 Note: The 2012 values include the merger of Banco Banif (Brasil) with Banif-Banco de Investimento (Brasil). The elements of this framework have been produced in accordance with the rules Em 31/Dec/13 - 1 euro: R$ 3,2252 - Em 31/Dec/12 - 1 euro: R$ 2,6944 (Source: BACEN)
Banco Caboverdiano de Negócios
Banco Central de Cabo Verde (BCV) forecasts indicate GDP growth of 2-3% in 2013, with the country continuing to be significantly impacted by the adverse effects of the crisis that has affected its main trading partners, countries in Europe.
In macroeconomic terms, and with a view to stimulating economic activity, BCV, aided by lower inflation and higher international reserves, reoriented its monetary policy, reducing the rates paid on its standing lending facilities from 3.25% to 1%. It also introduced an auction system for its own securities, as a function of the rates proposed by the banks. However, the deterioration in business and household finances meant that the financial sector continued to be somewhat risk averse and lending policies became more selective and restrictive.
Despite these circumstances, the bank’s total lending portfolio grew by 5.3%. This increase was largely fuelled by Banif UK’s sale of 4.0 million euros worth of mortgage loans to BCN.
The upward trend in the funds’ portfolio also continued, with 22.0% growth in 2013. This increase was mainly due to an extraordinary inflow of resources associated with large-scale tourism
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MANAGEMENT REPORT AND ACCOUNTS 2013 development projects. Taking the business results of the Commercial Retail Network on their own (that is, excluding the effects of the tourism projects), the funds’ portfolio grew by 11.4%. We achieved this growth by maintaining our commercial strategy of acquiring new funds and broadening our client/active accounts base. We sought improved stability in the spread of our funds’ portfolio by continuing to focus on specific segments, particularly emigrants.
Our profit and loss account shows that net interest income rose by 18.5%. This was mainly driven by lower outgoing interest payments, the result of our significantly reduced use of cash flow facilities, namely those provided by Banif. Banking revenue went up by 11.8%, although complementary income fell slightly (0.59%).
As regards operating costs, both staff costs and FSTs were lower, falling by 2.5% and 3.1%, respectively. This decrease was achieved through the PCC – Costs Containment Programme that we have been incrementally implementing in recent years. Amortisations were also down, by 20%, following the updating/checking of real estate records towards the end of 2012.
These lower operating costs reflect our improved operational efficiency, with the cost-to-income ratio falling by around 10.1 pp, from 65.35% in 2012 to 55.29% in 2013.
In 2013, our loans portfolio also produced a positive performance, with the credit quality ratio falling from 5.95% to 5.46%, following a series of debt renegotiations and write-offs. The coverage rate for loans in default by impairment came down by 21.4 pp, with impairments now covering 83.9% of non- performing loans (105.3% in 2012).
(Thousand euros)
Item 2013 2012 Variation
Net Assets 122,210 107,405 13.8%
Gross credit Granted 86,120 81,782 5.3%
Customers deposits 97,369 79,813 22.0%
Equity 13,618 10,562 28.9%
Net Interest Income 4,303 3,630 18.5%
Operating income 6,262 5,600 11.8%
Operation cash flow 3,245 2,497 29.9% Net profit 2,341 314 - ROA 1.9% 0.29% 1.6 pp
ROE 17.2% 2.97% 14.2 pp
Overdue loans/ Total credit 5.46% 5.95% -0.5 pp
Impairments / Overdue loans 83.9% 105.26% -21.4 pp
Cost-to-income 55.29% 65.35% -10.1 pp
Number of Branches 18 18 0
Number of Employees 110 118 -8 Solvency ratio 12.63% 12.15% 0.5 pp Note: This table was determined according to local accounting regulations Note: Rate at 31 December 2012 = 31 December 2013 (existing currency peg) 1 Euro = 110.265 CVE
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MANAGEMENT REPORT AND ACCOUNTS 2013
6. SPECIALISED CREDIT
Banif Mais SGPS, SA
Banif Mais SGPS, SA, whose main subsidiary is Banco Banif Mais SA, in Portugal, is the group’s sub- holding for our specialised credit business. This business is largely focused on the car segment and the cross-selling of associated products.
In terms of the main indicators, the 2013 consolidated financial statements for the Banif Mais subgroup showed net assets of 662.2 million euros, equity of 316.9 million euros and a consolidated net profit of 18.3 million euros. Compared with the previous year, net profits rose by a noteworthy 8 million euros (78.1% higher).
These consolidated net profits were mainly the result of business activities in Portugal, which contributed 16 million euros (6.8 million euros in 2012), and Hungary, which brought in 2.3 million euros (4.1 million euros in 2012).
Consolidated accounts (base IAS/IFRS) thousand euros) Item 2013 2012 Variation Net asset 662,160 705,407 -6.1% Liabilities 345,256 398,682 -13.4% Equity 316,904 306,725 3.3% Net profit * 18,344 10,305 78.0% (*) Attributable to the Group
Banco Banif Mais, SA
Portugal The ongoing financial adjustment programme was a significant factor in 2013, as it involved a set of austerity measures in Portugal that negatively affected consumer confidence and business activity. Demand for finance fell off and the risk levels of potential clients worsened, as disposable income was squeezed. We were able to overcome such obstacles and produce net profits that were some 60% higher at 16.1 million euros.
As regards Banco Banif Mais, SA’s main business activity, used vehicle purchase finance, ASFAC - Associação de Instituições de Crédito Especializado (Association of Specialised Credit Institutions) figures show that the market as a whole in Portugal financed a total of 650.8 million euros in 2013, 2% less than in 2012. This amount corresponded to 61,043 units, just 75 more than in the previous year.
Despite the weak market, the bank improved its share, from 11.3% in 2012 to 15.9% in 2013 (a rise of 4.6 percentage points) and maintained its second place in the rankings. Our market share for the purchase of new vehicles also increased marginally, from 1.5% to 1.9%. The bank continued to lead
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MANAGEMENT REPORT AND ACCOUNTS 2013 the market for motorcycle finance, with a 44.9% share in 2013, slightly lower than in the previous year (45.5%).
In other related areas, such as the financing of agricultural businesses and other production- oriented sectors, we achieved highly satisfactory growth rates of around 20%, although these sectors still only account for a small fraction of our overall business.
The various companies in the Banif Group worked on developing and building commercial synergies in 2013. Such synergies provide an important tool for diversifying our credit offer. The specific outcome of this effort was that specialised credit in the form of credit and financial leasing operations originating from within the Banco Banif SA network grew by a striking 261.6% over the year. This result, which was the direct result of close cooperation between the commercial teams at Banif Mais SA and Banif SA, bodes extremely well for the coming years.
There was also significant growth in the personal loan product offered by Banif Mais. The number of contracts rose by almost 25%, with respect to the previous year, and the overall loan figure was 28.6% higher. Improved client receptivity for this product and the continuation of the promotional campaigns aimed at good Banif Mais clients should lead to further positive results for this business area.
Production Despite the continuing economic crisis, 2013 was a good year for Banif Mais in Portugal. The number of contracts rose by 25% to 15,758 and the total amount financed increased 33% to 123.8 million euros. A large part of this positive performance can be attributed to our negotiation of key commercial agreements with strategic partners, plus the increased cross-selling with Banco Banif SA branches.
International Business In 2013, the Banco Mais subsidiary in Slovakia increased both the number of contracts and the overall contract value. 1,068 contracts were signed (compared to 1,007 in 2012) and a total of 5.1 million euros lent (4.5 million euros in 2012). In Poland, the bank issued 747 contracts, worth 3.1 million euros (3.9 million euros in 2012).
In Spain, we maintained our strategy of managing the existing portfolio and no new loans were made in this market. We will be streamlining the local structures to take better advantage of the synergies and competences offered by the head office recovery unit in Portugal.
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BANCO BANIF MAIS S.A. (base IAS/IFRS) (Thousand euros) Item 2013 2012 Variation
Net assets 681,674 721,724 -5.5% Total Credit 665,916 738,556 -9.8% Equity 258,567 250,456 3.2% Overal production 131,845 101,077 30.4% Net Interest income 29,444 32,129 -8.4%
Operating income 32,692 47,251 -30.8% Cash-Flow 19,998 27,499 -27.3% Net profit 16,035 6,822 - Personnel costs / operating revenue 22.70% 16.90% 5.8 pp
Cost-to-Income 41.50% 43.70% -2.2 pp Operating revenue /Average net asset 2.50% 5.50% -3.0 pp ROE 3.20% 2.70% 0.5 pp ROA 1.20% 0.80% 0.4 pp
Results before taxes/average net assets 1.60% 0.05% 1.6 pp Results before taxes/average equity 4.10% 0.20% 3.9 pp Loans impairment / Total credit 28.30% 26.00% 2.3 pp Solvency ratio 43.40% 31.00% 12.4 pp
Points of sale 22 22 0 Number of employees 253 253 0
Banif Plus Bank, ZRT
In the economic climate in the market in which Banif Plus Bank, ZRT (or Banif Plus), the Banco Banif Mais SA subsidiary in Hungary, operates, there was a 6% rise in new vehicle sales in 2013, to 56,139 units. Used vehicle sales through car dealerships also increased, but less significantly, with year-on- year unit sales rising 1% to 145,052. However, in the used vehicle segment, financed car sales continued to fall, with the percentage of financed purchases dropping from 20.5% in 2012 to 18.1% in 2013. An opposite trend was seen in the new vehicle segment, with an increase in financed sales from 22.4% to 25.9%. In total, 40,766 units (14,539 new vehicles and 26,227 used vehicles) were financed in 2013.
The number of used vehicles financed by Banif Plus fell by 2% whilst the number of new vehicles rose by 24%. However, and bearing in mind the overall reduction in the car finance market, our share of the used vehicle market increased from 9.3% in 2012 to 10.1% in 2013.
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BANIF PLUS BANK, ZRT (base IAS/IFRS) (Thousand euros) 2013 2012 Variation Net assets 57,281 79,029 -27.5% Total Credit 51,182 66,856 -23.4% Equity 25,219 27,110 -7.0% Overal production 10,776 10,184 5.8% Net Interest income 6,316 7,024 -10.1% Operating income 6,186 8,076 -23.4% Cash-Flow 3,659 3,169 15.5% Net profit 2,327 4,067 -42.8% Personnel costs / operating revenue 20.40% 16.90% 3.5 pp Cost-to-Income 42.10% 62.30% -20.2 pp Operating revenue /Average net asset 9.90% 9.40% 0.5 pp ROE 12.70% 15.20% -2.5 pp ROA 3.70% 4.70% -1.0 pp Results before taxes/average net assets 5.10% 5.50% -0.4 pp Results before taxes/average equity 12.70% 17.70% -5.0 pp Loans impairment / Total credit -0.50% 16.60% -17.1 pp Solvency ratio 46.80% 34.10% 12.7 pp
Points of sale 7 6 1 Number of employees 65 72 -7
7. INVESTMENT BANKING
Banif – Banco de Investimento (BBI) continued to implement the new strategic model specifically designed to allow the bank and its holdings to take advantage of current developments in the Portuguese economy (greater emphasis on savings management, more involvement in capital markets and a focus on financially restructuring companies and business sectors). This model has the following key features:
Emphasis on developing the financial advisory business, which generates commissions and requires low usage of regulated capital, refocusing activities to concentrate on specific business areas: asset/wealth management, financial intermediation, capital markets and corporate finance, in accord with the medium-term strategic guidelines set out for the Banif Financial Group, particularly as regards priority client segments Reducing the bank’s assets and liabilities to strengthen solvency and liquidity Developing cross-selling between BBI’s business areas and subsidiaries and with Banif, SA and other group units Fostering the efficiency and organisational effectiveness of BBI and its subsidiaries.
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INVESTMENT BANKING ACTIVITY
CORPORATE FINANCE
M&A activity in Portugal was largely dominated by the government’s privatisation programme, which contributed to a 26% rise in value, with respect to 2012. Volumes fell by 16%.
The Corporate Finance Department participated in a number of projects/transactions in 2013, including:
Financial advisor to ProA Capital and its holding Ambuibérica for its acquisition of Medsalva in Brazil (one of the largest private providers of regular and emergency patient transport) Financial advisor to Banif, SEPI and the Cape Verde Red Cross for the sale of BCN – Banco Caboverdiano de Negócios (ongoing) Financial advisor to the Regional Government of the Azores for the appraisal of EDA – Electricidade dos Açores Financial advisor to Fundo TIIC – Transport Infrastructure Investment Company for the identification, analysis, assessment and structuring of an investment opportunity Financial advisor to Empresa de Electricidade da Madeira for the appraisal of ENEREEM – Energias Renováveis Financial advisor to Cenor Consultores for the analysis of strategic options Exclusive financial adviser to Rotas do Algarve Litoral (concession holder led by ACS/Dragados and Edifer) for the oversight of the Algarve coast road sub-concession Exclusive financial adviser to SPER (concession holder led by ACS/Dragados and Edifer) for the oversight of the Baixo Alentejo road sub-concession Restructuring of the Lagoa Group’s borrowing from the Banif Group.
CAPITAL MARKETS
In 2013, the capital markets – debt area was involved in structuring and placing 16 primary market transactions, in both euro and US dollar issues, worth a total of around 596.2 million euros.
The bank was joint leader in a major 175 million euro operation to issue fixed rate Mota-Engil 2013/2016 bonds with Espírito Santo Investment Bank, the investment banking arm of Banco Comercial Português, SA and Banco Popular Portugal, SA. For this issue, Banif – Banco Internacional do Funchal, SA was a member of the bond placement consortium, together with Banif – Banco de Investimento, SA and the other placement banks.
In addition to its leader and placement role in the abovementioned bond issues, the capital markets department also structured various issues of commercial paper, including:
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i. Santogal SGPS, SA, Santagol Imobiliária, SA, Santogal L – Comércio e Reparação Automóvel, SA, Santogal P – Comércio e Reparação de Automóveis, Lda and Mercauto – Metalomecânica de Reparação e Construção de Automóveis, Lda, in a nominal amount of up to 5 million euros ii. Mota-Engil, Engenharia e Construção, SA, in a nominal amount of up to 25 million euros iii. SATA Internacional – Serviços e Transportes Aéreos, SA and SATA Air Açores – Sociedade Açoriana de Transportes Aéreos, SA, in a nominal amount of up to 6 million euros (with subscription guarantee) and in a nominal amount of up to 5 million euros (without subscription guarantee) iv. Barraqueiro SGPS, SA, G.B. Barraqueiro Holding SGPS, SA, Barraqueiro Transportes, SA, EVA Transportes, SA, Rodoviária do Alentejo, SA and Rodoviária de Lisboa, SA, in a nominal amount of up to 4 million euros; v. Sovena Portugal – Consumer Goods, SA and Sovena Oilseeds Portugal, SA, in a nominal amount of up to 12.5 million euros vi. Colep Portugal, SA, in a nominal amount of up to 10 million euros
Additionally, and of some considerable note, there has been extensive collaboration with the Banif Financial Group in its fundraising and recapitalisation plans. This collaboration was provided in the form of the following debt and equity transactions structured by the Capital Markets Department:
a) Advice on the listing of the 10,000,000,000 new ordinary shares, worth 100 million euros, privately placed as part of the capital increase operation at Banif – Banco Internacional do Funchal, SA (June 2013) b) Organisation and leadership of a share capital increase operation of Banif – Banco Internacional do Funchal, SA in the amount of 100 million euros, which took the form of a Public Offer to public in general and bond issue worth 60.3 million euros reserved to shareholders and to holders of securities mandatorily convertible into shares of Banif – Banco Internacional do Funchal, SA (July 2013) c) Advice on the listing of the 4,070,000,000 new ordinary shares, worth 40.7 million euros, privately placed as part of the capital increase operation at Banif – Banco Internacional do Funchal, SA (August 2013) d) Organisation and leadership of a 70.8 million euro capital increase operation for Banif – Banco Internacional do Funchal, SA, which took the form of a general public and voluntary offering for the acquisition of subordinated securities issued by Banif – Banco Internacional do Funchal, SA, Banif Finance, Ltd. and Banif – Banco de Investimento, SA, offset by the issue of 7,179,522,043 new shares (October 2013) e) Three senior note issues for Banif – Banco Internacional do Funchal, SA, under the aegis of its Euro Medium Term Note Programme, in a total amount of 70 million euros and 25 million US dollars f) Two senior bond issues for Banif – Banco Internacional do Funchal, SA, in the amounts of 80 million euros and 50 million US dollars.
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SALES & TRADING
In a highly challenging year, we focused on our strategy of optimising human and material resources, to make the area more flexible and more client-centred. This, in turn, allowed us to improve both service standards and client satisfaction and to overcome the difficulties to the extent that we successfully opened more than 1,000 accounts/counterparties over the year.
The high volatility of the financial markets also opened the way to a number of investment and intermediation opportunities that our clients were quick to take advantage of, particularly in the sovereign and corporate debt markets and in Portuguese stocks.
Another milestone reached during the year was the May launch of our online trading platform BANIF TRADER. This platform offers online trading tools for 18 stock markets and various currencies. It helped to cement the loyalty of the group’s existing clients and to bring in new clients interested in investing online in financial products.
In the shares and exchange traded funds (ETF) segment, Banif Investimento traded over 430 million euros in European and North American markets for our 200+ private and institutional clients, from within Portugal and abroad. This operation is run by a dedicated team who provide a full brokerage service, from market opening in Europe through to market closing in New York.
On behalf of its 250+ institutional clients in the bonds segment, the Sales & Trading Department managed a trading portfolio consisting of bonds issued by both Portuguese and Brazilian issuers. The overall trading volume for this portfolio was around 1,500 million euros. The trading is done by a sales team based in Lisbon and Miami, staffed by traders dedicated to the management of the market flow.
The year was also a good one for the department’s multi-product distribution desk, particularly as regards its ability to place commercial paper, primary market bond issues and public offerings. Trading volumes totalled over 400 million euros.
The Sales & Trading Department is also responsible for producing our various daily and weekly newsletters, for both share and bond trading. These newsletters are distributed to a broad range of private and institutional clients.
SECURITISATION
During the year, Banif Investimento structured two securitisation operations worth a total of some 1,100 million euros.
The Atlantes SME No.2 series was issued in May and involved the sale to Gamma of a portfolio consisting of small and medium enterprise (SME) loans originally made by Banif – Banco Internacional do Funchal, SA. The bonds issued totalled 834 million euros and were fully subscribed to by Banif. The senior tranche of this issue, worth 441.3 million euros, was attributed a an A- rating by Standard &
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Poor’s and DBRS, and was declared to be eligible for borrowing operations effected at the European Central Bank (ECB). The operation was led by the Royal Bank of Scotland and Banif Investimento.
The Atlantes Finance No. 6 operation took place in December. This involved the sale to Gamma of a portfolio consisting of car and consumer loans originally made by Banif Mais and Banif. The operation was led by Citibank and Banif Investimento and the class A bonds in the issue were attributed an A- ranking by Standard & Poor’s and DBRS. The entire senior tranche of this issue (class A) was placed with institutional investors (United Kingdom, Switzerland, Italy, Germany, Holland, France and Spain) following a road show that visited London, Frankfurt, Munich, Paris and Amsterdam. It was the first Portuguese securitisation operation to be placed in the primary market in the last six years.
Other key events that occurred in 2013 were:
The Atlantes SME No.1 securitisation operation, involving SME loans, was cancelled in February. This decision followed the full redemption of the class A bonds and the fact that Banif, as the holder of the class B and C bonds, opted to redeem these bonds early, in the approximate amount of 578 million euros. In December, changes were made to the documentation for the Atlantes Mortgage No. 3, Atlantes Mortgage No. 5 and Atlantes Mortgage No. 7 operations. These changes were made to accommodate the cut in the Royal Bank of Scotland’s rating, this bank being the swap counterparty for the operations. Banif made these changes as sole investor in the issues and following confirmation of the respective ratings by the agencies involved (Standard & Poor’s, Fitch and DBRS).
ASSET MANAGEMENT
Asset management is the responsibility of i) Banif – Banco de Investimento, SA, which manages assets and provides investment consultancy services to private and institutional clients; ii) Banif Gestão de Activos – Sociedade Gestora de Fundos de Investimento Mobiliário, SA, which manages investment funds; iii) Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA, which manages pension funds and iv) Banif Capital – Sociedade de Capital de Risco, SA, which manages risk capital funds.
At 31 December 2013, the asset management arm of the investment bank and its subsidiaries was managing or advising on a total of 2,583 million euros in invested assets. In December 2012, this amount was 2,702 million euros, meaning that assets under management fell by 4.6% in 2013.
BANIF GESTÃO DE ACTIVOS (SECURITIES INVESTMENT FUNDS AND PROPERTY INVESTMENT FUNDS)
In 2013, there was greater market demand for investment products that offered competitive returns, a situation which benefitted investment funds in general, and the more conservative of these in particular.
The strategy employed by the asset management area focused on:
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Adapting the product range to match the economic reality, which resulted in a reduced offer more focused on domestic assets, particularly commercial paper and private debt issued by Portuguese entities. Streamlining the structure, a part of the ongoing company restructuring that took place across the Banif Group. Improving service quality, which involved developing both training plans for Banif SA’s affluent segment and fund promotional material. Developing relationships with foreign investors Promotion and timely internal implementation of the UCITS IV process, which took effect in September
Banif Gestão de Activos is proud to have won World Finance magazine’s “Best Investment Management Company, 2013, Portugal” award. This award reflected the high level of regard the market has for the results and the quality of the work done by Banif Gestão de Activos.
World Finance is one of the most respected magazines in the financial world and its awards recognise companies of excellence across a number of business areas, specifically those that work in asset management.
In April 2013, Banif Gestão de Activos joined a pioneering network of asset managers, GBAM (Group of Boutique Asset Managers). This organisation brings together a number of international asset management entities who implement specialised and personalised strategies in managing their clients’ assets.
As part of our strategy, the company continued monitoring market conditions, aligning the investment funds we manage with our clients’ needs. Thus, our product line was reworked in the following ways:
Securities funds (i) Suitable product strategy (ii) Liquidation of the Banif Brasil and Infra Invest investment funds (iii) Adaptation of the securities investment funds to accommodate Collective Investment Bodies legislation (iv) Running of a number of internal financial market training sessions, with a focus on investment funds.
Property funds (v) Temporary reduction in the fund management commissions levied by Banif Imogest and Banif Imopredial, to match, in the case of the latter, the temporary reduction in deposit commissions (vi) Capital increases for closed real estate funds (2 capital increases for the Imóveis Brisa fund).
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The assets managed by the securities funds fell from 672.2 million euros, at the end of 2012, to 632.4 million euros, at the end of 2013 (-5.9%). Property fund assets decreased from 816.0 to 737.8 million euros in the same period, a fall of 9.6%.
The market share of Banif Gestão de Activos, SGFIM, SA at December 2013 was 5.5%, compared to 6.3% at the end of 2012.
Year-on-year revenue increased by 10.1%, which led to an increase in the company’s net profits, from 455 thousand euros in 2012 to 958 thousand euros in 2013.
BANIF AÇOR PENSÕES (PENSION FUNDS)
The company’s sales team focused on working companies and socio-professional associations. A total of 116 companies were contacted, 13 proposals for setting up pension funds were drawn up and the team participated in one call to tender for the setting up of a pension fund. The team also managed to bring in one new collective subscription to Banif Reforma open pension funds.
Assets under management grew from 270 million euros in December 2012 to 282 million euros at the end of 2013, an increase of 4.4% that was mainly attributable to improved returns on the managed funds. Market share remained practically unchanged at 1.88%.
The company’s net profits were 678 thousand euros, compared to 577 thousand euros in the previous year, an increase of 17%.
BANIF INVESTIMENTO (ASSET MANAGEMENT)
The Asset Management Department made significant efforts over the year to win new investment consultancy contracts with Banif – Banco de Investimento, SA clients and with new potential clients, with the overall aim of expanding our client base. Despite our success in winning one new consultancy contract, our main client continued to be Companhia de Seguros Açoreana. We provided the insurance company with a range of consultancy services, not just in the bonds segment but also in other asset classes, that took into account the client’s responsibilities and its financial and accounting objectives. As regards pension fund management, contracted by Banif Açor Pensões and managed by Banif – Banco de Investimento, SA’s asset management arm, we redefined the investment limits for the open pension funds and supported the client in its meetings with the main pension funds its manages.
The amounts under management and the provision of investment consultancy services by the Asset Management Department fell 2.2% in 2013, from a total of 1,214 million euros at the end of 2012 to 1,187 million euros at 31 December 2013.
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BANIF CAPITAL (RISK CAPITAL FUNDS)
In 2013, Banif Capital launched a new fund, Banif Portugal Crescimento – Fundo Capital de Risco, following a commitment undertaken as part of the recapitalisation plan for Banif SA. The fund was designed for a 10 million euro investment over a period of 5 years.
The company continued to manage three other risk capital funds: the Capven fund, aimed at Portuguese SME; the Banif Capital Infrastructure Fund, a fund for the European infrastructure sector, and the Banif Global Private Equity Fund, a fund of private equity funds comprising three international funds.
Banif Capital continued to oversee the growth of the assets/funds we had under management and played a decisive role in liaising with domestic and foreign investors to align the strategic partnerships set up for its subsidiaries.
Although 2013 was a difficult year for Portuguese SME and the financial sector, the company turned in net profits that were up 171% on the previous year, at around 65 thousand euros.
Banif – Banco de Investimento Financial Indicators
The figures for Banif – Banco de Investimento for 2013 reflect the generalised reduction in economic activity in the Portuguese market, in a context of a shortage of liquidity and a sovereign risk premium that remained high throughout the year. This situation affected borrowing costs across the board.
In individual terms, revenue increased by 33%. This reflects the increase in financial operating profits, which offset the year-on-year fall in both commission income and net interest income. Costs in general fell significantly (by 59% compared to 2012), as a result of the far-reaching adjustments made to staff costs and third-party provision of services.
In consolidated terms, operating revenue increased by 4.6% due to the increase in commissions and financial profits, thus compensating the decrease in the financial margin. Net increase for provisions and impairments amounted 35.3 million euros in December 2013, largely above the value considered in 2012, leading to a net loss of 25,3 thousand euros.
Individual (thousand euros) 2013 2012 Variation Net Asset 614,476 1,058,025 -58.10% Equity 50,932 82,474 -61.80% Operating Income 11,124 8,344 33.30%
Net Profit -27,480 -21,765 -26.30%
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8. REAL ESTATE MANAGEMENT
Market Developments
The following aspects affected the real estate market in 2013:
The performance of the US economy in 2013 meant that real estate assets recovered their value and that transactions once again began to take place. The Banif Group took advantage of this situation to dispose of a number of assets, making capital gains on some of them.
In Portugal, and particularly in the second half of the year, there was a better than expected performance by the economy. This had a positive knock-on effect on the real estate market.
In the residential real estate market in Portugal, sales activity picked up, particularly as a result of the properties put on the market by financial institutions. However, liquidity remained far from its pre-crisis levels.
The residential rental market continued to increase in importance, through the setting up of special residential rental funds and because bank lending remained expensive and hard to obtain.
Although not much business was done, there were some encouraging signs of demand for real estate in Portugal from international investors.
Banif Imobiliária
Banif Imobiliária, in its role of providing oversight for the Banif Group’s real estate activity, launched a series of initiatives designed to optimise the management and profitability of the group’s real estate management business.
The Funding and Capital Plan (FCP) for 2013 was key to these initiatives. The national sales targets for real estate assets under this plan were fully met. Therefore the following set of commercial initiatives must be pointed out:
Launch of specific property campaigns Communication campaigns focused on these assets Intensive use of the Banif Group’s sales channels (branches, business centres and private centres) Implementation of an incentives scheme for the sale of real estate Improved specific conditions for the real estate agent channel.
Additionally, we continued to work on optimising property ownership, specifically through the sale of residential properties to residential rental funds. We also followed through on the development of
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MANAGEMENT REPORT AND ACCOUNTS 2013 the real estate management IT tool (SGI-Property Management System), with the implementation of the modules for invoicing/rental, appraisal, management information and the approval workflow for commercial proposals.
Exposure to Real Estate
In 2013, 1,680 new properties, worth around 243 million euros, were brought into the Banif Financial Group’s consolidation perimeter. This compares with the 1,195 new properties, worth 245 million euros, that came into the perimeter in 2012. Thus, there was a rise of 41% in the number of properties and a fall of 1% in value. Most of this exposure arises from dations in lieu of overdue loans.
The following transactions were carried out by the real estate area in 2013:
(Thousand euros) Amount Domestic sales 109,247 International Sales 31,005 Total sales 140,252 Rentals 41,025 Total Business in 2013 181,277
Note: Values that include registered sales and home purchase agreements.
2013 earnings for Banif Imobiliária
(Thousand euros) 2013 2012 Variation Net assets 599,622 661,768 -9.4% Equity 87,178 146,561 -40.5% Net Profit -59,511 -50,902 -16.9%
Banif Imobiliária’s total asset base stood at 599.6 million euros at the end of 2013, a fall of 9.4% compared to the end of 2012. This decrease was caused by three factors: 1) devaluation of the FII in the portfolio of assets held at fair value; 2) impairments in the real estate portfolio and 3) the sale of properties on the market and to special residential rental funds.
BI’s finance needs were met in 2013 through a shareholder loan from Banif, SA of 510.75 million euros. From 1 July 2013 on, this loan was no longer remunerated.
Total revenue for 2013 was 8,689 thousand euros. Most of this came from rents (4,835 thousand euros), financial application income (820 thousand euros), services provided (828 thousand euros) or other financial income (1,402 thousand euros). Total operating costs came to 51,789 thousand euros. The main contributors to these were third-party and staff costs (2,532 thousand euros) and, more significantly, the losses associated with reductions in fair values (48,939 thousand euros).
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We note that, if the fair value losses (devaluation of the FII in the portfolio) were excluded, Banif Imobiliária would have made an operating profit.
The interest paid on borrowed amounts (shareholder loans that of 510.75 million euros by the end of the year) came to 8,838 thousand euros. This corresponds to half a year because, as mentioned above, the shareholder loans stopped being remunerated from 1 July 2103 onwards.
The net loss for 2013, of 59,511 thousand euros, was essentially attributable to the combination of three effects: (i) the abovementioned borrowing costs; (ii) the net effect of the results for the FII held in the fair value portfolio, amounting to -47,924 thousand euros (including the rents received by the FII Banif Property) and (iii) the impairments calculated for the properties, in the amount of 6,576 thousand euros.
In 2013, Banif Imobiliária acquired a set of properties (20 units) for 3,545 thousand euros. These properties came from the real estate business and the support that this company provides to the rest of the Banif Group. In 2013, Banif Imobiliária sold properties worth a total of 5,737 thousand euros (book value), for a capital loss of 324 thousand euros.
During 2013, a number of initiatives were implemented in various domains, all with the aim of recovering value and renting out the more valuable properties on our books. We contacted interested parties and there are currently negotiations taking place regarding some of the high-end properties.
Forecast for 2014 and beyond
The Banif Group has an ambitious deleveraging plan for both domestic and foreign real estate assets. These objectives are a key feature of the group’s Funding and Capital Plan for 2014 to 2017.
To achieve the above-mentioned objectives, BI will continue to implement the development plan for our real estate business on the basis of the following factors:
Development of the SGII computer tool Maximising the value of real estate assets, whether these are retained on the group’s balance sheet or they are sold or rented Continuous improvement of the efficiency of the current distribution channels and exploration of new channels Setting of an asset pricing policy that safeguards their value for the group but which, simultaneously, allows us to reach our deleveraging target.
The lack of credit in Portugal, and the high price of the same, is going to continue to affect the demand for real estate, particularly in the case of commercial property and land. However, the improvement in the economic situation towards the end of 2013 allows us to foresee some improvement in the real estate market and the possibility of being able to carry out more transactions.
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The residential market should continue to show improvement, albeit slight, given that financial institutions will need to carry on deleveraging their balance sheets, by creating conditions that will allow them to dispose of such assets.
In 2014, renting is expected to play an important role in the real estate market, as it has done since 2011.
Thus, in 2014 we will be focusing on consolidating the strategy initiated in 2012 and implemented in 2013, through increased direct sales both domestically and abroad (214 million euros) and through selling FII to clients (129 million euros), which we estimate will amount to a total of some 343 million euros.
9. INSURANCE
The Economic Situation and Açoreana Seguros
Despite the adverse economic climate that persisted throughout 2013, Açoreana remained committed to its objectives, by strengthening its positioning in the Portuguese insurance market, particularly in the non-life area, in which it is ranked 5th with a 6.9% market share. Highlights of Açoreana’s performance in 2013 include:
The significant improvement in economic and financial indicators, particularly the growth seen in the technical results for the life segment and the near 9.4 pp rise in the solvency margin
The higher market share in the accidents at work segment (11.2%), which means that Açoreana is the second strongest company in this segment.
The 2011-2013 three-year strategic plan includes the following key formula to be applied to business performance: R2E2. This equation encapsulates Açoreana’s objective of attaining high levels of profitability in line with market best ROE practices. We aim to become increasingly recognised in the insurance market for the efficiency and effectiveness of our quality of service, capacity to innovate and swiftness of response.
In line with our stated strategic objectives, and in terms of competitive positioning and market affirmation, Açoreana has concentrated on the service provided to our clients and business partners. This orientation led us to develop our innovation management model, because we understand that this is one of the key ways in which we can sustainably leverage the factors that set us apart from the competition as well as create new competitive advantages.
Thus, we maintained our business focus on our commitment to excellence for all our service levels. In this sense, we would emphasise the following undertakings:
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In 2013, Açoreana launched its innovation programme, which has three main objectives: To leverage organisational mobilisation and motivation To use our ability to create and innovate to improve our performance as an organisation and our competitiveness To be justifiably recognised by the rest of the market as an innovative insurer.
Over the year, we took a number of specific steps designed to nurture innovation at Açoreana:
We set up organic structures to stimulate and manage the innovation effort and the development work on the procedural and technological infrastructures that underpin the innovation process. We trained a team of over 50 innovation ambassadors, whose mission is to catalyse innovation attitudes and practices throughout the organisation. We designed and implemented a cascade programme that, in just 6 weeks, was physically attended by all staff. The sessions raised awareness of the planned role for innovation in the company’s strategy and brand image and triggered the process of constructing pro- innovation attitudes. We introduced a strong and inspiring brand for our innovation programme. This brand combines Açoreana’s historical roots with a degree of disruption: “Innovation Anticyclone”.
The results that we have already achieved vindicate both this investment in innovation and the development plan that we created for it:
In 8 months, the Incremental Innovation programme attracted 135 ideas, 15% of which were implemented. As part of the more ‘disruptive’ innovation plan, we drew up a mobility solutions road map, which will be implemented in 2014. We also launched our Innovation Anticyclone Competition, which, over a period of 4 months, involved the innovation ambassadors working in multidisciplinary groups to develop high-potential solutions that were capable of contributing to the achievement of the company's strategic goals. In terms of products, we launched our new accidents at work insurance. This has an innovative tariff structure that analyses not just the insured’s activity but also their risk and safety history. This ties in with the company’s decision to commit quantifiably and tangibly to the services we provide. We also launched our new health product, which has a tariff structure that is based on multi-variance analyses that depend on the risk profile. This product also introduces coverage of new areas and widens access networks, whilst also rewarding loyalty and offering enhanced level of service commitments. Our accident management capabilities were augmented with the opening of the Ponta Delgada Clinic, which will be working to help those of our clients who have suffered accidents at work, personal accidents or travel-related accidents. This unit represents one more phase in the project that began in 2011 with the opening of CIGA in Lisbon, followed by the 2012 opening of CRIA in Porto.
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Continuous monitoring of the company’s assessment scores, as attributed through the distribution channels and by clients of all types. Our focus in this area is specifically on claim management, the IT platforms we use to communicate with our business partners, the range of our product offer, the value proposition for the mediation network and the level of service provided in our sales assistance procedures. As part of the publicising of the Diário Económico’s Açoreana Risk Management Awards, we held a series of conferences, in Porto and Aveiro, with the aim of recognising and rewarding the companies and risk managers who employ best risk management practices in their business activities.
Business Development and Main Indicators
2013 turnover at Açoreana was 406,790 thousand euros. 139,748 thousand euros of this came from the life segment and 267,042 thousand euros from the non-life segment.
In the non-life segment, total premiums at December 2013 were 5.1% down on the previous year, although we managed to maintain our non-life market share at 6.9%.
In the main sub-segments of accidents at work and car insurance, our market share increased, despite the fall in premiums, to 11.2% and 8.1%, respectively, at the end of 2013. The company is now the second largest provider of accidents at work insurance in the Portuguese market.
The health and commercial multi-risk segments also performed well, turning in year-on-year growth of 7.8% and 1.1%, respectively. This performance was well above that of the market as a whole (+3.0% for health and -3.3% for commercial multi-risk).
The life segment fell 7.3% year-on-year. In terms of strategic products, risk of life grew by 6.7% while pension savings plans, which brought in some 44 million euros, slipped nearly 22%, with respect to the previous year.
Our insurance products are distributed through a mediation network of around 4,036 agents and 94 brokers, Banif branches and 43 Açoreana branches.
The key factors that affected business for the insurance sector in 2013 were the unfavourable macroeconomic climate, marked by a steep decline in domestic demand and an increase in unemployment, plus the storm in January.
The storm of 19 January led to over 2,800 claims, totalling around 6.7 million euros. This clearly had a negative impact on results for 2013.
Nevertheless, Açoreana closed out 2013 with a net profit of around 2.3 million euros, or 77.5% less than in the previous year.
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Net assets stood at 1,166,954 thousand euros and equity reached 167.064 thousand euros, 2.7% down on 2012.
The solvency margin for 2013 was 249%, which leaves Açoreana in a very comfortable position in the insurance market and also underscores the company’s financial soundness and capabilities.
Açoreana Seguros played an active role in the recapitalisation of Banif – Banco Internacional do Funchal, SA, by subscribing to 75 million euros worth of new shares in the Banif capital increase operation that took place at the end of June 2013.
Large Economic and Financial Groupings
(thousand euros) 2013 / 2012 2013 2012 Value % Turnover 406,790 432,188 -25,398 -5.9% Life 139,748 150,791 -11,042 -7.3% Non-Life 267,042 281,397 -14,356 -5.1% Net assets 1,166,954 1,256,295 -89,341 -7.1% Equity 167,064 162,632 4,432 2.7% Investments 1,071,393 1,154,170 -82,776 -7.2% Operating Cash-Flow 5,614 17,136 -11,522 -67.2% Net profit before taxes 3,878 15,834 -11,956 -75.5% Net profit 2,296 10,197 -7,901 -77.5%
10. FINANCIAL MANAGEMENT
In 2013, the Banif Group managed to strengthen cash flow significantly, ending the year with available liquidity of 625 million euros.
A number of factors influenced the group’s financial management process over the year, including:
Capital increase - the financial settlement of the state’s holding in the bank’s capital stock took place in January. The payment of 1,100 million euros was made in exchange for special shares and core tier 1 capital instruments (CoCos). The operation increased the bank’s liquidity by some 750 million euros. In the four further operations that took place between June and October, private investors subscribed to 311.5 million euros of capital. At the end of August the first tranche of CoCos was bought back from the state, for 150 million euros. Securitisation issues – Banif issued and placed with institutional investors in the (primary and secondary) market two securitisations involving group loans portfolios (SME and consumer/car). These operations totalled 425 million euros. Deposits – in the first three quarters of the year, deposits fell by 943 million euros, due to (i) our adjustment of interest rate policies, (ii) a reduction in the excessive concentration of large volume deposits, (iii) a general fall in confidence in the banking sector, (iv) capital increase by retail clients and (v) uncertainty surrounding the approval of the group’s restructuring plan. In the final quarter of the year, this downward trend was reversed and
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client deposits grew by 135 million euros. Given the behaviour of gross lending over the year, the commercial gap shrank by 81 million euros (excluding the effect of discontinued units), with respect to December 2012.
The total amount borrowed from the European Central Bank was 274 million euros higher than at the end of 2012. However, the year-end amount was considerably lower than that recorded at the end of the third quarter of 2013 (703 million euros). The group intends to continue to reduce its reliance on this source of funding in the coming years, replacing it with collaterised funding from other credit institutions (repos) and investors (securitisations).
Issue maturities for the next few years are shown in the table below (by holder and issue type):
(million euros) Total 2014 2015 2016 2017 >2017 Institutional Investors 51 8 16 5 0 22 Private Clients 680 321 57 153 15 134 Eurosystem (Debt guaranteed by the state) 741 741 Total 1,472 1,070 73 158 15 156
(million euros) Total 2014 2015 2016 2017 >2017 Senior Debt 526 321 57 140 8 0 Subordinated Debt 205 8 16 18 7 156 Debt guaranteed by the state (liquidity) 741 741 Total 1,472 1,070 73 158 15 156
As can be seen, the non-collaterised debt (senior or subordinated) placed with institutional investors has only residual value. When these issues mature, they are not expected to have any relevant negative impact. The bank’s past experience shows that funds belonging to group clients that are invested in issues tend to remain with the bank following maturity.
The loss of liquidity arising from the repayment of the debt guaranteed by the state in 2014 will be offset by a reduction in the asset pool offered to the ECB as collateral.
11. RISK MANAGEMENT
1. Risk Management
Organisational model Risk management at the Banif Financial Group is based on identifying, measuring, mitigating and monitoring exposure to the main risks of the business to which the group is exposed and, consequently, being able to more efficiently calculate the distribution of our capital resources.
Risk control and management is increasingly becoming one of the main factors in ensuring profitability and business sustainability, despite the adverse macroeconomic situation in general and that of the sector in particular. The group’s management is increasingly focused on balancing risk
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MANAGEMENT REPORT AND ACCOUNTS 2013 and return, as well as reducing potential adverse effects that may influence the group's financial performance.
The group’s risk management function is supervised according to strategies and policies defined by the board of directors. These are then implemented by the executive committee through Banif SA’s Global Risk Department (DGR) and by the respective risk management bodies of its subsidiaries.
The DGR is a shared service corporate entity that reports directly to the executive committee. It is constituted according to the requirements of the various Banco de Portugal guidelines, specifically Notice no. 5/2008, of 25 June 2008.
The governance model for risk management is described below. The model for the group involves cross-entity control, with the board of directors bearing ultimate responsibility for setting risk control and management policies.
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 for risk management, scaled according to business activity, the associated risks and their degree of materiality.
Through the powers invested in it by the functional and organic statute, the DGR works through the functional relationship that it maintains with the bodies responsible for risk management at each group subsidiary.
This relationship is embodied in a risk manager and interlocutors appointed to oversee the various risk issues under management. The relationship is both dynamic and evolutionary and is adjusted whenever deemed necessary. This ensures that information is always to hand when required, despite the increasing complexity of the work done in this area.
The Risk and Audit Committee was set up following changes to the group’s organisational model. This committee, comprising non-executive directors and members of the supervisory board, acts as a
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MANAGEMENT REPORT AND ACCOUNTS 2013 multidisciplinary discussion forum with significant competences and representation at first-line management level. It analyses, oversees and makes recommendations to the group’s decision- making bodies and is responsible for supervising financial and other risks. The committee receives regular reports on risk monitoring, planning and the main business results.
The Assets and Liabilities Committee (ALCO) is a group advisory body that plays a key role in the management of a range of risks: liquidity risk, market risk and interest rate risk. ALCO is a consultative body, for the purposes of coordinating the work of the business units and the proposing of measures to the Banif board of directors. The committee makes recommendations on the strategic management of the main components of the consolidated balance sheet and management of the group’s structural risk.
The group encourages periodic reviews of risk management policies and procedures in order to reflect changes in markets, products and best practices. The board of directors is responsible for setting risk policies and has the support of the Global Risk Department in carrying out risk assessments and monitoring. The department monitors the most significant risks – credit risk, market risk, liquidity risk, operating risk, business/strategy risk and real estate risk - and whenever necessary proposes new policies and corrective measures to ensure that risks are prevented and mitigated.
Allocation of capital The group uses the following methods to determine the value of risk-weighted assets, for the purposes of calculating regulatory requirements for Pillar I own funds:
− The standard method for credit risk
− The basic indicator method for operational risk
− Mark-to-market method for market risk
Notwithstanding the use of these methods, the group has been promoting programmes that optimise its risk-weighted assets (RWA), by obtaining better levels of eligible collateralisation for its assets, greater reliability of the collateral database and, also, the selective assessment of capital consumption for credit operations, by means of a simulation tool available throughout the bank’s commercial networks.
The group also relies on an economic assessment of its risks and of its available financial resources. This assessment is used in the “Internal Capital Adequacy Assessment Process” (ICAAP), implemented as per Banco de Portugal Notice no. 15/2007 and Notice no. 32/2010, as part of Basel II Pillar II.
To this end, the group makes use of an internal model the Risk Taking Capacity model, for assessing its available financial resources. This model assesses the ability of existing economic capital levels and financial resources to meet current and future risks. The existing model takes into account the main risks to which the group is exposed. The more significant of these, due to their materiality, are credit risk, strategy and business risk and property risk, amongst others.
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The group’s risk taking capacity model is based on obtaining an economic overview of each element that may become a source of internal capital. It also categorises these according to capital coverage and orders them into safety levels. This ordering makes it easier to interpret and implement the strategy in terms of its capital adequacy policies and assumed risk profile, in line with the group’s ongoing restructuring plan.
Main activities The adverse macroeconomic climate in 2013, characterised by the weakened economic and financial capacities of both companies and individuals, impacted visibly on the quality of the group’s assets and, consequently, on its capital ratios. From a risk management perspective, this meant that the main focus for the year had to be the implementation of measures designed to strengthen control and regulatory mechanisms:
Inspections by supervisory entities: the continued implementation of Banco de Portugal’s Special Inspections Programme (SIP), a consequence of the Financial and Economic Assistance Programme to Portugal (PAEF), required significant allocation of the group’s resources, due to the dimension and complexity of these inspections. The same was true of the implementation of the resulting action plans designed to address the ensuing recommendations and improvements, particularly the review of the impairment model for the loans portfolio. In the first half of 2013, we carried out our “Across-the-board Loan Portfolio Impairment Review” exercise, which looked at a representative sample of approximately 33% of all the loans made by the Banif Group that were covered by the analysis.
Additionally, in June 2013, and at the request of Banco de Portugal, the external auditors implemented agreed procedures designed to revise the impairment of the Banif (Brasil) loans portfolio. This process covered 95% of the bank’s exposure (the remaining exposure being already fully covered by impairment). Essentially, the bank’s entire loans portfolio was subject to an in-depth reassessment, by both the local internal bodies and the external auditors. A full diagnosis of the loans portfolio and the respective individual and collective impairments was worked up.
The need to strengthen impairments, as revealed by the inspections, was reported in the group’s consolidated results, with effect as of 30 June 2013 and also during the second half of 2013.
In the second half of 2013, there was another Special Assessment Programme - Management of Distressed Loans (DLMA). The objective of this programme was to assess the management of problematic loans in which the DGR acted as PMO. This audit was carried out by an independent entity, Oliver Wyman, and covered the three group units in Portugal: Banif, Banif Mais and BBI.
Information management: the group continued its initiatives to improve the database used for risk management information purposes, with the aim of making it increasingly comprehensive and reliable. To this end, we ran a Datawarehouse project for the
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construction of a new data repository designed to support a more robust, scalable and regular database that could then be used by all management bodies to monitor, control and report in a more efficient and timely manner. This structural project will help ensure the success of a number of other initiatives based on the group’s information systems that are due to be implemented in the coming months.
We also consolidated the work carried out in previous years, updating the key performance indicators (KPIs) and the periodic analyses for internal and external reporting purposes. This will allow management bodies and other stakeholders a broader and more effective overview of risk management.
Preparation of the Internal Capital Adequacy Assessment Process (ICAAP) report and the Market Discipline report for Pillar II and Pillar III of Basel II, respectively, as well as the Concentration Risk report.
Participation in regular Funding and Capital Plan (FCP) exercises, as part of the PAEF, as regards impairment forecasts, RWA and pensions funds, in both the base and adverse scenarios.
Completion of the new model for calculating collective impairment. This model incorporates indicators that are more sensitive to the economic climate and makes use of more comprehensive methods for obtaining information, particularly as regards the determination of risk parameters.
We improved the methods used to assess risk-adjusted profitability, thus offering the business areas a clearer understanding of the return-on-equity for each loan operation.
In 2013 we initiated a structural project to review the internal models currently used to assign risk ratings, whether for admission or behavioural. Our aim is to adopt the most advanced methods possible for calculating capital requirements.
The risk management policies were reviewed, in order to establish the key principles for risk management and the architecture of the risk management function and also to clearly identify the functions, responsibility, communication pathways and structure of risk reporting. These policies were approved by the board and are now general knowledge throughout the institution.
1.1. Credit Risk
Credit risk is the likelihood of negative impacts on results or equity that arise from the inability of a counterparty to meet its financial commitments to the bank, including possible restrictions on the transfer of payments from overseas.
Credit risk is managed prudently and based on a number of guidelines and policies applicable to all activities in the loan’s lifecycle. Those policies and guidelines are stipulated according to the business
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Credit is granted according to the regulations and standards that govern this business activity and that clearly establish the delegation of competences, both in value and in profitability, according to the implicit risk of clients, segments and operations. These regulations and standards are regularly reviewed.
In addition to the standards, credit is granted in most segments on the basis of an evaluation and classification of client risk. This is calculated using scoring and rating models and by assessing collateral coverage rate of the operations in question.
The group’s main entities have access to systems for identifying and classifying, at various levels, clients who show signs of deteriorating creditworthiness. This has provided a better understanding of credit risk and has qualitatively leveraged the lending process within the group, increasing the efficiency of our preventative default management mechanisms.
The group applies a number of internal metrics to help our monitoring of risk concentration indices, particularly as regards economic groups, business sectors, geographical regions and the materiality of the more important exposures, amongst other aspects.
The Banif Group has established and implemented a number of policies and procedures designed to address the issue of loan concentration risk. The principles underpinning these policies and procedures apply to both the individual entities within the group and to the group as a whole:
Definition of the various types of loan concentration risk. Regular monitoring of concentration risk in its various forms. Use of quantitative indicators to monitor across various dimensions. The indicators are defined according to each loan concentration risk type and bring together comparisons of information originating from within the loan portfolio (such as relative weightings) with comparisons of information from other sources (such as the coverage rates for own funds). Complementary use of qualitative information for monitoring loan concentration risk. Setting of internal management limits across a range of dimensions, bearing in mind the specific characteristics and materiality of each loan portfolio. Inclusion of monitoring indicators and complementary information in the periodic risk management report submitted to the group’s management bodies. Incorporation of diversification guidelines in lending processes (by business sector) and in the objectives set out for the commercial and business departments (by geographical region) Dissemination of the diversification objectives for the loan portfolio.
We have adopted the following definitions pertaining to loan concentration risk:
Larger counterparties – significant exposure to an individual counterparty or group of counterparties that are economically or legally related (also known as “single-name
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concentration risk” or “great risks”). As such, these borrowers may present a simultaneous deterioration in their creditworthiness. Business sector – significant exposure to a group of entities that, although not legally related to each other, work in the same economic sector and, as such, are exposed to the same business cycles and so may present a simultaneous, or cascading, deterioration in their creditworthiness. Geographical – significant exposure to a group of entities that, although not legally related to each other, work or are based in the same geographical area and, as such, are exposed to common factors that may trigger a simultaneous deterioration in their ability to repay their loans. Collateral type – significant exposure, albeit indirect, as a result of the risk mitigation mechanisms employed, to the same type of credit protection or loan guarantor. This may lead to a deterioration in the effective level of coverage provided by the underlying operations. In addition to the indicators listed above, we also make use of quantitative indicators for monitoring purposes and for periodic assessment.
1.1.1. Credit Risk Management
In view of the economic situation in Portugal and the Eurozone, and the funding restrictions that affected activities in recent years, the group has been managing its business in line with more prudent criteria and more conservative lending policies.
The portfolio profile is monitored and regularly evaluated according to the limits specified for the following dimensions, as mentioned above: a) Measuring credit risk
The group has risk-rating models for a significant part of its loans portfolio. These models apply distinct methodologies to each segment and/or product based on our experience of client defaults. By combining a broad range of socio-demographic, economic, financial and transaction variables, these models provide a more predictive loans assessment capacity. The risk ratings systems can be subdivided into the following categories:
Models
Admission behavioural Rating Scoring Scoring
Housing Loans Housing Loans SME
Personal Loans Personal Loans
Automobile Credit Automobile Credit
Small Business Small Business
Private Clients and Small Business Companies
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The admission scoring models, employed at the time of lending, are used to assign each loan application a probability of default (PD). The models are also used to classify an operation, in terms of exposure to risk, until it is one year old.
The behavioural scoring models are used to measure the risk on retail lending operations over their useful lifetime, through an analysis of the irregular, or other, behaviour of operations that are over a year old as well as well as of the borrower in question.
The rating model used by the group for the business segment assigns each client a risk classification as a function of the probability of default, thereby measuring the risk of default by the counterparty. It does this by combining financial information with qualitative data, in particular variables pertaining to relationship and commercial involvement. At the same time, the risk ratings attributed by external rating agencies are also consulted, whenever applicable. b) Monitoring of credit risk
The monitoring of credit risk is based on overseeing and controlling changes in the credit risk exposures of the group’s portfolios and on implementing mitigation measures to preserve the credit quality and stipulated risk limits. This is achieved by regularly preparing credit quality indicators, the automated generation of warnings and the carrying out of actions determined according to the classification of the warnings. In this manner, it is possible to anticipate recovery actions and to take preventative action to avoid defaults.
It is important to manage these risk events by assigning responsibilities for managing warning signs, assigning competences to the staff responsible for providing and updating information and, lastly, by defining the steps to be taken according to the predictive classification of the signs.
Credit risk is monitored by regularly preparing credit quality indicators and quality indicators for the corresponding segmented portfolios. In this way, the effectiveness of the policies in place is assessed and corrective measures may be applied. c) Mitigation of credit risk
The value and type of collateral – loan guarantees – and the necessary coverage level depend on the result of the assessment of the counterparty’s credit risk. First, the group evaluates the counterparty’s repayment capacity and probability of default. Collateral is taken to be a secondary means of payment and, thus, is not necessarily the main aspect of the assessment criteria, notwithstanding its relevance in the consumption of regulated capital, where eligible.
The group has internal procedures for accepting certain types of collateral in accordance with specific evaluation criteria.
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1.2. Market Risk
Market risk is taken to be the likelihood of the occurrence of negative impacts on results or on capital, due to unfavourable movements in the market price of instruments in the trading portfolio caused by fluctuations in interest rates, exchange rates, listed share prices or commodity prices. Market risk derives, above all, from short-term positions in debt and equity securities, foreign exchange, commodities and derivatives.
1.2.1. Management of Market Risk
Market risk in the Banif Financial Group essentially arises from exposure on securities in the trading portfolio held by the various subsidiaries. As a rule, the derivatives employed are designed to hedge positions, mainly in operations undertaken on behalf of customers, through symmetrical operations with other counterparties. These operations cancel out the market risk between them and the risk of the portfolio itself and that of the group’s securitisation vehicles. This means, in view of the business in which it operates, that the main market risks to which the Banif Group is subject are those resulting from variations in the interest rates, exchange rates and market prices underpinning the securities.
At 31 December 2013, the market value of the securities held for trading by the group stood, in
2 absolute terms, at 79.3 million euros (113.06 million euros in 2012).
Market risk is managed separately by the various subsidiaries, due to their specific characteristics and competitive advantages, including proximity and local knowledge of the markets in which they operate. This is particularly true of the institutions operating in Brazil (particularly the investment banking unit and the commercial banking unit in this country), Banif – Banco de Investimento, SA in Portugal and Banif Bank (Malta) in Malta. In 2013, the group began to oversee this risk across all group members. To do this, we made use of a value-at-risk (VaR) model, applied to all holdings, as the main indicator of market risk and estimated the potential losses under adverse market conditions.
In consolidated terms, and at 31 December 2013, 30% of the group’s total trading portfolio was held by Banif Banco de Investimento, SA (including subsidiaries), in Portugal, 28% by Banif – Banco de Investimento (Brasil), SA, 22% by Banif Banco Internacional do Funchal (Brasil), SA and 20% by Banif Bank (Malta). Compared to 2012, BBI (Portugal)’s share of the portfolio rose whilst that of the Brazilian operations fell.
2 With respect to 2012, the short positions were not taken into account when calculating the value-at-risk, in accordance with best market practices.
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Banif Bank BBI (Brasil) (Malta) 28% 20%
BBI (Portugal) Banif (Brasil) 30% 22%
1.3. Interest Rate Risk
Interest rate risk is defined as the likelihood of financial losses arising from adverse movements in interest rates. In this case, interest rate risk to the banking portfolio is assessed in the medium/long term. This makes it possible to assess the group’s exposure to this risk and to infer its capacity to absorb adverse variations in the rates to which it is exposed.
Interest rate risk is calculated through the categorisation of all the asset, liability and off-balance sheet items in the banking portfolio that are sensitive to oscillations in interest rates, according to interest rate reset scales.
Interest rate risk is systematically monitored as a function of the repricing periods for assets and liabilities. The reason for analysing sensitivity to interest rates is to assess the group’s exposure to this type of risk and to infer its capacity to absorb adverse variations in the rates to which it is exposed.
1.4. Exchange Rate Risk
Exchange rate risk represents the fluctuations in value that financial positions expressed in foreign currency may suffer as a result of changes in exchange rates.
1.4.1. Management of Exchange Rate Risk
The group monitors its exposure to exchange rate risk through day-to-day control of the overall exposure of its open positions in different currencies. It adopts global hedging strategies to assure that these positions are kept within limits defined by management. The group’s exposure to exchange rate risk is essentially based on the share capital of its financial holdings outside the Eurozone and, therefore, subject to such volatility. These holdings manage such risk in conformity with executive committee guidelines.
1.5. Liquidity Risk
Liquidity risk, which is managed centrally within the group, is defined as the likelihood of the occurrence of negative impacts arising from the institution's inability, particularly in the short term, to honour its financial obligations in a timely manner.
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1.5.1. Management of Liquidity Risk
The monitoring of current and structural liquidity, required as a function of the value and timing of commitments and portfolio funds, takes the form of identifying liquidity gaps, for which exposure limits are set.
A regular calculation is made of changes to the group’s liquidity position and all the factors that might have contributed to such changes are identified. This control is backed up by the carrying out of stress tests in order to arrive at a detailed description of the group’s risk profile and ensure that all of its obligations can be met in the context of a worsening market climate.
The internal liquidity management policy places great emphasis on the constant monitoring and revision of exposure limits, in order to reflect market conditions at any given moment in the best possible way. As part of current liquidity management and under the group’s short term financing plan, quantitative and qualitative analyses of liquidity have been carried out on a regular basis. These are designed to identify any shortcomings and inform decisions on the corrective measures required to re-establish minimum liquidity reserves, whenever necessary.
In complying with Banco de Portugal rules of prudence, the group is obliged to maintain a proper balance between the financial flows involving balance sheet items. This is to make sure that there are sufficient liquid funds available for the group to be able to comply, under reasonable conditions, with its financial obligations as they fall due.
Despite the relatively adverse domestic and international economic situation, as regards liquidity management, both the liquidity gap and the cumulative gap have stayed within acceptable limits for the periods analysed.
In 2013, and as expected, access to non-collaterised market funding was practically inexistent. However, the group’s liquidity position was strengthened over the year. In fact, it more than doubled from 247 to 625 million euros.
The recapitalisation process undertaken in 2013 resulted in an 800 million euro increase in the bank’s cash flow position. 750 million euros of this inflow took place during the first phase of the capital increase operation subscribed to by the state (in January) and the remainder came in via the public and private share offerings (in July and August). Additionally, Banif placed two loan portfolio (SME and consumer/car) securitisations with institutional investors in the primary and secondary market. These two operations increased liquidity by 363 million euros.
As a whole, these operations, plus an increase of just 274 million euros in central bank resources, covered the 1,447 million euro reduction in client deposits (663 million euros of which were attributable to the reclassification of operational units to be discontinued). This fall in deposits can be largely explained by a reduction in the deposits made by state and central administration entities (in counterpart to the recapitalisation operation) and by the downward revision of the pricing structure for such deposits, part of our strategy to reduce borrowing costs and diversify our
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MANAGEMENT REPORT AND ACCOUNTS 2013 resource base. In the final quarter of the year, there was a clear reversal of this deposit outflow trend, with client funds increasing by 135 million euros.
1.5.2. Analysis of Liquidity Risk
The assessment of the group’s liquidity risk is based on the calculation and analysis of regulatory indicators defined by the regulatory authorities, as well as other internal metrics that have set exposure limits.
Thus, a regular calculation is made of changes to the group’s liquidity position and all the factors that might have contributed to such changes are identified. This control is backed up by the carrying out of stress tests in order to arrive at a detailed description of the group’s risk profile and ensure that all of its obligations can be met in the context of a worsening liquidity crisis.
The internal liquidity management policy places great emphasis on the constant monitoring and revision of exposure limits, in order to reflect market conditions at any given moment in the best possible way. As part of current liquidity management, and under the group’s short term financing plan, quantitative and qualitative analyses of liquidity have been carried out on a regular basis. These are designed to identify any shortcomings and inform decisions on the corrective measures required to re-establish minimum liquidity reserves, whenever necessary.
In complying with Banco de Portugal rules of prudence, the group is obliged to maintain a proper balance between the financial flows involving balance sheet items. This is to make sure that there are sufficient liquid funds available for the group to be able to comply, under reasonable conditions, with its financial obligations as they fall due.
1.6. Sovereign Risk
The group’s exposures at 31 December 2013 are disclosed in note 49 “Special conditions applying to the sovereign risk of Portugal, Greece, Ireland, Spain, Italy and Cyprus” in the Banif Group annexe (consolidated view).
1.7. Operating Risk
Operating risk is “the risk of losses resulting from the insufficiency or shortcomings of procedures, staff or internal systems, or from external events, including legal risks” (Decree Law no. 104/2007).
1.7.1. Management of Operating Risk
Aware of the importance of the effective monitoring and control of operating risk, the Banif Financial group decided to implement systematic control mechanisms in the areas that present operating risk. The main objectives of the management models developed to this end include a detailed
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MANAGEMENT REPORT AND ACCOUNTS 2013 understanding of operating risk hotspots and mitigation measures to deal with these, plus an awareness of the nature and magnitude of operating loss events.
Given that the aims of the operating risk management team are to know where such risk exists and whether or not action needs to be taken and also to forecast/prevent impacts, the group has appointed operating risk managers (OR Managers) for the various areas. These managers are closely involved in the reporting process and in presenting mitigation measures, making use of a specific computer tool to record OR events in their areas of influence on a daily basis.
The group identifies and assess operating risk in all business areas, classifying such risk according to the risk types defined by the Basel Committee.
1.8. Business Continuity Management System
In 2103, there was significant change in the level of maturity of the group’s recovery and continuity plans for its member entities. In the first half of the year, projects were completed at the various domestic and international subsidiaries. In the fourth quarter, the working team was enlarged, so it could widen its scope and execute, oversee and assess its implementation plan on schedule. At the same time, an in-depth internal reorganisation was implemented, to take advantage of synergies, shared processes and to reduce operating costs.
In this regard, the group is fully committed to best international practices, as set out in specific ISO 223091 documentation, and to the recommendations on prudence produced by our internal supervisory bodies.
1.9. Other Risks
To reinforce and improve risk management, Banif incorporates the monitoring of other types of risk in its management practices. Although these are not of the same magnitude as the more "traditional" types of risk, following them allows a fuller and more inclusive appreciation of the institution’s risk profile. In this way, various indicators that keep track of "strategic risk" and “business risk” are incorporated into the group’s existing information reporting structures for risk management.
1.10. Quantitative Analysis of the Banif Financial Group
1.10.1. Analysis of the Credit Risk
One of the main requirements of the group’s restructuring plan is a reorganisation of our geographical presence. As a result, the process of disposing of our controlling interest in the following holdings is currently in hand and should be completed in 2014: Banif – Banco Internacional do Funchal (Brasil), SA, Banif Bank (Malta), plc and Banco Caboverdiano de Negócios (BCN). These business units will be reported as discontinued operational units and will continue to be consolidated
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MANAGEMENT REPORT AND ACCOUNTS 2013 in the financial statements, using the full consolidation method, at 31 December 2013. As a result, this section does not include the loan amounts pertaining to the abovementioned group members. a) Exposure to credit risk by accounting item
At 31 December 2013, the group’s total assets had the following credit risk exposure:
(thousand euros) 2013 2012 Restated 2012 Maximum1 Net2 Maximum1 Net2 Maximum1 Net2 exposure exposure exposure exposure exposure exposure Finacial assestes held for trading 40,086 40,086 214,725 214,725 214,725 214,725 Other financial assetes at fair value through profit or loss 73,686 73,686 79,287 79,287 79,287 79,287 Financial assets avaiable for sale 1,782,041 1,782,041 755,566 755,566 755,566 755,566 Credit to Clients 7,969,025 3,281,352 9,807,382 4,445,250 9,815,981 4,453,850 Investments held until maturity 12,081 12,081 36,284 36,284 36,284 36,284 Other assets 3,726,574 3,726,574 3,093,608 3,090,450 3,090,450 3,090,450 Subtotal 13,603,493 8,915,820 13,986,852 8,621,562 13,992,293 8,630,162 Contigent liabilities 6,898,776 6,898,776 6,972,638 6,972,638 6,972,638 6,972,638 assumed commitments 680,592 680,592 601,462 601,462 601,462 601,462 Subtotal 7,579,368 7,579,368 7,574,100 7,574,100 7,574,100 7,574,100 Total 21,182,861 16,495,188 21,560,952 16,195,662 21,566,393 16,204,262
1 Maximum exposure: refers to the net balance sheet value.
2 Net exposure: referes to the maximum exposure minus the mitigation effect by relevant collateral, thus not taking into accounte surety / guarantees and other low value
Maximum exposure corresponds to the worst risk exposure scenario for the group, bearing in mind that this does not take into account collateral or other mitigations associated with the assets. The figures reflect the financial positions disclosed in the consolidated financial statements.
In terms of net exposure, mitigating effects are highly significant in the case of loans to clients, reflecting a higher degree of coverage, at around 59% (55% in 2012). In terms of degree of loan portfolio coverage by type of collateral type, 44% (50% in 2012) relates to mortgage collateral, 2% (3% in 2012) to financial collateral and 3%, (2% in 2012) to guarantees issued by institutional entities. A significant part of the rest of the portfolio is covered by guarantees from borrowers or related entities.
Commitments and guarantees The group makes use of a range of commitments and contingent liabilities that are designed to allow us to meet our clients’ needs. Although these obligations are not carried on the balance sheet, the commitments do present a credit risk and, as such, the group considers them an integral part of this risk.
The maximum exposures for the group’s commitments and guarantees, at 31 December 2013, are disclosed in note 28. b) Geographical structure of the loans portfolio and securities
With regard to the exposure to credit risk in the various markets, as a function of counterparty location, the financial asset concentration risk, at 31 December 2013, was distributed as follows:
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MANAGEMENT REPORT AND ACCOUNTS 2013
2013 (thousand euros) North Latin Rest of the Europe Total America America world Financial asset held for trading1 21,596 - - - 21,596 Other fiancial assets at fair value through profit or loss 71,175 - 2,511 - 73,686 Financial assets avaiable for sale 1,782,026 - - 15 1,782,041 Credit to Clients 7,732,865 96,576 84,155 55,429 7,969,025 Investments held until maturity 12,081 - - - 12,081 Total 9,619,743 96,576 86,666 55,444 9,858,429
weight of each geographic area 97% 1% <1% <1%
1 Derivatives are not included.
These figures indicate that lending to clients carries a significant concentration risk in all markets: Europe (80%), North America (100%), Latin America (97%) and rest of the world (100%). The figures relate to the proportion of the total financial assets managed in each market.
It should also be noted that financial assets held for trading are of particular importance in the European market, where they represent 19% of the assets managed in this market. This is the result of the purchase of public debt securities under the recapitalisation plan implemented at the beginning of the year. c) Geographical structure of the loans portfolio
Geographical exposure to credit risk at 31 December 2013 and 2012 is detailed in the table below. The European market was responsible for the vast majority of this risk, with a share of 97% in December 2013, compared to 91% in December 2012.
(thousand euros) 2013 2012 Restated 2012 Maximum Net Maximum Net Maximum Net exposure exposure exposure exposure exposure exposure Mainland Portugal 4,700,265 59% 2,133,648 65% 5,360,307 55% 2,390,614 54% 5,368,901 55% 2,399,208 54% Autonomous Regions 2,512,408 32% 871,954 27% 2,755,101 28% 1,118,269 25% 2,755,101 28% 1,118,269 25% European Union 503,042 6% 184,483 6% 855,110 9% 291,528 7% 855,114 9% 291,532 7% resto of Europe 17,150 <1% 510 <1% 34,321 <1% 5,097 <1% 34,321 <1% 5,097 <1% North america 96,576 1% 20,952 1% 136,485 1% 63,583 1% 136,485 1% 63,583 1% Latin America 84,155 1% 50,135 2% 538,509 5% 510,112 11% 538,509 5% 510,112 11% Rest of the world 55,429 1% 19,670 1% 127,550 1% 66,048 1% 127,550 1% 66,048 1% Total 7,969,025 3,281,352 9,807,382 4,445,250 9,815,981 4,453,849
The other markets are of reduced significance in this respect, accounting for just 3%. The figures given here reflect the geographical reorganisation of the group’s presence, which resulted from the accounting changes applied to group entities. The planned disposal of controlling interests is scheduled to take place in 2014. This fact has a specific effect on the group’s loans portfolio, specifically as regards Brazil and Malta, as, in 2103, the group no longer has the geographical presence in these areas that it had in December 2012. d) Loans portfolio structure by sector
At 31 December 2013 and 2012, client loans were distributed across business sectors in the following way:
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MANAGEMENT REPORT AND ACCOUNTS 2013
(thousand euros) 2013 2012 Restated 2012 Maximum Net Maximum Net Maximum Net exposure exposure exposure exposure exposure exposure Services¹ 1,335,314 17% 905,934 28% 1,550,758 16% 1,079,624 24% 1,554,532 16% 1,083,397 24% Construction 720,701 9% 424,158 13% 1,016,970 10% 539,844 12% 1,019,828 10% 542,702 12% Property activities 552,892 7% 203,397 6% 811,650 8% 372,090 8% 813,303 8% 373,743 8% Industry 489,465 6% 342,690 10% 572,134 6% 399,223 9% 572,134 6% 399,223 9% Retail sales 386,077 5% 189,519 6% 471,504 5% 256,778 6% 471,521 5% 256,795 6% Public sector 265,430 3% 137,712 4% 223,545 2% 205,809 5% 223,678 2% 205,942 5% Financial institutions and insurance companies 162,495 2% 85,874 3% 129,326 1% 90,164 2% 129,326 1% 90,164 2% Other sectores 390,567 5% 226,121 7% 579,277 6% 362,270 8% 579,304 6% 362,297 8% Private clients 3,666,084 46% 765,945 23% 4,452,218 45% 1,139,449 26% 4,452,355 45% 1,139,587 26% Total 7,969,025 3,281,352 9,807,382 4,445,250 9,815,981 4,453,850 1 Services includes other business services.
At 31 December 2013, the “Services” segment accounted for 17% (16% in 2012) of the total maximum exposure in 2013, followed by the “Construction” segment at 9% (10% in 2012) and real estate activities at 7% (8% in 2012).
In sector terms, the credit risk exposure (including direct credit and bank guarantees issued) of our Top 20 clients and/or economic groups stood, at 31 December 2013, at 1,239 million euros (gross). The credit distribution of our largest clients by business sector is represented in the diagram below.
OTHERS 5%
FINANCIAL SERVICES INSTITUTIONS 23% 16%
TOP 20
PUBLIC SECOTR 18% PROPERTY ACTIVITIES 24%
CONSTRUTION 14%
e) Loans portfolio structure by geography and by sector
At 31 December 2013, the group’s exposure to the various markets, by business sector, was:
Industry Retail Public Europe Financial Industry Retail Latin America Public Financial 6% sales Sector Institution 4% sales Sector Institution Property 5% 3% and 0% 0% and activities Insurance Property Insurance 6% 2% activities 0% Private 29% Private Constructuio Clients Clients n 42% 41% 9% Services* Others 17% 13% Constructuio Others n 10% 2% Services* 11% North America Financial Retail sales Public Financial Institution Rest of the World Public Sector 7% SectorInstitution and Retail sales 0% Industry 1% and Industry Insurance 1% 1% Insurance 0% 0% Property Property 0% activities activities Private 16% 31% Private Clients Constructuio Clients 40% 35% n 14% Services* Constructuio Others 17% n 10% 15% Services* Others 8% 4% Notes: * Services includes services provided to other companies
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MANAGEMENT REPORT AND ACCOUNTS 2013 f) Average Amounts by exposure interval
At 31 December 2013, the average exposure of the loans portfolio by aggregated operation value was as follows:
2013 (thousand euros)
value interval per operation Number of clients Credit Average exposure Weight
] 0M - 0,5M ] 285,558 5,087,011 18 63.8% ] 0,5M - 2,5M ] 775 947,431 1,222 11.9% ] 2,5M - 5M ] 123 487,180 3,961 6.1% ] 5M - 10M ] 71 542,050 7,635 6.8% > 10M 55 905,353 16,461 11.4% Total 286,582 7,969,025 g) Quality of the loans and other financial assets
Lending The breakdown of the group’s loans portfolio, by main business segment, at 31 December 2013 and 2012, gave the following credit quality profile:
Companies Personal loans Automobile Credit
52% 53% 52% 53% Superior Quality Superior Quality 66% 63% Standard Quality Standard Quality
Sub-Standard Quality Sub-Standard Quality 9% 6% 17% 18% 7% 9% 31% 30% 40% 41% 26% 30%
2012 2013 2012 2013 2012 2013
Housing Credit Others Credits
65% Superior Quality 61% Superior Quality 84% 84% Standard Quality Standard Quality
Sub-Standard Quality Sub-Standard Quality
10% 10%
7% 6% 24% 29% 10% 10% 2012 2013 2012 2013
In overall terms, the total loans portfolio had the following distribution:
Portfolio
65% 65% Superior Quality
Standard Quality
Sub-Standard Quality
12% 12%
23% 23%
2012 2013
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MANAGEMENT REPORT AND ACCOUNTS 2013
The breakdown of client loan quality is based on the classification assigned to the portfolios of the group entities with greater overall relevance, separated out into the most significant segments and categorised into three risk levels, according to probability of default: “Superior Quality”, “Standard Quality” and “Sub- standard Quality”. The method used to classify portfolios in previous years was reformulated (to allow a comparison with 2012 data, with the 2013 amounts above reflecting the new method).
The following table details amounts and credit quality indicators by sector:
(thousand euros)
2013 2012 Total exposure Total exposure Grossin defaul > 90 Gross In default > 90 exposure*days** exposure* Services 1,468,573 201,823 14% 1,670,027 252,696 15% Construction 920,697 273,073 30% 1,188,212 327,703 28% Property activities 694,264 153,426 22% 950,168 221,634 23% Industry 580,613 136,126 23% 668,691 186,739 28% Retail sales 478,424 146,516 31% 542,400 126,808 23% Public sector 265,492 8,103 3% 226,322 17,018 8% Fianacial Institutions and Insurance companies 182,676 32,767 18% 151,907 13,980 9% Other sector 523,949 156,764 30% 730,562 209,600 29% Private Clients 4,014,554 671,881 17% 4,785,456 726,250 15% Total 9,129,242 1,780,479 20% 10,913,745 2,082,428 19%
* Gross exposure: refers to the balance sheet amount befor provisions.
** Total exposure in default > 90 days: refers to the balance (due and overdue) of credit operations that, on the reference date, were in default for over 90 daus, according to the concepts of instruction no. 23/2007 of Banco de Portugal
Private Clients classified as individual entrepreneurs were allocated to the respective activity sector
In addition to the worsening economic climate in 2013, the changes in the indicators presented above were also influenced by the significant reduction in the loans portfolio, which is a consequence of the ongoing deleveraging process.
Also related to credit quality, the non-performance indicators were as follows:
2013 2012 credit to Client, of which3: 9,129,242 10,913,745
Overdue credit and interest2 1,177,059 1,343,500
Credit impairment (1,160,217) (1,097,764)
Indicators (%)
Credit impairment / Credit to clients 12.7% 10.1%
Credit with default / total credit1 16.2% 12.3% Credit with default, Net / total credit, Net1 3.4% 2.5% Credit in risk / total credit1 22.2% 20.3% Credit in risk, Net / total credit, Net1 10.3% 11.4%
1 Ratios specified in instruction no. 22/2011 of Banco de Portugal. 2 Overdue credit and interest > 90 days. 3 Values from the Financial Statement.
These indicators show that the quality of the loans portfolio fell in 2013, a fact that can be attributed to the worsening domestic and international economies. This adverse climate led to an increase in impairment losses, but also a reduction in the absolute value of the loans portfolio.
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A new method for calculating collective impairment came into effect at 31 December 2013. This led to a worsening of the PD (Probability of Default) and LGD (Loss Given Default) parameters in some of the new segments and a consequent impact on the calculation of collective impairment for Banif, SA. In terms of individual client impairment, there was an increase in coverage needs, given the actual levels of non-performance. However, we note that the significant increase in the amounts set aside for impairment in 2013 resulted in a high level of coverage for lower quality debt.
The overdue loans and interest item, at 31 December 2013, includes 53,939 thousand euros of loans written off in the assets items of the individual group member accounts. This compares with the figure of 70,347 thousand euros for 31 December 2012.
Assessment of impairment At 31 December 2013, the value of collective and individual impairment losses, excluding off-balance sheet losses, stood at 578,381 thousand euros (2012 – 559,475 thousand euros) and 581,836 thousand euros (2012 – 538,289 thousand euros), respectively. Loans that are in default or that show signs of impairment that is materially significant are analysed individually. All other loans are subject to impairment through the application of collective models based on PD and LGD parameters.
The amounts referred to above do not include (collective or individual) impairment losses for discontinued operational units (154,986 thousand euros).
At 31 December 2013 and 31 December 2012, individually analysed loans totalled 1.868 thousand million euros (not including the discontinued operational units) and 2.074 thousand million euros, respectively. The individually analysed loans for discontinued units (Banif Brasil, BBI Brasil, BCN and Banif Bank (Malta)) totalled 269 thousand euros.
At the end of the years in question, the relative proportion, for the group, of total estimated group credit losses and off-balance sheet credit-related liabilities that can be attributed to individual losses is as follows:
ACCORDING TO FINANCIAL STATEMENTS a) INCLUDE THE DISCONTINUED OPERATIONAL UNITS
100% 100%
90% 90%
80% 80% 49% 50% 53% 70% 70%
60% 60%
50% 50%
40% 40%
30% 30% 51% 50% 47% 20% 20%
10% 10%
0% 0% 2012 2013 2013
Collective Losses Individual Losses Collective Losses Individual Losses
Note: a) The amounts related to Banif – Banco Internacional do Funchal (Brasil), SA, Banif Bank (Malta), PLC e Banco Caboverdiano de Negócios (BCN) were not considered due to the fact that these business units were classified as discontinues operational units.
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Total lending and the estimated losses per segment, for the years in question, are as follows:
Credit to Clients Credit Impairment
2013 49% 33% 9% 9% 2013 61% 4% 23% 12%
2012 49% 31% 9% 11% 2012 63% 6% 24% 7%
61% Companies Private Clients, Property Private Clients, Consumer Private Clients, Others 6%12% 4%7% 63% In 2013, there was a slight improvement in the loans portfolio for the business segment, with impairment standing at 61% of the total, which compares favourably with the 63% in 2012. This improvement is also due to the transfer of the discontinued operational units to non-current assets held for sale.
Credit impairment for the periods in question was as follows:
Changes to impairment (with details regarding the effect of the transfer of the discontinued operational units to “Non-current assets held for sale”)
(thousand euros)
Private Clients Private Clients Private Clients Companies Total Consumer Property Others Balance 2012 692,399 259,144 66,303 79,918 1,097,764
Discontinued units transfer to non-current (83,686) (7,040) (1,299) (16,669) (108,695) assets held for sale
Reinforcements 469,139 56,094 32,808 103,480 661,522 Use and regularizations (112,402) (9,470) (8,046) (6,185) (136,103) Reversal and recoveries (258,014) (34,419) (38,566) (23,271) (354,270) Balance 2013 707,437 264,308 51,200 137,272 1,160,217
Changes to Impairment (including the discontinued operational units)
(thousand euros)
Private Clients Private Clients Private Clients Companies Total Consumer Property Others Balance 2012 692,399 259,144 66,303 79,918 1,097,764 Reinforcements 521,393 76,397 33,370 114,943 746,104 Use and regularizations (148,491) (12,778) (8,351) (543) (170,163) Reversal and recoveries (260,224) (35,777) (38,762) (23,739) (358,502) Balance 2013 805,077 286,987 52,560 170,579 1,315,203
Private Clients Private Clients Private Clients Companies Total Consumer Property Others Balance 2011 482,028 238,830 47,685 44,988 813,531 Reinforcements 490,615 81,917 36,242 62,196 670,970 Use and regularizations (101,658) (12,185) (4,662) (13,396) (131,901) Reversal and recoveries (178,585) (49,419) (12,963) (13,870) (254,836) Balance 2012 692,399 259,144 66,303 79,918 1,097,764
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Overdue loans and interest At 31 December 2013 and 2012, overdue loans and interest by segment was as follows:
2013 (thousand euros)
< 3 Months 3 - 6 Months 6 - 12 Months 1 - 3 Years > 3 Years Total Companies 29,660 50,344 108,448 285,190 285,332 758,973 Private Clients, Consumer 1,144 1,848 5,744 47,308 186,104 242,149 Private Clients, Property 4,411 1,993 6,667 26,010 34,116 73,196 Private Clients, Others 2,690 3,031 30,945 42,391 61,589 140,646 Total 37,905 57,216 151,803 400,899 567,141 1,214,964
2012 (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 82,943 190,274 350,094 Private Clients, Property 13,736 1,371 4,145 11,999 25,840 57,092 Private Clients, Others 16,922 3,877 12,623 32,397 125,619 191,438 Total 145,343 135,829 217,472 359,253 630,946 1,488,843
There was an overall decrease in overdue loans and interest, due to the significant deleveraging of the loans portfolio.
Recovery of overdue loans and loans in litigation In 2013, there was a fall in overdue and at-risk loans that reversed the upward trend seen in previous years.
This turnaround can be attributed to the effective management of non-performing loans, following the consolidation of the local recovery model introduced in 2012.
Banco de Portugal’s Special Assessment Programme – Management of Distressed Loans, implemented at the end of 2013 resulted in a number of pertinent recommendations for this area. As a result, Banif drew up an action plan designed to implement the opportunities for improvement that had been identified and fine-tune the model to take into account the changes in the non-performing and at-risk loans portfolio. This process is currently ongoing and is focused on: . Strengthening the participation of the Credit Recovery Department (DRC) in the oversight and recovery of loans that are in the initial stage of default, in the process of being restructured or which recovery is doubtful. . The introduction of a greater degree of specialisation into DRC structures, as a function of client type and level of credit exposure. . A greater level of systematisation in the prioritisation and selection of the strategy to be applied in recovering loans. . More in-depth analytical information for overseeing the recovery of at-risk or non- performing clients and more automatic processing of these.
Restructured loans The group regularly monitors its loans portfolio for preventive detection of potential client defaults. When applicable and suitable, loans are restructured and new conditions are negotiated that are better matched to the client’s financial capabilities and their capacity to generate funds.
In compliance with Banco de Portugal regulations (Instructions 18/2012 and 32/2013, which replace the previous instructions), credit operations subject to restructuring are identified and labelled as such in our information systems. This process covers credit operations whose initial conditions have
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MANAGEMENT REPORT AND ACCOUNTS 2013 been reformulated, in the same operation or by contracting a new loan, following a deterioration of the client’s creditworthiness. Loans identified as being restructured are deemed to no longer be so if, after one year, no new defaults have taken place.
The adverse macroeconomic climate in 2013, and the resulting severe economic slowdown, lower private consumption, higher unemployment and consequent faster degradation of company and private client credit risk all had a major impact on the volume of loans restructured because of client-side financial difficulties. The restructured exposure is detailed in the following table:
(thousand euros)
2013 2012 Gross Restructured Gross Restructured exposure* exposure** exposure* exposure** Residents 8,605,314 1,166,640 14% 9,355,698 946,085 10% Housing 2,921,044 93,966 3% 3,054,010 27,679 1% Consumption and other 1,336,617 177,731 13% 1,419,446 98,889 7% Companies 3,988,424 810,441 20% 4,506,630 778,251 17% Public Administration 261,859 54,537 21% 176,412 41,266 23% Others Outros 97,370 29,966 31% 199,200 - 0% Non - Residents 1,323,930 200,696 15% 1,558,047 172,613 11% Total 9,929,244 1,367,336 14% 10,913,745 1,118,698 10%
* Gross exposure: as value of loans and advances to customers (gross), constant in Instruction nº 22/2011.
** Exposure Restructured: referes to the credit operations whose initial conditions were reformulated as a result of the deterioration in the quality of lending customers.
Impairments on restructured loans came to 285,643 thousand euros.
The group continued to work to perfect the information flow on the changes made to loan operations, particularly as regards restructuring.
Other financial assets The following tables detail the debt securities portfolios, broken down by external ratings (issue/issuer). Portfolio ratings were determined on the basis of the ratings assigned by international agencies (Moody’s Fitch and S&P) according to Basel II rules.
2013 (thousand euros)
HIGH STANDARD SUB-STANDARD NOT TOTAL GRADE GRADE GRADE RATED 1 Financial assets held for trading 6 10,013 8,506 608 19,134 Other financial assets at fair value through profit or loss - - 83 - 83 Financial assets available for sale 151 856 1,427,140 897 1,429,044 Credit to Client2 - - - 54,442 54,442 Held-to-maturity investments securities 1,477 2,553 3,983 4,068 12,081 Total 1,634 13,422 1,439,713 60,014 1,514,783 in % 0.1% 0.9% 95.0% 4.0% 100%
1 Não estão incluídos os derivados. 2 Não estão incluídos os títulos de papel comercial.
2012 (thousand euros)
HIGH STANDARD SUB-STANDARD NOT TOTAL GRADE GRADE GRADE RATED
Financial assets held for trading 7,215 37,891 15,142 16,618 76,865 Other financial assets at fair value through profit or loss - 237 236 530 1,003 Financial assets available for sale 22,853 24,582 140,167 344,862 532,465 Credit to Client2 - - 4,876 112,690 117,566 Held-to-maturity investments securities 12,631 2,540 10,566 122 25,860 Total 42,699 65,251 170,988 474,822 753,759 in % 5.7% 8.7% 22.7% 63.0% 100%
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MANAGEMENT REPORT AND ACCOUNTS 2013
The securities included in the various portfolios are detailed in notes 7, 8, 9, and 12 of the Notes to the Financial Statements.
1.10.2. Analysis of the Market Risk
The following tables show the calculation of value-at-risk (VaR) for the Banif Financial Group trading securities portfolios. VaR was calculated using two different methods: the parametric model, with a 10-day horizon and a confidence interval of 99%, and the historic model, with a 10-day horizon and a confidence interval of 99%. 504 observations were made.
The method based on parametric approximation is designed for forward-looking risk management, as it uses historic observations to create a basis for estimating future asset/portfolio volatility/risk.
The new method, the historic model, offers a more comprehensive overview, depending on the number of observations included in the analysis. The choice of 504 observations meant that the adverse conditions seen in the financial markets over the last 2 years were incorporated in the results. Calculation of the risk figures, individually (for positions held by each entity) or on a consolidated basis, takes into account the impact of the level of portfolio diversification for each of the entities.
The discontinued units, BBI (Brasil), Banif (Brasil) and Banif Bank (Malta), were included in the market risk analysis. Excluding the discontinued units, the only entity in the group to hold a trading portfolio is BBI (Portugal) and its subsidiaries. The parametric model gives a VaR of 3.5% at 31 December 2013, which compares with 2.19% in December 2012. There is no comparison for the historic model, as it was only introduced in 2013.
Nevertheless, given the size of the portfolio of financial assets available for sale, which corresponded to the purchase of public debt securities deriving from investment of recapitalisation plan funds and that amounts to a sum of 1.4 billion euros as at 31 December 2013, it is important to note that this showed a VaR of 65.2 million at the end of the year (79.7 million euros as at 30 June 2013), calculated in accordance with the historic model, for a 10-day horizon with a confidence interval of 99%, on the basis of a period of 504 observations.
It is to be noted however that, while in the case of the trading portfolio there is market risk, which means variation in the market price of the securities directly affects the bank’s results, in the case of assets in the portfolio available for sale the impact of price variation is felt at the level of the bank’s equity (via variation of reserves).
The following table details the VaR for the consolidated trading portfolio at 31 December 2013, including discontinued units:
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MANAGEMENT REPORT AND ACCOUNTS 2013
Discontinued Entities
Parametric Model BBI Banif Bank VaR (Portugal) BBI (Brasil) Banif (Brasil) (Malta) Consolidated
Portfolio VaR (%) 3.5% 1.2% 2.0% 2.9% 1.8%
Portfolio VaR (euro) 531 256 347 477 1,298 Market Risk (communs factors) 368 255 63 344 990 Shares 4 5 Bonds 189 255 39 344 826 yield curve 183 4 41 335 595 Spread 89 15 190 302 Indexed to inflation 2 253 255 Emergents Markets 318 53 438 Correlation-common factors -144 -30 0 -279 Specific Risk 71 21 62 331 401 Foreign Exchange Risk 483 919 Diversification Effect -391 -20 222 -198 -1,012 (thousand euros)
Historical Model
BBI Banif Bank VaR 31/12/2013 (Portugal) BBI (Brasil) Banif (Brasil) (Malta) Consolidated
Portfolio VaR (%) 5.0% 2.8% 2.4% 1.6% 2.2%
Portfolio VaR (euro) 1,199 583 418 267 1,526 (thousand euros) Thus, at 31 December 2013, total aggregate VaR for the trading portfolios held by the various members of the Banif Financial Group came to about 1.3 million euros, according to the parametric model, or approximately 1.8% of the market value of this portfolio on a consolidated basis (1.3% in 2012). According to the historic model, the figure is 1.5 million euros, or 2.2% of the portfolio’s market value on a consolidated basis. The effect of diversification between the various entities was taken into account. The ratio of VaR to the group’s consolidated own funds remains low, at 0.13% and 0.18% under each method, respectively.
6.0% BBI (Portugal) 5.0%
4.0% Banif (Brasil) BBI (Brasil) 3.0%
Value-at-risk % 2.0% Banif Bank (Malta) 1.0%
0.0% 0 5,000 10,000 15,000 20,000 25,000 30,000 Market value of portfolio (€)
Taking the percentage VaR of each entity’s portfolio at 31 December 2013, BBI (Portugal) is the largest contributor to the group’s overall VaR.
The analysis results provided by the two methods show the expected increase in market risk for Banif Bank (Malta) and Banif (Brasil), if their current portfolios were maintained and the same assumptions are used in the modelling.
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Parametric Historical Model Model
BBI (Portugal) BBI (Brasil) Banif (Brasil) Banif Bank (Malta)
In 2013, the group’s portfolio largely comprised fixed-rate bonds (around 83% of portfolio value at 31 December 2013), most of which are for public debt (41% Brazilian, 15% Maltese and 7% Portuguese). This explains the contribution of the “income curve” risk to total VaR, compared to the credit risk (“spread”).
Change in VaR by Risk Factor
120%
100%
80%
60%
40%
20%
0% Dec-12 Mar-13 Jun-13 Sep-13 Dec-13
Overall Risk (common factors) Specific Risk Foreign Exchange Risk
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Overall Risk by sub-factor
120%
100%
80%
60%
40%
20%
0% Dec-12 Mar-13 Jun-13 Sep-13 Dec-13
Overall Risk (common factors) Bonds Yield curve Spread
Note: these graphs only reflect the major risk factors and do not incorporate the diversification effect, which, depending on the degree of correlation between the assets in the portfolio, results in a lesser/greater overall level of risk.
1.10.3. Analysis of the Interest Rate Risk
This analysis is based on a positive or negative 200 basis point parallel shock to the income curve and the consequent impact on the group’s liquidity and the net interest income for the year, using the assumptions provided in Banco de Portugal Instruction 19/2005. However, the group also determines the effect of other levels of shock on its internal indicators.
Sensitivity analysis – impact of a positive change of 200 basis points to the interest rate curve for relevant currencies
(thousand euros)
2013 2012 EUR USD TOTAL EUR USD TOTAL up to 1 m 311 -78 232 2,615 154 2,769 1 - 3 m -8,145 198 -7,947 -7,255 221 -7,034 3 - 6 m -13,364 790 -12,573 -10,119 1,233 -8,886 6 - 12 m 10,721 1,645 12,366 14,376 1,187 15,563 1 - 5 y 104,670 1,059 105,730 10,436 -1,082 9,354 > 5 y -894 -9,680 -10,574 -26,340 -14,328 -40,668 Impact on the net worth 93,300 -6,065 87,235 -16,287 -12,615 -28,902 Impact on the net worth, in % of own funds 9.2% -0.6% 8.6% -1.3% -1.0% -2.3%
EUR USD TOTAL EUR USD TOTAL up to 1 m -7,490 1,889 -5,601 -62,868 -3,694 -66,562 1 - 3 m 40,179 -1,036 39,143 34,935 -1,163 33,772 3 - 6 m 18,918 -1,246 17,672 13,691 -1,934 11,757 6 - 12 m -4,738 -293 -5,031 -6,670 -87 -6,757 impact on the net interest income, at 12 months 46,869 -686 46,183 -20,912 -6,878 -27,790
Impact on the annual net interest income, in % 37.6% -0.6% 37.0% -12.1% -4.0% -16.1%
Owb Funds 1,016,310 1,263,320 Net Interest Income 124,662 172,772
Note: this analysis considers the own funds (2012) after the recapitalisation.
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Net Worth Net Interest Income 120,000 60,000
100,000 40,000 80,000 20,000 60,000 40,000 0 Up to 1 m 1 - 3 m 3 - 6 m 6 - 12 m 20,000 -20,000 0 -40,000 -20,000 Up to 1 1 - 3 m 3 - 6 m 6 - 12 m 1 - 5 Y > 5 Y m -60,000 -40,000 -60,000 -80,000
2013 2012 2013 2012
The results of the sensitivity analysis indicate that a rise in market rates would have a positive impact on net worth and on net interest income. Compared to 2012, the banking portfolio’s sensitivity to interest rate changes flipped from negative to positive. This result derived from the change to the portfolio structure, with a concentration of interest rate risk in the 1 to 5 year interval for net worth and a reduction in sensitivity, in the very short-term interval (less than one month), for net interest income.
The discontinued units have no material impact on either net worth or net interest income and introduce no changes to the final structure. In terms of overall impact, the net worth impact would change to 84.1 million euros (a change of 3.1 million euros) and the net interest income would change to 49.6 million euros (a change of 3.5 million euros).
1.10.4. Analysis of the Exchange Rate Risk
The main exposure to foreign currency credit risk in the lending portfolio is to the US dollar (USD), as the table below shows.
(thousand euros)
2013 2012 Restated 2012 EUR 7,739,214 8,970,477 8,979,075 BRL 62 435,382 435,382 USD 140,664 210,344 210,344 CVE - 76,946 76,946 CHF 15,693 27,356 27,356 GBP 38,615 29,745 29,745 HUF 27,458 48,455 48,455 PLN 7,222 7,874 7,874 JPY 88 773 773 Outras 9 32 31 Total 7,969,025 9,807,382 9,815,981
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The figures here reflect the reorganisation of the group’s geographical presence, particularly as regards the disposal of controlling interests that the group has in Brazil. In 2013, this resulted in a significant drop-off in the exposure of the loans portfolio to the Brazilian real (BRL) and a zero exposure to the Cape Verdean escudo.
1.10.5. Analysis of the Liquidity Risk
The tables below summarise the maturity profile of the cash flows for the group’s assets and liabilities at 31 December 2013 and 2012 (not including future interest payments), respectively:
(thousand euros) 2013 Residual Deadlines
UP TO 1 MONTH 1-3 MONTHS 3-6 MONTHS 6-12 MONTHS 1-5 YEARS >5 YEARS TOTAL
Liabilities 3,355,887 1,702,320 1,462,563 2,029,936 2,518,777 1,654,436 12,723,920
Funds from central banks and other IC ´ s 2,089,719 86,800 3,749 0 1,245,151 834 3,426,254 Client funds and other loans 905,303 1,465,030 1,311,233 1,628,637 389,445 603,632 6,303,280 Debts represented by securities 502 22,333 27,289 243,770 385,171 579,005 1,258,070 Subordinated Liabilities 0 0 0 0 74,439 79,879 154,318 Other Liabilities 360,359 128,157 120,291 157,529 411,238 391,059 1,568,634 Provisions 5 0 0 0 13,333 27 13,365 Capital and reserves 0 0 0 0 0 879,572 879,572
TOTAL 3,355,887 1,702,320 1,462,563 2,029,936 2,518,777 2,534,008 13,603,492
Assets
Credit to IC ´ s 107,405 64,634 0 0 0 132,225 304,264 Credit to clients 447,083 426,111 479,315 553,569 2,677,299 3,385,648 7,969,024 Financial assets 26,987 40,276 21,151 355,428 715,069 736,902 1,895,813 Investments and tangible and intangible assets 625 2,361 1,910 4,675 2,527 382,297 394,395 Other Assets 408,847 80,552 116,054 210,156 914,328 1,310,059 3,039,996
TOTAL 990,947 613,934 618,430 1,123,828 4,309,222 5,947,132 13,603,492
(thousand euros) 2012 (a) Residual Deadlines
UP TO 1 MONTH 1-3 MONTHS 3-6 MONTHS 6-12 MONTHS 1-5 YEARS >5 YEARS TOTAL
Liabilities 2,771,882 2,217,476 1,915,057 1,625,083 3,309,202 1,782,573 13,621,274
Funds from central banks and other IC ´ s 1,177,355 134,135 92,889 57,833 2,030,973 0 3,493,185 Client funds and other loans 1,348,332 2,019,257 1,766,614 1,384,028 559,667 672,532 7,750,430 Debts represented by securities 35,326 24,126 37,289 118,159 513,761 982,907 1,711,568 Subordinated Liabilities 0 0 17,871 27,939 60,308 121,996 228,114 Other 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 0 365,578 365,578
TOTAL 2,771,882 2,217,476 1,915,057 1,625,083 3,309,202 2,148,152 13,986,852
Assets
Credit to IC ´ s 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 3,380,541 9,807,382 Financial assets 16,913 36,731 190,095 360,520 412,152 33,166 1,049,578 Investments and tangible and intangible 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 1,224,070 2,100,364 0 0 TOTAL 1,060,764 1,087,648 1,137,655 1,376,480 4,258,575 5,065,730 13,986,852
Note: (a) There is a restatement in items in balance sheet in Dec 12, vis-à-vis values published in Annual Report and Accounts last year.
Analysis of the gaps in the maturities profile for future cash flows also possible makes it to determine concentrations of risk at the various maturities:
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(thousand euros) 2013 % ACCUMULATED ACCUMULATED %GAP /TOTAL GAP GAP / TOTAL GAP ASSETS ASSETS UP TO 1 MONTH (2,364,941) (2,364,941) -17.4% -17.4% 1-3 MONTHS (1,088,386) (3,453,326) -8.0% -25.4% 3-6 MONTHS (844,133) (4,297,459) -6.2% -31.6% 6-12 MONTHS (906,109) (5,203,568) -6.7% -38.3% 1-5 YEARS 1,790,445 (3,413,123) 13.2% -25.1% >5 YEARS 3,413,123 - 25.1% -
(thousand euros) 2012 % 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 (777,403) (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% -
In analysing the liquidity gaps, the bank applies the same factors described for Banif SA liquidity gaps (see “Analysis of the Liquidity Risk” in the section “Quantitative analysis – Banif SA (individual perspective)”), namely:
The change seen in the 1 month and the 1 to 5 year liquidity gap is explained by the change in the residual maturity due dates for funds borrowed from the ECB, as these facilities were renewed. Additionally, the 1 to 5 year gap benefitted from the purchase of Portuguese public debt, which was added to the financial assets item.
As regards client funds, there was an increase in deposits in the 6 to 12 month gap, at the expense of shorter time intervals. This was a consequence of the bank’s campaign to bring in more stable funding. Overall, there was a fall in client funds because of the lower interest rates paid on deposits.
GAP/Total Assets (%) 30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
-30.0%
a) Whereas discontinued operations units b) Excluding discontinued operations units
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MANAGEMENT REPORT AND ACCOUNTS 2013
GAP/Accumulated Total Assets (%) 10.0%
0.0%
-10.0%
-20.0%
-30.0%
-40.0%
-50.0%
a) Whereas discontinued operations units b) Excluding discontinued operations units
A comparative analysis of the gaps calculated according to the financial statements (option “a” in the figures above) and the gaps calculated with the discontinued units fully removed from the equation (option “b” in the figures above) reveals no significant change to the liquidity risk structure.
Derivatives at fair value
The table below lists the derivatives carried at fair value, broken down by maturity gaps, and based on the remaining period (to the contractual date) at 31 December 2013 and 2012, respectively. The amounts shown correspond to the updated contracted cash flows, although these flows might take place before the maturity date.
The cash flows for the portfolio of derivative financial instruments for trading, by residual maturities, not including the impact of the discontinued units, are as follows:
(thousand euros)
2013 Up to 1m 1-3m 3-12m 1-5 Y >5Y Total Swaps FX -2,226 -1,959 -1,496 0 0 -5,680 Currencies 1,751 134 2 0 0 1,887 Interest Rate Swaps 0 0 0 -692 -3,303 -3,996 Credit Default Swaps 0 0 0 0 0 0 Foreign exchange forward transactions 0 0 0 0 0 0 Total -474 -1,825 -1,494 -692 -3,303 -7,789
2012 Up to 1m 1-3m 3-12m 1-5 Y >5Y Total Swaps FX -1,539 -1,941 19 0 0 -3,461 Currencies -109 56 103 4 0 54 Interest Rate Swaps 4 -8 766 101 -4,817 -3,954 Credit Default Swaps 0 0 0 0 0 0 Foreign exchange forward transactions 0 0 0 0 0 0 Total -1,644 -1,893 888 105 -4,817 -7,361
The discontinued units are of low materiality in terms of exposure to the portfolio of financial derivative instruments held for trading, as the figure below shows.
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up to 1m 1-3m 3-12m 1-5 Y >5Y Total 0 -1,000 -2,000 -3,000 -4,000 -5,000 -6,000 -7,000 -8,000 -9,000
a) Whereas discontinued entities b) Excluding discontinued entities
1.10.6. Analysis of the Sovereign Risk
The group’s exposures at 31 December 2013 are disclosed in note 49 “Special conditions applying to the sovereign risk of Portugal, Greece, Ireland, Spain, Italy and Cyprus” in the Banif Group annexe (consolidated view).
1.10.7. Analysis of the Operating Risk
There are certain occurrences in banks’ everyday business activities that may lead to losses because of the operating risk (OR) to which they are exposed.
The bank has a process for loading and checking OR events that depends on information flowing in from a number of sources.
OR managers augment this information by also recording events. Points that need dealing with are then added to these events, in such a way as to trigger mitigation measures. The aim is to strengthen and disseminate our operating risk culture so that the collaboration that already exists may be continued and improved by all staff working for the group.
The total losses for 2013 calculated on the basis of recorded operating risk events do not take into account the discontinued operational units.
The calculated losses sustained in 2013 through the recording of OR events, by category and risk source, are as follows:
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Distribution of the number of casualties reported by risk Category by Banif Group (2013)
2% Internal Fraud
0% Damage in Material Assets
Business problems and 16% System failures
Practices with 24% customers, products…
36% External Fraud
Execution, delivery 21% management and…
0% 10% 20% 30% 40%
Freq.
Distribution of the number of casualties reported by source of risk by Banif Group(2013)
17% Systems
11% Human Resources
36% Processes
36% External Factors
0% 10% 20% 30% 40% Freq.
1.10.8. Risk-Weighted Assets
At 31 December 2013, risk-weighted assets stood at 9,506 million euros. Of these, 8,574 million euros (90% of the total) were credit and counterparty risk related, 865 million euros were operating risk related (9% of the total) and 67 million euros were market risk related (1% of the total).
The 1,251 million euros fall in risk-weighted assets, with respect to 31 December 2012, was basically due to the major deleveraging process being applied to our loans portfolio. Other causes include the large increase in impairments and the sharp fall in business activity.
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Evolution of RWAs 11,000
10,000
9,000
8,000
7,000
6,000 2012 2013
RWAs Market Risk RWAs Operating Risk RWAs Credit Risk
Note: Credit RWAs also included the RWA values for the “Other Assets” segment (i.e. accounting items not relating to loans or securities, such as “Fixed”, “Cash”, etc.)
1.11. Quantitative Analysis – Banif SA (individual)
1.11.1. Analysis of the Credit Risk a) Exposure to credit risk by accounting item
The exposure to credit risk, at 31 December 2013 and 2012, by accounting item and compared to the previous year, is detailed in the table:
(thousand euros)
2013 2012 Restated 2012 Net Maximum Net Maximum Net Maximum exposure exposure * exposure ** exposure * exposure ** exposure * ** Finacial assestes held for trading 2,542 2,542 1,097 1,097 1,097 1,097 Other financial assetes at fair value through profit or loss 180,931 180,931 187,966 187,966 187,966 187,966 Financial assets avaiable for sale 4,221,287 4,221,287 3,817,235 3,817,235 3,817,235 3,817,235 Credit to Clients 7,205,286 2,751,238 7,918,786 3,079,190 7,927,385 3,087,789 Investments held until maturity 12,081 12,081 0 0 0 0 Other assets 586,463 586,463 318,829 318,829 318,829 318,829 Subtotal 2,481,242 2,481,242 2,954,431 2,954,431 2,951,272 2,951,272 Contigent liabilities 14,689,832 10,235,784 15,198,344 10,358,748 15,203,784 10,364,188 assumed commitments 7,048,651 7,048,651 6,984,600 6,984,600 6,984,600 6,984,600 Subtotal 908,641 908,641 739,893 739,893 739,893 739,893 Total 7,957,292 7,957,292 7,724,493 7,724,493 7,724,493 7,724,493 Total credit risk exposure 22,647,124 18,193,076 22,922,837 18,083,241 22,928,277 18,088,681
* Maximum exposure: the net worth of the balance sheet, whereas the value of regulatory provisions under the heading "Credit to client" and the im pa irm e nt o n the re m a ining va lue . ** Net exposure: maximum exposure inferred from effect of mitigation for relevant side, considering that guarantees/bail bonds and other weak c o lla te ra l va lue .
Additional information on the collateral associated with the loans portfolio is provided in the “Collateral management” item in this chapter.
The breakdown of the “Commitments assumed” item into its irrevocable and revocable components is disclosed in note 28.
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MANAGEMENT REPORT AND ACCOUNTS 2013 b) Loans portfolio structure by sector
Taking into account the portfolio diversification policy, at 31 December 2013 and 2012, client lending was distributed across the following sectors:
(thousand euros) 2013 2012 Restated 2012 Maximum Maximum Maximum exposure Net exposure exposure Net exposure exposure Net exposure Services 1,194,872 17% 801,433 29% 1,244,561 16% 841,320 27% 1,248,335 16% 845,094 27% Construction 622,599 9% 371,222 13% 833,831 11% 436,401 14% 836,689 11% 439,259 14% Property activities 523,562 7% 223,588 8% 671,143 8% 263,218 9% 672,796 8% 264,871 9% Industry 461,149 6% 323,832 12% 489,322 6% 341,370 11% 489,322 6% 341,370 11% Retail sales 367,795 5% 180,204 7% 407,521 5% 210,368 7% 407,538 5% 210,385 7% Public sector 265,301 4% 137,584 5% 225,059 3% 207,527 7% 225,192 3% 207,660 7% Financial institutions and insurance companies 132,521 2% 118,908 4% 144,930 2% 128,176 4% 144,930 2% 128,176 4% Other sectores 415,599 6% 248,390 9% 450,702 6% 263,223 9% 450,729 6% 263,250 9% Private clients 3,221,888 45% 346,077 13% 3,451,717 44% 387,587 13% 3,451,854 44% 387,724 13% 7,205,286 2,751,238 7,918,786 3,079,190 7,927,385 3,087,789
Note: Private Clients classified as individual entrepreneurs were allocated to the respective activity sector
c) Geographical structure of the loans portfolio
The geographical exposure to credit risk at 31 December 2013 and 2012 is detailed in the table below. The Portuguese market, with a share of 91%, was responsible for most of this risk.
(thousand euros) 2013 2012 Restated 2012 Maximum Maximum Maximum exposure Net exposure exposure Net exposure exposure Net exposure Mainland Portugal 4,139,142 57% 1,650,132 60% 4,594,400 58% 1,807,005 59% 4,602,994 58% 1,815,599 59% Autonomous Regions 2,438,952 34% 862,432 31% 2,702,775 34% 1,086,115 35% 2,702,775 34% 1,086,115 35% European Union 428,465 6% 113,850 4% 418,890 5% 75,914 2% 418,894 5% 75,918 2% resto of Europe 16,964 <1% 457 <1% 34,272 <1% 5,617 <1% 34,272 <1% 5,617 <1% North america 56,192 <1% 36,518 1% 58,063 <1% 35,619 1% 58,063 <1% 35,619 1% Latin America 79,901 1% 57,823 2% 76,677 <1% 51,690 2% 76,677 <1% 51,690 2% Rest of the world 45,670 <1% 30,026 1% 33,710 <1% 17,231 <1% 33,710 <1% 17,231 <1% Total credit risk exposure 7,205,286 2,751,238 7,918,786 3,079,190 7,927,385 3,087,789
d) Loans portfolio structure by geography and by sector
At 31 December 2013, the European market accounted for the overwhelming majority of lending to individuals, financial institutions and insurers.
(thousand euros) 2013 Rest of Rest of European North Latin Portugal the the Total Union America America Europe world Services 1,086,598 100,033 9 7,744 2 486 1,194,872 Construction 613,445 8,274 0 62 622 196 622,599 Property activities 463,114 0 0 0 50,491 9,958 523,562 Industry 460,947 5 0 197 0 0 461,149 Retail sales 367,571 158 7 0 1 58 367,795 Public sector 265,301 0 0 0 0 0 265,301 Financial institutions and insurance compan 96,277 203 18 18,848 0 17,175 132,521 Other sectores 412,642 37 5 1,606 678 631 415,599 Private Client (individual entrepreneurs) 2,812,199 319,755 16,925 27,735 28,107 17,166 3,221,888 Total exposure by Sector/geographic 6,578,094 428,465 16,964 56,192 79,901 45,670 7,205,286 areas
Weight of each geographical area 91% 6% <1% 1% 1% 1%
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MANAGEMENT REPORT AND ACCOUNTS 2013 e) Quality of the loans portfolio
The breakdown of the bank’s loans portfolio, by main business segment, at 31 December 2013 and 2012, offered the following credit quality profile:
Companies Personal Credit
90% 90% 75% 75%
60% December 2012 60% December 2012 45% 45% 30% December 2013 30% December 2013 15% 15% 0% 0% Superior Quality Standard Quality Sub-standard Superior Quality Standard Quality Sub-standard Quality Quality
Housing Credit Other Credits
90% 90% 75% 75% 60% December 2012 60% December 2012 45% 45% 30% December 2013 30% December 2013 15% 15% 0% 0% Superior Quality Standard Quality Sub-standard Superior Quality Standard Quality Sub-standard Quality Quality
The breakdown of client loan quality is based on the more significant segments and quality is categorised into three risk levels, according to probability of default: “Superior Quality”, “Standard Quality” and “Sub-standard Quality”. The method used to classify portfolios in previous years was reformulated (to allow a comparison with 2012 data, with the 2013 amounts above reflecting the new method). Sub-standard quality operations are those that have been in default for over 90 days, the loans extended to bankrupt clients and any operations restructured over a year before that were in default on the restructuring date.
The total amount of overdue credit, at the end of 2013, counting both capital and interest (and including securitised credit), came to 773,014 thousand euros, of which 738,897 thousand euros was more than 90 days overdue (2012: 751,362 thousand euros).
The distribution of overdue loans by segment is shown below:
2013 (thousand euros)
<3 months 3 - 6 months 6 - 12 months 1 - 3 years >3 years Total Companies 26,370 46,936 83,375 247,257 154,795 558,734 Private Clients, Property 604 740 2,335 25,025 30,573 59,276 Private Clients, Consumer 3,993 1,782 5,367 22,795 18,321 52,259 Private Clients, Others 3,150 3,201 10,377 35,690 50,327 102,746 Total 34,117 52,660 101,454 330,767 254,016 773,014
2012 (thousand euros)
<3 months 3 - 6 months 6 - 12 months 1 - 3 years >3 years Total Companies 27,186 85,115 138,021 254,592 109,749 614,663 Private Clients, Property 1,227 1,414 4,475 19,278 21,237 47,630 Private Clients, Consumer 2,973 1,848 5,281 19,523 9,037 38,661 Private Clients, Others 4,662 3,473 11,508 29,743 37,070 86,456 Total 36,048 91,849 159,285 323,135 177,093 787,411
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MANAGEMENT REPORT AND ACCOUNTS 2013
The following table shows amounts broken down by sector and credit quality:
(thousand euros) 2013 2012
Gross Total exposure in Gross Total exposure in exposure* default exposure* default Services 1,291,019 142,113 11% 1,319,062 173,698 13% Construction 783,235 218,100 28% 968,450 270,149 28% Property activities 639,800 103,765 16% 739,857 155,984 21% Industry 541,355 110,482 20% 568,913 139,056 24% Retail sales 443,518 130,580 29% 466,741 106,995 23% Public sector 265,359 8,103 3% 225,209 17,018 8% Financial institutions and insurance companies 135,933 4,885 4% 147,659 4,968 3% Other sectores 490,381 126,337 26% 521,828 149,839 29% Private Client 3,383,621 401,911 12% 3,622,985 422,105 12% 7,974,221 1,246,276 16% 8,580,704 1,439,812 17%
* Gross exposure: refers to the balance sheet value before provisions. ** Total exposure in default >90 days: refers to the total balance of credit operations (non performing loans) which, at the reference date, are in default for more than 90 days, in accordance with the Instruction no 23/2007 of the Banco de Portugal.
In addition to the worsening economic climate in 2013, the changes in the indicators presented above were also influenced by the significant reduction in the loans portfolio that is a consequence of the ongoing deleveraging process. Some sectors did show slight improvement, with respect to the 2012 non-performance figures. These sectors included services, real estate, industry and the public sector, amongst others.
In terms of credit quality, the non-performance and provisioning indicators, at 31 December 2013 and 2012, were as follows:
(thousand euros)
2013 2012 Credit to clients 7,201,207 7,793,293 Overdue credit and interest 773,014 787,411 of which, credit and interest overdue > 90 days 738,896 751,362 Total Credit 7,974,221 8,580,704 Provisions for overdue credit and interest 768,935 653,319 Allocation of provisions for overdue credit 243,254 171,940
Indicators (%)
Overdue credit and interest/Total credit 9.7% 9.2% Credit and interest overdue > 90 days/Total credit 9.3% 8.8% Credit in default/Total Credit* 11.8% 10.8% Credit in default, net/Total credit, net* 2.4% 3.5% Crédito in Risk/Total credit* 17.7% 18.2% Crédito in Risk, net/Total credit, net* 8.9% 11.4% Provisions for overdue credit and interest/Overdue credit and interest 99.5% 83.0% Provisions for overdue credit and interest/Overdue credit and interest >90 days 104.1% 87.0% Provisions for overdue credit and interest/Total credit 9.6% 7.6% Allocation of provisions for overdue credit/Overdue credit and interest 31.5% 21.8% Allocation of provisions for overdue credit/Total credit 3.1% 2.0%
* In accordance with the Instruction no 22/2011 of the Banco de Portugal.
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The changes in credit quality indicators reflect the adverse macroeconomic climate in 2013, and the resulting severe economic slowdown, lower private consumption, higher unemployment and consequent faster degradation of company and private client credit risk.
There was a similar effect on the volume of loans restructured because clients were in difficulty, as the following table details:
(thousand euros) 2013 2012 Gross Restructured Gross Restructured exposure* exposure** exposure* exposure** Residents 7,794,165 1,018,982 13% 8,431,457 799,148 9% Housing 2,918,318 93,525 3% 3,052,445 27,233 1% Consumption and others 848,596 144,068 17% 904,941 69,558 8% Companies 3,595,490 720,891 20% 4,186,995 655,564 16% Public administration 262,416 54,537 21% 176,671 41,266 23% Others 169,345 5,962 4% 110,405 5,527 5% Non-residents 180,056 36,152 20% 149,247 11,676 8% 7,974,221 1,055,134 13% 8,580,704 810,824 9%
* Gross exposure: re fe rs to ba la nc e s he e t va lue be fo re pro vis io ns . ** Restructured exposure: re fe rs to the c re dit o pe ra tio ns who s e the initia l c o nditio ns we re re fo rm ula te d a s a re s ult o f the de te rio ra tio n in the qua lity c re dit to c lie nts .
Banif regularly monitors its loans portfolio for preventive detection of potential client default. Specifically, the bank implemented a series of solutions aimed at clients who are showing signs of having repayment difficulties. This enables us to avert any worsening of the level of non- performance and to anticipate any situations in which loans may become overdue.
To this end, the bank negotiates new loan conditions that are better matched to the client’s financial capabilities and their capacity to generate funds. In compliance with Banco de Portugal regulations, credit operations subject to restructuring are identified and labelled as such in our information systems. This process covers credit operations whose initial conditions have been reformulated, in the same operation or by contracting a new loan, following a deterioration of the client’s creditworthiness. Loans identified as being restructured are deemed to no longer be so if, after one year, no new defaults have taken place.
Banif preferentially requests the reinforcement of guarantees and/or the full payment of overdue interest and other changes, when such restructuring takes place.
f) Collateral management
At 31 December 2013, the loans portfolio was covered by the mitigation measures shown below, taking into account (i) only those eligible for calculating the solvency ratio and (ii) other mortgage guarantees. There is, however, additional relevant coverage by other types of mitigation measures:
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Degree of credit coverage by mitigation measures (in amount) 3,500
3,000 48
2,500
2,067 2,000 without guarantees
1,500 2,989 with guarantees
1,000
1,165 500 188 168 0 8 144 Companies Personal Credit Housing Credit Others Credits
Degree of credit coverage by mitigation measures (%)
0%
0% 0% without guarantees 0% with guarantees 0%
0% 0%
0% Companies Personal Credit Housing Credit Others Credits
As regards our collateral appraisal policy, the bank will request periodic appraisals of properties by independent experts certified by the Securities and Exchange Commission. Our own real estate specialists then confirm these appraisals.
For securities, the bank prefers to apply market values, adjusted by any necessary haircuts, or have companies appraised by qualified experts, who may come from investment banks within the group.
When personal guarantees are provided, these are taken into account if the guarantor’s assets are properly certified, free of burdens and not subject to formal errors.
1.11.2. Analysis of the Market Risk
As a matter of policy, Banif SA does not trade securities or derivatives. At 31 December 2013, the IAS items for financial assets and liabilities held for trading comprised the market value of derivatives,
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MANAGEMENT REPORT AND ACCOUNTS 2013 carried at marked-to-market value. However, these actually consist of economic hedges of exposures on the balance sheet and/or of operations with clients.
At this date, the financial assets held for trading corresponded to a positive market value of 2.5 million euros in interest rate and foreign exchange derivatives (1.1 million euros in 2012), mostly currency swaps and forwards. The financial liabilities held for trading had a negative market value of 13.8 million euros (9.5 million euros in 2012), of which 6.1 million euros related to interest rate swaps (IRS) and 5.8 million euros to exchange rate swaps. The IRS were contracted to hedge the interest rate risk in securitisation operations for loans issued by Banif SA. The exchange rate derivatives were contracted to hedge cash flow and other exposures.
1.11.3. Analysis of the Interest Rate Risk
Interest rate risk is calculated through the categorisation of all the asset, liability and off-balance sheet items in the banking portfolio that are sensitive to oscillations in interest rates, according to interest rate reset scales.
This analysis is based on a positive or negative 200 basis point parallel shock to the income curve and the consequent impact on the bank’s liquidity and the net interest income for the year, on an individual basis, using the assumptions provided in Banco de Portugal Instruction 19/2005.
Sensitivity analysis – impact of a positive change of 200 basis points to the interest rate curve for relevant currencies
(thousand euros)
2013 2012 EUR USD TOTAL EUR USD TOTAL Up to 1 m -15 -88 -103 913 -105 808 1 - 3 m -5,726 104 -5,622 -5,739 -98 -5,837 3 - 6 m -12,072 637 -11,435 -10,323 1,187 -9,136 6 - 12 m 10,701 1,402 12,103 14,787 1,028 15,815 1 - 5 y 103,827 1,928 105,755 7,316 -636 6,680 > 5 y -6,228 -52 -6,281 -6,491 -2,885 -9,376
Impact on the net worth 90,487 3,931 94,418 463 -1,509 -1,046
Impact on the net worth, in % of 10.4% 0.5% 10.8% 0.0% -0.1% -0.1% own funds
EUR USD TOTAL EUR USD TOTAL Up to 1 m 342 2,102 2,444 -21,935 2,523 -19,412 1 - 3 m 30,259 -560 29,699 30,237 415 30,652 3 - 6 m 16,654 -1,015 15,639 13,977 -1,868 12,109 6 - 12 m -4,881 -311 -5,192 -6,759 -198 -6,957 impact on the net interest income, 42,374 216 42,590 15,520 872 16,392 at 12 months Impact on the annual net interest 36.1% 0.2% 36.3% 11.5% 0.6% 12.2% income, in %
Owb Funds 873,498 1,178,268 Net Interest Income 117,392 134,598
Note: this analysis considers the own funds (2012) after the recapitalisation.
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Net Worth Net Interest Income 120,000 40,000
100,000 30,000
80,000 20,000
60,000 10,000
40,000 0 Up to 1 m 1 - 3 m 3 - 6 m 6 - 12 m 20,000 -10,000
0 -20,000 Up to 1 1 - 3 m 3 - 6 m 6 - 12 m 1 - 5 Y > 5 Y -30,000 -20,000 m 2013 2012 2013 2012
All balance sheet and off-balance sheet financial instruments that, by definition, are not affected by fluctuations in exchange rates were excluded from this analysis.
The results of the sensitivity analysis indicate that a rise in market rates would have a negative impact on net worth and a positive impact on net interest income. In 2013, there was a significant improvement in the balance between assets and liabilities, in terms of resetting the interest rate. As regards net interest income, the gap recorded in 2012 for a positive shock of 200 basis points was now narrower. Due to the high volume of deposits at maturities of less than one month, there had been an imbalance between assets and liabilities in that year.
The breakdown of the loans portfolio by remuneration type (fixed or floating) and, in the case of the floating rate, by Index period, is shown in the following graph:
Up to 1 m 9%
1 - 3 m 56% Fixed Rate 14% Floating 3 - 6 m 32% Rate 86% 6 - 12 m 3%
1 - 5 Y 0%
> 5 Y 0%
1.11.4. Analysis of the Exchange Rate Risk
The main exposure is in the loans portfolio to clients and is mostly in pounds sterling (GBP) and US dollars (USD). The table below details credit risk exposure by currency:
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(thousand euros)
Currency 2013 2012 EUR 7,064,726 7,777,798 USD 100,162 99,313 GBP 38,635 47,271 CHF 1,661 2,336 JPY 88 664 DKK 7 0 SEK 7 3 Total 7,205,286 7,927,385
1.11.5. Analysis of the Liquidity Risk
The tables below summarise the maturity profile of the cash flows for the bank’s assets and liabilities at 31 December 2013 and 2012 (not including future interest payments), respectively:
(thousand euros) 2013 UP TO 1 MONTH 1-3 MONTHS 3-6 MONTHS 6-12 MONTHS 1-5 YEARS >5 YEARS TOTAL
LIABILITIES 3,150,021 1,509,737 1,329,928 1,841,658 2,386,287 3,637,625 13,855,256 Funds from central banks and other IC ´ s 2,148,241 60,109 3,749 0 1,195,901 0 3,408,000 Client funds and other loans 886,188 1,405,654 1,321,613 1,609,570 463,170 617,021 6,303,216 Debts represented by securities 502 3,108 1,289 194,558 255,386 0 454,843 Subordinated Liabilities 0 0 0 0 53,377 66,582 119,958 Other Liabilities 115,090 40,866 3,276 37,530 260,796 2,954,023 3,411,581 Provisions 0 0 0 0 157,657 0 157,657 Capital and reserves 0 0 0 0 0 834,577 834,577 TOTAL 3,150,021 1,509,737 1,329,928 1,841,658 2,386,287 4,472,202 14,689,832
ASSETS Credit to CIs 317,029 37,198 0 6,000 0 0 360,227 credit to Clients 405,108 394,223 419,068 449,333 2,408,466 3,129,088 7,205,286 Fiancial assets 26,987 40,276 20,282 355,092 707,276 3,254,847 4,404,760 Investments and tangible and intangible assets 0 0 0 0 0 513,685 513,685 Others assets 190,135 15,738 36,733 125,274 695,100 1,142,895 2,205,875 TOTAL 939,259 487,435 476,083 935,699 3,810,842 8,040,515 14,689,832
(thousand euros) 2012 UP TO 1 MONTH 1-3 MONTHS 3-6 MONTHS 6-12 MONTHS 1-5 YEARS >5 YEARS TOTAL
LIABILITIES 2,871,340 1,969,019 1,719,609 1,362,813 2,782,112 4,156,485 14,861,378 Funds from central banks and other IC ´ s 1,589,150 85,693 7,498 0 1,665,606 0 3,347,947 Client funds and other loans 1,141,436 1,847,488 1,681,244 1,269,390 480,455 799,666 7,219,679 Debts represented by securities 1,385 6,070 10,958 29,665 460,299 20,769 529,146 Subordinated Liabilities 0 0 17,871 27,939 45,121 99,890 190,821 Other Liabilities 139,369 29,768 2,038 35,819 12,588 3,236,160 3,455,742 Provisions 0 0 0 0 118,043 0 118,043 Capital and reserves 0 0 0 0 0 342,406 342,406 TOTAL 2,871,340 1,969,019 1,719,609 1,362,813 2,782,112 4,498,891 15,203,784
ASSETS Credit to CIs 558,709 323,261 765 2,790 34,422 0 919,947 credit to Clients 468,450 397,678 668,516 591,107 2,736,709 3,064,925 7,927,385 Fiancial assets 416 30,087 134,748 284,293 87,457 3,469,297 4,006,298 Investments and tangible and intangible assets 0 0 0 0 0 745,786 745,786 Others assets 191,544 18,290 46,546 188,533 368,295 791,160 1,604,368 TOTAL 1,219,119 769,316 850,575 1,066,723 3,226,883 8,071,168 15,203,784
Note: according to section 2.3 Corporate Information, the value of the item “Credit to Clients” in 2012 was subject to a restated.
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Analysis of the gaps in the maturities profile for future cash flows also makes it possible to determine concentrations of risk at the various maturities:
(thousand euros) 2013 %GAP ACCUMULATED %GAP /TOTAL GAP ACCUMULATED GAP ASSETS /TOTAL ASSETS UP TO 1 MONTH (2,210,762) (2,210,762) -15.0% -15.0% 1-3 MONTHS (1,022,303) (3,233,064) -7.0% -22.0% 3-6 MONTHS (853,845) (4,086,909) -5.8% -27.8% 6-12 MONTHS (905,960) (4,992,868) -6.2% -34.0% 1-5 YEARS 1,424,555 (3,568,313) 9.7% -24.3% >5 YEARS 3,568,313 - 24.3% -
(thousand euros) 2012 %GAP ACCUMULATED %GAP /TOTAL GAP ACCUMULATED GAP ASSETS /TOTAL ASSETS UP TO 1 MONTH (1,652,221) (1,652,221) -10.9% -10.9% 1-3 MONTHS (1,199,703) (2,851,924) -7.9% -18.8% 3-6 MONTHS (869,034) (3,720,958) -5.7% -24.5% 6-12 MONTHS (296,090) (4,017,048) -1.9% -26.4% 1-5 YEARS 444,771 (3,572,277) 2.9% -23.5% >5 YEARS 3,572,277 - 23.5% -
The recapitalisation operation, which involved the state subscribing to special shares (700 million euros) and core tier 1 capital instruments (400 million euros), put the bank in a position where it was able to purchase a portfolio of Portuguese public debt with a value of approximately 1,000 million euros. ECB funding came to 2,906 million at year-end, an increase of 501 million euros, compared to the end of 2012.
The change seen in the 1 month and the 1 to 5 year liquidity gap is explained by the change in the residual maturity due dates for funds borrowed from the ECB, as these facilities were renewed. Additionally, the 1 to 5 year gap benefitted from the purchase of Portuguese public debt, which was added to the financial assets item.
As regards client funds, there was an increase in deposits in the 6 to 12 month gap, at the expense of shorter time intervals. This was a consequence of the bank’s campaign to bring in more stable funding. Overall, there was a fall in client funds because of the lower interest rates paid on deposits.
As there is no immediate prospect of appreciably closing the commercial gap, and with the aim of building a liquidity cushion above 1,000 million euros, Banif will implement the following cash- generating measures in 2014:
A 300 million euro funding operation collaterised by a pool of junior tranches (mezzanines) of securitisations issued by the group. This will be carried as a liability for one and a half to two years and will allows us to reduce ECB uptake.
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MANAGEMENT REPORT AND ACCOUNTS 2013
The sale of senior tranches of securitisations held in our own portfolio (and currently used as collateral at the ECB). This will have an impact of 100 million euros and will allow us to reduce uptake by some 370 million euros, with an increase in securities over periods greater than 5 years. The conversion of a loan to the Autonomous Region of Madeira into bonds will have an impact of 100 million euros and will allow us to reduce uptake.
1.11.6. Analysis of the Operating Risk
The distribution by risk source of operating risk events occurring at Banif, SA in 2013 is shown below:
Distribution by risk source of operating risk events occurring at Banif, SA in 2013
17% Systems
11% Human Resources
34% Processes
38% External Factors
0% 10% 20% 30% 40%
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07|Analysis of the Consolidated Accounts and Separate MANAGEMENT REPORT AND ACCOUNTS 2013
07|Analysis of the Consolidated Accounts and Separate
1. ANALYSIS OF THE CONSOLIDATED ACCOUNTS
Profit and Loss Statement
In 2013, overall year-on-year banking revenue rose by 40.5%, to 194.1 million euros, when compared to the restated figures for 2012 (which are the figures used for comparison throughout this analysis). A number of factors contributed to this, including:
An increase in net interest income to 124.7 million euros (+18.7% compared to the previous year). Net interest income trended upwards throughout 2013, due to our policy of reducing funding costs by being more selective in our acquisition of client resources. In the 4th quarter, net interest income rose 9.2%, compared to the previous quarter (excluding the effect of the discontinued units).
A fall of 11.4% in (net) commissions, to 72.4 million euros, caused by the change introduced by the new Banco de Portugal rules that came into effect from the 2nd quarter onwards and by the fall-off in banking activity at both the commercial and investment banking arms.
Net trading income of 30.9 million euros, mostly from the gains made on disposing of fixed income securities (32.4 million euros).
Other operating income performed more positively, despite being around -36.3 million euros, mainly because of a fall in the value of real estate assets. In 2013, the group carried a loss in this item of 59.7 million euros. These losses, which arose from both the depreciation and sale of real estate assets, compare favourably with the 68.6 million euros loss suffered in 2012.
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MANAGEMENT REPORT AND ACCOUNTS 2013
Operating Income: Structure
(Euro million)
40.5% 138.2 194.1 100%
80% 37.3%
60% 59.2% 17.2%
40%
76.1% 64.2% 20%
0% - 7.1% -18.7% - 1.8% -20% Dec 12 Dec 13
Net Interest income Net Trading income Fees & Commisions Other operating income
Structural costs in 2013 totalled 236.8 million euros. This year-on-year reduction of 34.7 million euros (-12.8%) reflects the impact of the streamlining and optimisation measures introduced by the group. These measures were designed to reshape the group to provide a better match with the current climate in which we carry out our banking activities. Overall staff numbers were reduced by 179, of which 113 were in Portugal, and a number of branches were closed, 36 of them in Portugal.
Net provisions and impairments for 2013 were 366.1 million euros, which is 15.5% less than in the previous year. Banco de Portugal instigated an audit at the bank, which resulted in an additional strengthening of impairments by 61.1 million euros (2nd quarter). In the 4th quarter, we implemented a new method for calculating the impairment in the loans portfolio, which explains why this item increased so much in this final quarter. This new method, which is even more conservative and sensitive to the economic climate, was applied to both the new statistical model for collective impairment and to the assessment of the recoverability of loans analysed individually. This resulted in a significant strengthening of the impairment coverage for loans overdue >90 days, which grew from 81.9% in 2012 to 98.6% at the end of 2013. We also made a more prudent adjustment to the appraisal value of our stock of real estate assets adjusted. The impact in the fourth quarter of these new prudence criteria was over 120 million euros.
We made a net loss of -470.3 million euros in 2013, compared to -584.2 million euros in 2012.
Our net profit (loss) in 2013 was strongly influenced by i) the strengthening of provisions and impairments (366.1 million euros); ii) the losses sustained in the discontinued operational units, particularly the unit in Brazil, which made a loss of 95.8 million euros; iii) the interest cost of the CoCos (30.6 million euros) and iv) the costs involved in the recapitalisation process (13.2 million euros).
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MANAGEMENT REPORT AND ACCOUNTS 2013
Balance sheet Net assets totalled 13,603.5 million euros at 31 December 2013, a fall of 2.7% compared to the end of 2012. During the year, we purchased Portuguese sovereign debt securities worth approximately 1.1 thousand million euros, using the funds from the capital increase operation and from the contingent convertible subordinated bonds issued as part of the recapitalisation process.
Gross lending to clients came to 9,129.2 million euros at 31 December 2013, around 16.3% less than in December 2012. The effect on this item of the reclassification of the discontinued operational units was 788.3 million euros. Without this effect, loans to clients would have fallen by 9.1%. This fall in lending reflects the deleveraging effort we made, mainly in non-strategic sectors, and a general climate in which families and businesses were less eager to seek credit, because of the recession that particularly affected the Portuguese economy.
However, Banif did provide considerable support to Portuguese businesses, specifically through the launch of our Leads programme, which we set up with 500 million euros in funding, for SMEs in the industrial and agro-food sectors. The result of this successful commercial repositioning, which was strongly focused on the (micro and SME) business segments, was that our lending stock stabilised in the 4th quarter of 2013.
Gross lending to clients (millions of euros)
Dec-13 Dec-12 Variation Corporate 3,620 4,149 -12.8% Individuals Mortgage Loans 2,885 3,073 -6.1% Cossumer Loans 522 589 -11.4% Other Loans 657 725 -9.4% Others 1,445 1,428 1.2%
Total 9,129 9,964 -8.4%
Discontinued Units 788 940 -16.2%
Total 9,918 10,905 -9.1%
The Others item includes loans more than 30 days overdue
At 31 December 2013, loans overdue more than 90 days represented 12.9% of all loans. This figure was impacted, significantly and primarily, by the reduction in the total lending stock. In fact, overdue credit, excluding the effect of the discontinued units, remained practically unaltered in absolute terms.
Deposits at 31 December 2013 stood at 6,303.3 million euros, 18.7% lower than in December 2012. The effect of the reclassification of the discontinued operational units on this item was 663 million euros. Without this effect, deposits would have fallen by 10.1%. This fall in deposits can be largely explained by a reduction in the deposits made by state and central administration entities and by the
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MANAGEMENT REPORT AND ACCOUNTS 2013 downward revision of the pricing structure for such deposits, part of our strategy to reduce borrowing costs and diversify our resource base. Of the components in the deposits structure, the savings products stock rose significantly throughout the year (from around 40% at the start of 2013 to 80% at the end of 2013), thus improving the group’s structural liquidity. The amount of non- standardised deposits, on which remuneration is highly volatile, fell sharply (from around 60% at the start of 2013 to 20% at the end of 2013).
In the 4th quarter of 2013, there was a clear reversal of the downward trend in deposits, which rose 2.2% over the previous quarter (excluding the impact of the discontinued units). We achieved this growth by providing much closer support to our high-value private clients in the private, affluent and upper mass-market segments. We also focused on the emigrant community with ties to Madeira and the Azores. We intend to consolidate both of these initiatives in 2014.
This strategy, together with the generalised improvement in the domestic economy, should continue to have a positive impact on resources in 2014. Additionally, the constant refreshing of a fundraising offer firmly based on savings products rather than non-standardised deposits will allow us to bring down the cost of funding even further, a critical factor in boosting our net interest income.
“Off-balance sheet” resources totalled 1,993.1 million euros at 31 December 2013.
Total client resources (millions of euros)
Dec-13 Dec-12
Total customer resources 8,841 9,834 -10.1% Deposits 6,303 7,233 -12.9%
Other liabilities 544 581 -6.3%
Total off-balance sheet resources 1,993 2,021 -1.4%
Discontinued units 962 1,020 -5.7%
Total 9,802 10,854 -9.7%
Transformation Ratio
131.2% 128.4% 131.8% 126.5% 126.4%
4Q12 1Q13 2Q13 3Q13 4Q13
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MANAGEMENT REPORT AND ACCOUNTS 2013
At 31 December 2013, the ratio of transformation of deposits into credit (net credit/deposits) stood at 126.4%, which compares with 126.5% at December 2012.
The group’s net exposure to the ECB rose by 273.5 million euros, compared to December 2012, to reach 3,077.6 million euros at the end of December 2013. However, this is a significant 703.4 million euros less than the exposure as it was at the end of the 3rd quarter of 2013. The value of the eligible and available assets lodged with the ECB went up over the year, to 501 million euros at the end of 2013.
The lower exposure to the ECB in the 4th quarter was a reversal of the trend seen in the first 9 months of the year, which is when, in counterpart to the recapitalisation operation, an issue of state-backed bonds was amortised (300 million euros) and the deposits owned by state entities were reduced (115 million euros). In the final quarter of 2013, the increase in client resources and the use of other sources of funding made it possible to reduce our exposure to the ECB. In December, Banif placed around 180 million euros in securities in a securitisation operation called Atlantes Finance No 6. This was based on consumer and car loan portfolios originally issued by Banif and Banif Mais.
Total resources: Structure at December 2013
6.6%
25.2%
54.5%
13.7% Deposits & equivalents Own debt funds Central Banks Equity
Equity, less minority interests, rose by 187.8%, compared to December 2012, to 809.9 million euros at the end of December 2013. This is mainly explained by a capital increase of 700 million euros reserved for the state and another of 311.5 million euros reserved for private shareholders. Other factors contributing to equity were the accumulated losses for 2013 (-470.3 million euros) and the fall in revaluation reserves (-16.6 million euros).
We carried out a number of capital increase operations in 2013: a) a private offering to existing qualifying shareholders (June 2013) in the amount of 100 million euros, b) a public share subscription offering for the public in general (July 2013) in the amount of 100 million euros, c) a private offering to a group of selected investors (August 2013) in the amount of 40.7 million euros and d) a 70.8 million euro increase in capital, in October 2013, via a public exchange offering.
Under Banco de Portugal rules, the core tier 1 ratio at 31 December 2013 stood at 11.16%, unchanged from 31 December 2012 (taking into account the effect of the recapitalisation approved by the state at 31 December 2012 and completed on 25 January 2013). In addition to the important adjustments
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MANAGEMENT REPORT AND ACCOUNTS 2013 to the balance sheet, 150 million euros worth of CoCos were also amortised in 2013. This explains why the ratio stayed above 11%. According to the Basel 3 rule, the common equity tier I ratio was 10.9% under the transition scheme and 7.6% under full implementation.
2. ANALYSIS OF THE SEPARATE ACCOUNTS
The separate financial statements of Banif – Banco Internacional do Funchal, SA, for the period in question, were prepared according to Adjusted Accounting Standards (NCA), pursuant to Banco de Portugal Notice no. 1/2005. However, to analyse Banif’s economic performance, its respective international comparability and its individual contribution to the group, it is more appropriate to express the accounts using the International Financial Reporting Standards (IAS/IFRS), which are applied to its consolidated financial statements.
An analysis of these separate financial statements and of the main indicators reveals the following highlights of the bank’s performance in 2013:
The recapitalisation process, which is still ongoing, has involved a progressive increase in capital, from 570 million euros, at the end of 2012, to 1,582.2 million euros, one year later. In January 2013, the state also subscribed to 400 million euros in convertible subordinated instruments (CoCos). Banif amortised 150 million euros worth of these in August. Unitary net interest income recovered, growing from 0.74% to 1.02%, excluding the effect of shareholder loans and other capital instruments. The main reason for this was the fall in the cost of funding. Business revenue fell by 5.4%, influenced by the lower net interest income – shareholder loan effect and the funding cost of the convertible subordinated instruments – and by loan commissions. The restructuring begun in 2012 produced effects in 2013. General administrative costs dropped by 18.4%, if the cost of recapitalising the bank is excluded, and staff costs fell by 3.8%, not counting redundancy payments for the years in question. Despite the 518.0 million euro loss, the bank remained comfortably solvent: the core tier I capital ratio was 13.6% and the total ratio was 11.3%, compared to 15.3% and 13.9%, respectively, in December 2012, taking into account the state-backed recapitalisation operation announced on 31 December 2012.
Profit and Loss Account In 2013, Banif SA’s net interest income came to 117.4 million euros, 7.0 million euros less than in the previous year, or a fall of 5.6%.
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MANAGEMENT REPORT AND ACCOUNTS 2013
Dec-13 Dec-12
Average Average (thousand euros) Averate Averate Balance Interest Balance Interest Rate Rate Accumulated Accumulated
Interest earning assets 13,928,814 478,840 3.39% 14,873,680 636,371 4.21%
Credit to CI's 737,213 20,661 2.76% 1,542,509 48,147 3.07% Credit to Clients 8,135,934 318,047 3.86% 9,143,197 428,170 4.61% Financial securities and assets with repurchase agreements 4,447,690 113,269 2.51% 3,753,002 96,539 2.53% Others (includes derivatives) 16,870 44,260 607,977 9,991 1.62% 434,972 19,256 4.35%
Interest bearing liabilities 14,013,875 361,448 2.54% 14,472,593 511,958 3.48%
Debt to / CI's 3,702,749 35,481 0.95% 3,063,187 48,319 1.55% Debt to clients 6,348,038 169,432 2.63% 7,428,167 277,794 3.68% Debt securities 3,439,665 111,826 3.21% 3,668,821 145,071 3.89% Other (includes derivatives) 8,695 23,103 Subordinated debt 192,696 5,357 2.74% 293,376 16,366 5.49% Other equity instruments 330,728 30,658 9.14% 19,043 1,305 6.74%
Net Interest Income (NII) 117,392 0.84% 124,413 0.85%
NII Excluding supplies and other equity 138,058 1.02% 106,462 0.74% instruments
The fall in unitary net interest income, which we estimate decreased from 0.85% to 0.84%, was strongly influenced by: (i) the subscription to 400 million euros in Coco’s in January 2013, of which 150 million euros were amortised in August. These bonds incurred costs of 30.6 million euros over the year. (ii) The non-recognition, from July 2013, of the interest on the shareholder loans made to Banif Imobiliária, following a contractual change to these operations that led to a reduction of approximately 8.8 million euros in net interest income. These two factors had a net effect of over 39.4 million euros. Thus, if we exclude the shareholder loans and the other capital instruments from net interest income, we find that unitary net interest income actually rises from 0.74% to 1.02%, mostly due to the management of the cost of client funds.
Capital instrument revenue came to 1.0 million euros, 42.8% below the figure for 2012.
In 2013, financial operations brought in 19.6 million euros, compared to a loss of 1.9 million euros the year before. The main contributing sub-item to this positive performance was financial assets available for sale, with income of 31.2 million euros, most of which was earned as gains on the sale of treasury bonds. On the other hand, assets and liabilities at fair value through profit or loss made a loss of 13.3 million euros. This was largely because of the losses at our holdings, more specifically: -4.7 million euros in the Banif Renda Habitação fund, -4.5 million euros in the Banif Property fund and -3.4 million euros in the Banif Imopredial fund. The profit from foreign exchange revaluation was 1.7 million euros, compared to 1.0 million euros, the year before.
Other net income, which includes net commissions, earnings from the disposal of other assets and other operating income fell by 29.7% year-on-year, from 84.3 million euros in 2012 to 59.3 million euros in 2013.
Net commissions dropped by 15.4%, with revenues falling 17.4%, mostly on credit product items. Costs also fell, by 23.0%, largely due to the lower commissions on guarantees received.
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The disposal of other assets resulted in a loss of 18.2 million euros. Approximately 55% of these losses can be attributed to the disposal of client credit and the rest is more or less equally divided between losses on real estate and property write-offs (IT projects and the disinvestment in the head office and branches in London). This contrasts with a profit of 1.5 million euros in 2012.
Other operating income in 2013 stood at 16.7 million euros, a year-on-year rise of 53.1%. Most of this increase can be attributed to gains on the early amortisation of subordinated loans extended by Banif Finance, as part of the public offering for the exchange of bonds for shares.
Business revenue, comprising net interest income, capital instrument revenues, financial operations and other net income, came to 197.3 million euros in 2013, compared to 208.6 million euros in 2012, a fall of 5%.
Operating costs, which include personnel costs, general operating costs and amortisations, came to 187.0 million euros, compared to 199.6 million euros the year before, a fall of 6.3%.
Personnel costs fell by 12.6%, mostly because of the redundancy payments of 12.3 million euros made in 2012, under the staff readjustment programme, part of the restructuring process begun in that year. Redundancy payments of 1.2 million euros were made in 2013. If the redundancy payments made in each year were discounted, personnel costs would have come down by 3.8%.
General administrative costs came to 65.6 million euros, compared to 64.2 million euros in 2012, a rise of 2.2%. The 2013 figure includes the 13.2 million euros spent on the preparation and implementation of the recapitalisation plan. If this expenditure were taken out of the equation, general administrative costs would have fallen by 18.4%. This reduction would then reflect the streamlining of structures and consumption that resulted from the disinvestment in the distribution network, which involved the closure of 36 branches.
Amortisations rose 8.9%, from 13.9 million euros in 2012 to 15.2 million euros in 2013, following the entry into service of new software.
Despite the decrease in banking revenues, the operating cash flow rose from 23.0 million euros at the end of 2012 to 25.5 million euros in 2013, an increase of 11.1% that can be attributed to the lower personnel costs.
The contribution made by personnel costs to the reduction in operating costs was sufficient to prevent any greater deterioration in the cost-to-income ratio, which dropped from 95.7% at the end of 2012 to 94.8%.
Net provisions and impairment, calculated according to IAS/IFRS came to 478.3 million euros in 2013, 12.0 million euros less than in 2012, as the following table shows:
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(thousand euros) Dec-13 Dec-12 Change Change %
Provisions net of reinstatements and -4.9% cancellations (50,661) (48,308) (2,353)
Impairment of loans net of reversals and 19,314 7.2% recoveries (247,837) (267,151)
Impairment of other financial assets net of 35,794 74.2% reversals and recoveries (12,478) (48,272)
Impairment of other assets net of reversals and -32.2% recoveries (167,354) (126,605) (40,749)
Total Provisions and Impairment (478,330) (490,336) 12,006 2.4%
Provisions net of reinstatements and cancelations include extra provisions in the amount of 50.8 million euros, for contingent liabilities on financial holdings.
Impairment of loans net of reversals and recoveries came to 247.8 million euros, compared to 267.2 million euros in 2012, a fall of 7.2%.
Impairment of other assets net of reversals and recoveries includes impairments on financial holdings, in the amount of 167.4 million euros. This item also covers impairments on the differences between appraisal value and book value on unattached real estate, which came to 20.0 million euros, against 15.1 million euros in 2012. It also includes impairments on “Other tangible assets” and “Debtors and other applications”, in the amount of 14.4 million euros, in 2013, compared to 18.4 million euros a year before.
84.6 million euros were set aside as provisions against financial holdings in discontinued operations.
Impairments on “Other Financial Assets”, net of reversals and recoveries, came to 12.5 million euros for the year. 6.2 million euros of these relate to impairments of financial holdings in funds. The rest pertains to the residual certificates acquired as part of the securitisation operations.
Current taxes include the impact of the Special Contribution from the Banking Sector, which came to 3.3 million euros in 2013, against 3.7 million euros in 2012.
In 2013, the bank’s business activity generated a net loss, based on IAS/IFRS, of 518.0 million euros, which compares with the 2012 loss of 453.5 million euros in 2012.
Under NCA rules, Banif, SA made a net loss of 494.3 million euros, 23.6 million euros less than under IAS rules. The main reason for this difference is the different criteria used in calculating (i) the provisions constituted in the terms of Banco de Portugal Notice 3/95, which amounted to 531.8 million euros and which included an extraordinary provision of 47.1 million euros, corresponding to the difference between the total regulatory loan provisions and the impairment calculated on the basis of no. 2 of article 3 of Banco de Portugal Notice no. 1/2005 (475.3 million euros at the end of
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2012) and (ii) the same impairment based on IAS/IFRS, which amounted to 562.9 million euros (536.4 million euros in 2012) and, consequently, the different deferred tax amounts.
Balance sheet At the end of 2013, net assets stood at 14,742.3 million euros, 3.7% lower than a year before. The drop in assets was caused by a fall-off in business activity, which resulted from the deleveraging process imposed by the Financial Assistance Programme to Portugal, and also the strengthening of impairment.
At the end of 2013, client loans made up the larger part of the bank’s net assets, at 48.5% of the total, against 51.7% in the previous year. The gross balance of client loans was 7,974.2 million euros, compared to 8,572.1 million euros at the end of 2012, a fall of 7.0%. In net terms, the decrease was - 9.5%.
In segment terms, the personal loans balance fell, before impairment, by 4.4%, but its overall proportion of the bank’s loans portfolio increased, rising from a 46.3% share in 2012 to 47.5% in 2013. Business loans fell 9.2% and their weighting in the portfolio also decreased, from 53.0% in 2012 to 51.8% in 2013.
The largest sub-component decrease in personal lending was in consumer loans, which fell 7.7% year- on-year. This type of loan accounted for 7.2% of all loans in this segment, 0.2% less than a year before.
(thousand euros) Dec-13 Dec-12 Change
Personal Property loans 2,925,249 3,062,008 -4.5% of which securitised 2,300,372 2,509,593 -8.3% Consumer loans 272,523 295,209 -7.7% of which securitised 149,223 168,972 -11.7% Other 588,438 605,005 -2.7% Total Personal Lending 3,786,210 3,962,222 -4.4%
Business Discount 222,350 184,857 20.3% Loans 2,573,916 2,677,751 -3.9% of which securitised 668,972 763,025 -12.3% Current Accounts 803,842 1,143,735 -29.7% Others 530,630 541,817 -2.1% Total Business Lending 4,130,739 4,548,161 -9.2%
Interest receivable and overdue 57,273 61,722 -7.2%
Total Gross Credit 7,974,221 8,572,105 -7.0%
Credit Impairment 819,056 663,424 23.5%
Total Net Credit 7,155,165 7,908,681 -9.5%
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Property loans continued to account for most personal lending. Despite the overall balance for this item falling 4.5% between 2012 and 2013, it increased its relative weighting within the segment, to 77.3% of the total, 0.2% more than in the previous year.
Loans to businesses came to 4,130.7 million euros, 9.2% less than in 2012.
In 2013, the bank carried out the following securitisation operations: (i) in February, we repurchased the Atlantes SME 1 operation, comprised of business loans, that, at the time, had a balance of 561.5 million euros, (ii) in May, we completed the Atlantes SME 2 operation, also comprised of business loans, with a balance of 802.4 million euros, and (iii) in December, we started a new consumer credit operation, Atlantes Finance 6, with a balance of 48.4 million euros.
In 2013, credit quality stabilised, with some indicators improving, as a result of strengthened provisions and a reduction in at-risk loans, as the following table shows:
Credit Indicators Dec-13 Dec-12
Credit provisions / total credit 9.6% 7.6% Non-performing credit / total credit 11.8% 10.8% Net non-performing credit / net total credit 2.4% 3.5% At-risk credit / total credit 17.7% 18.2% Net at-risk credit / net total credit 8.9% 11.4%
Note: as per Banco de Portugal instruction no. 16/2004, based on NCA rules
Financial assets available for sale, net of impairments, came to 4,300.0 million euros at 31 December 2013, 382.1 million euros more than in 2012. The main changes in this portfolio were: (i) a net reduction of 809.0 million euros in securities acquired through securitisation operations, mostly due to the restart of the Atlantes SME 1 programme and the sale of securities in the SME 2 operation, (ii) the acquisition of 1,061.7 million euros of Portuguese public debt; (iii) the increase of 147.5 million euros, also net, in fund holdings, namely in FLITPTREL, FCR Revitalizar, Discovery and Vallis, as counterparts to lending operations.
The portfolio of financial assets at fair value through profit and loss fell 7.0 million euros in value over the year.
The balance of “Investments in subsidiaries, associates and joint ventures”, net of impairment, fell by 216.3 million euros. This was mainly due to:
(i) the restructuring operation in Brazil, which involved the transfer of the holding in Banif – Banco de Investimento (Brasil), SA to Banif – Banco Internacional do Funchal (Brasil), SA, with an increase in the capital of the latter. This raised the holding from 131,486 thousand euros to 229,928 thousand euros.
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(ii) the capital increase at Banif Rent – Aluguer, Gestão e Comercialização Veículos Automóveis, SA and the consequent increase of 10 million euros in this holding. (iii) the repayment of additional paid-in capital in the amount of 8 million euros, by Banco Banif Mais, SA. (iv) the reclassification, in a total amount of 260.6 million euros, of the holdings in Banco Caboverdiano de Negócios, SA, Banif Bank (Malta) PLC and Banif – Banco Internacional do Funchal (Brasil), SA to “Non-current assets held for sale”, due to these being classed as discontinued operations that are to be sold.
In 2013, and as mentioned above, we strengthened the provisions for financial holdings by 217.5 million euros, of which 84.6 million euros were reclassified as “Non-current assets held for sale”, to account for the holdings reclassified to this item.
As regards liabilities, the funding inflow to Banif fell by 8.8%, or 997.3 million euros, between December 2012 and December 2013.
(thousand euros) Dec-13 Struc. Dec-12 Struc. Change
Funds from central banks 2,918,424 28.3% 2,414,205 21.4% 20,9% Funds from other credit institutions 489,577 4.8% 933,742 8.3% -47,6% Client funds 6,329,775 61.5% 7,359,802 65.1% -14 ,0% Other responsibilities represented by 428,284 4.2% 389,023 3.4% 10 ,1% securities Financial liabilities 13,790 0.1% 9,466 0.1% 45 ,7% Subordinated liabilities 119,958 1.2% 190,821 1.7% -37,1%
Total funding 10,299,808 100.0% 11,297,059 100.0% -8,8%
Funds from central banks, in this case the European Central Bank, increased by 504.2 million euros, or 20.9% more than they had been at the end of the previous year. This item now accounted for 28.3% of all funding, compared to 21.4% in 2012. The increase in these funds was obtained using the collateral that became available through the securitisation operations carried out over the year.
The funds from other credit institutions item fell by 444.2 million euros compared to December 2012, a drop of 47.6%. These funds declined from 8.3% of all funding at the end of 2012 to 4.8% at December 2013.
The other responsibilities represented by securities item increased its share of the overall funding total, from 3.4% year rise of in 2012 to 4.2% a year later. This item now stood at 428.3 million euros, equivalent to a year-on-year rise of 10.1%. The balance of subordinated liabilities fell 37.1%, from 190.8 million euros to 120.0 million euros.
Client funds, client deposits and deposit certificates fell by 1,030.0 million euros, or 14.0%, compared to the previous year. Their relative weighting as a proportion of all funding also decreased, to 61.5%, from 65.1% in 2012. The breakdown for these items was as follows:
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(thousand euros) Dec-13 Dec-12 Change
Client deposits 6,303,216 7,219,679 -12.7% Sight 1,161,255 1,262,687 -8.0% Term 3,956,887 5,205,383 -24.0% Savings 1,130,445 675,175 67.4% Others 54,629 76,434 -28.5%
Responsibilities represented by securities 26,559 140,123 -81.0%
Client funds 6,329,775 7,359,802 -14.0%
Client deposits fell by 12.7%, or 916.5 million euros. This decrease in deposits can be largely explained by our policy of cutting deposit costs, which drove away some non-tied clients. In 2013, savings deposits increased substantially, by 67.4%, at the expense of term deposits, again reflecting our policy of encouraging deposits with higher maturities and with returns that are linked to loyalty and length of stay. The 113.6 million euro fall in deposit certificates was the consequence of clients who were qualifying shareholders freeing up their funds for the purposes of subscribing to the bank’s capital increase.
The fall in client deposits was larger than the fall in client credit, which affected the ratio of the transformation of deposits into credit. This went up from 109.7% in 2012 to 113.5% in 2013, although it remained below the 120% reference limit.
The solvency ratio, calculated according to Banco de Portugal rules, fell from 13.9%, at the end of 2012, to 11.3% in 2013, and the core tier I ratio of 15.3% in 2012 fell to 13.6% in 2013. The 2012 figures were calculated on the assumption that the state-backed recapitalisation operation, announced at 31 December 2012, in the amount of 1,100 million euros, and comprised of 700 million euros of capital raised through the issue of special shares and 400 million euros of convertible subordinated instruments, was actually completed on that date.
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Comparative analysis based on IAS/IFRS rules:
Banif - Banco Internacional do Funchal SA - Fianceial Indicators (Pró-forma IAS/IFRS)
(thousand euros)
Balance sheet Variation 31/12/2013 31/12/2012 absolute % Net assets 14,742,280 15,304,963 (562,683) -3.7% Gross Loans and Advances 7,974,221 8,572,105 (597,884) -7.0% Clients deposits 6,303,216 7,219,679 (916,463) -12.7% Clients accounts (balance sheet) 6,758,059 7,748,825 (990,766) -12.8% Equity 788,141 308,629 479,512 155.4%
Financial statements Variation 31/12/2013 31/12/2012 absolute % Net Interest Income 117,392 124,413 (7,021) -5.6% Income from equity instruments 1,013 1,771 (758) -42.8% Profit in finacial operatiins (net) 19,613 (1,900) 21,513 1132.3% Other income (net) 59,271 84,284 (25,013) -29.7% Operating Income 197,289 208,568 (11,279) -5.4% Personnel cost 106,213 121,457 (15,244) -12.6% Selling and general administrative cost 65,570 64,153 1,417 2.2% Cash Flow 25,506 22,958 2,548 11.1% Depreciation and amortisation 15,178 13,940 1,238 8.9% Provisions and impairments (net) 478,330 490,336 (12,006) -2.4% Profit before taxes (468,002) (481,318) 13,316 2.8% Tax (current and deferred) (34,607) (73,892) 39,285 53.2% Profit after taxes (433,394) (407,426) (25,969) -6.4% Profit discontinued operational units (84,576) (46,033) (38,543) -83.7% Profit for the period (517,970) (453,459) (64,512) -14.2%
Others Indicators Variação 31/12/2013 31/12/2012 absoluta % Provions for credit / total credit (1) 9.6% 7.6% - - Credit in default / Total credit (2) 11.8% 10.8% - - Credit in default, net / Total credit, net (2) 2.4% 3.5% - - Credit in risk / Total credit (2) 17.7% 18.2% - - Credit in risko, net / Total credit, net (2) 8.9% 11.4% - - ROE ---- ROA ---- Profit before taxes / Average net assets - - - - Operating Income / Average net assets 1.3% 1.4% - - Profit before taxes / Average equity - - - - Operating cost + Amortisations / Operating Income 94.8% 95.7% - - Personnel cost/ Operating Income 53.8% 58.2% - - Solvency ratio (Banco de Portugal regulatory basis) (3) - - Total 11.3% 13.9% - - Tier 1 12.8% 14.5% - - Core Tier I 13.6% 15.3% - - Total weighted assets 7,761,226 8,491,631 - - Net credit ratio/ Deposits 113.5% 109.5% - -
Number of branches 276 312 -36 -11.5%
(1) Based on NCA accounts. (2) According to the instruction nº 16/2004 the Banco de Portugal, on the basis of NCA accounts. (3) Whereas the recapitalisation amounting to 1,100 million euros was effected in 12/31/2012
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08|Outlook MANAGEMENT REPORT AND ACCOUNTS 2013
08|Outlook
The board of director’s main concern is to create value for our shareholders. As such, and with the aim of repositioning the group in the domestic financial landscape and enhancing our ability to generate capital organically, we identified a number of key areas in which we needed to take action. These included deleveraging the balance sheet, commercial repositioning, operational efficiency and corporate streamlining.
These strategic guidelines have sustained not only the recapitalisation plan, approved, but also our restructuring plan, which has been the subject of detailed and length discussions between the Ministry of Finance and the Directorate General of Competition at the European Commission and which still needs to be submitted for final approval by the college of commissioners at the European Commission. Once negotiations have been completed, the restructuring plan should: (i) show the group’s self-reliability in the mid to long term and its ability to operate without state support; (ii) demonstrate the group’s current and future contribution, and that of its shareholders (excluding the Portuguese state), to our recapitalisation and restructuring efforts; and (iii) include measures designed to prevent any distortion of competition in the sector that may result from the fact that the group has received funding from the Portuguese state.
Thus, the group should maintain and operate a sustainable, profitable and highly efficient retail banking business that concentrates on the group’s core segments, providing services (i) to the islands (the Autonomous Region of Madeira an the Autonomous Region of the Azores), (ii) to emigrant Portuguese communities, and (iii) to micro-companies, SME and private/high-income clients on the mainland.
The group is also committed to an operational turnaround that is focused on improving our capacity to generate capital organically, based on critical measures aimed at cost containment, loan recovery, real estate management and increased productivity. The group’s operational platform will be streamlined and re-centred on retaining and attracting private/high-income client funds on the mainland and also in all the other segments in the autonomous regions. We also want to want to develop our work with the micro-company and SME segment. More specifically, the geographical distribution of our branch network will be adjusted and re-centred to make it operationally more profitable and more usefully supportive of the group’s work with our target segments. The group’s overall objective, with this plan, is to ensure that our main productivity indicators converge with best market practices, thus ensuring that our cost/income ratios are compatible with an attractive return on equity. Additionally, and as a way of dealing with the high levels of non-performing loans, we have overhauled and strengthened our risk management and loan recovery structures.
The deleveraging process that is currently in progress addresses various classes of assets and business units, particularly in the international arena. Its main objective is to optimise our balance sheet structure by reducing the proportion of low-return assets and, at the same time, minimising the production of impairment. The disinvestment in our subsidiaries in Brazil, Cape Verde and Malta is a part of this plan, as can be seen from our decision to include these as assets available for sale in our 2013 accounts.
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09|Rating MANAGEMENT REPORT AND ACCOUNTS 2013
09|Rating
Ratings Banif – Banco Internacional do Funchal, SA has been rated by two agencies (Fitch Ratings and Moody’s) since 2003.
On 31 December 2012, the Ministry of Finance approved Banif’s recapitalisation plan. On 11 January 2013, the European Commission gave temporary authorisation, under EU rules on state aid, for a recapitalisation in the amount of 1.1 thousand million euros, to be provided by Portugal to Banif as part of the country’s financial stability programme.
Fitch Ratings On 9 January 2013, and as a result of the approval of Banif’s recapitalisation plan, Fitch downgraded Banif’s viability rating (VR) from “C” to “F”. This downgrading of the VR is a technical procedure common to all cases of state-backed recapitalisations. On the same day, Fitch announced that the following ratings would remain unchanged: Long-term (BB), Short-term (B), Support Rating (3) and the Support Floor Rating or SRF (BB).
On 19 December 2013, the agency raised the viability rating from “F” to “CCC”, following the results of the measures implemented in regard of the bank’s solvency ratios. Fitch announced that the other ratings would remain the same.
Moody’s On 15 April, Moody’s completed its review of the ratings of the Portuguese banks that had received state aid for the purposes of recapitalising under the PAEF, as from December 2012. On this same day, Banif, SA’s long-term rating was downgraded from “B2” to “Caa1”, with “negative” outlook. The BFSR was changed from E(Caa2) to E(Ca).
Despite Moody’s recognising that state aid may help Banif’s solvency, it also pointed out that the recession expected in the Portuguese economy in 2013 and the consequent worsening of the operating environment could call into question the bank’s achievement of the deleveraging objectives built into its restructuring plan.
Long Short BFSR Outlook Term Term (BCA)* VR**
MOODY'S Caa1 NP Negativo E(ca) - Apr 15, 2013
FITCH RATINGS BB B Negative - CCC Dec 19, 2013 * BFSR - Bank Financial Strength ; BCA - Baseline Credit Assessment ** VR - Viability Rating
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10|Proposal of Allocation of Profits MANAGEMENT REPORT AND ACCOUNTS 2013
10|Proposal of Allocation of Profits
Given that, in 2013, Banif – Banco Internacional do Funchal, SA made a loss of 494,340,603.42 euros on its business activity,
The board of directors proposes, in the terms and for the purposes of paragraph b) of no. 1 and no. 2 of article 376 of the Commercial Companies Code, that the abovementioned loss be carried as retained earnings.
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11|Final Remarks MANAGEMENT REPORT AND ACCOUNTS 2013
11|Final Remarks
At the beginning of January 2013, Banif – Banco Internacional do Funchal, S.A. (‘Banif’) made public its intention to participate in a state investment programme designed to strengthen its capital base. The bank’s aim was to ensure compliance with the Bank of Portugal requirement that financial groups subject to its supervision should improve their core tier 1 ratios, on a consolidated basis, to no less than 10% (Bank of Portugal Notice no. 3/2011).
This investment by the state made use of funds released through the Financial Assistance Programme to Portugal, negotiated between the Portuguese Government, the European Commission, the European Central Bank and the International Monetary Fund.
On 16 January 2013, as planned, and following approval by the general shareholder’s meeting of 25 January 2013, the Portuguese state subscribed to:
a. A 700,000,000 euro capital increase, paid for in cash, implemented through the issue of 70,000,000,000 new shares representative of Banif capital stock.3 b. An issue of convertible subordinated instruments, qualifying as core tier 1 capital, with a total value of 400,000,000 euros.4
Following the operation mentioned in a) above the bank’s capital base rose to 1,270,000,000 euros.
The precise terms under which Banif was recapitalised were set out in a ministerial order issued by the Minister for State and Finance (Order no. 1527-B/2013, of 23 January). This followed interim authorisation for the plan from the European Commission – European Commission Decision on State Aid SA 34662 (2013/N).
In the above-mentioned general meeting, held on 16 January 2013, Banif’s Recapitalisation Plan (“recapitalisation plan”) was approved, in the terms stipulated in Law no. 63-A/2008, of 24 November, and later legislation. The meeting also approved the related commitments and obligations, including the first and second phases of the operation to increase the bank’s capital base (both phases being integral parts of the recapitalisation plan).
The meeting also agreed on the issue and offer of the instruments convertible into shares, and of the shares, mentioned in the previous point.
3 Special shares, with the characteristics stipulated in nos. 3 to 9 of article 4 of Law no. 63-A/2008, of 24 November (and subsequent changes). 4 Under the terms of the subscription contract signed between Banif and the Portuguese state, any materially relevant non-compliance with the recapitalisation plan underlying the investment made by the state may lead to the conversion of the convertible subordinated instruments into special shares representing the bank’s equity. To date, Banif has already repaid the Portuguese state 150 million euros of the 400 million euro instruments the state subscribed to.
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MANAGEMENT REPORT AND ACCOUNTS 2013
Subsequent to the implementation of the first phase of Banif’s recapitalisation plan, the increase in capital, which took place on 25 January 2013, the Portuguese state became the only shareholder with a qualifying holding (over 2%) in Banif’s capital stock. This holding conferred the following voting rights:
% Voting # Shares % Capital rights 5
Portuguese State 70,000,000,000 99.19% 98.74%
The agreement signed between the Portuguese state and Banif also included a 2nd phase of recapitalisation, involving private investment only. This 450 million euro programme was due to be completed by 30 June 2013.
Given the market conditions that prevailed throughout 2013, Banif adjusted its schedule and split the second recapitalisation phase into a number of parts. Over the year, it carried out the capital increase operations described below.
On 19 February 2013, the board of directors accepted the resignation requests of Paula Cristina Moura Roque and Fernando José Inverno da Piedade, vice-chair and member of the board of directors, respectively. These two directors had been appointed to their positions as part of the operation to merge Banif SGPS, SA into Banif, but never actually took up their posts.
On 20 February 2013, Maria Teresa Henriques da Silva Moura Roque and José António Vinhas Mouquinho took up their posts as members of the board of directors, once the special registration process at the Bank of Portugal had been completed.
António Carlos Custódio Morais Varela was appointed as a non-executive director and Rogério Pereira Rodrigues was appointed to the supervisory board, as part of the state investment backed capitalisation plan, and in accordance with the provisions of no. 2 of article 14 of Law no. 63-A/2008, of 24 November (in its current wording) and of no. 10 of Ministerial Order no. 1527 -B/2013, through Order no. 3454-A/2013, published on 4 March 2013 in the II Series of the Official Gazette of the Republic (no. 44) and issued by the Minister of State and Finances.
On 28 May 2013, the board of directors accepted the resignation of the director Manuel Carvalho Fernandes. The resignation request was formalised in a letter dated 21 May 2013.
5 The percentage of voting rights is calculated using the number of special shares (ISIN PTBAF0VM0007) that have a vote on most matters that come before the general meeting (i.e. excluding the matters specified in no. 8 of article 4 of law no. 63-A/2008, of 24 November). Of the 70,000,000,000 shares held by the Portuguese state, 44,511,019,900 fall into this category. If the Portuguese state were to vote with all its 70,000,000,000 shares on the matters specified in no. 8 of article 4 of law no. 63-A/2008, of 24 November, its voting rights would be equivalent to 99.19%.
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MANAGEMENT REPORT AND ACCOUNTS 2013
The company’s general meeting, held on 30 May 2013, approved the 2012 accounts and management report for Banif – Banco Internacional do Funchal, S.A., and also the board of director’s recommendation for the appropriation of profits for the year. The meeting also approved a statement from the remunerations committee on the remuneration policy for the company’s management and supervisory bodies.
The meeting also appointed the chartered accountants Ernst & Young Audit & Associados – Sociedade de Revisores Oficiais de Contas, SA (no. 178), represented by Ana Rosa R ibeiro Salcedas Montes Pinto (ROC no. 1230), to carry out the duties stipulated in art icle 446 of the C ommercial Companies Code and in no. 4 of article 27 of the company’s articles of association. The one-year appointment covered the 2013 financial year. António Carlos Custódio Morais Varela was elected to the remunerations committee for the current 2012-2014 three-year period, following the resignation of Enrique Santos on 6 May 2013. This committee now has the following members:
Chair: António Gonçalves Monteiro Members: Filipe de Andrade e Silva Lowndes Marques António Carlos Custódio Morais Varela
This same meeting also approved the plan from the board of directors to allow the company itself, or one of its subsidiaries, to acquire and sell own-debt securities. Such transactions would be dependent on opportunity criteria and decisions taken by the board of directors, in accordance with the conditions agreed at the general meeting. Any such authorised transactions would take place in the context of Banif’s state-investment recapitalisation plan and would respect any commitments that Banif had entered into as part of this process.
The general meeting held on 25 June 2013 approved the change to article 5 no. 1A of Banif’s articles of association, to give it the following wording: “1A. The board of directors is authorised to increase the company’s capital stock by up to 450,000,000 euros, through cash payments, in one or more capital increase operations.”
The meeting also decided to revoke shareholder’s pre-emption rights for the one, or more, cash- based capital increase operations, which were to be decided upon by the board of directors in accordance with the authorisation set out in Banif’s articles of association.
These decisions were taken in the interests of the company alone and as a way of ensuring that Banif’s board of directors had the maximum possible room for manoeuvre in implementing the second phase of the recapitalisation plan. This would allow the board to take advantage of appropriate and favourable circumstances as they arise, whilst also complying with all legal and contractual obligations.
Following a decision taken by the board of directors on 25 June 2013, a privately placed capital increase operation was carried out on 26 June 2013, in compliance with the secured subscription commitments agreed to by the qualifying shareholders (in the period before the recapitalisation). This 100,000,000 euro operation was subscribed to by Açoreana Seguros, SA and by Auto-Industrial
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SGPS SA, in the amounts of 75 million euros and 25 million euros, respectively. As a result, Banif’s share capital rose from 1,270,000,000 euros to 1,370,000,000 euros, following the issue of 10,000,000,000 new shares.
Following a decision taken by the board of directors on 27 June 2013, a publically placed operation to increase the bank’s capital was carried out on 30 July 2013. This 100,000,000 euro offer was placed with the general public in Portugal and resulted in the issue and subscription of 10,000,000,000 new registered book-entry ordinary shares with no par value. As a result, Banif’s share capital rose from 1,370,000,000 euros to 1,470,000,000 euros, following the issue of 10,000,000,000 new shares.
Also in this second phase of the recapitalisation plan, and following a decision taken by the board of directors on 1 August 2013, a privately placed capital increase operation was carried out on 5 August 2013. This 40,700,000 euro offer was placed with a group of mainly Portuguese investors, whose entry into the Banif shareholder base is seen by the board of directors as being of strategic interest to the bank. As a result, Banif’s share capital rose from 1,470,000,000 euros to 1,510,700,000 euros, following the issue of 4,700,000,000 new shares.
In August 2013, the management bodies at the group’s three banks in Portugal were streamlined. This process resulted in smaller management teams, more closely focused on each bank’s specific business profile and supported by an increasingly shared back office structure that is more in tune with the group’s current reality.
For Banif, this restructuring led to a reduction in the size of the executive committee, from 8 directors to 5. There was a corresponding reduction, from 12 to 9, in the number of directors sitting on the board.
As per the resignation requests received, the following directors relinquished their seats on the board as from 31 August 2013: José António Vinhas Mouquinho, Carlos Eduardo Pais e Jorge and Gonçalo Vaz Gago da Câmara de Medeiros Botelho.
Following a decision taken by the board of directors on 7 October 2013, Banif’s capital was increased by 700,000 euros on 9 October 2013. This increase in the company’s share capital, from 1,510,700,000 euros to 1,511,400,000 euros, was achieved through the issue of 70,000,000 new shares. However, this operation had no net effect on the company’s equity as it involved the conversion of mandatorily convertible securities (ISIN PTBNFFMZM0008) that had been issued following a decision taken by the general meeting of Banif SGPS, SA (later merged with Banif) on 14 August 2009. This operation was not part of the set of capital increase operations planned for the second phase of Banif’s recapitalisation.
On 16 October 2013, the share capital was increased by 70,795,220.43 euros, through a public exchange offer that had been approved by the company’s general meeting on 16 September 2013. The exchange involved securities issued by Banif Group entities. Banif’s capital increased from 1,511,400,000.00 euros to 1,582,195,220.43 euros, following the issue of 7,079,522,043 new shares.
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At 31 December 2013, and on completion of all the capital increase operations mentioned above, Banif’s share capital stood at 1,582,195,220.43 euros, represented by 101,789,522,043 shares with no par value. Banif’s shareholder structure now included the following qualifying holdings (above 2%):
# Shares % Capital Portuguese State 70,000,000,000 68.77% Auto-Industrial, SA 2,635,782,857 2.59% Açoreana Seguros, SA 7,500,000,000 7.37% HSR Estate (*) 7,835,962,151 7.70%
(*) The holding of the Horácio da Silva Roque estate includes the holding of Açoreana Seguros, SA, as this company is owned by the estate.
Before concluding this report on our business activities in 2013, the board of directors would like to thank the supervisory board for the support and cooperation that it has always extended.
Statements, in accordance with paragraph c) of no. 1 of article 245 of the Securities Code.
Each of the undersigned members of the board of directors, identified below, declares, on their own personal accountability, that, to the best of their knowledge, the management report, the annual accounts, the legal certification of accounts and other financial statements, as required by law or regulation, were drawn up in accordance with the applicable accounting rules, and provide a true and fair view of the assets and liabilities, the financial position and the results of Banif – Banco Internacional do Funchal, S.A., and that the management report realistically describes the business activities, the performance and the position of Banif – Banco Internacional do Funchal, S.A. and also contains a description of the main risks and uncertainties the company faces.
Lisboa, 7 April 2014
THE BOARD OF DIRECTORS
Luís Filipe Marques Amado - Chair
Maria Teresa Henriques da Silva Moura Roque
Jorge Humberto Correia Tomé
Vitor Manuel Farinha Nunes
Nuno José Roquette Teixeira
João Paulo Pereira Marques de Almeida
João José Gonçalves de Sousa
António Carlos Custódio de Morais Varela
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12|Financial Statements
1 – Consolidated Financial Statements 1.1 – Consolidated Balance Sheet
BANIF AND SUBSIDIARIES
Consolidated Balance Sheet
AT DECEMBER 2013 AND 2012
(Thousand Euros)
31/12/2013 31/12/2012 31/12/2012
Impairment and Net Value Notes Gross value Net value Net Value Depreciation Restated
Cash and balances at central banks 5 152,343 - 152,343 184,109 184,109 Balances at other credit institutions 6 186,777 - 186,777 210,089 210,089 Trading securities 7,14 40,086 - 40,086 214,725 214,725 Other Financial assets at fair value through profit or loss 8 73,686 - 73,686 79,287 79,287 Financial assets available for sale 9,42 1,833,427 (51,386) 1,782,041 755,566 755,566 Due from banks 10 117,520 (33) 117,487 367,520 367,520 Loans and advance to customers 11,42 9,129,242 (1,160,217) 7,969,025 9,807,382 9,815,981 Investment securities held to maturity 12 12,081 - 12,081 36,284 36,284 Securities subject to repurchase agreements 13 - - - 26,223 26,223 Derivatives held for hedging - - - - - Non-current assets held for sale 15,42 1,655,431 (48,480) 1,606,951 403,134 403,134 Investment property 16 827,576 - 827,576 924,357 924,357 Other tangible assets 17 428,878 (181,189) 247,689 307,025 307,025 Intangible assets 18 80,389 (63,313) 17,076 26,264 26,264 Investments in associates and affiliates excluded from consolidated acc. 19 129,630 - 129,630 118,630 118,630 Current tax assets 20 3,417 - 3,417 17,216 17,216 Deferred tax assets 20 240,447 - 240,447 251,756 248,598 Receivables - direct insurance and reinsurance - - - - - Other assets 21,42 259,140 (61,960) 197,180 257,285 257,285 Payables - direct insurance and reinsurance - - - - - Other assets 21,42 259,140 (61,960) 197,180 257,285 257,285
Total Assets 15,170,070 (1,566,578) 13,603,492 13,986,852 13,992,293
Deposits from central banks 22 - - 3,077,603 2,804,084 2,804,084 Trading Liabilities 14,23 - - 28,785 116,204 116,204 Financial liabilities at fair value through profit or loss 24 - - 12,393 14,017 14,017 Deposits from other banks 25 - - 348,651 689,101 689,101 Due to customers 26 - - 6,303,280 7,750,430 7,750,430 Debt securities in issue 27 - - 1,258,070 1,711,568 1,706,431 Financial liabilities linked to transferred assets - - - - - Derivatives held for hedging - - - - - Non-current liabilities available for sale 15 - - 994,338 - - Provisions 28 - - 13,365 31,285 31,285 Underwriting provisions - - - - - Current tax liabilities - - 5,366 5,854 5,854 Deferred tax liabilities 20 - - 48,369 63,059 63,059 Securities representing equity 29 - - 260,058 2,009 2,009 Other subordinated liabilities 30 - - 154,318 228,114 228,114 Other liabilities 31 - - 219,323 205,549 205,549 Receivables - direct insurance and reinsurance - - - - - Other liabilities 31 - - 219,323 205,549 205,549
Total Liabilities - - 12,723,919 13,621,274 13,616,137
Issued capital 32 - - 1,582,195 570,000 570,000 Share premium 32 - - 199,765 104,565 104,565 Other equity instruments 32 - - - 95,900 95,900 Treasury shares 32 - - (6) (124) (124) Revaluation reserves 32 - - (18,774) (2,141) (2,141) Other reserves and retained earnings 32 - - (483,031) 97,365 100,100 Profit for the period 32 - - (470,273) (584,196) (576,353) Interim dividends - - - - - Non-controlling interests 33 - - 69,697 84,209 84,209 Total Equity - - 879,573 365,578 376,156
Total Liabilities + Equity - - 13,603,492 13,986,852 13,992,293
The Accountant The Board of Directors
154 MANAGEMENT REPORT AND ACCOUNTS 2013
1.2 – Consolidated Income Statement
BANIF AND SUBSIDIARIES
Consolidated Income Statement
AT DECEMBER 2013 AND 2012
(Thousand Euros)
31-12-2012 Notes 31/12/2013 31/12/2012 Restated
Interest and similar income 34 491,200 647,920 794,701 Interest and similar expense 34 (366,538) (542,857) (621,929) Net Interest Income 124,662 105,063 172,772
Dividend Income 35 2,447 2,396 2,439 Fees and commission income 36 94,694 111,270 119,229 Fees and commission expenses 36 (22,271) (29,537) (34,312) Income from assets and liabilities valued at fair value through profit or loss 37 (5,665) (10,087) (11,154) Income from available-for-sale financial assets 37 37,820 (1,891) (1,655) Foreign exchange income 37 (1,276) (199) (6,444) Income from disposal of other assets 38 (16,361) (951) 6,172 Net reinsurance premiums -- - Net cost of reinsurance claims -- - Variation in net underwriting provisions for reinsurance -- - Other operating income 39 (19,937) (37,904) (62,855) Net Operating Income 194,113 138,160 184,192
Personnel expenses 40 (128,310) (147,680) (175,646) Overheads 41 (82,335) (92,846) (118,745) Depreciation and Amortisation 17,18 (26,129) (30,925) (33,585) Provisions net of write-offs 28 (180) (6,883) (6,977) Loan impairment net of reversals and recoveries 42 (298,323) (317,800) (410,743) Impairment of other financial assets net of reversals and recoveries 42 (7,418) (37,139) (37,108) Impairment of other assets net of reversals and recoveries 42 (60,178) (71,312) (77,053) Negative consolidation differences -- - Income from associates and joint ventures (equity method) 19 826 1,080 1,080 Profit/loss before tax and non-controlling interests (407,934) (565,345) (674,585)
Income Tax 34,779 61,623 96,956 Current 20 (14,468) (7,964) (9,938) Deferred 20 49,247 69,587 106,894 Profit/loss after tax and before non-controlling interests (373,155) (503,722) (577,629) Profit/loss on discontinued operations 15 (96,869) (81,750) -
Non-controlling interests 33 (249) 1,276 1,276 Consolidated Profit for the Period (470,273) (584,196) (576,353)
Earnings per share (expressed as EUR per share) 43 (0.005) (0.007) (0.008) Diluted earnings per share (expressed as EUR per share) 43 (0.003) (0.005) (0.005)
The Accountant The Board of Directors
155 MANAGEMENT REPORT AND ACCOUNTS 2013
1.3 – Consolidated Statement of Comprehensive Income
BANIF AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
AS AT DECEMBER, 2013 AND 2012
(Thousand Euros)
31-12-2012 31/12/2013 31/12/2011 Restated
Profit/loss after tax and before non-controlling interests (373,155) (503,722) (577,629)
Other comprehensive income
Items that may be reclassified to profit or loss:
Financial assets available for sale Gains / (losses) in fair value (10,047) 43,723 43,723 Tax gains / (losses) in fair value 2,744 (11,636) (11,636) Gains / (losses) on assets of entities consolidated by the equity method 13,628 25,978 25,978 Tax gains / (losses) on assets of entities consolidated by the equity method (4,821) (6,113) (6,113)
Items that will not be reclassified to profit or loss:
Foreign exchange variations (11,299) (17,874) (17,874)
Gains on property revaluations 343 (2,609) (2,609) Tax gains on property revaluations 826 (324) (324)
Actuarial gains / (losses) (9,674) 1,190 1,190 Actuarial tax gains / (losses) 1,562 (569) (569)
Of hedge instruments used in cash flow hedging 105 249 249 Tax on hedge instruments used in cash flow hedging - (26) (26)
Total other comprehensive income net of tax, before non-controlling interests (389,788) (471,733) (545,640) (96,869) (81,750) - Non-controlling interests (249) 1,276 1,276
Total other comprehensive income net of tax (486,906) (552,207) (544,364)
The Accountant The Board of Directors
156 MANAGEMENT REPORT AND ACCOUNTS 2013
1.4 – Consolidated Statement of Changes in Equity
BANIF AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
AT DECEMBER 2013 AND 2012
(Thousand Euros)
Non-control- Issued Other equity Share Revaluation Retained Other Result for Own Share ling interests Total Capital instruments Premium reserves Earnings Reserves the year
Balances at 31-12-2012 Restated 570,000 95,900 (124) 104,565 (2,141) 244,500 (14 7,135) (584,196) 84,209 365,578 Application of net profit/loss from the previous year Transfer to reserves - - - - - (584,196) - 584,196 - - Increase in capital 1,011,495 - - - - - (3,877) - - 1,007,618 Acquisition/disposal of own shares - - 118 ------118 Conversion of the mandatorily convertible notes 700 (95,900) - 95,200 - - - - - Comprehensive Income - - - - (16,633) - - (470,273) - (486,906) Buy back of own shares ------6,004 - (8,396) (2,392) Operations in non-controlling interests ------(6,116) (6 ,116) Other changes in equity ------1,673 - - 1,673
Balances at 31-12-2013 1,582,195 - (6) 199,765 (18,774) (339,696) (143,335) (470,273) 69,697 879,573
Balances at 31-12-2011 (Pro Forma) 570,000 95,900 (1,086) 104,114 (52,004) 408,818 (132,347) (161,583) 103,104 934,916 Application of net profit/loss from the previous year Transfer to reserves - - - - - (161,583) - 161,583 - - Integration of Banif - SGPS, SA into Banif, SA - - - 451 - - (451) - - Increase in capital ------Acquisition/disposal of own shares - - 962 - - - (932) - - 30 Comprehensive Income - - - - 49,863 - (17,874) (576,353) - (544,364) Buy back of own shares ------4,524 - (9,207) (4,683) Operations in non-controlling interests ------(9,688) (9 ,688) Other changes in equity ------(55) - - (55)
Balances at 31-12-2012 570,000 95,900 (124) 104,565 (2,141) 247,235 (147,135) (576,353) 84,209 376,156
Correction of 2012 accounts - - - - - (2,735) - (7,843) - (10,578)
Balances at 31-12-2012 Restated 570,000 95,900 (124) 104,565 (2,141) 244,500 (147,135) (584,196) 84,209 365,578
The Accountant The Board of Directors
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1.5 – Consolidated Cash Flow Statement
BANIF AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
AT DECEMBER 2012 AND 2011
(Thousand Euros)
OPERATING ACTIVITIES
Notes 31/12/2013 31/12/2012
Operating Results:
Net profit/loss for the year 32 (470,273) (576,353) Profit/loss on discontinued operations 15 96,869 0 Value adjustments related to loan and advance to customers 42 298,323 410,743 Other losses through impairment 42 67,596 114,161 Provisions for the year 28 180 6,977 Amortisations and depreciation for the year 17.18 26,129 33,585 Income tax for year 20 (34,779) (96,956) non-controling interests 33 249 (1,276) Derivatives (net) 14 474 4,491 Profit/loss from non-consolidated companies 19 (826) (1,080) Recognised dividends 35 (2,447) (2,439) Interest paid on subordinated liabilities 34 12,749 18,932 Interest paid on non-subordinated liabilities 0 5,557 Interest paid on Securities representing equity 34 30,567 0 Unrealised gains on investment properties 16 50,890 52,725
75,701 (30,933)
Changes to operating assets and liabilities:
(Increase)/Decrease in financial assets held for trading 7 148 65,894 (Increase)/Decrease in financial assets at fair value through profit or loss 8 4,949 124,359 (Increase)/Decrease in Financial assets available for sale 9 (1,081,439) (199,299) (Increase)/Decrease in due from banks 10 220,438 281,151 (Increase)/Decrease in investments held to maturity 12 13,656 17,422 (Increase)/Decrease in loans to customers 11 847,867 908,591 (Increase)/Decrease in non-current assets held for sale 15 (237,252) (191,255) (Increase)/Decrease in assets with repurchase agreements 13 0 46,124 (Increase)/Decrease in other assets (154,620) 435,682 Increase/(Decrease) in deposits from central banks 22 286,328 319,798 Increase/(Decrease) in financial liabilities held for trading 14.23 (2,419) (1,470) Increase/(Decrease) in other financial liabilities at fair value through profit or loss 24 (639) (66,929) Increase/(Decrease) in deposits from other credit institutions 25 (293,188) (429,451) Increase/(Decrease) in due to customers 26 (929,498) (280,262) Increase/(Decrease) in debt securities in issue 27 (41,722) (200,494) Increase/(Decrease) in other liabilities 39,623 (314,274)
(1,327,768) 515,587
Operating Cash Flow (1,252,067) 484,654
INVESTING ACTIVITIES
Investment in subsidiaries and associates - 107 Disposal of investments insubsidiaries associates and joint venture - 261 Acquisition of tangible assets 17 (3,055) (5,781) Disposal of tangible assets 17 3,926 10,495 Acquisition of intangible assets 18 (1,661) (6,655) Disposal of intangible assets 18 2,550 - Acquisition of investment properties 16 (13,177) (42,497) Disposal of investment properties 16 63,866 21,801 Dividends received 35 2,447 2,439
Investment cash flow 54,896 (19,830)
FINANCING ACTIVITIES
Increase in share capital 32 940,700 - investments in mutual funds 31 (6,947) (67,179) Buy back of own shares 32 118 - Issue of subordinated liabilities Redemption of subordinated liabilities 30 (26,042) 1,984 Interest paid on subordinated liabilities 34 (12,749) (18,932) Issue of non-subordinated bonds 27 40,000 80,000 Redemption of non-subordinated bonds 27 (40,000) (522,231) Equity instruments 29 400,000 (41,882) Interest paid on non-subordinated bonds 33 - 40,000 Redemption of Equity instruments 33 (150,000) - Interest paid of Equity instruments 34 (22,518) - Interest paid on non-subordinated liabilities - (5,557) Redemption of preferential shares 33 - (4,683) Dividends paid on preferential shares - (3,993)
Financing cash flow 1,122,562 (542,473)
Net cash flow from operating activities of discontinued operations 24,069 Net cash flow from discontinued operations of investment activity (4,538)
(55,078) (77,649) VARIATION IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at the beginning of the reporting period 394,198 471,847 Cash and cash equivalents at the end of the reporting period 339,120 394,198 (55,078) (77,649)
Balance sheet value of cash and cash equivalent items, at 31 December Cash on hand 5 45,291 53,364 Sight deposits at central banks 5 107,052 130,742 Sight deposits at other credit institutions 6 103,619 100,069 Cheques for collection 6 12,617 15,558 Others 6 70,541 94,465 339,120 394,198
Cash and cash equivalents not available for use by the entity --
The Accountant The Board of Directors
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1.6 – Notes to the Consolidated Financial Statements at 31 December 2013 and 2012 BANIF and Subsidiaries (All amounts are expressed in thousands of euros, unless otherwise stated)
1. GENERAL INFORMATION
The companies that make up Banif Financial Group (the group) are specialist operators in the banking and insurance sectors. They are supported by a second group of companies that operate across various areas in the finance sector. The main members of the group, and the nature of their business activity, are described in greater detail in the management report.
Banif – Banco Internacional do Funchal (Banif) is a limited liability company with registered offices at Rua João de Tavira, 30, 9004-509 Funchal. Its corporate object is banking and it is entitled to carry out all accessory, connected or similar operations permitted by law and compatible with this business.
68.77% of Banif is held by the Portuguese State, following the recapitalisation implemented on 25 January 2013.
Banif shares are traded on the Euronext Lisbon stock exchange.
On 31 January 2014, the group’s board of directors reviewed, approved and signed off on the financial statements, as at 31 December 2014, and on 07 April 2014 the management report. These will be submitted to the annual general shareholders meeting for approval by the end of May 2014. This meeting has the power to alter these reports if it sees fit. However, the group’s management is confident that the reports will be approved without significant changes.
2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
2.1 Basis of Presentation
The consolidated financial statements of Banif Financial Group were prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted by the European Union, at 31 December 2012, and as established under EC Regulation No. 1606/02 of the European Parliament and Council of 19 July 2002.
Amounts in the consolidated financial statements are expressed in thousands of euros, rounded to the nearest thousand. They were prepared on the basis of historical cost, except for those financial assets and liabilities carried at fair value. These were, namely, assets and liabilities held for trading (including derivatives), assets and liabilities at fair value through profit or loss, financial assets available for sale, property registered as tangible assets and investment properties. The main accounting policies used by the group are detailed below.
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2.2 CHANGES IN ACCOUNTING POLICIES
2.2.1 Voluntary changes in accounting policies
During the year there were no voluntary changes in accounting policies in relation to those considered in the preparation of the financial information for the previous year presented in the comparative statements.
2.2.2 New norms and interpretations applicable to the reporting period
Having been endorsed by the European Union (EU), the issuances, revisions, changes and improvements occurred in the standards and interpretations effective from 01 January 2013, as presented in Note 51.
2.2.3 New standards and interpretations already issued but not yet required
The standards and interpretations recently issued by the IASB whose application is required only in periods after 01 January 2013 and which the Group did not adopt in advance are presented in Note 52.
The Group is still assessing the impact of adoption of these standards that are not yet required.
2.3 Comparative information
In general terms, the figures presented here are comparable, in all significant respects, with those for the previous year, with the exception of the following changes:
Restatement of comparative information according to IAS 8
Deferral of deferred expenses of borrowing operations (associated with amortised cost)
The group made corrections in the method of deferral of deferred expenses of borrowing operations related to securitisation operations, which implies restatement of the financial statements of 2012 of 5,137 thousand euros in the balance sheet item “Debt securities” and in the profit and loss item “interest and similar charges” corresponding to the interest cost that should have been registered in that year.
This reclassification had an impact of 5,137 thousand euros on profit and loss for 2012.
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Accrued interest on loans
In 2013, a deficiency was identified in the computer application that resulted in duplication in accrued interest of some loans operations with capitalisation of interest. This deficiency led to recognition of excess interest income in 2011 and 2012 amounting to 3,551 thousand euros and 5,048 thousand euros, respectively. The correction made is reflected in the restatement of “Loans to customers” to the balance sheet and “Interest and similar income” to the income statement.
Deferred taxes
As a consequence of the corrections described above, Banif also restated the amount of deferred tax assets in the 2012 financial statements, insofar as these corrections have an impact on the tax loss to be carried forward from that year.
This correction had an impact of 816 thousand euros and 2,342 thousand euros on the income statement for 2011 and 2012, respectively.
Discontinued operations
The group restated comparative information from 2012 from profit and loss related to the classification of the entities Banco Banif Brasil, ZACF, Banif Banco de Investimento (Brasil), SA, Beta Securitizadora, Banif Gestão de Activos (Brasil), FIP Banif Real Estate, Banif Bank (Malta) and Banco Caboverdiano de Negócios as discontinued operations.
These changes had an impact on the following items on the balance sheet and income statement at 31 December 2012:
Net Value Changes Net Value restated 31-12-2012 according to IAS 8 31-12-2012
Balance Sheet
Loans and advance to customers 9,815,981 (8,599) 9,807,382 Deferred tax assets 248,598 3,158 251,756
Impact on Assets 10,064,579 (5,441) 10,059,138
Debt securities in issue 1,706,431 5,137 1,711,568
Impact on Liabilities 1,706,431 5,137 1,711,568
Other reserves and retained earnings 100,100 (2,735) 97,365 Profit for the period (576,353) (7,843) (584,196) Impact on Equity (476,253) (10,578) (486,831)
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classification of Net Value Net Value Changes Income Statement units as restated 31-12-2012 according to IAS 8 discontinued 31-12-2012
Interest and similar income 794,701 (5,048) (141,733) 647,920 Interest and similar expense (621,929) (5,137) 84,209 (542,857) Net Interest Income 172,772 (10,185) (57,524) 105,063
Dividend Income 2,439 - (43) 2,396 Fees and commission income 119,229 - (7,959) 111,270 Fees and commission expenses (34,312) - 4,775 (29,537) Income from assets and liabilities valued at fair value through profit or loss (11,154) - 1,067 (10,087) Income from available-for-sale financial assets (1,655) - (236) (1,891) Foreign exchange income (6,444) - 6,245 (199) Income from disposal of other assets 6,172 - (9,009) (2,837) Net reinsurance premiums ---- Net cost of reinsurance claims ---- Variation in net underwriting provisions for reinsurance - - - - Other operating income (62,855) - 26,837 (36,018) Net Operating Income 184,192 (10,185) (35,847) 138,160
Personnel expenses (175,646) - 27,966 (147,680) Overheads (118,745) - 25,899 (92,846) Depreciation and Amortisation (33,585) - 2,660 (30,925) Provisions net of write-offs (6,977) - 94 (6,883) Loan impairment net of reversals and recoveries (410,743) - 92,943 (317,800) Impairment of other financial assets net of reversals and recoveries (37,108) - (31) (37,139) Impairment of other assets net of reversals and recoveries (77,053) - 5,741 (71,312) Negative consolidation differences ---- Income from associates and joint ventures (equity method) 1,080 - - 1,080 Profit/loss before tax and non-controlling interests (674,585) (10,185) 119,425 (565,345)
Income Tax 96,956 2,342 (37,675) 61,623 Current (9,938) - 1,974 (7,964) Deferred 106,894 2,342 (39,649) 69,587 Profit/loss after tax and before non-controlling interests (577,629) (7,843) 81,750 (503,722) Profit/loss on discontinued operations - - (81,750) (81,750) Non-controlling interests 1,276 - - 1,276 Consolidated Profit for the Period (576,353) (7,843) - (584,196)
2.4 Use of estimates in preparing the financial statements
Preparation of the financial statements in accordance with IFRS requires the group’s management to produce estimates and adopt assumptions that affect the application of accounting policies, the value of assets and liabilities, income and costs and the contingent liabilities disclosed. In making these estimates, the group’s management used its judgment, together with the information available on the date the financial statements are prepared. Consequently the future amounts actually realised may differ from the estimates made.
Those areas requiring major judgment calls or in which there is significant use of estimates and assumptions in preparing the consolidated financial statements are as follows:
Going concern principle
The financial statements were prepared on a going concern basis, as the group’s management believes that the group has the means and capacity to continue business in the foreseeable future. In making this judgment, the group’s management took into consideration the information it has on current conditions and forecasts of future profitability, cash flow and equity. For discontinued operations (Note 15) the management believes that should be sold without losses on their book value. Nevertheless, the realisable value of these assets and liabilities has not yet been defined and is dependent on the success of negotiations for their sale which have already begun.
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Fair value of financial instruments Fair value is based on market prices, whenever possible. However, when such prices are not available, it is determined by means of valuation techniques based on discounted future cash flows (market to model) that take into account market conditions, volatility, correlation and time value.
Impairment of loans to customers Periodically, the group carries out a valuation of its loans portfolio in order to test for signs of impairment.
As part of this process, those customers with non-performing loans and whose total outstanding amounts represent a significant exposure for the group, are analysed on an individual basis to determine if there is a need to register impairment losses.
These estimates are based on assumptions regarding a number of factors, all of which could suffer changes in the future and so alter impairment amounts. Furthermore, a joint test is carried out for any impairment evident in all other loans, where these have not been subject to individual analysis. This test process involves assigning the loans to different credit groups, in each of which the loans share similar characteristics and levels of risk. Collective impairment losses are then estimated for the groups. This calculation is made on the basis of historical loss behaviours for the same type of assets.
Individually analysed loans for which no impairment can be objectively determined are grouped according to their risk characteristics and assessed jointly for impairment.
Whenever credit is considered uncollectible, and its impairment loss is estimated at 100% of the total credit value, it is cancelled in accounts with a counter-entry equivalent to the value of the loss. The credit is thus written off from assets.
If written-off loans are later recovered, the recovered amounts are credited to the income statement in “Loans impairment net of recoveries and reversals”.
Impairment of financial assets available for sale – equity instruments The group accepts that there is impairment in its financial assets available for sale when there is a significant or prolonged devaluation in the fair value of these, below cost price or where there is expected to be an impact on the future cash flows from these assets.
Such a determination requires a degree of judgement. To this end, the group collects all the information available both from the market and outside it. Given the volatility of the markets, the group has decided that impairment shall be deemed to have been shown, that is that a significant or prolonged devaluation has occurred, whenever: the fair value of an equity instrument decreases by 30% or more or
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the fair value decreases over a period of more than one year
Impairment of financial assets available for sale is presented in Note 35.
Assessment of real estate assets The assessment service is provided by outside independent companies, registered with the CMVM and with the appropriate qualifications, recognised competence and professional experience to perform their duties. The reports comply with the requirements laid down by CMVM, Banco de Portugal and Instituto de Seguros de Portugal, as well as criteria defined by European Accounting Standardisation and the guidelines of international institutions, such as RICS and TEGoVA.
The assessment procedures require rigorous gathering of information, from updated documentation, from an inspection of the property and its surrounding area, from municipal councils and other bodies, from analysis of markets, transactions, the supply and demand situation and outlooks for development. The information, areas and market practice and values allow basic values value for the calculation to be adopted, by application of the methods and their comparison.
The comparative market method is always used both directly and as a basis for development cash flows, updated at the valuation date at rates that incorporate the risk of the projects. The replacement cost method is also used directly in the valuation of properties in continuous use and makes an essential contribution in these development scenarios. For properties subject to operation, actually leased or whose valuation depends on their potential earnings, capitalised earnings are updated by means of yields that reflect the market’s performance and main indicators.
All the reports are analysed and validated by the internal technical body.
The realisable value of these assets depends on the future evolution of real estate market conditions.
Real estate assets are reported in non-current assets held for sale, investment properties and own- use property.
Deferred tax assets Deferred tax assets are recognised for reportable tax losses, to the extent that it is likely that there will be positive tax results in the future period established by law. To this end, judgments are made to determine the amount that may be recognised for deferred tax assets, based on the level of future tax results expected (Note 20.2).
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Retirement benefits The liabilities for retirement benefits and income from pension funds set up to cover these liabilities, are calculated using actuarial tables, assumptions regarding increases in pensions and the expected rate of return on pension fund assets.
In view of the long-term nature of pension plans, these estimates are subject to significant uncertainties.
Consolidation of special purpose entities (SPE) The group sets up special purpose entities (SPE) for the purposes of asset securitisation or debt issue operations.
The group does not consolidate those SPE over which it does not exercise control. Given that it can be difficult to determine whether or not the group does exercise control over an SPE, a judgement is made as to whether or not the group is exposed to the risks and benefits arising of the SPE’s activities and whether or not it has any decision-making power in the SPE.
The decision to consolidate an SPE in the group is based on a number of assumptions and estimates that are employed in calculating residual gains or losses and in determining who will retain the majority of such gains and losses. Other assumptions and estimates might lead the group to have a different scope of consolidation.
The special purpose entities included in the consolidation are presented in Note 4.
2.5 Principles of consolidation
The consolidated financial statements include the accounts of Banif and entities under its control (“subsidiaries”), including investment funds in which the group holds more than 50% of the investment units and special purposes entities, drawn up for the same reference date as the present financial statements.
Control is deemed to exist whenever the group has the possibility of determining the operational and financial policies of an entity with the purpose of accruing benefit from its activities. This is normally the case when the group owns at least 50% of the voting rights in the entity.
SPEs for which the group is exposed to the majority of risks and benefits generated by their activities are also contained in the consolidated accounts. For all intents and purposes, these are the entities used by the group in credit securitisation operations and in the issue of structured debt.
Whenever applicable, a subsidiary’s accounts are adjusted to reflect the accounting policies used by the group.
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Balances and transactions between group companies, resulting from intra-group transactions, are eliminated in the course of the consolidation process.
The value corresponding to third party holdings in subsidiaries is entered under the “Non- controlling interests” item, in shareholders’ equity.
2.6 Business combinations and goodwill
The acquisition of subsidiaries is reported by the purchase method. The acquisition cost corresponds to the fair value, on the transaction date, of assets delivered, liabilities accepted and equity instruments issued, plus any costs directly attributable to the transaction. The identifiable assets, liabilities and contingent liabilities of the acquired entity are measured at their fair value at the acquisition date.
Goodwill corresponds to the difference between the acquisition cost and the proportion acquired by the group of the fair value of the identified assets, liabilities and contingent liabilities.
Whenever the fair value exceeds the acquisition cost (“negative goodwill”), the difference is recognised in profit or loss.
When the acquisition cost exceeds the fair value of the assets, liabilities and contingent liabilities, the positive goodwill is reported under assets, and is not amortised or depreciated. However, it is subject to annual impairment tests, and any impairment losses determined are reported.
For the impairment test, any goodwill acquired is allocated to each of the cash generating units (CGU) that benefited from the combination. The goodwill allocated to each unit is subject to an annual impairment test or whenever there is an indication that impairment may exist.
The impairment to the goodwill is determined through calculation of the recoverable amount of each CGU or CGU group that the goodwill attaches to. When the recoverable amount for the CGU is less than the amount reported, impairment is recognised.
Impairment losses on goodwill cannot be reversed in future periods.
2.7 Investments in associates
Those organisations in which the group has significant influence over operational and financial activities, but not control, and which are neither subsidiaries, joint ventures nor holdings owned through investment funds, venture capital funds or banks (seed capital), where classified as financial instruments at fair value through profit or loss on initial accounting, are classified as associates.
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Significant influence is deemed to exist whenever the group directly or indirectly holds more than 20% of the voting rights representation on the board of management.
Investments in associates are reported in the group’s consolidated financial statements using the equity method, from the time that the group first acquires significant influence to the time that it relinquishes it. The balance sheet value of investments in associates includes the related goodwill value determined on acquisition and is reported net of any impairment losses.
The investment is initially reported at acquisition cost, which is increased or decreased through the accounting of subsequent variations in the percentage holding of the associate’s net worth. Any negative goodwill is immediately recognised in profit or loss.
The value of the investment is subject to an annual impairment analysis.
As with the procedure for subsidiaries, the associate’s accounts are adjusted, whenever applicable, to reflect the group’s accounting policies.
2.8 Joint ventures
Joint ventures are taken to be investments in entities in which the group shares control with another party. This control is formalised in a contractual arrangement in which strategic, financial and operational business decision-making requires unanimous agreement between the parties sharing control.
The group’s interests in joint ventures are recognised using the proportional consolidation method.
There are no non-controlling interests in this consolidation method.
2.9 Transaction in foreign currencies
Foreign currency transactions are reported on the basis of the indicative exchange rates for the functional currency at the date of transaction.
Monetary assets and liabilities expressed in foreign currency are converted to euros at the prevailing exchange rate on the balance sheet date. Non-monetary items which are valued at fair value are converted on the basis of the prevailing exchange rate on the last valuation date. Non- monetary items which are kept at historical cost are reported at the original exchange rate.
Foreign exchange differences resulting from conversion are accounted as gains or losses for the income statement year, except for those resulting from non-monetary financial instruments
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classified as being available for sale. These are counter-entered in a specific equity item, until the asset is disposed of.
Financial statements of subsidiaries and associates expressed in foreign currency At the balance sheet date, assets and liabilities in a functional currency other than the euro are converted at the prevailing exchange rate on the balance sheet date, whilst income and cost items are converted at the average exchange rate for the period. Differences that result from using the closing exchange rate and the average exchange rate are reported, without tax effects, under a specific equity item, until the entities in question are disposed of.
2.10 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents are balance sheet amounts expressed in national and foreign currency that are entered as cash, sight deposits with central banks, sight deposits with other banks in Portugal and abroad, and cheques to be drawn on other banks.
2.11 Financial instruments
2.11.1 Initial recognition and measurement of financial instruments
The purchase and sale of financial assets in which the assets are delivered in accordance with deadlines set by regulations or market conventions are recognised at the trade date, i.e., at the date on which the commitment to purchase or sell is made. Derivative financial instruments are also recognised at the trade date.
The classification of financial instruments on the initial recognition date depends on their characteristics and on the reason for which they are acquired.
All financial instruments are initially measured at fair value, plus direct purchase or issuance costs, except for assets and liabilities at fair value through profit or loss. In this case, costs are recognised directly in profit or loss.
2.11.2 Subsequent measurement of financial instruments
Financial assets and liabilities held for trading Financial assets and liabilities held for trading are those assets that have been acquired for short- term resale, with the intention of profiting from price fluctuations or on the trader’s margin.
This class includes all derivative financial instruments that are not hedging derivatives.
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After initial recognition, the gains and losses generated by subsequent measurement at fair value are reflected in the income statement for the year. For derivatives, positive fair values are reported under assets and negative fair values are reported under liabilities.
Interest, dividends and costs are reported in the corresponding profit or loss accounts when the right to payment has been established.
Sales of overdraft securities are also taken to be financial liabilities held for trading. These operations are reported in the balance sheet at fair value, with subsequent variations in fair value reported in the income statement for the year under the item “Income from assets and liabilities measured at fair value through profit or loss”.
Financial assets and liabilities at fair value through profit or loss This category includes financial assets and liabilities classified by the group on initial recognition as being at fair value through profit or loss, in accordance with IAS 39 - fair value option.
The group initially recognises certain assets and liabilities at fair value, providing the conditions for such recognition are met, namely:
the recognition eliminates or significantly reduces inconsistencies between the measurement of financial assets and liabilities and the recognition of the corresponding gains or losses (accounting mismatch) the financial assets and liabilities are part of a group of assets or of liabilities, or of both, whose performance is assessed on a basis of fair value, in accordance with a duly documented investment and risk management strategy; or the financial instrument incorporates one or more embedded derivatives, except when the embedded derivatives do not significantly modify the contract cash flows, or when it is clear, with little or no analysis, that the embedded derivatives cannot be separated.
After initial recognition, the gains and losses generated by subsequent measurement at fair value of financial assets and liabilities are reported in the income statement for the fiscal year under the item “Income from assets and liabilities measured at fair value through profit or loss”.
The group classifies under financial assets at fair value through profit or loss all those securities whose management and performance assessment is based on fair value. Subordinated and non- subordinated debt instruments with one or more embedded derivatives are classified as financial liabilities.
Available-for-sale financial assets This item comprises instruments which may be disposed of in response to, or in anticipation of, liquidity needs or changes in interest rates, exchange rates or changes in market prices.
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To date, this category includes fixed income securities, holdings regarded as strategic and equity instruments for which reliable valuations cannot be obtained.
Following initial accounting, they are subsequently measured at fair value or maintained at acquisition cost.
Gains and losses are entered in “Revaluation reserves” until they are sold (or recognised as impairment losses), at which time the accumulated value is transferred to profit and loss for the year under the “Income from available-for-sale financial assets”.
Interest on financial assets is calculated using the effective rate method and recognised in profit and loss under “Interest and similar income”. Dividends are recognised in the profit and loss account under “Earnings from equity instruments”, once the right to payment has been established.
For debt instruments issued in foreign currencies, foreign exchange differences are recognised profit or loss for the year under “Profit or loss on foreign exchange revaluation”.
At each income statement date, the group tests for objective evidence of impairment of its financial assets available for sale. Such tests take into account market information and any information available on the issuers.
Where there is objective evidence of impairment losses in financial assets available for sale, such losses are recognised in the profit and loss account under “Impairment of other financial assets net of reversals and recoveries”.
Financial assets held to maturity This category includes those non-derivative financial assets, with fixed or determinable payments and fixed maturities, that the group intends, and is able, to hold to maturity.
These assets are measured at depreciated cost, using the effective interest rate method, and are subject to impairment tests. Calculation of this depreciated cost takes into account the bonus or discount at the acquisition date and other charges directly imputable to the purchase as part of the effective interest rate. Amortisation is recognised in profit or loss under “Interest and similar income”.
Impairment losses are recognised in profit or loss under “Impairment of other financial assets net of reversals and recoveries”.
Assets with repurchase agreement The asset purchase price, plus the interest rate implicit in the resale price, is entered in this item. These amounts are recognised in accordance with the specialisation principle for the fiscal year. Investments at other credit institutions and loans to customers
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These items cover the group’s investments at other credit institutions and the total value of all loans to customers and purchase operations with resale agreement.
These assets correspond to financial assets with fixed or determinable payments, not listed on an active market, provided that they are not assets which have been acquired or generated for short- term disposal (held for trading) or assets which, when initially recognised, had been classified as financial assets at fair value through profit or loss.
Following initial recognition, at the disbursed value, which includes all transaction-related costs, such as fees, where these do not take the form of service provision, these assets are subsequently measured at depreciated cost, using the effective rate method, and subjected to impairment tests. The depreciated cost is calculated taking into account earnings or costs directly imputable to the sourcing of the asset as part of the effective interest rate. Depreciation of these earnings or costs is recognised in profit or loss under “Interest and similar income” or “Interest and similar costs”. Impairment losses are recognised in profit or loss under “Credit impairment net of reversals and recoveries”.
If the group reaches the conclusion that a given loan, or set of loans, is, for all intents and purposes, irrecoverable the loan, or set of loans, is written-off from assets.
This assessment is independent of the procedures for writing-off loan assets in the individual accounts of the subsidiaries, under the local rules applicable to those entities.
Deposits from other credit institutions, Customer deposits and other loans / Debt securities in issue and Other subordinated liabilities The remaining financial liabilities, which essentially consist of funds from credit institutions, customer deposits and debt issues not designated as financial liabilities at fair value through profit or loss and whose contractual terms include an obligation to deliver funds or financial assets to the holder, are initially recognised at the value of the consideration received net of directly associated transaction costs. They are subsequently valued at amortised cost, using the effective rate method. Amortisation is recognised in profit or loss under “Interest and similar costs”.
Fair value As stated above, the financial instruments reported in the categories of financial assets and liabilities at fair value through profit or loss and financial assets available for sale are valued at fair value.
The fair value of a financial instrument corresponds to the amount for which a financial asset or liability may be sold or settled between independent and informed parties interested in pursuing the transaction under normal market conditions.
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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: In the case of instruments traded on active markets, the fair value is determined on the basis of the closing price, the price of the last transaction undertaken or the value of the last known bid. In the case of instruments not traded on active markets, the fair value is determined using valuation techniques which include the prices of recent transactions in equivalent instruments and other valuation methods normally used by the market (discounted cash flow, options valuation models, etc.). Floating rate assets (e.g. shares), and the derivative instruments they underpin, for which it is not possible to obtain reliable valuations are kept at acquisition cost, less any impairment losses
2.11.3 Impairment of financial assets
Financial Assets at depreciated cost The group regularly assesses whether or not there is objective evidence of impairment in financial assets reported at depreciated cost. The assets covered include investments at credit institutions, instruments held to maturity, the group’s loans portfolio and all receivables. Any identified impairment losses are entered with a counter-entry in results.
Whenever, in a subsequent reporting period, there is a reduction in the value of the estimated impairment loss, the amount previously recognised is reversed by adjusting the account for impairment losses. The amount of the reversal is recognised directly in the profit and loss account, in the same item.
A loan, or a portfolio of customer loans, defined as a set of credits with similar risk characteristics, is impaired whenever: • there is objective evidence of impairment resulting from one or more events which occurred after initial recognition, and, • when this event (or events) has an impact on the recoverable value of future cash flows from the loan or portfolio of customer loans, and this impact can be realistically estimated. Two analytical methods are used to determine impairment losses:
a) Individual analysis
The existence of impairment losses in individual terms is assessed by means of a case-by-case analysis of the situation of customers whose total credit exposure is regarded as significant. For each customer, the group assesses, at each balance sheet date, the existence of objective evidence of impairment. This assessment takes into account the following factors:
The customer’s economic and financial situation.
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The customer’s overall exposure and any existing default on credit within the group or the financial system. Commercial information on the customer. Analysis of the business sector in which the customer operates, where applicable. The connections between the customer and the group to which it belongs, where applicable, and, thus, analysis of the group in terms of the same individual customer variables as above.
In determining impairment losses in individual cases, the following factors are taken into account:
The economic and financial feasibility of the customer generating sufficient cash flow to be able to service the debt in the future. The value of the associated real guarantees and the amount and recovery period estimated. The customer’s assets in situations of liquidation or bankruptcy and the existence of preferential creditors.
Loans analysed on an individual basis for which impairment below the portfolio IBNR can be determined, are grouped according to their risk characteristics and assessed jointly for impairment.
Loans analysed on an individual basis for which impairment is detected are not included in this collective assessment.
Whenever an impairment loss is identified in individually assessed customer loans, the amount of the loss is determined by the difference between the accounting value of that loan and the present value of its estimated future cash flows, discounted at the original interest rate for the contract. On the balance sheet, loans to customers are reduced by using an impairment losses account, with the amount recognised in the income statement under the “Impairment of loans net of recoveries and reversals” item. For loans with a variable interest rate, the discount rate used to determine any impairment loss is the effective annual rate set in the contract. Calculation of the present value of estimated future cash flows from collateralised loans reflects the cash flows which may result from the recovery and disposal of the collateral, less the costs involved in any such recovery and sale.
b) Collective analysis
Loans assessed on a collective basis are grouped by segments with similar characteristics and risks. Impairment losses for these loans are estimated on the basis of historical losses on similar risk portfolios, the economic environment and its influence on the level of historical
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losses. At regular intervals, the group updates the historical parameters used to estimate losses through joint analysis.
Whenever credit is considered uncollectible, and its impairment loss is estimated at 100% of the total credit value, it is cancelled in accounts with a counter-entry equivalent to the value of the loss. The credit is thus written off from assets.
If written-off loans are recovered, the amount recovered is credited to the income statement under “Impairment of loans net of recoveries and reversals”, as mentioned above.
Available-for-sale financial assets In addition to any of the abovementioned signs of impairment for financial assets reported at depreciated cost, IAS 39 also provides for the following specific signs of impairment in equity instruments:
Information on significant changes with adverse impact on the technological, market, economic or legal environment in which the issuer operates, where these suggest that the investment cost will not be fully recovered A significant or prolonged decline in market value below cost price.
At each balance sheet date, the financial assets available for sale are analysed for any objective evidence of impairment, namely when there is a significant or prolonged decline in fair values, below cost price. Determining the degree of decline that may be considered “significant or prolonged” involves making certain judgments. The group has decided that a decline in the fair value of an equity instrument of 30% or more (30% in 2012) or a decline for more than 1 year (1 year in 2012) may be considered significant or prolonged.
Whenever there is objective evidence of impairment, accumulated losses which have been recognised in reserves are transferred to costs for the year, in the form of impairment losses. These are reported “Impairment of other assets net of reversals and recoveries”.
Impairment losses on equity instruments cannot be reversed. This implies that any potential gains originating after the recognition of impairment losses are reported in “Fair value reserve”. If any additional losses are subsequently determined, impairment is still deemed to exist and these losses are reflected in the profit or loss of the fiscal year.
The group also carries out periodic analyses of impairment in financial assets reported at cost, namely those unlisted equity instruments whose value cannot be reliably measured. The recoverable value here corresponds to the best estimate of the future flows receivable from the asset, discounted at a rate which properly reflects the risk associated with holding the asset.
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The value of the impairment loss is recognised directly in the income statement for the year. Impairment losses on these assets also cannot be reversed.
2.11.4 Derivatives
As part of its business activity, the group uses a number of derivative financial instruments to both satisfy its customers’ needs and manage its own interest rate risk positions or other market risks. These instruments involve varying degrees of credit risk (maximum potential book loss due to default by counterparties on their contractual obligations) and market risk (maximum potential loss due to change in the value of a financial instrument as a result of interest rate, exchange rate or price fluctuations).
The notional values of derivative transactions, reported as off-balance-sheet items, are used to calculate the flows to be exchanged under the contracted terms. For interest or exchange rate derivatives, the lending risk is measured by the replacement cost at current market prices for those contracts in which a position of potential gain is held (positive market value), in the event of the borrower defaulting.
Derivatives embedded in other financial instruments are separated from the host instrument whenever their risks and characteristics are not closely related to those of the host contract. In such cases, valuation at fair value through profit or loss is not applied to the entire instrument.
The derivative instruments that the group uses to manage its exposure to financial and market risks are accounted for as derivatives held for hedging in accordance with the criteria defined in IAS 39. Otherwise, derivatives are considered at their fair value as financial trading assets or liabilities, depending on whether their fair value is positive or negative.
Hedge accounting Derivative financial instruments used for hedging are classified as a hedge for accounting purposes as long as they meet all the following requirements: At the transaction start date, the hedge ratio must be identified and formally documented. This must include the identification of the hedged item and the hedge instrument, and the assessment of the effectiveness of the hedge. there must be a reasonable expectation that the hedge ratio will be highly effective, at both the transaction start date of and throughout the life of the operation. the effectiveness of the hedge can be reliably measured at the hedge start date and throughout the lifetime of the operation. for cash flow hedges, there must be a strong likelihood that the cash flows will occur.
At the balance sheet date, the group tests the effectiveness of hedges, by comparing the change in the fair value of the hedge instrument, as attributable to the hedged risk, with the change in the fair value of the hedged derivative. This ratio of comparison should fall within a range of 80% to 125%.
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Fair Value Hedging In fair value hedges, the balance sheet value of an asset or liability, determined based on the accounting policy used, is adjusted in order to reflect the change in its fair value that is attributable to the hedged risk. The variations in the fair value of derivatives held for hedging are recognised as profit or loss, as are changes in the fair value of the hedged assets or liabilities attributable to the hedged risk.
If the hedge relationship ceases to exist, because the ratio of the change in fair value for the derivatives and the hedged instruments no longer falls between 80% and 125, the derivatives are reclassified to the trading portfolio and the revaluation amount of the hedged instruments is recognised as profit or loss for the remainder of the operational period.
With reference to 31 December 2013, the group has no fair value hedges.
Cash flow hedges In operations designed to hedge exposure to variability in future cash flows with a high likelihood of occurrence, the effective part of the changes in the fair value of the hedging derivative is recognised in reserves, being transferred to the income statement in periods in which the hedged item will affect profit or loss. The non-effective part of the hedge is reported as profit or loss.
When a hedging instrument expires or is sold, or when the hedge ceases to meet the requirements for hedge accounting, the changes in the fair value of the derivative accumulated in reserves are recognised in profit or loss, when the hedged transaction also affects profit or loss.
If it is foreseeable that the hedged transaction will not take place, the amounts still reported under equity are immediately recognised as profit or loss and the hedge instrument is transferred to the trading portfolio.
2.11.5 Derecognition of financial assets and liabilities
Financial assets A financial asset (or, when applicable, a part of a financial asset or part of a group of financial assets) is derecognised when: The rights to receive cash flows from the asset expire, or The rights to receive cash flows have been transferred, or an obligation has been accepted to pay the cash flows receivable in full without material delay, to third parties in the context of a pass-through agreement, and The risks and benefits of the assets have been substantially transferred, or the risks and benefits have not been transferred or retained, but control over the asset has been transferred.
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If the rights to receive the cash flows have been transferred or when a pass-through agreement has been signed, where not all the risks and benefits of the asset have been substantially transferred or retained and control over the asset has not been transferred, the financial asset is recognised to the extent of continued involvement. This is measured at the lesser between the original value of the asset and the maximum value of the payment which could be claimed from the group.
When continued involvement takes the form of a purchase option over the transferred asset, the extent of the continued involvement is the value of the asset which may be repurchased, except in the case of a sale option measurable at fair value. For this latter case, the value of the continued involvement is limited to the lower of the fair value of the asset and the price at which the option may be exercised.
Financial liabilities A financial liability is derecognised when the underlying obligation expires or is cancelled.
When an existing financial liability is replaced by another with the same counterparty, but on substantially different terms from those initially established or if the initial terms are substantially changed, such replacement or modification is dealt with as a derecognition of the original liability and the recognition of a new liability. If there are any differences in value, these are recognised in profit or loss for the fiscal year.
2.11.6 Reclassification between categories of financial instruments
In October 2008, the IASB issued a revised version of IAS 39 - Reclassification of financial instruments. Under certain circumstances, the revised version allows an entity to transfer financial instruments from the categories of financial assets held for trade and financial assets available for sale to the categories of other loans and receivables or to financial assets held to maturity, provided those financial assets meet the criteria for the category in question.
The group adopted this reclassification, for a set of financial assets, as from July and October 2008.
The reclassifications were entered at the fair value of the instruments at the date of reclassification. This value then became the depreciated cost in the new categories to which the financial assets were reclassified.
For a financial asset reclassified in the category of financial assets available for sale, the gains or losses on that asset, previously recognised in reserves, are depreciated to profit or loss for the fiscal year, over the remainder of the financial asset’s lifespan, using the effective interest rate method. If impairment is detected in these assets, the amount that is still recognised in reserves is entered on the income statement.
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The group may reclassify assets held for trading, where these are not derivatives, to the other loans and receivables category, if the assets meet the criteria for a loan or receivable.
However, if a financial asset is reclassified and the group subsequently estimates that future cash flows from the asset will increase, as a result of a forecast of a better recovery for such cash receipts, the effect of that increase is recorded as an adjustment to the effective rate, as from the date on which the estimate was changed.
2.12 Non-current assets held for sale
Non-current assets are classified as held for sale whenever it is determined that their balance sheet value will be recovered through sale This condition is met only when such a sale is highly likely and the asset is available for immediate sale in its current condition.
The sale should take place within a maximum period of one year after classification in this item. An extension of the period during which the sale must be completed does not exclude an asset (or group of assets) from being classified as held for sale if the delay is caused by events or circumstances outside the group’s control and the commitment to sell the asset is maintained.
The group enters under this item property acquired through foreclosure and, in 2013, assets of discontinued operations as mentioned in Note 15.
Property acquired through foreclosure is initially recorded at the value agreed in the settlement contract, this being the lower of the amount of outstanding debt or the assessed value of the asset at the settlement date. These assets are periodically valued by independent surveyors. This valuation will result in the recognition of impairment losses, whenever the value determined by the valuation, net of any costs incurred in selling the property, is lower than the current book value of the asset.
Assets related to discontinued operations are recorded in accordance with the accounting policies applicable to each category of assets, as set out in IFRS 5.
2.13 Investment Property
Properties held by the group are recognised as investment properties when these properties are held in order to offer a long-term return on capital and not for the purposes of a short-term sale. In the ordinary course of business, they are neither to be put up for sale nor used.
These investments are initially recognised at cost, including transaction costs and are later revalued at fair value.
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An investment property’s fair value should reflect market conditions at the balance sheet date. Changes in fair value are recognised in the profit or loss for the year, in “Other operating income”.
Investment properties are derecognised when disposed of, or when future economic benefits from owning them are no longer expected.
At the time of sale, the difference between the net proceeds of the sale and the amount of the asset recorded is recognised in income.
Transfers from and to “Investment properties” may be made whenever there is a change in use. On transferring investment properties to property for the group’s own use, the estimated cost, for accounting purposes, is the fair value at the date of the change of use. If an own-use property is classified as an investment property, the group reports this asset in accordance with the policy applicable to own-use properties, until the date on which it is transferred to investment properties.
2.14 Other tangible fixed assets
This item comprises the group’s own-use properties, vehicles and other equipment.
Own-use properties are valued at fair value, as determined by independent appraisers, less subsequent depreciation and impairment losses.
The group’s own-use properties are also valued at sufficiently regular intervals that the accounting values do not differ significantly from their fair value at the balance sheet date, with revaluations at three year intervals being the norm.
Positive changes in fair value are credited to “Revaluation reserves”, included in equity, except, and to the extent, where such change constitutes a reversal of losses on the same asset recognised in profit or loss.
Negative changes in fair value are recognised in profit or loss, except, and to the extent, where they can be offset by positive revaluation reserves existing for the same asset.
Other property, plant and equipment are recorded at cost, less subsequent depreciation and impairment losses. Repair and maintenance costs and other expenses associated with their use are recognised as costs when they occur.
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Property, plant and equipment are depreciated on a linear basis, in accordance with their expected useful life, which is:
Property [10 – 50] years
Vehicles 4 years
Other equipment [2 – 15] years
On the transition date, the group used the option permitted by the IAS of taking the “estimated cost” of tangible assets to be the respective fair value or, in some cases, the balance sheet value resulting from legal revaluations carried out up to 1 January 2004, under Portuguese legislation.
A tangible asset is derecognised when disposed of or when no further economic benefits are expected from its use or sale. On the date of derecognition, the gain or loss calculated by the difference between the net sale value and the net accounting value is recognised in the income statement under “Other operating income”.
2.15 Leasing
The group classifies finance or operating leasing operations as a function of their substance rather than of their legal form, thus meeting the criteria set out in IAS 17 – Leases. Operations are classified as finance leases when the risks and rewards of ownership of a property item are transferred to the lessee. All other lease operations are classified as operating leases.
Operating leases
As lessee
The payments made by the group under operating lease contracts are entered as costs for the periods to which they relate.
As lessor
Operating leases assets are, essentially, vehicles and are recorded in the balance sheet under “Other tangible assets”, at cost, less depreciation and impairment losses.
Rental income from operating leases is recorded under income for the period to which it relates.
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Finance leases
As lessee
Finance lease contracts are entered at their start date as assets or liabilities, at the acquisition cost for the leased property, which is equivalent to the present value of lease payments due. Lease payments are made up of:
finance charges, entered as profit or loss
financial depreciation of the capital, which is deducted in liabilities. Finance charges are recognised as costs over the term of the lease, in order to obtain a constant interest rate until the liability matures.
Finance leasing assets are depreciated over their useful lifespan.
However, if there is no reasonable certainty that the group will obtain ownership at the end of the contract, the asset is depreciated for the lesser of its useful lifespan or the term of the finance leasing contract.
As lessor
Assets held under finance leases are recorded in the balance sheet as credit granted, for an amount equal to the net investment of the leased asset. This amount is repaid through the capital depreciations in each contract’s finance plan. The interest included in lease payments is registered as interest income, at the effective rate in the contract.
2.16 Intangible assets
Intangible assets, which mainly consist of software, are recorded at acquisition cost, less accumulated amortisation and impairment losses. Amortisation is accounted for on a linear basis, over the estimated useful lifespan of the assets, currently situated between 3 and 6 years.
The amortisation period and method for intangible fixed assets are reviewed at the end of each year. Changes to the estimated useful lifespan or consumption pattern of any future economic benefits are treated as changes to estimates. Depreciation is recognised in the corresponding item on the income statement.
Intangible assets may include capitalised internal costs, particularly costs associated with in-house software development. For this purpose, costs are only capitalised from the point at which the conditions stipulated in IAS 38 are met, namely the requirements inherent to the development phase.
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2.17 Income taxes
Income tax expenses or income correspond to the sum of current income tax expense or income and deferred income tax expense or income.
Current tax is calculated on the basis of the prevailing tax rate.
The group also reports as deferred tax liabilities or assets those sums relating to the recognition of taxes that are payable/recoverable in the future and which result from temporary taxable/deductible differences, particularly those related to provisions, employee benefits and assets available for sale.
Deferred tax assets and liabilities are calculated and assessed on an annual basis, using the taxation rates expected to be in force at the date of reversal of the temporary differences, which correspond to the rates approved or substantially approved at the balance sheet date. Deferred tax liabilities are always reported. Deferred tax assets are only recorded to the extent that it is likely that there will be future taxable income to allow their use.
Income taxes are entered against the profit/loss for the year, except in situations where the events which gave rise to them were reflected in a specific equity item, namely, with regard to the valuation of financial assets available for sale and employee benefits. In this case, the fiscal effect associated with valuations is also entered against equity, without affecting the profit or loss for the year.
2.18 Employee benefits
There are various pension plans within the group, including a number with defined benefits and others with defined contributions. These liabilities are normally financed through independent pension funds or payments to insurance companies.
Liabilities relating to employee benefit are recognised according to the rules set in IAS 19. Accordingly the policies reflected in the consolidated accounts at 31 December 2013 are as follows:
a) Banif – Banco Internacional do Funchal, SA
Pension and healthcare liabilities Employees of Banif – Banco Internacional do Funchal, S.A. (Banif) are covered by the General Social Security Scheme from the moment they join the company, with the exception of those employees absorbed following the merger by incorporation of Banco Banif e Comercial dos Açores, SA (BBCA), on 1 January 2009 who had been covered by the alternative social security scheme set up under the Multi-Employer Agreement (MEA) for the banking sector and were only incorporated in the
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General Social Security Scheme from 1 January 2011, as stipulated by Decree-Law 1-A/2011, of 3 January.
Under this law, the General Social Security Scheme offers protection to working BBCA employees for maternity, paternity and adoption, and also old age. Banif remains responsible for social protection in the case of illness, disability, survival and death. The contribution rate is 26.6% (23.6% from the employer and 3% from employees). This arrangement replaces the Caixa de Abono de Família dos Empregados Bancários (CAFEB), which has been abolished. As a result of this change, the pension rights of current working BBCA employees are now covered by the terms of the General Social Security Scheme. These take into account the length of service from 1 January 2011 to retirement age, with the Banif paying the difference required to make up the pension guaranteed under the MEA. According to the guidelines issued in a Notice from the National Council of Financial Supervisors, attached to Banco de Portugal Fax Message No. 11/11/DSPDR, of 26 January 2011, and given that the MEA plan remains unchanged and that there is no reduction of benefits from the beneficiary’s point of view, liabilities for past services remained unchanged at 31 December 2010.
On 31 December 2011, and as a result of Decree-Law 127/2011, of 31 December, BBCA retirees and pensioners, who had been incorporated in the alternative social security scheme set up under the MEA for the banking sector, were transferred to the social security system, for coverage of their retirement and survivor’s pension. The banks remained responsible, through their pension funds, for paying updates to pensions, for benefits that complement the retirement and survivor’s pension taken over by social security, for contributions to medical and social care services (SAMS) on retirement and survivor’s pension, for death allowances, for survivor’s pensions paid to children and the surviving spouse provided they relate to the same employee, and for survivor’s pensions owed to a relative of a current retiree, where this becomes attributable as of 1 January 2012 (deferred survivor’s pension).
Medical care for bank employees is provided by the Medical and Social Care Service (SAMS), an autonomous entity managed by banking unions. SAMS provides its beneficiaries with services and/or contributions to the costs of medical care, auxiliary diagnostic procedures, medicinal products, hospital admissions and surgical operations, in accordance with its internal regulations.
In 2008, a Company-Level Agreement (CLA) was signed with banking unions. This agreement instigated major changes in relation to the career structure and social security provisions available to all employees, with the exception of those absorbed following the merger by incorporation of BBCA. These latter employees are not covered by the CLA.
Following the entry into force of the CLA, on 1 October 2008, what had been the Banif Fund was transformed into a mixed fund with three pension plans, designated Pension Plans I, II and III.
Up to 28 December 2012, the Company’s responsibilities were financed through two autonomous pension funds:
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Banif Pensions Fund, which financed Pension Plans I, II and III BBCA Pensions Fund, which financed the BBCA Pension Plan.
At 28 December 2012, with the authorisation of Instituto de Seguros de Portugal (ISP) and given that there was no interest in maintaining two different pension funds, insofar as there is only one single corporate entity, regardless of whether two distinct populations can be differentiated in terms of their socio-professional situation, under both the MEA and the CLA for the banking sector, which condition the existence of certain different, although individualised retirement benefits, the Banco Banif e Comercial dos Açores, SA Pension Fund was closed, in accordance with the legislation in force, by incorporation with the Banif Pension Fund, with the corresponding transfer of all its assets and liabilities the Banif Pension Fund.
The incorporation of the Banco Banif e Comercial dos Açores Pension Fund into the Banif Pension Fund determined an alteration in Pension Plan I of this Fund in order to accommodate the new population and corresponding benefits, without any loss of rights, expectations and benefits for the participants and beneficiaries transferred.
Banif thus provides its employees with the following benefits in terms of pensions and medical care:
Pension Plan I (defined benefit), under which it assumes responsibility for the following defined benefits for: - Subpopulation A, from the previous Plan I of the Banif Pension Plan for (i) paying disability, old age and surviving relative retirement pensions, in accordance with the MEA and the corresponding pension plan, in complement of the benefits provided by the social security system and (ii) future payment to SAMS, an autonomous entity managed by the unions, of mandatory contributions for post-employment medical care, in the following terms: for employees eligible for the retirement pension, the company makes a contribution of 6.5% towards their pensions. for other employees associated with the defined contribution plans, this benefit is altered to a lump sum on retirement, equivalent to 6.50% of the constituted capital amount, on the basis of the initial contribution plus the value of future defined contributions. - Subpopulation B, population from the former Banco Banif e Comercial dos Açores, SA Pension Plan, closed to new members, for the payment of retirement, disability, old age and surviving relative pensions to employees of BBCA and pensioners on the date of the merger by incorporation, or to their families, in conformity with the collective labour agreement and Decree-Law No. 1-A/2011, of 3 January, and Decree-Law No. 127/2011, of 31 December. As a supplement to the benefits in the pensions plan, Banif has taken on
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responsibility for paying mandatory contributions to SAMS, at a contribution rate of 6.5%, and the death allowance, under the terms of the vertical MEA;
Pension Plan II (defined contribution), under which the company assumes an obligation to make a monthly contribution equivalent to 4.5% of qualifying remuneration and to make an initial contribution on the date the plan was set up. This covers all employees who joined Banif before 1 January 2007 and who had not died, retired or left before the date on which the company-level agreement came into force. Excepted from this plan are the employees absorbed following the merger by incorporation with BBCA, as they are not covered by the company-level agreement. The initial contribution was assigned to their respective individual accounts. This initial contribution was calculated according to (i) the estimated supplementary old age pensions, as assessed in the liabilities study carried out by the actuary responsible for the pension plan on 31 December 2006 and duly reported to the Portuguese Insurance Institute and Banco de Portugal, and (ii) the current value of future contributions;
Pension Plan III (defined contribution), under which Banif assumes an obligation to make a monthly contribution equivalent to 1.5% of qualifying remuneration. It covers all employees who joined the company after 1 January 2007 and who had not died, retired or left before the date on which the company-level agreement came into force;
The Pension Plans I, II and III are financed by the Banif Pension Fund, which is an autonomous fund.
The cost of these liabilities deriving from Plan I is determined annually by independent actuaries, using the projected unit credit method and appropriate actuarial assumptions (Note 46.1.2). Liabilities are updated on the basis of a discount rate that reflects market interest rates on the bonds of high-quality companies, denominated in the currency in which the liabilities are payable and with maturities similar to the dates when the pension responsibilities will have to be met.
In 2011, Banif decided to change its accounting practices as regards actuarial gains and losses. It stopped using the corridor method (IAS 19 § 92) and began to recognise actuarial gains and losses in equity on the comprehensive income statement (OCI - Other Comprehensive Income (IAS 19 § 93).
In accordance with the method of immediately recognising actuarial gains and losses in comprehensive income:
the liability or asset recognised on the balance sheet corresponds to the difference between the current value of pension responsibilities and the fair value of the assets in the pension funds the gains and losses arising from the differences between the actuarial and financial assumptions used and the values actually seen as regards these liabilities and the income
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from the pensions fund are wholly recognised in equity, in a Reserves through an Actuarial Gains and Losses account.
Increased liabilities arising from early retirement, which equate to the increase in liabilities caused by the employee retiring before reaching the age of 65, are recognised as costs in the reporting year.
The costs of defined contribution plans are recognised as a cost in the corresponding reporting year.
On the date of transition to IFRS, the group chose the option permitted by IFRS 1 of not recalculating actuarial gains and losses deferred since the start of the plans (an option normally known as “reset”).
For the defined benefit plan, Banif assesses the recoverability of any surplus on the fund in relation to its retirement pension responsibilities, based on the expectation that necessary contributions will decrease in the future.
Other long term benefits In addition to the benefits referred to above, Banif has other liabilities for employee benefits concerning the length of service bonus referred in the MEA, and medical care, under the SAMS, with employees who terminated their employment contract with Banif by mutual agreement, under the restructuring process implemented in 2012, until their reemployment or retirement.
The liabilities for these benefits are also determined on the basis of actuarial valuations, in a way similar to that for pension liabilities, and are recorded under “Other liabilities” against profit or loss.
b) Other group entities
The companies Banif – Banco de Investimento, S.A., Banif Gestão de Activos – Sociedade Gestora de Fundos de Investimento Mobiliário, S.A., Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, S.A., Banif Capital – Sociedade de Capital de Risco, S.A., Banco Banif Mais, S.A., Margem – Mediação de Seguros, Lda and Banif Rent – Aluguer Gestão e Comércio de Veículos Automóveis, S.A. provide their employees with defined contribution pension plans, financed through independent pension funds.
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2.19 Provisions and contingent liabilities
The group makes a provision whenever there is a present obligation (legal or constructive) resulting from past events for which future disbursement of resources is likely and this disbursement can be reliably determined. The provision is the group’s best estimate of the amounts that will have to be disbursed in order to settle the liability at the balance sheet date. If the time effect of the cost of money is significant, the provisions are discounted using a pre-tax interest rate that reflects the specific risk of the liability. In these cases, the increase in the provision due to the passage of time is recognised under financial costs.
Where future disbursement of resources is not likely, a contingent liability is recorded. Contingent liabilities are subject only to disclosure, unless there is a remote possibility of their being materialised.
Provisions and contingent liabilities are presented in Note 28.
2.20 Dividends
Dividends are recognised as a liability and deducted from equity when approved by shareholders. Dividends for the year approved by the board of directors after the reference date of the financial statements are disclosed in the notes to the financial statements.
2.21 Recognition of income and costs
Income and costs are generally recognised according to the timing of the operations concerned, in accordance with the accrual concept, i.e. they are recorded as they are generated, independently of when they are collected or paid. Income is recognised to the extent that it is likely that the economic benefits associated with the transaction will flow to the group and the amount of income can be reliably measured.
For financial instruments measured at amortised cost and for financial instruments classified as “Financial Assets available for sale”, interest is recognised using the effective rate method. This is the rate that exactly discounts the set of future cash receipts and payments expected until maturity, or until the next re-pricing date, for the currently recorded net amount of the financial asset or liability. When calculated to determine the effective interest rate, future cash flows are estimated, taking into account the contractual terms and all other income or costs directly attributable to the contracts.
Dividends are recognised when the entitlement to receive payment is established.
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2.22 Income and charges for services and fees
The group earns fees from its customers for providing a broad range of services. These include fees for the provision of ongoing services, for which customers are usually debited on a periodic basis, as well as fees charged for carrying out a specific significant act.
Fees charged for services provided during a given period are recognised over the duration of the services. Fees related to the performance of a significant act are recognised at the moment the act in question occurs.
The fees and charges associated with financial instruments are included at the effective interest rate of such instruments.
2.23 Financial guarantees
Financial guarantees are initially recognised as a liability, at their fair value. Subsequently the liability is entered at the estimated amount of future expenditure required to settle the obligation, as at the balance sheet date. Fees obtained for providing financial guarantees are recognised in results in a linear fashion, in “Income from services and fees”, during the period of validity of the fees.
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3. GROUP COMPANIES
At 31 December 2013 and 2012, the group companies included in the consolidation were the following:
31/12/2013 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 U.S.A Banif - Banco Internacional do Funchal, S.A. 100.00% 0.00% 100.00% 0.00%
Banif & Comercial Açores, Inc Fall River U.S.A 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 Banif International Holdings, Ltd 99.85% 0.15% 98.50% 1.50% Banif Securities Holding, 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 U.S.A Banif Internacional Holdings Ltd 85.00% 15.00% 85.00% 15.00%
Banif Finance (USA) corp. U.S.A 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. U.S.A 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 de Investimento (Brasil), SA Brazil Banif - Banco Internacional do Funchal (Brasil), S.A. 99.85% 0.15% 100.00% 0.00%
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. 99.85% 0.15% 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 Banif Mais, SA Portugal 86.06% 13.94% 86.06% 13.94% Banif - Banco Internacional do Funchal, S.A.
Banif Plus Bank ZRT Hungary Banco Banif Mais SA 86.06% 13.94% 86.06% 13.94%
Margem Mediação de Seguros, Lda Portugal Banco Banif Mais 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 Banif Mais, SA Beta Securitizadora Brazil FIP Banif Real Estate 99.85% 0.15% 99.25% 0.75%
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31/12/2013 31/12/2012
Registered Non-controlling Non-controlling Company Name Shareholder % direct holding % direct holding Office interests interests
Banif - Banco Internacional do Funchal (Brasil ) S.A. FIP Banif Real Estate Brazil 99.85% 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 Reabilitação Urbana Portugal Banif - Banco de Investimento, S.A. 100.00% 0.00% 100.00% 0.00%
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 Banif Capital - Soc. de Capital. de Risco S.A 67.98% 0.00% 67.98% 0.00% Banif - Banco de Investimento, 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. 99.85% 0.15% 98.50% 1.50%
Banif Real Estate Polska Poland Imopredial 97.81% 2.19% 95.29% 4.71%
Tiner Polska Poland Imopredial 92.92% 7.08% 90.53% 9.47%
Banif - Imobiliária, S.A. Imopredial Portugal Banif - Banco de Investimento, S.A. 97.81% 0.00% 95.29% 0.00% Banif - Banco Internacional do Funchal, S.A. Banif - Imobiliária, S.A. Banif Property Portugal Banif - Banco Internacional do Funchal, S.A. 94.76% 0.00% 93.76% 0.00% Banif - Banco de Investimento, S.A.
Achala Brazil Banif ( Brasil), Ltd. 100.00% 0.00% 100.00% 0.00%
Komodo U.S.A 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) corp. Santa Ester S.A. Brazil Banif International Bank, Ltd 94.66% 5.34% - - Banif - Banco Internacional do Funchal (Brasil), S.A.
Pitchecia Participações Brazil Banif Real Estate Brasil 94.66% 5.34% - -
Banif Real Estate Brasil Brazil Santa Ester S.A. 94.66% 5.34% - -
Banif Portugal Crescimento Portugal Banif - Banco Internacional do Funchal, S.A. 100.00% 0.00%
SPE Panorama Brazil FIP Banif Real Estate - - 99.25% 0.75%
Ecoprogresso Trading, SA Portugal Banif - Banco de Investimento, S.A. - - 50.00% 0.00%
Banif Inv. Conservador Portugal Banif - Banco de Investimento, S.A. - - 82.89% 0.00%
Banif Inv. Moderado Portugal Banif - Banco de Investimento, S.A. - - 70.05% 0.00%
Banif - Banco Internacional do Funchal, S.A. Infra Invest FEIA Portugal - - 100.00% 0.00% Banif - Banco de Investimento, S.A.
The details of associates are disclosed in Note 19.
At 31 December 2013 and 2012, the special purpose vehicles included in the consolidated accounts were as follows:
31/12/2013 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% 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 Finance Nº6 Securitisation Vehicles 100.00% - Atlantes SME 2 Securitisation Vehicles 100.00% - Atlantes N.1 Securitisation Vehicles - 100.00% BMORE Finance No. 4 plc Securitisation Vehicles - 100.00% BMORE Finance No. 5 plc Securitisation Vehicles - 100.00%
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MANAGEMENT REPORT AND ACCOUNTS 2013
Over the period ending 31 December 2013, the changes in the Group were as follows: Incorporation of Banif – Banco de Investimento (Brasil) into Banco Banif Brasil through a capital increase amounting to BRL 123,149,942. Capital increase at Banco Banif Brasil through debt conversion, granted by Group entities, in capital, amounting to BRL 384,376,095. Setting Up of Indigo, an entity with capital subscribed in kind with credits from related parties of Centaurus RG granted by group entities. Exchange of Indigo for a holding in Santa Ester. The company Santa Ester owns the company Banif Real Estate Brasil, which in turn owns holdings in the entities FIP Banif Real Estate Brasil, Pitchecia, and LDI – Desenvolvimento Imobiliário.
4. SEGMENT REPORTING
The Banif Financial Group is organised into separate business areas: retail banking and specialised lending businesses, and investment banking and other financial activities.
In this context and as required by IFRS 8, disclosures by the group’s operating segments correspond to the form in which information is analysed by the group’s management:
Commercial Banking – This comprises the holding of funds and deposits and specific credit products for individual, corporate and institutional customers. These products include housing loans, consumer credit, products for sole traders (ST) and small businesses, factoring, short term credit facilities and import and export credits.
Investment Banking – This comprises business undertaken in the primary and secondary capital markets, in the group or company’s own name or on behalf of third parties. This business includes transactions, corporate finance, and mergers and acquisitions.
Asset Management – This comprises the investment product offer and related management services for individual and corporate customers, as well as other financial services. This segment includes investment funds managed by group entities in which the group holds the majority of investment units.
Others – This covers all operations that do not fall into one of the operational segments defined above.
Reporting by geographical areas in which the group carries on its business: Portugal, rest of the European Union, North America (USA), Latin America (Brazil) and rest of the world.
The reports used by the management are based on accounting information drawn up under IAS/IFRS rules.
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MANAGEMENT REPORT AND ACCOUNTS 2013
4.1 – Business segments
31/12/2013
Investment Retail Banking Asset Management Holdings and others TOTAL Banking
Cash and balances at central banks 151,227 1,111 - 5 152,343 Balances at other credit institutions 170,580 14,803 1,315 79 186,777 Financial assets held for trading 2,127 37,959 - - 40,086 Other financial assets at fair value through profit or loss 30,611 18,145 24,930 - 73,686 Financial assets available for sale 1,744,964 37,077 - - 1,782,041 Investments at credit institutions 117,487 - - - 117,487 Loans to customers 7,667,578 300,289 1,152 6 7,969,025 Investments held to maturity 12,081 - - - 12,081 Assets with repurchase agreement - - - - - Hedging derivatives ----- Non-current assets held for sale 1,496,736 85,004 230 24,981 1,606,951 Investment property 117,344 - 612,079 98,153 827,576 Other tangible assets 45,296 655 124,155 77,583 247,689 Intangible assets 14,399 2,625 - 52 17,076 Investments in non-consolidated subsidiaries and associate companies 35,963 550 - 93,117 129,630 Current tax assets 2,057 318 369 673 3,417 Deferred tax assets 224,337 13,804 447 1,859 240,447 Underwriting provisions for reinsurance receivables - - - - - Other assets 137,843 16,559 18,746 24,032 197,180
Total Assets 11,970,630 528,899 783,423 320,540 13,603,492
Deposits from central banks 2,936,826 140,777 - - 3,077,603 Financial liabilities held for trading 12,068 16,717 - - 28,785 Other financial liabilities at fair value through profit or loss 12,393 - - - 12,393 Deposits from other credit institutions 256,177 61,406 28,887 2,181 348,651 Customer funds and other loans 6,156,478 145,781 - 1,021 6,303,280 Debt securities in issue 1,257,895 175 - - 1,258,070 Financial liabilities associated with transferred assets - - - - - Hedging derivatives ----- Non-current assets held for sale 949,670 44,642 26 - 994,338 Provisions 12,477 299 172 417 13,365 Underwriting provisions ----- Current tax liabilities 4,032 493 530 311 5,366 Deferred tax liabilities 42,538 113 87 5,631 48,369 Equity instruments 260,058 - - - 260,058 Other subordinated liabilities 152,864 1,454 - - 154,318 Other liabilities 192,818 3,806 14,504 8,195 219,323
Total Liabilities 12,246,294 415,663 44,206 17,756 12,723,919
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 9,375,638 429,035 2,639 70 9,807,382 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 230,828 18,670 292 1,966 251,756 Underwriting provisions for reinsurance receivables - - - - - Other assets 182,543 18,830 31,612 24,300 257,285
Total Assets 11,751,296 1,009,335 871,131 355,090 13,986,852
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 1,638,652 72,916 - - 1,711,568 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 12,709,874 813,934 63,240 34,226 13,621,274
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MANAGEMENT REPORT AND ACCOUNTS 2013
31/12/2013
Investment Retail Banking Asset Management Holdings and others TOTAL Banking
Interest margin: External customers 115,206 11,121 (1,593) (72) 124,662 Interest margin: Inter-Segment 22,926 (3,866) (4,786) (14,274) - Interest margin 138,132 7,255 (6,379) (14,346) 124,662
Income from equity instruments 836 1,611 - - 2,447 Fee and commission income - External Customers 84,632 7,462 2,391 209 94,694 Fee and commission income - Inter-Segment 6,253 2,131 5,942 290 14,616 Fee and commission income 90,884 9,593 8,333 499 109,309 Fee and commission expenses - External customers (20,654) (1,181) (402) (34) (22,271) Fee and commission expenses - Inter-Segment (1,537) (15) (8,789) (136) (10,477) Fee and commission expenses (22,191) (1,196) (9,191) (170) (32,748) Profit/loss from Assets and Liabilities valued at Fair Value through profit or loss (1,648) (2,694) (3,229) 1,906 (5,665) Profit/Loss from Financial Assets available for sale 32,508 5,312 - - 37,820 Profit/Loss from Foreign Currency Revaluation (1,244) 131 33 (196) (1,276) Other Operating Income (24,711) (5,933) 36,641 (27,484) (21,487) Banking Revenue 212,566 14,079 26,208 (39,791) 213,062
Staff Costs (117,163) (3,947) (4,038) (3,162) (128,310) Other administrative costs (87,222) (4,245) (6,045) (3,772) (101,284) Amortisations for the year (22,077) (1,028) (1,072) (1,952) (26,129) Provisions net of write-offs (739) 552 7 - (180) Impairment of loans and advances net of reversals and recoveries (273,358) (23,238) (1,247) (480) (298,323) Impairment of other financial assets net of reversals and recoveries (6,186) (1,218) - (14) (7,418) Impairment of other assets net of reversals and recoveries (36,300) (1,887) (15,901) (6,090) (60,178) Negative Goodwill ----- Profit/loss from associates and joint ventures (Equity Method) 1,496 53 - (723) 826 Profit/loss before tax and non-controlling interests (328,983) (20,879) (2,088) (55,984) (407,934)
Taxes 31,453 4,118 (472) (320) 34,779 Current (12,346) (1,179) (530) (413) (14,468) Deferred 43,799 5,297 58 93 49,247 Profit/loss after tax and before non-controlling interests (297,530) (16,761) (2,560) (56,304) (373,155) Profit/loss on discontinued operations (84,632) (11,782) (455) - (96,869) Non-controlling interests (4,493) (208) 4,057 395 (249) Profit/loss for the year (386,655) (28,751) 1,042 (55,909) (470,273)
31/12/2012
Investment Retail Banking Asset Management Holdings and others TOTAL Banking
Interest margin: External customers 95,694 12,123 (2,654) (100) 105,063 Interest margin: Inter-Segment 33,532 702 (4,281) (29,953) - Interest margin 129,226 12,825 (6,935) (30,053) 105,063
Income from equity instruments 1,687 709 - - 2,396 Fee and commission income - External Customers 98,881 9,110 2,688 591 111,270 Fee and commission income - Inter-Segment 10,183 2,495 4,838 98 17,614 Fee and commission income 109,064 11,606 7,526 689 128,885 Fee and commission expenses - External customers (28,075) (596) (759) (107) (29,537) Fee and commission expenses - Inter-Segment (3,640) (435) (7,227) (328) (11,630) Fee and commission expenses (31,716) (1,031) (7,986) (435) (41,168) Profit/loss from Assets and Liabilities valued at Fair Value through profit or loss (1,629) (2,511) (2,412) (3,535) (10,087) Profit/Loss from Financial Assets available for sale 188 (2,079) - - (1,891) Profit/Loss from Foreign Currency Revaluation 1,758 (1,828) (7) (122) (199) Other Operating Income (3,682) 4,977 466 (17,552) (15,791) Banking Revenue 204,896 22,668 (9,348) (51,008) 167,208
Staff Costs (134,904) (6,505) (1,178) (5,093) (147,680) Other administrative costs (99,647) (7,130) (9,374) (5,743) (121,894) Amortisations for the year (24,134) (1,336) (1,813) (3,642) (30,925) Provisions net of write-offs (3,994) (45) (2,613) (231) (6,883) Impairment of loans and advances net of reversals and recoveries (299,950) (8,056) (18) (9,776) (317,800) Impairment of other financial assets net of reversals and recoveries (35,233) (1,906) - - (37,139) Impairment of other assets net of reversals and recoveries (63,610) (3,195) (3,134) (1,373) (71,312) Negative Goodwill ----- Profit/loss from associates and joint ventures (Equity Method) 956 (2,875) - 2,999 1,080 Profit/loss before tax and non-controlling interests (455,620) (8,380) (27,478) (73,867) (565,345)
60,293 3,312 (183) (1,799) 61,623 Current (6,175) (1,256) (416) (117) (7,964) Deferred 66,468 4,568 233 (1,682) 69,587 Profit/loss after tax and before non-controlling interests (395,327) (5,068) (27,661) (75,666) (503,722) Profit/loss on discontinued operations (71,924) (9,441) (385) - (81,750) Non-controlling interests (5,478) (189) 4,599 2,344 1,276 Profit/loss for the year (472,729) (14,698) (23,447) (73,322) (584,196)
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MANAGEMENT REPORT AND ACCOUNTS 2013
4.2 – Geographic segments
31/12/2013
Rest of the Portugal Latin America North America Rest of the World TOTAL European Union
Cash and balances at central banks 152,325 8 - 10 - 152,343 Balances at other credit institutions 175,422 3,050 - 6,410 1,895 186,777 Financial assets held for trading 40,086 - - - - 40,086 Other financial assets at fair value through profit or loss 71,175 - 2,511 - - 73,686 Financial assets available for sale 1,782,026 - - - 15 1,782,041 Investments at credit institutions 115,309 1,180 - 998 - 117,487 Loans to customers 7,772,297 69,848 - 76,250 50,630 7,969,025 Investments held to maturity 12,081 - - - - 12,081 Assets with repurchase agreement ------Hedging derivatives ------Non-current assets held for sale 500,096 475,097 509,213 - 122,545 1,606,951 Investment property 737,923 19,514 27,704 31,415 11,020 827,576 Other tangible assets 246,352 136 - 209 992 247,689 Intangible assets 17,019 56 1 - - 17,076 Investments in non-consolidated subsidiaries and associate compan 20,272 38,176 71,182 - - 129,630 Current tax assets 3,417 - - - - 3,417 Deferred tax assets 237,111 656 163 2,516 1 240,447 Underwriting provisions for reinsurance receivables ------Other assets 179,728 1,211 4,357 4,941 6,943 197,180 Total Assets 12,062,639 608,932 615,131 122,749 194,041 13,603,492
Deposits from central banks 3,077,603 - - - - 3,077,603 Financial liabilities held for trading 28,785 - - - - 28,785 Other financial liabilities at fair value through profit or loss 110 - - - 12,283 12,393 Deposits from other credit institutions 316,410 31,487 - 753 1 348,651 Customer funds and other loans 6,036,602 4 - - 266,674 6,303,280 Debt securities in issue 1,258,070 - - - - 1,258,070 Financial liabilities associated with transferred assets ------Hedging derivatives ------Non-current assets held for sale - 568,222 318,501 - 107,615 994,338 Provisions 13,159 - - 148 58 13,365 Underwriting provisions ------Current tax liabilities 5,069 - 297 - - 5,366 Deferred tax liabilities 45,368 3,001 - - - 48,369 Equity instruments 260,058 - - - - 260,058 Other subordinated liabilities 154,318 - - - - 154,318 Other liabilities 205,202 1,987 1,139 5,217 5,778 219,323 Total Liabilities 11,400,754 604,701 319,937 6,118 392,409 12,723,919
31/12/2012
Rest of the Portugal Latin America North America Rest of the World TOTAL European Union
Cash and balances at central banks 171,672 7,128 2,118 - 3,191 184,109 Balances at other credit institutions 196,275 5,701 1,800 4,515 1,798 210,089 Financial assets held for trading 125,640 22,405 66,658 - 22 214,725 Other financial assets at fair value through profit or loss 74,515 500 - 3,695 577 79,287 Financial assets available for sale 712,784 5,855 31,203 - 5,724 755,566 Investments at credit institutions 336,799 2 14,839 1,156 14,724 367,520 Loans to customers 8,664,599 443,843 434,062 106,297 158,581 9,807,382 Investments held to maturity 25,738 - 10,424 - 122 36,284 Assets with repurchase agreement - - 26,223 - - 26,223 Hedging derivatives ------Non-current assets held for sale 385,188 143 17,182 - 621 403,134 Investment property 787,945 20,955 51,732 46,582 17,143 924,357 Other tangible assets 292,386 7,351 3,233 235 3,820 307,025 Intangible assets 24,337 1,730 82 - 115 26,264 Investments in non-consolidated subsidiaries and associate compan 84,553 34,077 - - - 118,630 Current tax assets 5,823 335 10,814 - 244 17,216 Deferred tax assets 194,144 5,989 48,785 2,746 92 251,756 Underwriting provisions for reinsurance receivables ------Other assets 207,119 9,374 33,524 4,273 2,995 257,285 Total Assets 12,289,517 565,388 752,679 169,499 209,769 13,986,852
Deposits from central banks 2,791,275 12,809 - - - 2,804,084 Financial liabilities held for trading 116,136 46 - - 22 116,204 Other financial liabilities at fair value through profit or loss - - 985 - 13,032 14,017 Deposits from other credit institutions 572,165 69,658 41,736 57 5,485 689,101 Customer funds and other loans 6,897,216 477,536 6,132 - 369,546 7,750,430 Debt securities in issue 1,299,792 - 411,776 - - 1,711,568 Financial liabilities associated with transferred assets ------Hedging derivatives ------Non-current assets held for sale ------Provisions 18,376 2,609 9,824 403 73 31,285 Underwriting provisions ------Current tax liabilities 3,256 - 4 2,344 250 5,854 Deferred tax liabilities 55,888 3,155 3,967 - 49 63,059 Equity instruments 2,009 - - - - 2,009 Other subordinated liabilities 228,114 - - - - 228,114 Other liabilities 167,252 3,848 24,281 3,808 6,360 205,549 Total Liabilities 12,151,479 569,661 498,705 6,612 394,817 13,621,274
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MANAGEMENT REPORT AND ACCOUNTS 2013
31/12/2013
Rest of the Portugal Latin America North America Rest of the World TOTAL European Union
Interest margin: External customers 116,359 9,542 32 4,623 (5,894) 124,662 Interest margin: Inter-Segment 11,287 (496) (4,821) (13,889) 7,919 - Interest margin 127,646 9,046 (4,789) (9,266) 2,025 124,662
Income from equity instruments 2,447 - - - - 2,447 Fee and commission income - External Customers 91,313 2,067 - 825 489 94,694 Fee and commission income - Inter-Segment 14,321 - - 294 1 14,616 Fee and commission income 105,634 2,067 - 1,119 489 109,309 Fee and commission expenses - External customers (21,690) (45) - (160) (376) (22,271) Fee and commission expenses - Inter-Segment (10,018) (88) - (5) (367) (10,478) Fee and commission expenses (31,708) (132) - (165) (743) (32,748) Profit/loss from Assets and Liabilities valued at Fair Value through profit or loss (6,304) - - 1,497 (858) (5,665) Profit/Loss from Financial Assets available for sale 37,800 - - - 20 37,820 Profit/Loss from Foreign Currency Revaluation 812 266 (4,837) 232 2,251 (1,276) Other Operating Income 3,849 (5,129) (15,287) 1,240 (6,160) (21,487) Banking Revenue 240,176 6,118 (24,913) (5,343) (2,976) 213,062
Staff Costs (122,774) (3,132) (97) (1,896) (411) (128,310) Other administrative costs (94,241) (2,813) (285) (3,429) (516) (101,284) Amortisations for the year (25,489) (564) - (18) (58) (26,129) Provisions net of write-offs (1,213) 1,033 - - - (180) Impairment of loans and advances net of reversals and recoveries (288,561) (564) - (7,110) (2,088) (298,323) Impairment of other financial assets net of reversals and recoveries (7,099) (319) - - - (7,418) Impairment of other assets net of reversals and recoveries (60,219) - - - 41 (60,178) Negative Goodwill ------Profit/loss from associates and joint ventures (Equity Method) (713) 1,539 - - - 826 Profit/loss before tax and non-controlling interests (360,133) 1,298 (25,295) (17,796) (6,008) (407,934)
35,692 (735) - (178) - 34,779 Current (13,612) (858) - 2 - (14,468) Deferred 49,304 123 - (180) - 49,247 Profit/loss after tax and before non-controlling interests (324,441) 563 (25,295) (17,974) (6,008) (373,155) Profit/loss on discontinued operations - (3,270) (95,756) - 2,157 (96,869) Non-controlling interests (2,622) 57 1,012 2,328 (1,024) (249) Profit/loss for the year (327,063) (2,650) (120,039) (15,646) (4,875) (470,273)
31/12/2012
Rest of the Portugal Latin America North America Rest of the World TOTAL European Union
Interest margin: External customers 99,246 11,032 (1,666) 5,031 (8,580) 105,063 Interest margin: Inter-Segment 17,478 (1,212) 1,666 (17,221) (711) - Interest margin 116,724 9,820 - -12,190 -9,291 105,063
Income from equity instruments 2,396 - - - - 2,396 Fee and commission income - External Customers 105,908 2,451 - 2,374 537 111,270 Fee and commission income - Inter-Segment 16,196 - - 338 1,081 17,615 Fee and commission income 122,105 2,451 - 2,711 1,618 128,885 Fee and commission expenses - External customers (28,058) (25) - (476) (978) (29,537) Fee and commission expenses - Inter-Segment (9,334) (130) - (847) (1,193) (11,504) Fee and commission expenses (37,392) (155) - (1,323) (2,171) (41,041) Profit/loss from Assets and Liabilities valued at Fair Value through profit or loss (5,177) 16 137 (3,608) (1,455) (10,087) Profit/Loss from Financial Assets available for sale (2,700) - - - 809 (1,891) Profit/Loss from Foreign Currency Revaluation (736) (151) 2 185 501 (199) Other Operating Income 19,549 3,852 (16,783) (8,042) (16,102) (17,526) Banking Revenue 214,769 15,833 (16,644) (22,267) (26,091) 165,600
Staff Costs (139,891) (4,527) - (2,583) (679) (147,680) Other administrative costs (108,734) (6,679) (354) (3,430) (1,089) (120,286) Amortisations for the year (30,153) (682) - (32) (58) (30,925) Provisions net of write-offs (4,106) (2,609) - (168) - (6,883) Impairment of loans and advances net of reversals and recoveries (266,923) (5,110) - (37,110) (8,657) (317,800) Impairment of other financial assets net of reversals and recoveries (37,139) - - - - (37,139) Impairment of other assets net of reversals and recoveries (70,677) (635) - - - (71,312) Negative Goodwill ------Profit/loss from associates and joint ventures (Equity Method) 2,173 (1,093) - - - 1,080 Profit/loss before tax and non-controlling interests (440,681) (5,502) (16,998) (65,590) (36,574) (565,345)
58,201 432 1,335 305 1,350 61,623 Current (7,354) (605) (5) - - (7,964) Deferred 65,555 1,037 1,340 305 1,350 69,587 Profit/loss after tax and before non-controlling interests (382,480) (5,070) (15,663) (65,285) (35,224) (503,722) Profit/loss on discontinued operations - (1,846) (81,138) - 1,234 (81,750) Non-controlling interests (7,955) 64 1,232 8,141 (206) 1,276 Profit/loss for the year (390,435) (6,852) (95,569) (57,144) (34,196) (584,196)
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MANAGEMENT REPORT AND ACCOUNTS 2013
5. CASH AND BALANCES AT CENTRAL BANKS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Cash on hand 45,291 53,364 Sight deposits at Central Banks 107,052 130,742 Interest on liquid assets -3
152,343 184,109
Sight deposits at central banks include an amount of 54,726 thousand euros (124,903 thousand euros in 2012) representing compliance with the legal requirements on minimum cash resources held at Banco de Portugal. In accordance with Banco de Portugal Notice No. 7/94, of 19 October, and Circular No. 5/2011/DMR of 20/12/2011, the coefficient to be applied is 1% of the eligible liabilities. These deposits have been interest bearing since 1 January 1999.
6. DUE FROM OTHER CREDIT INSTITUTIONS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Cheques for collection In Portugal 12,615 15,330 Abroad 2228
Sight deposits In Portugal 4,544 2,099 Abroad 99,075 97,970
Other 70,541 94,462
186,777 210,089
Cheques for collection at credit institutions in Portugal, at 31 December 2013, were cleared through the clearing house in the first few business days of January 2014.
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MANAGEMENT REPORT AND ACCOUNTS 2013
7. FINANCIAL ASSETS HELD FOR TRADING
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Financial derivative instruments with positive fair value 16,229 101,657 Debt instruments 19,134 80,671 Equity instruments 4,723 32,397
40,086 214,725
Note 14 details derivatives by type of instrument.
The trading securities portfolio had the following composition at 31 December 2013 (the balance sheet value of debt instruments includes accrued interest; the listed price of equity instruments is expressed in euros):
Nature and type Nominal value Listed price Balance sheet value
Debt instruments ESPIRITO SANTO FIN 5 1/4 06/12/15 770,000 101.63% 809 CAIXA GERAL DEPOSITOS 4 1/4 01/20 500,000 102.44% 532 OBRIGACOES DO TESOURO 4.8 06/15/20 500,000 95.13% 489 GP INVESTMENTS LTD 12/23/2049 485,824 96.63% 478 BANCO VOTORANTIM 7 3/8 01/20 398,811 104.88% 431 BRASKEM FINANCE SA 362,555 111.69% 407 BANCO VOTORANTIM NASSAU 04/10/2014 356,090 98.00% 357 CIMENTO TUPI SA 9 3/4 05/18 342,252 99.38% 345 BRF-BRASIL FOODS 7/8 06/22 344,428 99.75% 345 PETROBRAS INTL FINANCE CO 319,049 103.39% 339 BANCO BMG SA 329,925 100.25% 336 ITAU UNIBANCO HLDGS 5 1/8 05/23 362,555 92.06% 336 VOTO VOTORANTIM LDA 04/17 300,000 107.75% 334 PORTUGUESE OT'S PGB 5.65 02/15/24 325,000 96.13% 324 TAM CAPITAL INC 04/25/2017 290,044 105.13% 309 GALP ENERGIA SGPS S.A. 4 1/8 01/19 300,000 101.54% 306 FIBRIA OVERSEAS FINANCE 275,542 109.38% 305 BANCO SAFRA CI BANSAF6 3/4 01/21 274,092 105.58% 297 BANCO FIBRA SA 4 1/2 04/16 290,044 98.25% 288 USJ ACUCAR E ALCOOL SA 9 7/8 11/19 290,044 93.38% 275 BRASIL TELECOM 5 3/4 02/22 290,044 91.84% 273 MOTA ENGIL SGPS, SA 6.85 03/18/19 239,500 106.10% 259 VALE OVERSEAS LIMITED 01/23/2017 218,983 111.11% 249 EMBRAER OVERSEAS LTD 5.696 23 230,585 99.94% 234 OBRIGACOES DO TESOURO 6.4 02/15/16 190,000 105.63% 211 PEMEX PROJ FDG MASTER TR 08/16 180,000 112.52% 207 BFF INTERNATIONAL LTD 7 1/4 01/20 181,278 110.05% 205 ESPIRITO SANTO FIN GRP 10/21/19 200,000 99.63% 202 BTG INVESTMENTS LP 4 1/2 04/18 217,533 91.57% 201 EDP FINANCE BV 6 02/18 181,278 107.13% 199 SUZANO TRADING BAHIA 5 7/8 01/21 198,680 97.63% 199 PETROLEOS MEXICANOS 170,000 110.85% 198 QGOG CONSTELLATION SA 6 1/4 19-18 200,131 95.50% 193 VOTORANTIM OVERSEAS 06/20 163,150 115.00% 188 BANCO BTG PACTUAL/CAYMAN4 01/16/20 203,031 87.29% 181 MARFRIG HLDG 8 3/8 05/18 189,979 93.13% 179 CENTRAL ELET BRASILEIRAS SA 07/19 152,273 107.50% 168 BANCO FIBRA SA 5 7/8 05/14 166,775 100.13% 168
197
MANAGEMENT REPORT AND ACCOUNTS 2013
Nature and type Nominal value Listed price Balance sheet value
BANCO BRASL 9 1/4 49-23 159,524 102.75% 167 BANCO BRASL 6 1/4 12/49 208,832 77.75% 165 BANCO BRADESCO SA 04/15/14 155,000 101.65% 160 VALE OVERSEAS LIMITED 4 5/8 09/20 152,273 102.53% 158 BRISA-AUTO ESTRADA PORT 12/05/2016 150,000 104.13% 157 PEMEX PROJ FDG MASTER TR 130,000 114.15% 154 BANCO PANAMERICANO 5 1/2 08/15 145,022 103.00% 153 SANTANDER BRASIL 4 1/2 10/15 145,022 103.05% 152 GOL FINANCE 223,334 65.50% 151 SAMARCO MINERACAO SA 5 3/4 10/23 145,022 98.99% 145 GLOBO COMMUN PAR 4 7/8 04/22 145,022 98.51% 144 CSN ISLANDS XII 7 12/23/49 167,501 83.00% 139 PEMEX PROJ FDG MASTER TR 03/01/2018 121,819 111.44% 138 BANCO DO BRASIL (CAYMAN) 01/15 130,520 102.33% 136 PETROLEO INTL FIN CO 10/06/16 119,643 108.24% 131 OBRIGAÇOES DO TESOURO 4.1 04/15/37 172,309 72.75% 130 REPUBLIC OF BRAZIL 01/17/17 114,567 111.17% 130 CESP-COMP ENER SAO PAUL 9 3/4 01/15 181,278 64.63% 125 VOTORANTIM CIMENTOS SA 7 1/4 04/41 126,894 95.08% 123 BANCO SANTANDER 4 5/8 02/17 116,018 104.31% 123 BANCO NAC DESENV BNDES 0 06/16/08 108,767 108.80% 119 BANCO INDUSTR E COMRCL 04/27/20 108,767 104.50% 116 VALE SA 100,000 108.85% 112 MARFRIG HLDG 9 7/8 07/17 108,767 98.50% 112 GLOBO COMUNICACOES PART 6 1/4 49-15 105,141 104.16% 111 BANCO BRASIL (CI) BANBRA4 1/2 01/16 100,000 104.37% 109 COSAN LUXEMBOURG SA 5 03/14/23 123,269 86.88% 109 BANCO COM PORTUGUES 4 3/4 06/17 100,000 104.63% 107 EDP FINANCE BV 4 3/4 09/16 100,000 105.75% 107 BANCO DO BRASIL (CAYMAN) 10/49 95,715 107.38% 104 BANCO VOTORANTIM 6 1/4 05/16 93,627 110.54% 104 OAS FINANCIAL LTD VAR 49-18 113,842 87.75% 102 BCP FINANCE BANK LTD 05/09/2014 101,000 99.00% 100 BANCO ABC BRASIL SA 8 1/2 03/16 107,441 91.00% 100 PETROBRAS INTL FINANCE 89,189 104.39% 95 VALE OVERSEAS LIMITED 01/34 72,511 116.45% 87 BANCO EST RIO GR 7 3/8 02/22 83,388 98.50% 85 BANCO BRADES CI 5 3/4 03/22 85,563 97.95% 85 BRISA - CONCESSÃO ROD. 6.25 05/12/1 79,000 102.67% 81 USIMINAS COMMERCAIL LTD 72,511 108.75% 81 BANCO NAC DESENV ECON 07/20 76,137 101.57% 79 TAM CAPITAL 2 INC 71,786 106.50% 79 BANCO DAYCOVAL 1/4 01/16 72,511 103.63% 77 FED REPUBLIC OF BRASIL 58,009 129.66% 76 PETROBRAS INTL FIN CO 03/01/2018 68,886 106.51% 75 ARCOS DORADOS HL 10 1/4 07/16 76,744 93.25% 75 FED REPUBLIC OF BRAZIL 04/24 52,933 133.20% 71 FED REPUBLIC OF BRASIL 02/25 52,208 132.96% 71 BANCO NAC DE DESEN ECONO 5 3/4 71,061 98.79% 71 VALE OVERSEAS LIMITED 11/21/36 65,985 103.92% 69 ESAL GMBH 6 1/4 23-21 73,986 89.75% 67 PETROLEOS MEXICANOS 3 1/2 01/23 70,287 91.46% 64 BANCO NAC DESENV ECON 09/17 59,000 103.69% 62 LPG INTERNATIONAL INC 12/20/2015 55,490 108.93% 59 GTL TRADE FINANCE INC 10/20/2017 51,790 112.49% 58 EDP FINANCE BV 4 1/8 06/20 55,000 103.50% 58 PETROBRAS INTL 6 3/4 01/41 59,929 92.97% 56 BRASKEM FINANCE 5 3/8 05/22 59,189 93.19% 55 PGB 3,35 10/15/15 52,800 100.63% 54 BANCO COM PORTUG 9 1/4 10/14 50,000 105.00% 54 EDP FINANCE BV 4 7/8 09/20 50,000 105.63% 54 REFER-REDE FERROVIARIA 4 03/16/15 50,000 99.75% 51 FED REPUBLIC OF BRASIL 45,872 107.76% 50 FED REPUBLIC OF BRAZIL 46,046 103.11% 50 FED REPUBLIC OF BRAZIL 01/41 51,790 96.72% 50 BANCO SANTANDER SANBBZ4 1/4 01/16 44,392 103.50% 46 SEMAPA-SOC INV E GESTÃO 6.85 03/30/ 40,000 104.03% 42 PEMEX PROJ FDG MASTER TR 40,693 105.21% 42 FED REPUBLIC OF BRAZIL 08/40 35,513 113.68% 41 BANCO BRADESCO (CAYMAN) 03/15 39,953 102.52% 41 BANCO NAC DESENV 6 1/2 06/19 36,993 108.78% 40 CENTRAL ELET BRASILEIRAS SA 36,993 109.54% 40 FED REPUBLIC OF BRAZIL 01/21 36,993 105.42% 39
198
MANAGEMENT REPORT AND ACCOUNTS 2013
Nature and type Nominal value Listed price Balance sheet value
BM&FBOVESPA SA 5 1/2 07/20 36,993 105.50% 39 JBS FINANCE II LIMITED 36,993 105.38% 39 GGBRBZ5 3/4 01/21 36,993 102.68% 38 BANCO BRASL 3 7/8 01/17 36,993 102.23% 38 BR PROPERTIES SA BRPRSA9 12/49-15 36,993 99.75% 37 PETROBRAS INTL FIN CO 3 1/2 02/17 36,993 100.82% 37 MARFRIG OVERSEAS LTD 05/20 36,993 93.38% 34 COSAN OVERSEAS COSAN 8 1/4 49-15 34,034 100.75% 34 FED REPUBLIC OF BRASIL 03/30 18,497 170.67% 32 FED REPUBLIC OF BRASIL 23,330 111.22% 32 ODEBRECHT FINANCE LTD 7 1/2 49-15 33,294 95.99% 31 HYPERMARCAS SA 6 1/2 21/19 29,595 105.75% 31 BANQUE SAFRA LUX 10 01/15 29,163 97.00% 30 BANCO BRASL 5 7/8 01/22 29,004 96.13% 29 PORTUGUESE OT'S 4.35 10/16/17 28,300 99.50% 28 TELEMAR N LESTE SA 5 1/2 10/20 28,279 95.33% 27 BANCO ABC-BRASIL SA 7 7/8 04/20 25,379 98.88% 26 PETROBRAS INTL FINANCE CO 01/40 25,379 94.22% 25 PETROLEOS MEXICA PEMEX 6 03/05/20 21,753 111.00% 25 TAM CAPITAL 8 3/8 06/03/21 23,204 103.75% 24 BANCO BRASL 5 7/8 01/23 25,379 93.75% 24 BR MALLS INTL FI BRMLBZ8 1/2 49-16 22,478 99.50% 23 PETROLEOS MEXICA PEMEX 4 7/8 01/22 21,753 102.65% 23 PGB 3.6 10/15/14 19,161 101.25% 20 BANCO DO BRASIL (CAYMAN) 01/20 18,128 105.45% 20 PETROLEOS MEXICA 6 1/2 06/41 17,403 104.57% 18 MARFRIG HOLDING EUROPE B 11 1/4 21 18,128 95.50% 18 BRASKEM FIN LTD BRASKM7 3/8 12/49 18,128 94.28% 17 VALE OVERSEAS LIMITED 11/39 14,502 103.39% 15 ITAU UNIBANCO/ KY 6.2 12/21/21 14,502 100.98% 15 BANCO SANTANDER BRAS CI 8 03/18/16 15,349 93.50% 15 JBS USA 8 1/4 20-16 12,327 108.63% 14 ODEBRECHT FINANC 7 1/8 06/42 14,502 92.55% 13 VALE SA 5 5/8 09/42 11,602 89.88% 11 GOL FINANCE 04/03/2017 10,877 94.50% 10 BANCO BTG PACTUAL/CAYMAN5 3/4 09/22 10,877 87.00% 10 BANCO SAFRA SA 10 1/4 16 8,288 94.00% 8 BANCO DO NORDEST NORBRA3 5/8 11/15 7,251 100.76% 7 PETROBRAS INTL FINANCE 5,076 113.56% 6 ANHEUSER-BUSCH ABIBB 9 3/4 11/15 6,139 98.25% 6 FED REPUBLIC OF BRASIL 34 3,626 127.53% 5 ITAU UNIBANCO/KY ITAU 10 1/2 11/15 5,219 98.50% 5 SADIA OVERSEAS LTD 05/24/2017 3,626 110.61% 4 BANCO IND E COM BIC5 1/4 10/25/15 4,351 100.50% 4 PETROLEOS MEXICA PEMEX 5 1/2 06/44 4,351 91.39% 4 ZON MULTIMEDIA 2012/2015 1,000 104.05% 1 JBS USA 7 1/4 06/21 725 104.13% 1 EMPRESA BRAS DE AERONAU 5.15 06/22 725 100.01% 1 PETROLEOS MEXICANOS 4 7/8 01/24 1,450 100.04% 1 19,134
199
MANAGEMENT REPORT AND ACCOUNTS 2013
Nature and type Quantity Listed price Balance sheet value
Equity instruments FOMENTINVEST 3,076,924 1.5 4,676 CTT SA 6,100 6 34 COMPANHIA DAS QUINTAS SGPS, S.A. 34,317 0.3 11 CIPAN 27,451 0.1 2 BEIRA VOUGA 20,317 - - NOVA COMPANHIA GRANDE HOTEL 50,300 - - BEIRA VOUGA ACÇÕES PREFERENCIAIS 21,500 - - ELECTRICIDADE DE PORTUGAL, SA 50 2.7 - GALP ENERGIA SGPS-NOM 20 11.9 - PARMALAT FINANZIARIA SPA 30,000 0.0 - AMERICAN INTERNATIONAL - CW21 1 14.7 - 4,723
Debt instruments amounting to 1,667 thousand euros are used as a guarantee for refinancing operations with the ECB (902 thousands euros in 2012. In 2012 Debt instruments amounting to 4,883 thousand euros were guaranteeing repo operations.
The amount of 3,934 thousand euros in National Treasury Notes and Financial Treasury Bills issued by Brazil are being used to guarantee operations in BM&F – Bovespa, SA and as a guarantee for CIP/TECBAN.
8. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Equity instruments 73,603 78,284 Debt instruments 83 1,003
73,686 79,287
The portfolio of securities at fair value through profit or loss had the following composition at 31 December 2013 (the balance sheet value of debt instruments includes accrued interest; the listed price of equity instruments is expressed in euros):
Nature and type Nominal value Listed price Balance sheet value
Equity instruments
PGB 4 3/8 06/16/14 JUN 80,000 101.36% 83
83
200
MANAGEMENT REPORT AND ACCOUNTS 2013
Nature and type Quantity Listed price Balance sheet value
Equity Instruments
APLICAÇÃOURBANAXIV,SA 610,000 27.0 16,494 NORFIN SOLUÇÃO ARRENDAMENTO 2,498,659 4.9 12,240 BANIF CAPITAL INFRASTRUCTURE FUND 3,485 2,923.5 10,188 ARRENDAMENTO MAIS - NORFIN 1,017,965 5.0 5,080 DP INVEST - FUNDO ESPECIAL INV. IMOB. FECHADO 81,500 54.8 4,467 NEW ENERGY FUND 213 17,961.8 3,826 PORTO NOVO F.I.I.F. 41,575 88.0 3,659 GED SUR FCR-CL B 49,900 53.9 2,655 FLORESTA ATLÂNTICA - SGFII (CL B) 40,000 64.7 2,589 APLICAÇÃO URBANA XIII, SA 5,000 512.8 2,564 REP REAL ESTATE PARTNERS D SA 2,511,000 1.0 2,511 FINPRO SCR, SA 407,461 5.8 2,370 GCC LISBOA - GESTÃO DE CEN. COMERCIAIS, SA 135,000 17.5 2,366 FINE ART FUND 18,170 54.6 992 BANIF GLOBAL PRIVATE EQUITY F - FCR 1,000,000 0.7 653 PORTUGAL VENTURE CAPITAL INITIATIVE 922,748 0.7 610 HOZAR PORTUGAL SA 502,391 0.4 190 COMPªQUINTAS SGPS SA 360,000 0.3 112 INAPA - INV. PART. GESTÃO 125,693 0.2 28 GED SUR FCR-CL A 100 53.9 5 FCP 11,446 0.4 4 GALERIAS NAZONI 750 - - SHOTGUN PICTURES 10,000 - -
73,603
In compliance with the accounting policy described in Note 2.7, the group classifies in its “Other financial assets at fair value through profit or loss” securities portfolio its holdings in investment funds in excess of 20% but where it does not have control, when held through investment funds, venture capital or bank capital, given the characteristics of these operations (seed capital).
The amount of 81 thousand euros (83 thousand euros in 2012) in treasury bonds corresponds to “Assets given as security” that are being used to back irrevocable commitments to the Deposit Guarantee Fund.
9. AVAILABLE-FOR-SALE FINANCIAL ASSETS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Debt instruments 1,429,877 533,084 Equity instruments 403,550 266,924 Impairment of debt instruments (see Note 43) (630) (630) Impairment of capital instruments (see Note 43) (50,756) (43,812)
1,782,041 755,566
201
MANAGEMENT REPORT AND ACCOUNTS 2013
The portfolio of available-for-sale securities had the following composition as at 31 December 2013:
Nature and type Quantity Listed price Balance sheet value Impairment
Debt instruments
OT 01/16 OUT 17 346,957,980 99.50% 348,372 - OBRIG. TESOURO 15 JUN 2018 4,45% 256,800,000 98.38% 258,849 - OBRIG. TESOURO 09/14JUN 2019 4,75% 169,250,000 96.75% 168,149 - OBRIG. TESOURO 05/15 ABR 2021 149,102,500 88.25% 135,641 - OBRIG. TESOURO JUN 4,8% 2020 128,155,000 95.13% 125,257 - OBRIG. TESOURO 15 ABR 2037 136,515,000 72.75% 103,295 - BILHETES DO TESOURO 18JUL2014 70,000,000 99.44% 69,607 - OBRIG. TESOURO 25OUT2023 60,000,000 92.13% 55,820 - OBRIG. TESOURO 4,2% 15 OUT 2016 45,000,000 101.00% 45,849 - BILHETES DO TESOURO 21MAR14 40,000,000 99.94% 39,975 - BILHETES DO TESOURO 17JAN2014 25,000,000 100.06% 25,016 - BILHETES DO TESOURO 23MAI2014 20,000,000 99.69% 19,938 - OBRIG. TESOURO 5,65% FEV 24 18,000,000 96.00% 17,921 - OBRIG. TESOURO 15FEV2016 6,4% 9,370,000 105.63% 10,423 - GRÉCIA 0% OUT 42 630,000 0.00% 630 (630) ELEPOR 5.875% 02/16 500,000 107.15% 562 - BESPL 5.625% 06/14 500,000 101.38% 523 - SEMPL 6.85 03/30/15 450,000 103.75% 475 - MADRID 5.75 02/01/18 400,000 110.88% 464 - PTIPL 5.375 05/15/20 400,000 106.50% 429 - TITIM 4,75% 05/18 400,000 104.77% 408 - ENGLPL 6.85 03/18/16 350,000 106.00% 378 - PORTEL 5.875% 04/18 300,000 109.50% 340 - PGB 3,35 10/15/15 330,000 100.63% 334 - RENEPL 6.25% 09/16 300,000 107.00% 326 - BKTSM 6.375% 09/19 200,000 108.50% 220 - PORTEL 4.625% 05/20 200,000 102.38% 210 - EMPARK FUNDING SA 6 3/4 19-18 200,000 102.80% 206 - EFSF 1% MAR 14 150,000 100.10% 151 - BRCORO 6.25% 12/14 63,000 103.13% 65 - OBRIGAÇÕES DO TESOURO - JUN 03/14 10,000 95.50% 17 - ZON PL 6.85% 2015 12,000 104.05% 13 - ELEPOR 6% 12/07/14 9,000 102.80% 9 - SONPL 7 07/25/15 5,000 104.66% 5 -
1,429,877 (630)
202
MANAGEMENT REPORT AND ACCOUNTS 2013
Nature and type Quantity Listed price Balance sheet value Impairment
Equity instruments
DISCOVERY PORTUGAL REALESTATE FUND 116,064 978.29 113,997 - FUNDO VALIS CLASS A 70,045,972 1.04 72,918 - FUNDO FLITPTREL 52,662 967.57 50,954 - FUNDO VALIS CLASS B 33,672,841 0.00 33,673 (33,673) FUNDO RECUP. TURISMO B 21,444 991.06 21,318 - FINPRO SCR, SA 3,090,688 5.82 17,979 - FUNDO FCR CLASS C 20,000 455.11 14,484 (2,329) FUNDO FCR CLASS B 20,000 547.61 14,245 (2,515) NEXPONOR 2,033,000 5.00 10,165 - FUNDO REEST. EMPRESARIAL - FCR 7,554 873.75 6,600 - AVIVA CENTR EUROPEAN PROPERTY FUND 8,292,693 0.59 4,856 - IBEROL 169,833,334 0.03 4,787 - ASCENDI BEIRAS 221,434 20.74 4,719 (127) LUSO CARBON FUND-FUNDO ESP FECHADO 82 22,535.28 3,781 (1,933) AÇORLINE LDA 3,367,000 0.00 3,367 (3,367) PREFF-PAN EUROPEAN REAL STATE FUND 42,500 69.15 2,939 - ASCENDI NORTE 714,364 3.38 2,413 - PRADERA EUROPEAN RETAIL FUND CLASS1 300,000 3.42 2,236 (1,303) FCR REVITALIZAR NORTE CAT. 2 1,818,182 1.00 1,818 - FCR REVITALIZAR CENTRO CAT. 2 1,818,182 1.00 1,818 - ASCENDI PORTO 33,289 41.40 1,378 - CORKFOC 271,188 0.00 1,356 (1,356) HABIPREDE 5,000 0.00 1,250 (1,250) JPM GREATER CHINA 207,141,363 0.01 1,175 - UNICRE, SA 35,076 26.11 916 - ACT - C -INDÚSTRIA DE CORTIÇAS, S.A 170,410 0.00 852 (852) VINOCOR 156,421 0.00 782 (782) FINE ART FUND (CP) 12,645 59.29 750 - PAN ATLANTICA 950,000 0.00 589 (589) BANIF INVESTIMENTO CONSERVADOR 100,000 5.55 555 - SOCIEDADE QUINTA DO FURÃO, LDA 8 68,750.00 550 - FINANGEST 526 674.90 535 (180) FCR REVITALIZAR SUL CAT. A 2 454,545 1.00 455 - FCR REVITALIZAR SUL CAT. B 2 454,546 1.00 455 - FCR REVITALIZAR SUL CAT. C 2 454,545 1.00 455 - SIBS,SA 103,436 4.30 445 - ASCENDI COSTA DE PRATA 83,504 5.19 433 - IMOVALOR 19,890 14.13 281 - LUSITANIA SEGUROS 476 207.98 228 (129) GREFF GLOBAL REAL ESTATE FUND A 2,541 85.67 218 - DIDIER & QUEIROZ, S.A. 50,000 0.00 150 (150) SUBERCOR 28,137 0.00 141 (141) FLORESTA ATLÂNTICA - SGFII, SA 10,125 8.54 86 - JP MORGAN EUROPEAN PROPERTY FUND 19 4,261.63 81 - DB GLOBAL MASTERS FUND - 04/05 2,408 16.28 67 (28) DB GLOBAL MASTERS FUND - 07/07 2,824 12.02 64 (30) VISA CLASS C 2,533 24.87 63 - S.W.I.F.T. 27 1,962.96 53 - GED SUR CAPITAL S.A., SGECR 30,000 0.81 24 - BTA BANK JSC - GDR'S 27,324 0.54 15 - BELMONT RX SPC FI DEC08 524 29.13 15 - GRACITUR 15 0.00 15 (15) TRANSINSULAR (AÇORES) - TRASP. MARITI. INSUL. 2,000 5.50 11 - PRETÓRIA LDA 5,736 1.05 6 - ICE - INTERCONTINENTALEXCHANGE 34 163.09 6 - NURINTUR 6 0.00 6 (6) FLITPTREL 15, SA 5,000 1.00 5 - FLITPTREL SALEMA 5,000 1.00 5 - CEIM, LDA 800 5.00 4 - FLIPTREL PORTUGAL SGPS 2,500 1.20 3 - GARVAL 500 2.00 1 - LISGARANTE 500 2.00 1 - NORGARANTE 500 2.00 1 - FLIPTREL II SA 577 1.00 1 - VNCORK 801 0.00 1 (1) COLISEU MICAELENSE, S A 83 1.00 - - MACEDO & COELHO 188 1.00 - - SC BRAGA SAD 20 1.00 - - TEATRO MICAELENSE, S A 83 1.00 - - TAEM SGPS 125 1.00 - - ASCENDI OPERADORA BLA 202 1.00 - - ASCENDI OPERADORA NT 307 1.00 - - ASCENDI OPERADORA GP 268 1.00 - - ASCENDI OPERADORA CP 202 1.00 - - BELMONT ASSET BASED LENDING - B+ 7,837 0.00 - - BELMONT RX SPC FI SEP08 2 9.44 - - OPUS CREDIT SP1 NOV08 1 98.55 - - DB GLOBAL MASTERS FUND-V 13-07 4 11.40 - -
403,550 (50,756)
203
MANAGEMENT REPORT AND ACCOUNTS 2013
Changes in impairment of available-for-sale financial assets, during the fiscal year of 2013, are described in Note 42.
The amount of 13,836 thousand euros (14,105 thousand euros in 2012) in treasury bonds corresponds to “Assets pledged as collateral” that are being used to back irrevocable commitments to the Deposit Guarantee Fund and the Investor Compensation Scheme.
Securities with a value of 1,322,263 thousand euros (468,385 thousand euros in 2012) are being used as security for refinancing operations with the ECB and intraday credit with Banco de Portugal, as described in Note 22 .
In 2012, debt instruments in the amount of 16,124 thousand euros were being used to guarantee repo operations.
Capital instruments in the amount of 2 thousand euros are being used to guarantee the mutual guarantee company.
The main assumptions used in the valuation of unlisted equity instruments are: Fund Units – listed price based on the last NAV available for fund units acquired up to the date of that price; historical cost for investments made between the date of the last quoted price available and the date of the financial statements; Securities received in lieu – record of 100% impairment on the balance sheet value if there are no prospects of recoverability. The prospects of recoverability are determined based on individual analyses conducted internally (Note 2.11)
10. INVESTMENTS AT CREDIT INSTITUTIONS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Interbank money market -- Purchase operations with resale agreement In Portugal - 220,111 Abroad -2,296 Deposits In Portugal 21,801 21,616 Abroad 87,670 78,252 Loans In Portugal 505 2,393 Abroad 3,757 12,739 Very short-term investments In Portugal -- Abroad 15 11,112 Other 3,772 19,001
Impairment (33) -
117,487 367,520
204
MANAGEMENT REPORT AND ACCOUNTS 2013
The amount of 6,896 thousand euros, presented in deposits abroad, corresponds to a pledged escrow account related to the sale of Banif Corretora de Valores e Câmbio.
11. LOANS TO CUSTOMERS
This item breaks down as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Corporate Loans Current accounts 731,644 1,104,893 1,104,893 Discount and other credit represented by bills 161,505 147,528 147,528 Loans 2,353,412 2,434,681 2,434,681 Overdrafts 42,877 43,617 43,617 Factoring 103,112 178,406 178,406 Finance Leases 176,569 239,207 239,207 Other 80,318 269,684 269,684 Private Loans Housing 2,889,509 3,252,752 3,252,752 Consumer 523,157 671,395 671,395 Other purposes Loans 490,290 620,080 620,080 Current accounts 91,958 135,671 135,671 Discount and other credit represented by bills 4,425 5,990 5,990 Finance leases 17,626 20,601 20,601 Overdrafts 22,645 35,762 35,762 Other 33,052 156,433 156,433
Other credit and securitised receivables 181,096 187,743 187,743
Loans and overdue interest 1,177,059 1,343,500 1,343,500
Income receivable 61,304 69,703 78,302 Costs with deferred income 69 219 219 Income from deferred income (12,386) (12,719) (12,719)
Loans and advance to customers (Gross) 9,129,242 10,905,146 10,913,745
Impairment on loans (see Note 43) (1,160,217) (1,097,764) (1,097,764)
Loans and advance to customers (Net Value) 7,969,025 9,807,382 9,815,981
Of loans to corporate customers, the sum of 1,475 million euros (2,180 million euros in 2012) is being used as security for refinancing operations with the ECB, as described in Note 22.
“Other loans and receivables” includes 22,152 thousand euros of debt securities (4,876 thousand euros in 2012), of which the amount of 1,102 thousand euros is being used as security for refinancing operations with the ECB, as described in Note 22.
“Overdue loans and accrued interest” includes instalments more than 90 days overdue. Instalments between 30 and 90 days overdue amount to 37,905 thousand euros of (145,343 thousand euros in 2012).
“Loans and advances to customers” includes the sum of 3,389,623 thousand euros in securitised loans.
205
MANAGEMENT REPORT AND ACCOUNTS 2013
Credit in respect of finance leasing is as follows:
Description 31/12/2013 31/12/2012
Accrued rentals and residual values
Up to 1 year 53,257 64,896 1 to 5 years 91,361 106,055 Over 5 years 170,082 238,489 314,700 409,440 Accrued interest:
Up to 1 year 7,006 1,918 1 to 5 years 10,818 3,665 Over 5 years 34,268 42,722 52,092 48,305 Accrued equity
Up to 1 year 46,251 62,978 1 to 5 years 80,542 102,390 Over 5 years 135,814 155,984 262,607 321,352
Overdue rentals and residual values are expressed in terms of the minimum value of lease receivables.
The Company considers as restructured loans those loans in relation to which there have been changes in contractual conditions, reflected, in particular, in extension of the repayment terms, the introduction of grace periods or the capitalisation of interest, due to financial difficulties of the borrower, regardless of whether or not there have been delays in the payment of capital and interest, as described in Point 06 of the Management Report, particularly with regard to credit risks.
Claims with a nominal value of 147,750 thousand euros were assigned to investment funds (Note 9), as follows:
2013
Nominal value of Loan impairment Fund Selling Price (Loss)/Gain loans at date of sale
FCR 11,113 4,862 6,829 578 VALLIS 908 231 898 221 DISCOVERY 129,373 27,367 115,266 13,260 FRE 6,356 28 6,356 28
147,750 32,488 129,349 14,087
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2012
Nominal value of Loan impairment Fund Selling Price (Loss)/Gain loans at date of sale
FCR 99,959 32,548 69,366 1,955 VALLIS 19,206 1,780 19,206 1,780 DISCOVERY 6,950 2 6,430 (518) FRE 30,721 409 30,623 311
156,836 34,739 125,625 3,528
Under the terms of the claim assignment contracts, the group transferred all rights, benefits and risks associated with the claims assigned, including their collateral. Also in connection with these operations, the group acquired financial assets (collective investment fund units), with expected characteristics, risks and cash-flows that are substantially different from the financial assets assigned.
In this context and in accordance with IAS 39, paragraphs 20 a), 21, 23 and 25, these operations permit derecognition of the assets assigned (claims). The financial assets acquired (fund units) were recognised at their fair value on the transfer date and classified in financial assets available for sale, since the group does not have control nor significant influence in these collective investment funds.
The securities reclassified to this item, in 2012, are as follows:
31/12/2013 Name Quant. balance sheet value market value
RENTIPAR SEGUROS 2015 5,000 5,000 5,000 CSA DEZ 2017 345 345 345
5,345 5,345
31/12/2012 Name Quant. balance sheet value market value
HARBOURMASTER CLO 500,000 4,025 2,752 RENTIPAR SEGUROS 2015 5,000 5,000 5,000 CSA DEZ 2017 345 345 345
9,370 8,097
In compliance with IFRS 7, securities are valued using internal valuation methods (level 3).
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12. INVESTMENTS HELD TO MATURITY
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Debt instruments 12,081 36,284 Impairment --
12,081 36,284
Securities with a value of 9,592 thousand euros (17,530 thousand euros in 2012) are being used as security for refinancing operations with the ECB, as described in Note 22.
In 2012, debt instruments in the amount of 8,208 thousand euros were being used to guarantee repo operations.
The portfolio of investment securities held to maturity had the following composition as at 31 December 2013:
Nature and type Quantity Balance sheet value
Debt instruments
PT INT FIN 5% NOV19 3,900,000 3,983 CAIXABANK 4,125% NOV 14 2,500,000 2,553
BES 5,625% 5JUN 2014 2,400,000 2,489 EDP FIN 5,5% FEV 14 1,500,000 1,579 GOLDMAN FLT MAI 2016 1,500,000 1,477
12,081
The securities reclassified to this item, in 2008, are as follows:
31/12/2013 Name Quant. balance sheet value market value
GOLDMAN SACHS GROUP INC 1,500,000 1,477 1,490
1,477 1,490
31/12/2012 Name Quant. balance sheet value market value
MORGAN STANLEY & CO INTL 3,000,000 2,994 3,002 CREDIT SUISSE USA INC 04/12/13 7,500,000 5,682 5,696 FRIESLAND BANK FLOAT 04/13 2,500,000 2,495 2,506 GOLDMAN SACHS GROUP INC 1,500,000 1,460 1,444
12,631 12,648
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Had these securities not been reclassified, they would have had a positive impact of 13 thousand euros on the profit and loss account for 2013.
In compliance with IFRS 7, securities are valued on the basis of marker prices (level 2).
13. ASSETS WITH REPURCHASE AGREEMENT
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Debt instruments - 26,223
-26,223
14. DERIVATIVES
Trading Derivatives
Financial derivatives in which the group is counterparty, with changes in fair value recognised against profit or loss, correspond to the following types of instruments:
31/12/2013 31/12/2012 Description Fair Value Fair Value Notional Values Positive Negative Positive Negative
Exchange rate contracts Swap FX 456,421 92 5,772 178 3,639 Forwards 39,328 1,929 42 525 471
Interest rate contracts Interest Rate Swaps 4,633,032 14,208 18,204 26,107 30,061
Equity contracts Credit Default Swap - - - 74,090 74,090
Contracts with other underlying assets Options - - - 757 757
5,128,781 16,229 24,018 101,657 109,018
The fair value of the financial derivatives is recognised on the balance sheet in separate asset and liability items. Positive fair value is recognised in “Financial assets held for trading” (Note 7) and negative fair value in “Financial liabilities held for trading” (Note 23).
Hedge derivatives The group contracts derivative financial instruments to hedge against its exposure to interest rate risk. The accounting treatment depends on the nature of the hedged risk, namely whether the group is exposed to changes in fair value or to changes in cash flows, or whether the hedges relate to future transactions.
For those hedge relationships which comply with the mandatory requirements of IAS 39, the group has adopted formal hedge accounting, namely the Cash flow hedge model. The group’s portfolio of
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derivatives comprises interest rate swaps, which hedge the risk of variations in cash flows from deposits from other credit institutions and debt securities in issue.
As required by IFRS 7, hedging derivatives are valued according to internal valuation methods, which are largely based on observable market data (level 2) (See Note 45).
15. NON-CURRENT HELD-FOR-SALE ASSETS AND LIABILITIES
Changes in this item were as follows:
2013
Entities within Change over the year the Net balance at Net balance at Accumulated Asset category consolidation Impairment 31-12-2012 31-12-2013 impairment perimeter for Acquisitions Transfers Disposals Other changes losses the first time recognised
Property and infrastructure 377,271 (17,946) 230,047 (3,173) (58,993) 2,118 (28,358) 500,966 (48,480) Holdings: Centaurus RG 25,863 - - - - (25,863) - - - FIP Banif Real Estate Brasil - - - - - 25,218 - 25,218 - LDI - Desenvolvimento Imobiliário - - - - - 67,898 - 67,898 - Banco Banif Brasil - 296,043 - - - 17,182 - 313,225 - ZACF ------Banif Banco de Investimento (Brasil) - 66,668 - - - - - 66,668 - Beta Securitizadora - 35,975 - - - - - 35,975 - Banif Gestão Activos (Brasil) - 103 - - - - - 103 - FIP Banif Real Estate -127-----127- Banif Bank (Malta) - 474,954 - - - 143 - 475,097 - Banco Caboverdiano Negócios - 121,053 - - - 621 - 121,674 - 403,134 976,977 230,047 (3,173) (58,993) 87,317 (28,358) 1,606,951 (48,480)
2012
Entities within Change over the year the Net balance at Net balance at Accumulated Asset category consolidation 31-12-2011 Impairment 31-12-2012 impairment perimeter for Acquisitions Transfers Disposals Other changes losses the first time recognised
Property and infrastructure 267,678 6,148 212,368 (65,588) (20,440) 1,745 (24,640) 377,271 (30,219) Holdings - Centaurus RG ---25,863---25,863-
267,678 6,148 212,368 (39,725) (20,440) 1,745 (24,640) 403,134 (30,219)
The “Transfers” of property and infrastructure column for 2013 of 3,173 thousand euros corresponds to: transfer of properties to investment property (-19,264 thousand euros) – Note 16, transfer of property for own use (+8,514 thousand euros), reclassification of classified building to other assets (+1,855 thousand euros) and transfer to this item of vehicles classified in finance leasing assets – Note 17 – of 5,722 thousand euros.
Changes in impairment are presented in Note 42.
The acquisitions over the period correspond to the amount recovered through foreclosure or auctioning of collateral securities for loans, relating, in the main, to property.
For the purposes of determining any impairment, valuations of non-current assets held for sale are carried out by independent specialist surveyors, in accordance with the criteria and methodologies generally accepted for the purpose. These include analyses using the cost and market methods.
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Fair value is defined as the amount that could reasonably be expected of a transaction between an interested purchaser and vendor, with equity between the two, neither being obliged to sell or purchase and both being aware of all relevant factors on a given date.
Discontinued operations
Following negotiations held under the current recapitalisation plan, it is envisaged that the interests in Banco Banif Brasil, Banif Bank (Malta) and Banco Caboverdiano de Negócios will be disposed of during 2014. In this context, these business units will then be carried as discontinued operations.
Details of the assets and liabilities of the discontinued operations:
Banif Banco Banif FIP Banco de Beta Banif Banco Gestão Banif Banif ZACF Investimen Securitizado Bank Caboverdian Activos Real Brasil to (Brasil) ra (Malta) o Negocios (Brasil) Estate SA Total Assets 313,224 - 66,667 35,975 103 127 475,097 121,675 Cash and balances at central banks 1,754 - - - - - 93,897 12,427 Balances at other credit institutions 3,174 - 4 1 - 1 442 662 Trading securities 17,272 - 21,816 - - 126 16,880 - Other Financial assets at fair value through profit or loss ------180 Financial assets available for sale 2,430 - 9,385 - - - 1,900 6,144 Due from banks 6,653 - 7,484 570 - - 4 15,047 Loans and advance to customers 169,131 - 4,068 34,899 - - 343,399 81,834 Investment securities held to maturity 14,271 ------106 Securities subject to repurchase agreements 10,227 ------Derivatives held for hedging ------Non-current assets held for sale 22,094 - 330 - - - 137 2,438 Investment property 2,746 ------Other tangible assets 1,284 - 525 - 1 - 7,587 2,106 Intangible assets (1) - 60 - - - 899 62 Current tax assets 4,901 - 2,555 165 102 - - 193 Deferred tax assets 40,264 - 8,849 339 - - 5,230 45 Receivables - direct insurance and reinsurance ------Other assets 17,025 - 11,591 2 - - 4,721 429
Banif Banco Banif FIP Banco de Beta Banif Banco Gestão Banif Banif ZACF Investimen Securitizado Bank Caboverdian Activos Real Brasil to (Brasil) ra (Malta) o Negocios (Brasil) Estate SA Total Liabilities 237,562 - 44,642 36,271 10 16 568,222 107,615 Deposits from central banks ------5,001 - Trading Liabilities ------Financial liabilities at fair value through profit or loss ------Deposits from other banks 12,057 ------3,808 Due to customers 3,564 - 50 - - - 561,530 97,369 Debt securities in issue 197,059 - 43,116 35,655 - - - - Financial liabilities linked to transferred assets ------Derivatives held for hedging ------Non-current liabilities available for sale ------Provisions 10,982 - 183 - - - - 119 Underwriting provisions ------Current tax liabilities ------763 Deferred tax liabilities 552 - 660 - - - - 269 Securities representing equity ------Other subordinated liabilities ------Other liabilities 13,349 - 633 616 10 16 1,690 5,288
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Results of discontinued operations:
Banif Banco Banif FIP Banco de Beta Banif Banco Gestão Banif Banif ZACF Investimen Securitizado Bank Caboverdian Activos Real Brasil to (Brasil) ra (Malta) o Negocios (Brasil) Estate SA Interest and similar income 53,351 - 5,897 135 - 1 21,142 7,555 Interest and similar expense 37,905 - 7,112 4,697 - - 14,913 3,226 Net Interest Income 15,446 - (1,215) (4,562) - 1 6,229 4,329 Dividend Income ------25 58 Fees and commission income 437 - 483 22 - - 1,342 1,511 Fees and commission expenses 112 - 37 7 - 8 513 251 Income from assets and liabilities valued at fair value through profit or los 6,536 - (3,056) - - 11 786 (5) Income from available-for-sale financial assets ------384 - Foreign exchange income (6,229) - - - - - 406 55 Income from disposal of other assets 2,966 1 ------Net reinsurance premiums ------Net cost of reinsurance claims ------Variation in net underwriting provisions for reinsurance ------Other operating income (6,966) (1) 1,439 4,649 14 (267) (630) 487 Net Operating Income 12,079 (1) (2,385) 103 14 (262) 8,029 6,185 Personnel expenses 12,938 - 4,051 - 41 - 5,279 1,492 Overheads 14,666 3 2,148 99 41 124 3,845 1,524 Depreciation and Amortisation 587 - 231 - 1 - 727 445 Provisions net of write-offs 3,443 - (5) (42) - - - - Loan impairment net of reversals and recoveries 74,458 - 4,268 341 - - 1,319 (151) Impairment of other financial assets net of reversals and recoveries ------1 Impairment of other assets net of reversals and recoveries - - 178 ---- 6 Negative consolidation differences ------Income from associates and joint ventures (equity method) ------Profit/loss before tax and non-controlling interests (94,014) (4) (13,257) (295) (69) (386) (3,141) 2,866 Current -- - 185 - - - 699 Deferred (10,774) - (1,475) (205) - - 129 10 Income Tax (10,774) - (1,475) (20) - - 129 709 Profit/loss after tax and before non-controlling interests (83,240) (4) (11,782) (275) (69) (386) (3,270) 2,157 Non-controlling interests (997) - (14) 1 - (1) 27 1,024 Consolidated Profit for the Period (82,243) (4) (11,768) (276) (69) (385) (3,298) 1,133
16. INVESTMENT PROPERTIES
Changes in this item were as follows:
2013
Transfers Entities Exchange Balance at within the Balance rate Asset category 31-12- consolidation Acquisitions Revaluations Disposals at 31- Assets difference 2012 perimeter for Other 12-2013 Own-use held for s the first time assets properties sale
Buildings and land 924,357 - 13,177 (50,890) (63,866) 1,265 12,286 - (8,753) 827,576
924,357 - 13,177 (50,890) (63,866) 1,265 12,286 - (8,753) 827,576
2012
Entities Transfers Exchange Balance at within the Balance rate Asset category 31-12- consolidation Acquisitions Revaluations Disposals Assets at 31- 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
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The “transfer” column for 2013 corresponds to: Own-use properties: buildings that are no longer own-use properties (+1,265 thousand euros), essentially branches that have closed, Non-current assets held for sale: Properties transferred due to the change in the group’s policy with regard to their management – Note 16 – (+19,264 thousand euros). Non-current assets held for sale: reclassification of assets from discontinued operations (-6,978 thousand euros).
Valuations of investment properties are carried out by independent specialist surveyors, in accordance with the criteria and methodologies generally accepted for the purpose. These include analyses using the cost and market methods. Fair value is defined as the amount that could reasonably be expected of a transaction between an interested purchaser and vendor, with equity between the two, neither being obliged to sell or purchase and both being aware of all relevant factors on a given date in accordance with Note 2.4.
Revaluations are presented in Note 39.
Investment properties had the following values for the year: Rental income: 21,238 thousand euros (15,335 thousand euros in 2012) – Note 39. Direct operating costs: 5,122 thousand euros (5,067 thousand euros in 2012).
Property temporarily unlet stood at 460,922 thousand euros. Property received in repayment of loans was valued at 210,936 thousand euros.
17. OTHER TANGIBLE ASSETS
As stated in Note 2.14, the group’s own-use properties are recorded at the fair value, which is updated every three years. These properties were last re-valued at 31 December 2012.
17.1 – Changes over the period:
2013
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 31-12-2013 the first time (net) s
Property 227,669 (6,874) 545 - (9,460) (8,588) (10,456) - (1,380) 534 (5) 191,985 Equipment 14,986 (4,432) 1,612 - 472 (3,986) - (399) (62) - (13) 8,177 Assets under operating leases 27,377 (46) - - (5,586) (5,791) - (3,527) - - - 12,428 Assets under finance leases ------Tangible assets under construction 34,851 (567) 445 - (1,352) - - - - (320) - 33,058 Other tangible assets 2,142 (53) 453 - (175) (326) - - - - - 2,042
307,025 (11,972) 3,055 - (16,101) (18,691) (10,456) (3,926) (1,442) 214 (18) 247,689
2012
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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
Had the net value of the property been determined by the cost method, it would have been 175,220 thousand euros.
The “transfer” column corresponds essentially to: Transfers to investment property of properties that are no longer own-use properties (9,780 thousand euros) – Note 16; Transfer of operating lease vehicles to non-current assets held for sale in the amount of 5,722 thousand euros – Note 15;
17.2 – Property, plant and equipment under operating leases
Future payments Contingent rents Residual Maturity Net Value from non-cancellable recognised in the operating leases income statement
Less than 1 year 9,962 2,831 - 1 to 5 years 2,466 354 - Over 5 years - - - 12,428 3,185 -
Property, plant and equipment under operating leases correspond to vehicles.
18. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes over the period were:
31-12-2013
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 31-12-2013 the first time
Goodwill 1,905 ------1,905 Intangible fixed assets under construction 9,289 - 1,057 6,387 - - (2,486) - 14,247 Automatic data handling systems (software) 14,474 (723) 604 (7,445) (6,800) - - (1) 110 Other intangible assets 596 (137) - 1,058 (639) - (64) - 814
26,264 (859) 1,661 - (7,439) - (2,550) (1) 17,076
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31-12-2012
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 16 6,655 (153) (6,809) (1,028) (10) 137 26,264
Goodwill relates to the following holdings:
With reference to 31 December 2013, the group carried out the following goodwill impairment tests:
An initial study was carried out on Investaçor SGPS, SA. This justifies the goodwill recognised (at 2,218 thousand euros). This study was updated in 2013. An impairment of 313 thousand euros was recorded in 2010 This analysis used the discounted cash flows method, based on the forecast analysis of the company’s future activity and business dealings. This analysis focused on medium and long-term economic and financial forecasts (6 years), and the calculation of the respective projected financial flows. In this assessment, the following parameters were used: - Inflation Rate: 2.00% (2012: 2.00%) - Yield to maturity: 3.93% (2012: 3.85%) - Risk rate: 3.11% (2012: 3.14%) - Discount rate: 9.31% (2012: 9.25%) - Additional risk rate (perpetuity): 1.00% (2012: 1.00%) - Capitalisation rate: 8.24% (2012: 8.18%)
Goodwill assessment was based on the going concern principle and used historical and accounting data from the entities being valued. The methods and key assumptions used in the valuations are those commonly accepted for company valuations and were applied in accordance with the international corporate valuation practices accepted by the group’s management. No alterations that would justify quantifying the respective impacts were identified in the key assumptions, as required by paragraph 134 (f) of IAS 36.
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19. INVESTMENTS IN ASSOCIATES
At 31 December 2013 and 2012, investments in associates breaks down as follows:
31/12/2013
% 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, SGPS, Avenida Barbosa du Insurance Banif, SA 47.69% 90,904 - 190,607 (1,250) (596) SA Bocage, 85
Virgen de Guadalupe , 2 Banca Pueyo Villanuea de la Serena, Banking Banif, SA 33.32% 35,502 - 106,548 4,492 1,497 Badajoz
Parque de la Inmobiliaria Vegas Altas Constitución, 9 Real estate Banif, SA 33.33% 2,674 - 8,022 128 42 Villanueva de la Serena
Av. Barbosa do Bocage Espaço 10 Real estate Banif, SA 25.00% - - (1,849) (678) (170) 83-85, 1050-050 Lisboa
Rua Tierno Galvan, Banif - Banco de MCO2 Torre 3, 10.º Piso Investiment Management 25.00% 550 - 2,200 212 53 Investimento, SA Amoreiras, Lisboa
Pedidos Liz Portugal Investment Fund Imogest 40.24% - - 1 - -
129,630 - 305,529 2,904 826
31/12/2012
% 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, SGPS, Avenida Barbosa du Insurance Banif, SA 47.69% 83,840 - 176,252 6,212 2,962 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 Inmobiliaria 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
Companies recorded under the equity method report their data in accordance with the accounting policies of the Banif Financial Group (Note 2). There were no problems with the harmonisation of accounting policies.
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20. INCOME TAXES
20.1 Current taxes
This item breaks down as follows by entity:
31-12-2013 31-12-2012
Banif 1.152 1.406 Grupo Banif Mais SGPS 905 1.435 Banif Imobiliária 361 1.238 Banif Gestão de Activos 359 284 Numberone SGPS 276 13 Gamma 169 171 Banif Açor Pensões 148 70 Turotel 17 16 Gestarquipark 11 12 Açortur 741 Wil 55 Soc Imobiliária Piedade 44 Worlvilas 21 Investaçor Hoteis SA 119 Banco Banif Brasil - 5.755 Banif Banco de Investimento - 1.393 Banif Banco de Investimento (Brasil) SA - 3.124 Banco Caboverdiano Negocios - 244 BanifServ -- Beta Securitizadora - 1.815 Banif Gestão Activos (Brasil) - 121 Banif Rent SA -- Banif Ecoprogresso -46 Econofinance SA -- Investaçor SGPS SA -3 Hotel do Pico --
3.417 17.216
20.2 Deferred taxes
Transfer to non-current Profit/Loss Exchange rate Description 31/12/2012 assets held for sale from By equity 31/12/2013 Cost Income differences discontinued operations
Deferred tax assets
Provisions/impairment not accepted for tax purposes Other risks and charges 36 - (1) - - - 35 Impairment on loans granted 116,743 (37,932) (15,180) 30,629 (114) - 94,146
Reportable tax losses Reportable tax losses 92,865 (16,049) (32,262) 48,197 - 912 93,663
Valuations not accepted for tax purposes Investment property 1,186 - (1,186) ---- Assets available for sale 8,296 - (333) - - 2,783 10,746 Assets at fair value through profit or loss 1,045 - (996) 273 322
Other Employee benefits 14,719 - (945) 264 - 1,562 15,600 Commissions 80 - (34) - - - 46 Other 16,786 (281) (2,382) 12,720 72 (1,026) 25,889
Total 251,756 (54,262) (53,319) 92,083 (42) 4,231 240,447
Deferred tax liabilities
Provisions/impairment not accepted for tax purposes Impairment on loans granted (22,357) 2,479 - 1,898 - - (17,980)
Valuations not accepted for tax purposes Investment property (1,552) 1,553 - 1,466 - - 1,467 Own-use properties (4,225) ----319(3,906) Assets available for sale - - (113) - - - (113)
Other Commissions (180) - - 25 - - (155) Other (34,745) 49 (3,369) 10,576 28 (221) (27,682)
Total (63,059) 4,081 (3,482) 13,965 28 98 (48,369)
TOTAL 188,697 (50,181) (56,801) 106,048 (14) 4,329 192,078
At 31 December 2013, the group has 93,663 thousand euros in deferred tax assets, arising from taxes losses. The group’s management believes that these amounts will be recovered.
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Banif deferred taxes:
Period taxes losses Deferred Tax Due Date
2009 15,774 3,628 2015 2010 21,286 - 2014 2011 24,679 4,392 2015 2012 210,579 38,931 2017
2013 187,469 43,118 2018
459,787 90,069
Banif believes that deferred tax assets regarding reportable tax losses are recoverable, given the forecast business and profit growth for the next few years contained in the “Funding and Capital Plan”. The main assumptions of this plan are: Deposits: Compound annual fall in deposits until 2018 estimated at approximately 2.9%, due to reduced exposure; Credit: Compound annual reduction in loans granted of approximately 5.6% until 2018 due to withholding of repayments envisaged in some loan segments (e.g. mortgage), as well as reduced exposure; Banking Revenue: The net interest income should benefit: i) from the increase in interest received through the gradual increase in Euribor rates, given that almost all the bank’s loans portfolio is indexed to these rates, from the policy of reviewing spreads on an ongoing basis and from interest received from the treasury bonds acquired since under the recapitalisation process and ii) from the reduction in interest paid on deposits due to the reduction in the rates applied. Moreover, there is potential for growth in the fees structure, both in terms of pure banking activity, through an increase in the penetration rate of Banif products, and also in bancassurance, through the partnership with Companhia de Seguros Açoreana SA. This expectation has already been documentarily supported by a number of external consultants. Due to these factors, the banking revenue ROA is expected to recover at the end of 2018 to levels close to 2.3%; Costs: the branch network and workforce reduction measures, implemented in 2013, will have a visible impact in terms of the cost structure in 2014. Nevertheless, the Group remains committed to the continued improvement of its efficiency levels, in order to achieve cost-income ratios of around 50% by 2017.
As stated in Note 2.4, should these estimates not be borne out there may be a need to make material adjustments to the amount entered for deferred tax assets in future reporting periods.
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20.3 Reconciliation of the normal tax rate with the effective rate:
31/12/2013
Description Rate Tax
Consolidated profits before tax and non-controlling interests (407,934) Tax calculated on the basis of the nominal rate 27.46% 112,019 Deferred tax for unrecognised tax losses 12.09% (49,306) Reduction in deferred tax from unused benefit 4.49% (18,332) Profits appropriated from companies recorded using the equity method -0.06% 227 Extraordinary contribution from the banking sector 0.98% (3,979) Employee benefits 0.23% (946) Tax correction related to prior years 0.89% (3,630) Deferred tax recognized in retained earnings 0.77% (3,159) Other -0.46% 1,886
-8.53% 34,779
31-12-2012 (Restated) Rate Tax
Consolidated profits before tax and non-controlling interests (565,345) Tax calculated on the basis of the nominal rate 28.71% 162,311 Deferred tax for unrecognised tax losses 10.08% (67,981) Goodwill impairment 1.25% (8,415) Reduction in deferred tax from unused benefit 2.25% (15,160) Tax-free or non-taxable income -0.20% 1,324 Profits appropriated from companies recorded using the equity method -0.05% 310 Extraordinary contribution from the banking sector 0.65% (4,397) Employee benefits 0.01% (68) Other 0.93% (6,301)
-10.90% 61,623
31/12/2012 Rate Tax
Consolidated profits before tax and non-controlling interests (674,584) Tax calculated on the basis of the nominal rate 28.71% 193,673 Deferred tax for unrecognised tax losses 10.08% (67,981) Goodwill impairment 1.25% (8,415) Reduction in deferred tax from unused benefit 2.25% (15,160) Tax-free or non-taxable income -0.20% 1,324 Profits appropriated from companies recorded using the equity method -0.05% 310 Extraordinary contribution from the banking sector 0.65% (4,397) Employee benefits 0.01% (68) Other 0.35% (2,330)
-14.37% 96,956
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21. OTHER ASSETS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Gold 22 22 Other precious metals, coins and medals 498 498 Other liquid assets with residents 11 521 521
Bonuses receivable 9,152 11,963 9,152 11,963
Shareholder loans 42,925 42,889 Sundry debtors 63,215 105,141 Public administration sector 11,916 13,493 Other receivables 1,290 1,647 Pension Fund 390 7,102 Securities operations awaiting settlement 7,811 - Insurance 549 731 Foreign currency position 5,310 3,554 Investments – security account 10,111 9,627 Other assets 105,950 97,857 249,467 282,041
Impairment losses (61,960) (37,240)
197,180 257,285
22. DEPOSITS FROM CENTRAL BANKS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Deposits from central banks 3,065,186 2,798,702 Interest on central bank deposits 12,826 9,463 Expenditure with deferred costs (409) (4,081)
3,077,603 2,804,084
“Deposits from Central Banks” correspond to refinancing operations with the European Central Bank (ECB) in the context of liquidity provision operations, guaranteed by pledge of eligible assets, as indicated in Note 27 on the securities issued as part of securitisation operations, Note 12 on Loans to customers and Notes 7, 8, 9 and 12 on securities.
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23. FINANCIAL LIABILITIES HELD FOR TRADING
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Derivative financial instruments with negative fair value 24,018 109,018 Overdrafts 4,767 7,186
28,785 116,204
Note 14 details derivatives by type of instrument.
24. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Financial liabilities at fair value through profit or loss refer to debt instruments issued by the group, with one or more embedded derivatives which, under the amendment to IAS 39 – “Fair Value Option”, have been entered, on initial recognition, at fair value through profit or loss.
This item breaks down as follows, by issuer:
Description 31/12/2013 31/12/2012
Euro Invest Series 3a) 7,251 7,849 Euro Invest Series 3b) 6,042 5,736 Banif - Banco Internacional do Funchal (Brasil) - 35,169
Held by Banif Financial Group (900) (34,737)
12,393 14,017
At 31 December 2013, the nature of the liabilities issued by the group is as follows:
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% 7,251 - - (414) 6,837 Euro Invest S3b) 12/11/2003 perpetual 5% 5,200 842 - (486) 5,556
12,451 842 - (900) 12,393
In 2013, the following issue was repaid: - Banco Banif Brasil 2004/2014 in the amount of 985 thousand euros.
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25. DEPOSITS FROM OTHER CREDIT INSTITUTIONS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
From in-country credit institutions Deposits 20,219 112,026 Loans 154,778 190,543 Other 982 4,123 175,979 306,692
From foreign credit institutions Deposits 326 10,898 Loans 11,348 18,378 Sales operations with repurchase agreement 157,457 330,594 Other 2,848 19,952 171,979 379,822
Financial costs 693 2,587
348,651 689,101
26. CUSTOMER DEPOSITS AND OTHER LOANS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Deposits Sight 1,148,129 1,336,966 Term 3,966,632 5,627,064 Savings 62,282 96,998 Others 1,069,908 601,253 6,246,951 7,662,281
Other debits Loans 1,021 1,081 Others 55,308 87,068 56,329 88,149
6,303,280 7,750,430
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27. DEBT SECURITIES IN ISSUE
This item breaks down as follows, by issuer:
Description 31/12/2013 31-12-2012 (Restated) 31/12/2012
Banif Finance 94,881 174,582 174,582 Banif 1,321,484 1,582,853 1,582,853 Atlantes N.º 1 - 714,970 714,970 Atlantes Mortgage N.º3 471,628 512,234 512,234 Atlantes Mortgage N.º2 259,149 279,203 279,203 Atlantes Mortgage N.º4 540,699 582,524 582,524 Atlantes Mortgage N.º5 495,873 552,875 552,875 Atlantes Mortgage N.º6 77,324 80,899 80,899 Atlantes Mortgage N.º7 387,529 417,749 417,749 Azor Mortgage N.º2 219,792 232,224 232,224 Atlantes Mortgage N.º1 137,234 168,378 168,378 Azor Mortgage N.º1 66,927 73,391 73,391 Atlantes Finance N.º4 132,019 190,369 190,369 Atlantes Finance N.º5 109,287 183,889 183,889 Atlantes Finance N.º6 235,200 -- Atlantes NPL N.º1 165,094 213,000 213,000 Atlantes SME N.2 631,948 -- Banco Banif Brasil - 8,343 8,343 Beta Securitizadora - 43,608 43,608 Grupo Banif Mais SGPS 25,000 127,179 127,179 Banif - Banco de Investimento 150,000 150,000 150,000
Debt reacquired (1,073,206) (1,373,300) (1,373,300) Held by Banif Financial Group (3,184,996) (3,681,151) (3,681,151)
1,262,866 1,233,819 1,233,819
Deposit certificates 26,558 499,948 499,948 Financial costs (31,354) (22,199) (27,336)
1,258,070 1,711,568 1,706,431
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At 31 December 2013, the nature of the liabilities issued by the group is as follows:
Balance Name Issue date Redemption date Interest rate Value in circulation Repurchased Held by the Group sheet value
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% 39,881 - (363) 39,518
Atlantes Mortgage Nº1 classe A 13/02/2003 17/01/2036 Euribor 3 months + 0,54% 84,334 - (14,555) 69,779
Atlantes Mortgage Nº1 classe B 13/02/2003 17/01/2036 Euribor 3 months + 1,3% 22,500 - - 22,500
Atlantes Mortgage Nº1 classe C 13/02/2003 17/01/2036 Euribor 3 months + 2,60% 12,500 - - 12,500
Atlantes Mortgage Nº1 classe D 13/02/2003 17/01/2036 Euribor 3 months + 4,75% 2,500 - - 2,500
Atlantes Mortgage Nº1 classe E 13/02/2003 17/01/2036 - 15,400 - (15,400) -
Azor Mortgage Nº1 classe A 25/11/2004 20/09/2047 Euribor 3 months + 0,3% 28,927 - (6,170) 22,757
Azor Mortgage Nº1 classe B 25/11/2004 20/09/2047 Euribor 3 months + 0,76% 19,000 - - 19,000
Azor Mortgage Nº1 classe C 25/11/2004 20/09/2047 Euribor 3 months + 1,75% 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 19/09/2060 Euribor 3 months + 0,33% 221,373 - (189,667) 31,706
Atlantes Mortgage Nº2 classe B 05/03/2008 19/09/2060 Euribor 3 months + 0,95% 15,381 - (15,381) -
Atlantes Mortgage Nº2 classe C 05/03/2008 19/09/2060 Euribor 3 months + 1,65% 6,270 - (6,270) -
Atlantes Mortgage Nº2 classe D 05/03/2008 19/09/2060 - 16,125 - (16,125) -
Azor Mortgage Nº2 classe A 24/07/2008 14/12/2065 Euribor 3 months + 0,3% 169,962 - (169,962) -
Azor Mortgage Nº2 classe B 24/07/2008 14/12/2065 Euribor 3 months + 0,8% 43,080 - (43,080) -
Azor Mortgage Nº2 classe C 24/07/2008 14/12/2065 - 6,750 - (6,750) -
Atlantes Mortgage Nº3 classe A 30/10/2008 22/08/2061 Euribor 3 months + 0,2% 375,278 - (375,278) -
Atlantes Mortgage Nº3 classe B 30/10/2008 22/08/2061 Euribor 3 months + 0,5% 38,683 - (38,683) -
Atlantes Mortgage Nº3 classe C 30/10/2008 22/08/2061 - 57,667 - (57,667) -
Atlantes Mortgage Nº4 classe A 16/02/2009 22/12/2064 Euribor 3 months + 0,15% 430,699 - (359,509) 71,190
Atlantes Mortgage Nº4 classe B 16/02/2009 22/12/2064 Euribor 3 months + 0,3% 35,750 - (35,750) -
Atlantes Mortgage Nº4 classe C 16/02/2009 22/12/2064 - 74,250 - (74,250) -
Atlantes Mortgage Nº5 classe A 21/12/2009 23/11/2068 Euribor 3 months + 0,15% 384,623 - (384,623) -
Atlantes Mortgage Nº5 classe B 21/12/2009 23/11/2068 Euribor 3 months + 0,3% 45,000 - (45,000) -
Atlantes Mortgage Nº5 classe C 21/12/2009 23/11/2068 - 66,250 - (66,250) -
Atlantes Mortgage Nº6 classe A 30/06/2010 23/10/2016 4,5% 55,324 - (55,324) -
Atlantes Mortgage Nº6 classe B 30/06/2010 23/10/2016 - 22,000 - (22,000) -
Atlantes Mortgage Nº7 classe A 19/11/2010 23/08/2066 Euribor 3 months + 0,15% 284,289 - (284,289) -
Atlantes Mortgage Nº7 classe B 19/11/2010 23/08/2066 Euribor 3 months + 0,30% 39,700 - (39,700) -
Atlantes Mortgage Nº7 classe C 19/11/2010 23/08/2066 - 63,540 - (63,540) -
Atlantes Finance N.º4 classe A 20/12/2011 19/06/2032 Euribor 3 months + 1,5% 62,219 - - 62,219
Atlantes Finance N.º4 classe B 20/12/2011 19/06/2032 Euribor 3 months + 2,25% 20,300 - (20,300) -
Atlantes Finance N.º4 classe C 20/12/2011 19/06/2032 Euribor 3 months + 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 months + 2,75% 48,576 - - 48,576
Atlantes Finance N.º5 classe B 16/07/2012 16/12/2025 Euribor 3 months + 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 - 11,216 - (11,216) -
Atlantes Finance N.º6 classe A 16/12/2013 20/03/2033 Euribor 3 months + 2,4% 176,800 - - 176,800
Atlantes Finance N.º6 classe B 16/12/2013 20/03/2033 Euribor 3 months + 3% 40,100 - (40,100) -
Atlantes Finance N.º6 classe C - 10,900 - (10,900) - 16/12/2013 20/03/2033
Atlantes Finance N.º6 classe S - 7,400 - (7,400) - 16/12/2013 20/03/2033 Atlantes NPL 1 classe A 6.00% 120,094 - (120,094) - 21/12/2012 15/12/2018
Atlantes NPL 1 classe B 21/12/2012 15/12/2018 - 45,000 - (45,000) -
Atlantes SME 2 Classe A 29/05/2013 26/05/2042 Euribor 3 months + 2,00% 240,310 - (41,767) 198,543
Atlantes SME 2 Classe B 29/05/2013 26/05/2042 Euribor 3 months + 2,00% 361,100 - (361,100) -
Atlantes SME 2 Classe C 29/05/2013 26/05/2042 - 10,400 - (10,400) -
Atlantes SME 2 Classe S 29/05/2013 26/05/2042 - 20,138 - (20,138) -
Banif SA 2010 - 2013 21/12/2010 21/12/2013 6,00% - - - -
Banif SA 2011 - 2013 03/03/2011 21/12/2013 6,00% - - - -
BMORE Finance N.º5 plc 01/11/2007 01/11/2017 Conduit +1% - - - -
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% - - - - Rate Banif Banco de Investimento 2011- 2014 (55M) com garantia da Republica 19/07/2011 19/07/2014 Euribor 3 months +4,95% 55,000 (55,000) - - Portuguesa Banif Banco de Investimento 2011- 2014 (95M) com garantia da Republica 22/12/2011 22/12/2014 Euribor 3 months +12% 95,000 (95,000) - - Portuguesa
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% 9,136 - - 9,136
Banif 2012/2014 08/11/2012 08/11/2014 5.75% 93,947 (50) - 93,897
Banif 2012/2014 08/11/2012 08/11/2014 5.75% 28,106 - - 28,106
Banif 2013/2014 USD 20/03/2013 20/09/2014 4.50% 18,128 - - 18,128
Banif 2013/2014 20/03/2013 20/09/2014 4.50% 50,000 - - 50,000
Banif 2013/2016 EUR 30/07/2013 30/07/2016 7.50% 60,312 (156) - 60,156
Banif 2013/2016 USD 25/11/2013 25/11/2016 5.00% 36,255 - - 36,255
Banif 2013/2016 (80M) 23/12/2013 23/12/2016 5.00% 80,000 - - 80,000
5,521,068 (1,073,206) (3,184,996) 1,262,866
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The following issues were repaid in 2013: - Atlantes No. 1 Class A in the amount of 90,665 thousand euros; - Banif SA 2011-2013 in the amount of 75,000 thousand euros; - Banif Finance 2010-2013 EUR in the amount of 37,729 thousand euros; - Banif Finance 2010-2013 USD in the amount of 36,711 thousand euros; - Banif SA 2010-2013 in the amount of 49,900 thousand euros; - Banif SA 2011-2013 in the amount of 50,000 thousand euros; - Bmore Finance No. 5 in the amount of 101,065 thousand euros; - Bmore Finance No. 4 in the amount of 1,114 thousand euros; - Banif EMTN 2013 in the amount of 20,000 thousand euros.
Securitisation Operations
The group securitised consumer credit and mortgage lending through the disposal of these assets to special purposes entities (vehicles) set up for this purposes.
The following securitisation operations were carried out:
Atlantes Mortgage No. 1
In the Atlantes Mortgage No. 1 operation, starting in February 2003, only Banif, SA mortgage contracts were transferred, in the amount of 500 million euros. Under the prevailing legislation, a Loan Securitisation Fund, designated Atlantes Mortgage no. 1 Fund, was set up. This acquired the housing loan contracts from the transferor and issued participation units that were subscribed to by a company formed under Irish law: Atlantes Mortgage no. 1 Plc. To finance itself, Atlantes Mortgage no. 1 Plc issued bonds in a total amount of 500 million euros.
Azor Mortgage No. 1
Azor Mortgages, starting in November 2004, were granted loans from the earlier BBCA with a total value of 281 million euros. In Azor Mortgages, under the prevailing legislation, the loans initially transferred were acquired by Sagres – Sociedade de Titularização de Créditos, which issued the Azor Notes bonds, subscribed to in their entirety by a company formed under Irish law: Azor Mortgages Plc. To finance itself, Azor Mortgages Plc issued bonds in a total amount of 281 million euros. In December 2006, and in order to meet the objectives of Gamma STC, the company set up to be the Banif Group’s securitisation company. The Azor Notes were transferred to that company, along with the corresponding rights to receive the credit and payment due to the Azor Mortgages plc vehicle which originally belonged to Sagres STC. This transfer had the agreement of the originator of the loans, the original securitisation company, ratings agencies, the Portuguese securities exchange commission (CMVM), investors and other
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entities involved in the operation, following assessment of Gamma’s capacity to manage the operation.
Atlantes Mortgage No. 2
In the Atlantes Mortgage No. 2 operation, starting in March 2008, only Banif, SA mortgage contracts were transferred, in the amount of 375 million euros. Under the prevailing legislation, a Loan Securitisation Fund designated Atlantes Mortgage no. 2 Fund was set up and then administered by Gamma – Sociedade de Titularização de Créditos, SA. This acquired the housing loan contracts from the transferor and issued participation units subscribed to by Atlantes Mortgage no. 2 Plc. To finance itself, Atlantes Mortgage no. 2 Plc issued bonds in a total amount of 375 million euros.
Azor Mortgage No. 2
In July 2008, Azor Mortgages No. 2, an issue of securitised bonds, collateralised by a mortgage loans portfolio originating with the former BBCA, took place. Unlike previous emissions, which involved vehicles registered overseas, this issue was carried out directly by Gamma STC and did not involve any other vehicle outside Portugal. In this issue, BBCA transferred a portfolio of 300 million euros to Gamma STC. This acquisition, together with the constitution of the necessary cash reserve, were financed by way of the securitised issue of Azor Mortgages No. 2 class A, B and C bonds, in a total nominal amount of 306.75 million euros.
Atlantes Mortgage No. 3
At the end of October 2008 another operation was carried out, in this case Atlantes Mortgage No. 3, with the issue of securitised bonds, involving a Banif, SA portfolio of mortgage loans. The bank transferred a portfolio of mortgage loans with a value of 600 million euros to Gamma. This acquisition and the constitution of the necessary cash reserve were financed by way of the securitised issue of Atlantes Mortgage No. 3 class A, B and C bonds, with an aggregate nominal value of 623.7 million euros.
Atlantes Mortgage No. 4
In February 2009 the Atlantes Mortgage No. 4 operation was carried out. This involved Banif transferring a mortgage loans portfolio, worth 550 million euros, to Gamma. The operation was financed by way of the issue of Atlantes Mortgage No. 4 class A, B and C securitised bonds, with an aggregate nominal value of 567.2 million euros.
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Atlantes Mortgage No. 5
In December 2009 the Atlantes Mortgage No. 5 operation was carried out. This involved Banif transferring a mortgage loans portfolio, worth 500 million euros, to Gamma. The operation was financed by means of the issue of Atlantes Mortgage No. 5 class A, B and C securitised bonds, with an aggregate nominal value of 520.5 million euros.
Atlantes Mortgage No. 6
In June 2010, the Atlantes Mortgage No. 6 operation was carried out. This involved Banif transferring a mortgage loans portfolio, worth 91 million euros, to Gamma. The operation was financed by means of the issue of Atlantes Mortgage No. 6, Class A and B securitised bonds with an aggregate nominal value of 113 million euros
Atlantes Mortgage No. 7
In November 2010 the Atlantes Mortgage No. 7 operation was carried out. This involved Banif transferring a residential mortgage loans portfolio, worth 397 million euros, to Gamma. The operation was financed by means of the issue of Atlantes Mortgage No. 7 class A, B and C securitised bonds, with an aggregate nominal value of 460.55 million euros.
Atlantes Finance No. 4
In December 2011, the Atlantes Finance No. 4 operation was carried out. This involved Banif and Banif Mais transferring a consumer loans portfolio, worth 110.2 and 137.3 million euros respectively, to Gamma. The operation was financed by means of the issue of Atlantes Finance no. 4 class A, B, C and D securitised bonds, with an aggregate nominal value of 260.0 million euros.
Atlantes Finance No. 5
In July 2012, the Atlantes Finance No. 5 operation was carried out. This involved Banif and Banco Banif Mais transferring a consumer loans portfolio, worth 115.5 and 82.4 million euros respectively, to Gamma. The operation was financed by means of the issue of Atlantes Finance no. 5 class A, B, C and S securitised bonds, with an aggregate nominal value of 226.4 million euros.
Atlantes NPL No. 1
In December 2012, the Atlantes NLP No. 1 operation was carried out. This involved Banif and Banco Banif Mais transferring a mortgage loans portfolio, worth in this case 168 million
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euros, to Gamma. The operation was financed by means of the issue of Atlantes NPL No. 1, Class A and B securitised bonds with an aggregate nominal value of 213 million euros
Atlantes SME No. 2
In May 2013, the Atlantes No. 2 operation was carried out. This involved Banif transferring a company loans portfolio, worth 802 million euros, to Gamma. The operation was financed by means of the issue of Atlantes Finance no. 2 class A, B and C securitised bonds, with an aggregate nominal value of 834 million euros
Atlantes Finance No. 6
In December 2013, the Atlantes Finance No. 6 operation was carried out. This involved Banif and Banco Banif Mais transferring a consumer loans portfolio, worth 48.3 and 168.7 million euros respectively, to Gamma. The operation was financed by means of the issue of Atlantes Finance no. 6 class A, B, C and S securitised bonds, with an aggregate nominal value of 235.2 million euros.
The bonds issued through Atlantes Mortgage No. 1, Atlantes Mortgage No. 2, Atlantes Mortgage No. 3, Atlantes Mortgage No. 4, Atlantes Mortgage No. 5, Atlantes Mortgage No. 7, Azor Mortgage No. 2 e Atlantes SME No. 2 are held by the company and are being used to guarantee refinancing operations at the ECB.
28. PROVISIONS AND CONTINGENT LIABILITIES
The changes in provisions for the period ending 31 December 2013 were as follows:
Transfer to non- current assets Balance at Uses and Reversals and Balance at Description held for sale from Increases 31-12-2012 adjustments recoveries 31-12-2013 discontinued operations
Provisions for guarantees and commitments 14,228 (8,610) 72 - (569) 5,121 Fiscal contingencies 5,556 (1,218) 343 (1,030) (1,151) 2,500 Other provisions 11,501 (9) 3,980 (7,233) (2,495) 5,744
31,285 (9,837) 4,395 (8,263) (4,215) 13,365
Given the high degree of uncertainty as to when payment might be received in these contingent situations, no time-based discount was taken into consideration.
Contingent liabilities associated with ongoing legal proceedings, which have the potential to result in losses for the group but where the probability of such loss is estimated to be low (more than 5% but less than 50%), amounted to 30,750 thousand euros at 31 December 2013 (18,090 thousands euros in 2012). At this time, no reliable estimate could be made of potential losses in these proceedings.
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Banco de Portugal and Banco Central do Brasil brought three administrative actions against Banif, which are in progress and in relation to which it is not yet possible to gauge whether there will be any fines.
In February 2010, an investment consultancy firm started legal action against Banif – Banco Internacional do Funchal (Cayman), Ltd., in the New York State Court, claiming that that bank had, allegedly, received fees which were in fact owed to that firm. The bank believes that the charge is without foundation, as there has never been any sort of business relationship between the bank and the firm in question. Thus, and despite any uncertainty as to the value that might be attached to the outcome of the case, the bank is not expecting to have to pay out any kind of settlement, apart from the legal costs for its own defence.
The subsidiary of INVESTAÇOR SGPS, SA, AÇORLINE – Transportes Marítimos, SA, which is inactive, is awaiting the outcome of court actions in progress brought for and against this company. Its directors are convinced that these actions will never have a material effect on the financial position of INVESTAÇOR SGPS, a company that each year has provided the financial resources necessary for its survival until it is permanently closed.
A more detailed description of the bonds in question is given below: Fiscal contingencies: there is a present obligation arising from past events where the future disbursement of funds to pay tax on profits is likely. Provisions for guarantees and commitments: there is a present obligation arising from past events where the future disbursement of funds for the provision of guarantees and making of commitments is likely. Other provisions: there is a present obligation arising from past events exists where the future disbursement of funds (in the case of legal proceedings against the group and other banking risks) is likely.
Operations not included on the balance sheet: The guarantees provided correspond to the following nominal amounts recorded in off-balance- sheet accounts:
Description 31/12/2013 31/12/2012
Guarantees given (of which:) 385,519 447,883 Guarantees and sureties 372,194 405,605 Open documentary credit 13,325 42,278
The breakdown for contingencies and other commitments entered into with third parties but not recognised in the financial statements, with reference to 31 December 2013 and 2012, is as follows:
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Description 31/12/2013 31/12/2012
Other contingent liabilities (of which) 6,513,257 6,524,755 Sureties and Compensations -- Assets given as guarantee 6,513,257 6,524,755 Commitments to third parties 680,592 601,462 Irrevocable commitments 191,346 139,723 Revocable commitments 489,246 461,739
7,193,849 7,126,217
“Assets given as guarantee” refer to securities given in repositioning and treasury bonds that are being used to guarantee irrevocable commitments to the Deposit Guarantee Fund, the Investor Indemnification System, and intraday credit from Banco de Portugal and refinancing operations at the European Central Bank.
29. EQUITY INSTRUMENTS
“Equity instruments” corresponds to Core Tier 1 equity instruments subscribed by the State (“Portuguese Republic”) on 25 January 2013, amounting to 400 million euros, with initial annual interest rate of 9.5%, to be increased by 25 basis points in the first two years and 50 basis points in subsequent periods. The hybrid instrument was due to be repaid in three tranches, in June 2013 (150 million euros) and December 2013 (125 million euros), and December 2014 (125 million euros). If it is impossible to repay the entirety of the hybrid instrument, the tranche that was not repaid will be converted into special shares with voting rights.
On 29 August 2013, with the authorisation of Banco de Portugal, in accordance with Point 7 of the Terms and Conditions of the Core Tier 1 Equity Instruments subscribed by the Portuguese State and as set out in the annex to Order of the Ministry of Finance No. 1527-B/2013, of 24 January, 150 million euros of these instruments were bought back.
The accumulated interest at 31/12/2013 was 10,058 thousand euros.
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30. OTHER SUBORDINATED LIABILITIES
This item breaks down as follows, by issuer:
Description 31/12/2013 31/12/2012
Banif - Banco de Investimento 17,178 17,465 Banco Mais 6,000 6,000 Banif - Banco Internacional do Funchal 130,598 206,464 Banif Finance Ltd 64,449 102,834 Banif Bank Malta - 5,000 Banco Caboverdiano Negócios - 1,000
Held by Banif Financial Group (40,037) (66,130)
178,188 272,633
Financial charges and deferred charges (23,870) (44,519)
154,318 228,114
At 31 December 2013, the nature of the liabilities issued by the group is as follows:
Balance Redemption Value in Held by the Name Issue date Interest rate sheet date circulation Group value first 5 years: Euribor 6M + 0,875%, remaining years: Banif - Banco de Investimento 2006 - 2016 29/06/2006 29/06/2016 15,000 (15,000) - Euribor 6M + 1,15%
Banif - Banco de Investimento 2007 - perpetual 05/05/2007 perpetual Euribor 3M + 1,35% 2,178 (726) 1,452
until 30/12/2010: Euribor 3M + 0,75%; remaining time: Banif - Banco Internacional do Funchal 2005 - 2015 30/12/2005 30/12/2015 16,190 - 16,190 Euribor 3M + 1,25% until 22/12/2014: Euribor 3M + 1%, remaining time: Banif - Banco Internacional do Funchal 2006 - perpetual 22/06/2006 perpetual 2,769 (2,769) - Euribor 3M + 2% until 22/12/2011: Euribor 3M + 0,75%, remaining time: Banif - Banco Internacional do Funchal 2006 - 2016 22/12/2006 22/12/2016 5,040 (5,040) - Euribor 3M + 1,25% until 22/12/2016: Euribor 3M + 1,37%, remaining time: Banif - Banco Internacional do Funchal SFE 2007 22/12/2007 perpetual 3,080 (3,080) - Euribor 3M + 2,37% 1º year: 6,25%; until 11º coupon: Euribor 6M + 1%, Banif - Banco Internacional do Funchal 2008 - 2018 18/08/2008 18/08/2018 14,900 (507) 14,393 remaining time: Euribor 6M + 1,15% until 30/06/2014: 4,5%, remaining time: Euribor 6M + Banif - Banco Internacional do Funchal 2009 - 2019 30/06/2009 31/12/2019 9,633 - 9,633 2,75% until 09/01/2017: flat rate 6,875%, remaining time: Banif 2012 - 2019 09/01/2012 09/01/2019 53,140 - 53,140 7,875% - emission at 70% first 5 years: Euribor 6M + 1%, remaining years: Euribor 6M BBCA 2006 - 2016 23/10/2006 23/10/2016 14,242 (1,488) 12,754 + 1,25% until 11º coupon: Euribor 6M + 1%, remaining years: BBCA 2007 - 2017 25/09/2007 25/09/2017 7,739 (613) 7,126 Euribor 6M + 1,25% until 28/12/2017: Euribor 3M + 3,0362%, remaining time: BBCA 2008 - perpetual 30/06/2008 perpetual 3,865 (3,865) - Euribor 3M + 4,0362%
Banif Go 2005 -2015 (Banif Mais) 30/06/2005 30/06/2015 Euribor 12M + 1,5% 6,000 (6,000) -
until 21º coupon: Euribor 3M + 0,80%; remaining time: Banif Finance 2004 - 2014 29/12/2004 29/12/2014 8,163 (500) 7,663 Euribor 3M + 1,30% until 22 December 2016: Euribor 3M + 1,37%; remaining Banif Finance 2006 - perpetual 22/12/2006 perpetual 3,080 - 3,080 time: Euribor 3M + 2,37% until 22 December 2011: Euribor 3M + 0,75%; remaining Banif Finance 2006 - 2016 22/12/2006 22/12/2016 5,040 - 5,040 time: Euribor 3M + 1,25%.
Banif Finance 2009 - 2019 31/12/2009 31/12/2019 3%, Liability issued at 75% and 50% 48,166 (449) 47,717
218,225 (40,037) 178,188
Under the OPT operation, on October 2013, the group bought back 91,330 thousand euros of subordinated liabilities, having obtained a gain of 8,276 thousand euros.
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31. OTHER LIABILITIES
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Creditors and other funds 46,776 35,612 For staff costs 28,155 27,365 For general administrative costs 2,009 5,512 Other interest and similar charges -18 Securities operations awaiting settlement 240 654 Guarantees given and other contingent liabilities -98 Foreign currency position 5,510 687 Public administration sector 23,785 27,790 Investment Funds 33,556 46,540 Others 79,292 61,273
219,323 205,549
“Investment Funds” reflects units in investment funds, which are included in the scope of consolidation, held by entities outside the group. IAS 32 indicates that, although they are residual interests in these funds, they entail a Group obligation (through the investment fund) to liquidate these liabilities if required by the holders of the fund units (“puttable interest”). In 2013 the group acquired 6,947 thousand euros (67,179 thousand euros in 2012) of units in investment funds included in the consolidation.
32. OPERATIONS WITH SHAREHOLDER’S EQUITY
At 31 December 2013 and 2012, the breakdown of shareholder’s equity was as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Issued capital 1,582,195 570,000 570,000 Share premium 199,765 104,565 104,565 Other equity instruments - 95,900 95,900 Own shares (6) (124) (124) Revaluation reserves (18,774) (2,141) (2,141) Legal Reserve 50,727 50,727 50,727 Other reserves and retained earnings (free) (533,758) 46,638 49,373 Profit/loss for the Year (470,273) (584,196) (576,353) Interim dividends - - - Non-controlling interests 69,697 84,209 84,209
879,573 365,578 376,156
The share capital consists of 101,789,522,043 shares, without nominal value, fully paid up.
In the context of the Banif recapitalisation plan (Chapter 06), the following capital inflows occurred:
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Phase 1
700 million euros of special shares subscribed by the state. These special shares present rights, preferences and restrictions under the terms of Order 1527-B 2013 published in the Official Gazette (Boletim da República), 2nd series - No. 17 - 24 January 2013.
Phase 2
100 million euros of shares through a private placement to key shareholders (June 2013); 100 million euros of shares in a public share offering aimed at the general public (July 2013); 40.7 million euros of shares through a private placement (August 2013); 70.795 million euros through a securities for shares swap (October 2013).
700 thousand euros through the conversion of mandatory convertible securities (MCS) that had been issued by Banif SGPS, SA to the value of 95,700 million euros. This conversion resulted in the registration of 700 thousand euros in share capital and 95,200 million euros in issue premiums (September 2013).
Revaluation reserves break down as follows: - Assets available for sale: 45 thousand euros (-1,460 thousand euros on 31/12/2012) - Cash flow hedge derivatives: (-106 thousand euros in 2012). - Revaluation of Property for own use: 16,743 thousand euros (15,575 thousand euros in 2012) - Actuarial losses: -24,263 thousand euros (-16,150 thousand euros on 31/12/2012). - Reserves associated with exchange differences: -11,299 thousand euros
The analysis of regulatory capital is shown in chapter 07 of the management report.
33. NON-CONTROLLING INTERESTS
At 31 December 2013 and 2012, the non-controlling interests item breaks down as follows:
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31/12/2013 31/12/2012 31/12/2013 31/12/2012 Entity Balance sheet value Balance sheet value Profit/loss Profit/loss
Banif Mais SGPS 44,261 43,289 (2,656) (1,513) Banif Finance 13,987 27,176 - (6,717) Banco Caboverdiano de Negocios 6,579 5,255 (1,024) (206) Banif Bank (Malta) 4,778 4,740 (27) 82 Açortur - Investimentos Turísticos dos Açores 3,539 3,437 (55) (20) Investaçor Hoteis SA 2,780 2,808 (2) 148 Investaçor SGPS SA 2,326 2,384 59 70 Banif Açor Pensões 1,797 1,551 (222) (189) Tiner Polska 838 896 84 (15) Turotel - turismo e Hóteis dos Açores 363 499 121 108 Investimentos Turísticos e Similares Hóteis e Apart-Hotel Pico 435 434 (1) 2 Banif Financial Services Inc 25 29 4 (3) Gestarquipark (6) 5 94 76 Beta Securitizadora 14 -(17) Wil (117) (63) 5 85 Banif Banco Internacional do Funchal (Brasil) (1,630) (403) 1,030 1,250 Banif International Holdings (1,700) (1,015) 269 1,951 Banif Forfaiting Company (2,673) (2,578) 179 1,246 Banif Finance (USA) (5,864) (4,239) 1,875 4,947 Banif Real Estate Polska --3(10) Banif - Banco de Investimento (Brasil) 18 - 15 - Santa Ester (197) - - - Pithecia 40--- ZACF ---1 Banif Real Estate Brasil 117---
69,697 84,209 (249) 1,276
Non-controlling interests concerning Banif Finance consists of:
- The issue, on 22 December 2004, of Guaranteed Perpetual Preference Shares with a unit preference liquidation value of 1,000 euros and a total value of 75 million euros. The preferential dividends are paid quarterly and in arrears to the holders of the preference shares, if so decided by the company’s board of directors. Banif Finance has a call option, permitting it to repay all or part of this issue, at its preferential liquidation value, at any dividend payment date as from the first repayment date (22 December 2014), plus: i) a sum corresponding to the preferential dividend accumulated and not paid in relation to the most recent preferential dividend period, declared or not, up to the date set for the repayment, and ii) any additional sums, provided prior authorisation is obtained from Banco de Portugal and the Issue Guarantor (Banif - Banco Internacional do Funchal), and the requirements of Cayman Islands Law are met. Repurchases in the amount of 72.2 million euros were made.
- The issue, on 28 December 2007, of Guaranteed Perpetual Preference Shares with a unit preference liquidation value of 1,000 euros and a total value of 25 million euros. The preferential dividends are paid quarterly and in arrears to the holders of the preference shares, if so decided by the company’s board of directors. Banif Finance has a call option, permitting it to repay all or part of this issue, at its preferential liquidation value, at any dividend payment date as from the first repayment date (28 December 2017). Exercise of this option is subject to prior authorisation from Banco de Portugal and compliance with the requirements of Cayman Islands Law. Repurchases in the amount of 22.0 million euros were made.
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- The issue, on 29 December 2008, of Guaranteed Perpetual Preference Shares with a unit preference liquidation value of 1,000 euros and a total value of 20 million euros. The preferential dividends are paid quarterly and in arrears to the holders of the preference shares, if so decided by the company’s board of directors. Banif Finance has a call option, permitting it to repay all or part of this issue, at its preferential liquidation value, at any dividend payment date as from the first repayment date (29 December 2018). Exercise of this option is subject to prior authorisation from Banco de Portugal and compliance with the requirements of Cayman Islands Law. The entire issue was bought back for 20 million euros in 2012.
- The issue, on 29 December 2008, of Guaranteed Perpetual Preference Shares with a unit preference liquidation value of 1,000 euros and a total value of 35 million euros. The preferential dividends are paid quarterly and in arrears to the holders of the preference shares, if so decided by the company’s board of directors. Banif Finance has a call option, permitting it to repay all or part of this issue, at its preferential liquidation value, at any dividend payment date as from the first repayment date (29 December 2018). Exercise of this option is subject to prior authorisation from Banco de Portugal and compliance with the requirements of Cayman Islands Law. The entire issue was bought back for 35 million US dollars in 2012.
- The issue, on 31 December 2008, of Guaranteed Perpetual Preference Shares with a unit preference liquidation value of 1,000 euros and a total value of 25 million euros. The preferential dividends are paid quarterly and in arrears to the holders of the preference shares, if so decided by the company’s board of directors. Banif Finance has a call option, permitting it to repay all or part of this issue, at its preferential liquidation value, at any dividend payment date as from the first repayment date (31 December 2018). Exercise of this option is subject to prior authorisation from Banco de Portugal and compliance with the requirements of Cayman Islands Law. The entire issue was bought back for 25 million euros in 2012.
- The issue, on 30 June 2009, of Guaranteed Perpetual Preference Shares with a unit preference liquidation value of 1,000 dollars and a total value of 15 million US dollars. The preferential dividends are paid annually and in arrears to the holders of the preference shares, if so decided by the company’s board of directors. Banif Finance has a call option, permitting it to repay all or part of this issue, at its preferential liquidation value, at any dividend payment date as from the first repayment date (30 June 2019). Exercise of this option is subject to prior authorisation from Banco de Portugal and compliance with the requirements of Cayman Islands Law. Repurchases in the amount of 4.7 million US dollars were made.
- The issue, on 30 June 2009, of Guaranteed Perpetual Preference Shares with a unit preference liquidation value of 1,000 euros and a total value of 10 million euros. The preferential dividends are paid annually to the holders of the preference shares, if so
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decided by the company’s board of directors. Banif Finance has a call option, permitting it to repay all or part of this issue, at its preferential liquidation value, at any dividend payment date as from the first repayment date (30 June 2019). Exercise of this option is subject to prior authorisation from Banco de Portugal and compliance with the requirements of Cayman Islands Law. Repurchases in the amount of 9.1 million euros were made.
Under the public exchange offer, held in October 2013, the group bought back 8,396 thousand euros of preferred shares, having obtained a gains of 6,004 thousand euros.
34. INTEREST AND SIMILAR INCOME AND INTEREST AND SIMILAR COSTS
This item breaks down as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Interest and similar income Interest on liquid assets 1,251 1,162 1,359 Interest on investments at CI 3,322 9,719 14,609 Interest on loans to customers 371,103 475,323 596,179 Interest on overdue loans 19,933 26,174 26,310 Interest and similar income on other assets 87,209 126,450 146,259 Fees received in association with amortised cost 8,382 9,092 9,985 491,200 647,920 794,701
Interest payable and similar expenses Interest on funds from central banks 17,684 20,258 20,414 Interest on funds at other CI 10,240 43,473 56,583 Interest on customer funds 182,530 295,008 307,215 Interest on loans 137 8,950 8,950 Interest liabilities on non-subordinated securities 70,585 77,105 119,008 Interest and similar charges on other financial liabilities 12,837 37,048 40,721 Interest on subordinated liabilities 45,169 18,932 18,932 Fees paid in association with amortised cost 6,793 8,750 8,749 Others 20,563 33,333 41,357 366,538 542,857 621,929
35. INCOME FROM EQUITY INSTRUMENTS
This item breaks down as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Dividends on financial assets available for sale 2,447 2,396 2,439
2,447 2,396 2,439
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36. INCOME AND COSTS WITH RESPECT TO FEES
This item breaks down as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Income from commissions Guarantees given 10,267 11,994 12,296 Credit operations 1,127 1,245 1,822 Annuities 3,775 3,357 3,549 Card management 11,769 11,610 12,333 Transfer of securities 616 645 830 Collective investment arrangements in securities 3,137 3,568 3,640 Administration of securities 597 752 720 Collection of securities 3,992 4,678 5,095 Deposit and custody of securities 307 309 309 Other services provided 11,566 13,203 16,441 Other fees received 47,541 59,909 62,194 94,694 111,270 119,229
Cost of fees Guarantees received 10,102 14,336 14,343 For other services received 9,918 11,224 14,576 Other commissions paid 2,251 3,977 5,393 22,271 29,537 34,312
The other fees received correspond primarily to fees for the management of sight deposit accounts (7,972 thousand euros), current accounts (8,071 thousand euros), with updated pricing structure, uncleared balance fees (9,245 thousand euros) and late payment fees (4,443 thousand euros) at Banif.
37. PROFIT AND LOSS ON FINANCIAL OPERATIONS
This item breaks down as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Gains on financial operations Gains on other financial assets at fair value through profit and loss 5,064 7,532 7,575 Gains on financial assets held for trading 55,917 59,695 135,254 Gains on financial assets available for sale 40,970 2,702 2,939 Gains on exchange rate differences 157,126 140,258 142,093 259,077 210,187 287,861
Losses on financial operations Losses on other financial assets at fair value through profit and loss 8,155 27,008 27,040 Losses on financial assets held for trading 58,491 50,306 126,943 Losses on financial assets available for sale 3,150 4,593 4,594 Losses on exchange rate differences 158,402 140,457 148,537 228,198 222,364 307,114
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38. PROFIT/LOSS ON DISPOSAL OF OTHER ASSETS
This item breaks down as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Other income Gains on the disposal of other non-financial assets 13,191 - 5,863 Gains on the disposal of subsidiaries --- Non-current assets held for sale --- Gains on investments held to maturity - - 1,974 Gains on disposal of customer loans -4141 13,191 41 7,878
Other costs Losses on the disposal of other non-financial assets 29,193 - - Losses on disposal of customer loans 359 786 786 Losses on investments held to maturity - 206 920 Losses on the disposal of subsidiaries --- 29,552 992 1,706
Disposal of other non-financial assets corresponds to the disposal of property assets.
39. OTHER OPERATING PROFITS/LOSSES
This item breaks down as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Other income Provision of Services 10,897 10,771 10,943 Recovery of loans and interest 8,774 6,411 6,712 Reimbursement of costs 8,550 10,727 11,495 Income from operational leases 5,569 9,450 9,526 Repurchase of liabilities issued 11,380 2,753 2,753 Investment property 2,246 5,354 5,526 Tangible Assets 6,043 6,623 8,511 Non-current assets held for sale 2,525 4,597 11,632 Rents 21,238 15,335 15,335 Others 21,793 31,221 34,501 99,016 103,242 116,934
Other costs Subscriptions and donations 408 440 446 Contributions to DGF and CAM guarantee fund 4,867 2,087 5,305 Repurchase of liabilities issued 3,114 - - Other taxes 15,060 12,848 16,058 Investment property 47,289 58,339 64,454 Tangible Assets 4,452 12,574 15,431 Non-current assets held for sale 14,038 14,379 14,379 Others 29,726 40,479 63,716 118,953 141,146 179,789
In 2013 this item recorded -43,707 thousand euros (-68,595 thousand euros in 2012) of devaluation of real estate assets.
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40. STAFF COSTS
This item breaks down as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Remuneration of management and supervisory bodies 3,475 6,210 8,467 Remuneration of employees 92,957 92,245 110,427 96,432 98,455 118,894
Social securities costs: Costs relating to remuneration 23,981 24,884 29,788 Pension costs: - Defined contribution plan 2,679 5,604 5,604 Other social security costs 1,812 2,122 2,131 28,472 32,610 37,523
Other staff costs 3,406 16,615 19,229
128,310 147,680 175,646
In 2013, the group recorded in this item 1,293 thousand euros (13,464 thousand euros in 2012) concerning terminations of employment contracts.
41. GENERAL ADMINISTRATIVE COSTS
This item breaks down as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Specialised services 31,605 35,114 46,062 Communications 6,067 7,495 9,498 Publicity and publications 5,875 5,604 6,867 Travel, subsistence and representation 2,487 2,356 3,960 Maintenance and repair 8,020 8,556 8,941 Water, electricity and fuel 5,491 5,806 6,365 Rents and leases 7,358 8,877 12,100 Insurance 2,360 3,385 3,789 Transport 1,175 1,880 2,379 Consumables 518 652 998 Staff training 217 262 289 Others 11,162 12,859 17,497
82,335 92,846 118,745
“Specialised services” includes the following amounts for services provided by the statutory auditor and its network of companies, in accordance with paragraph b) no. 1 of Article 508-F of the Commercial Companies Code.
Statutory auditing of accounts: 1,045 thousand euros (1,025 thousand euros in 2012) Other assurance services: 1,141 thousand euros (235 thousand euros in 2012) Tax consultancy services: 87 thousand euros (165 thousand euros in 2012).
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42. IMPAIRMENT OF LOANS AND OTHER ASSETS
Changes in the impairment of customer loans over the period ending 31 December 2013 were as follows:
Entities within the Balance at consolidation Uses and Reversals and Balance at Description Increases 31-12-2012 perimeter for the adjustments recoveries 31-12-2013 first time
Impairment on loans 1,097,764 (108,695) 661,521 (136,103) (354,270) 1,160,217
1,097,764 (108,695) 661,521 (136,103) (354,270) 1,160,217
In 2013, the group recovered 8,928 thousand euros of bad debt (5,391 thousand euros in 2012).
Changes in the impairment of other assets over the period ending 31 December 2013 were as follows:
Entities within Balance at the consolidation Uses and Reversals and Balance at Description Increases 31-12-2012 perimeter for the adjustments recoveries 31-12-2013 first time
Financial assets available for sale 44,442 - 7,952 (474) (534) 51,386 Non-current assets held for sale 30,219 (4,262) 30,054 (5,835) (1,696) 48,480 Other tangible assets 4,698 - 10,972 6,872 (516) 22,026 Goodwill 1,399 - - (1,085) - 314 Debtors and other investments 37,240 (57) 25,141 3,413 (3,777) 61,960
117,998 (4,319) 74,119 2,891 (6,523) 184,166
43. EARNINGS PER SHARE
Basic earnings per share
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Basic Profit/loss for the Year - continued operational units (373,365) (503,556) (576,353) Weighted average number of ordinary shares issued 78,286,720,207 70,569,148,049 70,569,148,049
Earnings per share (expressed as EUR per share) (0.005) (0.007) (0.008)
31-12-2012 Description 31/12/2013 Restated
Basic Profit/loss for the Year - discontinued operational units (96,908) (80,640) Weighted average number of ordinary shares issued 78,286,720,207 70,569,148,049
Earnings per share (expressed as EUR per share) (0.001) (0.001)
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Diluted earnings per share
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Diluted Profit/loss for the Year - continued operational units (373,365) (503,556) (576,353) Average number of shares: 110,503,459,933 110,639,148,049 110,639,148,049 Weighted average number of ordinary shares issued 78,286,720,207 70,569,148,049 70,569,148,049 MCS 52,356,164 70,000,000 70,000,000 CoCos, issued on 25/01/2013 32,164,383,562 40,000,000,000 40,000,000,000
Diluted earnings per share (expressed as EUR per share) (0.003) (0.005) (0.005)
31-12-2012 Description 31/12/2013 Restated
Diluted Profit/loss for the Year - discontinued operational units (96,908) (80,640) Average number of shares: 110,503,459,933 110,639,148,049 Weighted average number of ordinary shares issued 78,286,720,207 70,569,148,049 MCS 52,356,164 70,000,000 CoCos, issued on 25/01/2013 32,164,383,562 40,000,000,000
Diluted earnings per share (expressed as EUR per share) (0.001) (0.001)
44. FINANCIAL INSTRUMENTS RISKS
The risk analysis for financial instruments is presented in Point 06 – Banif Management Report – Risk management.
45. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments at fair value
The following tables offer an analysis of the categories of financial instruments recognised at fair value in the financial statements and the valuation methods used, as at 31 December 2013 and 2012:
Valuation Methods Market or listed value Total Description Market analysis Others
31/12/2013 31/12/2012 31/12/2013 31/12/2012 31/12/2013 31/12/2012 31/12/2013 31/12/2012 Assets
Financial assets held for trading 19,170 83,330 16,229 31,172 4,687 100,223 40,086 214,725 Other financial assets at fair value through profit or loss 10,835 13,720 15,836 24,324 47,015 41,243 73,686 79,287 Financial assets available for sale 1,442,821 560,054 - - 339,220 195,512 1,782,041 755,566
Liabilities
Financial liabilities held for trading - - 28,785 42,114 - 74,090 28,785 116,204 Other financial liabilities at fair value through profit or loss - - 12,393 14,017 - - 12,393 14,017
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The analysis in the table above is based on the following assumptions:
Market values (Level 1): financial instruments valued on the basis of active market prices were placed in this column. Market analysis (Level 2): financial instruments valued on the basis of observable market variables were placed in this column. This level includes units in equity investment funds valued according to their published NAV and bonds not listed in an active market; Other (Level 3): Financial instruments valued on the basis of non-observable market variables were placed in this column. This level includes unlisted shares and units in real estate investment funds.
Non-listed equity instruments, recognised in financial assets available for sale at acquisition cost because it has not been possible to reliably determine their value, have been recorded in the “Others” column”.
The reconciliation of level 3 opening and closing balances is as follows:
Total Transfers of Description 31/12/2012 Acquisitions Disposals Reclassifications Impairment 31/12/2013 (losses)/gains levels
Financial assets held for trading Credit derivatives 74,090 (74,090) ------Equity instruments 26,133 (1,941) - - (19,505) - - 4,687
Other financial assets at fair value through profit or loss 41,243 (1,734) 11,591 (4,085) - - - 47,015
Financial assets available for sale Equity instruments 195,512 878 178,840 - (31,248) (4,762) - 339,220 Debt instruments ------Financial liabilities held for trading Credit derivatives (74,090) 74,090 ------
It is to be noted that the amounts of acquisitions in the table above essentially concern assets received in the context of the assignment of claims (Note 11), for which reason these acquisitions do not represent outflows of capital.
Fair value adheres to the policies outlined in Note 2.11.2
In in-house models for the valuation of financial instruments for trading and at fair value through profit or loss, market interest rates are calculated on the basis of information published by Bloomberg. For maturities of up to one year they are indexed to the interbank money market rates. For longer maturities they are indexed to prices for interest rate swaps. The interest rate curve thus obtained is further adjusted against values of short-term interest rate futures. Interest rates for specific maturities are determined using interpolation methods. The same interest rate curves are also used for forecasting non-deterministic cash flows, such as reference rates.
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The interest rates used to calculate the interest rate curve with reference to 31 December 2013, for the euro and the USD, are as follows:
EUR USD Maturity 2013 2012 2013 2012 1 day 0.28% 0.05% 0.10% 0.20% 7 days 0.18% 0.06% 0.15% 0.35% 15 days 0.19% 0.06% 0.15% 0.31% 1 month 0.23% 0.07% 0.16% 0.21% 2 months 0.26% 0.06% 0.20% 0.27% 3 months 0.24% 0.10% 0.23% 0.33% 4 months 0.26% 0.13% 0.29% 0.39% 5 months 0.29% 0.16% 0.35% 0.45% 6 months 0.32% 0.20% 0.41% 0.51% 7 months 0.34% 0.23% 0.43% 0.55% 8 months 0.37% 0.27% 0.46% 0.59% 9 months 0.39% 0.31% 0.48% 0.63% 10 months 0.42% 0.35% 0.43% 0.53% 11 months 0.44% 0.39% 0.37% 0.42% 1 year 0.47% 0.43% 0.32% 0.32% 2 years 0.54% 0.38% 0.49% 0.39% 3 years 0.75% 0.47% 0.88% 0.50% 4 years 1.01% 0.62% 1.33% 0.68% 5 years 1.26% 0.77% 1.79% 0.86% 6 years 1.47% 0.94% 2.13% 1.09% 7 years 1.68% 1.12% 2.48% 1.31% 8 years 1.84% 1.27% 2.68% 1.49% 9 years 2.00% 1.42% 2.89% 1.66% 10 years 2.15% 1.57% 3.09% 1.84% 20 years 2.72% 2.16% 3.80% 2.59% 30 years 2.74% 2.23% 3.93% 2.80%
The changes in the fair value of “Other financial liabilities at fair value through profit or loss” arising from changes in the entity’s credit risk, had an impact of +16 thousand euros on the profit and loss account for 2013 (-5,306 thousand euros in 2012).
Financial instruments at cost or amortised cost
For liquid assets, investments and credit with a maturity of less than one year, the balance sheet value is considered to be a reliable approximation to the fair value. For indexed-rate credit with a maturity of over one year, the balance sheet value is also considered to be a reliable approximation to the fair value. Given the low materiality of fixed-rate credit with a maturity of over one year, the balance sheet value is considered to be a reliable approximation to the fair value. The credit risk was not considered.
For clients’ funds and liabilities represented by securities of up to one year, or those which are undated, which include deposits with no associated interest rate, the amount redeemable on the reporting date is considered to be a reliable approximation to fair value.
The fair value of financial instruments is determined by the deduction of the impairment (Note 42) from the gross value of the instrument, since the group considers the amount of impairment to be close to the fair value.
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46. POST-EMPLOYMENT BENEFITS: LIABILITIES FOR RETIREMENT AND SURVIVING-RELATIVE PENSIONS
46.1 Banif – Banco Internacional do Funchal, SA 46.1.1 General Description
As described in Note 2.18, Banif - Banco Internacional do Funchal, SA (the Banif) covers its employees through a number of different pension and medical care benefit plans, as follows: Pension Plan I, defined benefit (DB); Pension Plan II, defined contribution (DC); Pension Plan III, also defined contribution (DC).
Liabilities with the aforementioned pension plans are financed by the Banif Pension Fund, a closed fund set up on 7 December 1989, the purpose of which is to finance the obligations foreseen in Pension Plans I, II and III, of which it is comprised.
In addition to the pension funds, there are two life annuity insurance contracts to cover the retirement pension of a pensioner, taken out with two different insurers that are not in a group relationship with Banif. The insured pension is fixed and paid 14 times a year. It is 40% reversible in the event of the death of the pensioner, the terms of the pension plan, and the respective annual increases are borne by the pension fund.
The managing entity of the pension funds is Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA, a related entity, which subcontracted Banif – Banco de Investimento, SA for the financial management and assessment of the fund’s assets.
Actuarial studies of the current value of the liabilities of the defined benefit plans, conducted with reference to 31 December 2013 and 2013, are the responsibility of the actuary Dr. Ana Marta Vasa, of Towers Watson (Portugal), Unipessoal Limitada.
46.1.2 Pension Plan I (defined benefit)
As at 31 December 2013, Pension Plan I (defined benefit) covered 417 pensioners (402 in 2012), 292 active employees (309 in 2012), beneficiaries of retirement pensions and SAMS, and 2,593 active employees (2,599 in 2012) for SAMS liabilities, and 182 former employees (167 in 2012), as per clause 137-A of the CLA.
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a) Actuarial assumptions The main actuarial and financial assumptions used for the calculations made were as follows:
Description 31/12/2013 31/12/2012 Actuarial Valuation Method Forecast Credit Unit Forecast Credit Unit Mortality Table: - Men TV 73/77 TV 73/77 - Women TV 88/90 TV 88/90 Disability Table 100% EVK80 100% EVK80 Discount Rate 4.00% 4.50% Rate of return on fund assets 4.00% 4.50% Salary Growth Rate 1.00% 1.00% Pension Growth Rate 1.00% 1.00% Turnover rate Not applied Not applied
For the 2013 actuarial assessment, the actuarial assumptions were adjusted with the discount rate, in the light of the economic situation in Portugal and in the banking sector. This discount rate corresponds to the interest rate on low-risk company bonds with a maturity approximately the same as the maturity of the liabilities. This maturity is determined on the basis of average life expectancy, weighted for the payouts made by the fund for each of the benefits.
In the current sovereign debt crisis in the countries in southern Europe, there has been an extraordinary disruption in the euro zone debt market, leading to an abrupt reduction in the market yields of the debts of low-risk companies and a limitation on the available basket of these bonds. In these circumstances, to maintain the representativity of the discount rate, when determining this rate, Banif considered the information available in the euro zone, on 31 December 2013, on interest rates for bonds in euros, including public debt, and which it considers a low credit risk.
With the merger of the populations, the duration of liabilities associated with pension benefits, SAMS and death allowances changed to 15 years in 2013 (16 years in 2012).
The expected overall rate of return for the year reflects the anticipated yield on the fund’s assets at the end of the previous year, taking into consideration the nature of the fund portfolio and the investment policies adopted.
For reasons of prudence and because it cannot be determined with sufficient reliability, no turnover rate has been applied.
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b) Liabilities and Coverage At 31 December 2013 and 2012, the liabilities recognised on the balance sheet were:
Description 31/12/2013 31/12/2012
Current value of liabilities Pensions being paid 52,102 44,334 Past service of current employees 35,240 33,305 SAMS costs 14,706 13,353 Death Allowance 353 622
Total 102,401 91,614
Fair value of the assets in the plan (102,791) (98,716)
Liabilities (Assets) recognised on the balance sheet (390) (7,102)
Coverage of liabilities complies with the provisions of Banco de Portugal Notice No. 12/2001 and the minimum level of funding set by the ISP (Portuguese Institute of Insurance).
The annual increase in liabilities breaks down as follows:
Description 31/12/2013 31/12/2012
Current value of initial liabilities 91,614 88,058 Current service cost 656 616 Interest cost 4,123 4,749 Actuarial losses (gains) 9,924 (1,262) Increased liabilities through early retirement - 2,491 Pensions paid (3,916) (3,038)
Total costs for the year 102,401 91,614
The current value of the liability for future services, as of 31 December 2013, was 8,307 thousand euros (7,829 thousand euros in 2012).
The following table presents sensitivity analyses of how liabilities for defined benefit plans would be affected by reasonably possible amendments to the relevant actuarial assumptions as at 31 December 2013. These sensitivity analyses apply to gross liabilities for defined benefit plans and not to the liability (asset) recognised on the Balance Sheet, since this net balance depends on the fair value of the assets in the plan.
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Sensitivity analyzes (*) 31/12/2013 31/12/2012 Discount Rate + 0,5 bp (7,127) - - 0,5 bp 7,917 - Salary Growth Rate + 0,5 bp 2,695 - - 0,5 bp (2,503) - Pension Growth Rate + 0,5 bp 8,242 - - 0,5 bp (7,573) - Mortality Table Increase of one year, having considered: Male: TV73/77 (-1) 2,971 - Female: TV88/90 (-1) Expected income + 0,5 bp 493 - - 0,5 bp (493) - (*) Sensitivity analysis carried out considering the modification of a single assumption and the remaining constant.
In turn, an increase or decrease of 1% in the rate of SAMS contributions would imply an increase, or reduction, in liabilities of 2,262 thousand euros (2,055 thousand euros at 31 December 2012) and an increase, or reduction, in costs for the fiscal year (current service cost and interest cost) of 48.7 thousand euros (44.9 thousand euros at 31 December 2012).
At 31 December 2013 and 2012, the average duration of liabilities of the defined benefit plans and the time distribution of the payments envisaged are:
Description 31/12/2013 31/12/2012 Duration of liabilities of the Pension Plan 15 years 16 years
Expected payment of benefits within 12 months 5,384 4,940 between ] 1 ; 3 ] years 10,433 10,028 between ] 3 ; 6 ] years 16,241 15,155 between ] 6 ; 11 ] years 34,011 32,110 between ] 11 ; 16 ] years 37,297 37,311 after 16 years 143,724 153,188
c) Actuarial earnings and losses Following the change in accounting policy regarding the recognition of actuarial gains and losses, as explained in Note 2.18, the gains and losses arising from the differences between the actuarial and financial assumptions used and the values actually seen as regards these liabilities and the income from the pensions fund are wholly recognised in equity, in Reserves through Actuarial Gains and Losses.
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The actuarial gains and losses recognised in equity were:
Description 31/12/2013 31/12/2012 Reserves by actuarial gains (losses) at year start (21,274) (22,464) Actuarial gains (losses) of the year (9,674) 1,190 of which: by changing demographic assumptions -- by changing financial assumptions (6,703) (3,236)
Reserves by actuarial gains (losses) at year end (30,948) (21,274)
d) Costs recognised in the year In 2013 and 2012, the company recognised the following costs in respect of the pension plan:
Description 31/12/2013 31/12/2012
Current service cost 656 616 Interest cost 4,123 4,749 Expected return (4,438) (4,745) Cost of early retirements -2,491 Others/Cut (transfer to Social Sec.) -(94) Costs borne by beneficiaries (81) (31)
Total costs for the year 260 2,986
The current service cost of Pension Plan I (defined benefit) for liabilities relating to the pensions of group directors is zero (zero in 2012) insofar as they all retired on grounds of age (65 years) in 2009. Non-verification of this assumption does not invalidate the non-allocation of any amount as a current service cost, as the liability to be funded is then calculated on the basis of total services.
e) Fair value of the assets of the value of the pension fund assigned to Pension Plan I
The change in the fair value of the fund’s assets was as follows:
Description 31/12/2013 31/12/2012
Value of the fund at year start 98,716 93,129 Expected return 4,438 4,745 Actuarial gains (losses) (financial) 250 (72) Contributions paid into the fund by the company 3,237 3,863 Contributions paid into the fund by the beneficiaries 67 58 Others/liquidation (transfer to social security) -31 Pensions paid out by the fund (3,916) (3,038)
Value of the fund at year end 102,791 98,716
The contributions made in 2013 and in 2012 were paid in cash.
In 2014, the company expects to make contributions of 1,075.8 thousand euros.
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At 31 December 2013 and 2012, the fund’s assets were distributed as follows:
2013 2012
Non listed Non listed Description Listed Assets Total % Listed Assets Total % Assets Assets
Liquidity 1,357 1,103 2,460 2.39% 15,823 4,701 20,524 20.72% Real Estate Domestic - 22,835 22,835 22.22% 22,967 - 22,967 23.19% Shares Domestic 3,332 1,353 4,685 4.56% 229 - 229 0.23% Foreign - - - 0.00% 725 - 725 0.73% Bonds Domestic, AAA to BBB - - - 0.00% - - - 0.00% Domestic, less then BBB - 18,114 1,332 19,447 18.92% 18,044 1,701 19,745 19.93% Foreign, AAA to BBB - 19,705 - 19,705 19.17% 7,646 - 7,646 7.72% Foreign, less then BBB - 1,850 - 1,850 1.80% 3,010 - 3,010 3.04%
Investment Funds Shares Domestic - - - 0.00% - - - 0.00% Foreign 11,825 - 11,825 11.50% 4,410 - 4,410 4.45% Bonds Domestic, AAA to BBB - 3,236 - 3,236 3.15% 2,971 - 2,971 3.00% Domestic, less then BBB - - - - 0.00% - - - 0.00% Foreign, AAA to BBB - 4,047 - 4,047 3.94% - - - 0.00% Foreign, less then BBB - 2,582 - 2,582 2.51% 5,210 - 5,210 5.26% Real Estate Domestic 2,716 - 2,716 2.64% 3,117 - 3,117 3.15% Foreign 2,829 - 2,829 2.75% 3,588 - 3,588 3.62% Others
Other investments 4,574 - 4,574 4.45% 4,910 - 4,910 4.96%
Total assets of the fund 76,167 26,624 102,791 100.00% 92,650 6,402 99,051 100.00%
of which,
Securities issued by the Company or other 4,141 8,369 companies within a relation of Group
Properties leased by the Company or other 8,380 8,380 companies within a relation of Group
Deposits in the Company or other companies 2,294 15,226 within a relation of Group.
f) Other information The main figures for the year and the previous year were as follows:
Description 31/12/2013 31/12/2012 Mortality Rate 0.12% 0.96% Disability Rate 0.56% 3.30% Fund Return Rate 4.75% 6.67% Salary Growth Rate 0.10% 0.95% Pension Growth Rate -0.39% -0.44% Turnover rate 2.87% 5.01%
The change in liabilities and the value of the fund assigned to the benefit plan defined in 2013 and in the four previous years are as follows:
Description 2013 2012 2011 2010 2009 Current Value of Liabilities 102,401 91,614 88,058 137,676 135,705 Fund Value 102,791 98,716 93,129 131,416 128,003 (Shortfall) Surplus 390 7,102 5,071 (6,260) (7,702) Actuarial gains (losses) in liabilities (9,924) 1,262 12,079 2,704 (866) Actuarial gains (losses) in the fund 250 (72) (7,085) (5,101) (655)
46.1.3 Pension Plans II and III (defined contribution)
In 2013, Banif made contributions of 2,191 thousand euros (2,361 thousand euros in 2012) to Pension Plans II and III (defined contribution), recognised as costs in the year.
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The cost of contributions to Pension Plans II and III in respect of group directors was 27 thousand euros of the current contributions (39 thousand euros in 2012).
46.2 Banif – Banco de Investimento, SA and Associates
On 26 December 2003, Banif – Banco de Investimento, SA and its subsidiaries Banif Gestão de Activos – Sociedade Gestora de Fundos de Investimento Mobiliário, SA, Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA and Banif Capital - Sociedade de Capital de Risco, SA, set up, as associates, the BBI & Associadas pension fund, with Banif Açor Pensões - Sociedade Gestora de Fundos de Pensões, SA, This is a joint subscription to the open-ended pension funds Banif Reforma Jovem, Banif Reforma Activa, Banif Reforma Sénior and Banif Reforma Garantida, designed to finance the obligations established in the respective pension plan. It is contributory in nature and contributions are defined.
In 2013, the gross value of the contributions made by the associates in respect of the participants was 134.6 thousand euros (111.6 thousand euros in 2012), of which 111.5 thousand euros (94.1 thousand euros in 2012) were contributed by Banif – Banco de Investimento, 17.4 thousand euros (14.6 thousand euros in 2012) by Banif Gestão de Activos, 2.2 thousand euros by Banif Capital (no contribution in 2012 and 3.5 thousand euros (2.8 thousand euros in 2012) by Banif Açor Pensões.
The cost of contributions to these entities’ pension plan in relation to group directors was 16.4 thousand euros (13.5 thousand euros in 2012).
46.3 Banco Banif Mais, SA and Associates
On 7 December 2010, Banco Mais, SA and the companies Tecnicrédito ALD – Aluguer de Automóveis, SA, integrated into Banco Banif Mais in 2012, and Margem – Mediação de Seguros, Lda, SA, as associates, signed an agreement with Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA for joint subscription to the open-ended pension funds Banif Reforma Jovem, Banif Reforma Activa, Banif Reforma Sénior and Banif Reforma Garantida. This pension plan is contributory in nature and contributions are defined.
In 2013, the gross value of the contributions made by the associates in respect of the participants was 12.9 thousand euros (37.2 thousand euros in 2012), of which 12.7 thousand euros (37.0 thousand euros in 2012, including Tecnicrédito ALD – Aluguer de Automóveis, S.A.) by Banco Banif Mais, S.A., and 0.2 thousand euros (0.2 thousand euros in 2012) by Margem – Mediação de Seguros, Lda, S.A..
The cost of contributions to these entities’ pension plan in relation to group directors was 1.2 thousand euros.
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46.4 Banif Rent – Aluguer Gestão e Comercio de Veículos Automóveis, SA
On 5 June 2009, Banif Rent – Aluguer, Gestão e Comércio de Veículos Automóveis, SA signed an agreement with Banif Açor Pensões - Sociedade Gestora de Fundos de Pensões, SA for joint subscription to the open-ended pension funds Banif Reforma Jovem, Banif Reforma Activa, Banif Reforma Sénior and Banif Reforma Garantida. This pension plan is contributory in nature and contributions are defined.
In 2013, the gross value of the contributions made by the associate in respect of the participants was 3.6 thousand euros (8.3 thousand euros, in 2012).
This entity’s pension plan does not envisage any contributions being made for group directors.
47. ASSETS UNDER OPERATING LEASES
The costs incurred in using assets under operating leases are recorded in the year to which they relate under the item “Rentals and leases” in General administrative costs (Note 41). These entries refer mainly to equipment.
The assets used under operating leases and the related costs for future years are as follows:
31/12/2013 Future minimum Contingent rents Other assets under operating payments from non- Minimum lease recognised in the leases cancellable operating payments income statement leases
Residual Maturity
Less than 1 year 19 93 - 1 to 5 years 2,687 2,990 161 Over 5 years 18,949 1,924 -
21,655 5,007 161
31/12/2012
Future minimum Contingent rents Other assets under operating payments from non- Minimum lease recognised in the leases cancellable operating payments income statement leases
Residual Maturity
Less than 1 year 849 180 29 1 to 5 years 5,183 3,615 203 Over 5 years 24,978 2,044 -
31,010 5,839 232
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48. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
In the normal course of its financial business, the group conducts transactions with related parties. These include loans and banking products, deposits, shareholder loans, guarantees and other banking-related operations and services.
The balance sheet balance of these transactions with related parties, and the related costs and income for the year, is as follows:
Family members close Description Key management staff to key management Associates Other entities staff 31/12/2013 31/12/2012 31/12/2013 31/12/2012 31/12/2013 31/12/2012 31/12/2013 31/12/2012
Loans and applications 780 863 528 1,457 83,941 134,961 159,435 113,764 Deposits 494 4,258 470 861 29,880 140,472 12,579 57,192 Shareholder loans - - - - 13,845 13,261 7,299 16,750 Loans obtained ------Guarantees given - 52 - - 1,761 - 11,699 6,234
31/12/2013 31/12/2012 31/12/2013 31/12/2012 31/12/2013 31/12/2012 31/12/2013 31/12/2012
Commissions and services provided 3 7 1 1 736 908 682 1,060 Interest and similar charges 19 169 20 70 1,211 6,084 1,486 3,421 Interest and similar income 7 10 4 31 2,532 3,459 7,682 3,053
Transactions with related parties are analysed in accordance with the criteria applicable to similar third-party operations and are conducted under normal market conditions. These operations are subject to the approval of the board of directors.
In the year ended, specific provisions were created for balances with related parties in the amount of 8,894 thousand euros.
Remuneration of management bodies of Banif SA: 2013: 1,343 thousand euros 2012: 2,174 thousand euros
The related parties of the Banif Financial Group are the following:
Key members of management: Luís Filipe Marques Amado Jorge Humberto Correia Tomé Maria Teresa Henriques da Silva Moura Roque dal Fabbro António Carlos Custódio de Morais Varela Diogo António Rodrigues da Silveira João José Gonçalves de Sousa João Paulo Pereira Marques de Almeida Nuno José Roquette Teixeira Vítor Manuel Farinha Nunes
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Close family of key members of management: 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 Catherine Thérèse Laurence Jouven da Silveira Alexandre Tiago da Silveira Heloïse Maria da Silveira Gaspar Antoine da Silveira 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 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
Associates: Rentipar Seguros, S.G.P.S., SA Companhia de Seguros Açoreana, SA Espaço Dez – Sociedade Imobiliária, Lda Banca Pueyo Inmobiliaria Vegas Altas, SA MCO2 – SGFIM, SA Pedidos Liz, Lda
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Other entities: Rentipar Financeira, SGPS, SA Vestiban – Gestão e Investimentos, SA Auto-Industrial – Investimentos e Participações, SGPS, SA Renticapital, Investimentos Financeiros, SA Rentipar Investimentos, SGPS, SA Rentipar Industria SGPS, SA Rentiglobo, SGPS, SA Empresa Madeirense de Tabacos SIET – Sociedade Imobiliária de Empreendimentos Turísticos Savoi, SA DISMADE – Distribuição de Madeira VITECAF – Fabrica Rações da Madeira, SA RAMA – Rações para Animais, SA SODIPRAVE – Soc. Dist. De Produtos Avícolas Avipérola Aviatlântico – Avicultura, SA SOIL, SGPS, SA Rentimundi – Investimentos Imobiliários, SA Mundiglobo – Habitação e Investimentos, SA Habiprede – Sociedade de Construções Genius – Mediação de Seguros, SA Rentimedis – Mediação de Seguros, SA MS MUNDI – Serviços Técnicos de Gestão e Consultoria, SA RENTICONTROL – Controlo e Gestão de Contabilidade, SA LDI – Desenvolvimento Imobiliário Fundo de pensões de colaboradores do Grupo FN Participações SGPS, SA
49. SPECIAL CONDITIONS CONCERNING SOVEREIGNS RISK IN PORTUGAL, GREECE, IRELAND, SPAIN, ITALY AND CYPRUS
The onset of the sovereign debt crisis in a number of countries led the eurozone countries, together with the International Monetary Fund, to instigate a set of support mechanisms. These resulted in the drawing up and implementation of adjustment plans for Greece and then, later, for Ireland and Portugal.
In February 2012, the terms of the agreement on the involvement of the private sector in the restructuring of the Greek public debt were announced. This resulted in the exchange of securities held by Banif on 31 December 2011, recorded in assets available for sale, for new bonds issued by Greece.
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Banif decided to accept the terms of the exchange, having recorded a loss of 558 thousand euros in 2012, and attributed nil value to the contingent securities. It is to be noted that in 2011, in accordance with ESMA recommendations, the Greek securities had been recognised at their fair value, and impairments of 941 thousand euros had been recorded.
In December 2012 the Greek government launched a debt buy-back programme, with the support of the European Financial Stability Facility (EFSF). This process covered bonds maturing between 2023 and 2042, with the exception of the “Detachable GDP-Linked Securities”, with terms of exchange varying according to their maturity, from a minimum of 30.2 % to a maximum of 40.1% of the nominal value. In exchange, private creditors received 6-month EFSF bills.
Banif accepted the buy-back terms presented, recognising a gain of 101 thousand euros in 2012 and maintaining the impairment of the entirety of the nominal value of the “Detachable GDP-Linked Securities” to the value of 630 thousand euros.
An 85 billion euro assistance plan was put into place for Ireland in November 2010 and concluded in 2013, and a similar plan, expected to be worth 78 billion euros, was set up for Portugal in May 2011.
With the worsening in 2012 of the sovereign debt crisis and the crisis in the banking systems of some countries, Spain formally requested financing to support the recapitalisation of its banking system and, in March 2013, Cyprus accepted a financial aid plan. Italy also was affected by instability in the European sovereign debt markets, which generally abated in 2013.
The Group does not envisage any additional impairment for direct exposure to the risk of Ireland, Portugal, Spain, Cyprus and Italy.
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Group Exposures:
Residual Maturity
Provisions / Maximum 1 year 2 years 3 years 5 years > 5 years Total (net) Reserve JV Impairment Exposure
Portugal Financial assets available for sale Central Government 154,552 334 56,273 607,221 606,082 1,424,462 - (10,287) 1,434,749 Local and Regional Governments ------Banks 523 - - - - 523 - 5 518 Public Companies ------155,075 334 56,273 607,221 606,082 1,424,985 - (10,282) 1,435,267
Investments held to maturity Central Government ------Local and Regional Governments ------Banks 2,488 - - - - 2,488 - - 2,488 Public Companies ------2,488 - - - - 2,488 - - 2,488
Loans Central Government - 105 - - 204 309 - - 309 Local and Regional Governments 16,272 650 14,882 108 190,658 222,570 - - 222,570 Banks 2,681 - - - - 2,681 - - 2,681 Public Companies - - - 6,671 29,893 36,564 - - 36,564 18,953 755 14,882 6,779 220,755 262,124 - - 262,124
176,516 1,089 71,155 614,000 826,837 1,689,597 - (10,282) 1,699,879
Greece Financial assets available for sale Central Government ------(630) - 630 Local and Regional Governments ------Banks ------Public Companies ------(630) - 630
------(630) - 630
Ireland Financial assets available for sale Central Government ------Local and Regional Governments ------Banks ------Public Companies ------
Italy Financial assets available for sale Central Government ------Local and Regional Governments ------Banks ------Public Companies ------
Spain Financial assets available for sale Central Government - - - - 221 221 - 17 204 Local and Regional Governments - - - 465 - 465 - 16 449 Banks ------Public Companies ------465 221 686 - 33 653
Investments held to maturity Central Government ------Local and Regional Governments ------Banks 2,553 - - - - 2,553 - - 2,553 Public Companies ------2,553 - - - - 2,553 - - 2,553
2,553 - - 465 221 3,239 - 33 3,206 179,069 1,089 71,155 614,465 827,058 1,692,836 (630) (10,249) 1,703,715
The entity Rentipar Seguros, a subsidiary, has the following exposure to central governments, local and regional governments, banks and public undertakings: - Portugal: 27,487 thousand euros - Spain: 96,470 thousand euros - Italy: 83,317 thousand euros - Greece: 3,990 thousand euros - Ireland: 12,770 thousand euros.
50. POST-BALANCE SHEET EVENTS
At the date of approval of these financial statements by Banif’s board of directors, there had been no events subsequent to 31 December 2013, the reference date for the financial statements, which would require adjustments or modifications to the figures given for assets or liabilities, under the terms of IAS 10 – Post-balance sheet events.
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On 6 February 2014 the revised restructuring plan for the Banif Financial Group, which had been the subject of detailed and lengthy discussions with these organisations, was submitted to the Ministry of Finance and the European Commission Directorate General for Competition (DGComp). This plan seeks: (i) show the group’s self-reliability in the mid to long term and its ability to operate without state support; (ii) demonstrate the group’s current and future contribution, and that of its shareholders (excluding the Portuguese state), to our recapitalisation and restructuring efforts; and (iii) include measures designed to prevent any distortion of competition in the sector that may result from the fact that the group has received funding from the Portuguese state. In this context, and as mentioned in Note 2.4, the Management of the Bank considers that it has the means and capacity to continue business in the foreseeable future. In making this judgment, Banif’s management took into consideration the information it has on current conditions and forecasts of future profitability, cash flow and equity. However, the restructuring plan submitted is subject at the approval of the Ministry of Finance, DGComp and the College of Commissioners of the European Commission.
In February 2014, Banif – Banco Internacional do Funchal, SA signed a non-binding Memorandum of Understanding with the Republic of Equatorial Guinea, with a view to cooperation initiatives in the banking sector on terms to be agreed between the parties.
Related to this initiative is the possibility of an Equatorial Guinea company acquiring a qualifying holding in Banif.
On 28 February 2014, Banif – Banco Internacional do Funchal, SA received a letter of resignation from the non-executive member of its Board of Directors, Diogo António Rodrigues da Silveira.
The aforementioned resignation will be effective, under Art. 404 of the Commercial Companies Code, at the end of March 2014, unless his replacement is appointed or elected in the meantime.
Under the same terms, Diogo António Rodrigues da Silveira will leave his position as Chair of the Executive Committee and Member of the Board of Directors of Açoreana Seguros, S.A., a company in which Banif holds a significant stake.
In order to strengthen the group’s profitability, by reducing operating costs in particular, the Executive Committee agreed in March 2014 to accelerate, up to the end of 2014, the branch closure programme that it has been implementing, which will involve a further 60 closures. This adjustment of the Bank’s geographical presence will imply a reduction in jobs, for which reason Banif has put in place a voluntary severance programme for staff. This programme will be implemented for a limited period of time and will probably not exceed 300 employees.
In March 2014, after the date of approval of the accounts for publication, the Bank was informed that the fair value of the subsidiary FINPRO – Sociedade de Capital de Risco, SA, the investment in which is included in “Financial Assets Held for Sale”, had recorded a significant decline with a
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negative impact (net of taxes) for the Bank of 11.2 million euros. However, as a Business Recovery Procedure is already under way at that Company and Banif, as shareholder and one of its main creditors, intends to request a revaluation of its assets, it is not possible to foresee the effects (positive or negative) on the valuation of its net assets arising from future decisions of its Board of Directors, shareholders and other entities involved in the recovery plan part in progress.
51. NEW NORMS AND INTERPRETATIONS APPLICABLE TO THE REPORTING PERIOD
Having been endorsed by the European Union (EU), the following issuances, revisions, changes and improvements occurred in the standards and interpretations effective from 01 January 2013: a) Revisions, changes and improvements in the standards and interpretations endorsed by the EU with effect on the accounting policies and disclosures adopted by the group.
IFRS 7 Offsetting of financial assets and financial liabilities (Amendment) This amendment requires entities to disclose information about rights to off-setting and related agreements (i.e. collateral). These disclosures provide information that is useful in assessing the net effect that these agreements may have on the Statement of Financial Position of each entity. The new disclosures are mandatory for all financial instruments that can be offset as provided by IAS 32 Financial Instruments: Presentation. The new disclosures also apply to financial instruments that are subject to master netting agreements or other similar agreements regardless of whether they are offset in accordance with IAS 32. The amendment must be applied retrospectively.
IFRS 13 Fair value measurement (Issue) IFRS 13 establishes a single guideline source for the measurement of IFRS-based fair value. IFRS 13 does not indicate when an entity should use fair value, but it does set out guidelines as to how fair value should be measured whenever this is permitted or required.
Fair value is defined as the “price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. The standard must be applied prospectively.
IAS 1 Presentation of Financial Statements (Amendment) The amendment to IAS 1 changes the aggregation of items presented in the comprehensive income statement. Items that may be reclassified (or “recycled”) to the profit or loss section of the income statement in the future (for example on the derecognition or liquidation date) should be presented separately from the items that are not susceptible to such reclassification (for example, revaluation reserves provided for in IAS 16 and IAS 38).
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This amendment does not change the nature of the items that should be recognised in the comprehensive income statement, not even if these items are, or are not, susceptible to being reclassified as profit or loss at some future date. The amendment must be applied retrospectively.
IAS 19 Employee benefits (Revised) The main changes in IAS 19 Employee benefits (revised) are: elimination of the option to defer recognition of actuarial gains and losses, known as the “corridor approach”. Actuarial gains and losses are recognised in the comprehensive statement of income, where these occur. The amounts recognised as profit or loss are limited to: current cost and the cost of past services (which includes gains and losses in the cuts), gains and losses in liquidation and costs (income) relating to net interest. All other changes to the net value of the asset (liability) arising from the defined benefit plan should be recognised in the comprehensive income statement, without any subsequent reclassification as profit or loss. the objectives for disclosures relating to defined benefit plans are explicitly mentioned in the revision of this standard, as are new disclosures and revised disclosures. The new disclosures include quantitative information on analyses of the sensitivity to the responsibilities of the defined benefits regarding any possible changes in each of the main actuarial assumptions. employment termination benefits should be recognised at the time immediately before that at which: (i) the commitment to assign such benefits cannot be withdrawn and (ii) restructuring provisions are drawn up in accordance with IAS 37. The distinction between short and long term benefits is based on when payment of the benefit is to be made, irrespective of the fact that the right to the benefit has already been granted to the employee. The revised standard must be applied retrospectively.
The group had already voluntarily altered its policy for recognition of the actuarial gains and losses, known as the “corridor approach”, on 31 December 2011, after which it recognised in the Statement of Comprehensive Income, as mentioned in Note 46. b) Revisions, amendments and improvements to standards and interpretations endorsed by the EU with no effect on the financial statements.
IFRS 1 First-time adoption of international financial reporting standards - hyperinflationary economies (Amendment)
When the transition date to IFRS is on, or after, the date on which its functional currency ceases to be a currency subject to hyperinflation, the entity may measure all assets and liabilities held before the cessation date which were subject to the effects of a hyperinflationary economy at their fair value on the date that the entity transited to IFRS. This fair value may be used as a considered cost
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for these assets and liabilities on the opening date of the statement of the entity’s financial position.
The amendment also removes the dates fixed in IFRS 1 for derecognition of assets and liabilities and gains and losses in transactions in the initial recognition. The new date to be used is the date on which the entity transited to IFRS.
IFRS 1 First-time Adoption of International Financial Reporting Standards (Amendment) and IFRS 9 and IAS 20 Accounting for government grants and disclosure of government assistance The amendment establishes an exception to the retrospective application of IFRS 9 Financial instruments and IAS 20 Accounting for government grants and disclosure of government assistance.
This amendment requires entities that apply IFRS 1 to prospectively apply the requirements of IAS 20 concerning government loans that existed at the IFRS transition date. Nevertheless, entities may choose to apply the requirements of IFRS 9 (or IAS 39, as applicable) and IAS 20 to government loans retrospectively if the necessary information has been obtained on the date of initial recognition of these loans.
This adoption provides first-time adopters with relief from retrospective measurement of government loans with below-market rate of interest. If IFRS 9 (or IAS 39) and IAS 20 are not applied retrospectively, first-time adopters will not be required to recognise the corresponding benefit of the government loan at a below-market rate of interest as a government grant.
IAS 12 Income taxes The amendment to IAS 12 clarifies the determination of the deferred tax on investment properties measured at fair value, under IAS 40, and states that this should be calculated on the basis of recovery of the tax through future disposal. This assumption may, however, be set aside if the entity has a business plan that shows that recovery of the tax will be effected through use of the investment properties.
Moreover, the amendment also states that deferred taxes recognised for non-depreciable fixed tangible assets which have been measured according to the revaluation model should be calculated on the assumption that the recovery of such tax will be effected through the sale of these assets.
IFRIC 20 Stripping costs in the production phase of a surface mine This interpretation applies to the removal of waste from a surface mine in the production phase.
If the benefit arising from the stripping activity is realised in the current period, an entity must recognise these costs of stripping and removal of waste as a cost of inventories. When the benefit concerns improved access to ore the entity must recognise those costs as non-current assets if
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certain recognition criteria are met. The assets from stripping and removal of waste must be recorded as an addition or improvement to existing assets.
When the costs of the stripping activity asset and the inventory produced are not separately identifiable, an entity must allocate these costs between the inventory produced and the stripping activity asset by using an allocation basis that is based on a relevant production measure.
After initial measurement, the stripping activity asset must be carried at cost or its revalued amount less depreciation or amortisation and impairment losses, using the same valuation criteria as those used for the asset of which it forms part.
The IFRIC does not require total retrospective application.
Annual improvements 2009-2011 cycle In Annual improvements 2009-2011 cycle, IASB issued six amendments to five standards the summaries of which are presented below:
IFRS 1 (Amendment) First-time Adoption of International Financial Reporting Standards This amendment: Clarifies that an entity that has stopped applying IFRS may choose to either: (i) Re-apply IFRS 1, even if the entity applied IFRS 1 in a previous reporting period; or (ii) apply IFRS retrospectively in accordance with IAS 8 as if it had never stopped. If the entity re-applies IFRS 1 or applies IAS 8, it must disclose the reasons why it previously stopped applying IFRS and subsequently resumed reporting in accordance with IFRS
Clarifies that, upon adoption of IFRS, an entity that capitalised borrowing costs in accordance with its previous rules, may carry forward, without adjustment, the amount previously capitalised in its opening statement of financial position at the date of transition.
IAS 1 (Amendment) Presentation of Financial Statements Clarifies the difference between additional comparative information and the minimum required comparative information. Generally, the minimum required information that corresponding to the previous period.
An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required information. The additional comparative period does not need to contain a complete set of financial statements.
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In addition, the opening statement of financial position (known as the third balance sheet) must be presented in the following circumstances: i) when an entity retrospectively applies an accounting policy, makes retrospective restatements or makes reclassifications; or ii) reclassifies items in its financial statements and the change has a material effect on the statement of financial position. The opening balance sheet must be the opening balance sheet of the comparative period. However, unlike the voluntary comparative information, the related notes are not required to accompany the third balance sheet.
IAS 16 Property, plant and equipment Clarifies that spare parts and servicing equipment are classified as property, plant and equipment rather than inventory when they meet the definition of property, plant and equipment.
IAS 32 Financial Instruments Clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes.
IAS 34 Interim Financial Report Clarifies the requirements in IAS 34 relating to segment information for total assets and liabilities for each reportable segment to enhance consistency with the requirements in IFRS 8 Operating Segments.
According to this amendment, total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to segment managers.
The improvements must be applied retrospectively.
52. NEW STANDARDS AND INTERPRETATIONS ALREADY ISSUED BUT NOT YET REQUIRED
The standards and interpretations recently issued by the IASB whose application is required only in periods after 01 January 2013 and which the Group did not adopt in advance are the following:
Already endorsed by the EU:
IFRS 10 Consolidated Financial Statements The IASB issued IFRS 10 Consolidated Financial Statements to replace the consolidation requirements written into SIC 12 Consolidation - Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements.
This IFRS establishes a new level of control which should be implemented by all entities and vehicles with specific purposes. The changes introduced in IFRS 10 will require that the management makes
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a significant effort to determine which entities are controlled and must, thus, be included in the parent company’s consolidated financial statements.
This provision, according to the endorsement (Commission Regulation (EU) No 1254/2012, of 11 December), is applicable to financial years starting on or after 1 January 2014. Early adoption is permitted provided that the entity also adopts IFRS 11, IFRS 12, IAS 27 (revised in 2011) and IAS 28 (revised in 2011) at the same time. Its application is retrospective.
IFRS 11 Joint arrangements IFRS 11: replaces IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities – Non- monetary Contributions by Venturers. changes the concept of joint control and removes the option to account for jointly controlled entities using proportionate consolidation, interests in these entities now to be accounted for using the equity method. also defines the concept of joint operations (combining the existing concepts of jointly controlled assets and operations) and redefines the concept of proportional consolidation for these operations. Each entity should now recognise its absolute or relative interests in assets, liabilities, income and costs in its own financial statements.
This provision, according to the endorsement (Commission Regulation (EU) No 1254/2012, of 11 December), is applicable to financial years starting on or after 1 January 2014. Early adoption is permitted provided that the entity also adopts IFRS 11, IFRS 12, IAS 27 (revised in 2011) and IAS 28 (revised in 2011) at the same time. Its application is retrospective.
IFRS 12 – Disclosures of interests in other entities IFRS 12 – Disclosure of Interests in Other Entities establishes the minimum level of disclosure for subsidiary companies, joint ventures, associated companies and other non-consolidated entities.
As such, this standard includes all the disclosures that were mandatory under IAS 27 Consolidated and Separate Financial Statements for consolidated accounts, as well as the mandatory disclosures included in IAS 31 Interests in Joint Ventures and in IAS 28 Investments in Associates, besides the additional new information.
This provision, according to the endorsement (Commission Regulation (EU) No 1254/2012, of 11 December), is applicable to financial years starting on or after 1 January 2014. Early adoption is permitted provided that the entity also adopts IFRS 11, IFRS 12, IAS 27 (revised in 2011) and IAS 28 (revised in 2011) at the same time. Its application is retrospective.
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IFRS 10, IFRS 11 and IFRS 12 (Amendments) – Transition Guidance These amendments allow the adoption of less demanding procedures in the transition to IFRS 10, IFRS 11 and IFRS 12, such as the provision of comparative information limited to the immediately preceding period.
According to the endorsement (EU Regulation No. 313/2013, of 4 April), the amendments are effective for annual periods beginning on or after 1 January 2014. The application may be early provided that the entity also adopts IFRS 10, IFRS 11 and IFRS 12 early.
IFRS 10, IFRS 12 and IAS 27 (Amendment) - Investment Entities Investment entities including venture capital funds must meet three elements that make up the definition and four typical characteristics to be considered investment entities to which the new provisions apply. For this purpose, all facts and circumstances must be considered including its purpose and design. These entities are exempt from consolidating their subsidiaries, associates and joint ventures, which must be measured at fair value through profit and loss in accordance with IFRS 9 (or IAS 39 as applicable), with the exception of those that provide services exclusively to the investment entity, which must be consolidated (investments in subsidiaries) or accounted for using the equity method (investments in associates and joint ventures). Investments in other investment entities over which they have control must also be valued at fair value. The parent of an investment entity that is not itself an investment entity may not use in its accounts the fair value model applied by its subsidiary to its controlled entities. Venture capital organisations, mutual funds and other entities that do not meet the definition to be considered investment entities can still measure investments in associates and joint ventures at fair value through profit or loss under the option available in IAS 28.
According to the endorsement (EU Regulation No. 1174/2013, of 20 November), the amendments are effective for annual periods beginning on or after 1 January 2014. The application may be early provided the entity applies all the amendments at the same time. Its application is retrospective.
IAS 27 Consolidated and separate financial statements (Revised in 2011) With the introduction of IFRS 10 and IFRS 12, IAS 27 is now limited to establishing the accounting procedure for subsidiaries, joint ventures and associates in the separate accounts.
In accordance with the endorsement, changes to IAS 27 apply to annual periods starting on or after 1 January 2014. Early adoption is permitted provided the entity also adopts IFRS 10, IFRS 11, IFRS 12 and IAS 28 (revised in 2011) at the same time. Its application is retrospective.
IAS 28 - Investments in associates and joint ventures With the changes to IFRS 11 and IFRS 12, IAS 28 was renamed and now describes the application of the equity method to joint ventures, in the same way that this method already applied to associates.
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In accordance with the endorsement, changes to IAS 28 apply to annual periods starting on or after 1 January 2014. Early adoption is permitted provided the entity also adopts IFRS 10, IFRS 11, IFRS 12 and IAS 27 (revised in 2011) at the same time. Its application is retrospective.
IAS 32 Financial instruments (Offsetting of financial assets and financial liabilities) The amendment clarifies the meaning of “currently enforceable legal right to offset” and the application of IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous.
IAS 32 paragraph 42(a) requires that “a financial asset and a financial liability shall be offset and the net amount presented in the statement of financial position when, and only when, and only when, an entity currently has a legally enforceable right to set off the recognised amounts”. The amendment clarifies that rights of set-off must not only be legally enforceable in the normal course of business, but must also be enforceable in the event of default and the event of bankruptcy or insolvency of all of the counterparties to the contract, including the reporting entity itself. The amendment also clarifies that rights of set-off must not be contingent on a future event.
The IAS 32 offsetting criteria require the reporting entity to intend either to settle on a net basis, or to realise the asset and settle the liability simultaneously. The amendment clarifies that only gross settlement mechanisms with features that eliminate or result in insignificant credit and liquidity risk and that process receivables and payables in a single settlement process or cycle would be, in effect, equivalent to net settlement and, therefore, meet the net settlement criterion.
According to the endorsement, amendments to this standard apply to annual periods beginning on or after 1 January 2014. The amendment to IFRS 7 should be applied retrospectively in accordance with IAS 8. Early application is permitted, however the entity must disclose that fact and also make the disclosure required by IFRS 7 Disclosures (Amendment) - Offsetting Financial Assets and Financial liabilities.
IAS 36 – Impairment of assets (Amendment): Recoverable amount disclosures for non-financial assets The amendment eliminates the requirement to disclose recoverable amounts for cash-generating units, which include intangible assets with indefinite useful lives and/or goodwill, provided no impairment losses have been recorded, in order to remove the unintentional consequence existing in the standard that required the disclosure of sensitive trade information. It is now obligatory to disclose: (i) additional information on the fair value of impaired assets when the recoverable amount is based on fair value less costs of disposal and (ii) information on the discount rates used when the recoverable amount is based on fair value less costs of disposal determined using a present value technique.
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According to the endorsement (EU Regulation No. 1374/2013, of 19 December), the amendments are effective for annual periods beginning on or after 1 January 2014. Its application is retrospective.
IAS 39 – Financial Instruments (Amendment): Novation of derivatives and continuation of hedge accounting The amendments provide an exception to the requirement to discontinue hedge accounting in certain circumstances in which there is a change in counterparty to a hedging instrument in order to achieve clearing for that instrument. The amendment covers novations:
that arise from the application or alteration of laws or regulations; where the parties to the hedging instrument agree that one or more clearing counterparties replace the original counterparty to become the new counterparty to each of the parties; that did not result in other changes to the terms of the original derivative other than changes directly attributable to the change in counterparty to achieve clearing.
All of the above conditions must be met to continue hedge accounting under this exception.
The amendments cover novations to central counterparties, as well as to intermediaries such as clearing members, or clients of the latter that are themselves intermediaries.
For novations that do not meet the criteria for the exception, entities have to assess the changes to the hedging instrument against the de-recognition criteria for financial instruments and the general conditions for continuation of hedge accounting.
According to the endorsement (EU Regulation No. 1375/2013, of 19 December), the amendments are effective for annual periods beginning on or after 1 January 2014. Early adoption is possible provided it is disclosed. Its application is retrospective. However, entities that discontinued hedge accounting in the past because of a novation that would be in the scope of the amendment cannot reinstate that previous hedging relationship.
Not yet endorsed by the EU:
IFRS 9 Financial instruments (introduces new requirements for the classification and measurement of financial assets and liabilities) The first phase of IFRS 9 covers the classification and measurement of financial assets and liabilities. IASB continues to work on and discuss the subjects of financial instruments and hedge accounting, with a view to replacing IAS 39 in its entirety. IFRS 9 applies to all financial instruments within the scope of IAS 39.
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The main changes are the following:
Financial assets: All financial assets are measured at fair value at initial recognition.
Debt instruments may be subsequently measured at amortised cost if: the fair value election is not exercised; the asset is held within a business model whose objective is to collect the contractual cash flows; and the contractual terms of the financial assets give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding.
All other debt instruments are subsequently measured at fair value.
All equity investment financial assets are measured at fair value either through the Comprehensive Income Statement or profit or loss. Each of the equity instruments must be measured at fair value through i) the statement of comprehensive income or (ii) gains and losses (equity instruments held for trading must be measured at fair value with their variations always recognised through profit and loss)
Financial Liabilities: For fair value option liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk of the entity must be presented in the Comprehensive Income Statement. The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability’s credit risk would create or enlarge an accounting mismatch in profit or loss.
All other IAS 39 classification and measurement requirements for financial liabilities have been carried forward into IFRS 9, including the embedded derivative separation rules and the criteria for using the fair value option. This rule applies to annual periods beginning on or after 1 January 2015. Early adoption is permitted, provided it is duly disclosed. Early adoption of the provisions for liabilities is also permitted, provided that this occurs at the same time as adoption of the provisions on financial assets.
IAS 19 R - Employee Benefits (Amendment): Employee contributions This amendment applies to employee or third-party contributions to benefit plans. It simplifies the accounting of contributions that are independent of the number of years of service of the employee, for example, contributions made by the employee that are calculated based on a certain percentage of the salary for which a fixed amount is defined during the entire service or an
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amount that depends on the employee’s age. These contributions may be recognised as a reduction of service costs in the period in which the work is performed. The amendments are effective for annual periods beginning on or after 1 July 2014. Early adoption is possible provided it is disclosed. Its application is retrospective.
Annual improvements 2010-2012 cycle In the annual improvements for the 2010-2012 cycle, the IASB issued eight amendments to seven standards the summaries of which are presented below:
IFRS 2 Share-based payments Updates definitions, clarifies what is meant by vesting conditions and also clarifies situations related to concerns that had been raised about service condition, market condition and performance condition.
IFRS 3 Business Combinations Alters the recognition of changes in the fair value of contingent payments that are not equity instruments. These changes are now recognised exclusively in profit and loss for the period.
IFRS 8 Operating Segments Requires additional disclosures (description and economic indicators) on judgments made when aggregating segments.
Disclosure of the reconciliation of the total of the reportable segments’ assets to the entity’s assets is only required if the amounts are also regularly reported to the manager in question, under the same terms as required for the segment’s liabilities.
IFRS 13 Fair Value Measurement Clarifies that short-term receivables and payables with no stated interest rate can be measured without discounting if the effect of not discounting is immaterial. Thus, the reason why paragraphs of IAS 9 and IAS 39 were withdrawn had nothing to do with changes in measurement but instead with the fact that the specific situation is immaterial and, for this reason, it does not have to be handled as defined in IAS 8.
IAS 16 Fixed tangible assets In the event of revaluation, the standard now envisages the possibility of the entity opting between adjustment of the gross carrying amount based on observable market data or it may be restated proportionately with the change in the net carrying amount. In either of these cases, the accumulated depreciation is eliminated against the gross carrying amount of the assets. These amendments only apply to revaluations made in the year of initial application of the amendment and the period immediately preceding that date. Restatements may also be presented for any
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earlier periods, but they are not obligatory However, if this is not done, the criterion used in those periods must be disclosed.
IAS 24 Related Party Disclosures Clarifies the definition of key management personnel and amends the associated disclosure requirements.
IAS 38 Intangible assets In the event of revaluations, the standard now envisages the possibility of the entity opting between adjustment of the gross carrying amount based on observable market data or it may be restated proportionately with the change in the net carrying amount. In either of these cases, the accumulated depreciation is eliminated against the gross carrying amount of the assets. These amendments only apply to revaluations made in the year of initial application of the amendment and the period immediately preceding that date. An entity may also present restatements for any earlier periods, but is not required to do so. However, if this is not done, the criterion used in those periods must be disclosed.
The 2010-2012 improvements are effective for annual periods beginning on or after 1 July 2014. Early adoption is possible provided it is disclosed. Its application is in general prospective.
Annual improvements 2011-2013 cycle In the annual improvements for the 2011-2013 cycle, the IASB issued 4 amendments to 4 standards the summaries of which are presented below:
IFRS 1 (Amendment) First-time Adoption of International Financial Reporting Standards Clarifies the meaning of effective IFRSs.
IFRS 3 Business Combinations Updates the scope of exception of the standard to “Joint Ventures”, clarifying that the only exclusion concerns accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself.
IFRS 13 Fair Value Measurement Updates the scope of paragraph 52, clarifying that the portfolio exception now also includes other contracts accounted for within the scope of IAS 39 or IFRS 9, regardless of whether they meet the definition of financial assets or financial liabilities as defined in IAS 32.
IAS 40 Investment Property Clarifies the interrelationship of IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property.
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The 2011-2013 improvements are effective for annual periods beginning on or after 1 July 2014. Early adoption is possible provided it is disclosed. Its application is generally prospective.
IFRIC 21 - Levies This interpretation applies to payments required by governmental entities that are not covered by other standards (e.g. IAS 12), including fines and other penalties for breaches of legislation. The interpretation clarifies that: (i) a liability should be recognised when an activity occurs that triggers the payment as identified by the relevant legislation, (ii) there must be a progressive increase in liability over time if the triggering event also occurs over time under the terms of the relevant legislation and (iii) if the payment is not triggered until a minimum threshold is reached, no liability should be recognised until that minimum threshold is reached. This interpretation does not establish the counterpart of the liability and the provisions of other standards should be taken into account to determine whether an asset or an expense should be recognised.
The amendments are effective for annual periods beginning on or after 1 January 2014. Early adoption is possible provided it is disclosed. Its application is retrospective.
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2 – Separate Financial Statements 2.1 – Balance Sheet
BANIF - BANCO INTERNACIONAL DO FUNCHAL, S.A
BALANCE SHEET
AT 31 DECEMBER 2013 AND 2012
(amounts in thousands of euros)
31/12/2013 31/12/2012 31/12/2012
Impairment Net Value Notes Gross value and Net value Net Value Restated Depreciation
Cash and balances at central banks 4 151,114 151,114 168,267 168,267 Balances at other credit institutions 5 80,516 80,516 78,556 78,556 Trading securities 6 2,542 2,542 1,097 1,097 Other Financial assets at fair value through profit or loss 7 180,931 180,931 187,966 187,966 Financial assets available for sale 8.19 4,367,322 (146,035) 4,221,287 3,817,235 3,817,235 Due from banks 9 279,748 (37) 279,711 841,391 841,391 Loans and advance to customers 2.3,10 7,974,221 (768,935) 7,205,286 7,918,786 7,927,385 Investment securities held to maturity 11 12,081 12,081 - - Securities subject to repurchase agreements 12 495,353 495,353 116,282 116,282 Derivatives held for hedging ---- Non-current assets held for sale 13,20 756,852 (170,389) 586,463 318,829 318,829 Investment property 14,20 58,111 (6,438) 51,673 50,040 50,040 Other tangible assets 15 123,314 (90,365) 32,949 41,327 41,327 Intangible assets 16 62,159 (49,833) 12,326 19,754 19,754 Investments in associates and affiliates 17,20 711,785 (243,375) 468,410 684,705 684,705 Current tax assets 2.3,18 1,152 1,152 1,406 1,406 Deferred tax assets 2.3,18 181,360 181,360 143,647 140,488 Other assets 19,20 759,422 (32,744) 726,678 809,056 809,056
Total Assets 16,197,983 (1,508,151) 14,689,832 15,198,344 15,203,784
Deposits from central banks 21 - - 2,918,424 2,414,205 2,414,205 Trading Liabilities 22 - - 13,790 9,466 9,466 Financial liabilities at fair value through profit or loss 23 - - - - - Deposits from other banks 24 - - 489,577 933,742 933,742 Due to customers 25 - - 6,303,216 7,219,679 7,219,679 Debt securities in issue 26 - - 454,843 529,146 529,146 Financial liabilities linked to transferred assets 2.3,27 - - 2,938,704 3,236,195 3,231,058 Derivatives held for hedging --- -- Non-current liabilities available for sale - - - - - Provisions 28 - - 157,657 118,043 118,043 Current tax liabilities 18 - - 889 1,019 1,019 Deferred tax liabilities --- -- Securities representing equity 29 - - 270,058 12,009 12,009 Other subordinated liabilities 29 - - 119,958 190,821 190,821 Other liabilities 30 - - 188,139 202,190 202,190
Total Liabilities --13,855,255 14,866,515 14,861,378
Issued capital 31 - - 1,582,195 570,000 570,000 Share premium 31 - - 199,765 104,565 104,565 Other equity instruments - - - 95,900 95,900 Own shares --- -- Revaluation reserves 31 - - (27,039) (16,903) (16,903) Other reserves and retained earnings 31 - - (426,003) (7,515) (4,780) Profit for the period 31 - - (494,341) (414,218) (406,376) Interim dividends --- --
Total Equity --834,577 331,829 342,406
Total Liabilities + Equity --14,689,832 15,198,344 15,203,784
The Accountant The Board of Directors
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2.2 – Income Statement
BANIF - BANCO INTERNACIONAL DO FUNCHAL,SA
INCOME STATEMENT
AT 31 DECEMBER 2013 AND 2012
(amounts in thousands of euros)
31-12-2012 Notes 31/12/2013 31/12/2012 Restated
Interest and similar income 2.3,32 489,839 648,338 653,386 Interest and similar expense 2.3,32 (372,447) (523,925) (518,788) Net Interest Income 117,392 124,413 134,598
Dividend Income 33 1,013 1,771 1,771 Fees and commission expenses 34 79,677 96,419 96,419 Fees and commission expenses 34 (18,827) (24,463) (24,463) Income from assets and liabilities valued at fair value through profit or loss 35 (13,293) (2,176) (2,176) Income from available-for-sale financial assets 35 31,207 (752) (752) Foreign exchange income 35 1,699 1,028 1,028 Income from disposal of other assets 36 (18,236) 1,450 1,450 Other operating income 36 18,170 10,522 10,522 Net Operating Income 198,802 208,212 218,397
Staff costs 37 (106,213) (121,457) (121,457) General administrative expenses 38 (65,570) (64,153) (64,153) Depreciation for the year 14,15,16 (15,741) (14,668) (14,668) Provisions net of reversals and recoveries 28 (46,164) (42,892) (42,892) Value adjustment related to loans and advances to customers and receivables from other debtors (net of reversals and recoveries) 9,10 (243,257) (171,902) (171,902) Impairment of other financial assets net of reversals and recoveries 9,20 9,503 (87,861) (87,861) Impairment of other assets net of reversals and recoveries 20 (167,354) (126,605) (172,638) Profit/loss before tax (435,994) (421,326) (457,174)
Income Tax 26,229 53,141 50,798 Current 18 (7,846) (4,402) (4,402) Deferred 2.3,18 34,075 57,543 55,200 Profit/loss after tax (409,765) (368,185) (406,376)
Profit/loss on discontinued operations (84,576) (46,033) - Profit for the Period (494,341) (414,218) (406,376)
The Accountant The Board of Directors
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2.3 – Statement of Comprehensive Income
BANIF - BANCO INTERNACIONAL DO FUNCHAL,SA
COMPREHENSIVE INCOME STATEMENT
AT 31 DECEMBER 2013 AND 2012
(amounts in thousands of euros)
31-12-2012 Notes 31/12/2013 31/12/2012 Restated
Profit/loss after tax and before discontinued operations 31 (409,765) (368,185) (406,376)
Other comprehensive income
Items that may be reclassified to profit or loss: Financial assets available for sale (2,936) 11,652 11,652 - Gains / (losses) in fair value 31 (4,099) 16,414 16,414 - Tax gains / (losses) in fair value 31 1,163 (4,762) (4,762)
Items that will not be reclassified to profit or loss: Actuarial gains / (losses) 31 (9,674) 1,190 1,190 Actuarial tax gains / (losses) 31 2,474 (569) (569)
Transitional Scheme - Notice 12/2001 2.14 (393) (1,682) (1,682)
(10,529) 10,591 10,591
Total gains and losses recognised for the reporting period (420,294) (357,594) (395,785)
Integration of Banif SGPS merger reserves - (46,778) (46,778)
Total gains and losses recognised for the reporting period with merger effect (420,294) (404,372) (442,563)
Profit/loss on discontinued operations (84,576) (46,033) -
Total other comprehensive income net of tax (504,870) (450,405) (442,563)
The Accountant The Board of Directors
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2.4 – Statement of Changes in Equity
BANIF - BANCO INTERNACIONAL DO FUNCHAL, SA
STATEMENT OF CHANGES IN EQUITY
AT 31 DECEMBER 2013 AND 2012
(amounts in thousands of euros)
Other Reserves Other equity Revaluation Profit/loss for Notes Capital Own Shares Share Premium and Retained Total instruments Reserves the Year Earnings
Balances at 31-12-2012 Restated 31 570,000 104,565 95,900 (16,903) (7,515) (414,218) 331,829 Application of net profit/loss from the previous year Transfer to reserves 31 (414,218) 414,218 - Distributed as dividends Increase in capital 31 1,011,495 (3,877) 1,007,618 Conversion of the mandatorily convertible notes 31 700 95,200 (95,900) - Comprehensive Income 31 (10,136) (393) (494,341) (504,870) Balances at 31-12-2013 1,582,195 - 199,765 - (27,039) (426,003) (494,341) 834,577
Balances at 31-12-2011 31 794,500 451 10,000 (29,176) 59,379 (15,699) 819,455 Application of net profit/loss from the previous year Transfer to reserves 31 (15,699) 15,699 - Distributed as dividends Integration of Banif - SGPS, SA into Banif, SA Elimination - Banif Equity 31 (794,500) - - - - 733 - (793,767) New Equity 31 570,000 ------570,000 Banif SGPS Own Shares - Integration 31 - 1,094 - - - (1,094) - - Banif SGPS Own Shares - Sale 31 - (1,094) - - - 192 - (902) Elimination Supplementary Capital Granted by Banif SGPS to Banif 31 - - - (10,000) - - - (10,000) Integration of Reserves of Banif SGPS 31 - - 104,114 95,900 - - - 200,014 Integration of the Comprehensive Income of the 1st half year of Banif SGPS 31 - - - - - (46,609) (46,609) Comprehensive income 31 12,273 (1,682) (406,376) (395,785) Balances at 31-12-2012 570,000 - 104,565 95,900 (16,903) (4,780) (406,376) 342,406
Correction of 2012 accounts - - - - - (2,735) (7,842) (10,577)
Balances at 31-12-2012 Restated 570,000 - 104,565 95,900 (16,903) (7,515) (414,218) 331,829
The Accountant The Board of Directors
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2.5 – Cash Flow Statement BANIF - BANCO INTERNACIONAL DO FUNCHAL, SA CASH FLOW STATEMENT
AT 31 DECEMBER 2013 AND 2012
(amounts in thousands of euros)
31-12-2012 Notes 31-12-2013 31-12-2012 Restated OPERATING ACTIVITIES
Operating Results:
Net profit/loss for the year 31 (494.341) (414.218) (406.376) Profit/loss on discontinued operations 2.3 84.576 46.033 - Value adjustments associated with credit 10 243.257 171.901 171.901 Impairment losses 19 157.851 214.466 260.499 Provisions for the year 28 46.164 42.892 42.892 Depreciation for the year 14,15,16 15.741 14.668 14.668 Income tax for year 18 (26.229) (50.798) (50.798) Derivatives (net) 6,35 2.927 7.039 7.039 Recognised dividends 33 (1.013) (1.771) (1.771) Interest paid on subordinated liabilities 32 36.014 17.671 17.671
64.947 47.883 55.725
Changes to operating assets and liabilities: (Increase)/Decrease in financial assets at fair value through profit or loss 7 6.987 (96.063) (96.063) (Increase)/Decrease in financial assets available for sale 8 (407.214) 26.448 26.448 (Increase)/Decrease in investments at other credit institutions 9 561.644 668.277 668.277 (Increase)/Decrease in loans to customers 10 478.845 807.760 799.161 (Increase)/Decrease in of assets with repurchase agreements 12 (379.071) 194.680 194.680 (Increase)/Decrease in investments held to maturity 11 (12.081) - - (Increase)/Decrease in non-current assets held for sale 13 (201.473) (110.744) (110.744) (Increase)/Decrease in other assets 19 (23.488) (56.650) (56.650) Increase/(Decrease) in funds from central banks 21 504.219 287.012 287.012 Increase/(Decrease) in of other financial liabilities at fair value through profit or loss - - - Increase/(Decrease) in funds from other credit institutions 24 (444.165) (198.461) (198.461) Increase/(Decrease) in client funds 25 (916.463) (652.418) (652.418) Increase/(Decrease) in financial liabilities associated with transferred assets 27 (297.491) (457.333) (462.470) Increase/(Decrease) in liabilities in the form of securities 26 (74.303) (259.419) (259.419) Increase/(Decrease) in other liabilities 28,30 (20.601) (26.793) (24.058) Income tax 18 (11.360) (1.239) 1.920
(1.236.015) 125.057 117.215
Operating cash flow (1.171.068) 172.940 172.940
INVESTMENT ACTIVITY
Acquisition of subsidiaries --- Disposal of financial holdings --- Acquisition of tangible assets 15 (2.029) (1.667) (1.667) Disposal of tangible assets --- Acquisition of intangible assets 16 (1.565) (2.643) (2.643) Disposal of intangible assets 16 2.486 - - Acquisition of investment properties 14 (4.620) (5.808) (5.808) Disposal of investment properties 14 1.800 15.140 15.140 Dividends received 13 1.013 1.771 1.771 Cash and equivalent from the integration of Banif SGPS -6262
Investment cash flow (2.915) 6.855 6.855
FINANCING ACTIVITY Increase in share capital 31 1.007.618 - - Dividends disbursed in the year --- Redemption of subordinated liabilities 29 (70.863) (170.856) (170.856) Interest paid on subordinated liabilities 32 (36.014) (17.671) (17.671) Issue of non-subordinated bonds --- Repayment of Equity instruments 31 258.049 (42.359) (42.359)
Financing cash flow 1.158.790 (230.886) (230.886)
(15.193) (51.091) (51.091) VARIATION IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at the beginning of the reporting period 4,5 246.823 297.914 297.914 Effect of foreign exchange differences on cash and cash equivalent items Cash and cash equivalents at the end of the reporting period 4,5 231.630 246.823 246.823
(15.193) (51.091) (51.091) Balance sheet value of cash and cash equivalent items, at 31 December Cash in hand 4 45.257 46.754 46.754 Sight deposits at central banks 4 105.857 121.514 121.514 Sight deposits at other credit institutions 5 67.899 63.232 63.232 Cheques for collection 5 12.617 15.323 15.323
231.630 246.823 246.823 Cash and cash equivalents not available for use by the entity ---
The Accountant The Board of Directors
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2.6 – Notes to the Financial Statements at 31 December 2013 and 2012 Banif – Banco Internacional do Funchal, SA
(All amounts are expressed in thousands of euros, unless otherwise stated)
1. GENERAL INFORMATION
Banif – Banco Internacional do Funchal (“Banif”) is a limited liability company with registered offices at Rua João de Tavira, 30, 9004-509 Funchal. Its corporate object is banking and it is entitled to carry out all accessory, connected or similar operations permitted by law and compatible with this business.
On 31 January 2014, Banif’s board of directors reviewed, approved and signed off on the financial statements, as at 31 December 2013, and on 07 April 2014 the management report. These will be submitted to the annual general shareholders meeting for approval by the end of May 2014. This meeting has the power to alter these reports if it sees fit. However, Banif’s management is confident that the reports will be approved without significant changes.
2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES 2.1 Basis of presentation of accounts
The company’s individual financial statements were prepared in accordance with the accounting policies defined by Banco de Portugal through the provisions of Banco de Portugal Notice no. 1/2005, Nos. 2 and 3, and known as the adjusted accounting standards (NCA).
The NCA are based on the International Financial Reporting Standards (IAS/IFRS), as adopted, at any given time, by European Union regulations, with the exception of the following areas:
the valuation and provisioning of loans made employee benefits, through the establishment of a period of deferral of the impacts of transition to IAS/IFRS and alteration of the mortality table elimination of the fair value option for the valuation of tangible assets.
The financial statements were prepared on the basis of historic cost, with the exception of the reassessment of financial instruments. The main accounting policies used are detailed below.
2.2 Changes in Accounting Policies 2.2.1 Voluntary changes in accounting policies
During the year there were no voluntary changes in accounting policies in relation to those considered in the preparation of the financial information for the previous year presented in the comparative statements.
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2.2.2 New norms and interpretations applicable to the reporting period
Having been endorsed by the European Union (EU), the issuances, revisions, changes and improvements occurred in the standards and interpretations effective from 01 January 2013, as presented in Note 47.
2.2.3 New standards and interpretations already issued but not yet required
The standards and interpretations recently issued by the IASB whose application is required only in periods after 01 January 2013 and which the Banif did not adopt in advance are presented in Note 48.
Banif is still assessing the impact of adoption of these standards that are not yet required.
2.3 Comparative information
In general terms, the figures presented here are comparable, in all significant respects, with those for the previous year, with the exception of the following changes:
Restatement of comparative information according to IAS 8
Deferral of deferred expenses of borrowing operations (associated with amortised cost)
Banif made corrections in the method of deferral of deferred expenses of borrowing operations related to securitisation operations, which implies restatement of the financial statements of 2012 of 5,137 thousand euros in “Financial assets associated with transferred assets” and the profit and loss item “Interest and similar charges” corresponding to the interest cost that should have been registered in that year.
This reclassification had an impact of 5,137 thousand euros on profit and loss for 2012.
Accrued interest on loans In 2013, a deficiency was identified in the computer application that resulted in duplication in accrued interest of some loans operations with capitalisation of interest. This deficiency led to recognition of excess interest income in 2011 and 2012 amounting to 3,551 thousand euros and 5,048 thousand euros, respectively. The correction made is reflected in the restatement of “Loans to customers” to the balance sheet and “Interest and similar income” to the income statement.
This reclassification had an impact of 3,551 thousand euros and 5,048 thousand euros on the profit and loss for 2011 and 2012, respectively.
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Deferred taxes As a consequence of the corrections described above, Banif also restated the amount of deferred tax assets in the 2012 financial statements, insofar as these corrections have an impact on the tax loss to be carried forward from that year.
These corrections had an impact of 816 thousand euros and 2,343 thousand euros on the profit and loss for 2011 and 2012.
The accounting records produced in 2013 concerning the restatement of the financial statements from 2012 had direct impacts on one equity item.
Discontinued operations Banif restated the 2012 comparative information from the income statement related to the classification of the entities Banco Banif Brasil, Banif Bank (Malta) and Banco Caboverdiano de Negócios as discontinued operations.
These changes had an impact on the following items on the balance sheet and income statement at 31 December 2012:
(thousand euros)
Net Value Changes Net Value restated Notes 31-12-2012 according to IAS 8 31-12-2012
Balance Sheet
Loans and advance to customers 10 7,927,385 (8,599) 7,918,786 Deferred tax assets 18 140,488 3,159 143,647
Impact on Assets 8,067,873 (5,440) 8,062,433
Financial liabilities associated with assets transferred 27 3,231,058 5,137 3,236,195
Impact on Liabilities 3,231,058 5,137 3,236,195
Other reserves and retained earnings 31 (4,780) (2,735) (7,515)
Impact on Equity (4,780) (2,735) (7,515)
classification of Net Value Net Value Changes Notes units as restated 31-12-2012 according to IAS 8 discontinued 31-12-2012
Income Statement
Interest and similar income 32 653,386 (5,048) - 648,338 Interest and similar expense 32 (518,788) (5,137) - (523,925) Impairment of other assets net of reversals and recoveries 9,20 (172,638) - 46,033 (126,605) Income tax Deferred 18 55,200 2,343 57,543 Profit/loss on discontinued operations - - (46,033) (46,033)
Imapct on Icome Statement 17,160 (7,842) - 9,318
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2.4 Use of estimates in preparing the financial statements
The preparation of the financial statements requires Banif management to produce estimates and adopt assumptions that affect the value of assets and liabilities, income and costs and the contingent liabilities disclosed. In making these estimates, the management used its judgment, together with the information available on the date the financial statements are prepared. Consequently, the future amounts actually realised may differ from the estimates made.
The most significant uses of estimates and assumptions on the part of management are as follows:
Going concern principle The financial statements were prepared on the going-concern basis, as the management of Banif believes that it has the means and capacity to continue business in the foreseeable future. In making this judgment Banif’s management took into consideration the information it has on current conditions and forecasts of future profitability, cash flow and equity, as described in point 08 of the management report – Outlook.
For discontinued operations (Note 13) the management believes that should be sold without losses on their book value. Nevertheless, the realisable value of these assets and liabilities has not yet been defined and is dependent on the success of negotiations for their sale which have already begun.
Fair value of financial instruments Where the fair value of a financial instrument (Note 41) cannot be determined by means of active market prices (marked to market), it is ascertained using valuation techniques that include mathematical models (marked to model). Input data for these models are, wherever possible, observable market data. Where this is not possible, a degree of judgment is required to establish fair value, particularly as regards liquidity, correlation and volatility.
Impairment in equity instruments Financial assets available for sale (Note 20) are analysed when there are objective signs of impairment, namely when there is a significant or prolonged decline in fair value, below their cost price. Determining the degree of decline that may be considered “significant or prolonged” involves making certain judgments. Given this, Banif believes that a decline in the fair value of an equity instrument of 30% or more, or a decline more than a year, may be considered significant or prolonged.
Deferred tax assets Deferred tax assets are recognised for unused tax losses, to the extent that it is likely that there will be positive tax results in the future period established by law. To this end, judgments are made to determine the amount that may be recognised for deferred tax assets, based on the level of future tax results expected as a function of the economic and financial forecasts that have been made at a time of uncertainty as regards the assumption used (Note 18). If these estimates are not borne out,
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there is a risk that material adjustments might have to be made to the deferred tax assets in future reporting periods.
Retirement benefits The level of liabilities in relation to retirement benefits (Note 42) is determined by means of actuarial assessment, in which presumptions and assumptions are used in respect of discount rates, expected rate of return on pension fund assets, future wage and pension increases and mortality tables. In view of the long-term nature of pension plans, these estimates are subject to significant uncertainties.
Assessment of real estate assets The assessment service is provided by outside independent companies, registered with the CMVM and with the appropriate qualifications, recognised competence and professional experience to perform their duties. The reports comply with the requirements laid down by CMVM, Banco de Portugal and Instituto de Seguros de Portugal, as well as criteria defined by European Accounting Standardization and the guidelines of international institutions, such as RICS and TEGoVA.
The assessment procedures require rigorous gathering of information, from updated documentation, from an inspection of the property and its surrounding area, from municipal councils and other bodies, from analysis of markets, transactions, the supply and demand situation and outlooks for development. The information, areas and market practice and values allow basic values value for the calculation to be adopted, by application of the methods and their comparison.
The comparative market method is always used both directly and as a basis for development cash flows, updated at the valuation date at rates that incorporate the risk of the projects. The replacement cost method is also used directly in the valuation of properties in continuous use and makes an essential contribution in these development scenarios. For properties subject to operation, actually leased or whose valuation depends on their potential earnings, capitalised earnings are updated by means of yields that reflect the market’s performance and main indicators.
All the reports are analysed and validated by the internal technical body and assessments for these assets were carried out from June 2013 to December 2013, reflecting current market conditions.
The realisable value of these assets depends on the future evolution of real estate market conditions.
Real estate assets are recorded as non-current assets held for sale, investment properties and own- use properties presented in Notes 14, 15 and 16, respectively.
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2.5 Transaction in foreign currencies
Foreign currency transactions are recorded on the basis of the exchange rates contracted on the date of the transaction. Monetary assets and liabilities expressed in foreign currency are converted into euros at the exchange rate prevailing on the balance sheet date. Non-monetary items that are valued at fair value are converted on the basis of the exchange rate prevailing on the date of the last valuation. Non-monetary items that are maintained at historic cost are kept at the original exchange rate.
Exchange rate differences calculated in the conversion are recognised in the income statement as gains or losses in the period, with the exception of those arising from non-monetary financial instruments classified as available for sale, which are recorded by way of a counter-entry in a specific item under equity, until the asset is disposed of.
2.6 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents include Portuguese and foreign currency in cash, on-demand deposits at central banks, on-demand deposits with other banks in Portugal and abroad and cheques for collection at other banks.
2.7 Investments in subsidiaries and associates
“Investments in subsidiaries and associated companies” corresponds to the long-term stake held by Banif in the share capital of other companies, for those companies in which this stake gives it majority control over voting rights (subsidiaries) or those at which it exercises significant influence (associated companies), where such companies are that are not risk or seed capital funds classified as instruments at fair value through profit or loss in the initial classification. Significant influence is considered to exist wherever Banif directly or indirectly holds more than 20% of voting rights. Investments in subsidiaries and associates are recorded at acquisition cost, minus any impairment losses.
Investments in subsidiaries considered discontinued operations are classified as Non-current assets held for sale.
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2.8 Financial instruments 2.8.1 Initial recognition and measurement of financial instruments
The purchase and sale of financial assets in which the assets are delivered in accordance with deadlines set by regulations or market conventions are recognised at the trade date, i.e., at the date on which the commitment to purchase or sell is made Derivative financial instruments are similarly recognised on the trade date.
The classification of financial instruments on the initial recognition date depends on their characteristics and the purchase intention. All financial instruments are initially measured at fair value plus costs directly attributable to the purchase or issue, except in the case of assets and liabilities at fair value through profit or loss, where such costs are recognised directly in results.
2.8.2 Subsequent measurement of financial instruments
Financial assets held for trading Financial assets and liabilities held for trading are those that have been acquired with an intention to sell in the short term and make profits from fluctuations in the price or through the trader’s margin. This includes all derivative financial instruments that are not accounted for as hedging operations.
After initial recognition, the gains and losses generated by subsequent measurement at fair value are reflected in the income statement for the year. In the case of derivatives, positive fair values are recorded in assets and negative fair values in liabilities. Interest and dividends or charges are recorded in the corresponding profit/loss accounts when the right to payment of these has been established.
Financial assets and liabilities at fair value through profit or loss These items include financial assets and liabilities irrevocably classified by Banif in its initial recognition as at fair value through profit or loss, in accordance with the option available under IAS 39 (fair value option), provided that the conditions for such recognition are met, namely:
i) the recognition eliminates or significantly reduces inconsistencies between the measurement of financial assets and liabilities and the recognition of the corresponding gains or losses (accounting mismatch) ii) the financial assets and liabilities are part of a group of assets or liabilities, or both, that is managed and the performance of this is assessed on a fair value basis, in accordance with a duly documented investment and risk management strategy, or iii) the financial instrument incorporates one or more embedded derivatives, except when the embedded derivatives do not significantly modify the contract cash flows,
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or when it is clear, with little or no analysis, that the embedded derivatives cannot be separated.
After initial recognition, the gains and losses generated by subsequent measurement of the fair value of financial assets and liabilities are reflected in the results for the period in the item “Profit/loss for assets and liabilities at fair value through profit or loss”.
Banif classifies as financial assets at fair value through profit or loss almost the entire securities portfolio that is part of its banking activity. Management and assessment of the performance of this portfolio is based on fair value, with the exception of strategic shareholdings and securities for which it is not possible to obtain reliable valuations.
Financial liabilities have been designated liabilities at fair value through profit or loss because they are (subordinated and non-subordinated) debt instruments with one or more embedded derivatives.
Available-for-sale financial assets Instruments that can be disposed of in response to, or in anticipation of, liquidity needs or changes in interest rates, changes in exchange rates or changes in their market price, and that Banif has not placed in any of the other categories, are classified under this item. Thus, at the reference date of these financial statements, this item essentially refers to shareholdings that are considered to be strategic and securities for which it is not possible to obtain reliable valuations.
Following initial recognition, these assets are subsequently measured at fair value. Alternatively, acquisition cost is maintained for those equity instruments for which it is not possible to reliably determine a fair value. The corresponding gains and losses are entered in the “Revaluation reserves” item until they are sold (or impairment losses are recognised), at which point the accumulated value is transferred to results for the period in the form of the “Profit/loss on financial assets available for sale” item.
The interest inherent in financial assets is calculated in accordance with the effective rate method and recognised in the results in the “Interest and similar income” item. Dividends are recognised in the results when the right to receive them is established, in the “Income from equity instruments” item. For debt instruments issued in foreign currencies, foreign exchange differences are recognised profit or loss for the year under “Profit or loss on foreign exchange revaluation”.
An analysis for any evidence of impairment losses on financial assets available for sale is carried out on each reference date for the financial statements (Note 2.4). Impairment losses are recognised in profit or loss under “Impairment of other financial assets net of reversals and recoveries”.
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Loans and receivables Loans and accounts receivable are financial assets with fixed or calculable payments that are not listed on an active market, are not assets acquired to sell in the short term (held for trading) or classified as financial assets at fair value through profit or loss at their initial recognition (fair value option). This item essentially comprises credit extended to Banif’s clients.
At initial recognition, these assets are recorded at their nominal value, which normally corresponds to the sum disbursed. Subsequently, these assets are recognised on the balance sheet at the nominal value minus amortisations and are subject to the effect of any new regulatory provisions, in accordance with Banco de Portugal Notice No. 3/95.
Interest on assets classified as loans and accounts receivable is recognised in accordance with the principle of accrual. Fees and other direct costs associated with the initial operation are deferred and amortised over the life of the loan. Interest due and not collected is derecognised after three months, as provided for in Banco de Portugal Instruction No. 6/2005, with the exception of interest on loans or which is guaranteed under no. 15 of Notice No. 3/95.
Funds from other credit institutions, Customer deposits funds and other loans, Debt securities in issue and Other subordinated liabilities The remaining financial liabilities, which essentially consist of funds from credit institutions, client deposits and debt issues not designated as financial liabilities at fair value through profit or loss and whose contractual terms include an obligation to deliver funds or financial assets to the holder, are initially recognised at the value of the consideration received net of directly associated transaction costs. They are subsequently valued at amortised cost, using the effective rate method. Amortisation is recognised in profit or loss under “Interest and similar costs”.
Fair value The fair value used in valuing tradable financial assets and liabilities, classified at fair value through profit or loss, and financial assets available for sale is determined in accordance with the following criteria: In the case of instruments traded on active markets, the fair value is determined on the basis of the closing price, the price of the last transaction undertaken or the value of the last known bid. In the case of assets not traded on active markets, fair value is determined through valuation techniques that include the prices of recent trades of comparable instruments and other valuation methods normally used by the market (discounted cash flow, options valuation models, etc.).
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Variable yield assets (e.g. shares), and derivatives that have these as underlying assets, and for which it is not possible to obtain reliable valuations, are kept at acquisition cost, minus any impairment losses.
Derivatives As part of its business activity, Banif uses a number of derivative financial instruments to both satisfy its customers’ needs and manage its own interest rate risk positions or other market risks. These instruments involve varying degrees of credit risk (maximum potential book loss due to default by counterparties on their contractual obligations) and market risk (maximum potential loss due to change in the value of a financial instrument as a result of interest rate, exchange rate or price fluctuations).
The notional value of derivatives operations, recorded in off-balance sheet accounts, are used to calculate the flows to be exchanged in contractual terms, in net terms where applicable. However, although these constitute the most common measure of volume in these markets, they do not correspond to any quantification of the credit or market risk of the operations concerned. For interest rate or exchange rate derivatives, credit risk is measured by the replacement cost at current market prices of contracts in which a position of potential gain (positive market value) is held, in the event of default by the counterparty.
Derivatives embedded in other financial instruments are separated from the host instrument whenever their associated risks and characteristics are not too closely related to those of the host contract and the totality of the instrument is not designated at initial recognition as being at fair value through profit or loss (“fair value option”).
The derivative instruments used by Banif in its management of exposure to financial and market risks are accounted for as hedge derivatives in accordance with the criteria defined by IAS 39, if they meet the standard’s eligibility requirements, specifically for the recording of hedges against exposure to variation in the fair value of hedged items (“fair value hedges”). Otherwise, derivatives are entered at their fair value as tradable financial assets or liabilities, depending respectively on whether their fair value is positive or negative.
Hedge accounting Derivative financial instruments used for hedging are classified in the accounts as a hedge for accounting purposes as long as they meet all the following requirements: On the transaction start date the hedging relationship is identified and formally documented. This includes identification of the hedged item and the hedge instrument and assessment of the effectiveness of the hedge. There is an expectation that the hedging relationship will be highly effective, at the transaction start date and throughout the life of the operation. The effectiveness of the hedge can be reliably measured at the transaction start date and throughout the life of the operation.
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for cash flow hedges, there must be a strong likelihood that the cash flows will occur.
On the date of the financial statements, the effectiveness of hedges is tested and documented through comparison of the variation in the fair value of the hedge instrument and the hedged item (in that portion attributable to the hedged risk). In order for hedge accounting to be used in accordance with IAS 39, the result of this comparison should lie between 80% and 125%. In addition, prospective effectiveness tests are conducted to estimate the future effectiveness of the hedge.
A hedged asset or liability may have only a portion or a component of the fair value hedged (interest rate risk) provided that the effectiveness of the hedge can be evaluated separately.
Fair Value Hedging In fair value hedges of an asset or liability, the balance sheet value, determined based on the accounting policy used, is adjusted in order to reflect the change in its fair value that is attributable to the hedged risk. Variations in the fair value of hedge derivatives are recognised in results, along with variations in the fair value of the hedged assets or liabilities attributable to the hedged risk.
If the hedge ceases to meet the required criteria for hedge accounting, the derivative financial instrument is transferred to the trading portfolio and hedge accounting is discontinued prospectively. If the hedged asset or liability corresponds to a fixed-yield instrument, the revaluation adjustment is amortised until its maturity, through the effective rate method.
When a hedging instrument expires or is sold, or when the hedge ceases to meet the requirements for hedge accounting, the changes in the fair value of the derivative accumulated in reserves are recognised in profit or loss, when the hedged transaction also affects profit or loss.
2.8.3 Derecognition of financial assets and liabilities
Financial assets A financial asset (or, when applicable, a part of a financial asset or part of a group of financial assets) is derecognised when: The rights to receive cash flows from the asset expire, or The rights to receive cash flows have been transferred, or an obligation has been accepted to pay the cash flows receivable in full without material delay, to third parties in the context of a pass-through agreement, and
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The risks and benefits of the assets have been substantially transferred, or the risks and benefits have not been transferred or retained, but control over the asset has been transferred.
Where the rights to receive cash flows have been transferred or a pass-through agreement has been agreed and all the risks and benefits of the asset have not been substantially transferred or retained, nor control of the asset transferred, the financial asset is recognised to the extent of continued involvement. This is measured as the lesser of the original value of the asset and the maximum payout value that may be demanded of Banif. When continued involvement takes the form of a purchase option over the transferred asset, the extent of the continued involvement is the value of the asset which may be repurchased, except in the case of a sale option measurable at fair value. For this latter case, the value of the continued involvement is limited to the lower of the fair value of the asset and the price at which the option may be exercised.
Financial liabilities A financial liability is derecognised when the underlying obligation expires or is cancelled. When an existing financial liability is replaced by another with the same counterparty, but on substantially different terms from those initially established or if the initial terms are substantially changed, such replacement or modification is dealt with as a derecognition of the original liability and the recognition of a new liability and any difference between their values is recognised in the income statement.
Securitisation Operations Banif has carried out a number of mortgage loan securitisation operations, through which it has disposed of such assets to special financial entities (vehicles) created for the purpose. The loan securitisation operations in progress at 31 December 2012 in which Banif participated as transferor of credit, are:
Atlantes Mortgages No. 1, carried out in 2003 Atlantes Mortgages No. 2, carried out in 2008; Atlantes Mortgages No. 3, carried out in 2008; Atlantes Mortgages No. 4, carried out in 2009; Atlantes Mortgages No. 5, carried out in 2009; Atlantes Mortgages No. 6, carried out in 2010; Atlantes Mortgages No. 7, carried out in 2010 Azor Mortgages No. 1, carried out in 2004 Azor Mortgages No. 2, carried out in 2008 Atlantes Finance No. 4, carried out in 2011; Atlantes Finance No. 5, carried out in 2012; Atlantes NPL 1, carried out on 2012; Atlantes SME No. 2, carried out in 2013 Atlantes Finance No. 6, carried out in 2013.
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As a form of fund raising, these entities issued debt instruments with different levels of subordination and remuneration. Banif holds residual interests in all the securitised assets, in the form of securities of a residual nature, with the exception of Atlantes Mortgage No. 6.
On adopting the NCA, on 1/1/2005, the securitisation operations already in progress were analysed and it was concluded that, with the exception of Atlantes Mortgage No. 6, they do not meet the derecognition criteria established by IAS 39. Given this, credit transferred under those securitisation operations that do not meet the derecognition criteria continue to be recognised on the balance sheet, in the “Credit to clients” item.
2.8.4 Impairment and value corrections associated with credit to clients and amounts receivable from other debtors
Banif assesses whether there is evidence of impairment in a financial asset or group of financial assets, as set out in Banco de Portugal Instruction no. 7/2005. A financial asset is impaired if, and only if, there is evidence that the occurrence of an event (or events) will have a measurable impact on expected future cash flows from that asset or group of assets. Losses expected as a result of future events, irrespective of the likelihood of their occurrence, are not recognised.
Value corrections associated with credit to clients and amounts receivable from other debtors are determined in accordance with the provisions of points e) and f) of paragraph no. 2 of clause 3 of Banco de Portugal Notice no. 1/2005, in conjunction with Notice no. 3/95, with the wording given to his by Banco de Portugal Notice no. 3/2005.
Whenever, in a subsequent period, there is a decrease in the impairment losses attributed to an event, the amount previously recognised is reversed by adjustment of the impairment losses account. The amount of the reversal is recognised directly in the income statement.
If total impairment is greater than the regulatory provisions, Banif makes the adjustment as provided for in point f) of Paragraph 2 of clause 3 of Banco de Portugal Notice No. 1/2005.
2.9 Assets with repurchase agreement
A repurchase agreement is understood to mean an agreement to transfer a financial asset to another party, in exchange for cash or other recompense, and a concomitant obligation to acquire the financial asset at a future date for an amount equal to this cash amount, or other recompense, including interest.
Operations involving the sale of assets with repurchase agreements are classified in this item and remain recognised as Banif assets. The corresponding liability is accounted for in amounts payable to other financial institutions or to clients, as appropriate.
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2.10 Non-current assets held for sale
Non-current assets are classified as held for sale whenever it is determined that their balance sheet value will be recovered through sale This condition is met only when such a sale is highly likely and the asset is available for immediate sale in its current condition. The sale should take place within a maximum period of one year after classification in this item. An extension of the period during which the sale must be completed does not exclude an asset (or group of assets) from being classified as held for sale if the delay is caused by events or circumstances outside the Banif’s control and the commitment to sell the asset is maintained.
The assets Banif enters in this item are largely properties received in settlement of loan-related debt. The assets are initially recorded at the value agreed in the settlement contract, this being the lower of the amount of outstanding debt or the assessed value of the asset at the settlement date.
In 2013, Banif also recorded as non-current assets held for sale financial holdings held with the intention of short term disposal. These interests were recorded on the balance sheet as investments in subsidiaries and associates as stated in Note 2.7.
Assets recorded in this category are periodically valued by independent surveyors. This valuation will result in the recognition of impairment losses, whenever the value determined by the valuation, net of any costs incurred in selling the property, is lower than the current book value of the asset.
2.11 Investment properties
Investment properties are initially recognised at cost, including any transaction costs. The book amount includes the costs of additional investments in existing investment properties, if recognition criteria are met, but excludes current maintenance costs.
Banif classifies as investment property all real estate acquired in settlement of debts when it does not meet the requirements for classification as non-current assets held for sale (IFRS 5), as stipulated in Banco de Portugal’s Circular no. 1/11/DSPDR, namely when such real estate is rented out or continues to be held because it is expected to increase in value (land).
Subsequent to initial recognition, investment properties are recorded in accordance with the requirements of IAS 16, i.e. at cost minus any accumulated depreciation or impairment losses calculated as a result of the periodic valuations carried out by independent surveyors, whenever the value determined by the valuation, net of any costs incurred in selling the property, is lower than the current book value of the asset.
Investment properties are derecognised when they are disposed of or when ownership is no longer expected to result in future economic benefits. On disposal the difference between the net disposal
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value and the recorded value of the asset is recognised in results in the reporting period covering the disposal.
Transfers from and to investment properties are made when there is a change of use. When transferring investment properties to buildings for the company’s own use, the estimated cost for accounting purposes is the fair value on the date of the change of use. If an own-use property is classified as an investment property, Banif reports this asset in accordance with the policy applicable to own-use properties, until the date on which it is transferred to investment properties.
2.12 Other tangible fixed assets
Other tangible fixed assets such as property, plant and equipment includes buildings for the company’s own use, vehicles and other equipment.
Buildings abroad used by Banif for business purposes are classified as own-use buildings. Own-use buildings are valued at historic cost and are re-valued in accordance with the applicable legal provisions, minus any amortisations.
Other property, plant and equipment are recorded at cost, less subsequent depreciation and impairment losses. Repair and maintenance costs and other expenses associated with their use are recognised as costs when they occur.
Tangible assets are depreciated using the straight-line method, according to their expected useful life, which is: Property [10 – 50] years Vehicles 4 years Other equipment [2 – 15] years
A tangible asset is derecognised when sold or when no future economic benefits are expected from using or selling it. On the derecognition date, the gain or loss calculated as the difference between the net sale value and the net book value is recognised in results in the “Other operating profit/loss” item.
2.13 Intangible assets
Intangible assets, which mainly consist of software, are recorded at acquisition cost, less accumulated amortisation and impairment losses. Amortisation is accounted for on a linear basis, over the estimated useful lifespan of the assets. This is currently set at between 3 and 6 years.
The amortisation period and method for intangible fixed assets are reviewed at the end of each year. Changes to the estimated useful lifespan or consumption pattern of any future economic benefits
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are treated as changes to estimates. Depreciation is recognised in the corresponding item on the income statement.
Intangible assets may include capitalised internal costs, particularly costs associated with in-house software development. For this purpose, costs are only capitalised from the point at which the conditions stipulated in standard IAS 38 are met, namely the requirements inherent to the development phase.
In 2012, Banif changed the criteria for allocation of costs to internal software development projects, no longer allocating to them internal costs with personnel, amortisation and other operating costs. Thus, the costs capitalised are now exclusively external costs with licensing and implementation services.
2.14 Income taxes
Income tax expenses or income correspond to the sum of current income tax expense or income and deferred income tax expense or income.
Current tax is calculated on the basis of the prevailing tax rate.
Banif also reports as deferred tax liabilities or assets those sums relating to the recognition of taxes that are payable/recoverable in the future and which result from temporary taxable/deductible differences, particularly those related to provisions, employee benefits and assets available for sale.
Deferred tax assets and liabilities are calculated and assessed on an annual basis, using the taxation rates expected to be in force at the date of reversal of the temporary differences, which correspond to the rates approved or substantially approved at the balance sheet date. Deferred tax liabilities are always reported. Deferred tax assets are only recorded to the extent that it is likely that there will be future taxable income to allow their use.
Income taxes are entered against the profit/loss for the year, except in situations where the events which gave rise to them were reflected in a specific equity item, namely, with regard to the valuation of financial assets available for sale and employee benefits. In this case, the fiscal effect associated with valuations is also entered against equity, without affecting the profit or loss for the year.
2.15 Employee benefits
Liabilities for employee benefits are recognised in accordance with the rules defined by IAS 19 and the transitional regime established in Banco de Portugal Notice no. 12/2001, and as amended by Banco de Portugal Notices no. 7/2002, no. 4/2005, no. 12/2005 and no. 7/2008. Thus the policies reflected in the accounts at 31 December 2013 are as follows:
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Pension and healthcare liabilities Employees of Banif are covered by the General Social Security Scheme from the moment they join the company, with the exception of those employees absorbed following the merger by incorporation of Banco Banif e Comercial dos Açores, SA (BBCA), on 1 January 2009 who had been covered by the alternative social security scheme set up under the Multi Employer Agreement (MEA) for the banking sector and were only incorporated in the General Social Security Scheme from 1 January 2011, as stipulated by Decree-Law 1-A/2011, of 3 January.
Under this law, the General Social Security Scheme offers protection to working BBCA employees for maternity, paternity and adoption, and also old age. Banif remains responsible for social protection in the case of illness, disability, survival and death. The contribution rate is 26.6% (23.6% from the employer and 3% from employees). This arrangement replaces the Caixa de Abono de Família dos Empregados Bancários (CAFEB), which has been abolished. As a result of this change, the pension rights of current BBCA employees are covered by the terms of the General Social Security Scheme. These take into account the length of service from 1 January 2011 to retirement age, with Banif paying the difference required to make up the guaranteed pension under the Collective Labour Agreement (CLA). According to the guidelines issued in a Notice from the National Council of Financial Supervisors, attached to Banco de Portugal Fax Message No. 11/11/DSPDR, of 2011/01/26, and given that the MEA plan remains unchanged and that there is no reduction of benefits from the beneficiary’s point of view, liabilities for past services remained unchanged at 31 December 2010.
On 31 December 2011, and as a result of Decree-Law 127/2011, of 31 December, BBCA retirees and pensioners, who had been incorporated in the alternative social security scheme set up under the CA for the banking sector, were transferred to the social security system, for coverage of their retirement and survivor’s pension. The banks remained responsible, through their pension funds, for paying updates to pensions, for benefits that complement the retirement and survivor’s pension taken over by social security, for contributions to medical and social care services (SAMS) on retirement and survivor’s pension, for death allowances, for survivor’s pensions paid to children and the surviving spouse provided they relate to the same employee, and for survivor’s pensions owed to a relative of a current retiree, where this becomes attributable as of 1 January 2012 (deferred survivor’s pension).
Medical care for bank employees is provided by the Medical and Social Care Service (SAMS), an autonomous entity managed by banking unions. SAMS provides its beneficiaries with services and/or contributions to the costs of medical care, auxiliary diagnostic procedures, medicinal products, hospital admissions and surgical operations, in accordance with its internal regulations.
In 2008, Banif signed a Company-Level Agreement (CLA), with banking unions. This agreement instigated major changes in relation to the career structure and social security provisions available to all employees, with the exception of those absorbed following the merger by incorporation of BBCA. These latter employees are not covered by the CLA.
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Following the entry into force of the CLA, on 1 October 2008, what had been the Banif Fund was transformed into a mixed fund with three pension plans, designated Pension Plans I, II and III.
Up to 28 December 2012, Banif’s responsibilities were financed through two autonomous pension funds:
Banif Pensions Fund, which financed Pension Plans I, II and III BBCA Pensions Fund, which financed the BBCA Pension Plan.
At 28 December 2012, with the authorisation of Instituto de Seguros de Portugal (ISP) and given that there was no interest in maintaining two different pension funds, insofar as there is only one single corporate entity, regardless of whether two distinct populations can be differentiated in terms of their socio-professional situation, under both the MEA and the CLA for the banking sector, which condition the existence of certain different, although individualised retirement benefits, the Banco Banif e Comercial dos Açores, SA Pension Fund was closed, in accordance with the legislation in force, by incorporation with the Banif Pension Fund, with the corresponding transfer of all its assets and liabilities the Banif Pension Fund.
The incorporation of the Banco Banif e Comercial dos Açores Pension Fund into the Banif Pension Fund determined an alteration in Pension Plan I of this Fund in order to accommodate the new population and corresponding benefits, without any loss of rights, expectations and benefits for the participants and beneficiaries transferred.
Banif thus provides its employees with the following benefits in terms of pensions and medical care:
Pension Plan I (benefit defined), under which the Company assumes responsibility for the following defined benefits for: o Subpopulation A, from the previous Plan I of the Banif Pension Plan for (i) paying disability, old age and surviving relative retirement pensions, in accordance with the MEA and the corresponding pension plan, in complement of the benefits provided by the social security system and (ii) future payment to SAMS, an autonomous entity managed by the unions, of mandatory contributions for post- employment medical care, in the following terms: for employees eligible for the retirement pension, the company makes a contribution of 6.5% towards their pensions. for other employees associated with the defined contribution plans, this benefit is altered to a lump sum on retirement, equivalent to 6.50% of the constituted capital amount, on the basis of the initial contribution plus the value of future defined contributions. o Subpopulation B, population from the Banco Banif e Comercial dos Açores, SA Pension Plan, closed to new members, for the payment of retirement, disability, old age and surviving relative pensions to employees of BBCA and pensioners on
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the date of the merger by incorporation, or to their families, in conformity with the collective labour agreement and Decree-Law No. 1-A/2011, of 3 January, and Decree-Law No. 127/2011, of 31 December. As a supplement to the benefits in the pensions plan, Banif has taken on responsibility for paying mandatory contributions to SAMS, at a contribution rate of 6.5%, and the death allowance, under the terms of the vertical MEA;
Pension Plan II (defined contribution), under which Banif assumes an obligation to make a monthly contribution equivalent to 4.5% of qualifying remuneration and to make an initial contribution on the date the plan was set up. This covers all employees who joined Banif before 1 January 2007 and who had not died, retired or left before the date on which the company-level agreement came into force. Excepted from this plan are the employees absorbed following the merger by incorporation with BBCA, as they are not covered by the company-level agreement. The initial contribution was assigned to their respective individual accounts. This initial contribution was calculated according to (i) the estimated supplementary old age pensions, as assessed in the liabilities study carried out by the actuary responsible for the pension plan on 31 December 2006 and duly reported to the Portuguese Insurance Institute and Banco de Portugal, and (ii) the current value of future contributions;
Pension Plan III (defined contribution), under which Banif assumes an obligation to make a monthly contribution equivalent to 1.5% of qualifying remuneration. It covers all employees who joined the company after 1 January 2007 and who had not died, retired or left before the date on which the company-level agreement came into force;
The Pension Plans I, II and III are financed by the Banif Pension Fund, which is an autonomous fund.
The cost of these liabilities deriving from Plan I is determined annually by independent actuaries, using the projected unit credit method and appropriate actuarial assumptions (Note 42). Liabilities are updated on the basis of a discount rate that reflects market interest rates on the bonds of high- quality companies, denominated in the currency in which the liabilities are payable and with maturities similar to the dates when the pension responsibilities will have to be met.
In 2011, Banif decided to change its accounting practices as regards actuarial gains and losses. It stopped using the corridor method (IAS 19 § 92) and began to recognise actuarial gains and losses in equity on the comprehensive income statement (OCI - Other Comprehensive Income (IAS 19 § 93).
In accordance with the method of immediately recognising actuarial gains and losses in comprehensive income: the liability or asset recognised on the balance sheet corresponds to the difference between the current value of pension responsibilities and the fair value of the assets in the pension funds
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the gains and losses arising from the differences between the actuarial and financial assumptions used and the values actually seen as regards these liabilities and the income from the pensions fund are wholly recognised in equity, in a Reserves through an Actuarial Gains and Losses account. Increased liabilities arising from early retirement, which equate to the increase in liabilities caused by the employee retiring before reaching the age of 65, are recognised as costs in the reporting year. The costs of defined contribution plans are recognised as a cost in the corresponding reporting year.
On the date of transition to IFRS, Banif chose the option permitted by IFRS 1 of not recalculating actuarial gains and losses deferred since the start of the plans (an option normally known as “reset”).
In accordance with no. 13-A of Banco de Portugal Notice No. 12/2001, recognition, in profit/loss carried forward, of the impact, calculated with reference to 31 December 2004, arising from the transition to the accounting standards applicable to the Banif (the NCA) may be effected by applying a uniform instalment amortisation plan running through to 31 December 2009 (five years). Excepted from this rule is the portion relating to liabilities regarding post-employment medical care, for which the amortisation plan may run for up to seven years. These periods were subsequently extended for a further three years by Banco de Portugal Notice No. 7/2008, i.e. until 31 December 2012 and 31 December 2014 respectively.
For the defined benefit plan, Banif assesses the recoverability of any surplus on the fund in relation to its retirement pension responsibilities, based on the expectation that necessary contributions will decrease in the future.
Other long term benefits In addition to the benefits referred to above, Banif has other liabilities for employee benefits concerning the length of service bonus referred in the MEA, and medical care, under the SAMS, with employees who terminated their employment contract with Banif by mutual agreement, under the restructuring process implemented in 2012, until their reemployment or retirement.
The liabilities for these benefits are also determined on the basis of actuarial valuations, in a way similar to that for pension liabilities, and are recorded under “Other liabilities” against profit or loss.
2.16 Provisions and contingent liabilities
A provision is triggered whenever there is a present obligation (legal or constructive) resulting from past events for which future disbursement of resources is likely and this disbursement can be reliably determined. The provision is the Banif’s best estimate of the amounts that will have to be disbursed in order to settle the liability at the balance sheet date.
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Where future disbursement of resources is not likely, a contingent liability is recorded. Contingent liabilities are subject only to disclosure, unless there is a remote possibility of their being materialised.
Provisions and contingent liabilities are presented in Note 28.
2.17 Dividends awarded by the Company
Dividends are recognised as a liability and subtracted from the equity item when approved by shareholders. Dividends for the year approved by the board of directors after the reference date of the financial statements are disclosed in the notes to the financial statements.
2.18 Recognition of income and costs
Income and costs are generally recognised according to the timing of the operations concerned, in accordance with the accrual concept, i.e. they are recorded as they are generated, independently of when they are collected or paid. Income is recognised to the extent that it is likely that the economic benefits associated with the transaction will flow to the Company and the amount of income can be reliably measured.
For financial instruments measured at amortised cost and for financial instruments classified as “Financial Assets available for sale”, interest is recognised using the effective rate method. This is the rate that exactly discounts the set of future cash receipts and payments expected until maturity, or until the next re-pricing date, for the currently recorded net amount of the financial asset or liability. When the effective interest rate is calculated, future cash flows are estimated, taking into account the contractual terms and all other income or costs directly attributable to the contracts.
2.19 Recognition of dividends
Dividends are recognised when Banif is virtually certain to receive them, insofar as they are duly and formally recognised by the competent bodies at the subsidiaries, inconformity with paragraph 30 of IAS 18, corroborated by the provisions of paragraph 33 of IAS 37, on virtually certain assets, and by the fact that there are no provisions, in IAS 10 on subsequent events, that contradict this framing. Moreover, the provisions of Banco de Portugal Circular no. 18/2004/DSB do not oppose any such approach.
2.20 Income and charges for services and fees
Banif earns fees from its clients for providing a broad range of services. These include fees for the provision of ongoing services, for which clients are usually debited on a periodic basis, and fees charged for carrying out a specific significant act.
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Fees charged for services provided during a given period are recognised over the duration of the services. Fees related to the performance of a significant act are recognised at the moment the act in question occurs.
2.21 Financial Guarantees
In the normal course of its banking activities, Banif provides financial guarantees, such as credit cards, bank guarantees and documentary credit.
Financial guarantees are initially recognised as a liability, at their fair value. Subsequently the liability is entered at the estimated amount of future expenditure required to settle the obligation, as at the balance sheet date. Fees obtained for providing financial guarantees are recognised in results in a linear fashion, in “Income from services and fees”, during the period of validity of the fees.
3. SEGMENT REPORTING
Banif organises its business according to the following areas: retail banking; commercial banking; treasury and group functions; and other (residual item).
In this context and as required by IFRS 8, Banif’s disclosures by operating segment, as at 31 December 2013, correspond to the manner in which the information is analysed:
Retail Banking – This covers the inflow of resources from, and specific lending products for, private individuals. These include housing loans and consumer credit; and products for sole traders (ENI) and small businesses, such as current accounts, overdraft facilities and debit/credit cards.
This segment reflects the business conducted by the traditional network of branches and central departments focused on providing commercial services to private individuals and small businesses.
Commercial Banking – This covers the inflow of resources from, and specific products for, companies and institutions. These include factoring, liquidity facilities and import and export credit. This segment reflects the business conducted by the corporate banking centres and central departments focused on providing commercial services to companies.
Treasury and Group Functions – This covers the institution’s financing and liquidity operations on financial markets, as well as all operations conducted with one or more entities in the financial group.
Others – This covers all operations that do not fall into one of the operational segments defined above.
The reports used for management are essentially based on accounting information. There are no differences between the measurements of income, losses, assets and liabilities in the different reporting segments.
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In 2013 an average internal transfer rate (ITR) of 3.34% (3.57% in 2012) was applied for purpose of valuing inter-segment funds. The result of this valuation is recorded in the inter-segment net interest margin item, in the income statement by business segment.
Reporting by geographical areas in which Banif does business is divided into Portugal and the rest of the European Union (United Kingdom).
Business segments
31/12/2013
BALANCE SHEET BY BUSINESS SEGMENTS AT DECEMBER 2013
(thousand euro) Commercial Treasury and ASSET Retail Banking Others TOTAL Banking Group Functions
Investments and Deposits with Central Banks and Credit Institutions - - 511,341 - 511,341 Financial Assets Held for Trading - - 2,542 - 2,542 Financial Assets at Fair Value - - 180,931 - 180,931 Financial Assets Available for Sale - - 4,221,287 - 4,221,287 Loans to Customers (Net) 3,754,584 2,874,300 576,402 - 7,205,286 Investments Held to Maturity - - 12,081 - 12,081 Assets with repurchase agreement - - 495,353 - 495,353 Other assets (of which): 17,906 724 1,455,917 586,464 2,061,011 Tangible assets 17,903 724 14,322 - 32,949 Intangible Assets 3 - 12,323 - 12,326
TOTAL 3,772,490 2,875,024 7,455,854 586,464 14,689,832
Commercial Treasury and LIABILITIES Retail Banking Others TOTAL Banking Group Functions
Deposits from Central Banks and Credit Institutions - - 3,408,000 - 3,408,000 Financial Liabilities held for trading - - 13,790 - 13,790 Financial Liabilities at Fair Value -- --- Customer deposits 5,210,029 743,097 350,090 - 6,303,216 Debt securities - - 454,843 - 454,843 Subordinated Liabilities - - 119,958 - 119,958 Other Liabilities 34,354 28,210 3,208,762 284,122 3,555,448
TOTAL 5,244,383 771,307 7,555,443 284,122 13,855,255
31/12/2012
BALANCE SHEET BY BUSINESS SEGMENTS AT DECEMBER 2012
(thousand euros) Commercial Treasury and ASSET Retail Banking Others TOTAL Banking Group Functions
Investments and Deposits with Central Banks and Credit Institutions - - 1,088,214 - 1,088,214 Financial Assets Held for Trading - - 1,097 - 1,097 Financial Assets at Fair Value - - 187,966 - 187,966 Financial Assets Available for Sale - - 3,817,235 - 3,817,235 Loans to Customers (Net) 4,323,483 3,340,716 254,587 - 7,918,786 Investments Held to Maturity -- --- Assets with repurchase agreement - - 116,282 - 116,282 Other assets (of which): 27,473 4,464 1,717,998 318,829 2,068,764 Tangible assets 26,481 1,053 13,792 - 41,326 Intangible Assets 992 3,411 7,004 - 11,407
TOTAL 4,350,956 3,345,180 7,183,379 318,829 15,198,344
Commercial Treasury and LIABILITIES Retail Banking Others TOTAL Restated Banking Group Functions
Deposits from Central Banks and Credit Institutions - - 3,347,947 - 3,347,947 Financial Liabilities held for trading - - 9,466 - 9,466 Financial Liabilities at Fair Value -- --- Customer deposits 6,265,347 884,500 69,832 - 7,219,679 Debt securities - - 529,146 - 529,146 Subordinated Liabilities - - 190,821 - 190,821 Other Liabilities 40,677 33,055 3,248,204 247,520 3,569,456
TOTAL 6,306,024 917,555 7,395,416 247,520 14,866,515
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31/12/2013
INCOME STATEMENT BY BUSINESS SEGMENTS AT DECEMBER 2013
(thousand euros) Commercial Treasury and Retail Banking Others TOTAL Banking Group Functions
net Interest Income - External Customers (63,788) 140,618 40,562 - 117,392 Net Interest income - Intersegment 95,420 (42,565) (52,855) - - Total Interest Margin 31,632 98,053 (12,293) - 117,392
Income from equity instruments - - 1,013 - 1,013 Fee and commission income 41,412 35,429 2,365 471 79,677 Fee and commission expenses (565) (1) (11,202) (7,060) (18,827) Profit/loss from Assets and Liabilities valued at Fair Value through profit or loss - - (13,293) - (13,293) Profit/Loss from Financial Assets available for sale - - 31,207 - 31,207 Profit/Loss from Foreign Currency Revaluation - - 1,699 - 1,699 Profit/loss on Disposal of Other Assets - - - (18,236) (18,236) Other Operating Income 10,914 6,991 - 265 18,170 Banking Revenue 83,394 140,472 (504) (24,560) 198,802
Staff Costs (76,369) (28,554) (1,290) - (106,213) Other administrative costs (42,360) (21,439) (1,771) - (65,570) Operating Cash Flow (35,335) 90,479 (3,565) (24,560) 27,019
Depreciation and amortisations (9,977) (6,974) 1,210 - (15,741) Provisions net of write-offs 5,042 14,971 (66,177) - (46,164) Loan impairment net of reversals and recoveries (61,284) (181,973) - - (243,257) Impairment of other financial assets net of reversals and recoveries - - 9,503 - 9,503 Impairment of other assets net of reversals and recoveries - (9,619) (9,521) (148,215) (167,354) Profit/loss before taxes (101,555) (93,116) (68,549) (172,774) (435,994)
Taxes 5,107 4,682 7,751 8,688 26,229 Profit/loss after taxes (96,448) (88,433) (60,798) (164,086) (409,765)
Results of Discontinued Operations - - (84,576) - (84,576) Profit/loss for the Year (96,448) (88,433) (145,374) (164,086) (494,341)
31/12/2012
INCOME STATEMENT BY BUSINESS SEGMENTS AT DECEMBER 2012
(thousand euros) Commercial Treasury and Retail Banking Others TOTAL Restated Banking Group Functions
Interest Margin - External Customers (144,684) 183,427 90,807 - 129,550 Interest margin - Intersegment 163,882 (80,432) (88,587) - (5,137) Total Interest Margin 19,198 102,995 2,220 - 124,413
Income from equity instruments - - 1,771 - 1,771 Fee and commission income 49,189 42,652 4,104 474 96,419 Fee and commission expenses (859) (84) (16,193) (7,327) (24,463) Profit/loss from Assets and Liabilities valued at Fair Value through profit or loss - - (2,176) - (2,176) Profit/Loss from Financial Assets available for sale - - (752) - (752) Profit/Loss from Foreign Currency Revaluation - - 1,028 - 1,028 Profit/loss on Disposal of Other Assets - - - 1,450 1,450 Other Operating Income 6,796 2,948 746 32 10,522 Banking Revenue 74,324 148,511 (9,252) (5,371) 208,212
Staff Costs (86,744) (33,439) (1,274) - (121,457) Other administrative costs (39,446) (22,273) (2,434) - (64,153) Operating Cash Flow (51,866) 92,799 (12,960) (5,371) 22,602
Depreciation and amortisations (9,846) (5,320) 498 - (14,668) Provisions net of write-offs 358 1,062 (44,312) - (42,892) Loan impairment net of reversals and recoveries (43,308) (128,594) - - (171,902) Impairment of other financial assets net of reversals and recoveries - (33,445) (54,416) - (87,861) Impairment of other assets net of reversals and recoveries (423) (12,119) (96,202) (17,861) (126,605) Profit/loss before taxes (105,085) (85,617) (207,392) (23,232) (421,326)
Taxes 10,504 9,476 30,589 2,572 53,141 Profit/loss after taxes (94,581) (76,141) (176,803) (20,660) (368,185)
Results of Discontinued Operations - - (46,033) - (46,033) Profit/loss for the Year (94,581) (76,141) (222,836) (20,660) (414,218)
299 MANAGEMENT REPORT AND ACCOUNTS 2013
Geographic segments
31/12/2013
BALANCE SHEET BY GEOGRAPHIC SEGMENTS AT DECEMBER 2013
(housand euros) Rest of the ASSET Portugal TOTAL European Union
Investments and Deposits with Central Banks and Credit Institutions 511,341 - 511,341 Financial Assets Held for Trading 2,542 - 2,542 Financial Assets at Fair Value 180,931 - 180,931 Financial Assets Available for Sale 4,221,287 - 4,221,287 Loans to Customers (Net) 7,205,286 - 7,205,286 Investments Held to Maturity 12,081 - 12,081 Assets with repurchase agreement 495,353 - 495,353 Other assets (of which): 2,061,011 - 2,061,011 Tangible assets 32,949 - 32,949 Intangible Assets 12,326 - 12,326
TOTAL 14,689,832 - 14,689,832
Rest of the LIABILITIES Portugal TOTAL European Union
Deposits from Central Banks and Credit Institutions 3,408,000 - 3,408,000 Financial Liabilities held for trading 13,790 - 13,790 Financial Liabilities at Fair Value --- Customer deposits 6,303,216 - 6,303,216 Debt securities 454,843 - 454,843 Subordinated Liabilities 119,958 - 119,958 Other Liabilities 3,555,448 - 3,555,448
TOTAL 13,855,255 - 13,855,255
Note: The operations of the London Office were discontinued with a reference date of 30-09-2013.
31/12/2012 BALANCE SHEET BY GEOGRAPHIC SEGMENTS AT DECEMBER 2012
(housand euros) Rest of the ASSET Portugal TOTAL Restated European Union
Investments and Deposits with Central Banks and Credit Institutions 987,832 100,382 1,088,214 Financial Assets Held for Trading 1,097 - 1,097 Financial Assets at Fair Value 187,966 - 187,966 Financial Assets Available for Sale 3,812,511 4,724 3,817,235 Loans to Customers (Net) 7,879,168 39,618 7,918,786 Investments Held to Maturity --- Assets with repurchase agreement 116,282 - 116,282 Other assets (of which): 2,065,545 3,219 2,068,764 Tangible assets 40,628 699 41,327 Intangible Assets 19,754 - 19,754
TOTAL 15,050,401 147,943 15,198,344
Rest of the LIABILITIES Portugal TOTAL Restated European Union
Deposits from Central Banks and Credit Institutions 3,252,441 95,506 3,347,947 Financial Liabilities held for trading 9,466 - 9,466 Financial Liabilities at Fair Value --- Customer deposits 7,178,839 40,840 7,219,679 Debt securities 529,146 - 529,146 Subordinated Liabilities 190,821 - 190,821 Other Liabilities 3,542,734 26,722 3,569,456
TOTAL 14,703,447 163,068 14,866,515
300 MANAGEMENT REPORT AND ACCOUNTS 2013
31/12/2013 INCOME STATEMENT BY GEOGRAPHIC SEGMENTS AT DECEMBER 2013
(thousand euros) Rest of the Portugal TOTAL European Union
Net Interest Income - External Customers 487,032 2,807 489,839 Net Interest income - Intersegment (370,534) (1,913) (372,447) Total Interest Margin 116,498 894 117,392
Income from equity instruments 1,013 - 1,013 Fee and commission income 79,677 - 79,677 Fee and commission expenses (18,789) (38) (18,827) Profit/loss from Assets and Liabilities valued at Fair Value through profit or loss (13,293) - (13,293) Profit/Loss from Financial Assets available for sale 31,361 (154) 31,207 Profit/Loss from Foreign Currency Revaluation 1,456 243 1,699 Profit/loss on Disposal of Other Assets (17,816) (420) (18,236) Other Operating Income 18,958 (788) 18,170 Banking Revenue 199,065 (263) 198,802
Staff Costs (105,483) (730) (106,213) Other administrative costs (65,088) (482) (65,570) Operating Cash Flow 28,494 (1,475) 27,019
Depreciation and amortisations (15,333) (408) (15,741) Provisions net of write-offs (47,197) 1,033 (46,164) Loan impairment net of reversals and recoveries (243,237) (20) (243,257) Impairment of other financial assets net of reversals and recoveries 9,513 (10) 9,503 Impairment of other assets net of reversals and recoveries (167,354) - (167,354) Profit/loss before taxes (435,114) (880) (435,994)
Taxes 26,229 - 26,229 Profit/loss after taxes (408,885) (880) (409,765)
Profit/loss on discontinued operations (84,576) - (84,576) Profit for the Period (493,461) (880) (494,341)
31/12/2012 INCOME STATEMENT BY GEOGRAPHIC SEGMENTS AT DECEMBER 2012
(thousand euros) Rest of the Portugal TOTAL Restated European Union
Net Interest Income - External Customers 641,062 7,276 648,338 Net Interest income - Intersegment (518,265) (5,660) (523,925) Total Interest Margin 122,797 1,616 124,413
Income from equity instruments 1,771 - 1,771 Fee and commission income 96,419 - 96,419 Fee and commission expenses (24,438) (25) (24,463) Profit/loss from Assets and Liabilities valued at Fair Value through profit or loss (2,192) 16 (2,176) Profit/Loss from Financial Assets available for sale (752) - (752) Profit/Loss from Foreign Currency Revaluation 1,002 26 1,028 Profit/loss on Disposal of Other Assets 1,450 - 1,450 Other Operating Income 10,468 54 10,522 Banking Revenue 206,525 1,687 208,212
Staff Costs (119,438) (2,019) (121,457) Other administrative costs (63,300) (853) (64,153) Operating Cash Flow 23,787 (1,185) 22,602
Depreciation and amortisations (14,210) (458) (14,668) Provisions net of write-offs (40,283) (2,609) (42,892) Loan impairment net of reversals and recoveries (170,894) (1,008) (171,902) Impairment of other financial assets net of reversals and recoveries (87,153) (708) (87,861) Impairment of other assets net of reversals and recoveries (126,605) - (126,605) Profit/loss before taxes (415,358) (5,968) (421,326)
Taxes 53,141 - 53,141 Profit/loss after taxes (362,217) (5,968) (368,185)
Profit/loss on discontinued operations (46,033) - (46,033) Profit for the Period (408,250) (5,968) (414,218)
301 MANAGEMENT REPORT AND ACCOUNTS 2013
4. CASH AND BALANCES AT CENTRAL BANKS
This item breaks down as follows:
Description 31-12-2013 31-12-2012
Cash in hand 45.258 46.753 In euros 39.248 40.386 In foreign currencies 6.010 6.367 Sight deposits at Banco de Portugal 105.856 121.514 151.114 168.267 On-demand deposits at Banco de Portugal are deposits designed to meet the legal requirements for minimum cash reserves. In accordance with Banco de Portugal Notice No. 7/94, of 19 October, and Circular No. 5/2011/DMR of 20/12/2011, the coefficient to be applied is 1% of the eligible liabilities, amounting to 61,198 thousand euros.
These deposits have been interest bearing since 1 January 1999.
5. DUE FROM OTHER CREDIT INSTITUTIONS
This item breaks down as follows:
Description 31-12-2013 31-12-2012
Cheques for collection 12.617 15.324 In Portugal 12.615 15.322 Abroad 22
Sight deposit 67.899 63.232 In Portugal 3.814 748 Abroad 64.085 62.484
80.516 78.556
Cheques for collection at credit institutions in Portugal, at 31 December 2013, were cleared through the clearing house in the first few business days of January 2014.
6. FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING
This item is made up of derivative financial instruments that do not fall within category of hedging operations
302 MANAGEMENT REPORT AND ACCOUNTS 2013
31-12-2013 31-12-2012 Fair Value Fair Value Description Notional Positive Negative Positive Negative
Exchange rate contracts Forwards - Purchases 76.591 1.907 1.910 169 147 - Sales 76.587
Currency Swaps - Purchases 590.815 511 5.824 428 3.638 - Sales 596.135 Interest rate contracts Interest Rate Swaps 2.162.490 76 6.056 500 5.681
Contracts with shares / indexes Equity / Index Swaps - 48 - - - 2.542 13.790 1.097 9.466
The fair value of the financial derivatives is recognised on the balance sheet in separate asset and liability items. Positive fair value is recognised in “Financial assets held for trading” and negative fair value in “Financial liabilities held for trading”.
The interest rate swaps refer exclusively to operations carried out as part of securitisation operations that involve an entity outside the Group. The securitisation vehicle is Banif.
7. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
This item breaks down as follows:
Description 31-12-2013 31-12-2012
Portuguese public debt -- Non-subordinated debt issued by residents - - Non-subordinated debt issued by non-residents - - Subordinated debt issued by non-residents - - Equity instruments issued by residents 179.904 187.062
Equity instruments issued by non-residents 1.027 904
180.931 187.966
303 MANAGEMENT REPORT AND ACCOUNTS 2013
The details of this item, at 31 December 2013, were as follows:
Nature and type Listed price Quantity Balance Value
Equity Instruments FCP 0.39 11,446 4 INAPA - Inv. Part. Gestão 0.22 125,693 28 BANIF FINANCE AÇ PRF PRP 1.00 417 417 BANIF IMOPREDIAL 6.56 6,940,645 45,543 FUNDO CAPITAL DE RISCO CAPVEN 781.98 150 117 NORFIN SOLUÇÃO ARRENDAMENTO 4.90 2,420,289 11,856 NEW ENERGY FUND-FEIF 17,961.77 36 647 BANIF CAPITAL INFRASTRUCTURE FUND 2,923.47 1,850 5,408 BANIF RENDA HABITAÇÃO 971.11 95,180 92,431 DP INVEST - FUNDO ESPECIAL INV. IMOB. FECHADO 54.81 81,500 4,467 BANIF PROPERTY FEIIF 761 18,825 14,323 ARRENDAMENTO MAIS - NORFIN 4.9901 1,017,965 5,080 PORTUGAL VENTURE CAPITAL INITIATIVE 922,748 610
180,931
Balance sheet value corresponds to price and interest due.
There are no securities that mature within a period of one year, as required in subparagraph c), No. 2, of Instruction no. 18/2005, of the Banco de Portugal.
8. AVAILABLE-FOR-SALE FINANCIAL ASSETS
This item breaks down as follows:
Description 31-12-2013 31-12-2012
Securities Equity instruments 375.556 199.143 Debt instruments 1.438.308 412.747 Acquired in the context of securitisation operations 2.553.458 3.362.499
Impairment (146.035) (157.154)
4.221.287 3.817.235
304 MANAGEMENT REPORT AND ACCOUNTS 2013
The details of this item, at 31 December 2013, were as follows:
Nature and type Quantity Gross Value Impairment Net Value
BILHETES DO TESOURO 21MAR14 40,000,000 39,975 - 39,975 BILHETES DO TESOURO 18JUL2014 70,000,000 69,607 - 69,607 BILHETES DO TESOURO 17JAN2014 25,000,000 25,016 - 25,016 BILHETES DO TESOURO 23MAI2014 20,000,000 19,938 - 19,938 OBRIG. TESOURO 09/14JUN 2019 4,75% 169,250,000 168,149 - 168,149 OBRIG. TESOURO 05/15 ABR 2021 149,000,000 135,572 - 135,572 OBRIG. TESOURO 15 ABR 2037 136,515,000 103,295 - 103,295 OBRIG. TESOURO 25OUT2023 60,000,000 55,820 - 55,820 OBRIG. TESOURO JUN 4,8% 2020 128,155,000 125,257 - 125,257 OBRIG. TESOURO 01/16 OUT 17 259,045,892 260,098 - 260,098 OBRIG. TESOURO 15 JUN 2018 4,45% 256,800,000 258,849 - 258,849 OBRIG. TESOURO 15FEV2016 6,4% 9,370,000 10,423 - 10,423 OBRIG. TESOURO 5,65% FEV 24 18,000,000 17,921 - 17,921 OBRIG. TESOURO 4,2% 15 OUT 2016 45,000,000 45,849 - 45,849 EFSF 1% Mar 14 150,000 151 - 151 Grécia 0% Out 42 630,000 630 (630) - ATLANTE MTG Nº 1 CL E (SFE) 57 16,826 (7,739) 9,087 ATLANTE MTG Nº 1 CL A 146 13,649 - 13,649 ATLANTE MTG Nº 2 CL A 2,991 189,709 - 189,709 ATLANTE MTG Nº 2 CL B 28 2,342 - 2,342 ATLANTE MTG Nº 2 CL C 75 6,274 - 6,274 ATLANTE MTG Nº 2 CL D 161 19,236 (4,315) 14,921 ATLANTE MTG Nº 3 CL A 5,586 375,457 - 375,457 ATLANTE MTG Nº 3 CL B 414 38,715 - 38,715 ATLANTE MTG Nº 3 CL C 577 69,664 (7,928) 61,736 ATLANTE MTG Nº 4 CL A 4,293 359,558 - 359,558 ATLANTE MTG Nº 4 CL B 358 35,757 - 35,757 ATLANTE MTG Nº 4 CL C 743 84,371 (3,124) 81,247 ATLANTE MTG Nº 5 CL A 4,550 384,764 - 384,764 ATLANTE MTG Nº 5 CL B 450 45,023 - 45,023 ATLANTE MTG Nº 5 CL C 663 74,505 (1,947) 72,558 AZOR MORTGAGES Nº1 CL A 62 5,640 - 5,640 AZOR MORTGAGES Nº1 CL C 20 1,781 - 1,781 AZOR MORTGAGES Nº1 CL D 48 7,919 (2,810) 5,109 AZOR MORTGAGES Nº 2 CL A 2,535 170,138 - 170,138 AZOR MORTGAGES Nº 2 CL B 465 43,167 - 43,167 AZOR MORTGAGES Nº 2 CL C 68 10,408 (5,754) 4,654 ATLANTE MTG Nº 7 CL A 2,843 284,394 - 284,394 ATLANTE MTG Nº 7 CL B 397 39,721 - 39,721 ATLANTE MTG Nº 7 CL C 636 71,930 (988) 70,942 ATLANTES FIN Nº 1 CL A - NPL 1,201 120,414 - 120,414 ATLANTES FIN Nº 1 CL B - NPL 450 40,784 (29,142) 11,642 ATLANTES FIN Nº 4 CL C 165 16,517 - 16,517 ATLANTES FIN Nº 4 CL D 53 11,658 (10,962) 696 ATLANTES FIN Nº 5 CL C 58 7,949 (3,509) 4,440 ATLANTES FIN Nº 5 CL S 108 8,829 - 8,829 ATLANTES FIN Nº 6 CL B 90 9,012 - 9,012 ATLANTES FIN Nº 6 CL C 24 3,014 (1,722) 1,292 ATLANTES FIN Nº 6 CL S 74 7,400 - 7,400 ATLANTES SME Nº 2 CL A 2,775 41,860 (3,761) 38,099 ATLANTES SME Nº 2 CL C 104 17,626 (17,626) - ATLANTES SME Nº 2 CL S 1 18,774 - 18,774 EUROINVEST SERIE 03 585,000 433 (34) 399 BANIF FINANCE AÇ PRF PRP 827 827 - 827 BANIF FINANCE AÇ PRF 2009 USD 29 13 - 13 FUNDO FCR CLASS C 20,000 14,484 (2,329) 12,155 FUNDO FCR CLASS B 20,000 14,245 (2,515) 11,730 FUNDO VALIS CLASS A 70,045,972 72,918 - 72,918 FUNDO VALIS CLASS B 33,672,841 33,673 (33,673) - FUNDO RECUP. TURISMO B 21,444 21,318 - 21,318 FUNDO REEST. EMPRESARIAL - FCR 7,554 6,600 - 6,600 FUNDO FLITPTREL 52,662 50,954 - 50,954 DISCOVERY PORTUGAL REALESTATE FOUND 104,029 102,223 - 102,223 FCR REVITALIZAR NORTE CAT. 2 1,818,182 1,818 - 1,818 FCR REVITALIZAR CENTRO CAT. 2 1,818,182 1,818 - 1,818 FCR REVITALIZAR SUL CAT. A 2 454,545 455 - 455 FCR REVITALIZAR SUL CAT. B 2 454,546 455 - 455 FCR REVITALIZAR SUL CAT. C 2 454,545 455 - 455 FUNDO BANIF PORTUGAL CRESCIMENTO 5,000,000 10,000 - 10,000 ICE - INTERCONTINENTALEXCHANGE 34 6 - 6 S.W.I.F.T. 27 53 - 53 VISA CLASS C 2,533 63 - 63 FINANGEST 526 535 (180) 355 SIBS,SA 103,436 445 - 445 UNICRE, SA 35,076 916 - 916 CEIM, LDA 800 4 - 4 COLISEU MICAELENSE, S A 83 - - 0 DIDIER & QUEIROZ, S.A. 50,000 150 (150) - GARVAL 500 1 - 1 IMOVALOR 19,890 281 - 281 LISGARANTE 500 1 - 1 MACEDO & COELHO 188 - - 0 NORGARANTE 500 1 - 1 PRETÓRIA LDA 5,736 6 - 6 LUSITANIA SEGUROS 476 227 (128) 99 SC BRAGA SAD 20 - - 0 TEATRO MICAELENSE, S A 83 - - 0 TRANSINSULAR (AÇORES) - TRASP. MARITI. INSUL. 2,000 11 - 11 ACT - C -INDÚSTRIA DE CORTIÇAS, S.A 170,410 852 (852) - SUBERCOR 28,137 141 (141) - VINOCOR 156,421 782 (782) - VNCORK 801 1 (1) - TAEM SGPS 125 - () - CORKFOC 271,188 1,356 (1,356) - PAN ATLANTICA 950,000 589 (589) - FLIPTREL PORTUGAL SGPS 2,500 3 - 3 FLIPTREL II SA 577 1 - 1 FLITPTREL 15, SA 5,000 5 - 5 FLITPTREL SALEMA 5,000 5 - 5 ASCENDI NORTE 118,169 1,654 - 1,654 ASCENDI BEIRAS 70,775 3,246 (98) 3,148 ASCENDI OPERADORA BLA 139 - - 0 ASCENDI OPERADORA NT 210 - - 0 ASCENDI PORTO 33,289 1,378 - 1,378 ASCENDI OPERADORA GP 268 - - 0 ASCENDI COSTA DE PRATA 30,807 297 - 297 ASCENDI OPERADORA CP 139 - - 0 FINPRO, SCR 2,327,325 13,538 - 13,538 SOCIEDADE QUINTA DO FURÃO, Lda 8550 -550 IBEROL 169,833,334 4,787 - 4,787 HABIPREDE 5,000 1,250 (1,250) - NEXPONOR 2,033,000 10,165 - 10,165
4,367,322 (146,035) 4,221,287
305 MANAGEMENT REPORT AND ACCOUNTS 2013
The main assumptions used in the assessment unlisted entities are: Fund Units – listed price based on the last NAV available for fund units acquired up to the date of that price; historical cost for investments made after the date of the last quoted price available and the date of the financial statements:
Managing Fund Class NAV Date NAV Fund Price reference Entities
Fundo de Recuperação FCR ECS B 30/09/2013 547.61 R&A 3Q 2013 Fundo de Recuperação FCR ECS C 30/09/2013 455.11 R&A 3Q 2014 Fundo de Recuperação Turismo FRT ECS B 30/09/2013 991.06 R&A 3Q 2015 Fundo Flit-ptrel SICAV ECS I 30/09/2013 967.57 R&A 3Q 2016 Fundo Vallis Vallis A 30/09/2013 1.041 R&A 3Q 2017 Fundo Vallis Vallis B 30/09/2013 0 Internal policy Discovery Explorer A 30/06/2013 978.29 R&A 1S 2013 Fundo de Reestruturação Empresarial FRE Oxycapital B 31/12/2013 873.75 Estimate 31-12-2013
Securities received in lieu – record of 100% impairment on the balance sheet value if there are no prospects of recoverability. The prospects of recoverability are determined based on individual analyses conducted internally (Note 2.8). Securitisations – the value of the obligations is calculated deducting the amount of loan impairment losses and adding their expected return.
Nature and type Balance Value TO GUARANTEE
TO GUARANTEE EUROSYSTEM REFINANCING OPERATIONS: ATLANTES MTG Nº 2 CL A 189,709 Pool BCE ATLANTES MTG Nº 3 CL A 375,457 Pool BCE ATLANTES MTG Nº 4 CL A 359,558 Pool BCE AZOR MORTGAGES Nº.2 - CLASS A 170,138 Pool BCE ATLANTES MTG Nº 1 CL A 13,649 Pool BCE AZOR MORTGAGE Nº1 3,503 Pool BCE ATLANTES MTG Nº5 CL A 384,764 Pool BCE ATLANTES MTG Nº 7 CL A 284,394 Pool BCE ATLANTES SME Nº 2 38,099 Pool BCE BILHETES DO TESOURO 39,975 Pool BCE BILHETES DO TESOURO 25,016 Pool BCE BILHETES DO TESOURO 69,607 Pool BCE BILHETES DO TESOURO 19,938 Pool BCE OT FEV2016 10,423 Pool BCE OT Out 2016 45,849 Pool BCE OT Out 2017 260,098 Pool BCE OT Out 2018 258,849 Pool BCE OT Jun 2019 167,155 Pool BCE OT Jun 2020 125,257 Pool BCE OT Abr 2021 123,061 Pool BCE OT Out 2023 55,820 Pool BCE OT FEV 2024 17,921 Pool BCE OT Abr 2037 103,295 Pool BCE
3,141,535
TO GUARANTEE IRREVOCABLE COMMITMENTS DEPOSITS GUARANTEE FUND: OBRIG. TESOURO JUNHO 2009/2019 OT JUN 4,75% 12,511 FGD 12,511
TO GUARANTEE INVESTOR INDEMNITY SYSTEM: OBRIG. TESOURO JUNHO 2009/2019 OT JUN 4,75% 993 SII 993
COLLATERAL WITH THE MUTUAL GUARANTEE COMPANY: Garval, Lisgarante e Norgarante 1.5 SGM 2
306 MANAGEMENT REPORT AND ACCOUNTS 2013
The investment funds Investimento Fundo Vallis, Fundo FRE, Fundo FR and Discovery were assigned claims to the value of 135,794 thousand euros, in accordance with Note 10.
9. INVESTMENTS AT CREDIT INSTITUTIONS
This item breaks down as follows:
Description 31-12-2013 31-12-2012
Interbank money market --
Loans In Portugal 94.639 370.564 Abroad 155.789 265.477 Other Investments In Portugal 19.265 19.870 Abroad 10.056 185.481
Impairment losses (37) (1)
279.711 841.391
These investments at credit institutions have been made in the following countries:
Counterpart 31/12/2013 31/12/2012
Loans abroad
POLAND 6,729 6843 MALTA 803 455 USA 144,486 174730 CAPE VERDE 2,183 9571 NORWAY 324 - HUNGARY 946 2860 SWEDEN 318 758 BRAZIL - 60,028 UK - 10232
155,789 265,477
Other Investments Abroad
MALTA 5,103 5,000 CAPE VERDE 1,021 1,000 USA 4- CAYMAN 163 35,719 UKRAINE 3,765 - BAHAMAS - 115,300 BRAZIL - 28,422 VENEZUELA -40
10,056 185,481
307 MANAGEMENT REPORT AND ACCOUNTS 2013
Changes in impairment of investments at credit institutions were as follows:
Reinstatements Balance on Balance on Descrição Increases Adjustments Uses and 31-12-2012 31-12-2013 cancellations
Country Risk – OCI Investments 1 71 - - (35) 37 171 - -(35)37
10. LOANS TO CUSTOMERS
This item breaks down as follows:
31-12-2012 Description 31-12-2013 31-12-2012 Restated Corporate Loans Current Accounts 702.531 1.013.124 1.013.124 Discount and other credit represented by bills 194.327 163.747 163.747 Loans 1.588.385 1.614.627 1.623.226 Overdrafts 41.984 27.016 27.016 Factoring 101.168 174.816 174.816 Financial Leasing Operations 121.809 143.934 143.934 Purchase operations with resale agreement 22.125 - - Others 7.322 23.772 23.772 Private Loans Housing 597.833 532.189 532.189 Of which, Finance Leases 11.999 13.231 13.231 Consumer 74.723 83.024 83.024 Other purposes Loans 367.977 374.887 374.887 Current Accounts 80.525 96.948 96.948 Discount and other credit represented by bills 4.425 5.991 5.991 Overdrafts 22.638 23.801 23.801 Others 28.116 42.578 42.578 Other loans and receivables (secured) 169.345 110.405 110.405 Credit to clients - securitised 3.020.876 3.294.306 3.294.306
Loans and overdue interest 773.014 787.411 787.411 Of which, in respect of securitised Loans 97.690 147.284 147.284
Income receivable 56.878 60.053 60.053 Costs with deferred income 10.515 11.623 11.623 Income from deferred income (12.297) (12.147) (12.147)
Provisions for overdue credit and doubtful debts (768.935) (653.319) (653.319)
Total 7.205.286 7.918.786 7.927.385
Of loans to companies, an amount of 1,338,076 million euros is being used as security for refinancing operations with the ECB, as described in Note 21.
Changes in “Value corrections associated with credit to clients and amounts receivable from other debtors” in 2013 were as follows:
Balance on Balance on Description Increases Adjustments Uses Reinstatements 31-12-2012 31-12-2013
Overdue loans 534.471 242.225 (22.561) (89.955) (26.226) 637.954 Non-performing loans 118.848 44.432 (6.479) (8.643) (17.177) 130.981 Country Risk - Foreign loans ------
653.319 286.657 (29.040) (98.598) (43.403) 768.935
308 MANAGEMENT REPORT AND ACCOUNTS 2013
“Uses” includes a write-off of irrecoverable credit in the amount of 98,598 thousand euros.
Increases in provisions include the amount of 47,103 thousand euros due to the fact that total impairment is greater than the regulatory provisions as described in Note 2.8.4.
In 2013, Banif did not assign claims to other entities in the Banif Financial Group.
Credit in respect of finance leasing is as follows:
Description 31-12-2013 31-12-2012
Accrued rentals and residual values
Up to 1 year 4.997 6.543 1 to 5 years 9.232 8.984
Over 5 years 153.226 184.916 167.455 200.443 Accrued Interest
Up to 1 year 34 43 1 to 5 years 577 564 Over 5 years 33.036 42.671 33.647 43.278 Accrued Capital
Up to 1 year 4.963 6.500 1 to 5 years 8.655 8.420 Over 5 years 120.190 142.245 133.808 157.165
Banif considers as restructured loans those loans in relation to which there have been changes in contractual conditions, reflected, in particular, in extension of the repayment terms, the introduction of grace periods or the capitalisation of interest, due to financial difficulties of the borrower, regardless of whether or not there have been delays in the payment of capital and interest, as described in Point 06 of the Management Report, particularly with regard to credit risks.
Claims with a nominal value of 135,794 thousand euros were assigned to investment funds (Note 8), as follows:
2013
Nominal value of Fund Provisions Selling price (Loss)/Gain loans
FCR 11.113 4.035 6.829 (249) VALLIS 908 634 898 624 DISCOVERY 117.417 27.734 103.402 13.719 FRE 6.356 - 6.356 - 135.794 32.403 117.485 14.094
309 MANAGEMENT REPORT AND ACCOUNTS 2013
2012
Nominal value of Fund Provisions Selling price (Loss)/Gain loans
VALLIS (1) 99.959 24.203 69.366 (6.390) FRT 19.206 1.409 19.206 1.409 FCR 6.950 129 6.430 (391) FLIT (2) 30.721 10.243 30.623 10.145 156.836 35.984 125.625 4.773
Under the terms of the claim assignment contracts, Banif transferred all rights, benefits and risks associated with the claims assigned, including their collateral. Also in connection with these operations, Banif acquired financial assets (collective investment fund units), with expected characteristics, risks and cash-flows that are substantially different from the financial assets assigned.
In this context and in accordance with IAS 39, paragraphs 20 a), 21, 23 and 25, these operations permit the derecognition of the assets assigned (claims). The financial assets acquired (fund units) were recognised at their fair value on the transfer date and classified in financial assets available for sale, since Banif does not have control nor significant influence in these collective investment funds.
11. INVESTMENTS HELD TO MATURITY
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Investments held to maturity Residents 2,477 - Non residents 9,516 -
Deferred expenses 88 -
Total 12,081 -
12. ASSETS WITH REPURCHASE AGREEMENT
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Assets with repurchase agreement 495,353 116,282
495,353 116,282
310 MANAGEMENT REPORT AND ACCOUNTS 2013
The details of this item, at 31 December 2013, were as follows:
Name Quantity Balance sheet value
ATLANTES SME Nº 2 CL B ( contraparte CGD) 3,611 361,901 ATLANTE MTG Nº 2 CL B (contraparte BES Madrid) 156 13,046 ATLANTES FIN Nº 4 CL B (contraparte BES Madrid) 90 9,007
ATLANTES FIN Nº 5 CL B (contraparte BES Madrid) 231 23,125 OT 01/16 OUT 17 (contraparte Banif Malta) 87,912,088 88,274
495,353
Assets with repurchase agreements are recorded at the nominal value since there is no associated impairment.
13. NON-CURRENT ASSETS HELD FOR SALE
Changes over the period were:
31-12-2013
Change over the year
Impairment Balance on Deductions Balance on Categoria de activo Acquisitions Transfers losses Adjustments 31-12-2012 (net) 31-12-2013 recognised
Property and equipment 318,829 222,153 (498) (20,042) (931) (62,996) 456,515 Financial holdings - - 214,524 (84,576) - - 129,948
318,829 222,153 214,026 (104,618) (931) (62,996) 586,463
31-12-2012
Change over the year
Impairment Balance on Deductions Balance on Categoria de activo Acquisitions Transfers losses Adjustments 31-12-2011 (net) 31-12-2012 recognised
Property and equipment 223,192 198,633 (5,508) (15,107) (623) (81,758) 318,829
223,192 198,633 (5,508) (15,107) (623) (81,758) 318,829
During the reference period for the financial statements, an amount of 222,153 thousand euros was acquired by means of the execution of guarantees.
During 2013, Banif disposed of properties received in lieu of repayment of its own lending to the value of 65,244 thousand euros. Capital gains and losses realised on disposal of non-current assets held for sale are presented in the income statement in “Profit/loss on disposal of other assets” (Note 36).
It is to be noted that sales occurred with related parties (FIIAH) amounting to 16,958 thousand euros, generating a gain of 36 thousand euros.
For the purposes of determining any impairment, valuations of non-current assets held for sale are carried out by independent specialist surveyors, in accordance with the criteria and methodologies
311 MANAGEMENT REPORT AND ACCOUNTS 2013
generally accepted for the purpose. These include analyses using the cost and market methods. Fair value is defined as the amount that could reasonably be expected of a transaction between an interested purchaser and vendor, with equity between the two, neither being obliged to sell or purchase and both being aware of all relevant factors on a given date.
The fair value of non-current assets held for sale came to 526,788 thousand euros, at 31 December 2013 (374,460 thousand euros in 2012).
As mentioned in Note 2.10, Banif classifies under this item investments in Banif – Banco Internacional do Funchal (Brasil), Banif Bank Malta and Banco Caboverdiano de Negócios.
In the connection with the reorganisation of investment in Brazil, the holding in Banif – Banco Internacional do Funchal (Brasil) changed as follows in 2013:
Increase in the holding from 90.00% to 94.38%;
Elimination of the holding in Banif – Banco de Investimento Brasil (which was 75.00%), by virtue of its integration into Banif – Banco Internacional do Funchal (Brasil).
Balance sheet value % of Nature and Type Impairment Equity Net Profit/Loss before impairment holding
Equity instruments - Financial investments
Banco Caboverdiano de Negócios, SA 5,129 - 51.69% 13,618 2,341 Banif- Banco Internacional Funchal (Brasil), SA 229,928 122,049 94.38% 61,492 (136,385) Banif Bank (Malta) 25,500 8,560 78.00% 21,717 124
260,557 130,609
The impairments provided for financial holdings take into consideration the updated valuation of these companies, if available, or the value of their share capital adjusted in accordance with IAS/IFRS standards.
14. INVESTMENT PROPERTIES
Changes over the period were:
31-12-2013
Change over the year
Impairment Balance on Deductions Depreciation Balance on Asset category Acquisitions Transfers losses Adjustments 31-12-2012 (net) for the year 31-12-2013 recognised
Other investment property 50,040 4,620 (1,800) 498 (1,095) (563) (27) 51,673
50,040 4,620 (1,800) 498 (1,095) (563) (27) 51,673
31-12-2012
Change over the year
Impairment Balance on Deductions Depreciation Balance on Categoria de activo Acquisitions Transfers losses Adjustments 31-12-2011 (net) for the year 31-12-2012 recognised
Other investment property 56,221 5,808 (15,140) 5,508 (1,472) (728) (157) 50,040
56,221 5,808 (15,140) 5,508 (1,472) (728) (157) 50,040
312 MANAGEMENT REPORT AND ACCOUNTS 2013
For the purposes of determining any impairment, valuations of investment properties are carried out by independent specialist surveyors, in accordance with the criteria and methodologies generally accepted for the purpose. These include analyses using the cost and market methods. Fair value is defined as the amount that could reasonably be expected of a transaction between an interested purchaser and vendor, with equity between the two, neither being obliged to sell or purchase and both being aware of all relevant factors on a given date.
The properties recorded in this category refer to the properties received in settlement of the company’s own lending and which are either rented out or have the potential to increase in value (land).
In 2013, Banif disposed of properties received in settlement of the company’s own lending in the amount of 2,018 thousand euros. The capital gains realised on disposal of investment properties are presented in the income statement in the line “Profit/loss on disposal of other assets” (Note 36).
It is to be noted that sales occurred with related parties (FIIAH) amounting to 731 thousand euros, generating a gain of 1 thousand euros.
The fair value of non-current assets held for sale came to 57,010 thousand euros, at 31 December 2013 (56,327 thousand euros in 2012).
15. OTHER TANGIBLE ASSETS
Changes over the period were:
31-12-2013
Balance at 31-12-2012 Increases Depreciation Deductions Net Value Asset category Accumulated Revaluations Transfers Adjustments Gross Value Acquisitions for the year (net) 31-12-2013 depreciation (net)
Property 63,479 (34,294) 400 - 544 (5,194) - (1,352) 23,583 Equipment 52,070 (43,939) 772 - 214 (3,197) - (62) 5,858 Assets under operating leases ------Assets under finance leases ------Tangible assets under construction 1,859 445 - (758) - (321) - 1,225 Other tangible assets 7,208 (5,057) 412 - - (280) - - 2,283 124,616 (83,290) 2,029 - - (8,671) (321) (1,414) 32,949
31-12-2012
Balance at 31-12-2011 BanifServ Integration Increases Transfer Write- Depreciation Net Value Asset category Accumulated Accumulated Revaluations s Adjustments Offs Gross Value Gross Value Acquisitions for the year 31-12-2012 depreciation depreciation (net) (net)
Property 62,201 (29,134) 2,702 (849) 107 - 758 (5,269) - (1,331) 29,185 Equipment 60,498 (49,573) 7,919 (7,266) 380 - 141 (3,828) - (140) 8,131 Ass ets under operating leases ------Asset s under finance leases ------Tangible assets under construction 1,719 - 8 - 1,162 - (1,027) - (2) - 1,860 Oth er tangible assets 7,790 (5,413) 1 - 17 - 93 (323) - (14) 2,151 132,208 (84,120) 10,630 (8,115) 1,666 - (35) (9,420) (2) (1,485) 41,327
No revaluations were carried out in previous reporting periods or in the current one and there are no exceptional amortisations resulting from tax-related measures.
313 MANAGEMENT REPORT AND ACCOUNTS 2013
There are no tangible fixed assets held under financial leasing or operational leasing arrangements.
16. INTANGIBLE ASSETS
Changes over the period were:
31/12/2013
Saldo em 31-12-2012 Aumentos Abates (líquido) Transfe- Amortizações Valor líquido Categoria de activo Valor Amortizações Reavaliações Valor Amortizações Aquisições rências do exercício 31-12-2013 Bruto acumuladas (líquido) Bruto acumuladas
D espesas de investigação e desenvolvimento 154 (154) - - - - - Sistemas de tratamento automático de 49 849 (40 685) 508 - 6 387 (5 868) 10 191 dados (Software) T respasses ------D espesas de estabel eci mento ------Custos plurianuais ------O utros activos 3 982 (2 530) - - - (639) 813 A ctivos intangíveis - em curso 9 138 - 1 057 - (6 387) - (2 486) 1 322
63 123 (43 369) 1 565 - - (6 507) (2 486) - 12 326
31/12/2012
Saldo em 31-12-2011 Integração BanifServ Integração Banif SGPS Aumentos Abates (líquido) Transfe- Amortizações Valor líquido Categoria de activo Valor Amortizações Valor Amortizações Valor Amortizações Reavaliações Valor Amortizações Aquisições rências do exercício 31-12-2012 Bruto acumuladas Bruto acumuladas Bruto acumuladas (líquido) Bruto acumuladas Despesas de investigação e desenvolvimento 154 (154) ------Sistemas de tratamento automático de 49.978 (41.097) 11.721 (8.836) 121 (121) 1.518 - 35 (4.156) 13.525 (13.525) 9.163 dados (Software) Trespasses ------Despesas de estabelecimento ------Custos plurianuais ------Outros activos 1.720 (1.563) 2.263 (603) - - - - - (364) - - 1.453 Activos intangíveis - em curso 2.369 - 5.644 - - - 1.125 - - - - - 9.138 54.221 (42.814) 19.628 (9.439) 121 (121) 2.643 - 35 (4.520) 13.525 (13.525) 19.754
No impairment losses on intangible assets were recorded in 2013.
17. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Equity instruments In Portugal 590,427 588,429 Abroad 121,358 250,435
Impairment (243,375) (154,159)
Total 468,410 684,705
314 MANAGEMENT REPORT AND ACCOUNTS 2013
The details of this item, at 31 December 2013, were as follows:
Balance sheet value Nature and Type Impairment % held Equity Net Profit/Loss before impairment
Equity instruments
Banca Pueyo, SA 49,363 13,862 33.32% 106,548 4,492 Banif - Banco Internacional do Funchal (Cayman), Ltd 20,842 20,842 100.00% 10,293 (5,407) Banif & Comercial dos Açores, Inc - Fall River 73 - 100.00% 72 - Banif & Comercial dos Açores, Inc - S. José - - 100.00% (73) (4) Banif Açor Pensões - Sociedade Gestora Fundos Pensões, SA 240 - 10.81% 5,497 678 Banif (Brasil), Ltda 99 99 100.00% (10,124) (11,748) Banif Finance, Ltd 1 1 1.00% 3,996 (20,559) Banif Holding (Malta), Plc 9,992 9,992 99.90% (8,697) (647) Banif Imobiliária, SA 168,235 95,007 84.00% 87,178 (59,511) Banif International Bank, Ltd 25,000 20,368 100.00% 14,632 (1,248) Banif International Holdings, Ltd 11,921 11,921 85.00% (8,210) (1,798) Banco Banif Mais, SA 1,224 - 1.00% 213,773 17,586 Banif Mais, SGPS, SA 216,742 - 85.92% 316,867 18,464 Banif Rent, SA 22,903 22,903 100.00% (4,476) (4,770) Banif Securities Holding, Ltd 1,566 1,566 100.00% (58,549) (33,704) Banif- Banco de Investimento, SA 86,879 44,370 100.00% 50,932 (27,480) Espaço Dez - Sociedade Imobiliária, Lda 1 1 25.00% (1,849) (678) Inmobiliária Vegas Altas, Sociedad Anónima 2,500 - 33.33% 8,022 128 Investaçor SGPS, SA 9,376 1,781 59.20% 5,699 (144) Numberone SGPS, Lda 353 353 100.00% 393 66 Rentipar Seguros, SGPS, SA 84,166 - 47.69% 186,432 (1,697) WIL - Projectos Turisticos, SA 309 309 47.50% (4,599) (94)
711,785 243,375
The stake held in Banif Finance corresponds to 1% of the voting capital.
The impairments provided for financial holdings take into consideration the updated valuation of these companies, if available, or the value of their share capital adjusted in accordance with IAS/IFRS standards.
In 2013 this item includes:
The classification of investments in Banif – Banco Internacional do Funchal (Brasil), Banif Bank Malta and Banco Caboverdiano de Negócios as Non-current assets held for sale, in accordance with Notes 2.3, 2.10 and 13.
Reduction in investment in Banif Mais due to the repayment of Supplementary Capital Contributions to the value of 8 million euros.
Increase in the investment value recorded in the holding in Banif Rent as a consequence of the conversion of shareholder loans into supplementary capital contributions, to the value of 10 million euros.
315 MANAGEMENT REPORT AND ACCOUNTS 2013
18. INCOME TAXES 18.1 Deferred taxes
Deferred tax assets and liabilities and their changes over the year break down as follows:
31/12/2013
In the previous Change in the year End of year year
Description By profit/loss By reserves and retained earnings Deferred Tax Deferred Tax (Net) (Net) Costs Income Increases Decreases
Deferred tax assets Other risks and charges 36 (1) - - - 35 Taxed provisions and impairment 48,522 (12,569) 30,895 - - 66,848 Financial assets at fair value through profit or loss 48 - 273 - - 321 Employee benefits 2,904 (303) 264 - - 2,865 Tax losses 71,238 (29,336) 47,255 913 - 90,070 Pensions Funds 11,815 (642) - 1,562 - 12,735 Investment property 1,186 (1,186) - 0 - - Assets available for sale 7,898 (333) - 1,397 (234) 8,728 Others - (242) - - - (242)
Total 143,647 (44,612) 78,687 3,872 (234) 181,360
Deferred tax liabilities - - - 7,445 (7,445) -
Total ------
TOTAL 143,647 (44,612) 78,687 3,872 (234) 181,360
31/12/2012
In the previous Final do Change in the year End of year year Exercício Description By profit/loss By reserves and retained earnings Imposto Deferred Tax Deferred Tax Diferido (Net) (Net) Costs Income Increases Decreases (Líquido)
Deferred tax assets Other risks and charges 36 - - - - - 36 Taxed provisions and impairment 38,078 - (20,510) 30,954 - - 48,522 Financial assets at fair value through profit or loss 41 - (5) 12 - - 48 Employee benefits 2,882 - (329) 351 - - 2,904 Tax losses 16,239 15,160 (18,688) 55,368 3,159 - 71,238 pensions Funds 12,002 - 383 (570) 11,815 Investment property 1,186 - - - - - 1,186 Assets available for sale 4,996 - - 7,664 (4,762) 0 7,898
Total 75,460 15,160 (39,532) 94,732 (1,603) (570) 143,647
Deferred tax liabilities ------
Total ------
TOTAL 75,460 15,160 (39,532) 94,732 (1,603) (570) 143,647
Deferred tax assets concerning reportable tax losses correspond to:
Period taxes losses Deferred Tax Due Date
2009 15,774 3,628 2015 2010 21,286 - 2014 2011 24,679 4,392 2015 2012 210,579 38,931 2017 2013 187,469 43,118 2018
459,787 90,069
Banif believes that deferred tax assets regarding reportable tax losses are recoverable, given the forecast business and profit growth for the next few years contained in the “Funding and Capital Plan”. The main assumptions of this plan are:
316 MANAGEMENT REPORT AND ACCOUNTS 2013
Deposits: Compound annual fall in deposits until 2018 estimated at approximately 2.9%, due to reduced exposure;
Credit: Compound annual reduction in loans granted of approximately 5.6% until 2018 due to withholding of repayments envisaged in some loan segments (e.g. mortgage), as well as reduced exposure;
Banking Revenue: The net interest income should benefit: i) from the increase in interest received through the gradual increase in Euribor rates, given that almost all the bank’s loans portfolio is indexed to these rates, from the policy of reviewing spreads on an ongoing basis and from interest received from the treasury bonds acquired since under the recapitalisation process and ii) from the reduction in interest paid on deposits due to the reduction in the rates applied. Moreover, there is potential for growth in the fees structure, both in terms of pure banking activity, through an increase in the penetration rate of Banif products, and also in bancassurance, through the partnership with Companhia de Seguros Açoreana SA. This expectation has already been documentarily supported by a number of external consultants. Due to these factors, the banking revenue ROA is expected to recover at the end of 2018 to levels close to 2.3%;
Costs: the branch network and workforce reduction measures, implemented in 2013, will have a visible impact in terms of the cost structure in 2014. Nevertheless, the Group remains committed to the continued improvement of its efficiency levels, in order to achieve cost- income ratios of around 50% by 2017.
As stated in Note 2.4, should these estimates not be borne out there may be a need to make material adjustments to the amount entered for deferred tax assets in future reporting periods.
317 MANAGEMENT REPORT AND ACCOUNTS 2013
18.2 Reconciliation of the normal tax rate with the effective rate
31/12/2013
Current Year Current Taxes Deferred Taxes Description Taxable Income Tax payable Taxable Income Tax payable
Cost of tax at the legal rate Profit/loss before Tax (520,570) Corp Tax & correction taxes previous years 7,846 Deferred Tax (34,075) Net profit/loss for the year (494,341) (142,949) Legal rate of income tax 23.00% Additional to legal rate 4.46% Normal tax burden 27.46% - --
Changes in Equity (16,909) (4,643) (16,909) (4,399) To be added (1,190) (327) (1,190) (327) To be removed (15,719) (4,316) (15,719) (4,072)
Additions 403,692 110,854 (129,033) (33,887) Fines 183 50 Non-deductible provisions 129,033 35,432 (129,033) (33,887) Non-deductible depreciation 11 3 Allocation of profits from off-shore companies 0 0 Non-deductible provisions for financial investments 268,319 73,680 Others 6,146 1,688
Deductions (53,598) (14,718) 70,249 15,333 Accounting gains - Fiscal losses (127) (35) Non-taxable dividends from holdings 0 0 Elimination of double taxation 0 0 Non-deductible provisions (44,366) (12,183) 44,366 12,183 Employee benefits (1,428) (392) 8,101 (554) Others (7,677) (2,108) 17,782 3,704
Fiscal Effects of Tax Benefits (84) (23) - -
Others (84) (23)
Taxable Profit (Fiscal Loss) (187,469) (51,479) - - Deduction of tax losses/tax benefits - - -- Taxable profits ACE - - -- Taxable Income (187,469) (51,479) (187,469) (17,919) Total Tax Payable (187,469) (51,479) -- Correction of Deferred taxes related to prior periods - - Integration of Banif SGPS into Banif - -
Corporation tax paid ---- Withholdings at source or payments on account - Current tax assets - 1,152 -- Corporation tax payable - 889 -- Autonomous taxation - 889 --
Total Tax Liability --- For Current Taxes - 7,846 - - Current taxes payable 889 Correction of Taxes related to prior periods 3,630 Extraordinary Contribution from the Banking Sector - 3,327 -- For Deferred Taxes 40,872 Deferred taxes recognised in the year ---34,075 Deferred taxes recognised in Revaluation reserves 6,797 Effective Tax Rate ----
318 MANAGEMENT REPORT AND ACCOUNTS 2013
31/12/2012
Current Year Current Taxes Deferred Taxes Description Taxable Income Tax payable Taxable Income Tax payable
Cost of tax at the legal rate Profit/loss before Tax (470,910) - -- Corp Tax & correction taxes previous years 4,402 - -- Deferred Tax (57,543) Net profit/loss for the year (414,218) (135,198) -- Legal rate of income tax 25.00% - -- Additional to legal rate 3.71% - -- Normal tax burden 28.71% - --
Changes in Equity (793) (218) - - To be added 1,190 327 - - To be removed (1,983) (545) - -
Additions 343,103 94,216 (154,948) (44,499) Fines 26 7 -- Non-deductible provisions 154,972 42,555 (154,972) (44,492) Non-deductible depreciation 14 4 - - Allocation of profits from off-shore companies 1,401 385 - - Non-deductible provisions for financial investments 183,456 50,377 - - Others 3,234 888 24 (7)
Deductions (94,999) (26,087) 93,313 25,980 Accounting gains - - - - Fiscal losses (152) (42) - - Non-taxable dividends from holdings 0 0 - - Elimination of double taxation 0 0 Non-deductible provisions (91,902) (25,236) 91,902 26,385 Employee benefits (1,945) (534) 1,411 (405) Others (1,000) (275) --
Fiscal Effects of Tax Benefits (716) (197) - -
Others (716) (197) --
Taxable Profit (Fiscal Loss) (224,315) (67,483) - - Deduction of tax losses/tax benefits - - -- Taxable profits ACE - - -- Taxable Income (224,315) (67,483) (224,315) (54,988) Total Tax Payable (224,315) (67,483) -- Correction of Deferred taxes related to prior periods - - 3,216 804 Integration of Banif SGPS into Banif - - 60,640 15,160
Corporation tax paid ---- Withholdings at source or payments on account - Current tax assets - (1,406) -- Corporation tax payable - (1,019) -- Corrections taxes prior periods - Autonomous taxation - 1,003 --
Total Tax Liability --- For Current Taxes - 4,402 - - Current taxes payable 1,003 Correction of Taxes related to prior periods (270) Extraordinary Contribution from the Banking Sector - 3,669 -- For Deferred Taxes 57,543 Deferred taxes recognised in the year ---57,543 - Effective Tax Rate ----
319 MANAGEMENT REPORT AND ACCOUNTS 2013
19. OTHER ASSETS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Gold 22 22 Other precious metals, coins and medals 498 498 Other assets with residents 11
520 521
Bonuses receivable 9,152 11,963
9,152 11,963
Shareholder loans 591,885 624,838 Sundry debtors 67,694 114,798 Expenditure with deferred costs - Pension Fund 394 787 Pension Fund 390 7,102 Other assets 89,386 68,552
749,749 816,077
Impairment losses (32,744) (19,505)
726,678 809,056
“Shareholder loans” is made up as follows:
Description 31/12/2013 31/12/2012
BANIF IMOBILIARIA, SA 510,750 510,750 W I L PROJECTOS TURISTICOS, SA 16,250 16,250 BANIF RENT - ALUGUER E COMERCIO DE AUTOM 23,500 55,000 RENTIPAR SEGUROS SGPS, SA 13,261 13,261 HABIPREDE SOCIEDADE DE CONSTRUCOES, SA 13,250 16,750 J J W 4,088 4,212 SITCB 8,600 8,600 VISA SETLEMENT 15 15 VNCORK 871 - TAEM SGPS - PROGADO 1,300 0
591,885 624,838
“Sundry debtors” includes: - balances with related parties in the amount of 11,229 thousand euros (16,229 thousand euros in 2012); - 35,023 thousand euros concerning advances to securitisation vehicles; - 9,782 thousand euros related to expenses from overdue loans.
“Deferred costs – Pension Fund” refers to the transitional scheme provided for in Banco de Portugal Notice 12/2001 (Note 2.15).
320 MANAGEMENT REPORT AND ACCOUNTS 2013
20. ASSET IMPAIRMENT
The following asset impairment changes took place during the year:
Reinstatements Balance on Discontinued Balance on Description Increases Adjustments Uses and 31-12-2012 operations 31-12-2013 cancellations
Financial assets available for sale 157,154 67,675 - (10) (1,573) (77,211) 146,035 Non-current assets held for sale 22,387 63,639 84,576 46,033 (2,649) (43,597) 170,389 Investment property 3,564 1,260 - - (162) (165) 4,497 Investments in subsidiaries, associates and joint ventures 154,159 177,490 - (43,745) - (44,529) 243,375 Other assets 19,505 13,526 - - (18) (269) 32,744 356,769 323,590 84,576 2,278 (4,402) (165,771) 597,040
21. DEPOSITS FROM CENTRAL BANKS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Deposits in central banks 2,906,000 2,405,000 Interest expenses 12,424 9,205
2,918,424 2,414,205
“Funds from central banks” corresponds to refinancing operations with the European Central Bank (ECB) in the context of liquidity provision operations, guaranteed by pledge of eligible assets, as indicated in Notes 7, 8, 9 and 10, amount to 3,428,146 thousand euros, with “haircut”. The management of these operations is explained in Note 06 of the Management Report - Risk Management.
The operations with the ECB have the following maturities:
Description Start Date End Date Amount
European Central Bank 01/03/2012 26/02/2015 575,000 European Central Bank 22/12/2011 29/01/2015 321,000 Banco Central Europeu 11/12/2013 15/01/2014 1,750,000 Banco Central Europeu 30/12/2013 08/01/2014 260,000
2,906,000
These take-ups refer to ECB auctions and there are no conditions allowing renewal.
The book value of the collaterised securities in these operations amounts to 4,688,307 thousand euros.
22. FINANCIAL LIABILITIES HELD FOR TRADING
This item is made up of the valuation (negative fair value) of the derivative financial instruments described in Note 6 of these notes.
321 MANAGEMENT REPORT AND ACCOUNTS 2013
23. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
In 2013, there were no issues of securities at fair value through profit and loss
24. DEPOSITS FROM OTHER CREDIT INSTITUTIONS
Description 31/12/2013 31/12/2012
From in-country credit institutions Deposits 7,503 90,246 Loans 134,817 96,793 Sales operations with repurchase agreements 100,000 254,089 Others 02,687
242,320 443,815
From foreign credit institutions Deposits 110,720 199,962 Loans 8,386 264,467 Sales operations with repurchase agreements 125,000 - Others 2,848 7,710
246,954 472,139
Interest expenses 303 17,788
489,577 933,742
“Sales operations with repurchase agreements” breaks down as follows:
Balance sheet Description Quantity value
ATLANTES SME Nº 2 CL B 3,611 100,000
100,000
Balance sheet Name Quantity value
ATLANTE MTG Nº 2 CL B - BES MADRID 156 6,940 ATLANTES FIN Nº 4 CL B - BES MADRID 203 14,402 ATLANTES FIN Nº 5 CL B - BES MADRID 396 23,659 OBRIG. TESOURO 01/16 OUT 17 - BANIF MALTA 87,912,088 80,000
125,000
322 MANAGEMENT REPORT AND ACCOUNTS 2013
25. CUSTOMER DEPOSITS AND OTHER LOANS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Deposits Sight 1,161,255 1,262,687 Term 3,955,718 5,202,328 Savings 62,282 77,786 Others 1,068,164 597,390
6,247,418 7,140,191
Other debits Cheques and orders payable 1,577 6,622
Interest expenses 54,220 72,866
6,303,216 7,219,679
26. DEBT SECURITIES IN ISSUE
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Certificates of deposit 26,559 140,123 Bonds 1,321,484 1,582,853 Repurchased Bonds (898,206) (1,198,300) Interest expenses 5,006 4,470 Correction to the value of liabilities that are covered by hedging operations - 0
454,843 529,146
Debt issues classified in this item have the following characteristics:
Bonds Issued Repurchased Bonds
Balance sheet Name Issue date Redemption date Interest rate Balance sheet value value Euribor 3 Banif 2011 200M Garantia 19/07/2011 19/07/2014 200,000 (200,000) months + 4,95% Euribor 3 Banif 2011 500M Garantia 22/12/2011 22/12/2014 500,000 (500,000) months + 12% Euribor 3 Banif Float 2014 JUL 14 29/07/2011 29/07/2014 85,000 (85,000) months + 1,60% Euribor 3 Banif Float 2014 OUT 14 21/10/2011 21/10/2014 50,000 (50,000) months + 1,60% Ob CX Banif 2012-2015 FUNGIVEIS 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 -
Ob CX Banif 2012-2015 USD 31/05/2012 31/05/2015 5.00% 9,136 -
Ob CX Banif 2012-2014 08/11/2012 05/11/2014 6.25% 93,947 (50)
Ob CX Banif 2012-2014 FUNGIVEIS 20/11/2012 05/11/2014 5.75% 28,106 -
BANIF EMTN 4,5% SET 2014 20/03/2013 20/09/2014 4.50% 50,000 -
BANIF EMTN 4,5% SET 2014 - USD 20/03/2013 20/09/2014 4.50% 18,128 -
BANIF 7,5% 2013/16 30/07/2013 30/07/2016 7.50% 60,312 (156)
BANIF SENIOR TX FIXA 2013/16 25/11/2013 25/11/2016 5.00% 36,256 -
BANIF TX FIXA EUR 2013/16 - 5% 23/12/2013 23/12/2016 5.00% 80,000 -
1,321,484 (898,206)
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In 2013 the following issues were repaid: Banif 2012 300MGarantia: 300,000 thousand euros; Banif 2012 FLT EMTM: 20,000 thousand euros; Banif SGPS 2010-2013: 50,000 thousand euros; Banif SGPS 2010-2013 Fungíveis: 50,000 thousand euros; Banif SGPS 2011-2013: 75,000 thousand euros;
The following issues were also partially repaid Obrigações Caixa Banif 2012-2015: 2,400 thousand euros; Obrigações Caixa Banif 2012-2015 USD: 400 thousands dollars; Obrigações Caixa Banif 2012-2014: 6,053 thousand euros; Obrigações Caixa Banif 2012-2014 Fungíveis: 1,894 thousand euros;
The costs reported as guarantee fees for the issues guaranteed by the Portuguese Republic came to 9,711 thousand euros in 2013 (13,611 thousand euros in 2012).
27. FINANCIAL LIABILITIES ASSOCIATED WITH TRANSFERRED ASSETS
This item breaks down as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Atlantes Mortgage N.º 2 249,751 269,517 269,517 Azor Mortgage N.º 1 56,727 63,442 63,442 Atlantes Mortgage N.º 1 130,960 148,575 148,575 Azor Mortgage N.º 2 213,111 224,868 224,868 Atlantes Mortgage N.º 3 421,471 457,679 457,679 Atlantes Mortgage N.º 4 474,424 513,670 513,670 Atlantes Mortgage N.º 5 430,739 481,117 481,117 Atlantes Finance N.º 3 --- Atlantes Mortgage N.º 7 324,494 352,294 352,294 Atlantes N.º 1 0 642,434 642,434 SME NPL1 91,401 123,226 123,226 Atlantes Finance N.º 4 57,877 84,088 80,439 Atlantes Finance N.º 5 47,364 91,304 89,816 SME 2 580,711 - - Atlantes Finance N.º 6 44,979 - -
3,124,009 3,452,214 3,447,077
Deferred income income 545 846 846
Deferred costs (36,851) (30,010) (30,010)
Provisions (148,999) (186,855) (186,855)
2,938,704 3,236,195 3,231,058
The value of the financial liabilities recorded in this item corresponds to the securitised loans to customers, including associated non-performing loans (Note 10) and their accumulated interest (5,442 thousand euros), in the amount of 3,124,009 thousand euros.
It is to be noted that in this reporting period the Company bought back the SME1 certificates for 561.5 thousand euros.
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Financial liabilities have provisions recorded amounting to 148,999 thousand euros. Securities representing securitised loans recorded impairment of 101,327 thousand euros (Note 8).
According to Circular 47/07/DSBDR of the Banco de Portugal, provisions are deducted from the liabilities associated with securitised loans not affecting profit and loss.
Banif has carried out a number of mortgage loan securitisation operations, through which it has disposed of such assets to special financial entities (vehicles) created for the purpose.
The following securitisation operations were carried out:
Atlantes Mortgage No. 1 In the Atlantes Mortgage No. 1 operation, only Banif, SA housing loan contracts were transferred, in the amount of 500 million euros. Under the prevailing legislation, a Loan Securitisation Fund, designated Atlantes Mortgage no. 1 Fund, was set up. This acquired the mortgage contracts from the transferor and issued participation units that were subscribed to by a Employer formed under Irish law: Atlantes Mortgage no. 1 Plc. To finance itself, Atlantes Mortgage no. 1 Plc issued bonds in a total amount of 500 million euros.
Azor Mortgage No. 1 Azor Mortgages, which started up in November 2004, was the first mortgage loan securitisation operation carried out by the former BBCA (and the Banif Group’s second), and had a total value of 281 million euros. In Azor Mortgages, under the prevailing legislation, the loans initially transferred were acquired by Sagres - Sociedade de Titularização de Créditos, which issued the Azor Notes bonds, subscribed to in their entirety by a company formed under Irish law: Azor Mortgages Plc. To finance itself, Azor Mortgages Plc issued bonds in a total amount of 281 million euros.
In December 2006, and in order to meet the objectives of Gamma STC, the company set up to be the Banif Group’s securitisation company, the Azor Notes were transferred to that company, along with the corresponding rights to receive the credit and payment due to the Azor Mortgages plc vehicle which originally belonged to Sagres STC. This transfer had the agreement of the originator of the loans, the original securitisation company, ratings agencies, the Portuguese securities exchange commission (CMVM), investors and other entities involved in the operation, following assessment of Gamma’s capacity to manage the operation.
Atlantes Mortgage No. 2 In the Atlantes Mortgage No. 2 operation, only Banif, SA housing loan contracts were transferred, in the amount of 375 million euros. Under the prevailing legislation, a Loan Securitisation Fund designated Atlantes Mortgage no. 2 Fund was set up, administered by Gamma - Sociedade de Titularização de Créditos, SA. This acquired the mortgage loan contracts from the transferor and issued participation units subscribed to by Atlantes Mortgage no. 2 Plc. To finance itself, the company Atlantes Mortgage no. 2 Plc issued bonds of a total amount of 375 million euros.
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Azor Mortgage No. 2 In July 2008, Azor Mortgages No. 2, an issue of securitised bonds, collateralised by a portfolio of mortgages originating with the former BBCA, took place. Unlike previous emissions, which involved vehicles registered overseas, this issue was carried out directly by Gamma STC and did not involve any other vehicle outside Portugal.
In this issue, BBCA transferred a portfolio of 300 million euros to Gamma STC. This acquisition, together with the constitution of the necessary cash reserve, were financed by way of the securitised issue of Azor Mortgages No. 2 class A, B and C bonds, in a total nominal amount of 306.75 million euros.
Atlantes Mortgage No. 3 At the end of October 2008, another operation was carried out, in this case Atlantes Mortgage No. 3, with the issue of securitised bonds, involving a Banif, SA portfolio of property loans.
The bank transferred a portfolio of mortgage loans with a value of 600 million euros to Gamma. This acquisition and the constitution of the necessary cash reserve were financed by way of the securitised issue of Atlantes Mortgage No. 3 class A, B and C bonds, with an aggregate nominal value of 623.7 million euros.
Atlantes Mortgage No. 4 In February 2009 the Atlantes Mortgage No. 4 operation was carried out. This involved Banif transferring a mortgage loans portfolio, worth 550 million euros, to Gamma. The operation was financed by way of the issue of Atlantes Mortgage No. 4 class A, B and C securitised bonds, with an aggregate nominal value of 567.2 million euros.
Atlantes Mortgage No. 5 In December 2009 the Atlantes Mortgage No. 5 operation was carried out. This involved Banif transferring a mortgage loans portfolio, worth 500 million euros, to Gamma. The operation was financed by means of the issue of Atlantes Mortgage No. 5 class A, B and C securitised bonds, with an aggregate nominal value of 520.5 million euros.
Atlantes Mortgage No. 7 In November 2010 the Atlantes Mortgage No. 7 operation was carried out. This involved Banif transferring a residential mortgage loans portfolio, worth 397 million euros, to Gamma. The operation was financed by means of the issue of Atlantes Mortgage No. 7 class A, B and C securitised bonds, with an aggregate nominal value of 460.55 million euros.
Atlantes Finance No. 3 In July 2010 the Atlantes Finance No. 3 operation was carried out. This involved Banif, Banco Mais and Banif Go transferring a portfolio of car loans, vehicle leasing agreements, long-term hire contracts and consumer credit, worth 382.5 million euros, to Gamma. The operation was financed by means of
326 MANAGEMENT REPORT AND ACCOUNTS 2013
the issue of Atlantes Finance No. 3 class A, B and C securitised bonds, with an aggregate nominal value of 411.2 million euros.
This operation was settled during 2012.
Atlantes No. 1 In April 2011, the Atlantes No. 1 operation was carried out. This involved Banif transferring a company loans portfolio, worth 1,110.6 million euros, to Gamma. The operation was financed by means of the issue of Atlantes Finance no. 1 class A, B and C securitised bonds, with an aggregate nominal value of 1,132.9 million euros.
Atlantes Finance No. 4 In December 2011, the Atlantes Finance No. 4 operation was carried out. This involved Banif transferring a consumer loans portfolio, worth 110.2 million euros, to Gamma. The operation was financed by means of the issue of Atlantes Finance no. 4 class A, B, C and D securitised bonds, with an aggregate nominal value of 116.1 million euros.
Atlantes Finance No. 5 In July 2012, the Atlantes Finance No. 5 operation was carried out. This involved Banif transferring a consumer loans portfolio, worth 115.5 million euros, to Gamma. The operation was financed by means of the issue of Atlantes Finance no. class A, B, C and D securitised bonds, with an aggregate nominal value of 139.9 million euros.
Atlantes NPL 1 In December 2012, the NPL 1 operation was carried out. This involved Banif transferring to Gamma claim assignments worth 167.98 million euros that we had assigned to Banif International Bank and to Banif Forfeiting Company. The operation was financed by means of the issue of Class A and B securitised bonds, with an aggregate nominal value of 213 million euros.
Atlantes SME No. 2 In May 2013, the Atlantes Finance No. 2 operation was carried out. This involved Banif transferring an SME loans portfolio, worth 802.4 million euros, to Gamma. The operation was financed by means of the issue of class A, B, C and S securitised bonds, with an aggregate nominal value of 834 million euros.
Atlantes Finance No. 6 In December 2013, the Atlantes Finance No. 6 operation was carried out. This involved Banif transferring a consumer loans portfolio, worth 48.4 million euros, to Gamma (Banif Mais transferred a portfolio of 172.7 million euros). The operation was financed by means of the issue of class A, B, C and S securitised bonds, with an aggregate nominal value of 235.2 million euros.
The bonds issued through Atlantes Mortgage No. 2, Atlantes Mortgage No. 3, Atlantes Mortgage No. 4, Atlantes Mortgage No. 5, Atlantes Mortgage No. 7, Atlantes Finance No. 3, Azor Mortgage No. 2, Atlantes
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No. 1 and Atlantes Finance No. 4 are held by Banif and are being used to guarantee refinancing operations at the ECB.
The maturity and return of securitisation operations are presented in the table below:
Description Maturity Interest rate
ATLANTE MTG Nº 1 CL A 17/07/2036 EUR 3M + 0,54% ATLANTE MTG Nº 1 CL D 17/07/2036 0%
ATLANTE MTG Nº 2 CL A 05/09/2060 EUR 3M + 0,33% ATLANTE MTG Nº 2 CL B 05/09/2060 EUR 3M + 0,95% ATLANTE MTG Nº 2 CL C 05/09/2060 EUR 3M + 1,65% ATLANTE MTG Nº 2 CL D 05/09/2060 0%
ATLANTE MTG Nº 3 CL A 20/08/2061 EUR 3M + 0,2% ATLANTE MTG Nº 3 CL B 20/08/2061 EUR 3M + 0,5% ATLANTE MTG Nº 3 CL C 20/08/2061 0%
ATLANTE MTG Nº 4 CL A 20/12/2064 EUR 3M + 0,15% ATLANTE MTG Nº 4 CL B 20/12/2064 EUR 3M + 0,3% ATLANTE MTG Nº 4 CL C 20/12/2064 0%
ATLANTE MTG Nº 5 CL A 23/11/2068 EUR 3M + 0,15% ATLANTE MTG Nº 5 CL B 23/11/2068 EUR 3M + 0,3% ATLANTE MTG Nº 5 CL C 23/11/2068 0%
AZOR MTG Nº1 CL A 20/09/2047 EUR 3M + 0,15% AZOR MTG Nº1 CL C 20/09/2047 EUR 3M + 0,75% AZOR MTG Nº1 CL D 20/09/2047 0%
AZOR MTG Nº 2 CL A 14/12/2065 EUR 3M + 0,3% AZOR MTG Nº 2 CL B 14/12/2065 EUR 3M + 0,8% AZOR MTG Nº 2 CL C 14/12/2065 0%
ATLANTES SME 1 CL A 25/07/2042 EUR 3M + 1,8% ATLANTES SME 1 CL B 25/07/2042 EUR 3M + 2% ATLANTES SME 1 CL C 25/07/2042 0%
ATLANTE MTG Nº 7 CL A 23/08/2066 EUR 3M + 0,15% ATLANTE MTG Nº 7 CL B 23/08/2066 EUR 3M + 0,3% ATLANTE MTG Nº 7 CL C 23/08/2066 0%
ATLANTES NPL Nº 1 CL A 15/12/2018 6% ATLANTES NPL Nº 1 CL B 15/12/2018 0%
ATLANTES FIN Nº 4 CL A 19/06/2032 EUR 3M + 1,5% ATLANTES FIN Nº 4 CL B 19/06/2032 EUR 3M + 2,25% ATLANTES FIN Nº 4 CL C 19/06/2032 EUR 3M + 3% ATLANTES FIN Nº 4 CL D 19/06/2032 0%
ATLANTES FIN Nº 5 CL A 19/12/2025 EUR 3M + 2,75% ATLANTES FIN Nº 5 CL B 19/12/2025 EUR 3M + 3% ATLANTES FIN Nº 5 CL C 19/12/2025 0% ATLANTES FIN Nº 5 CL S 19/12/2025 0%
ATLANTES FIN Nº 6 CL A 20/03/2033 EUR 3M + 2,4% ATLANTES FIN Nº 6 CL B 20/03/2033 EUR 3M + 3% ATLANTES FIN Nº 6 CL C 20/03/2033 0% ATLANTES FIN Nº 6 CL S 20/03/2033 0%
ATLANTES SME Nº 2 CL A 26/05/2042 EUR 3M + 2% ATLANTES SME Nº 2 CL B 26/05/2042 EUR 3M + 2% ATLANTES SME Nº 2 CL C 26/05/2042 0% ATLANTES SME Nº 2 CL S 26/05/2042 0%
328 MANAGEMENT REPORT AND ACCOUNTS 2013
28. PROVISIONS AND CONTINGENT LIABILITIES
Balance on Reinstatements Balance on Description Increases Adjustments Uses and 31/12/2012 cancellations 31/12/2013
General Credit Risks 62,060 7,601 (1,560) (12,892) 55,209 Judicial proceedings 464 1,052 (60) (502) 954 Fiscal contingencies 4,216 343 (1,030) (1,150) 2,379 Financial Holdings 44,311 66,177 (15,395) 95,093 Other provisions 6,992 1,639 (2,288) (1,612) (709) 4,022 118,043 76,812 (3,848) (2,702) (30,648) 157,657
Given the high degree of uncertainty as to when payment might be received in these contingent situations, no time-based discount was taken into consideration.
The obligations carried as liabilities are of the following natures:
Fiscal contingencies: there is a present obligation arising from past events where the future disbursement of funds to pay tax on profits is likely.
Contingencies with legal disputes: there is a present obligation arising from past events where the future disbursement of funds is likely with lawsuits brought against Banif.
Other contingencies: there is a present obligation arising from past events where the future disbursement of funds is likely with other formal or constructive obligations of Banif, particularly liabilities of subsidiaries.
Contingent liabilities associated with ongoing legal proceedings, which have the potential to result in losses for Banif but where the probability of such loss is estimated to be low (more than 5% but less than 50%), amounted to 30,750 thousand euros at 31 December 2013. At this time, no reliable estimate could be made of potential losses in these proceedings.
The guarantees provided correspond to the following nominal amounts recorded in off-balance-sheet accounts:
Description 31-12-2013 31-12-2012
Guarantees given (of which:) Guarantees and sureties 401.465 424.477 Standby Letters of Credit -- Open documentary credit 13.325 42.823
414.790 467.300
The breakdown for other contingencies and commitments entered into with third parties not recognised in the financial statements, with reference to 31 December 2013 and 2012, is as follows:
329 MANAGEMENT REPORT AND ACCOUNTS 2013
Description 31/12/2013 31/12/2012
Other guarantees given (of which:) Assets given as guarantee 6,633,862 6,517,300 Commitments to third parties (of which:) Irrevocable commitments 188,718 158,245 Revocable commitments 719,923 581,648
7,542,503 7,257,193
“Assets given as guarantee” refer to treasury bonds and bonds associated with securitisation operations that are being used to guarantee irrevocable commitments to the Deposit Guarantee Fund, the Investor Indemnification System, and intra-daily credit from Banco de Portugal, the Garantia Mútua Company and the European Central Bank.
29. OTHER SUBORDINATED LIABILITIES AND EQUITY INSTRUMENTS
The other subordinated liabilities item breaks down in the following way:
Description 31/12/2013 31/12/2012
Subordinated loans and bonds issued 167,097 242,717 Subordinated bonds bought back (36,499) (36,252) Interest expenses (10,640) (15,644)
119,958 190,821
Debt issues classified in this item have the following characteristics:
Redemption Balance Buy-back Gain Name Issue date Interest rate Repurchased date sheet value 2013
to 30/12/2010: Euribor 3 months plus 0.75%; remaining period: Euribor Banif - Banco Internacional do Funchal 2005 - 2015 30/12/2005 30/12/2015 45,441 (29,251) 516 3 months plus 1.25%
to 22/12/2014: Euribor 3 months plus 1%, remaining period: Euribor 3 Banif - Banco Internacional do Funchal 2006 - perpétua 22/12/2006 perpétua 3,080 - 3,809 months plus 2%
to 22/12/2011: Euribor 3 months plus 0.75%, remaining period: Euribor Banif - Banco Internacional do Funchal 2006 - 2016 22/12/2006 22/12/2016 5,040 (706) 1,144 3 months plus 1.25%
to 22/12/2016: Euribor 3 months plus 1.37%, remaining period: Euribor Banif - Banco Internacional do Funchal SFE 2007 22/12/2007 perpétua 3,865 - 4,611 3 months plus 2.37%
to 28/12/2017: Euribor 3 months plus 3.0362%, remaining period: Banif - Banco Internacional do Funchal SFE 2008 30/06/2008 perpétua -- Euribor 3 months plus 4.0362%
1º ano: 6,25%; até 11º cupão: Euribor 6 meses acrescido 1%, restante Banif - Banco Internacional do Funchal 2008 - 2018 18/08/2008 18/08/2018 18,236 (3,336) 2,118 período: Euribor 6 meses acrescido 1,15%
to 30/06/2009: 4.5%, from 30/12/2009 to 30/06/2014: Euribor 6 Banif - Banco Internacional do Funchal 2009 - 2019 30/06/2009 30/06/2019 11,719 (2,086) 193 months plus 2.75%; remaining period: Euribor 6 months plus 3%
first 5 years: Euribor 6 months plus 1%, remaining years: Euribor 6 BBCA 2006 - 2016 23/10/2006 23/10/2016 14,948 - 955 months plus 1.25%
up to 11th coupon: Euribor 6 months plus 1%, remaining years: Euribor BBCA 2007 - 2017 25/09/2007 25/09/2017 8,259 (520) 436 6 months plus 1.25%
to 28/12/2017: Euribor 3 months plus 1,90%, remaining period: Euribor BBCA 2004 - perpétua 22/12/2004 perpétua 2,769 - 3,402 3 months plus 2,90%
Banif 2012 - 2019 09-01-2012 09-01-2019 to 09/01/2017: fixed rate of 6.875%, remaining period: 7.875% 53,740 (600) (3,114)
167,097 (36,499) 14,070
These subordinated liabilities have early redemption clauses, at the option of the issuer, (“call option”), for redemption at par, in full or in part. This option may be exercised on any interest payment date from the 5th year onwards, following prior authorisation from Banco de Portugal, or when these instruments no longer qualify as supplementary own funds.
In connection with the recapitalisation process, the payment of interest to subsidiaries is subject to specific supervision, with limits on the payment. In this context, the company did not accrue or pay
330 MANAGEMENT REPORT AND ACCOUNTS 2013
interest to Banif Finance Ltd related to the subordinated loans corresponding to its primary issues with the ISIN Code XS0280064204, XS0208508845, XS0280064469 and XS0337503154.
In 2013, the following issues were partially repaid, essentially under share swap: Banif 2005-2015 Sub: 4,559 thousand euros; Banif 2008-2018 Cx Sub: 6,764 thousand euros; Cx Sub BCA 2006/2016: 5,052 thousand euros; Cx Sub BCA 2007/2017: 1,742 thousand euros; Banif 2009-2019 Sub: 583 thousand euros; Banif 2012-2019 Sub: 33,958 thousand euros; Banif SFE 2006/perp: 6,135 thousand euros; Banif SFE 2004/perp: 4,597 thousand euros; Banif SFE 2006/2016: 6,000 thousand euros; Banif SFE 2007/perp: 6,230 thousand euros;
“Equity instruments” developed as follows:
Description 31/12/2013 31/12/2012
Equity instruments 270,058 12,009
270,058 12,009
“Equity instruments” corresponds to:
The issue of subordinated perpetual real estate securities, with conditional interest rates, on the following terms: Issue: 10 million euros Issue Date: 30/12/2009 Maturity date: indeterminate Interest rate: Subject to decision by the Banif board of directors and the limitations on interest payments: (i) In relation to the first two interest payment periods, the issuer will pay interest at a fixed rate of 6.25% p.a. (ii) After the first anniversary of the issue date (exclusive), the issuer will pay interest at a variable rate corresponding to the 6-month Euribor rate quoted on the second “Target Business Day” immediately prior to the start date for each interest period, plus 5.00% per annum.
Given the terms of this issue and the constraints of the recapitalisation process, Banif stopped paying interest on this issue and recognising its costs.
331 MANAGEMENT REPORT AND ACCOUNTS 2013
Issue of Core Tier 1 Equity instruments subscribed by the state on the following terms: Issue: 400 million euros Issue Date: 25/01/2013 Maturity date: 25/01/2018 Effective interest rate:
1st year: 9.50%;
2nd year: 9.75%;
3rd year: 10.00%;
4th year: 10.50%;
5th year: 11.00%;
On 29/08/2013 Banif made a partial repayment of this instrument to the value of 150 million euros, for which reason the net balance sheet value on the reporting date is 250 million euros. On this date payable interest accrued was 10.058 million euros.
30. OTHER LIABILITIES
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Creditors and other funds 37,273 35,471 For staff costs 25,471 23,296 Foreign currency position 34,009 16,072 Others 91,386 127,351
188,139 202,190
“Others” includes 24,997 thousand euros of amounts payable to securitisation vehicles and 30,241 thousand euros concerning clearing systems.
31. OPERATIONS WITH SHAREHOLDER’S EQUITY
At 31 December 2013 and 2012, the breakdown of shareholder’s equity was as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Equity 1,582,195 570,000 570,000 Issue premiums 199,765 104,565 104,565 Other equity instruments - 95,900 95,900 Revaluation reserves Revaluation reserves Securities (5,086) (987) (987) Actuarial gains (losses) (30,948) (21,274) (21,274)
Deferred tax reserves: Securities 1,397 234 234 Actuarial gains (losses) 7,598 5,124 5,124
Legal Reserve 50,727 50,727 50,727 Other reserves and retained earnings (476,730) (58,242) (55,507) (Own shares) - - - Profit/loss for the year (494,341) (414,218) (406,376) (Interim dividends) - - -
834,577 331,829 342,406
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The share capital consists of 101,789,522,043 shares, without nominal value, fully paid up.
In the context of the Banif recapitalisation plan (Chapter 06), the following capital inflows occurred:
Phase 1
700 million euros of special shares subscribed by the state. (Diário da República (Official Gazette), 2nd series — No. 17 — 24 January 2013).
Phase 2
100 million euros of shares through a private placement to key shareholders;
100 million euros of shares in a public share offering aimed at the general public;
40.7 million euros of shares through a private placement;
70.795 million euros through a securities for shares swap.
700 thousand euros through the conversion of mandatory convertible securities (MCS) that had been issued by the former Banif SGPS, SA to the value of 95,700 million euros. This conversion resulted in the registration of 700 thousand euros in share capital and 95,200 million euros in issue premiums.
The analysis of regulatory capital is shown in chapter 06 of the management report.
32. INTEREST AND SIMILAR INCOME AND INTEREST AND SIMILAR COSTS
This item breaks down as follows:
31-12-2012 Description 31/12/2013 31/12/2012 Restated
Interest and similar income Interest on liquid assets at central banks 393 772 772 Interest on liquid assets at other CI 21 220 220 Interest on investments at CI 20,248 47,154 47,154 Interest on loans to customers 242,514 312,591 317,639 Interest on overdue loans 18,326 24,390 24,390 Interest and similar income on other assets 203,721 258,282 258,282 Fees and commissions received related to amortised cost 4,615 4,929 4,929 489,839 648,338 653,386
Interest and similar charges Interest on funds from central banks 17,360 19,867 19,867 Interest on funds at other CI 18,121 28,452 28,452 Interest on customer funds 254,020 405,493 400,356 Interest on loans - - - Interest liabilities on non-subordinated securities 27,238 17,371 17,371 Interest and similar charges on other financial liabilities - - - Interest on subordinated liabilities 36,015 17,671 17,671 Fees and commissions paid related to amortised cost 1,640 2,108 2,108 Others 18,054 32,963 32,963 372,447 523,925 518,788
The growth in interest on client funds results from an increased volume of deposits and interest rates, as explained in chapter 06 - Management Report.
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33. INCOME FROM EQUITY INSTRUMENTS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Dividends on financial assets available for sale 836 1,711 Dividends on investments in subsidiaries 177 60 1,013 1,771
34. INCOME AND COSTS IN RESPECT OF SERVICES AND FEES
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Income from fees and commissions Guarantees given 10,179 11,085 Deposit and custody of securities 279 361 Collection of securities 9,108 10,607 Transfer of securities 596 631 Card management 11,837 11,675 Annuities 3,776 3,343 Credit operations 653 715 Other services provided 8,865 8,951 Setting up transactions -- Other fees and commissions received 34,386 49,048 79,677 96,419
Cost of fees and commissions Guarantees received 9,711 13,611 For other services received 8,688 10,436 Other fees and commissions paid 428 416 18,827 24,463
The other fees received correspond essentially to fees for the management of sight deposit accounts (7,972 thousand euros), current accounts (8,071 thousand euros), with updated pricing structure, uncleared balance fees (9,245 thousand euros) and late payment fees (4,443 thousand euros).
35. PROFIT AND LOSS ON FINANCIAL OPERATIONS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Gains on financial operations Gains on foreign exchange 148,561 71,137
Losses on financial operations Losses on foreign exchange 146,862 70,109
1,699 1,028
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Description 31/12/2013 31/12/2012
Gains on financial operations Gains on financial assets available for sale 34,443 324
Losses on financial operations Losses on financial assets available for sale 3,235 1,076
31,207 (752)
Description 31/12/2013 31/12/2012
Gains on financial operations Gains on financial assets held for trading 1,556 9,450 Gains on other financial assets at fair value through profit and loss 699 1,375 Gains on hedging derivatives - -
Losses on financial operations Losses on financial assets held for trading 1,588 8,097 Losses on other financial assets at fair value through profit and loss 13,960 4,904 Losses on hedging derivatives - -
(13,293) (2,176)
36. PROFIT AND LOSS FROM DISPOSAL OF OTHER ASSETS AND OTHER OPERATING INCOME
The profit/loss arising from the disposal of other assets break down as follows:
Description 31/12/2013 31/12/2012
Gains on the disposal of other assets 2,559 6,541 Losses on disposal of customer loans (10,022) (582) Losses on the disposal of other assets (10,774) (4,509) ( 18 236) 1 450
Other operating profit/loss break down as follows:
Description 31/12/2013 31/12/2012
Other income Provision of Services 5,980 5,630 Recovery of loans and interest 13,302 9,460 Reimbursement of costs 8,532 10,020 Gains on non-financial assets - - Others 18,788 4,400 46,602 29,510
Other costs Subscriptions and donations 300 310 Contributions to DGF and CAM guarantee fund 4,475 2,069 Other taxes 3,396 3,221 Losses on non-financial assets 3,299 1,470 Others 16,961 11,918 28,431 18,988
18,170 10,522
In 2013, “Others” under Other Income included an amount of 14,070 thousand euros in respect of gains on the repurchase of subordinated liabilities.
335 MANAGEMENT REPORT AND ACCOUNTS 2013
37. STAFF COSTS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Remuneration of management and supervisory bodies 1,493 2,821 Remuneration of employees 78,121 76,967 79,614 79,788
Mandatory social costs: Costs relating to remuneration 20,668 20,693 Pension costs: - Liabilities Generated in the Year 260 2,986 - Other (Defined contribution plans) 2,191 2,362 Other social costs 1,657 1,890 24,777 27,931
Other staff costs 1,822 13,738 106,213 121,457
38. GENERAL ADMINISTRATIVE COSTS
This item breaks down as follows:
Description 31/12/2013 31/12/2012
Water, electricity and fuel 3,503 3,623 Consumables 352 458 Rents and leases 16,265 17,019 Communications 4,499 5,701 Travel, subsistence and representation 1,796 1,529 Publicity, advertising and publications 5,119 4,930 Maintenance and repairs 4,179 3,075 Transport 1,048 1,287 Staff training 182 236 Insurance 945 1,412 Specialised services 22,279 20,211 Others 5,404 4,672 65,570 64,153
“Specialised services” includes the following amounts for services provided by the statutory auditor and its network of companies: 521 thousand euros invoiced during 2013 in respect of statutory auditing of accounts: (310.68 thousand euros in 2012); 740 thousand euros of further assurance services (79.9 thousand euros in 2012) and; 87 thousand euros of tax advisory services with statutory auditors (7.5 thousand euros in 2012).
39. ASSETS UNDER OPERATING LEASES
Costs associated with assets used under operating leases are recorded in the year to which they relate, in the “Rents and leases” item in general administrative costs, and refer mainly to buildings rented to house branches.
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Future payments from Contigent rents Other assets under non-cancellable operating Minimum lease payments recognised in the income operating lease leases statement
Residual Maturity
Less than 1 year 475 1,349 - 1 to 5 years 26,271 12,619 161 over 5 years 18,948 1,578 - Total 45,694 15,546 161
40. FINANCIAL INSTRUMENTS RISKS
The risk analysis for financial instruments is presented in chapter 06 of the management report, risk management
41. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments at fair value
Valuation techniques Description Market or listed value Market analysis Others Total 2013 2012 2013 2012 2013 2012 2013 2012 Assets
Financial assets held for trading - - 2,494 1,097 48 - 2,542 1,097 Other financial assets at fair value through profit or loss 679 5,610 6,018 4,672 174,234 177,684 180,931 187,966 Financial assets available for sale 1,335,926 293,515 - - 2,885,362 3,523,720 4,221,288 3,817,235
Liabilities
Financial liabilities held for trading - - 13,790 9,466 - - 13,790 9,466 Other financial liabilities at fair value through profit or loss ------
The analysis in the table above is based on the following assumptions: Market values (Level 1): financial instruments valued on the basis of active market prices were placed in this column. Market analysis (Level 2): financial instruments valued on the basis of observable market variables were placed in this column. This level includes units in equity investment funds valued according to their published NAV and bonds not listed in an active market; Other (Level 3): financial instruments valued on the basis of non-observable market variables were placed in this column. This level includes unlisted shares and units in real estate investment funds. No changes have been made to the valuation criteria, as used in 2012, with regard to financial assets that are classified under the market analysis valuation technique. The reconciliation of level 3 opening and closing balances is as follows:
Balance on Exchange Balance on Descrição AcquisitionsTransfers Disposals DepreciationGains Reserves Impairment Interest Rate Repo's 31/12/2012 31/12/2013 Variation
Financial assets held for trading - 77 - - - - (35) - 6 - - 48
Assets at fair value through profit or loss 177,684 9,150 117 - - (12,717) - - - - - 174,234
Financial assets available for sale - - Equity Instruments 160,805 182,769 - (8,454) (28) - 2,835 (6,420) - (1) - 331,506 Debt instruments 3,362,915 856,961 - (860,733) (416,467) - 4,398 16,831 (3,790) (18) (406,241) 2,553,856
3,701,404 1,048,880 117 (869,187) (416,495) (12,717) 7,233 10,411 (3,790) (19) (406,241) 3,059,596
337 MANAGEMENT REPORT AND ACCOUNTS 2013
It is to be noted that the amounts of acquisitions in the table above essentially concern securitisation operations (Note 27)and assets received in the context of the assignment of claims (Note 10), for which reason these acquisitions do not represent outflows of capital.
The financial instruments classified at Level 3 are: securities issued as part of securitisation operations, of all categories, whose value is intrinsically dependent on the performance of the securitised loan portfolios in question, by operation, on the swaps and on other costs borne by the vehicle’s entities (SPV). debt securities issued by group entities for which the issuer has made a repurchase commitment at the nominal value. non-listed equity instruments.
Non-listed equity instruments, recognised in Available-for-sale financial assets, valued using non- observable market variables or at historical cost, can be found in the column “Others” (331,506 thousand euros in 2013 and 160,805 thousand euros in 2012).
The valuation model for financial liabilities at fair value through profit or loss consists of using, for the financial component, discounted cash-flow techniques based on a zero coupon interest rate curve, adjusted for the spread implicit in the liability on the date of its issue. The value of the embedded derivative is estimated on the basis of the amount that would be received or paid to settle the contract on the date in question, under the prevailing market conditions. The fair value of the instrument is, thus, calculated as the sum of the two components: financial and embedded derivative.
In in-house models for the valuation of financial instruments for trading and at fair value through profit or loss, market interest rates are calculated on the basis of information published by Bloomberg. More specifically, for maturities of up to one year they are indexed to the interbank money market rates. For longer maturities they are indexed to prices for interest rate swaps. The interest rate curve thus obtained is further adjusted against values of short-term interest rate futures. Interest rates for specific maturities are determined using interpolation methods. The same interest rate curves are also used for forecasting non-deterministic cash flows, such as reference rates.
338 MANAGEMENT REPORT AND ACCOUNTS 2013
The interest rates used to calculate the interest rate curve with reference to 31 December 2013, for the euro and the USD, are as follows:
EUR USD Maturity 2013 2012 2013 2012 1 day 0.28% 0.05% 0.10% 0.20% 7 days 0.18% 0.06% 0.15% 0.35% 15 days 0.19% 0.06% 0.15% 0.31% 1 month 0.23% 0.07% 0.16% 0.21% 2 months 0.26% 0.06% 0.20% 0.27% 3 months 0.24% 0.10% 0.23% 0.33% 4 months 0.26% 0.13% 0.29% 0.39% 5 months 0.29% 0.16% 0.35% 0.45% 6 months 0.32% 0.20% 0.41% 0.51% 7 months 0.34% 0.23% 0.43% 0.55% 8 months 0.37% 0.27% 0.46% 0.59% 9 months 0.39% 0.31% 0.48% 0.63% 10 months 0.42% 0.35% 0.43% 0.53% 11 months 0.44% 0.39% 0.37% 0.42% 1 year 0.47% 0.43% 0.32% 0.32% 2 years 0.54% 0.38% 0.49% 0.39% 3 years 0.75% 0.47% 0.88% 0.50% 4 years 1.01% 0.62% 1.33% 0.68% 5 years 1.26% 0.77% 1.79% 0.86% 6 years 1.47% 0.94% 2.13% 1.09% 7 years 1.68% 1.12% 2.48% 1.31% 8 years 1.84% 1.27% 2.68% 1.49% 9 years 2.00% 1.42% 2.89% 1.66% 10 years 2.15% 1.57% 3.09% 1.84% 20 years 2.72% 2.16% 3.80% 2.59% 30 years 2.74% 2.23% 3.93% 2.80%
Financial instruments at cost or amortised cost
For liquid assets, investments and credit with a maturity of less than one year, the balance sheet value is considered to be a reliable approximation to the fair value. For indexed-rate credit with a maturity of over one year, the balance sheet value is also considered to be a reliable approximation to the fair value. Given the low materiality of fixed-rate credit with a maturity of over one year, the balance sheet value is considered to be a reliable approximation to the fair value. The credit risk was not considered.
For clients’ funds and liabilities represented by securities of up to one year, or those which are undated, which include deposits with no associated interest rate, the amount redeemable on the reporting date is considered to be a reliable approximation to fair value.
The balance sheet values indicated above in the “Credit and other receivables” item are shown net of provisions, in accordance with Banco de Portugal rules.
The fair value of financial instruments is determined by the deduction of the impairment (Note 44.1) from the gross value of the instrument, since Banif considers the amount of impairment to be close to the fair value.
339 MANAGEMENT REPORT AND ACCOUNTS 2013
42. POST-EMPLOYMENT BENEFITS: LIABILITIES FOR RETIREMENT AND SURVIVING-RELATIVE PENSIONS
42.1 General Description
As described in Note 2.15, Banif – Banco Internacional do Funchal, SA (the Banif) covers its employees through a number of different pension and medical care benefit plans, as follows: Pension Plan I, defined benefit (DB); Pension Plan II, defined contribution (DC); Pension Plan III, also defined contribution (DC).
Liabilities with the aforementioned pension plans are financed by the Banif Pension Fund, a closed fund set up on 7 December 1989, the purpose of which is to finance the obligations foreseen in Pension Plans I, II and III, of which it is comprised.
In addition to the pension funds, there are two life annuity insurance contracts to cover the retirement pension of a pensioner, taken out with two different insurers that are not in a group relationship with Banif. The insured pension is fixed and paid 14 times a year. It is 40% reversible in the event of the death of the pensioner, the terms of the pension plan, and the respective annual increases are borne by the pension fund.
The managing entity of the pension funds is Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA, a related entity, which subcontracted Banif – Banco de Investimento, SA for the financial management and assessment of the fund’s assets.
Actuarial studies of the current value of the liabilities of the defined benefit plans, conducted with reference to 31 December 2013 and 2012, are the responsibility of the actuary Dr. Ana Marta Vasa, of Towers Watson (Portugal), Unipessoal Limitada.
42.2 Pension Plan I (defined benefit)
As at 31 December 2013, Pension Plan I (defined benefit) covered 417 pensioners (402 in 2012), 292 active employees (309 in 2012), beneficiaries of retirement pensions and SAMS, and 2,593 active employees (2,599 in 2012) for SAMS liabilities, and 182 former employees (167 in 2012), as per clause 137-A of the CLA.
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a) Actuarial assumptions
The main actuarial and financial assumptions used for the calculations made were as follows:
Description 31/12/2013 31/12/2012 Actuarial Valuation Method Forecast Credit Unit Forecast Credit Unit Mortality Table: - Men TV 73/77 TV 73/77 - Women TV 88/90 TV 88/90 Disability Table 100% EVK80 100% EVK80 Discount Rate 4.00% 4.50% Rate of return on fund assets 4.00% 4.50% Salary Growth Rate 1.00% 1.00% Pension Growth Rate 1.00% 1.00% Turnover rate Not applied Not applied (*) Banif Pension Fund - Plan I / BBCA Pension Fund
For the 2013 actuarial assessment, the actuarial assumptions were adjusted with the discount rate, in the light of the economic situation in Portugal and in the banking sector. This discount rate corresponds to the interest rate on low-risk company bonds with a maturity approximately the same as the maturity of the liabilities. This maturity is determined on the basis of average life expectancy, weighted for the payouts made by the fund for each of the benefits.
In the current sovereign debt crisis in the countries in southern Europe, there has been an extraordinary disruption in the euro zone debt market, leading to an abrupt reduction in the market yields of the debts of low-risk companies and a limitation on the available basket of these bonds. In these circumstances, to maintain the representativity of the discount rate, when determining this rate, Banif considered the information available in the euro zone, on 31 December 2013, on interest rates for bonds in euros, including public debt, and which it considers a low credit risk.
With the merger of the populations, the duration of liabilities associated with pension benefits, SAMS and death allowances changed to 15 years in 2013 (16 years in 2012).
The expected overall rate of return for the year reflects the anticipated yield on the fund’s assets at the end of the previous year, taking into consideration the nature of the fund portfolio and the investment policies adopted.
For reasons of prudence and because it cannot be determined with sufficient reliability, no turnover rate has been applied.
341 MANAGEMENT REPORT AND ACCOUNTS 2013
b) Liabilities and Coverage
At 31 December 2013 and 2012, the liabilities recognised on the balance sheet were:
Description 31/12/2013 31/12/2012
Current value of liabilities Pensions being paid 52,102 44,334 Past service of current employees 35,240 33,305 SAMS costs 14,706 13,353 Death Allowance 353 622
Total 102,401 91,614
Fair value of the assets in the plan (102,791) (98,716)
Liabilities (Assets) recognised on the balance sheet (390) (7,102)
Coverage of liabilities complies with the provisions of Banco de Portugal Notice No. 12/2001 and the minimum level of funding set by the ISP (Portuguese Institute of Insurance).
The annual increase in liabilities breaks down as follows:
Description 31/12/2013 31/12/2012
Current value of initial liabilities 91,614 88,058 Current service cost 656 616 Interest cost 4,123 4,749 Actuarial losses (gains) 9,924 (1,262) Increased liabilities through early retirement - 2,491 Pensions paid (3,916) (3,038)
Total costs for the year 102,401 91,614
The current value of the liability for future services, as of 31 December 2013, was 8,307 thousand euros (7,829 thousand euros in 2012).
The following table presents sensitivity analyses of how liabilities for defined benefit plans would be affected by reasonably possible amendments to the relevant actuarial assumptions as at 31 December 2013. These sensitivity analyses apply to gross liabilities for defined benefit plans and not to the liability (asset) recognised on the Balance Sheet, since this net balance depends on the fair value of the assets in the plan.
342 MANAGEMENT REPORT AND ACCOUNTS 2013
Sensitivity analyzes (*) 31/12/2013 31/12/2012 Discount Rate + 0,5 bp (7,127) - - 0,5 bp 7,917 - Salary Growth Rate + 0,5 bp 2,695 - - 0,5 bp (2,503) - Pension Growth Rate + 0,5 bp 8,242 - - 0,5 bp (7,573) - Mortality Table Increase of one year, having considered: Male: TV73/77 (-1) 2,971 - Female: TV88/90 (-1) Expected income + 0,5 bp 493 - - 0,5 bp (493) - (*) Sensitivity analysis carried out considering the modification of a single assumption and the remaining constant.
In turn, an increase or decrease of 1% in the rate of SAMS contributions would imply an increase, or reduction, in liabilities of 2,262 thousand euros (2,055 thousand euros at 31 December 2012) and an increase, or reduction, in costs for the fiscal year (current service cost and interest cost) of 48.7 thousand euros (44.9 thousand euros at 31 December 2012).
At 31 December 2013 and 2012, the average duration of liabilities of the defined benefit plans and the time distribution of the payments envisaged are:
Description 31/12/2013 31/12/2012 Duration of liabilities of the Pension Plan 15 years 16 years
Expected payment of benefits within 12 months 5,384 4,940 between ] 1 ; 3 ] years 10,433 10,028 between ] 3 ; 6 ] years 16,241 15,155 between ] 6 ; 11 ] years 34,011 32,110 between ] 11 ; 16 ] years 37,297 37,311 after 16 years 143,724 153,188
c) Actuarial earnings and losses
Following the change in accounting policy regarding the recognition of actuarial gains and losses, as explained in Note 2.15, the gains and losses arising from the differences between the actuarial and financial assumptions used and the values actually seen as regards these liabilities and the income from the pensions fund are wholly recognised in equity, in Reserves through Actuarial Gains and Losses.
343 MANAGEMENT REPORT AND ACCOUNTS 2013
The actuarial gains and losses recognised in equity were:
Description 31/12/2013 31/12/2012 Reserves by actuarial gains (losses) at year start (21,274) (22,464) Actuarial gains (losses) of the year (9,674) 1,190 of which: by changing demographic assumptions - - by changing financial assumptions (6,703) (3,236)
Reserves by actuarial gains (losses) at year end (30,948) (21,274)
d) Costs recognised in the year
In 2013 and 2012, the company recognised the following costs in respect of the pension plan:
Description 31/12/2013 31/12/2012
Current service cost 656 616 Interest cost 4,123 4,749 Expected return (4,438) (4,745) Cost of early retirements - 2,491 Others/Cut (transfer to Social Sec.) - (94) Costs borne by beneficiaries (81) (31)
Total costs for the year 260 2,986
The current service cost of Pension Plan I (defined benefit) for liabilities relating to the pensions of group directors is zero (zero in 2012) insofar as they all retired on grounds of age (65 years) in 2009. Non-verification of this assumption does not invalidate the non-allocation of any amount as a current service cost, as the liability to be funded is then calculated on the basis of total services.
e) Fair value of the assets of the value of the pension fund assigned to Pension Plan I
The change in the fair value of the fund’s assets was as follows:
Description 31/12/2013 31/12/2012
Value of the fund at year start 98,716 93,129 Expected return 4,438 4,745 Actuarial gains (losses) (financial) 250 (72) Contributions paid into the fund by the company 3,237 3,863 Contributions paid into the fund by the beneficiaries 67 58 Others/liquidation (transfer to social security) - 31 Pensions paid out by the fund (3,916) (3,038)
Value of the fund at year end 102,791 98,716
The contributions made in 2012 and in 2011 were paid in cash.
In 2014, the company expects to make contributions of 1,075.8 thousand euros.
At 31 December 2013 and 2012, the fund’s assets were distributed as follows:
344 MANAGEMENT REPORT AND ACCOUNTS 2013
2013 2012
Non listed Non listed Description Listed Assets Total % Listed Assets Total % Assets Assets
Liquidity 1,357 1,103 2,460 2.39% 15,823 4,701 20,524 20.72% Real Estate Domestic - 22,835 22,835 22.22% 22,967 - 22,967 23.19% Shares Domestic 3,332 1,353 4,685 4.56% 229 - 229 0.23% Foreign - - - 0.00% 725 - 725 0.73% Bonds Domestic, AAA to BBB - - - 0.00% - - - 0.00% Domestic, less then BBB - 18,114 1,332 19,447 18.92% 18,044 1,701 19,745 19.93% Foreign, AAA to BBB - 19,705 - 19,705 19.17% 7,646 - 7,646 7.72% Foreign, less then BBB - 1,850 - 1,850 1.80% 3,010 - 3,010 3.04%
Investment Funds Shares Domestic - - - 0.00% - - - 0.00% Foreign 11,825 - 11,825 11.50% 4,410 - 4,410 4.45% Bonds Domestic, AAA to BBB - 3,236 - 3,236 3.15% 2,971 - 2,971 3.00% Domestic, less then BBB - - - - 0.00% - - - 0.00% Foreign, AAA to BBB - 4,047 - 4,047 3.94% - - - 0.00% Foreign, less then BBB - 2,582 - 2,582 2.51% 5,210 - 5,210 5.26% Real Estate Domestic 2,716 - 2,716 2.64% 3,117 - 3,117 3.15% Foreign 2,829 - 2,829 2.75% 3,588 - 3,588 3.62% Others
Other investments 4,574 - 4,574 4.45% 4,910 - 4,910 4.96%
Total assets of the fund 76,167 26,624 102,791 100.00% 92,650 6,402 99,051 100.00%
of which,
Securities issued by the Company or other 4,141 8,369 companies within a relation of Group
Properties leased by the Company or other 8,380 8,380 companies within a relation of Group
Deposits in the Company or other companies 2,294 15,226 within a relation of Group.
f) Other information
The main figures for the year and the previous year were as follows:
Description 31/12/2013 31/12/2012 Mortality Rate 0.12% 0.96% Disability Rate 0.56% 3.30% Fund Return Rate 4.75% 6.67% Salary Growth Rate 0.10% 0.95% Pension Growth Rate -0.39% -0.44% Turnover rate 2.87% 5.01% (*) Fundo de Pensões Banif - Plano I / Fundo de Pensões BBCA
The change in liabilities and the value of the fund assigned to the benefit plan defined in 2013 and in the four previous years are as follows:
Description 2013 2012 2011 2010 2009 Current Value of Liabilities 102,401 91,614 88,058 137,676 135,705 Fund Value 102,791 98,716 93,129 131,416 128,003 (Shortfall) Surplus 390 7,102 5,071 (6,260) (7,702) Actuarial gains (losses) in liabilities (9,924) 1,262 12,079 2,704 (866) Actuarial gains (losses) in the fund 250 (72) (7,085) (5,101) (655)
42.3 Pension Plans II and III (defined contribution)
In 2013, Banif made contributions of 2,191 thousand euros (2,361 thousand euros in 2012) to Pension Plans II and III (defined contribution), recognised as costs in the year.
345 MANAGEMENT REPORT AND ACCOUNTS 2013
The cost of contributions to Pension Plans II and III in respect of group directors was 27 thousand euros of the current contributions (39 thousand euros in 2012).
43. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Family members close to key Description Key management staff Group companies Other entities management staff
31/12/2013 31/12/2012 31/12/2013 31/12/2012 31/12/2013 31/12/2012 31/12/2013 31/12/2012 Asset Loans and applications 780 863 524 1,457 452,626 925,150 176,595 70,895 Financial assets - - - - 2,591,840 3,538,752 - - Shareholder loans - - - - 550,500 595,261 21,144 30,011 Other assets 1 - - - 609,521 65,235 - - Sub-total 781 867 524 1,457 4,204,487 5,124,398 197,739 100,906 Liabilities Financial liabilities - - - - 11,951 10,037 - - Deposits 494 4,258 260 651 649,751 949,468 19,455 151,857 Other liabilities 1 - - - 40,391 127,146 100 191 Sub-total 495 4,259 260 651 702,093 1,086,651 19,555 152,048
Off-balance sheet Guarantees given - - - - 73,323 121,414 3,440 6,234 Sub-total - - - - 73,323 121,414 3,440 6,234
Income Statement Interest and similar charges (19) (169) (12) (55) (13,230) (120,153) (2,162) (9,545) Interest and similar income 7 10 4 31 68,157 31,392 9,289 4,735 Rendimento em instrumentos de capitaisIncome from equity ------Income from services and fees 3 7 1 2 6,169 7,917 887 1,315 Fee and commission expenses - - - - (146) (29) (208) (188) Financial profit/loss - - (2,416) (196) - - General administrative expenses 58 53 - - (11,921) (18,816) (6) (7) Other profit/loss -1 ,347 1,381 - Sub-total 49 (99) (7) (23) 47,960 (98,504) 7,800 (3,690)
Transactions with related parties are analysed in accordance with the criteria applicable to similar operations and are conducted under normal market conditions. These operations are subject to the approval of the executive committee.
In the current year, no specific provisions were created for balances with related parties.
Remuneration of management bodies: 2013: 1,343 thousand euros 2012: 2,174 thousand euros
The related parties are the following:
Key members of management: LUÍS FILIPE MARQUES AMADO JORGE HUMBERTO CORREIA TOMÉ MARIA TERESA HENRIQUES DA SILVA MOURA ROQUE DAL FABBRO ANTÓNIO CARLOS CUSTÓDIO DE MORAIS VARELA DIOGO ANTÓNIO RODRIGUES DA SILVEIRA JOÃO JOSÉ GONÇALVES DE SOUSA JOÃO PAULO PEREIRA MARQUES DE ALMEIDA NUNO JOSÉ ROQUETTE TEIXEIRA VITOR MANUEL FARINHA NUNES
Close family of key members of management: Marta do Patrocínio Oliveira de Castro Amado
346 MANAGEMENT REPORT AND ACCOUNTS 2013
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 Catherine Thérèse Laurence Jouven da Silveira Alexandre Tiago da Silveira Heloïse Maria da Silveira Gaspar Antoine da Silveira 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 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
Group Companies: Achala Açortur Investimentos Turísticos dos Açores, S.A. Atlantes Finance Nº4 Atlantes Finance Nº5 Atlantes Finance Nº6 Atlantes Mortgage Nº1 plc Atlantes Mortgage Nº2 plc Atlantes Mortgage Nº3 plc Atlantes Mortgage Nº4 plc Atlantes Mortgage Nº5 plc Atlantes Mortgage Nº6 plc Atlantes Mortgage Nº7 plc
347 MANAGEMENT REPORT AND ACCOUNTS 2013
Atlantes N.1 Atlantes NPL 1 Atlantes SME 2 Azor Mortgage Nº 1 Azor Mortgage Nº 2 Banca Pueyo Banco Banif Mais, SA Banco Caboverdiano de Negócios S.A. Banif - Banco de Investimento (Brasil), SA Banif - Banco de Investimento, S.A. Banif - Banco Internacional do Funchal (Brasil), S.A. Banif - Banco Internacional do Funchal (Cayman) Ltd Banif - Imobiliária, S.A. Banif & Comercial Açores, Inc Fall River Banif & Comercial Açores, Inc San José Banif ( Brasil), Ltd. Banif Açor Pensões - Soc. Gestora Fundos Pensões, S.A. Banif Bank (Malta) PLC Banif Capital - Soc. de Capital. de Risco S.A. Banif Finance (USA) corp. Banif Finance, Ltd Banif Financial Services, Inc Banif Forfaiting Company, Ltd. Banif Gestão Activos - Soc. Gestora de Fundos de Investimento Mobiliario, S.A. Banif Gestão de Activos (Brasil), S.A. Banif Holding (Malta) PLC Banif Internacional Holdings, Ltd Banif International Asset Management Ltd. Banif International Bank, Ltd Banif Mais, SGPS, SA Banif Multifund Ltd. Banif Plus Bank ZRT Banif Real Estate Brasil Banif Real Estate Polska Banif Rent - Aluguer Gestão e Comercio de Veículos Automóveis Banif Securities Holding, Ltd Banif Securities, Inc. Banif US Real Estate Beta Securitizadora Companhia de Seguros Açoreana, S.A. Espaço 10 Euro Invest Series 3A e 3B
348 MANAGEMENT REPORT AND ACCOUNTS 2013
FIP Banif Real Estate Gamma - Soc. Titularização de Créditos, S.A. Gestarquipark Inmobiliaria Vegas Altas Investaçor Hoteis S.A. Investaçor, SGPS, S.A. Investimentos Turísticos e Similares e Apart-Hotel Pico Lda. Komodo LDI – Desenvolvimento Imobiliário Margem Mediação de Seguros, Lda MCO2 Numberone SGPS, Lda Pedidos Liz Pitchecia Participações Rentipar Seguros, SGPS, SA Santa Ester S.A. Sociedade Imobiliária Piedade, S.A. TCC Investments Luxembourg Tiner Polska Turotel, Turismo e Hoteis dos Açores, S.A. Wil Worldvilas ZACF - Participações Ltda
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.
349 MANAGEMENT REPORT AND ACCOUNTS 2013
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
44. RECONCILIATION OF THE ACCOUNTS UNDER NCA WITH IAS/IFRS (as provided for in subparagraph d) of No. 2 of Banco de Portugal Instruction No. 18/2005)
If Banif’s individual financial statements had been drawn up in accordance with the International Financial Reporting Standards (IAS/IFRS) they would have changed in the following ways: (see Note 2.1):
44.1 Description of changes to accounting policies a) Loans to customers Accounting policies for credit to clients, in accordance with the IAS/IFRS, correspond to what is described under the heading “Loans and accounts receivable” in Note 2.8.2, with the exception of the credit provisioning regime of the Banco Portugal Notice no. 3/95. This is replaced by impairment, determined in accordance with the model described below, and write-offs, which have not been considered in IAS/IFRS based accounts, since the transition on 1 January 2005.
Banif regularly assesses whether there is objective evidence of impairment of the credit it has extended and also of its receivables. Any identified impairment losses are entered with a counter-entry in results.
Whenever, in a subsequent reporting period, there is a reduction in the value of the estimated impairment loss, the amount previously recognised is reversed by adjusting the account for impairment losses. The amount of the reversal is recognised directly in the profit and loss account, in the same item.
A loan, or a portfolio of customer loans, defined as a set of credits with similar risk characteristics, is impaired whenever: there is objective evidence of impairment resulting from one or more events which occurred after initial recognition, and when this event (or events) has an impact on the recoverable value of future cash flows from the loan or portfolio of customer loans, and this impact can be realistically estimated.
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Two analytical methods are used to determine impairment losses:
i) Individual analysis The existence of impairment losses in individual terms is assessed by means of a case-by- case analysis of the situation of customers whose total credit exposure is regarded as significant. For each customer, Banif assesses, at each balance sheet date, the existence of objective evidence of impairment. This assessment takes into account the following factors: the customer’s economic and financial situation. the customer’s overall exposure and any existing default on credit within the group or the financial system. commercial information on the customer. analysis of the business sector in which the customer operates, where applicable. The connections between the customer and the group to which it belongs, where applicable, and, thus, analysis of the group in terms of the same individual customer variables as above.
In determining impairment losses in individual cases, the following factors are taken into account: The economic and financial feasibility of the customer generating sufficient cash flow to be able to service the debt in the future. The value of the associated real guarantees and the amount and recovery period estimated. The customer’s assets in situations of liquidation or bankruptcy and the existence of preferential creditors. Loans analysed on an individual basis for which impairment below the portfolio IBNR can be determined, are grouped according to their risk characteristics and assessed jointly for impairment.
Loans analysed on an individual basis for which impairment is detected are not included in this collective assessment.
Whenever an impairment loss is identified in individually assessed customer loans, the amount of the loss is determined by the difference between the accounting value of that loan and the present value of its estimated future cash flows, discounted at the original interest rate for the contract. For credit with a variable interest rate, the discount rate used to determine any impairment loss is the effective annual rate set in the contract.
Calculation of the present value of estimated future cash flows from collateralised loans reflects the cash flows which may result from the recovery and disposal of the collateral, less the costs involved in any such recovery and sale.
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ii) Joint analysis Loans assessed on a collective basis are grouped by segments with similar characteristics and risks. Impairment losses for these loans are estimated on the basis of historical losses on similar risk portfolios, the economic environment and its influence on the level of historical losses. Banif regularly updates the historical parameters used to estimate losses in the collective analysis.
Whenever credit is considered uncollectible, and its impairment loss is estimated at 100% of the total credit value, it is cancelled in accounts with a counter-entry equivalent to the value of the loss. The credit is thus written off from assets.
If written-off loans are recovered, the amount recovered is credited to the income statement under “Impairment of loans net of recoveries and reversals”, as mentioned above.
b) Investment properties In the individual IAS/IFRS-based accounts, Banif has adopted the fair value option for subsequent valuation of investment properties, given that this was the option adopted for the consolidated accounts of the Banif Financial Group.
Thus the accounting policy for the subsequent valuation described in Note 2.11 would be replaced by the following one.
Subsequent to initial recognition, investment properties are entered at fair value, which reflects market conditions on the balance sheet date. Gains and losses resulting from changes in the fair value of investment properties are included in results in the year to which they relate.
c) Other tangible assets In the individual IAS/IFRS-based accounts, Banif has adopted the fair value option for the subsequent valuation of properties for its own use, given that this was the option adopted for the consolidated accounts of the Banif Financial Group.
Thus the accounting policy in relation to subsequent valuation described in Note 2.12 would be replaced by the one described here.
Own-use properties are valued at fair value, as determined by independent appraisers, less subsequent depreciation and impairment losses. Banif’s own-use properties are also valued at sufficiently regular intervals that the accounting values do not differ significantly from their fair value at the balance sheet date, with revaluations at three year intervals being the norm.
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Positive variations in fair value are credited to revaluation reserves, included in equity, except where any such variation is a reversal of losses on the same asset recognised in results, in which case the positive variation must be recognised in results.
Negative variations in fair value are recognised in results, except where they can be offset by positive revaluation reserves existing for the same asset.
d) Employee benefits As described in Note 2.15, Banco de Portugal Notice No. 12/2001 allowed, for individual NCA- based accounts: the deferred recognition, in profit/loss carried forward, of the impact, calculated with reference to 31 December 2004, of transition to the NCA, in accordance with No. 13-A of the Notice; temporary widening of the “corridor” limit with a decreasing percentage of impacts arising from changes in actuarial assumptions in relation to the mortality table, in conformity with paragraph no. 13-B of the Notice.
In individual IAS/IFRS-based accounts, the full transition impact is recognised in profit/loss carried forward and the “corridor” limit is 10% of the current value of liabilities for past service or the value of the pension fund, whichever is the greater, reported at the end of the previous year. Thus the limit on the “corridor” in IAS/IFRS differs from that calculated under the NCA. This has implications for the amount recognised annually as staff costs in relation to the amortisation of any corridor surplus.
As described Note 2.15, Banif has changed its accounting policy regarding the recognition of actuarial gains and losses in 2011 and has, consequently, abandoned the “corridor” method. Thus, from 2011 onwards, there will no longer be any differences between the NCA or IAS- based accounts, as regards the treatment of actuarial gains and losses.
e) Available-for-sale financial assets Available-for-sale financial assets includes the residuals certificates issued as part of securitisation operations and held by Banif. In the NCA-based accounts, the impairment calculated on credit subject to the securitisation operations in question is deducted from these assets.
In the IAS/IFRS-based accounts, this impairment was reclassified to impairment on credit to clients, in line with the policy described in point a) of this Note.
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44.2 Estimates of material adjustments and reconciliation of the balance sheet, income statement and statement of changes in equity
Estimates of the material adjustments that would derive from the changes in accounting policies described in the previous point are shown in the tables below, along with the reconciliation of the balance sheet, the income statement and the statement of changes in equity drawn up on an NCA basis with those that result from applying IAS/IFRS.
RECONCILIATION of the NCA and IAS/IFRS BALANCE SHEETS, at 31 December 2013 and 2012
(amounts in thousands of euros) 31/12/2013 31/12/2012
NCA IFRS NCA IFRS Net ValueAdjust. Net Value Net Value Ajust.Adjust. Net Value Restated Restated
Cash and balances at central banks 151,114 - 151,114 168,267 - 168,267 Due from other credit institutions 80,516 - 80,516 78,556 - 78,556 Financial assets held for trading 2,542 - 2,542 1,097 - 1,097 Other financial assets at fair value through profit or loss 180,931 - 180,931 187,966 - 187,966 Financial assets available for sale 4,221,287 78,714 4,300,001 3,817,235 100,694 3,917,929 Investments at credit institutions 279,711 4 279,715 841,391 1 841,392 Loans to customers 7,205,286 (50,121) 7,155,165 7,918,786 (10,105) 7,908,681 Investments held to maturity 12,081 - 12,081 - - - Assets with repurchase agreement 495,353 - 495,353 116,282 - 116,282 Hedging derivatives ------Non-current assets held for sale 586,463 - 586,463 318,829 - 318,829 Investment property 51,673 5,337 57,010 50,040 6,287 56,327 Other tangible assets 32,949 1,504 34,453 41,327 1,504 42,831 Intangible assets 12,326 - 12,326 19,754 - 19,754 Investments in subsidiaries, associates and joint ventures 468,410 - 468,410 684,705 - 684,705 Current tax assets 1,152 - 1,152 1,406 - 1,406 Deferred tax assets 181,360 17,404 198,764 143,647 9,026 152,673 Other assets 726,678 (394) 726,284 809,055 (787) 808,268
Total Assets 14,689,832 52,448 14,742,280 15,198,343 106,620 15,304,963
Deposits from central banks 2,918,424 - 2,918,424 2,414,205 - 2,414,205 Financial liabilities held for trading 13,790 - 13,790 9,466 - 9,466 Other financial liabilities at fair value through profit or loss ------Deposits from other credit institutions 489,577 - 489,577 933,742 - 933,742 Funds from customers and other loans 6,303,216 - 6,303,216 7,219,679 - 7,219,679 Debt securities in issue 454,843 - 454,843 529,146 - 529,146 Financial liabilities associated with transferred assets 2,938,704 148,998 3,087,702 3,236,195 186,855 3,423,050 Hedging derivatives ------Non-current assets held for sale ------Provisions 157,657 (50,114) 107,543 118,043 (57,035) 61,008 Current tax liabilities 889 - 889 1,019 - 1,019 Deferred tax liabilities ------Equity instruments 270,058 - 270,058 12,009 - 12,009 Other subordinated liabilities 119,958 - 119,958 190,821 - 190,821 Other liabilities 188,139 - 188,139 202,189 - 202,189
Total Liabilities 13,855,255 98,884 13,954,139 14,866,514 129,820 14,996,334
Equity 1,582,195 - 1,582,195 570,000 - 570,000 Issue premiums 199,765 - 199,765 104,565 - 104,565 Other equity instruments - - - 95,900 - 95,900 Treasury shares ------Revaluation reserves (27,039) 1,072 (25,967) (16,903) 1,072 (15,831) Other reserves and retained earnings (426,003) (23,879) (449,882) (7,515) 14,969 7,454 Profit/loss for the year (494,341) (23,629) (517,970) (414,218) (39,241) (453,459) Interim dividends - - - Total Equity 834,577 (46,436) 788,141 331,829 (23,200) 308,629
Total for Liabilities + Equity 14,689,832 52,448 14,742,280 15,198,343 106,620 15,304,963
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Reconciliation of the NCA and IAS/IFRS INCOME STATEMENTS, at 31 December 2013 and 2012
(amounts in thousands of euros) 31/12/2013 31/12/2012
NCA IFRS NCA IFRS Net ValueAdjust. Net Value Net Value Adjust. Net Value Restated Restated
Interest and similar income 489,839 - 489,839 648,338 - 648,338 Interest and similar charges (372,447) - (372,447) (523,925) - (523,925) Financial margin 117,392 - 117,392 124,413 - 124,413
Income from equity instruments 1,013 - 1,013 1,771 - 1,771 Income from services and fees 79,677 - 79,677 96,419 - 96,419 Fee and commission expenses (18,827) - (18,827) (24,463) - (24,463) Profit/loss from assets and liabilities at fair value through profit or loss (13,293) - (13,293) (2,176) - (2,176) Profit/loss from financial assets available for sale 31,207 - 31,207 (752) - (752) Profit/loss from currency revaluation 1,699 - 1,699 1,028 - 1,028 Profit/loss from the disposal of other assets (18,236) - (18,236) 1,450 - 1,450 Other operating profit/loss 18,170 (1,513) 16,657 10,522 356 10,878 Banking income 198,802 (1,513) 197,289 208,212 356 208,568
Staff costs (106,213) - (106,213) (121,457) - (121,457) General administrative expenses (65,570) - (65,570) (64,153) - (64,153) Depreciation for the year (15,741) 563 (15,178) (14,668) 728 (13,940) Provisions net of reinstatements and cancellations (46,164) (4,497) (50,661) (42,892) (5,416) (48,308) Value adjustment related to loans and advances to customers and (171,902) (95,249) (267,151) receivables from other debtors (net of reinstatements and cancellations) (243,257) (4,580) (247,837) 0 Impairment of other financial assets net of reversals and recoveries 9,503 (21,980) (12,477) (87,861) 39,589 (48,272) Impairment of other assets net of reversals and recoveries (167,354) - (167,354) (126,605) - (126,605) Profit/loss before tax (435,994) (32,007) (468,001) (421,326) (59,992) (481,318)
Taxes 26,229 8,378 34,607 53,141 20,751 73,892 Current (7,846) - (7,846) (4,402) - (4,402) Deferred 34,075 8,378 42,453 57,543 20,751 78,294 Profit/loss after tax (409,765) (23,629) (433,394) (368,185) (39,241) (407,426)
Of which: Profit/loss after tax for discontinued operations (84,576) - (84,576) (46,033) - (46,033) Net profit/loss for the year (494,341) (23,629) (517,970) (414,218) (39,241) (453,459)
RECONCILIATION of the NCA and IAS/IFRS STATEMENT OF CHANGES IN EQUITY, as at 31 December 2013 and 2012
(amounts in thousands of euros)
Other Reserves Issue Other equity Revaluation Profit/loss for Equity and Retained Total Premiums instruments Reserves the Year Earnings
Balances at 31-12-2013 - NCA 1,582,195 199,765 - (27,039) (426,003) (494,341) 834,577 Credit impairment - - Adjustment for regulatory provisions - - - - (39,230) (31,057) (70,287) - Deferred taxes - - - - 11,263 8,039 19,302 Value of Own-Use Properties - - Application of fair value - - - 1,485 - - 1,485 - Correction for depreciation - - - (413) - 563 150 - Deferred taxes ------Value of investment properties - - Application of fair value - - - - 6,287 (1,513) 4,774 - Deferred taxes - - - - (1,805) 339 (1,466) Employee benefits - - Deferred Costs transition to NCAs - - - - (394) - (394) Balances at 31-12-2013 - IFRS 1,582,195 199,765 - (25,967) (449,882) (517,970) 788,141
Other Reserves Issue Other equity Revaluation Profit/loss for Equity and Retained Total Premiums instruments Reserves the Year Earnings
Balances at 31-12-2012 - NCA Restated 570,000 104,565 95,900 (16,903) (7,515) (414,218) 331,829 Credit impairment - - Adjustment for regulatory provisions - - - - 21,846 (61,076) (39,230) - Deferred taxes - - - - (9,794) 21,057 11,263 Value of Own-Use Properties - - Application of fair value - - - 1,485 (19) 19 1,485 - Correction for depreciation - - - (413) - 728 315 - Deferred taxes - Value of investment properties - - Application of fair value - - - - 5,222 337 5,559 - Deferred taxes - - - - (1,499) (306) (1,805) Employee benefits - - Deferred Costs transition to NCAs - - - - (787) - (787) Balances at 31-12-2012 - IFRS Restated 570,000 104,565 95,900 (15,831) 7,454 (453,459) 308,629
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45. SITUATION CONCERNING SOVEREIGN RISK IN PORTUGAL, GREECE, IRELAND, SPAIN, ITALY AND CYPRUS
The onset of the sovereign debt crisis in a number of countries led the Euro zone countries, together with the International Monetary Fund, to instigate a set of support mechanisms. These resulted in the drawing up and implementation of adjustment plans for Greece in May 2010 and then, later, for Ireland and Portugal.
In February 2012, the terms of the agreement on the involvement of the private sector in the restructuring of the Greek public debt were announced. This resulted in the exchange of securities held by Banif on 31 December 2011, recorded in assets available for sale, for new bonds issued by Greece.
The main terms of the agreement announced were the following: debt write-down of 53.5% of the nominal value of government bonds issued by Greece held by private creditors; exchange of 46.5% of the previous government bonds issued by Greece for new government bonds issued by Greece maturing between 2023 and 2042 and for 6-month and 2-year European Financial Stability Facility bills; issue of Greek Republic securities (“Detachable GDP-Linked Securities”), with remuneration and amortisation dependent on the Greek economy achieving certain targets.
Banif decided to accept the terms of the exchange, having recorded a loss of 558 thousand euros, and attributed nil value to the contingent securities. It is to be noted that in 2011, in accordance with ESMA recommendations, the Greek securities had been recognised at their fair value, and impairments of 941 thousand euros had been recorded.
In December 2012 the Greek government launched a debt buy-back programme, with the support of the European Financial Stability Facility (EFSF). This process covered bonds maturing between 2023 and 2042, with the exception of the “Detachable GDP-Linked Securities”, with terms of exchange varying according to their maturity, from a minimum of 30.2% to a maximum of 40.1% of the nominal value. In exchange, private creditors received 6-month EFSF bills.
Banif accepted the buy-back terms presented, recognising a gain of 101 thousand euros and maintaining the impairment of the entirety of the nominal value of the “Detachable GDP-Linked Securities” to the value of 630 thousand euros.
An 85 billion euro assistance plan was put into place for Ireland in November 2010, and a similar plan, expected to be worth 78 billion euros, was set up for Portugal in May 2011.
With the worsening in 2012 of the sovereign debt crisis and the crisis in the banking systems of some countries, Spain formally requested financing to support the recapitalisation of its banking system
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and, in March 2013, Cyprus accepted a financial aid plan. Italy also was affected by instability in the European sovereign debt markets, which generally abated in 2013.
Banif does not envisage any additional impairment for direct exposure to the risk of Ireland, Portugal, Spain, Cyprus and Italy.
Residual Term
Gross Provisions / Total 1 year 2 years 3 years 5 years > 5 years Reserve FV Exposure Impairment (Net value) Portugal Financial assets available for sale Central Government 154,535 - 56,272 518,947 606,012 1,335,766 - (10,685) 1,325,081 Local and Regional Governments ------Banks ------Public Undertakings ------154,535 - 56,272 518,947 606,012 1,335,766 - (10,685) 1,325,081
Loans Central Government 1,376 650 2,382 108 62,310 66,826 - - 66,826 Local and regional governments 15,000 - 12,500 - 128,551 156,051 - - 156,051 Banks 115,998 - - - - 115,998 - - 115,998 Public Undertakings - - - 6,671 29,893 36,564 - - 36,564 132,374 650 14,882 6,779 220,754 375,439 - - 375,439
286,909 650 71,154 525,726 826,766 1,711,205 - (10,685) 1,700,520
Investments held to maturity Central Government ------Local and regional governments ------Banks 2,488 ----2,488 --2,488 Public Undertakings ------2,488 - - - - 2,488 - - 2,488
Greece Financial assets available for sale Central Government - ---630 630 (630) - - Local and Regional Governments ------Banks ------Public Undertakings ------630 630 (630) - -
Investments held to maturity Central Government ------Local and regional governments ------Banks ------Public Undertakings ------
Loans Central Government ------Local and regional governments ------Banks ------Public Undertakings ------
- - - - 630 630 (630) - -
Ireland Loans Central Government ------Local and regional governments ------Banks ------Public Undertakings ------
------
Spain Financial assets available for sale Central Government ------Local and regional governments ------Banks ------Public Undertakings ------
Investments held to maturity Central Government ------Local and regional governments ------Banks 2,553 ----2,553 - - 2,553 Public Undertakings ------2,553 - - - - 2,553 - - 2,553
Loans Central Government ------Local and regional governments ------Banks ------Public Undertakings ------
2,553 - - - - 2,553 - - 2,553
Italy Loans Central Government ------Local and regional governments ------Banks ------Public Undertakings ------
------
Ciprus Financial assets available for sale Central Government ------Local and regional governments ------Banks ------Public Undertakings ------
------
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46. POST-BALANCE SHEET EVENTS
At the date of approval of these financial statements by Banif’s board of directors, there have been no events subsequent to 31 December 2013, the reference date for the financial statements, which would require adjustments or modifications to the figures given for assets or liabilities.
On 06 February 2014 the revised restructuring plan for the Company, which had been the subject of detailed and lengthy discussions with these organisations, was submitted to the Ministry of Finance and the European Commission Directorate General for Competition (DGComp). This plan seeks: (i) show the company’s self-reliability in the mid to long term and its ability to operate without state support; (ii) demonstrate the company’s current and future contribution, and that of its shareholders (excluding the Portuguese state), to our recapitalisation and restructuring efforts; and (iii) include measures designed to prevent any distortion of competition in the sector that may result from the fact that the company has received funding from the Portuguese state. In this context, and as mentioned in Note 2.4, the Management of the Bank considers that it has the means and capacity to continue business in the foreseeable future. In making this judgment, Banif’s management took into consideration the information it has on current conditions and forecasts of future profitability, cash flow and equity. However, the restructuring plan submitted is subject at the approval of the Ministry of Finance, DGComp and the College of Commissioners of the European Commission-
In February 2014, Banif – Banco Internacional do Funchal, SA signed a non-binding Memorandum of Understanding with the Republic of Equatorial Guinea, with a view to cooperation initiatives in the banking sector on terms to be agreed between the parties.
Related to this initiative is the possibility of an Equatorial Guinea company acquiring a qualifying holding in Banif.
On 28 February 2014, Banif – Banco Internacional do Funchal, SA received a letter of resignation from the non-executive member of its Board of Directors, Diogo António Rodrigues da Silveira.
The aforementioned resignation will be effective, under Art. 404 of the Commercial Companies Code, at the end of March 2014, unless his replacement is appointed or elected in the meantime.
Under the same terms, Diogo António Rodrigues da Silveira will leave his position as Chair of the Executive Committee and Member of the Board of Directors of Açoreana Seguros, S.A., a company in which Banif holds a significant stake.
In order to strengthen the group’s profitability, by reducing operating costs in particular, the Executive Committee agreed in March 2014 to accelerate, up to the end of 2014, the branch closure programme that it has been implementing, which will involve a further 60 closures. This adjustment of the Bank’s geographical presence will imply a reduction in jobs, for which reason Banif has put in
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place a voluntary severance programme for staff. This programme will be implemented for a limited period of time and will probably not exceed 300 employees.
In March 2014, after the date of approval of the accounts for publication, the Company was informed that the fair value of the subsidiary FINPRO – Sociedade de Capital de Risco, SA, the investment in which is included in “Financial Assets Held for Sale”, had recorded a significant decline with a negative impact (net of taxes) for the Bank of 11.2 million euros. However, as a Business Recovery Procedure is already under way at that Company and BANIF, as shareholder and one of its main creditors, intends to request a revaluation of its assets, it is not possible to foresee the effects (positive or negative) on the valuation of its net assets arising from future decisions of its Board of Directors, shareholders and other entities involved in the recovery plan part in progress.
47. NEW NORMS AND INTERPRETATIONS APPLICABLE TO THE REPORTING PERIOD
Having been endorsed by the European Union (EU), the issuances, revisions, changes and improvements occurred in the standards and interpretations effective from 01 January 2013, as presented in Note 47.
a) Revisions, changes and improvements in the standards and interpretations endorsed by the EU with effect on the accounting policies and disclosures adopted by Banif.
IFRS 7 Offsetting of financial assets and financial liabilities (Amendment) This amendment requires entities to disclose information about rights to off-setting and related agreements (i.e. collateral). These disclosures provide information that is useful in assessing the net effect that these agreements may have on the Statement of Financial Position of each entity. The new disclosures are mandatory for all financial instruments that can be offset as provided by IAS 32 Financial Instruments: Presentation. The new disclosures also apply to financial instruments that are subject to master netting agreements or other similar agreements regardless of whether they are offset in accordance with IAS 32 . The amendment must be applied retrospectively.
IFRS 13 Fair value measurement (Issue) IFRS 13 establishes a single guideline source for the measurement of IFRS-based fair value. IFRS 13 does not indicate when an entity should use fair value, but it does set out guidelines as to how fair value should be measured whenever this is permitted or required.
Fair value is defined as the “price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”.
The standard must be applied prospectively.
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IAS 1 Presentation of Financial Statements (Amendment) The amendment to IAS 1 changes the aggregation of items presented in the comprehensive income statement. Items that may be reclassified (or “recycled”) to the profit or loss section of the income statement in the future (for example on the derecognition or liquidation date) should be presented separately from the items that are not susceptible to such reclassification (for example, revaluation reserves provided for in IAS 16 and IAS 38).
This amendment does not change the nature of the items that should be recognised in the comprehensive income statement, not even if these items are, or are not, susceptible to being reclassified as profit or loss at some future date.
The amendment must be applied retrospectively.
IAS 19 Employee benefits (Revised) The main changes in IAS 19 Employee benefits (revised) are: elimination of the option to defer recognition of actuarial gains and losses, known as the “corridor approach”. Actuarial gains and losses are recognised in the comprehensive statement of income, where these occur. The amounts recognised as profit or loss are limited to: current cost and the cost of past services (which includes gains and losses in the cuts), gains and losses in liquidation and costs (income) relating to net interest. All other changes to the net value of the asset (liability) arising from the defined benefit plan should be recognised in the comprehensive income statement, without any subsequent reclassification as profit or loss. the objectives for disclosures relating to defined benefit plans are explicitly mentioned in the revision of this standard, as are new disclosures and revised disclosures. The new disclosures include quantitative information on analyses of the sensitivity to the responsibilities of the defined benefits regarding any possible changes in each of the main actuarial assumptions. employment termination benefits should be recognised at the time immediately before that at which: (i) the commitment to assign such benefits cannot be withdrawn and (ii) restructuring provisions are drawn up in accordance with IAS 37. the distinction between short and long term benefits is based on when payment of the benefit is to be made, irrespective of the fact that the right to the benefit has already been granted to the employee.
The revised standard must be applied retrospectively.
Banif had already voluntarily altered its policy for recognition of the actuarial gains and losses, known as the “corridor approach”, on 31 December 2011, after which it recognised in the Statement of Comprehensive Income, as mentioned in Note 2.15.
b) Revisions, amendments and improvements to standards and interpretations endorsed by the EU with no effect on the financial statements of Banif
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IFRS 1 First-time adoption of international financial reporting standards - hyperinflationary economies (Amendment) When the transition date to IFRS is on, or after, the date on which its functional currency ceases to be a currency subject to hyperinflation, the entity may measure all assets and liabilities held before the cessation date which were subject to the effects of a hyperinflationary economy at their fair value on the date that the entity transited to IFRS. This fair value may be used as a considered cost for these assets and liabilities on the opening date of the statement of the entity’s financial position.
The amendment also removes the dates fixed in IFRS 1 for derecognition of assets and liabilities and gains and losses in transactions in the initial recognition. The new date to be used is the date on which the entity transited to IFRS.
IFRS 1 First-time Adoption of International Financial Reporting Standards (Amendment) and IFRS 9 and IAS 20 Accounting for government grants and disclosure of government assistance The amendment establishes an exception to the retrospective application of IFRS 9 Financial instruments and IAS 20 Accounting for government grants and disclosure of government assistance.
This amendment requires entities that apply IFRS 1 to prospectively apply the requirements of IAS 20 concerning government loans that existed at the IFRS transition date. Nevertheless, entities may choose to apply the requirements of IFRS 9 (or IAS 39, as applicable) and IAS 20 to government loans retrospectively if the necessary information has been obtained on the date of initial recognition of these loans.
This adoption provides first-time adopters with relief from retrospective measurement of government loans with below-market rate of interest. If IFRS 9 (or IAS 39) and IAS 20 are not applied retrospectively, first-time adopters will not be required to recognise the corresponding benefit of the government loan at a below-market rate of interest as a government grant.
IAS 12 Income taxes The amendment to IAS 12 clarifies the determination of the deferred tax on investment properties measured at fair value, under IAS 40, and states that this should be calculated on the basis of recovery of the tax through future disposal. This assumption may, however, be set aside if the entity has a business plan that shows that recovery of the tax will be effected through use of the investment properties.
Moreover, the amendment also states that deferred taxes recognised for non-depreciable fixed tangible assets which have been measured according to the revaluation model should be calculated on the assumption that the recovery of such tax will be effected through the sale of these assets.
IFRIC 20 Stripping costs in the production phase of a surface mine This interpretation applies to the removal of waste from a surface mine in the production phase.
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If the benefit arising from the stripping activity is realised in the current period, an entity must recognise these costs of stripping and removal of waste as a cost of inventories. When the benefit concerns improved access to ore the entity must recognise those costs as non-current assets if certain recognition criteria are met. The assets from stripping and removal of waste must be recorded as an addition or improvement to existing assets.
When the costs of the stripping activity asset and the inventory produced are not separately identifiable, an entity must allocate these costs between the inventory produced and the stripping activity asset by using an allocation basis that is based on a relevant production measure.
After initial measurement, the stripping activity asset must be carried at cost or its revalued amount less depreciation or amortisation and impairment losses, using the same valuation criteria as those used for the asset of which it forms part.
The IFRIC does not require total retrospective application.
Annual improvements 2009-2011 cycle In Annual improvements 2009-2011 cycle, IASB issued six amendments to five standards the summaries of which are presented below:
IFRS 1 (Amendment) First-time Adoption of International Financial Reporting Standards This amendment:
Clarifies that an entity that has stopped applying IFRS may choose to either: (i) Re-apply IFRS 1, even if the entity applied IFRS 1 in a previous reporting period; or (ii) apply IFRS retrospectively in accordance with IAS 8 as if it had never stopped. If the entity re-applies IFRS 1 or applies IAS 8, it must disclose the reasons why it previously stopped applying IFRS and subsequently resumed reporting in accordance with IFRS
Clarifies that, upon adoption of IFRS, an entity that capitalised borrowing costs in accordance with its previous rules, may carry forward, without adjustment, the amount previously capitalised in its opening statement of financial position at the date of transition.
IAS 1 (Amendment) Presentation of Financial Statements Clarifies the difference between additional comparative information and the minimum required comparative information. Generally, the minimum required information that corresponding to the previous period.
An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required information. The additional comparative period does not need to contain a complete set of financial statements.
In addition, the opening statement of financial position (known as the third balance sheet) must be presented in the following circumstances: i) when an entity retrospectively applies an accounting
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policy, makes retrospective restatements or makes reclassifications; or ii) reclassifies items in its financial statements and the change has a material effect on the statement of financial position. The opening balance sheet must be the opening balance sheet of the comparative period. However, unlike the voluntary comparative information, the related notes are not required to accompany the third balance sheet.
IAS 16 Property, plant and equipment Clarifies that spare parts and servicing equipment are classified as property, plant and equipment rather than inventory when they meet the definition of property, plant and equipment.
IAS 32 Financial Instruments Clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes.
IAS 34 Interim Financial Report Clarifies the requirements in IAS 34 relating to segment information for total assets and liabilities for each reportable segment to enhance consistency with the requirements in IFRS 8 Operating Segments.
According to this amendment, total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to segment managers.
The improvements must be applied retrospectively.
48. NEW STANDARDS AND INTERPRETATIONS ALREADY ISSUED BUT NOT YET REQUIRED
The standards and interpretations recently issued by the IASB whose application is required only in periods after 01 January 2013 and which Banif did not adopt in advance are the following:
Already endorsed by the EU:
IFRS 10 Consolidated Financial Statements The IASB issued IFRS 10 Consolidated Financial Statements to replace the consolidation requirements written into SIC 12 Consolidation - Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements.
This IFRS establishes a new level of control which should be implemented by all entities and vehicles with specific purposes. The changes introduced in IFRS 10 will require that the management makes a significant effort to determine which entities are controlled and must, thus, be included in the parent company’s consolidated financial statements.
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This provision, according to the endorsement (Commission Regulation (EU) No 1254/2012, of 11 December), is applicable to financial years starting on or after 1 January 2014. Early adoption is permitted provided that the entity also adopts IFRS 11, IFRS 12, IAS 27 (revised in 2011) and IAS 28 (revised in 2011) at the same time. Its application is retrospective.
IFRS 11 Joint arrangements IFRS 11:
replaces IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities – Non- monetary Contributions by Venturers.
changes the concept of joint control and removes the option to account for jointly controlled entities using proportionate consolidation, interests in these entities now to be accounted for using the equity method.
also defines the concept of joint operations (combining the existing concepts of jointly controlled assets and operations) and redefines the concept of proportional consolidation for these operations. Each entity should now recognise its absolute or relative interests in assets, liabilities, income and costs in its own financial statements.
This provision, according to the endorsement (Commission Regulation (EU) No 1254/2012, of 11 December), is applicable to financial years starting on or after 1 January 2014. Early adoption is permitted provided that the entity also adopts IFRS 11, IFRS 12, IAS 27 (revised in 2011) and IAS 28 (revised in 2011) at the same time. Its application is retrospective.
IFRS 12 – Disclosures of interests in other entities IFRS 12 – Disclosure of Interests in Other Entities establishes the minimum level of disclosure for subsidiary companies, joint ventures, associated companies and other non-consolidated entities.
As such, this standard includes all the disclosures that were mandatory under IAS 27 Consolidated and Separate Financial Statements for consolidated accounts, as well as the mandatory disclosures included in IAS 31 Interests in Joint Ventures and in IAS 28 Investments in Associates, besides the additional new information.
This provision, according to the endorsement (Commission Regulation (EU) No 1254/2012, of 11 December), is applicable to financial years starting on or after 1 January 2014. Early adoption is permitted provided that the entity also adopts IFRS 11, IFRS 12, IAS 27 (revised in 2011) and IAS 28 (revised in 2011) at the same time. Its application is retrospective.
IFRS 10, IFRS 11 and IFRS 12 (Amendments) – Transition Guidance These amendments allow the adoption of less demanding procedures in the transition to IFRS 10, IFRS 11 and IFRS 12, such as the provision of comparative information limited to the immediately preceding period.
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According to the endorsement (EU Regulation No. 313/2013, of 4 April), the amendments are effective for annual periods beginning on or after 1 January 2014. The application may be early provided that the entity also adopts IFRS 10, IFRS 11 and IFRS 12 early.
IFRS 10, IFRS 12 and IAS 27 (Amendments) – Investment Entities Investment entities including venture capital funds must meet three elements that make up the definition and four typical characteristics to be considered investment entities to which the new provisions apply. For this purpose, all facts and circumstances must be considered including its purpose and design. These entities are exempt from consolidating their subsidiaries, associates and joint ventures, which must be measured at fair value through profit and loss in accordance with IFRS 9 (or IAS 39 as applicable), with the exception of those that provide services exclusively to the investment entity, which must be consolidated (investments in subsidiaries) or accounted for using the equity method (investments in associates and joint ventures). Investments in other investment entities over which they have control must also be valued at fair value. The parent of an investment entity that is not itself an investment entity may not use in its accounts the fair value model applied by its subsidiary to its controlled entities. Venture capital organisations, mutual funds and other entities that do not meet the definition to be considered investment entities can still measure investments in associates and joint ventures at fair value through profit or loss under the option available in IAS 28.
According to the endorsement (EU Regulation No. 1174/2013, of 20 November), the amendments are effective for annual periods beginning on or after 1 January 2014. The application may be early provided the entity applies all the amendments at the same time. Its application is retrospective.
IAS 27 Consolidated and separate financial statements (Revised in 2011) With the introduction of IFRS 10 and IFRS 12, IAS 27 is now limited to establishing the accounting procedure for subsidiaries, joint ventures and associates in the separate accounts.
In accordance with the endorsement, changes to IAS 27 apply to annual periods starting on or after 1 January 2014. Early adoption is permitted provided the entity also adopts IFRS 10, IFRS 11, IFRS 12 and IAS 28 (revised in 2011) at the same time. Its application is retrospective.
IAS 28 – Investments in associates and joint ventures With the changes to IFRS 11 and IFRS 12, IAS 28 was renamed and now describes the application of the equity method to joint ventures, in the same way that this method already applied to associates.
In accordance with the endorsement, changes to IAS 28 apply to annual periods starting on or after 1 January 2014. Early adoption is permitted provided the entity also adopts IFRS 10, IFRS 11, IFRS 12 and IAS 27 (revised in 2011) at the same time. Its application is retrospective.
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IAS 32 Financial instruments (Offsetting of financial assets and financial liabilities) The amendment clarifies the meaning of “currently enforceable legal right to offset” and the application of IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous.
IAS 32 paragraph 42(a) requires that “a financial asset and a financial liability shall be offset and the net amount presented in the statement of financial position when, and only when, and only when, an entity currently has a legally enforceable right to set off the recognised amounts”.
The amendment clarifies that rights of set-off must not only be legally enforceable in the normal course of business, but must also be enforceable in the event of default and the event of bankruptcy or insolvency of all of the counterparties to the contract, including the reporting entity itself. The amendment also clarifies that rights of set-off must not be contingent on a future event.
The IAS 32 offsetting criteria require the reporting entity to intend either to settle on a net basis, or to realise the asset and settle the liability simultaneously. The amendment clarifies that only gross settlement mechanisms with features that eliminate or result in insignificant credit and liquidity risk and that process receivables and payables in a single settlement process or cycle would be, in effect, equivalent to net settlement and, therefore, meet the net settlement criterion.
According to the endorsement, amendments to this standard apply to annual periods beginning on or after 1 January 2014. The amendment to IFRS 7 should be applied retrospectively in accordance with IAS 8. Early application is permitted, however the entity must disclose that fact and also make the disclosure required by IFRS 7 Disclosures (Amendment) – Offsetting Financial Assets and Financial liabilities.
IAS 36 – Impairment of assets (Amendment): Recoverable amount disclosures for non-financial assets The amendment eliminates the requirement to disclose recoverable amounts for cash-generating units, which include intangible assets with indefinite useful lives and/or goodwill, provided no impairment losses have been recorded, in order to remove the unintentional consequence existing in the standard that required the disclosure of sensitive trade information. It is now obligatory to disclose: (i) additional information on the fair value of impaired assets when the recoverable amount is based on fair value less costs of disposal and (ii) information on the discount rates used when the recoverable amount is based on fair value less costs of disposal determined using a present value technique.
According to the endorsement (EU Regulation No. 1374/2013, of 19 December), the amendments are effective for annual periods beginning on or after 1 January 2014. Its application is retrospective.
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IAS 39 – Financial Instruments (Amendment): Novation of Derivatives and continuation of hedge accounting The amendments provide an exception to the requirement to discontinue hedge accounting in certain circumstances in which there is a change in counterparty to a hedging instrument in order to achieve clearing for that instrument. The amendment covers novations:
that arise from the application or alteration of laws or regulations;
where the parties to the hedging instrument agree that one or more clearing counterparties replace the original counterparty to become the new counterparty to each of the parties;
that did not result in other changes to the terms of the original derivative other than changes directly attributable to the change in counterparty to achieve clearing.
All of the above conditions must be met to continue hedge accounting under this exception.
The amendments cover novations to central counterparties, as well as to intermediaries such as clearing members, or clients of the latter that are themselves intermediaries.
For novations that do not meet the criteria for the exception, entities have to assess the changes to the hedging instrument against the de-recognition criteria for financial instruments and the general conditions for continuation of hedge accounting.
According to the endorsement (EU Regulation No. 1375/2013, of 19 December), the amendments are effective for annual periods beginning on or after 1 January 2014. Early adoption is possible provided it is disclosed. Its application is retrospective. However, entities that discontinued hedge accounting in the past because of a novation that would be in the scope of the amendment cannot reinstate that previous hedging relationship.
Not yet endorsed by the EU:
IFRS 9 Financial instruments (introduces new requirements for the classification and measurement of financial assets and liabilities) The first phase of IFRS 9 covers the classification and measurement of financial assets and liabilities. IASB continues to work on and discuss the subjects of financial instruments and hedge accounting, with a view to replacing IAS 39 in its entirety. IFRS 9 applies to all financial instruments within the scope of IAS 39.
The main changes are the following:
Financial Assets: All financial assets are measured at fair value at initial recognition.
Debt instruments may be subsequently measured at amortised cost if:
the fair value election is not exercised;
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the asset is held within a business model whose objective is to collect the contractual cash flows; and
the contractual terms of the financial assets give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding.
All other debt instruments are subsequently measured at fair value.
All equity investment financial assets are measured at fair value either through the Comprehensive Income Statement or profit or loss. Each of the equity instruments must be measured at fair value through (i) the statement of comprehensive income or (ii) gains and losses (equity instruments held for trading must be measured at fair value with their variations always recognised through profit and loss).
Financial Liabilities: For fair value option liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk of the entity must be presented in the Comprehensive Income Statement. The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability’s credit risk would create or enlarge an accounting mismatch in profit or loss.
All other IAS 39 classification and measurement requirements for financial liabilities have been carried forward into IFRS 9, including the embedded derivative separation rules and the criteria for using the fair value option.
This rule applies to annual periods beginning on or after 1 January 2015. Early adoption is permitted, provided it is duly disclosed. Early adoption of the provisions for liabilities is also permitted, provided that this occurs at the same time as adoption of the provisions on financial assets.
IAS 19 R - Employee Benefits (Amendment): Employee contributions This amendment applies to employee or third-party contributions to benefit plans. It simplifies the accounting of contributions that are independent of the number of years of service of the employee, for example, contributions made by the employee that are calculated based on a certain percentage of the salary for which a fixed amount is defined during the entire service or an amount that depends on the employee’s age. These contributions may be recognised as a reduction of service costs in the period in which the work is performed.
The amendments are effective for annual periods beginning on or after 1 July 2014. Early adoption is possible provided it is disclosed. Its application is retrospective.
Annual improvements 2010-2012 cycle In the annual improvements for the 2010-2012 cycle, the IASB issued eight amendments to seven standards the summaries of which are presented below:
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IFRS 2 Share-based payments Updates definitions, clarifies what is meant by vesting conditions and also clarifies situations related to concerns that had been raised about service condition, market condition and performance condition.
IFRS 3 Business Combinations Alters the recognition of changes in the fair value of contingent payments that are not equity instruments. These changes are now recognised exclusively in profit and loss for the period.
IFRS 8 Operating Segments Requires additional disclosures (description and economic indicators) on judgments made when aggregating segments.
Disclosure of the reconciliation of the total of the reportable segments’ assets to the entity’s assets is only required if the amounts are also regularly reported to the manager in question, under the same terms as required for the segment’s liabilities.
IFRS 13 Fair Value Measurement Clarifies that short-term receivables and payables with no stated interest rate can be measured without discounting if the effect of not discounting is immaterial. Thus, the reason why paragraphs of IAS 9 and IAS 39 were withdrawn had nothing to do with changes in measurement but instead with the fact that the specific situation is immaterial and, for this reason, it does not have to be handled as defined in IAS 8.
IAS 16 Tangible fixed assets In the event of revaluation, the standard now envisages the possibility of the entity opting between adjustment of the gross carrying amount based on observable market data or it may be restated proportionately with the change in the net carrying amount. In either of these cases, the accumulated depreciation is eliminated against the gross carrying amount of the assets. These amendments only apply to revaluations made in the year of initial application of the amendment and the period immediately preceding that date. Restatements may also be presented for any earlier periods, but they are not obligatory However, if this is not done, the criterion used in those periods must be disclosed.
IAS 24 Related Party Disclosures Clarifies the definition of key management personnel and amends the associated disclosure requirements.
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IAS 38 Intangible assets In the event of revaluations, the standard now envisages the possibility of the entity opting between adjustment of the gross carrying amount based on observable market data or it may be restated proportionately with the change in the net carrying amount. In either of these cases, the accumulated depreciation is eliminated against the gross carrying amount of the assets. These amendments only apply to revaluations made in the year of initial application of the amendment and the period immediately preceding that date. An entity may also present restatements for any earlier periods, but is not required to do so. However, if this is not done, the criterion used in those periods must be disclosed.
The 2010-2012 improvements are effective for annual periods beginning on or after 1 July 2014. Early adoption is possible provided it is disclosed. Its application is in general prospective.
Annual improvements 2011-2013 cycle In the annual improvements for the 2011-2013 cycle, the IASB issued four amendments to four standards the summaries of which are presented below:
IFRS 1 (Amendment) First-time Adoption of International Financial Reporting Standards Clarifies the meaning of effective IFRSs.
IFRS 3 Business Combinations Updates the scope of exception of the standard to “Joint Ventures”, clarifying that the only exclusion concerns accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself.
IFRS 13 Fair Value Measurement Updates the scope of paragraph 52, clarifying that the portfolio exception now also includes other contracts accounted for within the scope of IAS 39 or IFRS 9, regardless of whether they meet the definition of financial assets or financial liabilities as defined in IAS 32.
IAS 40 Investment Property Clarifies the interrelationship of IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property.
The 2011-2013 improvements are effective for annual periods beginning on or after 1 July 2014. Early adoption is possible provided it is disclosed. Its application is in general prospective.
IFRIC 21 – Levies This interpretation applies to payments required by governmental entities that are not covered by other standards (e.g. IAS 12), including fines and other penalties for breaches of legislation. The interpretation clarifies that: (i) a liability should be recognised when an activity occurs that triggers
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the payment as identified by the relevant legislation, (ii) there must be a progressive increase in liability over time if the triggering event also occurs over time under the terms of the relevant legislation and (iii) if the payment is not triggered until a minimum threshold is reached, no liability should be recognised until that minimum threshold is reached. This interpretation does not establish the counterpart of the liability and the provisions of other standards should be taken into account to determine whether an asset or an expense should be recognised.
The amendments are effective for annual periods beginning on or after 1 January 2014. Early adoption is possible provided it is disclosed. Its application is retrospective.
371 13|Corporate Governance Report MANAGEMENT REPORT AND ACCOUNTS 2013
13|Corporate Governance Report
The information on corporate governance that follows complies with the provisions of Regulation No. 4/2013 of the Securities Exchange Commission and article 245-A of the Securities Code.
Except where otherwise expressly indicated, all the information in this report refers to the 2013 fiscal year and/or the date of 31 December 2013.
PART I – INFORMATION ON SHAREHOLDER STRUCTURE, ORGANISATION AND CORPORATE GOVERNANCE
A. SHAREHOLDER STRUCTURE
I. – CAPITAL STRUCTURE
1. The capital structure (share capital, number of shares, distribution of capital by shareholders, etc.), including an indication of shares that are not admitted to trading, different classes of shares, rights and duties of same and the capital percentage that each class represents (Article 245-A/1/a)).
At the reference date of 31 December 2013, the share capital of Banif – Banco Internacional do Funchal SA (Banif) was EUR 1,582,195,220.43 (one thousand, five hundred and eighty-two million, one hundred and ninety-five thousand, two hundred and twenty euros and forty-three cents), fully subscribed and paid up (unchanged to date).
The capital is represented by 101,789,522,043 (one hundred and one thousand, seven hundred and eighty-nine million, five hundred and twenty-two thousand and forty-three) shares, with no par value, of which 31,789,522,043 (thirty-one thousand, seven hundred and eighty-nine million, five hundred and twenty-two thousand and forty-three) are ordinary shares traded on a regulated market (ISIN PTBAF0AM0002) and 70,000,000,000 (seventy billion) are special shares with preferred dividend held by the Portuguese State (ISIN PTBAF0VM0007), under the legal framework set out in Article 4 of Law No. 63-A/2008, of 24 November, in its current version.
The shareholder structure, at 31 December 2013, included the following qualifying shareholders (holding more than 2%):
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% Voting # Shares % Share Capital1 Rights 2- 3 % Voting Rights if the State votes with all its shares Portuguese State 70,000,000,000 68.77% 58.34% 68.77%
Auto-Industrial 2,635,782,857 2.59% 3.45% 2.59%
Estate of HSR 7,835,962,151 7.70% 10.27% 7.70%
Includes shares owned by:
- Açoreana Seguros 7,500,000,000 7.37% 9.83% 7.37%
- Other entities 335,153,263 0.33% 0.44% 0.33%
The shares subscribed by the Portuguese State on 25 January 2013 are subject to Law No. 63.- A/2008, of 24 November, as amended by Law No. 48/2013 of 16 July, and Ministerial Order No. 150- A/2012, of 17 May. Besides this situation, there are no shareholders with special rights.
2. Restrictions on the transfer of shares, such as clauses on consent for disposal, or limits on the ownership of shares (Article 245-A/1/b)).
The shares subscribed by the Portuguese State are subject to the restrictions on their transfer provided for in Law No. 63-A/2008, of 24 November, as amended by Law No. 48/2013 of 16 July, and in Ministerial Order No. 150-A/2012, of 17 May. Besides this situation, there are no restrictions on the transfer of shares representing the company’s share capital, at the reference date of 31 December 2013.
3. Number of own shares, the percentage of share capital that it represents and corresponding percentage of voting rights that corresponded to own shares (Article 245- A/1/a)).
During 2013 Banif – Banco Internacional do Funchal, SA did not enter into any transactions regarding its own shares, and it does not directly hold any own shares.
Indirectly, through its subsidiary Banif – Banco de Investimento, SA, Banif held, at 31 December 2013, 565,574 own shares. In view of Art. 325-A of the Commercial Companies Code, these shares are considered own shares of the controlling company.
1 Voting Rights on all matters specified in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July 2 The percentage of voting rights is calculated using the number of special shares (ISIN PTBAF0VM0007) that have a vote on most matters that come before the general meeting (matters not specified in Article 4.8 of Law No. 63-A/2008, of 24 November, as amended by Law No. 48/2013 of 16 July). Of the 70,000,000,000 shares held by the Portuguese state, 44,511,019,900 fall into this category. If the Portuguese state were to vote with all its shares on the matters specified in Article 4.8 of Law No. 63- A/2008, of 24 November, its voting rights, together with those of the private shareholders, would be equivalent to their percentage of the share capital.
3 Voting Rights on all matters not specified in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July.
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During the 1st half of 2013, Banif – Banco de Investimento, SA, a company controlled by Banif – Banco Internacional do Funchal, SA, (Banif) performed the following transactions with Banif shares, at Euronext Lisbon (stock exchange transactions), under the implementation of the Liquidity Agreement entered into by that Bank and Euronext Lisbon, which was terminated following the General Meeting of Banif held on 30/05/2013, which did not vote for renewal of the authorisation to purchase and sell own shares, given the commitments assumed under the Company’s Recapitalisation Plan.
Transaction Security Date Market Quantity Unit Price Type
Banif SA Shares Acquisition 28-Mar-13 Euronext Lisbon 100 0.12000
Banif SA Shares Disposal 28-Mar-13 Euronext Lisbon 100 0.12000
Banif SA Shares Disposal 30-May-13 Euronext Lisbon 30,000 0.11000
Banif SA Shares Disposal 30-May-13 Euronext Lisbon 290,908 0.11000
Banif SA Shares Acquisition 30-May-13 Euronext Lisbon 31,531 0.11000
Banif SA Shares Acquisition 31-May-13 Euronext Lisbon 3,000 0.11000
As a result of the transaction identified above, the total number of own shares at 31 December 2013 was 565,574, held through Banif – Banco de Investimento SA.
4. Important agreements to which the company is a party and that come into effect, are amended or terminated in cases such as a change in the control of the company after a takeover bid, and the respective effects, except where due to their nature, the disclosure thereof would be seriously detrimental to the company; this exception does not apply where the company is specifically required to disclose said information pursuant to other legal requirements (Article 245-A/1/j).
There are no agreements in the situations described, in other words, which take effect, are amended or terminated in the case of or by mere effect of change of control.
5. A system that is subject to the renewal or withdrawal of countermeasures, particularly those that provide for a restriction on the number of votes capable of being held or exercised by only one shareholder individually or together with other shareholders.
There are no countermeasures, particularly those that provide for a restriction on the number of votes capable of being held or exercised by only one shareholder individually or together with other shareholders, although the shares subscribed by the Portuguese State are special shares with the characteristics described in Article 4.3 and 9 of Law No. 63-A/2008, of 24 November (and subsequent amendments), and in Ministerial Order No. 150-A/2012, of 17 May.
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The percentage of voting rights of the Portuguese State on most matters that come before the general meeting (matters not specified in Article 4.8 of Law No. 63-A/2008, of 24 November, as amended by Law No. 48/2013 of 16 July) corresponds to 44,511,019,900 of the 70,000,000,000 shares that it holds. On matters specified in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July, the Portuguese State votes with all its shares.
6. Shareholders’ agreements that the company is aware of and that may result in restrictions on the transfer of securities or voting rights (Article 245-A/1/g)).
Contract made on 10 June 2009 – Integration of the Tecnicrédito Group
This point covers the contract signed on 10 July 2009 between Banif - SGPS, SA and the then controlling shareholders of Tecnicrédito, SGPS, SA [‘Tecnicrédito’] (replaced by Auto Industrial – Investimentos e Participações, SGPS, SA [‘AI SGPS’], by addendum dated 7 August 2009) concerning the take-over of Tecnicrédito by Banif SGPS, SA, given that, as a consequence of the merger of Banif SGPS, SA with Banif – Banco Internacional do Funchal, SA, this contract then also applied to the latter.
Under this contract, there are restrictions on the disposal by AI SGPS of its shares and mandatory convertible securities (MCS) that it subscribed to as part of the increase in the share capital of Banif SGPS, SA, in return for the shares representing the share capital of Tecnicrédito. Remaining in force among these restrictions is the commitment of AI SGPS to, on the date of the effective conversion of the MCS (into shares in Banif – Banco Internacional do Funchal, SA) not reduce, in any form whatsoever, its economic interest to a percentage below two thirds of the economic interest acquired on the occasion of the transactions provided for in that contract.
Excluded from this are any transactions of shares or MCS between AI SGPS and companies it directly or indirectly controls, or between such companies, provided that the purchaser is also bound by the same contract.
The aforementioned commitment is no longer in force, having been retained only until 9 October 2013, the date on which the MCS were converted into ordinary shares in the company.
Secured Subscription Commitments
In the context of the recapitalisation of Banif – Banco Internacional do Funchal, SA through state investment, pursuant to Law No. 63-A/2008 of 24 November, in its current wording, each of the shareholders Rentipar Financeira SGPS, SA and AI SGPS subscribed on 31 December 2012 a document designated Secured Subscription Commitment, under which the shareholder undertakes, in particular, not to trade/transfer any shares of Banif – Banco Internacional do Funchal, SA (or securities convertible into the Bank’s shares or rights to acquire or subscribe to these shares) until 31 October 2013, inclusive.
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The aforementioned commitments are no longer in force, having been retained only until 31 October 2013 and not renewed.
II – SHAREHOLDINGS AND BONDS HELD
7. Details of the natural or legal persons who, directly or indirectly, are holders of qualifying holdings (Article 245-A/1/c) & /d) and Article 16) with details of the percentage of capital and votes attributed and the source and causes of the attribution.
Shareholder No. of Shares % share capital with % share capital voting rights with voting rights Portuguese State (on all matters specified in (on all matters not specified Article 4.8 of Law No. 63- in Article 4.8 of Law No. 63- A/2008 of 24 November, as A/2008 of 24 November, as amended by Law No. 48/2013 amended by Law No. 48/2013 4 of 16 July) of 16 July ) Directly 70,000,000,000 68.769% 58.336%
Shareholder No. of Shares % share capital with % share capital voting rights with voting rights Auto-Industrial, (on all matters specified in (on all matters not specified Investimentos e Article 4.8 of Law No. 63- in Article 4.8 of Law No. 63- A/2008 of 24 November, as A/2008 of 24 November, as Participações, SGPS, amended by Law No. 48/2013 amended by Law No. 48/2013 of 16 July) of 16 July) SA Directly 2,635,782,857 2.589% 3.454%
The qualifying holding of Auto-Industrial Investimentos e Participações SGPS, SA (“Auto-Industrial SGPS”) in Banif is attributable to Auto-Industrial, SA, to the extent that the latter holds 63.95% of the share capital of Auto-Industrial SGPS.
Shareholder No. of Shares % share capital with % share capital voting rights with voting rights Estate of Horácio da Silva (on all matters not specified (on all matters specified in in Article 4.8 of Law No. 63- Roque Article 4.8 of law no. 63-A/2008 A/2008 of 24 November, as of 24 November, as amended amended by Law No. by Law No. 48/2013 of 16 July) 48/2013 of 16 July) Directly 808,888 0.0008% 0.0011% Indirectly, through the company Açoreana 7,500,000,000 7.3681% 9.8296% Seguros SA (company
4The percentage of voting rights is calculated using the number of special shares (ISIN PTBAF0VM0007) that have a vote on most matters that come before the general meeting (matters not specified in Article 4.8 of Law No. 63-A/2008, of 24 November, as amended by Law No. 48/2013 of 16 July). Of the 70,000,000,000 shares held by the Portuguese state, 44,511,019,900 fall into this category. If the Portuguese state were to vote with all its shares on the matters specified in Article 4.8 of Law No. 63-A/2008, of 24 November, its voting rights, together with those of the private shareholders, would be equivalent to their percentage of the share capital.
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controlled by the Estate under the terms of Articles 20.1(b) and 21, both of the Portuguese Securities Code) Indirectly, through the company Rentipar 307,063,133 0.3017% 0.4024% Financeira, SGPS, SA (company controlled by the Estate under the terms of Articles 20.1(b) and 21, both of the Portuguese Securities Code) Indirectly, through the member of the board of 77,280 0.0001% 0.0001% directors of the company Rentipar Financeira, SGPS, SA – Vitor Hugo Simons - (Art. 20.1(b), (d) and (i) of the Portuguese Securities Code) Indirectly, through the company controlled by Rentipar Financeira, SGPS, 27,583,051 0.0271% 0.0362% SA, - Vestiban – Gestão e Investimentos, SA, (Art. 20.1(b) and (i) of the Portuguese Securities Code) Indirectly, through the company Espaço Dez –
Sociedade Imobiliária, Lda (company controlled by 267,750 0.0003% 0.0004% the Estate under the terms of Articles 20.1(b) and 21, both of the Portuguese Securities Code) Indirectly, through the company controlled by Rentipar Financeira, SGPS, SA, - Renticapital – 162,049 0.0002% 0.0002% Investimentos Financeiros, SA, (Art. 20.1(b) and (i) of the Portuguese Securities Code) Total 7,835,962,151 7.6982% 10.2699%
8. A list of the number of shares and bonds held by members of the management and supervisory boards.
Information on shares and bonds required under Article 447 of the Commercial Companies Code, and Article 14.7 of CMVM Regulation No. 5/2008, with reference to 31 December 2013, including all share and bond transactions carried out during the period in question.
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BOARD OF DIRECTORS
LUÍS FILIPE MARQUES AMADO
He did not hold, either directly or through any related parties, any securities issued by Banif – Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which it is in a controlling or group relationship.
During the period in question, he did not transact, either directly or through any related parties, any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which it is in a controlling or group relationship.
JORGE HUMBERTO CORREIA TOMÉ
He held 8,343,611 shares in Banif - Banco Internacional do Funchal, SA.
In 2013, under the Public Offer for Subscription of up to 10,000,000,000 ordinary shares in Banif SA, during the period between 8 and 19 July 2013, he completed the following transaction:
Date Operation Security Quant. Unit Final Value position 29/07/2013 Acquisition of Banif SA Shares 8,343,611 EUR 0.01 8,343,611 shares (by the company itself)
Under the Public Offer for Subscription of Banif, SA Bonds, held between 24 and 26 July 2013, he completed the following transactions:
Date Operation Security Quantity UnitFinal Value position 29/07/2013 Acquisition of Bonds Banif 7.5% 125,000 EUR 1.00 125,000 2013/2016
He also completed the following acquisition of bonds:
Date Operation Security Quantity Unit Final Value position 13/11/2013 Acquisition of Bonds Banif 7.5% 50,000 100.01 EUR 175,000 2013/2016
He also held 4 shares in Banif – Banco Internacional do Funchal (Brasil), SA, 3 of which subscribed on 21/01/2013, on the increase in share capital of that Bank. Under the incorporation of all the shares in Banif – Banco de Investimento (Brasil), SA into the share capital of Banif – Banco
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Internacional do Funchal (Brasil), SA, the preferred share without voting rights that he held in that investment bank was transferred, on 21/01/2013, to the commercial bank.
DIOGO ANTÓNIO RODRIGUES DA SILVEIRA
He did not hold, either directly or through any related parties, any securities issued by Banif – Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which it is in a controlling or group relationship.
During the period in question, he did not transact, either directly or through any related parties, any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which it is in a controlling or group relationship.
VITOR MANUEL FARINHA NUNES
He held, indirectly, through the company FN Participações, SGPS, SA, a total of 12,320,517 shares in Banif SA, and during the year in question he completed the following transactions:
Date Operation Security Quant. FinalUnit Value position
Sale of shares by a 24/07/2013 controlled entity (FN Banif SA 606,666 EUR 1,229,838 Participações, SGPS, SA). Shares 0.04939
Under the Public Offer for Subscription of up to 10,000,000,000 ordinary shares in Banif – Banco Internacional do Funchal SA (Banif SA), held in the period between 8 and 19 July 2013, he completed the following transactions:
Date Operation Security Quant. Unit Final Value position
Acquisition of shares by a 29/07/2013 controlled entity (FN Banif SA 9,270,679 EUR 0.01 10,500,517 Participações, SGPS, SA). Shares
Under the Public Offer for Subscription (POS) reserved for Banif SA shareholders of up to 225,000,000 Bonds, the following transactions were completed:
Date Operation Security Quant. FinalUnit Value position
29/07/2013 Subscription of bonds by a Banif SA 250,000 EUR 1.00 250,000 controlled entity (FN 7.5% Bonds Participações, SGPS, SA). 2013/2016
On 30/09/2013, under the conversion of mandatory convertible securities (“MCS”), issued by Banif, SA, FN Participações, SA received 1,820,000 new shares in that bank.
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NUNO JOSÉ ROQUETTE TEIXEIRA
He held 4 preferred shares in Banif - Banco Internacional do Funchal (Brasil), SA and 1,545,114 Banif SA shares, acquired under the Public Offer for Subscription of up to 10,000,000,000 ordinary shares in Banif – Banco Internacional do Funchal, SA, held in the period between 8 and 19 July 2013:
Final Date Operation Security Quantity Unit Value position
1,545,114 29/07/2013 Acquisition Banif SA Shares 1,545,114 EUR 0.01 shares
JOÃO PAULO PEREIRA MARQUES DE ALMEIDA
He held 24,807 shares in Banif – Banco Internacional do Funchal, SA.
He acquired, on 29 July, 1,854,135 shares under the Public Offer for Subscription of up to 10,000,000,000 ordinary shares in Banif – Banco Internacional do Funchal, SA, held in the period between 8 and 19 July 2013, as follows:
Final Date Operation Security Quantity Unit Value position
1,878,942 29/07/2013 Acquisition Banif SA Shares 1,854,135 EUR 0.01 shares
On 1 August he disposed of 1,854,135 shares, as follows:
Final Date Operation Security Quantity Unit Value position
01/08/2013 Disposal Banif SA Shares 1,854,135 EUR 0.0130 24,807 shares
JOÃO JOSÉ GONÇALVES DE SOUSA
He held 1,236,090 preferred shares in Banif - Banco Internacional do Funchal, SA acquired under the Public Offer for Subscription of up to 10,000,000,000 ordinary shares in Banif – Banco Internacional do Funchal, SA, held in the period between 8 and 19 July 2013, as follows:
Final Date Operation Security Quantity Unit Value position
29/07/2013 Acquisition of shares Banif SA Shares 1,236,090 EUR 0.01 1,236,090
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MARIA TERESA HENRIQUES DA SILVA MOURA ROQUE
She held 3,000,000 shares in Banif – Banco Internacional do Funchal, SA, having completed the following transactions:
Date Operation Security Quant. Unit Value Final position 29/07/2013 Acquisition Banif SA Shares 3,090,227 EUR 0.01 3,090,227 31/07/2013 Sale Banif SA Shares 3,090,227 EUR 0.011 0 06/08/2013 Acquisition Banif SA Shares 1,000,000 EUR 0.012 1,000,000 07/08/2013 Acquisition Banif SA Shares 2,000,000 EUR 0.012 3,000,000
She also completed the following transactions with bonds:
Date Operation Security Quantity Unit Value Final position
Banif 7.5% 30/07/2013 Acquisition of Bonds 25,000 100% 25,000 2013/2016
Banif 7.5% 02/12/2013 Acquisition of Bonds 20,000 100% 45,000 2013/2016
She also reported that no other transactions were completed with shares or bonds in Banif – Banco Internacional do Funchal, SA or a company in a group relationship, during 2013.
ANTÓNIO CARLOS CUSTÓDIO DE MORAIS VARELA
He held 25 Banif Finance Perpetual 07 preferred shares and 50,000 Banif 08/18 Subordinated Treasury Bonds.
During 2013, he did not transact, either directly or through any related parties, any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which it is in a controlling or group relationship, in the reference period.
SUPERVISORY BOARD
FERNANDO MÁRIO TEIXEIRA DE ALMEIDA
He held 368,358 shares in Banif – Banco Internacional do Funchal, SA.
The company Quinta do Sourinho – Agricultura e Turismo, Lda, wholly owned by him and by the persons stipulated in Article 447.2(a) and (b) of the Commercial Companies Code, held 374,749 shares in Banif – Banco Internacional do Funchal, SA.
On 29 July, he completed the following transactions:
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Final Date Operation Security Quantity Unit Value position
29/07/2013 Acquisition of Shares Banif SA Shares 154,511 EUR 0.01 368,358
The company Quinta do Sourinho - Agricultura e Turismo, Lda completed, on 29 July, the following transactions:
Final Date Operation Security Quantity Unit Value position
29/07/2013 Acquisition of Shares Banif SA Shares 154,511 EUR 0.01 374,749
ANTÓNIO ERNESTO NETO DA SILVA
He did not hold, either directly or through any related parties, any securities issued by Banif – Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which it is in a controlling or group relationship.
During the period in question, he did not transact, either directly or through any related parties, any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which it is in a controlling or group relationship, in the reference period.
THOMAZ DE MELLO PAES DE VASCONCELLOS
He did not hold, either directly or through any related parties, any securities issued by Banif – Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which it is in a controlling or group relationship.
He completed the following transactions:
Date Operation Security Quantity Unit Value Final position
22/07/2013 Purchase of Shares Banif SA Shares 1,236,090 EUR 0.010 1,236,090
26/08/2013 Sale of Shares Banif SA Shares 1,236,090 EUR 0.011 0
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ROGÉRIO PEREIRA RODRIGUES
He did not hold, either directly or through any related parties, any securities issued by Banif – Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which it is in a controlling or group relationship.
During the period in question, he did not transact, either directly or through any related parties, any securities issued by Banif - Banco Internacional do Funchal, SA (including shares and/or financial instruments related to these) and/or any companies with which it is in a controlling or group relationship, in the reference period.
9. Special powers of the Board of Directors, especially as regards resolutions on the capital increase (Article 245-A/1/i)) with an indication as to the allocation date, time period within which said powers may be carried out, the upper ceiling for the capital increase, the amount already issued pursuant to the allocation of powers and mode of implementing the powers assigned.
The powers of the Board of Directors are stipulated in Article 22 of the articles of association. This article stipulates that the board of directors is responsible for “ensuring the management of the company’s business”. In order to do so, it has the power to decide on “any company-related issue that does not fall, in law or under the articles of association, under the exclusive competence of another body, namely, to:
a) Perform any operations concerning its corporate purpose; b) Represent the company in and out of court, as claimant or defendant, lodge and pursue actions, admit, withdraw, settle and submit to arbitration; c) Acquire, dispose of, lease or exchange or, in any way, encumber any assets or rights, whether movables or immovables, including treasury or other shares and securities, as well as holdings in the capital of other companies, even when they have a different corporate purpose; d) Appoint representatives; e) Decide upon the timeliness and conditions of bond issues and the issue of other debt securities by the company; f) Appoint members of the executive committee referred to in article twenty-four below; g) Draw up the annual management report, balance sheet and accounts, submitting these to the general meeting h) Determine that advances on profits be paid to shareholders, taking into account the provisions of Article 297 CSC”.
Following the decision to alter the articles taken by the general meeting on 16 January 2013, Article 5.1-A of the articles of association now states the conditions under which the board of directors may use its powers/duties to decide on an increase in capital, as follows:
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“After the injection of public funds corresponding to the first stage of the recapitalisation operation, approved by the general meeting on 16 January 2013, the Board of Directors should decide to increase the share capital of the company by EUR 450,000,000, through cash injections until 30 June 2013, by means of one or more increases in capital”.
Subsequently, at a general meeting held on 25 June 2013, considering the interest in ensuring that the board of directors of Banif enjoys the greatest flexibility possible to implement phase two of the Recapitalisation Plan, it was agreed to change the wording of Article 5.1-A of the articles of association of Banif, to the following: “The Board of Directors is authorised to raise the company’s share capital to EUR 450,000,000, through cash injections by means of one or more increases in capital.”
Under the powers granted, the Board of Directors decided:
on 25 June 2013, to approve an increase in share capital of EUR 100,000,000.00, through new cash injections, the company’s share capital being increased to EUR 1,370,000,000.00 – with the consequent amendment of Articles 5 and 6 of the company’s articles of association. on 27 June 2013, on i) an increase in share capital up to EUR 100,000,000.00, through new cash injections, the company’s share capital being increased to EUR 1,470,000,000. on 1 August 2013, on an increase in share capital up to EUR 40,700,000, through new cash injections, the company’s share capital being increased to EUR 1,510,700,000.
In addition on 19 August 2013, the general meeting of shareholders approved an increase in share capital through a public exchange offer that resulted in an increase in share capital of EUR 70,795,220.43, completed on 16 September 2013.
On 7 October 2013, the company’s share capital had increased by EUR 700,000.00 by conversion of mandatory convertible securities (MCS) under the decision of the general meeting of Banif SGPS SA on 14 August 2009. This operation does not have an impact on the company’s net worth, since it derives exclusively from conversion of MCSs.
Since the authorisation by the general meeting that resulted in the current wording of Art. 5.1 of the articles of association was given in the specific context and for the purpose of implementing phase two of Banif recapitalisation process, which involves investment of 450 million euros by private investors, the Board of Directors decided, on 14 April 2014, to perform a capital increase operation of the remaining amount to complete that total amount, in other words, of 138,504,779.57 euros.
10. Information on any significant business relationships between the holders of qualifying holdings and the company
Since the company is a credit institution, all loans to shareholders with qualifying holding of over 10% or major shareholders (regarded as equivalent to qualified shareholders by Banco de Portugal)
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MANAGEMENT REPORT AND ACCOUNTS 2013 are subject to the additional scrutiny provided for in Article 109 of the General Regulations for Credit Institutions and Finance Companies. There are no other transactions of significance with qualifying shareholders.
B. CORPORATE BOARDS AND COMMITTEES
I - GENERAL MEETING
a) Composition of the Presiding Board of the General Meeting* 5
11. Details and position of the members of the Presiding Board of the General Meeting and respective term of office (beginning and end)
In accordance with Article 14.1 of the company’s articles of association, the presiding board of the general meeting is composed of a chair and one or two secretaries, elected for three-year periods, by the general meeting.
On 23 March 2012, the following were elected to the presiding board of the general meeting for the three-year period 2012-2014 and they remained in office at the date of this report:
Chair: Miguel José Luís de Sousa Secretary: Bruno Miguel dos Santos de Jesus
The election of both members of the presiding board of the general meeting was decided at the general meeting held on 23 March 2012. The members of the committee were appointed for the 2012-2014 three-year period, which ends on 31 December 2014.
b) Exercising the right to vote
12. Any restrictions on the right to vote, such as restrictions on voting rights subject to holding a number or percentage of shares, deadlines for exercising voting rights, or systems whereby the financial rights attaching to securities are separated from the holding of securities (Article 245-A/1/f));
Under the provisions of Article 17.2 of the company’s articles of association, each share corresponds to 1 (one) vote.
This wording of Article 17.2 of the articles of association, introduced at the general meeting on 8 October 2012, in the context of the merger of Banif SGPS, SA into Banif – Banco Internacional do Funchal, SA, incorporates the recommendations of the CMVM in this matter, thus emphasising the efforts made by the company to involve shareholders in decision-making.
*5 throughout the said year
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Article 5.4 of the articles of association stipulates the issue of non-voting preference shares and other preference shares, in the following terms:
“The company may issue any category of shares, specifically non-voting preferential shares or other preferential shares, redeemable or not, such redemption being at the nominal value, with, or not, the addition of a premium, as decided by the competent body”.
The special shares held by the Portuguese State (ISIN PTBAF0VM0007) are subject, with regard to voting rights, to the regime provided for in the Article 4 of Law No. 63-A/2008 of 24.11, under the detailed terms in Point 13. below.
There are no bylaw rules relating to the stripping of equity rights.
13. Details of the maximum percentage of voting rights that may be exercised by a single shareholder or by shareholders that are in any relationship as set out in Article 20/1
The articles of association do not stipulate any limit as to the number of votes that may be held or exercised by a single shareholder or by a shareholder acting in concert with other shareholders.
The bylaw rules on the exercise of voting rights, and specifically as regards constitutive and decision-making quorums, are in line with the provisions of the Commercial Companies Code (CCC). Parity exists between the bylaws (as per Article 18.1 of the articles of association) and the legal regulations (as per articles 383 and 386 of the Commercial Companies Code).
The percentage of voting rights of the Portuguese State is calculated using the number of special shares (ISIN PTBAF0VM0007) that have a vote on most matters that come before the general meeting (matters not specified in Article 4.8 of Law No. 63-A/2008, of 24 November, as changed by Law No. 48/2013 of 16 July). Of the 70,000,000,000 shares held by the Portuguese state, 44,511,019,900 fall into this category. On matters specified in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July, the Portuguese State votes with all its shares, as such, its voting rights are equivalent to its percentage of the share capital.
14. Details of shareholders’ resolutions that, imposed by the articles of association, may only be taken with a qualified majority, in addition to those legally provided, and details of said majority.
As mentioned in the previous point, bylaw rules on the exercise of voting rights, and specifically as regards constitutive and decision-making quorums, are in line with the provisions of the Commercial Companies Code (CCC). Parity exists between the bylaws (as per Article 18.1 of the articles of association) and the legal regulations (as per Articles 383 and 386 of the Commercial Companies Code).
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II – MANAGEMENT AND SUPERVISION
(Board of Directors, Executive Board and the General and Supervisory Board)
a) Composition6
15. Details of corporate governance model adopted.
In terms of governance, the company is structured according to the Latin model (Reinforced), in accordance with Art. 278.1(a) of the Commercial Companies Code, and its composition is as follows: the general meeting, the board of directors and the supervisory board, which is responsible for the appointment of a statutory auditor that is not a member of that board.
Management of the company is entrusted to a board of directors (cf. Article 20 et seq of the articles of association) composed of a minimum of 3 and a maximum of 15 members, elected by the general meeting for three-year mandates, without prejudice to their re-election.
In a meeting on 23 March 2012, the board of directors delegated the duties of day-to-day management of the company to an executive committee, under the terms of Article 24 of the articles of association.
16. Articles of association rules on the procedural requirements governing the appointment and replacement of members of the Board of Directors, the Executive Board and the General and Supervisory Board, where applicable. (Article 245-A/1/h)).
Pursuant to the articles of association, the members of the board of directors are appointed by the general meeting for a three-year period and may be re-elected. In the first meeting of each period of office, the board should appoint a chair and one or more vice-chairs from amongst its members.
The selection of (any) directors is a process entirely undertaken by the company’s shareholder structure (which is responsible for drawing up and submitting election lists). The board may delegate the day-to-day management of the company to an executive committee, comprising directors, one of whom it shall appoint as its chair, this decision to establish the limits of such delegation. The board of directors also has the power to distribute portfolios among directors.
The articles of association do not specify the means of replacing members of the board of directors, such replacement taking place in accordance with the terms of Article 393.3 of the Commercial Companies Code. In the same way, and in compliance with the final part of Article 245- A(h) of the SC, there are no specific rules relating to any changes made to the articles of association.
6 Throughout the said year
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MANAGEMENT REPORT AND ACCOUNTS 2013
17. Composition of the Board of Directors, the Executive Board and the General and Supervisory Board, where applicable, with details of the articles of association’s minimum and maximum number of members, duration of term of office, number of effective members, date when first appointed and end of the term of office of each member.
The board of directors is composed of a minimum of three and a maximum of fifteen members, as decided by the general meeting. Alternate directors may be elected, up to a number equal to a third of the existing number of elected permanent directors.
At a general meeting of the company held on 23 March 2012, the following members of the board of directors of Banif – Banco Internacional do Funchal, SA were elected for the three-year period 2012/2014 and at the meeting of the board of directors on the same date its chair and vice-chair were appointed, as follows:
- Luís Filipe Marques Amado (Chair) - Jorge Humberto Correia Tomé (Vice-Chair) - Carlos Eduardo Pais e Jorge - Diogo António Rodrigues da Silveira - Gonçalo Vaz Gago da Câmara de Medeiros Botelho - João José Gonçalves de Sousa - João Paulo Pereira Marques de Almeida - Manuel Carlos de Carvalho Fernandes - Nuno José Roquette Teixeira - Vítor Manuel Farinha Nunes
Following the general meeting on 8 October 2012 which agreed to approve the merger, by incorporation, of Banif SGPS, SA into Banif – Banco Internacional do Funchal, SA (Acquiring Company), a new composition of the board of directors was approved for the three-year period in progress, 2012-2014, as follows:
Board of Directors Chair: Luís Filipe Marques Amado Vice-chairs: Jorge Humberto Correia Tomé Maria Teresa Henriques da Silva Moura Roque Paula Cristina Moura Roque 7 Full Members: Carlos Eduardo Pais e Jorge Diogo António Rodrigues da Silveira Fernando José Inverno da Piedade8
7 She did not take office having presented her resignation before the process of registration with Banco de Portugal was concluded. 8 He did not take office having presented his resignation before the process of registration with Banco de Portugal was concluded.
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Gonçalo Vaz Gago da Câmara de Medeiros Botelho João José Gonçalves de Sousa João Paulo Pereira Marques de Almeida José António Vinhas Mouquinho Manuel Carlos de Carvalho Fernandes Nuno José Roquette Teixeira Vítor Manuel Farinha Nunes
On 4 March 2013, Series II of the Diário da República (Official Gazette) (No. 44) published Order No. 3454-A/2013 of the Minister of State and Finance, which appointed, effective from 22 February 2013, António Carlos Custódio de Morais Varela as a non-executive member of the bank’s board of directors, pursuant to Article 14.2 of Law No. 63-A/2008 and Paragraph No. 10 of Order No. 1527- B/2013, and respecting all applicable legal procedures, including the provisions of Articles 30 to 33 of the General Regulations for Credit Institutions and Finance Companies, approved by Decree-Law No. 298/92, of 31 December, as last amended by Decree-Law No. 18/2013, of 6 February.
Following his resignation submitted in due time, on 30 June 2013, Manuel Carlos de Carvalho Fernandes retired from his position as non-executive member that he had held on the board of directors of Banif.
At the end of August 2013, the composition of the management and supervisory bodies of the Group’s three Banks in Portugal was adjusted, giving them smaller management teams, more focused on the specific business of each bank and supported by an increasingly shared back office, in line with the current situation in the Group.
As a result of this process, in Banif this lead to a reduction in the number of members of the executive committee from 8 to 5 directors, with the corresponding reduction in members of the board of directors from 12 to 9 directors.
In accordance with the letters of resignation submitted in due time, on 31 August 2013, José António Vinhas Mouquinho, Carlos Eduardo Pais e Jorge and Gonçalo Vaz Gago da Câmara de Medeiros Botelho left the board of directors of Banif.
At 31 December 2013, the composition of the board of directors of Banif was the following:
Luís Filipe Marques Amado Chair of the board of directors – Non-Executive.
He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 23-03-2012.
His current period of office is for the three-year period 2012/2014, ending on appointment of the new board of directors (Article 391.4 of the Commercial Companies Code).
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Jorge Humberto Correia Tomé Vice-chair of the board of directors and chair of the executive committee.
He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 23-03-2012. His current period of office is for the three-year period 2012/2014, ending on appointment of the new board of directors (Article 391.4 of the Commercial Companies Code).
Maria Teresa Henriques S. M. Roque Vice-chair of the board of directors – Non-Executive.
She was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 08-10-2012.
Her current period of office is for the three-year period 2012/2014, ending on appointment of the new board of directors (Article 391.4 of the Commercial Companies Code).
Vitor Manuel Farinha Nunes Chief Executive Officer/Executive Director.
He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 03-11-2009.
His current period of office is for the three-year period 2012/2014, ending on appointment of the new board of directors (Article 391.4 of the Commercial Companies Code).
Nuno José Roquette Teixeira Chief Executive Officer/Executive Director.
He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 21-07-2010.
His current period of office is for the three-year period 2012/2014, ending on appointment of the new board of directors (Article 391.4 of the Commercial Companies Code).
Diogo António Rodrigues da Silveira Non-Executive Director.
He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 21-05-2007.
His period of office is for the three-year period 2012/2014. Following his resignation submitted on 28 February 2014, he left this position on 31 March 2014, in accordance with Art. 404 of the Commercial Companies Code.
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MANAGEMENT REPORT AND ACCOUNTS 2013
João Paulo Pereira Marques de Almeida Chief Executive Officer/Executive Director.
He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 27-06-2008.
His current period of office is for the three-year period 2012/2014, ending on appointment of the new board of directors (Article 391.4 of the Commercial Companies Code).
João José Gonçalves de Sousa Chief Executive Officer/Executive Director.
He was appointed, for the first time, to the board of directors of Banif - Banco Internacional do Funchal, SA on 23-03-2012.
His current period of office is for the three-year period 2012/2014, ending on appointment of the new board of directors (Article 391.4 of the Commercial Companies Code).
António Carlos Custódio de Morais Varela Non-Executive Director.
He was appointed, for the first time, to the board of directors of Banif – Banco Internacional do Funchal, SA on 04-03-2013, by Order No. 3454-A/2013 from the Minister of State and Finance, published on 4 March 2013 in the II Series of Diário da República (No. 44).
18. Distinction to be drawn between executive and non-executive directors and, as regards non-executive members, details of members that may be considered independent, or, where applicable, details of independent members of the General and Supervisory Board.9
On 23 March 2012 an executive committee was set up, with its members drawn from the board of directors elected for the 2012-2014 three-year period. The following were the executive and non- executive members of the board at 31 December 2013:
Executive Directors Jorge Humberto Correia Tomé (Chair of the Executive Committee)
9 18.1. The independence of the members of the General and Supervisory Board and members of the Audit Committee shall be determined in accordance with the applicable law and, as regards the other members of the Board of Directors, those who are not associated with any specific interest group within the company, nor under any circumstances capable of affecting their impartiality of analysing or decision making is considered to be independent, particularly with regard to the following: a. Was an employee over the last three years of the company or a company which is in a controlling or group relationship; b. Have, in the last three years, provided services or established a significant business relationship with the company or company with which said company is in a control or group relationship, either directly or as a partner, board member, manager or director of the legal person; c. Receiving remuneration paid by the company or by a company that is in a controlling or group relationship in addition to the remuneration derived from carrying out the tasks as a Board Member; d. Living with a partner or a spouse, next of kin up to and including third degree, of board members or individuals directly or indirectly holding qualifying holdings; e. Being a qualifying shareholder or representative of a qualifying shareholder.
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Vitor Manuel Farinha Nunes Nuno José Roquette Teixeira João Paulo Pereira Marques de Almeida João José Gonçalves de Sousa
Non-Executive Directors Luís Filipe Marques Amado (Chair of the board of directors) Diogo António Rodrigues da Silveira Maria Teresa Henriques da Silva Moura Roque António Carlos Custódio de Morais Varela
The non-executive director, Luís Filipe Marques Amado, complies with all the independence criteria provided for in Point 18.1 of the annex to CMVM Regulation No. 4/2013.
19. Professional qualifications and other relevant curricular information of each member of the Board of Directors, the General and Supervisory Board and the Executive Board, where applicable.
Note: Given that the answer to point 26 covers the current duties of each of the members of the management bodies in other companies, at 31 December 2013, the answer to this point only covers those duties that have been carried out for other entities in the last five years but which are not, at the reference date and in the case of any of the members of the board of directors, being carried out during 2013.
LUÍS FILIPE MARQUES AMADO
– Degree in Economics – Instituto Superior de Economia, Universidade Técnica de Lisboa (1976).
– Assembly of the Republic (Deputy, 1991-2009), Minister of Foreign Affairs in the 17th and 18th Constitutional Governments (2006-2011); Banif - Banco de Investimento, SA (Chair of the board of directors (from 22 March 2012 to August 2013);
JORGE HUMBERTO CORREIA TOMÉ
– Degree in Enterprise Organisation and Management from ISCTE - IUL Instituto Universitário de Lisboa (1979).
Master’s in Applied Economics - Faculty of Economics, Universidade Nova de Lisboa, 1993.
Advanced Management Course at Chicago Business School – London Campus, 2011.
– Banif - Banco de Investimento, SA (Vice-chair of the board of directors and chair of the executive committee, from 23/03/2012 to 30/08/2013); Banif SGPS, SA (Member of the board of directors and chair of the executive committee, from 23/03/2012 to 17/12/2013); Banif Comercial, SGPS, SA (from 30/03/2012 to 30/08/2012 - Member of the board of directors from
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30/03/2012, chair of the board of directors, from 28/05/2012); Banif - Investimentos - SGPS, SA (from 09/04/2012 to 30/08/2012 - Member of the board of directors from 09/04/2012, chair of the board of directors, from 13/04/12); Banif (Açores) - Sociedade Gestora de Participações Sociais, SA (Chair of the board of directors, from 27/03/2012 to 25/07/2012); Caixa Geral de Depósitos, SA (Member of the board of directors from January 2008 to 29 February 2012, member of the executive committee from July 2011 to 29 February 2012, vice- chair of Banco Nacional de Investimentos, SA, in Mozambique, from November 2011 to 29 February 2012, chair of the board of directors of Caixa Seguros e Saúde, SA, from October 2011 to 29 February 2012, member of the governing board of Caixa Geral de Aposentações, from July 2011 to 29 February 2012, chair of the board of directors of Caixa Desenvolvimento, SA, from May 2011 to 29 February 2012, chairman of the board of directors of Gerbanca, SGPS, SA, from May 2009 to 29 February 2012, member (non-executive) of the board of directors of Cimpor – Cimentos de Portugal, SGPS, SA, from May 2009 to 29 February 2012, member (non- executive) of the board of directors of Parcaixa, SGPS, SA from April 2009 to 29 February 2012, vice-chair of the board of directors of Banco Caixa Geral - Brasil, SA, from April 2009 to 29 February 2012, member (non-executive) of the board of directors of Portugal Telecom, SGPS, SA, from March 2009 to 29 February 2012, chair of the board of directors of CREDIP – Instituição Financeira de Crédito, SA, from April 2008 to 29 February 2012, chair of the board of directors of Caixa Capital – Sociedade de Capital de Risco, SA, from March 2008 to 29 February 2012); Caixa – Banco de Investimento, S.A (Chair of the board of directors, from March 2008 to 29 February 2012, chair of the executive committee, from March 2002 to January 2008, chair of the board of directors of Trem – Aluguer Material Circulante, ACE, from March 2002 to February 2011, chair of the board of directors of Trem II – Aluguer Material Circulante, ACE, from March 2002 to February 2011, (non-executive) member of the monitoring and strategy committee of Fomentinvest SGPS, SA, from May 2008 to April 2010).
DIOGO ANTÓNIO RODRIGUES DA SILVEIRA
– Diplôme d’Ingenieur – École Centrale de Lille; Research Scholar – Berkeley UC, USA; Master of Business Administration (MBA) – INSEAD, France.
– ONI SGPS, SA (member of the board of directors/chair of the executive committee, from 2005 to 2007); Onitelecom - Infocomunicações, SA (chair of the board of directors, from 2005 to 2007); Oni Madeira - Infocomunicações, SA (chair of the board of directors, from 2005 to 2007); Oni Açores - Infocomunicações, SA (chair of the board of directors, from 2005 to 2007); Comunitel Global, SA (chair of the board of directors, from 2005 to 2007).
VITOR MANUEL FARINHA NUNES
– Degree in Business Management – Instituto Superior de Gestão (1989).
– Banif SGPS, SA (member of the board of directors, from May 2011 to 17/12/2013); Tecnicrédito ALD, Aluguer de Automóveis, SA (member of the board of directors, 1996-2012); Banco Pecunia (Brasil), SA (member of the board of directors, 2007-2010); TCC Investments, Ltd.
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(member of the board of directors, 1999-2009); Tecnicrédito Cayman, Inc. (member of the board of directors, 1999-2009); Core Investimentos, Consultoria e Serviços, Lda. (Manager, 2008-2012).
NUNO JOSÉ ROQUETTE TEIXEIRA
– Degree in Company Management and Administration from Universidade Católica Portuguesa (Lisbon - 1987-1992).
– Banif Securities Holdings, Ltd. (member of the board of directors, from April 2002 to September 2010); Banif Corretora de Títulos e Valores Mobiliários e Câmbio, SA (member of the board of directors, from September 2005 to February 2012); Gamma - Sociedade de Titularização de Créditos, SA (member of the board of directors, from June 2006 to July 2010); Banco de la Pequeña y Mediana Empresa, SA (member of the board of directors, from November 2007 to July 2010); Banif – Banco de Investimento (Brasil), SA (from March 2005 to March 2012); Banieuropa Holding, SL (from December 2009 to September 2012); Banif Açores, SGPS, SA (from March 2012 to July 2012); Banif Investimentos SGPS, SA (from April 2012 to August 2012); Banif Comercial SGPS, SA (from March 2012 to August 2012); Banif SGPS, SA (from July 2010 to December 2012); Banif - Banco de Investimento, SA (December/2000 to August/2013); Banco Banif Mais, SGPS, SA (July 2012 to August/2013); Banif Mais SGPS, SA (May 2013 to August/2013).
JOÃO PAULO PEREIRA MARQUES DE ALMEIDA
– Degree in Company Management and Administration from Universidade Católica Portuguesa (Lisbon - 1981); Postgraduate Course in Business Management (MBA) from Universidade Nova de Lisboa; Graduate of the Kellogg/Católica Advanced Management Program.
– Banif – Banco de Investimento, SA (member of the board of directors and of the executive committee, from December 2000 to June 2008 and from March 2012 to August 2013), Banif – Gestão de Activos – SGFIM, SA, (member of the board of directors, August 2001 to June 2008), Bankpime (member of the board of directors, representing of Banif - SGPS, SA, from March to October 2012), Banif - SGPS, SA (member of the board of directors and the executive committee, March to December 2012), Banif Finance, Ltd (member of the board of directors, since September 2010), Banif – Banco Internacional do Funchal (Brasil), SA (member of the board of directors, since October 2012) and Banif – Banco de Investimento (Brasil), SA (member of the board of directors, since April 2013).
JOÃO JOSÉ GONÇALVES DE SOUSA
– Degree in Economics - Universidade do Porto (1977).
– Banif – Banco Internacional do Funchal, SA (Director responsible for various portfolios, including Commercial Department North and Major Company Department, managing director
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of the Branch System Department and the Department of Corporate and Private Banking, from November 1992 to March 2012).
MARIA TERESA HENRIQUES S. M. ROQUE
Degree in Politics, Philosophy and Economics, University of Oxford, United Kingdom – 1989/1992.
Master’s in International Relations, School of Advanced International Studies (SALTS), Johns Hopkins University, Bologna, Italy and Washington DC, 1993/1995
Diploma in Strategic Management, Universidade Católica, Lisbon, 1998/1999.
PhD candidate, Instituto de Estudos Políticos, Universidade Católica Portuguesa, Lisbon, 2002/2004 and 2008/2010.
– Vitecaf - Fábrica de Rações da Madeira, SA (Vice-chair of the board of directors from 21/03/2011 to 27/03/2013); Banif SGPS, SA (Vice-chair of the board of directors, from 23/03/2012 to 17/12/12, date of the merger with Banif – Banco Internacional do Funchal, SA); Renticapital - Investimentos Financeiros, SA (member of the board of directors, from 24/05/2010 to 5/07/2013); Rentiglobo, SGPS, SA (member of the board of directors, from 24/05/2010 to 5/08/2013); Rentipar Indústria, SGPS, SA (member of the board of directors, from 17/06/2010 to 28/06/2013); Rentimundi - Investimentos Imobiliários, SA (member of the board of directors, from 15/10/2010 to 5/07/2013); Vestiban – Gestão e Investimentos, SA (member of the board of directors, from 10/08/2012 to 5/07/2013); Portuguese-Spanish Chamber of Commerce and Industry (chair of the presiding board of the general meeting, from 14/04/2010 to 19/04/2013); Portuguese-South African Chamber of Commerce (chair of the presiding board of the general meeting, from 26/05/2010 to 21/12/2012); Portuguese- Namibian Chamber of Commerce (chair of the presiding board of the general meeting, from June 2010 to 2013); Vitecaf – Fábrica de Rações da Madeira, SA (chair of the presiding board of the general meeting, from 21/03/2011 to 27/03/2013) MS Mundi – Serviços Técnicos de Gestão e Consultoria, SA (chair of the presiding board of the general meeting , from 29/03/2011 to August 2013).
ANTÓNIO CARLOS CUSTÓDIO DE MORAIS VARELA
– Degree in Enterprise Organisation and Management from Instituto Superior de Economia e Gestão (ISEG), Universidade Técnica de Lisboa (1978). M.Sc. Industrial Relations and Personal Management, London School of Economics, University of London (1981).
– Cimpor – Cimentos de Portugal, SGPS, SA (member of the board of directors, member of the executive committee and chief financial officer (CFO), May 2009 to July 2012); Cimpor – Serviços de Apoio à Gestão de Empresas, SA (chair of the board of directors, from 2009 to
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2012); Cimpor Reinsurance, SA (Luxembourg) (chair of the board of directors, from 2009 to 2012); Cimpor Egypt for Cement Company – SAE (Egypt) (chair of the board of directors, from 2009 to 2012); Cimpor Inversiones, SA (Spain) (member of the board of directors, from 2009 to 2012), Asment de Temara, SA (Morocco) (member of the board of directors, from 2009 to 2012), Cimpor Yibitas Çimento Sanayi Ve Ticaret AS (Turkey) (member of the board of directors, from 2009 to 2012); Shree Digvijay Cement Company Limited (India) (member of the board of directors, from 2009 to 2012), UBS AG Investment Bank (representative office in Lisbon), (Director, from 2000 to 2009).
20. Customary and meaningful family, professional or business relationships of members of the Board of Directors, the General and Supervisory Board and the Executive Board, where applicable, with shareholders that are assigned qualifying holdings that are greater than 2% of the voting rights.
Maria Teresa Henriques da Silva Moura Roque is the administrator of the Estate of Horácio da Silva Roque.
Diogo António Rodrigues da Silveira was, on the reference date, chair of the executive committee of Açoreana Seguros SA. António Carlos Custódio de Morais Varela was appointed by the Portuguese State.
21. Organisational charts or flowcharts concerning the allocation of powers between the various corporate boards, committees and/or departments within the company, including information on delegating powers, particularly as regards the delegation of the company’s daily management.
As stipulated in Article 24 of the articles of association, the Board may delegate to the Chair and to one of the Vice-Chairs, jointly, or to an Executive Committee, comprising an odd number of directors, the day-to-day management of the company, this decision to establish the limits of such delegation.
On 23 March 2012 the board of directors appointed its Chair and Vice-Chair and approved the rules applicable to its meetings. On the same date, the board of directors also decided to create an executive committee, to which were conferred the widest possible administrative and management powers allowed under the law and the articles of association, the board of directors still having exclusive responsibility for the following:
a. co-opting of directors; b. approval of reports from the board of directors or the annual accounts; c. requests to convene general meetings; d. approval of the posting of personal or real bonds or guarantees by the company, with the exception of bank guarantees and sureties related with the company’s business activities;
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e. approval of a change of head offices or an increase in share capital in accordance with the terms of the articles of association; f. approval of the opening or closure of subsidiaries, branches, agencies, delegations or other forms of company representation in foreign countries; g. approval of projects to merge, demerge or transform the company; h. approval of annual budgets or plans; i. approval of the issue of securities; j. approval of proposals to change the articles of association and the articles of association of subsidiary companies; k. decisions on increases in liabilities or reduction of guarantees in credit operations/limits (by disbursement or off-balance sheet) that involve total credit exposures for clients or groups of clients, where these are not credit institutions, of over 20 million euros. The executive committee does, however, have the necessary powers to decide on the alternative use of modes of credit, within the overall amounts stipulated for the lines or any limits in effect, interest rates or commissions, the carrying out of extra-limit or occasional operations which do not, in sum, exceed 10% of the maximum limit approved for a client or a group of clients; l. decisions on investments, investment or disinvestment projects involving amounts over 5 million euros and the acquisition of disposal of qualified shareholdings or shareholdings involving more than the amount mentioned here; m. hiring staff with the rank of director or appoint or dismiss heads of bodies in the first-line of the bank’s organisational structure; n. allocation of sponsorship money, or making of donations, over 25 thousand euros, and approval of advertising campaigns involving amounts over 100 thousand euros; o. payment of fines, penalties and fines of amounts more than 50 thousand euros; p. institutional relations with the holders of securities issued by the bank, without prejudice to the competences of the investor relations officer; q. approval, in global terms, of the policies and activity plans drawn up annually by the areas of RISK, COMPLIANCE AND AUDITING, as well as the annual report on internal control; r. setting up and periodical revision of the exposure tolerance limits for each risk category; s. appointment of members of the statutory bodies of companies controlled by the Bank or of members to represent the Bank as members of the Statutory bodies of third parties; t. resolution of any issue on which any director requires a decision from the board of directors.
It was also decided that the powers provided for in paragraphs d., f., i., k., l. and m. can be ratified by the board of directors whenever, for reasons of urgency or when in the manifest best interest of the bank, these powers are to be exercised by the executive committee which, for the purposes, may not further delegate such powers.
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It is further set out in the articles of association that the Board of Directors may especially entrust one or more directors with matters of administration, within the limits established by law, and mandate any of its members or other people to engage in any of the acts included among its responsibilities and powers.
At 31 December 2013, the duties of the members of the executive committee of the board of directors were distributed as follows:
Duties Alternate
Coordination of the executive committee VN Legal department VN Sales department Açores JS Jorge Humberto Sales department Madeira JS Correia Tomé Communication and Image Department VN (JT) Corporate Banking VN International Business Department VN Secretariat of the board of directors JPA
Credit Department JPA Credit Recovery Department JS Vítor Manuel Human Resources JT Farinha Nunes Information Systems Division JT (VN) Transformation and Performance JPA
Nuno José Finance and Planning JPA Roquette Teixeira Treasury JPA (NT)
Auditing and Inspection VN João Paulo Compliance VN Pereira Marques Accounting and Control JT de Almeida Operations Executive VN (JPA) Global Risk VN Customer Ombudsman VN
Commercial Department North JT João José Commercial Department South JT Gonçalves de Marketing JT Sousa Operational Products JT (JS) Direct Network VN
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b) Functioning
22. Availability and place where rules on the functioning of the Board of Directors, the General and Supervisory Board and the Executive Board, where applicable, may be viewed.
After the incorporation of Banif SGPS, SA by merger and the subsequent admission of the company’s shares to trading at Euronext-Lisbon, the company considered the need to incorporate a number of good governance measures and practices previously followed at Banif SGPS, SA as a publicly listed company and which had not been followed previously at Banif, since it was a company owned by a sole shareholder. These measures include regulations on the functioning of the board of directors and the supervisory board.
However, it will only be possible to implement this adaptation in 2014 and during 2013 Banif continued to apply the rules on the functioning of the board of directors defined in the legal regime and in the articles of association. The regulation on the functioning of the Banif board of directors will be shortly submitted to the corporate governance committee for assessment and for subsequent approval by the board of directors, for which reason these regulations cannot yet be made available in the Banif SA website.
23. The number of meetings held and the attendance report for each member of the Board of Directors, the General and Supervisory Board and the Executive Board, where applicable.
In 2013 there were 18 meetings of the company’s board of directors 54 meetings of the executive committee of the company’s board of directors.
Minutes were drawn up for each of these meetings.
The attendance of each member of the board of directors and of the executive committee at the meetings held was as follows:
Board of Directors – Total of 18 meetings
Member Present Represented Luís Filipe Marques Amado 18 - Jorge Humberto Correia Tomé 18 - Maria Teresa Henriques da Silva Moura Roque 17 - Diogo António Rodrigues da Silveira 16 - Vítor Manuel Farinha Nunes 17 - Nuno José Roquette Teixeira 18 - João Paulo Pereira Marques de Almeida 18 - João José Gonçalves de Sousa 16 - António Carlos Custódio de Morais Varela 17 -
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Executive Committee – Total of 54 meetings
Member Presence Role Play Jorge Humberto Correia Tomé 46 - Vítor Manuel Farinha Nunes 50 - Nuno José Roquette Teixeira 46 - João Paulo Pereira Marques de Almeida 51 - João José Gonçalves de Sousa 47 -
The chair of the supervisory board attends the meetings of the board of directors and has access to the agendas, minutes and meeting documents.
The member of the supervisory board appointed by the Portuguese State also has access to these documents.
The member of the board of directors appointed by the Portuguese State attends the meetings of the executive committee and has access to the agendas, minutes and meeting documents. The chair of the supervisory board and the member of the supervisory board appointed by the Portuguese State also have access to these documents.
24. Details of competent corporate boards undertaking the performance appraisal of executive directors.
As this is a company organised under a Latin governance model (reinforced), it is the task of the shareholders to assess the performance of each member of the board of directors, conveying the results and consequences of these assessments through decisions taken by the general meeting.
Notwithstanding the above, the remuneration committee assesses the performance of most members of the executive committee by applying the criteria established in the remuneration policy.
However, with the creation of a corporate governance board in 2013, Banif sought to: i) ensure a competent and independent assessment of the performance of the executive directors; ii) reflect on the governance system adopted, verify its efficiency and propose to the competent bodies, measures to be implemented with a view to its improvement; iii) identify, in good time, potential candidates with the right profile for the position of director.
This corporate governance committee was granted the necessary powers to, in particular: i) Draw up and put forward to the board of directors recommendations or opinions on the co-opting of members of the board of directors, the appointment of Members of the executive committee and the corporate boards of the main group companies when they are not already members of the Bank’s executive committee; ii) Monitor the integration of new members of the corporate boards,
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25. Predefined criteria for assessing executive directors’ performance.
This information may be found in the statement on remuneration policy approved by the company’s general meeting of 19 April 2013 and quoted below in point 69. below.
As mentioned there, criteria for determining variable remuneration are applied to the performance of the executive committee and not each individual member, applying the Remuneration Policy rules approved by the general meeting in April 2012. However, any award and payment concerning these amounts may only be made after full repayment of the state investment and shall remain, in any case, entirely dependent on a decision by the remuneration committee in office after that repayment.
There are no other predefined criteria for assessing the performance of executive directors.
26. The availability of each member of the Board of Directors, the General and Supervisory Board and the Executive Board, where applicable, and details of the positions held at the same time in other companies within and outside the group, and other relevant activities undertaken by members of these boards throughout the financial year.
Information in respect of members who were in these posts at the reference date of 31 December 2013.
The positions held at the same time specified below are not likely to adversely affect the availability to perform duties in the company of each of the members of the board of directors. In the case of executive members, these positions held essentially concern organisations that are part of the Banif Group, which have a similar business model and are generally subject to a common strategy and guidelines and supported by shared areas of service, so that each company does not represent, in itself, the same demands on time and/or for follow-up that would be required if they were considered separately.
LUÍS FILIPE MARQUES AMADO
a) Banif Group Companies
Chair of presiding board of the general meeting and chair of the remuneration committee Banco Caboverdiano de Negócios, SA
Chair of the supervisory board Banif Plus Bank ZRT
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b) Other entities International Consultant
Director (non-executive) Sociedade de Desenvolvimento da Madeira
Professor (Guest) Instituto Superior de Ciências Sociais e Políticas Business School of Universidade Nova de Lisboa
Curator Fundação Oriente
Member of the management board Dom Dinis, Business School
Member of the board of directors Fundação Francisco Manuel dos Santos
Member of the board of patrons Fundação Arpad Szenes – Vieira da Silva
Member European Council on Foreign Relations
Academic (corresponding) Academia Internacional de Cultura Portuguesa
JORGE HUMBERTO CORREIA TOMÉ
a) Banif Group Companies
Chair of the board of directors – Banif - Banco de Investimento (Brasil), SA – Banif Imobiliária, SA – Banif - Banco Internacional do Funchal (Brasil), SA – Banif - Banco de Investimento, SA – Banif Finance, Ltd – Banif International Bank, Ltd – Banif Capital – Sociedade de Capital de Risco, SA
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Chair of the executive committee – Banif Finance, Ltd – Banco Banif Mais, SA
Member of the board of directors – Banif Bank (Malta), PLC – Banif International Bank, Ltd. – Banco Banif Mais, SA – Banif Mais, SGPS, SA – Banif Finance, Ltd – Banif Capital – Sociedade de Capital de Risco, SA b) Other entities
Member of the board – Associação Portuguesa de Bancos (representing Banif - Banco Internacional do Funchal, SA)
DIOGO ANTÓNIO RODRIGUES DA SILVEIRA
b) Other entities
Chair of the board of directors – GIGA – Grupo Integrado de Gestão de Acidentes, SA - Cria - Centro de Reabilitação Integrada de Acidentes
Chair of the executive committee - Açoreana Seguros, SA
Advisor - Vice-chair of the “Bureau des Conseillers du Commerce Extérieur de la France” in Portugal since 2011 - Consultative Board of Reditus SGPS, SA
Member of the board - Associação Portuguesa de Seguradores (representing Açoreana Seguros, SA)
Partner - Firma Shilling Capital Partners, SGP
VITOR MANUEL FARINHA NUNES
a) Banif Group Companies
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Chair of the board of directors – Banif Rent – Aluguer Gestão e Comércio de Veículos Automóveis, S.A
Vice-chair of the board of directors – Banif – Banco de Investimento, SA
Member of the board of directors – Banif Mais SGPS, SA – Banco Banif Mais, SA – Banif Plus Bank Zrt. – TCC Investments Luxembourg, S.à.r.l. – Banif Imobiliária, SA – Banif Capital – Sociedade de Capital de Risco, SA – Gamma – Sociedade de Titularização de Créditos, SA
Manager – Margem - Mediação de Seguros, Lda., since 1998
Member of the consultative committee – ECS – Sociedade de Capital de Risco, SA (representing Banif – Banco Internacional do Funchal, SA)
Member of the steering committee of the construction sector consolidation fund – Vallis Construction Sector Consolidation Fund, G.P. S.à.r.l., SICAV-SIF, a fund regulated by the Commission de Surveillance du Secteur Financier(CSSF), Luxembourg, the general partner off which is Vallis Consolidation Strategies I, SA (representing Banif - Banco Internacional do Funchal, SA).
Member of the pension plan monitoring committee for the Banif pension fund, representing the member Banif – Banco Internacional do Funchal, SA
b) Other entities
Sole Director – FN Participações, SGPS, SA
NUNO JOSÉ ROQUETTE TEIXEIRA
a) Banif Group Companies
Chair of the board of directors – Gamma – Sociedade de Titularização de Créditos, SA – Banif Gestão de Activos (Brasil), SA
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Vice-chair of the board of directors – Banif – Banco de Investimento (Brasil), SA
Member of the board of directors – Banif - Banco Internacional do Funchal (Brasil), SA – Banif - Banco Internacional do Funchal (Cayman), Ltd – Banif International Bank, Ltd – Banif Finance, Ltd – Banif Securities, Inc Chair of the presiding board of the general meeting – Beta Securitizadora, SA
Member of the remuneration committee – Banif Imobiliária, SA
b) Other entities
Member of the board of directors – Açoreana Seguros, SA
JOÃO PAULO PEREIRA MARQUES DE ALMEIDA
a) Banif Group Companies
Member of the board of directors – Banif – Banco Internacional do Funchal (Brasil), SA – Banif – Banco de Investimento (Brasil), SA – Banif Finance, Ltd
JOÃO JOSÉ GONÇALVES DE SOUSA
Did not hold positions in other companies
MARIA TERESA HENRIQUES DA SILVA MOURA ROQUE
a) Banif Group Companies
Member of the board of directors - Banco Banif Mais, SA - Banif Mais SGPS SA - Banif Bank (Malta) plc
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Chair of the presiding board of the general meeting - Banif Gestão de Activos – Sociedade Gestora de Fundos de Investimento Mobiliário, SA, representing Rentipar Financeira – SGPS, SA - Banif Capital - Sociedade de Capital de Risco, SA, representing Rentipar Financeira – SGPS, SA
b) Other entities
Chair of the board of directors - Sociedade Imobiliária de Empreendimentos Turísticos – Siet Savoi, SA - Soil – SGPS, SA - Rentipar Seguros, SGPS, SA - Rentipar Financeira, SGPS, SA
Vice-chair of the board of directors - Fundação Horácio Roque – Instituição Particular de Solidariedade Social, SA - Empresa Madeirense de Tabacos, SA - Rama-Rações para Animais, SA - Aviatlântico – Avicultura, SA - Açoreana Seguros, SA
Member of the board of directors - Rentipar Investimentos, SGPS, SA - British-Portuguese Chamber of Commerce - MS Mundi – Serviços Técnicos de Gestão e Consultoria, SA
Manager - Ronardo – Gestão de Empresas, Lda
Chair of the presiding board of the general meeting - Rentimédis - Mediação Seguros, SA - Génius - Mediação Seguros SA - Mundiglobo - Habitação e Investimentos, SA - Empresa Madeirense de Tabacos, SA - Rama-Rações para Animais, SA - Aviatlântico – Avicultura, SA - Habiprede - Sociedade de Construções, SA
Vice-chair of the presiding board of the general meeting - Sociedade Imobiliária de Empreendimentos Turísticos – Siet Savoi, SA
Member association - St. Julian’s School – Carcavelos
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Member of the consultative committee - Portuguese-Spanish Chamber of Commerce and Industry - Nova School of Business and Economics
ANTÓNIO CARLOS CUSTÓDIO DE MORAIS VARELA
- Did not hold positions in other companies.
c) Committees within the Board of Directors or Supervisory Board and Board Delegates
27. Details of the committees created within the Board of Directors, the General and Supervisory Board and the Executive Board, where applicable, and the place where the rules on the functioning thereof is available.
With reference to 2013, the following committees with specific responsibilities were set up, under the board of directors:
a) Corporate governance committee b) Risk and audit committee
These are two specialised internal committees of the board of directors of Banif – Banco Internacional do Funchal, SA and their creation was approved at the meeting of this board on 30 April 2013.
The corporate governance committee is invested with the powers and responsibilities set out in the regulations duly approved at the meeting of the board of directors referred to above, which can be consulted on the website of Banif SA at the following address: http://www.banif.pt/img/Banif_Regulamento_CGS.pdf.
This committee comprises at least three members of the board of directors and is presided over by the chair of the board of directors. It includes the member representing the State and at least one more non-executive member elected by the board of directors. Maria Teresa Henriques da Silva Moura Roque was immediately appointed member of the corporate governance committee, the full composition of which is the following:
- LUÍS FILIPE MARQUES AMADO (Chair) - ANTÓNIO CARLOS CUSTÓDIO DE MORAIS VARELA (Member) - MARIA TERESA HENRIQUES DA SILVA MOURA ROQUE (Member)
The corporate governance committee of the board of directors (CGS) assists the board of directors: i) in the analysis, definition and adoption by the Bank of the best corporate governance structures and practices and ii) in the analysis and definition of guidelines for the sustainability and social responsibility policy and also conducts assessment of the performance of the board of directors and the formulation of proposals for improvement.
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The risk and audit committee is invested with the powers and responsibilities set out in the Regulations duly approved at the meeting of the board of directors referred to above, which can be consulted on the website of Banif SA at the following address: http://www.banif.pt/img/Banif_Regulamento_CRA.pdf.
This Committee comprises non-executive members from the board of directors, elected by this board, and is presided over by the member representing the State. Maria Teresa Henriques da Silva Moura Roque was immediately appointed member of the risk and audit committee, the full composition of which is the following:
- ANTÓNIO CARLOS CUSTÓDIO DE MORAIS VARELA (Presiding) - MARIA TERESA HENRIQUES DA SILVA MOURA ROQUE (Member)
The risk and audit committee of the board of directors (CRA) has unrestricted access to Banif information and its subsidiaries and assists the Board in the supervision: i) of the risk policy, as well as its assessment and management; ii) of compliance with the legal and regulatory provisions, with the articles of association and with the rules issued by the supervisory authorities, as well as with general policies, rules and practices established internally; iii) of the adequacy and compliance with the accounting policies, criteria and practices adopted and of the integrity of financial statements; iv) of the quality, integrity and efficacy of internal control systems, risk management, compliance and internal auditing.
On this date, under the board of directors, the executive committee referred to in No. 28. below is still in existence.
The executive committee was created by decision of the board of directors of 23 March 2012 and granted the widest possible administrative and management powers allowed under the law and the articles of association, the board of directors still having exclusive responsibility for the matters identified in Point 21. above.
28. Composition of the Executive Board and/or details of the Board Delegate/s, where applicable.
On 23 March 2012 an executive committee was set up, with its members drawn from the board of directors elected for the 2012-2014 three-year period. The following were the executive and non- executive members of the board at 31 December 2013:
Executive directors Jorge Humberto Correia Tomé (Chair of the executive committee) Vitor Manuel Farinha Nunes Nuno José Roquette Teixeira João Paulo Pereira Marques de Almeida João José Gonçalves de Sousa
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Non-Executive Directors Luís Filipe Marques Amado (Chair) Diogo António Rodrigues da Silveira Maria Teresa Henriques da Silva Moura Roque António Carlos Custódio de Morais Varela
In addition it is to be noted that, effective from 31 August 2013, Gonçalo Vaz Gago da Câmara de Medeiros Botelho, José António Vinhas Mouquinho and Carlos Eduardo Pais e Jorge, left their positions on the executive committee and the board of directors itself.
29. Description of the powers of each of the committees established and a summary of activities undertaken in exercising said powers.
In accordance with Articles 4 and 5 of the Regulations of the corporate governance committee (CGS), transcribed below, the powers of this committee are the following:
“Article 4 - Powers: 1. General powers of the corporate governance committee: 1.1. The CGS has unrestricted access to all data, records and employees of Banif and its subsidiaries. 1.2. The prior approval of the CGS is required for engaging any consultancy services or other corporate governance services. 1.3. The CGS may engage the legal, auditing or consultancy services it deems necessary for the performance of its duties. 1.4. Apart from providing the minutes under No. 5 of the preceding article, the CGS shall regularly present its conclusions to the board of directors. 1.5. The CGS shall analyse these regulations each year, in order to review their adequacy and submit any proposals for their revision to the board of directors. 1.6. The CGS shall conduct an annual analysis of its own performance. 2. Powers of the Corporate Governance Committee with regard to the Corporate Governance Model: 2.1. To propose to the board of directors and review and reassess the corporate governance model, including relationships with stakeholders, the organisation, functioning, responsibilities and internal rules of the board of directors and the qualifications, independence and responsibilities of directors; 2.2. To review and reassess the values, principles and practices that must regulate the conduct of the group’s employees, including the bank’s codes of ethics or conduct. 2.3. To supervise the identification, suppression and resolution of conflicts of interest, including transactions with related parties; 2.4. To supervise the handling of reporting of irregularities and complaints; 2.5. To issue, at the request of the board of directors or the executive committee or on its own initiative, opinions on the matters referred to in the preceding paragraphs; 2.6. To submit to the board of directors each year, before the date of approval of the report and accounts, a corporate governance assessment report and opinion on the draft “Corporate Governance Report”. 3. Until the Specialised Committee is created, the Corporate Governance Committee shall: 3.1. Draw up and put forward to the board of directors recommendations or opinions on the co-opting of members of the board of directors, the appointment of Members of the executive committee and the
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corporate boards of the main group companies when they are not already members of the Bank’s executive committee; 3.2. Monitor the integration of new members of the corporate boards, ensuring that they are provided with the relevant information and documents, as well as the necessary resources for effective performance of their duties. 3.3. Advise the board of directors and collaborate with the remuneration committee on compliance with the requirements of Banco de Portugal Notice No. 10/2011. 4. The Corporate Governance Committee shall also appraise sustainability and social responsibility practices at Banif and other group companies, presenting proposals and opinions to the board of directors whenever deemed necessary or requested.”
“Article 5 - Functional powers on individual and consolidated terms 1- With a view to more adequate compliance with good corporate governance practices throughout the Banif group, the corporate governance committee, within the scope of its powers, shall draw up recommendations for the management and supervisory bodies of the companies included in the consolidation, applying to them, duly adapted, the provisions of the preceding article. 2- The legal and human resources departments and the client ombudsman and quality and sustainability office shall provide the corporate governance committee with any support it may request, continuing to report in terms of hierarchy and disciplinary control to the executive committee.”
The corporate governance committee (CGS) held one meeting on 22 November 2013, after which its minutes were drawn up.
In accordance with Articles 4 and 5 of the Regulations of the risk and audit committee (CRA), transcribed below, the powers of this committee are the following:
“Article 4 - General powers of the CRA: 1.1. The CRA has unrestricted access to all data, records and employees of Banif and its subsidiaries. 1.2. The prior approval of the CRA is required for engaging any services in the areas of risk, auditing and internal control, including any services to be provided, apart from its corporate remit, by the external auditor. 1.3. The CRA may engage the legal, auditing or consultancy services it deems necessary for the performance of its duties. 1.4. The CRA shall approve, upon proposal from the executive committee, the annual plans and organisational rules of the departments of Risk Management, Compliance and Auditing, and also appraise with the executive committee and each director of these areas their responsibilities, allocation of resources and operating methodologies and annual reports. 1.5. Apart from providing the minutes under No. 5 of the preceding article, the CRA shall regularly present its conclusions to the board of directors. 1.6. The CRA shall analyse these regulations each year, in order to review their adequacy and submit any proposals for their revision to the board of directors. 1.7. The CRA shall conduct an annual analysis of its own performance. 2. Powers of the CRA in the supervision of Financial Risks: 2.1. To give an opinion to the board of directors on the financial risks policy (extent and categories of risks considered acceptable) and the organisational model for risk management, regularly evaluating their adequacy and efficacy. 2.2. To monitor and appraise:
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a) the execution of the funding and capital plan b) management of liquidity, including lines of credit and financial assets available on demand; c) market, interest rate, exchange rate and credit risks, including those associated with the portfolio of securities and derivatives, and with securitisation or disintermediation transactions; d) credit risks, impairments, infringements and provisions, particularly with regard to their development by geographic region, by dimension and by sector, with analysis of those of notable dimension; e) real estate risks, notably with regard to the development of properties given as a guarantee or in payment and their impairments, as well as their management, allocation, disposal or placement; f) the models for risk measurement and calculation of equity, as well as rating processes. 3. Powers of the CRA in the supervision of Compliance and Internal Control: 3.1. To promote pursuit of the fundamental objectives established, on prudential matters, for internal control and non-financial risk management, by the supervisory authorities, monitoring the implementation of the corresponding improvement plans. 3.2. To monitor and appraise the prudential and internal control reports, correspondence and inspections by supervisory and inspection authorities of the Bank and other group companies. 3.3. To take note of the most important identified situations of legal and contractual risk, including the main procedures related to the prevention of money laundering and funding of terrorism and, on an immediate basis, occurrences involving amounts of more than 1 million euros. 4. Powers of the CRA in the supervision of Other Risks 4.1. To give its opinion to the board of directors on the Other Risks policy and on the organisational models for management of Other Risks and the business continuity plan, regularly evaluating their adequacy and efficacy. 4.2. To take quarterly note of the aggregate amounts of operational losses, of major delinquency and, on an immediate basis, individual losses of more than 2 million euros. 5. Powers of the CRA in the supervision of financial reporting: 5.1. To review and appraise with the management, and if necessary with the external auditor, the annual and quarterly financial documents, evaluating their consistency with the information known to the members of the CRA, in order to justify its opinion to the board on these documents. 5.2. To appraise with the management and the external auditor any issues and judgements of significance for the preparation of financial statements, including any significant changes in regulatory standards, accounting policies or interpretations. 6. Powers of the CRA in the supervision of the relationship with the external auditor, notwithstanding the specific powers of the supervisory board: 6.1. To appraise with the external auditor issues with regard to which it has been consulted by the management or by the internal auditing department, as well as representations by the management. 6.2. To propose to the supervisory board the fees to be paid for the provision of auditing services to the bank and other group companies, as well as the hiring and remuneration conditions for any additional services to be provided by the external auditor to the bank. Powers of CRA in the supervision of Internal Auditing: 6.3. To confirm and ensure the independence of Internal Auditing, taking note of any restrictions on scope or difficulties in accessing the information required. 6.4. To appraise the most significant reports (particularly those that imply risk of reputation or significant effective or potential losses) submitted by the Internal Auditing department to the executive committee and the subsequent actions of this committee. 6.5. To appraise the scope of action of Internal Auditing in the review of Internal Control.”
“Article 5 - Functional powers on individual and consolidated terms 1. With a view to more adequate compliance with provisions concerning the provision of consolidated information, the CRA shall supervise and coordinate, within the scope of its powers, the actions of the
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board of directors and supervisory board of the consolidated companies, applying to them, duly adapted, the provisions of the preceding article. 2. The Risk, Corporate Auditing, Auditing and Inspection and Compliance departments shall provide CRA with the services and information it may demand.”
In 2013, 9 meetings of the risk and audit committee were held and minutes were drawn up for each of these meetings.
These meetings were held in accordance with the corresponding Annual Calendar of Activities, which provided for their attendance, given the issues on the agenda, by various internal areas in the bank, including the Treasury, Corporate Finance, Accounts, Risk, Compliance and Internal Auditing departments, which provided information to the CRA on various topics of interest to this committee.
These meetings were also attended by the chair of the supervisory board and the member of the supervisory board appointed by the Portuguese State, who have access to the agendas, minutes and meeting documents of the meetings of the risk and audit committee.
Depending on the interest of the issues on the agenda, others also attended the meetings, including members of the board of directors, the external auditor and other managers from other areas of the bank or subsidiary companies.
In 2013, the risk and audit committee monitored various topics concerning the activities of the bank, its subsidiaries and other group entities, in particular: the company’s accounts (individual and consolidated); changes in liquidity; recapitalisation plan; internal control; business continuity; market discipline; monitoring of risks; activities developed by the areas of control, including compliance, risk and audit, having also approved the plans and programmes of activities for these areas for the new year.
This Committee analysed and issued opinions on the information, particularly on the “Policy for reporting irregularities at the Banif financial group”.
As noted in Point 27. above, to date the executive committee referred to in 28. above still exists under the board of directors.
The executive committee was created by decision of the board of directors of 23 March 2012 and granted the widest possible administrative and management powers allowed under the law and the articles of association, notwithstanding the exclusive responsibility of the board of directors for the matters identified in Point 21. above.
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III. SUPERVISION
(Supervisory Board, the Audit Committee or the General and Supervisory Board)
a) Composition*10
30. Details of the supervisory body representing the model adopted.
Supervision of the company is entrusted to a supervisory board (Article 27 et seq of the articles of association) composed of a minimum of 3 members and by one or two alternates, elected by the general meeting for three-year periods and a statutory auditor, in accordance with Article 413.1(b) of the Commercial Companies Code.
31. Composition of the Supervisory Board, the Audit Committee, the General and Supervisory Board or the Financial Matters Committee, where applicable, with details of the articles of association’s minimum and maximum number of members, duration of term of office, number of effective members, date of first appointment, date of end of the term of office for each member and reference to the section of the report where said information is already included pursuant to paragraph 18.
The supervisory board has a minimum of three full members, and one or two alternates, in accordance with the law, and they may be re-elected, notwithstanding the legally imposed limits for the purposes of ensuring independence.
The composition of the supervisory board should respect the legal definition of incompatibility and members may be drawn from law firms, accountancy firms or shareholders who, in this last case, are individual persons with the legal right and suitable qualifications and professional experience to carry out the required duties.
A majority of the members of the supervisory board must be considered independent within the terms of the law.
If not designated by the general meeting, the supervisory board must appoint its chair.
At the general meeting of 23 March 2012, the following were elected to the supervisory board for the 2012-2014 three-year period:
Fernando Mário Teixeira de Almeida – Chair António Ernesto Neto da Silva – Member Thomaz de Mello Paes de Vasconcellos – Member José Pedro Lopes Trindade – Alternate Member
10 Throughout the said year
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On 4 March 2013, Series II of the Diário da República (Official Gazette) (No. 44) published Order No. 3454-A/2013 of the Minister of State and Finance, in connection with the Banif state-investment based recapitalisation plan, which appointed, effective from 22 February 2013, Rogério Pereira Rodrigues as a non-executive member of the bank’s supervisory board, pursuant to Article 14.2 of Law No. 63-A/2008 and Paragraph No. 10 of Order No. 1527-B/2013, and respecting all applicable procedures legal, including the provisions of Articles 30 to 33 of the General Regulations for Credit Institutions and Finance Companies, approved by Decree-Law No. 298/92, of 31 December, as last amended by Decree-Law No. 18/2013, of 6 February.
Full members of the Supervisory Board:
Fernando Mário Teixeira de Almeida – Chair He was appointed, for the first time, to the supervisory board of Banif SGPS, SA on 21-03-2005. The current period of office is the three-year period 2012/2014, ending on appointment of the new supervisory board.
António Ernesto Neto da Silva – Member He was appointed, for the first time, to the supervisory board of Banif – Banco Internacional do Funchal, SA on 30-03-2007. The current period of office is the three-year period 2012/2014, ending on appointment of the new supervisory board.
Thomaz de Mello Paes de Vasconcellos – Member He was appointed, for the first time, to the supervisory board of Banif SGPS, SA on 23-03-2012. The current period of office is the three-year period 2012/2014, ending on appointment of the new supervisory board.
Rogério Pereira Rodrigues He was appointed, for the first time, to the supervisory board of Banif SGPS, SA on 04-03-2013.
Subsequently, on 31 March 2014, Rogério Rodrigues left his position as member of the supervisory board of the Banif – Banco Internacional do Funchal, SA, to which he had been appointed by Order No. 3454-A/2013 of the Minister of State and Finance, published on 4 March 2013 in the II Series of Diário da República (No. 44).
32. Details of the members of the Supervisory Board, the Audit Committee, the General and Supervisory Board and the Financial Matters Committee, where applicable, which are considered to be independent pursuant to Article 414/5 CSC and reference to the section of the report where said information already appears pursuant to paragraph 19.
The members António Ernesto Neto da Silva and Thomaz de Mello Paes de Vasconcellos should be considered independent, since they fulfil all the requirements for the legal concept of
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The chair, Fernando Mário Teixeira de Almeida, does not fulfil the requirements for independence, given the provisions of Article 414.5 of the Commercial Companies Code and the number of times that he has been re-elected to corporate bodies.
With regard to the member Rogério Pereira Rodrigues, his appointment by the Portuguese State took place in the specific circumstances of the state-investment based recapitalisation, in accordance with Law No. 63-A/2008 of 24-11 and Ministerial Order 150-A/2012 of 17-05.
33. Professional qualifications of each member of the Supervisory Board, the Audit Committee, the General and Supervisory Board and the Financial Matters Committee, where applicable, and other important curricular information, and reference to the section of the report where said information already appears pursuant to paragraph 21.
Note: Given that in the reply given in point 36., reference is made to the functions performed by members of the supervisory board in other companies, at the reference date of 31 December 2013, the answer to this point only covers those functions carried out in the last five years but which are not, at the reference date and in the case of any of the members of the supervisory board, being carried out during 2013.
FERNANDO MÁRIO TEIXEIRA DE ALMEIDA
– Degree in Economics from the Faculdade de Economia da Universidade do Porto. PhD in Economics from Universidad de Santiago de Compostela. Chartered Accountant. – Universidade Lusíada (Head of the Faculty of Economics and Business (until 2009), Instituto Superior de Formação Bancária (Lecturer, since 2000) and Scientific Coordinator of the Postgraduate Course in Bank Management).
ANTÓNIO ERNESTO NETO DA SILVA Degree in Economics from the Faculdade de Economia da Universidade do Porto. Masters in Contemporary European Studies (Economics) from the University of Reading, UK. Secretariat of State for Foreign Trade (Secretary of State from April 1990 to October 1991); Economic and Social Committee of the Commission and EURATOM (Chairman of the Foreign Affairs, Commercial Policy and Cooperation Committees, from 1988 to 1990); European Economic Community and European Atomic Energy Community (Member of the Committee, from 1986 to 1990); Socifa, SA (founding-shareholder and chair of the board of directors, from 1988 to 1990), author of O Triplo Conflito Globalização, Fundamentalismo Islâmico e Desenvolvimento Sustentável (Booknomics, Lisbon, 2007), Banif Comercial SGPS, SA (Chair of the Supervisory Board, from 2009 to 20/07/2012), Banif SGPS, SA (Chair of the supervisory board, from 2009 to 17/12/2012).
THOMAZ DE MELLO PAES DE VASCONCELLOS – Degree in Business Management - Universidade Católica.
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– Portugal Telecom SGPS (Member of the board of directors and of the audit committee, 2004 to 2009), Banco Millennium BCP (Member of the general and supervisory committee and finance committee, from 2009 to 2010), Serfingest SGPS (Chairman of the board of directors, from 2010 to 2012), Multiauto Galilei SGPS (member of the board of directors, from 2010 to 2012).
ROGÉRIO PEREIRA RODRIGUES – Degree in Finance, Instituto Superior de Economia (ISE), Universidade Técnica de Lisboa, November 1975. – Attendance of various training courses provided by public and private entities, in Portugal and abroad, particularly in the areas of human resources, EU affairs and securities market supervision, including a training course at the Securities and Exchange Commission (SEC) in Washington in September 1992.
b) Functioning
34. Availability and place where the rules on the functioning of the Supervisory Board, the Audit Committee, the General and Supervisory Board and the Financial Matters Committee, where applicable, may be viewed, and reference to the section of the report where said information already appears pursuant to paragraph 24.
After the integration of Banif SGPS, SA by merger and the subsequent admission of the company’s shares to trading at Euronext-Lisbon, the company considered the need to incorporate a number of good governance measures and practices previously followed at Banif SGPS, SA as a publicly listed company and which had not been followed previously at Banif, since it was a company owned by a sole shareholder. These measures include regulations on the functioning of the board of directors and the supervisory board.
However, it will only be possible to implement the adaptation of these regulations to the new situation in 2014 and during 2013 Banif continued to apply the rules on the functioning of the supervisory board defined in the legal regime and in the articles of association.
The Regulations on the functioning of the Banif supervisory board require the approval of the supervisory board, for which reason these regulations cannot yet be made available on the Banif SA website.
35. The number of meetings held and the attendance report for each member of the Supervisory Board, the Audit Committee, the General and Supervisory Board and the Financial Matters Committee, where applicable, and reference to the section of the report where said information already appears pursuant to paragraph 25.
During 2013 11 meetings of the company’s supervisory board were held. Minutes were drawn up for each of these meetings. The attendance of each member was 100%. The attendance of the members of this board reflected their physical presence.
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36. The availability of each member of the Supervisory Board, the Audit Committee, the General and Supervisory Board and the Financial Matters Committee, where applicable, indicating the positions held simultaneously in other companies inside and outside the group, and other relevant activities undertaken by members of these Boards throughout the financial year, and reference to the section of the report where such information already appears pursuant to paragraph 26.
Information in respect of members who were in these posts at the reference date of 31 December 2013. The positions held at the same time specified below may not adversely affect the availability to perform duties in the company of each of the members of this supervisory board.
FERNANDO MÁRIO TEIXEIRA DE ALMEIDA a) Banif Group Companies
Chair of the supervisory board – Banif - Banco de Investimento, SA b) Other entities
Chair of the supervisory board – Açoreana Seguros, SA
António Ernesto Neto da Silva b) Other entities
Chair of the board of directors – Deimos Engenharia, SA – Financetar- Sociedade de Serviços Financeiros, Empresariais e Imobiliários, SA
Vice-chair of the presiding board of the general meeting – CIP – Confederação Empresarial de Portugal, SA
Thomaz de Mello Paes de Vasconcellos b) Other entities
Member of the supervisory board – Açoreana Seguros, SA
Member of the board of directors and chair of the audit committee and the remuneration committee – TimeW SGPS
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Rogério Pereira Rodrigues b) Other entities
– Inspector of the General Inspectorate of Finance.
c) Powers and duties
37. A description of the procedures and criteria applicable to the supervisory body for the purposes of hiring additional services from the external auditor.
The supervisory board assesses the external auditor annually. The current external auditor was appointed by the general meeting, acting on a proposal from the supervisory board, and this board is entitled to evaluate and take a stand on the hiring of additional services from the external auditor.
The hiring of additional services from the external auditor resulting from impositions of Banco de Portugal, under the recapitalisation plan, does not imply the intervention of the supervisory body. In other cases, the procedures and criteria applicable to the intervention of the supervisory body in the hiring of additional services shall vary depending on the nature and specific characteristics of the service to be obtained, in the absence of a previously defined procedure to be followed.
38. Other duties of the supervisory body and, where appropriate, the Financial Matters Committee.
The chair of the supervisory board shall attend the meetings of the board of directors, of the corporate governance committee and of the risk and audit committee and have access to the agendas, minutes and meeting documents for these meetings. The chair shall also have access to the same information associated with the meetings of the executive committee.
With the exception of attendance of the meetings of the board of directors, the member of the supervisory board appointed by the Portuguese State shall enjoy all the powers and rights provided for in the preceding paragraph.
IV. STATUTORY AUDITOR
39. Details of the statutory auditor and the partner that represents it.
The general meeting on 23 March 2012 approved, acting on a proposal from the supervisory board, the name of the audit firm Ernst & Young Audit & Associados – Sociedade de Revisores Oficiais de Contas, SA (No. 178), represented by Ana Rosa Ribeiro Salcedas Montes Pinto (ROC No. 1230), to perform the duties provided for in Article 446 of the Commercial Companies Code and in Article 27.4 of the Memorandum of Association, for a period of a year, with reference to the fiscal year of 2013.
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40. State the number of years that the statutory auditor consecutively carries out duties with the company and/or group.
The company Ernst & Young Audit & Associados – Sociedade de Revisores Oficiais de Contas, SA has been appointed consecutively as statutory auditor to the company since 3/10/2002 (approximately 12 years).
41. Description of other services that the statutory auditor provides to the company.
The company Ernst & Young Audit & Associados – Sociedade de Revisores Oficiais de Contas,, provides the following services:
- Statutory audit - Other reliability assurance services - Tax consultancy services
V. EXTERNAL AUDITOR
42. Details of the external auditor appointed in accordance with Article 8 and the partner that represents same in carrying out these duties, and the respective registration number at the CMVM.
Ernst & Young Audit & Associados – Sociedade de Revisores Oficiais de Contas,, SA (No. 178), represented by Ana Rosa Ribeiro Salcedas Montes Pinto (ROC No. 1230).
43. State the number of years that the external auditor and respective partner that represents same in carrying out these duties consecutively carries out duties with the company and/or group.
As noted in Point 40, the company Ernst & Young Audit & Associados – Sociedade de Revisores Oficiais de Contas, SA has been appointed consecutively as statutory auditor to the company since 3/10/2002 (approximately 12 years). Ana Rosa Ribeiro Salcedas Montes Pinto (ROC No. 1230) was appointed partner representing the SROC in 2011.
44. Rotation policy and schedule of the external auditor and the respective partner that represents said auditor in carrying out such duties.
The company has no specific policy as regards rotating auditors. The external auditor is appointed by the general meeting, in accordance with the recommendation/proposal made by the audit board.
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The provisions of the Statute of Statutory Auditors on the requirement for rotation of the partner responsible for the audit have been complied with and the current partner has carried out these duties since 2011 (as mentioned in Point 43).
For 2013 the appointment of the auditor was preceded by a invitation for proposals from the largest audit firms.
45. Details of the Board responsible for assessing the external auditor and the regular intervals when said assessment is carried out.
The supervisory board assesses the external auditor annually. In compliance with its duties, the supervisory board assesses the independence of the external auditor under the terms of Article 62B of the Statutes of Statutory Auditors and guarantees compliance with the rotation requirements of the partner as noted above.
The supervisory board may propose to the general meeting that the external auditor be discharged, where justifiable.
46. Details of services, other than auditing, carried out by the external auditor for the company and/or companies in a control relationship and an indication of the internal procedures for approving the recruitment of such services and a statement on the reasons for said recruitment.
The company Ernst & Young Audit & Associados – Sociedade de Revisores Oficiais de Contas, provided the following services:
- Statutory audit Includes the fees invoiced in 2013 in connection with the statutory audit and external audit of the consolidated accounts of Banif- Banco Internacional do Funchal, SA and individual accounts of its subsidiaries.
- Other reliability assurance services This includes the fees paid for the services of reporting to the Banco de Portugal (on internal control systems and economic provisions), including the Across-the-board Loan Portfolio Impairment Review, to CMVM (reporting on financial intermediation procedures) and the sending of letters of comfort on specific issues (such as securitisation operations and the issuance of debt).
These services were hired based on the proposal for the provision of services referred to in Point 44, which were assessed by the supervisory board for the proposal to be submitted to the general meeting.
- Tax consultancy services This includes fees charged for technical tax-related consultancy services These services are normally individually approved based on analysis of other alternative proposals.
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47. Details of the annual remuneration paid by the company and/or legal entities in a control or group relationship to the auditor and other natural or legal persons pertaining to the same network and the percentage breakdown relating to the following services (for the purposes of this information, the network concept results from the European Commission Recommendation No. C (2002) 1873 of 16 May):
By the Company Amount for statutory auditing services (euros) 520,750 39% Amount for audit reliability services (euros) 740,080 55% Amount for tax consulting services (euros) 87,062 6% Amount for other non-statutory auditing services (euros) 0 0% 1,347,892
By entities comprising the Group Amount for statutory auditing services (euros) 523,784 57% Amount for audit reliability services (euros) 401,318 43% Amount for tax consulting services (euros) 00% Amount for other non-statutory auditing services (euros) 00% 925,102
Total: 2,272,994
C. INTERNAL ORGANISATION I. Articles of Association
48. The rules governing amendment to the articles of association (Article 245-A/1/h)).
In compliance with the last part of Article 245-A.1(h) of the Portuguese Securities Code, there are no specific rules applicable with regard to amendments to articles of association, the normal legal rules being applicable in their entirety.
II. Reporting of irregularities
49. Reporting means and policy on the reporting of irregularities in the company.
The Banif Financial Group, in its belief that a policy for the reporting of irregularities can make a significant contribution to the building, across its institutions, including Banif – Banco Internacional do Funchal, of a culture of responsibility and compliance, has implemented since 2009, still under Banif – SGPS SA, a policy for the reporting of irregularities which is designed to prevent, detect and act on irregularities. This helps avoid losses aggravated by the continuance of such practices and ensures, simultaneously, the confidentiality and protection of those who make such reports.
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Given the system for reporting irregularities under the new article 116-G of the General Regulations for Credit Institutions and Finance Companies, introduced by the publication of Decree-Law No. 31- A/2012 and also because of the fact that Banif – Banco Internacional do Funchal SA is now the ultimate parent company in the Group, the policy for reporting irregularities referred to above was altered and adjusted in 2013, in order to adapt it to new legal requirements and the new situation.
Thus, at the meeting of the Board of Directors on 1 November 2013, that body agreed, in view of the favourable opinions of the executive committee from 16 October 2013 and the risk and audit committee from 31 October 2013, to approve the Policy for Reporting Irregularities of the Banif Financial Group, in order to guarantee its adjustment to the amendments that Decree-Law 31- A/2012 made to the RGICSF, particularly the introduction of Articles 116-F and 116-G.
“Irregularities” include acts of management by Bank employees, related to administration, accounting organisation and the internal supervision of the credit institution, that may place BANIF in a situation of financial imbalance;
Banif has adopted a cross-cutting policy for reporting irregularities, including two levels, reporting by management and supervisory bodies, by their members and by qualifying shareholders and reporting by employees.
Banif has a System for Reporting Irregularities coordinated by the supervisory board, which is responsible for receive internal reports of irregularities.
The System for Reporting Irregularities at Banif is complementary in nature, for which reason its use is limited to cases in which the internal control mechanisms have proven insufficient.
The System for Reporting Irregularities makes a significant contribution to the building of a culture of responsibility and compliance, putting into effect i) a policy for reporting irregularities that is consistent and can contribute to the prevention and/or suppression of irregular or fraudulent conduct, and ii) procedures for the reception and handling of reports.
The management of the System for Reporting Irregularities, the preliminary assessment and any investigation procedures with regard to reports received shall be carried out by the supervisory board, by the internal audit function and by the compliance function, bodies that ensure its independence, accuracy and competence.
Anonymity is rejected in favour of confidentiality, with particular emphasis on the protection of those who make such reports, without neglecting the rights of the people affected.
The reports must contain as many details as possible of the irregularities so that the inquiries can be rapid and efficient.
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The supervisory board is, in accordance with the law, the only body that can receive reports of irregularities submitted by employees. As soon as they are received, the reports of irregularities are immediately registered by the supervisory board, through its administration services.
The supervisory board shall first conduct a preliminary appraise of the reports received and decide on whether an inquiry is to be made. A report shall only be considered if it is based on facts and concerns the areas referred to in Point 2.2.
If the supervisory board concludes that the report is inconsistent, not serious or not feasible, the information shall be destroyed. The person who presented the report shall be informed of the decision not to examine the matter, with a summary of the grounds for this decision.
If the supervisory board believes the report to be plausible, it shall move on to the inquiry stage. In order to guarantee the smooth conduct of investigations, depending on the matter reported and the entity or entities involved, the supervisory board shall decide on inquiries and on who should conduct the inquiries, as defined in Point 2.7.
In cases in which the seriousness of the report received requires immediate measures to be taken, the supervisory board will inform the entities appropriate that it considers adequate for this purpose and suited to its characteristics.
The board of directors shall guarantee organisational and operational conditions for the actions of the supervisory board, the audit function and compliance function on this matter.
Once inquiries have be made, an exit meeting shall be held with the supervisory board and the entities involved in inquiries, to define the overall conclusions and recommendations to be set out in the final report.
A final report shall be drawn up, to be sent by the supervisory board to the board of directors. This shall contain proposals for corrective measures to be adopted for the specific case and measures aimed at resolving any deficiencies in the internal control system.
The board of directors shall reach a decision on the final report, following consultation with the supervisory board.
The supervisory board shall be informed of the decision and shall coordinate with the functions involved in the inquiries any monitoring of the implementation of corrective measures approved for adoption.
In their compliance with formalities concerning the filing and statistical treatment of the reports, the supervisory board and the entities involved in the inquiries will ensure the corresponding compliance with the maximum legal storage periods for data.
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The supervisory board shall guarantee the submission to Banco de Portugal of an annual report with a description of Banif’s System for Reporting Irregularities and a brief description of the reports received and their handling.
The identity of reporters will be kept confidential, unless they expressly declare otherwise. Banif – Banco Internacional do Funchal, SA gives particular emphasis to confidentiality and protecting those reporting irregularities.
III. Internal control and risk management
50. Individuals, boards or committees responsible for the internal audit and/or implementation of the internal control systems.
The methodology for implementing internal control is based on international principles and an internally-developed framework and is designed to ensure the attainment of five main components: Control environment – Establishing the degree to which the bank influences its staff’s awareness of control, imposing discipline and structure. Risk assessment – Identifying and analysing relevant risks (internal and external) so organisational objectives may be achieved and that a suitable basis for risk management can be set up. Control activities – Based on appropriate policies and procedures, with the objective of ensuring that the premises established for management are followed and they allow the necessary actions to be taken, so that the risks inherent to the group’s activities may be identified. Information & communication – Ensuring the identification, capture and communication of pertinent and relevant information that allows decisions to be taken and ensures that implementation of these is appropriate. Monitoring – Assessing the performance quality of internal control
As regards corporate internal control, a number of regulatory and management initiatives were supported and followed in 2013. These included:
The completion of Self-Assessment questionnaires in compliance with requirements for structural functions stipulated in Banco de Portugal Notice No. 5/2008 of 1 July 2008; In compliance with the above-mentioned Notice no. 5/2008, the internal control report for the Group was produced in the first half of the year, as were the individual reports for all the subsidiaries (15) deemed pertinent under the terms of the assessment model for group risks as defined by the regulatory authority. Implementation of the remediation project with subsidiaries and definition of the tasks to be carried out and their priorities. Implementation of follow-up tasks for the remediation projects with bimonthly and half- yearly situation reports on shortcomings to the board of directors of the Group and to the regulatory body.
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In line with the regulatory guidelines and in particular with Banco de Portugal Notice No. 5/2008, the Group uses a computer application to monitor and control actions in each subsidiary, which enables it to continuously monitor the status of each deficiency and of each mitigation action and also provides support information, whenever considered necessary.
The corporate support team for the internal control system is in systematic dialogue with those responsible for internal control at the subsidiaries, promoting dissemination of group-wide guidelines and collaborating to ensure the improvement of the group’s risk management system.
On a regular basis, the group carries out sensitivity and scenario analyses. It implements idiosyncratic and systemic tests in order to evaluate their impact on major activity measures and indicators at the consolidated level. In particular, in 2012 these tests were mainly carried out under the Capital and Liquidity Plan implemented quarterly under the EFAP.
As mentioned in Points 27. and 29. above, a risk and audit committee was set up under the board of directors in 2013. This committee has unrestricted access to information on Banif and its subsidiaries and assists the board of directors in the supervision: i) of the risk policy, as well as its assessment and management; ii) of compliance with the legal and regulatory provisions, with the articles of association and with the rules issued by the supervisory authorities, as well as with general policies, rules and practices established internally; iii) of the adequacy and compliance with the accounting policies, criteria and practices adopted and of the integrity of financial statements; iv) of the quality, integrity and efficacy of internal control systems, risk management, compliance and internal auditing.
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51. Details, even including organisational structure, of hierarchical and/or functional dependency in relation to other boards or committees of the company.
Board of Directors
Society Secretary Secretariat of the Board of Directors Bruno Miguel dos Santos de Jesus Bruno Miguel dos Santos de Jesus
Specialized Internal Commitee
- Corporate Governance of the Board of Directors - Risks and Audit of the Board of Directors
Executive Commitee
Customer Ombudsman Office Monitoring Commitees Carlos Jorge Alves Lopes
-ALCO - Budget - Internal Control - Costs and Productivity - Deleverage - Funding - Business and Continuity Management - Personnal - Procurement - Products and Cross-Selling - Credit Recovery - Corporate Reorganization - No Foreign Residents - Information Systems - Supervision and Impairment
Legal Department 1 Finance and Planning Department 1 Bruno Miguel dos Santos de Jesus Carla Sofia Pereira Dias Rebelo
Auditing and Inspection Department 1 Global Risk Department 1 Paulo Alexandre Macieira Baptista Ana Margarida da Costa Pedro Pinto
Commercial Department Azores Marketing Department Luís Manuel Tavares Silva Anselmo Luís Filipe Neves Lounet Costa
Commercial Department Madeira International Business Department David Máximo Correia Gladstone Medeiros de Siqueira
Commercial Department North Operational Product Department José Luís Duarte Miranda Fernando Leonel de Figueiredo Vítor Braga
Commercial Department South Credit Recovery Department 1 José Carlos Oliveira Rolo Jorge Manuel Silveira Nunes
Compliance Department 1 Human Resources Department 1 Luís Filipe Telles de Almeida Capela Sérgio Miguel Saraiva Guimarães Baptista
Comunication and Image Department 1 Direct Network Department 1 Carlos Alberto Rodrigues Ballesteros Amaral Firme Manuel Diogo Pereira Neto
Account and Control Department 1 Information Systems Department 1 Nuno Henrique Oliveira Pimentel Filipe Antunes de Paula Cardoso
Corporate Banking Department Treasury Department Susana Helena Gomes de Figueiredo Ribeiro Reis Basílio Filipe Pereira Leal
Credit Department 1 Transformation and Performance Department 1 Fernando Augusto Ferreira Neves António Manuel Gouveia Ribeiro Henriques
Operations Executive Department 1 José Júlio Valente Geraldes
1 Bodies that operate in the corporate context and/or in shared services.
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52. Other functional areas responsible for risk control.
Risk management and control carried out in accordance with the strategies and policies defined by the board of directors and are adopted by its entire organisational structure. Nevertheless, this duty is focused on the Global Risk Department.
Risk management is ensured by three lines of defence in its organisation structure:
1st line of defence: Business Departments – these manage the risk associated with their activities in accordance with pre-defined rules and limits in the internal strategy, policies and manuals.
2nd line of defence: Independent Control Functions – Units responsible for back office activities that ensure risk control, data quality in the information systems that constitute inputs for risk information systems, the monitoring and assessment of performance, as well as global risk control (e.g. identification, measuring, limit and mitigation).
3rd line of defence: Internal Audit – responsible for independent reviews, monitoring and the testing of conformity with risk policies and procedures, ensuring regular assessment of the effectiveness of the risk management structure.
The functional scheme for these lines of defence is as follows:
The risk and audit committee was set up following changes to the group’s organisational model. This committee, comprising non-executive directors and members of the supervisory board, acts as a multidisciplinary discussion forum with significant competences and representation at first-line management level. It analyses, oversees and makes recommendations to the group’s decision- making bodies and is responsible for supervising financial and other risks.
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On an organisational level, it must be noted that, besides the areas identified, there are a series of monitoring committees, including the following. These address issues of importance for the identification, control and mitigation of financial and operating risks:
Assets and Liabilities Committee (ALCO) - this committee plays a key role in the management of a range of risks: liquidity risk, market risk and interest rate risk. ALCO is a consultative body, for the purposes of coordinating the work of the business units and the proposing of measures to the Banif board of directors. The committee makes recommendations on the strategic management of the main components of the consolidated balance sheet and management of the group’s structural risk.
Impairment Supervision Committee – this committee regularly evaluates the stock and flow of impairment in the different business segments, evaluates the assumptions and presuppositions of recovery applied to the main individual exposure analyses and reviews, as often as necessary, the performance of the collective impairment models, analysing their segmentation and the development of parameters.
Internal Control Committee – this committee promotes the fundamental objectives established by the group in matters of internal control, evaluates operational procedures and their control environment, risk management mechanisms, as well as the process of monitoring internal control.
53. Details and description of the major economic, financial and legal risks to which the company is exposed in pursuing its business activity.
The Group recognises that financial activities are carried out in a complex context, with significant and interrelated risks. On this point and using definitions advocated by Banco de Portugal11 , the main risks (economic, financial and legal) to which the Group is exposed are identified and characterised:
Type Definition
“The likelihood of negative impacts on results or capital due to the inability of a counterparty to Credit Risk meet its financial commitments to the bank, including possible restrictions on the transfer of payments from overseas.”
“The likelihood of negative impacts on results or capital due to unfavourable movements in the Market Risk market price of instruments in the trading portfolio caused by fluctuations in listed share prices, commodity prices interest rates or exchange rates.”
Operating “The likelihood of negative impacts on results or capital due to failure to analyse, process or Risk settle operations, internal and external fraud situations, activities affected due to use of subcontracting, ineffective internal decision-making processes, the existence of insufficient or
11 Source: “Risk Assessment Model”, Department of Banking Supervision, Banco de Portugal, 2007 and Banco de Portugal Notice No. 5/2008 of July 2008.
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Type Definition
inappropriate human resources or the malfunctioning of infrastructure.”
“The likelihood of negative impacts on results or capital due to the inadaptability of information Information systems to new requirements, its inability to prevent unauthorised access, to guarantee data Systems Risk integrity or to guarantee business continuity in the event of failure, as well as due to the pursuit of an inappropriate strategy in this field.”
Liquidity Risk “The likelihood of negative impacts on results or capital due to the institution’s inability to honour its financial obligations in a timely manner.”
“The likelihood of negative impacts on results or capital arising from adverse movements in the Interest Rate interest rate of the banking portfolio components, due to lags in maturities or interest rate Risk resetting periods, the absence of a perfect correlation between the rates received and paid on different instruments, or the existence of options embedded in balance sheet financial instruments or off-balance sheet items.”
“The likelihood of negative impacts on results or capital due to unfavourable movements in the Exchange exchange rates of the banking portfolio components, due to changes in the exchange rates Rate Risk used in the conversion to the functional currency or changes in the institution’s competitive position resulting from significant exchange rate changes.”
Reputation “The likelihood of negative impacts on results or capital due to negative perception of the Risk institution’s public image, justified or not, among customers, suppliers, financial analysts, employees, investors, the press or general public opinion.”
“The likelihood of negative impacts on results or capital due to inappropriate strategic Strategy Risk decisions, the deficient implementation of decisions or inability to respond to changes in the external environment, as well as changes in the institution’s business environment.”
“The likelihood of negative impacts on results or capital due to violations or nonconformities Compliance with respect to laws, regulations, specific determinations, contracts, rules of conduct and of Risk relations with customers, established practices or ethical principles, in the form of penalties of a legal nature, the limitation of business opportunities, a reduction in the potential for expansion or the impossibility of demanding compliance with contractual obligations.”
Real Estate The likelihood of negative impacts on results or capital due to variation in the market prices of Risk properties, including properties used by the Banif Financial Group.
54. Description of the procedure for identification, assessment, monitoring, control and risk management.
Risk management at the Banif Financial Group is based on identifying, measuring, mitigating and monitoring exposure to the main risks of the business to which the group is exposed.
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In accordance with the bank’s risk policies, the process of identifying, assessing, monitoring and controlling risk management comprises four stages, as shown in the following figure:
The different stages of risk management can be summarised as follows:
Stage I – Identification
This stage involves knowledge and understanding of existing risks or potential risks resulting from positions taken in relation to third parties or inherent to carrying out its activities. This way,
the specific risks to which the group is exposed are identified and defined, taking into account their materiality and proportionality;
The definition of the risk appetite must be based on business objectives and be described objectively and measurably;
The list of risks identified may be changed following changes in the Institution’s strategy, adjustments for market or other events.
The following are crucial for the identification stage:
The availability of reliable and timely information, originating from the various information systems and, whenever necessary, its adaptation to current or future needs;
The availability of quantitative and qualitative information from bodies in the various group entities involved in the measuring, mitigating and monitoring of risks.
The information available at any time to characterise the risks to which the group is exposed may determine its capacity to effectively implement the remaining stages of the risk management cycle.
STAGE II – Measurement
This stage focuses on quantification of the risks identified. Depending on the type of risks and their materiality, they can be quantified in more or less detail.
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This way,
the measurement of risks must be comprehensive in order to cover all the significant sources and factors of risk;
The measurement methodology must be timely in order to be useful to the users of this information;
In the risk measurement process, the risk factors must be sub-segmented in order to make the information produced more useful;
The risk measurement methodologies must be consistent between Business Units and products.
Stage III – Mitigation
Risk mitigation is based on the development of options and actions that can reduce exposure to risk.
This way,
the risk profile and risk tolerance for each functional area must be defined and these parameters must be reviewed and updated at least once a year;
The definition and implementation of risk mitigation strategies must be based on an assessment of risk and return;
There must be a clear definition and systematisation of the tasks to be carried out by each function and how they should be carried out;
The timely prevention of unauthorised situations must be guaranteed, and their detection when they actually occur, despite prevention procedures, in order to ensure the timely adoption of corrective measures.
Stage IV – Monitoring
This stage ensures that the information produced in the previous stages is analysed in good time by the relevant internal bodies and that external bodies are provided with reliable, comprehensive and timely information on the risk exposure profile. This way,
the information reported must be relevant, reliable and timely;
The characteristics of the information reported (e.g., level of detail, frequency, recipients) must be in line with the characteristics and materiality of the exposure to each risk. This way,
the management bodies must ensure that their activities do not expose the group to losses that may endanger its sustainability in the short, medium and long term;
There must be procedures to identify and evaluate alternatives for the management of risk exposure and for selecting appropriate mitigation measures;
The definition and implementation of risk mitigation strategies must be based on an assessment of risk and return;
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The body responsible for managing each risk and for establishing their limits must be independent of the bodies that may assume that risk.
Risk Management
As risk is the fundamental concept associated with this issue, it is essential to define it: “Risk is the likelihood or threat of occurrence of unfavourable events, which may result in damage, obligations, losses or other negative impacts for Institutions, caused by internal or external vulnerabilities, that can be mitigated or neutralised by preventive actions.”
The existence of risk is intrinsic to banking, for which reason it is essential to ensure adequate and dynamic risk management, in line with the objectives of the business and expected return in the medium and long term. Risk exposure management is thus essential and implies:
Quantifying the risk level considered adequate; and
Defining how to measure and monitor risk.
Consequently, the risk management model implemented is designed for the coverage of risks, in view of their materiality and proportionality, and using a conservative risk appetite profile.
These are the structural principles to be followed:
Conservatism – the group’s aim is to be recognised as an Institution that manages the portfolio of risks to which it is exposed in a sound and prudent manner. Consequently, the risk profile is conservative, seeking a balance between risk and return, its absolute priority being the protection of Clients’ assets and its own assets.
Focus – assessment and monitoring of the level of exposure to the most significant risks are carried out by specifically dedicated organisational structures, although there are other bodies that may also do so, within the scope of their duties and responsibilities.
Independence – assessment and monitoring of the level of risk exposure are carried out by an organisational structure that is effectively independent from the group’s organisational structures that assume risks, though the latter must also evaluate and monitor risks, within the scope of their duties and responsibilities.
Control – the risk management model is subject to additional and independent tests and controls, carried out by an internal third party (Auditing), independent from the structures that assume risks and the structures that evaluate and monitor them.
Perfection – because the environment in which they operate is changeable, the risk management policy is: On the one hand, regularly updated to adapt to new characteristics; and, On the other hand, regularly perfected to incorporate new information or new methodologies to be adopted, both when imposed by supervisory bodies and due to the Institution’s own systematic improvement targets.
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Cooperation – the ultimate aim of risk management is to create conditions for improving decision-making capacity and not just quantifying levels of exposure to risk. For this reason, this proactive attitude means that actions that minimise the impact of adverse events are a responsibility of both Business Departments and Central Departments.
Integration – risk management is embedded into the day-to-day operations of the group, as well as in the planning of its goals and strategy.
Priority – the ultimate responsibility for risk management belongs to the executive committee, which ensures that the different bodies are provided with technical conditions and human resources for adequate risk management, in accordance with their goals and strategy.
The principles described above can be summarised as follows:
The group encourages periodic reviews of risk management policies and procedures in order to reflect changes in markets, products and best practices. The board of directors is responsible for defining these policies, with support from the Global Risk Department in the assessment and monitoring of risks and accompanying the most significant risks.
55. Core details on the internal control and risk management systems implemented in the company regarding the procedure for reporting financial information (Article 245- A/1/m)).
In accordance with the changes in the internal governance structure of the Group carried out in 2012, reflected in significant changes in terms of the Management Team and its strategy, the Group continued in 2013 with the process of optimisation of the internal governance structure, as a way of ensuring integrated and cross-cutting management of Risk, with the following objectives:
To ensure the alignment, standardisation and cross-cutting supervision of developments in risks, equity and solvency;
To incorporate an integrated and cross-cutting view of risk, particularly in the application of policies, reporting and the development and application of risk models.
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With this optimisation process, it is possible to strengthen the independence of the risk function from other areas of the organisation, ensuring impartiality, credibility and effective support for decision taking by management bodies.
The process described above can be summarised in the following diagram:
The main mission of the Global Risk Department is to advise the board of directors of Banif, SA on the integrated management of the inherent risks in the business activities of the Banif Financial Group, in line with the requirements and recommendations of supervisory bodies, in order to mitigate such risks and take them into account in decision-making at all levels of the Banif Financial Group.
Given that its function is basically one of control, its main concern has been, above all, the gathering and logical structuring of information which will allow it to control the various business risks that the group may be exposed to, as well as the definition of global and structuring risk policies and the promotion and development of risk projects that operate across the Banif Financial Group,
In line with international recommendations from supervisory bodies and best practices, the group recognises the need to engage in risk management, both in terms of processes and technologies and in terms of people and cultures. In its business context, this is a relatively complex undertaking given the diverse nature of the entities making up the group and the various geographic markets in which it does business.
In terms of identification, measurement, mitigation and monitoring of risks, the group’s risk management system is implemented in each of its entities. there is similar work on a national level with regard to shared services to aggregate risks, essentially aimed at all control activities, in which the group has sought to improve the levels and the nature of information reporting. Essentially, this is proportional to the size, nature and complexity of the activities involved, being in line with the nature and magnitude of the risks that the group takes on or intends to take on.
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The group has defined the global guidelines of its risk strategy on the basis of a conservative attitude to risk and of approaches to risk management which are best suited to its business activities.
On a regular basis, the group carries out sensitivity and scenario analyses. It implements idiosyncratic and systemic tests in order to evaluate their impact on major activity measures and indicators at the consolidated level. In particular, in 2013 these tests were mainly carried out under the FCP – Funding and Capital Plan implemented quarterly under the EFAP.
As part of ongoing work on the initiatives relating to the Basel II agreement, an interim report on the internal capital adequacy self-assessment process (ICAAP) was drawn up in March 2013, in conformity with Instructions No. 15/2007 and 32/2010, thus complying with the Pillar 2 requirements established by the agreement.
The ICAAP process offers the Banif Financial Group an economic capital assessment model, clearly integrating the calculation of internal capital with the process of planning and allocating capital, which enabled to identify the capital needs earlier than envisaged.
Also in 2013, and in the context of the adoption of Pillar 3 - Basel II Market Discipline into the national standards framework, the group published more detailed information on its solvency, the risks it faces and the assessment and management processes and systems in place throughout the various entities making up the Group. Thus, it offered the market decision-makers a much broader range of information while helping to improve the transparency, stability and solidity of the financial system.
It is to be noted that following the reorganisation of the group’s geographical presence (following one of the key aspects of the restructuring plan) and the consequent simplification of the group’s corporate structure, in conjunction with ongoing projects, will provide more effective and efficient risk control and internal control mechanisms.
In the current context of prudent regulation, the group believes that the type of information it has made available is crucial to strengthening the involvement of market players, generating favourable pressures and encouraging practices that promote a higher degree of security in the financial system.
The disclosure of financial information, on the CMVM website and on the Bank’s institutional website, is coordinated and controlled by the Communication and Image Department (DCI), specifically the Investor Relations Office, which prepares and confirms information to be disclosed, based on information provided by the other areas of the Bank, especially accounting information provided by Accounting and Control, thus guaranteeing an adequate separation of duties and control of the process.
All the information disclosed is submitted to the board of directors for prior approval.
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In addition to the internal controls established in the preparation of accounting information, the annual accounts are subject to an independent external audit, to back up the Legal Certification of the Accounts and the Opinion of the Supervisory Board.
IV. Investor Assistance
56. This department is responsible for investor assistance, composition, functions, the information made available by this department and contact details.
The investor relations office, staffed by two officers, is responsible for the regular preparation of information and its disclosure, in order to comply with legal and regulatory market disclosure obligations. In addition, the investor relations office responds to requests from shareholders, investors, financial analysts and other agents, and participates in conferences, roadshows, private meetings with analysts and institutional meetings. It is also responsible for supporting the executive committee in the context of events that represent the company and for preparing information related to the status of the issuer of shares and other securities traded on a regulated market.
Investor Relations Office contacts: Name: Teresa Martinho Address: Av. José Malhoa, 22, 1099-012 Lisboa. E-mail: [email protected] Telephone: 217 211 566 Websites: (www.banif.pt) / www.banif.pt/investidores
57. Market Liaison Officer.
Banif’s market liaison officer is Bruno Miguel dos Santos de Jesus. Address: Av. José Malhoa, 22, 1099-012 Lisboa. Email: [email protected]. Telephone: 217 211 200
58. Data on the extent and deadline for replying to the requests for information received throughout the year or pending from preceding years.
During 2013, there were 83 requests for information and replies were generally given on the same day.
59. Address(es).
Banif has a website (www.banif.pt), in Portuguese and English, that offers a full range of institutional, public and material information.
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60. Place where information on the firm, public company status, headquarters and other details referred to in Article 171 of the Commercial Companies Code is available.
This information is published on the website, in Investor Relations (www.banif.pt/investidores) and can also be sent in electronic format, when requested by telephone, e-mail, fax or letter, and can also be found in the company’s external communications as provided for in Art. 171 of the Commercial Companies Code.
61. Place where the articles of association and regulations on the functioning of the boards and/or committees are available.
This information is published on the website, under Investor Relations (www.banif.pt/investidores) and can also be sent in electronic format, when requested by telephone, e-mail, fax or letter.
62. Place where information is available on the names of the corporate boards’ members, the Market Liaison Officer, the Investor Assistance Office or comparable structure, respective functions and contact details.
This information is published on the website, under Investor Relations (www.banif.pt/investidores) and can also be sent in electronic format, when requested by telephone, e-mail, fax or letter.
63. Place where the documents are available and relate to financial accounts reporting, which should be accessible for at least five years and the half-yearly calendar on company events that is published at the beginning of every six months, including, inter alia, general meetings, disclosure of annual, half-yearly and where applicable, quarterly financial statements.
This information is published on the website, under Investor Relations (www.banif.pt/investidores) and, with regard to accounting documents, also in the CMVM Information Disclosure System (www.cmvm.pt) and can also be sent in electronic format, when requested by telephone, e-mail, fax or letter.
64. Place where the notice convening the general meeting and all the preparatory and subsequent information related thereto is disclosed.
This information is published on the website, under Investor Relations (www.banif.pt/investidores), and in the CMVM Information Disclosure System (www.cmvm.pt) and can also be sent in electronic format, when requested by telephone, e-mail, fax or letter.
65. Place where the historical archive on the resolutions passed at the company’s General Meetings, share capital and voting results relating to the preceding three years are available.
This information is published on the website, under Investor Relations (www.banif.pt/investidores) and can also be sent in electronic format, when requested by telephone, e-mail, fax or letter.
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D. REMUNERATION I. Power to establish
66. Details of the powers for establishing the remuneration of corporate boards, members of the executive committee or chief executive and directors of the company.
The remuneration of members of statutory bodies is set by a remuneration committee whose (3) members are elected directly by the general meeting (Article 31.1 of the articles of association). Moreover, the general meeting may decide, following a proposal from the board of directors, on the distribution of profits to company staff and employees (Article 31.4 of the articles of association).
Additionally, and in compliance with the provisions of point II.3.3 of the Corporate Governance Code, published by the Portuguese Securities Market Commission in July 2013, and with Article 2 of Law No. 28/2009, of 19 June, the remuneration committee will submit to the shareholders’ annual general meeting, each year, a statement on the remuneration policy for the board of directors and the supervisory board.
II. Remuneration committee
67. Composition of the remuneration committee, including details of individuals or legal persons recruited to provide services to said committee and a statement on the independence of each member and advisor.
The remuneration committee was elected for a period of 3 years, until the end of 2014, at the general meeting of 8 October 2012, in the context of the approval of the merger by incorporation of Banif SGPS, SA into Banif – Banco Internacional do Funchal, SA.
Thus, the remuneration committee of Banif – Banco Internacional do Funchal, SA, after this merger, had the following members:
António Gonçalves Monteiro Degree in Finance from Instituto Superior de Economia (ISE) and diploma from Instituto Superior de Contabilidade e Administração. He is a statutory auditor and has relevant experience professional in the areas of auditing, statutory audits, management consultancy and tax consultancy, and has been a sole supervisor, member of the supervisory board and external auditor for more than one hundred companies in trade and industry. He has also taught Financial Accounting, Analytical Accounting and Financial Management, Advanced Financial Accounting and Management Auditing at three higher education establishments. He has been President and Chairman of the Governing Board of the Association of Statutory Auditors and, also for that body, Chairman of the Quality Control Committee, member of the General Council, member of the Placement Committee, member of the Professional Training Committee and member of the panel of judges for Statutory Auditor examinations. He has also been President of the Portuguese Association of Tax Consultants. He is
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MANAGEMENT REPORT AND ACCOUNTS 2013 on the boards of various companies as representative of Moore Stephens, at which he is a Managing Partner. He is the chair of the supervisory board of Teixeira Duarte, SA, of ESTAMO – Participações Imobiliárias, SA and of SAGESTAMO – Sociedade Gestora de Participações Sociais Imobiliárias, SA. He is the Chairman of the Portuguese Accounting Standards Board.
Enrique Santos Degree in Business Management, diploma in Marketing and Public Relations. Of Spanish nationality, he worked for approximately ten years for the Spanish Administration, holding various positions abroad. He has been chairman of various companies in the Totta/Banesto group and an executive at Barclays Bank, Banesto and BSCH. He has also been chairman of different business associations, including FEDECOM – Federation of Spanish Chambers of Commerce in Europe, where he is currently a consultant on financial investments and company management and has been chair of the Portuguese-Spanish Chamber of Commerce and Industry, since 1998.
Filipe de Andrade e Silva Lowndes Marques Degree in law from Universidade Católica Portuguesa, M.Jur. in European and Comparative Law from Balliol College, University of Oxford. He is member of the Portuguese Bar Association and Solicitor of the Supreme Court of England and Wales, currently working at Morais Leitão, Galvão Teles, Soares da Silva & Associados, Sociedade de Advogados, RL, where he has been a partner since 2007.
At the general meeting held on 30 May 2013, and considering:
that, by letter dated 6 May 2013, Enrique Santos resigned from his office as member of the remuneration committee of Banif – Banco Internacional do Funchal, SA, for which he had been elected at the general meeting held on 8 October 2012; that, under the state-investment based capitalisation plan and the provisions of Article 14.2 of Law No. 63-A/2008, of 24 November, António Carlos Custódio Morais Varela was appointed non-executive member of the board of directors by Order No. 3454-A/2012, published on 4 March, of the Minister of State and Finance, granting him a “seat and voting rights in the committees of the board (...) covering matters of risk management and remuneration, and other committees or corporate bodies of a similar nature”;
The decision was taken to elect to the remuneration committee, for the current three-year period, 2012-2014, António Carlos Custódio Morais Varela, identified in further detail below, and the composition of this corporate body is now as follows:
Chair: António Gonçalves Monteiro Filipe de Andrade e Silva Lowndes Marques António Carlos Custódio Morais Varela
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António Carlos Custódio Morais Varela Degree in Enterprise Organisation and Management from Instituto Superior de Economia e Gestão (ISEG), Universidade Técnica de Lisboa (1978). M.Sc. Industrial Relations and Personal Management, London School of Economics, University of London (1981).
With the exception of António Carlos Custódio Morais Varela, none of the members of the remuneration committee, referred to above, is a member of the management or supervisory bodies of Banif – Banco Internacional do Funchal, SA.
Although António Carlos Custódio Morais Varela is both a member of the board of directors and member of the remuneration committee of Banif, it is understood that, given the specific nature of his duties and the terms of his appointment, by the Portuguese State, with specific duties to monitor and control the operations of Banif in the context of its state investment-based recapitalisation process, in strict compliance with the (exceptional) applicable legal regime, it is understand that there is no situation of dependence or conflict of interest in the fact that he is a member of the two bodies at the same time.
None of the members of the remuneration committee has an employment or service provision contract nor are they in any way related to any entity providing consultancy services to the company.
Under these terms, all the members of remuneration committee in office, António Gonçalves Monteiro, Filipe de Andrade e Silva Lowndes Marques and António Carlos Custódio Morais Varela must be considered independent with regard to the executive members of the board of directors, as provided for in recommendation II.3.1 of the CMVM Corporate Governance Code (version dated July 2013).
The remuneration committee did not make use of the services of any experts, consultants or external entities in preparing, drawing up or approving the remuneration policy. It took into consideration the remuneration practices of businesses in general and the remuneration practices in the financial sectors and at other Portuguese banks that operate in both the national and international markets. The legal framework for remuneration policies/practices that needed to be complied with due to Banif – Banco Internacional do Funchal, SA having made use of state investment within the meaning of Law No. 63-A/2008 of 24 November and Ministerial Order 150- A/2012, of 17 May, as well as the commitments assumed by the company’s board of directors under the Recapitalisation Plan approved at the general meeting of 16 January, were also taken into consideration.
68. Knowledge and experience in remuneration policy issues by members of the Remuneration Committee.
It is considered that the three members of the remuneration committee on the reference date of 31 December 2013 have, due to their professional curriculum, knowledge and experience in matters
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MANAGEMENT REPORT AND ACCOUNTS 2013 of remuneration policy, particularly, with regard to António Gonçalves Monteiro, by virtue of approximately 30 years of professional activity in the areas of auditing, statutory audits and management consultancy , with regard to Filipe de Andrade e Silva Lowndes Marques, by virtue of his experience as a lawyer associated with the financial sector and with regard to António Carlos Custódio Varela, by virtue of his management duties at various financial and non-financial companies, as well as at business associations, to which must be added the specific fact that he was appointed by the Portuguese State to take part in all the corporate bodies or committees with responsibility for remuneration.
III. Remuneration structure
69. Description of the remuneration policy of the Board of Directors and Supervisory Boards as set out in Article 2 of Law No. 28/2009 of 19 June.
In compliance with the provisions of Article 2 of Law No. 28/2009, of 19 June and Article 16 of Banco de Portugal Notice No. 10/2011, the ordinary general meeting of 30 April 2013 approved a statement on the remuneration policy for the management and supervisory bodies, as presented by the remuneration committee and with the following content:
“Considering: that, under the terms of Article 2 of Law No. 28/2009, of 19 June Article 16 of Banco de Portugal Notice No. 10/2011, the Banif – Banco Internacional do Funchal, SA remuneration committee should submit for approval, at each year’s general meeting, a statement on the remuneration policy used in determining the remuneration of members of the company’s board of directors and supervisory board; that the remuneration committee of Banif – Banco Internacional do Funchal, SA has, under Art. 31.1, of the articles of association, powers to establish the remuneration of members of the corporate boards; that the remuneration committee exercises such power in accordance with its mandate from the general meeting; that the general meeting of 5 April 2012 of Banif SGPS, SA, at the time the main holding the Banif Financial Group, approved the Statement on the Remuneration Policy submitted by the remuneration committee, after unanimous decision of its members, who today constitute, as a result of the merger, the remuneration committee of Banif – Banco Internacional do Funchal, SA. That the recapitalisation plan for Banif, approved by the general meeting of 16 January 2013 agreed on the introduction into that policy of the remuneration adjustments necessary for compliance with the provisions implied by the use of state investment under Law No. 63-A/2008 and, in particular, the provision of Article 12 of Ministerial Order 150-A/2012, of 17 May.
The Banif – Banco Internacional do Funchal SA remuneration committee submits, for the approval of the general meeting, the following statement on the Remuneration Policy for members of the management and supervisory bodies, in force for 2013:
The remuneration policy of Banif- Banco Internacional do Funchal, SA is the result of amendments introduced by the recapitalisation plan to the remuneration policy approved to be effective in the Banif Financial Group in 2012, in strict compliance with the provisions of that policy; in other words, until full repayment of the state investment under the recapitalisation plan, (i) no variable remuneration will be paid to the members of the board of directors; (ii) a remuneration shall be established for all the members of the management and supervisory boards (board of directors and supervisory board) that is not more than 50% of their average remuneration of the 2 previous years, calculated with reference to the date of the recapitalisation operation, unless this amount is less than the remuneration in effect at credit institutions wholly owned, directly or indirectly, by the State, in which case this can be the amount of remuneration to be established.
Notwithstanding the above, the Remuneration Committee will continue to determine each year the value of the variable remuneration that would apply to members of the executive committee of the board of directors by application of the
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Remuneration Policy rules approved by the general meeting in April 2012. However, any award and payment concerning these amounts may only be made after full repayment of the state investment and shall remain, in any case, entirely dependent on a decision by the remuneration committee in office after that repayment
Remuneration Committee
The remuneration committee was elected for 3-year period, until the end of 2014, at the general meeting on 8 October 2012, in the context of the approval of the merger by acquisition of Banif SGPS, SA into Banif – Banco Internacional do Funchal, SA. As already mentioned, the merger project approved by Banco de Portugal on 4 September 2012 envisaged that two of the three members of the remuneration committee then in office in the Bank would be integrated into its board of directors after the merger, which would prevent their continuation in the remuneration committee. On the other hand, given the interest in ensuring the independence of the members of this committee, which after the merger began to function in the context of a company with shares admitted to trading on a regulated market, the general meeting agreed to the appointment/election of the members at the time of the remuneration committee of Banif – SGPS, SA (who fulfilled all conditions of technical experience and independence required) to perform equivalent duties in the acquiring company. Thus, the remuneration committee of Banif – Banco Internacional do Funchal, SA, after the merger, had the following members:
António Gonçalves Monteiro Degree in Finance from Instituto Superior de Economia (ISE) and diploma from Instituto Superior de Contabilidade e Administração. He is a statutory auditor and has relevant experience professional in the areas of auditing, statutory audits, management consultancy and tax consultancy, and has been a sole supervisor, member of the supervisory board and external auditor for more than one hundred companies in trade and industry. He has also taught Financial Accounting, Analytical Accounting and Financial Management, Advanced Financial Accounting and Management Auditing at three higher education establishments. He has been President and Chairman of the Governing Board of the Association of Statutory Auditors and, also for that body, Chairman of the Quality Control Committee, member of the General Council, member of the Placement Committee, member of the Professional Training Committee and member of the panel of judges for Statutory Auditor examinations. He has also been President of the Portuguese Association of Tax Consultants. He is on the boards of various companies as representative of Moore Stephens, at which he is a Managing Partner. He is the chair of the supervisory board of Teixeira Duarte, SA, of ESTAMO – Participações Imobiliárias, SA and of SAGESTAMO – Sociedade Gestora de Participações Sociais Imobiliárias, SA. He is the Chairman of the Portuguese Accounting Standards Board.
Enrique Santos Degree in Business Management, diploma in Marketing and Public Relations. Of Spanish nationality, he worked for approximately ten years for the Spanish Administration, holding various positions abroad. He has been chairman of various companies in the Totta/Banesto group and an executive at Barclays Bank, Banesto and BSCH. He has also been chairman of different business associations, including FEDECOM – Federation of Spanish Chambers of Commerce in Europe, where he is currently a consultant on financial investments and company management and has been chair of the Portuguese-Spanish Chamber of Commerce and Industry, since 1998.
Filipe de Andrade e Silva Lowndes Marques Degree in law from Universidade Católica Portuguesa, M.Jur. in European and Comparative Law from Balliol College, University of Oxford. He is member of the Portuguese Bar Association and Solicitor of the Supreme Court of England and Wales, currently working at Morais Leitão, Galvão Teles, Soares da Silva & Associados, Sociedade de Advogados, RL, where he has been a partner since 2007.
None of the members of the remuneration committee is a member of the management or supervisory bodies of Banif – Banco Internacional do Funchal, SA.
The remuneration committee did not make use of the services of any experts, consultants or external entities in preparing, drawing up or approving the remuneration policy. It took into consideration the remuneration practices of businesses in general and the remuneration practices in the financial sectors and at other Portuguese banks that operate in both the national and international markets. The legal framework for remuneration policies/practices that needed to be complied with due to Banif – Banco Internacional do Funchal, SA having made use of state investment within the meaning of Law No. 63- A/2008 of 24 November and Ministerial Order 150-A/2012, of 17 May, as well as the commitments assumed by the company’s board of directors under the Recapitalisation Plan approved at the general meeting of 16 January, were also taken into consideration.”
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70. Information on how remuneration is structured so as to enable the aligning of the interests of the members of the board of directors with the company’s long-term interests and how it is based on the performance assessment and how it discourages excessive risk taking.
The remuneration committee believes that the current remuneration policy incorporates a number of mechanisms that ensure that the interests of the members of the management body are aligned with those of the company, in that: (i) The award of a variable component to executive directors’ remuneration packages (other than the payment itself, which, as noted, may only be made after the period of state investment and if conditions are met, including a discretionary and specific decision of the Remuneration Committee to this end, on the payment date) is dependent on there being substantial net profits for the period, given that, for the reference period, the return on equity indicator must be higher than the average 12 month Euribor rate plus 2%. (ii) The set of indicators selected for the assessment of executive director performance includes not only the component referring to the results for the period (Return on Equity) but also a component that reflects the optimisation of cost structures and the organisation’s level of efficiency (Cost-to-Income). This factor is believed to be of critical importance for the institution’s medium and long-term sustainable development. (iii) There are, on the one hand, two reference hurdles (Ref. 1 and Ref. 2) which the company’s Return on Equity indicator must get over before a variable component is added to an executive director’s remuneration package. On the other hand, there is the fact that this component can rise above 30% of the total remuneration package. Moreover, both of these hurdles depend on factors external to the company. Together, these hurdles work to minimise the risk of the variable component of remuneration increasing disproportionally as the result of a less than ambitious objective/budget. (iv) With a similar purpose, there is also a requirement that the remuneration committee checks the reference budget submitted by the board of directors. It may also carry out an annual review of the percentage of the total remuneration package that is fixed under the variable remuneration objective. (v) The fact that there are maximum limits to the variable component of remuneration (36% of the total remuneration package and 5% of net profits for the period) mitigates against excessive risk- taking. (vi) The deferral of the payment of the variable component of remuneration to after the period of state investment and the fact that this is tied to the company continuing to turn in positive results reduces the risk that unwarrantedly high amounts could be paid out only for substantially reduced profits to then be earned in following periods. (vii) The fact that there is no variable remuneration for non-executive directors, whose remuneration is delinked from the company’s performance in any given period, increases the ability of these directors to carry out their supervision of the executive directors in such a way as to ensure that company grows both prudently and sustainably.
It is to be noted that, as further detailed in Point 71 below, until the state investment in Banif has been fully repaid, no variable remuneration shall be paid to members of the board of directors.
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Thus, the remuneration policy referred to above, with reference to 2013, is only applicable for calculating the allocation, which may or may not result in effective payment after the end of the period of state investment and by means of a discretionary decision of the remuneration committee in office at the time. In any case, given the net profit of Banif in 2013, the calculation to be made under the application of that remuneration policy will not result in the allocation of variable remuneration.
71. Reference, where applicable, to there being a variable remuneration component and information on any impact of the performance appraisal on this component.
Despite the recognised need for remuneration of the executive members of the board of directors to include a variable component, with a view to adoption of sound and prudent risk management (see Article 8.1, of Banco de Portugal Notice No. 10/2011), the particular circumstances into of the company, under the exceptional state investment-based recapitalisation scheme, prevent the payment of this variable remuneration in the financial year in question, particularly considering No. 24(l) of Point XI of the annex to Decree-Law 104/2007, of 3 April, as amended by Decree-Law 88/2011, of 20 July.
Thus, given the legal and regulatory constraints described above, during the state investment period, the application of that decree-law shall be ensured in particular, in other words, until the full repayment of the state investment, no variable remuneration will be paid to members of the board of directors.
Under these strict conditions, the calculation of the variable remuneration for the year/reporting period in question (‘reference period’) must comply with criteria and be subject to the terms provided for in the remuneration policy approved by the general meeting (which currently refers to the calculation model approved by the general meeting on April 2012).
72. The deferred payment of the remuneration’s variable component, specifying the relevant deferral period.
This question is not applicable as there is no variable component to the remuneration for 2013.
73. The criteria whereon the allocation of variable remuneration on shares is based, and also on maintaining company shares that the executive directors have had access to, on the possible share contracts, including hedging or risk transfer contracts, the corresponding limit and its relation to the total annual remuneration value.
Banif – Banco Internacional do Funchal, SA does not have, or plan to have, any share purchase options plans for members of the management or supervisory bodies.
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74. The criteria whereon the allocation of variable remuneration on options is based and details of the deferral period and the exercise price.
Banif – Banco Internacional do Funchal, SA does not have, or plan to have, any allocation of variable remuneration on options plan.
75. The key factors and grounds for any annual bonus scheme and any additional non- financial benefits.
There are no relevant non-financial benefits that could be considered remuneration.
76. Key characteristics of the supplementary pensions or early retirement schemes for directors and state date when said schemes were approved at the general meeting, on an individual basis.
The executive directors of Banif – Banco Internacional do Funchal, SA listed below are covered by pension funds that complement those of the social security system. Three of the eight executive directors or former executive directors are covered by the company-wide agreement published in BTE, No. 32, 1st Series on 29 August 2008, specifically clauses 12 to 26.
The directors or former directors - Jorge Humberto Correia Tomé, Vítor Manuel Farinha Nunes, Nuno José Roquette Teixeira, João José Gonçalves de Sousa, Gonçalo Vaz Gago C. de Medeiros Botelho, Carlos Eduardo Pais e Jorge and José António Vinhas Mouquinho – are members of the Fixed Contribution Plan of the Banif Pensions Fund, managed by Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA.
These funds are complementary to the social security system.
As their participation in these funds is identical to that of all other employees participating in the fund, the matter has not been referred to the general meeting for approval.
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IV. Remuneration disclosure
77. Details on the amount relating to the annual remuneration paid as a whole and individually to members of the company’s board of directors, including fixed and variable remuneration and as regards the latter, reference to the different components that gave rise to same.
The annual remuneration paid as a whole and individually to members of the company’s board of directors, by the company, is as follows:
Amounts in euros
FIXED REMUNERATION VARIABLE BOARD OF DIRECTORS (INCLUDING ATTENDANCE FEES) REMUNERATION
– Luís Filipe Marques Amado 150,611.71 0,000.00 – Jorge Humberto Correia Tomé 194,415.72 0,000.00
– Maria Teresa H. M. Roque 17,999.94 0,000.00
– Vitor Manuel Farinha Nunes 158,101.03 0,000.00
– Nuno José Roquette Teixeira 158,105.66 0,000.00
- Diogo António Rodrigues da Silveira 13,500.06 0,000.00
– João Paulo Pereira Marques de Almeida 139,577.05 0,000.00
– João José Gonçalves de Sousa 132,858.86 0,000.00
– António Carlos Custódio Morais Varela (*) 120,204.99 0,000.00
– Carlos Eduardo Pais e Jorge (**) 87,189.47 0,000.00
– José António Vinhas Mouquinho (**) 80,394.19 0,000.00 – Gonçalo V. G. da Câmara de M. Botelho (**) 90,126.98 0,000.00
(*) Appointed in March 2013 (**) Left on 31 August 2013
As referred to above in Point 71, there is no payment of the variable component for 2013, in view of the company’s unusual circumstances, under the exceptional recapitalisation scheme, using state investment, and until full repayment of the state investment, no variable remuneration will be paid to members of the board of directors.
Under these terms, the remuneration of (executive and non-executive) directors listed above, referring to 2013, does not include any variable component.
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78. Any amounts paid, for any reason whatsoever, by other companies in a control or group relationship, or are subject to a common control.
At present, the executive members of the board of directors of Banif – Banco Internacional do Funchal SA are remunerated exclusively for their duties performed in this company and do not earn any additional remuneration for duties performed in any other companies in a controlling or group relationship or that are subject to common control.
Notwithstanding the above, José António Vinhas Mouquinho and Carlos Eduardo Pais e Jorge, who left on 31 August 2013, also received, during 2013, remuneration from other group entities, as shown in the table below:
Amounts in euros
FIXED REMUNERATION VARIABLE BOARD OF DIRECTORS (INCLUDING ATTENDANCE FEES)) REMUNERATION
– Luís Filipe Marques Amado 1,088.28 0,000.00
– Jorge Humberto Correia Tomé 0,000.00 0,000.00
– Maria Teresa H. M. Roque 0,000.00 0,000.00
– Vitor Manuel Farinha Nunes 0,000.00 0,000.00
– Nuno José Roquette Teixeira 0,000.00 0,000.00
– João Paulo Pereira Marques de Almeida 0,000.00 0,000.00
– João José Gonçalves de Sousa 0,000.00 0,000.00
– António Carlos Custódio Morais Varela (*) 0,000.00 0,000.00
– Carlos Eduardo Pais e Jorge (**) 45,510.68 0,000.00
– José António Vinhas Mouquinho (**) 56,887.09 0,000.00
– Gonçalo V. G. da Câmara de M. Botelho (**) 0,000.00 0,000.00
(*) Appointed in March 2013 (**) Left on 31 August 2013
79. Remuneration paid in the form of profit sharing and/or bonus payments and the reasons for said bonuses or profit sharing being awarded.
No remuneration of this nature was paid.
80. Compensation paid or owed to former executive directors concerning contract termination during the financial year.
No compensation of this nature was paid.
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81. Details of the annual remuneration paid, as a whole and individually, to the members of the company’s supervisory board for the purposes of Law No. 28/2009 of 19 June.
The annual remuneration paid, as a whole and individually, to the members of the company’s supervisory board is described below and consists exclusively of attendance fees:
Supervisory Board – Fernando Mário Teixeira de Almeida - €49,009.96 – António Ernesto Neto da Silva - €15,000.04 – Thomaz de Mello Paes de Vasconcellos - €15,000.04 – Rogério Pereira Rodrigues - €30,051.17
82. Details of the remuneration in said year of the Chairman of the Presiding Board to the General Meeting.
No remuneration was paid to the chair of the presiding board of the general meeting.
Remuneration of employees Despite the information provided below not being mandatory for inclusion in this Report, Banif SA believes that as it is an integral part of the accounting, this is the most appropriate place to publicise the information referred to in Banco de Portugal Notice No. 10/2011, when it does not appear in other parts of this report.
Remuneration of employees who are not members of management or supervisory bodies but who meet some of the following criteria: a. They carry out duties which involve assuming a risk burden, on behalf of the company or its clients, which might have a material impact on the institution’s risk profile. b. Their total remuneration package places them on the same remuneration scale as the members of the management or supervisory bodies; c. They carry out the control functions indicated in Banco de Portugal Notice No. 5/2008.
a. Employees covered Point II.4 covers Banif – Banco Internacional do Funchal, SA staff who (i) head bodies in the bank’s top-line structure, to the extent that they carry out professional duties that might impact on the institution’s risk profile, and those who (ii) belong to the institution’s management structure (directors, assistant directors and sub-directors) and who work in the areas of auditing, compliance and risk. There are no employees “whose total remuneration package places them on the same remuneration scale as the members of the management or supervisory bodies” who are not already covered by one of the other preconditions.
b. The process used in setting the remuneration policy and the identification of any external consultants whose services were used in setting the remuneration policy and any additional services provided by such consultants to the company or to members of the management or supervisory bodies.
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The “Remuneration policy for Banif – Banco Internacional do Funchal, SA staff.” (‘PRCBNF’) was proposed by the bank’s own services and approved by the board of directors in its meeting on 27 June 2013. This is the policy currently in force for all employees covered in Point II.4.
No use was made of any experts, consultants or external entities. The institution’s own remuneration practices and those of the financial sector and other Portuguese banks that operate in both the national and international markets were taken into consideration.
c. As regards the variable component of the remuneration: the various components that go into this, the proportion that is deferred and the proportion that has already been paid.
The variable remuneration consists of incentives and performance bonuses, paid in cash, and has a potential maximum limit of 20% of the total remuneration. In 2013 and 2014, the employees covered were paid variable remuneration concerning 2013 that amounted to 91,694.96 euros, there being no deferral of the payment of any tranche.
d. Information on how the current remuneration policy is structured to allow alignment of the interests of members of the board of directors with the long-term interests of the company and how it discourages excessive risk-taking as well as information on the criteria used in performance assessment.
The PRCBNF establishes a concept of global remuneration, comprising fixed remuneration and variable remuneration. The fixed remuneration aims to reward activities carried out on a regular and permanent basis and represents the most important part of the total remuneration. Variable remuneration consists of incentives and performance bonuses and aims to remunerate each employee’s performance and responsible, up to a potential limit. The fixed and variable remuneration represent >85% and <15% of the total remuneration, respectively, and can represent a remuneration balance of no more than 80% and 20%. The annual amount of variable remuneration, defined at the beginning of each year by the board of directors, shall vary according to compliance with the individual and collective targets of the unit in which the employee work, in accordance with the system of targets and the performance assessment model approved, the global results of the Bank and the future outlook. Variable remuneration is calculated based on pre-determined criteria and there is no incentive for them to take excessive risks. The PRCBBI thus envisages that the board of directors, or under the current delegation of powers, the executive committee, may allocate a variable remuneration to employees, this allocation being dependent on a decision by this management body in the institution. In the event of allocation of a variable remuneration, it is guaranteed that the fixed remuneration will continue to represent the most important part of the total remuneration.
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This system is designed to promote and encourage improved individual employee performance of their professional duties, directly linking any bonus to the company’s results, particularly in the short-term.
Given the relatively low weighting of the variable component of remuneration in the total staff remuneration package, it is believed that the current remuneration policy does not compromise the institution’s long-term interest nor does it encourage excessive risk- taking.
The criteria used in the assessment of employees are those set out in the performance assessment process in effect at the Bank, and this assessment is carried out by their superiors, or by the board of directors/executive committee with regard to senior management.
e. Competent bodies for assessing individual performance
The competent body for assessing those members of staff responsible for the bank’s top- line structures is the management body itself, in the form of the director responsible for the area in question. For those staff members not in this group, but who do work in the areas of audit, compliance and risk, the criteria are written into the bank’s current performance assessment process, as implemented by the various line management structures.
f. Pre-set criteria used in assessing performance and on which the right to a variable component of remuneration is based
The allocation of a variable component of remuneration to an employee derives always from a decision taken by the board of directors through its executive committee and is based on individual performance assessment with pre-defined objective criteria. This does not grant or constitute a vested right and it is for the management board to decide to allocate the variable remuneration and determine the amount allocated.
g. The way in which the payment of the variable remuneration is subject to the continuing good performance of the institution.
Given the reduced importance of the variable component in the Bank’s remuneration policy, there is no apparent need to defer its payment.
h. The criteria used in awarding the variable component of remuneration in the form of options and indication of the deferral period and then option price
The PRCBNF does not contemplate the awarding of the variable component of remuneration in the form of options.
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i. The main parameters and principles of any annual bonus scheme or any other non- monetary benefits.
There is no other annual bonus scheme besides the performance bonus, which has been detailed in the preceding points. The other benefits extended to bank employees, all of which are written into the PRCBNF, are as follows: Personal Accidents insurance, in accordance with Clause 106 of the Collective Labour Agreement for the Banking Sector (ACT) Medical Assistance Services (SAMS), under the terms of Clause 114 of the ACT Accident at work insurance, under the terms of Clause 38 of the ACT Pension fund, which offers a supplementary pension, as per Clause 13 of the company-level agreement
II.5 Disclosure of quantitative information, in compliance with the stipulations of Article 17 of Banco de Portugal Notice No. 10/2011
i. Total annual earnings of the employee covered and the number of beneficiaries
Other Employees Amounts in euros
Variable Total Annual Amounts Fixed remunerations remuneration
All employees 3,002,641.82 91,694.96
Number of beneficiaries covered – 40.
ii. The amounts and types of variable remuneration in the remuneration package, separated into monetary, shares, share-linked instruments and other types of remuneration.
All the variable remuneration in 2013 was monetary in nature.
iii. The amount of deferred remuneration not paid, separated into vested and non-vested amounts.
This question is not applicable as there is no unpaid component of variable remuneration for 2013.
iv. The annual amounts of deferred remuneration owed, paid or subject to reduction following adjustments made as a result of individual employee performance
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This question is not applicable as there is no unpaid component of variable remuneration for 2013.
v. The number of new hirings in the period in question
There were no new hirings in 2013.
vi. The amounts relating to payments made or owed as a result of early termination of work contracts, the number of beneficiaries of any such payments and the highest payment for any single employee.
There were no early terminations of work contracts in 2013.
vii. Total annual employee earnings, by business area
Other Employees Amounts in euros
Variable Total Annual Amounts Fixed remunerations remuneration
Positions of Responsibility 2,321,250.42 88,181.60
Other Employees Amounts in euros
Variable Total Annual Amounts Fixed remunerations remuneration
Positions of Control 55,693.43 0.00 (Compliance)
Other Employees Amounts in euros
Variable Total Annual Amounts Fixed remunerations remuneration
Positions of Control 367,866.54 3,513.36 (Risk Management)
Other Employees Amounts in euros
Variable Total Annual Amounts Fixed remunerations remuneration
Positions of Control 257,831.43 0.00 (Auditing)
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V. Agreements with remuneration implications
83. The envisaged contractual restraints for compensation payable for the unfair dismissal of directors and the relevance thereof to the remunerations’ variable component.
There are no contractual limitations under the terms or with the characteristics described.
84. Reference to the existence and description, with details of the sums involved, of agreements between the company and members of the board of directors and managers, pursuant to Article 248-B/3 of the Securities Code that envisages compensation in the event of resignation or unfair dismissal or termination of employment following a takeover bid. (Article 245-A/1/l).
There are no, nor are there plans for, agreements with such characteristics.
VI. Share-Allocation and/or Stock Option Plans
85. Details of the plan and the number of persons included therein.
Banif – Banco Internacional do Funchal, SA. does not have, or plan to have, any plans to allocate shares or share options.
86. Characteristics of the plan (allocation conditions, non-transfer of share clauses, criteria on share-pricing and the exercising option price, the period during which the options may be exercised, the characteristics of the shares or options to be allocated, the existence of incentives to purchase and/or exercise options). Not applicable due to the response to Point 85. above.
87. Stock option plans for the company employees and staff.
Not applicable due to the response to Point 85. above.
88. Control mechanisms for a possible employee-shareholder system inasmuch as the voting rights are not directly exercised by said employees (Article 245-A/1/e)).
Not applicable due to the response to Point 85. above.
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E. RELATED PARTY TRANSACTIONS
I. Control mechanisms and procedures
89. Mechanisms implemented by the Company for the purpose of controlling transactions with related parties (for this purpose, reference is made to the concept resulting from IAS 24).
Since the company is a credit institution, any transactions with related parties correspond to loans to shareholders with qualifying holding of over 10%, in which case they are subject to the additional scrutiny provided for in Article 109 of the General Regulations for Credit Institutions and Finance Companies. There are no other transactions of significance with qualifying shareholders.
There are no mechanisms specifically implemented for the purpose of controlling transactions with related parties.
90. Details of transactions that were subject to control in the referred year.
As mentioned in the previous point, the “transactions” subject to control were credit operations, under the banking relationship maintained by Banif, as a financial institution, with its clients, for which reason in this respect they are covered by the duty of confidentiality provided for in Article 78 of the Legal Framework of Credit Institutions and Financial Companies. In 2013, 29 operations were the subject of assessment and a report by the supervisory board.
91. A description of the procedures and criteria applicable to the supervisory body when same provides preliminary assessment of the business deals to be carried out between the company and the holders of qualifying holdings or entity-relationships with the former, as envisaged in Article 20 of the Securities Code.
Considering that the situations in question are regulated by the Legal Framework of Credit Institutions and Financial Companies (RGICSF), which duly defines the procedures and criteria to be followed by credit institutions, the Banif supervisory body has taken as the criterion to be adopted (and therefore its own criterion) that deriving from the Law, namely Articles 85 to 109 of the RGICSF, with no need to establish a different criterion. The internal rule NOR_OPA_33 on Limitations on Access to Credit for Members of the Corporate Boards and Qualifying Shareholders, which sets out the internal procedures to be followed on this matter, was published in June 2013.
II. Data on business deals
92. Details of the place where the financial statements including information on business dealings with related parties are available, in accordance with IAS 24, or alternatively a copy of said data.
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Information on related parties (balances included in the accounts and list of entities) is available in a specific note in the Notes to the Financial Statements, as identified below.
The information on related parties (balances included in the accounts and list of entities) is disclosed in Note “48. BALANCES AND TRANSACTIONS WITH RELATED PARTIES” in “1.6 Notes to the Financial Statements”, of “1. Consolidated Financial Statements” in the chapter “12. FINANCIAL STATEMENTS” of the MANAGEMENT REPORT AND ACCOUNTS for 2013; and in Note “43. BALANCES AND TRANSACTIONS WITH RELATED PARTIES” in “2.6 Notes to the Financial Statements”, of “2. SEPARATE FINANCIAL STATEMENTS” in the chapter “12. Financial Statements” of the MANAGEMENT REPORT AND ACCOUNTS for 2013.
PART II - CORPORATE GOVERNANCE ASSESSMENT
1. Details of the Corporate Governance Code implemented
The company adopts, pursuant to Paragraph 2 of CMVM Regulation No. 4/2013, the CMVM Corporate Governance Code issued by the CMVM (July 2013 version) the text of which is available on the CMVM information website, at http://www.cmvm.pt/cmvm/recomendacao/recomendacoes/Pages/default.aspx.
2. Analysis of compliance with the Corporate Governance Code adopted
Pursuant to Article 245-A/1/o), a statement should be included relating to the acceptance of the Corporate Governance Code, to which the issuer is subject, by stating any divergence from said Code and the reasons for said divergence. The information to be submitted should include the following for each recommendation: a) Information enabling the verification of compliance with the recommendation or referring to the part of the report where the issue is discussed in detail (chapter, title, paragraph, page); b) Grounds for any non-compliance or partial compliance thereof; c) In the event of non-compliance or partial compliance, the details of any alternative mechanism adopted by the company for the purpose of pursuing the same objective of the recommendation.
STATEMENT OF COMPLIANCE (RECOMMENDATIONS)
I. VOTING AND CONTROL OF THE COMPANY
I.1. Companies shall encourage shareholders to attend and vote at general meetings and shall not set an excessively large number of shares required for the entitlement of one vote, and shall implement the means necessary to exercise the right to vote by mail and electronically. Recommendation adopted. Shareholders who, at 00.00 hours (GMT) on the fifth business day preceding the date of the meeting, are holders of sufficient shares to have the right to at least one vote are eligible to participate, discuss and vote in the general meeting, each share corresponding to one vote (see Article 17 of the articles of association).
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There are limits on the voting rights of special shares subscribed by the Portuguese State, resulting directly and exclusively from the corresponding legal scheme, not being attributable to the company and/or to its form of organisation under any circumstances whatsoever.
I.2. Companies shall not adopt mechanisms that hinder the passing of resolutions by shareholders, including fixing a quorum for resolutions greater than that provided for by law. Recommendation adopted. The general meeting may be held on first notice, whatever the number of shareholders present or represented, except in cases in which the law requires a higher quorum representing the capital and, on second notice, in accordance with the law (see Article 17 of the articles of association). No requirements are envisaged for a quorum greater than that provided for by law for any particular matters.
I.3. Companies shall not establish mechanisms intended to cause mismatching between the right to receive dividends or the subscription of new securities and the voting right of each common share, unless duly justified in terms of long-term interests of shareholders. Recommendation adopted. The articles of association do not establish such mechanisms, no measures having been taken to this end. I.4. Companies’ articles of association that provide for the restriction of the number of votes that may be held or exercised by a sole shareholder, either individually or in concert with other shareholders, should also foresee a resolution by the general assembly (at five year intervals) on whether that statutory provision is to be amended or prevails – without quorum requirements in addition to the law– and that in said resolution, all votes issued be counted, without applying said restriction. Not applicable. The articles of association do not establish this restriction.
I.5. Measures that require payment or assumption of fees by the company in the event of change of control or change in the composition of the Board and that which appear likely to impair the free transfer of shares and free assessment by shareholders of the performance of Board members, shall not be adopted. Recommendation adopted. The company does not have such measures.
II. SUPERVISION, MANAGEMENT AND OVERSIGHT II.1. SUPERVISION AND MANAGEMENT
II.1.1. Within the limits established by law, and except for the small size of the company, the board of directors shall delegate the daily management of the company and said delegated powers shall be identified in the Annual Report on Corporate Governance. Recommendation adopted.
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(see provisions of Point 21 of the Corporate Governance Report)
II.1.2. The Board of Directors shall ensure that the company acts in accordance with its objectives and shall not delegate its responsibilities as regards the following: i) define the strategy and general policies of the company; ii) define the business structure of the group; iii) decisions considered strategic due to the amount, risk and particular characteristics involved. Recommendation adopted. (see Point 21 of the Corporate Governance Report)
II.1.3. The General and Supervisory Board, in addition to its supervisory duties supervision, shall take full responsibility at corporate governance level, whereby through the statutory provision or by equivalent means, shall enshrine the requirement for this body to decide on the strategy and major policies of the company, the definition of the corporate structure of the group and the decisions that shall be considered strategic due to the amount or risk involved. This body shall also assess compliance with the strategic plan and the implementation of key policies of the company. Not applicable. The governance model adopted does not consider the existence of a general and supervisory board.
II.1.4. Except for small-sized companies, the Board of Directors and the General and Supervisory Board, depending on the model adopted, shall create the necessary committees in order to: a) Ensure a competent and independent assessment of the performance of the executive directors and its own overall performance, as well as of other committees; b) Reflect on the system structure and governance practices adopted, verify their efficiency and propose to the competent bodies measures to be implemented with a view to their improvement. Recommendation adopted. (see Points 15 and 27 of the Corporate Governance Report. II.1.5. The Board of Directors or the General and Supervisory Board, depending on the applicable model, should set goals in terms of risk-taking and create systems for their control to ensure that the risks effectively incurred are consistent with those goals. Recommendation adopted. (see Points 50 et seq of the Corporate Governance Report.
II.1.6. The Board of Directors shall include a number of non-executive members ensuring effective monitoring, supervision and assessment of the activity of the remaining members of the board. Recommendation adopted. The number of non-executive members of the company’s board of directors corresponds to the ratio envisaged by the CMVM of at least one third of the board of directors, as can be seen in Point 28. of the Corporate Governance Report.
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II.1.7. Non-executive members shall include an appropriate number of independent members, taking into account the adopted governance model, the size of the company, its shareholder structure and the relevant free float. The independence of the members of the General and Supervisory Board and members of the Audit Committee shall be assessed as per the law in force. The other members of the Board of Directors are considered independent if the member is not associated with any specific group of interests in the company nor is under any circumstance likely to affect an exempt analysis or decision, particularly due to: a. Was an employee over the last three years of the company or a company which is in a controlling or group relationship; b. Has, in the last three years, provided services or established a significant business relationship with the company or company with which said company is in a control or group relationship, either directly or as a partner, board member, manager or director of the legal person; c. Receives remuneration paid by the company or by a company that is in a controlling or group relationship in addition to the remuneration derived from carrying out the tasks as a Board Member; d. Lives with a partner or a spouse, next of kin up to and including third degree, of board members or individuals directly or indirectly holding qualifying holdings; e. Is a qualifying shareholder or representative of a qualifying shareholder. Recommendation not adopted. Considering the reference date for the information set out in this Report, this recommendation is considered not adopted, since in a total of 9 directors there were 4 non-executive directors, 1 of whom considered independent, a number that represents less than one third of the total number of directors. This derived from the fact that, at the date when the board of directors of Banif was appointed, the company was wholly owned by Banif SGPS SA, which, in turn, was a company with shares admitted to trading on a regulated market, subject to a special concern to ensure a significant number of independent non-executive directors. On the date of the election of its board of directors, Banif SGPS SA complied with the ratio envisaged in this recommendation. The subsequent integration by merger of Banif SGPS SA into Banif and the state investment-based recapitalisation, which included significant changes in the composition and structure of the bank’s board of directors, resulted in a board of directors in which one of the directors who had previously been considered independent was no longer considered independent, by being the chair of the executive committee of a company that since became a qualifying shareholder and one of the directors with express and assumed supervision and control duties was appointed specifically by the Portuguese State, under the applicable legal framework, for which reason, despite the specific characteristics of this appointment/situation, it could not cease to be related to this shareholder.
Disregarding these specific situations, the number of independent members of the board of directors would comply with CMVM recommendations on this matter.
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II.1.8. When board members that carry out executive duties at the request of other board members, they shall provide the information requested, in a timely and appropriate manner to the request. Recommendation adopted. Besides this practice, it should also be noted that most meetings of the executive committee are attended by the non-executive director appointed by the Portuguese State, who has access to the agendas, minutes and documents for these meetings. On the other hand, the non-executive members of the board of directors, the chair of the supervisory board and the member of the supervisory board appointed by the Portuguese State also have access to these documents.
II.1.9. The Chair of the Executive Board or of the Executive Committee shall submit, as applicable, to the Chair of the Board of Directors, the Chair of the Supervisory Board, the Chair of the Audit Committee, the Chair of the General and Supervisory Board and the Chairman of the Financial Matters Board, the convening notices and minutes of the relevant meetings. Recommendation adopted. The chair of the board of directors and the chair of the supervisory board have access to all relevant documents related to the activities of the executive committee, in particular the agendas and minutes of its meetings.
II.1.10. If the chair of the board of directors carries out executive duties, said body shall appoint, from among its members, an independent member to ensure the coordination of the work of other non-executive members and the conditions so that said can make independent and informed decisions or to ensure the existence of an equivalent mechanism for such coordination. Recommendation not applicable. The chair of the board of directors does not carry out any executive duties.
II.2. SUPERVISION
II.2.1. Depending on the applicable model, the Chair of the Supervisory Board, the Audit Committee or the Financial Matters Committee shall be independent in accordance with the applicable legal standard, and have the necessary skills to carry out their relevant duties. Recommendation not adopted. Although the chair of the supervisory board in office has the necessary skills to carry out his duties (see Point 33 of this Report), he is not considered independent in accordance with the applicable legal standard, since he has already been reappointed to more than two periods of office. The election of the supervisory board results from the interpretation by the shareholder structure, expressed through a decision of the general meeting, which was of the opinion that the chair of the supervisory board, due to his capacity, experience and knowledge of the group, should be renewed in office, despite the fact that in this renewal he no longer met the legal criterion for independence. On the other hand, the compliance with this criterion by two other elected members of the supervisory board was ensured. The impartiality and independence of this body from the shareholder structure is also reinforced by the appointment of a member representing the
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Portuguese State, which took place in the context of the state investment-based recapitalisation process.
II.2.2. The supervisory body shall be the main representative of the external auditor and the first recipient of the relevant reports, and is responsible, inter alia, for proposing the relevant remuneration and ensuring that the proper conditions for the provision of services are provided within the company. Recommendation adopted. (see Points 37 of the Corporate Governance Report)
II.2.3. The supervisory board shall evaluate the external auditor on an annual basis and propose to the competent body its dismissal or termination of the contract as to the provision of their services when there is a valid basis for said dismissal. Recommendation adopted. (see Points 37 and 45 of the Corporate Governance Report)
II.2.4. The supervisory board shall evaluate the functioning of the internal control and risk management systems and propose adjustments as may be deemed necessary. Recommendation adopted. (see Points 38 of the Corporate Governance Report)
II.2.5. The Audit Committee, the General and Supervisory Board and the Supervisory Board decide on the work plans and resources concerning the internal audit services and services that ensure compliance with the rules applicable to the company (compliance services), and should be recipients of reports made by these services at least when it concerns matters related to accountability, identification or resolution of conflicts of interest and detection of potential improprieties. Recommendation adopted. In accordance with Points 27 and 29. In 2013 the risk and audit committee was set up, which has unrestricted access to information from Banif and its subsidiaries and assists the board in supervision: i) of the risk policy, as well as its assessment and management; ii) of compliance with legal and regulatory provisions, with the articles of association and with the rules issued by the supervisory authorities, as well as with general policies, rules and practices established internally; iii) of the adequacy and compliance with the accounting policies, criteria and practices adopted and of the integrity of financial statements; iii) of the quality, integrity and efficacy of internal control systems, risk management, compliance and internal auditing.
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II.3. REMUNERATION SETTING
II.3.1. All members of the Remuneration Committee or equivalent should be independent from the executive board members and include at least one member with knowledge and experience in matters of remuneration policy. Recommendation adopted. (see Points 67 and 68 of this Corporate Governance Report)
II.3.2. Any natural or legal person that provides or has provided services in the past three years, to any structure under the board of directors, the board of directors of the company itself or who has a current relationship with the company or consultant of the company, shall not be hired to assist the Remuneration Committee in the performance of their duties. This recommendation also applies to any natural or legal person that is related by employment contract or provision of services with the above. Recommendation adopted. (see Points 67 and 68 of this Corporate Governance Report)
II.3.3. A statement on the remuneration policy of the management and supervisory bodies referred to in Article 2 of Law No. 28/2009 of 19 June, shall also contain the following: a) Identification and details of the criteria for determining the remuneration paid to the members of the governing bodies; b) Information regarding the maximum potential, in individual terms, and the maximum potential, in aggregate terms, to be paid to members of corporate bodies, and identify the circumstances whereby these maximum amounts may be payable; d) Information regarding the enforceability or unenforceability of payments for the dismissal or termination of appointment of board members. Recommendation adopted. (see Point 69 of the Corporate Governance Report)
II.3.4. Approval of plans for the allotment of shares and/or options to acquire shares or based on share price variation to board members shall be submitted to the General Meeting. The proposal shall contain all the necessary information in order to correctly evaluate said plan. Not applicable. (see Point 85 of the Corporate Governance Report)
II.3.5. Approval of any retirement benefit scheme established for members of corporate members shall be submitted to the General Meeting. The proposal shall contain all the necessary information in order to correctly evaluate said system. Not applicable. In the year in question, no scheme with the characteristics described was approved.
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III. REMUNERATION
III.1. The remuneration of the executive members of the board shall be based on actual performance and shall discourage taking on excessive risks. Recommendation adopted. The remuneration of the members of the board of directors is based on their actual performance, to the extent that it is allocated by the remuneration committee based on criteria associated with the specific functions, duties and responsibilities of each member of the board of directors, seeking to bear in mind remuneration levels in the market and respecting the remuneration restrictions arising from the company’s involvement in the state investment-based recapitalisation process.
In this context, the remuneration policy of Banif ensures strict adherence to the stipulations of Decree-Law 104/2007, of 3 April, as amended by Decree-Law 88/2011, of 20 July, with a view to the adoption of remuneration policies and remuneration practices consistent with sound and prudent risk management, for which reason, during the state investment period measures shall be taken to ensure, in particular, the application of the No. 24(l) in Point XI in the annex to that decree-law, in other words, no variable remuneration shall be paid to members of the board of directors until the full repayment of the state investment in Banif. The other remuneration restrictions associated with the company’s involvement in the state investment-based recapitalisation process, particularly those provided for in Article 12 of Ministerial Order 150-A/2012, of 17 May, are also scrupulously applied.
It is considered that the application of the rules described ensures that the way remuneration is structured discourages taking on excessive risks.
Nevertheless, in order to associate the remuneration of the executive members of the board of directors with the company’s performance, the Banif remuneration committee may, where duly justified, within the framework of and pursuant to the remuneration policy in effect, to make the calculation of the variable remunerations. In this case, its payment is conditional and may only be made after the full repayment of the state investment, its payment being always dependent in any case on a discretionary resolution of the remuneration committee in office on the date of the state disinvestment.
III.2. The remuneration of non-executive board members and the remuneration of the members of the supervisory board shall not include any component whose value depends on the performance of the company or of its value. Recommendation adopted.
The remuneration of non-executive board members and the remuneration of the members of the supervisory board do not include any component whose value depends on the performance of the company or of its value.
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III.3. The variable component of remuneration shall be reasonable overall in relation to the fixed component of the remuneration and maximum limits should be set for all components. Recommendation adopted. The fixed component of the remuneration of members of the board of directors is established on terms that consider a maximum limit set in advance. With regard to variable remuneration, as noted in III.1 above, its payment is always dependent on a discretionary decision of the remuneration committee in office on the date of the state disinvestment. In addition, its mere allocation with reference to the current year must be calculated within the framework of and pursuant to the remuneration policy prior to the state investment, under which it is estimated that it represents, in a situation of full compliance with the objectives outlined, approximately 30% of the fixed remuneration.
It is to be noted that the application of said remuneration policy to the recent financial years of 2011, 2012 and 2013 did not result in the allocation of any variable remuneration.
III.4. A significant part of the variable remuneration should be deferred for a period not less than three years, and the right of way payment shall depend on the continued positive performance of the company during that period. Recommendation adopted. As noted in the preceding points, although a calculation may be made to allocate a variable component to the executive members of the board of directors with reference to each reporting period, it may only be paid if and when it is the subject of a discretionary decision of the remuneration committee in office on the date of the state disinvestment, which, given the characteristics of the recapitalisation plan under way, means that the entirety of its (possible) payment is deferred for a period of more than 3 years and is dependent on the continued positive performance of the company throughout that period.
III.5. Members of the Board of Directors shall not enter into contracts with the company or with third parties which intend to mitigate the risk inherent to remuneration variability set by the company. Recommendation adopted. There are no contracts entered into with members of the board of directors intended to mitigate the risk inherent to remuneration variability set by the Company. In view of the above, it is considered that the recommendation is complied with in its entirety.
III.6. Executive board members shall maintain the company’s shares that were allotted by virtue of variable remuneration schemes, up to twice the value of the total annual remuneration, except for those that need to be sold for paying taxes on the gains of said shares, until the end of their mandate. Not applicable. (see Point 85 of this Report)
III.7. When the variable remuneration includes the allocation of options, the beginning of the exercise period shall be deferred for a period not less than three years. Not applicable. (see Point 85 of this Report)
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III.8. When the removal of a board member is not due to serious breach of their duties nor to their unfitness for the normal exercise of their functions but is still due on inadequate performance, the company shall be endowed with the adequate and necessary legal instruments so that any damages or compensation, beyond that which is legally due, is unenforceable. Recommendation adopted. In situations in which are contractual compensation is provided for any form of dismissal of directors without just cause, the contract documents shall expressly stipulate that such compensation “is not applicable to cases of removal of the Second Party (Director) or termination of their contract by agreement due to inadequate performance of their duties, under the terms of Article 20 of Banco de Portugal notice 10/2011 (…)”.
IV. AUDITING
IV.1. The external auditor shall, within the scope of its duties, verify the implementation of remuneration policies and systems of the corporate bodies as well as the efficiency and effectiveness of the internal control mechanisms and report any shortcomings to the supervisory body of the company. Recommendation adopted. Each year the external auditor shall issue a report addressed to the supervisory board of Banif SA on the internal control system of the Banif Financial Group, which shall describe procedures and conclusions in relation to the group’s internal control system, including the application of the remunerations policies and systems for the corporate boards.
IV.2. The company or any entity with which it maintains a control relationship shall not engage the external auditor or any entity with which it finds itself in a group relationship or that incorporates the same network, for services other than audit services. If there are reasons for hiring such services – which must be approved by the supervisory board and explained in its Annual Report on Corporate Governance – they should not exceed more than 30% of the total value of services rendered to the company. Recommendation adopted. EY has set up an internal control and monitoring system for its policies relating to independence. These take into account both local and international independence standards, threats to independence and their safeguards. This policy lists those services which cannot be provided as they might put independence at risk. All EY staff are made aware of these policies via their own intranet.
The monitoring of compliance with such policies on a global basis is carried out by each partner, manager or staff member who must formally acknowledge their awareness and compliance with the rules or any alterations made to these policies. Compulsory training courses on these policies are run periodically. In concrete terms, the EY internal control system incorporates the following mechanisms:
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- Deployment, via the intranet, of an updated list of public interest clients and a prior approval mechanism for the partner responsible for potential proposals of additional services to audit clients; - Prohibition on any EY partners or staff members having a financial interest in audit clients. This prohibition extends to the spouses and children (minors) of staff or partners. - Independence policy and procedure compliance tests as part of the international quality control programme. EY has also implemented an internal control process that requires the Partner responsible for auditing the group to authorise any entity in the EY network to provide services to any entities within the group. The authorisation request must include a description of the work requested and an assessment of its fit with the services allowed under the definition of independence. Additionally, the partner responsible for the audit receives a monthly overview of all projects undertaken by all entities within the group. In following the established policy and in providing consultancy, no decisions were taken nor was any part taken in taking decisions in the name of Banif Banco Internacional do Funchal, SA or any of its subsidiaries or associates in any material or other matter.
IV.3. Companies shall support auditor rotation after two or three terms whether four or three years, respectively. Its continuance beyond this period must be based on a specific opinion of the supervisory board that explicitly considers the conditions of auditor’s independence and the benefits and costs of its replacement. Recommendation not adopted. Each year Banif SA conducts an assessment of whether to maintain or replace its external auditor, which is appointed for a period that does not exceeds one year. This assessment considers the different applications submitted, enabling the auditor in office to apply and submit a proposal, which is analysed together with the other applications. The body whose proposal is considered the most appropriate by the supervisory board, in terms of cost/quality/reliability/scope, shall be proposed by that body to the general meeting for approval for a new period of one financial year. The company considers that the adoption of the procedure described here justifies the lack of an injunctive auditor rotation policy.
V. CONFLICTS OF INTEREST AND RELATED PARTY TRANSACTIONS
V.1. The company’s business with holders of qualifying holdings or entities with which they are in any type of relationship pursuant to Article 20 of the Portuguese Securities Code, shall be conducted during normal market conditions. Recommendation adopted. (see Point 10 of the Corporate Governance Report)
V.2. The supervisory or oversight board shall lay down procedures and criteria that are required to define the relevant level of significance of business with holders of qualifying holdings - or entities with which they are in any of the relationships described in Article 20.1 of the
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Portuguese Securities Code – thus significant relevant business is dependent upon prior opinion of that body. Recommendation adopted. (see Point 10 of the Corporate Governance Report)
VI. INFORMATION
VI.1. Companies shall provide, via their websites in both the Portuguese and English languages, access to information on their progress as regards the economic, financial and governance state of play. Recommendation adopted. (see Point 59 of the Corporate Governance Report)
VI.2. Companies shall ensure the existence of an investor support and market liaison office, which responds to requests from investors in a timely fashion and a record shall be kept of the requests submitted and their processing. Recommendation adopted. (see Point 56 of the Corporate Governance Report)
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14|Additional Disclosures MANAGEMENT REPORT AND ACCOUNTS 2013
14|Additional Disclosures
The company must provide all additional details or information that, not appearing in the preceding points, are of relevance for an understanding of the governance model and practices adopted.
1. DISCLOSURES REQUIRED UNDER ARTICLE 447 OF THE COMMERCIAL COMPANIES CODE
Information on shares and bonds required under Article 447 of the Commercial Companies Code, and Article 14.7 of CMVM Regulation no. 5/2008, with reference to 31 December 2012, including all share and bond transactions carried out during the period in question.
This information is in chapter 13 - Report on Corporate Governance, in PART I – INFORMATION ON SHAREHOLDER STRUCTURE, ORGANISATION AND CORPORATE GOVERNANCE – point 8, of this report.
2. DISCLOSURES ABOUT SHARES AND OBLIGATIONS OF COMPANIES IN THE BANIF FINANCIAL GROUP TRADED AND/OR OWNED, DURING 2013, BY COMPANIES IN THE SAME GROUP
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(Amounts in euros, unless otherwise stated)
Banif – Banco internacional do Funchal, SA Transactions Position 31/12/2013 Securities Transaction Date Quantity Value Quantity Value Investaçor SGPS, SA 1,183,900 7,595,477.38 Quota Espaço Dez 1 0 Shares in Banif - Banco de 17,000,000 42,508,925.84 Investimento, SA Shares in Banif (Cayman), 26,000,000 0.00 Shares in Banif Securities 2,108 0.00 Holding, Ltd Shares in Banif 25,000,000 4,632,338.00 International Bank, Ltd Shares in Banif 15,008,874 0.00 International Holdings Shares in Banif Mais, SGPS, 17,500,000 216,741,739.51 Shares in Banif Rent 60,000 0.00 Shares in Banif Banco Internacional do Funchal 3,290,544,927 107,879,456.15 (Brasil), SA Shares in Banco Banif Mais, 1,000,000 1,223,847.10 Shares in Banif Imobiliária, 33,600,000 SA 73,229,250.36 Shares in Rentipar Seguros, 12,930,529 72,243,800.49 SGPS, SA Shares in Banco Caboverdiano de Negócios, 465,182 5,129,647.00 SA Shares in Banif Bank Malta 25,500,000 16,939,767.78 PLC Shares in Banca Pueyo, SA 9,996,000 35,501,793.60 Banif Holding (Malta) PLC 9,991,998 0 Shares in Inmobiliária 669 2,499,632.58 Habiprede, SA 5,000 0.00 Numberone 2 0.00 Banif Brasil, Ltda 150,000 0.00 Banif & Comercial dos 100 0.00 Açores Inc S. José Banif & Comercial dos 100,000 72,511.06 Açores Inc Fall River
Banif Finance, Ltd 1,000 0.00
Banif Açor Pensões 40,000 240,267.01 Will 309,375 0.00 Preferred Shares: Banif Finance FLT PRP Pref. 1,244 1,244,000 Shares
Banif Finance 2009 USD 29 12,617 Pref. Shares
Non-Resident Bonds:
Banif Finance Sub DEZ 19 Entry 03/01/2013 163,000 163,000 Bonds Entry24/01/2013 100,000 100,000 449,000 355,206 Banif Finance Sub DEZ 14 500,000 417,500 Bonds Resident Bonds: Banif 05/15 (ex-Leasing) 6,000,000 6,061,170 Bonds
INV.TX VR 2016 Bonds 15,000,000 15,001,285
Açoreana TX VR DEZ 17 Entry 18/03/2013 685,000 685,000 Bonds Entry 17/06/2013 200,000 200,000 Entry17/06/2013 200,000 200,000 4,260,000 4,093,577
Rentipar Seguros 2015 Deprec.05/06/2013 9,500,000 9,500,000 19,000,000 19,140,389
Banif Banco Inv. Sub. Perp. 726,000 638,295 Bonds
Rentipar Inv. 2011/13 1 50,000 Open-ended Resident Infrainvest FEIA Entry 03/06/2013 40 4,000 Exit 31/12/2013 129,667 12,966,700 0 0
Banif ImoPredial 6,940,645 45,543,124 Closed-ended Resident Fundo de Capital de Risco 150 117,296 Capven
Banif Renda Habitação 95,180 92,430,611
Banif Property FEIIF Entry 11/01/2013 40 40,000 Entry 19/02/2013 20 20,000 18,825 14,322,764 470
MANAGEMENT REPORT AND ACCOUNTS 2013
Banif International Asset Management
TRANSACTIONS Quantity / Par Value at SECURITIES 31/12/2013 Transaction Date Quantity Value Shares in Banif Multifund, USD 100 Ltd
Numberone, SGPS, Lda
TRANSACTIONS Quantity / Value at SECURITIES Transactio 31/12/2013 Date Quantity Value n Shares in Banif Finance, EUR 99,000/68,721.38 Ltd.
Banif International Bank, Ltd (Bahamas) TRANSACTIONS SECURITIES Position Transaction Date Quantity Value Currency 31/12/2013 BANIF SIS 5% USD JAN14 bonds 100,000.00 USD XS0804318482 BANIF CX SUBOR. 2008/2018 bonds 507,000.00 EUR PTBAFOXE0003 BCA CX SUBORD. bonds 2007/2017 612,800.00 EUR PTBCAIXE0004 BCA CX SUBORD. bonds 2006/2016 1,488,250.00 EUR PTBCAFXE0007 BANIF PRIMUS DEZ14 bonds 0.00 OFB 30/07/2013 5,720.00 5,720,000.00 USD
EURO INV I 5% PERP Bonds 371,000.00 EUR XS0180280421
Banif Bank (Malta) PLC TRANSACTIONS POSITION 31/12/13 SECURITIES Transaction Date Quantity Value Quant. BANIF FIN 6% NOV 13 Bonds 271,000 271,000.00 XS0568463367 BANIF FIN 5% NOV 13 Bonds 9,196,000 USD 1,564,000 XS0568466030
Banif Finance Ltd TRANSACTIONS POSITION 31/12/13 SECURITIES Transaction Date Quantity Value Quant. Value
Banif SFE 09 FIT PRP bonds 10,000 10,000,000.00
BIB 6.5% PERP bonds 10,000 10,000,000.00
Banif Mais - SGPS, SA TRANSACTIONS POSITION 31/12/13 SECURITIES Transaction Date Quantity Value Quant. Value
Shares in Banco Banif Mais, SA 100,000,000 100,000,000.00
Margem – Mediação de Seguros, Lda. quotas 6,234.97 3
Shares in TCC Investments Luxembourg SARL 100 12,500.00
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MANAGEMENT REPORT AND ACCOUNTS 2013
Banco Banif Mais, SA TRANSACTIONS POSITION 31/12/13 SECURITIES Transaction Date Quantity Value Quant. Value
Shares in Banif Plus Bank Zártkoruen Mukodo Reszvenytársaság HUF 3,000,000,000 1,500,000
Shares in TCC Investments Luxemburg SARL 900 112,500.00
Banco Mais, SA 3Y Floating Rate Government Guaranteed Notes 250 25,000,000.00, Banif Leasing, SA 2005 / 2015 Subordinated Treasury Bonds 6,000 6,000,000.00 BMORE 5 Class B bonds Total Amortisation 20/11/2013 32,826,186.94 32,826,186.94 0 0.00 Atlantes Finance 4 Class D bonds Partial Amortisation 30/12/2013 59.80 5,980,374.42 9.21 921,152.33
Atlantes Finance 4 Class B bonds 113 11,300,000.00
Atlantes Finance 4 Class C bonds 206 20,600,000.00
Atlantes Finance 5 Class B bonds 165 16,500,000.00
Atlantes Finance 5 Class C bonds Partial Amortisation 30/12/2013 35.14 3,514,136.66 5.86 585,863.34
Atlantes Finance 6 Class B bonds Financial Investment 16/12/2013 311 31,100,000.00311 31,100,000.00
Atlantes Finance 6 Class C bonds Financial Investment 16/12/2013 85 8,500,000.00 Partial Amortisation 30/12/2013 72.32 7,232,087.49 12.68 1,267,912.51
TCC Investments Luxembourg, SARL TRANSACTIONS POSITION 31/12/13 SECURITIES Transaction Date Quantity Value Quant. Value BMORE 4 Class D bonds Total Amortisation 20/11/2013 11.12 556,000.00 0 0 BMORE 5 Class C bonds Total Amortisation 20/11/2013 2,188,412.46 2,188,412.46 0 0
Atlantes Finance 4 Class D bonds Acquisition 30/12/2013 36.85 3,684,609.34 36.85 3,684,609.34
Atlantes Finance 5 Class C bonds Acquisition 30/12/2013 23.43 2,343,453.35 23.43 2,343,453.35
Atlantes Finance 6 Class C bonds Acquisition 30/12/2013 50.72 5,071,650.0550.72 5,071,650.05
Banif - Banco de Investimento, SA
Transactions Quantity / par value Entity Security at 31/12/13 Transaction Type Date Quantity Value
BANIF - BANCO DE Banif Gestão de Activos, SA 400,000 INVESTIMENTO, SA
Banif Açor Pensões, SA 209,000
Banif Capital, SA 150,000
Gamma STC, SA 250,000 Banif International Asset Management USD 50,000 Worldvilas – Sociedade USD 435 Banif SA Shares Acquisition 04/04/2013 100 14.08 Disposal 04/04/2013 100 9.92 Disposal 04/06/2013 320,908 35,254.52 Acquisition 04/06/2013 31,531 3,468.41 Acquisition 05/06/2013 3,000 330.00 565,574 Banif Imobiliária, SA 6,400,000 Euro Invest 12/29/49 Disposal 21/03/2013 110,000 78,512.50 0 Banif SA 2008-2018 Disposal 21/03/2013 10,000 6,711.70 0 Gamma - Atlantes Mortgage Acquisition 26/04/2013 50,000,000 24,900,260.65 II - A Disposal 26/04/2013 50,000,000 24,900,260.65 0 Acquisition 01/10/2013 10,000,000 6,213,648.84 Acquisition 01/10/2013 50,000,000 30,854,014.04 Atlantes Mortgage PLC Series Disposal 01/10/2013 10,000,000 6,213,648.84 4-A Disposal 01/10/2013 50,000,000 30,854,014.04 Acquisition 22/10/2013 25,000,000 15,999,365.75 Disposal 22/10/2013 25,000,000 15,999,365.75 0 Atlantes SME - Series 2 Class A Acquisition 04/09/2013 5,000,000 3,546,230.43 Disposal 04/09/2013 5,000,000 3,546,230.43 Acquisition 02/10/2013 20,000,000 14,181,068.44 Disposal 02/10/2013 20,000,000 14,181,068.44 Acquisition 21/10/2013 100,000,000 71,023,920.80 Disposal 21/10/2013 100,000,000 71,023,920.80 Acquisition 28/10/2013 100,000,000 71,160,883.47 Disposal 28/10/2013 100,000,000 71,160,883.47 Acquisition 29/10/2013 20,000,000 14,233,051.79 Disposal 29/10/2013 20,000,000 14,233,051.79 Acquisition 19/11/2013 3,000,000 2,137,724.23 Acquisition 19/11/2013 35,000,000 24,940,116.08 Disposal 19/11/2013 3,000,000 2,137,724.23 Disposal 19/11/2013 35,000,000 24,940,116.08 Acquisition 16/12/2013 176,800,000 176,800,000.00 Disposal 16/12/2013 176,800,000 176,800,000.00 Acquisition 27/12/2013 81,600,000 44,534,054.16 Disposal 27/12/2013 81,600,000 44,534,054.16 0
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MANAGEMENT REPORT AND ACCOUNTS 2013
3. DISCLOSURES REQUIRED UNDER ARTICLE 448 OF THE COMMERCIAL COMPANIES CODE
In compliance with Article 448.4 of the Commercial Companies Code, and in accordance with company records and the information provided, it is hereby disclosed that, at the end date for the period to which this annual report relates:
The shareholder structure, at 31 December 2013, included the following qualifying shareholders (holding more than 2%):
% Voting # Shares % Share Capital Rights 12
Portuguese State 70,000,000,000 68.77% 58.34%
Auto-Industrial 2,635,782,857 2.59% 3.45%
Estate of HSR 7,835,962,151 7.70% 10.27%
Includes shares owned by:
- Açoreana Seguros 7,500,000,000 7.37% 9.83%
- Other entities 335,153,263 0.33% 0.44%
4. QUALIFYING HOLDINGS
Under the terms of Article 8.1(b) of CMVM Regulation No. 5/2008, it is hereby stated that, at the reference date of 31 December 2013, the shareholders who were owners of qualifying holdings at the end of the reporting period in question, in accordance with Article 20 of the Securities Code and the information held on record at the company, were as follows:
– Portuguese State Held, directly, at 31 December 2013, 70,000,000,000 shares with no par value in Banif – Banco Internacional do Funchal, SA under the terms and subject to the scheme provided for in Article 4 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July [1], corresponding to 68.769% of the share capital and voting rights (on all matters provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July) and
12The percentage of voting rights is calculated using the number of special shares (ISIN PTBAF0VM0007) that have a vote on most matters that come before the general meeting (matters not specified in Article 4.8 of Law No. 63-A/2008, of 24 November, as changed by Law No. 48/2013 of 16 July). Of the 70,000,000,000 shares held by the Portuguese state, 44,511,019,900 fall into this category. If the Portuguese state were to vote with all its shares on the matters specified in Article 4.8 of Law No. 63- A/2008, of 24 November, as amended by Law No. 48/2013 of 16 July, its voting rights, together with those of the private shareholders, would be equivalent to their percentage of the share capital. [1] The percentage of voting rights is calculated using the number of special shares (ISIN PTBAF0VM0007) that have a vote on most matters that come before the general meeting (matters not specified in Article 4.8 of Law No. 63-A/2008, of 24 November, as changed by Law No. 48/2013 of 16 July). Of the 70,000,000,000 shares held by the Portuguese state, 44,511,019,900 fall into this category. If the Portuguese state were to vote with all its shares on the matters specified in Article 4.8 of Law No. 63- A/2008, of 24 November, as amended by Law No. 48/2013 of 16 July, its voting rights, together with those of the private shareholders, would be equivalent to their percentage of the share capital.
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MANAGEMENT REPORT AND ACCOUNTS 2013
58.336% of voting rights (on all matters not provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July).
– Auto-Industrial, Investimentos e Participações, SGPS, SA It held, on 31 December 2013, of 2,635,782,857 shares, with no par value in Banif – Banco Internacional do Funchal, SA corresponding to 2.589% of the share capital and voting rights (on all matters provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July) and of 3.454% of voting rights (on all matters not provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July). The qualifying holding of Auto-Industrial Investimentos e Participações SGPS, SA (“Auto- Industrial SGPS”) in Banif is attributable to Auto-Industrial, SA, to the extent that the latter holds 63.95% of the share capital of Auto-Industrial SGPS.
– Estate of Horácio da Silva Roque.[2] It directly held, on 31 December 2013, 808,888 shares with no par value in Banif – Banco Internacional do Funchal, SA corresponding to 0.0008% of the share capital and voting rights (on all matters provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July) and 0.0011% of voting rights (on all matters not provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July) in Banif – Banco Internacional do Funchal, SA. Under article 20 of the Portuguese Securities Code, the estate also held the voting rights for the following shares:
– 7,500,000,000 shares, corresponding to 7.3681% of the share capital and voting rights (on all matters provided for in Article 4.8 of Law No. 63-A/2008 of 24 November) and 9.8296% of voting rights (on all matters not provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July) in Banif – Banco Internacional do Funchal, SA, held by Açoreana Seguros, SA, a company controlled (under the terms of Art. 20.1(b) and 21, both of the Portuguese Securities Code) by the Estate of Horácio da Silva Roque;
– 307,063,133 shares, corresponding to 0.3017% of the share capital and voting rights (on all matters provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July) and 0.4024% of voting rights (on all matters not provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July) in Banif – Banco Internacional do Funchal, SA held by Rentipar Financeira, SGPS, SA, a company controlled (under the terms of Art. 20.1(b) and 21, both of the Portuguese Securities Code) by the Estate of Horácio da Silva Roque;
– 77,280 shares, corresponding to 0.0001% of the share capital and voting rights, in Banif – Banco Internacional do Funchal, SA held by the member of the board of directors of Rentipar Financeira, SGPS, SA – Vitor Hugo Simons - (Art. 20.1(b), (d) and (i) of the Portuguese Securities Code);
[2] The administrator of the estate of Horácio da Silva Roque is Maria Teresa Henriques da Silva Moura Roque, daughter of Comendador Horácio Roque.
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MANAGEMENT REPORT AND ACCOUNTS 2013
– 27,583,051 shares, corresponding to 0.0271% of the share capital and voting rights (on all matters provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July) and 0.0362% of voting rights (on all matters not provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July), in Banif – Banco Internacional do Funchal, SA, held by Vestiban – Gestão e Investimentos, SA, a company controlled by Rentipar Financeira, SGPS, SA (Art. 20.1(b) and (i) of the Portuguese Securities Code);
– 267,750 shares, corresponding to 0.0003% of the share capital and voting rights (on all matters provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July) and 0.0004% of voting rights (on all matters not provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July), in Banif – Banco Internacional do Funchal, SA, held by Espaço Dez – Sociedade Imobiliária, Lda, a company controlled (under the terms of Art. 20.1(b) and 21, both of the Portuguese Securities Code) by the Estate of Horácio da Silva Roque;
– 162,049 shares, corresponding to 0.0002% of the share capital and voting rights in Banif – Banco Internacional do Funchal, SA, held by Renticapital – Investimentos Financeiros, SA, a company controlled by Rentipar Financeira, SGPS, SA (Art. 20.1(b) and (i) of the Portuguese Securities Code).
Making a total of 7,835,962,151 shares [3], corresponding to 7.6982% of the share capital and voting rights (on all matters provided for in Article 8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July) and 10.2699% of voting rights (on all matters not provided for in Article 4.8 of Law No. 63-A/2008 of 24 November, as amended by Law No. 48/2013 of 16 July), in Banif – Banco Internacional do Funchal, SA.
5. DISCLOSURES REQUIRED UNDER ARTICLE 486.3 OF THE ART COMMERCIAL COMPANIES CODE
The Diagram of the holdings of the Banif Financial Group can be found in Chapter 03. Distribution Networks, of the Banif, SA Management Report for 2013.
6. INFORMATION ON OWN SHARES UNDER ARTICLE 324.2 OF THE COMMERCIAL COMPANIES CODE
During 2013 Banif – Banco Internacional do Funchal, SA did not enter into any transactions regarding its own shares, and it does not directly hold any own shares.
[3] The qualifying holding attributed at the Estate of Horácio da Silva Roque also includes shares held by Açoreana Seguros, SA, since this company is controlled by that estate.
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MANAGEMENT REPORT AND ACCOUNTS 2013
Indirectly, through its subsidiary Banif - Banco de Investimento, SA, Banif held, at 31 December 2013, 565,574 own shares. In view of Art. 325-A of the Commercial Companies Code, these shares are considered treasury shares of dominant company.
During the 1st half of 2013, Banif – Banco de Investimento, SA, a company controlled by Banif – Banco Internacional do Funchal, SA, (Banif) performed the following transactions with Banif shares, at Euronext Lisbon (stock exchange transactions), under implementation of the Liquidity Agreement entered into by that Bank and Euronext Lisbon, which was terminated following the General Meeting of Banif held on 30/05/2013, which did not vote for renewal of the authorisation to purchase and sell own shares, given the commitments assumed under the Company’s Recapitalisation Plan.
Transaction Security Date Market Quantity Unit Price Type
Banif SA Shares Acquisition 28-Mar-13 Euronext Lisbon 100 0.12000
Banif SA Shares Disposal 28-Mar-13 Euronext Lisbon 100 0.12000
Banif SA Shares Disposal 30-May-13 Euronext Lisbon 30,000 0.11000
Banif SA Shares Disposal 30-May-13 Euronext Lisbon 290,908 0.11000
Banif SA Shares Acquisition 30-May-13 Euronext Lisbon 31,531 0.11000
Banif SA Shares Acquisition 31-May-13 Euronext Lisbon 3,000 0.11000
As a result of the transaction identified above, the total number of own shares at 31 December 2013 was 565,574 , held through Banif – Banco de Investimento SA.
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MANAGEMENT REPORT AND ACCOUNTS 2013
7. FSF AND EBA RECOMMENDATIONS ON TRANSPARENCY OF INFORMATION AND ASSET VALUATION Business I. Business model
Description of the business model (i.e. the reasons See Management Report and for engaging in activities and the contribution Accounts: these make to creating value) and, if applicable, of CHAPTER 06. MANAGEMENT any changes made (e.g. as a result of the crisis); REPORT OF BANIF. 1.
See Notes to the consolidated FS: Note “4. SEGMENT REPORTING” . Description of strategies and objectives (including See Management Report and strategies and objectives specifically relating to Accounts: securitisation operations and structured Chapter 06. MANAGEMENT products); REPORT OF BANIF.
See Notes to the consolidated FS: 2. Note 27 - LIABILITIES REPRESENTED BY SECURITIES” Note “24. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS” Note “11. LOANS AND ADVANCES TO CUSTOMERS”. Description of the importance of activities and See Management Report and their contribution to the business (to include Accounts: quantitative assessment); Chapter 06. MANAGEMENT REPORT OF BANIF. 3.
See Notes to the consolidated FS: Note “4. SEGMENT REPORTING”. Description of the type of activities engaged in, See Management Report and including a description of the instruments used, Accounts: the way these work and the qualifying criteria Chapter 06. MANAGEMENT that products/investments have to meet; REPORT OF BANIF.
4. See Notes to the consolidated FS: Note “2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES”.
Description of the objective and the extent of the See Management Report and involvement of the institution (i.e. commitments Accounts: 5. and obligations) in each activity it is involved in; Chapter 06. MANAGEMENT REPORT OF BANIF.
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MANAGEMENT REPORT AND ACCOUNTS 2013
II. Risks and risk management
Description of the nature and extent of the risks See Management Report and Accounts: incurred in relation to the activities engaged in 6. Chapter 06. MANAGEMENT and instruments used REPORT OF BANIF, section “RISK MANAGEMENT”. Description of risk management practices (including, in particular, liquidity risk in the current economic 7. situation) of relevance to the business activities, See Point II. 6 above. of any identified weaknesses and of any corrective measures taken to address these;
III. Impact of the period of financial instability on the results
Qualitative and quantitative description of results, 8. with a focus on losses (where applicable) and the See point III.9 in these notes above. impact of write-downs on results; Breakdown of the write-downs/losses by product In 2013 there were losses of 1,971 type and instruments affected by the period of thousand euros, of which 329 crisis, in particular commercial mortgage-backed thousand euros concerned 9. securities (CMBS), residential commercial instruments of the CLO type and mortgage-backed securities (CMBS), residential 1,642 thousand euros concerned mortgage-backed securities (RMBS), collateralised CMBS. debt obligations (CDO), asset-backed securities (ABS); Description of the causes of the impact and the See Management Report and Accounts: factors involved; Chapter 06. MANAGEMENT 10. REPORT OF BANIF, points “FINANCIAL MANAGEMENT” and “RISK MANAGEMENT”. Comparison of i) impacts between (relevant) See Notes to the consolidated FS: periods and of ii) income statement balances Note “7. FINANCIAL ASSETS before and after the impact of the period of HELD FOR TRADING” instability; 11. Note “8. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS” Note “9. FINANCIAL ASSETS AVAILABLE FOR SALE”. Breakdown of write-downs into realised and 12. See point III.9 in these notes above. unrealised amounts; Description of the influence of the financial See Management Report and instability on the company’s share price; Accounts: Chapter 13. CORPORATE 13. GOVERNANCE REPORT, point “Description concerning the evolution of the issuer’s share price”. Disclosure of maximum loss risk and description See Management Report and of how the institution’s situation could be Accounts: 14. affected by a further downturn or by a market Chapter 06. MANAGEMENT recovery; REPORT OF BANIF, point “RISK MANAGEMENT”. Disclosure of the impact that credit spread See Notes to the consolidated FS: movements in the institution’s own liabilities had Note “45. FAIR VALUE OF 15. on results, and of the methods used to determine FINANCIAL INSTRUMENTS”. this impact;
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MANAGEMENT REPORT AND ACCOUNTS 2013
IV. Levels and types of exposure affected by the period of instability
Nominal amount (or amortised cost) and fair See Notes to the consolidated FS: values of outstanding exposures; Note “49. SPECIAL CONDITIONS 16. CONCERNING SOVEREIGNS RISK IN PORTUGAL, GREECE, IRELAND, SPAIN, ITALY AND CYPRUS”. Information on credit risk protection (e.g. 17. through credit default swaps) and the N.A. effect of this on existing exposures Detailed disclosure of exposures with breakdowns by: - Level of seniority of exposure/tranches held; - Level of credit quality (e.g. ratings, vintages) - Geographic origin; - Activity sector; - Origin of exposures (issued, retained or 18. N.A. purchased) - Product characteristics: e.g. ratings, weight/proportion of associated sub-prime assets, discount rates, spreads, funding - Characteristics of the underlying assets: e.g. vintage, loan-to-value ratios, information on liens, weighted average life of the underlying asset, prepayment speed assumptions, expected losses. Movements of exposures between relevant In 2013 the following transactions were reporting periods and the underlying made: reasons for these (sales, write-downs, A sale to the value of 3,750 purchases etc.) thousand euros of an instrument of 19. the CLO type; A write-off to the value of 1,642 thousand euros of an instrument of the CMBS type Explanation of exposures (including “vehicles” and, in this case, the related 20. activities) that have not been consolidated N.A. (or that have been recognised in the course of the crisis) and the related reasons; Exposure to monoline insurers and quality of insured assets: - Nominal amounts (or amortized cost) of insured exposures as well as of the amount of credit protection purchased; - Fair values of the outstanding exposures 21. N.A. as well as of the related credit protection; - Amount of write-downs and losses, differentiated into realized and unrealized amounts; - Breakdowns of exposures by ratings or counterparty;
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MANAGEMENT REPORT AND ACCOUNTS 2013
V. Accounting policies and valuation methods
Classification of the transactions and structured See Notes to the consolidated FS: products for accounting purposes and the related Note “2.11 FINANCIAL accounting treatment; INSTRUMENTS”, which 22. contains a description and accounting treatment of the financial instruments
Consolidation of Special Purpose Entities (SPE) and See Notes to the consolidated FS: other vehicles and a reconciliation of these to the Note “2.4 Use of estimates 23. structured products affected by the period of in preparing the financial instability; statements” Note “3. GROUP COMPANIES” Detailed disclosures on the fair values of financial See Notes to the consolidated FS: instruments: Note “2.11. FINANCIAL - Financial instruments to which fair values are INSTRUMENTS”; applied; Note “45. FAIR VALUE OF - Fair value hierarchy (a breakdown of all FINANCIAL INSTRUMENTS” exposures measured at fair value by different levels of the fair value hierarchy and a breakdown 24. between cash and derivative instruments as well as disclosures on migrations between the different levels) - Treatment of day 1 profits (including quantitative information) - Use of the fair value option (including the conditions of use) and related amounts (with appropriate breakdowns); Description of the modelling techniques used for the valuation of financial instruments, including information on: - Modelling techniques and the instruments to which they are applied; - Valuation processes (including, specifically, the 25. assumptions and input factors the models rely See the previous point (V. 24) on); - Type of adjustments imposed to reflect the modelling risk and other valuation uncertainties; - Sensitivity of fair values (in particular, variations in assumptions and input factors) - Stress Scenarios.
VI. Other disclosure issues
Description of disclosure policies and principles See Notes to the consolidated FS: used in disclosures and financial reporting. 26. Note “2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES”
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Audit Board
REPORT AND OPINION OF THE AUDIT BOARD
Dear Shareholders,
1. In compliance with the provisions of paragraph g) of article 420 of the Commercial Companies Code, the Audit Board has drawn up this report on the auditing work it carried out during 2013 and hereby issues its opinion on the report, accounts and proposals presented by the management of Banif – Banco Internacional do Funchal, SA.
2. As usual, the Audit Board has maintained an ongoing dialogue with the statutory auditors, senior staff and company directors. This dialogue is essential to ensuring that the board is able to carry out many key aspects of its supervisory duties in a proper manner.
3. To this end, the audit board requested these entities to provide it with all relevant information and documentation pertaining to the company, for all business areas and in relation to all issues. It also requested, and received, all and any supplementary clarifications that it deemed necessary or pertinent along the reporting period. It encountered no difficulties or restrictions in carrying out this work.
4. The chair of the audit board was present at most meetings of the board of directors, had access to all the documentation relating to these meetings, monitored the decision-making process and was made aware of the contents of the minutes of these meetings.
5. For the abovementioned reasons, the audit board is able to confirm that the report from the board of directors properly describes, in a detailed manner, the business activities of Banif – Banco Internacional do Funchal, SA, and the various companies in the group, during the 2013 fiscal year.
6. The audit board analysed the report drawn up by the statutory auditor and its legal certification of the accounts. The board hereby states that it is in full agreement with this report and certification, in fulfilment of the provisions of no. 2 of article 452 of the Commercial Companies Code. This report contains no reservations regarding the accounts but does raise two issues of note.
7. The audit board examined the company’s consolidated accounts, with reference to 31 December 2013 and assessed the extent to which the consolidated management report is in agreement with these accounts, as per no. 1 of article 508-D of the Commercial Companies Code.
8. Accordingly, and in compliance with the provisions of article 420, no. 6 of the Commercial Companies Code, article 245, no. 1, paragraph c) of the Securities Code and paragraph a) of no. 1 of article 8 of CMVM Regulation 5/2008, each of the undersigned members of the audit board, identified below, declares, on their own personal accountability, that, to the best of their knowledge, the management report, the annual accounts, the legal certification of accounts and other financial statements, as required by law or regulation, were drawn up in accordance with the applicable accounting rules, and provide a true and fair view of the assets and liabilities, the financial position and the results of Banif – Banco Internacional do Funchal, SA, and of the other companies included in the consolidation perimeter, and that the management report realistically describes the business activities, the performance and the position of Banif – Banco Internacional do Funchal, SA and also contains a description of the main risks and uncertainties the company faces.
9. In conclusion, the audit board is of the opinion that the general meeting should a) Approve the board of directors’ report for the reporting year ending on 31 December 2013; b) Approve the accounts for this same period; c) Approve the proposal for the appropriation of profits contained in the board of directors’ report, which complies with the applicable legal requirements. d) Approve the consolidated management report and the consolidated accounts for the period. e) Under the terms of article 455 of the Commercial Companies Code, assess the work of the directors and the audit board.
Lisboa, 14 April 2014
FERNANDO MÁRIO TEIXEIRA DE ALMEIDA – Chair ______
ANTÓNIO ERNESTO NETO DA SILVA ______
THOMAZ PAES DE VASCONCELOS ______
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
(Translation of the report originally issued in Portuguese)
Legal Certification and Audit Report for the Consolidated Accounts
Introduction
1. Under the terms of the relevant legislation, we submit our legal certification of accounts and our statutory auditor’s report on the financial information contained in the attached management report and consolidated financial statements for BANIF - Banco Internacional do Funchal, S.A., for the financial year ending 31 December 2013. This information consists of: the consolidated balance sheet as at 31 December 2013 (which shows a total of 13.603.492 thousands Euros and a total equity of 879.573 thousands Euros, including a net loss of 470.273 thousands Euros), the consolidated income statement, the statement of consolidated comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the financial year ending on that date, as well as the Notes to the Consolidated Financial Statements.
Responsibilities
2. It is the responsibility of the board of directors to:
a) prepare consolidated financial statements which present a true and fair view of the consolidated financial position of the group of companies included within the consolidation perimeter, consolidated results and comprehensive income of operations, consolidated changes in equity capital and consolidated cash flows; b) provide historical 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) apply appropriate accounting policies; d) maintain an adequate internal control system; e) report on any significant occurrence which has influenced the activities of the group of companies included within the consolidation perimeter, their financial position or their results.
3. It is our responsibility to verify the financial information in the financial statements referred to above, and to ensure that it is complete, true, current, clear, objective and lawful, as required by the Securities Code, and to express a professional and independent opinion of such information, on the basis of our audit.
Scope
4. We conducted our examination in accordance with the technical standards and directives of the Institute of Statutory Auditors (“Ordem dos Revisores Oficiais de Contas”), which require that we plan and perform the examination in order
Sociedade Anónima - Capital Social 1.200.000 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
2
to obtain an acceptable level of assurance as to whether the consolidated financial statements are free of material misstatement. Accordingly our examination included:
- the verification of whether the financial statements included in the consolidation were examined appropriately, and for significant instances where these were not, the verification, on a test basis, of the supporting evidence of the amounts and disclosures contained therein and an assessment of the estimates, based on judgments and criteria determined by the Board of Directors, for the preparation thereof; - the verification of the consolidation adjustments; - the assessment of whether the accounting policies adopted and their disclosure are appropriate, considering the circumstances; - the verification of the appropriateness of the going concern principle; - the assessment of whether the overall presentation of the financial statements is adequate; and - an assessment as to whether the consolidated financial information is complete, true, current, clear, objective and lawful.
5. Our examination also included the verification of the consistency of the financial information included in the management report with other documentation related to the financial statements and carrying out the checks stipulated in nos. 4 and 5 of article 451 of the Commercial Companies Code.
6. We believe that the examination carried out provides an acceptable basis for the expression of our opinion on the financial statements.
Opinion
7. In our opinion, the consolidated financial statements referred to above present a true and fair view, in all material respects, of the consolidated financial position of BANIF - Banco Internacional do Funchal, S.A., as at 31 December 2013, the consolidated results and the comprehensive income of its operations, the consolidated changes in equity and the consolidated cash flows for the year then ended, in conformity with the International Financial Reporting Standards, as endorsed by the European Union, and that the information which these statements contain is complete, true, current, clear, objective and lawful.
Report on other legal requirements
8. It is also our opinion that the financial information in the management report is in agreement with the consolidated financial statements for the period and that the corporate governance report includes all the details required by article 245-A of the Securities Code.
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Emphasis
9. Without affecting our opinion expressed on the financial statements, we draw your attention to the following:
a) As described in Note 50 of the Notes related to “Post-Balance Sheet Events” and chapter 8 of Management Report “Outlook”, in January 31, 2014 the Bank delivered to the Minister of Finance and DGComp the updated Group restructuring plan, which is being subject to detailed and prolonged discussions with these entities. The plan aims to (i) show the medium and long term viability of the Group as an independent entity without any State support; ii) demonstrating the present and future contribution of the Group and its shareholders (excluding Portuguese State) to the efforts of capitalization and restructuring; and iii) include measures to prevent a potential distortion of competition by the availability of public funds by the Portuguese State. In this context, as mentioned in Note 2.4 of the Notes, Bank’s Management considers that it has the means and capacity to continue the development of its activity in the foreseeable future. In forming this opinion, Banif’s Management considered the information available regarding current conditions and future projections of profitability, cash flows and capital. However, the restructuring plan is still to be approved by Minister of Finances, DGComp and European Commission.
b) As described in Note 50 of the Notes related to “Post-Balance Sheet Events” in March 2014, after the financial statements were approved for issuance, the Bank became aware that the fair value of an investment recorded in “Financial Assets available for Sale” had a significant decline with potential negative impact (net of taxes) for the group of 11,2 million euros. As a Special Revitalization Process (PER) was ongoing for that Company, it is currently not possible to anticipate its final outcome and the potential impacts (positive or negative) on the Company’s asset valuation, resulting from future decisions of the Board of Directors, shareholders and other entities engaged in the Revitalization Process.
Lisbon, 14 April 2014
Ernst & Young Audit & Associados – SROC, S.A. Sociedade de Revisores Oficiais de Contas (nº 178) Registada na CMVM com o n.º 9011 Representada por:
(signed)
Ana Rosa Ribeiro Salcedas Montes Pinto (ROC nº 1230)
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
(Translation of the report originally issued in Portuguese)
Legal Certification of Accounts and Audit Report
Introduction
1. Under the terms of the relevant legislation, we submit our legal certification of accounts and our statutory auditor’s report on the financial information contained in the attached management report and financial statements for BANIF – Banco Internacional do Funchal, S.A., for the financial year ending 31 December 2013. This information consists of: the balance sheet as at 31 December 2013 (which shows a total of 14.689.832 thousands Euros and a total equity of 834.577 thousands Euros, including a net loss of 494.341 thousands Euros), the income statement, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the financial year ending on that date, as well as the Notes to the Financial Statements.
Responsibilities
2. It is the responsibility of the board of directors to:
a) prepare financial statements which present a true and fair view of the company’s financial position, its results and comprehensive income of operations, changes in equity and cash flows; b) provide historical 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) apply appropriate accounting policies; d) maintain an adequate internal control system; e) report on any significant occurrence which has influenced the company’s activities, its financial position or its results.
3. It is our responsibility to verify the financial information in the financial statements referred to above, and to ensure that it is complete, true, current, clear, objective and lawful, as required by the Securities Code, and to express a professional and independent opinion of such information, on the basis of our audit.
Scope
4. We conducted our examination in accordance with the technical standards and directives of the Institute of Statutory Auditors (“Ordem dos Revisores Oficiais de Contas”), which require that we plan and perform the examination in order to obtain an acceptable level of assurance as to whether the financial statements are free of material misstatement. Accordingly our examination included:
Sociedade Anónima - Capital Social 1.200.000 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 2
- the verification, on a test basis, of evidence relevant to the accounts and disclosures in the financial statements and the assessment of the significant estimates and judgments made by the Board of Directors, used in the preparation of the financial statements; - the assessment of whether the accounting policies adopted and their disclosure are appropriate, considering the circumstances; - the verification of the appropriateness of the going concern principle; - the assessment of whether the overall presentation of the financial statements is adequate; and - the assessment as to whether the financial information is complete, true, current, clear, objective and lawful.
5. Our examination also included the verification of the consistency of the financial information included in the Management Report with other documentation related to the financial statements and carrying out the checks stipulated in nos. 4 and 5 of article 451 of the Commercial Companies Code.
6. We believe that the examination carried out provides an acceptable basis for the expression of our opinion on the financial statements.
Opinion
7. In our opinion, the financial statements referred to above present a true and fair view, in all material respects, of the financial position of BANIF – Banco Internacional do Funchal, S.A., as at 31 December 2013, the results and comprehensive income of its operations, the changes in equity and cash flow for the financial year then ended, in conformity with the Adjusted Accounting Standards defined by Bank of Portugal Notice 1/2005, and the information which these statements contain is complete, true, current, clear, objective and lawful.
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Report on other legal requirements
8. It is also our opinion that the financial information in the management report is in agreement with the financial statements for the period and that the corporate governance report includes all the details required by article 245-A of the Securities Code.
Emphasis
9. Without affecting our opinion expressed on the financial statements, we draw your attention to the following:
a) As described in Note 46 of the Notes related to “Post-Balance Sheet Events” and chapter 8 of Management Report “Outlook”, in January 31, 2014 the Bank delivered to the Minister of Finance and DGComp the updated Group restructuring plan, which is being subject to detailed and prolonged discussions with these entities. The plan aims to (i) show the medium and long term viability of the Group as an independent entity without any State support; ii) demonstrating the present and future contribution of the Group and its shareholders (excluding Portuguese State) to the efforts of capitalization and restructuring; and iii) include measures to prevent a potential distortion of competition by the availability of public funds by the Portuguese State. In this context, as mentioned in Note 2.4 of the Notes, Bank’s Management considers that it has the means and capacity to continue the development of its activity in the foreseeable future. In forming this opinion, Banif’s Management considered the information available regarding current conditions and future projections of profitability, cash flows and capital. However, the restructuring plan is still to be approved by Minister of Finances, DGComp and European Commission.
b) As described in Note 46 of the Notes related to “Post-Balance Sheet Events” in March 2014, after the financial statements were approved for issuance, the Bank became aware that the fair value of an investment recorded in “Financial Assets available for Sale” had a significant decline with potential negative impact (net of taxes) for the Bank of 11,2 million euros. As a Special Revitalization Process (PER) was ongoing for that Company, it is currently not possible to anticipate its final outcome and the potential impacts (positive or negative) on the Company’s asset valuation, resulting from future decisions of the Board of Directors, shareholders and other entities engaged in the Revitalization Process.
Lisbon, 14 April 2014
Ernst & Young Audit & Associados – SROC, S.A. Sociedade de Revisores Oficiais de Contas (nº 178) Registada na CMVM com o n.º 9011 Representada por:
(Signed)
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Ana Rosa Ribeiro Salcedas Montes Pinto (ROC nº 1230)
This report is Carbonfree®, or carbon neutral.
Banif – Banco Internacional do Funchal, SA Headquarters: Rua de João Tavira, 30 - 9004-509 Funchal Share Capital: 1,582,195,220.43 Euros Corporate Tax Number: 511 202 008 13MANAGEMENT REPORT AND ACCOUNTS | 13 MANAGEMENT REPORT AND ACCOUNTS | 13 MANAGEMENT REPORT AND ACCOUNTS