Activities and Financial Statements 2020

ANNUAL REPORT

ACTIVITIES AND FINANCIAL STATEMENTS 2020

EUROSYSTEM

Lisboa, 2021 • www.bportugal.pt Annual Report | Activities and Financial Statements 2020 • Banco de Portugal Av. Almirante Reis, 71 | 1150-012 Lisboa • www.bportugal.pt • Edition Communication and Museum Department | Accounting Department • Design Communication and Museum Department | Design Unit • Translation International Relations Department | Translation Unit • ISBN (online) 978-989-678-729-5 • ISSN (online) 2182-6080 Contents

Message by the Governor | 4 Mission and values of Banco de Portugal | 7 Statutory bodies | 9

I Activity | 13

It was with honour, enthusiasm and a commitment to public service that I took up my duties as Governor of the Banco de Portugal in July 2020. It was a determined return to a ‘home’ that I have known since 1993, in the belief that the Banco de Portugal should contribute responsibly and decisively to defining coherent national policies, taking advantage of its technical capabilities, its public intervention and its recognised reputational capital. possible. pandemic andbroughttofruition assoon which has been adapted to developments in the well as in planning the return to in-person work, use oftheinstrumentsfordistanceworking,as huge success. In the secure implementation and months. Everyone’s recent dedication has been a unexpected needsandchallengesofthepastfew the to adapting in staff its and Portugal de Banco Internally, Iwasabletowitnessthecapacityof sharing. its responsibilityinknowledgeproductionand developments of the Portuguese economy, fulfilling analytical and forecasting information on Additionally, theBancodePortugalpresented provided forbyasuitablefinancialsystem. and the flow of credit to households and firms, all pandemic, namelythroughguaranteeingliquidity the of effects economic the mitigating at aimed preparing thenationalandinternationalmeasures Banco dePortugalshouldhavetakenpartin It wasnatural,aswellfundamentalthatthe contribute toPortugal’sdevelopment. the results that the Bank can achieve and thus skills takeonthegreatestimportanceanddictate organisational our and reflections our work, our other way. It is in the most difficult moments that Republic was felt by the whole staff. There was no the to bank central as significance its and out The Banco de Portugal’s mission was carried financial system’sstability. of maintainingpricestabilityandsafeguardingthe repercussions intheBancodePortugal’smissions on. Thetensionsinthefinancialmarketshad early very from evident were systems financial decline ineconomicactivity.Theriskstothe that unleashedanunexpectedandaccentuated a scalewereadoptedtocontainsanitarycrisis test. Measures hitherto unused nor seen on such put society’s and its institutions’ resilience to the The pandemic,causedbytheCOVID-19virus, milestone. of whichtheyear2020wasanunfortunate the greater at times of the greatest challenges, And thisspiritofservicetotheRepublicisall the developmentofPortugalandEurope. capabilities toservethecountry,contributing policy and technical and staff excellent its of unique obligationsandmusttakeadvantage the institutionalpillarsofRepublic.Ithas the roleofBancodePortugal,asone I amcertainthattheconditionsexisttoreinforce with itsmission. internal resourceswillbecentraltocomplying roadmap for Portugal and the recognition of active participation in the recovery and resilience 2021-25, where issues of openness to society, with the definition and launch of its Strategic Plan will beaturningpointfortheBancodePortugal, needs to guarantee its place in thefuture.2021 particular thesameobjectivesthatPortugal system ingeneralandthebanking Portugal’s mission is to transmit to the financial be readyforthesechallenges.TheBancode organisation that rejuvenates every year must process, inthecertaintythataninnovative The BancodePortugalwillbeapartofthis and infinancialconditions. Union whilstleadingEuropeintermsofgrowth European the with convergence financial and the same demanding goals of social, economic immediately priortothepandemic.Maintaining activity withthesamevigouritwentthrough Portugal must be prepared to resume economic with economicandenvironmentalsustainability. coordination with budgetary policies to concern monetary policywillnotbethesameagain,from integration decisions taken in 2020. The role of Europe should follow up on the important and internallevel. 2021 willbedecisiveatinternational,national Mário JoséGomesdeFreitasCenteno

6 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 of Banco dePortugal terms, whichisaprerequisiteforcompliance financial and personal institutional, functional, in Independence –BancodePortugalisindependent a benchmark; andprocessesusebestpracticesas organisation business areas. Its governance model, internal its in staff qualified highly employs Portugal de –Banco efficiency effectiveness, Competence, and upholdhighethicalstandards; and publicinterestatthecentreoftheiraction Integrity – Banco de Portugal’s staff place society Banco dePortugal’svaluesare: Values • • Banco dePortugal’smissionisto: Resolution Mechanism. the SingleSupervisory Mechanism andtheSingle System of Central Banks and the Eurosystem, Portuguese Republic. ItispartoftheEuropean Banco de Portugal is the central bank of the Mission Mission andvalues

promote financialstability. maintain pricestability; of BancodePortugal). the GeneralDutiesofConductEmployees Portugal (RegulationoftheEthicsCommitteeand Gerais de Conduta dos Trabalhadores do Banco de in accordance withhighethicalstandardsenshrined in is staff Portugal’s de Banco of conduct The and advocateofcorporateethics. responsible manner, operating asasocialactor de Portugalactsinasociallyandenvironmentally Social andenvironmentalresponsibility–Banco knowledge sharing,loyaltyandtransparency; accordance with the principles of mutual assistance, in act staff Portugal’s de Banco – spirit Team does, andwhyhowitdoesit; Parliament, thegovernmentandsocietyforwhatit Banco dePortugalisaccountabletothePortuguese with its tasks in the context of the Eurosystem, Transparency andaccountability–Incompliance and financialindependence; the status of members of decision-making bodies instructions fromthirdparties,theprotectionof mandate, the impossibility of seeking or taking with itsmission. Independence requiresaclear Regulamento da Comissão de Ética e dos Deveres Regulamento daComissãodeÉticaedosDeveres

Statutory bodies

Board of Directors* 1 Governor Mário José Gomes de Freitas Centeno

2 Vice-Governor Luís Augusto Máximo dos Santos

3 Director Hélder Manuel Sebastião Rosalino

4 Director Luís Manuel Sanches Laginha de Sousa

5 Director Ana Paula de Sousa Freitas Madureira Serra

* As at 31 December 2020. Carlos da Silva Costa ceased functions as Governor on 19 July 2020.

4 2 1 3 5 Board of Auditors* Chair Nuno Gonçalves Gracias Fernandes

Members Member – Statutory Auditor Óscar Manuel Machado de Figueiredo Member Margarida Paula Calado Neca Vieira de Abreu

Advisory Board** Governor Mário José Gomes de Freitas Centeno Vice-Governor Luís Augusto Máximo dos Santos Former Governors Carlos da Silva Costa Vítor Manuel Ribeiro Constâncio António José Fernandes de Sousa Chair of the Board of the Auditors of the Banco de Portugal Nuno Gonçalves Gracias Fernandes Chair of the Portuguese Banking Association Fernando Faria de Oliveira Chair of the Portuguese Treasury and Debt Management Agency (IGCP, E.P.E.) Cristina Maria Nunes da Veiga Casalinho Representatives from the Autonomous Regions Pedro Miguel Amaro de Bettencourt Calado

Ethics Committee*** Chair Vítor Manuel da Silva Rodrigues Pessoa

* As at 31 December 2020. ** As at 31 December 2020. José Alberto Vasconcelos Tavares Moreira (on 9 June 2020, on his decease), Francisco Anacleto Louçã, Francisco Luís Murteira Nabo, João Luís Ramalho de Carvalho Talone, Luís Filipe Nunes Coimbra Nazaré and Roberto de Sousa Rocha Amaral ceased functions. *** As at 31 December 2020. Viseu GentilPedrinhoAmado Faro RuiAntóniodaSilvaSantaRajado Évora Coimbra Castelo Branco Braga MariaTeresaGomesSameiroMacedo District Agencies Regional DelegationofMadeira Regional DelegationoftheAzores Regional Delegations Ana OlíviadeMoraisPintoPereira Porto Branch Banking PrudentialSupervisionDepartment(DSP) Banking ConductSupervisionDepartment(DSC) Information SystemsandTechnologyDepartment(DSI) Payment SystemsDepartment(DPG) Legal ServicesDepartment(DJU) Administration ServicesDepartment(DSA) Resolution Department(DRE) International RelationsDepartment(DRI) Markets Department(DMR) Risk ManagementDepartment(DGR) Human ResourcesDepartment(DRH) Economics andResearchDepartment(DEE) Statistics Department(DDE) Financial StabilityDepartment(DES) Issue andTreasuryDepartment(DET) Accounting Department(DCC) Communication andMuseumDepartment(DCM) Legal EnforcementDepartment(DAS) Audit Department(DAU) Office oftheGovernor(GAB) Strategy andOrganisationDirectorate(SECDEO) Data ProtectionOffice(GPD) Compliance Office(GdC)SofiaCorteRealLencarteSilvaPimentel General Secretariat(SEC) Heads ofDepartments and DistrictAgencies* RegionalHeads ofDepartments, Delegations * Asat31December2020. Catarina SofiaAmaralSilvaGuerra MariaJoãoBotelhoRaposodeSousa JoãoRamosRente JoséGabrielCortezRodriguesQueiró José AntónioCordeiroGomes MariaFernandadosSantosMaçãs Helena MariadeAlmeidaMartinsAdegas António ManuelMarquesGarcia ÁlvaroAntóniodaCostaNovo JoãoFilipeSoaresdaSilvaFreitas JoséPedroPinheiroSilvaFerreira Bárbara JoséCalçadaSousaCastro GonçaloAndréCastilhodosSantos PauloRubenAlvernazRodrigues AnaCristinadeSousaLeal MariaTerezadaCostaCavacoGuerreiroValério GabrielFilipeMateusAndrade PedroJorgeOliveiradeSousaMarques PedroMigueldeAraújoRaposo JoãoAntónioSeverinoRaposo Sílvia MariaDiasLuz PedroCarlosdeCarvalhoViana NunoJorgeTeixeiraMarquesAfonsoAlves DinoraMariaCostaFernandesAlvimBarroso Maria LúciaAlbuquerquedeAlmeidaLeitão BrunoRafaelFernandesProença LuísFernandoRosadaCostaFerreira CarlosManuelPedrosaMoura

11 12 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 • Audit Department, • Economics • International • Office • General • Communication Department and Research Department Relations Luís Laginha with Director Secretariat of the Governor de Sousa and Museum Hélder Rosalino with Director Department, Source: BancodePortugal. Figure 1• Organisational chartoftheBancodePortugalasat31December2020 Conselho Consultivo Advisory Board Advisers • Banking • Data Protection • Legal Services • Resolution • Legal Enforcement Conduct Office Department Department Department Department Supervision Vice-Governor Luís Máximo dos Santos • Payment Systems • Markets • Communication • Information • Issue and Treasury • Accounting • Compliance Board of Directors Department and Museum Department and Technology Systems Department Department Department Office Department Mário Centeno Governor Rosalino Director Hélder • Audit Department • Strategy and • Administration • Financial Stability • Human Resources Department Services Department Department Directorate Organisation Luís Laginha de Sousa Director Deposit Guarantee Board of Auditors and Resolution Support Unit Funds Banking Prudential• Risk Management• Statistics•

Department Department Department Supervision Ana Paula Director Serra I Activity

1 Response to the COVID-19 pandemic 2 Price stability in the euro area 3 Safeguarding of financial stability 4 Knowledge creation and sharing 5 Strengthening internal governance and organisation

Executive summary

In 2020 the COVID-19 pandemic and the measures taken to contain it, in particular the lockdowns, led to an abrupt and sharp drop in economic activity – the sharpest in many decades – as well as different types of tension in financial markets, with repercussions for the Banco de Portugal’s mission of maintaining price stability and safeguarding financial stability. The Bank participated in national and international efforts to mitigate the effects of the pandemic crisis on the economy, acting to ensure the resilience of the financial system and protect liquidity and the flow of credit to households and firms.

At domestic level, 2020 was marked by the completion of the Banco de Portugal’s Strategic Plan for 2017-20. The Plan set out four strategic guidelines for the four-year period: (i) to contribute to a single monetary policy in the euro area; (ii) to promote the robustness and stability of the Portuguese financial system; (iii) to contribute to informing public opinion about the Portuguese economy and European integration; and (iv) to align its organisational and governance model with the best practices adopted by Eurosystem.

Response to the COVID-19 pandemic The Banco de Portugal participated in the definition and implementation of the measures taken by the European Central Bank (ECB) to preserve the transmission of monetary policy, guarantee favourable financing conditions for the euro area economy and ensure sufficient monetary accommodation to achieve the price stability objective over the medium term. Among other measures, the ECB increased the amounts and flexibility of its asset purchases and provided large- scale liquidity to the banking system under more attractive conditions. These measures helped maintain an adequate flow of credit to the economy and mitigate the effects of the pandemic on economic activity in euro area countries.

The Banco de Portugal participated in the preparation and revision of the public moratorium regime, which set out exceptional measures to protect loans to households and firms, and monitored private moratoria granted by credit institutions. The Bank regulated and assessed compliance by supervised institutions with the obligations to provide assistance and information to customers on the moratoria and established a periodic reporting obligation on the implementation of those measures, together with the reporting to the European Banking Authority (EBA). It published detailed information for the public on the Bank Customer Website.

The Banco de Portugal took measures to enable banks to use the combined capital buffer and relaxed requirements for compliance with the recommended levels of capital, in order for banks to absorb losses and finance the economy, and temporarily relaxed certain restrictions to the granting of new housing loans and consumer credit. It also recommended to supervised institutions not to distribute dividends for the financial years 2019 and 2020 and to adopt stricter measures when granting variable remuneration. It strengthened the supervision of credit risk management and the assessment of the levels of impairment coverage, while requiring institutions to develop strategies to mitigate increased credit risk. In parallel, the Bank issued recommendations to the financial system on business continuity and the ongoing functioning of essential banking services. In coordination with the main stakeholders in the payment services market, the Bank changed the maximum amount per contactless transaction without the need to enter a PIN. In addition, it published information on the care to be taken when using digital channels to access financial

products and services. summary Executive 15 16 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 population has convenient access to banknotes and coins. This study showed that the ATM networks population hasconvenientaccess tobanknotesandcoins.ThisstudyshowedthattheATM networks In linewiththeconcernsof Eurosystem,theBankcarriedoutastudytoassesswhether the transfers. equivalent service was also concluded, allowing Portuguese users to carry out pan-European instant retail payments. The connection of the national solution for instant transfers to the Eurosystem’s for strategy a national of publication the in resulted This solutions. payment secure and efficient In parallel, the Bank continued to engage in dialogue with the market, in order to develop more payment initiationservices. payment service providers, which are indispensable for the provision of account information and 2020. The Bank also assessed the adoption of secure communication requirements among customer authenticationtoonlinecardpayments,which becamemandatoryon31December in this respect was ensuring that payment service providers were in a position to apply strong implementation of monetary policy andthe smooth functioning of the economy. A key concern a successful to crucial are which systems, payment of safety and efficiency the ensured Bank The (€969 million)andCNY4,172million(€520million). with theLietuvosbankas.Asat31December2020,theseportfoliosamountedtoUSD1,189million In addition to managing its own assets, the Banco de Portugal managed two ECB reserve portfolios a 4.4%increasefromthepreviousyear,mostlyasresultofaninpricegoldeuro. reflecting million, €37,604 at valued was portfolio asset investment own Portugal’s de Banco The at theendof2020. Also inmonetarypolicyoperations,liquidityprovisionincreasedby14.8billion,reaching€32.1billion monetary policysecuritiesportfoliosintotalassetsincreasedto36%. the of share the Overall, pandemic. the of effects the mitigate to created specifically programme programme, totalled €69.1 billion on the Bank’s balance sheet, of which €14.2 billion underthe year, the monetary policysecurities portfolio, stemming from purchases under the asset purchase and purchasedassetsundertheEurosystem’sassetpurchaseprogrammes.Atendof The BancodePortugalconductedmonetarypolicyoperationswithresidentcreditinstitutions the lockdowns. policy, which were also strengthened to meet the new needs arising from the pandemic crisis and to adaptalsoincludedtheBank’s community support programmesunderitssocialresponsibility effort This entity. external an by certified were which premises, Bank’s the at contagion prevent the measurestakenwereawidespreaduseofteleworkingandadoptionprotocolsto and other stakeholders, withoutjeopardisingitskey functions. Particularly importantfrom among public the providers, service staff, its protect to order in operates it how adjust to had Bank The economic activityinthecontextofpandemic. the travel component was launched. On BPstat, a section was also created on developments in of indicator preliminary a and sector, non-financial the of indebtedness and outturn budget debt, the Bank’s Stability ReportandinspecialisedstudiespublishedBancodePortugalEconomicStudies on the economy and the financial system were assessed in the crisis pandemic the of effects The tools. forecasting and analysis and methodologies, data, of terms To better monitor theevolution ofthePortuguese economy, the Bank adapted andinnovated in Price stabilityintheeuroarea Papers series.Newstatisticalinformationwasalsomadeavailableregardingpublic EconomicBulletin , the Financial and and branches of credit institutions continue to offer a wide coverage in Portugal. Two metal currency exchange agreements were also concluded with the Central Bank of Ireland and the Federal Public Service Finance of Belgium for the swap and delivery of excess euro circulation coins.

Safeguarding of financial stability The Banco de Portugal participated in the development of new legislation and regulations of the European Union (EU) on sustainable finance, consumer and mortgage credit, distance marketing of financial services, prudential supervision of investment firms and on the issue and supervision of covered bonds, and provided technical support to the Ministry of Finance on financial stability matters related to the deepening of the Economic and Monetary Union. It prepared and submitted to public consultation the Banking Activity Code, which is intended to replace the Legal Framework of Credit Institutions and Financial Companies. It transposed into Portuguese law European directives issued within the framework of the Banking Union and issued opinions on a number of legislative drafts. The Bank was also given new powers in the prevention of money laundering and terrorist financing (ML/TF) related to the registration of entities operating with virtual assets.

The Bank assessed, on an ongoing basis, the vulnerabilities and risks of the Portuguese financial system and, in particular, developments in banking system indicators. The ratios of non-performing loans (NPLs) continued to decline, albeit at a slower rate, reflecting difficulties in the sale and recovery of NPLs. The profitability of the banking system decreased, but the liquidity coverage and capital ratios improved.

The Bank also monitored the implementation of the recommendation it issued in 2018 on new credit for house purchase and consumer credit. Significant convergence towards the limits set in the recommendation continued. The percentage of credit for house purchase granted to borrowers with a higher risk profile fell from 35% in July 2018 to 3% in December 2020.

In line with the priorities established by the Single Supervisory Mechanism (SSM) for significant institutions, the Bank strengthened business models, credit risk management, governance and control mechanisms, and the capital and liquidity positions of institutions under its direct supervision. Among the measures adopted, a revision of the internal control and governance requirements for supervised institutions was particularly important and resulted in the publication of Notice of the Banco de Portugal No 3/2020 and Instruction of the Banco de Portugal No 18/2020.

There were 180 authorisation proceedings, 497 registrations of members of corporate bodies and 480 registrations of qualifying holdings. As a result of Brexit, 581 registrations were cancelled relating to institutions having head office in the United Kingdom.

The conduct supervision of institutions in retail banking markets prioritised the offering of consumer credit through digital channels. The Bank assessed compliance with the obligations to provide assistance and information to customers and applicable security requirements and issued good practices for supervised institutions to comply with in this respect. The number of complaints from bank customers grew by 8.6%, almost entirely due to pandemic-related issues. As a result of the supervisory actions carried out and the analysis of complaints, the Bank issued 3,025 specific orders and recommendations demanding correction of the irregularities detected. As regards the activity of credit intermediaries, the Bank assessed 659 applications for authorisation to pursue

the activity and 4,567 requests for changes to the elements subject to registration. summary Executive 17 18 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 The Bank heldthe10 the functionalitiesavailableonBP disclosed in the press releases on the main statistical results, videos, explainers and infographics. The information economies. Toeasetheunderstandingofconceptsandstatisticaldata,Bankalsopublished On BPstat, the Bank released 161 thousand statistical series about the Portuguese and euro area at theendofyear117projectswereunderway. researchers interested instudyingthePortuguese economy, supported 31newresearchprojects; The BancodePortugal’sMicrodataResearchLaboratory(BPLIM),whichprovidesmicrodatato Portuguese EnvironmentAgency(APA)andothernationalforeigninstitutions. The BankstartedaprojecttostudytheimpactofclimatechangeinPortugal,partnershipwith scientific journals. (Legal Papers).Thirty-one articles werealsopublishedoracceptedforpublicationininternational in theWorkingPapersandOccasional The research projects undertaken at the Banco de Portugal resulted in the publication of 39 studies Banco in2017. also continued on the resolution measures applied to BES and BANIF and on the sale of Novo participation, asnationalresolutionauthority,intheSingleResolutionMechanism(SRM).Work the responsibilityofSingleResolutionBoard,alsoensuringanyotherworkarisingfromits under institutions for planning the in participated and institutions, significant less i.e. functions, The Bank also completed the resolution planning for the institutions on which it directly exercises suspension oftheexercisevotingrightsheldbyqualifiedparticipants. for proceedings five as well as institutions, supervised of bodies supervisory and management and analysed 23 proceedings for a possible reassessment of the suitability of the members of the institutions, payment and companies financial institutions, credit of authorisation the of withdrawal authorised to conduct financial activity. The Bank also examined seven proceedings for the possible not entities 40 against warnings public and offences, criminal of signs for Republic Portuguese the of General Prosecutor the to notifications 47 to led inquires These proceedings. 345 under In terms of prevention and repression of non-authorised financial activity, inquiries were conducted analysis oftheannualreportssubmittedbyinstitutions. the following issued were measures corrective 350 than more supervision, preventive ML/TF In proceedings. As a result of its supervisory action, the Bank initiated 204 and concluded 148 administrative offence risk indicators, which provided a more comprehensive and quantified picture of its operational risks. main the constructed and risks non-financial of mapping the completed processes, audit manage The Bankstrengthenedtheinternal controlandriskmanagementfunctions:itadoptednew toolsto of 70countries. statistics: evolution orrevolution?”, bringing together experts from central banks and academics promoted theconference“Bridgingmeasurementchallenges andanalyticalneedsofexternal and economic literacy competitions. Jointly withthe ECB andthe Irving FisherCommittee, the Bank the WorkshoponDataVisualisationandtrainingcourses remotelyandco-organisedstatistical Knowledge creationandsharing Strengthening internalgovernanceandorganisation is now also published on this website, allowing users to access all Statistical Bulletin is now also published on this website, allowing users to access all th Conference on Portuguese Economic Development in the European Area, stat. seriesandinEconomicStudiesCadernosJurídicos An assessment of the internal corporate culture was carried out, showing that staff members are aware of the relevance of ethical standards when performing their duties, and rules on gifts to institutional guests were published. Internal awareness-raising initiatives on issues relating to the protection of personal data also continued, including the publication of a data protection guide. The Bank submitted to the Portuguese National Data Protection Commission, for prior consultation, six regulatory projects related to personal data processing, and the Data Protection Officer replied to 91 requests for exercise of rights addressed by data subjects.

Reflecting a focus on developing staff members, a data science school was established, the training offer on behavioural skills increased and an integrated career management programme was launched.

The Bank also invested in new technology solutions for data analysis, using machine learning techniques. At the Innovation Lab, the use of innovative technologies was studied in activities such as handling information and document requests. National and international cooperation on cyber security was also strengthened.

Communicating with the public remained a priority. The Bank regularly published content on the website and on the Bank Customer Website and strengthened its initiatives on social media. It created a podcast series and a new smartphone app, providing the services most sought-after by citizens and businesses. The Bank also launched a new communication channel between the financial system and courts, judicial authorities and other issuing authorities – the PERTO platform.

In the Historical Archives, a research project on economic relations in the Portuguese Escudo Monetary Zone was completed, sponsored by the Banco de Portugal. At the Money Museum, a new permanent exhibition space on the functions of the Banco de Portugal opened to the public and two temporary exhibitions were organised, one of which in partnership with the Vatican Apostolic Library.

The Bank carried out 110 cooperation initiatives with other central banks, mostly Portuguese- speaking countries, but also non-EU European countries and countries in Latin America, the Asia- Pacific region and Africa. These initiatives focused on several central bank functions and led to the sharing of experiences in managing the health crisis. From among the initiatives carried out, particularly important was the XXX Lisbon Meeting between the Central Banks of Portuguese-speaking Countries, organised by the Banco de Portugal, which brought together top-level representatives of these entities.

Sustainability concerns also gained in importance, resulting in the publication of Banco de Portugal’s Commitment to Sustainability and Sustainable Finance, setting out the institution’s priorities in this field. The Bank analysed the exposure of Portuguese banks to sectors particularly vulnerable to the energy transition and the economic policies to mitigate the effects of climate change and organised a session on sustainability and sustainable finance for the banking system. It also participated in the work of national and international entities on the impact of environmental sustainability, in particular that of the Network of Central Banks and Supervisors for Greening the Financial System.

Sustainability concerns also had an impact on internal management. The Bank purchased green bonds and joined the Lisbon Green Capital 2020 Commitment, having implemented three of the ten measures it has pledged to achieve by 2030, including energy consumption from 100% renewable sources in almost all of its buildings. In addition, the Bank now requires the suppliers of goods and

services to comply with the Bank’s economic, social and environmental sustainability standards. summary Executive 19 The Bank in ﬁgures MONETARY POLICY 22

256 55 25,829 M€ 60,107 M€ 60,507 M€ Eurosystem open market average outstanding average average open operations in which amount of open outstanding outstanding market the Portuguese market operations value of monetary balance of collateral operations counterparties and standing facilities policy portfolios pools of resident participated involving resident in the Banco counterparties counterparties de Portugal

92% 19% 40% 15% 16%

MONETARY POLICY

SUSTAINABILITY ASSET ASSET MANAGEMENT MANAGEMENT

1,489 M€ 37,604 M€ 18,975 M€ 382.6 t ECB foreign reserves own investment value of the gold quantity HUMAN PAYMENT managed by the asset portfolio portfolio as at of gold held RESOURCES SYSTEMS Banco de Portugal as at 31 Dec. 2020 31 Dec. 2020 with Lietuvos bankas as at 31 Dec. 2020

4% 14%

INTERNATIONAL CASH PAYMENT SYSTEMS ACTIVITY ISSUANCE

1,727 b€ 159 b€ 502 b€ transactions processed in TARGET2-PT securities transactions retail payments processed SERVICES SUPERVISION between participants and with of the Portuguese community in the Interbank Clearing System TO THE PUBLIC the Banco de Portugal settled in TARGET2-Securities Participants banks the Portuguese RESEARCH Treasury and Debt Management gency AND STATISTICS and ancillary systems.

CASH ISSUANCE

533 M 465 M 12,028 euro banknotes withdrawn banknotes checked counterfeit euro banknotes withdrawn by credit institutions for ﬁtness and authenticity from circulation in Portugal The Bank in ﬁgures MONETARY POLICY 22

92% 19% 40% 15% 16%

MONETARY POLICY

SUSTAINABILITY ASSET ASSET MANAGEMENT MANAGEMENT

4% 14%

INTERNATIONAL CASH PAYMENT SYSTEMS ACTIVITY ISSUANCE

CASH ISSUANCE

Prudential supervision 389 thousand 2,7 M 8 thousand 112 thousand 18 thousand consultations consultations consultations customer services written requests 497 136 180 of account reports of credit liabilities of the List at cash oﬃces for information authorised members measures taken licensing applications reports of Cheque received of the corporate following supervisory for new institutions, Defaulters bodies of supervised review and qualifying holdings, entities evaluation (SREP) mergers and statutory processes for less changes signiﬁcant institutions

HUMAN RESOURCES

Banking conduct supervision 659 19,660 3,025 decisions on licensing bank customer speciﬁc orders 41 years applications for credit complaints against and recommendations average age intermediaries supervised institutions issued for correction 1,777 of irregularities detected staﬀ members 896 881 in supervised institutions female male

INTERNATIONAL ACTIVITY Legal enforcement 345 350 204 148 inquiries into measures taken administrative administrative illicit financial following analysis offence offence activity of reports on prevention proceedings proceedings 511 110 39 of money laundering initiated concluded international cooperation partner entities and terrorist financing representation activities in cooperation groups initiatives

RESEARCH AND STATISTICS SUSTAINABILITY

31 39 161 thousand 142 100% articles published authored studies statistical series volunteers energy consumed or accepted for released in the released in BPstat in ongoing social from renewable sources publication Bank’s publications responsibility except at the regional initiatives delegations of the Aores in international and Madeira scientiﬁc journals SUPERVISON SERVICES TO THE PUBLIC

HUMAN RESOURCES

RESEARCH AND STATISTICS SUSTAINABILITY

expanded inJuneandagain Decemberto€1,850billion,atleastuntilMarch2022. and among jurisdictions. The initial PEPP envelope of €750 billion, at least until December 2020, was March. Purchases under the PEPP are conducted in a flexible manner over time, across asset classes the year. A new temporary pandemic emergency purchase programme (PEPP) was also launched in programme (APP) was expanded in March with a temporary envelope of €120 billion until the end of purchase asset existing The purchases. asset its of flexibility and amounts the increased ECB The December. and June in interventions further to rise gave area euro the in inflation low of period expected The severeimplicationsofthepandemicforeconomic outlookandtheextensionof and lockdown measures generated tensions in financial markets and high liquidity needs in firms. The most significant decisions were taken in March and April, when the initial spread of the disease credit institutionsandassetpurchaseprogrammes. In addition,theBankensuredimplementationofmeasurestakeninrelationtoresident the Market Operations Committee, the Risk Management Committee and the Legal Committee. the technical committees that assist the Governing Council, namely the Monetary Policy Committee, participation of the Governor in the Governing Council of the ECB and the participation of its staff in The Banco de Portugal contributed to the definition of these monetary policy measures through the and liquidity-providingoperations. price stability in the euro area over the medium term. The measures focused on asset purchases support lending to the economy; and (iii) to ensure sufficient monetary accommodation to achieve to (ii) policy; monetary of transmission the preserve to order in markets financial stabilise to (i) unprecedented. The ECB adoptedseveral measures during theyearwiththree main objectives: Intervention bytheauthorities,includingcentralbanks,supervisorsandgovernments,was demand. level ofuncertaintyhadastrongnegative impact onproductionchainsanddomesticglobal the rest of the world. The spread of the disease, the measures needed tocontain it and the high The COVID-19pandemicgeneratedsharpcontractionsintheeconomiesofeuroareaand and favourablefinancingconditionsfortheeconomy 1.1 redesigned itscommunitysupportmeasures. (vii) service providers and other stakeholders,andensure the continuity of its key functions; and staff, its protect to order in operates it how adjusted Bank the (vi) time, same the At publications. institutional its of content the adapted and sector financial the analysing and economy Portuguese payment systemsandmeansofpayment;(v)developednewmethodologiesformonitoringthe supervisory and macroprudential policy measures; (iv) ensured the continued operation of protect loans to firms and households and issued supplementary regulations; (iii) relaxed regulatory, monetary policy measures; (ii) contributed to the preparation and revision of legislation adopted to To this end, the Banco de Portugal (i) participated in the definition and implementation of euro area of thecrisisandcontinuetoplaytheirroleinfinancingeconomy. was toensurePortugal. thatcreditinstitutions The priority had thecapacitytoabsorbimpact In 2020 the COVID-19 pandemic had a cross-cutting impact on the activity of the Banco de 1 Response totheCOVID-19 pandemic Preserving monetarypolicytransmission

25 Response to the COVID-19 pandemic 26 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 suggest thatthemeasurestaken bythevariousauthoritiesplayedanimportantrole( loans new on rates interest low continued and onwards March from corporations non-financial to and easing the terms offered to customers ( raised intheTLTROIIIoperationswerelargelyusedforgranting loans,increasingthelendingvolume of euro area banks, including Portuguese banks, to the Bank Lending Survey suggest that the funds operation reached the highest ever value in a single liquidity-providing operation). The responses The amountsallottedintheTLTROIIIoperationstotalled€1,648 billionintheeuroarea(theJune also helpedsupportlending. requirements prudential of easing the and guarantees loan Public economy. the to credit of flow increased default risks, the liquidity providedbythe central bank helped maintain the necessary also but firms, of needs liquidity the in increase strong a of context the In area. euro the in removing risks of a credit crunch, given the crucial role played by banks in financial intermediation The provision of liquidity by the ECB and, in particular, the TLTRO III operations contributed to yield by45basispoints. and on the APP’s additional temporary envelope reduced the ten-year euro area sovereign bond the recalibrationinJune.AccordingtoECBestimates,decisionsonPEPPMarchandJune the PEPP continued to contribute to monetary accommodation in the euro area, especially after countries declined,inparticularforthosedeemedmorevulnerable.Asmarketsstabilised, free long-term interest rate and, above all, the spreads of the sovereign bond yields of euro area ( area euro the in conditions financial of tightening ongoing the countered manner, flexible a in conducted are purchases which under PEPP, the of announcement The yields andimpairthesmoothtransmissionofmonetarypolicytoentireeuroarea. In the Monetary Union, these tensions could generate volatility in the spreads of government bond assets. safe to flight and risk increased of perception investors’ given tangible, was corrections price a stabilising force for financial markets. Until mid-March, the danger of adverse loops from asset Increased assetpurchasesbytheECBand,inparticular,announcementofPEPPwere economic activityineuroareacountries. on pandemic the of effects the mitigate helped thus policy Monetary underway. already stimulus monetary substantial the with together area, euro the in conditions financial accommodative markets and protecting the flow of credit to the economy. The ECB’s actions also helped preserve financial in tensions initial containing in successful were level, European and national at policies The monetary policy measures adopted, together with the response of fiscal and macroprudential arrangements wereextendeduntilMarch2022. needs outsidetheeuroarea. related euroliquidityInDecember,thisfacilityandthetemporary banks. InJune,itsetupanewEurosystemrepofacilityforcentralbanks(EUREP)tomeetpandemic- arrangements The ECBreactivatedandestablished liquidity-providing with non-euro area central The technicaldetailsandimplementationofthesemeasuresinPortugalarediscussedChapter2. PELTROs andextendedthemeasuresrelaxingcollateralrequirementsuntilJune2022. and operations III TLTRO additional of number a offered operations, III TLTRO the of terms the recalibrated Council Governing the December, In operations. refinancing for eligible assets to liquidity, the ECB temporarily relaxed the eligibility criteria and risk control measures applied necessary the obtain could banks area euro that ensure To (PELTROs). operations refinancing longer-term emergency pandemic of series a new including offered, were operations refinancing operations (TLTRO III)weremademorefavourable. In April,additionalnon-targeted longer-term In March and April, the prices and amounts of the third series of targeted longer-term refinancing under veryattractiveconditionsforthebankingsystem. The ECBalsoprovidedlarge-scale liquidity Chart I.1.2 ). Similarly,theaccelerationof bankloans Chart I.1.1 Chart I.1.3 ). Therisk- ).

Chart I.1.3• lending volumes. increase and conditions and terms and standards credit ease helped operations III TLTRO the that indicate zero above figures impact”; “no to corresponds Source: ECB. | Note: The diffusion index compiles the individual responses of banks, according to the direction and intensity of the response. Zero as reportedintheBankLendingSurvey(2020) Chart I.1.2• the announcementofPEPP. signals line vertical The (b) countries. area euro of yields bond sovereign GDP-weighted ten-year – area Euro (a) Notes: | Refinitiv. and ECB Sources: euro area andeurocountries(2019-2020) Chart I.1.1• aggregating ratesonnewshort-andlong-term loansusinga24-monthmovingaverageofnewbusinessvolumes. bycalculated borrowing of cost – rates Interest (b) pooling. cash notional and securitisation sales, for adjusted – Loans (a) Notes: | ECB. Source: 10 15 20 25 -1 0 1 2 Jan. 19 Apr. 19 Jul. 19 Oct. 19 Jan. 20 Apr. 20 Jul. 20 Oct. 20 Oct. 20 Jul. 20 Apr. 20 Jan. 19 Oct. 19 Jul. 19 Apr. 19 Jan. 0 5 12 -3 0 3 6 9 Jan. 16 Jan. 17 Jan. 18 Jan. 19 Jan. 20 Jan. 19 Jan. 18 Jan. 17 Jan. 16 Jan. Jan. 20 Apr. 20 Oct. 20 Jan. 20 Apr. 20 Oct. 20 Jan. 20 Apr. 20 Oct. 20 Oct. 20 Apr. 20 Jan. 20 Oct. 20 Apr. 20 Jan. 20 Oct. 20 Apr. 20 Jan. Loans |Annualgrowthrate Impact of the TLTRO III operations on loans to enterprises over the past six months Impact oftheTLTROIIIoperationsonloanstoenterprisesoverpastsixmonths Ten-year risk-freeovernightindexswaprate(OIS)andsovereignbondyieldsforthe Loans andinterestratesonnewloanstonon-financialcorporations(2016-2020) Credit standards uoarea Euro Portugal Euro area Euro Lending volumes |Diffusionindex |Percent 1 2 3 4 Jan. 16 Jan. 17 Jan. 18 Jan. 19 Jan. 20 Jan. 19 Jan. 18 Jan. 17 Jan. 16 Jan. Portugal Interest rates|Percent OIS Euro area Germany Termsand conditions uoarea Euro Portugal Portugal 27 Response to the COVID-19 pandemic 28 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 The BancodePortugalreleasedalltherelevant pandemic-relatedinformationonadedicatedwebpageofitste. institutional websi well astheirimpactontheinstalmentamountandloanrepaymentperiod.TheBankalsorequired the characteristics of the moratoria made available, their eligibility requirements and procedures, as institutions wereaskedtodisclosethemoratoriabankcustomersandprovideinformationon The 2/2020). No Portugal de Banco the of (Notice moratoria private and public in institutions The Banco de Portugal established duties of information to customers to be complied with by the publicmoratorium. residence untilJune2020. As ofthatdate,allmortgage credit agreements have beencoveredby and carloansmortgagecreditagreementsnotintendedtofinancethepurchaseofpermanent Private moratoriawerealso granted bycreditinstitutions to theircustomers, covering personal its fieldsofcompetence. sharing economic and financial information with the Ministry of Finance and providing advice within de Portugal participated in the preparation and revision of the legislation on the public moratorium, moratorium regime was subject to changes in itsscope, period of access and duration. The Banco profit associations) affected by the pandemic, provided they met the eligibility conditions. The public non- and institutions solidarity social private firms, proprietors, (sole borrowers certain to loans on 2020, whichdeterminedtheextensionortemporarysuspensionofprincipalandinterestpayments firms entered into force in Portugal. A public moratorium was approved, initially until 30 September At the end of March 2020, exceptional legislative measures to protect loans to households and 1.2 GDP growthand0.8percentagepointsoneuroareainflationintheperiod2020-22. recalibration of TLTRO III operations) could have a cumulative impact of 1.3 percentage points on analysis by the ECB, the main decisions announced until June (PEPP, expansion of the APP and to supportingeconomicactivityand,ultimately,pricestabilityintheeuroarea.Accordingan contributed ECB the by adopted measures the conditions, financial favourable preserving By Protection ofloanstohouseholdsandfirms measures whengrantingandpaying variableremuneration. institutions not todistribute dividendsforthefinancial years 2019 and2020 andtoadoptstricter while continuing to support households and firms, the Banco de Portugal recommended to supervised In order to strengthen the capacity of banks to absorb potential losses arising from the pandemic, the adequacyofthesestrategies. effects resulting from the termination of moratoria and external auditors were required to assess supervised institutionswererequiredtosetoutstrategies tomitigatethepotentialnegative under moratoria and the adequacy of impairment coverage were also reinforced. Additionally, strategic planning. Supervisory actions focusing on the risk management of non-performing loans It carriedoutsupervisoryactionswiththeaimofanticipating risksandencouragingimprovementsin for the financial system on business continuity and the ongoing functioning of essential banking services. To avoid disruptions in the provision of banking services, the Banco de Portugal issued recommendations and thereforedecidednottoextendtheirdurationbeyond1October2020. new personalloansfallingwithinthetemporaryexceptionshadbeengranteduptoSeptember2020 loans andconsumercredit,adjustingthemacroprudentialmeasure.However,itconcludedthatno The Bank temporarily relaxed certain restrictions imposed on institutions when granting new housing at 0%oftotalexposures. remained 2021, of quarter first the in and 2020 throughout exposures domestic to applicable buffer, signal periodsofabruptriskmaterialisationcontemporaneously.However,thecountercyclicalcapital that indicators financial and macroeconomic adding by revised was buffer capital countercyclical the Portugal waspostponedto1January2022.Theanalyticalframeworkunderlyingtheapplicationof in The bufferratetobemetby1January2021thesixbankinggroupsdesignatedasO-SIIs (O-SIIs). institutions important systemically other as designated institutions to applicable buffer the of As themacroprudentialauthority,Bankpostponedbyoneyearperiodofgradualimplementation banks toabsorblossesandfinancetheeconomy. recommended levelsofcapital(Pillar2Guidance)andliquiditycoveragerequirements,in order for the combinedcapitalbufferandtemporarilyrelaxedrequirementsforcompliancewith In coordinationwiththeECB,BancodePortugaltookmeasurestoenablebanksuse of supervisorymeasures 1.3 five administrativeoffenceproceedingsagainstinstitutions. application of the moratoria, the Bank issued 284 specific orders to 100 institutions and launched the analysis of 52% of these complaints by the end of the year. As partof its monitoring of the 1,431 complaints from bank customers regarding the application of moratoria and had completed for almost all of the agreements that could be covered by the credit moratoria. It also received Banco dePortugalcarriedoutaninspectiononthewebsitesof99institutions, which accounted and privatemoratoria,the requirements customers and characteristicsofpublic on theeligibility to assess compliance by institutions with the obligations toprovideassistance and information to customers in credit moratoria and answered 385 requests for information on the subject. In order On the Bank Customer Website, the Bank published information on the rights andduties of bank as wellonmeasurestakenandapplicationsrejected. institutions toregularlyreportonrequestsforaccessandagreementscoveredbythecreditmoratoria, Monitoring offinancialinstitutionsandrelaxation

29 Response to the COVID-19 pandemic 30 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 transactions and purchases online or through apps. This campaign was highlighted in the report together withtheDirectorate-General forEducation,onprecautionstotakewhenconducting banking teachers, for webinar a held Bank the initiatives, education financial digital In networks. social on Portugal disclosed information on related cybersecurity risks on the Bank Customer Website and In view of the growing use of digital channels to access banking products and services, the Banco de so asnottoincreasetheburdenonmerchants. transaction amount.Italsoprohibitedchangestocertainaspects ofthefeesforthesetransactions, terminals could not refuse or limit card-based payments for any goods or services, regardless of the point-of-sale with merchants pandemic, the of months first the during that alia, inter determined, exceptional andinterimmeasurestopromotetheacceptance ofcard-basedpaymentsand implementation of whichwasmonitoredbytheBancodePortugal.ThisDecree-Lawestablished the 2020, March 26 of 10-H/2020 No Decree-Law by promoted was cards payment of use The and, givenitsmarketacceptance,wasmadepermanenton13July2020. other countries and recommended by the EBA. This measure was disclosed on 24 March 2020 without the need to enter a PIN from €20 to €50, a practice that was subsequently followed by Payment SystemsForum,theBankchangedmaximumamountpercontactlesstransaction In closecoordinationwiththePortuguesePaymentSystemsInterbankCommissionand (SURE), allowing Portugal to receive the first tranche of funds at the beginning of December 2020. loans disbursed to Member States for Support to mitigate Unemployment Risks in an Emergency service quality. It also implemented the operational framework of the European programme of of loss or disruption without payments their made consumers that and economy the in flow to continuity and security of the transactions of economic agents, ensuring that liquidity continued By operatingandmonitoringthevariouspaymentinfrastructures,Bankguaranteed lockdown andtheneedforsocialdistancing. response to changes in the payment behaviour of consumers and merchants as a result of the The Banco de Portugal ensured the availability of payment infrastructures and promoted a swift of payment 1.4 measures tosupporttheeconomy. credit moratoria,publicguarantees associated with thegrantingofcreditandothergovernment forms of shareholder remuneration and the monitoring of the implications for financial stability of the issuance of recommendations on limiting dividend distribution, share buy-backs and other participated intheworkcarriedoutbyEuropeanSystemicRiskBoard,withemphasison also It forbearance. of definition the or default obligor’s the triggering avoid to moratoria, private conditions for the extension of credit obligation payment terms, associated with public and and terms the of definition the and requirements prudential of relaxation the in resulted that in thework framework inresponsetothecrisis.AtEBAandSSM,Bankparticipated legislative proposalsbytheEuropeanCommissiontoamendEU’sprudentialregulatory regarding process negotiation the in government the to support provided It stability. financial authorities on the response to the pandemic, which resulted in the issuing of guidelines on At the same time, the Banco de Portugal participated in the work of national and international Functioning ofpaymentsystemsandmeans

The Fast and Exceptional Enterprise Survey ( of innovativeanalysisandforecastingtools,expertstudies. and profoundchangeinagents’behaviour.Thiscalledfornewdatacollectionanalysis,thedesign the COVID-19 pandemic. The use of past empirical regularities is questionable in view of an unparalleled The Banco de Portugal launched initiatives to monitor the evolution of the Portuguese economy during system 1.5 a numberofdenominationsduetogrowthindemandforbanknotesasstorevalue. The banknote delivery plan to other central banks was also met, at a time of greater shortages of banknotes wereprinted,incompliancewiththebanknotedeliveryplantoBancodePortugal. uninterruptedly intheEurosystemasawhole.From16Marchto22May2020,morethan63million Portugal, wastheonlyprintingworkstowork Valora, S.A.,theprintingworksofBancode sort banknoteswithoutdelay. country and the BancodePortugal continued to Cash continued to be transported across the Regional Delegations in theAzores and Madeira. the PortoBranch,FaroAgencyand out, as usual, through the Carregado Complex, withdrawal and deposit operations were carried the supply of cash to the banking system. Cash During lockdown,theBankcontinuedtoensure the BankCustomerWebsite. services on digital channels were disclosed on on how to safely access banking products and During theEuropeanCybersecurityMonth, tips and Development(OECD),publishedinJuly2020. by the Organisation for Economic Co-operation Advancing the Digital Financial Inclusion of Youth residents makeitpossibletoinfer keysharesofprivateconsumption( exports; mobility data help measure the overall level of economic activity; and card payments by For example,foreigndebitor creditcardtransactionsarenowcrucialtoestimatetourism service than that of national accounts and which are available shortly after the period to which they refer. Portuguese economy. This is the case of measures with a higher (daily, weekly or monthly) frequency Some types ofdata assumed greater relevance against traditional indicatorswhen assessing the support policies,inparticularthesimplifiedlayoff. Economic Bulletin. The IREE also made it possible to carry out a preliminary assessment of business as thepandemicsituationdeteriorated.TheBancodePortugal usedIREEdatainseveralissuesofthe and everytwoweeksfromMayonwards.Thesurveywassuspended inJulybutresumedNovember, April in week every collected numbers, staff and sales their including firms, of panel representative a the pandemic shock on the economy. This information provides details on the activity of conducted inpartnershipwithStatisticsPortugal,providedimmediateinformationontheimpactof Monitoring the economic activity and the financial Monitoring theeconomicactivityandfinancial IREE – Inquérito Rápido e Excecional às Empresas through socialmedia. The Banco de Portugal published the measures with an impact on retailers and consumers also Chart I.1.4 ). ), ),

31 Response to the COVID-19 pandemic 32 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 an example, using up to five high-frequency variables and compressing them into a single daily value The Bankdevelopedinnovative analyticalmethodologies.Thedailyeconomicindicator(DEI) issuch “The impactofthepandemiconprivateconsumption:evidencefromcardspendingdata”, in theDecemberEconomicBulletin Issue Special the see details, further For series. unadjusted Seasonally Note: | calculations). Portugal de (Banco SIBS and Portugal Statistics Sources: Chart I.1.4• inflation, publicdebtandnon-financialsectorindebtedness. economy” onBP on a monthly basis. It also launched the page “Follow the impact of COVID-19 on the Portuguese began publishinganewpreliminaryindicatorofthetravelcomponentBalancePayments BPstat approximately ten, six and two working days, respectively. It made new information available on statistics on monetary financial institutions’ balance sheet, interest rates and securities issues by In termsofdataaccessandavailabilitytothepublic,Bankbroughtforwardpublication pandemic shockontheeconomy. theof impact the on information collect to possible it made Portugal, Statistics with partnership in held Survey, Enterprise Exceptional and Fast The on-year percentagechange -20 -15 -10 10 15 -5 0 5 2008 regarding public debt, budget outturn and indebtedness of the non-financial sector and sector non-financial the of indebtedness and outturn budget debt, public regarding Q 1

2009 Private consumptionanddomesticcardpayments(2019Q1–2020Q4) Q1 stat, whichshowstheevolutionof30macroeconomicindicators,includingGDP,

2010 Q 1

2011 Q 1

2012 Q 1

2013 Q 1

2014 Q 1

2015 Amount ofdomestic card payments Q 1

2016 Q Nom 1

2017 i na l pr Q 1 i vate consumpt

2018 Q 1 .

2019 i on Q 1

2020 |Year- Q 1 Financial StabilityReportthroughouttheyear. percentage change teams (iv)absentonmedicaladvice fromtheMedicalandOccupationalHealthServicesUnit. facilities; (ii) performing internal functions incompatible with teleworking; (iii) taking part in rotating or parents-in-lawdependent on theworkerandnotabletoattendtemporarilyclosed social care amounts continuedtobepaidworkerswhowere:(i)looking aftertheirchildren,spouse,parents same time,theworkers’protection,inaccordancewithhealth authorities’guidelines.Thesamewage absence scheme.Thesemeasuresaimedatensuringthecontinuity oftheBank’sactivityand,at teams working on-site, adopted job-rotation practices and set up a flexible and simplified employee The Banco de Portugal implemented a cross-sectional model for remote working, cut the number of 1.6 Studies andthe Five studies on different aspects of the pandemic were published in Banco de Portugal scenarios, waspublished. A forward-lookingexerciseonthefinancialvulnerabilityoffirms,basedalternativemacroeconomic stability. financial on measures policy and impacts economic of account take to adapted also scenarios in the March issue of the supply-side approachtoassessthedepthofeconomiccrisisandpublicationalternative projections for the Portuguese economy. Examples of these changes were the use of an additional It was also necessary to change commonly used methodologies, as in the case of macroeconomic thus farintermsofthecapacityPortuguesefirmsandhouseholdstoabsorbeconomicshock. the Mayissueof In other cases, the analysis was innovative by combining methodologies and previously unused data. In Portugal, WorkingPaperNo13. de Banco lockdown”, the during daily activity economic tracking DEI: “The (2020) A. Rua, and N. Lourenço, See Note: | Portugal. de Banco Source: Chart I.1.5• ( estimate quasi-realtime economic activityandarealsousefulformaking macroeconomic projections purged from weekly or monthly seasonal effects. The properties of this indicator make it possible to Chart I.1.5 -25 -20 -15 -10 10 -5 0 5 Business continuitymanagement ). Evolution ofthedailyeconomicindicator(DEI),(2019Q4–2020Q4) Papers DEI (weekly moving average) , an assessment was made of the layoff measures implemented implemented measures layoff the of made was assessment an Economic Bulletin, series, inadditiontotheanalysespublished . Tools for analysing the financial system were were system financial the analysing for Tools Economic Bulletin. GDP GDP (quarterly y-o-y growth rate) Economic Bulletin | Year-on-year |Year-on-year Economic Economic DEI andthe

33 Response to the COVID-19 pandemic 34 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 with Re-food,tobedistributedcommunitiesclosethebuildingsofBank. Given thefoodemergency,Bankprovided250mealsadayand500onFridays,inpartnership lacking digitaldevicesforhomelearning. The Bankanditsemployeesdonated287laptopstostudentsfromschoolsacrossthecountry at adistance. out carried also was careers, professional different explore students school secondary helping Inclusão Social–EPIS)wasprovidedremotely.Thejobshadowingprogramme,gearedtowards secondary education, in partnership with Entrepreneurs for Social Inclusion (Empresários pela to education basic of cycle first the from need, in students to volunteers Bank by given support Community actions were readjusted to respond to the new pandemic and lockdown context. The 1.7 online services,orexperiencingdifficulties. exchange ofdamagedbanknotesandPortugueseescudos,ortocitizensunableuseaccess carried out by appointment only and for services provided exclusively by the Bank, such as the system. Between18MarchandMay,face-to-facecustomerservicethroughoutthecountrywas the teams and ensure the maintenance of adequate and timely support to the national financial among risk contagion the reduce to served This there. relocated were system financial national the payment infrastructures, the disaster recovery centre was activated and part of the teams supporting To ensure business continuity, and in particular of critical activities for the financial system related to Global SafeSitelabel. and monitored. These measures were certified by the Bureau Veritas, which awarded the Bank the protocols, safety and health at work, and facilities and environment safety were developed, implemented and the public. A set of practices and procedures in terms of legal compliance, hygiene and disinfection Both theactivityandfacilitieswereadaptedto ensure the safety ofitsworkers,service providers functions wereperformedwithoutinterruption. in justoveraweek,toimplementremoteworkingfor90%ofitsemployeesandensurethatkey with investmentsininformationsystemsandtechnologiespreviousyears,enabledtheBank, access wasstrengthened,andnewcybersecuritytoolsweredeveloped.Theseinitiatives,together collaborative and mobility IT solutions were implemented, the infrastructure to support remote To ensurewidespreadaccesstoteleworking,laptopsandmobiledevicesweremadeavailable, Social responsibility operations (TLTRO-III). Tothis end, it (i)createdaspecialinterest rate period between June 2020 refinancing longer-term targeted of series third the on conditions the eased further Council In ordertosupportlending therealeconomy,inMarch,AprilandDecember2020 Governing collateral framework(Chapter1). the pandemic,itrecalibratedandintroducednewmonetary policyinstrumentsandadjustedthe ofeffects the mitigate To 0.25%. at facility lending marginal the on rate the and -0.50%, at facility since September 2019: the rate on the main refinancing operations at 0%, the rate on the deposit place in levels the at rates interest official the kept ECB the of Council Governing the 2020, In 2.1 management, oversightofpaymentsystemsandinstruments andcashissuance. The following sections detail the activities carried out in 2020 in the field of monetary policy, asset funds beingmadeavailableinthebeneficiaries’accountswithinafewseconds. service, which allowed for credit transfers at a domestic level and to other euro area countries, with of instanttransfers and ensured the connection of this new solution to the Eurosystem’s equivalent crypto-assets. At the same time, it adapted the Portuguese retail payment system to the processing innovators andconductinganalysisresearchonthenewmarketplayers,digitaleuro sector financial with dialogue structured a establishing system, financial the in developments digital regulations and ensuredthatthenewregulatoryframeworkwasimplemented. It alsomonitored ancillary the produced 2018, November 12 of 91/2018 No Decree-Law in materialised which preliminary draft decree-law aimed at transposing the revised Payment Services Directive (PSD2), As regardspaymentsystemsandmeansofpayment,theBankparticipatedindrafting back-office operationsandthepreparationofablockchainproofconceptforsecuritieslending. In alltheseareas,innovationwasapermanentconcern,resulting,interalia,inthedigitalisationof coverage of operations and renegotiated the gold custody agreement with the Bank of England. introducing sustainability principles into asset management. It strengthened the contractual and investments its diversifying soundness, financial of safeguarding the and risks financial of Over thefour-yearperiodinquestion,BancodePortugalpursuedprudentmanagement Lietuvos bankas. its cooperationwiththeEurosystembymakingmonetarypolicytendersystemavailableto with an additional credit rating tool for access to Eurosystem credit operations. It has also intensified which now encompasses the set of non-financial corporations, providing the resident financial system The BancodePortugalhascompletedthedevelopmentofitsin-housecreditassessmentsystem, EONIA asof2October2019isalsonoteworthy. Its contribution to establishing the methodology of the €STR, the new benchmark rate, which replaced relevant ofsuchmeasures. stability. The new liquidity-providing operations and asset purchase programmes are the most conditions for the majority of economic agents and ultimately to the primary objective of price financing favourable maintaining to contribution decisive a made have which measures, policy In recentyears,theBancodePortugalhastakenpartinsettingoutandimplementingnewmonetary to thesinglemonetarypolicyineuroarea. contribute actively to period 2017-20 the for guideline strategic a as defined Portugal de Banco The 2 Price stabilityintheeuro area Monetary policy 35 Price stability in the euro area 36 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 amounted toaround€2,600billion attheendof2020(69%morethaninFebruary). to €67billion,i.e.exceedingthe creditvalueby48.1%.IntheEurosystem,totalmobilised collateral assets providedascollateralby thePortuguesecounterpartieshadincreasedby37%from February, leading to an immediate reinforcement of €5.2 billion (+ 9.7 %). By the end of December, the value of policy counterpartiesinPortugal( monetary to available collateral in increase significant a in resulted adopted measures the Overall, to beusedasasourceofcreditassessmentintheACCframework. securities depository.Thestatisticalcomponentoftheinternal creditassessmentsystemalsobegan the publicsectorguaranteeschemeandwithunlistedcommercial papernotregisteredinacentral In PortugaltheACCframeworkwasexpandedwithacceptance ofbankloansgrantedunder time, national central banks were able to expand their additional credit claims (ACCs) frameworks. their credit ratings, provided that these remain above a certain level of credit quality. At the same accept, onatemporarybasis,marketableassetsthatbeingeligible7Aprilsawdeteriorationin valuation haircuts applied to marketable and non-marketable assets. It also decided to continue to a packageoftemporarycollateraleasingmeasures.Itincreaseditsrisktolerancebylowering In ordertoenhancecounterparties’accessEurosystemcreditoperations,theECBapproved longer-term refinancingoperations(includingPELTROsandadditionalLTROs),marginallendingfacilitydepositfacility. operations, refinancing main operations: refinancing Other operations; refinancing longer-term targeted – TLTROs Note: | Portugal. de Banco Source: standing facilitiesandthevalueofcollateralpoolinPortugal(2016-2020) Chart I.2.1• the rateappliedinfirstseries. PELTRO serieswasannouncedfor2021,withamaturityofoneyearandaninterestratesimilarto system andcontributetopreserving the smooth functioningofmoney markets. InDecember a new financial area euro the to support liquidity provide to is objective Their operations. refinancing operations (PELTROs),withaninterestrate25basispointsbelowtheappliedinmain refinancing longer-term emergency pandemic called operations, refinancing longer-term additional seven of series new a announced ECB the April In June. in TLTRO-III the to up system financial area on the deposit facility, aiming at providing liquidity under more favourable conditions for the euro In addition, weekly additional LTROs (LTRO-A) were introduced, with an interest rate equal to that of 2020totalled€32billion( three new operations to beconductedin2021. In Portugal the take-up of TLTRO-III uptothe end the borrowingallowancefrom50%to55%oftotaleligiblecreditamount and (iii)announced deposit facility rate if they maintain the credit level for the defined reference periods, (ii) increased and June 2022, during which banks can benefit from an interest rate 50 basis points (bp) below the -10,000 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 0 Evolution oftheoutstandingamountandtypesopenmarketoperations TLTROs Chart I.2.1 Table I.2.1 ). ). The haircut reduction had the most significant impact, Other refinancing operations Collateral pool |EURmillions

the Bank’scapitalkey(2.3%). end of 2020. In the case of the PEPP, this proportion stood at 2.4% at the end of the year, i.e. above by theEurosystemintotal publicsectorpurchaseprogramme,whichremainedat2.1% atthe No significant changes were observed in the year-on-year proportion of Portuguese debt accumulated Source: BancodePortugal. (2016-2020) Chart I.2.2• portfolios (PEPPandAPP)intheBank’stotalassetsincreasedto36%byendofyear. representative, withashareof94%inthetotal.Overall,monetarypolicysecurities to increase,amounting€54.8billionbytheendof2020,publiccomponent(PSPP)beingmost entirely madeupofpublicsectorsecurities( on theBancodePortugal’sbalancesheettotalled€14.2billionbyendof2020,andwasalmost manner overtimeacrossassetclassesandamongjurisdictions.TheoutstandingamountofthePEPP central bank in the ECB’s capital. In the PEPP, contrary to the APP, they are conducted in a flexible Eurosystem centralbanks,andforpublicsectorassetsareguidedbythecapitalkeyofeachnational In asset purchase programmes, acquisitions are carried out in a decentralised manner by the various amount ofliquidity-providingoperationslesstheaverageoutstandingliquidity-absorbingoperations. outstanding the to corresponds facilities standing and operations market open of amount outstanding average The Note: | Portugal. de Banco Source: Table I.2.1• portfolios (EURmillions) Average outstandingamountofmonetarypolicy (resident counterparties,EURmillions) Average outstandingamountofcollateralpools operations andstandingfacilities(EURmillions) Average outstandingamountofopenmarket in openmarketoperationsandstandingfacilities Number of(resident)counterpartiesparticipating Number ofeligible(resident)counterparties resident counterparties Number ofstandingfacilityoperationsinvolving resident counterpartiesparticipated Number ofopenmarketoperationsinwhich Number ofEurosystemopenmarketoperations 80,000 10,000 20,000 30,000 40,000 50,000 60,000 70,000 0 Jan. 16 Jul. 16 Jan. 17 Jul. 17 Jan. 18 Jul. 18 Jan. 19 Jul. 19 Jan. 20 Jul. 20 Jul. 20 Jan. 19 Jul. 19 Jan. 18 Jul. 18 Jan. 17 Jul. Jan. 17 16 Jul. 16 Jan. |EURmillions Monetary policyimplementationinPortugal,mainindicators(2016-2020) Main indicators PSPP Evolution of the outstanding amount of asset purchase programmes in Portugal Evolution oftheoutstandingamountassetpurchaseprogrammesinPortugal CBPP+SMP+CBPP2+CBPP3 24,729 52,938 24,023 Chart I.1.2 2016 136 25 37 60 83 PEPP 40,174 50,772 22,862 ). The outstanding amount of the APP continued ). TheoutstandingamountoftheAPPcontinued 2017 126 14 37 52 71 49,319 50,728 20,621 Share of MP securities in total assets (% right axis) 2018 127 12 36 22 58 52,102 52,123 18,461 2019 133 11 35 36 68 60,107 60,507 25,829 2020 256 18 34 55 5 Δ 2020-2019 -86% -19% 15% 16% 40% 64% 92% -3% 0% 10% 20% 30% 40% 37 Price stability in the euro area 38 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 different valuationcriteria. investment assetportfoliodoes notcorrespondtothatdisclosedinPartIIofthisreport, dueto in the amount of themedium-term investment portfolio. The value of theabove-mentioned own price ofgoldineuro,withan impact onitsvaluation ( €37,604 million, a 4.4% increase from the previous year. This rise resulted from an increase in the As at31December2020, the Banco de Portugal’s own investment asset portfolio wasvalued at sustainability inowninvestmentassetmanagement. the Bank increaseditsinvestment ingreen bonds, reinforcingitscommitment to environmental cost criterion, subject to impairment losses. Assets in gold are valued at market prices. In 2020, portfolio, fully denominated in euro, are held to maturity and valued according to the amortised euro, areactivelymanagedandvaluedatmarket prices. Assets inthe medium-term investment euro, inforeigncurrencyandgold.Assetsheldthetrading portfolio,mostlydenominatedin The Banco de Portugal’s own investment asset portfolio is composed of assets denominated in 2.2 the secondhalfofyear. The review of the monetary policy strategy will continue into 2021 and should be completed in by 245teachersandstudentsfrom19PortugueseschoolsofEconomicsManagement. this kind, in the form of a webinar, addressed to the academic community. This event was attended organisations and academia. In December 2020 the Banco de Portugal hosted its first public event of ECB and the national central banks are hosting listening events for the general public, civil society conducted with an open-minded approach, while engaging with all stakeholders. To this end, the The GoverningCounciloftheECBintendsforthisreviewtobebasedonathoroughanalysisand effectiveness andpotentialsideeffectsoftheinstrumentsituses;(v)communicationpractices. which other issues such as employment, financial stability and climate change are also relevant; (iv) the of pricestability;(ii)howitanalyses theeconomy to assess risks topricestability;(iii)theextent to the review. The review covers all aspects of monetary policy, including: (i) the quantitative formulation The BancodePortugaltakespartinEurosystemworkinggroupssetuptoanalyserelevantissues strategy remainssuitabletopursuetheECB’smandatemaintainpricestability. The aimofthisreviewistoensurethat,amidprofoundchangesintheeuroareaeconomy, In January2020theGoverningCouncilofECBlaunchedareviewitsmonetarypolicystrategy. financial riskspursuedbytheBancodePortugal(Chapter5). non- and financial for policy management integrated the within monitored were operations policy counterparties andcollateralwereapplied.Overalldevelopmentsinrisksassociatedwithmonetary directly, byensuringthattherulesandeligibilitycriteriainforcewithinEurosystemrelatedto The BancodePortugalcontrolledtherisksofmonetarypolicyoperationsinwhichitintervened to coverthecreditgranted. insufficient be to proves collateral of value liquidation the and default counterparties that event the indirectly with the credit quality of the assets received as collateral. Thus, the risk materialises only in their issuers. With regard to Eurosystem credit operations, risk is associated with counterparties and In outrightpurchaseprogrammes,riskisassociatedwithdirectexposuretoacquiredassetsand depending onthepurchaseprogrammesorcollateralprovidedbymonetarypolicycounterparties. which areeitherbornebytheBancodePortugalorsharedEurosystembasedoncapitalkeys, risks, financial associated the monitoring requires policy monetary Eurosystem’s the in Participation Monetary policystrategyreview Asset management Chart I.2.3 ), whichcompensated the decrease Chart I.2.3• portfolio inCNYtotalled4,172million(€520million). 31 December 2020, the portfolio in US dollars amounted to USD 1,189 million (€969 million) and the two ECBreserveportfoliosdenominated in USdollars(USD)andChinese renminbi (CNY).Asat In additiontoitsownassets portfolio, with the Lietuvos bankas, the Banco dePortugalmanages function tocontroloperations,independentlyandsystematically,frompurchasesettlement. operations andthemonitoringofpositionsmainriskmeasures,enablingmanagement of settlement financial the out carries also system This NCBs. Eurosystem most by and ECB the by and positionsareperformeddailythroughaninternalinformationsystemsimilartotheoneused Valuation, returncalculationandcontroloflimitsrestrictionsonassetmanagementoperations basis, areenshrinedintheinternalguidelinesapprovedbyBank’sBoardofDirectors. exchange andinterestraterisksofassetstransactions.Thesecriterialimits,revisedonaregular and instrument,takingintoaccountcredit,foreign criteria andlimitsbyinstitution,country,transaction investment asset operations is based on eligibility own for framework control risk financial The 382.6 tonnes. Its value in euro increased by 14.3%. the Banco de Portugal remained unchanged: As inpreviousyears, the stockofgoldheldby investment. dated yieldcurvesofsovereignissuerseligiblefor interest rates in the euro area, including for longer- were not reinvested, given the context of negative year. Theamountsthatmaturedduringtheyear portfolio decreasedcomparedwiththeprevious The amount of the medium-term investment in euroaccountedfor86%oftotalassets. that observedatend-2019.Assetsdenominated and year-end exchange rates remained close to The valueofthetradingportfolioatmarketprices Source: BancodePortugal. 10,000 15,000 20,000 5,000 0 Own investmentassetportfolio(2016-2020) 2016 Trading porfolio 2017 Medium-terminvestment portfolio policy strategyreview,intheformofawebinar. monetary the on event listening public first its hosted Portugal de Banco the 2020 December In 2018 |EURmillions 2019 Gold portfolio Gold 2020 39 Price stability in the euro area 40 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 movement of financial resources among economic agents and thus the smooth functioning of the economic agents and thus the smooth functioning of the among economy. resources financial of movement the ensure to crucial are infrastructures market of operation efficient and availability continued The secure paymentsolutions. regulatory framework that fosters innovation and efficiency, and encourage the adoption of more promote a better-informed society, leverage the benefits of digital transformation, contribute to a the National Strategy for Retail Payments, which includes initiatives to be developed by 2022 to electronic paymentsandincreasingpaymentsecurity.This workresultedinthepublicationof Interbank Commission and the Payment Systems Forum, which have been working on promoting payment solutions.Thisinteractionmainlytakesplace inthePortuguesePaymentSystems The Bank also maintained its dialogue with the market to promote secure, efficient and innovative represented sectorsofactivitywerecapitalmarket,paymentsandregulatorytechnology(RegTech). edition, eightofwhichwerefromforeignentities;amongthe10selectedforanalysis,most on issues related to applicable regulatory requirements. A total of 32 projects applied to the second light shedding regulators, Portuguese the and sector financial the in innovators together bringing the launchofthird,aninitiativeNationalCouncilFinancialSupervisors(CNSF)aimedat smooth operation of payment systems. The BankorganisedthesecondPortugal FinLab edition and interaction iscrucialfortheBanktocarryoutitsmissionregulate,overseeandpromote market, and its knowledge of the new technologies used in the provision of payment services. This The BancodePortugalcontinuedtodeepenitsinteractionwithFintechoperatorsinthedomestic describing anefficientcustomerauthenticationjourney. correction. In addition, the Bank held a briefing session on this matter and published a document their for deadlines set and providers service payment of monitoring the in identified non-conformities services and account information services. In this context, the Banco de Portugal published a list of communication with other payment service providers, so that the latter can provide payment initiation The new rules also require payment service providers to have interfaces allowing for secure the PaymentSystemsForum,wasalsopublished. A national migration plan for strong customer authentication for card-based e-commerce, defined in payments. e-commerce of efficiency and security the for authentication strong of importance the to public the alert to campaign communication a launched and briefings held payments, card providers’ planstomigrateprocedurescompatiblewithstrongcustomerauthenticationforonline card payment transactions until 31 December 2020. Hence, the Bank analysed payment service online for requirements these of supervision the regarding EBA the by permitted flexibility the In ordertobetteradapte-commercethenewrules,BancodePortugalmadeuseof regulatory frameworkandareaccessibletoallusers. Where applicable, it called for changes to ensure that those mechanisms comply with the existing the strongcustomerauthentication mechanisms adopted bynational payment service providers. As the competent authority foroverseeing the new rules, in 2020 the Banco de Portugal evaluated out any action, through a remote channel, which may imply a risk of payment fraud or other abuses. customers accesstheirpaymentaccountonline,initiateanelectronictransaction,orcarry date, payment service providersarerequiredtoapplystrongcustomer authentication whenever New rulesforelectronicpaymentsenteredintoforceintheEUon14September2019.Asofthat 2.3 Functioning ofmarketinfrastructures Payment systemsandmeansofpayment

compliance withthesecuritycontrols inforce. TARGET2 participants.Furthermore, itraisedawarenessamongtheinstitutionsofneed forstrict Programme, whichaimtoaddress potentialinformationsecurityrisksresultingfromthe activity of compliance withtheEurosystemrequirementsonendpointsecurity andtheSWIFTCustomerSecurity of paymentfraud.In2020, the BancodePortugalcontinuedmonitoring the national community’s risk the mitigate to participants among efforts promotes Eurosystem the operator, TARGET2 As group ofcentralbanks. community. It also began testing to assess the quality of the new platform, a task entrusted to asmall set bytheEurosystem,disseminatedinformationandlaunched trainingsessionswiththenational milestones the with compliance community’s national the monitored works, specification functional postponed by the Governing Council to November 2022. In this project, in 2020 the Bank took part in The TARGET2andT2Sconsolidationproject,initiallyscheduled togoliveonNovember2021,was totalling €85million. trend intheuseofinstanttransfers.Duringthisperiod,56,000operationsweresentandreceived, service. In the first two and a half months of national TIPS participants’ activity, there was an upward solution totheTARGETInstantPaymentSettlementservice(TIPS),Eurosystem’sinstanttransfer transfers withthesameease.Thisresultedfromcompletionofprojecttolinknational national transfers, on 14 October 2020, it became possible tocarryout pan-European instant More thantwoyearsaftertheimplementationofsolutioninPortugal,allowingforimmediate payments. action, inconjunctionwiththenationalcommunity,ledtosubsequentsettlementofallpending for payments in centralbankmoneybecameunavailable for tenhours. The BancodePortugal’s recorded its largest operational incident since its inception in 2007, when all settlement services TARGET2 October 23 on However, safely. and efficiently responded T2S and TARGET2 general, In bonds andbills. related totheissueandredemptionofTreasury continued tobestronglydrivenbysettlements a 7.5% drop in value from 2019 (Chart I.2.5). Dynamics to €159 billion, a10.5% increase involume and transactions in TARGET2-Securities (T2S), amounting The national community settled 253,305 securities implementation ofthemonetarypolicy. Banco dePortugal,especiallythoserelatedtothe the with operations in increase the by offset was institutionsfinancial between transactions of from the previous year. The decrease in the value the value settledremainedbroadlyunchanged mainly customertransfers.Thisnotwithstanding, in transactions between financial institutions, lowest figure since 2011, due to the decrease The amount of transactions settled reached the transactions, totalling €1,727 billion (Chart I.2.4). payments ineuro)processedaround1.6million of the real-time gross settlement system for In 2020 TARGET2-PT (the Portuguese component

The National Strategy for Retail Payments includes initiatives to be undertaken up to 2022, to enhancethebenefitsofdigitaltransformationinpayments. 41

Price stability in the euro area 42 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 value inEURbillions -11%, respectively). In terms of volume, only credit transfers and instant transfers increased by cheques and-25%billsofexchange). Direct debitsandbankcardswerealso lessused(-5%and Retail paymentsdecreased more markedlyinpaymentswithpaper-basedinstruments (-28% trend observedinrecentyears.Thisdecreasereflectsadowntur n ineconomicactivity. €501.5 billion.Thenumberandamountofclearedtransactions dropped,reversingtheupward credit transfer,bankcardandinstanttransfer)processed 2.7billiontransactions,tothevalueof SICOI (the retail paymentsystemthatclears payments by cheque, bill of exchange, direct debit, Deposit GuaranteeFund. activity, mainly resulting from the merger of the Mutual Agricultural Credit Guarantee Fund with the the Portuguese Stateand to the DepositGuaranteeFund.Therewasanincreaseinlatter’s Also, in the sphere of market infrastructures, the Banco de Portugal provided custody services for Source: BancodePortugal. Chart I.2.5• Source: BancodePortugal. Chart I.2.4• and valueinEURmillions Retail paymentsystem 100,000 150,000 200,000 250,000 300,000 350,000 1,000 1,500 2,000 2,500 50,000 500 0 0 Securities settledbythenationalcommunity(2016-2020) Overall transactionssettledinTARGET2-PT(2016-2020) 2016 2016 2017 2017 Volume(left axis) Volume (left axis) (left Volume 2018 2018 Value (right axis) 2019 2019 Value (right axis) | Volumeinthousandsand | Volumeinthousands 2020 2020 300,000 0 50,000 100,000 150,000 200,000 250,000 0 500 1,000 1,500 2,000 2,500

mainly viae-learning. and coins,whichbroughttogether 2,560participants.TheBankhadalsotrained14,493cash handlers, Until March, the Banco de Portugal had organised 101 face-to-face training courses on euro banknotes million 2centcoinsfromthosecountries. €2 coins in surplus in Portugal in exchange for 36 million €1 coins, 64.6 million 1 cent coins and 64.3 the Federal Public Service Finance of Belgium. In these two operations, the Bank sent out 19 million Central BankofIreland,signedattheend2019,and conclusionofanotheragreementwith The year was also markedbythe implementation of a metalcurrencyexchange agreement with the these networkscontinuetoofferawidecoverageinPortugal. branches ofcredit institutions in terms ofcash distribution tothe population. The study concluded that by the ECB. In 2020, the Bank published the results of a study on the coverage of ATM networks and system, an issue that has been studied by other Eurosystem central banks and considered a priority The Banco de Portugal has been following the contraction in networks for access to the banking 2,492 coins,mainly€2and50centwereremovedfromcirculation. the totalnumberofcounterfeitsseizedineuroarea),mostly€20and€50banknotes.Moreover, In Portugal, 12,028 counterfeit banknotes were removed from circulation (accounting for 2.8% of under theseconditions. exchange process.In2020theBankassessed23,419eurobanknotesand1,700escudo mutilated banknotesreceivedbytheBancodePortugalaresubjecttoacomplexmanualanalysisand or damaged badly machines, high-speed through processed are banknotes most Although unfit. general publicandcreditinstitutions(170millionlessthanin2019),ofwhich73wereconsidered the from received banknotes million 465 of fitness and authenticity the checked Bank the 2020 In trend innetissuancePortugalsincetheintroductionofeuro. of banknotes withdrawn was higher than that of banknotes deposited, thus reversing the downward by creditinstitutions,correspondingtoa13%and27%fallrespectively,compared2019.Thenumber In 2020,533millionbanknoteswerewithdrawnfromtheBancodePortugaland458deposited and analysisofInterbolsa,thePortuguesecentralsecuritiesdepository. concentration andcreditrisks.OnbehalfoftheEurosystem,Bankcarriedoutannualreview on aregularbasis,assessingthemfromanoperationalandmanagementperspectiveofcyber,liquidity, payment and securities settlement systems (national TARGET2 and TARGET2-Securities components) The BancodePortugalcontinuedtomonitortheretailpaymentsystem(SICOI)andlarge-value with thelegaldeadline. added to this list and 8,835 entities were removed, either by decision ofthe Bank or due to compliance decline compared with the previous year. During the year, 6,921 names or corporate names were the banking system to preventmisuse of cheques, comprised 12,677 entities, representing a13% As at 31 December 2020, the list of cheque defaulters, disseminated by the Banco de Portugal through accounting for0.2%ofthevolumeand1.2%totalvalueprocessedoperations. system, total the in weight residual a have to continued transfers instant rates, growth significant in totalclearedtransactions(85%).Invalue,credittransfersarestillthemostrelevant(56%).Despite 8% and 81% respectively. Nonetheless, card-based payment transactions continued to be predominant Banknotes andmetalcoins Payment systemsoversight 43 Price stability in the euro area 44 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 resilience forthefinancialsector (DORARegulation). and information systems (NIS Directive)andinthedraftingofRegulation on digitaloperational Bank was also involved in the work to transpose the European Directive on the security of network not compliantwiththepublicinterestcriterionforpurposes ofimplementingresolutionrules.The deepening ofthecapitalmarketsunionandharmonisation ofinsolvencyrulesforcreditinstitutions the Bankmonitoredprocessesforestablishmentofa European depositinsurancescheme,the of Finance, drafting proposals and setting strategic guidelines on financial stability matters. For instance, deepening of the Economic and Monetary Union, by providing technical support to the Ministry Mortgage CreditDirectives.TheBancodePortugalcontinued tomonitormattersrelatedthe the Consumer Credit Directive, the Distance Marketing of Consumer Financial Services and the of directivesgoverningtheoperationretailbanking markets,aswellintherevisionof a scheme to promote sustainable investment (“Taxonomy Regulation”) and in the assessment The Bank participated in the negotiation of European Commission proposals for the establishment of of theEuropeanUnion(EU)applicabletoinstitutionssubjectitssupervision. In 2020theBancodePortugalparticipatedindevelopmentofnewlegislationandregulations 3.1 stability ofthePortuguesefinancialsystem,inadditiontoactivitiesdescribedChapter1. The sectionsbelow describe theBancodePortugal’sactivityin 2020 topromotethe robustness and campaigns topromotesafeuseofdigitalchannelsbybankcustomers. channels also led the Bank to develop a digital financial education programme using awareness initiation serviceprovidersandaccountinformationproviders.Theincreasinguseofdigital broadened. TheBancodePortugalstartedtosupervisetheactivityofcreditintermediaries,payment To further increase bank customer protection, the scope of banking conduct supervision was all banks. Resilience inthebankingsectorwasalsoenhancedbyestablishmentofresolutionplansfor located inthirdcountriesoroperationswithoffshorejurisdictions. was strengthened, particularly in situations identified as riskier, such as in subsidiaries and branches At the same time, supervisory action on money laundering and terrorist financing (ML/TF) prevention vulnerabilities ofthePortuguesebankingsystem. risks. There was also a continued focus on reducing the stock of NPLs, which is one of the main were questioned to ensure their resilience to ongoing digital transformation and climate change the strengtheningoftheirinternalgovernanceandcontrolmechanisms.Thebanks’businessmodels promoting as well as requirements, regulatory minimum the with consistent and profiles risk their The focusofprudentialsupervisionwasonensuringthatbankshavecapitallevelsappropriateto and consumerstopossibleadverseshocks. system financial the of resilience the increasing at aimed These measures. pioneering them of macroprudential policy and implemented measures to prevent and mitigate systemic risks, some To achievethis,overthepastfouryearsBankhasimprovedconceptualframeworkfor financial systemasthesecondBroadStrategicGuideline. 2017-20, theBankestablishedpromotionofrobustnessandstabilityPortuguese for Plan Strategic its In mission. Portugal’s de Banco the of part is stability financial Safeguarding 3 Safeguarding offinancialstability Regulatory framework

applicable tocreditinstitutions intheEU. under Regulation (EU) 2020/873 of 24 June 2020, which adjusted the prudential regulatory regime balances atcentralbanksand State-guaranteedloans,aswelltheimpactof measures cash securities, debt government to exposure in increase the reflected latter The result. a such while capitalratiosimproved.Retainedearningsandlower averageriskweightcontributedto to 251.6%asaresultoftheincreaseingovernmentdebt securitiesandcentralbankreserves, accounting for a 3.4 p.p. increase from December 2019. The liquidity coverage ratio increased Funding obtained bythe Portuguese banking system from the Eurosystem reached 7.8% of assets, difficulties inthesaleandrecoveryofalreadyexistingNPLs. greater reflecting rate, slower a at albeit decline, to continued impairments of net and gross both in ordertoensure the continuityof improvement path recordedsinceJune 2016. NPL ratios The BancodePortugalcontinuedtoperiodicallymonitordevelopmentsinassetqualityindicators, The reductionintheoperatingresultwasmoresubdued. largely reflected increased credit impairment losses and lower income from financial operations. ( decreased system banking Portuguese the of profitability The 3.2 of certaincriminaloffences. prosecution or investigation detection, prevention, the for information other and financial of use preliminary legislativedrafttotranspose the European Directive layingdownrulesfacilitatingthe indebtedness conciliation (Sistema PúblicodeApoio à ConciliaçãonoSobre-endividamento)and the the establishment of theBancoPortuguês de Fomentosupportsystem and thepublic for over- The BancodePortugalalsoissued opinionsonanumberofpreliminarylegislative drafts, notably under thefreedomtoprovideservices. in theAccountsDatabaseandimposingnewreportingrequirementsonentitiesoperatingPortugal entities operating with virtual assets and issued regulations revising the information to be contained of registration the to related powers new incorporated Bank the prevention, ML/TF to regard With the rulesforfinancialservicesbetweenEUandUnitedKingdomafter31December2020. covered bond public supervision. The Bank was also involved in thedrafting of the legal act approving prudential supervision of investment firms and the Directive on the issue of covered bonds and In the CNSF, the Banco de Portugal worked on drafting proposals to transpose the Directive on the Portuguese bankinglaw. prudential supervisionandtransposes the Banking Union’s legalandinstitutional framework into Financial Companies,whichhasbeeninforcesince1993.Itincorporatestheexperiencegained Financeiros – CNSF). The Code is intended to replace the Legal Framework of Credit Institutions and cooperation withtheNationalCouncilofFinancialSupervisors(ConselhoNacionaldeSupervisores a BankingActivityCode,submittedtotheMinistryofFinanceandsubjectpublicconsultation,in With regard to the establishment of domestic standards, the Bank prepared the preliminary draft of and governancearrangementsforretailbankingproducts. loans in Europe. In addition, it implemented several of the EBA’s guidelines on product oversight complete oneofthepointssetin2017byECOFINActionPlantotacklenon-performing in a benchmarking study on national loanenforcementframeworks,which made it possible to The BankparticipatedintheEBA’sworkonassessingimpactsofBaselreformsEUand Stability ofthePortuguesefinancialsystem Table I.3.1 ). Thesedevelopments 45 Safeguarding of financial stability 46 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Asset quality Solvency Profitability in order to prevent distortions of competition or behaviours that could diminish its effectiveness. on new credit agreements for consumers, namely credit for house purchase and consumer credit, The BancodePortugalmonitored theimplementationofmacroprudentialRecommendation the CouncilofEU,tobeheldinfirsthalf2021. In conjunction with the Ministry of Finance, the Bank also prepared the Portuguese Presidency of particularly indealingwithissuesrelatingtothePortuguese financialsector. assistance to Portugal. The Banco de Portugal has an important role to play in these exercises, Monetary Fund (IMF) experts related to post-programme surveillance of economic and financial During the year, there were two missions from European institutions, as well as visits by International sheet positions,andpossiblyexcludingexposurestocentralbanksuponauthorisationofthesupervisoryauthority). off-balance and derivatives assets, total (including exposure total to capital 1 Tier of Ratio assets.(n) risk-weighted to capital 1 Tier Equity Common of Ratio assets.(m) risk-weighted to funds own total of Ratio (l) value. gross their to loans non-performing for recorded impairments of Ratio (k) loans. of value gross total the to impairments of net loans non-performing of value the of Ratio loans.(j) of value gross total the to loans non-performing of value gross the of Ratio (i) scenario. stress 30-day a in calculated outflows cash net to assets liquid available of Ratio deposits.(h) customer to loans of Ratio funding.(g) Eurosystem to entirely almost corresponds This assets. total of percentage a as funding bank Central income.(f) operating total to costs operational of Ratio equity.(e) average of percentage a as taxes before loss and Profit (d) assets. average of percentage a as liabilities; and assets financial on expenses and income interest and between Difference fees (c) assets. net average of and percentage a income as costs; interest operational less Net commissions (b) assets. average of percentage a as taxes before loss and Profit (a) Notes: | Portugal. de Banco Source: Table I.3.1• Liquidity Macroprudential policy Ratio ofnon-performingloans(NPLs) of impairments Total non-performingloansnet Capital ratio Return onassets(ROA) purposes Households, consumptionandother Non-financial corporations Cost-to-Income NPL impairmentcoverageratio Non-financial corporations Households, housepurchase NPL ratio(netofimpairments) purposes Households, consumptionandother Households, housepurchase Loan-to-deposit (Ltd)ratio Return onequity(ROE) Operating result purposes Households, consumptionandother Households, housepurchase Liquidity coverageratio(LCR) Net profitfortheyear Net interestincome Leverage ratio Common EquityTier1(CET1)ratio Total non-performingloans Non-financial corporations Total assets(gross)/GDP(nominal) Central bankfunding (k) (j) (i) (l) (n) (e) (b) Portuguese bankingsystemindicators(2016-2020) (c) (f) (d) (a) (g) (k) (j) (i) (h) (k) (j) (i) (j) (k)

(m) (i) millions millions millions EUR, EUR, EUR, EUR, EUR, EUR, Unit % % % % % % % % % % % % % % % % % % % % % % % % 25,364 46,361 -1,244 150.8 207.1 2016 -0.31 21.0 45.3 15.1 29.5 16.2 17.2 95.5 59.4 0.75 11.4 12.3 48.9 63.2 -3.9 5.5 6.6 6.0 9.4 7.0 6.4 1.5 18,728 37,001 173.5 194.6 2017 -0.02 22.8 49.4 11.6 25.2 13.1 13.3 92.5 52.8 0.85 13.9 15.1 53.9 62.6 -0.2 -88 4.4 7.8 4.9 6.7 5.7 6.3 1.6 12,420 25,852 196.4 187.5 1,079 2018 0.28 27.1 52.0 18.5 10.5 89.0 60.3 0.95 13.2 15.1 56.5 59.8 2.7 3.0 7.3 8.0 4.2 4.5 3.8 9.4 5.3 1.6 17,199 218.5 182.5 8,347 1,763 2019 0.45 26.3 51.5 12.3 87.1 59.2 0.95 14.3 16.9 56.5 58.8 1.8 8.2 4.9 7.9 5.4 3.4 3.0 2.4 6.2 4.4 1.6 14,358 251.6 203.5 6,401 2020 0.04 30.7 55.4 84.9 58.0 0.89 15.4 18.1 56.9 66.8 167 1.3 8.4 0.5 9.6 7.7 4.2 2.8 2.2 1.9 4.9 7.8 1.5 implemented strictscrutiny of thememberscorporatebodiesduringauthorisation Bank The identified. were improvement for opportunities 67 and out carried were inspections five systems, control and governance internal the of effectiveness and adequacy the assess To of themanagementandsupervisorybodies,internalcontrol functionsandexternalauditors. As regards internal governance, the measures were targeted at ensuring a proper functioning bodies approvecreditoperationsthatincreasetherisktohigh-risk debtors. concentration ofhighrisks.TheBankissuedaCircularLetter recommendingthatthemanagement For creditrisk,theconcernwastoensurethatinstitutionscarefully managesuchriskandmonitorthe also reviewedandrecommendationswereissuedonthismatter. cybersecurity risksandcreditrisks.Strategicplansforthedigitalisation ofbankinginstitutionswere carried out cross-cutting inspections and analyses, assessing how institutions manage financial risks, maintain adequatecreditstandardswhileaccompanying ongoingdigitalinnovation.TheBank Aiming at strengthening business models, the Banco de Portugal acted to ensure that institutions correction andstrengtheningfutureresilience. sheet balance the continuing of consist which institutions, significant for SSM the by set those with mechanisms, and (iv) the reinforcement of capital and liquidity positions. These priorities are in line (ii) appropriatecreditriskmanagement, (iii) the reinforcement of internal governance and control In 2020,fourprioritieshaveguidedprudentialsupervision:(i)thestrengtheningofbusinessmodels, measure takenbySwedenonexposuressecuredresidentialpropertylocatedinthatcountry. The Banco de Portugal also decided to extend for one year the reciprocity of the macroprudential change hasnoimpactonthebuffertobeheldbyeachinstitution. the BCPisnowbanking group withthegreatestsystemicimportance,replacing the CGD, but the importance: systemic by order in change a was there but 2019, from modified not was institutions Santander Totta, Banco Português de Investimento and Caixa Económica Montepio Geral. The list of importance: Banco Comercial Português (BCP), Caixa Geral de Depósitos (CGD), LSF Nani Investments, systemic of order in (O-SII), institutions important systemically as identified were following The Portuguese bankingsystemtoAngola. de Portugal continues to monitor any developments in other direct and indirect exposures of the year, thelistofcountriesnowincludesBrazil,butnolongerAngola.However,Banco 2021, has been updated and includes Brazil, Mozambique and Macao. Compared to the previous of quarter second the until effective buffer, capital countercyclical the setting and recognising of The list of third countries to which the Portuguese banking system is exposed for the purposes to thetotalamountofcreditgrantedbyeveryinstitutionandcoveredRecommendation. each institution. In addition, the 5% exception to the DSTI ratio limits will be maintained with regard ratio between 50%and60% were reduced by upto 10% ofthe total amountofnew credit granted by The exceptionsprovidedforintheRecommendationgrantingcredittoborrowerswithaDSTI continues tohaveamaximummaturityoftenyears. system. This amendment excluded credit for education, healthcare and renewable energy, which average maturity and average amount of new personal credit, which might pose a risk to the financial maturity ofnewpersonalcredittosevenyears.Thisdecisionwasbasedonthepersistentincreasein In January 2020, the Banco de Portugal amended the Recommendation, reducing the maximum to 3%inDecember2020. of house purchase credit granted to borrowers with a higher risk profile fell from 35% in July 2018 Significant convergence towards the limits set in the Recommendation continued. The percentage Prudential supervision 47 Safeguarding of financial stability 48 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 qualifying holdingsand112 statutory amendments ( In 2020 there were also 497 registrations of members of corporate bodies,480 registrations of previously authorisedtooperate inPortugalundertheEUpassportingregime. were cancelled relating to institutions having head office in the United Kingdom and which were the result of Brexit. After the end of the transition period on 31 December 2020, 581 registrations mainly was reduction significant This year. the of end the at Portugal in institutions such fewer 430 Economic AreaStateswereregisteredunderthefreedom toprovideservices,therewerealso European in office head their having institutions new 151 while turn, In institutions. between Market Commission(ComissãodoMercadodeValoresMobiliários –CMVM),aswellfrommergers of investment fund and credit securitisation management companies to the Portuguese Securities the end of the previous year. This decrease resulted mainly from the transfer of supervisory powers institutions wereregistered( payment and companies financial institutions, credit 1,072 of total a 2020, December 31 On for accesstofinancialactivity. communication with the applicants by informing them in advance of the main prudential concerns amendments. Inordertospeeduptheseproceedings,theBancodePortugalstrengthenedits the setting-upofnewinstitutions,acquisitionqualifyingholdings,mergersandstatutory Within thescopeofentityauthorisation,therewere180authorisationproceedings,including funds. Opportunitiesforimprovementwerealsoidentifiedandarebeingimplemented. anti-money laundering mechanisms, accounting and prudential reporting and protection of users’ by the Payment Services Directive (PSD2) and compliance with the internal control requirements, 14 institutions. The results confirmed satisfactory compliance with the new legal requirements laid down external auditorswascarriedout,aimingatvalidatingthelegalbusinessrequirementsof As for the supervision of payment institutions and electronic money issuers, a special audit using governance, creditriskandliquidity. institutions, the Banco de Portugal issued 136 supervisory measures relating to capital, internal In 2020, following the annual Supervisory Review and Evaluation Process (SREP) to 12 less significant establishment oflimitstothevariableremunerationpayment. were questioned and recommendations were issued for the non-distribution of dividends and the In thiscontext, the self-assessment processes for internal capital adequacyandinternal liquidity requirements. regulatory minimum with consistent and profiles risk their to appropriate levels With regardtocapitalandliquiditymanagement,thefocuswasensurethatinstitutionsmaintain workshop addressedtofirms and statutoryauditors. a the supervisedinstitutionsand,togetherwithOrderofStatutoryAuditors,Bankhosted matters to thesupervisoryauthority. Two workshopswereheldtopresentthese regulations to support system, remuneration policies and practices, as well as set out obligations to report these conflicts of interest, reporting of irregularities, outsourcing of internal control tasks and the IT strengthened therequirementsintermsofconductandorganisationalculture,prevention have tools new These 18/2020. No Portugal de Banco the of Instruction and 3/2020 No Portugal institutions wasalso completed, culminatinginthepublicationofNotice the Bancode A substantialrevisionoftheinternalgovernanceandcontrolrequirementsforsupervised preventing conflictsofinterest. and qualifications enhancing of terms in especially recommendations, 234 of issuance the with bodies. Thisledtoashiftofthemanagementandsupervisorybodiesseveralinstitutions, also onacollectiveassessmentanddistributionofresponsibilitieswithinthemanagement but interest, of conflicts preventing and suitability their assessment the on focusing processes, Table I.3.2 ). There were 87 fewer national institutions registered than at ). Therewere87fewernationalinstitutionsregisteredthanat Table I.3.3 ). Thenumberofactsregistration

Institutions basedinEEAStates,providingservices and financialcompaniesbasedabroad Registered representativeofficesofcreditinstitutions Branches ofEU-basedfinancialcompanies Branches ofsubsidiariesEU-basedcreditinstitutions Statutory changes Registration actswithregardtoqualifyingholdings offering of new digital payment services. In addition, it verified the fulfilment of institutions’ obligations obligations of institutions’ fulfilment the verified it addition, In services. payment digital new of offering as wellthesecurityrequirements oftheconsumercreditsigning-upprocess.Italsomonitored the The Bankmonitoredinstitutions’ compliancewiththeobligationstoprovideassistanceandinformation, digital channelstherulesoninformationtransparencyin the offeringofproductsandservices. In 2020theBancodePortugalissuedrecommendations to institutions,whichaimedadapt Source: BancodePortugal. Members ofcorporatebodies Table I.3.3• obligations totheBancodePortugal(reportingquality,newreportingandfuturedevelopments). supervision. In November, the annual seminar was held on topics related to prudential reporting banking sector. Several seminars were held with credit institutions on operational topics of prudential The Banco dePortugal continued to organise global information and dialogue initiatives with the Source: BancodePortugal. National institutions Table I.3.2• of renewalmandatesinthecorporatebodiesmutualagriculturalcreditbanks. is explained by the shrinking of the total number of institutions, but also because 2019 was a year for the exercise of functions in corporate bodies decreased compared to the previous year, which Banking conductsupervision Electronic moneyinstitutions Payment institutions Credit institutions Holding companies Electronic moneyinstitutions Board ofthegeneralmeeting Payment institutions Supervisory bodies Financial companies Management bodies Credit institutions Registration acts(2016-2020) Total ofregisteredinstitutions,bytype(2016-2020)

1,400 Dec. 16 Dec. 16 912 306 370 513 173 182 317 480 603 93 20 32 44 96 89 5 1,017 Dec. 17 Dec. 17 134 348 369 535 170 692 212 146 210 336 20 31 45 95 75 1 1 6 1,069 Dec. 18 Dec. 18 172 360 361 537 165 666 228 114 228 324 20 29 46 90 56 1 2 8 1,225 Dec. 19 Dec. 19 234 438 364 553 165 915 112 227 186 327 402 22 24 12 47 89 2 3 Dec. 20 Dec. 20 795 146 225 277 424 164 497 112 480 154 251 22 14 30 40 92 0 2 5 Δ 2020-2019 Δ 2020-2019 -430 -213 -129 -418 -173 -151 -88 -87 -10 -17 -49 253 -94 -2 -1 -7 -1 0 0 49 Safeguarding of financial stability 50 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 credit moratoriaregimewasalso atopicaddressed. to the usual topics, such as family budget, savings, credit and care in the use of digital channels, the addition In participants. 7,000 than more involving country, the across literacy financial on courses undertaken withschools.Withthesupportofregionalnetwork, theBankpromoted213training awareness amongyoungpeopleofthecaretobetakenwhen usingdigitalchannels,initiativeswere raise to 2018 in launched was which campaign, education financial digital #TopTip the of part As activity ofthecertifiedentities. the monitored and applications certification two on decided and examined Portugal de Banco the agreements, credit mortgage and loan home of offering the in involved institutions credit of Within itspowerstocertifyandmonitortrainingentities of creditintermediaries and ofemployees correction oftheirregularities,andinitiated22administrativeoffenceproceedings. 74 advertisements released by these entities. In this context, it issued 50 specific orders, demanding The Bankreceived74bankcustomercomplaintsaboutcreditintermediaries’conductandmonitored registration wereexamined,ofwhich94.8%approved. up to date with the Banco de Portugal, 4,567 requests for changes to the elements subject to of 5,079 credit intermediaries were registered. As credit intermediaries have to keep their register intermediary and decided on 659 applications, of which it approved 438. At the end of 2020, a total The Banco dePortugalreceived562 applications forauthorisation to pursuetheactivityofcredit correction oftheirregularitiesdetected.Italsoinitiated86administrativeoffenceproceedings. financial institutions, the Bank issued 3,025 specific orders and recommendations demanding As aresultoftheinspections, the supervisionofadvertisingandanalysis of complaintsagainst the BancodePortugal’sintervention. closed complaints, the issue was resolvedbythe institution, either on itsowninitiative or through complaints showed no indication of infringement by the institution in question. For the remaining developments arealmostentirelyexplainedbypandemic-relatedissues.61.1%oftheclosed Complaints from bank customers about institutions’ conduct increased by 8.6%, to 19,660. These for the110depositsofthistypethatmaturedthroughoutyearwereconfirmed. institutions the by set rates remuneration the and assessed was offered deposits structured 54 Compliance withthepre-contractualinformationprovidedin“KeyInformationDocument”of Portugal ( and services.Thisledtoanincrease11,487intheadvertisementsexaminedbyBancode products banking on campaigns advertising in increase significant a was there year the Throughout (iii) periodically,duringthelifetimeofcreditagreement. (i) in the European Standardised Information Sheet, (ii) in agreements on credit cost measures and credit, a cross-cutting inspection was carried out to verify compliance of the information provided essential for monitoring compliance with the maximum APRC limit. For home loans and mortgage to assesstheproceduresadoptedinsettingofdateagreements’conclusion,whichis facilities and credit overrunning, credit cards, credit lines, current accounts and car loans, in order In monitoring the rules applied toconsumer credit, the Bank carried out inspections of overdraft and (iv)compliancewithpracticesintheofferingofbasicbankaccounts. accounts, (ii)theaccountswitchingservice,(iii)disseminationofinformationonbasicbank r elating to (i) the annual information provided in the bank statement on the fees on demand deposit elating to (i)theannualinformationprovidedinbank statement on thefees demand deposit Table I.3.4 ). Tourism Agency), aiming at supporting financial education of unemployed people, entrepreneurs people, unemployed of education financial supporting at aiming Agency), Tourism Portuguese Agency for Competitiveness and Innovation, and Turismo de Portugal (the Portuguese courses continuedat the Portuguese Institute for Employment and Vocational Training, the Train-the-trainer supervisors. financial other the with conjunction in Education, Financial for Plan In theCNSF,BancodePortugalcontinuedtobeinvolved intheimplementation of theNational Integrado do Crédito Agrícola Mútuo (SICAM, Integrated Mutual Agricultural Credit Scheme) were accounted for separately. (c) Banco de Portugal’s initiatives. Central de Crédito Agrícola Mútuo, C. R. L. (Central Mutual Agricultural Credit Bank) and the mutual agricultural credit banks that are members of the Sistema Caixa – Central Caixa The (b) matters. the of each in covered institutions of number the to corresponds figure The (a) Notes: | Portugal. de Banco Source: Supervision offinancialinstitutions Table I.3.4• Requests forinformation Supervision ofcreditintermediaries Certification oftrainingentities Financial education Advertisements received Credit intermediaries Financial institutions Number ofparticipants Requests decidedforchangestoelementssubjectregistration Applications forauthorisationaccepted Authorisation proceedingsconcluded Requests forchangestoelementssubjectregistrationaccepted Advertisements received Requests received Correction ofirregularitiesandsanctions Inspections Bank customercomplaints Training entitiescertified Training initiatives Correction ofirregularitiesandsanctions Key informationdocumentsforstructureddeposits of whichCOVID-19topics Bank customercomplaints Consumer creditagreementsconcluded Remuneration ratesonstructureddeposits Credit moratoria Home loansandmortgagecredit Consumer credit Consumer creditindigitalchannels Basic bankaccounts Administrative offenceproceedingsinitiated Specific ordersandrecommendations of whichcomplaintsonCOVID-19matters Administrative offenceproceedingsinitiated Current accountsandpaymentinstruments Inspections |Entitiescovered(a) Specific orders and recommendations Specific ordersandrecommendations Key indicatorsforbankingconductsupervisionactivity (c) (b) (b)

(b) (b)

(b) (2019-2020) 1,599,172 20,458 18,104 9,684 2,341 1,645 3,895 3,762 5,170 3,815 2019 107 119 581 921 169 325 114 N/A N/A N/A 15 27 75 57 45 3 8 0 4 3 1,217,024 11,487 19,660 2020 6,997 3,025 3,634 4,567 4,328 1,662 106 930 104 121 477 213 438 659 110 99 96 88 86 54 22 50 74 74 0 2 1 51 Safeguarding of financial stability 52 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 decisions deliveredinsummaryproceedings,whose finalstatusdependsonaformalnon-rejectionbythedefendantsantdecisions. intherelev the to applicable framework legal the from arises year following the to forward carried proceedings of number the and year the of end the at pending Source: Banco de Portugal. | Notes: (a) Correction of the number of proceedings initiated in 2017. (b) The difference between the number of proceedings Table I.3.5• 148 administrativeoffenceproceedings,ofwhichonlynine werejudiciallyappealed( for taken was decision final A decrease. to continued proceedings long-pending of number the Some large-scaleandcomplexadministrativeoffenceproceedingshavebeenfinalised by bankingconductsupervisors. advertising ofretailbankingproductsandservicesontheuseinnovative technological tools Bank coordinated workson responsible lending and participated inthe preparation of reports on banking conduct supervisoryauthorities responsible forretailbanking products andservices, the At the International Financial Consumer Protection Organisation (FinCoNet), which brings together from 40countries. strategy, whichwasattendedby135participantsfromcentralbanksandsupervisoryauthorities education financial national a of implementation and design the on course remote a co-host At the end of2020,theBancode Portugal wasinvitedbytheAllianceforFinancialInclusionto from 26to30Octoberandwaspromotedalmostfullyremotelyusingsocialmedia. and managersofmicro,smallmedium-sizedenterprises.TheFinancialLiteracyWeekoccurred Azores. ThissessionwasattendedbyVice-GovernorLuísMáximodosSantos. the in Lagoa de Secundária Escola at #TopTip campaign education financial digital the promote to session a hosted Portugal de Banco the February In Legal enforcement Proceedings pendingattheendofyear Proceedings concluded Proceedings carriedforwardfrompreviousyear Proceedings initiated Overall indicators Administrative offenceproceedings 2016 441 217 382 276 (2016-2020) 2017 327 156 271 441 (b) (a) 2018 328 246 195 113 (b) (b) 2019 245 247 117 115 (b) (b) 2020 247 148 204 303 (b) Table I.3.5 ∆ 2020-2019 + 31 + 89 + 58 = ).

in accordancewiththerulesintroduced bythe“newbankingpackage”. with resolutionplans.Thebinding MRELrequirementswerealsolaiddownfortheseinstitutions, All institutionsonwhichtheBanco dePortugaldirectlyexercisesresolutionfunctionswere provided Directive andtheSingleResolutionMechanismRegulation –BRRD2andSRMR2respectively). by the‘newbankingpackage’(whichincludesrevisions oftheBankRecoveryandResolution for eligible own funds and liabilities (MREL) were revised, in accordance with the rules introduced resolvability analysisofeachinstitutionwasimprovedand thetargetsforminimumrequirements The BancodePortugalcontinuedtheresolutionplanning workinthecontextofSRM.The 3.3 participation intheworkinggroupondepositguaranteeschemes createdbytheEBA. As thedesignatedauthorityforDepositGuaranteeFund,Bankcontinuedtoensureits and carriedouttheproceduresfortheircalculationcollection. The BancodePortugalsettheparametersforcalculatingcontributionsduebymemberinstitutions operation oftheDepositGuaranteeFundandResolutionFund. The Banco de Portugal continued to provide technical and administrative services required for the judicial liquidatorsorliquidationcommitteesappointedforthatpurpose. The Bankalsomonitored18winding-upproceedingsundertheresponsibilityofStatecommissioners, rights heldbyqualifiedshareholdersofsupervisedentities. bodies of supervised institutions, as well as five proceedings for suspension of the exercise of voting for apossiblereassessmentofthesuitabilitymembersmanagementandsupervisory withdrawal of authorisation granted to supervised institutions. Also, 23 proceedings were conducted In termsofnon-sanctioningenforcement,sevenproceedingswereexaminedforthepossible a member. Branqueamento de Capitais e ao Financiamento do Terrorismo), of which the Banco de Portugal is ao Combate e Prevenção de Políticas das Coordenação de (Comissão AML/CFT Commission conclusions weredisseminatedinJune2020.TheassessmentwasconductedbytheCoordination supervision was completed, as part of the broader ML/TF national risk assessment, whose summary The sectoral money laundering risk assessment of the institutional groups subject to the Bank’s to intervene by checking controls and assessing the ML/TF risk associated with the shareholders. continued Portugal de Banco the institutions, financial in holdings qualifying of acquisition and identification of beneficial owners were also supervised. As for the proceedings for the setting-up ML/TF prevention controls applied to the relationship with complex corporate structures and the more than350measuresunderitssupervisoryactivity. received by the Bank in this field (corresponding to 40 reporting entities), resulting in the issuance of comprehensive inspectionswereconductedoflargesupervisedinstitutions and 48annual reports other two inspections, cross-cutting two on completed were reports prevention, ML/TF of terms In investigations withthejudiciaryandpoliceauthorities. in cooperated Bank the Furthermore, activity. financial conduct to authorised not entities 40 against warnings public and offences, criminal 69 of signs for Republic Portuguese the of General Prosecutor the to notifications 47 proceedings, offence administrative 14 of initiation the to led These inspections. eight conducted and proceedings 345 under inquiries on-site and off-site conducted Portugal de Banco the activity, financial non-authorised of repression and prevention of terms In Deposit GuaranteeFundandResolution Resolution

53 Safeguarding of financial stability 54 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 by theBancodePortugalinadministrativeoffenceproceedings relatedtothe“BESuniverse”. held position the confirming issued were decisions judicial instances, these In Court. Constitutional are judged. The intervention of the Banco de Portugal extends to instances of appeal, including the proceedings offence administrative of decisions appealed judicially where Court, Supervision and The BancodePortugalalsointervenedintrialhearingsatthe PortugueseCompetition,Regulation of BES(culpableinsolvency),whichisstillpendingtrial. court. Particularlyimportantisitsroleinassessingtheliability ofboardmembersfortheinsolvency Portugal is responsible for monitoring these proceedings and providing supportto the relevant Legal proceedingsconcerningtheliquidationofBESandBANIFarestillpending.TheBancode reason ofwithdrawalontheplaintiffs’part. by finalised also was Union, European the of Justice of Court the before pending was which Banco, were claimedinrelationtotheresolutionofBES.AcaseaskingforannulmentsaleNovo noteworthy, as it dismissed the legal proceedings in which some unconstitutionalities and illegalities The judgmentrenderedbytheAdministrativeandTaxCourtofSintraon4November2020is finalised. were proceedings legal several and rulings favourable were there prosecuted, are Fund In these cases, in whichthe Banco dePortugal, the Deposit Guarantee Fund andthe Resolution and theCourtofJusticeEuropeanUnion. jurisdictions foreign to extends which Fund, Resolution the and Portugal de Banco the affecting and BANIF in previous years. On the other hand, the sale of Novo Banco created specific litigation still ahighnumberofcourtcasesresultingfromtheapplicationresolutionmeasurestoBES The litigationinvolvingtheBancodePortugalandfundsitoperatesremainedhigh.Thereis enforcement measures 3.4 the BankreportedrelevantinformationonNovoBancotoParliament. In accordance with Law No 15/2019 of 12 February 2019 on credit institutions using public funds, monitoring oftheactivitiesOitante. related to the sale of Novo Banco, particularly the contingent capitalisation agreement, and the Banco de Portugal continued to support the Resolution Fund in the monitoring of the agreements creditors wouldhaveborneifthebankhadenteredintoliquidationon20December2015. The measures were completed, including an assessment of the losses that BANIF’s shareholders and As regardsBANIF,theindependentstatutoryassessmentsfollowingimplementationofresolution The Banco de Portugal continued its work on the resolution measures applied to BES and BANIF. applied inresolutionmeasures. groups oftheSRMandEBA,itcontributedtosettingpoliciesmethodologiesbe institutions present in Portugal were at stake. In the various committees and technical working and inextendedexecutivesessionswheneverissuesrelatedtoPortuguesecreditinstitutionsor Regarding the Single Resolution Board, the Banco de Portugal was represented in plenary sessions Upholding thelegalityofresolutionand

4 Knowledge creation and sharing

In its Strategic Plan for 2017-20, the Bank committed itself to contributing to informing public opinion about the Portuguese economy and European integration, working towards strengthening its capacity for analysis and policy advice, in the establishment of partnerships with academia and other national and international partners, and in the dissemination of the research and statistics it produces.

A research agenda was created for the four-year period, which allowed internal research to be centred around three strategic themes for understanding the Portuguese economy and its future developments in the context of the euro area: (i) the new challenges facing monetary policy and financial stability; (ii) the constraints and sustainability of Portuguese economic growth; and (iii) the future of institutions and public policies in Portugal and in the European Union. The Bank has published revised series of the national financial accounts and external statistics and disclosed data series for the Portuguese banking sector with an extended time span. It has also reformulated its statistical dissemination website, BPstat, enriching it with features and contents that facilitate the use and comprehension of published statistics.

The following sections describe the Bank’s activity in 2020 in terms of knowledge creation and sharing.

4.1 Research

The research projects undertaken at the Banco de Portugal were in line with priorities in the research agenda and resulted in the publication of 23 studies in its Working Papers and Occasional Papers series and 15 articles in its Economic Studies. Thirty-one articles were published or accepted for publication in international scientific journals. The Bank also disclosed five studies prepared using information contained in its database on non-financial corporations in Portugal, included in the Central Balance Sheet Studies series. Giving continuity to its investment in disseminating legal knowledge, the Bank launched the second issue of the Cadernos Jurídicos (Legal Papers), which contained a legal opinion and judgement related with the resolution of Banco Espírito Santo, S.A., as well as a scientific article on the immunity from legal proceedings of the European Union before the courts of its Member States.

As part of its effort to disseminate knowledge of the Portuguese economy, the Banco de Portugal’s Microdata Research Laboratory (BPLIM) provides microdata to researchers. BPLIM supported 31 new research projects; at the end of the year

117 projects involving 149 researchers were Inequality was the topic discussed in the 10th Conference on Portuguese Economic Development under way, of which 115 were external to the in the European Area. 56 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 the 9 Alongside the European Central Bank and 11 national central banks of the Eurosystem, it concluded instrumental toitstasks. study of field a of appreciation in establishments, educational Portuguese ten from Economics in Portugal also presented the Professor Jacinto Nunes Award to the best undergraduate students de Banco The Management. in time, first the for and Economics in theses masters’ best the of Blundell of University College London. The José da Silva Lopes Award was presented to the authors European Area, dedicated this year to issues of inequality. The keynote speaker was Richard statistical series. databases tobeautomatically fed withdata),12newdomainsandsub-domainsover20,000 new to explorestatistics (including an application programming interface that allows external entities’ BPstat, whichwasreformulatedandrelaunchedattheendof2019, updatedwithnewfunctionalities Plan. the in established goals/deadlines the and dissemination statistical of terms in euro areaeconomiesontheBP The BancodePortugalpublished161thousandstatistical seriesaboutthePortugueseand 4.2 The Bankalsoorganisedthe10 government andothercentralbanks. general Portuguese Bank, the from staff technical including participants, 260 about together bringing – and has organised distance learning courses, given by the Bank’s specialists or invited experts, Visualisation Data on Workshop the – workshop virtual a out carried it time first the for However, Centre Region,butitpostponedtheactivitiesplannedwithcounterpartfirmsinSouth. 2019, theBank, at the beginning of2020,organisedmeetings with manufacturingenterprisesin the they approach innovation and export activities. Having visited enterprises in the North Region in way the and practices management their especially firms, Portuguese of reality the understanding example wasthecycleofvisitsthroughoutcountrythatBankhasledwithpurpose Some in-person activities to disseminate knowledge have been either cancelled or postponed. One project isexpectedtobeconcludedin2023. evolution. TheBankwillleadtheworkforcededicatedtostudyingmacroeconomicimpacts. project aimstostudytheimpactofclimatechangeinPortugalundervariousscenarios Atmosphere (IPMA)andtheNorwegianDirectorateforCivilProtection(DSB).Thismultidisciplinary (DGT), theFacultyofSciencesUniversityLisbon(FCUL),PortugueseInstituteforSeaand in partnershipwiththePortugueseEnvironmentAgency(APA),Directorate-GeneralforTerritory The yearwasalsomarkedbythelaunchofNationalRoadmapforAdaptation2100,developed for EmploymentandVocationalTrainingtheInstituteFinancingAgricultureFishing. Institute the with purposes scientific for protocols sharing microdata two into entered Bank The Europe andtheUnitedStates,aswell10mostlyinternationalnon-universityresearchinstitutions. Bank. The researchers were from 14 Portuguese universities and 38 foreign universities, especially in 9th Award. students’ awareness of monetary policy. 156 teams from 69 Portuguese schools participated in the th andlaunchedthe10 Statistics th Generation €uro Students’ Award, which aims to raise upper secondary Generation€uroStudents’Award,whichaimstoraiseuppersecondary stat site,incompliancewiththemostexactingqualitystandards th ConferenceonPortugueseEconomicDevelopmentinthe Statistical Activity

direct investmentandtheactivitycarriedoutbymultinationalfirms. impact of globalisation and digitalisation, and the challenges associated with accounting for foreign discussed attheconference, including, theusefulness of external statistics in policy decisions,the bringing together160expertsfromcentralbanksandacademicsof70countries.Varioustopicswere “Bridging measurementchallengesandanalyticalneedsofexternalstatistics:evolutionorrevolution?”, the auspicesofBankforInternationalSettlements – BIS),theBankorganisedconference In cooperation with the ECB and the Irving Fisher Committee(forum on central bank statistics, under 76 Portugueseschoolsparticipatedinthe2020edition. literacy among students and teachers in lower- and upper-secondary education. 229 teams from edition in Portugal of theEuropeanStatisticsCompetition, an initiative aimingatpromoting statistical With Eurostatand Statistics Portugal, the Bank organised the 2020 edition and launched the 2021 teachers inofficialstatisticsandpromotetheeducationalmaterialsavailableonBP social media entitled “My back-to-class essentials. #MyBP to 950 students. At the beginning of the academic year it launched a communication campaign on economics, whichengaged354participantsandmade13presentationsinschoolsuniversities webinars inpartnershipwiththeDirectorate-GeneralforEducationupper-secondaryteachersof Aiming to share knowledge about the statistical information that it discloses, the Bank held two with allthefunctionalitiesavailableonline.Overyear,BP BPstat incorporatedtheinformationdisclosedin infographics to ease the understanding of the concepts and statistical data. In November 2020, releases, containingthemainstatisticalresultsdivulged.BP On BPstat, the institutional website and social media, the Bank published 110 statistical press from 70countriesattheBancodePortugal’spremises. experts together brought revolution?” or evolution statistics: external of needs analytical and challenges measurement “Bridging conference the February, In Statistical Bulletin ”, to foment the interest of students and stat”, to foment the interest of students and also contains videos, explainers and stat alsocontainsvideos,explainersand stat received620thousandvisits. , which can now be explored , whichcannowbeexplored stat.

57 Knowledge creation and sharing 58 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 management policies,principles andpractices. was also set up withthe mission of fostering, coordinating and consolidating internal document issues, giving them cross-cutting coherence. The Specialised Committee for Document Management Committee for FinancialSupervisionandStabilitytomonitorcoordinatesustainability-related The SubcommitteeforSustainabilityandSustainableFinance wassetupwithintheSpecialised 5.1 in strengtheninginternalgovernanceandfunctioning. The following sections describe the most emblematic measures and the results achieved in 2020 out theguidelinesforactioninthisfieldand,particular,fightagainstclimatechange. of the the Bank’srelationshipwithcommunity.Thefour-yearperiodwasalsomarkedbypublication expectations. A new financial and social support policy and new volunteering projects strengthened and Instagram, and made changes to itsregularpublications, tailoringthem to target audiences’ In order to make its communications more effective, the Bank opened accounts on Twitter, YouTube made itpossibletoboostitsresilienceinbusinesscontinuity. business cases.AlsonoteworthywastheevolutionofBancodePortugal’sdatacentre,whichhas financial sector. An innovation lab was created to carry out experimental work in response to various increase cyber-attackprotectionandprovideanintegratedviewofsecurityincidentsinthePortuguese requested from the entities with which the Bank relates. A cybersecurity centre was also set up to information management programme, developed tostandardiseandrationalise the information members, allowing for increased productivity and better interaction among teams; and the integrated staffto available made were solutions mobility and collaborative which under project, 2020 Bank In information technologies and systems, two structuringinitiatives were implemented: the Digital skills inIT,maths,statisticsandinformationmanagement. members’ staff increase to up set School, Science Data the and programmes training leadership the are effect leverage their for noteworthy policies. Particularly career and recruitment of enhancement programmes, integratedintheBancodePortugalAcademy,andoninternalmobility As regardshumanresourcesmanagement,thefocushasremainedontrainingandskillsdevelopment was appointed,andadataprotectionofficesetup. on private financial transactions. During this period a Data Protection Officer of the Banco de Portugal restrictions monitoring and interest of conflicts preventing for procedures systematising by notably framework and compliance with professional ethics and rules of conduct has been strengthened, meet the demands arising from both its new functions and the digital transformation. The regulatory Over thepastfouryears,Bankhasimproveditsgovernancemodel,organisationandprocessesto by EurosystemNCBs. Guideline, thealignmentofitsorganisationalandgovernancemodelwithbestpracticesadopted In itsStrategicPlanfor2017-20, theBancodePortugalestablished,asitsfourthBroadStrategic 5 Strengthening internal Banco de Portugal’sCommitmenttoSustainabilityandSustainable Finance governance andorganisation Internal governance , a document that sets , adocumentthatsets mitigation measures identified were covered by its Strategic Plan for 2017-20. A detailed mapping of the major risks of the Bank’s activity have focused on the challenges facing its mission, and the main of classification and Identification 2020. in context shifting the of impact the of view in revised been The Bank’s regular exercises on non-financial risk identification, assessment and mitigation have Source: BancodePortugal. Procurement andlogistics(includingcontractmanagement) Risk andcompliance Legal matters Communication andimagemanagement Budget andaccounting Security IS/ICT Human resources Cooperation andinternationalrelations Resolution anddepositguarantee Reserve andfinancialassetmanagement Statistics Cash issuance Payment systemsandprocesses Supervision andlegalenforcement Monetary policyandotheroperationalduties Governance, internalfunctioningandmanagementquality Table I.5.1• internal audit function of the European System of Central Banks, Eurosystem and SSM ( 26 audits were conducted, 17 of which exclusively domestic in scope and 9 in the context of the make data collection, information analysis and the management of internal audit processes easier. The Bankproceededwiththeimplementation of agileandintegratedtechnological solutions to 5.2 entities andagainstabackgroundoftechnologicalinnovationinthefinancialsector(Chapter3). Supervision Department was adjusted to ensure the capacity tointervene with the new supervised both atdomesticandinternationallevels.TheorganisationalstructureoftheBankingConduct and terrorist financing (ML/TF) area were enlarged, in line with the growing relevance of this function Enforcement Department, the units and teams in the preventive supervision of money laundering monetary policy operations, and to aggregate activities of a cross-cutting nature. In the Legal management, toboostinnovationprojectswithpracticalapplicationinassetmanagementand to strengthen the link between the functions of monetary policy implementation and the reserve Markets and Reserve Management Department, now renamed the Markets Department, aimed the and management of theBancodePortugal’s institutional memory. The reorganisation of the Secretariat wereexpandedtoincludetheinstitutionalrelationwithPortugueseParliament Some departmentalrestructuringprocesseswerealsoimplemented,andthefunctionsofGeneral Internal controlandriskmanagement Internal audits(2020) Breakdown byfunction Total Domestic 17 1 1 2 2 4 5 1 1 ESCB, EurosystemandSSM 9 1 1 1 1 2 1 2 Table I.5.1 ). 59 Strengthening internal governance and organisation 60 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Unpaid leave/secondment supervision, bankingconductfinancial stability,legalenforcementandresolution. Source: Banco de Portugal. | Notes: (a) Excluding staff members on unpaid leave and public interest assignment. (b) Staff members allocated to prudential Active Total staff Table I.5.2• activities roseagain,reaching495bytheendofyear,14 morethanat-end2019( supervisory in involved members staff of number The 2017-20. for Plan Strategic the in out set 1,700 were in active employment, the same figure as in the previous year and in line with the goal As at 31 December 2020, the number of staff members employed by the Bank was 1,777, of whom 5.3 National DataProtectionCommission. Financial Supervisors(ConselhoNacionaldeSupervisoresFinanceiros–CNSF)andthePortuguese of the General Data Protection Regulation, respectively, the latter attended by the National Council of privacy riskassociatedwithcloudsolutionsandthesecondanniversaryofactualimplementation on conferences virtual two as well as members, staff for initiatives training of organisation the and Banco de Portugal, awareness-raising initiatives have continued to include the publication of a guide personal dataprocessing.Tofosterawareness and compliancewithdataprotectionprovisionsat the Commission, forpriorconsultation,sixregulatoryprojects(noticesandinstructions)relatedto Banco dePortugalbydatasubjects.TheBanksubmittedtothePortugueseNationalDataProtection personal data protection rules and replied to 91 requests for exercise of rights addressed to the with compliance Bank’s the on opinions issued and monitored has Officer Protection Data The was approvedanddisclosedonitsinstitutionalwebsite. 177 in 2020 (191 in 2019). Also, in 2020, the policy concerning gifts to institutional guests of the Bank totalling to receive, continued has Office Compliance the that interest of conflicts potential and transactions financial private activities, external on opinions for requests of number significant the the Compliance Office in managing and controlling the conduct risk. In this respect, it is worth noting relevance ofethicalbehavioursandstandardswhenperformingtheirduties,aswelltherole culture has been carried out, pointing to a favourable evolution of employees’ perception of the In order to enhance the Bank’s organisational resilience, an internal assessment of the corporate used bytheEurosystem(Chapter2). of anumberindicatorsandriskmeasuresbasedonstandardmethodologiesinlinewiththose Overall developments in financial risks were monitored, as usual, through the regular calculation Directors in2018andwhichdescribestheriskappetiteofBank. that complementedtheInternalStatementofRiskAcceptancePrinciples,approvedbyBoard metrics quantitative indicators, risk main so-called the of construction the from benefited also has management risk non-financial Bank’s The activity. its on pandemic the of impact the of view in the Bank’s non-financial risks has been completed, and its operational risk profile has been updated Supervisory tasks (a) Human resources Staff developments(2016-2020) (b) 1,797 1,717 2016 437 80 1,761 1,701 2017 446 60 1,753 1,687 2018 450 66 1,778 1,700 2019 481 78 1,777 1,700 2020 495 77 ∆ 2020-2019 Table I.5.2 -0.1% -1.3% 2.9% 0.0% ).

Unpaid leave/secondment Professional staff Middle management end pension fund) and the health benefits plan covering all staff – amounted to €2,081.2 to – amounted staff all covering plan benefits health the and fund) pension end pension plan for staff members who began working in the banking sector prior to March 2009 (closed- the finances which Plan, Defined-benefit – Fund Pension the of assets the 2020, December 31 at As increases undertheannualperformance-relatedvariablepay process. management positions. An overall balance is also clear as regards staff members covered by wage for except performed, duties in balance gender a general, in highlight, study that of findings The pay. monthly actual and promotion composition, staff in differences the 2019, to reference with In ordertoinformtheremunerationpolicy,astudyongender paygapswasconductedtocharacterise, Source: BancodePortugal. Technical-administrative staff Senior management Table I.5.4• Source: BancodePortugal. Gender Table I.5.3• assignment andonunpaidleav(TablesI.5.3I.5.4). interest public departments, other to assigned staff of 4% and staff technical-administrative 6% The breakdown by function remained broadly unchanged: 21% managers, 69% professional staff, staff were in the age brackets between 26-35 (552 active members) and 36-45 (542 active members). staff members fell again and is now 41 years (43 for males and 40 for females). Almost two-thirds of the of age average The (50.4%). higher was females of percentage the time, first the For recruited. were interns 57 Moreover, recruited. were 102 and – terminations contract labour 23 and 80 retirements The numberofincomingandoutgoingemployeeswasevenlybalanced:103lefttheBank– Movements Age group Staff: breakdownbyfunction(2020) Staff developments:gender,movementsandagegroups(2016-2020) Male Female Recruitments Retirements [26;35] <=25 Termination ofcontracts [36;45] [46;55] [56;65] >=66 Total 2016 913 884 112 570 353 288 505 881 547 152 Male 62 72 30 40 99 43 9 2017 900 861 556 381 265 474 85 78 74 29 11 Female 896 670 160 37 11 18 2018 886 867 118 560 426 259 418 87 72 36 18 1,777 1,217 Total 110 312 77 61 2019 892 886 100 161 579 483 272 334 94 36 16 million. This million. This 100.0% 17.6% 68.5% 4.3% 6.2% 3.4% 2020 % 881 896 102 104 552 542 283 272 80 23 24 61 Strengthening internal governance and organisation 62 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Participation rate Staff members Hours has also invested in new architectures, methodologies and technology platforms for data analysis, has alsoinvestedinnewarchitectures, methodologiesandtechnology platforms for data analysis, an infrastructure that will concentrate all relevant business data for shared internal use. The Bank New statistical and prudential information has been integrated into the Bank’s data warehouse, management andbusinessintelligence. the digital workplace, apps for mobile devices and tools for process management, document technological solutions adopted that are better adapted to the new way of working, including The Bankhaspursueditsdigitaltransformationprocess. Processeshavebeenredesignedand and security 5.4 one trainingsession.Itincludesretiredpersonsandstaffmemberswhoseemploymentcontracthasbeenterminated. Source: Banco de Portugal. Participants Table I.5.5• professional potential. programmes geared towardsrecruitment, integration into the Bank and support for developing also launched, providing foranintegratedapproachtothevarious career stages, including sub- improve datacollection,processingandanalysisprocesses.The Data Science School, one of the main training projects, was established to train staff to continuously The teleworking. widespread of context a in institution the with connected staff keeping of goal offer increased in areas such as communication, motivation and emotional management, with the and behaviouralskills( technological technical, management, members’ staff developing on focus to continued Bank The contribution Plan. protection provided by the General Social Security Scheme and the previously existing Defined- retirement the 2009, March 3 after recruited staff for increased, has which Plan, contribution Defined- Supplementary new the under onwards mid-year from made contributions includes of thisfund,amountingto€27.3million,postedareturn1.4%.Thevaluetheportfolioalready participants, meaning that the majority of new staff members opt to join this fund. The asset 1,020 portfolio had – 2009 March after sector banking the in working began who staff for plan pension supplementary voluntary a – Plan Defined-contribution – Fund Pension the 2020, of end the at As asset portfolioofthisfundstoodat5.7%. minimum 98.4% established by the Banco de Portugal in its Notice No 12/2001. In 2020, returns on the and 3.4%oftheassetportfoliomarketvalue,respectively.Itsfundinglevelstoodat104.0%,above The fundwasalsoexposedtoeuroareabondfuturesandequityfutures,whichcorresponded2.0% amount wasinvestedineuroareabondsandliquidity(83.8%),shares(5.3%)realestate(10.9%). Systems, technology,information management (a) Training: participantsandhours | Note: (a) The participation rate corresponds to the share of the Banco de Portugal’s employees who participated in at least Table I.5.5 59,793 ). Trainingprogrammesweredeliveredonlineandthetraining 96.4% 1,797 1,733 2016 60,673 96.9% 1,761 1,707 2017

(2016-2020) 60,319 97.5% 1,755 1,712 2018 103.6% 67,678 1,778 1,842 2019 Bombordo programmewas 49,182 95.5% 1,777 1,697 2020 ∆ 2020-2019 -27.3% -0.1% -7.8% -7.9% 490 informationrequestsofthe mediaandorganisedthreepressconferencesfourworkshops to replied It tasks. its to related concepts and topics explain to decoders 18 and officials senior by The Bank released 123 issues of its publications (Table I.5.7), 312 press releases, 44 speeches Source: BancodePortugal. Other communications Requests forinformationordocumentation Petitions Inquiries Requests foropinions Hearings attheBudgetandFinanceCommittee Table I.5.6• inquiries, petitions,provisionofinformationanddocumentation( replied inwritingtooveradozenrequestsfromParliamentregardingopinionsondraftlegislation, Chairman oftheResolutionFundwasheardonbankfeesandNovoBanco.Inaddition,Bank consequences ofthepandemiccrisisandNovoBanco,respectively.TheVice-Governor heard inthreehearingsattheBudgetandFinanceCommitteeregardingEuroBic,economic The Bank maintained regular interaction with the Portuguese Parliament. The Governor was public 5.5 financial system. Resilience CoordinationCentre,createdbytheBISwithmissiontoboostresilienceinglobal Cyber the in participated also has Bank The entities. sector financial between platform sharing of the Financial Sector – Information Sharing and Analysis Centre, the world’s largest information national authorities, financial sector key institutions and central banks. It has become a member The Bankhasstrengtheneditsbilateralsecuritycooperationwithvariousentities,includingInterpol, portal foroperationalcommunicationwiththefinancialsystem,hasbeenupdated. services hasbeenestablished,andtheinfrastructuretosupportBPnet,BancodePortugal’s In termsofsecurity,anewinternalframeworkformanagingITriskandtheadoptingcloud the SSM. sharing of knowledge and experiences to foster an innovation culture within the Eurosystem and Eurosystem Innovation and the SuperVision Innovators Fora, set up by the ECB to encourage the requests orextractingvaluefromunstructureddataindocuments.TheBankalsoparticipatedthe of innovative technologies to activities carried out by the Bank, such as handling information Under theaegisofInnovationLab,experimentalworkhascontinuedonassessingapplicability banks ofAustria,Lithuania,MoroccoandTurkey. other centralbanks,withwhichknowledgehasbeenshared,notablytheECBand of for data scientists. The Bank’s integrated information management model has aroused the interest involving algorithmsandmachinelearningtechniques,hasprovidedexperimentationareas Accountability, communicationandservicestothe Interactions withParliament(2020) Type ofinteraction Table I.5.6 Total ). ). Occurrences 21 3 3 2 5 3 5 for for

63 Strengthening internal governance and organisation 64 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 documentation. completed, whichfacilitated thepreservationofandaccesstothis of the photograph collection of the Banco de Portugal was also by the Banco de Portugal and completedin2020. The digitalisation the Portuguese Escudo Monetary Zone, a research project sponsored geared towardsdocumentation for thestudyofeconomicrelations in Portuguese-speaking countries,washeldbyvideoconference and external users,inparticularamongarchivistsandresearchers from the HistoricalArchivesofBancodePortugaltointernal and de Arquivo”(ArchiveAfternoons)initiative,aimedatdisseminating Bank were reduced considerably. The 2020 edition of the “Tardes The services provided by the library and the historical archive of the on chequesuseandlostidentificationdocuments. requests for credit liability reports and accounts database, restrictions face appointments in Lisbon and Porto. Online booking is available for points, the Bank has launched an online booking service for face-to- service customer its using firms and citizens of convenience the For their holders. of request the at system, banking the across disseminated is documents identification personal of the Banco de Portugal. The PERTO platform also ensures that information on lost and recovered the Banco de Portugal and official letters to be disseminated to institutions under the supervision sector more agile, efficient and secure. This platform allows requests for information to be sent to financial the and authorities issuing other and authorities judicial courts, between communications The Banco de Portugal launched the PERTO platform, a communication channel that has made were viewed11thousandtimes,byatotalof6,800enterprises. size class.Thesectortableswereviewed172 thousand times andtheenterprisesectortables the performance of their enterprise with that of enterprises in the same sector and of the same and SectorTables(availabletoenterprisesuponauthentication),whichallowmanagerscompare and ratiosofotherEuropean countries for eachsectorofactivity.Italsoreleased the Enterprise and financial indicators on Portuguese enterprises by sector of economic activity and by size class, The Bank released the Sector Tables (available to the public), which include a set of 150 economic 2.7 millionviewsbycustomers. consultations totheCentralCreditRegister,with7.6millionviewsbycredit-grantinginstitutionsand Demand for services provided by the Bank continued to be strong (Table I.5.9), particularly as regards customer serviceandresponsetimesforcomplaintsagainstsupervisedentities. in itsLivrodeReclamações applied to the marketing of banking products and services. The Bank received 22 complaints accounts and restrictions on cheque usage), complaints against financial institutions and the rules In these inquiries, the most targeted issues were the Bank’s databases (on credit liabilities,bank by e-mailpublic orthroughtheformsavailableonwebsiteandBankCustomerWebsite. Throughout the year, the Bank processed 66,268 phone calls and 18,453 messages sent by the the Bank’spublications,atotaloffivethousandpagesproducedbytranslationservices. effort to also communicate with the public in English was supported by the translation of a large part of In additiontothebilingualversionsofinstitutionalwebsiteandBankCustomerWebsite, smartphone app,throughwhichitprovidestheservicesmostsought-afterbycitizensandbusinesses. new a and released– episodes five with Podcasts, BdP – format communication new a launched and journalists ( Table I.5.7 and I.5.8). The Bank continued focusing on direct communication with the public andI.5.8).TheBankcontinuedfocusingondirectcommunicationwiththepublic (complaintsbook);thesubjectsmosttargetedbycomplainantswere launched aseriesofpodcasts. communication formats,theBank diversification ofchannelsand Given itscommitmenttothe Bulletin onBanknotes Timor-Leste African Countriesand in Portuguese-speaking Economic Developments on Cooperation Annual Report and Coins Report onCashIssuance Systems Report onPayment Driven bydata Statistical ActivityReport Statistical ActivityPlan Statistical Bulletin Monitoring Report Retail BankingMarkets Supervision on BankingConduct Summary Report Supervision Report Banking Conduct System Portuguese Banking Financial StabilityReport Bank LendingSurvey Spillovers Coincident Indicators Economic Studies Banco dePortugal Economic Bulletin Policy Implementation Report onMonetary Official Bulletin Annual Report Table I.5.7• Source: BancodePortugal.|Note:PT–Portuguese; EN–English. Publication

Regular publications(2020)

speaking countries aggregate indicatorsontheeconomies of theeightPortuguese- their economicandfinancialrelationswithPortugal,aswell Portuguese-speaking AfricancountriesandTimor-Leste Provides ananalysisoftheeconomicenvironmentin counterparties inemerginganddevelopingcountries Reports ontheBancodePortugal’scooperationworkwith Cash-related topics activities andmainindicators Description oftheBancodePortugal’scashissuance of paymentsystems Presents themostrelevantfactsonoperation the international fora.IthasreplacedtheSupplementto Publishes statisticalarticlespresentedatnationaland statistical authority Description oftheBancodePortugal’sactivitiesasnational and priorities Description oftheBancodePortugal’sstatisticalobjectives Statistics oftheBancodePortugal deposits, mortgagecreditandconsumer Developments inmarketsforsimpletermdeposits,structured between issuesoftheBankingConductSupervisionReport markets’ supervisioninthefirsthalfofeachyear.Published Summary informationontheBancodePortugal’sretailbanking initiatives markets, aswellonBancodePortugal’sfinancialliteracy Information ontheregulationandauditofretailbanking environment leverage, aswellotherinformationonthemacroeconomic asset quality,liquidityandfunding,profitability,solvencyand system, basedonindicatorsthebalancesheetstructure, Description ofthedevelopmentsinPortuguesebanking of thefinancialsystem shocks andassessingtheirconsequencesforthestability and financialsystem,byidentifyingpossibleadverse Evaluation ofemergingrisksinthePortuguesemarkets Eurosystem’s survey Release ofdetailedresultsforPortugaltakenfromthe events promotedbytheBank Publication onresearch,economicanalysisand and privateconsumptioninPortugal Publication ofcoincidentindicatorsforeconomicactivity preceded byanon-technicalsummary by externalresearchers,andeconomicsynopses.Articlesare the BancodePortugal’seconomists,frequentlyco-authored Publication oftheoreticalandappliedstudiespreparedby of macroeconomicprojections Detailed analysisofthePortugueseeconomyandrelease of theEurosysteminPortugal Summary ontheimplementationofmonetarypolicy regulatory capacity Disseminates alllegalactsproducedbytheBankinits Description oftheBank’sactivitiesandfinancialstatements Statistical Bulletin Objective

Annual Annual Semi-annual Annual Annual Annual Annual Monthly Annual Annual Annual Quarterly Semi-annual Quarterly Semi-annual Monthly Quarterly per year Five issues Annual Monthly Annual Annual Frequency summary. of theexecutive English version Note: | PT PT andEN PT andEN PT summary. of theexecutive English version Note: | PT PT PT PT andEN PT andEN PT andEN PT andEN PT andEN PT andEN PT andEN EN PT andEN PT andEN PT andEN PT PT PT andEN EN Language

(a)

65 Strengthening internal governance and organisation 66 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Source: BancodePortugal. customers’ complaints Analysis ofbank Services Table I.5.9• Source: BancodePortugal. Website Channels Table I.5.8• reports Consultations ofaccount credit liabilitiesreports Consultations of cheques prohibition oftheuse information onthe Consultations of documents information onlost Dissemination of Website Bank Customer Cash office LinkedIn Instagram Library Historical Archiveand Twitter Youtube Money Museum

Communication: mainindicators(2016-2020) Services tothepublic:mainindicators(2016-2020) Press releases Public speeches Decoders Users Webpages viewed News Users Posts Impressions Posts Impressions Webpages viewed Tweets Videos published Impressions Views Indicators institutions ved againstfinancial Complaints recei intermediaries against credit Complaints received Maps issued Reports issued Defaulters the ListofCheque Consultations of Requests disseminated services Visits tocustomer Library consultations archived documents Consultations of Visitors Activities Indicators

- 2016 221 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 33 60 2 1,573,327 164,802 190,501 14,141 11,701 58,467 15,117,198 2016 5,523 1,291 2,032,481 2,006,007 304 913 N/A 773,400 35,760 2017 232 235 907 N/A N/A N/A N/A 80 25 80 31 2,008,309 225,764 141,931 15,282 10,696 62,859 2017 5,543 3,517 1,227 289 N/A 17,718,152 2,293,487 1,561,893 2,738,153 774,300 442,805 49 466 69,400 1,092 2018 241 444 1,807,718 62 43 95 25 21 249,767 156,111 15,264 10,031 62,396 2018 5,502 1,281 1,165 244 N/A 22,948,275 2,787,495 1,586,850 2,554,948 1,201,536 163 107 504,271 99,274 2,455,320 1,218 2019 396,465 264 183,348 109 542 18,104 62 45 74,796 93 42 2019 9,844 5,262 1,127 114 220 675 20,727,262 2 844980 1 988,571 3,304,010 2,876,284 2,887,000 2,887,000 2,731,119 156,706 614,687 388,959 112,314 1,312 19,660 25,446 2020 2020 8,484 2,276 312 132 105 710 44 18 42 312 271 74 91 The Banco de Portugal released on its website and social media a video with Director Hélder Rosalino to present PERTO, the new communication channel between courts and judicial authorities and the financial sector.

At the Money Museum, a new permanent exhibition space on the nature and functions of the Banco de Portugal has opened to the public. On the occasion of the 75th anniversary of the United Nations (UNO) and the release of its commemorative coin, the Museum promoted, together with the Portuguese Mint and Official Printing Office and the UN Regional Information Centre for Western Europe, the temporary exhibition “Building Our Future Together”. In partnership with the Vatican Apostolic Library, the Bank organised the exhibition “Money, Faith and Politics: coins and medals from the Vatican”, which gathered 141 pieces from the collections of the Vatican, the Banco de Portugal and 12 other national museums and archives. It has also strengthened its presence and offer on digital channels by opening an Instagram account and promoting online activities for families.

5.6 International cooperation

Cooperation has responded to new needs such as the sharing of experiences in managing the health crisis and in implementing emergency measures for financial institutions. These issues and actions bolstered cooperation in the fields of supervision, financial stability and statistics. A total of 110 cooperation initiatives were launched, 83% of which remotely.

Portuguese-speaking countries continued to be the main partners in cooperation activities, The Money Museum hosted the exhibition "Money, Faith and Politics", in partnership with the with 77 initiatives, followed by non-EU European Vatican Apostolic Library. 68 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 ten initiatives in the areas of electricity, water, circular economy and citizenship by 2030. In 2020, The Bank joined the Lisbon Green Capital 2020 Commitment and has committed to implementing of climatechange. effects the mitigate to policies economic the as well as transition, energy to exposed particularly analysed the exposure of the Portuguese banking sector to non-financial corporations in sectors The Bank has incorporated environmental sustainability concerns into its research agenda and and (iv)tocommunicatecollaboratewithexternalentities. discussed; are system financial the on impact potential a with measures where bodies international of climate change; (ii) to adopt internal sustainability practices; (iii) to intervene in national and Finance released Bank the 2020, In activity. Environmental, social and corporate governance sustainability has gained prominence in the Bank’s 5.7 Source: BancodePortugal. Figure I.5.1• supervision. conduct banking to approach Portugal’s de Banco the on studies case presented and Poor the Assist to Group Consultative the and Bank World the with closely cooperated also It continent. that on action European to approach integrated an of value added the on focusing Banks, Central African for programme cooperation Banks’s Central of System European the of preparation the The BanktookpartintheEU-fundedtechnicalassistanceprojectforWesternBalkansand of theCentreforLatinAmericanMonetaryStudies. Governors of Meeting CIX the and countries, Portuguese-speaking the of banks central the level, highest the commitmentsundertaken,especiallyXXXMeetinginLisbon,whichbroughttogether,at maintain to possible was it I.5.1), (Figure launched initiatives the of profile the in change the Despite each), and2initiativeswithacross-cuttinggeographicalcoverage. countries (16), countries in Latin America, Asia-Pacific region and the African continent (with 5 initiatives , establishing four priorities: (i) to identify and assess the risks associated with the impact Sustainability and conferences 11 Meetings Cooperation initiatives(2019-2020) entitites Partner 39 30 2019 19 and seminars Courses 49 2019 32 2019 Banco de Portugal’s Commitment to Sustainability and Sustainable Banco dePortugal’sCommitmenttoSustainabilityandSustainable Cooperation 65 initiatives 110 assistance Technical 35 2019 159 2019 and workvisits Internships 3 51 2019 Human resources (working days) 854 12 Scholarships and projects 11 2019 1,599 2019 Information CentrefortheJacquesDelorsPrize. European Delors Jacques the and Analysis; Data and Classification for Association Portuguese the of Meeting the Law; Insurance and Exchange Stock Banking, on Course XX the organising to view a Institute of Banking, Stock Exchange and Insurance Law, the Coimbra University Law School, with Portuguese Economists’ Association, for their 16 their for Association, Economists’ Portuguese the Sector; Financial the of Supervision and Regulation on Centre Research the to support financial association, for the organisation of a series of student its and activity, IMF’s the on events two organising to view a with Economics, & Business of and ofgainingknowledgeineconomicfinancialsciences.TheBanksponsoredtheNovaSchool functions, with the aim of improving the economic and financial literacy of the Portuguese population The Bankmaintainedaskillsvolunteeringprogrammeandsponsoredinitiativesrelatedtoits to thebankingsystem. addressed finance sustainable and sustainability on seminar a organised also It Action. Climate and Environment of Ministry the by headed Group, Reflection Finance Sustainable the in participate to continued Bank The policy. monetary and management asset stability, financial supervision, prudential institutions, financial by management risk climate scenarios, climate on reports to rise giving System, Financial the Greening for Supervisors and Banks Central of Network the and BIS the EBA, the Board, Risk Systemic European the SSM, the ECB, the of sustainability environmental At the international level, the Banco de Portugal took part in 20 structures committed to the and environmentalsustainability. social economic, of values the fostering to commit to and staff its from expects it that standards Contractors, the Bank now requires the suppliers of goods and services to comply with the ethical Portugal’s de Banco the for Principles of Framework General the of approval the Following from 100%renewablesources(exceptforregionaldelegations)beingparticularlynoteworthy. it implementedsomeofthesemeasures,withthenewcontractforsupplyelectricity In NovembertheBankhostedaworkshoponsustainability andsustainablefinancing,sharingwiththebankingsystemdevelopmentsinthisfield. thelatest Economia Viva 2020 th Annual Conference on the State Budget; the Budget; State the on Conference Annual seminars. It also granted also It seminars.

69 Strengthening internal governance and organisation

II Report and Financial Statements

1 Management Report 2 Financial Statements and Notes 3 External Auditors’ Report 4 Report and Opinion of the Board of Auditors

increase in liabilities to credit institutions in the Eurosystem. Administrative expenses totalled expenses Administrative Eurosystem. the in institutions credit to liabilities in increase significant the of effect the to extent, large a to due, income monetary of pooling of result net the in increase an by offset partly was margin interest the in decrease This 2020. in purchases debt securities under the main programmes in force, notwithstanding the significant increase in the maturing of higher-yield securities, and the decline in the yields on Portuguese government receivable from the portfolio of securities held interest for in monetary reduction policy the purposes, is mostly referring as worth a margin, result interest of the on impact negative a with Still up toalimitof-1%. the to and operations application, in the these second half of the year, of a -50 basis point bonus on the deposit of facility rate, balance the in increase the of view in margin, interest the in reduction the to contributed institutions credit to lending on payable interest in increase The under theestablishmentofasinglenationaldepositguaranteescheme. Portugal, de Banco the by made contributions of (FGCAM) Fund Guarantee Credit Agricultural Mutual the by return the from gains million €81 specifically more year, that in to obtained results contributed positively which and 2019 in occurred factors no non-recurring saw the 2020 of dollars. repetition US in mainly currencies, foreign in held assets on losses unrealised of recognition the and margin interest the in decline sharp the on to million due mainly €328 year, previous by the down million, €777 totalled taxes and provisions before income 2020 In amounts notreinvestedinanenvironmentofnegativeinterestrates. securities, maturing of result a as portfolio, securities held-to-maturity the in decrease the by compared to 2019, mainly explained by the appreciation of gold, an effect that was partially offset billion €1 around by increased also component assets euro and reserves foreign and gold The in increase an banknotes incirculationofaround€3billion. with together billion, €12 to close of institutions credit of accounts current in ECB. As a consequence of these measures, on the theliabilities side there was a significant increase of Council Governing the by approved measures extraordinary the reflecting operations, policy monetary to related assets in increase the from framework, policy above-mentioned the within stems, This 2019. to compared billion €33 around of increase significant a represents The balance sheet of the Banco de Portugal amounted to €192 billion, at the end of 2020, which significantly expanded the balance sheets of euro area central banks and modified their results. have measures policy monetary non-standard These economy. area euro the for mechanism transmission policy monetary the of operation the ensure to order in debt sector private and public of stocks large purchase to was action of line second The terms. favourable on system financial the to liquidity large-scale provide to was action of line first The conditions. favourable more on households and firms finance to incentives and that conditions the had ensure institutions credit to measures policy monetary of package comprehensive a launched ECB the of Council were significantly Governing The year. financial the of end the beyond continued and year the of quarter in 2020 first the in out broke which statements crisis, pandemic the to financial response Eurosystem’s the by Portugal’s determined de Banco the in Developments Presentation 1 Management Report 73 Management Report 74 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 The first part of the Report sets out the most important developments in the balance sheet, and thesecondparthighlightsmaincomponentsofProfitlossaccount. balance the in developments important most the out sets Report the of part first The the operationsperformedthroughoutyearandtheirimpactonfinancialstatements. The Management Report, which accompanies the Banco de Portugal’s annual accounts, presents the financialstatements. on opinion an issued and report a prepared Auditors of Board the law, same the of 43 of Article provisions the with accordance in and, Statute its of 46 Article in to down pursuant laid audit, provisions the external an to subject are Portugal de Banco the of accounts annual The do BancodePortugal–PCBP). (Plano deContas Portugal de Banco the of Accounts of Chart the to according prepared been in and, Report Management have which 2020, year the for the statements financial the Statute, its of 54 Article with compliance presents Portugal de Banco the of Directors of Board The costs, partlyasaresultoftheimpactsCOVID-19pandemic. operating and costs staff lower to due mainly 2019, in than lower million €9 i.e. million, €196

Own funds Other liabilities Liabilities tootherentitiesdenominatedineuro Liabilities forcollateralisedapplications(net) Intra-Eurosystem claimsandliabilities Banknotes incirculation Other claims Gold andforeignreserveseuroassets(net) policy operations Claims andliabilitiesrelatedtomonetary TOTAL BALANCESHEET Table II.1.1•Mainbalancesheetitems2016-2020(management’sperspective)| illustrates thedevelopmentsinmainbalancesheetitemscomparedto2019. II.1.1 Chart II.1.3 Chart sheet. balance the in disclosed items perspective. main the in evolution the show II.1.2 Chart and management a from period, 2016-2020 the for items sheet balance main Portugal’s de Banco the of positions year-end the in developments the shows II.1.1 Table 1.1 Profit fortheyear Retained earnings Capital andreserves General riskprovision Revaluation accounts Provisions Other liabilities Intra-Eurosystem liabilities Intra-Eurosystem claims Medium-term investmentportfolio Trading portfolio Gold monetary policyoperations Liabilities tocreditinstitutionsrelated Claims relatedtomonetarypolicyoperations Securities heldformonetarypolicypurposes Lending to credit institutions Lending tocreditinstitutions Total balance sheet €192,439 million Balance Sheet 3,1 5,6 5,5 5,8 9,3 32,654 192,439 159,785 157,953 152,965 137,717 3,4)(258 4,9)(914 5,3)(2,336) (51,530) (49,194) (46,695) (42,528) (38,945) 1071,2 0821,8 6072,261 16,047 13,786 10,882 10,329 11,027 3019309757481,1 10,693 18,111 7,418 9,745 9,370 13,011 1588,4 2847,7 0153,219 80,195 76,976 82,814 81,246 71,588 5612,7 8012,6 0822,930 30,892 27,962 28,051 26,675 25,661 9631,7 4241,1 372(405) 13,712 14,118 14,254 15,772 19,663 3531,0 3761,5 8992,335 18,989 16,654 13,786 13,305 13,503 2244,6 1285,7 90015,571 69,050 53,479 51,208 46,969 32,254 2322,3 8731,2 21414,838 32,164 17,325 18,743 22,131 22,372 4666,0 9927,0 0,1 30,410 101,214 70,804 69,952 69,100 54,626 569 1,6)(406 1,1)(163 (12,400) (31,613) (19,213) (14,096) (13,865) (5,649) 0621 0821 2020 2019 2018 2017 2016 ,4 ,2 ,6 ,2 ,7 152 2,173 2,022 1,860 1,729 1,641 ,4 ,2 ,7 ,7 3,677 3,677 3,677 3,727 4,247 ,1 ,5 ,8 ,6 ,5 94 1,859 1,765 1,983 1,753 1,612 ,4 ,2 ,4 ,4 ,7 (673) 4,071 4,744 5,440 5,329 4,943 37 53 49 43 55 (51) (505) (453) (479) (523) (397) 4 5 0 5 3 (223) 535 759 806 656 441 2 1 5 6 3 (529) 336 865 653 711 426 2 1 5 6 3 (531) 336 868 657 712 426 - ,4 ,0 3,252 8,300 5,049 - - - 2 4 2 (2) 0 EUR millions Δ 2020/2019 -

75 Management Report 76 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Chart II.1.3• Chart II.1.2•Developments in the balance sheet – main liabilities and own funds | Chart II.1.1• Liabilities tocreditinstitutionsrelatedmonetarypolicyoperations policy operations Claims relatedtomonetary 54 38 24 13 16 13 71 25 1 201 2016 5,649 3 ,957 ,011 ,588 ,661 ,626 ,945 ,606 ,503 7 , 7 6 1 Liabilitiestootherentitiesdenominated in euro Intra-Eurosystem liabilities Liabilities tootherentitiesdenominatedineuro Banknotes incirculation 7 Main balancesheetitem’svariationfrom2019| Developments inthebalancesheet–totalandmainassets | 1,612 Claims relatedtomonetarypolicyoperations Liabilities forcollateralisedapplications(net) Foreign reservesandeuroassets(net) Other claims

69 21 42 13 1 13 15 81 26 2017 9,370 2017 5 Intra-Eurosystem liabilities ,100 ,101 ,528 ,305 2 ,865 ,918 ,246 ,675 , 9 Intra-Eurosystem claims 6 5 Revaluation accounts 1,753 Intra-Eurosystem claims

Gold 19 13 69 46 16 14 82 28 201 1 2018 9,745 5 ,693 ,786 ,952 ,695

,746 ,096 ,814 ,051 7 8 -1,078 , 9 5 3 1,983 and euroassets(net) Foreign reserves Own funds Liabilities forcollateralisedapplications(net) Liabilities tocreditinstitutionsrelatedmonetarypolicyoperations 2,336 2,335 2,261 3,219 3,252 1 18 16 70 49 5 201 19 19 76 27 9 2019 5,049 7,418 ,862 ,654 ,804 ,194 , 7 EUR millions ,789 ,213 ,976 ,962 8 9 5 1,765 10 Gold ,693 12 ,400 EUR millions 101 18 Total BalanceSheet 51 17 1 2020 18 21 31 80 30 9 ,989 2020 ,530 8,300 ,784 2 ,214 ,111 ,928 ,613 ,195 ,892 , 4 EUR millions 3 9 1,859 30 ,410 about 36%oftheBancodePortugal’s totalassets. million, €69,050 totalled purposes policy monetary for held securities 2020 December 31 at As of monetarypolicyintheEurosystem. implementation decentralised of principle the under ECB, the and (NCBs) banks central national the by conducted are securities these of Purchases purchases. for open still (PEPP), programme purchase emergency pandemic the and (PSPP), programme purchase sector public the (CBPP3), programmes purchase bond covered (CBPP and CBPP2), the closed to new and purchases, and (ii) (SMP) the third covered bond programme purchase programme market securities the (i) particular in ECB, the of Council Governing the by decided programmes various in participation active Portugal’s de Banco the reflects purposes policy monetary for held securities of portfolio The Chart II.1.4• of thesignificantliquidityinjectionresultingfrommonetarypolicymeasures. with the institutions Banco de Portugal showed, in turn, an increase of €12,400 million compared to 2019, as a result ofcredit Deposits (TLTRO). operations refinancing longer-term targeted in million €14,838 of increase net a and (APP), Programme Purchase of Asset the extent, from lesser securities a to and, (PEPP) Programme Purchase Emergency Pandemic new the under securities of purchases to due largely purposes, policy monetary in the for held securities of portfolio increase million a €15,571 reflecting 2019, December 31 to compared million €30,410 of 2020 of end the at increase net a showed assets policy monetary background, this Against liquidity-providing operations. and securities policy monetary both on impact an with year, the of end the monetary at assets in policy increase significant a in sheet, balance Portugal’s de Banco the on resulted, which economy, the on pandemic the of effects the mitigate to measures policy monetary of package comprehensive a approved ECB the of Council Governing the 2020, Throughout 1.1.1 Net purchases undernon-standard monetary policyprogrammes €15,571 million Longer-term refinancingoperations Deposits ofcreditinstitutions Claims andliabilitiesrelatedtomonetarypolicyoperations 32,254 21,033 -5,498 2016 Aggregates ofmonetarypolicyoperations| 1,339 -13,860 46,969 22,011 2017 100 Main refinancingoperations Securities heldformonetarypolicypurposes(SMP,CBPP,CBPP2,CBPP3,PSPPandPEPP) 18,664 51,208 -14,091 2018 80 EUR millions -19,207 53,479 17,320 2019 5 -31 32,164 69,050 2020 ,609 0

77 Management Report 78 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 are accounted for at amortised cost less potential impairment losses, not reflecting gains or losses thatmaymaterialise.Lossesarerecognisedonlyif securitiesaresoldearly. gains reflecting not losses, impairment potential less cost amortised at for accounted are All theprogrammesimplementedwithinSecuritiescurrentlyheldformonetarypolicypurposes these securities and a onsteady outlook for the evolution of the year rating of the Portuguese Republic. the of end the at gains capital unrealised of although amount significant rather securities, a also debt is there government Portuguese to relating component the risks in in particularly rise a to led programmes these under held securities in increase The at 31December2020,almostallofwhichPortuguesegovernmentdebtsecurities. The Banco de Portugal acquired PEPP securities with a balance sheet value of €14,227 million as 29% and71%in2019. debt securities reached a relative weight of 25% and 75% of the PSPP respectively, compared to €1,251 million, compared by to 2019. decreased At the component end securities of 2020 supranational supranational and the Portuguese since government increase), million €3,781 (a debt non-shared-risk the component in at included Eurosystem latter level. The the increase with in debt, 2020 was government driven Portuguese solely and by Portuguese securities government supranational into down broken million €51,432 of total a reaching 2020, in million €2,530 by grew amount net PSPP overall the APP, the in participation Portugal’s de Banco the of terms In ample degreeofmonetaryaccommodation. an and conditions ECB liquidity favourable key maintain to the necessary as raising long as starts for and it rates, interest when date the past time of period extended an for reinvesting continue to intends also Council Governing The rates. those raising starts it before shortly end to and rates, interest ECB key of impact accommodative the reinforce to necessary as long as for run to purchases net expects Council billion, Governing €20 The continued. of 2019, purchases in of existing pace already average monthly the year, the of end the until lasting and As for the APP, along with a temporary additional envelope of €120 billion decided on 12 March the least at to extended was period investment the end of2023. and 2022, months, March 9 of least end at the by extended until also i.e. was purchases net for horizon the and billion, €1,850 of total a to billion €500 by increased further was programme this December, 10 On 2022. of half of 2021, and also announcing that the reinvestment period would last until at least the end first the of end the least at until purchases net of period the extending also billion, €1,350 to purchases increase to decided ECB the of Council Governing the June 4 on Subsequently, year. the reach would programme €750 billion, this for the Eurosystem emergency as Initially, a whole, and March. net pandemic purchases would run 18 at new least until on the end of the approved (PEPP), of programme introduction purchase the was sheet balance Portugal’s de the on Banco impact greatest the with decision the securities, policy monetary of terms in 2020, In 2019, vis-à-vis

at -0.4%,wasactivebytheendof2020,maturinginMarch 2021. in the amount of €13.502 million, matured, and only one operation of €9.5 million, remunerated 2019, of end the at existing operations II TLTRO all almost 2020 of course the over Conversely, remaining period. the for rate facility deposit the is so and 2022, June and 2020 June between operations these a oninterest accrued the calculating for Eurosystem the within manner harmonised and prudent in used is -1%) of maximum a to (up points basis 50 minus force in rate facility deposit the rate will only be known at the end of each operation and that a reliable estimate is not possible, final the that Given 2021. December and June between conducted be to operations additional Council approved the extension of this period until June 2022, and also the completion of three deposit facility rate in force in this period, but never below -1%. On 10 December, the Governing average the than lower points basis 50 be might rate interest applicable the 2021 June 23 until 2020 June 24 from that approved was the it April mitigate 30 on to economy, the measures on pandemic of the of package effects the of part as However, operation. the of life the over prevailing facility deposit the on to each rate interest average the as low as applicable be can operation rate III TLTRO interest final the decision, initial Council’s Governing the with line In These million. after twoyears. €32,064 of total a to million, operations startedin2019andhaveathree-yearmaturity,withpossibilityofearlyrepayment €29,534 of amount the in considerably, quite grew III) (TLTRO operations refinancing longer-term targeted operations, liquidity-providing In Chart II.1.5• Maturing TLTRO II €13,502 million New TLTRO IIIand €29,534 million 20 30 40 50 60 10 ,000 ,000 ,000 ,000 ,000 ,000 0 Securities heldformonetarypolicypurposes| 3 2016 2 , Securities −PEPPportfolio Securities −PSPPsupranationalportfoliosupra Securities −CBPPportfolio 2 5 4 4

2017 6 , 9 6 9 5 2018 1 , 2 0 8 Total securitiesheldformonetarypolicypurposes Securities −PSPPGOVportfolio Securities −SMPportfolio EUR millions 5 2019 3 , 4 7 9 2020 6 9 , 0 5 0

79 Management Report 80 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 | Chart II.1.7• whichever islower. rate, facility deposit the or 0% at remunerated be to continues holdings liquidity excess of tier a as non-exempt The requirements. determined reserve minimum institution’s is each on depending 6, scheme of multiple this by covered excess in holdings reserve of volume The 0%. rate of annual an at remunerated currently is tier exempt The facility. deposit the on applicable the part inexcessoftheminimumreserverequirementsfromnegativeremunerationatrate exempts which remuneration, reserve for system two-tier a of introduction the on based is system This 2019. October 30 for on Council system Governing the two-tier by approved the remuneration reserve follow deposits These Portugal. de Banco the with institutions credit of deposits in growth substantial to led also securities, policy monetary in increase aforementioned significant the with associated This, year. the of half second the in significantly up went approval of the interest rate rebate as of June 2020, the amount of liquidity-providing operations liquidity injected/absorbed by the Banco de Portugal in the Portuguese financial system. With the of amounts overall the of evolution daily the shows II.1.7 Chart policy, monetary regards as Also Chart II.1.6• EUR millions 10 15 20 25 30 -30 -20 -10 10 20 30 40 5,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 0 0 Total lendingtocreditinstitutions Main refinancingoperations Targeted longer-termrefinancingoperations–TLTROII Longer-term refinancingoperations<=1year 2016 859 2,812 17 Daily balancesinliquidity-providingandliquidity-absorbingoperations Liquidity-providing operations| ,362 2 2 , 3 1,339 7 Liquidity-providing operations 2 79 20 1,012 ,921 201 7 2 2 , 1 3 1 100 29 18 ,635 2018 EUR millions 1 8 , 7 4 Targeted longer-termrefinancingoperations–PELTRO Targeted longer-termrefinancingoperations–TLTROIII Targeted longer-termrefinancingoperations–TLTROI 3 80 Liquidity-absorbing operations 1,279 1 13 7 , 3 ,512 2 5 2,530 201 9 5 3 2 , 1 6 4 10 32 2020 ,064 90 portfolio andalso,althoughtoalesserextent,inthetrading portfolio. I Chart II.1.8• liabilities intheTARGETaccount. reduce temporarily to used were received euros the and applications), collateralised for Liabilities aggregate the in (expressed loans collateralised of consisted December 31 on which assets, reserve these on return get to gold, in invest to continued Portugal de Banco the 2020 In differences totalled€15,956million. (Subsection 1.1.6). At the end of 2020 gold revaluation II.1.8) (Chart accounts Revaluation item sheet balance the in amount equivalent an of change a by offset was euro in increase value The tonnes. 382.6 at unchanged remained reserve This (9.2%). euro the against depreciation USD of effect the by offset partly (+ 24.5%), USD in price gold theof appreciation the by caused was evolution This euro. in price gold in uptrend the from arising 2019, from increase million €2,335 a The Banco de Portugal’s gold reserve totalled €18,989 million by the end of 2020, 1.1.2 Foreign reservesandeuroassets Gold Frin eevs n er ast tee a a erae n h hl-omtrt securities held-to-maturity the in decrease a was there assets euro and reserves Foreign n Gold reserve €18,989 million 10 15 20 5,000 ,000 ,000 ,000 0 Gold andforeignreserveseuroassets Gold reserveandquoteprice | 10 13,503 Acquisition cost(WAC) 3,030 2016 ,472 13,305 10 3,031 2017 ,274 Revaluation differences 10 13,786 3,031 201 ,754 EUR millions 8

XAU/EUR (EUR/Perfineounceofgold,rightaxis) 13 16,654 3,033 201 ,622 9 1,100 1,600 2,100 600 Dec. 1,354 1,521 19 15 18,989 3,033 20 ,956 20 XAU/EUR 0 500 1,000 1,500 2,000 XAU/USD Dec. 1,544 1,895 20 81 Management Report 82 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Chart II.1.10• the and goals, Banco dePortugalisamongthepioneeringcentralbanksinthistypeofoperations. environmental fostering at aimed is investment This 2019. September in (BIS) bonds and to participate in the green bond fund created by the Bank for International Settlements green in invest to continued Portugal de Banco the 2020 In (19%). authorities supranational and paragovernmental by issued securities and (80%) bonds debt government of up made entirely almost is portfolio This 2019. to similarly 2020, December 31 at as portfolio this of total the of 81% representing continued, securities in investment instrument, by composition of terms In impact onthatcompositionbycurrency. currency foreign for transactions temporarya have which risk, exchange foreign associated no with million), €1,840 to (amounting swap yields. Euro negative outstanding were of there context 2020 December generalised 31 current On the from resulting euro, in denominated component the in decline a by for accounted is 2019 to compared decrease The prices. market at valued USD), (predominantly currency foreign in denominated assets of euro million €3,889 in and investments with associated million €9,824 of consisted portfolio trading the 2020 In • Chart II.1.9•

Trading portfolios(denominatedineuroandforeigncurrency) Total trading portfolios ineuro andforeign currency € 13,712 million 4,943 19,663 19,191 2016 2016� Held-to-maturity securitiesportfolioineuro 19 ,663 Foreign reservesandeuroassets(net)| 472 Trading portfolio(euroandforeigncurrency)| Deposits andothermoneymarket(net) 5,329 15,772 14,943 201 201 7 7 15 ,772 828 5,440 12,059 2,194 14,254 2018 2018 14 ,254 Trading portfoliodenominatedineuroandforeigncurrency Securities EUR millions 4,744 11,370 14,118 2,748 2019 201 EUR millions 14 9 ,118 Total 4,071 13,712 11,165 2,547 2020 2020 13 ,712

in theaforementioneddifferential. decrease aslight by offset partly Eurosystem, the in circulation increased of combination the €50,238 million (+€2,321 million than in December 2019). Growth in these adjustments reflected totalled adjustments these 2020 put December 31 at andbanknotes As Portugal. de Banco the by circulation from circulation into withdrawn banknotes between difference positive the between Portugal’s share and differential the reflect circulation in banknotes to Adjustments theEurosystem within (+11.0% against2019). incirculation a surge reflecting increase, an shows aggregate This II.1.12). (Chart circulation in banknotes Eurosystem’s in Portugal de Banco the of share the reflects sheet, balance the of side liabilities the on recorded circulation, in Banknotes Theaggregate 1.1.3 Chart II.1.11• from maturingsecurities,giventhecurrentreturnoneligiblesecuritiesissues. the 2019, reduction in in this As portfolio was essentially issuers. due to the area decision not euro to reinvest interest by and principal issued bonds debt government of up made entirely was any impairment losses, decreasing by €673 million compared to 2019 (Chart II.1.11). This portfolio less cost amortised at measured million, €4,071 totalled portfolio securities held-to-maturity The •

Medium-term investmentportfolio Held-to-maturity securitiesportfolio, composed ofsecuritiesdenominatedineuro €4,071 million Total banknotesincirculation €30,892 million 948 Banknotes incirculation 2,585 4 4 2016 , 9 4 3 1,410 Up to1year Head-to-maturity securitiesportfoliobymaturity| 740 2,243 5 2017 , 3 2 9 2,347 1 to5years 659 2,027 5 2018 , 4 4 0 2,754 Over 5years 632 4 1,735 201 , 7 4 4 9 EUR millions 2,378 472 Total 1,656 2020 4 , 0 7 1 1,943

83 Management Report 84 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 investments ingold,whichhave beenrenewed(mentionedin1.1.2)(ChartII.1.14). to other entities denominated in euro, and the settlement of temporary operations related to the liabilities domestic in increase the 1.1.1), (Point Portugal de Banco the with institutions credit of policy purposes and the increase in lending to credit institutions, offset by the increase in deposits the with related TARGET account. liabilities This mainly reflected the financing of purchases of securities held for monetary the altogether representing II.1.3) 2019 (Chart from million) million €80,195 €3,219 (totalling by increased liabilities Intra-Eurosystem 2020, December 31 at As Chart II.1.13• to banknotesincirculation(€50,238 million),mentioned1.1.3onBanknotescirculation. Intra-Eurosystem claims (Chart II.1.13) included the remunerated position relating to adjustments 1.1.4 Chart II.1.12• Intra-Eurosystem liabilities €80,195 million Intra-Eurosystem claimsandliabilities -71,588 -11 from circulationbytheBdP Difference betweenbanknotesputinto/collected 2 37,636 37 2016 5 , ,636 ,976 6 6 1 1,309 Intra-Eurosystem claimsandliabilities| Banknotes incirculation| Other intra-Eurosystemclaims(includesParticipatinginterestandtransferofforeignreserveassetstotheECB) Banknote issuancerelatedassets(net) Intra-Eurosystem liabilities -81,246 -14 41,160 2 41 2017 6 , ,160 ,486 6 7 5 1,367 EUR millions -82 -17 45,332 2 45 Adjustments tobanknotesincirculation 2018 8 ,814 , ,332 ,281 0 5 1 1,363 EUR millions -76 -19 47,917 2 47 2019 7 , ,917 ,976 ,955 9 6 2 1,277 circulation bytheBdP Banknotes putinto -80,195 -19 50,238 50 3 20 0 ,238 , ,345 8 20 9 2 1,292 | (totalling €53million). of net actuarial and financial losses of 2020, relating to the Pension Fund – Defined-Benefit Plan earnings, Retained in recognition, the (iv) and profit; Net 2019 the from State the to Dividends 2020 net income (€535 million); and conversely, (iii) the impact of the of distribution of recognition €607 million the (i) is mentioning worth also accounts, Revaluation in increase the to addition In to theriseinpotentialcapitalgainsfromGold(€2,335millio n). due mainly is million) €16,047 to million, (€2,261 accounts revaluation positive in increase The year (ChartII.1.15). the for profit Net positive the to and differences revaluation positive in increase the to owing Equity and Net profit for the year) went up by €2,138 million in 2020 (to €21,928 million), largely The Banco de Portugal’s Own funds (which include Revaluation accounts, General risk provision, 1.1.6 Ownfunds da e Dívida Pública–IGCP). Tesouraria da Gestão de (Agência Agency Management Debt and the Treasury by Portuguese managed million) (€17,162 Portugal de Banco general the of with composed accounts current mainly government was euro in denominated entities other to Liabilities item The 1.1.5 Chart II.1.14• EUR millions Increase inpositive revaluation differences +€2,261 million Balance ofgeneral government current accounts heldby theBanco dePortugal €18,104 million Liabilities Claims -83 -63 -43 -23 17 37 57 77 Liabilities tootherentitiesdenominatedineuro -3 Banknotes putintocirculation(net) Liabilities tocreditinstitutionsrelatedmonetarypolicyoperations Liabilities tootherentitiesdenominatedineuro ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 Intra-Eurosystem liabilitiesandmainoffsettingbalancesheetitems 2016 2017 2018 Intra-Eurosystem liabilities Lending tocreditinstitutionsrelatedmonetarypolicyoperations Securities heldformonetarypolicypurposes 2019 2020

85 Management Report 86 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Chart II.1.15• this increasedoesnotunderminetheestablishedriskcoverageobjectives. and that risk is expected to continue to increase in the medium term, albeit at a moderate pace, 2020 as a result of the fact that, despite the increase in risk resulting from balance sheet growth, including those resulting from risk-sharing with the Eurosystem. This losses), provision financial was (namely maintained losses in any cover to it enable to and mission Portugal’s de Banco for the autonomy financial appropriate for allows that level a at funds own setting to view a with according tothemethodologydefinedatEurosystemlevel.Theamountisestablished annually, statements over the medium term, which assess results and financial risks, the latter calculated assessed periodically as part of the Banco de Portugal’s internal projection exercises for financial is provision this of level The million. €3,677 at unchanged remained provision risk General The

10 15 20 5,000 ,000 ,000 ,000 0 Total Ownfunds General riskprovision Revaluation accounts 11 1 1 Own funds| 1,244 201 4,247 5 6 , ,027 9 , 9 3 5 6 1 7 441 EUR millions 1 10 1,206 5 3,727 2017 5 , , 5 ,329 9 8 1 9 8 656 10 1 1,382 3,677 5 2018 6 , ,882 8 , 7 6 4 4 6 806 Own fundsexcludingrevaluationaccounts Profit fortheyear Equity (capital+reservesretainedearnings) 13 1 1,568 6 3,677 201 9 , ,786 , 0 7 0 8 9 3 9 759 2 16 1,668 5 20 3,677 1 , , 8 ,047 9 20 8 2 0 8 535 Income tax Transfer from/toriskprovisions Other netprofit/loss Banknote productioncosts Total administrativecosts Net resultofpoolingmonetaryincome Income fromequitysharesandparticipatinginterests Unrealised lossesonfinancialassetsandpositions operations Realised gains/lossesarisingfromfinancial Bank’s operatingexpenses. the on pandemic COVID-19 the of impact the and costs staff of amount the in reduction a from stemming essentially 2019), in than less million €9 million, (€196 years previous in than lower were costs Administrative devaluation. USD the to due 2019, to compared increase, an show positions and assets financial on losses Unrealised Eurosystem. the of rest the in institutions of monetary income mainly due to the effect of the rise in the remuneration of deposits of credit This reduction in the interest margin was partly offset by the increase in the net result of pooling year. the of half second the in operations III TLTRO for rebate rate interest the and volume the contribution of accrued interest payable on Lending to credit institutions, due to the increase in as factors, the with particularly margin, non-recurring interest the in reduction the of from and years, two past absence the in seen the from essentially results decrease This 2019. from decrease million €328 a representing million, €777 was Income before provisionsandtaxes Interest margin Table II.1.2•MainProfitandlossaccountitems2016-2020| Net profitfortheyear2020was€535million. The main components of the Profit and loss account from 2016 to 2020 are shown in Table II.1.2. 1.2 Depreciation andamortisationfortheyear Other administrativecosts Supplies andservicesfromthirdparties Staff costs Income before provisions andtaxes €777 million Profit andlossaccount Income beforeprovisionsandtaxes Income beforetaxes Profit fortheyear 29 21 39 37 (242) (347) (359) (271) (209) 20 2 0-- - 50 520 (200) 0621 0821 2020 2019 2018 2017 2016 4 5 0 5 3 (223) 535 759 806 656 441 5 2 ,6 ,0 7 (328) 777 1,106 1,165 928 650 5 0 ,1 ,0 7 (328) 777 1,106 1,115 408 850 122 8 0 0 0 196 205 206 208 183 7 24 05 49 50 80 (264) 177 4 ,1 ,6 9 0 (196) 802 998 1,065 1,010 845 7)(6)(2 5 (70) (5) (12) (260) (77) 15 13 85 24 45 47 52 56 48 1177 119 73 127 71 333 33 1 7 985 89 (7) (1) 1 1 1 1 1 3 3 139 138 136 313 23 51 818 18 15 15 97 56 72 39 EUR millions 10 7 132 143 4 Δ 2020/2019 105 (81) (16) (66) 24 (2) (6) (9) (1) 3 - - - 87 Management Report 88 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Chart II.1.17•Interestmargin| and other similarexpenses(ChartII.1.17). interest of share the in increase the in noticeable most (-20%), figures 2019 against drop sharp million €196 a represents it However, Portugal’smillion. €802 of amount de an with statement, income Banco the of component main the be to continued margin Interest the 2020 In 1.2.1 Chart II.1.16• -9 Interest margin Interest margin Interest income Interest onlonger-termrefinancingoperations 2 2016 -209 -183 -200 8 8 4 293 589 -27 016 845 99 4 4 1 5 Profit fortheyear Transfer from/toriskprovisions Net resultofpoolingmonetaryincome Interest margin 71 Developments inthemainprofit/lossitems| -7 1,010 1 2017 2017 -525 -271 -208 6 294 803 - 520 127 , 81 0 5 1 6 0 EUR millions 3 1 201 2018 1,065 -359 -206 8 886 229 , -52 0 73 0 6 6 8 5 50 68 unrealisedlossesonfinancialassetsandpositions + Realised gains/lossesarisingfromfinancialoperations Income tax Total administrativecosts 1000 1200 1400 Interest onsecuritiesheldformonetarypolicypurposes Interest expense 600 800 -56 dez. 17 202 EUR millions 201 1297 2019 -347 -205 9 7 -49 900 119 998 1082 5 9 9 8 9 45 -41 XAU/USD XAU/EUR 2020 -196 2020 -20 -242 5 882 162 143 3 802 5 2 8 -21 0 2 dez. 18 1121 1284 rules oftherelevantprogrammes. the by set limits the with compliance from resulted which million), (€6 purposes policy monetary for held securities of sale the from achieved also were results Positive portfolio. trading Bank’s are associated with foreign exchange operations and other financial operations with assets in the gains/losses realised These II.1.18). (Chart 2019 of that to identical cumulative almost million, a positive €49 of value showed operations financial from arising gains/losses Realised 2020 In 1.2.2 (+€12 millioncomparedto2019). Portugal de in Banco the increase by held accounts the current government in and General from receivable 2019) interest obtained to compared results million by +€11 2020, offset in partly million (€34 were investments gold impacts These 2019). to compared million (-€11 portfolio trading currency foreign the with associated interest in reduction the held-to-maturity and return, of rate the average and amount in their in decrease decrease the to the due million) (-€39 include yield portfolio securities margin this to contributions negative Other than in2019,giventhematuringoftheseoperations(€29millionreduction). lower turn in was operations II TLTRO on payable interest operations, refinancing longer-term of context the in Also, ECB. the by decided 2020 of half second the in rebate withrate interest the combined volume, their in increase significant these the to on due interest was Higher million) (€175 2020). operations in interest of million €194 (totalling operations III TLTRO refer to which essentially million), €153 (by operations refinancing longer-term with associated The reduction in the interest margin in 2020 is mainly justified by an increase in interest payable components oflower-yieldgovernmentsecurities. the in PSPP, and PEPP of volume the in increase significant the absorbed which SMP, the under 2020, in million €882 of securities high-yield of maturing the total to due largely was This 2019. a from million €18 by declining at i.e. purposes policy monetary for held from the securities income of interest portfolio shows analysis first a margin, Interest the to contribution its Given -€175 million Interest income from securitiesheldfor monetarypolicypurposes €882 million Realised gains/losses arisingfrom financialoperations €49 million Decrease inheld-to-maturitysecuritiesportfolio yield -€39 million Impact ontheinterest margin associatedwithTLTRO III

Net res ult offinancialoperations andunrealisedlosses

89 Management Report 90 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 operations by the offset partially was effect This reduction in the portfolio. proportion of deductions by the CSPP Banco de Portugal as the regards interest in lending in Eurosystem the of rest the from interest in increase and portfolio, SMP the in Portugal de Banco the from interest in reduction the (ii) and operations liquidity-absorbing and total accounts to current to contributions related Portugal’s interest Eurosystem de Banco the of weight the in reduction the (i) by: explained essentiallyyear, previous the from million €24 by grew income monetary of pooling of result Net corporate sectorpurchaseprogramme(CSPP)(€0.6million). the in included securities for 2018 in up set provision specific Eurosystem’s the of reversal the of ofeffect net the (ii) and million), (€142.7 Eurosystem the by method income monetary of pooling result net 2020 the (i) included income monetary of pooling of result Net item the 2020, In 1.2.3 balance sheetunderRevaluationaccounts’items. the to taken are gains unrealised while December, 31 at as expenses as recognised are losses unrealised rules, accounting harmonised Eurosystem’s the with accordance In currency. this of price the of devaluation the to due USD, in denominated assets of portfolio the with associated mostly million), (€69 losses rate exchange potential to related mainly was million) (€70 2020 in recognised amount overall the positions, and assets financial on losses Unrealised regards As Chart II.1.18•Netresultoffinancialoperationsandunrealisedlosses| Unrealised lossesonfinancialassetsandpositions €70 million Net result ofpoolingmonetaryincome methodby theEurosystem, for theyear 2020 €143 million 177 Net resultofpoolingmonetaryincome 2016 vis-à-vis therestofEurosystem. -77 Realised gains/lossesarisingfromfinancialoperations - 264 201 7 - 260 80 2018 -12 Unrealised lossesonfinancialassetsandpositions 50 2019 -5 EUR millions 49 2020 -70

Losses Profit Note: (a)For2016,thevalueaboveincludes,forcomparabilitypurposes,costswithearlyretirements, whichwereuntilthenrecognisedinownfunds. Chart II.1.19• In 2020 1.2.5 the resultsofsecuritiesheldformonetarypolicypurposesinECB’sbalancesheet. in Portugal, de Banco the by received particular those distributed by dividends the ECB, i.e. ordinary and interim the dividends, the latter referring to recognises basically item this 2020 In 1.2.4 Incomefromequitysharesandparticipatinginterests the Bankisnotanactiveparticipantinthisprogramme,risk-sharedatEurosystemlevel. purchase sector as portfolio, Portugal’s corporate de Banco the the in included under being not securities despite which, to (CSPP), programme refers loss realised This 2020. in full in million reversedwas which 2018, in up set million €2.2 of €1.6 of provision associated an had however, which, for losseson loss effective an provision of recognition the Eurosystem from resulted thespecific operations policy of monetary reversal the of effect net aforesaid The Total administrative costs € 196 million Total administrativecosts Totaladministrativecostsamountedto€196million(ChartII.1.19). Total administrativecosts,onacomparablebasis Other administrativecosts Staff costs,onacomparablebasis 2016 1 1 133 48 13 9 5 1 Administrative costs| 2017 2 136 0 56 15 (a) 8 1 (a) EUR millions 2018 2 138 15 52 0 6 1 Depreciation andamortisationfortheyear Supplies andservicesfromthirdparties 2019 2 139 47 18 0 5 1 1 2020 132 9 45 18 6 1 91 Management Report 92 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Chart II.1.21• (1,700 employees). 2019 to compared unchanged remained Portugal de Banco the by of employed number members staff the 2020 December 31 at As unions. trade sector banking and (APB) Association wage scales, in line with negotiations between the banks represented by the Portuguese Banking and occupational accidents allowances. These impacts absorbed the effect of the 0.3% update of pay sick in and work overtime in cuts to and business purposes, representation of international for absence travels the to due diems, per the namely pandemic, COVID-19 the from arising The remuneration component reflects a slight decline compared to 2019, largely related to factors This reduction is mainly due to a lower number the of employees under benefits. these circumstances post-employment in in 2020. other and included liabilities fund million), pension with (-€6 Costs to retirements related component early with associated expenses in decrease the to related mainly II.1.20), (Chart 2019 from (-5%) decrease million €6 a showed costs Staff 2020 In Note: (a)For2016,thevalueaboveincludes,forcomparabilitypurposes,costswithearlyretirements,whichwereuntilthenrecognisedinownfunds. Chart II.1.20• Decrease inStaff costs -€6 million Related tofactorsexogenoustheBanks'smanagement Related toextraordinaryfactors 2016 2016 39 1 1 4 4 83 26 24 5 3 3 8 3 Excluding thoserelatedtosupervision Liabilities forthePensionFundandotherpost-employmentbenefits Supplies andservicesfromthirdparties| Staff costs| 2017 2017 1 5 12 83 27 25 3 4 40 6 6 EUR millions 2018 2018 1 41 5 83 29 26 3 5 6 2 8 (a)

Supplies andservicesfromthirdparties Excluding costswithextraordinaryorexogenous factors EUR millions 2019 2019 1 27 Staff costs,onacomparablebasis Related tosupervision 4 82 29 41 2 3 4 7 9 2020 2020 1 4 81 28 24 40 3 (a) 3 2 5 2

the net profit for the year of 2020, to the amount of €535.36 million, was distributed as follows: In accordance with the provisions set forth in Article 53(2) of the Statute of Banco de Portugal, Profit distibution Hélder Rosalino|LuísLaginhadeSousaAnaPaulaSerra Directors Luís MáximodosSantos Vice-Governor Mário Centeno Governor BOARD OFDIRECTORS Lisbon, 2March2021 to havetotalledaround€1.5million. estimated is expenditure additional This goods. and people of sanitisation the for material and equipment protective personal of purchase the in as well as working, remote for conditions of in expenses Information Systems and Technologies, additional under the scope of Business were Continuity in the setting up there hand, other the and On training. travel and consumption, events water accommodation, and electricity with associated costs with million, on €3.2 emphasis at particular estimated expenses, in cut a in resulted crisis pandemic COVID-19 The with security(+€0.5million). expenses in increase the (iii) direction, opposite the of in saving and, estimated) net is a million €1.7 which around (for expenses those on pandemic COVID-19 the of impact the million) (ii) (-€1 and Santo Espírito Banco the to applied measure resolution the of part as provided advice financial and legal to related mainly factors, extraordinary with associated expenses in decrease the (i) to due especially was This II.1.21). (Chart million €2 by fell expenses) administrative item The and, undersubparagraph(c), pursuant toDecisionofthe Secretary ofStateFinanceNo69/202129April2021. Decrease from inSuppliesandservices third 23%oftotaladministrative parties, costs -€2 million 10% tothelegalreserve 10% tootherreserves 80% totheState,asdividends acutn fr rud 3 o total of 23% around for (accounting Supplies andservicesfromthirdparties ...... €53,535,846.10 ...... €53,535,846.10 ...... €428,286,768.82 ......

93 Management Report 94 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 11 Otherassets 10 Itemsinthecourseofsettlement 9 Intra-Eurosystemclaims 7 Securitiesofeuroarearesidentsdenominatedin denominated ineuro 6 Otherclaimsoneuroareacreditinstitutions to monetarypolicy operations denominatedineuro to 5 Lendingtoeuroareacreditinstitutionsrelated in euro 4 Claimsonnon-euroarearesidentsdenominated in foreigncurrency 3 Claimsoneuroarearesidentsdenominated in foreigncurrency 2 Claimsonnon-euroarearesidentsdenominated 1 Goldandgoldreceivables Table II.2.1• Financial Statements 2 FinancialStatements andNotes 11.6 Sundry 11.5 Accrualsandincomecollectedinadvance differences 11.4 Off-balance-sheetinstrumentsrevaluation 11.3 Otherfinancialassets 11.2 Tangiblefixedassetsandintangible 11.1 Coinsoftheeuroarea banknotes withintheEurosystem 9.4 Netclaimsrelatedtotheallocationofeuro 9.5 Otherintra-Eurosystemclaims 9.3 NetclaimsarisingfrombalancesofTARGETaccounts to theECB 9.2 Claimsequivalenttothetransferofforeignreserves 9.1 ParticipatinginterestintheECB 7.2 Othersecurities 7.1 Securitiesheldformonetarypolicypurposes 5.6 Creditsrelatedtomargincalls 5.5 Marginallendingfacility 5.4 Structuralreverseoperations 5.2 Longer-termrefinancingoperations 5.3 Fine-tuningreverseoperations 5.1 Mainrefinancingoperations Exchange RateMechanismII(ERMII) 4.2 Claimsarisingfromthecreditfacilityunder 4.1 Balanceswithbanks,securityinvestmentsandloans external loansandotherassets 2.2 Balanceswithbanksandsecurityinvestments, 2.1 ReceivablesfromtheIMF Total depreciationandamortisation Balance sheetofBancodePortugal| Assets Total impairment Total assets

Notes 19 12 11 04,129,648 10 9 5,2 0,4 5,8 158,268 155,782 300,443 456,225 9 51,529,898 8 8,951,433 5 69,050,045 7 15,779 5 32,163,660 6 970,177 54,383 5 4 4 3 18,988,763 2 9,4,5 0,2 9,3,2 159,785,115 192,439,126 301,529 192,740,655 78,001,478 50,237,526 32,163,660 ,8,1 0,2 ,8,8 6,264,263 5,684,089 301,529 5,985,618 5,030,600 3,834,122 1,196,478 assets Gross 6,6 ,8 6,8 330,055 361,584 1,085 362,669 978,543 170,624 944,252 177,496 970,177 EUR thousands 58,532 299 ------and impairment Depreciation, Depreciation, amortisation amortisation 31 Dec.2020 300,443 1,085 1598849,193,570 51,529,898 8014862,665,838 78,001,478 2136017,325,460 32,163,660 18,988,763 0275647,916,880 50,237,526 9000553,478,605 69,050,045 2136017,320,460 32,163,660 ,3,0 5,568,062 5,030,600 ,2,4 4,800,314 4,129,648 ,5,3 9,187,233 8,951,433 ,3,2 4,327,842 3,834,122 ,9,7 1,240,220 1,196,478 Assets 7,7 1,732,262 970,177 7,4 936,046 978,543 7,2 151,033 170,624 948,485 177,173 944,252 177,496 7,7 1,732,262 970,177 Net 579100,867 15,779 433280,659 54,383 85239,580 58,532 299 - - - - - 5,000 - - - 31 Dec.2019 16,654,133 Assets Net Net

0 2 ------1 Banknotesincirculation Note: Totals/sub-totals included in the tables and charts may not equal the sum of the figures presented due to rounding, since this section presents figures in€thousands. section this since rounding, to due presented figures the of sum the equal not may charts and tables the in included Totals/sub-totals Note: operations denominatedineuro 2 Liabilitiestoeuroareacreditinstitutionsrelatedmonetarypolicy 12 Provisions 11 Otherliabilities 10 Intra-Eurosystemliabilities 9 CounterpartofspecialdrawingrightsallocatedbytheIMF 5 Liabilitiestoothereuroarearesidentsdenominatedin 3 Otherliabilitiestoeuroareacreditinstitutionsdenominatedin 13 Revaluationaccounts 8 Liabilitiestonon-euroarearesidentsdenominatedinforeigncurrency 7 Liabilitiestoeuroarearesidentsdenominatedinforeigncurrency 6 Liabilitiestonon-euroarearesidentsdenominatedineuro 15 Equity 14 Generalriskprovision 16 Profitfortheyear 11.3 Sundry 11.2 Accrualsandincomecollectedinadvance 11.1 Off-balance-sheetinstrumentsrevaluationdifferences 10.4 OthernetliabilitieswithintheEurosystem the Eurosystem 10.3 Netliabilitiesrelatedtotheallocationofeurobanknoteswithin 10.2 NetliabilitiesarisingfrombalancesofTARGETaccounts 10.1 LiabilitiesrelatedtotheissuanceofECBdebtcertificates 8.2 LiabilitiesarisingfromthecreditfacilityunderERMII 2.5 Depositsrelatedtomargincalls 2.4 Fine-tuningreverseoperations 2.3 Fixed-termdeposits 2.2 Depositfacility reserve requirements 2.1 Currentaccountsofcreditinstitutionsforcompliancewithminimum 8.1 Deposits,balancesandotherliabilities 5.2 Otherliabilities 5.1 Generalgovernment 15.2 Reservesandretainedearnings 15.1 Capital Total liabilities,revaluationaccounts,generalriskprovisionandequity general riskprovisionandequity Liabilities, revaluationaccounts, Head oftheAccountingDepartment José PedroSilvaFerreira

oe 1Dc 0031Dec.2019 31Dec.2020 Notes 33,9,1 27,962,009 30,892,216 13 43,1,8 19,213,022 31,612,682 14 19 51,0,9 7,418,234 18,104,394 15 01,4,6 13,785,913 16,047,062 20 6804795,052,331 8,014,769 16 1168481,568,125 3,676,622 1,668,458 3,676,622 21 701,619 19 163,710 134,400 201,845 18 17 5,1 995,112 76,976,192 80,195,154 950,514 8 3 405,632 5 4 9,3,2 159,785,115 192,439,126 0151476,976,192 80,195,154 1686219,207,122 31,608,682 711756,694,769 17,161,745 ,6,5 1,567,125 1,667,458 3,4 865,467 336,246 3,5 758,533 535,358 4,4 723,466 942,649 4,000 1,000 20 ------1,511,264 1,511,264 - - - 2,289 5,900 1,000 137 ------95 Financial Statements and Notes 96 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 figures in€thousands. Note: Totals/sub-totals included in the financial statements may not equal the sum of the figures presented due to rounding, since this section presents 7 6 5 4 3 2 1 Table II.2.2• 8Depreciation andamortisationfortheyear 18 17 16 Staff costs 15 14 13 12 11 10 9 8 19 22 21 0Banknoteproduction costs 20 23 24 27 26.2 26.1 26 25 Net resultoffinancialoperations,unrealisedlossesandriskprovisions Transfer from/toriskprovisions Unrealised lossesonfinancialassetsandpositions Realised gains/lossesarisingfromfinancialoperations Net interestincome Interest expense Interest income Other administrativecosts Supplies andservicesfromthirdparties Total netincome Other income Net resultofpoolingmonetaryincome Income fromequitysharesandparticipatinginterests Net incomefromfeesandcommissions Fees andcommissionsexpense Fees andcommissionsincome Total administrativecosts Losses forimpairmentofassets(losses/reversals) Other expenses Transfer tothereserverelatingcapitalgainsongoldsales Total costsandlosses(net) Profit fortheyear Income tax–deferred Income tax–current Income tax Profit/loss beforetaxes Profit andlossaccount| Items Head oftheAccountingDepartment José PedroSilvaFerreira EUR thousands oe 1Dc 0031Dec.2019 31Dec.2020 Notes 19 24 23 22 94,9 47,319 44,995 89,967 29 119,167 10,647 143,344 27 26 81203138,538 132,053 28 55,1 71,665 55,612 25 19 72,040 27 02272349,028 242,782 30 30 78218,247 17,832 9 ,4,0 1,102,483 1,044,607 2,5)44,981 (21,357) 0,9 997,640 801,691 8,8 1,320,553 985,280 9,2 205,434 196,324 0,9 214,953 207,794 535,358 7,8 1,105,601 777,486 4,1 104,843 242,916 4,2 347,067 242,128 467 (2,866) (4,657) 91549,848 70,492 49,135 1,445 8,584 3,927 9,588 (158) 65 (1,961) (655) - - 758,533 4,867 1,331 7,363 4,496 2,490 7,031 (3) - - (12) =(7)+(8)(11) Position asat31December2020 (11) =(9)+(10) Comprehensive incomefortheyear Net profitfortheyear(10) Changes in2020 2019 profitdistribution Position asat31December2019(7) (12) =(7)+(8)(11) Position asat31December2019 (11) =(9)+(10) Comprehensive incomefortheyear Net profitfortheyear(10) Changes in2018 2018 profitdistribution Position asat31December2018(7) Table II.2.3• figures in€thousands. Note: Totals/sub-totals included in the financial statements may not equal the sum of the figures presented due to rounding, since this section presents of deferredtaxes Adjustments onaccount Income tax–current of thePensionFund Actuarial gains/losses life insurance Actuarial gains/lossesfromgroup Other operations to shareholders Dividends distribution of deferredtaxes Adjustments onaccount Income tax–current of thePensionFund Actuarial gains/losses Other operations to shareholders Dividends distribution Sub-total ofchangesin2020(9) Sub-total ofchangesin2019(9) Description Sub-total of 2019 profit Sub-total of2019profit profit distribution(8) Statement ofchangesinequity| Sub-total of2018 distribution (8)

Notes 30 30 32 32 21 21 30 30 32 21 21 Head oftheAccountingDepartment Paid-up capital José PedroSilvaFerreira ,0 1,3 ,5,3 5483 3,5 2,203,816 535,358 (504,803) 1,554,232 618,030 1,000 ,0 4,7 ,7,7 4349 5,3 2,326,659 758,533 (453,429) 1,478,378 542,177 1,000 ,0 4,7 ,7,7 4349 5,3 2,326,659 758,533 (453,429) 1,478,378 542,177 1,000 ,0 6,0 ,9,1 4885 0,8 2,187,219 805,687 (478,885) 1,397,810 461,608 1,000 5,7)5538483,984 535,358 (51,374) - - - (51,374) - - - - 5467853783,989 758,533 25,456 - - - 25,456 - - - 05980,569 80,569 - reserves Legal 58375,853 75,853 58375,853 75,853 05980,569 80,569 EUR thousands reserves Other Retained earnings (52,703) 25,077 (5,868) (6,686) 7,138 7,065 59 7853 (606,827) (758,533) - 8567 (644,550) (805,687) - Profit for the year 6687 (606,827) (606,827) (151,707) (161,137) 6450 (644,550) (644,550) 3,5 535,358 535,358 5,3 758,533 758,533 (51,374) - 25,456 - equity Total (52,703) 25,077 (5,868) (6,686) 7,138 7,065 59 - - 97 Financial Statements and Notes 98 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 2. down by the ECB as a basis. As laid to the procedures other business harmonised areas, the the disclosures uses are on Portugal the information de Banco the operations, (ESCB) Banks Central of System European the in participation the to relating positions on disclosures to regard With sense justifyingit,theBancodePortugaldoesnotprepare consolidatedfinancialstatements. immaterial nature of the results of a possible consolidation process, as well as the lack of economic are measured in compliance with the accounting policy described in Point (e) of Note 1.2. Given the interests participating These activity. Portugal’s de Banco the with connected is maintenance their and nature long-standing a have companies associated and subsidiaries in interests Participating relating toeuroarearesidents. be made according to the euro area residency criterion. Euro area assets and liabilities are those shall liabilities and assets of classification the Guideline, Accounting ECB the with accordance In of Note1.2).ThesetwoitemsarerecordedinthebalancesheetbetweenLiabilitiesandEquity. (q) (Point account loss and Profit the against directly made are reversals and reinforcements its (ii) the General risk provision, which unlike the other provisions, and is 1.2); Note equivalent of (p) to and (d) a (Points account reserve, loss and although Profit the in recognised not are that gains The PCBP defined two single balance sheet items: (i) Revaluation accounts, representing potential provided thecumulativeconditionslaiddowninPCBParemet. recognition and measurement based on the IFRS2 rules recommended in that optional Guideline for the participating interests; adopt and (ii) technical also guidance on to the ofcore decided having Portugal onthetreatment de Banco ECB the with activity, the banking central of Council Governing the by defined of rules adoption the mandatory establishes the ESCB/ECB, the of Statute the of 26.44 Article account into taking of the European Central Bank of 3 November 2016 on the legal framework for accounting and financial reporting in the European System European the in reporting financial and accounting for framework legal the on 2016 November 3 of Bank Central European the of 1. two major regulations: (i) the Accounting Guideline of the European Central Bank Central European the of Guideline Accounting the (i) regulations: on major two rely force, in PCBP the in envisaged statements, financial the of preparation for bases The bank activity. central the for designed appropriately and specifically regulation a is PCBP The 2012. January 1 the with accordance in Finance, for provisions laid down in Article 63(1) of the responsible Government of member the by approved accordance with in prepared PCBP), – (Plano deContasdoBancoPortugal been Portugal de Banco have the of Accounts of Chart the dePortugal the Banco of statements financial The 1.1 ACCOUNTING POLICIES N (Figures in€thousands,saveasotherwisestated) Notes onthefinancialstatements

ote IFRS –InternationalFinancialReportingStand of CentralBanks,asamended(ECB/2016/34) –availablefrom Guideline Bases ofpresentation 1• BASES OFPRESENTATIONANDMAIN ards, asadoptedintheEuropeanUnion. Statute of Banco de Portugal, and entered into force on https://eur-lex.europa.eu/. 2 for the other activities, which will be applied be will which activities, other the for 1 (ECB), which, (ECB),

balance sheet, in specific revaluation accounts for each type of asset and currency. At the end the At currency. and asset of type each for accounts revaluation specific in sheet, balance the in recognised are cost) average weighted the and value market the between (i.e. differences revaluation period, the of course the over Thus, Guideline. Accounting ECB the with accordance in gains/losses unrealised to approach valuation asymmetric an applies Portugal de Banco The a on swap the of straight-line basis(Point(g)ofthisNote). life the over recorded and interest as treated being legs two the difference the between amount, same the by leg spot the of date settlement the on recognised is leg forward The date. settlement spot the on recognised is swaps exchange foreign of leg spot The having aninfluenceontheaveragecostofforeigncurrency positionasfromthatdate. date, trade the on sheet balance the in recognised are transactions forward exchange Foreign are transactions date, recognised inoff-balance-sheetaccountsonthetradedate. trade the and date settlement the between ends year the When date. Assets and liabilities in general arerecognised on the settlement date rather than on the trade economic benefits. embodying resources of investment or outflow an in result to expected is settlement their and past events from resulting commitments are Liabilities benefit. economic future generate to expected are which and the events past by from or resulting (pooling), basis, basis collective individual a an on Eurosystem on Portugal de Banco the by controlled resources are Assets Relevance, ReliabilityandComparability. Understandability, are statements financial the of characteristics qualitative The continuity. and received) or paid are they which in time in moment the to according not and generated are they to interest income and interest expense, which are recognised in the accounting period in which regard with namely items, statement financial most to relation (in principle accounting of basis Accrual assumptions: accounting following the with accordance in prepared are and liabilities and assets its of reality economic the reflect Portugal de Banco the of statements financial The of theBancodePortugalforyeararefollowing: main accounting The policies and valuation criteria used in the preparation of the financialstatements 1.2 (iii) theobjectiveofBancodePortugalasacentralbank. and market players; (ii) the purposes of the operations conducted by the Banco de Portugal; and markets the of activity day-to-day the (i) with collide not does it whenever IFRS, the by defined (d) (c) (b) (a) Synopsis ofthemainaccountingpolicies Recognition date Accounting assumptionsandqualitativecharacteristicsofthefinancialstatements Income recognition Recognition ofassetsandliabilities

99 Financial Statements and Notes 100 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 of goods. of goods. acquisition the to attributable directly expenditure includes cost acquisition This respectively. 38 depreciation and amortisation, in accordance with international accounting standards (IAS) 16 and Tangible fixed assets and intangible assets are measured at the acquisition cost less accumulated according totheacquisitioncostcriterion,subjectpotentialimpairmentlosses. 3. through the Net Asset Value Guideline, Accounting ECB the of recommendations the with accordance in valued are assets, Participating interests in subsidiaries and associated companies, disclosed under Other financial amount sold. the than higher is day given a on purchased amount the when changed only being stock gold the of cost average the with similar, is currencies foreign and gold of treatment accounting The Currency purposes. accounting for holdings underlyingtheSDRbasketaretreatedjointlywithSDRs,formingasingleholding. currency a as treated are (SDRs) Rights Drawing Special security-by-security basis(ISINcode). a on made also is revaluation price Securities positions. currency forward and spot between Foreign currency revaluation is made on a currency-by-currency basis and no distinction is made losses (Point(f)ofthisNote). impairment potential less cost amortised at measured are implemented currently programmes the regarding purposes policy monetary for held securities and held-to-maturity as classified the period at the exchange rates and market price prevailing on the reporting date. The securities Gold, foreign exchange transactions and securities in the trading portfolio are valued at the end of on whetheritsvalueispositiveornegative. each balance sheet sub-item is shown net under Interest income or Interest expense depending for receivable or payable interest framework, accounting Eurosystem’s the with accordance In are immediatelyrecognisedonthetradedate. settlement only occurs in the subsequent year, gains and losses arising from financial operations but year, one in traded are operations the where situations, these In Guideline. Accounting ECB except in the situations envisaged operations, in the financial economic approach from alternative method, loss described arising in the gains/losses and Realised Profit under date the settlement in the on recognised account are cost, average weighted the and value transaction the Realised gains and losses arising from financial operations, determined by the difference between in anyonesecurity(ISINcode),orcurrency. Unrealised losses on financial assets and positions. There is no netting of revaluation differences under account loss and Profit the in recognised are differences revaluation negative of theyear,

percentage levelofthatparticipatinginterest. Net AssetValue(NAV)=totalassetsless liabilitiesofentitiesinwhich (e) Measurement ofbalancesheetitems 3 valuation method. The remaining participating interests are recognised the Banco de Portugalhas a participatinginterest,multipliedbythe

where applicable(Point(o)ofthisNote). losses impairment any less value, nominal at recognised are item, this in mentioned previously not euro in denominated positions sheet balance other the as well as Portugal, de Banco the with parties third by held and parties third with deposits and payable and receivable Accounts low-value assets(lessthan€10,000)continuetobedirectlyrecognisedintheProfitandlossaccount. of Leases interest. as recorded is it effect, financial a be there Should liability. lease corresponding the assets and for the duration of the contract or period of use, whichever is earlier. Lease payments reduce depreciated/amortised in accordance with the same method applied to assets similar to the underlying are rights-of-use Such rate. borrowing incremental Portugal’s de Banco the using discounted payments, lease future of value present the at measured initially contracts, those for liabilities lease the Liabilities in (ii) and months 12 than greater duration a with leases concluded Bank the which for assets intangible and assets fixed tangible right-of-use the Assets in (i) recognising 16, IFRS in out set rules measurement and recognition the adopted Portugal de Banco the 2019, January 1 of as Effective available foruse,andwhentheiramortisation/depreciationstartsalso. be to start they when assets intangible and assets fixed tangible to transferred and Portugal de Banco the to charged already expenses total the at valued are construction under assets Fixed net carryingamount. the below is amount recoverable estimated the whenever account loss and Profit the in recognised is loss impairment an and estimated be must amount recoverable asset’s the impaired, be may asset intangible an or asset fixed tangible a that indication any is there where 36, IAS to According which fallwithinthefiscallyacceptedintervalsunderRegulatoryDecreeNo25/2009: life, useful estimated their to according rates, amortisation and depreciation annual applying by method, straight-line the to according twelfths, in recorded are amortisation and Depreciation case ofzerocouponsecurities. the in method, (IRR) return of rate straight-line internal the or coupon, with securities of the case the in method, to according either life, contractual remaining securities’ the over amortised Premiums ordiscountsarisingonsecuritiesarecalculated andrecordedasinterestare for monetarypolicypurposes. held securities and portfolio) securities (held-to-maturity maturity until owned be to purchased securities portfolio), (trading portfolio its in securities marketable holds Portugal de Banco The Intangible assets Tangible fixedassets (f) Equipment Premises Buildings andotherconstructions Furniture andfittings Transport equipment Computer hardware Machinery andtools Securities Number ofyears 10 to50 4 to20 3 to6 4 to8 4 to8 3 to5 4 to8 101 Financial Statements and Notes 102 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 recognised in Realised gains/losses arising from financial operations, in line with thefinancial flows resultingfromchanges inthecorrespondingmarginaccount. with in line operations, financial from arising gains/losses is revaluation Realised daily in the recognised of result the futures, rate interest of case the In Note. this of (d) Point in described as treated are gains/losses revaluation the swaps, rate interest to As transaction. by transaction on revalued and for accounted are futures rate interest and swaps rate Interest the by determined is interest difference betweentheagreedcurrencyspotrateand agreedforwardrateofexchange. this swaps, exchange foreign of case the In transaction. the of lifetime the during basis straight-line a on recorded and interest as recognised is rate exchange forward transactions, the difference between the market exchange rate of the trade date and the agreed exchange offoreign case the In accounts. off-balance-sheet and on-balance-sheet in recognised are swaps exchange foreign of legs forward and transactions forward exchange Foreign those securities(intermsofhowlongtheywillbeheldfor). hold to intention the of regardless level, Eurosystem at conducted tests impairment to subject costamortised at for accounted are purposes policy monetary for held currently securities Debt emergency pandemic the (vii) purchase programme(PEPP). and securities no holds Portugal de Banco the which in CSPP, – (v) the public sector purchase programme PSPP; and (vi) the corporate sector purchase programme ECB; the of sheet balance the on centralised currently asset-backedABSPP, – programme the purchase securities (iv) date; to activated been not has which OMT, – programme transactions monetary outright the (iii) SMP; programme markets securities the (ii) CBPP3; and CBPP2 CBPP, – programmes purchase bond covered the (i) namely: operations, policy monetary non-standard The The and itsmarketvaluearerecognisedasreferredtoinPoint(d)ofthisNote. Revaluation differences correspond to the difference between the amortised cost of the security all thepurchasesmadeonthatday. from the stock at the weighted average cost for the sale’s value date, which already incorporates previous working day, so that a new weighted average cost can be calculated. Sales are deducted The cost of daily purchases is added to the weighted average cost of each type of security from the of sales and the adjusted weighted average cost of the security is treated as realised gains/losses. value the between difference The discount. or premium the of amortisation accumulated the of costaverage weighted adjusted the uses Portugal de Banco the by adopted method costing The is assessedusingindicativemarketprices. Securities forpurposesotherthanmonetarypolicyareinthef • The • of securitiesheldinthisportfolioissimilartothatthemarketablesecurities. theguidelines discounts and premiums and interest whichfollows of treatment accounting The level. Eurosystem at defined dePortugal, Banco the by defined model the to according tests independently of the other securities classified as trading securities, and is subject to impairment

– Securities forpurposesotherthanmonetarypolicy Securities heldformonetarypolicypurposes –

portfolio of marketable securities is measured at market price. The market value of this portfolio portfolio of held-to-maturity securities is measured at amortised cost, calculated totally calculated cost, amortised at measured is securities held-to-maturity of portfolio tm euiis ed o mntr plc proe icue db scrte rltd to related securities debt includes purposes policy monetary for held Securities item (g) Trading book Medium-term investmentportfolio Derivative financialinstruments ollowing portfolios:

The ECB and the NCBs of the euro area, which together comprise the Eurosystem, issue euro euro issue Eurosystem, the comprise together which banknotes. area, euro the of NCBs the and ECB The Eurosystem (Point (i)ofthisNote). the within banknotes euro of allocation the to related Claims under asset single net a as included are banknotes euro of allocation the from arising balances Intra-Eurosystem sheet underTransferofforeignreserveassetstotheECB. Banco de Portugal joined the Eurosystem is denominated in euro and is recorded in the balance the when ECB the to assets reserve of transfer the from arising balance intra-Eurosystem The netted onadailybasis,leavingeachNCBwithsinglenetbilateralposition are balances bilateral These banks. central EU of accounts TARGET the on balances bilateral to rise give and TARGET2 in settled initially are and entities private by initiated part most the for are transactions These euro. in settled are that EU the within payments cross-border from result Intra-Eurosystem balances, recognised under Liabilities arising from balances of TARGET accounts, TARGET of balances from arising Liabilities under recognised balances, Intra-Eurosystem of banks central to Member Stateswhosederogationshavebeenabrogated. respect with ESCB/ECB the of Statute the of 48.2 Article with accordance 6. 5. value means the totalofECB’s reserves, revaluation accounts and general risk provisions, minus any loss carried forward from previous 4. ECB’s the in shares their value in equity increase the to due NCBs the by paid amount net any (ii) capital, subscribed ECB’s the in share paid-up NCBs’ the (i) includes item sheet balance this Additionally, the capital of the ECB is recorded in the balance sheet in Assets under Participating interest in the ECB. Article 30 result from applying the weightings referred to in Article 29. The Banco de Portugal’s share in in envisaged as assets reserve foreign of transfer the to relating ECB the by allocated claims and ECB the of capital the in share Portugal’s de Banco the Thus, 29. Article in established key the to according made is capital of subscription The 28). (Article ECB the of capital the of holders and to subscribers sole the are ESCB the of (NCBs) banks central national the ESCB/ECB, the of Statute the to Pursuant (the differencebetweenthespotandforwardprices)isaccruedovertransaction’slife. A gold swap for foreign currency (or for euro) is treated as deposit taking, in which interest is agreed levels. reserve gold on impact no have operations these to relating flows gold and agreements repurchase as treated are swaps gold framework, accounting Eurosystem’s the with accordance In o on 1 January 2015. the euroon1January2014;andLietuvosbankasadopted euroon1 January2015. the euro on 1 January 2009; Eesti Pank adopted the euro on 1 January 2011; Latvijas Banka adopted adopted Slovenska banka Národná 2008; January 1 on euro the adopted Malta of Bank Central the 1 January 2002; Banka Slovenije adopted the euro on 1 January 2007; the Central Bank of Cyprus and

Decision oftheECB13December2010on the issueofeurobanknotes(ECB/2010/29),OJL3 Trans-Eu or netlossuntilthedateofadjustment. periods. In the event of capital key adjustments taking place during the financial year, the equity value also includes the ECB’s accumulated net profit Equity (i) (h) ropean AutomatedReal-timeGrossSettlement ExpressTransfer. Banknotes incirculation Intra-ESCB balances 6 The ECB and 12 of these NCBs have been putting euro banknotes into circulation since 4 resulting from all previous ECB’s capital key adjustments, and (iii) contributions in contributions (iii) and adjustments, key capital ECB’s previous all from resulting 5, 9/2/2011,p.26,asamended. vis-à-vis theECBonly. 5

103 Financial Statements and Notes 104 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 9. 8. 7. balances. and banknotes withdrawn from circulation by that NCB gives rise to remunerated intra-Eurosystem circulation into put banknotes between difference the of value the and key allocation banknote The difference between the value of euro banknotes allocated to each NCB in accordance with the allocation key’. ‘banknote the with accordance in month each of day working last the on allocated is circulation in banknotes euro of value total The circulation. in Banknotes item under sheet balance the in disclosed is NCB each to allocated banknotes of share The ECB. the of key capital adjusted the in weightings their to according NCBs the to allocated been has 92% circulation, remaining in the banknotes whereas euro of value total the of 8% of share a allocated been has ECB The of the following financial year, by means of an interim profit distribution. profit interim an of means by year, financial following the of due to the NCBs in the same period it accrues and distributed on the last working day of January be will portfolios, PEPP and ABSPP CBPP3, SMP, the under ECB the by held securities the from arising income the as well as ECB, the to allocated banknotes euro of share 8% the from arises which ECB, the of income seigniorage the that decided has ECB the of Council Governing The and disclosedunderNetinterestincomeintheProfitlossaccount. ECB the of accounts the through cleared is balances these on expense and income interest The cash the changeover yearofeachnewEurosystemparticipant. following year sixth the of day first the of as apply to cease will adjustments balance been have would intra-EurosystemThose key. allocation banknote the under period that during them to allocated that banknotes of value average the and period reference the in NCB each of circulation in banknotes of value average the between differences the account into taking by patterns do not significantly circulation alter banknote the in NCBs’ relative changes income that positions. These so adjustments period arefive-year effected a over adjusted are banknotes euro of When a new Member State adopts the euro, the intra-Eurosystem balances arising from the allocation the allocationofeurobanknoteswithinEurosystem. The amount distributed is recorded in the Profit and loss account under Income from equity from shares andparticipatinginterest. Income under account loss and Profit the in recorded is distributed amount The for financialrisks. provision the to income seigniorage ECB’s the of part or all transfer to decide also may Council costs the of amount incurred the by the ECB in connection with by the issue and handling of euro income banknotes. The Governing this reduce to Council Governing the by decision any to subject or programmes purchase securities above-mentioned the and circulation in banknotes full unless the ECB’s net profit for the year is expected to be lower than its income earned on euro

and securitiespurchasedundertheSecurities MarketsProgramme(recast)(ECB/2014/57),OJJ53,25/2/2015,p.24. Decision oftheECB euro (recast)ECB/2016/36),OJL347,20/12/2016, p.26. Decision subscribed capitalkeytotheNCBs’shareinsuchtotal. Banknote allocation (j) of the ECB of 3 November 2016 on the allocation of monetary income from national central banks of Member States whose currency is the is currency whose States Member of banks central national from income monetary of allocation the on 2016 November 3 of ECB the of Distribution oftheECB’sincome 8 These claims or liabilities are disclosed under sub-items Net claims/liabilities related to 7 of 15December2014ontheinterimdistribution oftheincomeEuropean CentralBankoneurobanknotesincirculation key’ means thepercentage thatresultsfromtaking into account the ECB’s share in the totaleuro banknote issue and applying the 9 It will be distributed in distributed be will It

employees and95%forpast-serviceliabilitiesofactivemembers. retired and pensioners towards liabilities current for 100% is required ratio funding minimum The solvency. Plans’ the ensure to aim Fund the to made contributions Plans, these regards As Healthcare Plan,describedindetailNote32. the and Plan Pension the plans: benefit two comprises Plan Defined-Benefit – Fund Pension The recognised underRetainedearnings. directly are losses and gains These assumptions. financial and actuarial the in actual values changes (ii) and and used assumptions andfinancial actuarial the between differences (i) from chiefly result losses and gains Actuarial liabilities. and assets Fund’s the to rate interest single a applying by calculated is which cost, interest net the to and cost service current the to refers costs Staff in recorded amount the therein, down laid provisions the to According 19. IAS with accordance in made is pensions retirement to related liabilities and costs of recognition The presented inNote32. also are liabilities these of calculation the in used demographic) and (financial assumptions actuarial main The Method. Credit Unit Projected the using (SGFPBP), Portugal de Banco do annual basis, on the cut-off date for the accounts, by Sociedade Gestora dos Fundos de Pensões The Banco de Portugal’s liabilities to the Pension Fund, explained in Note 32, are calculated on an periods, arising from temporary differences between the accounting values of assets and liabilities liabilities and assets of values accounting the between differences temporary from arising periods, Deferred tax assets and liabilities correspond to the value of the tax to be recovered and paid in future the taxincentivesandbenefits applicabletotheBancodePortugal. (Código do Imposto sobre o Rendimento das Pessoas Coletivas Code Tax Income Corporate Charges for the year from income tax are calculated in accordance with the provisions laid down in the conditions. benefits in or assumptions in changes from arising gains/losses, actuarial net and cost interest The Banco de Portugal recognises directly in the Profit and loss account the current service cost, benefits arepresentedinNote32. these of value present the of calculation the in used demographic) and (financial assumptions actuarial main The Method. Credit Unit Projected the using accounts, the for date cut-off the on basis, annual an on bonuses seniority with benefits of value current the calculates SGFPBP The liabilities foryearsofservice,regardingsenioritybonuses. The Banco de Portugal recognises on the Liabilities side of its balance sheet the present value of de Portugalhasnolegalorconstructiveobligationtopayanyadditionalcontribution. Banco the plan, defined-contribution a is this since However, compensation. monthly actual the may employees These participate in a supplementary pension March. plan, to which the Banco de Portugal contributes 1.5% of 2 of 54/2009, no. Decree-Law under scheme, general security Employees who started working at the Bank as from 3 March 2009 are now covered by the social (l) (k) (n) (m) Pension FundoftheBancodePortugal–Defined-ContributionPlan Pension FundoftheBancodePortugal–Defined-BenefitPlan Income tax Seniority bonuses – CIRC) and and CIRC) – 105 Financial Statements and Notes 106 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 tugal’s accounts. Governing CounciloftheECBwith animpactontheBancodePortugal’saccounts. the by taken decisions from resulting those including losses, potential of coverage the allowing levels at held is ratio capital the that and Portugal, de Banco the by on taken liabilities the for sufficient assessment of balance sheet risks from a medium-term perspective, ensuring that own funds are the factors, other among consideration, into taking defined is amount provision risk General The Liabilities andEquity(Point1.1ofthisNote). between recorded sheet, balance the on item separate a as considered is provision risk General The results createdpreviouslyallowit. when increased only is provision risk General the reserve, a to similarity its Given account. loss and in that it is similar to a reserve, although its increases and decreases are directly made against the Profit The PCBP provides for the setting up of a General risk provision, which differs from the other provisions assets oroperationsareparticularlyliable. of types certain which to losses or risks depreciation meet to namely provisions and reserves other In accordance with Article 5(2) of the losses, contributingtothecalculationofNetprofitforyear. Unrealised item in account loss and Profit the to transferred are they negative are differences revaluation the when prudence, of principle the with accordance in year, the of end the At basis inthebalancesheetbetweenLiabilitiesandEquity. item-by-item an on presented are year the of end the at differences revaluation Positive gains. Whenthese Note. differencesof this are positive, they are retained in1.2(d) the balancePoint sheet in order in not to distribute unrealised asdescribed calculated are differences Revaluation Banco dePortugalfollowstheregimedefinedinCorporateIncomeTaxCode. the impairment, or provisions other For purposes. tax for deductible are provisions These ECB. the of Council Governing the by set limits the within and decisions to according NCBs, area euro other all with shared risk from resulting provisions of up setting the for provides also PCBP The payment amount,asatthedateofpreparationfinancialstatements. the of estimate best the through liabilities in recognised are provisions These reliably. estimated be can amount the (iii) and required be to likely is payment (ii) constructive, or legal obligation, present a has Portugal de Banco the (i) if: recognised are provisions 37, IAS with accordance In cash flows. future of estimate best the reference a as takes and class asset each with associated losses of estimate best the from results impairment this of value The 36. accordanceIASassets,within Impairment of assets is shown in the balance sheet with a deduction from the book value of those also recordedagainstequity. are they case which in equity, in recognised directly items to related are they where except account, estimate of the amount of tax to recover and pay in the future and are recognised in the Profit and loss best the basis a as taking calculated are taxes deferred 12, IAS with compliance In base. tax their and (q) (p) (o) Impairment andprovisions General riskprovision Revaluation accounts , the Board of Directors may establish Statute ofBancodePortugal, the Board of Directors may establish

which beganin2020. balance sheet and income statement components, associated with the COVID-19 pandemic context, There has been an increase in the current degree of uncertainty, broadly based across the various (Note 30)andliabilitiesrelatedtoretirementpensions otherbenefits(Note32). relate to the following: asset impairment and risk provisions (Note 19), current and deferred taxes statements financial the of preparation the for assumed uncertainties and estimates main The financial statements. a in the of preparation the in consideration into taken also are Eurosystem the Portugal by operations these de for made estimates Banco the policy, the Eurosystem-wide common a by follow they as made way, decentralised are which operations, policy monetary Regarding closure ofaccounts. upon available information best the on based are estimates These recorded. levels provision particular, in and, contingencies expenses, items, income liabilities, assets, certain quantifying in estimatesPortugal’s de Banco the consideration into taking prepared were accounts annual The of theBancodePortugal’sfinancialstatements 1.4 Mainestimatesanduncertaintiesinthepreparation give risetoanyadjustment,aredisclosedinaspecificNote. not do which and any, if date, sheet balance the after arising conditions indicating Events date. sheet balance the at existed events these that evidence is there where date, approval statements’ financial the and date sheet balance the between occur may which events unfavourable or I 1.3 Directors, or profits not recognised in the Profit and loss account as set of out in Board the the accounting rules. by distribution pending years previous from profits represent earnings Retained and lossaccountcontributetothecalculationofNetprofitforyear. Profit the in recognised are reserve this increase to appropriations Annual limit. maximum no Banco de Portugal, is annually endowed with the exact amount of gains on these operations, with The special reserve relating to gains on gold sales, provided for in Article 53(1)(b) of the sales; and(iii)otherreserves. in its Statute, being divided as follows: (i) legal reserve; (ii) special reserve relating to gains on gold The reserves of the Banco de Portugal are set up and used according to the provisions set forth that allow risks to be covered over a medium-term horizon to a buffers level defined by thefinancial risks Board of Directors. and Eurosystem) sheet the of balance NCBs the to statements, common methodologies financial following (measured the in developments of assessment technical involving with Article 5(2) of the accordance in Directors, of Board the by upon decided are provision risk General the in Movements n compliance with IAS 10, the Banco de Portugal’s financial statements are adjusted for favourable (r) Post-balance-sheet events Reserves andretainedearnings Statute ofBancodePortugal, based on a set of qualitative and quantitative factors, Statute of 107 Financial Statements and Notes 108 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 All ofthegoldinvestedisstored attheBankofEngland. Note: (a)Ounceoffinegold. Bank forInternationalSettlements(BIS) Bank ofEngland The goldreserveinvestedindepositswasheldthefollowing banks: and (p)ofNote1. (e) 1.2(d) Points in described policy accounting the to according differences, revaluation positive as 20) (Note sheet balance the in recognised are 2019) December 31 on thousand €13,621,564 and 2020, December 31 on thousand (€15,955,657 asset this from resulting gains Unrealised level, asdescribedinPoint1.2(g)ofNote1onaccountingpolicy. reserve gold the on impact no with although 2020, in made also were gold in investments Some €1,543.88 perfineounceofgold,a14.0%increaseagainst€1,354.10on31December2019. of price market the at 2020 December 31 on valued was reserve gold Portugal’s de Banco The arose fromminoradjustmentsingoldoperations. level reserve gold the in variation The (-9.2%). euro the against USD the of depreciation the by in euro. This increase was driven by the appreciation of the gold price in USD (24.5%) partly offset denominated price gold in rise a to due chiefly was increase This balance. year-end previous the As at 31 December 2020 the gold item showed an increase of €2,334,630 thousand compared to Note: (a)Ounceoffinegold. Gold storedattheBank Federal ReserveBank–UnitedStates N Portugal followstheEurosystem’sbestpracticetothisend. external de Banco the independent auditors, external the of by independence the ensuring of audited purpose the For auditors. be must Eurosystem the of (NCBs) banks central national the of accounts annual the which to according ESCB/ECB, the of Statute the down of 27.11 laid Article provisions in the to subject is ESCB, the of part integral an as Portugal, de Banco The of thefinancialstatementswithadditionalrelevantinformation. Eurosystem has decided that the publication of a cash flow statement would not provide readers thebanknotes, euro issuing for responsible bank central a as role Portugal’s de Banco the Given 1.5 Gold sightaccounts Gold investments ote Other subjects 2• GOLD ANDRECEIVABLES Gold reserve Total Fine ounces 2293518,988,763 12,299,345 ,4,3 8,567,380 5,549,238 ,7,0 2,121,456 1,374,103 ,7,0 8,299,927 5,376,004 Fine ounces ,7,0 ,2,5 ,0,6 2,033,548 1,501,766 2,121,456 1,374,103 1,2 182,683 989,101 949,672 118,327 640,658 615,119 31 Dec.2020 (a) 31 Dec.2020 (a) U huad Fineounces EUR thousands U huad Fineounces EUR thousands 2290616,654,133 12,299,006 ,4,3 7,514,245 5,549,238 ,0,6 2,033,548 1,501,766 ,4,0 7,106,339 5,248,001 4,8 1,005,804 118,327 640,658 742,782 31 Dec.2019 (a) 31 Dec.2019 (a) EUR thousands EUR thousands 160,227 867,517 Claims oneuroarearesidentsdenominatedinforeigncurrency in foreigncurrency Claims onnon-euroarearesidentsdenominated IN FOREIGNCURRENCY INVESTMENTS, LOANSANDOTHERASSETSDENOMINATED N against theeuro(-4.5%),from1.2339on31December2019to1.17862020. depreciation SDR the of effect the include also items liability and claim different the in changes The euro resultedsolelyfromchangesintheSDRpricecomparedtoDecember2019. in denominated value its in variation the and 2020, in unchanged remained IMF the in Portugal de Banco the of share the that noted be should It Portugal. de Banco the with deposits IMF less payments, subsequent and participation initial the to corresponding IMF, the in share Portugal’s of 2020 December 31 on euro in equivalent the reflects IMF the in position tranche Reserve The a foreigncurrency,asdescribedinPoint1.2(e)ofNote1. as treated are which (SDRs), Rights Drawing Special in denominated are IMF the in positions The IMF quota INTERNATIONAL MONETARYFUND(IMF) N markets inforeigncurrency(net) Total balanceswithbanks,deposits andothermoney Total securityinvestmentsdenominatedinforeigncurrency Liabilities tonon-euroarearesidentsdenominatedinforeigncurrency IMF’s holdings SDR holdings rights allocatedbytheIMF Counterpart ofspecialdrawing Balances with banks, deposits and other money markets Balances withbanks,depositsandothermoneymarkets Securities Balances withbanks,depositsandothermoneymarkets Securities Deposits, balancesandotherliabilities Reserve tranchepositionintheIMF ote ote 4• 3• Liabilities totheIMF Claims ontheIMF BALANCES WITHBANKSANDSECURITY LENDING ANDDEPOSITOPERATIONSWITHTHE D huad U huad D huad EUR thousands SDRthousands EURthousands SDR thousands (1,594,045) 1,015,169 2,060,100 (806,477) (806,477) 549,114 466,055

31 Dec.2020 (1,878,741) 1,196,478 2,428,034 (950,514) (950,514) 647,185 549,293 31 Dec.2020 3,888,505 3,834,122 2,092,356 1,796,149 2,063,309 1,770,813 54,383 29,048 25,336 - 15406 (1,966,893) (1,594,046) 1,005,122 2,060,100 (806,477) (806,477) 539,067 466,054 31 Dec.2019 31 Dec.2019 (1,511,264)

3,097,238 4,327,842 1,388,183 1,709,054 2,836,458 1,491,385 280,659 217,670 62,989 1,240,220 2,541,957 (995,112) (995,112) 665,155 575,065 109 Financial Statements and Notes 110 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Liabilities tonon-euroarearesidentsdenominatedineuro Other liabilitiestoeuroareacreditinstitutionsdenominatedin Claims oneuroarearesidentsdenominatedin markets denominatedineuro(net) Total balanceswithbanks,deposits andothermoney Total securityinvestmentsdenominatedineuro Claims onnon-euroarearesidentsdenominatedineuro DENOMINATED INEURO INVESTMENTS, LOANSANDOTHERASSETS N composed ofUSdollars,asinpreviousyears. mainly be to continued currency foreign in denominated portfolio the 2020 December 31 at As Securities ofeuroarearesidentsdenominatedinforeigncurrency in foreigncurrency Securities ofnon-euroarearesidentsdenominated broken downasfollows: was currency foreign in denominated portfolio securities the 2019 and 2020 December 31 at As €1,026,115 thousand. totalled nature this of operations 2019 of end the At risk. rate exchange associated no with operations 5), (Note thousand €1,840,211 of amount the in currency foreign for swap euro of transactions forward from resulting increase, temporary a showed on item this 2020 that 31 December fact the to due largely was increase This investments. other and deposits of amount the in increase an notwithstanding 2019, in as same the was securities of amount the 2020 In Deposits, balancesandotherliabilities Deposits, balancesandotherliabilities Balances with banks, deposits and other money markets Balances withbanks,depositsandothermoneymarkets Securities Balances with banks, deposits and other money markets Balances withbanks,depositsandothermoneymarkets Securities Paragovernmental andsupranational Companies/financial institutions Paragovernmental andsupranational Government debt ote of which: Amounts received as collateral of which:Amountsreceivedascollateral of which:Amountstransferredascollateral 5• BALANCES WITHBANKSANDSECURITY

31 Dec.2020 31 Dec.2020 (7,845,456) (8,008,093) 1,523,664 1,796,149 8,967,212 9,369,120 1,770,813 8,951,433 (405,632) 970,177 552,490 417,687 927,512 833,477 113,490 (30,040) 25,336 15,779 25,336 9,824

31 Dec.2019 31 Dec.2019 (3,688,891) (5,048,558) 5,971,804 1,709,054 9,288,100 1,732,262 9,660,695 1,491,384 9,187,233 1,258,800 217,670 100,867 217,670 473,462 636,291 855,093 - - - -

Securities ofeuroarearesidentsdenominatedin On 31 December 2020 the Banco de Portugal had no amount placed from these operations these from placed amount no had Portugal de Banco the 2020 December 31 On been allotment. full with have 2016, March 16 operations since 0% at these set procedures, tender 2008, rate fixed as October conducted Since week. one of maturity a and frequency usually with a transactions reverse are liquidity-providing (MROs) operations refinancing Main Longer-term refinancingoperations Main refinancingoperations €32,163,660 thousand,brokendownasfollows: reached held Portugal level de Banco the which Eurosystem of thousand), €624,232,652 (2019: at to euro thousand €1,793,194,089 operations policy ineuro monetary to denominated relating operations institutions credit refinancing area of value the 2020 December 31 On DENOMINATED INEURO RELATED TOMONETARYPOLICYOPERATIONS N Securities ofnon-euroarearesidentsdenominatedineuro as follows: down broken was prices, market at valued euro, in denominated portfolio trading securities The continued toaccountforthelargestshareinthisportfolio. residents area euro of securities decisions, strategic Portugal’s de Banco the with accordance In bank liabilities(Note18). there were only liability positions and they were recorded under Sundry liabilities – other central 2019 In item. this under 2020, in recognised, were collateral as delivered/received amounts The below those of previous years, as a result of the current generalised context of negative rates of return. results of gold and the trading portfolio denominated in euro, this portfolio will return to values slightly the boost to out carried operations, temporary these of maturity the Following 4. Note in described as currency foreign for transactions swap Euro outstanding were there 2020 December 31 at As (Notes 2 and 16), and the euros received were used to temporarily reduce TARGET account liabilities. investments gold to relating loans collateralised with associated liabilities, external and internal in recognised amount the in increase the to due primarily 2019, December 31 to compared decline a showed investments) net other and banks with balances (securities, portfolio trading euro The Companies/financial institutions Paragovernmental andsupranational Government debt Companies/financial institutions Paragovernmental andsupranational ote 6• LENDING TOEUROAREACREDITINSTITUTIONS 31 Dec.2020 31 Dec.2020 32,163,660 32,163,660 9,369,120 8,951,433 8,135,653 417,687 815,781 397,507 20,179 - - 31 Dec.2019 31 Dec.2019 17,325,460 17,320,460 9,660,695 9,187,233 8,683,671 473,462 498,537 453,609 19,853 5,025 5,000

111 Financial Statements and Notes 112 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 applied intheEurosystem’smainrefinancingoperationsoverlifeofrespectivePELTRO. rate average the below points basis 25 is rate interest The allotment. full with procedures tender rate fixed as conducted are PELTROs 2020. June and March between place took that (LTRO-A) operations money markets by providing effective support after the expiry of the additional longer-term refinancing support liquidity conditions in the euro area financial system and help preserve the smooth operation of 2021, called of quarter non-targeted pandemicemergencylonger-termrefinancing operations(PELTRO).These the third in maturing operations refinancing longer-term additional seven of series new a conduct to decided Council Governing the 2020 April 30 Furthermore,on over theremainderoflifeeachoperation,asthiswasconsideredtobeaprudentapproach. interest III TLTRO calculate to used is rate facility deposit the and period, rate interest special the over floor -1% a with used, is points basis 50 minus rate facility deposit the interest III TLTRO of calculation the for then, until estimate reliable a obtain to possible be not will it that and matures, operation each when known be only will rates interest real that given background, this Against -1%. below fall cannot as 50 basis points below the average interest rate on the deposit facility in force in the same period, but 23 June 2022 – referred to as the special interest rate period – the applicable interest rate may be as low admc i 2020 in pandemic, COVID-19 the to response in Moreover, operation. the of life the over prevailing facility deposit the on rate interest average the as low as be can operation III TLTRO each to applicable rate interest final the year from the settlement of each operation. According to the decisions taken by the Governing Council, one after possible is repayment 2021 September from As years. two after available option repayment early with maturity, three-year a have operations These III). (TLTRO operations refinancing longer-term 12. 11. 10. NCBs attheirowndiscretion. the by accepted be may that assets including risk-sharing, from collateral the of part specific a provided is not sufficient to cover thecollateral corresponding losses. The Governing Councilthe has excluded of resolution the from received funds of recovery the and defaults counterparty the if materialise only operations these on Losses materialise. they date the at as the capital in ECB’s share their to proportion in Council, Governing the by decided so (NCBs) if banks Eurosystem, central the national of the all by part, in or whole in shared, be may operations policy In accordance with Article 32.4 of the Statute of the ESCB/ECB, losses from materialising monetary All financing operations related to monetary policy are fully collateralised by eligible assets (Note 31). 2019 theBancodePortugaldidnotresorttothisoperation. at the specified rate for these operations (0.25% since 16 March 2016). On 31 December 2020 and loans overnight to corresponding facility, lending marginal a provides also Eurosystem The after two years. Additionally, in 2019 the Governing Council introduced a new series of seven operations (TLTRO II). These operations have a four-year maturity, with early repayment option available In 2016 the Governing Council of the ECB introduced a new series of four targeted longer-term refinancing tenderprocedures withfullallotment. fixed-rate as conducted are operations These months. 48 and 3 between of maturity a with transactions reverse liquidity-providing are (LTROs) operations refinancing Longer-term rate objectives,managingmarketliquidityandsignallingthesinglemonetarypolicystance. ( 2019: €5,000 thousand). However, these operations still play a major role in pursuing interest pursuing in role major a play still operations these However, thousand). €5,000 2019:

On On 10December2020theGoverningCouncil oftheECBdecidedtoextendthisperiodbytwelvemonths,until23June2022. On On 10December2020theGoverningCouncilofECBaddedthreeoperationstothisseries,which willbecarriedoutbetweenJ 10 December 2020 the Governing Council decided to offer four additional pandemic emergency non-targeted longer-term refinancing operations in 2021. 30 April 2020 the Governing Council of theECB decided thatthespecial interest rateperiodwould be between24 June 2020 and 23 June 2021. 11 the Governing Council decided that for the period between 24 June 2020 and and 2020 June 24 between period the for that decided Council Governing the une andDecember2021. 10 targeted targeted 12

Pandemic emergencypurchaseprogramme(PEPP) Asset purchaseprogramme(APP) PURPOSES 16. 15. 14. 13. been exemptedfrommeetingtheeligibilitycriteria. Notes: (a) See Decisions of the Governing Council for other eligibility criteria for specific programmes. (b) Securities issued by the Greek Government have Completed/expired programmes the securities markets programme (SMP), under Portugal de Banco the by purchased bonds, covered and securities sector public of consisted purposes policy monetary for held Securities of portfolio the 2020 December 31 On N A summaryofthemainprogrammesthisnatureispresentedbelow: government securitiescomponent(Point1.2(f)ofNote1). securities components and the pandemic emergency purchase programme (PEPP), programme purchase emergency pandemic the and components securities CBPP3), purchase programme(PEPP) Pandemic emergency programme (CSPP) Corporate sectorpurchase programme (PSPP) Public sectorpurchase (ABSPP) purchase programme Asset-backed securities programmes 3(CBPP3) Covered bondpurchase markets programme(SMP) Eurosystem’s securities programmes 2(CBPP2) Covered bondpurchase programmes (CBPP) Covered bondpurchase

ote Decision oftheECB18March2020onapa Decision oftheECB4March2015implementing apublicsectorpurchaseprogramme(ECB/2 OJ L335,22/10/2014,p.22. of thethirdcoveredbondpurchaseprogramme(ECB/2014/40), 2014 ontheimplementation 16/11/2011, p.70andDecisionoftheECB15October of thesecondcovered bondpurchaseprogramme(ECB/2011/17), OJ L297, 2011 ontheimplementation and DecisionoftheECB3November Decision Decision oftheECB14May2010establishi 14 of theECB of 2 July 2009 on the implementationofcoveredbond purchase programme (ECB/2009/16), OJ L 175, 4/7/2009, p. 18 and the public sector purchase programme (PSPP), 7•SECURITIESHELDFORMONETARYPOLICY March 2020 March 2015 November November June 2016 tr aeEddt eiinUniverseofeligiblesecurities Decision Enddate Start date May 2010 uy20 ue21 C/091 Coveredbondsfromeuroarearesidents ECB/2009/16 June2010 July 2009 October 2014 2014 2011 ng asecuritiesmarketsprogramme(ECB/2010/5), OJL124,20/5/2010,p.8. ndemic emergencypurchaseprogramme(ECB/2020/17), OJL91,25/3/2020,pp.1-4. 13 September the covered bond purchase programmes (CBPP, CBPP2 and October assets assets assets assets assets 2012 2012 ECB/2016/16 ECB/2014/45 ECB/2020/17 C/011 Coveredbondsfromeuroarearesidents ECB/2011/17 ECB/2020/9 ECB/2020/8 ECB/2010/5 (amended) (amended) (revised) (revised) 15 in its government and supranational initsgovernmentandsupranational established intheeuroarea Bonds issuedbynon-bankinginstitutions in theeuroarea and multilateraldevelopmentbanks issued byinternationalorganisations recognised agencies,aswellsecurities local governmentsfromtheeuroareaor Securities issuedbycentral,regionaland Senior andguaranteed residents of asset-backedsecuritiesfromeuroarea Covered bondsfromeuroarearesidents All assetcategorieseligibleundertheAPP issued intheeuroarea Private andgovernmentdebtsecurities 015/10), OJL121,14/5/2010,p.20. mezzanine 16 mainly in its in mainly tranches (a)

(b) 113 Financial Statements and Notes 114 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 to maintainfavourableliquidityconditionsandanampledegree ofmonetaryaccommodation. necessary as long as for case any in and rates, interest ECB key the raising starts Council Governing the when date the past time of period extended an for reinvestments the continue to intends also key rates, and to end shortly before it starts raising the key ECB interest rates. The Governing Council its of impact accommodative the reinforce to necessary as long as for run to purchases net expects Council Governing The year. the of end the until added was billion €120 of envelope purchase purchase asset net the additional an 2020 March In average. on billion €20 under of pace monthly a at (APP) programme securities of purchases net its restarted Eurosystem the 2020 In are beingpurchasedsolelybytheECB. securities These economy. area euro the to provision credit improve to markets, secondary and primary both in securities asset-backed of tranches purchase seniorandguaranteedmezzanine 17. (ABSPP), programme purchase securities asset-backed the Under (CBPP) andon31October2012(CBPP2). 2010 June 30 on completed were programmes these under securities of Purchases customers. their to lending expand or maintain to institutions credit encouraging as well as enterprises institutions and credit for conditions funding improving of purpose the with euro in denominated Under the CBPP and CBPP2, the ECB and the NCBs purchased covered bonds of euro area residents that securities to due solely matured. was 2020 in item this in reduction The 2016. since portfolio this for made been have purchases no Therefore, purchases. new to programme this close to 2012 of the monetary policy transmission mechanism. The Governing Council decided on 6 September functioningproper the restore and markets securities debt area euro the of segments certain in Under the SMP, the ECB and the NCBs purchased securities in order to correct the malfunctioning Securities heldformonetarypolicypurposes is asfollows: Portugal de Banco the at portfolio securities policy monetary the of programme by breakdown The

Covered bondpurchaseprogramme3(CBPP3) Covered bondpurchaseprogramme2(CBPP2) – Governmentsecurities Public sectorpurchaseprogramme(PSPP) – Supranational securities – Supranationalsecurities Public sectorpurchaseprogramme(PSPP) Covered bondpurchaseprogramme(CBPP) Eurosystem’s securitiesmarketsprogramme(SMP) – Coveredbonds Pandemic emergencypurchaseprogramme(PEPP) – Governmentalsecurities Pandemic emergencypurchaseprogramme(PEPP) Decision oftheECB19November2014on the implementationofasset-backedsecurities

900057,7,2 53,478,605 76,278,429 69,050,045 861644,4,3 4805439,526,301 34,820,534 44,140,731 38,601,634 280751,1,1 4016314,735,662 14,081,693 14,012,814 12,830,775 4215314,583,176 14,221,553 Amortised ,6,9 ,7,1 ,6,3 3,263,612 3,169,534 2,979,812 2,867,993 6,8 9,5 ,4,5 1,325,133 1,248,655 494,954 464,287 8266,5 81363,734 58,193 61,358 58,246 cost 5,558 31 Dec.2020 - Market value 5,584 purchaseprogramme(ECB/2014/45). 997100,312 99,997 - 17 the ECB and the NCBs may NCBs the and ECB the Amortised cost 31 Dec.2019 - - 59,014,754 Market value - -

of the ESCB/ECB, which in paragraph 3 sets forth that the weightings assigned to the NCBs are NCBs the to assigned weightings the that forth sets 3 paragraph in which ESCB/ECB, the of fixed in accordance with the allocation key established in compliance with Article 29 of the Statute are which shares on depend Subscriptions ECB. the of capital the of holders and to subscribers • N estimated futurefinancialflowsareexpectedtobereceived. all therefore and observed was indicator impairment no that decided Council Governing the NCBs, the by held securities of portfolios the on conducted tests impairment the to regard With Council. Inthesetests,impairmentindicatorsareassessedseparatelyforeachprogramme. are tests conducted on an annual basis, using data as at the year-end and are impairment approved by the Governing 1, Note of 1.2(f) Point in to referred As programmes. these under held The Governing Council assesses on a regular basis the financial risks associated with the securities in thecapitalofECB. keys their to proportion in NCBs, Eurosystem various the by shared be may they materialised, if bonds), Covered – PEPP CSPP securities, Supranational – PSPP sharing CBPP3, income SMP, (i.e. and programmes risk Eurosystem’s the of securities the to related loss any Statute, its of 32.4 Article of view in ECB the of Council Governing the by taken decision a with accordance In in PEPP –coveredbondsand€43,153,584thousandinPrivatesectorsecurities. thousand €2,814,700 securities, Supranational – PEPP in thousand €47,796,083 securities, Government – PEPP in thousand €586,912,862 of thousand), €184,504,695 (2019: CSPP the in thousand €250,403,250 thousand), €225,169,214 (2019: securities Supranational – PSPP the in thousand €249,316,582 thousand), €1,681,449,927 (2019: securities Government – PSPP the in thousand €1,872,244,408 thousand), €241,933,842 (2019: CBPP3 the in thousand €263,535,872 in the CBPP (2019: €1,680,881 thousand), €2,561,701 thousand in the CBPP2 (2019: €2,692,946), amount to €26,334,569 thousand in the SMP (2019: €44,215,779 thousand), €415,163 thousand Eurosystem the of NCBs the by held securities total programmes, policy monetary the Within an amortisedcostbasissubjecttoimpairment(Point1.2(f)ofNote1). The securities purchased under these non-standard monetary policy programmes are valued on monetary policystance. appropriate the with interference avoid to managed be will portfolio PEPP the of roll-off future payments from maturing securities purchased under the PEPP until at least the end of 2023. The principal the reinvest to intends Council Governing the Moreover, over. is phase crisis COVID-19 the that judges ECB the of Council Governing the until case, any in and, 2022 March of end the least at to extended also was purchases net for horizon The billion. €1,850 of total a to it raising billion, €500 additional an by 2020 December in and billion €600 by PEPP the for envelope the initially envisaged to continue until the end of 2020. In June 2020 the Governing Council increased were and APP the under eligible categories asset all include Purchases pandemic. the by posed area euro the for outlook the and mechanism transmission policy monetary the to risks severe the counter and stance policy monetary overall the ease to billion, €750 of (PEPP) programme Furthermore, in March 2020 the Eurosystem launched a temporary pandemic emergency purchase Pursuant

ote Participating interestintheECB 8• o ril 2 o te ttt o te SBEB te Cs f h EC ae h sole the are ESCB the of NCBs the ESCB/ECB, the of Statute the of 28 Article to INTRA-EUROSYSTEM CLAIMSANDLIABILITIES

115 Financial Statements and Notes 116 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 18. by 0.2668%. increased capital subscribed ECB’s the in share Portugal’s de Banco the result, a As NCBs. area non-euro remaining the and NCBs area euro the both among reallocated was 14.3%, at stood withdrawal from the ESCB. The share of the Bank of England in the ECB’s subscribed capital, which England’s of Bank the after €10,825,007 at unchanged remained capital subscribed ECB’s The Eesti Pank Deutsche Bundesbank Nationale BankvanBelgië/BanquedeBelgique s neet nrae fo €7,7 tosn a a 3 Jnay 00 o 2604 thousand €206,054 to 2020 on 1February2020.Theweightingsareshowninthetablebelow: January 31 at as thousand €177,173 from increased interest participating the of amount the and 1.9035%, to 1.6367% from increased ECB the of capital 1 February 2020. Consequently, on 1 February 2020 the Banco from de Portugal’s effect share in the with subscribed adjusted were capital ECB’s the to subscription for key the in NCBs remaining the to assigned weightings the ESCB, the from England of Bank the of withdrawal consequent the and 2020 January 31 on Union European the from exit Kingdom’s United the of result a As a changeincompositionoftheESCBnationalcentralbanks. Central BankofCyprus Banca d'Italia Banque deFrance Banco deEspaña Bank ofGreece Banc CeannaisnahÉireann/CentralBankofIreland Česká národníbanka Suomen Pankki–FinlandsBank Národná bankaSlovenska Banka Slovenije Banco dePortugal Oesterreichische Nationalbank Българска народнабанка/BulgarianNationalBank De NederlandscheBank Bank Ċentralita’Malta/CentralofMalta Banque centraleduLuxembourg Lietuvos bankas Latvijas Banka Bank ofEngland Sveriges riksbank Banca NaţionalăaRomâniei Narodowy BankPolski Magyar NemzetiBank Hrvatska narodnabanka Danmarks Nationalbank ubject to adjustment every five years after the establishment of the ESCB

The capitalkeyisalsoadjustedasaresultofth NCB Non-euro areaNCBs Euro areaNCBs e enlargementoftheEUtoincludenewMember States. zc eulc1.8794% Czech Republic Luxembourg Netherlands emr 1.7591% Denmark Lithuania emn 21.4394% Germany Romania onr rm1Fb 00until31Jan.2020 from1Feb.2020 Country ugr 1.5488% Hungary Portugal Slovenia Bulgaria Belgium England lvka0.9314% Slovakia wdn2.9790% Sweden Estonia Finland ree2.0117% Greece rai 0.6595% Croatia Austria Ireland yrs0.1750% Cyprus Poland France Latvia Spain Malta tl 13.8165% Italy 0.00 100.0000% 100.0000% Key forsubscriptionofcapital 81.3286% 18.6714% 16.6108% 2.9630% 0.2291% 9.6981% 1.3772% 1.9035% 0.9832% 1.4939% 0.3916% 2.3804% 4.7662% 0.0853% 0.3169% 0.2679% 0.4707% 0.0000% 2.8289% 6.0335% 18 or whenever there is 69.6176% 30.3824% 18.3670% 11.8023% 14.2061% 14.3374% 2.5280% 8.3391% 1.7292% 1.1754% 0.1968% 0.8511% 1.2708% 0.8004% 0.3361% 1.6367% 2.0325% 4.0677% 0.0732% 0.2270% 0.4059% 0.2731% 0.1503% 1.3348% 2.4470% 5.2068% 2.5222% 0.5673% 1.4986% 1.6172%

• value of€206,054thousand. subscribed total a to thousand €177,496 of value current its from increasing capital paid-up its 2022, in thousand €14,279 and 2021 in thousand €14,279 of amount an ECB the to transfer will • interest rateusedbytheEurosystemforMROs. bank (Note 13). The asset position of the adjustment to circulation is remunerated at the marginal between banknotes put into circulation and banknotes withdrawn from circulation by this central (11% up from 2019) and a reduction in the Banco de Portugal’s asset position relating to the difference to -€50,237,526 thousand) was due to the combination of a rise in overall circulation in the Eurosystem thousand €47,916,880 (from 2019 December 31 with compared position asset this in increase The decreased from2.163%on31December2019to2.1535%asof1February2020. key allocation banknote the in share Portugal’s de Banco the above described as key capital ECB’s the of adjustment the of result a As 1). Note of (j) and 1.2(i) (Points Eurosystem the within banknotes euro of allocation the to relating claims Portugal’s de Banco the of consists item This • repaid bytheECBon3February2020. assets, these in thousand €4,233 of decrease slight a in resulted This adjusted. marginally was transferred by the euro area NCBs remain at the current level, the claim equivalent to this transfer already assets reserve foreign of amount total the that so contributions, NCBs’ area euro the of proportion the reduce to Council Governing the of decision a (ii) and ESCB the from withdrawal England’s of Bank the from resulting capital subscribed ECB’s the in ECB) the to assets reserve foreign transferred have (which NCBs area euro of weighting the in increase the (i) Following gold component. the on return zero a reflect to adjusted MROs, Eurosystem’s for rate interest marginal available latest the at basis daily a on remunerated are and transferred were they date the on prevailing share in the ECB’s subscribed capital. These claims were converted into euro at the exchange their to rate proportion in fixed are ECB the to assets reserve foreign of transfer the to NCBs the of Eurosystem to the ECB. Pursuant to Article 30.2 of the Statute of the ESCB/ECB, the contributions noe aclto mto rltn t peiu yas ttlig 154 huad nt, both (net), thousand €1,524 totalling years, previous to relating method calculation income monetary the of result the to adjustments negative (ii) 26); (Note thousand €142,654 totalling method, calculation income monetary 2020 the of result the (i) to: referred thousand, €170,624 This On withdrawal from the ESCB in two additional annual instalments. annual additional two in ESCB the from withdrawal England’s of Bank the following capital ECB’s the to subscriptions increased their full in up pay then will NCBs area euro the addition, In thousand. €58,201 of capital paid-up withdrawn England’s ofBank the covered NCBs remaining the as 2020, i.e. EU, the from departure Kingdom’s United the of year the in thousand €7,659,444 at unchanged remained also capital paid-up ECB’s The 19.

Net claimsrelatedtotheallocationofeurobanknoteswithint Foreign reservestransferredtotheECB Other intra-Eurosystemclaims/liabilities This willtranslateintoanincreaseintheECB’s 31 December 2020 the balance of the item Other intra-Eurosystem claims, in the amount of amount the in claims, intra-Eurosystem Other item the of balance the 2020 December 31 item represents claims arising from the transfer of foreign reserve assets from NCBs of the of NCBs from assets reserve foreign of transfer the from arising claims represents item paid-upcapitalfrom€7,659millionin2020to €8,270 millionin2021and€8,8802022. 19 Accordingly, the Banco de Portugal Portugal de Banco the Accordingly, he Eurosystem

117 Financial Statements and Notes 118 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Accumulated depreciationandamortisation construction Tangible fixedassetsandintangibleunder Intangible assets Leased assets N by theEurosystemforMROs. used rate interest marginal the at calculated is position this on Interest thousand). €76,976,192 (Point 1.2(h) of Note 1) showed a credit position of €80,195,154 thousand (on 31 December 2019: On • a decisionoftheGoverningCouncil(Note25). ECB under the SMP, CBPP3, ABSPP and PEPP portfolios, also settled on 31 January 2020, following concerning the early distribution of 2020 ECB’s income relating to the securities purchased by thousand the €29,495 of receivable amount the (iii) also and 26); (Note 2020 January 31 on settled Tangible fixedassets

Amortisation ofintangibleassets Depreciation ofleasedassets Depreciation oftangiblefixedassets Other intangibleassets Computer software Museum andartcollections Equipment Buildings andotherconstructions Equipment Premises Buildings andotherconstructions Land ote Net liabilitiesarisingfrombalancesofTARGETaccounts 31 December 2020 Net liabilities arising from balances of TARGET accounts to the ECB (net) ECB the to accounts TARGET of balances from arising liabilities Net 2020 December 31 Total grosstangiblefixedassetsandintangible Total nettangiblefixedassetsandintangible 9•TANGIBLEFIXEDASSETSANDINTANGIBLE 31 Dec.2020 (300,443) (226,583) 155,782 456,225 360,081 101,850 109,268 (68,816) 78,390 11,999 78,002 11,854 88,506 50,762 (5,045) 5,755 9,694 388 145 31 Dec.2019 (290,099) (223,950) 158,268 448,367 360,250 103,881 109,172 (63,643) 72,945 72,558 86,832 50,762 (2,506) 6,202 8,970 9,602 8,970 388 - Tangible fixedassets Tangible fixedassets In 2019and2020movementsinthisitemwereasfollows: Leased assets Leased assets Intangible assets Intangible assets Tangible fixedassetsandintangibleunderconstruction Tangible fixedassetsandintangibleunderconstruction Land Land Buildings andotherconstructions Buildings andotherconstructions Premises Museum andartcollections Premises Equipment Buildings andotherconstructions Museum andartcollections Equipment Buildings andotherconstructions Equipment Computer software Computer software Fixed assets under construction – Projects Fixed assetsunderconstruction–Projects Other intangibleassets Other intangibleassets Fixed assets under construction – Projects Fixed assetsunderconstruction–Projects 31 Dec.2018 31 Dec.2019 balance balance 5,6 28274717,832 7,467 22,812 158,268 3,9 ,8 222 7,184 136,299 5,9 94776318,247 7,623 29,447 154,692 3,4 ,4 9 10,095 397 9,344 137,447 50,762 11896 51,168 3221,677 13,272 1465,319 11,496 Net Net 0194,771 10,179 072- 1,325 51,446 50,762 36025919 2,589 13,690 203533377 5,323 12,053 ,6 3,029 6,464 ,0 5,800 9,303 ,0 ,9 7,245 6,799 6,202 ,0 93 9,602 ,6 2,884 6,464 ,8 5,800 8,982 ,0 ,9 7,245 6,799 6,202 ,6 ,6 7,227 6,363 7,066 ,9 106 9,495 ,1 4,771 9,819 ,6 ,6 7,227 6,363 7,066 321 5 - 359 145 - 8,970 - 8,970 - Additions Additions - - Disposals Disposals 222 ------and amortisation and amortisation Depreciation Depreciation for theyear for theyear 9,764 2,506 2,539 5,647 5,529 1,604 5,502 1,633 2,988 5,025 3,106 2,506 2,519 5,608 5,490 20 39 39 ------31 Dec.2019 31 Dec.2020 158,268 155,782 136,299 133,498 balance balance 50,762 50,762 51,168 11,496 49,630 13,272 11,568 11,843 6,202 6,464 6,954 9,303 5,755 9,574 Net Net 9,602 6,464 9,694 6,829 8,982 6,202 9,292 5,755 125 321 282 119 Financial Statements and Notes 120 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 down asfollows: broken are 2019 and 2020 December 31 at as interests participating Portugal’s de Banco The and itsheld-to-maturitysecuritiesportfolio. The item Other financial assets essentially includes the Banco de Portugal’s participating interests N Participating interestinnon-euroarearesidententities of €2,884thousand. amount overall the in contracts, lease existing of years five by extension the following increased, was equipment and buildings on assets rights-of-use of value the 1.2(e)), (Note 16 IFRS Under and equipment and installations invariousBancodePortugal’sbuildings. systems IT the to related projects to due chiefly was 2020 December 31 on construction under assets intangible and assets fixed tangible in recognised amount The (Evolution ofthedocumentmanagementsolution)andEvoluçãoSIGRA(SIGRAEvolution). systems supporting the areas of supervision and statistics, other and System) Information Relevant Entities (Supervised SIRES namely systems, IT of go-live the and licensing software to related essentially were assets Intangible to related purchases 2020 In well as computer hardware and software, with particular emphasis on the acquisition of laptops. and systems IT of acquisition the by infrastructures, driven essentially related to data mainly centre transformation, for cash was handling equipment, as Equipment item in increase The of theBancodePortugal’sbuildinginFunchal. refurbishment the and buildings several in installations HVAC and electrical of renovation the Museum, Bank’s the at works expansion the to related mainly are Facilities and Buildings in increases The Participating interestineuroarearesidententities Other assets Held-to-maturity securitiesportfolio Participating interestineuroarearesidententities Participating interestinnon-euroarearesidententities Bank forInternationalSettlements(BIS) Swift EUROPAFI Valora, S.A. SGFPBP, S.A. ote 10• OTHER FINANCIALASSETS 0.0 256100%30,524 100.00% 32,586 100.00% hr otat hr Contract %share Contract % share 79%3159.0 3,374 97.90% 3,165 97.91% .7 16015%21,650 1.57% 21,650 1.57% 0.01% 0.25% 31 Dec.2020 31 Dec.2020 4,129,648 4,071,353 Evolução da solução de gestão documental Evolução dasoluçãodegestãodocumental 36,102 21,650 544 36,102 4 0.25% 349 1 0.01% 31 Dec.2019 31 Dec.2019 4,800,314 4,744,009 34,248 21,650 407 34,248 349 1

Prepaid expenses Guarantee Fund (FGCAM) of Banco de Portugal’s contributions to that fund, within the scope of the the of scope the within fund, that to contributions Portugal’s de Banco of (FGCAM) Fund Guarantee Credit Agricultural Mutual the by return the of recognition the includes accruals Other 2019, In policy purposes,amountingto €807,970thousand(2019:€708,478thousand). monetary for held securities from receivable interest accrued outstanding include operations bank central from receivable income other and Interest to relating accruals 2020 December 31 at As Accruals N of thisportfolioispresentedinNote33,forinformationpurposes. 2020 and2019thisportfoliowasfullymadeupofgovernmentdebtsecurities.Themarketvalue the to changes of estimated future cash flows, found and no impairment loss was was therefore recorded. As at 31 December evidence no and tests impairment to subject are assets These impairment losses. composed ofsecuritiesdenominatedineuroandisvaluedatamortisedcostlesspotential portfolio, given its characteristics, is included in Other financial assets. This portfolio is exclusively Within the scope of the Banco de Portugal’s own fund management, the medium-term investment in cost, acquisition at recorded being accordance withtheaccountingpolicyoutlinedinPoint1.2(e)ofNote1. these 0.25%), and 0.01% (1.57%, residual are shares their as EUROPAFI, and SWIFT BIS, in interests participating to applied not was procedure This fairly closetothefinalones. interests, with reference to 31 December 2020, which according to those entities showed values these value to interest participating a has it which in entities the of statements financial interim used Portugal de Banco The 27). (Note account loss and Profit the in recognised directly being differences valuation the of counterpart the with method, valuation Value Asset Net the of use Changes in the value of the participating interests in SGFPBP and Valora resulted chiefly from the Deferred taxassets Other prepaidexpenses Other accruals Prepaid expensesfromcentralbankoperations Interest andotherincomereceivablefromcentralbankoperations ote Current accountsofcreditinstitutions–excessreserves Other Other Held-to-maturity securitiesportfolio Trading portfoliodenominatedineuroandforeigncurrency Gold investments Securities heldformonetarypolicypurposes 11• ACCRUALS ANDPREPAIDEXPENSES 31 Dec.2020 978,543 106,134 872,409 871,310 807,970 21,147 76,270 27,391 15,911 16,927 8,716 1,099 2,826 286 31 Dec.2019 936,046 873,045 790,764 708,478 63,002 26,373 27,254 82,281 44,900 20,769 14,253 9,375 2,195 168 121 Financial Statements and Notes 122 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Impairment ofrecoverableamounts Other reducedvalueaccounts Billing tothirdparties payment onaccount Corporate IncomeTax–Paymentsonaccountandadditional Corporate IncomeTax–Estimateforincometaxes Sundry debtors Pension Fund–Defined-ContributionPlanReserveaccount y iagse taserd o h Bn truh h cluain f n nul instalment. annual an of calculation the An impairmentforthetotalvalue ofthisassetwasrecognised(Notes19and30). through Bank the to transferred Finangeste, by year that in recovered claims of amount nominal the to corresponded 2020 in decline The thousand). €837 (2019: 2020 December 31 on thousand €680 worth asset an represented and under theBP/FinangesteArrangementof9January1995, towhichanannexwasaddedin2016, The value recorded under Special credit situations – BP/Finangeste Arrangement relates to amounts Lending toemployeescorrespondsmostlymortgageloans toemployees. Pension Fund–Defined-BenefitPlan Other specialcreditsituations Special creditsituations–BP/FinangesteArrangement Lending toemployees N Note 30 presents a more detailed description of the amount of deferred tax assets in 2020 and 2019. the referring toLendingemployees(Note12). in assets deduction a against recorded is value this to equivalent The thousand). €6,572 (2019: between difference the according to Collective Labour Agreements and market interest rates, of totalling €5,786 thousand value applicable rate interest updated the at employees, to Lending the from receivable interest of flows includes financial item expenses prepaid Other The in 2019). thousand €4,060 and 2020 in thousand (€2,213 portfolios securities held-to-maturity and trading (ii) and 2019) in thousand held €23,194 securities and 2020 (i) in on thousand (€74,057 interest purposes is policy monetary 2020, for December 31 at as item, this in values the among securities. the Key of sale the or coupons corresponding the of maturity upon Portugal de Banco the by received be will which and acquisition at counterparty the to paid interest outstanding including purposes), policy monetary for held securities of portfolio and portfolio, securities held-to-maturityportfolio, trading (i.e. portfolios Portugal’s de Banco the in onheld securities interest coupon accrued mainly comprise operations bank central from expenses Prepaid item The of 12August2019(€81,156thousand–Note27).Thisamountwassettledon9January2020. establishment of a single deposit guarantee scheme in Portugal, according to Decree-Law No 106/2019 ote 12• OTHER ASSETS–SUNDRY 31 Dec.2020 (235,644) 361,584 362,669 308,591 167,083 22,015 79,518 (1,085) 4,210 6,749 9,066 400 680 31 Dec.2019 330,055 331,303 128,562 164,017 22,831 (1,248) 4,233 2,552 7,871 400 837 - -

neto rslig rm h etariay esrs prvd y h Gvrig oni to Council Governing the mitigate theeffectsofCOVID-19 pandemicontheeuroareaeconomy. by approved measures extraordinary the from resulting injection reserve requirements. The sharp growth in these minimum deposits compared with to 2019 compliance reflects the liquidity for deposited are funds where accounts and accounts settlement current/ are they purpose: two-fold a serve accounts These 2019). in thousand €19,207,122 and 2020 in thousand (€31,608,682 Portugal de Banco with institutions credit of accounts current the chiefly reflected thousand) (€31,612,682 euro in denominated operations topolicy related monetary institutions credit area euro to Liabilities on balance the 2020 December 31 at As DENOMINATED INEURO N against anassetrecordedinOtherintra-Eurosystemclaims(Note8). recognised is which Eurosystem, the in circulation to Adjustments in increase the for account combined effects two These 2020. throughout Portugal in tourism in slump a to factors, other debtor balance on 31 December 2020, slightly lower than in show 2019. This decrease to was due, continued among Bank the by circulation from withdrawn banknotes and circulation into put banknotes between difference The 2019. December 31 on thousand €27,962,009 to compared thousand, €30,892,216 of circulation in banknotes of value aggregate an recorded Portugal de Banco the 2020 December 31 on key, allocation banknote the with accordance In 5%). 11% (2019: by increased Eurosystem the in circulation in banknotes euro of value total the 2020 In Banknotes incirculation total eurobanknotesincirculationtheEurosystem(Point1.2(i)ofNote1). in share Portugal’s de Banco the 2020 December 31 on represent circulation in banknotes Euro N included initemOtherliabilities–sundry(Note18). therefore liability, net a was position net this 2019 In item. this in included being thus position, and the value of payments on account and additional payments on account results in a net asset estimate this between value net the 2020 In 30. Note in detailed is tax income for estimate The 2020, valuedatmarketprice,onthatdate(Note32). the value of the participation units of this Fund earmarked for the Banco de Portugal on 31 December reflected account Reserve – Plan Defined-Contribution – Fund Pension the concerning position The resulting fromthefactthatthisFundhad,ondate,afundingratioabove100%(Note32). The item Pension Fund – Defined-Benefit Plan relates to this Fund’s surplus on 31 December 2020, INSTITUTIONS –MONETARYPOLICY OPERATIONS Adjustments tocirculationintheEurosystem Banknotes putintocirculation(net) ote ote 13• 14•LIABILITIESTOEUROAREACREDIT BANKNOTES INCIRCULATION 31 Dec.2020 (19,345,310) 30,892,216 50,237,526 31 Dec.2019 (19,954,870) 27,962,009 47,916,880

123 Financial Statements and Notes 124 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 DENOMINATED INEURO Fund heldattheBancodePortugal. The current accounts of autonomous funds in 2020 relate to balances of the Deposit Guarantee and holdingsofexcessreserves(ECB/2014/23). of provisions the to Article 4(3) of the Decision of subject the ECB of 5 June 2014 on the remuneration of deposits, is balances IGCP) Agency – Pública Management Dívida da Debt e Tesouraria and da Gestão Treasury de (Agência Portuguese the of deposits of remuneration The Liabilities toothereuroarearesidentsdenominatedin N the pre-specifiedratesfortheseoperations. Banco de Portugal used as a means to access the Eurosystem’s liquidity-absorbing operations at on thousand 31 December €5,900 2019), corresponding and to overnight deposits 2020 of domestic December credit institutions with 31 the on thousand (€4,000 date that on outstanding operations facility deposit of balance the included also item this 2019, in as 2020, December In whichever islower. rate, facility deposit the or 0% at remunerated be to continues holdings liquidity excess of tier non-exempt The requirements. reserve minimum institution’s an on depending 6, of multiple a as determined is scheme this by covered excess in holdings reserve of volume The 0%. of rate the rate applicable on the deposit facility. The exempt tier is currently remunerated at an annual exempts thepartinexcessofminimumreserverequirementsfromnegativeremunerationat which remuneration, reserve for system two-tier a of introduction the on based is system This On 30 October 2019 the Governing Council introduced a two-tier system for reserve remuneration. excess reserves(ECB/2014/23). of holdings and balances deposits, of remuneration the on 2014 June 5 of ECB the of Decision the of 2 and 1 Articles with accordance in remunerated is reserves minimum of amount The General government Other liabilities ote and DebtManagementAgency(IGCP) Current accountsofthePortugueseTreasury Current accountsofotherentities Current accountsoftheautonomousfunds Current accountsofGeneralgovernmentforSICOIguarantees European FinancialStabilisationMechanism(EFSM) European FinancialStabilityFacility(EFSF) 15•LIABILITIESTOOTHEREUROAREARESIDENTS

31 Dec.2020 18,104,394 17,161,745 16,168,286 942,649 366,507 576,142 213,253 780,206 31 Dec.2019 7,418,234 6,694,769 5,675,968 723,466 307,996 415,470 205,978 812,823

payment onaccountandwithholdingsatsource Corporate IncomeTax–Paymentsonaccountandadditional Estimate forincometaxes Other accountsofreducedindividual value Other centralbankliabilities bonuses Liabilities relatingtothepaymentemployeesofseniority Third parties Banknotes withdrawnfromcirculation N supplies andservicesfromthirdpartiespayable(€5,477thousand). accrued and thousand) (€18,849 costs staff accrued above-mentioned the reflected accruals Other longer-term refinancingoperations(TLTROIII). targeted to related that notably thousand), (€175,799 institutions credit to lending on payable interest accrued the to made be should reference operations bank central from Accruals Under Income collectedinadvance N (2019: €3,773thousand). thousand €6,676 of amount the in excluded) IMF (the organisations international and banks central various with accounts current of balances (iii) and 5) (Note thousand €30,040 totalling collateral as received amounts euro (ii) and 5) (Note thousand) €5,048,558 (2019: thousand €7,978,053 of investments gold the under loans collateralised for liabilities temporary (i) included: euro in On 31 December 2020 the balance on the item Liabilities to non-euro area residents denominated DENOMINATED INEURO N Accruals IN ADVANCE Other incomecollectedinadvance Other accruals Accruals fromcentralbankoperations Deferred taxliabilities ote ote ote 18• 16• 17•ACCRUALSANDINCOMECOLLECTED OTHER LIABILITIES–SUNDRY LIABILITIES TONON-EUROAREARESIDENTS 31 Dec.2020 31 Dec.2020 201,845 134,400 201,539 177,213 15,477 22,207 95,305 24,326 1,412 306 304 2 - - - 31 Dec.2019 31 Dec.2019 (315,302) 163,710 701,619 163,392 341,963 543,410 139,541

14,740 20,356 95,709 23,851 319 744 316 3

125 Financial Statements and Notes 126 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 PROVISION Impairment ofassets be summarisedasfollows: may 2020 and 2019 years the for Provisions and Impairment items in movements Accounting N residents denominatedineuro(Note5). were reclassified to the positions items related to management assets, these in this case to 2020 Liabilities to non-euro area In transactions. exchange foreign for collateral as counterparties from received amounts regards liabilities bank central Other in recognised value the 2019 In position (Note12). asset net a to value, overall its in amounts, it since year, that for taxes income for estimate the with together sundry, – assets Other under shown now are Code) Tax Income Corporate the of 104-A and 104 Articles of provisions the (under 2020 in account on payments as paid amounts The and wererecognisedunderOtherexpenses. 32)(Note negative were gains/losses Noteactuarial of 2020 1.2(m) In 1.Point in described as account, loss and Profit the in recorded are review, under period the of end the at calculated liabilities, these with associated gains/losses Actuarial SGFPBP. the by out carried valuation on reflected bonuses seniority 31 of December 2020 employees the current to value of liabilities payment for years the of service, to determined through an relating actuarial Liabilities item The Note 1), which as at 31 December 2020 amounted to €6,702 thousand (2019: €6,117 thousand). of 1.2(e) (Point 16 IFRS under recognised months, 12 than more of duration a with agreements lease property with liabilities future to relating liability lease a includes parties Third item The can beexchanged. holders of banknotes denominated in Portuguese escudos (legacy currency), for as long as these The item Banknotes withdrawn from circulation represents the Banco de Portugal’s liability to the Provisions – BP/FinangesteArrangement Adjustments forSpecialcreditsituations operations Provision forEurosystemmonetarypolicy situations situations Adjustments forotherspecialcredit Provisions forlitigation amounts Adjustments forotherrecoverable ote 19•IMPAIRMENT,PROVISIONSANDGENERALRISK

as at 31 Dec. as at31Dec. Balance Balance 2018 1,260 3,989 ,8 75 3,989 841 409 11 -

nraeDces Netvalue Decrease Increase 75 - - - - - 175 170 2,289 (1,700) (1,775) 175 (1,775) (1,775) 2019 (12) (3) (9) - - 1)1,248 (12) 75 (3) (9) - as at 31 Dec. as at31Dec. Balance Balance 2019 2,214 837 400 11 75

taken bytheGoverningCouncil withanimpactontheBancodePortugal’saccounts. allowing for the coverage, if necessary, of potential losses, including those resulting from decisions Directors levels at ratio capital of the holding for suitable goal, coverage Board risk strategic medium-term a defines the accounts the closing when year every assessment, risk and projection income medium-term the factors, other among consideration, into Taking 1.2. Note of (q) Point the of 5(2) Article with Movements in the General risk provision are decided upon by the Board of Directors, in accordance Article 8oftheECBAccountingGuideline. in policy provision this recommends formally Council Governing The intervention. bank central for need the with associated risks in developments with line in level, Eurosystem at followed The establishment of provisions such as the Banco de Portugal’s General risk provision has been the riskprojectionforsubsequentperiods. and income future estimated the factors, other among consideration, into takes use its period each in and risks medium-term potential cover to is provision risk General the of purpose The In 2020and2019theGeneralriskprovisionwasnotused. Portugal theamountrepaidwas€639thousand. de Banco the At occurred). impairment initial the which in year (the 2018 in occurred that capital subscribed ECB’s the in shares their to proportion in NCBs, these of account loss and profit the in reflected is which million, €26 of balance unused accumulated an in resulted losses, realised of The remaining amount of the provision established by the NCBs of the Eurosystem, after coverage covered bytheprovisionalreadysetupBancodePortugal. by werethousand €1,575 amount, this Of portfolio. CSPP its in Eurosystem the of NCBs the of one held securities impaired the of 2020 in sale the after incurred loss the cover to used was Eurosystem in respect of the credit risk of monetary thepolicy operations, an amount of of €64 million NCBs all by 2019 in adjusted and 2018 in created initially provision the to regard With paid upsharesinthecapitalofECBprevailingwhenitialimpairmentoccurs. their to proportion in Eurosystem, the of banks central national the to allocated is operations policy I Impairment ofassets Provisions n accordance with Article 32.5 of the Statute of the ESCB, the provision against credit risks in monetary situations situations Adjustments forotherspecialcredit – BP/FinangesteArrangement Adjustments forSpecialcreditsituations amounts Adjustments forotherrecoverable Provisions forlitigation operations Provision forEurosystemmonetarypolicy . Such movements are made as described in described as made are movements Such Statute of Banco dePortugal.

as at 31 Dec. as at31Dec. Balance Balance 2019 1,248 ,8 0(,8)(2,269) (2,289) 20 2,289 2,214 400 837 11 75

nraeDces Netvalue Decrease Increase 20 - - - - 224 (2,214) (2,214) - 2020 13 13 1,085 (163) (163) 17 (157) (157) (75) (6) - (55) (6) - as at 31 Dec. as at31Dec. Balance Balance 2020 680 400 20 20 5 0

127 Financial Statements and Notes 128 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Securities revaluationdifferences Foreign currencyrevaluationdifferences well astodeferredtaxes,recognisedon31December2020 (Notes30and32). of Statement the in recorded earnings, changes in equity, refer to actuarial gains/losses of the liabilities related to the Pension Fund, as retained non-distributable in movements 2020 In €606,827 thousand. totalling State, the to dividends of distribution the to and reserves, Other to amount equal an and reserve Legal the to thousand €75,853 of transfer the to Net rise gave 2019 year Directors. the for profit of Board the of proposal a on Finance, and State of Minister the by approved as reserves, other to or dividends, as State, the byto remainder decided the be and Directors to of reserves Board the other to 10% reserve, legal the to 10% follows: as distributed be the of 53(2) Article with accordance In upon and Directors of Board the of decision authorisation oftheMinisterStateandFinance. a to pursuant reserves, of incorporation by namely raised, be may and thousand €1,000 to amounts Portugal de Banco the of capital The Movements initemEquity2020and2019aresetouttheStatementofchangesequity. N respectively). thousand €12,610 and thousand €48,372 to (2019: respectively amounting thousand euro, €20,596 and and €58,199 currency foreign in denominated securities to corresponded 2020 December 31 at as securities of price the in fluctuations from resulting gains capital Potential gains resulting fromariseinthegoldpriceeuro(Note2). capital potential in increase the of result a as thousand, €2,334,093 by increased Gold Gold revaluationdifferences N hedging objectivesdefined. the jeopardise not does risk in increase this However, evolving. operations these of prospect the with moderately, more albeit future, near the in grow to continue to expected is which risk, In 2020 the increase in lending to credit institutions and in monetary policy securities raised the ote ote 21• 20• EQUITY REVALUATION ACCOUNTS Revaluation accounts , net profit for the year shall year the for profit net Statute of Banco de Portugal, 31 Dec.2020 16,047,062 15,955,657 78,795 12,610 31 Dec.2019 13,785,913 13,621,564 103,367 60,982 Interest expense has beenextendedtointerest ingeneralattheBancodePortugal. depending on whether it is positive or negative in value. For consistency purposes, this decision monetary expense,Interest or income Interest on either under value net at presented is operations interest policy negative and positive Eurosystem, the across way standardised a In well astheincreaseinincomefromGoldoperations. as Bank, the with deposits these of balance the in increase the to due liabilities, government general with associated income Interest in increase the was decreases these to contrast In lower-yield governmentsecuritiescomponents. their in volume, PSPP and PEPP in increase significant the absorbed which SMP, the under held securities maturing high-yield from resulted which purposes, policy monetary for held held-to-maturity securities portfolios, due to a decline in yields and in the portfolio of securities There was also a decrease in some of the main interest assets, in particular in the trading and their volumeandthereducedinterestrateinsecondhalfof2020,asdecidedbyECB. in increase the of view in operations, III TLTRO from arising mainly (TLTRO), operations refinancing The decrease in Net interest income in 2020 was largely caused by interest paid for targeted longer-term Interest income N Longer-term refinancingoperations Off-balance-sheet instruments International MonetaryFund Trading portfoliodenominatedineuro Other liabilitiestoeuroarearesidentsdenominatedin General government Liquidity-absorbing operations minimum reserverequirements Current accountsofcreditinstitutionsforcompliancewith Other assets Off-balance-sheet instruments Held-to-maturity securitiesportfolio Securities heldformonetarypolicypurposes Lending toeuroareacreditinstitutions International MonetaryFund Trading portfoliodenominatedinforeigncurrency Gold Trading portfoliodenominatedineuro ote Balances withbanks,depositsandothermoneymarkets Securities Other investments Balances withbanks,depositsandothermoneymarkets Securities 22• NET INTERESTINCOME Net interestincome 31 Dec.2020 1,044,607 801,691 242,916 201,576 882,124 34,762 34,799 14,651 39,189 38,500 22,973 24,276 33,587 4,520 2,021 3,475 4,664 2,452 1,136 1,136 1,303 551 37 1 0 31 Dec.2019 1,102,483 997,640 104,843 900,056 48,827 10,188 33,451 43,638 37,975 77,244 11,977 25,578 35,702 22,772 10,124 2,473 9,904 2,335 2,207 9,535 2,077 2,077 599 1 1 129 Financial Statements and Notes 130 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Transactions intheportfolioformonetarypolicypurposes Interest ratefutures Medium andlong-terminvestments Financial operationsineuro Other financialoperationsinforeigncurrency FINANCIAL OPERATIONS N the financialyeartowhichthey relate. ECB The PEPP. and PSPP distributes this income in full ABSPP, to the NCBs, unless otherwise decided CBPP3, by the Governing Council in SMP, the under purchased securities from arising which arises from the 8% share of euro banknotes allocated to the ECB; and (ii) the ECB’s income The Governing Council of the ECB decides each year on the distribution of (i) seigniorage income N portfolio denominatedinUSD,duetopricedecreases this currency. asset the with associated mostly losses, rate exchange potential from mainly resulted 2020 in As regards the item Unrealised losses on financial assets and positions, the amount recognised Unrealised lossesoneurooperations Unrealised lossesoninvestmentsinforeigncurrency Unrealised exchangeratelosses AND POSITIONS N for compliancewiththerulesofprogramme(€5,953thousand). 2020, in results to contributed securities policy monetary of sales 2019, in than lower Although the resultsfromforeignexchangetransactions(€10,295thousand). were noteworthy Also respectively). thousand €4,758 and (€21,026 euro and currency foreign in 2020 of portfolios trading the in assets In with associated operations financial from gains were note particular year. previous the from different however, was, composition Its 2019. to amount similar a of and positive were operations financial from arising gains/losses Realised 2020 In Foreign exchangetransactions PARTICIPATING INTERESTS ote ote ote 23• 24• 25•INCOMEFROMEQUITYSHARESAND REALISED GAINS/LOSSESARISINGFROM UNREALISED LOSSESONFINANCIALASSETS 31 Dec.2020 31 Dec.2020 49,135 70,492 21,026 68,854 10,295 5,953 6,995 4,758 107 704 934 31 Dec.2019 31 Dec.2019 4,867 3,644 1,210 49,848 39,414 12,580 (9,927) 4,739 3,042 14 - income tobepooled.Thesum ofthemonetaryincomeandgapistermednetcontribution. monetary the to added is difference this 2019, in Portugal de Banco the for case the was as base, When the gap is negative, i.e. the value of pooled. the earmarkable assets falls be short of the to value of its income liability monetary the from deducted is MROs, the for rate reference ECB available latest the at calculated gap’), ‘the as (known difference the 2020, in Portugal de Banco the for case the is as base, liability its of value the exceeds assets earmarkable NCB’s each of value the Where a maturityofover1year monetary policyoperationswith Accrued interestrelatingtoregular Eurosystem of eurobanknoteswithinthe Claims relatedtotheallocation and PEPP-CBPPportfolio SMP, CBPP3,PSPP-SUPRA portfolio CBPP, CBPP2andPSPP-GOV in euro policy operationsdenominated institutions relatedtomonetary Lending toeuroareacredit (except gold) of foreignreservestotheECB Claims equivalenttothetransfer capital key in proportiontoeachNCB's Amount ofgoldholdings Earmarkable assets and theliabilitybase(seefollowingtable). assets earmarkable these comprising items the to applied are presented rates remuneration The components ofasetliabilities–theliabilitybase. annual income from a set of assets – earmarkable assets – less any interest (accrued or paid) on effective the measuring by determined is income monetary NCB’s Eurosystem each of amount The N and (ii)inEUROPAFI,totheamountof€6thousand. participating Portugal’s de interests Banco in 2019, chiefly: (i) in the ECB, to the amount of €21,976 thousand the (2019: €9,511 thousand) for received dividends included also item this 2020 In from 1February2020. of the weightings assigned to the remaining NCBs in the ECB’s subscribed capital key with effect adjustment consequent the and Union European the from withdrawal Kingdom’s United the of process the of part as thousand) (€4,136 reserves net ECB’s for amount an included item this aforementioned2020, in Moreover, thousand). €33,641 (2019: year that the from securities from income of portion to relating thousand €29,495 of amount the included item this 2020 In ote 26•NET RESULT OF POOLING OF MONETARY INCOME

plcbertsLiabilitybase Applicable rates Not applicable operations rate Main refinancing rate Real remuneration operations rate Main refinancing rate Real remuneration operations rate Main refinancing 0% of TARGETaccounts Net liabilitiesarisingfrombalances denominated ineuro related tomonetarypolicyoperations Liabilities toeuroareacreditinstitutions Banknotes incirculation

Applicable rates operations rate Main refinancing rate remuneration Real Not applicable

131 Financial Statements and Notes 132 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 vis-à-vis therestofEurosystem. operationslending in interest regards as Portugal de Banco the by deductions of proportion the the rest of the Eurosystem, in the CSPP portfolio. This effect was partially offset by the reduction in in increase interest and portfolio SMP the in interest Portugal’s de Banco the in decrease (ii) and operations liquidity-absorbing and institutions credit of deposits to related interest Eurosystem total in contributions Portugal’s de Banco the of weight the in decrease (i) factors: following the from stemmed largely 2019, to compared thousand) €117,787 (2019: thousand €142,654 to amounting year, the for method income monetary of pooling of result Net the in increase The H =E+FG F E =C–D D C =AxB B A (Note 19). of the provision for losses on monetary policy operations of the Eurosystem of €2,214 thousand reversal the plus level, Eurosystem the at risk shared of is programme, this in participant active its in Eurosystem the of an not NCB is it as portfolio a Portugal’s de Banco by the in included not held although which, portfolio CSPP securities of 2020 in sale the from includes arising This loss thousand). the (€143,344 income monetary of allocation the of result net the was thousand -€1,524 of amount the in 2019 and 2018 regarding year this made adjustments less thousand,€101,269 of amount the in key, that to according Portugal de Banco the to allocation The differencebetweentheBancodePortugal’snetcontributionof-€41,385thousandand under higher-yieldprogrammes,inparticulartheSMP. in negative interest from financing operations; and (ii) the maturing of monetary policy securities to €4,323,307 thousand. This decrease was mostly driven by two factors: (i) a significant increase thousand €11,300,936 from considerably declined Eurosystem the from contributions total 2020 In accordance withtheirsubscribedandpaidupsharesinthecapitalkey. Total net contributions from all Eurosystem NCBs are allocated to all NCBs in the Eurosystem in G Net resultofpoolingmonetaryincome years Eurosystem adjustmentstotheresultofmethodrelatingprevious Result ofthemethod Total effectivecontributionfromtheBancodePortugal Total reallocationtotheBancodePortugal Paid-up capitalkey Total contributionfromallEurosystemNCBs Eurosystem provisions 1Dc 0031Dec.2019 31 Dec.2020 ,2,0 11,300,936 4,323,307 .44 2.3510% 2.3424% 4,4 119,167 143,344 4,5 117,787 142,654 265,683 101,269 4,8)147,896 (41,385) (1,524) 2,214 1,775 (396)

Other staffcosts Voluntary socialcharges Compulsory socialcharges Employees' salaries of DirectorsandBoardAuditors Remuneration ofthemembersBoard N tax, intheamountof€2,231million. income corporate the of estimate excess the (ii) and 106/2019; No Decree-Law of application the following Fund, this to made contributions initial the of FGCAM by thousand refund €81,156 the of concerning amount the (i) of made be should mention 2019 In thousand). (€1,853 the from resulting value of SGFPBP, the in implementation and of of the Net Valora Asset Value method in as explained the adjustment in interests Point 1.2(e) of participating Note 1 and Portugal’s Note from 10 de resulting Banco the profit the included 2020 in income Sundry Banco dePortugalthroughtheBPNetportal,totalling€3,370thousand(2019:€3,371thousand). the by provided services to related largely was parties third to services of supply and Sales item The took placebetween2015and2019). return of expenses the shared with to the related Eurosystem regarding thousand the €762 TARGET2-Securities system of (which amount the 2020 in includes also aggregate This Bank. the by situation. The Portuguese State will be responsible for the settlement upon dividend distribution of type this cover to Portugal de Banco the by past the in made contributions to refers amount This relief. debt for Somalia to support Portugal of part as IMF, the by Portugal de Banco the to returned amount the to corresponding thousand €1,927 include income years’ fiscal Previous Other income N Other expenses Capital gainsontangibleandintangiblefixedassets Sundry expenses Previous fiscalyearsexpenses Capital lossesontangibleandintangiblefixedassets Sundry income Previous fiscalyearsincome Sales andsupplyofservicestothirdparties ote ote 28• 27• STAFF COSTS OTHER INCOMEANDEXPENSES

31 Dec.2020 31 Dec.2020 132,053 10,647 15,657 30,624 83,287 8,608 2,040 1,390 2,916 3,410 4,320 1,301 1,185 522 127 2 31 Dec.2019 31 Dec.2019 138,538 87,476 89,967 85,294 21,131 30,366 84,207 2,490 1,699 4,360 1,491 1,343 572 220 295 18

133 Financial Statements and Notes 134 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Other suppliesandservicesfromthirdparties Training Software licensingandmaintenance Specialised work Fuel andwater Rentals Maintenance andrepairs Litigation andnotaryservices Travel, accommodationandothertransport at the Bank associated with the COVID-19 pandemic. In this context, the most relevant variations changes operating by influenced also were parties third from services and Supplies addition, In Banco EspíritoSanto,S.A. the on measure resolution the of part as provided advice financial and legal of provision the to mainly related thousand) (-€1,645 decrease significant a posted services notary and Litigation decrease from2019. thousand €2,324 a i.e. thousand, €44,995 reached parties third from services and Supplies 2020 In Electricity N impact oftheCOVID-19pandemic. an also allowances, accidents occupational and pay sick in decrease the by offset 32)), (Note the increase in annual contributions to the Pension Fund – Defined -benefit Plan (+€635 thousand to relates which charges, social compulsory in thousand €258 of increase slight a also was There Portuguese BankingAssociationfor2020. the by established that with line in scales, wage of revision the following update salary 0.3% a byoffset partly was expenses in decrease This dropped. also amounts work overtime and 2020 in purposes representation international for travelling no almost was there that fact the to due the COVID-19 pandemic crisis on this type of expenses. Thus, the amount of per diems dropped As regards Employees’ salaries, the decrease in this item against 2019 is related to the impact of this in employees fewer situation in2020(Note32). were there that given thousand), (-€5,644 costs retirement early in decline the specifically more decrease, this to contributed charges social voluntary in drop The In 2020staffcoststotalled€132,053thousand,a€6,485thousanddecreasefrom2019(-5%). Other specialisedwork Remuneration ofSGFP Use ofdatabanks IT Surveillance andsecurity ote 29•SUPPLIES ANDSERVICESFROMTHIRDPARTIES 31 Dec.2020 44,995 4,778 1,040 7,983 4,049 3,133 2,752 2,886 4,915 5,402 3,000 1,278 2,581 430 766 31 Dec.2019 47,319 5,488 1,167 7,125 3,770 2,880 2,775 3,003 4,379 5,176 4,645 3,304 2,427 560 622 No 64-B/2011 was published on 30 December 2011 approving the State Budget for 2012 It lays down in Article 183 that the negative balance negative the that 183 Article in down lays It 2012 for Budget State the approving 2011 December 30 on published was 64-B/2011 No 20. treatment ofactuarialgainsandlossesfromthePension Fund–Defined-BenefitPlan. accounting the to change 2011 the of result the was earnings retained on tax income 2020 In Estimated incometaxonprofitfortheyear As at31December2019and2020incometaxliabilitieswerebrokendownasfollows: believes that there will be no firmly significant additionalPortugal payments regardingde previous financialBanco periods. the of Directors of Board the However, payments. additional be may de Banco the revise can they there legislation, tax of interpretations which different of result a as Therefore, situation. tax Portugal’s during period four-year a allowed are authorities Tax corporate andautonomoustaxes. municipal corresponding the to and tax income corporate to subject is Portugal de Banco The N security sector. private the for scale wage the of revision the of the result a of as incurred security and Complex, the Carregado for Guard) Republican National (the GNR an the under with concluded thousand), agreement (+€536 security and surveillance with recorded were expenses Finally, to reducedbuildingoccupancy,howeveritsvalueincreasedasaresultofrisesintariffs. for the sanitisation of people and goods (+€203 thousand). Electricity consumption dropped due material and equipment protective personal purchasing by namely work, specialised other and and maintenance and repair of SITI systems and infrastructure), as well as in hygiene and safety workIT specialised maintenance, and licensing software for thousand +€1,233 (around working systems and IT under the scope of Business Continuity in the setting up of conditions for remote Information concerning Bank the by incurred expenses additional with associated increases (ii) and consumption of water, fuel and consumables (-€218 thousand) and, in the thousand) opposite (-€126 training direction,thousand), (-€512 events thousand), (-€2,193 accommodation and travel namely activities, of suspension and closure the with associated decreases (i) are 2019 against Estimated incometaxonretainedearnings Payments onaccountandadditionalpayments Withholdings atsource

ote fund’s transitionalregimeshouldberecognised againstequity. parts in the formation of taxable profit for the 2012 tax year and the following nine tax years. Thus, the current and deferred tax relating to the pension tax years,arenotincludedinthedeductibility limitsestablishedinArticle43oftheCorporateIncomeTaxCode.Rather,theyareincludedequal recognition of liabilities from pensions and other defined-benefit post-employment benefits, in relation to contributions made in that year or in prior the actuarial gainsandlossesresultingfrom of the changeinaccountingtreatment in the2011taxyeararisingfrom sheet variationsrecorded Law 30• INCOME TAX (308,591) (72,973) 242,782 (7,138) 2020 (26) (315,309) 349,028 26,648 (7,065) 2019 20 (7) 135 Financial Statements and Notes 136 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Other –Effectofratechange Autonomous taxation Tax benefits Income beforetaxes none oftheyearsaretheremutually offsettingadjustmentsthataremateriallyrelevant. in and 31.39%), of rate effective the and 31.36% of rate nominal the between points basis +3 of difference a 2019, (in 31.14% of rate effective the and 31.29% of rate nominal the between points basis -15 of difference a is there 2020 in rates, tax of reconciliation the to regard With at nominalrate Income beforetaxes|Taxcalculated The reconciliationbetweenthenominalandeffectivetaxratespresentedaboveisasfollows: specifically computersoftware. more assets, intangible of purchases to also and printers, and servers, computers, dispensers, cash and machines handling banknote namely assets, tangible of purchases to relates benefit this of purposes the for considered investment the of Most 2020. July 24 of 27-A/2020 Law in published measures extraordinary from results II) (CFEI II credit tax investment extraordinary The Tax burden Deferred tax Current tax measured throughtheratiooftotalincometaxtobeforetaxesaredetailedasfollows: The expense/income items comprising income tax on profit for the year, as well as the tax burden, Adjustments Other Losses frompreviousperiods(Note27) post-employment orlong-termbenefits(Note32) Severance benefits,retirementbenefitsandother Pension fund(Note32) Tax estimatesurplus(Note27) Net AssetValue(Note27) Municipal corporatetaxandstatesurtax For theyear Autonomous taxation Tax benefits(CFEIII)

Total incometax 7,8 4,1 31.29% 243,313 777,486 ai a aeBssTxRate Tax Basis Rate Tax Basis 183 54 00% 13 3)(0.00%) (39) (123) (0.08%) (584) (1,853) ,6 6)(.1)9601000.10% 0.04% 1,080 439 9,620 1,392 (0.01%) 0.08% (69) 611 1,962 1,940 2 6 .2 6 7 0.02% 177 562 0.02% 164 521 2)()(.0)(,3)(0)(0.06%) (703) (2,231) (0.00%) (6) (20) 24 .1 4 9 0.02% 193 647 0.01% 49 52 4,2 31.14% 242,128 147 (0.18%) (1,427) 2020 2 0.02% 129 5)(0.01%) (53) 242,128 242,782 777,486 165,912 31.14% 77,740 2020 (1,000) (655) 129 1,105,601 8)(0.01%) (83) 0.02% 170 - - 86 (0.08%) (836) - 4,6 31.39% 347,067 4,6 31.36% 346,669 2019 1,105,601 347,067 349,028 236,045 112,813 31.39% 2019 (1,961) 170 -

Liabilities Liabilities Assets Staff benefits and impairments Temporarily non-deductibleprovisions Assets broken were liabilities down asfollows: and assets tax deferred to related movements the a social nature 2020 and 2019 of In ofdonations theallocation and (€4 thousand). thenet thousand) thousand), (€1,000 (€423 CFEIII benefit tothe creation relate job above the table in out set benefits tax The the with accordance provisions setforthinArticle18(12)oftheCorporateIncomeTaxCode. in beneficiaries, their to available made or paid are amounts the when period tax the to attributable only purposes tax for are costs these and force, in agreements work collective of terms the under age, retirement reaching for bonuses and bonuses seniority retirements, early to related are benefits employee long-term or post-employment other and Code and said ceiling. Tax The adjustment made to employment Income termination benefits, retirement benefits Corporate the of 43(2) Article in for provided ceiling the to contribute that The adjustment in the Pension Fund results from the definitive difference between the expenses Depreciation surplus(reinvestmentofcapitalgains) Early retirements Seniority bonus Depreciation surplus(reinvestmentofcapitalgains) Temporarily non-deductibleprovisionsandimpairments Pension fund–transitionalregime Staff benefits Litigation Early retirements Seniority bonus Pension fund–transitionalregime

072(6,686) 30,782 119(6,686) 31,109 005(6,686) 20,055 31 Dec. 31 Dec. 607(5,868) 26,057 633(5,868) 26,373 330(6,701) 13,370 6,465 4,199 2019 2018 (327) (327) 7,993 4,622 (316) (316) 389 388 Equity Equity 832 ------Change in Change in 2019 2020 Profit/Loss Profit/Loss ,6 26,057 1,961 ,4 26,373 1,949 ,2 7,993 1,528 4 21,148 643 466 5 20,843 655 220 (50) 423 12 12 1(316) 11 11 (1) 6 - 13,370 - 31 Dec. 31 Dec. 4,622 (316) 2019 9,292 4,842 6,669 2020 (305) (305) 388 338 6

137 Financial Statements and Notes 138 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 n 1 eebr 09, nldn claea ue udr h Crepnet eta Banking Central Model (CCBM).Thiscollateral isvaluedatmarketrates,lesshaircuts. Correspondent the under used collateral including 2019), December 31 on the of operations policy monetary the thousand (€60,612,743 2020 December 31 on thousand €79,090,233 of amount the in Eurosystem to related collateral included mainly received Collateral IMF, underArticleIII,Section4oftheIMF’sArticlesAgre ement. the of favour in Portugal de Banco the by issued note promissory the included given Collateral parties with theirassetsandliabilities,asfollows: associated risks manage to essentially designed instruments financial derivative to butonly still related contract positions these are under 2019 December 31 and 2020 December 31 that at As year-end. operations the at outstanding financial in positions open recorded item This Irrevocable creditlines Items heldincustody commonly used.(d)Thevalueofaccruedinterestcorrespondstoincomeandexpense plusopenpositionsuntilthebalancesheetdate. models valuation the and conditions market current account into taking positions, open of closing potential the of Account Loss and Profit the on impact the to corresponds profit/loss on effect The (c) used. commonly models valuation the and conditions market current account into taking positions, open Notes: (a) Theoretical ornotional value of thecontract.(b) The marketvalue corresponds to incomeor expenses associated with the potentialclosing of Collateral received Collateral given Contracted financialoperations N Also, withregardtodeferredtaxes,temporarydifferenceshavenoexpirydates. The rateusedtocalculatedeferredtaxwas31.29%in2020and31.36%2019. sheet date. balance the at as enacted substantially or approved rates i.e. temporary reversed, the be date to are the differences on force in be to expected rates tax on based calculated are These liabilities andtheirtaxablebasis,usedtodeterminethetaxableprofit. and assets of value sheet balance the between differences deductible/taxable temporary from resulting periods, future in receivable/payable tax on impact the to corresponds tax Deferred Currency forwards Interest ratefutures Currency swaps Collateral given, collateral received, items held in custody and other commitments to third Collateral given,collateralreceived,itemsheldincustody andothercommitmentstothird Contracted financialoperations ote 31• OFF-BALANCE-SHEET INSTRUMENTS Purchases ,5,8 19587 96320,693 19,693 (1,955,887) 1,955,887 ,0 (191,863) 4,000 Contract value - (a) ae Net Sales - 31 Dec.2020 Market value (b) - - 31 Dec.2020 Profit/Loss 29,851,224 79,094,330 (3,044,233) (1,471,623) interest (187,863) e e ucae Sales Purchases Net Net - - (c) interest Accrued Accrued (1,000) ,2 (5,420) 5,420 - - (d) (d) ,2,1 (1,026,115) 1,026,115 31 Dec.2019 7,9 (23,200) 471,390 25,567,851 60,617,501 (3,100,361) (1,471,623) 31 Dec.2019 448,190 Contract value (a) registered in Caixa de Abono de Família dos Empregados Bancários (CAFEB), employees active Portugal’s de Banco the 2011 January 1 from that down laid 2011 January 3 of 1-A/2011 No Decree-Law sector. banking the for regulations labour collective the in enshrined employees, bank for scheme security social substitutive a by covered were who 2009, March 3 before Bank the by recruited dependents) their (and staff of pensions survivors’ and retirement the • Until AND OTHERBENEFITS N under theNewArrangementstoBorrow(NAB). value of SDR 783,500 thousand (€923,433 thousand) referring to a credit line granted to the IMF the and system financial Portuguese the to lines credit intraday of ceiling the correspondingto As at 31 December 2020 the item Irrevocable credit lines recorded the amount of €2,120,800 thousand State Portuguese monetary policyoperationswithotherNCBs,undertheCCBM(€9.082,766thousand). the by owned securities incollateral as Portugal de Banco the by custody in comprised held securities and thousand) (€19,959,190 essentially custody in held Items 21. of 2March2009).TheHealthcarePlanisopenforallstaff membersoftheBancodePortugal. 54/2009 No (Decree-Law 2009 March 2 after sector banking the in working started who staff of members to closed are Plan Pension the of schemes three The pensioners. and employees retired the for expenses funeral and costs healthcare of payment the only for scheme Plan, operating benefit one the Healthcare and schemes, benefit three operating Plan, Pension the the Pension Fund – Defined-Benefit Plan was amended to include the existing two benefit plans: establishing contract the Fund, Pension the to Portugal de Banco the from liabilities of transfer were healthcare costs and funeral expenses for the retired employees and pensioners. With this In 2014 new liabilities were transferred to the Pension Fund – Defined-Benefit Plan, among which Fund’s the under totally remained responsibility aswell. grants death and disability of payment The regulations. the applicable labour agreements for the banking sector and on the Banco de Portugal’s internal on based are which plans, pension respective the in defined benefits the and scheme security intended to make up for the difference between the benefits calculated under the general social supplement the of payment the covers only Fund Pension the onwards, 2011 January 1 From 2010. December 31 until liabilities past-service of payment the responsibility its under maintained pensions, retirement/old-age statutory the of terms in Plan, Defined-Benefit – Fund Pension the Thus, integrated inthegeneralsocialsecurityschemewithrespecttostatutoryretirementpensions. be would Plan, Defined-Benefit – Fund Pension the by covered and employees, bank for fund Pension FundoftheBancodePortugal–Defined-BenefitPlan

ote Dissolved bythisDecree-Law. Background 31 December 2010 the Banco de Portugal was the sole entity responsible for the payment of 32• LIABILITIES RELATEDTORETIREMENTPENSIONS 21 the family allowance 139 Financial Statements and Notes 140 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Pensioners Retired members Active members The numberofmemberscoveredbythePensionPlanisas follows • are mitigated byusingasset/liabilitymanagement. rates interest and inflation in movements adverse from risks The assumptions. actuarial The risks from population movements and regulatory changes are mitigated by defining prudent Interest raterisk wages andpensionsgrowthrates Risk ofinflationimpliedinassumed Medical servicesinflationrisk general socialsecurityscheme Risk ofregulatorychangestothe Health risk Disability risk Longevity risk the HealthcarePlan: The table below shows the most significant risks among those arising from the Pension Plan and charges duetoSAMS(socialandhealthassistanceserviceforbankingsectoremployees). namely pensions, to related charges of sponsor the by settlement the as well as grants, death retirement pensions,survivors’includingthepaymentofsupplementarybenefitsand statutory retirement (as a supplement to those paid by social security), disability pensions, early members/ of pensions old-age include schemes Fund Pension the with associated benefits The

– Pension FundPlans

(a) Pension Plan Risk sub-category Participants Number ofschememembers rate movements. Risk ofreductionthefundingratioarisingfromadverseinterest of adversemovementsinhistoricaland/orexpectedinflationrates. Risk ofareductioninthefundingratioarisingfrommaterialisation of thePensionFund–Defined-BenefitPlan. assumed inactuarialvaluations,resultinganincreaseofliabilities Risk ofanincreaseinmedicalservicescostsandhigherinflationthan security scheme,impactingonthePensionFund–Defined-BenefitPlan. Risk attachedtotheoccurrenceofregulatorychangesgeneralsocial Fund –Defined-BenefitPlan. in actuarialvaluations,resultinganincreaseoftheliabilitiesPension Risk oftake-upsubsidisedclinicalservicesbeinghigherthanassumed of theliabilitiesPensionFund–Defined-BenefitPlan. with thatassumedinactuarialvaluations,resultinganincrease Risk attachedtopotentialdeviationinthedisabilityrate,compared increase oftheliabilitiesPensionFund–Defined-BenefitPlan. compared withthatassumedinactuarialvaluations,resultinginan Potential riskattachedtoincreasinglifeexpectancyofthepopulation, 31 Dec.2020 Risk definition 3,432 2,079 574 779 : 31 Dec.2019 3,516 2,070 586 860

social securityscheme(1 Statutory retirementageunderthegeneral Fund oftheBancodePortugal Statutory retirementageunderthePension Tables used Pensions growthrate The mainactuarialandfinancialassumptionsadoptedareasfollows: in accordancewiththeprincipleslaiddownIAS19. Method, Credit Unit Projected the using SGFPBP, the by basis actuarial an on calculated were Plan Defined-Benefit – Fund Pension the through funded plan pension the from arising Liabilities issues ofhigheraveragecreditquality. the SGFPBP uses, as a matter of prudence, a lower discount rate, based on Plan, interest rates Defined-Benefit on – bond Fund Pension the of needs funding the establishing of purpose the For Pension Fund’sliabilities. the of structure term the for adequate are maturity and denomination whose issues, bond private The discount rate shown in the above table was calculated using interest rates on high credit quality Wage growth Expected returnrateontheFund'sassets Discount rate Pensioners Retired members Active members Plan isasfollows: Pension Fund’s the of beneficiaries and members scheme for expectancy life average assumed The Age differencebetweenspouses Percentage ofmarriedmembers - Turnover - Disability - Mortality – Malepopulation Subsequent years 1 Subsequent years 1 st st year year (b) Methodology, assumptionsandaccountingpolicy – Femalepopulation Average lifeexpectancy(years) st year) V8/0ajse y4yasTV88/90adjustedby4years TV 88/90adjustedby4years 98–SOA rn.Ml U)1978–S.O.A.Trans.Male(US) 1978 –S.O.A.Trans.Male(US) 1Dc 000 a.22 1Dc 0901Jan.2019 31Dec.2019 01Jan.2020 31 Dec.2020 V8/0ajse y1ya TV88/90adjustedby1year TV 88/90adjustedby1year T-1 CrockerSarason(US) 66 yearsand6months .6%126 .9%1.543% 1.506% 1.296% 2.543% 0.750% 2.506% 1.296% 2.296% 0.750% 1.750% 1.262% 2.296% 0.750% 1.750% 2.262% 1.750% .2%103 .1%1.652% 1.013% 1.013% 0.420% / 1.013% n/a Actuarial andfinancialassumptionsused 65 years 3 years 80% 31 Dec.2020 12 14 34 T-1 CrockerSarason(US) 66 yearsand5months / 1.652% n/a 65 years 3 years 31 Dec.2019 80% 12 15 34

141 Financial Statements and Notes 142 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Retired membersandpensioners Age differencebetweenspouses Percentage ofmarriedmembers according toIAS19.Referenceshouldbemadethefollowing: The actuarial and financial assumptions used in the calculation of these liabilities are established Growth rateoftheaverage/annualexpenses Expected returnrateontheFund'sassets Discount rate Pensioners Retired members Active members The assumedaveragelifeexpectancyforschememembersandbeneficiariesisasfollows: Active members The numberofmemberscoveredbytheHealthcarePlanisshownintablebelow: that calculatedbyconsideringtheaforementionedfundingneeds. below is accounts Portugal’s de Banco the in considered liabilities Fund’s the of value the Thus, security scheme(1 Statutory retirementageunderthegeneralsocial of theBancodePortugal Statutory retirementageunderthePensionFund Tables used - Turnover - Disability - Mortality – Malepopulation Other Disability pensions –

(b) Methodology,assumptionsandaccountingpolicy (a) Healthcare plan Participants – Femalepopulation Average lifeexpectancy(years) Number ofschememembers st year) 1Dc 000 a.22 1Dc 0901Jan.2019 31Dec.2019 01Jan.2020 31 Dec.2020 98–SOA rn.Ml U)1978–S.O.A.Trans.Male(US) 1978 –S.O.A.Trans.Male(US) TV 88/90adjustedby4years TV 88/90adjustedby1year T-1 CrockerSarason(US) 0.420% 3.784% 4.987% 66 yearsand6months n/a Actuarial andfinancialassumptionsused 65 years 3 years 80% 31 Dec.2020 31 Dec.2020 4,380 2,606 1,774 1.013% 1.013% 4.030% 5.060% 12 14 43 TV 88/90adjustedby4years TV 88/90adjustedby1year T-1 CrockerSarason(US) 66 yearsand5months .1%1.652% 1.013% .3%4.248% 5.278% 4.030% 5.060% / 1.652% n/a 31 Dec.2019 31 Dec.2019 65 years 3 years 80% 4,381 2,606 1,775 12 15 43 Increase inliabilitiesarisingfromearlyretirements Actuarial gains/losses Interest cost Pension Fund’sfundingratio Impact onthe Benefits payable(expectedvalue) Pension Fund’s liabilities Pension Fund’sliabilities Impact onthe and pensionsgrowthrateresultsfromanincrease ininflation,witharesultingincreasethepriceofinflation-linkedcomprisedFund’sassets. bonds affects only rate the growth value of the Pension Plan’s liabilities (and not that of the Healthcare Plan). The impact on the Fund’s assets is based on the assumption that the wages pensions and wages The (b) presented. that from different be will rate discount in reduction b.p. 10 a of financing the and assets Notes: (a) Assuming a stable spread between interest rates on private and sovereign debt. Should this spread between the rates vary, the impact on the Fund’s Pension Fund’sassets Impact onthe adopted: table The below shows the sensitivity of the Fund’s assets and liabilities to changes in the assumptions circumstances. these under were who employees of is number the retirement in 2019 early against for reduction the liabilities to due in mainly increase the to relating value the in decrease the 2020 In the rateofincreasesalariesandpensions. due to their impact on the value of liabilities are those relating to longevity, the discount rate, and Among the various assumptions adopted in the valuation of the Fund’s liabilities, the most relevant which maybemitigatedbyfinancialinstruments,withtheaimofmaintainingfundinglevel. liabilities, assumed in implicit risks the hedging towards geared is management financial Fund’s The Current servicecost Value atthebeginningofyear and 2019: 2020 in Fund Pension the of liabilities past-service of evolution the presents below table The Total past-serviceliabilitiesoftheFund •

Healthcare Death grants charges toSAMS Pensions’ inherent benefits Retirement andsurvival Evolution ofliabilitiesandassetsthePensionFund as at31Dec.2019 Sensitivity

Past-service liabilities members and pensioners ,2,7 676,937 1,324,773 One-year increasein ,9,0 612,706 1,191,102 Retired 64,105 67,387 life expectancy 2,179 -4.7% 4.7% 0.0% 31 Dec.2020 Value attheendofyear ebr Total members Active 30,590 32,575 1,066 10 b.p.reductionin discount rate 2,001,710 1,803,808 -0.3% 1.4% 1.7% 94,695 99,962 3,245 (a) (a) members and pensioners ,6,7 3,2 1,893,401 630,229 1,263,172 ,4,2 572,903 1,140,626 Retired 2,001,710 1,893,401 55926,466 29,080 55,529 63,669 3,348 147,605 (82,093) 2020 10,220 19,180 13,397 and pensionsgrowthrates 10 b.p.increaseinwages 31 Dec.2019 ebr Total members -0.5% 1.6% 1.1% Active 1,779 (b) 1,893,401 1,814,887 (73,157) 2019 15,864 92,864 29,982 12,960 1,713,529 81,995 92,749 (b) 5,127

143 Financial Statements and Notes 144 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Net incomeoftheFund Benefits andinherentchargespaidbytheFund Contributions paidonaccountofearlyretirements Other Cash andbankdeposits Current contributionspaidtotheFund Value atthebeginningofyear scenario) of102.2%. Plan stood at 104%, above that of the scenario used to calculate the funding needs (most prudent Defined-Benefit – Fund Pension Portugal’s de Banco the of level funding the 2020 of end the At Fixed incomesecurities Variable incomesecurities was which recorded in2020atavalueof€33,821 Portugal, thousand. de Banco the by used Building, Castilho the buildings includes andLand Fixed incomesecurities Variable incomesecurities Land andbuildings The Fund’sassetscanbebrokendownasfollows: two aggregates,stoodat2.0years(2019:-2.3years). the modified duration of liabilities, adjusted to incorporate the differences in size between these and side assets the on portfolio bond the of duration modified the between difference the and On 31 December 2020 the modified duration of liabilities stood at 16.2 years (2019: 15.6 years), On accountoftheemployees On accountoftheBank Government debt Participation units–Investmentfunds Securities portfoliooftheFund Fund's investments Fund’s assets Value attheendofyear 1Dc 0031Dec.2019 31 Dec.2020 1Dc 0031Dec.2019 31 Dec.2020 2,081,228 2,021,963 2,081,228 1,820,891 1,644,549 1,644,549 111,226 (77,935) 176,342 176,342 227,744 2020 12,793 11,399 13,182 23,109 1,782 9,483 2,021,963 1,915,971 2,021,963 1,776,088 1,659,402 1,659,402 154,666 (78,231) 116,686 116,686 229,575 2019 15,270 12,424 14,286 1,863 6,437 9,862 Financial gainsandlosses Note: (a)Excludingcostsbornebystaffandotherentities. be summarisedasfollows: can Plan Defined-Benefit – Fund Pension the to relating costs staff in recognised amounts The remunerations usedtocalculatethesocialsecuritypension. the of revision the and subsidy funeral the of revision the factor, indexing support social the of from the net effect of the revision of therevision Minimum Monthly Guaranteed Remuneration, the resulting gains actuarial to related amount the includes essentially deviations Other item The (see the table of assumptions), resulted in a €177,475 thousand increase in the Fund’s liabilities. year the of end the at calculated that and rate this for value initial the between difference the Actuarial gains and losses in 2020 recorded a loss associated with the discount rate, arising from Actuarial gains/losses The valueofactuarialgainsandlossescalculatedin20202019canbebrokendownasfollows: Staff costs Gains andlossesinexpectedincomeoftheFund Indexation ofassumptions: Gains andlossesinpaidpensions Other gainsandlosses Adjustments tothemodel Change inaveragehealthcareexpenses Increase inpensions Wage growth Technical gainsandlosses Expected returnontheFund'sassets Interest cost Increase inliabilitiesarisingfromearlyretirements Current servicecost Population movements Change inaveragehealthcareexpenses Future increaseinpensions Future wagegrowth Discount rate (a) 1Dc 0031Dec.2019 31 Dec.2020 (147,605) (177,475) (52,703) (20,482) 94,901 90,746 14,495 11,821 (3,772) (3,811) 20,048 19,180 11,130 10,220 2020 4,155 1,583 2,883 2,370 3,076 366 859 (174,144) (92,864) 117,941 123,015 (31,652) 25,077 38,413 33,220 12,945 (5,074) (1,394) (2,267) (8,988) 24,797 29,982 10,603 15,864 2019 5,450 2,702 1,199 - 145 Financial Statements and Notes 146 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 security scheme(1 Statutory retirementageunderthegeneralsocial Actuarial gains/losses Interest cost of theBancodePortugal Statutory retirementageunderthePensionFund Current servicecost Seniority bonusespaid The valuerecognisedin2020 forthisinsurancewas€19thousandunderStaffcosts. On 31December2020thisinsurance schemecovered11members. Fund oftheBancodePortugal–Defined-BenefitPlan. Pension the by not and scheme, insurance life group a under basis voluntary a on collected For a group of workers, pension contributions associated with their complementary salary are The tablebelowshowsthemostrelevantrisks: Changes inpast-serviceliabilitieswereasfollows: assumptions. The risks from the undervaluation of salary increases are mitigated by defining prudent actuarial Wage growth Discount rate The main actuarial and financial assumptions used in the calculation of these liabilities are the following: stood at bonuses 11.1 years(2019:10.7). with seniority of liabilities duration modified the 2020 December 31 On Value atthebeginningofyear growth rate Risk ofundervaluationwage Interest raterisk Tables used Group LifeInsurance–Defined-BenefitPlan Seniority bonuses - Turnover - Disability - Mortality – Malepopulation 1 Subsequent years st year Risk sub-category – Femalepopulation st year) Past-service liabilities Value attheendofyear valuations, resultinginanincreaseoftheliabilitiesarisingfromthesebenefits. Risk ofcareerprogressandinflationbeinghigherthanassumedinactuarial arising fromthesebenefits. Risk ofadverseinterestratemovements,resultinginanincreasetheliabilities 98–SOA rn.Ml U)1978–S.O.A.Trans.Male(US) 1978 –S.O.A.Trans.Male(US) TV 88/90adjustedby4years V8/0ajse y1ya TV88/90adjusted by 1year TV 88/90adjustedby1year T-1 CrockerSarason(US) 31 Dec.2020 66 yearsand6months .4%0.691% 0.242% .5%1.750% 1.750% .4%2.188% 2.141% Actuarial andfinancialassumptionsused 65 years Risk definition 01 Jan.2020 15,477 14,740 (1,337) 2020 1,254 719 102 31 Dec.2019 TV 88/90adjustedby4years T-1 CrockerSarason(US) 66 yearsand5months .9%1.361% 0.691% .5%2.506% 1.750% .8%2.209% 2.188% 65 years 14,740 13,392 (1,267) 2019 1,300 1,132 182 01 Jan.2019

Members’ individualaccounts follows: as down broken thousand, €27,248 to amounted Fund the of assets the 2020 December 31 On operational and financial constraints in connection with the reduced amount under management. Fund’s the addressing to view a with million €20 by increased was account Reserve this 2016 In of contribution initial an Sponsor. the made of Account Reserve called name, its in account reserve Portugal a constituted which million, €5 de Banco the up, set was Fund Pension this When 1015 members(2019:930). covered Fund Pension this through funded plan pension supplementary the 2020 of end the At funding The vehicle canbechangedannuallyontheemployees’initiative. contributions. their for profile investment an choose to able also are and nature vehicle for funding its employees alternative who wish an to join create it. Employees to can join this order Fund or in any other fund of a pension similar closed a up set Portugal de Banco The pension plan. is voluntary for the members and compulsory for the sponsor when the participant chooses this rights, vested with contributory is which Plan, Pension Defined-Contribution Supplementary This Note 1).Thisplanwascreatedin2010,backdatedto23June2009. general social security scheme by virtue of Decree-Law No 54/2009 of 2 March 2009 (Point 1.2(l) of Portugal staff who started working in the banking sector after 3 March 2009 and are covered by the de Banco the regards as staff, its and Bank the from contributions through funded plan, pension The Banco de Portugal’s company-level agreements provide for a supplementary defined-contribution Transfer ofrightstomembers–contributionstheyear annual revaluationarerecognisedintheProfitandloss account oftheBancodePortugal: the of results the Sponsor; the of Account Reserve the in movements shows below table The accounts ofitsmembersbytheamountscorrespondingto: individual the to basis monthly a on transferred are account reserve this of units Participation Reserve account(Note12) Revaluation oftheperiod Pension FundoftheBancodePortugal–Defined-ContributionPlan (ii) the contributions from active members (by withholding every month these amounts when (i) salaries areprocessed). the contributionsfromBancodePortugal;and Reserve accountofthesponsor Participation units(invalue) Value atthebeginningofyear Value attheendofyear 31 Dec.2020 27,248 22,015 22,015 22,831 (1,087) 2020 5,233 271 31 Dec.2019 26,907 22,831 22,520 22,831 2019 4,076 1,075 (764)

147 Financial Statements and Notes 148 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 system also ensures the cash settlement of the operations and the monitoring of the positions the of monitoring the and operations the of settlement cash the ensures also system reserves and assets, identical to the one used by the ECB and most NCBs of the Eurosystem. This of management the for system information an through performed are operations management asset in restrictions and limits of control and allocation performance assessment, valuation, The the VaR,aswellbysettinglimitstoforeigncurrentpositi ons. qualitative assessment a of all information incorporate available. Market risk control and is based on agencies the application of limits rating to by assigned ratings risk on based are criteria limits said and the risk, credit of case the In Directors. of Board its by approved Guidelines) (the assets investment own Portugal’s de Banco the of management the on Guidelines the in out set limits and criteria eligibility on based is management asset investment own of control Risk the basisforsettingallowedassetmanagementdeviation margin. as serves and management asset guiding in role major a plays – review mid-term a of object be portfolios. The strategic benchmark portfolio – in force for the period of one year and which may efficient determine to exercises optimisation several of conduct the and variables financial and economic main the for forecasts and scenarios of discussion the strategic reflects This portfolio profitability. benchmark risk of terms in Portugal de Banco the of Directors of Board the of Reserve and Markets preferences the the reflecting portfolio, benchmark strategic by a on based Department, Management managed are assets investment own Portugal’s de Banco The regular sensitivityanalysisandstresstestingexercises. and expected shortfall (ES) indicators, produced and released on a daily basis, and by carrying out These risks are monitored and controlled by quantifying risk measures, namely Value at Risk (VaR) and thepriceofgold(marketrisk). counterparties and issuers, as well as from fluctuations in financial asset prices, exchange ratesby default from resulting losses the comprise and Eurosystem, the of policy monetary the in Financial • business functionsandguaranteethenon-disruptionofessentialservices. critical of continuity the ensure to developed were plans of this contingency which theimpacts under pandemic, to monitor structures specific created Portugal de Banco the pandemic, COVID-19 the with associated risk operational and instability of background the against 2020, In identification, monitoring,control,andmitigationofcompliancerisk. coordination, the managing and conduct, and ethics monitoring and is advising who for Officer, responsible Compliance the by managed is risk compliance the Portugal de Banco the At of theBancodePortugal. Directors of Board the and Auditors of Board the by monitored is it and Portugal, de Banco the Risk Management Department, in articulation with the Risk Committee and other departments of The integrated management of strategic financial and non-financial risk is the responsibility of the of Directorsandislaiddowninastatementriskacceptanceprinciples. risk management policy that reflects the risk profile and degree of tolerance defined by its Board while safeguardingfinancialindependence.Therefore,theBancodePortugalpursuesaprudent profitability, and sustainability ensure to designed is Portugal de Banco the at management Risk N

ote – Financial RiskManagement

Risk managementpolicies risks primarily arise from the management of own investment assets and the participation participation the and assets investment own of management the from arise primarily risks 33• RISK MANAGEMENT

inadequate internal processes, staff, systems, or third-party actions. The scope of the operational impact of the pandemic on its activities. Operational risk is related to losses arising from failures, the of view in updated was profile risk operational the and completed, Bank’s was the risks of non-financial mapping detailed a policy, management risk integrated the of scope the Within effectiveness ofthecontrolsimplemented. the reflecting force, in level tolerance the with compatible areas in are identified risks main the that suggest assessment this of results The Portugal. de Banco the by faced risks strategic top outlook on financial and non-financial risks, in particular the identification and assessment of the • recognised onthefinancialstatements(Point1.2(f)ofNote1). assets financial the of value market the assess to used also are markets active from Quotations as securities, the of value market previously presented. the assess to used were markets active from Quotations 53,478,605 76,278,429 69,050,045 Securities heldformonetarypolicypurposes(Note7) The Bank’s income is also carried out, which allows for the analysis of the resilience of its profitability the of projection term long to medium A 19). (Note used be to is provision risk General the how determine to account into taken also is exercise This buffers. financial Portugal’s de Banco the by coverage risk of level the of assessment the also but liabilities, and assets in developments expected against risks these of monitoring the only not for allows which term, medium the in The Banco de Portugal runs a projection exercise for financial statements and balance sheet risks non-standard monetarypolicymeasures. under created portfolios, intervention the for measures internal by supplemented ECB, the by produced indicators risk aggregate of series a through made is monitoring and Follow-up level. The risk of these operations is controlled by applying rules and procedures defined at Eurosystem Portugal de (non-shared risk). Banco the by borne directly is risk where operations the from and risk), (shared key capital its to according Portugal, de Banco the to the attributable exposure global of Eurosystem’s share the from results operations policy monetary from arising risk credit to Exposure used tocalculateVaRandexpectedshortfallforcreditriskandmarketrisk. model developed by the Eurosystem and approved by the Governing Council of the ECB are also risk financial integrated an and software commercial State-of-the-art measures. risk main and The assets measuredatamortisedcoston31December2020and2019isasfollows: Held-to-maturity securitiesportfolio(Note10)

Strategic RiskandNon-financialManagement –

comparison between the market value and the balance sheet value of the main financial main the of value sheet balance the and value market the between comparison ac d Prua i eupe wt tos ht rvd a opeesv ad consistent and comprehensive a provide that tools with equipped is Portugal de Banco Fair value Amortised 311388,8,4 58,222,614 80,587,342 73,121,398 ,7,5 ,0,1 4,744,009 4,308,913 4,071,353 cost 31 Dec.2020 Market value Amortised cost 31 Dec.2019 63,979,424 59,014,754 Market 4,964,671 value .

149 Financial Statements and Notes 150 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 Rgm Grl a Isiuçe d Céio Sceae Fnners RIS) apoe by approved RGICSF), – Financeiras Decree-Law No298/92of31 December1992. Sociedades e Crédito de Instituições das Geral (Regime Companies Financial and Institutions Credit of Framework Legal the and Statute its to pursuant adopted as authority resolution national as decisions its of virtue by specifically courts national administrative) and (civil in Portugal de Banco the against brought proceedings with litigation, in increase significant a to led Banco”), “Novo (hereinafter A. S. Banco, Novo the bank, bridge a to items off-balance-sheet and liabilities assets, and activity BES’s of most of transfer the of form • the natureofproceedingsinquestion,ispresentedbelow. and pending lawsuits most of amount the significant the in both position considering proceedings, current judicial relevant Portugal’s de Banco the of assessment Directors’ of Board The de the Banco of statements financial the Portugal, astheyresultfromtheexerciseofBoard’slegalpowers. on impact direct a have not do these companies, administrative financial and monitors institutions credit of regularly proceedings winding-up judicial the Portugal and proceedings offence de Banco the of Directors of Board the Although before theEuropeanCourtofJusticemayalsobementioned. interventions some Also, disputes. labour to related proceedings of monitoring and companies financial and institutions credit of winding-up judicial of monitoring phase), (judicial proceedings offence administrative information, of provision the for proceedings injunctions, interim lawsuits, The litigation currently pending falls under the following categories: common lawsuits, administrative and, incertaincases,externallawyers,dulycoordinatedbythisDepartment. Department Services Legal its by undertaken work legal and technical with Portugal, de the Banco of Directors of Board the by regularly monitored are proceedings these in Developments As at 31 December 2020, various legal proceedings were pending against the Banco de Portugal. N an of integrated managementoftheBank’srisks. objective the facilitating also risks, operational Bank’s the of process assessment entire the of management efficient more a for allows which standard), (industry system scalable and The identification, measurement and reporting of these risks is currently supported by a dedicated well asthepoliciesandpracticescommonlyfollowedbycommunityofcentralbanks. as standards, international account into take and Portugal, de Banco the of aspects specific the for adjusted level, Eurosystem/ESCB at endorsed management risk operational for framework The Banco de Portugal’s operational risk management policy and methodology broadly follow the level, thus allowing for a more global and quantified overview of the departmental institution’s operational risks. at (KRI) Indicators Risk Key so-called the of construction the from benefited also on the Banco de Portugal’s activities and assets. The management of the Bank’s non-financial risks impact negative material a have may that requirements other from and Mechanism Supervisory Eurosystem/ESCB/Single the in participation its from as arising goals and legislation and the in mission for Portugal’s provided de Banco the of pursuit the compromise and may operations that tasks, projects functions, activities, processes, all includes process management risk By

ote Resolution measureappliedtoBancoEspíritoSanto,S.A. (“BES”) its nature, the resolution process of Banco Espírito Santo, S. A. (hereinafter “BES”), taking the taking “BES”), (hereinafter A. S. Santo, Espírito Banco of process resolution the nature, its 34• PENDING LEGALPROCEEDINGS claims totheResolutionFund. compensation any for responsibility awards resolution BES’s of time the at force in framework legal the since present, at Portugal de Banco the for risks financial present not do proceedings those that counsel, legal external and internal its of opinion the by supported believes, Portugal legal from possibly aside de Banco the claims, annulment these In damages, well-founded. be to judged be claims the should costs, for compensation as amount any pay to ordered be not The aforementioned lawsuits do not carry any financial risk for the Banco de Portugal, as it would Code (whichsetsthislimitforrequestingtheannulmentof administrativeacts). the Banco de Portugal, in compliance with Article 58(1)(b) of the Administrative Courts Procedure of Directors of Board the of decisions the of publication following limit three-month the within 29 December 2015, are pending at the administrative de courts. These lawsuits were Banco mostly brought the of Directors of Board Portugal regarding the BES resolution the measure, chiefly the decisions of 3 and 11 of August 2014 and decisions the of legality the challenging Lawsuits to theseproceedings. sums (aside from legal costs), hence pecuniary there is of no financial payment risk for the the Banco time de Portugal any connected at involve not will which certificates, issue and information provide to have only will Portugal de Banco the judicata, res of force the has that judgement a by convicted is Portugal de Banco the if proceedings, of types these in that noted be should It Administrative awaiting furtherdevelopmentsintheseproceedings. to is Access Portugal for de Law Banco the The LADA). of (LeideAcessoaosDocumentosAdministrativos– 6(6) Documents Article under reserved is it as impossible, was under Article 80 of RGICSF and on the grounds that disclosure of certain material and information secrecy supervisory of invocation through both lawsuits, such contested Portugal de Banco The with the documents preparedbyanexternalentity. areassociated certain to access pending with or still measure resolution the those of decision-taking the and informing proceedings finalised were proceedings these of Most been broughtbeforetheAdministrativeCourtofLisbonDistrict. Several court order proceedings for the provision of information and issuance of certificates have below. described as court, in filed were proceedings various measure, this of application the Following in Annex2tothedecision. defined criteria the with accordance in RGICSF, of 145-H(1) Article of provisions the of purposes the for and terms the under Banco, Novo the to transferred were BES of management under assets and items off-balance-sheet liabilities, assets, the (5pm), 2014 August 11 of Directors of Board same the of decision the by amended as (8pm), 2014 August 3 of Portugal de Banco the of Directors of Board the of decision the of point second the by determined as regard, this In Article 145-C(1)and(3)(c)ofRGICSF. established was Banco”) following “Novo the Banco de Portugal’s application of a resolution measure to BES, under the terms of (hereinafter A. S. Banco, Novo the RGICSF, of 145-G(5) to Article pursuant 2014, August 3 of Portugal de Banco the of Directors of Board the of decision by Within the Banco de Portugal’s powers as resolution authority of the Portuguese financial sector, (ii) Requestsforcancellationoftheresolutionmeasureapplied (i) Court orderproceedingsfortheprovisionofinformationandissuancecertificates 151 Financial Statements and Notes 152 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 actions by reason of an existing preliminary matter in regard to the proceedings contesting the contesting proceedings the to regard in matter preliminary existing an of reason by actions those of several suspend to decided have courts The conducted. and scheduled be to yet are of Directors of the Banco de Portugal of 29 December 2015), the pre-trial or trial hearing phases Board the of (decision Decision Retransfer the challenging actions annulment the to relation In has beenlodged. resolution the to relation in measure imposed claimed on BES. This judgement has acquired the force of res judicata, since were no appeal illegalities and (formal and some unconstitutionalities which in substantive) proceedings the entirety its in dismissing judgement a delivered Sintra of Court Tax and Administrative the 2020 November 4 on above, described mechanism suspension the by covered not measure resolution the challenging lawsuit a in and Meanwhile, consequences fortheremainderofsuspendedlitigation. their and proceedings pilot the of developments latter the awaits Portugal de Banco the Thus, with written rendered, tobe yet is observations alreadybeingsubmittedbythePartiesandPortugueseRepublic. decision The ECJ’s matters. EU-law specific on judgement Justice of Court European the obtaining to view a with Treaties, the from arising obligations the with compliance in (ECJ), Justice of Court European the of ruling preliminary a for case the to refer decided it judgement, a rendering instance last the was Court Administrative Supreme the and law European of the matters concerned to proceedings these directly As Court. judgement Administrative that Supreme against appealed proceedings pilot two the of applicants The well astothepriordeliberationonprudentialprovisioning,wererejectedinbulk. multiple allegations of Thus, unconstitutionalities or illegalities measure. attributed to the resolution referred decision of the 3 August, as of legality full of the and resolution bank constitutionality on framework the legal confirming judgement unanimous a rendered District Lisbon the of Court Administrative the of judges twenty 2019 March 19 on proceedings, pilot to regard In 24 proceedings,whichwillawaitproceduraldevelopmentsinregardtotheformer. numbered 2586/14.3BELSB and 2808/14.0BELSB as pilot proceedings, and suspended another remaining related proceedings. The order in question specified the selection of the proceedings Code), which provided for the selection of two actions (pilot proceedings) with suspension of the Procedural of Courts 48 Administrative – Article (Código deProcessonosTribunaisAdministrativos in CPTA the for provided Lisbon mechanism the procedural of the of Court application Administrative the the requiring of District President the by 2018 was October order an in 2014), down August 11 handed and 3 of Portugal de Banco (decisions the of measure Directors of resolution Board the BES of initial the challenging actions annulment the Regarding there isahigherprobabilityofdecisioninfavourtheBancodePortugal. present,at available information procedural and legal the given which, to relation in Portugal, de this compensation is distinct from that that may arise from any tort claims filed against the Banco that settlesanycompensationpayableforthecontinuationoftheresolutionmeasure.However, Fund Resolution the be shall it then force, in remain should measure resolution the of effects the reasons, stability financial and interest public for that, deems authority resolution the and judicata res of force the has that judgement a by annulled be to were measure resolution a if provides that entity the is Fund financial support Resolution to the the resolution measure that and to is its implementation. version, For the current sake of the consistency, in and 23-A/2015 No Law of publication to prior version the in both regime, resolution the behind rationale The of RGICSF. the application the of 153-C Article per as authority resolution the to by adopted measures resolution the assistance financial provide to is which tothe Fund, given Resolution be the must of purpose dueconsideration at stake, risk financial the assess to order in Indeed, of anyfinancialobligation,for reportingpurposes,asattheclosingdateofaccounts. value likely the accurately estimate to impossible is it uncertainty, inherent abovementioned the given Furthermore, Portugal. de Banco the of favour in decision a of probability higher a is there procedural and legal that assessment the our question into put to evidence and no is there present, at proceedings, available information legal the these given However, in Courts. date the to by developments delivered favourable be to decisions the of tendency the predict to Portugal de Banco the for present at impossible is it complexity, legal considerable involve and As the contentious matters subject to these proceedings have no doctrinal or case-law precedent jurisdiction, finalisedinthemeantimebylackofaction theparties. having as deemed were courts civil the Portugal de Banco the against brought lawsuit one only in Importantly, pending. still are disputes such and Fund, Resolution the against brought where The Conflicts Court has deemed the civil courts as having jurisdiction to resolve civil law disputes, Court. Conflicts the to transferred being – Fund Resolution the against brought – proceedings and proceedings remitted received deemed themselves without jurisdiction also, by reason of courts the subject matter, which led to those administrative the where cases been have There hearing phase. pre-trial the awaiting or phase new procedural initial or the of end courts the at administrative are which lodged, the were suits to remitted were lawsuits matter, subject the of reason by In the other pending proceedings, where the civil courts deemed themselves without jurisdiction as managementcompanyofFRC–INQPapelComercialandRioForte. following the agreement between former BES customers and PATRIS – SGFTC, S. A., in its capacity withdrawn were lawsuits pending various in damages on claims financial addition, In both. them of favour in down handed been have decisions of number considerable a Fund, Resolution the and/or Portugal de Banco the by presented grounds inadmissibility on based defence Following intermediary) andformoraldamages. financial as arising acting BES with damages instruments debt of for purchase the (or compensation BES in deposits financial alleged from pay to Fund Resolution the and/or Portugal de Pending bothatthecivilcourtsandadministrativeareproceedingspleadingforBanco de Portugal. evidence to refute the belief that there is a higher probability of a decision in favour of the Banco no is there present, at available information procedural and legal the given cases, other the In sought. not is amount pecuniary a of Portugal de Banco the by payment whenever Portugal de Banco the for risk financial of type any raise not does question in decisions the of Annulment delivered bytheCourts. the by be to decisions the of tendency the rendered predict to Portugal de Banco the judgement for present at impossible recent the is it precedents case-law and and doctrinal few are there as Sintra, District of Court Tax and Administrative the Lisbon by the rendered of judgement the Court by Administrative established precedent case-law important the Despite court proceedings,appealswerelodgedagainstthatdecisiontostaytheproceedings. the of some In suspension. their considering are they or CPTA, the of 48 Article in for provided mechanism procedural the of application the for selected were which measure, resolution BES (iii) Requestsforreimbursementofsumstransferredand/orcompensation

153 Financial Statements and Notes 154 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 process oftheNovoBancohas beenconcluded. sale the (iv) and rejected, were injunctions interim on to decisions provisional the decision (iii) rendered, be the pending one only with Portugal, de Banco the of favour in ruled been already have identified injunctions interim the in merit on decisions (ii) lawsuits, main the to ancillary are factors reinforce the absence of a financial risk for the Bank of Portugal: (i) the interim injunctions to predict the outcome of the decisions to be delivered by the Courts. Nevertheless, the following As these matters have no crucial doctrinal or case-law precedent, the Banco de Portugal is unable appeal the on lodged onthejudgementrejectinginteriminjunction is yettoberendered. Court Central Administrative South the by decision the the notwithstanding pending proceedings, – these 2021 For persist. in will injunction interim closed one only be thus – to proceedings main the position of continuation a in already is these of one However, the concluding from prohibition consequent definitive contract. the and entity that to decision award the of suspension the was injunctions interim these of request main The Star. Lone to Banco Novo the During 2020, two interim injunction proceedings were still pending, relating to the sale process of Banco dePortugalofaspecifiedpecuniaryamountisnotsought. the by payment as Portugal, de Banco the for risk financial of type any trigger not does question predict the outcome of the decisions to be delivered by the Courts. Annulment of the decision in to unable is Portugal de Banco the precedent, case-law or doctrinal no have matters these As appeal withinaninteriminjunction. pre-trial or trial hearing phases. Only a lawsuit is suspended, which is still awaiting decision of an Directors of the Banco de Portugal on 31 March 2017. Most of these lawsuits are still awaiting the of the decision to award the sale process of the Novo Banco to Lone Star, issued by the Board of invalidity of declaration a seek which pending, are lawsuits several courts, administrative the In is notsought. amount pecuniary specified a of Portugal de Banco the by payment as Portugal, de Banco the for risk financial of type any trigger not does question in decisions the of annulment said, This Therefore an adequate assessment is not possible until further procedural developments occur. Courts. the by down handed be to decisions the of directional, even prediction, any precludes The fact that these proceedings have no legal precedent and involve considerable legal complexity the pre-trialhearingphase/conclusiveopeningorderisyettobescheduled. been notified to submit their opinion and the decision is yet to be rendered. In other two lawsuits, have parties The (CPTA). Code Procedure Courts Administrative the of 48 Article in for provided mechanism procedural the of application the for selected were which measure, resolution BES the contesting proceedings the to regard in matter preliminary existing an of reason by lawsuits conclusive opening order. The courts are considering the possibility of suspending some of those the of rendering the awaits it and lawsuits the of one in waived was phase hearing pre-trial The de Banco the of Directors Portugal of22December2014,15September2015and292015. of Board the of decisions the of annulment the seek which related funds, other and Fund, Superannuation Zealand New the of Guardians the and Finance Oak Pending at the Administrative Court of the Lisbon District are lawsuits brought by Goldman Sachs, (iv) (v) of theNewZealandSuperannuationFundandothers) Other courtproceedingsrelatedtotheresolutionmeasureappliedBES Oak Finance (including the proceedings filed by Goldman Sachs, Oak Finance, Guardians

Portugal andtheResolutionFund. de Banco the of interests the of favour in ruled Court Supreme the (ii) and accepted, been has Fund Resolution the and Portugal de Banco the both of intervention the (i) highlighted: be must following event, The sought. not is any amount pecuniary specified a In of Portugal de Banco the Courts. by payment Spanish the by delivered be unable to decisions is the Portugal of de tendency the Banco predict the to precedent, case-law or doctrinal no have matters these As a decisionispendingastowhethertheinterventionsought isgranted. to intervene, which is similar to the case in which the Supreme Court issued a favourable decision, Finally, in the most recent case where the Banco de Portugal and the Resolution Fund requested for preliminaryrulingoftheCEJasitwaspreviouslyconsidered. this intervention was already accepted and the court of first instance agreed not to refer the case intervene, to requested Fund Resolution the and Portugal de Banco the where case another In Resolution Fund. the and Portugal de Banco the to also but Spain, in branch Banco Novo the of interests the to Advocate-General the 2020, September Juliane Kokott in rendered an Opinion, published in November 2020, held which was favourable not only hearing public oral the and parties the all of observations of submission the following and context this In (ECJ). Justice of Court European the being approved, the Spanish Supreme Court decided to refer the case for a Fundpreliminary ruling to Resolution the and Portugal de Banco the of intervention the following case, another In Portugal frombeingrecognised. de Banco the by adopted measure resolution the prevent not would responsibility such that (iii) Portugal,de Banco the by adopted measure resolution the under Banco Novo the of sphere the the responsibility to the Novo Banco (and its branches), as the relevant liability was excluded from of transfer the justify not would this behaviour, alleged the of regardless that, (ii) 2001; April 4 of the Council the of in and Parliament European the of for 2001/24/EC Directive and legislation provided Portuguese and possible was adoption whose solution a as resolution banking thereby: the acknowledging (i) decision, favourable a delivered Court Supreme the 2019, June 7 ineffective. On and invalid as ruled being Portugal de Banco the by issued decisions the of result a as liabilities financial bear may December Fund Resolution 29 the contracts, of sale Banco Novo Decision the with Neutralisation and the with accordance in (ii) interpretation that the and in decisions; interest its had of authority, resolution national as has ruled that: Portugal, Court de Banco Supreme the The (i) tointervene. they requested in which lawsuit first parties the as accepted in both were Fund Resolution the and Portugal de Banco the 2019, April In the GoldmanSachsInternationalproceedingsatUK’sSupremeCourt). in intervention prior the to (similarly Courts Spanish the before measure resolution BES the on branch. The Banco de Portugal intended to defend the legality and effectiveness of the decisions Spanishthe to relating and Banco Novo the of sale the of context the in jurisdiction, Spanish the in Fund, Resolution the and Portugal de Banco the of interventions four also were there Finally, conclusive openingorder,withrequestsalreadysubmittedforthecallingofwitnesses. hearings/ pre-trial the awaiting proceedings BES, of Directors of Board the of members former of members family are who applicants the of behalf on BES in held balances the of Banco Novo the to transfer the excluded which decision the of annulment for pending still are Proceedings

155 Financial Statements and Notes • Resolution measure applied to Banif – Banco Internacional do Funchal, S. A. (Banif, S. A.) Within the exercise of its powers as national resolution authority, and pursuant to Article 17-A of the Statute of the Banco de Portugal and Articles 145-E and 146 of RGICSF, the Banco de Portugal applied a resolution measure to Banif – Banco Internacional do Funchal, S. A. (hereinafter Banif, S. A.) on 19 and 20 December 2015, as it deemed that this was “the only solution to protect depositors and to ensure continuity of the essential financial services provided by BANIF, safeguarding the stability of the financial system with fewer costs for the public purse”. The resolution measure consisted of declaring that “BANIF is failing or likely to fail, according to and for the purposes of Article 145-E(2)(a) of RGICSF and taking “the steps required towards the sale of the business of BANIF, with Banco Popular Español, S. A., and Banco Santander Totta, S. A.”. Subsequently, Banif, S. A. was sold to Banco Santander Totta, S. A., in accordance with the decision of 20 December 2015.

Currently there are 19 administrative lawsuits challenging the legality of these decisions, of which two were proposed during 2020. All 19 are at the end of the initial procedural phase and await scheduling of the pre-trial hearing phase/conclusive opening order.

Following the decision to join the proceedings numbered 99/16.8BEFUN, 100/16.5BEFUN, 101/16.3BEFUN, 102/16.1BEFUN and 197/16.8BEFUN to the proceeding numbered 98/16.0BEFUN (main proceeding), the trial hearing was held from October to December 2018. At the end of the hearing, final written statements were submitted in June 2019. On 31 December 2020, the parties still awaited a judgement to be delivered.

There are also six civil lawsuits pending at the Lisbon District Court, requesting the Banco de Portugal and/or the Resolution Fund to pay financial compensation for losses and moral damages arising from investments made in BANIF, showing a decrease compared to the situation in 2019 (fourteen lawsuits pending). In 2020, in three lawsuits where a lack of jurisdiction of the civil courts was recognised, rulings were issued confirming the decision not to refer the matter to the administrative court.

The fact that these proceedings have no legal precedent and involve considerable legal complexity precludes any prediction of the courts’ decisions, or even the decisions’ tendency. These factors, combined with the general procedural dynamic and the vicissitudes of legal proceedings, impede the recognition of actual risks for the Banco de Portugal in this phase and the estimation of possible compensation amounts resulting therefrom. However, considering the legal and procedural information available at present, there is no evidence to refute the belief that there is a higher probability of a decision in favour of the Banco de Portugal.

In order to analyse the risk of these lawsuits, the purpose of the Resolution Fund must be taken into consideration, which is, under Article 153-C of RGICSF, to provide financial assistance to the implementation of resolution measures adopted by the resolution authority. The rationale behind the resolution regime, both in the version prior to publication of Law No 23-A/2015 and in the current version, is that the Resolution Fund is the entity that provides financial support to the resolution measure and to its implementation. For the sake of consistency, if a resolution measure were to be annulled by a judgement that has the force of res judicata and the resolution authority deems that, for public interest and financial stability reasons, the effects of the resolution measure should remain in force, then it shall be the Resolution Fund that settles any compensation payable for the continuation of the resolution measure. However, this compensation is distinct from other sorts of compensation that may arise from any tort claims filed against the Banco de Portugal, in relation to which, given the legal and procedural information available at present, there is a higher probability of a decision in favour of the Banco de Portugal. • albeit ofaloweramountthanthatclaimed. applicant, the 2019,to compensation of payment in the to led lodged and agreement by enforcement concluded was which for application the to as Note, 2019 the in to referred already 2870/14.6BELSB, No Case was exception The Portugal. de Banco the of favour in decision a of probability higher a is there that belief the refute to evidence no is there present, at available majority of pending lawsuits. In the other cases, and given the legal and procedural information vast the for case the is which sought, not is amount pecuniary a of Portugal de Banco the by payment where risk financial of kind any entail not does cases these of success possible The • the refute belief thatthereisahigherprobabilityofdecisioninfavourtheBancodePortugal. to evidence no is there present, at available information procedural and legal the and proceedings, legal these in date to developments favourable of history the given However, of possiblecompensationamountsresultingtherefrom. impede the recognition of actual risks for the Banco de Portugal in this phase and the estimation factors, combined with the general procedural dynamic and the These vicissitudes tendency. of decisions’ legal proceedings, the only even or decisions, courts’ the of prediction any precludes that these proceedings have no strong legal precedent and involve considerable legal complexity fact The proceedings. these in Portugal de Banco the to risk financial of possibility the is There developments; apreliminaryhearingisscheduledforthefirsthalfof2021. In all these lawsuits, the initial phase has come to an end and they are awaiting further procedural Guarantee FundtopaycompensationforbalancesonaccountsopenedwithBPP,S.A. There are 17 lawsuits pending in court, mostly pleading for the Banco de Portugal or the Deposit • at 31December2020. as lawsuits pending the for recognised provision specific no is there therefore and Portugal, de Banco available, the for outcome unfavourable an have information not will lawsuits these on the ruling the that believes basis a as taking Portugal, de Banco the of Directors of Board the counsel, legal external and internal the of opinion reasoned the and legislation applicable the any associated legal or financial risk. However, based on the facts summarised above, and given deemed impossible to use the criterion of case-law precedent to make a prudent assessment of beenhas it – Fund Resolution the and Portugal de Banco the for tendency favourable generally a indicate delivered been have that judgements few those although, – judgements of number meaningful a to come yet not have measures resolution the to relating lawsuits the as Lastly, legal proceedings. several years. Given their nature and complexity, they may result in additional or complementary above are in progress at different procedural phases, and are thus expected to be pending over needs in terms of legal workload and representation in court. The majority of lawsuits described and the engagement of external legal services, to respond to the Banco de Portugal’s DepartmentServices Legal the to resources internal specialised of considerable2020 in allocation additional The Twenty-two casesarependingbeforetheCourtsconcerningvario

Overall assessmentoftheBoardDirectorsBancodePortugal General litigation Judicial winding-upproceedingsofBancoPrivadoPortuguês,S. opeiy n poeua dvlpet o te iiain a cniud o arn the warrant to continued has litigation the of developments procedural and complexity us anddisparatematters. A. (BPP,S.A.) 157 Financial Statements and Notes 158 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 and Finance,onaproposaloftheBoardDirectors. State of Minister the by approved as reserves, other to or dividends, as State, the to remainder 10% to the legal reserve, 10% to other reserves to be decided by the Board of Directors and the the of 53(2) Articlewith accordance In equity. Portugal’s de Banco the of owner the is State Portuguese The The Fund. Guarantee Deposit the and Fund Management CommitteesarethebodiesresponsibleformanagingtheseFunds’activity. Resolution the of Committees Management Some ofthemembersBoardDirectorsBancodePortugalformpart to independententitiesincomparableoperations. and conducted under terms or conditions essentially similar to those that would normally apply accepted contracted, are parties related and Portugal de Banco the between transactions All of theBancodePortugalwasonBoardDirectorsSGFPBPandValora. Directorsof Board the of member a 2020 December 31 On 10). (Note A. S. Valora, in 100% and was 97.91% in Sociedade Gestora dos Fundos de Pensões do Banco de Portugal, S. A. (SGFPBP) On 31 December 2020 the Banco de Portugal’s participating interest in its related parties’ equity N to coverrisksfortheBancodePortugalwhicharenotcoveredbyspecificprovisions. risk General a turn, provision in (Point (q) of established, Note 1.2), movements has of which are decided Portugal upon by the de Board of Directors, Banco the Statute, its with compliance In ote 35• , Net profit for the year shall be distributed as follows: as distributed be shall year the for profit Net Statute of Banco de Portugal, RELATED PARTIES 3 ExternalAuditors’ Report basis forouropinion. a provide to appropriate and sufficient is obtained have we evidence audit the that believe We Oficiais deContascodeofethics. law and we have fulfilled other ethical requirements in accordance with the Ordem dos Revisores the with financial accordance in Portugal de Banco from independent the are We below. section statements” of audit the for responsibilities “Auditor’s those the under in described responsibilities further Our are standards Auditors). Statutory of Institute Portuguese (the Contas de and (ISAs) Auditing on Standards International further technical and ethical standards and guidelines as issued by Ordem dos Revisores Oficiais with accordance in audit our conducted We Basis foropinion notes tothefinancialstatements. accompanying the of 1 Note in described are which Portugal, de Banco of Accounts of Chart the in included principles accounting the with accordance in ended then year the for performance respects, of material the all financial position in of view, Banco de fair Portugal as and at true 31 December a 2020 give and of statements its financialfinancial accompanying the opinion, our In financial statements,includingasummaryofthesignificantaccountingpolicies. the to notes accompanying the and ended, then year the for equity in changes of statement the and account loss and profit the t.euros), 535,358 of profit net a including t.euros, 2,203,816 of equity and t.euros 192,439,126 of total a (showing 2020 December 31 at as sheet balance the comprise which Portugal, de Banco of statements financial accompanying the audited have We Opinion REPORT ONTHEAUDITOFFINANCIALSTATEMENTS Tipo: entidades © das 1070 Tohmatsu cada

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160 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 s at f n ui i acrac wt IA, e xrie rfsinl uget maintain judgment, professional exercise we ISAs, with accordance professional skepticismthroughouttheauditandwealso: in audit an of part As economic decisionsofuserstakenonthebasisthesefinancialstatements. the influence to expected be reasonably could they aggregate, the in or individually if, material considered are and error or fraud from arise can Misstatements exists. it when misstatement material a detect always will ISA with accordance in conducted audit an that guarantee a not is an issue to and error, auditor’s report that includes our or opinion. Reasonable assurance is a high level of fraud assurance, but to due whether misstatements, material from free are whole a as statements financial the whether on assurance reasonable obtain to is responsibility Our Auditor’s responsibilitiesfortheauditoffinancialstatements Management isresponsiblefor: Responsibilities ofmanagementforthefinancialstatements – – – – – – – – – –

and eventsinamannerthatachieves fairpresentation; the disclosures, and whether the financial statements represent the underlying transactions assessing the adoptionofaccountingpoliciesandprinciplesappropriateincircumstances; designing the Chart ofAccountsBancodePortugal; financial position and financial performance in accordance with the principles included in the the evaluate conclude on accounting estimatesandrelateddisclosuresmadebymanagement; evaluate an opinionontheeffectivenessofBancodePortugal’sinternalcontrol; procedures that are appropriate in the circumstances, but not for the purpose of expressing obtain an omissions, intentional forgery, collusion, misrepresentations, ortheoverrideofinternalcontrol; involve may fraud as error, from for resulting than higher one is fraud from resulting misstatement material a detecting not of risk The opinion. our for a basis provide to appropriate and sufficient is that evidence audit obtain and risks, those to responsive procedures audit perform and design error, or fraud to due identify the mattersthatmaycastsignificantdoubtaboutitsabilitytocontinueasagoingconcern. financial statementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror; are based on the audit evidence obtained up to the date of our report. However, future However, report. events orconditionsmaycauseBancodePortugaltocease tocontinueasagoingconcern; our of date the to up obtained evidence audit the on based are conclusions Our opinion. our modify to inadequate, are disclosures such if or, statements financial the in disclosures related the are to report auditor’s we our in attention draw exists, to required uncertainty material a that conclude we If concern. going a as continue to related to events or conditions that may cast significant doubt on Banco de Portugal’s ability accounting and, based on the audit evidence obtained, whether a material uncertainty exists preparation of the annual report of 2020 in accordance with applicable laws and regulations; preparation of financial statements that give a true and fair view of Banco de Portugal’s de Banco of view fair and true a give that statements financial of preparation and assess the risks of material misstatement of the financial statements, whether statements, financial the of misstatement material of risks the assess and the overall presentation, structure and content of the financial statements, including Banco de Portugal’s ability to continue as a going concern, and disclosing, as applicable, the appropriateness of accounting policies used and the reasonableness of and maintaining an appropriate internal control system to enable the preparation of understanding of internal control relevant to the audit inordertodesign the appropriateness of management’s use of the going concern basis of Portuguese languageversionprevails.) & Deloitte to the discrepancies, of event according the In signed. be Therefore to not is Portuguese. report the procedures, internal in A. S. SROC Associados, issued originally report a of translation a is report (This EXPLANATION ADDEDFORTRANSLATION Represented byJoãoCarlosHenriquesGomesFerreira,ROC Deloitte &Associados,SROCS.A. Lisbon, 15March2021 we havenotidentifiedanymaterialmisstatements. with the audited financial statements and, having regard to our knowledge of Banco de Portugal, consistent is 2020 of report management the in included information the that opinion our is It On themanagementreportof2020 REPORT ONOTHERLEGALANDREGULATORYREQUIREMENTS report of2020isconsistentwiththefinancialstatements. Our responsibility also includes the verification that the information contained in the management –

deficiencies ininternalcontrolthatweidentifyduringouraudit. planned scope and timing of the audit and significant audit findings, including any significant communicate ih hs cagd ih oenne eadn, mn ohr atr, the matters, other among regarding, governance with charged those with 161 External Auditors’ Report 162 Banco de Portugal • Annual Report • Activities and Financial Statements 2020 4 Report andOpinion provision of liquidity to the financial system under particularly favourable conditions and the conditions purchase oflargeamounts debtmainlyfromthepublicsector. favourable particularly under system financial the to liquidity of provision crisis. Among these, two stand out for their size and impact on the balance sheet: the large-scale non-standard monetary policy measures decided by the the Eurosystem by in affected response significantly to the were pandemic accounts and sheet balance Portugal’s de Banco the 2020 In which issueditsopinionon15March2021withoutanyqualificat ion oremphasisofmatter. audit work carried out by Deloitte & Associados – Sociedade de Revisores Oficiais de Contas S. A., external the of conclusions the discussed and – 2021 March 2 on held Directors of Board the of meeting the in approved – 2020 December 31 on ended year fiscal the for Accounts and Report The Board of Auditors analysed in particular the financial information contained in the Management and ontheevaluationofinternalcontrolsystems’effective ness. process disclosure and preparation information financial the practices on particular in and focusing adopted, policies accounting the with compliance monitored also Auditors of Board The situations deemedtohavesignificantrisk,whenevernecessaryorconvenient. particular, in monitored, being subjects on information additional for requests (iii) and auditors, respective their of performance the activities, (ii) regular meetings with those in in charge of the relevant services, including the external involved or for responsible Portugal, de Banco the of units structural Risk and the departments other Department, and Accounting Department Audit the the Department, by Management produced information and reports of number a of external (iii) reporting, financial (ii) compliance, auditing, and (iv) internal auditing. Monitoring and was essentially focused on (i) control review and discussion internal management, risk (i) by The Board of Auditors monitored with particular attention the functions and activities performed related Issuesand(iii)theregularmonitoringofBancodePortugal’sfunctionsactivities. staff- and Administrative the for of Committee Executive minutes the the and Directors of of review Board the the of (ii) meetings Directors, of Board the of meetings the in rights, voting without participation, powers, members’ regulatory its (i) and through Portugal legal de Banco its the of of activity use the monitored in Auditors, of Board the 2020, of course the During opinion ontheAnnualReportpresentedbyBoardofDirectors. observance of the laws and regulations applicable thereto and, among other functions, issues its the and Portugal de Banco the of business the monitors Auditors of Board the 1998, January 31 the of 43 Article of terms the Under of theBoard ofAuditors Report andOpinionoftheBoardAuditors , approved by Law No 5/98 of 5/98 No Law by approved Statute ofBancodePortugal, 2020

event ofdiscrepancies,thePortuguese languageversionprevails.) (This reportisatranslationof originallyissuedinPortuguese,andthereforenotto besigned.Inthe EXPLANATION ADDEDFORTRANSLATION for thedistributionofprofit: Statute of Banco de Portugal, will submit to the Minister of State and Finance the following proposal the of 53(2) Article with accordance in Directors, of Board The €535,358,461.03. of amount the In addition, the Board of Auditors analysed the proposal for the distribution of profit for 2020, to €69 million,amongotherlesssignificantpositiveandnegativechanges. monetary policy purposes and the recognition of negative potential exchange rate differences of for held securities of portfolio the on yields lower of result a as 2020), in million €802 to 2019 in million €998 (from margin interest from 2019.This the in decline million million €196 a by€223 to due essentially is declined reduction €535 million, to amounting year, the for profit Net Net profitfortheyear)increasedby€2.1billionin2020,largelyasaresultofappreciationgold. de Banco The Portugal’s Own funds (which include billion. the items Revaluation accounts, €12.4 General risk provision, Equity by and increased Portugal de Banco the with institutions credit of deposits side, liabilities the On billion. €2.3 of amount the to Portugal de Banco the to allocated circulation in euro in increase the of adjustment the from arising claims pricing, intra-Eurosystem in its reduction in the (ii) change and positive the of result a as gold of value the in increase billion €2,3 the (i) were impacts significant Other III). TLTRO (mainly institutions credit for operations refinancing longer-term in increase billion €14,8 the (ii) and (PSPP), programme purchase sector public the in reinforcement billion €2,5 a in and year, the of end the at billion €14,2 reached which (PEPP), programme emergency purchase pandemic the in materialised portfolio securities policy assets: monetary sheet the balance in in increase the change (i) positive the to extent, large a to contributed, following The 2020. balance Bank’s the in December 31 on billion billion €192.4 to 2019 of €32.7 December 31 on billion €159.8 from increase increased which sheet, significant very a in resulted measures of set This Lisbon, 19March2021 contributions. their for Portugal de Banco the of staff entire all the thank to and with Directors of Board cooperation the of members institutional the for recognition its express to wishes Auditors of Board The the BancodePortugal. of Directors of Board the by presented profit of distribution the for proposal the to nor Statements, Financial 2020 the of approval the to objection no raises Auditors of Board the above, the of light In – – –

10% tothelegalreserve The remaindertotheState,asdividends 10% tootherreserves ...... €53,535,846.10 Nuno GraciasFernandes The BoardofAuditors Óscar Figueiredo Margarida Abreu ...... €428,286,768.82 €53,535,846.10 163 Report and Opinion of the Board of Auditors