ANNUAL REPORT

ACTIVITIES AND FINANCIAL STATEMENTS 2019

BANCO DE PORTUGAL

EUROSYSTEM

Lisboa, 2020 • www.bportugal.pt Annual Report | Activities and Financial Statements 2019 • 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

Mission and values of Banco de Portugal | 5 Message by the Governor | 6 Management of Banco de Portugal | 10

I Activity | 19

Executive summary | 21 1 Monetary authority | 29 1.1 Monetary policy | 30 1.2 Asset management | 34 1.3 Payment systems and means | 36 Box 1 • Sustainability and sustainable finance | 43 Box 2 • Monetary policy in 2019 | 45 2 Financial stability | 48 2.1 Regulatory framework | 50 2.2 Stability of the Portuguese financial system | 52 2.3 Resolution | 63 2.4 Upholding the legality of the resolution and enforcement measures | 64 Box 3 • Banco de Portugal’s role in the prevention of money laundering and terrorist financing | 65 Box 4 • Transfer of the deposit guarantee function from the Mutual Agricultural Credit Guarantee Fund to the Deposit Guarantee Fund | 67 3 Knowledge creation and sharing | 69 3.1 Analyses, studies and statistics | 69 3.2 Conferences and seminars | 72 3.3 Communication and stakeholder management | 74 3.4 International cooperation | 81 4 Internal management | 84 4.1 Internal governance | 84 4.2 Risk management | 86 4.3 Internal audit | 87 4.4 Human resources | 88 4.5 Premises | 90 4.6 Information systems, technology and management | 91 Box 5 • Administrative costs of Banco de Portugal | 92

II Report and Financial Statements | 97 1 Management Report | 99 1.1 Balance sheet | 100 1.2 Profit and loss account | 111 2 Financial Statements and Notes | 120 3 External Auditors’ Report | 183 4 Report and Opinion of the Board of Auditors | 187 4 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 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 of Banco dePortugal 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 5  6 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Eurosystem level. are acknowledged atboth nationaland of rigour, competence andreputation, which whilst always remaining truetoitsstandards modernising itself, incorporating new concerns Bank hassucceeded intransforming and and toenvironmental issues.Insum,the that ismore attentive toPortuguese society became amore institution open andsupportive invested inthequalificationofitsstaffand of innovation anddigital transformation, promoted bestpractice, reaped thebenefits for changeandrenewal; itreorganised itself, challenges are always great opportunities has proven inpractice thatbehindgreat members tothetest.However, theBank of itsdecision-makingbodiesandstaff of challenges,puttingthecapacity Banco dePortugalhasfaced agreat number have beenquitedemandingyears, duringwhich and privilegetoleadBanco dePortugal.These Over thelastdecadeithasbeenmyhonour Message by theGovernor

7  8 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 • types ofchallengeinparticular: majorfive stress me Let addressed. be to had by multiple and complex challenges that have adverse and demanding background, marked years has been carried out against a particularly Banco dePortugal’sactivityoverthepastten adaptation andreorganisation ofitstasks responsibilities thatrequiredthe reinforcement, was calledupontotakeonnew andcomplex In the context of these challenges, Banco de Portugal • • • •

Those resulting Those in the early 1980s. in theearly1980s. recruited members, staff of number large a of challenges above and address the retirement as tomeetthedemands resulting fromthe and Those stemmingfromtheneedforrenewed management andgreateropennesstosociety; resource of efficiency the promote processes, enhance its governance model, organisation and strategy set out by Banco de Portugal to Those posed intermediation andpaymentsystems; financial on transformation digital and change Those associated Government; the to advice financial and economic providing economy –withinthescopeofitsmandate and structuraltransformationofthePortuguese level of the other two pillars – fiscal consolidation the at intervened also and – system financial safeguarding the stability of the Portuguese – pillar specific a for responsible was Portugal Assistance Programme,inwhichBancode Those relatedtotheEconomicandFinancial standard measures; monetary policy,especiallytheadoptionofnon- Union – and the development of the Eurosystem’s model – including the creation of the Banking supervisory and regulatory system’s financial area, thesubsequentin-depthrevisionof crisis andthesovereigndebt crisis in the euro qualified human resources at the Bank,so to the implementation of the from the international financial financial international the from to the impact of technological to the impact of technological

the efficiency, effectiveness and transparency of transparency and effectiveness efficiency, the Banco dePortugalhasalwaysworked topromote Ethics andtheRiskCommittees. structures, such as the Budget Monitoring, the the creation of specialisedinternal governance data protectionareas.Thiswasaccompaniedby of conduct, as well as the risk management and compliance with professional ethics and rules including strengtheningthelegalframeworkand processes andgovernancesupportmechanisms, reinforced its governance model, organisation, In parallel,BancodePortugalhasperfectedand terms ofitsresources’qualifications. level implies more demanding requirements in Portugal inthedecision-makingprocessatEuropean de Banco of participation influential and active an This strategy also reflects the acknowledgement that management. senior and middle and staff general skills throughin-housetrainingplansforboththe members’ technical,behaviouralandmanagement staffof development the in investment strong also internal orexternalselectionprocesses.Therewas of headsunit,divisionordepartmentthrough the principles of internal mobility and appointment of humanresourcesmanagementrulesbasedon This process was accompanied by the development departments. decade, around 150 posts were reduced in these departments to ensure efficiency gains. In the past goals, thishasputgreatpressureontheBank’sother sustainability and efficiency with compatible be To of thehumanresourcesallocatedtothisfunction. structural reformnecessarilymeantareinforcement para a Supervisão e Estabilidade Financeira). This Supervision and Stability (Comissão Especializada was created,theSpecialisedCommitteeforFinancial In addition, a high-level horizontal coordination body mandate andrules,aswellappropriateresources. specific a assigned been having area each level, developed andsegregateduptoBoardofDirectors legal enforcement and resolution functions were microprudential, macroprudential, banking conduct, in thelightofbestinternationalpractice.The supervision and safeguard of financial stability, payments statistics. payments statistics. monetary, financial, foreign exchange and balance of standards intheproductionand disseminationof statistical authority, it maintained high quality in-house andexternalresearchers.AsaPortuguese its microdata sets on the Portuguese economy to made it possible for the Bank to also give access to of BPLIM,theMicrodataResearchLaboratory, Portuguese societyandtheeconomy.Thecreation growing interactionwithsegmentsrepresentativeof advisors. These activities werecarriedout amid to an assessment exercise, which included external subject were publications Bank’s the and launched, independent committee,aresearchagendawas and ResearchDepartmentwereassessedbyan knowledge. Tothisend,theactivitiesofitsEconomics advisory abilities and the promotion and sharing of prioritised theimprovementofitsanalyticaland Over the last ten years, Banco de Portugal has in thePortuguesemarket. solutions payment innovative and efficient safe, of payment systems and promoting implementation is key to ensuringthesmoothfunctioningof market andinnovationoperators.Thisinteraction technological innovation, by interacting with the Banco de Portugal has sought to closely follow payment systemsregulator,overseerandcatalyst, As payments. of field the in promoted been have sector, new business models andnewservices financial the of digitalisation growing the Amid da InformaçãoeTecnologia). Management (Comissão Especializada de Gestão for Information Systems and Technologies in theseareas–setuptheSpecialisedCommittee laboratory and–toensurestrategiccoordination Data Warehouse. Ithascreatedaninnovation information and the gradual development of a it has promoted the integrated management of including cybersecurity. Among other initiatives, processing andsharingreinforcedsecurity, models andsolutions, rationalised information architecture supportingitsactivity,including to it.Therefore,ithasupgradedthetechnological its actionincarryingoutallthemissionsentrusted ahead. consequently more prepared to face the challenges and society, Portuguese to closer and qualified have renderedtheinstitutionmorerobust, the reforms introduced overthe past tenyears I am convincedthattheactionspursuedand it ispart. to aninformeddebatewithinthe society ofwhich for theworkcarriedoutandreadytocontribute Strategic Plans,andhasalwaysbeenaccountable priorities establishedintheholisticcontextofits and improvement,presentacrossthevarious the Bankhashonoureditscommitmentstorigour and profoundstructural changes. Over this period, operates, andhasbeenmarkedbyintensework European framework where Banco de Portugal decade atboththedomesticlevelandwithin To sumup,thishasbeenaparticularlydemanding Carlos daSilvaCosta 9  10 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Board of Directors* Management ofBanco dePortugal 5 3 1 2 4 as Vice-Governoron30November2019. * Asat31December2019.ElisaMariadaCosta GuimarãesFerreiraceasedfunctions 5 4 3 2 1

Director AnaPauladeSousaFreitasMadureira Serra Director LuísManuelSanchesLaginhadeSousa Director HélderManuelSebastiãoRosalino Vice-Governor LuísAugustoMáximodosSantos Governor CarlosdaSilvaCosta 11  12 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Series II,of21June2019. 117, No Journal Official the in published 2019, May 31 of 5785/2019 No ** AppointedbyDecisionoftheSecretaryStateAssistantandFinance Member on31May2019. * As at 31 December 2019. António Gonçalves Monteiro ceased functions as Margarida PaulaCaladoNecaVieiradeAbreu Member Óscar ManuelMachadodeFigueiredo** Member –StatutoryAuditor Members Nuno GonçalvesGraciasFernandes Chair Board of Auditors*

Fernando FariadeOliveira Luís FilipeNunesCoimbraNazaré João LuísRamalhodeCarvalhoTalone Francisco LuísMurteiraNabo Francisco AnacletoLouçã Nuno GonçalvesGraciasFernandes António JoséFernandesdeSousa José AlbertoVasconcelosTavaresMoreira Vítor ManuelRibeiroConstâncio Luís AugustoMáximodosSantos Carlos daSilvaCosta Advisory Board* Ferreira wasamemberoftheAdvisoryBoarduntil30November2019. 2019. Vice-GovernorElisaMariadaCostaGuimarães *Asat31December Pedro MiguelAmarodeBettencourtCalado Roberto deSousaRochaAmaral Cristina MariaNunesdaVeigaCasalinho 13  14 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Viseu Faro Évora CatarinaSofiaAmaralSilvaGuerra Coimbra Castelo BrancoJoãoRamosRente Braga MariaTeresaGomesSameiroMacedo District Agencies Regional DelegationofMadeiraBárbaraJoséCalçadaSousaCastro Regional DelegationoftheAzoresPauloRubenAlvernazRodrigues Regional Delegations Ana OlíviadeMoraisPintoPereira Porto Branch Banking PrudentialSupervisionDepartment(DSP)LuísFernandoRosadaCostaFerreira Banking ConductSupervisionDepartment(DSC)MariaLúciaAlbuquerquedeAlmeidaLeitão Information SystemsandTechnologyDepartment(DSI)AntónioJacintoSerôdioNunesMarques Payment SystemsDepartment(DPG)JorgeManuelEgrejasFrancisco Legal ServicesDepartment(DJU)PedroMigueldaSilvaCerqueiraMachado Administration ServicesDepartment(DSA)DiogoAlbertoBravodeMacedo Resolution Department(DRE)JoãoFilipeSoaresdaSilvaFreitas International RelationsDepartment(DRI)SílviaMariaDiasLuz Markets andReserveManagementDepartment(DMR) Risk ManagementDepartment(DGR)GabrielFilipeMateusAndrade Human ResourcesDepartment(DRH)PedroMigueldeAraújoRaposo Economics andResearchDepartment(DEE)NunoJorgeTeixeiraMarquesAfonsoAlves Statistics Department(DDE)AntónioManuelMarquesGarcia Financial StabilityDepartment(DES)AnaCristinadeSousaLeal Issue andTreasuryDepartment(DET)PedroJorgeOliveiradeSousaMarques Accounting Department(DCC)JoséPedroPinheiroSilvaFerreira Communication andMuseumDepartment(DCM)BrunoRafaelFernandesProença Legal EnforcementDepartment(DAS)JoãoAntónioSeverinoRaposo Audit Departament(DAU)JoséAntónioCordeiroGomes Office oftheGovernor(GAB)MartaSofiaFonsecaCarvalhoDavidAbreu Strategy andOrganisationDirectorate(SECDEO)DinoraMariaCostaFernandesAlvimBarroso Data ProtectionOffice(GPD)MariaFernandadosSantosMaçãs Compliance Office(GdC)SofiaCorteRealLencarteSilvaPimentel General Secretariat(SEC)JoséGabrielCortezRodriguesQueiró Heads ofDepartments Agencies* Regional Departments, DelegationsandDistrict * Asat31December2019. RuiAntóniodaSilvaSantaRajado GentilPedrinhoAmado MariaJoãoBotelhoRaposodeSousa HelenaMariadeAlmeidaMartinsAdegas 15  16 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 • Bank for International • International Monetary • Financial Stability Board • Audit Department, • Communication and • Economics • International Relations • Office of the Governor • General Secretariat • European Systemic • General Council • Governing Council Settlements Fund de Sousa Luís Laginha de Sousa with Director Director Luís Laginha Rosalino with Director Hélder Museum Department, Department and Research Department Risk Board, with of the ECB of the ECB Source: BancodePortugal. Figure 1• Chair VítorManueldaSilvaRodriguesPessoa Ethics Committee** Chair HélderManuelSebastiãoRosalino Specialised CommitteeforInformationSystemsandTechnologiesManagement(CEGIT) Chair HélderManuelSebastiãoRosalino Budget MonitoringCommittee(CAO) Chair CarlosdaSilvaCosta Committee forRiskandInternalControl(CR) Chair CarlosdaSilvaCosta Specialised CommitteeforFinancialSupervisionandStability(CESEF) Specialised Committees* The appointmentofnewmembersisunderway. 2019. of quarter last the in members as functions ceased Pereira Silva da Manuel Vasco and Pereira Cunha Nunes da José 2019. December 31 at ** As * Asat31December2019. Organisational chartofBancodePortugalasat31December2019 Conselho Consultivo Advisory Board • Single Resolution Board • Data Protection Office • Legal Services • Resolution Department • Legal Enforcement • Banking Conduct Advisers Department Department Department Supervision

Vice-Governor Luís Máximo dos Santos

Carlos daSilvaCosta • Alternate to the • Compliance Office • Accounting • Communication • Information Systems • Issue and Treasury • Payment Systems • Markets Department Governing Council of the ECB and Museum Department Department Department and Technology Department Department Board of Directors Governor Rosalino Director Hélder

• Economic and Financial • European Systemic • Human Resources • Audit Department • Strategy and • Administration • Financial Stability Committee Risk Board Department Directorate Organisation Services Department Department Luís Laginha and ResolutionFunds de Sousa Director Deposit Guarantee Board of Auditors

Support Unit Banking Prudential• Risk Management• Statistics• Department • European Banking • Supervisory Board

Department Department Supervision Authority of the ECB Ana Paula

Director Serra Source: BancodePortugal|(a)Governor'sparticipation.(b)underdiscussion.(c)Without dePortugal'sparticipation. Figure 2•Maininternationalbodies:representationofBancodePortugal European Systemic International Working Groups Governor Committees, Committees, Working Groups Monetary System ofCentral Banks General Board Eurosystem /European Governing oni Council Single Supervisory Mechanism Supervisory Risk Board Board Fund Committees, Working Groups of Board ECB – Banking Supervision s (a) (a) (a) Council General All Governors' Joint Supervisory Committees, Working Groups Meeting International Conference of BankingSupervisors for International Teams (a) European SystemofFinancialSupervision Settlements (a) Bank European Authority Joint CommitteeoftheEuropean SupervisoryAuthorities Banking Committees, Working Groups Working Committees, Meeting General Annual CFNECOFIN Informal Banking Union (a) Single Resolution Resolution Fund (a) Committees, Working Groups Board / Single Single ResolutionMechanism Committees, Working Groups European Union Council ofthe

and Financial European Securities Committee Committee Economic Consultative for Europe Financial Stability Regional and Markets Board Group Authority Resolution Teams (a)

Internal Financial Action Committee Economic Task Force Policy Plenary Working (FATF) Groups Pensions Authority European Insurance and Occupational Insurance Comission Committees, European Scheme European Committees, Deposit Working Groups Working OECD Groups (c) (b) 17  18 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Source: BancodePortugal. Chart 2•Internationalrepresentationstructurein2019 Source: BancodePortugal. Chart 1• 200 300 400 500 600 Bank for International Settlements European Systemic Risk Board Risk Systemic European European Banking Authority Banking European International Monetary Fund International Evolution oftheinternationalactivityBancodePortugal OECD 15% 1% 1% 3% 3% 2016 462 SRM 2% Groups Other 16% 2017 480 SSM 9% |Ingrouppercentage 2018 500 Representatives Financial Committee(EFC), EU Council, Economic and and Economic Council, EU European Commission European 8% Eurosystem/ESCB 2019 503 42% I Activity

1 Monetary authority 2 Financial stability 3 Knowledge creation and sharing 4 Internal management

integration inpaymentservices. providers wereenforcedinPortugalandotherEUMemberStates,toenhancesecurity In 2019 new rules for electronic payments and the communication between payment service schemes and, therefore, the protection ofdepositors, the pillar oftrust in the banking system. Fund, andwhichresultedintheharmonisationofrulesapplyingtodepositguarantee guarantee function of the Mutual Agricultural Credit Guarantee Fund to the Deposit Guarantee deposit the transferred that decree-law the of publication the was 2019 in change major A retail bankingmarkets, the marketingofbanking products andservicesthrough digital channels. business models, asset quality, andcapitalliquiditypositions;and,withinitssupervision of the consumers; the reinforcement of the banking sector in terms of governance and internal controls, measure adopted in 2018 aimed at mitigating the risks associated with new credit agreements with preparatory work. At national level, priority was given to: the monitoring of the macroprudential or discussions it be participated, actively Bank the which in stability, financial for framework legal At Europeanlevel,theyearwasmarkedbyseveralchangesinmonetarypolicyandwithin efficient centralbanksintheEurosystem(4 of theECBand,asFebruary 2019, also areserveportfolioinrenminbi (CNY),whichamounte The Bankco-managed with the Bank ofLithuaniaaUSdollar-denominated foreign reserveportfolio from 2018,tostandat€52,102 million. sheet, ofmonetarypolicyportfoliosstemmingfrompurchases undertheAPPincreasedby6% purchased financial assets under the APPs. The average balance on Banco de Portugal’s balance Banco dePortugalconductedmonetarypolicyoperations withresidentcreditinstitutionsand asset purchaseprogramme(APP). (two-tier) system for excess reserve holdings, and restarted monthly net purchases under the in September, it cut the deposit facility rate from -0.4% to -0.5%, introduced a zero remuneration decided to introduce a third series of targeted longer-term refinancing operations (TLTRO III) and, it March, In objective. stability price the with consistent levels below remain would inflation that of weakening economic activity, high global uncertainty and downside risks, and prospects preserving favourable bank lendingconditionsfortheeuroareaeconomy, against a background of the European Central Bank (ECB) strengthened the degree of monetary policy accommodation, the design and implementation of the euro area monetary policy. In 2019 the Governing Council In its capacity as a Eurosystem national central bank, Banco de Portugal shares responsibilities in Monetary authority authority, at both an internal and external level (1 Plan for the four-year period 2017-20: to emphasise Banco de Portugal’s capacities as monetary stability inaccordancewiththefourpriorities(“BroadStrategicGuidelines”)setout financial safeguard and stability price maintain to mission its out carried Portugal de Banco 2019 In Executive summary (2 agents economic among confidence and system financial national the of stability and soundness the design of regulatory frameworks and implementation of supervisory practices, in order to ensure integration, helpingtoinformandeducate(3 nd Broad Strategic Guideline); to promote understanding of the Portuguese economy and European Broad Strategic Guideline);topromoteunderstandingofthePortugueseeconomyand European th rd BroadStrategicGuideline). Broad Strategic Guideline); and to be among the most BroadStrategicGuideline);andtobeamongthemost st Broad Strategic Guideline); to participate in the Broad Strategic Guideline); to participate in the d

21 Executive summary 22 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Parliament. The most noteworthy of which are the participation in the negotiation processes aimed Parliament. The most noteworthy of which are the participation in the negotiation processes aimed Economic and Monetary Union. It also drafted opinions on legislative acts of the government and the legislative proposalsandcontinued tomonitorthemattersrelateddeepening ofthe In 2019BancodePortugalparticipatedinthenegotiationprocess ofseveralEuropeanCommission Financial stability circulation, i.e.9.4%lessthanin2018. euro banknotes,launchedin2013.In2019,16,350counterfeit banknoteswerewithdrawnfrom banknotes wereputintocirculation,whicharethelasttwo denominationsofthesecondseries to Ireland,inexchangefor€1coins,excessthatcountry. InMay,thenew€100and€200 circulation coinswiththatNCB,whichcaused€2wereinexcess in Portugaltobesent of the Central Bank of Ireland, as well an agreement on the swap anddeliveryof excess euro With regardtocashissuance,theBankenteredintoanagreementproducebanknotesonbehalf for processinglarge-valuepayments,andT2S,theEurosystemsecuritiessettlementplatform. market infrastructures held and operated by the Eurosystem – TARGET2, the main European platform (i) joining the Eurosystem’s TARGET Instant Payment Settlement service (TIPS), and (ii) consolidating two the national market. It also worked with the national banking community on the preparation for: innovative payment solutions and monitoring new operators operating or intending to operate in Banco de Portugal continued to interact closely with the market, with a view of both developing greater security, efficiency, innovation and integration of payment services in the European Union. in theadoptionofsolutions that arecompatiblewiththenewrequirements, aimed atfostering of the new technical standards, the Bank monitored banks and other payment service providers payment initiation services. As the national competent authority as regards the implementation of granting access to payment accounts and, as such, providing account information services and interfaces to allowsecure communication with otherpayment service providers,withthe purpose which may imply a risk of fraud or other abuse. They are also required toprovidecommunication initiate anelectronicpaymenttransactionorcarryoutanyactionthrougharemotechannel apply strong customer authentication to customers that access their payment account online, are requiredto EU Member States.Asofthatdate,banksandotherpaymentserviceproviders On 14 September 2019, new rules for electronic payments were enforced in Portugal and other Banco de Portugal regulates, oversees and promotes the smooth operation of payment systems. Sustainable Finance resulted inthepublication(already2020) of BancodePortugal’sCommitment to Sustainabilityand which finance, sustainable and sustainability on discussion in-house wider a following adopted this fund, thus becoming a pioneering central bank in this type of investment. This measure was of units in invested and BIS the by created fund investment bond green first the of features key investment assets,BancodePortugalparticipatedintheadvisorycommitteethatoutlined In linewiththeinclusionofenvironmentalsustainabilitycriteriainmanagementown (382.5 tons), itsvalueineuroroseby20.9%. the priceofgold.Indeed,althoughquantitygoldheldbyBankremainedunchanged in increase an reflected chiefly which year, previous the in than more 6.9% i.e. million, €36,010 of the year. As at31 December 2019, Banco de Portugal’s own investment asset portfolio totalled respectively toUSD1,152 million (€1,025 million) andCNY4,058 million (€518 million) attheend , whichsetsoutitsguidelinesonthisissue.

were issued,especiallyinterms ofenhancingqualificationsandpreventingconflictsinterest. institutions: inthecourseof year,915personswereregisteredandover400recommendations control mechanisms was reflected in the shift of the management and supervisory bodies of several and risk management in general. The priority given to the reinforcement of governance and internal the Single Supervisory Mechanism for significant institutions. In 2019 the latter focused on credit risk banks directlysupervisedbyBancodePortugal,supplement thesupervisoryprioritiesestablishedby as welltoimprovecapitalandliquiditypositions.Thesemeasures, whicharegearedtowardsthe governance andinternalcontrolmechanismstostrengthen theinstitutions’businessmodels, The Bank developed arangeofmeasures within thescopeofprudentialsupervisiontoreinforce to sevenyears. 29 January 2020 Banco de Portugal decided to reduce the maximum maturity of new personal credit account these developments and the risks observed in the current economic environment, on into Taking periods. longer for cycle business the in fluctuations to exposed be will borrowers that implies it as system, financial the for risk increased an pose may credit, personal particular in credit, maintenance oftheupwardtrendaveragematurityandamountnewconsumer the that concluded Portugal de Banco task, monitoring this of part As risks. identified address to European Systemic Risk Board, which considered that the measure was adequate and sufficient the by endorsed was assessment This profile. risk borrowers’ the in improvement an and set limits the towards trend convergence significant a is there that and set objectives the with compliance for effective are established limits the that indicates analysis The financing. sustainable to access households’ promoting and resilience sector financial increasing risks, of build-up the mitigating of introduces limitstothecriteriausedbyinstitutionswhengrantingnewcredit,withpurpose new creditagreementsforconsumers,whichenteredintoforceon1July2018.TheRecommendation the implementationofmacroprudentialRecommendationinforcewithinlegalframework underwent a continuous analysis of vulnerabilities and risks to financial stability. The Bank monitored In theperformanceofitsnationalmacroprudentialauthorityfunctions,throughoutyearBank three yearsandahalf. 2016 to €17.1 billion in December 2019, accounting for a decrease of more than €33 billion in only achieved by the domestic banking system. NPLs have fallen from a record high of €50.5 billion in June advances significant most the of one was This banks. by authorities supervisory to submitted loans stocks ofNPLsonbalancesheets,inlinewiththeguidelinesandplanstoreducenon-performing the in reduction the reflecting mid-2016, in began that trend downward the follow to continued ratio (NPL) loans non-performing the significantly: improved also quality Asset billion. €10.3 by grew requirements. The liquidity coverage ratio rose from 196.4% to around 218% and deposits taken regulatory the and profiles risk the with consistent capital of levels guarantee to orders issued Bank capital ratiofrom15.2%to16.7%overthesameperiod.Thisstrengtheningtookplaceafter own funds:theCET1ratioincreasedfrom13.2%in2018to14.1%December2019andtotal 2019. The recovery in profitability and the dividend distribution policy made it possible to strengthen in favourably evolve to continued system banking domestic the of indicators financial main The financial companiesimpairments,andthespecialregimeapplicabletodeferredtaxassets. Guarantee Fund, amendments to the tax rules on impairments of credit institutions and other the deposit guarantee functionfromthe Mutual Agricultural Credit Guarantee Fund to the Deposit of transfer the supervision, financial domestic the of reform the notably most proposals, legislative and revising the European System of Financial Supervision, as well as the provision of opinions on firms investment and institutions credit to applicable framework prudential the strengthening at 23 Executive summary 24 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Banco andinthemonitoring oftheactivitiesOitante. its support to the Resolution Fund in the follow-up of the agreements related to the sale of Novo The Bank continued its work in the resolution measures applied to BES and BANIF, most notably resolution measures. policies andmethodologies to be adopted inthe planning, implementation and enforcement of Resolution Mechanism, Banco de Portugal contributed tothe development and improvement of over 80%ofthese institutions had aresolution plan bythe end ofthe year. Still underthe Single that meant which institutions, significant less for plans resolution drafting by hand, other the On (MREL). liabilities and funds own eligible for requirements minimum the up setting time, first the work included the update and improvement of resolution plans for significant institutions and, for planning work in2019. On the one hand, by participatingin the Single Resolution Board, whose At theSingleResolutionMechanismlevel,Bankcontributed tothemarkedprogressinresolution offence proceedings. In 2019, following its supervisory action, the Bank initiated 115 and concluded 117 administrative carried outinpreviousyearshadbeenimplemented. whether themorethan400supervisorymeasuresissuedtoseveralinstitutionsfollowinginspections a cycleofthematicinspectionstohigher-risk,particularlycomplexareasintenentities,andchecked Banco de Portugal heldtwo cross-sectional inspections to largesupervisedinstitutions, concluded (ML/TF), financing terrorist and laundering money of prevention the in work supervisory its Under and supervisorybodiesofsupervisedinstitutions. 28 proceedingsforapossiblereassessmentofthesuitabilitymembersmanagement analysed and institutions, payment and companies financial institutions, credit of authorisation the activity they were carryingon. It also examined eight proceedingsforthe possible withdrawalof financial the conduct to authorised not entities ten to warnings public issued and 253 proceedings in inquiries conducted Portugal de Banco activity, financial illicit repress and prevent to as So for EmploymentandVocationalTraininginformationdesks. and Social Security to improve awareness of the basic bank accounts at Social Security and Institute using digital channels. Banco de Portugal also signed a protocol with the Ministry of Labour, Solidarity #TopTip, launchedin2018toraiseawarenessamongyoungpeopleofthecarebetakenwhen education of bank customers. In 2019 it proceeded with the digital financial education campaign and literacy financial the promotes Bank the function, supervision conduct banking its Under received 18,104bankcustomercomplaints,18.7%morethaninthepreviousyear. channel as well. Withthis new channel, complaints received increased. In 2019 Banco de Portugal the e-platform ‘Livro de Reclamações’, so that bank customers can submit complaints through this joined Bank the 2019, July In Portugal. in channels digital through services and products banking of use and availability subscription, the in developments on institutions financial of questionnaire credit grantedthroughonlineandmobilechannels.Italsopublishedtheresultsofsecond growing marketing of products and services through digital channels, more specifically, consumer the to attention particular paid Portugal de Banco markets, banking retail in institutions financial the year, 4,681 entities were authorised tocarryoutthisactivity.When supervising the conduct of 5,169 applicationsforauthorisationtocarryoutthisactivityandapproved3,757.Attheendof inclusion ofcreditintermediaries into itsperimeterofbankingconductsupervision: it examined in the marketing of retail bankingproductsandservices. In 2019 Banco de Portugal concluded the companies, paymentinstitutions,electronicmoneyinstitutionsand,asof2018,creditintermediaries financial institutions, credit of conduct the supervises and monitors regulates, Portugal de Banco

In the scope of its support to the Deposit Guarantee Fund and the Mutual Agricultural Credit Guarantee Fund, the Bank implemented Decree-Law No 106/2019, of 12 August 2019, which established the transfer of the deposit guarantee function from the Mutual Agricultural Credit Guarantee Fund to the Deposit Guarantee Fund. It also provided the necessary support to a stress- test exercise carried out on the Deposit Guarantee Fund mechanisms.

In 2019 litigation against Banco de Portugal and the funds it operates remained high. This reflects the large number of court cases handled as a result of the application of resolution measures in previous years, and the monitoring of the litigation managed by the Resolution Fund, including in foreign jurisdictions as well as in the European Court of Justice. In the cases in which Banco de Portugal, the Deposit Guarantee Fund and the Resolution Fund are prosecuted, particularly following the resolution processes of BES and BANIF, there were several rulings in favour of Banco de Portugal and the Funds in 2019, in interim injunction proceedings and main proceedings. The judgment rendered by the Administrative Court of the Lisbon District of 12 March 2019 is particularly relevant, as this court was unanimous in confirming the constitutionality of the legal framework on bank resolution and full legality of the resolution measure applied to BES.

Knowledge creation and sharing

Banco de Portugal prepares analyses and studies on the economy and the financial system and, as a national statistical authority, produces monetary, financial, foreign exchange and balance of payments statistics.

In 2019 researchers at Banco de Portugal, including 120 external co-authors, were involved in the preparation of 194 studies on topics identified as a priority in its research agenda. In the course of the year, 57 studies were completed, most with the purpose of being featured in Banco de Portugal’s publications or other specialist publications. Through Banco de Portugal’s Microdata Research Laboratory (BPLIM), located in the Porto Branch, the Bank gave access to its microdata sets on the Portuguese economy to in-house and external researchers. In 2019, 34 such projects (proposed by 162 researchers) were initiated. Banco de Portugal also released long series on the Portuguese banking system, providing in-house and external researchers with a comprehensive, coherent and reliable database on developments in the sector since 1990.

The Bank published the e-book “Portuguese economic growth: A view on structural features, blockages and reforms”, based on a series of studies drawn up by economists affiliated to the Bank and other national and foreign institutions. It also launched the Cadernos Jurídicos (Legal Papers) series, with the purpose of disseminating legal thinking produced in its core business.

In its capacity as national statistical authority, the Bank released approximately 160 thousand statistical series and shared 833 thousand series with international organisations. It published revised series on public debt, the national financial accounts and external statistics. It redesigned BPstat, the portal through which it disseminates statistics on the Portuguese economy and the euro area economy, produced by Banco de Portugal and national and international statistical authorities. The new BPstat is easier to browse and allows users to cross check statistical data, build charts, share information, and access news and infographics to better understand published statistics.

In the course of the year, the Bank organised conferences and seminars with the purpose of

adding to the debate on the Portuguese economy and the euro area. Due to their international summary Executive 25 26 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Nacional deAngola. in SI/ITareas. and theInformationSystems and TechnologyDepartmenttoaccommodateitsnewresponsibilities Department Accounting the Department, Systems Payment the of structure the to adjustments support functions assisting the decision-making process of the Board of Directors and made In 2019BancodePortugalintroducedchangestoitsorganisational structure:itseparatedthe Internal management the programme celebrating the 20 Fund; “Theeuro20yearson:thedebut,presentandaspirationsforfuture”, as partof “Portugal: Reform and Growth Within the Euro Area”, co-organised by the International Monetary digitalisation conference: the Portuguese case”, co-organised by the European Investment Bank; dimension, themostnoteworthywerefollowingconferences:“Investment,innovationand one (its12 one with an African country. The Bank entered into a new technical cooperation agreement – this and region, Pacific the and Asia in countries with 12 countries, American Latin with 16 countries, EU emerging and developing countries: 106 with Portuguese-speaking countries, 24 with neighbouring In thecourseofyear,Bankheld159cooperationinitiativeswithcounterpartiesfrom and transparentmanner. impartial objective, an in granted is support that time, same the at and, standards conduct and ethical that the partnerships built and the sponsored projects are in line with strategic goals and the internal In 2019 Banco de Portugal adopted a new financial and social support policy, with a view to ensuring activities. Thenumberofvisitorsgrewby20%fromthepreviousyear. cultural and educational 1,127 and exhibitions temporary five held Museum The Portugal. de Banco Centre activities,andcompletedanewpermanentexhibitionspace,onthenaturefunctionsof At the Money Museum, which is now also open on Sundays, the Bank launched the Financial Education Customer Website. sent bythepublice-mailorthroughformsavailableoninstitutionalwebsiteandBank consolidating itsinlandpresence. The Bank processed 38,949 phone calls and45,863 messages In 2019BancodePortugal’sCallCentrewastransferredtotheCasteloBrancoAgency,thereby on actualorpotentialcreditsgrantedbyinstitutionsinPortugal. the Central Credit Register, which grew by 20% from 2018. The Central Credit Register is a database Demand for services provided by Banco de Portugal remained high, most notably consultations of phenomena. payments and a campaign to raise public awareness of illegal lending schemes and other fraudulent was acampaigntoinformusersonthenewstrongcustomerauthenticationproceduresforelectronic explain concepts, topics and results related to its tasks. One of the Bank’s communication initiatives to decoders 45 and officials senior by speeches 62 releases, press 264 published Portugal de Banco on its institutional website, the Bank Customer Website and social networks. In the course of the year, topics andstrengthen its links to the community. For that purpose,itregularlydisclosed information Banco de Portugal continued its efforts to make for a better understanding of economic and financial Stability. TheBankalsoassistedtheECBinhostingForumonCentralBanking,Sintra. th ) withBancoCentraldeChile–andreneweditscooperation agreementwithBanco th anniversary of the euro; and the 3 rd Conference on Financial To fully implement the General Data Protection Regulation, the Bank put in place a data protection action plan, which included new procedures, information and training courses for staff members, and an adaptation of IT/IS systems.

Banco de Portugal started to release the calendars of members of the Board of Directors, which list all the meetings or events planned or organised with a working agenda or topic(s) for discussion. Staff in management positions are now subject to a cooling-off period between working for the Bank and working for supervised entities. The internal policy on conflicts of interest prevention was revised, as described in the Relatório Anual de Execução do Plano de Prevenção de Corrupção (Annual Report on the Implementation of the Corruption Prevention Plan). Banco de Portugal was the first Eurosystem central bank to host an awareness-raising initiative on ethics and business conduct sponsored by the European Central Bank.

The Bank proceeded with its integrated management policy on strategic, financial and non-financial risks to which it is exposed when carrying out its work. In this context, the Internal Statement of Risk Acceptance Principles, which describes the tolerance level for the risks to which Banco de Portugal is exposed, was supplemented by the approval of sub-categories for non-financial risks and the strategic risk budget. With the purpose of reinforcing the Bank’s resilience in terms of business continuity, a team of system administrators was set up at the Porto Branch and the Bank’s alternate data processing centre was transferred from Olivais, in Lisbon, to the Carregado complex.

36 internal audits were carried out, 29 of which were exclusively domestic and seven under the internal audit function of the European System of Central Banks, the Eurosystem and the Single Supervisory Mechanism.

As at 31 December 2019, the number of staff members employed by Banco de Portugal was 1,778, of which 1,700 were active, in line with the goal of 1,700 staff members by 2020, set out in the Strategic Plan for 2017-20. As regards human resources, one of the Bank’s structural projects over the past few years has been the Banco de Portugal Academy (Academia do Banco de Portugal), which fosters the integrated management of staff training in line with the Bank’s mission, values and strategic priorities. The Academy includes a Management and Leadership School. In 2019 the process of setting up a Data Science School was started, with the purpose of broadening its staff’s skills in this matter.

Sound and efficient management of human and financial resources is a priority of Banco de Portugal. Over the past decade, administrative expenses posted a 1.3% average annual rate of change, in nominal terms (0.2%, after accounting for inflation). To these developments contributed expenditure-reducing and efficiency measures, which made it possible to offset the costs associated with the significant broadening of its tasks and extraordinary expenses, most notably those related to the implementation of the Economic and Financial Assistance Programme to Portugal, the reinforcement of the banking supervision and resolution areas, and the need to put in place new monetary policy programmes.

With regard to building management, and in line with environmental sustainability concerns, the Bank signed a new contract with an electricity supplier to switch to power from 100% renewable sources.

Banco de Portugal has taken up a data warehouse, an information repository with data on loans,

prudential information and the balance sheet of financial institutions. The data warehouse will summary Executive 27 28 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 implemented andisnowmanagedbyBancodePortugal. sector, with the purposeofpromoting cooperation among stakeholders. The sectoral CSIRT was financial national the in incidents cybersecurity to respond to created also was (CSIRT) Team out toassesstheresponsivenessbusinesscases.AComputerSecurityIncidentResponse for sharedinternaluse.AtBancodePortugal’sInnovationLab,experimentalworkwascarried make it possible for the Bank to manage in an integrated manner all relevant business data 1. Sources: ECBandBancodePortugal. meetings, in accordancewiththerotationscheme monetary policydecisions.TheGovernorofBancodePortugalhadvotingrightsatsixthese Board of the ECB. In 2019 the Governing Council of the ECB met 18 times, eight of which to take governors oftheEurosystemnationalcentralbanks(NCBs)andmembersExecutive are takenbytheGoverningCouncilofEuropeanCentralBank(ECB),whichconsists the Eurosystem and their primary objective is to maintain price stability. Monetary policy decisions within shared are policy monetary area euro of definition the in responsibilities Portugal’s de Banco monetary policy,thefirstBroadStrategicGuidelineestablishedforfour-yearperiod2017-2020. single the to contributing actively at aimed (ESCB), Banks Central of System Eurosystem/European This chapterdescribesBancodePortugal’sactionsin2019whilstmonetaryauthorityofthe 1 Monetaryauthority Figure I.1.1• covering mostcentralbankactivities. is represented.In2019BancodePortugalparticipatedinover200ofthesestructuresonissues ensured by the Eurosystem/ESCB Committees (Figure I.1.1) and their substructures, where the Bank The technicalpreparation,monitoringandimplementationofthedecisionstakenbythesebodiesis States. Vice-President of the ECB and the governors of the NCBs of the 28 European Union (EU) Member NCBs. TheGovernorisalsoamemberoftheGeneralCouncil,composedPresidentand Eurosystem/ESCB Communications

and Payments Committee (MIPC) use theirvotingrightsonamonthlyrotation.For thevotingrightsrotationschedule,seeECBwebsite. – currentlyGermany,France,Italy,Spainandthe Netherlands–sharefourvotingrights.Allothers,includingPortugal,11Thegovernors Countries were Organisational Development Income Committee (AMICO) Accounting and Monetary Market Infrastructure Committee (ECCO) Committee (ODC) Internal Auditors Committee (IAC) classified into two groups according to the size of their economies and their financial sectors. The governors of the countries in the first group Committees withintheEurosystem/ESCB Budget Committee (BUCOM) International Relations Banknote Committee Market Operations Risk Management Committee (MOC) Committee (RMC) Financial Stability Committee (FSC) Committee (IRC) (BANCO) 1 inplaceforthegovernorsofEurosystem Human Resources Conference (HRC) Committee on Controlling Information Technology Committee (MPC) Legal Committee Committee (STC) Committee (ITC) Monetary Policy (COMCO) Statistics (LEGCO) 29 Monetary authority 30 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 2. measures over the course of the year to strengthen the degree of monetary accommodation (Box 2). successive adopted Council Governing the objective, stability price the with consistent levels below remain would inflation that prospects and risks, downside and uncertainty global high activity, economic weakening of background a Against objective. medium-term its towards inflation area In 2019 the ECB’s monetary policy remained accommodative to support a sustained return of euro 1.1 of internationalorganisationswhichitisamemberorinparticipates. Overall, in2019 around 400 employees of Banco de Portugal were directlyinvolvedinthe activities economy andthefinancialmarkets. As regardstheOECD,BancodePortugaltookpartinworkofcommitteesmonitoring providing information,participatingintechnicaldiscussionsandconveyingpositionsasanauthority. scope of its tasks and responsibilities, was closely involved inthese exercises, coordinating visits, mission oftheEuropeaninstitutionstoPortugaltookplacein2019.BancodePortugal,within The IMF’sregularArticleIVconsultationwithPortugalandthetenthpost-programmesurveillance well aspolicyrecommendations,includingcooperativeandmultilateralsolutions. as economy global the for outlook and risks the discussed which Bank, IMF/World the of Meetings and multilateralsurveillancemechanisms.Banco de Portugalparticipated in the Spring andAnnual economic and social inequality, sovereign debt levels in member countries and the IMF’s bilateral In 2019 the IMF’s agenda focused on issues related to digital innovation, sustainability and borrowing formembercountries. the New Arrangements to Borrow, in which the Bank participates, and a further round of bilateral under lines credit of doubling a establishes agreement The net. safety financial global a as role its level political agreement was reached to maintain the IMF’s financial resources, crucial to ensuring responsibilities and following the Fund’s agenda and decision-making processes. In 2019 a high- financial several on taking institution, that at representative country’s the is Portugal de Banco The Governor isa member of the IMF Board of Governors, its highest decision-making body, and (OECD) (Figure2). International Settlements (BIS) and the Organisation for Economic Co-operation and Development for Bank the (IMF), Fund Monetary International the as such worldwide, institutions financial and Banco de Portugal also participates in the EU Economic Policy Committee and in other economic European andinternationaldebate(Box1). increasingly ontheECB’sagendaovercourseofyear,inlinewithitsgrowingimportance was finance sustainable and sustainability of issue The (EMU). Union Monetary and Economic the UnitedKingdom’swithdrawalfromEUanddeepeningofBanking Union andthe for work preparatory stability, financial to risks risks), of set expanding an and transformation agenda in 2019: issues related to payments and market infrastructures (arising from digital In additiontomonetary policy decisions, the following wereparticularlyimportantforthe ECB’s

In responsetothelackofagreementonaninc rease totheIMF’spermanentresources(quotas). Monetary policy 2 collateral. In 2019 the average value of the collateral buffer (the difference between the value of the the of value the between difference (the buffer collateral the of value average the 2019 In collateral. governments continued to be the largest categories in these pools, with 71% of total assets used as year, totalling €52,123 million. Mortgage bonds and securities issued by central, regional and local The averagebalanceofPortuguesecounterparties’collateral poolsgrewby3%fromtheprevious account thesecuritiestradedinPortuguesemarkets. year, theBankreported30neweligiblesecuritiestoECB andintroduced853updates,takinginto the responsibilityofBancodePortugal,fromauniverse26,411 eligiblesecurities.Throughoutthe At theendof2019Eurosystem’slistassetseligibleascollateral contained119securitiesunder TLTRO-II withtheTLTRO-IIIandrecourse,albeitsmall,tothree-monthLTROs. the interest rate on the MROs (one-week maturity). December 2019 saw a slight replacement of the operations, which offer stable long-term funding at an interest rate similar to or even lower than sheet (ChartI.1.1),thereisapredominanceofTLTROs.Thisduetotheconditionsthese Regarding thetypeofopenmarketoperationandstandingfacilityonBancodePortugal’sbalance years –particularlysincetheAPPstartedtotalling€18,461million. of open market operations and standing facilities continued the downward trendof the past few increased from 22 to 36, mainly due to recourse to the marginal lending facility. The average balance 68 of these operations (58 in 2018). In 2019 recourse to the marginal lending anddepositfacilities the Eurosystem conducted 133 open market operations and resident institutions participated in market operations and standing facilities, only 11 participated in at least one operation. In total, In 2019 of the 35 institutions established in Portugal that were eligibletoaccess Eurosystem open system’s liquidityneeds. the counterparty status of these institutions and produced daily forecasts of the domestic banking monitored compliance with minimum reserve requirements by resident credit institutions, assessed law, Portuguese to subject assets non-marketable and markets Portuguese on trading to admitted securities of eligibility the assessed also Bank The APPs. the under assets financial purchased and liquidity-absorbing tenders,processingstandingfacilitiesandmanagingtheunderlyingcollateral– conducted operationswithresidentcreditinstitutions–bycarryingoutliquidity-providingand Under thedecentralisedimplementationofeuroareamonetarypolicy,BancodePortugal targeted longer-termrefinancingoperations(TLTROIII). shortly beforetheECBstartsraisingkeyinterestrates;and(iii)introductionofthirdseries asset purchaseprogramme(APP)atamonthlypaceof€20billion,withtheexpectationthattheyend of atwo-tiersystemforremuneratingexcessreserveholdings;(ii)restartnetpurchasesunderthe In addition, further non-standard monetary policy measures were announced, namely: (i) introduction been consistentlyreflectedinunderlyinginflationdynamics. a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has to converge robustly outlook inflation the seen has it until levels lower or present at remain to and the rate onthe marginal lending facilityat 0.25%. The Governing Councilexpectsinterest rates facility from -0.4% to -0.5%, maintaining the rate on the main refinancing operations (MROs) at 0% Against this background,in2019 theGoverningCouncildecidedtoreducerateondeposit 3.

Monetary policypressreleasesareavailablef or consultationontheECBwebsite. 3

31 Monetary authority 32 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 reserves exceedingtheexempt amountremainsubjecttothedepositfacilityrate. deposit facilityrate(-0.5%) up tosixtimesthevalueofminimum reserve requirements. Excess Council’s decision announced on 12 September to exempt institutions’ excess reserves from the 2019 (Chart I.1.2). Inturn,excess reserves increased byaround58%,followingtheECBGoverning The amount of minimum reserves heldbyPortuguese institutions remained virtually unchanged in Source: BancodePortugal. of collateralpool–2016-2019 Chart I.1.1•Balanceandtypeofopenmarketoperationstandingfacilityvalue providing operationslesstheaveragebalanceofliquidity-absorbingoperations. Source: BancodePortugal.|Note:Theaveragebalanceofopenmarketoperationsandstandingfacilitiescorrespondstotheliquidity- Table I.1.1• measures definedintheEurosystemframeworkandalsoappliedbyBancodePortugal. control risk from benefiting valuation, theoretical using absence, its in or, price market at Portugal trend in credit granted (-10%). Collateral used by resident counterparties is valued by Banco de of thecombinationaslightincreaseinamountcollateral(3%)andanongoingdownward result a as 2019, in markedly more although years, few past the over gradually increased buffer the assets givenascollateralandoutstandingloans)was13%higherthanin2018.Overall,thevalueof Average balanceofmonetarypolicyportfolios(EURmillions) EUR millions) Average balanceofcollateralpools(residentcounterparties, facilities (residentcounterparties,EURmillions) Average balanceofopenmarketoperationsandstanding market operationsandstandingfacilities Number of(resident)counterpartiesparticipatinginopen Number ofeligible(resident)counterparties counterparties Number ofstandingfacilityoperationsinvolvingresident counterparties participated Number ofopenmarketoperationsinwhichresident Number ofEurosystemopenmarketoperations 15,000 25,000 35,000 45,000 55,000 65,000 -5,000 5,000 MRO Jan. 16 16 May Monetary policyimplementationinPortugal–mainindicators LTRO 3M LTRO Sep. 16 TLTRO Jan. 17 Jan. | EURmillions TLTRO-II 17 May Sep. TLTRO-III 17 24,729 2985,7 07852,123 50,728 50,772 52,938 4032,6 06118,461 20,621 22,862 24,023 Jan. 18 Jan. 0621 082019 2018 2017 2016 3 2 2 3 5% 133 127 126 136 51 21 -8% 11 12 14 25 73 63 -3% 35 36 37 37 05 23 64% 36 22 52 60 37 86 17% 68 58 71 83 Lending facility Lending 18 May 0144,1 52,102 49,319 40,174 Sep. 18 Deposit facility Deposit Jan. 19 Jan. 19 May Value of collateral pool Sep. Δ 2019/2018 19 -10% 6% 3%

ECB’s capitalkey 2.1% at the end of 2019, 0.2 percentage points (p.p.) closer to Banco de Portugal’s share of the The shareofPortuguesedebtaccumulatedbytheEurosystem inthetotalofPSPPstoodat programme. Source: BancodePortugal.|Notes:PSPP–Publicsectorpurchaseprogramme.CBPPCovered bondspurchaseprogramme.SMP–Securitiesmarket Chart I.1.3• total assetsattheendof2019. securities portfolios in the Bank’s total assets remained relatively stable, accounting for 34% of with anaverageof91%thetotalvolumeportfolios.Thesharemonetarypolicy (Chart I.1.3). The public sector purchase programme (PSPP) continued to have the largest share, increased further,althoughtoalesserextentthanin2018,averaging€52,102million2019 As fortheAPP,balanceofmonetarypolicyportfoliosonBancodePortugal’ssheet reserves andtheamountexemptfromexcessundertwo-tiersystem. Governing Councilmonetarypolicymeetings.Theamountexemptfromthenegativerateseeninchartcorrespondstoaggregatevalueofminimum Portugal, overthereservemaintenanceperiod,andamountofminimumreserves.MaintenanceperiodsareestablishedbyECBaccordingtoECB de Banco with accounts deposit of balance average the between difference the as calculated are reserves Excess Notes: | Portugal. de Banco Source: under thetwo-tiersystem–2016–2019 Chart I.1.2• 4.

10,000 20,000 30,000 40,000 50,000 60,000 gross domesticproductoftheEU. and population total in share country’s respective the on based calculated is and capital ECB’s the in NCB each of share the reflects key capital The 20,000 10,000 12,000 14,000 16,000 18,000 2,000 4,000 6,000 8,000 0 Jan. 0 16 PSPP 16 May Balance andtypeofmonetarypolicyportfolio Developments inminimumreserves,excessreservesandexemptamount 4 (currentlyat2.4%)comparedtotheendof2018. Sep. 16 Sep. Minimumreserves CBPP3 Jan. 17 17 May CBPP+SMP+CBPP2 Sep. 1 |EURmillions 7

Jan. Excess reserves 18 18 May Share of securities portfolio in total assets (%, right axis) Sep. 18 |EURmillions

Jan. 19 Exem 19 May p t amount t Sep. 19 Sep. 0% 10% 20% 30% 40% 33 Monetary authority 34 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 price ofgoldwithanimpactonitsvaluation(ChartI.1.4). million, a 6.9% increase from the previous year. This rise was largely the result of an increase in the As at31December2019,BancodePortugal’sowninvestment assetportfoliowasvaluedat€36,010 subject toimpairmentlosses.Assetsingoldarevaluedat market prices. portfolio are held tomaturity and valued according tothe valuation criterion at amortised cost, in euro,areactivelymanaged and valuedatmarket prices. Assets in themedium-term investment assets denominatedinforeigncurrencyandgold.Assetsthe tradingportfolio,mostlydenominated Banco de Portugal’s own investment asset portfolio is composed of assets denominated in euro, 1,152 million (€1,025million)andtheportfolioinCNYtotalled4,058 million(€518million). reserve portfolio in renminbi (CNY). As at 31 December 2019, the portfolio in USD amounted to USD In February2019, BancodePortugalandtheBank of Lithuania alsobeganmanaging the ECB’s central bankofLithuaniaandcomprisestheamountreservesallocatedtotwocountries. the startof2012. SinceJanuary 2015, this portfoliohas been managed in collaboration withthe de PortugalhasbeenresponsibleformanagingaportfoliodenominatedinUSdollars(USD)since established withtheEurosystemNCBs.Withinscopeofacurrencyspecialisationmodel,Banco The management of the ECB’s foreign reserves is decentralised, under an agency agreement was setat€26,653million. 5. Agreement onNetFinancialAssetsbetweentheeuroareaNCBsandECB. Banco de Portugal’s non-monetary policy holdings are constrained by the limit established in the the beginningofEMU,basedonitscapitalkey;and(ii)owninvestmentassetportfolio. corresponding to the transfer of foreign reserve assets from Banco de Portugal to the ECB, at Banco dePortugalmanagestwotypesofassetportfolio:(i)aforeignreserveportfoliotheECB, 1.2 national creditinstitutionstoevaluateassetsgivenascollateralforEurosystemoperations. Banco dePortugalalsomonitoredandanalysedtheperformanceofriskratingsystemsusedby management policy for financial risks and operational risks pursued by Banco de Portugal (Chapter 4). associated with monetary policy operations were monitored within the framework of the integrated control counterpartyriskandrisksrelatedtoassetsgivenascollateral.Overalldevelopmentsin imposing limitsontheiruse,asenvisagedwithintheoperationalframeworkofEurosystemto criteria to counterparties and their collateral, setting evaluation margins on these assets’ value and Banco de Portugal controlled risks associated with monetary policy operations by applying eligibility exposure onlyexistingintheeventofcounterpartydefault). risk relatestocounterpartiesandindirectlythetypeofassetsreceivedascollateral(withdirect is associatedwithdirectexposuretotheissuersofpurchasedassets.Increditgrantingoperations, key, dependingonthepurchaseprogrammeorcollateralprovided.Inprogrammes,risk by Banco dePortugal or shared by the whole Eurosystem based on each NCB’s share inthe capital Participation inthesinglemonetarypolicyrequiresmanaginginherentrisks,whichareeitherborne Management ofowninvestmentassets ECB foreignreservemanagement

For furtherdetails,seetheECBwebsite Asset management . 5 In2019thislimit investment assets, Banco de Portugal purchased green bonds and participates in the green bond In linewiththeinclusionof environmentalsustainabilitycriteriainthemanagement ofown the priceofgoldinUSDand a depreciationintheeuroagainstdollar. 382.5 tonnes. Its value in euro increased by 20.9%, reflecting the joint effect of developments in Similarly to previous years, the quantity of gold held by Banco de Portugal remained unchanged: negative euroarearates,includingforlongermaturities. amounts thatmaturedovertheyearwerenotreinvested giventhecurrentenvironmentof The amountinthemedium-terminvestmentportfoliodeclined fromthepreviousyear,as that observedattheendof2018,withassetsdenominated ineuroaccountingfor86%. The value of the trading portfolioat market prices and year-end exchange rates remained close to Source: BancodePortugal. Chart I.1.4•Owninvestmentassetportfolio–2016-2019 In 2019thequantityofgoldheldbyBancodePortugalremainedunchanged,butitsvalueineuroincreased20.9%. 10,000 15,000 20,000 5,000 0 2016 Tradingportfolio 2017 Medium-terminvestiment portfolio |EURmillions 2018 Gold portfolio 2019 35 Monetary authority 36 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 6. Regulatory technical standards 1.3 function toindependentlyandsystematicallycontroloperationsfrompurchasesettlement. operations andmonitoringofpositionsmainriskmeasures,enablingthemanagement of settlement financial the out carries also system This NCBs. Eurosystem most and ECB the by operations areperformeddailythroughaninternalinformationsystemsimilartotheoneused The valuation,returncomputationandcontroloflimitsrestrictionsonassetmanagement Portugal’s equity. while preservingcapitalandkeepingriskatalevelthatmatchesthecoverageprovidedbyBancode yield optimising of goal the reflect Directors, of Board the by approved limits, and criteria These into accountthecredit,exchangerateandinterestrisksofassetsoperations(Chapter4). eligibility criteria and limits on the institutions, countries, operations and instruments involved, taking The riskarisingfromowninvestmentassetmanagementoperationsiscontrolledbyimposing variables andiseffectiveforoneyear,butmayberevisedsooner. flexibility. This benchmark portfolio reflects scenarios and forecasts for main economic and financial benchmark portfolioapprovedbytheBoardofDirectors,onwhichamarginissettoprovidesome As regardsthetradingportfolio,managementofowninvestmentassetsisbasedonastrategic promote environmentalobjectivesand,inparticular,totackleclimatechange(Box1). to effort global the to mandate, its within contribute, to strives thus Portugal de Banco investment. fund createdbytheBISinSeptember2019,becomingapioneeringcentralbankthistypeof new requirements and their impact (Chapter 3). new requirementsandtheirimpact(Chapter3). runs smoothly, Banco de Portugal developed a communication campaign for bank customers on the In ordertoensurethattheentryintoforceofnewstrong customerauthenticationrequirements these requirements both for strong customer authentication and common and secure communication. responsible for monitoring banks and other PSPs in the adoption of solutions that are compatible with new technicalstandards and adopted this position taken by the EBA. As such, Banco de Portugal is Banco dePortugalwasappointednationalcompetentauthority asregardstheimplementationof payment transactionsuptotheendof2020. card-based e-commerce regarding flexibility supervisory of use make might (NCAs) authorities authentication requirements entered into force on 14 September 2019, national competent customer strong the although that, clarified (EBA) Authority Banking European the 2019 October In with thirdpartieswhicharePSPs. compatible withtherequirementssetoutinEuropeanstandardstoallowsecurecommunication imply ariskoffraudorotherabuse. They are also required toprovidecommunication interfaces electronic payment transaction or (iii)carryoutanyactionthrougharemotechannel which may customer authentication to customers that (i) access their payment account online, (ii) initiate an As of that date, banks and other payment service providers (PSPs) are required to apply strong and furtherEuropeanintegrationofpaymentservices. standards ofcommunicationcameintoforceon14September2019,promotingenhancedsecurity

services intheinternalmarket(PSD2). Commission DelegatedRegulation(EU)2018/389 supplementingDirective(EU)2015/2366oftheEuropeanParliamentandCouncilonpayment Payment systemsandmeans 6 for strong customer authentication and common and secure open for strong customer authentication and common and secure open

Electronic Money. Law totheMinistryofFinance,intendedadaptLegalFrameworkforPaymentServicesand regulation. Against this background, on 4 December 2019, Banco de Portugal submitted a draft Decree- Financeiros –CNSF)preparedraftproposalsforlegislationthatmightbeneededtofullyimplementthe Finance requested that the National Council of Financial Supervisors (Conselho Nacional de Supervisores the needfor national transposition, it must be implemented at national level.As such, the Ministry of Although this new regulation is directly and immediately applicable in all EU Member States without given allinformationtheyneedtomakeaninformedchoice. consumers against excessive charges for currency conversion services and ensuring that they are order toincreasetransparencyandensurecomparabilityofcurrencyconversioncharges,protecting At the same time, new obligations related to currency conversion practices were established, in area andnon-europaymentserviceusers. of the internal market and (iii) ending the inequalities between payment service users in the euro charges for cross-border payments in euro within the Union, (ii) promoting the smooth functioning payments ineurowiththecostofnationalcurrenciesaim(i)reducing payment service users, particularly important was the principle equalising the cost of cross-border conversion charges was published on 29 March 2019. O Image fromacommunicationcampaignforbankcustomerslaunchedbyBancodePortugalonthenewstrongcustomerauthenticationrequirements. 8. 7. consent. Most banks authorised tooperateinPortugalhaveimplementedadedicatedinterface granted toentitiesthataredulyauthorisedprovidethese servicesandonlywiththeuser’sexplicit Provision of these new payment services is based on the principle that access to payment accounts is innovation aswellenhancingsecurityintransactions. new payment services – payment initiation services and account information services –promoting these regulates (PSD2) Council the of and Parliament European the of 2015/2366 (EU) Directive of newbusinessmodelsandtheprovisionpayment services. emergence ofnewplayersinthepaymentsmarket,past decadehasseenthedevelopment Considering the growing digitalisation of the financial sector, changes in user behaviour and the monitor thenewstandardsandestablishspecificpenaltyframeworkforcasesofnon-compliance. Impact ofdigitaltransformationontheusepaymentsystemsandinstruments

n a different issue, a new regulation on charges for cross-border payments in the EU and currency This frameworkimplementedRegulation(EC) No924/2009,nowamendedbyRegulation(EU)2 Regulation (EU)2019/518 oftheEuropeanPa 8 Overall, this proposal aims to legislate the appointment of competent authorities to Overall,thisproposalaimstolegislatetheappointmentofcompetentauthorities rliament andoftheCouncil19March2019 amending Regulation(EC)No924/2009. 7 Among the changes with an impact on 019/518, intonationallaw. 37 Monetary authority 38 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 provide informationandtraining) tosuccessfullypursuethisobjective,whichwassetforSeptember 2020. to phase first a (in developed was work service, settlement payment instant pan-European Eurosystem’s the (TIPS), Settlement Payment Instant TARGET join to community national the by decision the Following has shownitisadequatelyprepared. participants national of community the Overall, Eurosystem. the by project this for out set targets the functional requirements and to regularly monitor the degree of compliance by national participants with of specification the on work in participate to continued Bank the respect, this In platform. settlement main European platform for processing large-value payments, and T2S, the Eurosystem’s securities project to consolidate two market infrastructures held and operated by the Eurosystem: TARGET2, the In 2019BancodePortugalprovidedadditionalinformationto thenationalbankingcommunityon of Treasurybondsandbills. redemption and issue the to related settlements by influenced strongly be to continued Dynamics close to€172billion,adropof6%involumeandanincrease0.5%valuefrom2018(ChartI.1.6). The nationalcommunitysettled230,142securitiestransactionsinTARGET2-Securities(T2S),worth values recordedaslightincreaseof0.2%fromthepreviousyear,forfirsttimesince2011. Compensação Interbancária–SICOI).Despitethesteepdeclineinnumberofpayments,settled transfers) andancillarysystemsoperations,inparticulartheInterbankClearingSystem(Sistemade customer (mainly institutions financial between transactions in decrease the to due mostly 2018, amount of€1,727billion(ChartI.1.5).Thevolumesettledtransactionsdecreasedby21.5%from payments ineuro)achieved100%availabilityandprocessedaround1.7milliontransactions,tothe In 2019 TARGET2-PT (the Portuguese component of the real-time gross settlement system for of newbusinessmodelsandsolutions,whethertheseareunderdevelopmentorinproduction. on the applicable regulation, assess opportunities of innovation and share detailed knowledge operate in the national payments market (through Fintech Meetings) in order to share information Furthermore, Banco de Portugal continued to meet with fintech operators operating or intending to which havebeenworkingonpromotingelectronicpaymentsandimprovingpaymentsecurity. Interbank CommissionandthePaymentSystemsForum,advisorystructurestoBancodePortugal innovative paymentsolutions.ThisinteractionmainlytakesplaceinthePortuguesePaymentSystems and efficient secure, promote to market the with interact to continued also Portugal de Banco developing newprojectsinfintechandinsurtech. participants toobtainmoreinformationontheregulatoryframeworkapplicablewhencreatingand allowing authorities, these and sector financial the of digitalisation the in entrepreneurs between and the Portuguese Securities Market Commission). This platform facilitated communication financial sector (Banco de Portugal, Portuguese Insurance and Pension Funds Supervisory Authority from apartnershipbetweenPortugalFinTechandthethreesupervisoryauthoritiesofnational of edition first the in participated Portugal de Banco 2019 In regulating, monitoringandpromotingthesmoothfunctioningofpaymentsystems. potential newmarketoperators.ThisproximityiscrucialfortheBanktocarryoutitsmission of Banco dePortugalhasaccompaniedongoingtechnologicaldevelopmentsandinteractedwith where theAPImightbetemporarilyunavailable. compliance, exempted institutions from the need to develop a fallback mechanism for situations implemented APIs complied with a set of requirements established by the EBA and, in case of with providers of the new payment services. In this respect, Banco de Portugal assessed whether (Application programming interface – API), which ensures the secure exchange of information Gross paymentandsecuritiessettlementsystems , a platform resulting Portugal FinLab,aplatformresulting value inEURbillions amount of€523billion. debit, credittransfer,bankcard andinstanttransfer)processedthreebilliontransactions, tothe In 2019 SICOI (a retail payment system that clears payments by cheque, bill of exchange, direct TARGET2, inparticularthosethatareapotentialsystemicrisk. which aimtoaddresspotentialinformationsecurityrisksresulting fromtheactivityofparticipantsin with theEurosystemrequirementsonend-pointsecurityand the SWIFTCustomerSecurityProgramme, payment fraud.In2019BancodePortugalcontinuedtomonitor compliancebythenationalcommunity of risk the mitigate to participants among efforts promotes Eurosystem the operator, TARGET2 As Register (RegistodeInstruçõesPagamento institutions were givenaccess to anewBancodePortugalapplication–thePayment Instruction between institutions holding depositaccounts with BancodePortugalandtheBank itself, these Under theredesignandimprovement of thecommunication procedures forpaymentinstructions Source: BancodePortugal.|Note:FiguresfortheperioduptoMarch2016referInterbolsaoperationssettledinTARGET2. Chart I.1.6• Source: BancodePortugal. Chart I.1.5• and valueinEURbillions Retail paymentsystem

Volume Volume 1,000 1,500 2,000 2,500 500 100,000 150,000 200,000 250,000 300,000 350,000 50,000 0 0 Settlement ofnationalcommunitysecurities–2016–2019 Overall transactionsthroughTARGET2-PT–2016–2019 2016 2016 Volume 2017 Volume 2017 –RIPA)on1July2019. 2018 2018 Value Value |Volumeinthousandsand 2019 2019 | Volumeinthousands 0 50,000 100,000 150,000 200,000 250,000 300,000 0 500 1,000 1,500 2,000 2,500

Value Value 39 Monetary authority 40 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 increase considerably over the course of the year. increase considerablyoverthecourseofyear. are stillresidualinthesystem’stotal(accountingfor0.1%volumeand0.8%value),theydid 2019 instant transfers operated for a full calendar year for the first time. Although these transactions 2018. legal period.On31 December 2019, the list comprised14,596 entities, a decrease of 5.4% from 9,624 were removed, following a decision of Banco de Portugal or upon expiry of the applicable of Cheque Defaulters across the banking system. In 2019, 8,797 entities were addedto the list and In order to prevent the unlawful use of cheques, Banco de Portugal manages and publishes a List and credittransfersremainedthemostimportantintermsofvalue(52%)(ChartsI.1.7I.1.8). Card payments continued to have the largest share in the system’s total in terms of volume (87%) of exchange)continuedtodeclinebothinvolumeandvalue. line withpreviousyears. In contrast, payments using paper-based instruments (cheques and bills of electronic payment instruments (transfers, bank cards, direct debits and instant transfers), in Compared to 2018, transactions grew 9.3% in volume and 6.4% in value, reflecting the growing use 9. Source: BancodePortugal. Source:BancodePortugal. in SICOI Chart I.1.7•Sharebypaymentinstrumentandyear-on-yeargrowthrates,volumeoftransactions in SICOI Chart I.1.8•Sharebypaymentinstrumentandyear-on-yeargrowthrates,valueoftransactions

Transfers Additional informationcanbefoundintheReportonPaymentSystems Card operations operations Card 52% 87% |2019 |2019 Card operations 26% Direct debits Direct Instant Instant transfers 5% Direct debits Cheques 1% Transfers 16% Cheques 7% 5% 1% , publishedonBancodePortugal’swebsite. 600% 100% -20% 400% 100% 20% 40% 60% 80% -20% 20% 40% 60% 80% 0% 0% -7% -15% 2017 2017 13% 14,2% -13% -13% 2018 2018 9% 8% 2019 6% 2019 9% 9 In In principles formarketinfrastructures. light oftheoversightexpectationsapplicabletocriticalserviceproviders,andSICOI,in recommendations resulting from the assessment of both the SIBS technological infrastructure, in the of implementation effective the checking began Bank The T2S. and TARGET2-PT SICOI, of the assessment of theMultibancocardsystem and continuedtoregularlymonitortheoperation In 2019theBankascertainedthatSIBSFPShadadoptedrecommendationsresultingfrom the implementationofmonetarypolicyoperationsandstabilityfinancialsystem. market economies, and are consequently indispensable to the processing of payment transactions, the financial markets. These infrastructures are increasingly important for the smooth functioning of the smooth functioning of these infrastructures and maintain the confidence of economic agents in an operations perspective and to analyse liquidity, concentration and credit risks, so as to ensure Banco de Portugal monitors and assesses the performance of financial market infrastructures, from within theeuroareaandmostfrequentdenominations remainedthesame. 2018, the number of banknotes withdrawn from circulation dropped by 9.4%, but representativeness total numberofcounterfeitsseizedintheeuroarea),mostly €50and€20banknotes.Comparedto In 2019,16,350counterfeitbanknoteswerewithdrawnfrom circulation(accountingfor2.9%ofthe 767 escudobanknotesintheseconditions,afigureverysimilar tothatobservedin2018. analysis and exchange process. In 2019 Banco de Portugal exchanged 36,688 euro banknotes and by Banco de Portugal that are extremely damaged or fragmented are subject to a complex manual unfit. Although most banknotes are processed through high-speed machines, banknotes received and fromcreditinstitutions (63 million less than in 2018), of which 115 million wereconsidered public general the from received banknotes million 635 of fitness and authenticity the checked in banknote recirculation bycreditinstitutions and cash-in-transit companies. In 2019 the Bank efficiency greater of result the rather but opposite), the precisely shows withdrawals cash ATM in 7% respectively. This decline is not the result of a drop in the use of cash in Portugal (the increase The number of banknotes deposited andwithdrawn from Banco dePortugal declined by9%and of the€5banknote. the Europaseries–werelaunched,completingaprocessthatstartedin2013withlaunch In 2019thelasttwodenominations(€100and€200)ofsecondserieseurobanknotes– line withinternationaltrends. an overalldecreaseinthisactivity,accompaniedbyaconcentrationlargeinternationalbanks, Finally, itconductedasurveyoncorrespondentbankingineuroPortugal,withresultspointingto quite satisfactoryresults. of theIberianenergymarket)andPortuguesecentralsecuritiesdepository,Interbolsa–with of theinfrastructuresrelevanttoPortuguesemarket–SICOI,OMIClear(centralcounterparty In addition,BancodePortugalcarriedoutasecondassessmentofthecyber-resiliencethree process ofthePortuguesecentralsecuritiesdepository,Interbolsa. The Bankmonitoredtheimplementationofrecommendationsresultingfromauthorisation 10. Payment systemsoversight Banknotes andmetalcoins

Principles forfinancialmarketinfrastructures– Disclosure FrameworkandAssessmentmethodology 10 , publishedbyCPSS-IOSCOinDecember2012. 41 Monetary authority 42 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 In 2019thelasttwodenominationsofEuropaserieswerelaunched(the€100and€200banknotes), completingaprocessthatstartedin2013. brought together10,991participants,andtrained11,786professionalcashhandlers. In 2019BancodePortugalorganised459trainingcoursesoneurobanknotesandcoins,which the chronicexcessof€2coinstocksinPortugal. in exchange for 36 million €1 coins in excess in Ireland. This agreement considerably mitigates entered intoforceinJanuary2020with18million€2coinsexcessPortugalsenttoIreland In 2019 the Bankalsosignedanew coin swapagreementwith the Central Bank of Ireland, which establishment. in thesameyear,whichallowedValoratoreachhighestannualproductionvolumesinceits to produce banknotes for the Central Bank of Ireland’s 2019 production quota, implemented already startedproducingbanknotesforthe2020quota.TheBankalsoenteredintoanagreement company which is fully owned by the Bank) and the Austrian banknote printing works. Valora has production quotasofthethreeNCBsanddividesthemequallybetweenValora(abanknoteprinting the centralbanksofBelgiumandAustriaenteredintoforcein2019. This agreement merges the The cooperation agreement for the production of euro banknotes by Banco de Portugal and • • 2019 andestablishesfourfocusareasforthefuture: the Bankconsidersimportantforitspositioning,describesstateofplayatend Banco dePortugal’sCommitmenttoSustainabilityandSustainableFinancesetsoutanumberofreferences portfolios orincorporatingsustainablepracticesintotheirfunctioningasacorporation. financial institutions of the importance of adopting ESG principles when managing their own asset play in promoting sustainability and sustainable finance, for example, by raising awareness among developments, shifts in consumer preferences, or litigation. On the other, they may have a role to technological changes, tax or regulatory to related – risk transition a (ii) and effects climate term that is both: (i) a physical risk– related to more frequent and intense natural disasters or long- risk financial of source a is change climate that consensus is there hand, one the On mandates. specific their on depending differ may concerns their although sustainability, of levels higher to transition this of part integral an are authorities supervisory system financial and banks Central 2050, i.e.netzerogreenhousegasemissions. additional investment needs in the range of €175 to €290 billion a year to attain carbon neutrality by estimated has EU the example, For come. to decades over resources financial of volume large a transformation in how economies and societies function. Second, as it identifies the need to mobilise putting this issue on the economic and financial agenda. First, as it advocates a process of profound climate change. The Paris Agreement, signed in December 2015, played a very important role in The growing awareness of sustainability has been mainly driven byconcerns over the impact of and financialfactorsrelatedtopromotingsustainableactivitiesbehaviours. economic the as understood broadly finance, sustainable of concept the at arrive we that backdrop this against is It changes. institutional or investment of flow resources, natural of use as such the moresustainablebetteritalignsneedsofpresentandfuturegenerationswithaspects (ESG) isincreasinglyappliedtothe analysis of social and economic development, which is considered The notionofsustainabilityintermsenvironmental,socialandcorporategovernanceparameters Finance, whichsetsoutitsguidelinesonthisissue. the publicationalreadyin2020 Sustainable of BancodePortugal’sCommitment toSustainabilityand in resulted work This finance. green and change climate on particular in focused but sustainability, of dimensions various the covered reflection this trends, global with tandem In finance. sustainable and sustainability on reflection internal cross-cutting a out carried Portugal de Banco 2019 In Box 1• • •

stability andbankingregulationsupervision. financial research, economic as such mandate, Bank’s the for critical are which issues covering The third The second area The first cooperating. The fourth measures withapotentialimpactonthefinancialsystemand bymakingcontributions. to leverage its actions by gaining access to privileged information, taking part in the discussion of management ofitsownfinancialassetportfolioandfunction ing asacorporation. Sustainability andsustainablefinance area corresponds to the area highlights the Bank’s area focuses on coversaspects ofthe Bank’s , placing emphasis on networking and communication and cooperation, placing emphasis on networking and identification and assessment of climate change-related risks, in order intervention in the national and international debate in order internal sustainability practices relatedtothe 43 Monetary authority In addition, in 2019 Banco de Portugal developed a set of actions that are also part of the focus areas identified in the Commitment.

The Bank participated in a think tank on sustainable finance (Grupo de Reflexão para o Financiamento Sustentável), created in March 2019 on the initiative of the then Ministry of Environment and Energy Transition. In July, the Governor of Banco de Portugal signed the Letter of commitment to sustainable finance in Portugal, prepared by this think tank and also signed by representatives from the government, the other financial supervisors and industry institutions and associations. In this document, Banco de Portugal made a commitment to cooperate, within the scope of its tasks, on the analysis of the role of the financial system in identifying and managing environmental risks, in financing and investing in green and low-carbon projects, in a broader context of sustainable development and in accordance with European regulation and supervision. It also committed to continuing to monitor and participate in the work of the think tank on sustainable finance.

At international level, the Bank contributed to the work of the Central Banks and Supervisors Network for Greening the Financial System (NGFS), which it joined in December 2018 and which brings together central banks and supervisors. On a voluntary basis, participants exchange experiences and share best practices focused on studying and managing environment and climate risk in the financial sector and mobilising finance to support the transition towards higher levels of sustainability. The NGFS prepared a first report providing six recommendations for monetary and supervisory authorities and other decision-makers to help focus the analysis and establish the best approach to tackle the issue.11

The Bank is also part of several structures created within key international institutions, in particular at European level, that work on sustainability and climate change in the financial field. These include (i) the EBA, which launched a workplan and an action plan on these issues; (ii) the ECB/Eurosystem as regards financial stability and banking supervision, monetary policy and asset management, and efficient management of resources from the perspective of institutions as corporations; and (iii) the European Systemic Risk Board, which is mostly focused on establishing a framework monitoring climate risk and identifying and filling data gaps, thereby increasing the knowledge on the channels spreading these risks.

The Bank also accompanied the negotiation of European legislative initiatives and provided contributions to the national participation in these procedures.

In 2019 the Bank incorporated sustainability principles into its guidelines for the management of its own investment assets. It also participated in the advisory committee that outlined the key features of the first green bond investment fund in the BIS and, in September, invested in units of this fund. It also carried out an early qualitative and quantitative analysis of the ESG market, in particular of green bonds.

As a corporation, the Bank is committed to using resources in an efficient and responsible manner and in 2019 implemented measures with the aim of ensuring lower consumption of plastic and paper and more efficient waste management. In June, the Bank launched a project to define a strategy for sustainable development as an organisation, involving a systematic survey of internal practices, hearing main stakeholders, benchmarking exercises and drafting a first sustainability report to support management.

Activities and Financial Statements 2019 • Annual Report Activities and Financial Statements de Portugal Banco 11. The report is accessible via the NGFS website. 44 • • – wereasfollows: objective, the main monetary policy measures – announced in March, June, July and September 2019 ECB the below remain would inflation that prospects and activity for risks downside economy, Against abackgroundofweakeningeuroareaeconomicactivity, persistentuncertaintyintheglobal open marketoperations,TLTRO–targetedlonger-termrefinancingAPPassetpurchaseprogramme. other – OMOs Other operations, refinancing main – MRO DF –depositfacility,MLFmarginal Source: BancodePortugal.|Notes:lending facility, Chart C2.1•OutstandingamountbytypeofmonetarypolicyoperationinPortugal implementation ofeuroareamonetarypolicy(ChartC2.1). execution oftheadoptedmeasures,namelywithresidentcreditinstitutions,underdecentralised committees that assist the Governing Council. In addition, Banco de Portugal continued to ensure the outlining measures through contributions from Banco de Portugal representatives in the technical the participation of the Governor in the Governing Council of the ECB, and in preparing and Banco dePortugalcontributedtothedecision-makingprocessonmonetarypolicy,through medium-term inflationaim. rates on banking intermediation. In addition, the Governing Council confirmed the symmetry of its remunerating reserve holdings aimed at mitigating potential adverse effects from negative interest for system two-tier a introduced Council Governing the – operations refinancing longer-term targeted policy, forwardguidanceonthefuturepathofECBinterestrates,assetpurchaseprogrammesand rate interest negative the specifically, – years few past the in used instruments the reinforcing and sustained a return of euro area inflation towards the medium-term objective. In addition to reactivating stance that has characterised euro area monetary policy since mid-2014 in order to support Over the course of 2019, the Governing Council of the ECB decided to reinforce the accommodative Box 2• billions

with amoreattractiveinterestrateandlongermaturitythan initiallyannounced; parameters of the TLTRO-III were recalibrated in September, immediately before the first operation, during whichitexpectedkey interest ratestoremainunchanged and, inJuly,itannounced the was cutinSeptember.InMarch andJune,theGoverningCouncilextendedminimum period forward guidance of introduction - 10 - 10 20 30 40 50 60 70 80 0 Jun. 14 Dec. 14 Jun. 15 Dec. 15 Jun. 16 Dec. 16 Jun. 17 Dec. 17 Jun. 18 Dec. 18 Jun. 19 Dec. 19 Dec. 19 Jun. 18 Dec. 18 Jun. 17 Dec. 17 Jun. 16 Dec. 16 Jun. 15 Dec. 15 Jun. 14 Dec. 14 Jun. Monetary policyin2019 DF a new series of targeted longer-term refinancing operations (TLTRO-III). The (TLTRO-III). operations refinancing longer-term targeted of series new a on key rates was changed at various points in 2019 and the deposit facility rate on key rates was changed at various points in 2019 and the deposit facility rate MLF MROs Other OMOs Other TLTOs APP | In EUR |InEUR

45 Monetary authority possibility of rates standing below the levels prevailing at that time. In September, the Governing Council cut the deposit facility rate by 10 basis points, from -0.40% to -0.50%, and announced that ECB interest rates were expected to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics;

• restart of net purchases under the APP, at a monthly pace of €20 billion from November, with the expectation that they will end shortly before the ECB starts raising the key interest rates;

• introduction of a two-tier system for remunerating credit institutions’ excess reserve holdings, in which part of these reserves are exempt from the negative deposit facility rate from 30 October 2019. These measures are mutually reinforcing and promote a degree of monetary policy accommodation, preserving favourable bank lending conditions and ensuring an adequate transmission of monetary policy. This set of measures has reinforced the monetary policy contribution to growth in the euro area’s economy and employment, including in Portugal, as observed since mid-2014.12 This monetary accommodation is expected to gradually pass through to inflation in the euro area as a whole.

Transmission of this set of monetary policy decisions in the euro area is carried out through a variety of channels. At the shorter end of the yield curve, interest rates have remained at record low levels, in line with the deposit facility rate (Chart C2.2). For longer maturities, expectations for developments in monetary policy interest rates, anchored by the ECB’s forward guidance, together with net asset purchases and the reinvestment policy, have also helped keep money market interest rates at low levels. The PSPP is also assumed to have a substantial impact on the decline in long-term interest rates on the government debt of euro area countries, including Portugal, which is expected to persist (Chart C2.3).13 In addition, TLTROs, which provide strong incentives for lending, are expected to have contributed to a greater willingness by the banking sector to grant new loans to enterprises and households at significantly lower rates (Charts C2.4 and C2.5). In turn, the two-tier system for remunerating excess reserve holdings is also expected to have eased monetary policy transmission through the banking system.

These effects had a favourable impact on economic agents in Portugal – households, financial and non-financial corporations, and public sector – either directly through the abovementioned channels, or indirectly through an improvement in the economic, monetary and financial conditions of Portugal’s main partner countries.

12. See Rostagno, M., Altavilla, C., Carboni, G., Lemke, W., Motto, R., Saint Guilhem, A. and Yiangou, J. (2019), A tale of two decades: the ECB’s monetary policy at 20, ECB Working Paper 2346.

Activities and Financial Statements 2019 • Annual Report Activities and Financial Statements de Portugal Banco 13. See Box 1 “The impact of the public sector purchase programme on euro area long-term yields”, June 2019 issue of the Economic Bulletin, Banco de Portugal. 46 type of economic agent. borrowing indicator,i.e.correspondingtotheweightedaverageofshortandlong-terminterestratesonloansgrantedeachtypeeconomicagent. Sources: StatisticsDataWarehouse(ECB)andBancodePortugalcalculations.|Note:ChartswerecalculatedonthebasisoftheECB’scompositecost-of- financial corporations Chart C2.4• Sources:BloombergandBancodePortugal. Chart C2.2• -0.6% -0.3% 0.0% 0.3% 0.6% 0.9% 0 1 2 3 4 5 6 7 8 EONIA Cost ofbankloanstonon- Key interestrates Portugal Lending | Percentage Deposit Euro area MRO €STR for housepurchase Chart C2.5•Costofbankloanstohouseholds | Percentage Chart C2.3•Yieldson10-yearpublicdebt Sources: BloombergandBancodePortugalcalculations. 14 19 -2 -1 -1 0 1 2 3 4 5 6 7 8 4 9 Portugal Portugal Germany | Percentage E uro area France Italy 6M Euribor Spain

47 Monetary authority 48 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 institutions or institutions present in Portugal were at stake. In addition, the Bank’s staff members members staff Bank’s the addition, In stake. at were Portugal in present institutions or institutions sessions, aswellintheextended executivesessionswheneverissuesrelatedtoPortuguese credit work. RegardingtheSingleResolution Board,BancodePortugalwasrepresented in plenary planning resolution the intensified Portugal de Banco context, this In activity. cross-border no with institutions significant less to relation in functions resolution their exercising directly for responsible – andthenationalresolutionauthoritiesofMemberStates oftheBankingUnion–whichare activity cross-border with institutions or institutions significant on functions resolution exercises responsibilities forresolutionaresharedbetweentheSingle ResolutionBoard–which,essentially, under the Banking Union for the resolution of credit institutions. Within the SRM, the powers and Banco de Portugal is also part ofthe Single Resolution Mechanism (SRM), whichwasestablished type ofactioncontributestotheharmonisationpractices acrossthesupervisoryentities. Portugal ledandparticipatedinsomecross-borderinspectionmissionsoflargebankinggroups.This de Banco SSM, the within Also countries. SSM other from banks of inspections in participation staff supervisory teams assigned to the significant institutions of the Banking Union, increasing the Bank’s joint the joined members staff Portugal de Banco 45 year, the Throughout Lisbon. in office In 2019theECB’sSupervisoryBoardheld18meetings,oneofwhichatBancodePortugal’shead supervisory bestpractice,whichissubsequentlyincorporatedbytheBank. for thedevelopmentofmethodologiesandsupervisorytools,aswellpromotion holdings. BancodePortugalalso participates in anumberoftechnical working groupsresponsible and withdrawingauthorisationtocreditinstitutionsforassessingtheacquisitionofqualifying granting for procedures the in participates it (v) and institutions; significant in functions of exercise the for suitability of assessment the in participates and supervision, direct its to subject institutions functions ofthemembersmanagementandsupervisorybodieskeyfunctionholdersin the of exercise the authorises it (iv) institutions; significant less supervises directly it (iii) teams; supervisory joint in participating by institutions significant of supervision the in collaborates it (ii) Board, the body responsible for planning and performing the supervisory tasks of the SSM; supervision, BancodePortugalintervenesatseverallevels:(i)itisrepresentedontheSupervisory Under theSingleSupervisoryMechanism(SSM),whichisBankingUnion’ssystemforprudential influence thefinancialsupervisoryarchitecture. to thebuilding-up and functioning of theBankingUnion and to the regulatory framework, and Participation inthedecision-makingstructuresofthesebodiesenablesBanktocontribute European BankingAuthority. particular theNationalCouncilofFinancialSupervisors,EuropeanSystemicRiskBoardand in supervision, and regulation financial in fora international and national various in participates and Banco dePortugalispartoftheSingleSupervisoryMechanismandResolutionMechanism, second BroadStrategicGuidelineestablishedforthefour-yearperiod2017-2020. Portugal’s work in 2019 to promote the robustness and stability of the domestic financial system, the conduct), as well as legal enforcement and resolution powers. This chapter describes Banco de the Bankhasregulatoryandsupervisorypowers(macroprudential,microprudentialbanking task, this accomplish To mission. Portugal’s de Banco of part is stability financial Safeguarding 2 Financialstability the impactofBrexitandframeworkforapplyingmacroprudential tools. directly relatedtothebankingsector,implicationsofamendments totheprudentialframework, more stability financial to risks discussed: were issues following the which in held, were meetings discuss topics of common interest from the micro- and macroprudential perspectives. In 2019 four Governing CounciloftheECBandSupervisoryBoard theSingleSupervisoryMechanismto The BankalsoparticipatesintheMacroprudentialForum, whichregularlybringstogetherthe the insurancesectorandonassessmentofcyber-risk atsystemiclevel. for tools macroprudential the on instruments, financial 3 and 2 Level of holding sector’s banking the other MemberStatesorathirdcountry,ontheassessment ofthemacroprudentialimplications in office head their having institutions credit of branches to relation in purposes macroprudential the residential real estate market. Work was also developed on the collection of information for with associated risk systemic the mitigate to measures specific adopt to need the to regard with on closing real estate data gaps States and,developmentsintherealestatemarket,particularlyrevisionofRecommendation issues, such as the main risks to financial stability, macroprudential measures taken by several Member prevention andmitigationofsystemicrisks.Thisbodyheldfourmeetingsin2019discussedseveral Risk Board, the entity responsible for macroprudential supervision of the EU financial system and the The GovernorofBancodePortugalisamembertheGeneralBoardEuropeanSystemic in 2020,nowpostponedto2021. development ofmethodologiesforstress-testexerciseintheEU,whichEBAplannedtobecarriedout monitoring oftheUK’swithdrawalfromEU(Brexit).BancodePortugalalsoparticipatedin and the implementation of the second Payment Services Directive, in addition to tasks related to the finance sustainable sector, financial the of digitalisation financing, terrorist and laundering money of (IFRS9), protectionofconsumersanddepositors,resolution,depositguaranteeschemes,prevention of non-performingloans,theimplementationInternationalFinancialReportingStandards in relationtointernalgovernanceandremuneration,creditriskmarketrisk,thetreatment participated intheaccomplishmentofEBAworkwithinscopeitsseveral mandates, namely matters was maintained, with a view to promoting the convergence of supervisory practices. The Bank with theEuropeanbankingsector,itsfocusonmonitoringofseveralcapitalandliquidity-related held sevenmeetingsin2019.Inadditiontotheregularanalysisofrisksandvulnerabilitiesassociated Banco dePortugalparticipatesinEBA’shighestdecision-makingbody,theBoardofSupervisors,which supervision, resolution, prevention of money laundering and terrorist financing, and payment systems. several of Banco de Portugal’s areas, namely financial stability, prudential supervision, banking conduct convergence ofsupervisorypracticesintheEuropeanUnion(EU),requiresregularinvolvement In turn, the activity of the European Banking Authority (EBA), focusing on the regulation and contributions bythePortugueseinstitutions. monitors the operation of the Fund, notably in the setting, collection and payment of periodic intended tosupporttheresolutionofbankswhicharefailingorlikelyfail.BancodePortugal The SRM also integrates the Single Resolution Fund, which is funded by the banking sector and committees andtechnicalworkinggroupsoftheSRM. office in another Member State of the Banking Union. Banco de Portugal also participated in several head with institutions other and institutions significant Portuguese include that groups banking to assignedand work planning resolution for responsible teams resolution internal the joined 14.

Recommendation oftheEuropeanSystemicRisk Boardof31October2016. 14 and the warning and recommendations to 11 EU Member States and the warning and recommendations to 11 EU Member States 49 Financial stability 50 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 15. covered bonds, for framework regulatory harmonised minimum a develop (iv) firms; investment to applicable Authority andtheEuropeanSystemicRiskBoard);(iii)establish thenewprudentialframework Supervision (byupdatingthelegalframeworkgoverning the activitiesofEuropeanBanking applicable to credit institutions and investment firms; (ii) revise the European System of Financial legislative proposals,especiallythosedesignedto:(i)strengthen thelegalprudentialframework EU, BancodePortugalparticipatedinthenegotiationprocess ofseveralEuropeanCommission In conjunction with the Ministry of Finance and the Permanent Representation of Portugal to the regulation oftheEuropeanUnion(EU)applicabletoinstitution s subjecttoitssupervision. In 2019BancodePortugalcontinuedtoparticipateinthedevelopmentofnewlegislationand 2.1 members andotherpublicauthorities(Box1). its for recommendations make which network, this of report first the of and documents technical of preparation the in participated Portugal de Banco 2019 In finance”. “green through economy sustainable a to transition the support and sector financial the in risks environmental of management Financial System,whichintegratescentralbanksandsupervisorsgloballyaimstopromotethe Banco dePortugalalsoparticipatesintheCentralBanksandSupervisorsNetworkforGreening entities governancewerealsoshared. the frameworksforconductingmonetarypolicy.Bestpracticecentralbanksandsupervisory and crisis financial global the following implemented reforms the of assessment regulation, financial international innovation, technological from arising system financial the to risks and for opportunities and financial situation and the main risks to financial stability. Other issues were also discussed, suchas and supervisoryauthorities.In2019thediscussionsfocusedonanassessmentofglobaleconomic forum for international cooperation and discussion among central banks and other financial regulatory meetings, whichareheldeverytwomonths.TheBankforInternationalSettlementsisaprivileged The GovernorrepresentsBancodePortugalattheBISAnnualGeneralMeetingandgovernors’ Action TaskForce(FATF). Monetary Fund,theFinancialStabilityBoard’sRegionalConsultativeGroupforEuropeand as wellinglobalinstitutionssuchtheBankforInternationalSettlements(BIS), technical groups in the financial area, in particular at the European Commission and the EU Council, Banco dePortugalalsoparticipatesintheEconomicandFinancialCommitteeofEUseveral measures issuedbythethreeEuropeansupervisoryauthorities. or recommendations main the highlighting and system, financial European the in risks intrasectoral and inter main the summarising reports half-yearly the to EU; the in conglomerate financial a risks shouldbeviewedbyprudentialsupervision;totheupdatingoflistgroupsconstituting on assessing the risk of money laundering and terrorist financing, in addition to determining how such guidelines of updating and issuance the to contributed Portugal de Banco 2019 In system. financial includes theBank’sparticipationinvariouscommitteesandworkinggroupscuttingacross The work carried out under the aegis of the Joint Committee of European Supervisory Authorities

See Box2oftheDecember2019issue Financial StabilityReport Regulatory framework 15 and(v)introducerulesoncreditacquiringand/ormanaging entities. , availableonBancodePor tugal’s website. 17. 16. and publishedon23May2019. Parliament to submitted was report This funds. public from benefitted indirectly or directly which and recapitalisation or liquidation nationalisation, resolution, to subject were that institutions credit on public funds, Banco de Portugal prepared an extraordinary report containing relevant information In compliance with Law No 15/2019 of 12 February 2019 on credit institutions which benefitted from financing, terrorist or laundering money of purposes the for system financial the of use of prevention the on Directive The BankfurthercontributedtothetranspositionintoPortugueselawofprovisionsnew the Capital Requirements Regulation, and the materiality threshold for credit obligations past due. securitisation, specifyingthetypesofexposureswhichmustbeassociatedwithhighriskunder Authority guidelinesandEUregulations,notablyoncriteriaforsimple,transparentstandardised As forthecreationofdomesticrules,BankworkedonimplementationEuropeanBanking interest criterion. possible harmonisation of the insolvency rules for credit institutions not compliant with the public a backstopfortheSingleResolutionFund,enhancementofcapitalmarketsunionand monitored the processes associated with the creation of a European deposit insurance scheme, Bank the instance, For matters. stability financial on guidelines strategic setting and proposals Economic andMonetaryUnion,byprovidingtechnicalsupporttotheMinistryofFinance,preparing Moreover, Banco de Portugal continued to monitor the matters related to the deepening of the legislation approvingcontingencymeasurestobeappliedintheeventofano-dealBrexit. the of preparation the in participating thus sector, financial the for Brexit of consequences the of Together withtheNationalCouncilofFinancialSupervisors,Bankwasalsoinvolvedinanalysis transparency andcomparabilityofcurrencyconversioncostsincurredwithsuchpayments. border paymentsineurowiththecostofdomesticnationalcurrenciestoensure Services and Electronic Money, in order to implement the principle equalising the cost of cross- regime applicabletodeferredtaxassets,amendmentstheLegalFrameworkforPayment of impairments of credit institutions and other financial companies impairments and to the special establishment of specialisedalternativeinvestment undertakings, amendments to thetreatment management companiestothePortugueseSecuritiesMarketCommissioninJanuary2020, Banco de Portugal’s prudential supervisory powers on credit securitisation and investment fund the MutualAgriculturalCreditGuaranteeFundtoDepositFund,transferof from function guarantee deposit the of transfer the supervision, financial domestic of reform the namely: initiatives, specific of form the in and Supervisors Financial of Council National the of In addition,BancodePortugalissuedopinionsonseverallegislativeproposals,bothasmember under thefreedomtoprovideservices. due diligence,suspicionindicatorsandreportingobligationsoffinancialserviceprovidersoperating

Decree-Law No147/2019of30September2019. use ofthefinancialsystemforpurposes of moneylaunderingorterroristfinancing,andamendingDirectives2009/138/EC2013/36/EU. Directive (EU) 2018/843 oftheEuropean 16 as well as submitted proposals for the materialisation of simplified/enhanced simplified/enhanced of materialisation the for proposals submitted as well as Parliament and of theCouncil of 30May2018 amending Directive (EU) 2015/849 on thepreventionof 17

51 Financial stability 52 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 impairments. of the economy with evident consequences, such as the reduction of costs with provisions and sector’s efforts to promote efficiency and, on the other, developments related to the cyclic position the as such nature, a structural of factors hand, one the on reflected, improvement profitability The (14) RatiobetweenTier1capitalandtotalexposure(includingon-off-balance-sheetassets,derivatives). assets. risk-weighted and capital 1 Tier Equity Common between Ratio (13) assets. risk-weighted to funds own total of Ratio (12) value. gross their and of thenon-performingloansnetimpairmentsandtotalgrossvalueloans.(11)Ratio betweenimpairmentsrecordedfornon-performingloans a 30-daystressscenario.(9)Ratiobetweenthegrossvalueofnon-performingloansand totalgrossvalueoftheloans.(10)Ratiobetween almost entirely to Eurosystem funding. (7) Ratio of loan to deposits of customers. (8) Ratio of available liquid assets and net cash outflows calculated under corresponds It assets. total of percentage a as funding bank Central (6) income. operating total and costs operational between Ratio (5) equity. average of between interest income and expenses on financial assets and liabilities; as a percentage of average assets. (4) Profit and loss before taxes as a percentage percentage of average assets. (2) Net interest income and net fees and commissions less operational costs; as a percentage of average assets. (3) Difference Source: Banco de Portugal. | Notes: (*) Profitability indicators calculated with cumulative flows in the year, annualised. (1) Profit and loss before taxes a as Table I.2.1• with regardstoprofitability,efficiency,assetqualityandsolvency(TableI.2.1). In 2019 the domestic banking system continued to improve its main financial indicators, notably 2.2 Profitability (*) Liquidity Asset quality Solvency Total assets(gross)/GDP(nominal) Return onassets(ROA) Operating result Net interestincome Return onequity(ROE) Cost-to-Income Net profitfortheyear Central bankfunding Loan-to-deposit (Ltd)ratio Liquidity coverageratio(LCR) Ratio ofnon-performingloans(NPLs) NPL ratio(netofimpairments) NPL impairmentcoverageratio Total non-performingloans Capital ratio of impairments Total non-performingloansnet Common EquityTier1(CET1)ratio Leverage ratio Households, housepurchase purposes Households, consumptionandother Non-financial corporations Households, housepurchase purposes Households, consumptionandother Non-financial corporations Households, housepurchase purposes Households, consumptionandother Non-financial corporations Stability ofthePortuguesefinancialsystem Portuguese bankingsystemindicators

oe nt21 0721 2019 2018 2017 2016 Unit Notes 1)% (10) 1)% (10) 1)% (10) 1)%1. 16815.4 8.1 11.6 15.1 % (10) 1)% (11) 1)%2. 282. 26.2 27.1 22.8 21.0 % (11) 1)%6. 266. 58.9 60.2 62.6 63.2 % (11) 1)%4. 395. 56.3 56.3 53.9 48.9 % (11) 1)%1. 511. 16.7 15.2 15.1 12.3 % (12) 1)%1. 391. 14.1 13.2 13.9 11.4 % (13) 1)% (14) 1 0603070.7 0.7 0.3 -0.6 % (1) 2 % (2) 3 % (3) 4 7333718.1 7.1 3.3 -7.3 % (4) 5 945. 0359.2 60.3 52.8 59.4 % (5) 6 % (6) 7 559. 9087.3 89.0 92.5 95.5 % (7) 8 5. 7. 9. 218.4 196.4 173.5 150.8 % (8) 9 721. . 6.1 9.4 13.3 17.2 % (9) 9 % (9) 9 621. 068.2 10.6 13.1 16.2 % (9) 9 952. 8512.3 18.5 25.2 29.5 % (9) millions millions millions EUR, EUR, EUR, EUR, EUR, EUR, |2016–2019 -1,244.5 6313,0 58217,194 25,852 37,001 46,361 5341,2 2428,372 12,432 18,728 25,364 534. 51.9 49.4 45.3 . . . 1.8 1.9 1.9 2.1 . . . 1.0 1.0 0.8 0.7 . . . 1.6 1.6 1.6 1.5 . . . 4.4 5.3 6.3 6.4 . . . 2.4 3.7 5.7 7.0 . . . 3.0 4.5 6.7 9.4 . . . 1.8 2.7 4.4 5.5 . . . 3.4 4.2 4.9 6.0 . . . 7.8 7.3 7.8 6.6 -87,7 1,078.2 1,791.8 51.3

• • • of theEuropeanUnion(ECOFIN).In2019followinginitiativesshouldbehighlighted: Council Affairs Financial and Economic the by 2017 July in endorsed was which Europe”, in Loans Single Supervisory Mechanism (SSM), as well as within the “Action Plan to Tackle Non-performing context, BancodePortugalparticipatedinthedevelopmentofseveralinitiativesundertakenby The reduction ofthe high stock of NPLswas also considered apriorityatthe European level. In this measures incaseofdeviations. the implementation of plans to reduce NPLs, required revisions and updates, and imposed alternative institutions withahigherratio,leadingtoreductionofheterogeneity.BancodePortugalmonitored among significant more but sector, banking the across widespread was ratio NPL the in reduction during thesameperiodNPLnetofimpairmentsdecreasedfrom€28.7billionto€8.4billion.The 2019, accountingforadecreaseofmorethan€33billioninonlythreeyearsandhalf.Inaddition, banking system:NPLsfellfromarecordhighof€50.5billioninJune2016to€17.1December Portuguese the by achieved advances significant most the of one to correspond developments These guidelines and plansto reduce non-performingloans submitted to supervisory authorities by banks. the with line in sheets, balance on NPLs of stocks the in reduction the reflecting mainly mid-2016, In turn, the non-performing loans (NPL) ratio continued to follow the downward trend that began in indicator inthebankingsystem. to about 218% and in customers’ deposits taken by €10.3 billion, corresponding to a confidence Liquidity ratios also improved significantly in 2019, with an increase in the liquidity coverage ratio losses intheeventofresolution. compliance with the minimum requirements for own funds and eligible liabilities (MREL) able to cover to contribute also securities debt These issues. securities debt of number a from benefitted also but components, income comprehensive other and earnings retained in developments to due chiefly total capital ratio to 16.7% (15.2% in 2018). As mentioned above, the increase in own funds was more resilient credit institutions. In 2019 the CET 1 ratio increased to 14.1 % (13.2% in 2018) and the to contributed which requirements, regulatory and profiles risk the with consistent capital of levels funds. This reinforcement occurred after the issuance orders by Banco de Portugal aiming at ensuring own strengthen to possible it made policy distribution dividend the and profitability in recovery The 18. •

See Box4oftheDecember2019issue Financial StabilityReport Member StatesoftheEuropeanUnion(EU)andallsignificant andlesssignificantinstitutions; managing non-performingandforborneexposures,extendingtheirscopeofapplicationtoall on are tobereportedforthefirsttimein2020,withMarch2020 asreferencedate. of information to the supervisory authority on non-performing and forborneexposures which Introduction, by the Entry intoforceattheendofJune2019 prudential provisioningofnewnon-performingexposures, bringing themclosertothosesetout Revision bytheSingleSupervisoryMechanisminAugust2019ofsupervisoryexpectationsfor is alegallybindingmeasureandapplicabletoallbanksestablishedintheEU; regulatory Establishment andentryintoforce(on26April2019),forprudentialpurposes,ofcommonminimum in theprudentialbackstop; provisioning levels for newly originated exposures (the so-called prudential backstop). This provisioning levels for newly originated exposures (the so-called prudential backstop). This European Banking Authority, of additional requirements on the reporting 18 of the guidelines of the European Banking Authority , availableonBancodePor tugal’s website.

53 Financial stability 54 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 20. 19. constitutes abenchmarkforotherEuropeanmacroprudential authorities. measure in some of its characteristics, particularly with regard to the governance model, and apioneering considered was measure this Moreover, identified. risks the mitigate to sufficient and the European Systemic Risk Board considered Banco de Portugal’s Recommendation to be appropriate In itsassessmentreportofEuropeanresidentialrealestate marketspublishedinSeptember2019, measure. this on report progress first the published Portugal de Banco 2019 May In customers. their and institutions these by raised issues on clarifications interact closely with the institutions for the preparation and collection of information and providing In 2019 Banco de Portugal monitored the implementation of this measure by continuing to to sustainablefundingonthepartofconsumers,minimisingdefaultrisk. new credit, so as to boost financial sector resilience to potential adverse shocks and promote access creditworthiness. It aimstoensure that theseinstitutions do not take excessiveriskswhen granting some of the criteria withwhichcreditinstitutions should complywhen assessing the borrower’s consumers. ThismeasurecameintoforceinJuly2018.Recommendationintroduceslimitsto a Recommendationaimedatmitigatingtherisksassociatedwithnewcreditagreements In 2018BancodePortugaldecidedtoimplementamacroprudentialmeasureintheformof reduce thisrisk,soastoboostfinancialsectorresilience. and assessingsystemicrisksources,forproposingadoptingmeasurestoprevent,mitigateor As thenationalmacroprudentialauthority,BancodePortugalisresponsibleforidentifying,monitoring namely thosewithinthebankingsystem. stakeholders, relevant to guidelines and findings main the of dissemination and risks systemic the the year Banco de Portugal conducted a wide range of exercises and initiatives intended to assess throughout system, financial the of stability the safeguarding on tasks its of performance the In covered byprovisionsonbankbalancesheets. any new NPLs on bank balance sheets, as well as to preventthe excessive build-up of NPLs not Overall, these initiatives are intended to manage the existing stock of NPLs and, in due course, have amaximummaturityoftenyears. to seven years, except credit for education, healthcare and renewable energy, which will continue to 29 January2020BancodePortugaldecidedtoreducethemaximummaturityofnewpersonalcredit account these developments and the risks observed in the current economic environment, on into Taking periods. longer for cycle business the in fluctuations to exposed be will borrowers that implies it as system, financial the for risk increased an pose may credit, personal particular in credit, maintenance oftheupwardtrendaveragematurityandamountnewconsumer risk profile.Withinthescopeofthismonitoringtask,BancodePortugalalsoconcludedthat borrowers’ the in improvement and set limits the towards trend convergence significant a and set the effectiveness of the limits established in the Recommendation for compliance with the objectives Macroprudential policy

See de Portugal’swebsite. See thedocumentissuedinMay Macroprudential measures –LTV,DSTIandm 2019 entitled Macroprudential Recommendation on new agreements for consumers – progress report, available on Banco aturity limits, availableonBancodePortugal’swebsite. 20 19 The analysis in the Report points to The analysis in the Report points to

of statutoryauditorsorauditfirms. and relatedparties,remunerationpolicies,internalpolicies fortheselectionandappointment interest of conflicts prevent to policies including analyses, cross-cutting several as well as governance, In 2019BancodePortugalcarriedoutseveralinspections with afocusontheinstitutions’internal management ingeneralfor2019. banking systemandtheprioritiessetbySingleSupervisory Mechanismforcreditriskand context of the financial sector, the assessment of the main risks to the institutions of the Portuguese capital and liquidity positions. The priorities were identified taking into account the international mechanisms, (ii) the strengthening of the business models, and (iii) the reinforcement of institutions’ control internal and governance of reinforcement the (i) fields: three on focused measures These aimed atboostingtheresilienceofmainbanksinlightpotentialrisksandfuturechallenges. In 2019theBankdevelopedarangeofmeasureswithinscopeprudentialsupervision Portuguese O-SIIstotheFrenchnon-financialcompaniessector. the measure taken by the French authority, considering the reduced materiality of exposures of the related to exposures secured by residential property located in that country, and not to reciprocate Portugal decided to voluntarily reciprocate the macroprudential measure taken by Sweden, which is de Banco exercise. previous the in identified countries the to compared change no was there and out The annual exercise to identify third countries relevant to the Portuguese banking system was carried 2017 weremaintained. in set period phase-in the and rate buffer O-SII the groups, banking other the For 2022. January 1 of as completed fully be should buffer O-SII its i.e. increase, basis-point 25 the with comply to year system. In light of this change, Banco de Portugal granted Banco Comercial Português one additional financial Portuguese the for importance systemic its of increase the following 1.00%, to 0.75% from Português, Comercial Banco on imposed requirement buffer O-SII the revised also Portugal de Banco S.A. whichwasreplacedbyLSFNaniInvestmentsfollowingthechangeinshareholderstructure. institutions identified as O-SII. This list coincides with that published in 2018, except for Novo Banco restructuring process,suchasamergeroracquisition.In2019BancodePortugalrevisedthelistof a significant of event the in or annually revised is rate buffer The economy. the and system financial the on impact significant a have may bankruptcy whose institutions by risk-taking excessive with systemically importantatthedomesticlevel,isusedtomitigatestructuralsystemicriskassociated considered groups banking on imposed (OSII) buffer institution important systemically other The a domesticcyclicalsystemicriskindicator. and takingintoaccountthetimelydetectionofsourcesrisk,BancodePortugaldeveloped buffer, capital countercyclical the of framework analytical the of revision a of context the In 0%. at and qualitative information, Banco de Portugal decided to keep the countercyclical capital buffer rate cycle, thushelpingtomitigateanyprocyclicaltrends.Takingintoaccounttheavailablequantitative aims to increase the banking system’s capacity to absorb losses during any downturn in the financial which quarterly, buffer capital countercyclical the reassess to continued Portugal de Banco 2019 In 21. Prudential supervision

See Box3oftheJune2019issueFinanc ial StabilityReport 21 , availableonBancodePortugal’s website.

55 Financial stability 56 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 liquidity positions. mechanisms and to strengthen the institutions’ business models, as well as to improve capital and All these measures aimed to enhance the quality of the internal governance and internal control Fintech competition. from emerging communication systems (particularly cybersecurity), with challenges for traditional business models supervisory initiatives were developed in relation to the risks associated with information and of number a activity, financial the to applied innovation digital growing the account into Taking practices andpricingofcreditgrantinginnewoperations. policies, the assessed and policies, investment internal of robustness the verified assets, of types implement their digitaltransformation plans,assessed the concentration of exposuretocertain other initiatives, it challenged and monitored institutions’ strategic plans, assessed banks’ ability to In 2019 Banco de Portugal encouraged institutions to strengthen theirbusiness models. Among of theinstitutions. credit institutions’managementandsupervisorybodiestodiscusstheirroleinthegoodgovernance of members non-executive 50 than more with held was conference a 2019 In field. this in sector In addition,BancodePortugalcontinuedtoorganiseglobalcommunicationinitiativeswiththe its expectationswithrespecttotheinstitution’sgovernanceinadvance. processes, and inanticipationofpossibleprudentialconcerns,BancodePortugalcommunicated renewal mandate have soon will that banks the to regard With I.2.2). (Table interest of conflicts preventing and qualifications enhancing of terms in especially recommendations, 400 than more of supervisory bodiesofseveral institutions, involving theregistration of 915 people andtheissuance and management the of shift the in reflected was activities Portugal’s de Banco on imposed functions, aimingtoensuresoundandprudentmanagementoftheinstitutions.Thedemand of themanagement andsupervisorybody,whodevotethenecessarytimetoexerciseoftheir to promote the selection by the institutions of more qualified, independent and suitable members continued tobeoneofthemostprominentfeaturesprudentialsupervisionactivity,intended Assessment ofthesuitabilitymemberscorporatebodiessupervisedinstitutions In 2019BancodePortugalhostedoneofthemeetingsSupervisoryBoardEuropeanCentralBank. Statutory changes Registration actswithregardtoqualifyingholdings services ElectronicmoneyinstitutionsbasedinEEAStates,providing Payment institutions based in EEA States, providing services PaymentinstitutionsbasedinEEAStates,providingservices CreditinstitutionsbasedinEEAStates,providingservices and financialcompaniesbasedabroad Registered representativeofficesofcreditinstitutions Branches ofEU-basedfinancialcompanies Branches ofsubsidiariesEU-basedcreditinstitutions National institutionsregistered: of fees, a document standardised at European level, which contains information on the fees charged The institutions also checked compliance with the obligation to make available the annual statement the basicbankaccountand parametersforthedebitcardlinkedtosuchaccount. bank accounts. It also assessed compliance with the rules that set out the conditions for access to information providedtocustomersbyinstitutionsontheconvertibility ofcurrentaccountsintobasic the verified Portugal de Banco regime, services banking basic the with compliance monitoring In developed byBancodePortugalforpromotingfinancialinformati on andtraining. education financial digital of priorities the of one was channels digital of use the in procedures to credit intermediaries and training entities. Empowering bank customers for the adoption of security same time,itaddressedthechallengesofbroadeningperimeter ofbankingconductsupervision paying particular attention to the marketing of products and services through digital channels. At the applicable toretailbankingmarketsinacontextofincreasingtechnologicalinnovationactivity, In 2019 Banco de Portugal supervised financial institutions’ compliance with the regulatory framework Source: BancodePortugal. Members ofcorporatebodiesregistered: Table I.2.2• addition to227qualifyingholdingsand112statutoryamendments(TableI.2.2). in registered, were institutions payment and companies financial institutions, credit 1589 of total A the statutorytimelimitswereensuredbyassessmentofextensiveandcomplexinformation. of the legal and prudential requirements for access to the financial activity and strict compliance with verification and completed was processes 185 of analysis the authorisation, entity of scope the Within Banking conductsupervision Holding companies Electronic moneyinstitutions Financial companies Payment institutions Credit institutions Board ofthegeneralmeeting Supervisory bodies Management bodies Registration acts |2017–2019

Total e.1 e.1 Dec.19 Dec.18 Dec. 17 ,6 ,8 ,4 463 2,843 2,380 2,365 212 134 348 535 369 170 692 146 210 336 75 31 20 45 95 1 1 6 228 172 360 537 361 165 666 114 228 324 56 29 20 46 90 1 2 8 112 227 234 438 553 364 1 249 165 915 186 327 402 24 22 12 47 89 2 3 Δ 2019-2018 56 62 78 16 72 99 78 -1 -5 -1 3 2 1 1 4 1 0 57 Financial stability 58 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 22. flows throughtheonlineormobilechannels. Banco dePortugalheldbilateralmeetingswiththeinstitutions toanalysethereportofsigning-up of the products and services offered and of the institution responsible for offering them was verified. identification appropriate mediums, information other and advertising In process. contracting the for on pre-contractual information and assistance obligations, as well as on the security requirements framework applicable to these channels (technological neutrality principle). Its monitoring focused supervisory activity on the offering of these products, aiming to ensure compliance with the regulatory In acontextofincreasingsupplyconsumercreditthrough digitalchannels,theBankfocusedits arrears regime. of thecontractandapplicationgeneral the provision of information during the lifetime limits, the exercise of the rightto early repayment, calculation and compliance with applicable upper pre-contractual andcontractualinformation,APRC reported toBancodePortugal,theprovisionof following were all assessed: reliability of information lines and currentaccounts, and carloans. The facilities andcreditoverrunning,cards, inspections carriedoutfocusedonoverdraft framework applicabletoconsumercredit,the In monitoring compliance with the regulatory immovable propertyassessmentreport. credit agreementandtheavailabilityof periodic informationduringthe lifetime ofthe APRC andinterestcalculation,theprovisionof pre-contractual andcontractualinformation, contracting process, namely the provision of of the central services, which focused on the 2019 Banco de Portugal conducted inspections property andcreditsecuredbyamortgage,in on creditrelatingtoresidentialimmovable customers, in thenewframework as described provide assistanceandinformationtobank to assesscompliancewiththeobligations Following the inspections of branches in 2018, channels ande-mail. statement offeesthroughonlineandmobile of recommendationsfortheprovision digital channels,BancodePortugalissuedaset adequate provisionofthisinformationthrough the precedingyear. In orderto promote an for services linked to the current account during

Circular Letter No CC/2019/00000083 of23DecemberCircular Letter NoCC/2019/00000083 2019. 22 Portugal distributedbrochuresatschoolsalloverthecountry. As part of the digital financial education campaign #TopTip, Banco de the institutionsfor167deposits ofthistypethatmaturedthroughouttheyear. of 75 structured deposits was assessed. Banco de Portugal confirmed the remuneration rates set by Compliance with the pre-contractual information provided in the “Key Information Document” (KID) intermediaries. (6)BancodePortugal’sinitiatives. under whichthelegislatorwaivedregistrationwithandauthorisationfromBancodePortugal fornaturalandlegalpersonsalreadyoperatingascredit place in was regime transitional a 2019, of half first the in and 2018 During (5) institution. the in existing already account deposit current a of conversion monitoring ofthesendingstatementfeesbyinstitutions.(4)Inspectionsconcerning themonitoringofprovisioninformationonaccount Mutual Central The (2) subjects. the Agricultural Credit Bank and the 80 mutual agricultural credit banks of the SICAM are considered on a stand-alone basis (3) Inspections concerning the of each in covered institutions of number the to corresponds figure The (1) Notes: | Portugal. de Banco Source: Supervision offinancialinstitutions Table I.2.3• (Table I.2.3).Mostofthesewererelatedtoconsumercreditproducts. checked compliancewiththeinformation and transparencyobligationsin9,684 advertisements In thecontextofsupervisingadvertisementbankingproductsandservices,BancodePortugal evolution asofthepreviousquestionnaire,appliedtwoyearsearlier. through digital channels in Portugal. The information collected made it possible to monitor their out inDecember2018, on thesubscription,availabilityanduse of bankingproductsandservices carried institutions, financial of questionnaire second the of results the published Bank the 2019 In Certification of training entities Certification oftrainingentities Financial literacy Supervision ofcreditintermediaries Number ofparticipants Advertisements received Requests received Training entitiescertified Applications forauthorisationaccepted Application proceedingsconcluded Specific ordersandrecommendations Correction ofirregularitiesandsanctions Bank customercomplaints Basic bankaccounts Current accountsandpaymentinstruments(feescharges) Inspections Consumer creditagreementsconcluded Remuneration ratesonstructureddeposits Key informationdocumentsforstructureddeposits Bank customercomplaints Inspections |Entitiescovered Correction ofirregularitiesandsanctions Training initiatives Advertisements received Consumer credit Consumer creditindigitalchannels Home loansandmortgagecredit Administrative offenceproceedingsinitiated Specific ordersandrecommendations (5) Key indicatorsforbankingconductsupervisionactivity (6) (2), (4) (5) (5) (1) (5) (2),(3) 1,543.743 14,364 15,254 9,739 1,052 2018 106 123 449 162 922 924 |2018–2019 n.a. n.a. n.a. n.a. 24 13 91 29 47 7 4 1,598.744 20,458 18,104 9,684 3,757 5,169 2019 107 119 581 325 114 167 921 45 57 15 75 27 8 4 3 3 59 Financial stability 60 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 23. the legislator analysed anddecidedonatotalof4,659applicationsuntiltheendtransitionalperiodsetby Due to the high number of applications submitted in the last quarter of 2018, Banco de Portugal Portugal examined 5,169 applications for authorisation to exercise this activity and approved 3,757. As partof the inclusion of credit intermediaries in the supervisory perimeter, in 2019 Banco de correction oftheirregularitiesdetectedandinitiated27administrativeoffenceproceedings. demanding recommendations and orders specific 913 issued Bank the institutions, financial As aresultoftheinspections,supervisionadvertisingandanalysiscomplaintsagainst through BancodePortugal’sintervention. 39% oftheclosedcomplaints,issuewasresolvedbyinstitution,eitheritsowninitiativeor 61% oftheclosedcomplaintsshowednoevidenceinfringementbyinstitutioninquestion.In highest numberofcomplaints,whichislinkedtothecontractsconcluded.About As in previous years, currentaccounts, consumer credit,andhomeloanswerethe products with the almost entirelyduetotheavailabilityofthisnewchannel. of whichthroughtheLREplatform.Inyearasawhole,globalgrowthwas18.7%comparedto2018, received 18,104complaintsfrombankcustomersconcerningthebehaviourofinstitutions,2,635 channel wasmadeavailabletobankcustomersfromJulyonwards.Duringtheyear,BancodePortugal complaints additional This (LRE). Reclamações’ de ‘Livro e-platform the joined Portugal de Banco 2019 In young peopleofthecaretobetakenwhenusingdigitalchannels, itdistributedbrochuresat3 among awareness raise to 2018 in launched #TopTip, campaign education financial digital the of and VocationalTraininginformationdeskstoimprovedissemination ofbasicbankaccounts.Aspart of Labour,SolidarityandSocialSecurity,whichrelieson SecurityandInstituteforEmployment obligations ofbankcustomers.BancodePortugalsigneda cooperationprotocolwiththeMinistry including news, decoders, videosandother information and training materials on the rights and information andtraining.TheBankCustomerWebsiteisone ofthemaininstrumentsthisactivity, financial of promotion the cover also activities supervision banking conduct Portugal’s de Banco activity ofthecertifiedentities. training the monitored also It three. approved and certification for applications four received Portugal de Banco 2019 In Portugal. de Banco on incumbent is monitoring and certification whose agreements, and of employees of credit institutions involved in the marketing of homeloanandmortgage credit conduct supervisionwasbroadenedtocoverthemonitoringoftrainingentitiescreditintermediaries involved in the marketing of home loan and mortgage credit agreements. The perimeter of banking to coverthemonitoringoftrainingentitiescreditintermediariesandemployeesinstitutions correction oftheirregularitiesdetected.Theperimeterbankingconductsupervisionwasbroadened demanding orders, specific 325 issued Portugal de Banco supervision, its of result a As intermediaries. their compliancewithinformationandtransparencyobligations.Italsocarriedoutinspectionsof45credit under itssupervisorypowersandaudited57advertisementsreleasedbytheseentitiesinordertoassess In 2019 theBank reviewed 114 complaints from bank customers on the behaviour of credit intermediaries real estateactivities(21%)andretailtrade,exceptofmotorvehiclesmotorcycles(13.6%). whose mainactivitiesaretrade,maintenanceandrepairofmotorvehiclesmotorcycles(50.3%),

Decree-LawNo81-C/2017of7July2017. 23 , 31 July 2019. The majority of registered credit intermediaries are legal persons (86%), (86%), persons legal are intermediaries credit registered of majority The 2019. July 31 , rd

and terrorist financing (ML/TF) (Box 3). In this area, the Bank completed 22 on-site inspections, on-site 22 completed Bank the area, this In (Box 3). (ML/TF) financing terrorist and Banco dePortugalcontinuedto enhanceitssupervisoryworkinthepreventionofmoney laundering resulting frominteractionwith entitiesoutsidethebankingperimeter(Chapter 3). illegal lending schemes and other fraudulent phenomena, warning about the harmful consequences Banco dePortugalreliedonthepresstopromoteastrong campaigntoraisepublicawarenessof investigations onmattersofsharedmissionandcompetence. Furthermore, Banco de Portugal cooperated with the judiciary and police authorities, participating in on. carrying were they activity financial the conduct to authorised not entities ten to warnings to the Prosecutor General of the Portuguese Republic for possible criminal offences, and public and on-site inquiries in 253 proceedings and conducted 11 inspections. These led to 23 notifications In terms of prevention and repression of illicit financial activity, Banco de Portugal conducted off-site decisions deliveredinsummaryproceedings,whosefinalstatusdependsonaformalnon-rejectionbythedefendantsrelevantdecisions. pending attheendofyearandnumberproceedingscarriedforwardtofollowingarisesfromlegalframeworkapplicable Source: Banco de Portugal. | Notes: Correction (1) of the number of proceedings initiated in 2017. The (2) difference between the number of proceedings Table I.2.4•Administrativeoffenceproceedings proceedings withafinaldecision,onlythreewerejudiciallyappealed. proceedings and the number of long-pending proceedings was reduced (Table I.2.4). Of the 117 offence administrative complex and large-scale in achieved were advances significant 2019 In member country. Financial Inclusion platform, which it joined in 2017 with the status of participating non-G20 forPartnership G20/Global the of work the followed and practices best training financial of participated inOECDworkinggroupsfocusedonbankcustomerprotectionandthepromotion of Suptech financial products and instruments (i.e. new supervisory technologies). The Bank also creditworthiness assessment and participated in the preparation of reports on the advertising supervisory authorities, the Bank coordinated works on responsible lending and consumer by Banco de Portugal since 2019. Within this organisation, which bringstogether banking conduct carried out at the International Financial Consumer Protection Organisation (FinCoNet), chaired addition tothose mentioned at thebeginningofthischapter,itisalsoworthmentioning the work Banco dePortugalisrepresentedinthemainbankingconductsupervisioninternationalfora.In Financial Education. for Plan National the of initiatives the in supervisors financial other with participate to continued It training initiativesthroughoutthecountry,withatotalof20,458participants,mostlyfromschools. financial581 organised Portugal de Banco delegations, regional and branches of network its by stage of basiceducation and secondary education schools and held training sessions. Supported Legal enforcement Proceedings pendingattheendofyear Proceedings concluded Proceedings carriedforwardfrompreviousyear Proceedings initiated Overall indicators |2016–2019 0621 082019 2018 2017 2016 4 327 441 1 7 9 1 -78 117 195 271 217 8 4 328 441 382 7 156 276

(2) (1) 246 1 1 +2 115 113

(2) (2) 247 245

(2) ∆ 2019-2018 -81 -1 61 Financial stability 62 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 24. the ResolutionFund. operation of the Deposit Guarantee Fund, the Mutual Agricultural Credit Guarantee Fund and Banco dePortugalprovidedthetechnicalandadministrative servicesrequiredforthesmooth the winding-upofBESandBANIF. commissioners, judicial liquidators or liquidation committees appointed for such purpose, especially Banco de Portugal also monitored 19 winding-up proceedings under the responsibility of State Supervisory Mechanism. Single the with interaction significant required hand, other the on institutions, credit significant of the reassessment of the suitability of the members of the management and supervisory bodies of proposalsforthewithdrawalauthorisationcreditinstitutions,ononehand,and of entitiessupervisedbyBancodePortugal.TheactivitiesPortugalastothepreparation and from the perspective of its impact on the suitability of several members of the corporate bodies Depósitos fortheperiod2000-2015isnoteworthy,particularlyintermsofitsscaleandcomplexity, area, theanalysisofindependentspecialauditreportonmanagementCaixaGeralde of the members of the management and supervisory bodies of supervised institutions. In this supervening facts,28proceedingswereanalysedforapossiblereassessmentofthesuitability Financial –InstituiçãoFinanceiradeCrédito,S.A.,duetothecomplexityofthiscase.Basedon withdrawal ofauthorisation granted tosupervisedinstitutions, with particularreference to Orey In terms of non-sanctioning enforcement, eight proceedings were examined for the possible interaction withprudentialsupervision. a substantialincreasewasobservedintherequestsfromSingleSupervisoryMechanismconcerning terrorism, of financing the and laundering money of prevention the of awareness increased the Given Commission, ofwhichBancodePortugalismember. Coordination assessment, conductedwithintheAnti-MoneyLaunderingandCounterTerroristFinancing Throughout the year, Banco de Portugal reviewed and prepared contributions to the national ML/TF risk acquisition ofqualifyingholdingswereopenedand6 of the same nature were closed. thefor processes new 15 of total a 2019 In shareholders. the with associated risk ML/TF the of which were highly complex, by assessing some institutions, financial in holdings qualifying to interveneinprocessesfortheacquisitionof offshore jurisdictions. The Bank also continued risk countries,inadditiontooperationswith through branches and subsidiaries in higher- in theactivitydevelopedabroad adopted controls in total) was also completed to evaluate the years. A cycle of thematic inspections (ten following inspections carried out in previous the implementation of 439 measures adopted of large supervised institutions, and evaluated conducted twofull-scopeonsiteinspections following whichitissued340supervisorymeasures, Deposit guaranteefundsandtheResolutionFund

For furtherinformationontheactivitiesofeach ofthefunds,seereportsandaccountsavailable ontheir sites. 24 raise awarenessonthismatter. to campaign a promoted and activity financial a conduct to authorised In 2019 Banco de Portugal issued ten public warnings to entities not

and SRB policies) for key activities of the resolution planning tasks of the different institutions, different the of tasks planning resolution the of activities key for policies) SRB and Methodological guidelinesand toolsweredeveloped(consistentwiththeapplicableregulations the institutions’awarenessofresolution-relatedmatters. institutions and the Portuguese Banking Association, intended to contribute to the strengthening of significantless 28 from representatives together bringing organised, also was sector the with plans developedin2019wasbroadened,especiallyforlarger institutions.Adialogueonresolution had resolution plans. Following a gradual and proportionate approach, the scope of the resolution first resolution plans for a large set of institutions. At the end of the year, over 80% of the institutions Mechanism and without cross-border activity in the Banking Union, Banco de Portugal prepared the Supervisory Single the of purposes the for significant less considered institutions the for As measure (bail-in). institutions to develop operational manuals for the implementation of the internal recapitalisation the with initiated also was Work part. are they which of groups the for or institutions significant with thesettingofMRELrequirementsandcorrespondingtransitionperiodsforallPortuguese and inthedeterminationofMinimumRequirementforownfundsEligibleLiabilities(MREL), resolvability of assessment the in made was progress Significant SRB. the by adopted decisions the (SRB), Banco de Portugal participated in the work of the internal resolution teams and implemented With regardtogroupsandinstitutionsunderthedirectresponsibilityofSingleResolutionBoard In 2019BancodePortugalcontinuedtointensifytheresolutionplanningwork. 2.3 purchase andsubscriptionagreement,thecontingentcapitalisationagreement. of theimplementationagreementsrelatedtosaleNovoBanco,particularlyshare of its tasks as a shareholder of Novo Banco and Oitante, and more importantly, for the monitoring As fortheResolutionFund,Bankcontinuedtoprovidesupportrequiredperformance schemes. 2014 of theCouncil16Aprilandinpeerreviewresiliencedepositguarantee and Parliament European the of 2014/49/EU Directive of implementation the on made progress deposit guaranteeschemes,createdbyEuropeanBankingAuthoritytoassistitinreviewingthe Guarantee Fund,BancodePortugalcontinuedtoensureitsparticipationintheworkinggroupon As thedesignatedauthorityforDepositGuaranteeFundandMutualAgriculturalCredit calculating andcollectingthosecontributions. for calculating the contributions due by member institutions and carried out the procedures for With regard to thecontribution schemes ofeachthe funds, Banco dePortugalset the parameters and areviewoftheinternalproceduresDepositGuaranteeFund. concerned institutions credit and depositors the with communication transfers, financial alia, inter Agricultural Credit Guarantee Fund to the Deposit Guarantee Fund (Box 4). This transfer involved, No 106/2019 of 12 August 2019, which transferred the deposit guarantee function from the Mutual Preparatory workswerealso developed forthe entry into force on 1 January 2020 of DecreeLaw for thefirstpeerreview. Authority provided forinEuropeanlegislation,whoseresultswerereportedtotheBanking mechanisms Fund Guarantee Deposit the on out carried was exercise stress-test first the 2019 In Resolution 63 Financial stability 64 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 administrative offenceproceedingsinitiatedagainstBES. first the in Portugal de Banco by established facts the confirming judgement a rendered Appeal of Supervision Court,atotherinstancesofappeal,suchastheConstitutionalCourt.TheLisbonCourt Banco dePortugalalsointervenedintrialhearingsatthePortugueseCompetition,Regulationand with regardtothelegalexceptionsubmittedonBESinsolvencyqualificationasculpable. continued, notablyinthecontextofliquidationBESandBANIF,particularlyintervention The judicial monitoring of cases related to the winding-up of credit institutions and financial companies resolution andfulllegalityofthemeasureappliedtoBES. bank on framework legal the of constitutionality the confirming in unanimous was court this as relevant, is 2019 March 12 of District Lisbon the of Court Administrative the by rendered judgment The proceedings. main and proceedings injunction interim in Funds, the and Portugal de Banco of prosecuted following the resolution processes of BES and BANIF, there wereseveral rulings in favour In thecasesinwhichBancodePortugal,DepositGuaranteeFundandResolutionare undertaken bytheResolutionFundaspartofsalethatinstitution. obligations the of result a as Justice, of Court European the in as well as jurisdictions, foreign and in previous years, and the monitoring of the litigation handled by Novo Banco in Portuguese courts large numberofcourtcaseshandledbytheBankasaresultapplicationresolutionmeasures the reflects This high. remained operates it funds the and Portugal de Banco against litigation 2019 In enforcement measures 2.4 Committee oftheEuropeanBankingAuthorityatitsheadoffice. Portugal organised a meeting of the SRB working group on MREL and a meeting of the Resolution related totheplanning,implementationandenforcementofresolutionmeasures.In2019Bancode guarantee, Banco de Portugal contributed to the development of guidelines and methodologies as well as in European Banking Authority’s committees and groups related to resolution and deposit As partofitsparticipationinthedecision-makingbodies,committeesandworkinggroupsSRB, to identifycriticalfunctionsfortheeconomyandassessdirectindirectcontagionimpacts. particularly toestablishtheminimumrequirementsforeligibleownfundsandliabilities(MREL), Upholding thelegalityofresolutionand de Portugal issues punitive and non-punitive supervisory measures addressed to the institutions, and investigates situations that apparently breach the regulatory framework in force. As a result, Banco analyses the reports submitted by the supervised institutions that are relevant for ML/TF prevention, of supervisory techniques: among others, it carries out on-site full-scope or thematic inspections, range wide very a applies Portugal de Banco obligations, prevention ML/TF with compliance verify To controls, whenthesesuspicionshavenotbeenreportedby theinstitutionsthemselves. institutions’ supervised the of verification its during detects it suspicions ML/TF potential authorities Banco dePortugalinitiatesenforcementprocedures.Moreover,theBankreportstocompetent Whenever itconcludesthatthecontrolsimplementedbysupervisedinstitutionsarefailing, are legallyboundtodo. the supervised institutions report possible ML/TF suspicions to the competent authorities, as they when identifying customers and monitoringtheirtransactions. Banco dePortugalcheckswhether institutions have the appropriateinternalprocedurestodetectanyunlawful practices, especially In addition,BancodePortugalcheckswhether,overthecourseoftheiractivities,supervised of thecontrolmechanismstobeputinplaceimmediatelyaftercommencementactivities. supervisees’ shareholdings and, in the case of the setting-up of new entities, also verifies the adequacy of owners true of suitability the analyses and identifies institutions, supervised of capital share the increase or to subscribe to used funds the of origin the verifies Portugal de Banco background, purposes byitscustomersorwhomsoeverwantstoholdsharesincapital.Indeed,againstthis institution is submitted and are targeted at preventing the institution from being used for illicit the up set to application the moment the from taken are field this in actions Portugal’s de Banco ongoing basistoinvestigatespecifictransactionsthatmayleadML/TFacts. an on cooperates Portugal de Banco which with authorities judicial and enforcement law the upon incumbent is It Unit. Intelligence Financial police’s criminal Portuguese the and Office Prosecutor’s Public the – authorities competent the to transactions ML/TF suspicious potentially reporting and supervised institutionsareresponsibleforexaminingthetransactionsrequestedbytheircustomers mechanisms at their disposal to be able to identify situations that may constitute ML/TF acts. In turn, Banco de Portugal’s actions are preventive and aim to ensure that institutions have the necessary prevention. ML/TF to relating obligations and rules the with comply institutions financial supervised Under thelegalframeworkinforce,itisBancodePortugal’sresponsibilitytoassesswhether department, i.e.BancodePortugal’sLegalEnforcementDepartment. specifica to assigned being dimensions, conduct banking and prudential the from separately performed task a is (ML/TF) financing terrorist and laundering money of supervision preventive The and financialcrime. tasks areperformedinstrictcooperationwiththeotherrelevantentitiesfightagainsteconomic since 1993 and has exercised supervisory powers to prevent terrorist financing since 2008. These Banco de Portugal has been granted competences for the preventive supervision of money laundering financing Box 3•BancodePortugal’sroleinthepreventionofmoneylaunderingandterrorist 25. ML/TF preventivesupervision

against financialcrime. institutions, Within the report processing activity, Banco de Portugal verifies the consistency and coherence of ML/TF risk matrices reported to it by the supervised assesses ML/TF prevention procedures reported to it and analyses the behaviour of the IT systems used by the institutions in the fight the in institutions the by used systems IT the of behaviour the analyses and it to reported procedures prevention ML/TF assesses 25

65 Financial stability generally as specific orders, recommendations or other corrective measures. In 2017 the Portuguese anti-money laundering and counter terrorist financing system was assessed by the Financial Action Task Force (FATF), a reference intergovernmental body that delivered a positive opinion on Banco de Portugal's supervisory approach in this area.26

Since 2018 Banco de Portugal has completed 32 on-site inspections corresponding to three cycles of thematic inspections27 and also full-scope inspections of financial institutions with representative size. In the same period Banco de Portugal issued more than 500 new supervisory measures and assessed around 800 measures resulting from inspections previously carried out.

Inspections and follow-up actions, jointly with remote analysis of the reports submitted by the supervised institutions, make it possible to identify gaps that can be addressed by disclosure of good practices. Following the thematic inspection cycle pursued at the end of 2018 for verifying the procedures for compliance with the restrictive measures issued by the United Nations and the European Union, Banco de Portugal has conducted a cross-sectional study on major procedural shortcomings with a view to issuing good practices. Such good practices, specifically addressed to the supervised institutions, also cover other topics of interest for the sector, such as the guidelines issued following disclosure of the so-called Panama Papers, which establish a series of specific measures to cope with the increased risks underlying this phenomenon.

Other ML/TF activities Banco de Portugal also intervenes in the discussion, preparation and amendment of laws and regulations, while also participating or following the work carried out by the specialised national and international bodies and groups. More recently, Banco de Portugal participated at expert level in the negotiation of the 4th28 and 5th29 Directives on ML/TF prevention, and the transposition of the 4th Directive into Law No 83/2017 of 18 August 2017 establishing the current legal framework governing ML/TF prevention. Since then, Banco de Portugal has already revised the whole array of regulations adapting the exercise of ML/TF prevention obligations to the specificities of the financial sector, in particular Notice of Banco de Portugal No 2/2018 of 26 September 2018.

At the level of ML/TF prevention, Banco de Portugal also cooperates with other authorities with operational competence in this field and is represented in the national AML/CFT Coordination Commission, the entity that monitors and coordinates identification, assessment and response to the ML/TF risks to which Portugal is or may possibly be exposed. In addition, the Bank participates in missions targeted at the capacity building of other authorities (in particular counterparts from Portuguese-speaking countries) and is part of international assessment teams from other jurisdictions, particularly in the context of the mutual evaluations conducted by the FATF.

Banco de Portugal also participates in working groups devoted to this area within the European Banking Authority, the Joint Committee of the European Supervisory Authorities and the European Central Bank.

26. The report on this evaluation (Anti-money laundering and counter-terrorist financing measures in Portugal – Mutual Evaluation Report), published in December 2017, is available on the FATF website: https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-Portugal-2017.pdf. 27. Banco de Portugal has already organised thematic inspection cycles on the following topics: remote identification procedures, namely using videocon- ference; procedures for compliance with the restrictive measures issued by the United Nations and the European Union; controls applied to branches and subsidiaries abroad and to transactions with risk jurisdictions. 28. Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.

Activities and Financial Statements 2019 • Annual Report Activities and Financial Statements de Portugal Banco 29. Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849. 66 situations requiredpreventivemonitoring. financial assistance. It also analysed other mutual agricultural credit banks, whose economic and financial belonging to the Integrated Mutual Agricultural Credit Scheme, focusing on the beneficiaries of the fund’s de Portugal–periodicallyanalysedandmonitoreddevelopments inthemutualagriculturalcreditbanks the MutualAgriculturalCreditGuaranteeFund–withtechnical andadministrativesupportofBanco compliance with the objectives set in the recovery plans contained in these financial assistance contracts, which itgrantedsubordinatedloanstotheoverallamountof €252.7million.Withaviewtoassessing entered into contracts with 44 banks of the Integrated Mutual Agricultural Credit Scheme, through Fund the participant banks. During its 32 years of existence, the Mutual Agricultural Credit Guarantee Fund was tasked with undertaking the action considered necessary to ensure liquidity and solvency of In additiontotheresponsibilityofguaranteeingdeposits, MutualAgriculturalCreditGuarantee for depositors,translatingintoagreatereffectivenessofthescheme. to thedepositguaranteeschemespromotesagenuinemutualisationofrisksandhomogeneousprotection As referredtointhepreambleaforementionedDecree-Law,harmonisationofrulesapplying Deposit GuaranteeFund. transferred the deposit guarantee function from the Mutual Agricultural Credit Guarantee Fund to the which 2019, August 12 on published 106/2019, No Decree-Law by introduced was change This Fund, whichthusbecametheonlydepositguaranteeschemeinPortugal. and its member mutual agricultural credit banks are also guaranteed by the Deposit Guarantee From 1January2020onwards,thedepositsheldwithCentralMutualAgriculturalCreditBank becoming unavailableinanyofthoseinstitutions. for ensuringtherepaymentofdepositsheldinitsparticipatinginstitutions,event ( agricultural creditbanks,whichwereguaranteedbytheMutualAgriculturalCreditGuaranteeFund Mutual Agricultural Credit Bank (Caixa CentraldeCrédito Agrícola Mútuo ) and its member mutual deposits made with most credit institutions in Portugal, except for deposits held in the Central Deposit GuaranteeFund(FundodeGarantiaDepósitos)wasresponsibleforguaranteeingthe As at31December2019,thereweretwodepositguaranteeschemesfunctioninginPortugal.The authority –willcontributetothegoodfunctioningoffinancialmarketsandstability. a commondepositinsurancefund–compulsoryforallMemberStatesandmanagedbycentral understanding that the uniform application of a set of rules on deposit protection, and access to the on based is project This considered. being is scheme insurance deposit European a of creation Recognising theimportanceofdepositguaranteeasapillartrustinbankingsystem, 15 workingdays)andwithouthavingtoberequestedbythedepositor. depositor. Thisrepaymentiscarriedoutintheshortesttimepossible(currentlyamaximumperiodof deposited are protected up to the maximum amount of €100,000 per creditinstitution and per sums deposit, the repay to capacity financial the having not institution credit the of event the In early withdrawal,whereallowed. institution the repayment of the total sum deposited on the maturity date or date permitted for When applyingtheirsavingsinadeposit,bankcustomersareentitledtoreceivefromthecredit Credit GuaranteeFundtotheDeposit Box 4• Fundo de Garantia do Crédito Agrícola Mútuo). Until that date, each of these Funds was responsible Transfer ofthedepositguaranteefunctionfromMutualAgricultural 67 Financial stability The transfer to the Deposit Guarantee Fund of the responsibility for guaranteeing deposits held with the Central Mutual Agricultural Credit Bank and its member mutual agricultural credit banks was accompanied by the transfer of financial resources to the Deposit Guarantee Fund, under terms ensuring that the financial robustness of the fund is maintained as well as the equality among all participant credit institutions. This operation implied a transfer of resources to the Deposit Guarantee Fund of €132,998,326.76.

On 9 January 2020, the Mutual Agricultural Credit Guarantee Fund became autonomous, governed by private law, functioning within the Central Mutual Agricultural Credit Bank, with the sole aim of fulfilling its assistance function to the Integrated Mutual Agricultural Credit Scheme. The new object of this Fund, its purpose, management and supervision, financing, functioning and new name are defined by rules of procedure to be adopted by the Central Mutual Agricultural Credit Bank after consultation of its member banks.

Banco de Portugal, as the entity responsible for ensuring the technical and administrative services necessary for the functioning of the Mutual Agricultural Credit Guarantee Fund, ensured the transition in order to ensure compliance with the provisions of Decree-Law No 106/2019, in articulation with the relevant parties, especially the Deposit Guarantee Fund and the Central Mutual Agricultural Bank. Activities and Financial Statements 2019 • Annual Report Activities and Financial Statements de Portugal Banco 68 and set out the action taken to strengthen the sector’s resilience. In the June issue, this assessment and set out the action taken to strengthen the sector’s resilience. In the June issue, this assessment The of thePortugueseeconomy;andinvestmentfirmsfrom2006to2017. and laboursupplyinPortugal;realconvergencetheEuropeanUnionrelativeperformance challenges tomonetarypolicy;developmentsinlabourproductivityPortugal;demographicchanges of topics of importance to understand the dynamics of the economy: the natural interest rate and the developments in Portugal and macroeconomic projections, which were supplemented by the discussion In its 2019 Economic Bulletin issues, Banco de Portugal released a detailed analysis of economic activity and encouragingdiscussiononthePortugueseeconomy. literacy financial and economic promoting of purpose the with disseminated are statistics and to providingtheBankwithnecessaryknowledgepursueitsmission,analyses,studies addition In statistics. payments of balance and exchange foreign financial, monetary, produces Banco de Portugal prepares analyses and studies on the economy and the financial system and 3.1 banks ofthePortuguese-speakingcountriesandotheremergingdevelopingcountries. through its communication and links to the community, in addition to its cooperation with the central Bank’s actionsin2019towardsthisgoal,notablybyproducinganalyses,studiesandstatistics, with academiaandothernational andinternational players. The followingsections describe the to information, its independent access status, the technical expertise of its staff and its partnerships Portugal undertook to help form an informed public opinion, taking advantage of its privileged Portuguese economyandEuropeanintegration,itsthirdBroadStrategicGuideline.Bancode the One ofBancodePortugal’sstrategicgoalsfor2017-2020isthepromotionknowledgeon 3 Knowledge creation andsharing and externaleconomists. growth, preparedonthebasisofaseriesstudies drawnupbyin-house In 2019BancodePortugalpublishedane-book onPortugueseeconomic Financial StabilityReport focused on the assessment of vulnerabilities and risks to financial stability, Analyses, studiesandstatistics of all these studies, including, among others, 18 of allthesestudies,including, among others,18 external co-authorsinvolvedin thepreparation final year, 110wereinprogressand27the or otherspecialistpublications.Attheendof 53 featured in Banco de Portugal’s publications studies werecompleted(47in2018), of which 57 in the research agenda (Table I.3.1). In 2019, addressed thetopicsidentifiedasapriority Research carriedoutinBancodePortugal and theirfindings. assessment methodologies appliedto Portugal ratios, inadditiontoananalysisonhousingprice capital institutions’ financial in increase the of presented areviewoftheliteratureonimpact In theDecemberissue,BancodePortugal macroeconomic policyintheEuropeanUnion. scheme andananalysisofthechallengesto stemming from the revision of the resolution was supplementedbythemainnewfeatures phase of revision (Table I.3.1). There were 120 phase ofrevision(TableI.3.1).There were120 69 Knowledge creation and sharing 70 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 | 2019 economy, basedonitseconomists’ work.In2019itwasfeatured40times. which itweeklypublishesachart andashortanalysisofthePortugueseeconomyor euroarea On itsinstitutionalwebsite,Banco dePortugallaunched“Economicsinapicture”,feature through journals. 22 research-based articles were also published or accepted for publication by international scientific School. of Economy,thePortugueseAssociationInsurersand theNOVAInformationManagement Ministry Portuguese the of Office Research the by granted award, economy” Portuguese the Bologna), released in 2019 in the (Banco de Portugal), Edoardo Acabbi (Harvard University) and Alessandro Sforza (University of The article“TheFinancialChannelsofLaborRigidities:Evidence fromPortugal”,byEttorePanetti The WorkingPapersandOccasionalseries included 25 articles of a more academic nature. Economic Studiesareprecededbyanon-technicalsummary. economics of the European Deposit Insurance Scheme. As of April, the articles in credit and the economy over the past decade, business models and the performance of firms and the role ofcentralbanksinsecuringpricestability,theresearchatBancodePortugalonlinkbetween making useofavailableliteratureandincludingtheirowncontribution;in2019,theyaddressedthe The economicssynopsesaretextsinwhichtheauthor(s)performacriticalanalysisofrelevanttopic, Banco dePortugalEconomicStudies included 12 essays and, for the first time, four economics synopses. closer tothebestperformingcountriesinEurope. book is to enrich the debate on the Portuguese economy and the policies that may help bring Portugal this releasing in purpose Portugal’s de Banco growth. economic of dimensions different the examine to effort a joint in institutions, foreign and national other and Bank the to affiliated economists by blockages andreforms”,preparedonthebasisofaseriesstudiesdrawnupoverpastfewyears Banco dePortugalpublishedthee-book“Portugueseeconomicgrowth:Aviewonstructuralfeatures, Source: BancodePortugal. stability New challengesfacingmonetarypolicyandfinancial Table I.3.1• universities abroad. from theEurosystem,9othernationalcentralbanks,18Portugueseuniversitiesand67 constraints andsustainability Portuguese economicgrowthwithintheeuroarea: and intheEuropeanUnion The futureofinstitutionsandpublicpoliciesinPortugal Total Monetary policyafterthecrisis Financial intermediation Prudential policyandregulation Diagnosing andunderstandingthePortugueseeconomy The futureofthePortugueseeconomy Euro areaandEuropeanUnioninstitutions for thefuture Economic policiesinPortugal:stocktakingandlessons Priority topicsfor2017-2020 Studies completed,inrevisionandprogressattheendofyear,bytopic Working Papers series, won the “Savings and Financing in in thefinalphaseofrevision Studies completedor 14 35 84 10 9 3 6 7 Studies inprogress Banco de Portugal Banco de Portugal 110 21 23 11 38 11 4 2

the Bank gave access to its microdata sets on the Portuguese economy to in-house and external Through BancodePortugal’s Microdata ResearchLaboratory(BPLIM),locatedinthePorto Branch, covering 53jurisdictions. with theparticipation of several central banks, includingBanco de Portugal, andother authorities, Activity werereleased,underthecoordinationofBank forInternationalSettlements(BIS),and The resultsofthe2019TriennialCentralBankSurveyForeign ExchangeandDerivativesMarket This madethemmoreconsistentwiththerestofworld account, compiledbyStatisticsPortugal. updated, new sources were incorporated and improvements were made to the compilation process. on the Bank. When revising external statistics, the existing data sources and methodologies were de Portugal,inadditiontotheconsistencywithbalance ofpaymentsstatistics,alsoincumbent national accounts, incumbent on Statistics Portugal, and its financial component, entrusted to Banco the of component non-financial the between consistency the enhance to possible it made and INE) accounts benchmarkrevisionwaspreparedbyStatisticsPortugal(InstitutoNacionaldeEstatística– national The statistics. external and accounts financial national on series revised published also It Government DeficitandDebt. the of issue 2019 its in Eurostat by out laid as certificates, savings on interest capitalised In 2019BancodePortugalrevisedthegovernmentdebtstatisticsandincorporatedrecordingof According tothesurvey,satisfactionratestoodat5.2,onascaleofup6. by the Bank, a survey was conducted among the main international bodies and national institutions. With thepurposeofassessingusers’satisfactionwithstatisticsregularlyproducedanddisseminated main resultspublished,127statisticalpressreleaseswerepublishedinthecourseofyear. compliance withthegoalsanddeadlinessetoutinStatisticalActivityPlanfor2019.Toreporton for EconomicCo-operationandDevelopment,BankInternationalSettlements–infull international bodies–EuropeanCentralBank,EUROSTAT,InternationalMonetaryFund,Organisation The Bankreleased 160 thousand statistical series on BPstatandreported883 thousand series to prepared apromotionalvideoandseveraltutorials,heldworkshopforjournalists. content and share information with other users. To make the public aware of the new BPstat, the Bank check news and background information, search and cross check statistical data, build charts, export texts andinfographics,tobetterunderstand the publisheddata.Itsfeaturesinclude enabling usersto dissemination. Theportaliseasiertobrowsethanitspreviousversion,andincludesstatisticalinformation, and internationalstatisticalauthorities,incompliancewiththehighestqualitystandardsfor the Portugueseeconomyandeuroareaeconomy,producedbyBancodePortugalnational on statistics disseminates November, in launched officially was which BPstat portal.Thenew, As regards its activities as national statistical authority, the Bank completed the redesign of the tools, footwear,machinery,componentsforwindturbinesandindustrialtextiles. in the north of the country and focused on a number of industrial companies, which produce power out carried was visits of series first The economy. Portuguese the on advises and analyses it how in they approach innovation and exporting activities and,thereby, to foster continuous improvements how and practices managerial and strategies their firms, Portuguese of environment business the Banco dePortugallaunchedatouraroundthecountrywithviewtogainingfurtherknowledgeof and MonetaryUnion:howtoachieveitinatimeofdissent”2018. Economic the of reform “The on Portugal de Banco of seminar law first the of speaker keynote the Banking Union”,byJean-VictorLouis,EmeritusProfessoratUniversitéLibredeBruxelles,whowas European the and Union Monetary and Economic the of reform difficult “The essay the featured issue first Its supervision. and regulation of field the in particularly business, core its in produced The Cadernos Jurídicos (Legal Papers) were launched, with the purpose of disseminating legal thinking (Legal Papers) were launched, with the purpose of disseminating legal thinking Manual on Manual on 71 Knowledge creation and sharing 72 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 As partofthecampaign to celebratethe20 for financialactivities. speaking countries, which included a public session on the implications of technological innovation In October,theBankhostedXXIXLisbonMeeting between theCentralBanks of Portuguese- market andtheproductsituation,challenges tothefinancialsector. to reflect on the euro area institutional reform, the recovery of the Portuguese economy, the labour journalists, and academics OECD, the and Commission European the Bank, Central European the IMF, the from officials together brought which Area”, Euro the Within Growth and Reform “Portugal: In March,theBankco-organisedwithInternational MonetaryFund(IMF)theconference European InvestmentBank,representativesfromacademiaandmanagersofPortuguesefirms. the from specialists and officials together brought which case”, Portuguese the conference: digitalisation Banco dePortugalandtheEuropeanInvestmentBankheldconference“Investment,innovation 2019, January in firms, by faced challenges the and Portugal in investment on discussion encourage To 3.2 educational establishments,inappreciationofafieldstudyinstrumentaltoitstasks. presented theJacintoNunesPrizetoundergraduatestudentsinEconomicsfromtwelvePortuguese into curricularunits of economics undergraduate and graduate programmes. Banco dePortugal of Aveirotoincorporate,onanexperimentalbasis,topicsrelatingstatisticsproducedbytheBank approximately 800 students were involved. A partnership was also established with the University the campaign, 22 presentations were made on statistics produced by Banco de Portugal, in which literacy, the Bank launched a communication campaign in 2019 for schools and universities. During With thepurposeofpromotingknowledgerelativetoPortugueseeconomyandstatistical mechanical engineeringsectorandthemaritimesector. automotive andconstructionsectors,informationcommunicationactivitiessector,the analyses were updated,whichfocusedonthemanufacture of beverages sector, theagricultural, and financial situation of non-financial corporations in Portugal. A further eight previously published results of non-financial groups in Portugal and the structure, demographics, activity, profitability consolidated country, the of north the in firms entities, healthcare private tables, sector enterprise individual accounting data. The studies focused on entrepreneurship in Portugal, sector tables and on based information includes which Portugal, in corporations non-financial on set microdata a The BankalsoreleasedsixstudiesbasedoninformationfromtheCentralBalanceSheetDatabase: notes, draftedbyasetofeconomistsatBancodePortugal. Series wasaccompaniedbythepublicationofmainaggregateresultsandmethodological aimed athelpingbetterunderstandthedynamicsofPortuguesebankingsystem.TheLong external researchersthroughBPLIM,wasdevelopedwiththepurposeofsupportingresearch Long SeriesforthePortugueseeconomy.Thedatabase,whichisavailableconsultation to to customersandinterestrates,humanresources, branch network and payment systems: the loans indicators, financial on information historical with database a launched Bank the 2019, In whom 130werenotaffiliatedtoBancodePortugal. of researchers, 162 by proposed were projects These 2019. in initiated were 34 – projects research researchers. Fromitsinceptionin2016totheendof2019,BPLIMhadalreadysupported109 the future”. the internationalconference“The euro20yearson:thedebut,presentandaspirations for Conferences andseminars th anniversary of the euro (Chapter 3.3), the Bank organised anniversary of the euro (Chapter 3.3), the Bank organised The Banksponsoredthe46 on “FinancialStabilityandMacroprudentialPolicy”inJuly. lecture a gave who Cunliffe, Jon England, of Bank the of Governor Deputy the and Eurosystem”, the Villeroy deGalhau, who, in February was the keynotespeaker at the seminar “Challenges faced by François France, de Banque of Governor the Banks: Central of System European the of officials It alsoorganised18seminarsandworkshopsoneconomictopics,includingtwosessionswithsenior respectively, onthebuoyancyofcorporatesector. of theAzores;7 the EuropeanFinancialManagementAssociation2019Annual Meetings,organisedbytheUniversity Journal; theInternationalConferenceonEconomicModeling andDataScience(EcoMod2020) for the “Portuguese Economic Journal” and to hold the AnnualMeeting of the Portuguese Economic Évora of University the Analysis; Data and Classification for Association Portuguese the of Meeting Course onBanking,StockExchangeandInsuranceLaw,of theCoimbraUniversityLawSchool; held the10 It also organised three conferences for experts from other central banks and academics. In June, it Banco dePortugalassistedtheECBinhosting,Sintra,ForumonCentralBanking,which2019wasdevotedto20 and realestatewealth,bankfundinglending.InOctober,itorganisedthe3 savings crises, and capital bank system, banking the to tests stress on presented were projects which economics and, in August, it hosted the European System of Central Banks’ Day-Ahead Conference, in Economics and the Nova School of Business and Economics; and the 24 the 2019LisbonAccountingConference, organisedbytheCatólicaLisbonSchoolofBusiness and held twoConferencesontheCentralBalanceSheetDatabase(its8 Bank the firms, Portuguese to provided information statistical the disclosing of purpose the With loan market, in addition to the risks related to the sustainability of credit to non-financial corporations. mortgage the and markets estate real of importance systemic the policies, macroprudential of effects on FinancialStability,whichfeatureddiscussionsthechallengesunderlyingassessmentof Statistical Society. introduction oftheeuro. Portuguese Economists’Associationfortheir15 the Sector; Financial the of Supervision and Regulation on Center Research the to: support financial August attheCarcavelosNovaSchoolofBusiness&Economics. BancodePortugalalsogranted th monetary ConferenceonMonetaryEconomics,todiscussdevelopmentsinresearchmonetary th UECE Conference on Economic and Financial Adjustments, hosted by ISEG; by hosted Adjustments, Financial and Economic on Conference UECE th EuropeanFinanceAssociationAnnualMeeting,whichwasheldin th Annual Conference on the State Budget; the XIX AnnualConferenceontheStateBudget;XIX th and9 th Congress of the Portuguese Congress of the Portuguese th ), in Lisbon and Covilhã ), inLisbonandCovilhã th anniversaryofthe rd Conference Conference 73 Knowledge creation and sharing 74 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 infographics withthemostimportant messagesitneedstoconvey. launch ofanewlegalpublication (CadernosJurídicos)(Chapter3.1).Themainpublications nowinclude the and efficient; more studies of communication the make and addressed issues the diversify University SchoolofEconomicsfortheAutumn2019–HierarchicalLinearModelling. released independently in March; a new editorial policy for the projections macroeconomic the of incorporation the to due issues, five to upscaled was Bulletin experts, severalamendments were madetotheBank’s publications. Thisincludes:theEconomic Following an assessment exercise performed in collaboration with academics, journalists and financial euro areareferenceinterestratesandthenewrulesonpayments. organised threeworkshopsforjournalistsonthenewstatistica l disseminationportal,thechangesin to explain concepts, topics and results related to its tasks. It replied to 480 information requests and decoders 45 and officials senior by speeches 62 releases, press 264 published Portugal de Banco 2019, In operation (TablesI.3.2andI.3.3). speeches, through which the Bank provides information on its activities across the various areas of of the Parliament. This report is supplemented by the release of publications, press releases and accountability requirement. Once a year, the Governor presents the report to the relevant committee this with comply to used means primary the is Finance, of Minister the of approval the to subject is Banco dePortugal’sAnnualReport,whichdescribesitsactivities,balancesheetandaccounts, in communicationguidedbytransparencyandtimelinessprinciples. a necessary counterpart to that independence, the Bank is accountable for its activities, and engages which is an essential condition for delivering its price stability and financial stability objectives. As Under Europeanandnationallaw,BancodePortugalworksunderanindependentstatus, 3.3 Meetings in GameTheoryandApplications2019 and the20 for the series of seminars “Economia Viva 2019”; ISCTE, for Economics Day; ISEG, to holdthe Lisbon The BankalsosponsoredtheStudentsAssociation of theNovaSchoolBusiness & Economics Figure I.3.1•MajorconferencesandseminarshostedbyBancodePortugal 21 Communication andstakeholdermanagement Portuguese case conference: the and digitalisation Investment, innovation 04 8 of thecorporatesector” Conference “Thebuoyancy Sheet DataBase th CentralBalance 22 by theEurosystem Challenges faced 25 the EuroArea and GrowthWithin Portugal: Reform th Banco de Portugal Economic Studies ISEGSummer School; andCoimbra 17 sector ininlandPortugal” “The buoyancyofthecorporate Data BaseConference 9 th Central BalanceSheet |2019 03 financial sector” "Cyber resilienceinthe 2 nd Cybersecurity Conference to

10 10 on MonetaryEconomics th Conference 03 Policy and Macroprudential Financial Stability 21 Conference Banks’Day-Ahead European SystemofCentral 08 Stability Conference onFinancial 11 Countries’ CentralBanks of Portuguese-Speaking XXIX LisbonMeeting

15

for the future

and the aspirations

the debut, the present The Euro 20 years on: 21 Portuguese case conference: the and digitalisation Investment, innovation 04 8 of thecorporatesector” Conference “Thebuoyancy Sheet DataBase th CentralBalance 22 by theEurosystem Challenges faced 25 the EuroArea and GrowthWithin Portugal: Reform 17 sector ininlandPortugal” “The buoyancyofthecorporate Data BaseConference 9 th Central BalanceSheet 03 financial sector” "Cyber resilienceinthe 2 nd Cybersecurity Conference 10 10 on MonetaryEconomics th Conference 03 participated inthe8 students’ awareness of theimportancemonetary policy. 160 teams from60Portuguese schools To markthe20 the 8 Together withtheEuropeanCentralBankandnationalcentralbanksofEurosystem,itconcluded experts to reflect on the 20 years of Economic and Monetary Union and the outlook for the euro area. other and journalists representatives, market financial academics, governors, bank central Sintra in in hostingitsmainannualevent,theECBForumonCentralBanking,which,2019broughttogether and discussions, workshops for families and thematic visits. Banco de Portugal also assisted the ECB debates cycle, film a by supplemented was and October 6 to May 15 from charge, of free display, on Collection, alludingtothetransformationsinEuropeoverpasttwodecades.Theexhibitionwas photography since1999”,withselectedworksoftheNovoBancoContemporaryPhotography of theeuro.AtMoneyMuseum,Bankfeaturedexhibition“(Euro)policies:contemporary discussed, aswell as the founding principles of the MonetaryUnionand the geopolitical dimension the present and e aspirations for the future”, in which the monetary and budgetary integration was single currency. In November, it hosted the international conference “The euro 20 years on: the debut, the on figures illustrative and testimonies players, moments, dates, months, nine of course the in campaign. Through its social network accounts (Instagram, Twitter and LinkedIn), the Bank recalled European CommissionandtheCentralBankinpromoting#EUROat20communication hosted aworkshopforthepress, andwasfeaturedinTVshowsviaarepresentative. strong authentication.Itprepared apromotionalvideo,decoders,guideonstrongauthentication, and demandpaymentservices, throughthePaymentSystemsForum,todisseminateinformation on supply that players national main the with jointly worked Bank the banking, home in difficulties any categories. Toensurethatelectronicpaymentservicesrun smoothlyand,inparticular,toprevent can onlybecarriedoutbyinputtingtwoormoresecurityfeatures from,atleast,twoorthreepossible customer authenticationprocedures,accordingtowhich,since 14September2019,mostoperations The Banklaunchedacommunicationcampaigntoinformpayment serviceusersofthenewstrong Policy and Macroprudential Financial Stability th andlaunchedthe9 th 21 anniversary of the introduction of the euro, Banco de Portugal joined forces with the the with forces joined Portugal de Banco euro, the of introduction the of anniversary th Award. Conference Banks’Day-Ahead European SystemofCentral th Generation €uro Students’ Award, which aims to raise secondary school Generation€uroStudents’Award,whichaimstoraisesecondary school 08 Stability Conference onFinancial 11 Countries’ CentralBanks of Portuguese-Speaking XXIX LisbonMeeting

15

for the future

and the aspirations

the debut, the present The Euro 20 years on: 75 Knowledge creation and sharing 76 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Timor-Leste African Countriesand in Portuguese-speaking Economic Developments Cooperation Annual Reporton and Coins Bulletin onBanknotes Report onCashIssuance Report onPaymentSystems Driven bydata(NEW) Statistical ActivityReport Statistical ActivityPlan Statistical Bulletin Monitoring Report Retail BankingMarkets Conduct Supervision Summary ReportonBanking Report Banking ConductSupervision Portuguese BankingSystem Financial StabilityReport Bank LendingSurvey Spillovers Coincident Indicators Studies Banco dePortugalEconomic Economic Bulletin Implementation Report onMonetaryPolicy Official Bulletin Source: BancodePortugal.|Note:(a)PT– Portuguese; EN–English Annual Report Table I.3.2• Publication Regular publications

on theeconomiesofeightPortuguese-speaking countries and financialrelationswithPortugal,as well asaggregateindicators speaking AfricancountriesandTimor-Lestetheireconomic Provides ananalysisoftheeconomicenvironmentinPortuguese- counterparties inemerginganddevelopingcountries Reports onBancodePortugal’scooperationworkwith Cash-related topics and mainindicators Description ofBancodePortugal’scashissuanceactivities systems The mostrelevantfactsontheoperationofpayment Statistical Bulletin international fora.IthasreplacedtheSupplementto Contains statisticalarticlespresentedatnationaland statistical authority Description ofBancodePortugal’sactivitiesasnational priorities Description ofBancodePortugal’sstatisticalobjectivesand Banco dePortugal’sstatistics deposits, mortgagecreditandconsumer Developments inmarketsforsimpletermdeposits,structured between issuesoftheBankingConductSupervisionReport markets supervisioninthefirsthalfofeachyear.Published Summary informationonBancodePortugal’sretailbanking of financialinformationandtraining markets, aswellonBancodePortugal’sinitiativesinterms Information ontheregulationandauditofretailbanking environment leverage, aswellotherinformationonthemacroeconomic asset quality,liquidityandfunding,profitability,solvencyand system, basedonindicatorsthebalancesheetstructure, Description ofdevelopmentsinthePortuguesebanking system assessing theirconsequencesforthestabilityoffinancial financial system,byidentifyingpossibleadverseshocksand Evaluation ofemergingrisksinthePortuguesemarketsand Eurosystem’s survey Release ofdetailedresultsforPortugaltakenfromthe events promotedbytheBank Publication ofresearch,economicanalysisand and privateconsumptioninPortugal Publication ofcoincidentindicatorsforeconomicactivity articles areprecededbyanon-technicalsummary by externalresearchers,andeconomicsynopses.The by BancodePortugal’seconomists,frequentlyco-written Publication oftheoreticalandappliedstudiesprepared of macroeconomicprojections Detailed analysisofthePortugueseeconomyandrelease Eurosystem inPortugal Summary ontheimplementationofmonetarypolicy regulatory capacity Collection ofalllegalactsproducedbytheBankinits Description oftheBank’sactivitiesandfinancialstatements |2019 Objective

Annual Annual eiana PT Semi-annual Annual Annual nulEN Annual nulPT Annual nulPT Annual Monthly Annual Annual Annual Quarterly Semi-annual Quarterly eiana EN Semi-annual Monthly Quarterly Quarterly nulPT Annual otl PT Monthly Annual rqec Language Frequency PT andEN PT andEN Summary only. the Executive version of English PT |Note: Summary only. the Executive version of English PT |Note: PT andEN PT andEN PT andEN PT andEN PT andEN PT andEN PT andEN PT andEN PT andEN PT andEN PT andEN (a) Instagram Website Bank Customer Twitter LinkedIn Youtube Website Website Channels Table I.3.3• 30. this informationwasretrievedbyseventhousandenterprises. the performanceoftheirenterprisestothat thesamesectorandsizeclass.In2019, The BankprovidedtheEnterpriseandSectorTablestoenterprises, toenablemanagerscompare concerning themselvesinthedatabase. of theircustomersandthoseapplyingforcredit,butany personmaychecktheinformation This informationismainlyintendedtosupportcredit-granting institutionsinassessingtherisk initial amountof€50ormoregrantedbyinstitutionsin Portugal tonaturalandlegalpersons. year (Table I.3.4). The Central Credit Register is a database on actual or potential credits of an most notablyconsultationsoftheCentralCreditRegister,whichgrewby20%fromprevious In 2019,thedemandforservicesprovidedbyBancodePortugalcontinuedtoberelativelyhigh, also releaseddecoderswithgoodpracticeswhenusingcards. It activities. financial out carry to authorised not are that entities on warnings seven issued it year, a warningonthesepractices,togetherwithdecoderandanexplainervideo.Inthecourseof post-dated chequesorpropertyrightsoverimmovablemovableassets,BancodePortugalissued with reports of situations where natural or legal persons were offering unsolicited credit in return for Financial fraudpreventioncontinuedtobeamongsttheBank’scommunicationpriorities.Confronted Bank’s CookiesPolicy. data obtainedthroughcookiesbetreated,particularlyforstatisticalanalysispurposes.Datacompiledthereafterrefertousersthathaveacceptedthe 7 November 2019 a Cookies Policy has been in place on the institutional website and the Bank Customer Website, whereby users must consent that any The BankhasheldTwitterandYouTubeaccountssinceFebruaryMarch2017respectively,anInstagramaccountSeptember2018.Since Source: BancodePortugal.|Note:(a)TheinstitutionalwebsitewasredesignedinNovember2016andtheBankCustomerWebsite2017.

by sectorofeconomicactivityandsizeclass, and ratiosofotherEuropeancountriesbysectoractivity. presented firms, Portuguese on indicators financial and economic 150 of set a include Tables Sector The authentication. without consulted be may which In additiontotheEnterpriseandSectorTables, availabletoenterprisesuponauthentication,everyyearBancodePortugalalsoreleasesSectorTables, Communication: mainindicators Impressions Posts News Viewed webpages Viewed webpages Users Users Decoders Tweets Impressions Impressions Posts Addresses Views New videos Press releases Indicators 2016 221 60 33 2 – – – – – – – – – – – – |2016–2019 517181,1,5 22,948,275 17,718,152 15,117,198 ,3,8 ,9,8 2,787,495 2,293,487 2,032,481 ,0,0 ,3,5 2,554,948 2,738,153 2,006,007 773,400 35,760 2017 907 235 232 80 25 80 31 – – – – 30 ,6,9 1,586,850 1,561,893 442,805 7,0 1,201,536 774,300 69,400 49,466 1,092 2018 444 241 95 25 43 62 21 504,271 163,107 99,274 1,218 2019 109 542 264 93 45 62 42

77 Knowledge creation and sharing 78 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Source: BancodePortugal. complaints customers’ Analysis ofbank Services Table I.3.4• reports of account Consultations complaints customers’ Analysis ofbank of cheques of theuse on theprohibition of information Consultation reports of creditliabilities Consultations Cash office documents on lost of information Dissemination Historical Archive The Bank supports TheBanksupports Historical Archive Money Museum

Services tothepublic:mainindicators products andservices in retailbanking institutions against financial reviews thecomplaints Banco dePortugal accounts financial instrument payment, creditand reports ontheirdeposit, companies withdetailed individuals and The Bankprovides intermediaries against credit reviews complaints Banco dePortugal Defaulters on theListofCheque registration intheirname information onany companies with individuals and The Bankprovides and asguarantors responsible, asdebtors for whichtheyare reports onthecredits companies withdetailed individuals and The Bankprovides collector coins. commemorative and denominations, andsells and coinsfordifferent exchanges banknotes escudo banknotes, damaged euroand banknotes, including The Bankexchanges concerned request oftheholders banking system,atthe information acrossthe containing personal on lostdocuments disseminates information fraud, theBank With aviewtopreventing economics andfinance in thefieldsoflaw, research, especially Education Centre It hasaFinancial de Portugal’scollection. based onBanco the historyofmoney The Museumpresents Description

received Complaints Reports issued received Complaints Defaulters Cheque of theList Consultations Reports issued services Visits tocustomer disseminated Requests Consultations consultations Library Visitors Activities niaos21 0721 2019 2018 2017 2016 Indicators

|2016–2019 ,7,2 ,0,0 ,0,1 2,455,320 1,807,718 2,008,309 1,573,327 9,0 4,3 5,1 183,348 156,111 141,931 190,501 6,0 2,6 4,6 396,465 249,767 225,764 164,802 8476,5 23674,796 62,396 62,859 58,467 4111,8 52418,104 15,264 15,282 14,141 ,9 ,1 ,8 675 1,281 3,517 1,291 ,2 ,4 ,0 5,262 5,502 5,543 5,523 ,3 ,2 ,2 7,277 7,026 7,023 7,033 0 8 244 289 304 1 ,2 ,6 1,127 1,165 1,227 913 ..na ..114 n.a. n.a. n.a. 220 to markthe20 Banco dePortugaljoinedforceswiththeEuropeanCommissionandCentralBankinpromoting#EUROat20communicationcampaign, In October, Banco de Portugal conductedits3 to themarketingofbankingproductsandservices. liabilities report and the accounts database, and the list of cheque defaulters) and the rules applicable credit the of (consultations databases Bank’s the on focused clarification for requests Most DECO. – service, sent under a campaign promoted by the Portuguese Association for Consumer Protection requests in2018),including30thousandmessagesrelatedtothechargingoffeesbyMBWay or through the forms available on the institutional website and the Bank Customer Website (10,699 the year,Bankprocessed38,949phonecallsand45,863messagessentbypublice-mail Throughout region. the in skills of set specific this from benefiting and facilities local its of advantage taking presence, inland its consolidated Bank the Branco, Castelo in service this establishing website. By information requestssentbye-mailtoinfo@bportugal.ptandtheformavailableoninstitutional this Agency,theBankprovidesaphonesupportservicetoindividualsandenterprisesreplies In 2019, Banco de Portugal’s Call Centre was transferred to the Castelo Branco Agency. Based in communication campaignonthe20 In addition to the exhibition “(Euro)policies: contemporary photography since 1999”, as part of the Banco dePortugal,whichopenedtothepublicinFebruary 2020. 2018) activities, andcompletedanewpermanent exhibition space,onthenature and functions of At the Money Museum, the Bank launched the Financial Education Centre (opened at the end of above the3.75attainedin2018. at its information desks. Results showed a degree of overall satisfaction of 3.78, on a scale of 1 to 4, i.e. “The Leal of Oporto of King Afonso V”, which displayed the one-of-a-kind piece of global numismatics “The LealofOportoKingAfonso V”,whichdisplayedtheone-of-a-kindpieceofglobalnumismatics contemporary academic artists. From 27 November 2019 to 23 February 2020, it held the exhibitions the exhibition “Fine Arts of the Academy: Today” from 20 March to 28 April, which displayed 27 works by Maria II’sbirth,whoestablishedBancodePortugalandtheAcademy ofFineArts,theMuseumhosted money”, onthehistoryoffightagainstcounterfeiting.To commemoratethebicentenaryofQueen exhibitions. From 28 November 2018 to 23 February 2019, it held the exhibition “The value of trust in th anniversaryoftheeuro. th anniversary of the euro, the Museum held four other temporary anniversaryoftheeuro,Museumheldfourothertemporary rd satisfaction survey on the services provided to the public satisfactionsurveyon the services providedtothepublic 79 Knowledge creation and sharing 80 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Banco dePortugalhostedthe1 To ensurewiderdisseminationofitsHistoricalArchive,particularlyamongarchivistsandresearchers, of thenorthcountry. Libraries of Banco de Portugal, co-organised with the network of municipal, academic and school libraries dialogue onbestpracticesininformationprocessing,thePortoBranchhosted2 which wassupplementedbyalecturecycleledin-houseeconomists.Withthepurposeofencouraging The LibraryofBancodePortugalhostedanexhibitiononthe50yearsNobelPrizeinEconomics, Roque. Ministry ofCulture,andlentpiecestothe“OneKing,ThreeEmperors”exhibitionatMuseudeSão a joint initiative of the National Palace of Ajuda, the Directorate-General for Cultural Heritage and the The Museum helped preparethe numismatic content for the upcoming Royal Treasury Museum, in Museumactivities. in 2018to74,7962019.Ofthese,19%wereonSundays.Approximately30%ofvisitorstookpart As ofFebruary2019,theMuseumisalsoopenonSundays.Thenumbervisitsgrew,from62,396 walking toursinLisbon. and event dance a time, first the for and, conferences courses, workshops, cinema, plays, theatre concerts, jazz discussions, and debates visits, accessible to visits thematic from activities, cultural and that never came to be. To complement these exhibitions, the Museum provided 1,127 educational which, for the first time, displayed this architect’s scale model of the Bank’s head office – a1936 project (acquired bythe Bank in 2019) and “PardalMonteiro (1897-1957) – Architecture,pureand simple”, Reading Volunteers project, is still ongoing in the 2019-20 academic year at these schools and, for Padre Abel Varzim and Sampaio Garrido schools, in Lisbon. This initiative, which is part of the academic yearfor46students ofprimaryschoolageattheLuísaDuclaSoares,Maria Barroso, (Associação para o Voluntariado de Leitura), the Bank held reading sessions in the 2018-19 Tecnologias Interativas) of the NOVA University Lisbon and the Reading Volunteer Association With thesupportofInteractiveTechnologiesResearch Centre(CentrodeInvestigaçãopara Escola BásicaIntegradadeArrifes,intheAzores. time, first the for and, schools same the with partnership its pursue will it year, academic 2019-20 the In Amadora. in Andresen, Breyner Mello de Sophia 2/3 EB Escola and Namora Fernando Secundária volunteers taught Maths, Portuguese and English to 32 students in lower secondary education at Escola Together withEntrepreneursforSocialInclusion(Empresários pelaInclusãoSocial–EPIS)andGertal, Viseu, FunchalandPontaDelgada. Porto, to extended were district, Lisbon the in only developed been hitherto had which projects, volunteering 2019, In entities. partner of number a and staff volunteering with together policy, The Bank also carried out several actions to support the community, under its social responsibility published ontheinstitutionalwebsiteforawardofsupporttoexternalentities. and out set were criteria of set a purpose, that For manner. transparent and impartial objective, an in goals andtheinternalethicalconductstandardsand,atsametime,thatsupportisgranted with a view to ensuring that the partnerships built and the sponsored projects are in line with strategic policy, support social and financial new a adopted Bank the community, the to links its strengthen To management application,whichmadecatalogueresearchandbrowsingeasier. archive new a launched also Bank The centres. research and institutions financial other from experts st ), with the participation of “ArchiveAfternoons”(TardesdeArquivo),withtheparticipationof nd Workshop on Workshop on

children atthesummerholidaycampofArroiosparish. social centre of Carregado. In July and August, the Bank provided 4,230 mid-afternoon snacks to the to thesocialcentreofCarregado,towardsfoodhampers.500litresmilkwerealsodonated At Christmas,275kilogramsoffoodweredonatedtotheArroiosparishand75 individuals. individuals, and to the social centre of Carregado, which in turn distributed them to 19 disadvantaged These meals were given to the Arroios parish, which delivered them to 45 households,totalling 61 Carregado donated2,840meals,10,868litresofsoupand638kilogramsdressingssidedishes. de Portugalinthecourseofyear.ThecafeteriaoperatorsatBank’sfacilitiesLisbonand Banco by donated were meals 7,820 project, waste) (zero Desperdício Zero the of scope the Within Moçambique tobeallocatedtherehabilitationofaschoolinBeira. de Banco to sent were proceeds The staff. its among campaign fundraising a launched and contribution financial a approved Portugal de Banco Mozambique, of regions northern and central To supportthepopulationcommunitieshitbycyclonewhich,inMarch,causeddevastation Institute inPorto. rights) wasissued andsold,theproceedsofwhichwerefullydonatedtoPortuguese Oncology Another Day, whichincludedeventsinCoimbra,Faro,Funchal,Lisbon,PontaDelgada,PortoandViseu. financial stability, resolution, prudential and banking conduct supervision), Banco de Portugal is in is Portugal de Banco supervision), conduct banking and prudential resolution, stability, financial most comprehensive mandates in the central banking community (covering monetary policy, also insupport,management andinfrastructurefunctionswithincentralbanks.With one ofthe relevant. Cooperationhasgrowninquantitativeandqualitative termsacrossallthesedomains,but The issues stemming from the financial crisis and technological innovation have become increasingly and financialstability. monetary of objective overall the to contributing thus methodologies, and topics new introducing by and institutions, and players new incorporating by demands current to responded effectively mainly centred aroundthe promotion andsharing of expertise andbestpractice. The Bank has Banco de Portugal’s cooperation with counterparties in emerging and developing countries is 3.4 To raise its staff’s awareness to the importance of volunteering, Banco de Portugal held its 1 and registeringgoodsdonatedinPorto,Viseu,FunchalPontaDelgada. They alsosupportedcampaignsforBancoAlimentar(thePortugueseFoodBank),bycollecting plan totacklepovertyattheCentroParoquialdeBem-EstarSocialSãoJosé. In PontaDelgada,theBank’svolunteershelpedsortandpreparefoodhampersunderintegrated improve theservicesprovidedtotheirbeneficiaries. to Entrajuda by supported institutions of set a helped and community, the by used be may they that so library, its at books of cataloguing the in Ajudaris supported volunteers Bank’s the Porto, In patient childrenandteenagers. Together withD.EstefâniaHospital,theBankalsoheldweeklyreadingsessionsforinandout the first time, in Escola Básica de São José, also in Lisbon, and Escola Básica da Fontinha, in Porto. International cooperation Agenda Solidária Agenda do BancodePortugal [solidarity agenda] (this time, focusing on human st Volunteer Volunteer

81 Knowledge creation and sharing 82 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 banks ofthePortuguese-speakingcountries. in Portugal,withhigh-levelmeetingsrepresentativesofthecentral Having beenheldinDili2018,theLisbonMeetingwasonceagain restructuring ofSãoTomé’sinternaldebt. Príncipe untilthefund’sextinctionon30July2019.Itwasestablishedin1998tocontribute Banco de Portugal managed a trust fund on behalf of the Democratic Republic of São Tomé and participation fromauthoritiesofbothcountriesandtheSantomeancivilsociety. Economic Cooperation Agreement between Portugal and São Tomé and Príncipe, in São Tomé, with wide Portugal andSãoToméPríncipe.Italsotookpartintheconferencetomark10 Agreement betweenPortugalandCaboVerdetheEconomicCooperation 32. 31. courses attheBancodePortugalAcademy,onmanagement, communicationandothersoftskills. In 2019,thecentralbanksofPortuguese-speakingcountries weregivenaccesstothetraining supervision. management andriskmanagement,humanresources, internationalrelationsandbanking reserve inclusion, and education financial of fields the in counterparties these with meetings sectoral regular five in part took also It financing. terrorist and laundering money of prevention planning andstresstests,co-organisedwiththeFederalReserveBankofNewYork,on government finance statistics, co-organised with the IMF; and the first set of seminars on capital of the Portuguese-speaking countries. The most notable were: the course on public debt and In Lisbon, Banco de Portugal organised a wide range of courses and seminars with central banks once againheldinLisbon,havingbeenDilithepreviousyear(Chapter3.2). at theIXMeetingofGovernors,inMacau,andOctober,XXIXLisbonMeeting,whichwas In 2019,thecentralbanksofPortuguese-speakingcountrieshadhigh-levelmeetingsinMay, Portuguese-speaking countries(Chapter3.3),whichwereagainreleasedin2019. The Bankregularlypublishesindicatorsandanalysesontheeconomicenvironmentinrelationto

The For moredetailsontheseinitiatives,seethe2019 AnnualReportonCooperation report onthetrustfundmanagementisavailableBancodePortugal’swebsite(in Po 32 region, and1withanAfricancountry. countries, 12 with countries in Asia and the Pacific neighbouring EUcountries,16withLatinAmerican 106 withPortuguese-speakingcountries,24 (Figure I.3.2) covering all central banking functions: In 2019,itcarriedout159cooperationinitiatives cooperation partners. its to a position to offer an overarching perspective agreement –thisone(its12 entered intoanothertechnicalcooperation sound operation of the Exchange Rate Cooperation sound operationoftheExchange Rate Cooperation The Bankparticipatedinthebodiesmonitoring Nacional deAngola. de Chile–andrenewedisagreementwithBanco , availableonBan rtuguese only). co dePortugal’swebsite. th ) with Banco Central ) withBancoCentral th anniversary of the anniversaryofthe 31 The Bank TheBank Source: BancodePortugal. Figure I.3.2• and heldthethirdprojectcoordinationmeeting. resolution, and statistics inclusion, financial as such topics on training local included which project, the of stage first the during involved was Portugal de Banco Union. European the by funded is and 2019 in launched was which Balkans, Western the to project assistance technical the in part took held bytheCentreforLatinAmericanMonetaryStudies,includinggovernor-levelmeetings.Italso American Central Banks, in the third Conference on Statistics at Banco Central de Chile, and in events Portugal participatedintheEighthHigh-LevelPoliticalDialoguebetweenEurosystemandLatin In additiontoworkingintheoverarchingcontextofPortuguese-speakingcountries,Bancode and conferences 30 Meetings Partner entities Cooperation initiatives 9191,599 159 49 22 2018 31 and seminars 35 Courses 2018 26 2018 |2019 Cooperation 32 initiatives assistance Technical 28 2018 130 2018 51 Internships work visits and 44 2018 Human resources (working days) 11 scholarships and project Research 10 2018 1,378 2018 83 Knowledge creation and sharing 84 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 constraints established in the Strategic Plan. Departments are also directly assessed by the Board of constraints establishedinthe Strategic Plan.Departmentsarealsodirectlyassessedbythe Boardof beginning ofeachyear and regularlymonitored;(c)headcount goals,inlinewith the resource the at out set (KPIs), indicators performance key departmental (b) management; budgetary efficient Directors. This appraisal model considers: (a) budgetary performance metrics, to promote active and of Board the by approved framework commitments and objectives an on based process, appraisal accountability for results. To such end, its departments have been subject to an annual performance of culture a by reinforced 5), (Box expenses operating for trajectory sustained rational, a ensuring to a view with criteria, efficiency by guided is policy management resource Portugal’s de Banco revised, andpriorityfollow-upinitiativesweresetfor2020. were Plan the of years three first the 2019, of end the At Departments. of Heads the and Directorate indicators, byasteeringcommittee,whichincludestheBoardof Directors,theStrategyandOrganisation Implementation of the Strategic Plan for 2017-20 is monitored by means of overall enforcement matters underdiscussion. Heads ofDepartment and otherrepresentatives from therelevantdepartments according tothe subcommittees. ThecommitteesarecoordinatedbymembersoftheBoardDirectorsandinclude the SpecialisedCommitteeforInformationSystemsandTechnologiesManagement,includingtheir and Stability,theCommittee for RiskandInternal Control, theBudgetMonitoringCommittee and in-house advisory committees, more specifically the Specialised Committee for Financial Supervision The BoardofDirectorsBancodePortugalissupportedinitsdecision-makingbyspecialised thereto bytheGovernororBoardofDirectors. de Portugal,theperformanceofBancoPortugalarisingfromitsactionandanymatterssubmitted due consideration.TheAdvisoryBoardissuesnon-bindingopinionsontheAnnualReportofBanco accounts, andbringstotheattentionofGovernororBoardDirectorsmatterswarranting applicable legislationandregulations,issuesitsopiniononthebudget,balancesheetannual The BoardofAuditorsmonitors thefunctioning of BancodePortugal,assesses compliance with of Directorsheld53meetings. of Directors assigns its members responsibilities for one or more departments. In 2019, the Board not fallwithintheexclusivecompetenceofotherbodies.OnaproposalbyGovernor,Board responsible foralltheactsrequiredtocarryouttasksentrustedBancodePortugalwhichdo Governing CouncilandtheGeneralofEuropeanCentralBank.TheBoardDirectorsis and enhancementoftheactivityBoardDirectors.TheGovernoralsoactsasmember Portugal, actingonitsbehalfinforeignandinternationalbodies,supervisingtheco-ordination of Auditors and the Advisory Board. The Governor’s responsibilities include representing Banco de The internal bodies of Banco de Portugal consist of the Governor, the Board of Directors, the Board 4.1 for 2017-20. adopted byEurosystemcentralbanks,substantiatedinitsfourthBroadStrategicGuidelineset and themainchangesintroducedin2019withaviewtotheiralignmentbestpractice This chapter presents the organisational and internal governance model of Banco de Portugal 4 Internalmanagement Internal governance business conduct, by promoting the institutional values as unifying elements and by incorporating business conduct,bypromotingtheinstitutionalvaluesas unifying elementsandbyincorporating towards the improvement and reinforcement of the internal institutional culture on ethics and geared be to continued year the of course the in Office Compliance the by out carried activities The on financialsupervision. Regulation the Eurosystem,withpurposeofassessingimpact theGeneralDataProtection and international working groups, within the scope of the National Council of Financial Supervisors and subjects’ rights – a total of 72 such requests were received. Additionally, the Bank participated in national technological andinformationsystems.In2019,BancodePortugalguaranteedtheexerciseofdata adapting (iv) and sessions, training staff organising (iii) staff, to Regulation the of concepts main the notification of personal data breaches procedure, (ii) preparing a data protection guide to introduce in place, which included: (i) drawing up the privacy bydesign and by default procedure and the de Pensões (Pension Funds Managing Company). In 2019, a data protection action plan was put Agricultural CreditGuaranteeFund,Valora,theMediatorandSociedadeGestoradosFundos which also supports the activity of the Deposit Guarantee Fund, the Resolution Fund, the Mutual To fully implement the General Data Protection Regulation, Response Team(CSIRT). Incident Security Computer the in part as system, financial Portuguese the of incidents security in cybersecurity,riskandcomplianceoftheBank’ssystems,aswellresponseto Department’s cybersecuritycentrewerealsoreinforced,whichtookontheresponsibilities the respectivemanagement committees. The powers oftheInformation Systems and Technology by the public andnational accounts and the service-level agreements and powers conferred by accommodate the responsibilitiesarising from the assistance to the autonomous funds required to adjusted also was Department Accounting the of structure organisational The infrastructures. (PSD2), theemergenceoffintech operators anddevelopments in the Eurosystem’s market to accommodatetheincreasedresponsibilitiesarisingfromrevisedPaymentServicesDirective the Board in 2019. The organisational structure of the Payment Systems Department was adjusted decisions made by the Board ofDirectorswereseparated from the general support functions to Secretariat, the support functions assisting the decision-making process and the follow-up on the General the at such, As structure. decision-making effective an and organisation flexible and agile introduced were designed to enhance the efficiency and quality of Banco de Portugal’s performance, for changes The model. governance internal its refine to continued Portugal de Banco 2019, In release managementinformationtohelpgaugetheefficiencyoffunctionsanddecision-making. Eurosystem functions,therebyenablingcomparabilityandtransparencyamongcentralbanks,to key on expenditure total disclose to are objectives main whose and Eurosystem the by developed Banco dePortugalusesacostingsystemtosupportdecision-making,whichisbasedonmethodology merit andmanagingtheannualrewardschemeatBancodePortugal. for anoverallperformance appraisal atdepartmental level, whichisthebasisforacknowledging The integrateduseofthese(quantitativeandqualitative)performancemeasurementcriteriaallows survey. customer in-house annual an to subject departments, support of case the in and, Directors 33.

Regulation (EU) sing ofpersonaldataandonthefreemovement ofsuchdata(GDPR). 2016/679 of theEuropean Parliament oftheCouncil of 27 April 2016 on the protectionofnatural persons with regard to theproces- 33 the Bank has a Data Protection Office, Office, Protection Data a has Bank the 85 Internal management 86 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 34. these risks,andtheiractionswerereflectedintheStrategic Plan. classify themainrisksassociatedwithBank’sactivities.Mitigation planswerealsodevelopedfor As has been standard practice in recent years, a top-down exercise was carried out to identify and Portugal’s ownfunds. financial risks and the approval of a strategic risk budget, matching the coverage provided by Banco de non- for sub-categories of definition the by supplemented was exposed, is Portugal de Banco which approved bytheBoardofDirectorsin2018andwhichdescribes thetolerancelevelforrisksto analysis oftheriskcultureamongbusinesslines.TheInternal StatementofRiskAcceptancePrinciples, In 2019,BancodePortugalproceededwithitsintegratedmanagement policyonrisksandanin-depth 4.2 the applicablerules. on guide” “quick a features also which website, Bank’s the on consultation for available are Portugal de Banco of conduct of codes and regulations The of thecorruptionpreventionplan). Relatório AnualdeExecuçãodoPlanoPrevençãoCorrupção(annualreportontheimplementation the in described as revised, also was prevention interest of conflicts on policy internal The entities. participates undertheSingleSupervisoryMechanism,orwhicharepartofgroupscontrolledbysuch Bank the supervision whose in or supervision Bank’s the to subject entities for working and Bank the for working between period cooling-off a for provides which positions, management in staff all to regard to the management and prevention of conflicts of interest, a mitigation measure was applied information may hamper the protection of public interest acknowledged at national and EU level. With in conferencesandeventscommitmentstoexternalentities,exceptwhenthedisclosureof a workingagendaortopic(s)fordiscussion,includinginstitutionalmeetings,lectures,participation calendars releasedwithathree-monthlag,listallthemeetingsoreventsplannedorganised of the Board of Directors, which has been done on a monthly basis since January 2019. The transparency andcredibilitywasalsobehinditsdecisiontoreleasethecalendarsofmembers aimed at all central banks and national supervisory authorities. The Bank’s commitment to foster awareness-raising session sponsored by the European Central Bank, the first of a series of measures them into thedecision-making and management processes. In this respect, theBank held an

The Plano deGestãoRiscosCorrupção–Relatório de Execução2018 Risk management 34 isavailableonBancodeP ortugal’s website. Purchases andlogistics(includescontract management) Risk andcompliance Cash issuance Legal matters Communication andimagemanagement Budget andaccounting Security IS/ICT Human resources Cooperation andinternationalrelations Resolution anddepositguarantee Reserve andfinancialassetmanagement Statistics Payment systemsandmeans Supervision andlegalenforcement Monetary policyandotheroperationalduties Governance, internalfunctioningandmanagementquality Table I.4.1• and efficiencyoftheinternalauditfunction. collecting and analysing information and managing the audit procedures, to improve the effectiveness Banco dePortugalmaintained its implementation of agileandintegratedsolutions, with aviewto System ofCentralBanks,theEurosystemandSingleSupervisoryMechanism(TableI.4.1). 29 ofwhichwereexclusivelydomesticandsevenundertheinternalauditfunctionEuropean the governance,riskmanagementandinternalcontrolprocesses.36auditswerecarriedout, of efficiency and effectiveness greater to and functioning smooth Bank’s the to contributing thereby In 2019,theinternalauditfunctioncontinuedtoprovideassessmentandconsultancyservices, 4.3 reserves andincome)toensurethattheyarecompatiblewithBancodePortugal’srisktolerance. These risks were analysed by comparison with the financial buffers in the balance sheet (provisions, of indicators, on the basis of standard methodologies in line with those used by the Eurosystem. number a of calculation regular the through examined were risks financial in developments Overall assessment system,andassesseditscompliancewiththeEurosystem’srulescriteria. collateral inEurosystemcreditoperations.Italsomonitoredtheperformanceofitsin-house rating systemsacceptedforusebynationalinstitutionsthecreditofassetsprovidedas Eurosystem (Chapter1).BancodePortugalalsomonitoredandanalysedtheperformanceofinternal Monetary policy operation risks were monitored in accordance with the rules set out within the the valuation,calculationofyieldandriskcontrolonassetmanagementoperationsadailybasis. Directors. AninformationsystemsimilartothatusedinmostEurosystemcentralbankscarriedout into accountthelimitsandrestrictionslaiddownin the internal guidelines approvedby the Board of operations was monitored taking management asset investment own underlying risk financial The Source: BancodePortugal. Internal audit Breakdown byactivitydomain Audits |2019 Total Domestic 29 8 1 1 3 1 1 5 1 1 2 2 3 ESCB, EurosystemandSSM 7 1 1 1 1 1 1 1 87 Internal management 88 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Active Supervisory tasks Unpaid leave/secondment recruitment, career and selection for leading positions, in addition to incentives to internal mobility recruitment, careerandselection forleadingpositions,inadditiontoincentivesinternal mobility Banco de Portugal has invested in the qualification of its staff by continually improving its policieson professional staff(TableI.4.4). were 69% and females) were 47% whom (of staff managerial were members staff Bank’s the of 20% approximately 2019, In unchanged. broadly remained function by staff of breakdown The Source: BancodePortugal. Age group Movements Gender Table I.4.3• males and40forfemales)(TableI.4.3). rejuvenation of staff continued, with the average age of staff members falling to 42 years (44 for gradual the for trend the and balanced remained gender by staff of composition the 2019, In tial supervision, banking conduct supervision, financial stability, legal enforcement, resolution, credit mediator and National Council of Financial Supervisors. Source: Banco de Portugal. | Notes: (a) Excluding staff members on unpaid leave and public interest assignment. (b) Staff members in the fields of pruden- Total staff Table I.4.2• Bank hosted80internsinitspaidinternshipprogrammes. The interns. were 77 recruited, staff of members 161 the Of terminations). contract labour 36 and course of the year, 161 members of staff were recruited and 136 left Banco de Portugal (100 retirements the Over 2017-20. for Plan Strategic the in out set 2020, by members staff 1,700 of goal the with line in of whom1,700were active (78 were onunpaid leave or public interest assignment) (Table I.4.2). This is 1,778, at stood Portugal de Banco by employed members staff of number the 2019, December 31 at As 4.4 (a) Human resources (b) Staff developments:gender,movementsandagegroups Staff developments >=66 [56;65] [46;55] [36;45] [26;35] <=25 Female Termination ofcontracts Retirements Recruitments Male |2016-19 ,9 ,6 ,5 1,778 1,753 1,761 1,797 ,1 ,0 ,8 1,700 1,687 1,701 1,717 0621 082019 2018 2017 2016 3 4 5 481 450 446 437 80 0621 082019 2018 2017 2016 505 288 353 570 112 884 913 72 30 62 60 9 474 265 381 556 861 900 66 11 74 29 85 78 |2016-19 818.2% 78 418 259 426 560 867 886 118 18 72 36 87 ∆ 2019-2018 1.4% 0.8% 6.9% 334 272 483 579 886 892 100 161 16 94 36 Staff members Lisbon and Porto, for students from top Economics, Management, Law and IT/IS schools. The Within the scope of the professional and summer internships, the Bank hosted two Open Days, in encourage intergenerationalcommunication. identity and culture of the organisation, to foster the professional development of junior staff and to In 2019, theBank proceeded with its mentoring programme, launched in 2018 to consolidate the course. Itincludesretiredpersonsandstaffmemberswhoseemploymentcontracthasbeenterminated. Source: Banco de Portugal. | *The attendance rate corresponds to the share of Banco de Portugal's members of staff that participated in at least one training Attendance rate* Hours Participants Table I.4.5• participated intheactionsundertakenbyAcademy(TableI.4.5). –, maths, statistics and information management. Throughout the year, a total of 1,842 staff members learning machine and data big intelligence, business including – skills IT staff’s on building of purpose de Portugal.TheprocessofestablishingtheAcademy’sDataScienceSchoolwasinitiated,with masterclasses for board members and senior management on topics deemed strategic for Banco completed oneoftheseprogrammes.Tocomplementthelatter,in2019Bankhostedacycle a Excelência para Estratégica eMudança de Liderança Strategic LeadershipandChangetowardsExcellence(Programa Liderança training programmes are available: the Advanced LeadershipProgrammede (Programa Avançado priorities. The Academy includes a Management and Leadership School, under which two long-term behavioural skill building in an integrated manner and in line with its mission, values and strategic Academy (Academia do Banco de Portugal), which was created in2016 to manage technical and Portugal de Banco the is staff its develop further and train to projects structural Bank’s the of One Source: BancodePortugal. Middle management Senior management Table I.4.4• processes werelaunched. In 2019, 42 members of staff moved to other departments. 53 external and 30 internal recruitment and astrongemphasisontrainingthedevelopmentofskills(formal,technicalbehavioural). Professional staff Unpaid leave/secondment Technical-administrative staff ), launchedin2016 and gearedtowardsmiddlemanagement, and theProgrammefor Training: participantsandhours Staff: breakdownbyfunction ), launched in 2017 for top management. By the end of 2019, 171 managers had ), launchedin2017fortopmanagement.Bytheendof2019,171managershad 9736,7 0396,7 12.2% 67,678 60,319 60,673 59,793 64 69 75 105.0% 97.5% 96.9% 96.4% ,9 ,6 ,5 1,778 1,755 1,761 1,797 ,3 ,0 ,1 1,842 1,712 1,707 1,733 0621 082019 2018 2017 2016 Total |2019 |2016-19 892 151 557 aeFml oa % Total Female Male 108 41 35 8 ,7 100% 1,778 886 148 6 1,223 666 19 43 10 299 118 60 78 ∆ 2019-2018 1.3% 7.6% 7.6% purpose purpose 17% 69% 3% 4% 7% 89 Internal management of this initiative is for the Bank to forge closer ties with academia and, at the same time, to reinforce its recruiting capacity.

The Bank also took part in the 3rd Schuman Programme, a mobility programme for the European System of Central Banks and the Single Supervisory Mechanism, which promotes the exchange of information and the sharing of expertise among the staff of central banks and adherent supervisory authorities, through projects running from six to nine months. In this edition, the Bank seconded four staff

Every year, Banco de Portugal hosts Open Days for students from top members to the central banks in Spain, Germany, Economics, Management, Law and IT/IS schools. Belgium and Italy and hosted two staff members from the Central Bank of Ireland.

With regard to Banco de Portugal’s pension funds, as at 31 December 2019 the assets of the Pension Fund – Defined-benefit Plan – a closed-end pension fund covering staff who began working in the banking sector prior to March 2009 – and the health benefits plan, covering all staff – amounted to €2,022 million invested in euro area bonds and liquidity (83.8%), shares (4.3%) and real estate (11.9%). The fund was also exposed to euro area bond futures and equity futures, which corresponded to 2.3% and 3.9% respectively of the asset portfolio market value. Its overall funding level was 103.7%, i.e. above the minimum level established in Notice of Banco de Portugal No 12/2001 (98.3%). In 2019, returns on the asset portfolio of this fund stood at 8.2%.

At the end of 2019, the Pension Fund – Defined-contribution Plan – a voluntary supplementary pension plan for staff who began working in the banking sector after March 2009 – had 930 participants, pointing to the majority of new staff members opting for this fund. In 2019, the asset portfolio of this fund, to the amount of €26.7 million, posted returns ascending to 5%.

4.5 Premises

In 2018, Banco de Portugal purchased land in Alto dos Moinhos to build a new office building in Lisbon. In 2019, the Bank, as owner of this land, took part in a committee that monitored the separation of building blocks at the Quinta do Bensaúde/Alto dos Moinhos, mostly related to work involving the launch of urbanisation projects. In October 2019, the Bank concluded the transfer of its alternate data centre, which had been previously located at the disaster recovery centre in Olivais, to Carregado. This process was preceded by several renovations in the Carregado complex, to accommodate the IT infrastructures.

In December, the Municipality of Funchal issued a favourable opinion on the preliminary information request for the renovation of Madeira’s Regional Delegation building. Among other changes, the Bank intends to reorganise the customer service areas by improving the building’s accessibility.

In line with environmental sustainability concerns (Box 1), the Bank signed a new contract with an electricity supplier to switch to power from 100% renewable sources. As such, in 2020 all of the bank’s buildings in Lisbon, Porto and the regional network (excluding, for the time being, the regional delegations in Madeira and the Azores) will switch to renewable sources of energy. 90 exercises, makingitpossibletogaugetheawarenessofstaffmembersintermscybersecurity. programme was implemented, which includedworkshops, in addition to three social engineering outreach an risks, cybercrime to as staff Portugal de Banco of awareness the boost to order In entities, includingtheEuropeanCentralBankandPortugueseNationalCybersecurityCentre. participating among redistribution their and institutions financial from reports incident security of receipt the to related workflows the supports website The institutions. financial with exchanges facilitate to up set was website a system, financial national the across incidents security addressing As regardssecurity,andinlightoftheBank’sresponsibilities,viaitscybersecuritycentre,for solution (whichwasdevelopedusingblockchaintechnology). automate processes, and the extension to other national central banks of the Securities Lending setting up ofearlywarnings in supervision based onsocialnetworkanalytics, the use of botsto the contracts, draft of validation the specifically more cases, business different to responsiveness Under theaegisofBancodePortugal’sInnovationLab,experimentalworkwascarriedouttoassess concentrate allrelevantbusinessdataforsharedinternaluse. balance sheet of financial institutions and which, at a later stage, will make it possible for the Bank to an information repository whichcurrentlyincludesdataonloans, prudential information and the three solutions were brought forward, the most notable of which is the Bank’s data warehouse – Bank’s resilience in termsof business continuity.As respects integrated information management, was transferred from the Olivais building to the Carregado complex, thereby also reinforcing the in thenorthofcountry.Inlinewithstrategyfordatacentredevelopment, Branch, toincrease responsiveness and supporttotheBranchBank’s regional network As partofthebusinesscontinuitystrategy,ateamsystemadministratorswassetupatPorto and services. was developed to improve internal communication and facilitate access to the Bank’s information Office 365 platform was adopted, following a comprehensive analysis of its risks, and an app for staff One oftheprogramme’smainpillarsiscreationdigitalworkplace.In2019,Microsoft programme. 2020 Bank Digital the – programme IS/IT strategic its with line in productivity, increase to solutions, In 2019, Bancode Portugal continued to streamline new cooperation, mobilityand business support 4.6 Informationsystems,technologyandmanagement 91 Internal management Box 5 • Administrative costs of Banco de Portugal

Sound and efficient management of human and financial resources is a priority of Banco de Portugal. This is evidenced by the evolution of the Bank’s administrative expenditure over the last decade, which recorded an annual average rate of change of 1.3% in nominal terms and 0.2%, when inflation is taken into account (Chart C5.1). This development has been achieved through measures to manage resources efficiently and contain costs, which have made it possible to offset the costs of the significant growth of the Bank’s functions and extraordinary expenses, in particular linked to the implementation of the Economic and Financial Assistance Programme to Portugal (Programa de Assistência Económica e Financeira a Portugal – PAEF), the strengthening, segregation and extension of the perimeter of the banking supervision and resolution areas and the need to implement new monetary policy programmes.

Chart C5.1 • Total administrative costs | Developments on a comparable basis

EUR | Millions 208.0 206.4 205.4 194.6 184.5 184.3 177.6 174.8 175.0 168.9 190.5 187.2 185.7 184.5 180.8 172.2 162.9 166.7 163.6 164.3

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total administrative costs - comparable | current prices Total administrative costs - comparable | constant prices

Annual average growth | current prices | +1.3% Annual average growth | constant prices | base year: 2010 | +0.2%

Source: Banco de Portugal.

Indeed, in the last decade, in the context of the redesign of the European supervisory architecture, Banco de Portugal took over new functions as national macro-prudential authority and national resolution authority. Prudential supervision had to respond to the challenges arising from a new, complex and resource-intensive regulatory and institutional framework. The Bank also saw its powers extended to preventive supervision of money laundering and terrorist financing, behavioural supervision and payment systems. Also in monetary policy, the Bank was called upon to carry out new tasks, in particular in terms of non-conventional measures, non-existent until then. Simultaneously, the Bank has altered its organisational structure significantly to, on the one hand, address the segregation of duties inherent to the participation in the Banking Union and, on the other hand, improve alignment with central banks’ management and control benchmarks. The Bank has strengthened its risk management, compliance, communication, strategy and planning and data protection areas. Banco de Portugal opened the Money Museum, a project that contributes to achieve its strategic goal of openness to the community, and boosts its social responsibility initiatives. In 2010 and 2011, during the economic and financial crisis, Banco de Portugal adopted a special resource efficiency programme, which included a series of specific measures to contain and cut expenditure, in terms of both wages and services provided to the Bank, in line with the cost-cutting measures adopted for public bodies within the consolidation perimeter of the respective State Budgets. To permanently monitor running costs and to propose measures to promote an efficient management

Activities and Financial Statements 2019 • Annual Report Activities and Financial Statements de Portugal Banco and contain running costs in a rational and sustainable manner, Banco de Portugal created an internal 92 applied inaccordancewithIAS 19. assumptions actuarial and financial to changes of result a as accrued fund pension the with ted social chargesincludedinthe remunerationcomponent.From2015onwards,charges associa- reduced the Bank’s annual transfer to the pension fund, but has led to an increase in compulsory the Pension Fund were integrated into the general social security scheme. This has substantially bank employees(CaixadeAbonoFamíliadosEmpregados Bancários(CAFEB))andcoveredby king-age employeesofBancodePortugalwhowereregistered inthefamilyallowancefundfor wor- the 2011 In assumptions. financial and actuarial and changes regulatory reflecting 2019, and 2010 between volatility some showed – benefits post-employment other and liabilities fund pension of recognition the include which – components costs staff other the in Developments qualifications (TableC.5.1). staff in improvement the of and increase staff the of cost the of part accommodate to Bank the Banco dePortugaldidnotupdatesalaries between 2010 and 2015. These measures have allowed targets fortotalstaff. policy basedonredeploymentandinternalmobilitytogetherwiththeestablishmentofmedium-term management resources human a and measures containment salary of adoption Bank’s the reflects C5.3). Nominalsalarieshaveincreasedby1.4%inannualaveragetermsand0.3%realterms.This expenses andcompulsoryvoluntarysocialcharges–hasevolvedinacontainedmanner(Chart Between 2010 and 2019 the remuneration component of staff costs – which includes all remuneration Source: BancodePortugal. Chart C5.2• decade aredescribedbelowingreaterdetail(ChartC5.2). services fromthirdpartieswitha23%share. Changes to these balance sheet items overthelast and supplies the by followed costs, administrative total of 67% for accounted costs staff 2019 In has takenbudgetaryperformancemetricsandheadcountgoalssince2016intoconsideration. monitoring the evolution of the budgets allocated to them. The annual assessment of the departments expenditure onspecialisedtechnicalbodiesandhasincreasedtheresponsibilityofallmanagersfor has made it possible to strengthen the centralisation of the planning and control of a large part of the which arereportedinternallyatthestartofeachstrategicplanningcycleandbudget.Thismodel and representativesoftherelevantdepartments.Annualtargetsceilingsaresetforexpenditure, of Directorsresponsiblefor the AccountingDepartmentandcomposed of othermembers the Board specialised committee, the Budget Monitoring Committee (CAO), chaired by the member of the Board Staff costs 002011 2010 130. 184. 14. 39. 0 9 1 5 0 . 0 5 Administrative costs:maincomponents 115. 168. 15. 36. 7 9 Staff costs | Comparable | costs Staff Depreciation andamortisationfortheyear 4 9 . 8 117. 177. 17 41 2012 . . 9 1 5 6

1 . 0 122. 174. 13. 37. 2013 7 6 4 8 1 . 1 042015 2014

117. 175. 14. 42. 0 1 8 0 1 . 1 124. 184. 11. 47. 0 4 8 3 |Developmentsonacomparablebasis 1 . 1 Supplies and services from third parties Other administrativecosts 2016 133. 194. 12. 47. 6 5 2 6

1 . 3 2017 208. 135. 15. 55 . 1 9 0 7

1

. 3 2018 206. 138. 15. 51. 3 6 4 2 1 . 3 2019 205. 138. 18. 47. 2 3 4 5 1 . 3 93 Internal management Table C5.1 • Staff | Academic qualifications

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Academic qualifications ≤12th grade 712 678 643 591 553 499 452 387 337 287 Undergraduate 723 748 753 784 810 813 830 829 803 847 Master 177 222 240 307 356 405 449 474 540 573 Doctorate 36 41 46 52 58 60 66 71 73 71

Source: Banco de Portugal.

Chart C5.3 • Staff costs: main components | Developments on a comparable basis

EUR | Millions

138.2 138.5 130.1 133.2 135.7 122.4 124.8 115.4 117.5 117.8 27.4 28.8 29.1 19.2 25.7 33.6 15.8 20.2 22.2 15.4

109.4 109.5 96.5 99.7 97.3 100.2 102.5 105.6 107.5 108.3

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Other components | includes: Pension fund, Early retirements and Valuation of staff benefits | Comparable Remuneration component | Comparable Annual average growth | Remunerations | current prices | +1.4% Annual average growth | Remunerations | constant prices | base year: 2010 | +0.3%

Source: Banco de Portugal.

Between 2010 and 2019 the Bank’s net headcount increased by about 100. At the end of 2019 it was in line with the target set out in the Strategic Plan of 1700 employees by 2020 (Chart C5.4). Throughout the period under review, there was a consistent increase of staff in supervisory activities and a reduction in all other areas of the Bank, the decrease being sharper in the support functions, also in line with the goal set out in the Strategic Plan.

Chart C5.4 • Staff numbers

2500 1900 1,717 1,672 1,683 1,683 1,701 1,687 1,700 1,634 2000 1,605 1,623 1700

1500 240 274 285 354 383 383 437 446 450 481 1500

1000 1300

1,365 1,360 1,338 1,318 1,300 1,300 1,280 1,255 1,237 500 1,219 1100

0 900 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 ‐500 700 Supervision areas Other areas Excluding staff members on unpaid leave and public interest assignment 2019-2010 Supervision areas | +241 2019-2010 Other areas | -146 ∆ Source: Banco de Portugal. ∆ Activities and Financial Statements 2019 • Annual Report Activities and Financial Statements de Portugal Banco 94 Chart C5.5• between 2010and2019. million €7.4 by virtually increased FST in expenditure Total expenses. advice financial and legal were all and FinancialAssistanceProgramme,resolutionmeasuresthesaleofNovoBanco, Eurosystem. TheexpensesrelatedtoextraordinaryfactorsresultedmainlyfromtheEconomic in financial envelopes for information systems and technology projects developed within the on exogenous and extraordinaryfactors(ChartC5.5). Exogenous FSTaretheBank’s participation excluding those related to extraordinary orexogenous factors, as well as expenses that depend Supplies and services from third parties (FST) include costs linked to the Bank’s expenditures related toextraordinaryorexogenousfactors Chart C5.6• remained virtuallyunchangedbetween2010and2019(ChartC5.6). areas ofexpertise,expendituresexcludingthoserelatedtoextraordinaryorexogenousfactors in-house new of creation the and numbers staff in increase the functions, Bank’s the in increase the accommodating even that, means This inflation. for adjusted when change 0.7% negative a and exogenous factors of the Bank showed an average annual growth of 0.3% between 2010 and 2019, Supplies andservicesfromthirdpartiesforexpendituresexcludingthoserelatedtoextraordinaryor Source: BancodePortugal. Source: BancodePortugal. Supplies andservicesfromthirdparties 0021 0221 0421 0621 082019 2018 2017 2016 2015 2014 2013 2012 2011 2010 3 39. 0021 0221 0421 0621 082019 2018 2017 2016 2015 2014 2013 2012 2011 2010 39. 39. 9 . 9 9 9 9 3 Supplies andservicesfromthirdparties Supplies andservicesfromthirdpartiesforexpendituresexcludingthose 35. 1 1 35. 34. 6 . . 1 9 8 8 5 4 35. 1 35. 33. 4 1 . . . 2 5 1 4 4 3 Expenditures excluding extraordinary or exogenous factors Extraordinary (PAEF, Resolution measures and sale of Novo Banco) Exogenous

Supplies and services from third parties | constant prices | base year: 2010 year: base | prices constant | parties third from services and Supplies Supplies andservicesfromthirdparties|currentprices 3 35. 35. 32. 1 7 . 3 . 6 1 1 9 1 Annual average growth | constant prices | base year: 2010 +1. | . Annual average growth 1 4 34. 34. 32. 1 5 2 . . . 9 9 1 3 3 2 4 37. 35. 37. 2 7 7 . . . 3 5 Annua Annual average growth | current prices current | growth average Annual 4 7 2 7 | l average growth | current prices current | growth average l constant prices | base year: 4 39. 36. 39. 2 5 7 . . . 9 3 5 3 5 3

40. 36. 5 40. 11. 3 5 . . 7 2 8 9 2 9 41. 37. E 5 41. 4 5 UR 1 . . . 1 3 9 6 6 1 2010 | Mil | | | lions | -0.

+2. 40. 36. +0. 40. 4 2 4 7 ...... 6 7 5 2 4% 3% 7% 3% . 6 3 95 Internal management Developments in Supplies and services from third parties for the Bank’s expenditures excluding those related to extraordinary or exogenous factors have been driven mainly by expenditure on buildings and premises, IT, specialised work (surveys and protocols on statistics and economics), outsourced logistical support, consultancy in various fields (such as data protection, strategy and human resources) and training (Chart C5.7). These components amounted to around 70% of total FST related to the expenditures excluding those related to extraordinary or exogenous factors of the Bank in 2019. Expenditure on buildings and premises (incorporating rentals, utilities, repairs, cleaning and maintenance and security) increased in 2015 and 2016 as a result of the functional reorganisation and the need to expand to an additional office building (Castilho Building) to accommodate the growth of supervisory areas.

Chart C5.7 • Supplies and services from third parties for expenditures excluding those related to extraordinary or exogenous factors: main components

41.1 40.6 39.3 40.2 1.3 1.1 1.5 37.7 0.9 2.7 1.1 2.7 2.8 3.1 2.2

9.0 9.7 10.9 9.0 11.6

13.3 14.7 14.2 14.3 11.9

12.2 11.9 12.4 11.9 12.6

2015 2016 2017 2018 2019

Other components Buildings and Premises IT Other specialised work, excluding IT and security Training

Source: Banco de Portugal.

The IT component includes expenses associated with software licensing, outsourcing, infrastructure maintenance, communication and, in the most recent years, FST associated with licensing and cloud subscription models as a result of changes in the procurement of software and infrastructures, which were previously on-premise and recorded in the Balance Sheet. Further improvements were made in terms of operational risk management, cybersecurity and security of information systems, maintenance costs, performance and developments in software/hardware and tech tools, such as the use of cloud. The resilience of the Bank’s communications and business continuity plan has also been strengthened.

The other components aggregate regards other Supplies and services from third parties, which, on an individual basis, post smaller amounts and hardly no changes, such as: (i) travel and accommodation, linked to travel to international representation meetings of the Bank and business trips within Portugal; (ii) the Management Committee of the Sociedade Gestora dos Fundos de Pensões; (iii) costs with traineeships; (iv) use of data banks; (v) legal fees not linked to the abovementioned extraordinary factors and (vi) cash-in-transit services. Activities and Financial Statements 2019 • Annual Report Activities and Financial Statements de Portugal Banco 96 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

the secondparthighlightsmaincomponentsofProfit andlossaccount. and sheet, balance the in developments important most the out sets Report the of part first The operations performedthroughouttheyearandtheirimpactonthefinancialstatements. The Management Report, which accompanies Banco de Portugal’s annual accounts, presents the statements (Section 5). financial the on opinion an issued and report a prepared Auditors of Board the law, same the of laid down in Article 46 of its Statute (Section 4), and, in accordance with the provisions of Article 43 The annual accounts of Banco de Portugal are subject to an external audit, pursuant to the provisions Banco dePortugal–PCBP). have been prepared according to the Chart of Accounts of Banco de Portugal ( with Article 54 of its Statute, the financial statements for the year 2019 (Sections 2 and 3), which The Board of Directors of Banco de Portugal presents the Management Report and, in compliance adjustment key (€26 million). Administrative costs totalled €205 million, slightly lower than in 2018. and (ii) the amount received in respect of the ECB’s liquid reserves under the five-yearly capital scheme, in accordance with Article 4 of Decree-Law No 106/2019 of 12 August 2019 (€81 million) guarantee deposit national single a of establishment the under Fund that to Portugal de Banco by made contributions of (FGCAM), Fund Guarantee Credit Agricultural Mutual the by return, the from recurring factors have also positively contributed to results obtained in 2019. More specifically (i) gains non- year, previous the in As role. central a played purposes policy monetary for held securities of portfolio the from income interest result, this In €759 million. of result net a to leading 2018, to level similar a at stood and €1,106 million totalled taxes and provisions before income 2019 In purposes and(ii) short-terminvestmentingold. policy monetary for held securities of portfolio the in increase an on impact an with (APP), (i) monetary policy decisions, which include the strengthening of the Asset Purchase Programme from resulting mostly changes, some showed sheet balance Bank’s the composition, of terms In gold priceandthedecreaseofheld-to-maturitysecuritiesportfolio. reserves and euro assets component, which presents an offset effect with the appreciation of the foreign and Gold the in increase the by explained mainly 2018, to compared €2 billion about of increase an representing 2019, in €160 billion totalled Portugal de Banco of sheet balance The Presentation 1 Management Report Plano deContasdo 99 Management Report 100 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Own funds Other liabilities Liabilities tootherentitiesdenominatedineuro Liabilities forcollateralisedapplications(net) Intra-Eurosystem claimsandliabilities Banknotes incirculation Other claims Gold andforeignreserveseuroassets policy operations Claims andliabilitiesrelatedtomonetary TOTAL BALANCESHEET Table II.1.1• developments inthemainbalancesheetitemscomparedto2018. the illustrates Chart II.1.3 sheet. balance the in disclosed items main the and II.1.2of evolution the show Charts II.1.1 perspective. management a from period, 2015-2019 the for items sheet balance main Portugal’s de Banco of positions year-end the in developments the shows Table II.1.1 1.1 General riskprovision Revaluation accounts Intra-Eurosystem liabilities Intra-Eurosystem claims Held-to-maturity securitiesportfolio Trading portfolio Gold to monetarypolicyoperations Liabilities tocreditinstitutionsrelated Profit fortheyear Retained earnings Claims relatedtomonetarypolicyoperations Capital andreserves Securities heldformonetarypolicypurposes Lending to credit institutions Lending tocreditinstitutions Total balance sheet €159,785 million Balance sheet Main balancesheetitems2015-2019(management’sperspective)|

116,899 (36,315) 61,705 24,686 17,868 11,968 16,690 26,161 42,851 2015 (7,712) 4,047 9,296 6,630 1,431 5,441 1,594 (333) 303 233 - 137,717 (38,945) 11,027 13,011 71,588 25,661 19,663 13,503 32,254 22,372 54,626 2016 (5,649) 4,247 1,612 4,943 1,641 (397) 426 441 - 152,965 (42,528) (13,865) 10,329 81,246 26,675 15,772 13,305 46,969 22,131 69,100 2017 3,727 9,370 1,753 5,329 1,729 (523) 712 656 - 157,953 (46,695) (14,096) 10,882 82,814 28,051 14,254 13,786 51,208 18,743 69,952 2018 3,677 9,745 1,983 5,440 1,860 (479) 657 806 - 159,785 (49,194) (19,213) 13,786 76,976 27,962 14,118 16,654 53,479 17,325 70,804 2019 3,677 7,418 5,049 1,765 4,744 2,022 (453) 868 759 EUR millions Δ 2019/2018 (2,326) (5,837) (2,499) (5,117) (1,418) 1,832 2,904 5,049 2,868 2,270 (217) (696) (136) (47) 211 852 161 (89) 25 - Chart II.1.3• | Chart II.1.2• Chart II.1.1• EUR millions 1,431 Liabilities to other entities other todenominated euro Liabilities entities in Claims related to monetary policyoperations Liabilities for collateralised applications (net) 14,837 61,705 24,686 7,712 6,630 2015 Foreignreserves (net)assets and euro 1 Liabilities t 42,851 36,315 23,308 11,968 1 2 Intra-Eurosystem liabilities Intra-Eurosystem euro in denominated entities other to Liabilities circulation in Banknotes 6 015 , 8 9 9 Main balancesheetitems’variationfrom2018| Developments inthebalancesheet–mainliabilitiesandownfunds Developments inthebalancesheet–totalandmainassets | to monetary to o Intra-Eurosystem liabilities c redit i Intra-Eurosystem claims Foreign reserves and euro assets assets (net) euro and Foreign reserves operations policy monetary to related Claims 1,612 Revaluationaccounts nstitutions policy operations policy 13,011 16,957 71,588 25,661 5,649 2016 1 54,626 38,945 24,606 13,503 3 2016 7 , related 7 1 Gold 7

1,753 -5,837 15,918 81,246 13,865 26,675 9,370 1 2017 69,100 42,528 21,101 13,305 5 2017 2 , 9 Own funds Own (net) applications collateralised for Liabilities operations policy monetary to related institutions credit to Liabilities -2,326 6 5 Gold claims Other 1,983 -832 16,746 1 82,814 14,096 28,051 9,745 69,952 46,695 19,693 13,786 2018 5 2018 EUR millions 7 , 9 Total balance sheet balance Total claims Intra-Eurosystem 5 3 852 1,765 2,499 EUR millions 2,868 2,904 1 19,789 76,976 19,213 27,962 70,804 49,194 18,862 16,654 5 7,418 2019 5 2019 , 9 049 ,

7 8 5 5,117 5,049 101 Management Report 102 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Chart II.1.5• Chart II.1.4• excess liquidityreserves,asdetailedbelow. institutions’ credit of part exempts which remuneration, reserve for system two-tier a of ECB the by introduction the to related 2018 to compared €5,117 million of increase an turn, in showed, Bank the with institutions credit of Deposits to II.1.5). (Charts II.1.4 operations TLTRO-III of series new the by mitigated was effect This (TLTRO-II). operations refinancing longer-term targeted of repayment early the by offset partly APP), – Programme Purchase Asset the under purchases securities of result a (as purposes policy monetary for held securities of portfolio the in increase At the end of 2019 monetary policy assets had increased by €852 million, reflecting a €2,270 million 1.1.1 15,000 25,000 35,000 45,000 55,000 -5,000 5,000 Claims andliabilitiesrelatedtomonetarypolicyoperations 16,690 17,608 -7, 8,553 703 1 6 , 6 Securities heldformonetarypolicypurposes| Aggregates ofmonetarypolicyoperations| 9 2015 0 1,339 Main Main refinancing operations Securities heldfor monetarypolicy purposes (SMP, CBPP, CBPP2, CBPP3 and PSPP) Longer-term refinancingoperations Deposits of credit institutions 32,254 21,033 -5, 498 Total securities heldforTotal monetary policy purposes Securities Securities 3 2 2016 , 2 5 4 − − CBPP3 CBPP and CBPP2 100 -13,860 46,969 22,011 4 6 2017 , 9 6 9 80 EUR millions -14,091 51,208 EUR millions 18,664 Securities Securities 5 1 , 2 2018 0 8 − − PSPP SMP 5 -19,207 53,479 17,320 5 3 2019 , 4 7 9 final average rate of 0.235%). At the end of 2019, TLTRO-II operations accounted for €13,512 million. a to led (which institution credit each for operations these for rates actual the and (-0.4%) interest accrued the calculating for then until used rate the between adjustment the for recognised was gain a year, That 2018. June in known only was operations such to applicable rate interest The years. two after repayment early of possibility a with maturity, four-year a have and 2016 in started operations These €5,124 million. of amount the in early, repaid was (TLTRO-II) operations Also, within the scope of The portfolioof materialise. Lossesarerecognisedonlyifsecuritiessoldearly. are accounted for at amortised cost less potential impairment losses, not reflecting gains that may purposes policy monetary for held currently Securities within implemented programmes the All overall financialriskremainedstablebetweenDecember2018and2019. Bank’sthe bonds, government Portuguese to related component the in increase this Despite respectively. 2018 in 67% and 33% to compared respectively, PSPP total of 71% and 29% of weight relative a debtreached government Portuguese and securities supranational 2019, of end the At 2018. to compared €741 million by decreased component securities supranational the since increase), €4,073 million(a debt government Portuguese by solely driven was 2019 in increase The level. Portuguese government debt, with the latter included in the non-shared-risk component at Eurosystem €3,332 million in 2019, reaching a by total grew of €48,902 millionamount divided net into supranational PSPP securitiesoverall the APP, the in andparticipation Portugal’s de Banco of terms In conditions andanampledegreeofmonetaryaccommodation. key ECB interest rates start going up, and for as long as necessary to maintain favourable liquidity Council also intends to continue reinvesting for an extended period of time past the date when the 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 made be to purchases net expects Council Governing The €20 billion. of rate monthly average an at (APP) programme purchase asset the under securities of purchases net its resumed Eurosystem the 2019, 1 November On 33% ofBancodePortugal’stotalassets. €53,479 million, totalled purposes policy monetary for held securities 2019 December 31 at As decentralised implementationoftheEurosystem’smonetarypolicy. of principle the under ECB, the and (NCBs) banks central national by made are securities these of Purchases purchases. to open still both (PSPP), programme purchase sector public the and (CBPP3) programme purchase bond covered third (ii) the and purchases, new to closed CBPP2), and (CBPP programmes purchase bond covered the and (SMP) programme market securities participation in various programmes decided by the Governing Council of the ECB, namely (i) the Net purchases undernon-standard monetarypolicyprogrammes €2,270 million New TLTRO-III €2,530 million Early repayment ofTLTRO-II €5,124 million securities heldformonetarypolicypurposes liquidity-providing operations , part of the targeted longer-term refinancing reflects Banco de Portugal’s active 103 Management Report 104 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 of 2019, higher levels than in previous years, due to the growth in deposits of credit institutions credit of deposits in growth the to due years, previous in than levels higher 2019, of end the at reached, operations liquidity-absorbing that evident is it chart, this analysing When system. financial Portuguese the in Portugal de Banco by operations liquidity-absorbing and liquidity-providing in balances daily the shows Chart II.1.7 policy, monetary the regards as Also | Chart II.1.7• Chart II.1.6• for theseoperations,andinterestisaccountedbytakingthemostprudentapproach. is not possible until that time, the deposit facility rate in force is used for calculating the TLTRO-III Given that the rate for each operation will only be known from 2021, and that a reliable estimate as low as the average interest rate on the deposit facility prevailing over the life of the operation. of repayment after two years. The final interest rate applicable to each TLTRO-III operation can be refinancing operations (TLTRO-III). These operations have a three-year maturity, with a possibility longer-term targeted quarterly seven of series new a introduced Council Governing the 2019 In EUR millions 10,000 15,000 20,000 25,000 30,000 -20,000 -15,000 -10,000 10,000 15,000 20,000 25,000 30,000 5,000 -5,000 5,000 0 0 2015 Daily balancesinliquidity-providingandliquidity-absorbingoperations 11,407 Liquidity-providing operations |Liquidity-providing 2 6,201 8,553 6 , 1 Total of lending to credit of credit institutions lendingto Total Longer-term refinancing operations <= 1 year II TLTRO – operations refinancing longer-term Targeted refinancingMain operations 6 1 Liquidity-providing operations 1,339 859 2016 17,362 2 2,812 2 , 3 7 2 1,012 100 79 2017 2 20,921 2 EUR millions , 1 3 1 Liquidity-absorbing operations Targeted longer-term refinancing operations – TLTRO III TLTRO – operations refinancing Targetedlonger-term Longer-term refinancingoperations 3 years I TLTRO – operations refinancing Targetedlonger-term 80 29 18,635 1 8 , 7 2018 4 3 1,279 5 13,512 2,530 1 7 , 3 2 5

2019 Chart II.1.8• temporarily reduceTARGETaccountliabilities. to used were received euros the and applications), (expressed in the aggregate Liabilities for collateralised 31 December, were translated into collateralised loans on which, assets, reserve these on return get to gold, in invest to continued Portugal de Banco 2019 In came to€13,622 million. gold for differences revaluation the 2019, of end the At sheet item Revaluation accounts (Chart II.1.8) (Point 1.1.6). was offset by a change of an equivalent amount in the balance euro in increase value The 382.5 tons. at unchanged remained the USD appreciation against the EUR (1.9%). The volume of this reserve ofeffect the by corroborated (+18.5%), USD in price gold the of appreciation the by increase from 2018, arising from a sharp uptrend in gold price in euro. This evolution was caused €2,868 million a 2019, of end the at €16,654 million totalled reserve gold Portugal’s de Banco 1.1.2 between 0%andthedepositfacilityrate. value lowest the at remunerated still is exempt not is that level liquidity excess The reserves. these of part exempting currently is and general) in rates, interest negative at remunerated (currently institutions credit of reserves liquidity excess of remuneration the for levels two of approved on 30 October 2019 by the Governing Council. This system is based on the introduction remuneration reserve for system two-tier new the with associated be can which Bank, the with Gold 10,000 15,000 20,000 25,000 €16,654 million Gold reserve 5,000 0 Gold andforeignreserveseuroassets(net) 1 Gold reserveandquoteprice| 3,030 8,938 2015 1 , 9 6 Acquisition cost (WAC) cost Acquisition 8 1 10,472 3,030 2016 3 , 5 0 3 Revaluation differences 1 10,274 3,031 2017 3 , EUR millions 3 0 5 XAU/EUR (EUR/Per fine ounce of gold, right axis) right gold, of ounce fine (EUR/Per XAU/EUR 1 10,754 3,031 3 2018 , 7 8 1,100 1,600 6 600 De 1,284 c. 18 c. 1,121 1 13,622 3,033 2019 6 , 6 5 4 XAU/USD XAU/EUR 0 200 400 600 800 1,000 1,200 1,400 1,600 Dec. 19 1,354 1,521 105 Management Report 106 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 bank inthistypeofoperations. Securitiesinthetradingportfoliosarevaluedatmarket price. central pioneering a as position a taking and objectives environmental fostering of aim the with in the green bond fund created by the Bank for International Settlements (BIS) in September 2019, authorities (16% in 2019). In 2019 Banco de Portugal has purchased green bonds and participates debt bonds (84% portfolio in 2019) and securities issued by paragovernmental and supranational 85% in 2018). Regarding the type of issuer, this portfolio (against is almost entirely 2019 made up of government 31 December at as portfolio this of total the of 81% representing years, previous in as 2019, in prevail to continued securities in investing instrument, by composition of terms In the previousyear. of that to similar remain will currency foreign and euro in denominated portfolios of volume the operations, temporary these of maturity After risk. exchange associated any without currency, foreign for swaps euro to referring portfolio this from €1,047 million with USD), (predominantly associated with investments in euro and €3,097 million of assets denominated in foreign currency €11,020 million of consisted portfolio trading the 2019, in currency, by composition of terms In • Chart II.1.9• should benoted. currency foreign in and euro in portfolios trading of level the of maintenance the and portfolio in 2019 In Foreign reservesandeuroassets

Trading portfolios(denominatedineuroandforeigncurrency) Total netforeign reserves andeuro assets €18,862 million Total trading portfolio ineuro andforeign currency €14,118 million 5,441 2015 Foreign reservesandeuroassets 17,868 Foreign reservesandeuroassets(net)| Held-to-maturity securities portfolio denominated in euro in denominated portfolio securities Held-to-maturity 4,943 2016 19,663 5,329 2017 , the decrease in the held-to-maturity securities held-to-maturity the in decrease the , 15,772 EUR millions 5,440 Trading portfolio denominated in euro in denominated Trading portfolio 2018 14,254 4,744 2019 14,118 Chart II.1.11• All securitiesinthisportfolioareaccountedforatamortisedcost,subjecttoimpairment. return oncredit-qualitysecuritiesissueseligibleforitscomposition. reinvest interest and capital in securities of this portfolio that reached maturity, given the current to not decision the to due essentially was reduction Its issuers. area euro by issued bonds debt by €696 million compared to 2018 (Chart II.1.11). This portfolio was entirely made up of government The held-to-maturity securities portfolio reached €4,744 million as at 31 December 2019, decreasing • Chart II.1.10•

Held-to-maturity securitiesportfolio Held-to-maturity securitiesportfolio, composed ofsecuritiesdenominatedineuro €4,744 million 605 1 7 5 17,599 3,026 , 2015 2015 , 8 4 268 6 4 8 1 1,809 Held-to-maturity securitiesportfoliobymaturity| Trading portfolio(euroandforeigncurrency)| Up to 1 year 1 toUp Deposits and other money market (net) money other and Deposits 948 4 1 19,191 2,585 2016 , 2016 9 9 472 , 4 6 3 6 3 1,410 1 to 1 5 to years 740 5 1 14,943 2,243 2017 , 2017 5 3 828 , 7 2 9 7 2 2,347 Securities Over 5 yearsOver 659 1 5 12,059 2,194 2,027 4 2018 , 2018 4 EUR millions , 2 4 5 0 4 EUR millions 2,754 Total 632 Total 11,370 1 4 1,735 2,748 2019 4 2019 , 7 , 1 4 1 4 8 2,378 107 Management Report 108 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 1.7434% to1.6367%. from capital subscribed ECB’s the in share its reducing Portugal de Banco with key, capital ECB’s It should be noted that, in 2019, there was a five-yearly adjustment of central banks’ shares in the circulation. to adjustmentsbanknotesincirculation(€47,917 million), mentionedin1.1.3onBanknotes As regardsIntra-Eurosystemclaims (Chart II.1.13), it included the remunerated position relating 1.1.4 Chart II.1.12• of theseadjustmentsreflected,in2019,theincreaseaforementioneddifferential. these adjustments totalled €47,917 million (+€2,585 million than in December 2018). The growth 31 December 2019 On Portugal. de Banco by circulation into put banknotes and circulation from withdrawn banknotes the between difference positive the and above, mentioned as share, Portugal’s between differential the reflect circulation in banknotes the to adjustments The effect overcametheimpactofincreasedcirculationatEurosystemlevel(5%comparedto2018). This key. allocation banknote its turn, in decreasing, (Point 1.1.4), ESCB/ECB”) the of “Statute the (hereinafter Bank Central European the of and Banks Central of System European the of Statute the in for provided adjustment key five-yearly the under capital, ECB’s the in share Portugal’s de Banco of reduction the reflects decrease This years. recent in growth ongoing of trend the reversing year, previous the to compared decreased aggregate this 2019 In (Chart II.1.12). balance sheet, reflects the share of the Eurosystem’s banknotes in circulation allocated to Portugal Portugal’s de Banco of side liabilities the on recorded circulation, in Banknotes aggregate The 1.1.3 Difference between banknoteswithdrawn from circulation andputintocirculation €19,955 million Intra-Eurosystem liabilities €76,976 million Intra-Eurosystem claimsandliabilities Banknotes incirculation - -35,080 10,394 2 2015 4 , 6 8 6 Banknotes incirculation| Banknotes put into circulation BdP circulation into put Banknotes Adjustments to banknotes in circulation - -37,636 11,976 2 2016 5 , 6 6 1 EUR millions - -41,160 14,486 2 2017 6 , 6 7 5 into/collected Difference between banknotes - -45,332 17,281 2 2018 from circulation 8 , 0 5 1 by put BdP - -47,917 19,955 2 2019 7 , 9 6 2 | Chart II.1.14• denominated ineuro(Chart II.1.14). entities other to Liabilities in reduction the by and purposes policy monetary for held securities banknotes put into circulation by Banco de Portugal, partly offset by the financing of purchases of to credit institutions and the increase in the positive difference between banknotes withdrawn and settlement of transactions related to investment gold (mentioned in 1.1.2), the decline in Lending the (Point 1.1.1), Bank the with institutions credit of deposits in increase the reflected chiefly decrease This liabilities. account TARGET from totally, arising, (Chart II.1.13) €76,976 million) (to 2018 from €5,837 million by decreased liabilities Intra-Eurosystem 31 December 2019 at As Chart II.1.13• EUR millions Liabilities Claims 1,235 -83,000 -63,000 -43,000 -23,000 17,000 37,000 57,000 77,000 -3,000 -61,705 35,080 Intra-Eurosystem liabilitiesandmainoffsettingbalancesheetitems Intra-Eurosystem claimsandliabilities| 2015 Other intra-Eurosystem claims(includes Participating interest and transfer of foreignreserve toassets the ECB) Banknote issuance related assets (net) Intra-Eurosystem liabilities 1,309 Intra-Eurosystem liabilities Intra-Eurosystem (net) circulation into put Banknotes operations policy to monetary related institutions credit area euro Lending to policy to operations monetary related institutions credit to Liabilities purposes policy for monetary held Securities in euro denominated entities other to Liabilities -71,588 37,636 2016 1,367 -81,246 41,160 2017 1,363 EUR millions -82,814 45,332 2018 1,277 -76,976 47,917 2019

109 Management Report 110 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 prospects fortheserisks. medium-termof terms in nor 2019, throughout evolution risks financial of terms in neither justifying any operation, given that the framework at the end of 2018 did not change significantly, factorsno being there of result a as 2019 in maintained was provision This Eurosystem. the with risk-sharing from resulting those including losses), financial (namely losses any cover to it enable to and mission Portugal’s de Banco for autonomy financial appropriate for allows that level a at funds own setting to view a with annually, established is amount provision risk General The level. results and financial risks, the latter calculated according to the methodology defined at Eurosystem assess which term, medium the over statements financial the for exercises projection internal as at December. The level of this provision is assessed periodically as part of Banco de Portugal’s The financial gains of 2019, relating to the Pension Fund – Defined-benefit plan (totalling €25 million). State from the 2018 Net profit; and (iii) the recognition, in Retained earnings, of net actuarial and the to Dividends in €645 million of distribution the of impact (ii) the (€759 million); income net Besides the increase in Revaluation accounts, also worth mentioning is (i) the recognition of 2019 in potentialcapitalgainsfromGold(€2,867 million). rise the to due mainly is €13,786 million) to (€2,904 million, accounts revaluation in increase The year (Chart II.1.15). largely due to the increase in the Revaluation accounts item and to the positive Net profit for the €19,789 million), (to 2019 in €3,043 million by increased year) the for profit Net and Equity provision, Banco dePortugal’s 1.1.6 Económica eFinanceiraaPortugal–PAEF). Assistência de (Programa Portugal to Programme Assistance Financial and Economic the under de Gestão da Tesouraria e da Dívida Pública – IGCP), relate to funds from the European Union (EU) (AgênciaAgency Management Debt and Treasury Portuguese the by managed accounts, current (€6,695 million and €415 million respectively, as at 31 December 2019). The general government Portugal de Banco by held deposits funds’ autonomous and accounts current government The item 1.1.5 Increase inpositive revaluation differences +€2,904 million Balance ofgeneral government current accounts heldby Banco dePortugal €6,695 million General risk provision remained unchanged compared to 2018, reaching a total of €3,677 million Liabilities tootherentitiesdenominatedineuro Own funds Liabilities to other entities denominated in euro Own funds (which include the items Revaluation accounts, General risk General accounts, Revaluation items the include (which was mainly composed of general Income tax Transfer from/toriskprovisions Other netprofit/loss Banknote productioncosts 10,000 15,000 20,000 Total administrativecosts Net resultofpoolingmonetaryincome Income fromequitysharesandparticipatinginterests Unrealised lossesonfinancialassetsandpositions operations Realised gains/lossesarisingfromfinancial Interest margin Table II.1.2• Net profitfortheyear The main components of the Profit and loss account from 2015 to 2019 are shown in Table II.1.2. 1.2 Chart II.1.15• 5,000 Depreciation andamortisationfortheyear Other administrativecosts Supplies andservicesfromthirdparties Staff costs Income before provisions andtaxes €1,106 million 0 Profit andlossaccount Income beforeprovisionsandtaxes 1 1,261 4,047 9,296 201 5 4 , Main Profitandlossaccountitems2015-2019| 5 , 8 4 Own funds| Total Own funds Own Total Revaluation accounts earnings) retained + reserves + (capital Equity 3 52 1 7 233 2019was€759 million. Net profitfortheyear Income beforetaxes 1 EUR millions 11,027 1,244 4,247 5 6 , 01 , 9 9 3 5 62 1 7 441 (480) 2015 232 324 804 120 179 432 622 (91) (17) (60) 16 11 47 26 (3) 1 1 10,329 5 1,206 3,727 5 , , 01 5 9 8 1 (209) (200) 72 2016 9 8 441 650 850 122 183 177 845 (77) 15 13 48 71 33 (1) 1 656 Own Own fundsexcluding revaluation accounts year the for Profit provision risk General 1,010 (271) (260) (264) 2017 656 928 408 520 136 208 127 23 15 56 33 (7) 1 1 10,882 EUR millions 1,165 1,382 3,677 1,115 5 1,065 6 (359) 2018 , 01 , 8 806 138 206 (12) 7 6 50 89 13 15 52 73 39 80 4 82 4 1 6 1,106 1,106 (347) 2019 806 759 139 205 119 998 85 18 47 72 50 (5) 7 1 - Δ 2019/2018 1 13,786 6 1,568 3,677 9 , 019 0 , 7 0 (47) (59) (50) (30) (67) 8 3 (9) 12 46 33 (5) (6) (4) (1) 9 3 7 - - 759 111 Management Report 112 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Chart II.1.17• similar expenses(Chart II.1.17). drop against 2018 figures (-6%), most noticeable in the increase in the share of interest and other €67 million a represents amount This 2019. in €998 million reached which margin, Interest the was account loss and Profit Portugal’s de Banco of component main the years, previous in As 1.2.1 Net profit for the year Chart II.1.16• costs (€205 million,slightlylowerthanin2018). administrative and 2018) to compared €46 million of increase an with case this in (€119 million, income monetary of pooling of result net the 2018), from €67 million (down margin interest the are 2018, with a slight €9 million decrease compared to that year. The main components of this result Income beforeprovisionsandtaxes was €1,106 million, representing a level identical to that of since the2019figuresweresimilartothosein2018termsofincometax. €50 million), of amount the (in 2018 in out carried risks general for provision the in reduction no - -17 60 Interest margin Interest expense Interest 2 6 -30 330 322 015 2015 - - 2 2 622 - 480 179 432 91 3 2 2 Income tax Income costs administrative Total Unrealisedlosses on financialassets and positions margin Interest Interest margin| Developments inthemainprofit/lossitems| - 77 was lower than in 2018 (-€47 million), due to the fact that in 2019 there was 71 Interest on securitiesheld for monetary policy purposes 2016 8 293 589 -36 2016 - - - 845 4 4 200 183 209 177 5 4 1 EUR millions 1 2017 294 803 - 1 2017 -88 - - - , 6 260 127 0 208 264 271 520 , 010 5 1 6 0 Transfer from/to risk provisions risk from/to Transfer income monetary of pooling of result Net Realised gains/losses arising from financial operations Net profit thefor year 80 50 73 - 12 EUR millions 1 2018 1 2018 -206 -359 231 886 8 -52 , 0 Interest income , 0 065 6 6 5 119 50 -5 Interest margin 2019 2019 -105 - - 7 202 900 9 998 205 347 5 9 9 8 with thelimitssetbyrulesofrespectiveprogrammes. sale of securities held for monetary policy purposes (€39 million), which resulted from compliance By offsetting this reduction, as previously mentioned, positive results were achieved regarding the financial operations,essentiallyduetothelowervolume of assetrotationcomparedto2018. other and exchange foreign with associated results realised in decrease the to due mainly is amount of €50 million, a €30 million decrease as compared to 2018 (Chart II.1.18). This reduction The item 1.2.2 gold (€23 millionin2019,+€10 millioncomparedto2018). in investments from income by offset partly 2018), to compared (-€16 million currency foreign in denominated portfolio trading the with associated interest in and yield average its in reduction the to due (-€13 million) decreased yield portfolio securities held-to-maturity the Moreover, interest andthefinalrateoftheseoperations,onlyknowninJunethatyear. accrued the calculating for then until used rate the between recorded adjustment positive the given (€3 million) receivable amount an presented operations these on interest net 2018 In operations). these of rates effective the on based calculated €49 million, (totalling operations TLTRO-II to refer essentially which operations, refinancing longer-term with associated payable Justifying the reduction in the interest margin compared to 2018, there was an increase in interest in 1.2.2. to referred as portfolio, this in securities of sale the to related results realised positive by offset the decline in the yields on securities currently held. However, this reduced profitability was partly to due years, previous in than lower proportionally volume, in increase the of view in is, increase interest this that however, noted, be should It PSPP. the of component securities government the in increase the to due largely was This 2018. to compared growth €14 million a represents held for monetary policy purposes is particularly noteworthy, totalling €900 million in 2019, which securities of portfolio the from income interest the Margin, Interest the to contribution its Given Interest income from securitiesheldfor monetarypolicypurposes €900 million Realised gains/lossesarisingfrom financialoperations €50 million Impact ontheinterest margin associatedwithTLTRO-II -€51 million

Net result offinancialoperations andunrealisedlosses in 2019 reached a cumulative a reached 2019 in operations financial from arising gains/losses Realised 113 Management Report 114 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 The rates correspondingto2016and2017,intheamountof €44 million. It should be added that in 2018 this item included negative adjustments made to update TLTRO-II 2018 (-€0.4 million) and (iii) the reduction in the specific provision for the Eurosystem (€2 million). method of pooling monetary income (€118 million), (ii) adjustments made in respect of 2017 and In 2019 the item Net result of pooling of monetary income was driven by (i) the 2019 result of the 1.2.3 As regardstheitem Chart II.1.18• in 2019. This reduction reflects the adjustment to Banco de Portugal’s share of total impairment calculated level.Eurosystem at risk shared a constitute programme, this in participant active an not is Bank theas portfolio, Portugal’s de Banco in included being not despite which, (CSPP), programme a provision set up in 2018 for expected losses on securities under the corporate sector purchase The aforementioned reduction in the provision for losses on monetary policy operations refers to 2019. adjusted from 2.48% to 2.35%, following the five-yearly adjustment of the capital key on 1 January keycapital the in decrease the by explained mainly is which 2018), in (€119 million year previous in thebalancesheetrespectiverevaluationdifferencesitems. recognised as expenses for the period as at 31 December, while unrealised gains are recognised respectively). In accordance with Eurosystem’s harmonised accounting rules, unrealised losses are €1 million and (€4 million currency foreign and euro in denominated portfolio trading the in securities of devaluation price from losses to related mainly was (€5 million) 2019 in recognised Unrealised lossesonfinancialassetsandpositions €5 million Net result ofpoolingmonetaryincome methodby theEurosystem, for theyear 2019 €118 million Net resultofpoolingmonetaryincome 432 Net resultofpoolingmonetaryincome 2 015 -6 Realised gains/losses arising from financial operations 0 Net resultoffinancialoperationsandunrealisedlosses| Unrealised losses on financial assets and positions and assets financial on losses Unrealised 17 7 2016 -77 -264 2017 for the year decreased by €1 million from the from €1 million by decreased year the for -2 60 Unrealisedlosses financialon assets andpositions 1000 1200 1400 600 800 dez. 17 80 2018 1297 1082 -12 , the overall amountoverall the , EUR millions 50 XAU/USD XAU/EUR 2019 -5

Losses Profits dez. 18 1121 1284 Chart II.1.20• own funds. Note: (a)For2015and2016,thevalueaboveincludes,forcomparabilitypurposes,costswithearlyretirements,whichwhereuntilthenrecognisedin Chart II.1.19• In 2019 1.2.5 ESCB/ECB (€26 million)(Point 1.1.4)wasrecognisedinthisitem. the of Statute the in for provided adjustment key capital five-yearly the under reserves liquid purposes of monetary policy in the ECB’s Balance Sheet), the value received concerning the ECB’s the for held securities of results the to referring latter the dividends, interim and (ordinary ECB the by distributed those particular in Bank, the by received dividends the to addition in 2019 In 1.2.4 own funds. Note: (a)For2015and2016,thevalueabove includes,forcomparabilitypurposes,costswithearlyretirements,whichwhereuntilthen recognised in 1 Total administrative costs €205 million Total administrativecosts Income fromequitysharesandparticipatinginterests Total administrativecostscameto€205 million(Chart II.1.19). 1 2015 2015 125 1 2 19 83 11 47 23 8 5 4 Liabilities Excluding Movements onGeneralriskprovision| Administrative costs| Staff costs, on a comparable basis comparable a on costs, Staff Total Other administrative costs t with t related hose administrative costs, ona 1 he P ension F 2016 6 201 1 1 133 26 83 to 24 13 48 3 9 3 5 supervision und a nd other p comparable (a)

t ost-employment EUR millions 1

basis 2017 2017 1 2 136 27 (a) 83 15 56 25 3 0 6 8 benefits (a)

Supplies Depreciation EUR millions 1 and Staff c Related 2018 2018 1 and 2 138 services 26 29 83 15 52 3 0 8 6 amortisation osts to su from a on a pervision third comparable for parties the 1 year

basis 2019 2019 (a) 1 139 2 29 82 27 18 47 3 0 9 5 115 Management Report 116 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 The item Chart II.1.21• the previousyear. of value same the maintained item This retirements. early with associated expenses in increase by the offset was which 2018, to compared a decline shows fund pension Plan Benefits Defined the with charge annual the to related component the that noted be should it Finally, 2019. for Association Banking Portuguese the by defined that with line in rate, growth salary the of revision the under update, salary 0.8% the of impact the absorbing also numbers, staff in cut a Bank’s business have dropped compared to the previous year, reflecting, in reverse, the effect of the of areas other the with associated expenses the turn, In December 2018). to compared 2019, December in (+31 employees areas these with associated reinforcement headcount the reflecting largely areas, supervisory the of component remuneration the concerning essentially (Chart II.1.20), 2018 to compared increase 0.2% slight a show 2019 in recognised costs Staff are now recorded under Depreciation (€2.5 million). This reduction was partly offset by slight by offset partly was reduction This (€2.5 million). Depreciation under recorded now are that agreements lease from rents includes longer no aggregate this as expenses, in cut this to lower in 2019 than in 2018 (-1%). The impact of the application of IFRS16 contributed significantly slightly was parties third from services and Supplies item the management, Portugal’s de Banco toexogenous or extraordinary are that components expenditure of effects these Excluding (-€2 million). Eurosystemthe under expenses technology and development software to related mostly Portugal, de Banco to exogenous factors to related parties third from services and Supplies in decrease (ii) the (-€1.4 million) Santo Espírito Banco on action resolution the under expenses (i) the fall in expenses associated with extraordinary factors, related to legal and financial advice is decrease, this to Contributing (Chart II.1.21). 2018 from €4 million fell costs) administrative Increase inStaff costs +0.2% Decrease from inSuppliesandservices third 23%oftotaladministrative parties, costs -€4 million 2 2 38 4 015 7 Supplies and services from third parties 7 Excluding costs with extraordinary or exogenous factors exogenous or extraordinary with costs Excluding factors extraordinary to Related Supplies andservicesfromthirdparties| 3 2016 4 5 39 8 4 2017 40 5 12 6 (accounting for around 23% of total Supplies and services from third parties toBank'sthe exogenous factors to management Related 5 EUR millions 2018 5 41 6 2 2 2019 4 41 4 7 2020. April 13 of 91/2020 No Finance of and Assistant State of Secretary the of Decision to pursuant net profitfortheyearof2019,toamount€758.53 million, wasdistributedasfollows: In accordance with the provisions set forth in Article 53(2) of the Statute of Banco de Portugal, the Profit distibution Hélder Rosalino|LuísLaginhadeSousaAnaPaulaSerra Directors Luís MáximodosSantos The Vice-Governor Carlos daSilvaCosta The Governor BOARD OFDIRECTORS Lisbon, 3March2020 accordance with[Article4of]Decree-LawNo106/2019of12August2019(€81 million). in level, national at scheme guarantee deposit single a of establishment the under Fund, that to Mutual Agricultural Credit Guarantee Fund (FGCAM) of contributions made by Banco de Portugal the by return the from income the of contribution the received profit/loss net Other 2019 In 1.2.6 and responsibilities resultingfromitsmissionasacentral bankwithintheEurosystem. organisation to manage resources efficiently and contain costs, in a context of additional functions contracts. The Board of Directors of Banco de Portugal has introduced measures across the utilities and expenses litigation and legal in cuts by mitigated partly turn, in were, increases These technologies, specialisedsupportservices,security,theuseofdatabanksandtraining. and systems information to related expenses other and outsourcing with associated increases and, undersubparagraph(c), 80% totheState,asdividends 10% tootherreserves 10% tothelegalreserve Other netprofit/loss ...... €606,826,774.22 €75,853,346.78 €75,853,346.78 117 Management Report 118 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 119 Management Report 120 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 9 Intra-Eurosystemclaims denominated ineuro 6 Otherclaimsoneuroareacreditinstitutions 7 Securitiesofeuroarearesidentsdenominatedin 5 Lendingtoeuroareacreditinstitutionsrelated to monetarypolicyoperationsdenominatedineuro in foreigncurrency 3 Claimsoneuroarearesidentsdenominated 4 Claimsonnon-euroarearesidentsdenominatedineuro in foreigncurrency 2 Claimsonnon-euroarearesidentsdenominated 1 Goldandgoldreceivables Table II.2.1• Financial Statements 2 FinancialStatements andNotes 11 Otherassets 10 Itemsinthecourseofsettlement 9.5 Otherintra-Eurosystemclaims banknotes withintheEurosystem 9.4 Netclaimsrelatedtotheallocationofeuro 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 5.3 Fine-tuningreverseoperations 5.2 Longer-termrefinancingoperations 5.1 Mainrefinancingoperations the ExchangeRateMechanismII(ERMII) 4.2 Claimsarisingfromthecreditfacilityunder 4.1 Balanceswithbanks,securityinvestmentsandloans external loansandotherassets 2.2 Balanceswithbanksandsecurityinvestments, 2.1 ReceivablesfromtheIMF 11.2 Tangiblefixedassetsandintangible 11.1 Coinsoftheeuroarea 11.6 Sundry 11.5 Accrualsandincomecollectedinadvance 11.4 Off-balance-sheet instruments revaluation differences 11.3 Otherfinancialassets Total depreciationandamortisation Balance sheetofBancodePortugal Assets Total impairment Total assets

Notes 19 12 11 10 8 5 7 5 6 5 4 4 3 9 2 9 160,076,462 49,193,570 62,665,838 17,325,460 16,654,133 47,916,880 53,478,605 17,320,460 1,732,262 5,568,062 6,555,610 9,187,233 1,732,262 4,327,842 1,240,220 4,800,314 assets Gross 100,867 280,659 151,033 948,485 177,173 331,303 936,046 448,367 39,580 5,000 2 ------Depreciation, Depreciation, amortisation amortisation impairment 31 Dec.2019 290,099 290,099 291,347 and and 291,347 1,248 1,248 Net Assets 159,785,115 49,193,570 62,665,838 17,325,460 16,654,133 47,916,880 53,478,605 17,320,460 1,732,262 5,568,062 6,264,263 9,187,233 1,732,262 4,327,842 1,240,220 4,800,314 100,867 280,659 948,485 177,173 330,055 158,268 151,033 936,046 39,580 5,000 2 ------31 Dec.2018 Net Assets 157,952,731 46,694,869 61,258,035 18,743,420 13,785,717 45,332,211 10,049,681 51,208,353 18,663,920 2,130,893 7,987,452 7,182,844 1,010,318 2,130,893 6,767,914 1,219,538 5,495,805 153,143 203,700 569,558 154,692 148,640 905,235 16,152 79,500 57,553 205 ------15 Equity 14 Generalriskprovision 13 Revaluationaccounts 16 Profitfortheyear 12 Provisions policy operationsdenominatedineuro 2 Liabilitiestoeuroareacreditinstitutionsrelatedmonetary 1 Banknotesincirculation figures inEURthousands. presents section this since rounding, to due presented figures the of sum the equal not may statements financial the in included Totals/sub-totals Note: 11 Otherliabilities 10 Intra-Eurosystemliabilities 8 Liabilitiestonon-euroarearesidentsdenominatedinforeigncurrency 7 Liabilitiestoeuroarearesidentsdenominatedinforeigncurrency 5 Liabilitiestoothereuroarearesidentsdenominatedin 3 Otherliabilitiestoeuroareacreditinstitutionsdenominatedin 9 CounterpartofspecialdrawingrightsallocatedbytheIMF 6 Liabilitiestonon-euroarearesidentsdenominatedineuro 15.2 Reservesandretainedearnings 15.1 Capital 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 8.1 Deposits,balancesandotherliabilities 2.5 Depositsrelatedtomargincalls 2.4 Fine-tuningreverseoperations 2.3 Fixed-termdeposits 2.2 Depositfacility 8.2 LiabilitiesarisingfromthecreditfacilityunderERMII reserve requirements 2.1 Currentaccountsofcreditinstitutionsforcompliancewithminimum 5.1 Generalgovernment 5.2 Otherliabilities Liabilities, revaluationaccounts,generalriskprovisionandequity Total liabilities,revaluationaccounts, Head oftheAccountingDepartment general riskprovisionandequity José PedroSilvaFerreira

Notes 21 19 20 19 14 13 15 16 18 17 8 4 3 159,785,115 31 Dec.2019 13,785,913 76,976,192 19,213,022 27,962,009 76,976,192 19,207,122 1,568,125 3,676,622 1,511,264 7,418,234 5,052,331 1,567,125 1,511,264 6,694,769 758,533 865,467 995,112 701,619 163,710 723,466 2,289 1,000 5,900 137 ------157,952,731 31 Dec.2018 10,882,105 82,813,568 14,095,809 28,051,388 82,769,710 14,090,809 EUR thousands 1,381,532 3,676,622 4,864,219 9,744,612 1,380,532 4,864,219 9,226,187 805,687 650,119 980,192 510,315 139,172 518,425 43,858 3,989 2,888 1,000 5,000 632 ------121 Financial Statements and Notes 122 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 figures inEURthousands. 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 1 Table II.2.2• 4 3 2 10 5 11 9 6 26.2 26.1 12 8 7 26 25 24 23 18 13 22 21 20 19 17 16 15 14 27 Profit fortheyear Interest income Realised gains/lossesarisingfromfinancialoperations Net interestincome Interest expense Net incomefromfeesandcommissions Unrealised lossesonfinancialassetsandpositions Income fromequitysharesandparticipatinginterests Fees andcommissionsexpense Transfer from/toriskprovisions Income tax–deferred Income tax–current Net resultofpoolingmonetaryincome Fees andcommissionsincome Net resultoffinancialoperations,unrealisedlossesandriskprovisions Income tax Income beforetaxes Total costsandlosses(net) Transfer tothereserverelatingcapitalgainsongoldsales Depreciation andamortisationfortheyear Other income Losses forimpairmentofassets(losses/reversals) Other expenses Banknote productioncosts Total administrativecosts Other administrativecosts Supplies andservicesfromthirdparties Staff costs Total netincome Profit andlossaccount| Items Head oftheAccountingDepartment José PedroSilvaFerreira EUR thousands Notes 23 22 24 25 19 30 30 26 27 19 27 29 28 9 31 Dec.2019 1,105,601 1,320,553 1,102,483 758,533 997,640 214,953 205,434 104,843 349,028 347,067 119,167 138,538 (2,866) 44,981 49,848 71,665 18,247 89,967 47,319 (1,961) 4,867 7,363 4,496 7,031 1,331 2,490 (3) - - 31 Dec.2018 1,065,123 1,164,669 1,386,949 1,117,573 805,687 118,010 222,280 206,390 358,297 358,982 138,217 (4,272) 52,450 80,208 12,199 39,048 50,000 72,991 15,254 96,049 13,430 51,574 9,130 4,858 1,345 2,572 (112) 685 - Changes in2018 (6) =(1)+(2)(5) Position asat31December2018 2018 (7) Position asat31December 2018 profitdistribution for theyear(5)=(3)+(4) Comprehensive income Net profitfortheyear(4) Changes in2018 (12) =(7)+(8)(11) Position asat31December2019 for theyear(11)=(9)+(10) Comprehensive income Net profitfortheyear(10) Table II.2.3• 2017 (1) Position asat31December figures inEURthousands. 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 2017 profitdistribution Income tax–current of thePensionFund Actuarial gains/losses Other operations to shareholders Dividends distribution of deferredtaxes Adjustments onaccount Income tax–current from group life insurance from grouplifeinsurance Actuarial gains/losses of thePensionFund Actuarial gains/losses Other operations Sub-total ofchangesin2019(9) of deferredtaxes Adjustments onaccount to shareholders Dividends distribution Sub-total ofchangesin2018(3) Description Sub-total of2017profit Sub-total of 2018 profit Sub-total of2018profit Statement ofchangesinequity| distribution (2) distribution (8)

Notes 30 32 21 21 30 30 32 21 30 21 Head oftheAccountingDepartment Paid up capital 1,000 1,000 1,000 1,000 José PedroSilvaFerreira ------reserves 461,608 461,608 542,177 395,959 Legal 80,569 80,569 65,648 65,648 EUR thousands - - - - 1,397,810 1,397,810 1,478,378 1,332,161 reserves Other 80,569 80,569 65,648 65,648 - - - - Retained earnings (478,885) (478,885) (453,429) (522,747) 25,077 43,862 43,862 44,529 25,456 25,456 (6,660) (6,686) 6,714 7,065 (721) - - Profit for the year (805,687) (161,137) (644,550) (656,484) (131,297) (525,187) 805,687 805,687 758,533 656,484 805,687 805,687 758,533 758,533 - - 2,187,219 2,187,219 2,326,659 1,862,858 (644,550) (644,550) (525,187) (525,187) equity Total 849,549 805,687 783,989 758,533 25,077 43,862 44,529 25,456 (6,660) (6,686) 6,714 7,065 (721) - - 123 Financial Statements and Notes 124 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 2. 1. (ECB), Bank Central European the of Guideline Accounting (i) the regulations: major two on rely force, in PCBP the in envisaged statements, financial the of preparation for bases The PCBP isaregulationspecificallyandappropriatelydesignedforthecentralbankactivity. The 1 January 2012. on force into entered and Portugal, de Banco of the of Article 63(1) in down laid provisions the with accordance in Finance, for responsible Government of member the by Accounts of Banco de Portugal ( of Chart the with accordance in prepared been have Portugal de Banco of statements financial The 1.1 ACCOUNTING POLICIES NOTE 1• (Figures inEURthousands,saveasotherwisestated) Notes onthefinancialstatements objective ofBancodePortugalasthecentralbank. (iii) the and Portugal; de Banco by conducted operations the of purposes (ii) the players; market defined by the IFRS, whenever it does not collide with (i) the day-to-day activity of the markets and laid down by the ECB as a basis. As to the other business areas, the disclosures are on the information procedures harmonised the uses Portugal de Banco (ESCB), Banks Central of System European With regardtothedisclosuresofpositionsrelating participationintheoperationof sense justifyingit,BancodePortugaldoesnotprepareconsoli dated financialstatements. economic of lack the as well as process, consolidation possible a of results the of nature immaterial the Given Note 1. of Point 1.2(e) in described policy accounting the with compliance in measured their maintenance is connected with Banco de Portugal’s activity. These participating interests are Participating interestsinsubsidiariesandassociatedcompanieshavealong-standingnature 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 and Equity. Liabilities between sheet balance the in recorded are items two These Note 1). of (Point 1.2(q) account loss and Profit the against directly made are reversals and reinforcements its although reserve, a to equivalent is provisions, other the unlike which provision, risk General (ii) the and Note 1); of (p) and (Points 1.2(d) account loss and Profit the in recognised not are that gains The PCBP defined two single balance sheet items: (i) Revaluation accounts, representing potential cumulative conditionslaiddowninthePCBParemet. measurement basedontheIFRS and recognition the on guidance (ii) technical and interests; participating for Guideline that in recommended rules optional the adopt also to decided having Portugal de Banco with activity, banking central core of treatment the on ECB the of Council Governing the by defined rules mandatory the of adoption the establishes ESCB/ECB, the of Statute the of Article 26.4 account into

IFRS: InternationalFinancial ReportingStanda System European the in reporting financial and accounting for framework legal the on 2016 November 3 of Bank Central European the of Guideline of CentralBanks,asamended(ECB/2016/34)– availablefrom

Bases ofpresentation BASES OFPRESENTATIONANDMAIN rds, asadoptedintheEuropeanUnion. Plano de Contas do Banco de Portugal – PCBP), which was approved 2 for the other activities, which will be applied provided the provided applied be will which activities, other the for www.ecb.europa.eu . 1 which, taking which, Relevance, Reliabilityand ECB Accounting Guideline. In these situations, where the operations are traded in one year, one in traded are operations the where situations, these In Guideline. Accounting ECB the in described method, alternative approach’ ‘economic the in envisaged situations the in except operations, financial from arising gains/losses Realised under date settlement the on the transaction value and the weighted average cost, are recognised in the Profit and loss account Realised gains and losses arising from financial operations, determined by the difference between security (ISINcode),orinanycurrency. one any in differences revaluation of netting no is There positions. and assets financial on losses Unrealised under account loss and Profit the in recognised are differences revaluation negative year, fiscal the of end the At currency. and asset of type each for accounts revaluation specific in (i.e. between the market value and the weighted average cost) are recognised differences in the revaluation balance period, sheet, the of course the over Thus, Guideline. Accounting ECB the with Banco de Portugal applies an asymmetric valuation approach to unrealised gains/losses in accordance (Point (g) ofthisNote). the two legs being treated as interest and recorded over the life of the swap on a straight-line basis is recognised on the settlement date of the spot leg by the same amount, the difference between The spot leg of foreign exchange swaps is recognised on the spot settlement date. The forward leg having aninfluenceontheaveragecostofforeigncurrencypositionasfromthatdate. date, trade the on sheet balance the in recognised are transactions forward exchange Foreign off-balance-sheet accountsonthetradedate. When the year ends between the settlement date and the trade date, transactions are recognised in Assets and liabilities in general are recognised on the settlement date rather than on the trade date. expected toresultinanoutfloworinvestmentofresourcesembodyingeconomicbenefits. is settlement their and events past from resulting commitments are Liabilities benefit. economic on a collective basis (pooling), resulting from past events and which are expected to generate future Assets are resources controlled by Banco de Portugal on an individual basis, or by the Eurosystem and continuity. The qualitative characteristics of the financial statements 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 accrualassumptions: accounting following the with accordance in prepared are and liabilities andassets its of reality economic the reflect Portugal de Banco of statements financial The of BancodePortugalfortheyeararefollowing: The main accounting policies and valuation criteria used in the preparation of the financial statements 1.2 (b) (d) (c) (a)

Synopsis ofthemainaccountingpolicies Recognition date Accounting assumptionsandqualitativecharacteristicsofthefinancialstatements Income recognition Recognition ofassetsandliabilities Comparability. Understandability ,

125 Financial Statements and Notes 126 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 which fallwithinthefiscallyacceptedintervalsunderRegulatoryDecreeNo 25/2009: life) useful estimated the to (according rates amortisation and depreciation annual applying by method, straight-line the to according twelfths, in recorded are amortisation and Depreciation This acquisitioncostincludesexpendituredirectlyattributabletotheofgoods. depreciation and amortisation, in accordance with the rules laid down in IAS 16 and IAS 38 respectively. accumulated less cost acquisition the at measured are assets intangible and assets fixed Tangible 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 sold. amount the than higher is day given a on purchased amount the when changed only being stock The accounting treatment of gold and foreign currencies is similar, with the average cost of the gold underlying theSDRbasketaretreatedjointlywithSDRs,formingasingleholding. Special Drawing Rights (SDRs) are treated as a currency for accounting purposes. Currency holdings 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 1.2(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 whether itsvalueispositiveornegative. on depending expense, Interest or income Interest under net presented is receivable or payable interest sub-item’s sheet balance each framework, accounting Eurosystem’s the with accordance In are immediatelyrecognisedonthetradedate. but

Net Asset Value (NAV) = total assets less total liabilities of entities in which Banco de Portugal has a participating interest, multiplied by the percentage level ofthatparticipatinginterest. settlement only occurs in the subsequent year, gains and losses arising from financial operations operations financial from arising losses and gains year, subsequent the in occurs only settlement Tangible fixedassets Intangible assets (e) Equipment Premises Buildings andotherconstructions Furniture andfittings Transport equipment Computer hardware Machinery andtools Measurement ofbalancesheetitems 3 valuation method. The remaining participating interests are recognised Number ofyears 10 to50 4 to20 3 to6 4 to8 4 to8 3 to5 4 to8 the respectivemarketvalueand arerecognisedasreferredtoinPoint 1.2(d)ofthisNote. Revaluation differences correspond to the difference between the amortised cost of the security and incorporates allthepurchases madeonthatday. already which date, value sale’s the for cost average weighted the at stock the from deducted are security from the previous working day, so of that a new type weighted average each cost can of be calculated. cost Sales average weighted the to added is purchases daily the of cost acquisition The and theadjustedweightedaveragecostofsecurityistreat ed asrealisedgain/loss. sales of value the between difference The discount. or premium the of amortisation accumulated the of cost average weighted adjusted the uses Portugal de Banco by adopted method costing The is assessedusingindicativemarketquotes. The portfolio of marketable securities is measured at market price. The market value of this portfolio Securities forpurposesotherthanmonetarypolicyareinthefollowingportfolios: • applicable (Point 1.2(o)ofthisNote). wherelosses impairment any less value, nominal at recognised are item, this in mentioned Banco de Portugal, as well as the other balance sheet positions denominated in euro not previously with parties third by held and parties third with deposits and payable and receivable Accounts loss account. Leases of low-value assets (less than €10,000) continue to be directly recognised in the profit and interest. as recorded is it effect, an is there If liability. lease the reduce payments Rent shorter. is whichever use, of period or contract the of duration the for and assets underlying to similar assets to applied method the using depreciated/amortised be shall use of rights Such Portugal. of future lease payments, discounted on the basis of the incremental borrowing rate of Banco de and (ii) in liabilities the lease liabilities for those contracts, initially measured by the present value 12 months than greater duration a with agreements lease concluded Bank the which for assets intangible and assets fixed tangible right-of-use the assets (i) in recognising IFRS 16, in out set Effective as of 1 January 2019, Banco de Portugal adopted the recognition and measurement rules use, andwhentheiramortisation/depreciationstartsalso. for available be to start they when assets intangible and assets fixed tangible to transferred and Assets under construction are valued at the total expenses already charged to Banco de Portugal below thenetcarryingamount. 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 whenever IAS 36, to According coupon securities,ortheinternalrateofreturn(IRR)method,incasezerosecurities. of case the in method, straight-line the to according either securities, the of life remaining the over Premiums or discounts arising on securities are calculated and treated as interest and are amortised policy purposes. to be owned until maturity (held-to-maturity securities portfolio) and securities held for monetary purchased securities portfolio), (trading securities marketable portfolio its in holds Portugal de Banco

– Securities forpurposesotherthanmonetarypolicy – Trading portfolio (f) Securities 127 Financial Statements and Notes 128 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 held inthisportfolioissimilartothatofthemarketablesecurities. Eurosystem level. The accounting treatment of interest and premiums and discounts of securities at defined guidelines the follows which Portugal, de Banco by defined model the to according tests independently of the other securities classified as trading securities, and is subject to impairment totally calculated cost, amortised at measured is securities held-to-maturity of portfolio The (the differencebetweenthespotandforwardprices) isaccruedoverthetransaction’slife. swap for foreign currency (or for euro) is treated as the taking of funds, in which interest is agreed A gold levels. reserve gold affect not do operations these to relating flows gold and agreements In accordance with the Eurosystem’s accounting framework, gold swaps are treated as repurchase the changeinrespectivemarginaccount. from resulting flows cash the with line in operations, financial from arising gains/losses Realised of this Note. In the case of interest rate futures, the result of the daily revaluation is recognised in transaction. As to interest rate swaps, the revaluation gain/loss is treated as described in Point 1.2(d) by transaction on revalued and for accounted are futures rate interest and swaps rate Interest difference betweentheagreedcurrencyspotrateandforwardofexchange. the by determined is interest this swaps, exchange foreign of case the In transaction. the of exchange rateisrecognisedasinterestandrecordedonastraight-linebasisduringthelifetime transactions, the difference between the market exchange rate of the trade date and the agreed forward exchange foreign of 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 terms ofhowlongtheywillbeheldfor). subject to impairment tests conducted at Eurosystem level, regardless of the holding intention (in costamortised at for accounted are purposes policy monetary for held currently securities Debt Banco dePortugalholdsnosecurities. purchase programme PSPP; and (vi) the corporate sector purchase programme – CSPP, in which sector public (v) the ECB; the of sheet balance the on centralised currently ABSPP, – programme purchase securities asset-backed (iv) the date; to activated not was which OMT, – programme transactions monetary outright (iii) the SMP; programme markets securities (ii) the CBPP3; and CBPP2 CBPP, – programmes purchase bond covered (i) the namely: operations, policy monetary standard non- to related securities debt includes purposes policy monetary for held Securities item The • capital, (ii) any net amount paid by the NCBs due to the increase in their shares in the ECB’s the in shares their in increase the to due NCBs the by paid amount net (ii) any capital, subscribed ECB’s the in share paid-up NCBs’ (i) the includes item sheet balance this Additionally, capital oftheECBisrecorded in thebalancesheetAssetsunderParticipatinginterest ECB. Article 30 result from applying the weightings referred to in Article 29. Banco de Portugal’s share in the 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 Thus, Article 29. in established key the to according made is capital of subscription The (Article 28). 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

Securities heldformonetarypolicypurposes – – Held-to-maturity securitiesportfolio (h) Intra-ESCBbalances (g) Derivative financialinstruments banknotes. euro issue Eurosystem, the comprise together which area, euro the of NCBs the and ECB The of thisNote). (Point 1.2(i) Eurosystem the within banknotes euro of allocation the to related Claims under asset Intra-Eurosystem balances arising from the allocation of euro banknotes are included as a net single under TransferofforeignreserveassetstotheECB. sheet balance the in recorded is and euro in denominated is Eurosystem the joined Portugal de The intra-Eurosystem balance arising from the transfer of reserve assets to the ECB when Banco netted on a daily basis, leaving each NCB with a single net bilateral position vis-à-vis the ECB are only. balances bilateral These banks. central EU of accounts TARGET the in balances bilateral to are for the most part initiated by private entities and are initially settled in TARGET2 and give rise accounts, result from cross-border payments in the EU that are settled in euro. These transactions Intra-Eurosystem balances, recognised under Claims/liabilities arising from balances of TARGET of balances from arising Claims/liabilities under recognised balances, Intra-Eurosystem Member Stateswhosederogationshavebeenabrogated. of banks central to respect with ESCB/ECB the of Statute the of Article 48.2 with accordance 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% remaining the whereas circulation, in banknotes euro of value total the of 8% of share a allocated been has ECB The euro on1 January 2014;andLietuvosbankasadoptedthe1 January 2015. the adopted Banka Latvijas 1 January 2011; on euro the adopted Pank Eesti 1 January 2009; on eurothe adopted Slovenska banka Národná 1 January 2008; on euro the adopted Malta of Bank Central and Cyprus of Bank Central the 1 January 2007; on euro the adopted Slovenije Banka 7. 6. 5. 4. remunerated to rise gives NCB that by circulation from withdrawn banknotes and 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 value equity 8. circulation patterns do not significantly alter the NCBs’ relative income positions. These adjustments banknote in changes that so period five-year a over adjusted are banknotes euro of allocation the from arising balances intra-Eurosystem the euro, the adopts State Member new a When to theallocationofeurobanknoteswithinEurosystem. balances. These claims or liabilities are disclosed under the sub-items Net claims/liabilities related

Decision of the ECB of 3 November 2016 on the allocation of monetary income of the national central banks of Member States whose currency is the Banknote allocation key’ means the percentages that result from taking into account the ECB’s share in the total euro banknote issue and applying the Decision oftheECB13December2010ontheissueeurobanknotes(ECB/2010/29)(recas Trans-European AutomatedReal-timeGrossSettlementExpressTransfer. from forward carried loss any minus reserves, to equivalent provisions and accounts revaluation reserves, ECB’s the of total the means value Equity euro (recast)(ECB/2016/36),OJL347,20.12.2016, p.26. subscribed capitalkeytotheNCBs’shareinsuch total. net profitorlossuntilthedateofadjustment. accumulated ECB’s the includes also value equity the year, financial the during place taking adjustments key capital of event the In periods. previous (i) Banknotes incirculation 6 The ECB and 12 of these NCBs have issued euro banknotes since 1 January 2002; 1 January since banknotes euro issued have NCBs these of 12 and ECB The 4 resulting from all previous ECB’s capital key adjustments, and (iii) contributions in (iii) contributions and adjustments, key capital ECB’s previous all from resulting 7 t), OJ L35,9.2.2011,p.26,asamended. 8 intra-Eurosystem 5

129 Financial Statements and Notes 130 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 employees and95%forpast-serviceliabilitiesofactivemember s. 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,describedindetailNote 32. the and Plan Pension the plans: benefit two comprises plan Defined-benefit – Fund Pension The earnings. Retained under recognised directly are losses and gains These assumptions. financial and actuarial the in (ii) changes and values actual and used assumptions financial and actuarial the between rate to the Fund’s assets and liabilities. Actuarial gains and losses result chiefly from (i) differences interest single a applying by calculated is which cost, interest net to and cost service current the IAS 19. According to the provisions laid down therein, the amount recorded in staff costs refers to The recognition of costs and liabilities related to retirement pensions is made in accordance with also presentedinNote 32. 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 Pensões de Fundos dos Gestora Sociedade by accounts, the for date cut-off the on basis, annual an on calculated are Note 32, in explained Fund, Pension the to related liabilities Portugal’s de Banco shares andparticipatinginterest. equity from 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 incurred by the ECB in connection with the issue and handling of euro banknotes. The Governing costs the of amount the by income 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 9. 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, PSPP 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 the cashchangeoveryearofeachnewEurosystemparticipant. following year sixth the of day first the of as apply to cease will adjustments balance Eurosystem intra- Those key. allocation banknote the under period that during them to allocated been have would 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 effected are

Decision of the ECB of 15 December 2014 on the interim distribution of the income of the European Central Bank (recast) (ECB/2014/57), OJ J 53, J OJ (ECB/2014/57), (recast) Bank Central European the of income the of distribution interim the on 2014 December 15 of ECB the of Decision 25.2.2015, p.24,asamended. (k) (j) Distribution oftheECB’sincome Pension FundofBancodePortugal–Defined-benefitplan 9 It will be distributed in distributed be will It de Portugalfollowstheregime definedintheCorporateIncomeTaxCode. ECB. These provisions are deductible for tax purposes. For other provisions or impairment, Banco 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,asatthedateofpreparationfinancial statements. the of estimate best the through liabilities in recognised are provisions These reliably. estimated obligation, legal or constructive, (ii) payment is likely to be required and (iii) thepresent amount can a be has Portugal de (i) Banco if: recognised are provisions IAS 37, with accordance In future cashflows. 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 IAS 36. with accordance in assets, those of Impairment of assets is recognised in the balance sheet with a deduction from the book value equity, inwhichcasetheyarealsorecordedagainstequity. in recognised directly items to related are they where except account, loss and Profit the in basis the best estimate of the amount of tax to recover and pay in the future and are recognised a as taking calculated are taxes deferred IAS 12, with compliance In base. tax their and liabilities and assets of values accounting the between differences temporary from arising periods, future inpaid and recovered be to tax the of value the to correspond liabilities and assets tax Deferred CIRC) andthetaxincentivesbenefitsapplicabletoBancodePortugal. in the Corporate Income Tax Code ( Code Tax Income Corporate the in Charges for the year from income tax are calculated in accordance with the provisions laid down benefits conditions. in or assumptions in changes from arising gains/losses, actuarial net and cost interest cost, Currently, Banco de Portugal recognises directly in the Profit and loss account the current service 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. of value present the sheet balance its of side Liabilities the on recognises Portugal de Banco contribution. additional any pay to obligation constructive or legal no has Portugal de Banco plan, contribution defined- a is this since However, compensation. monthly actual the of 1.5% contributes These employees may participate in a supplementary pension plan, to which Banco de Portugal scheme. security social general the by covered are 2 March 2009, of No 54/2009 Decree-Law to pursuant 3 March 2009, after Portugal de Banco at working started who employees The (o) (l) (n) (m) Pension FundofBancodePortugal–Defined-contributionplan Impairment andprovisions Income tax Seniority bonuses Código do Imposto sobre o Rendimento das Pessoas Coletivas – 131 Financial Statements and Notes 132 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 rules. accounting the in out set as account loss and Profit the in recognised not profits or Directors, of Board the by distribution pending years previous of profits represent earnings Retained loss accountandcontributetothecalculationofNetprofit fortheyear. no maximum limit. Annual appropriations to increase this reserve are recognised in the Profit and 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) on goldsales;and(iii) otherreserves. gains to relating reserve (ii) special reserve; (i) legal follows: as divided being Portugal, de Banco Banco dePortugal’sreservesaresetupandusedaccording totheprovisionsofStatute of Directors. buffers that allow risks to be covered over a medium-term horizon to a level defined by the Board financial and NBCs) Eurosystem the to common methodologies following (measured risks sheet balance statements, financial the in developments of assessment technical involving factors, with Article 5(2) of the Statute of Banco de Portugal, based on a set of qualitative and quantitative Movements in the General risk provision are decided upon by the Board of Directors, in accordance the GoverningCouncilofECBwithanimpactonBancodePortugal’saccounts. levels allowing the coverage of potential losses, including those resulting from decisions taken by held at is ratio capital the that and Portugal, de Banco by on taken liabilities the for sufficient are funds own that ensuring perspective, medium-term a from risks sheet balance of assessment The General risk provision amount is defined taking into consideration, among other factors, the between LiabilitiesandEquity(Point 1.1ofthisNote). recordedsheet, balance the on item separate a as considered is provision risk General The only increasedwhentheresultscreatedpreviouslyallowit. is provision risk General the reserve, a to similarity its Given account. loss and Profit the against made directly are decreases and increases its although reserve, a to similar is it as provisions, The PCBP provides for the setting up of a General risk provision, which is different from the other certain typesofassetsoroperationsareparticularlyliable. which to losses or risks depreciation meet to namely provisions and reserves other establish may Directors of Board the Portugal, de Banco of Statute the of Article 5(2) with accordance In losses, contributingtothecalculationofNetprofitforyear. differences are negative they are transferred to the Profit and loss account in the item Unrealised 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. differences are positive, they are retained in the balance sheet in order not to these distribute When unrealised Note. this of Point 1.2(d) in described as calculated are differences Revaluation (p) (r) (q) Reserves andretainedearnings General riskprovision Revaluation accounts (b) of theStatute arose fromsmallchangesin the executionofgoldtransactions. level reserve gold the in variation The (1.9%). euro the against dollar US the of appreciation the in euro. This rise was caused by the appreciation of the gold price in US dollars (18.5%) on top of denominated gold of price rising the to due chiefly was increase This balance. year-end previous the to compared €2,868,416 thousand by increased item gold the 31 December 2019 at As Note: (a)Ounceoffinegold. Gold storedattheBank NOTE 2• independence of the external auditors, Banco de Portugal follows Eurosystem best practice to this end. the ensuring of purpose the For auditors. external independent by audited is Eurosystem the of (NCBs) banks central national the of accounts annual the which to according ESCB/ECB, the of Statute the of Article 27.1 in down laid provisions the to subject is ESCB, the of part integral an as Portugal, de Banco financial statementswithadditionalrelevantinformation. Eurosystem decided that the publication of a cash flow statement did not provide readers of the the banknotes, euro issuing for responsible bank central a as role Portugal’s de Banco Given 1.5 (Note 30) andliabilitiesrelatedtoretirementpensionsotherbenefits(Note 32). relate to the following: asset impairment and risk provisions (Note 19), current and statements deferred financial taxes the of preparation the for assumed uncertainties and estimates main The the Eurosystemarealsotakenintoconsiderationinpreparationoffinancialstatements. way as they follow a common Eurosystem-wide policy, the estimates made for these operations by decentralised a in Portugal de Banco by made are which operations, policy monetary Regarding levels recorded. These estimates are based on the best information available upon closing the accounts. quantifying certain assets, liabilities, income items, expenses, contingencies and, in particular, provision in estimates Portugal’s de Banco consideration into taking prepared were accounts annual The preparation ofBancodePortugal’sfinancialstatements 1.4 rise toanyadjustmentaredisclosedinNote36. give not did which date sheet balance the after arose that condition a of indicative Events date. statements’ approval date, where there is evidence that these events existed at the balance sheet financial the and date sheet balance the between occur may which events unfavourable or favourable for adjusted are statements financial Portugal’s de Banco IAS 10, with compliance In 1.3 Gold sightaccounts Gold investments

Other subjects Main estimatesanduncertaintiesinthe Post-balance-sheet events GOLD ANDRECEIVABLES Gold reserve 12,299,006 ounces 5,549,238 1,501,766 5,248,001 Fine (a) 31 Dec.2019 thousands 16,654,133 7,514,245 2,033,548 7,106,339 EUR 12,298,124 ounces 5,549,238 2,364,715 4,384,171 Fine (a) 31 Dec.2018 thousands 13,785,717 6,220,479 2,650,753 4,914,485 EUR 133 Financial Statements and Notes 134 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 WITH THEINTERNATIONALMONETARYFUND(IMF) NOTE 3• All ofthegoldinvestedislocatedinBankEngland. Bank ofEngland The goldreserveinvestedindepositswasheldthefollowingbanks: (p) ofNote 1. positive revaluation differences according to the accounting policy described in Points 1.2(e) and as (Note 20) sheet balance the in recognised are 2018) December 31 on €10,754,267 thousand and 31 December 2019, on (€13,621,564 thousand asset this from resulting gains Unrealised level, asdescribedinPoint 1.2(g)ofNote 1onaccountingpolicy. Some investments in gold were also made in 2019, although these do not affect the gold reserve to €1,120.96. €1,354.10 per fine ounce of gold, a 20.80% increase from 31 December 2018, when it amounted of price market the at 31 December 2019 on valued was reserve gold Portugal’s de Banco Federal ReserveBank–UnitedStates Bank forInternationalSettlements(BIS) IMF quota against theeuro(1.5%),from 1.2154on31 December 2018to1.233931 December 2019. The changes in the different claim and liability items also include the effect of the SDR appreciation the SDRquotationcompared withDecember 2018. unchanged and the change in its value denominated in remained euro resulted exclusively IMF from changes in the in quota Portugal’s 2019 In Portugal. de Banco with holdings IMF’s the less payments, subsequent and participation initial the to corresponding IMF, the in quota Portugal’s The Reserve tranche position in the IMF reflects the equivalent in euro, on 31 December 2019, of a foreigncurrency,asdescribedinPoint 1.2(e)ofNote 1. as treated are which (SDRs), Rights Drawing Special in denominated are IMF the in positions The IMF’s holdings SDR holdings rights allocatedbytheIMF Counterpart ofspecialdrawing Reserve tranchepositionintheIMF Liabilities totheIMF Claims ontheIMF LENDING ANDDEPOSITOPERATIONS SDR thousands Total (1,594,046) 1,005,122 2,060,100 (806,477) (806,477) 539,067 466,054 Fine ounces 1,501,766 118,327 640,658 742,782 31 Dec.2019 31 Dec.2019 EUR thousands (1,966,893) 1,240,220 2,541,957 (995,112) (995,112) thousands 665,155 575,065 2,033,548 1,005,804 160,227 867,517 EUR SDR thousands (1,594,232) 1,003,404 2,060,100 Fine ounces (806,477) (806,477) 2,364,715 1,605,730 537,537 465,868 118,327 640,658 31 Dec.2018 31 Dec.2018

EUR thousands (1,937,630) thousands 2,650,753 1,219,538 1,799,961 2,503,846 (980,192) (980,192) 132,640 718,152 653,322 566,215 EUR Liabilities tonon-euroarearesidentsdenominatedinforeigncurrency in foreigncurrency Securities ofeuroarearesidentsdenominated in foreigncurrency broken downasfollows: As at 31 December 2019 and 2018, the securities portfolio denominated in foreign currency was in foreigncurrencywillnotsignificantlydifferfromthevaluesasat31 December 2018. assets these of volume the date, maturity the reach operations temporary these After (Note 31). risk exchange foreign associated without transactions (Note 5), swaps exchange foreign of legs forwardfrom mainly resulting 31 December, on item this in €1,040,399 thousand of increase temporary a recorded item this although 2019, in same the remained (net) currency foreign in The volume of balances with banks and security investments, loans and other assets denominated composed ofUSdollars,asin previousyears. mainly be to continued currency foreign in denominated portfolio the 31 December 2019 at As denominated inforeigncurrency, asdescribedinPoint 1.2(g)ofNote 1. and other assets against an increase of the same amount in Liabilities to non-euro area residents Gold investments in foreign currency in 2019 (Note 2) are reflected in balances with banks, loans Securities ofnon-euroarearesidentsdenominated Claims oneuroarearesidentsdenominatedinforeigncurrency Claims onnon-euroarearesidentsdenominatedinforeigncurrency DENOMINATED INFOREIGNCURRENCY INVESTMENTS, LOANSANDOTHERASSETS NOTE 4• Total securityinvestmentsdenominatedinforeigncurrency Deposits, balancesandotherliabilities Balances withbanks,depositsandothermoneymarkets Paragovernmental andsupranational Paragovernmental andsupranational Government debt Securities Balances withbanks,depositsandothermoneymarkets Securities Total balanceswithbanks,depositsandothermoney BALANCES WITHBANKSANDSECURITY markets inforeigncurrency(net)

31 Dec.2019 31 Dec.2019 (1,511,264) 1,709,054 1,491,384 3,097,238 1,388,183 1,709,054 4,327,842 2,836,458 1,491,385 217,670 217,670 636,291 855,093 280,659 217,670 62,989

31 Dec.2018 31 Dec.2018 (4,864,219) 1,098,123 2,056,839 1,098,123 6,767,914 5,801,093 131,301 966,822 131,301 347,487 619,334 958,716 153,143 131,301 966,822 21,842 135 Financial Statements and Notes 136 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Securities ofeuroarearesidentsdenominatedin Claims oneuroarearesidentsdenominatedin DENOMINATED INEURO INVESTMENTS, LOANSANDOTHERASSETS NOTE 5• 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 with accordance In recorded on31 and of the trading portfolio denominated in euro, this portfolio will return to values close to those gold of results the boost to out carried operations, temporary these of maturity the Following Note 4. in described as currency foreign for transactions swap Euro outstanding were there 31 December 2019 at As liabilities. account TARGET reduce temporarily to used were received collateralised loans relating to gold investments (Notes 2 and 16), was noteworthy and the euros 31 December 2019 the value recognised under liabilities to non-euro area residents, coupled with On 31 December 2018. to compared as significantly change not did markets) money other and The volume of the trading portfolio denominated in euro (securities and balances with banks, deposits Liabilities tonon-euroarearesidentsdenominatedineuro Claims onnon-euroarearesidentsdenominatedineuro Companies/financial institutions Paragovernmental andsupranational Government debt Balances withbanks,depositsandothermoneymarkets Securities Companies/financial institutions Paragovernmental andsupranational Deposits, balancesandotherliabilities Balances withbanks,depositsandothermoneymarkets Securities and othermoneymarketsdenominatedineuro(net) Total securityinvestmentsdenominatedineuro

December BALANCES WITHBANKSANDSECURITY Total balanceswithbanks,deposits 2018.

31 Dec.2019 31 Dec.2019 (3,688,891) (5,048,558) 5,971,804 9,288,100 1,732,262 9,660,695 9,187,233 1,258,800 9,660,695 9,187,233 8,683,671 100,867 473,462 473,462 498,537 453,609 19,853 5,025

31 Dec.2018 31 Dec.2018 12,196,727 10,065,834 10,961,271 10,049,681 10,961,271 10,049,681 2,130,893 1,235,456 1,219,304 9,136,410 911,589 911,589 898,032 888,375 16,152 15,240 23,214 - their owndiscretion. specific part of the collateral from risk-sharing, including assets that may be accepted by NCBs at a excluded has Council Governing The losses. respective the cover to sufficient not is provided collateral the of resolution the from received funds of recovery the and fails counterparty the key shares as at the date they materialise. Losses on these operations will only materialise if both in full by all Eurosystem national central banks (NCBs), in proportion to the prevailing ECB capital or part in Council, Governing the by decided so if shared, be may materialise, they if operations, policy monetary from losses ESCB/ECB, the of Statute the of Article 32.4 with accordance In All financing operations related to monetary policy are fully collateralised by eligible assets (Note 31). 2018 recoursetothisoperationbyBancodePortugalwas nil. the specified rate for these operations (0.25% since 16 March 2016). On 31 December 2019 and at loans overnight to corresponding facility, lending marginal the provides also Eurosystem The used forcalculatingtheTLTRO-IIIinterest2019,asthiswdeemedaprudentapproach. is rate facility deposit the time, this at possible not is estimate reliable a that Given operation. the of life the over prevailing facility deposit the on rate interest average the as low as be can operation TLTRO-III each to applicable rate interest final the Council, Governing the by taken decisions the to According years. two after repayment of possibility a with maturity, three-year a have operations These (TLTRO-III). operations refinancing longer-term targeted quarterly seven repayment after two years. Additionally, in 2019 the Governing Council introduced a new series of refinancing operations (TLTRO-II). These operations have a four-year maturity, with a possibility of longer-term targeted four of series new a introduced ECB the of Council Governing the 2016 In allotment ofthetotalamountbid. with rate fixed at conducted were operations These months. 48 and 3 between of maturity a with transactions reverse liquidity-providing are (LTROs) operations refinancing longer-term The monetary policystance. for pursuing interest rate objectives, for managing market liquidity and for signalling the single instrument major a still are operations These €79,500 thousand). (2018: €5,000 thousand to amountedPortugal de Banco by placed amount total the 31 December 2019 On bid. amount total the of allotment with 16 March 2016, since 0% at set procedures, tender rate fixed as frequency and a maturity of one week. Since October 2008 these operations have been conducted a with usually transactions reverse liquidity-providing are (MROs) operations refinancing main The Longer-term refinancingoperations Main refinancingoperations €624,232,652 reachedlevel Eurosystem at euro in denominated operations policy monetary to relating On 31 December 2019 the euro value of the refinancing operations to euro area credit institutions DENOMINATED INEURO RELATED TOMONETARYPOLICYOPERATIONS NOTE 6• €17,325,460 thousand, brokendownasfollows:

thousand (2018: €734,381,501 thousand), of which Banco de Portugal heldPortugal de Banco which of €734,381,501 thousand), (2018: thousand LENDING TOEUROAREACREDITINSTITUTIONS 31 Dec.2019 17,325,460 17,320,460 5,000 31 Dec.2018 18,743,420 18,663,920 79,500 137 Financial Statements and Notes 138 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 and the public sector purchase programme (PSPP), programme purchase sector public the and components (Point 1.2(f)ofNote 1). monetary policypurposes Securities heldfor PURPOSES NOTE 7• 11. 10. The followingtablepresentsthemovementsintheseprogrammesduringyear2019: Securities heldformonetarypolicypurposes markets programme (SMP), securities the under Portugal de Banco by acquired bonds, covered and securities sector public of consisted purposes policy monetary for held Securities of portfolio the 31 December 2019 On 12. CBPP CBPP2 SMP securities PSPP –Government CBPP3 securities PSPP –Supranational

– Supranational securities – Supranationalsecurities Public sectorpurchaseprogramme(PSPP) – Governmentsecurities Public sectorpurchaseprogramme(PSPP) Covered bondpurchaseprogramme(CBPP) Covered bondpurchaseprogramme3(CBPP3) Covered bondpurchaseprogramme2(CBPP2) Eurosystem’s securitiesmarketsprogramme(SMP) Decision oftheECB4 March 2015onasecondary marketspublicsectorassetpurchaseprogr and p. 18 4.7.2009, 175, L OJ (ECB/2009/16), programme purchase bond covered the of implementation the on 2 July 2009 of ECB the of Decision Decision oftheECB14 May 2010establishing asecuritiesmarketsprogramme(ECB/2010/5) 22.10.2014, p. 22. 335, (ECB/2014/40), OJ L bond purchase programme third covered the of implementation on the 15 October 2014 the ECBof p. 70 andDecisionof 16.11.2011, 297, L OJ (ECB/2011/17), programme purchase bond covered second the of implementation the on 3 November 2011 of ECB the of Decision SECURITIES HELDFORMONETARYPOLICY 31 Dec.2018 51,208,353 30,747,930 14,822,707 1,887,958 3,591,664 10 99,953 58,141 the covered bond purchase programmes (CBPP, CBPP2 and CBPP3),

Purchases 7,008,273 6,707,211 301,062 Amortised cost - - - - 53,478,605 14,081,693 34,820,534 3,169,534 1,248,655 58,193 99,997 (1,221,922) (1,221,922) Sales 31 Dec.2019 12 initsgovernmentalandsupranational - - - - - Market value 59,014,754 14,735,662 39,526,301 3,263,612 1,325,133 100,312 securities securities Maturing Maturing 63,734 (3,061,640) (1,062,130) , OJL124,20.5.2010,p. 8. amme (ECB/2015/10),OJL121,14.5.2010,p. 20. (652,000) (636,410) (711,100) Amortised cost - - 51,208,353 14,822,707 30,747,930 premiums and premiums and 3,591,664 1,887,958 Accrual of Accrual of discounts 58,141 99,953 (454,460) (104,604) (350,556) 31 Dec.2018 (12,092) 12,697 44 52 Market value 53,670,342 14,696,836 33,141,430 31 Dec.2019 3,627,336 2,034,391 53,478,605 14,081,693 34,820,534 104,616 1,248,655 3,169,534 65,733 99,997 58,193 11

prevailing ECBcapitalkeyshares. shared, by decision of the Governing Council, in full by the Eurosystem NCBs, in proportion to the be may materialise, to were they if CSPP), and securities Supranational – PSPP CBPP3, SMP, (i.e. In accordance with Article 32.4 of the Statute of the ESCB/ECB, losses from monetary policy operations (2018: €178,050,268 thousand). portfolioCSPP the in €184,504,695 thousand and €224,506,518 thousand), (2018: portfolio €1,681,113,356 thousand), €225,169,214 thousand in the PSPP – Supranational securities (2018: portfolio securities Governmental – PSPP the in €1,681,449,927 thousand thousand), (2018: €3,683,458 thousand), €241,933,842 thousand in the CBPP3 portfolio (2018: €240,655,912 portfolio CBPP2 the in €2,692,946 thousand €3,961,499 thousand), (2018: portfolio CBPP the in €1,680,881 thousand €67,654,011 thousand), (2018: portfolio SMP the in €44,215,779 thousand to amounts securities of holding NCBs’ Eurosystem total the programmes, policy monetary the Within an amortisedcostbasissubjecttoimpairment(Point 1.2(f)ofNote 1). The securities purchased under these non-standard monetary policy programmes are valued on accommodation. monetary of degree ample an and conditions liquidity favourable maintain to necessary as long as for case any in and rates, interest ECB key the raising starts Council Governing the when datethe past time of period extended an for reinvestments the continue to intends also Council Governing The rates. interest ECB key the raising starts it before shortly end to and rates, policy its of impact accommodative the reinforce to necessary as long as for run to purchases net expects Council Governing The APP. the under purchased securities maturing from payments principal the full, in reinvested, only Eurosystem the which during end-2018 since months ten of period a followed This average. on €20 billion of pace monthly a at (APP) programme purchase asset the under securities of purchases net its restarted Eurosystem the 1 November 2019 On purchasing thesesecurities. secondary markets, to improve credit provision to the euro area economy. The ECB is exclusively purchase senior and guaranteed mezzanine tranches of asset-backed securities in both primary and Under the asset-backed securities purchase programme (ABSPP), programme purchase securities asset-backed the Under (CBPP) andon31 October 2012(CBPP2). 30 June 2010 on completed were programmes these under securities of Purchases customers. their to lending expand or maintain to institutions credit encouraging as well as enterprises and institutions credit for conditions funding improving of objective the with euro in denominated Under the CBPP and CBPP2, the ECB and the NCBs purchased covered bonds of euro area residents securities thatmatured. to due solely was 2019, in item, this in reduction The 2016. since portfolio this for made been have purchases no Therefore, purchases. new to programme this close to 6 September 2012 on decided ECB the of Council Governing The mechanism. transmission policy monetary the of 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 13.

Decision oftheECB19 November 2014on the implementationofasset-backedsecurities purchaseprogramme(ECB/2014/45). 13 the ECB and the NCBs may NCBs the and ECB the 139 Financial Statements and Notes 140 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 adjustment every five years after the establishment of the ESCB the of establishment the after years five every adjustment ESCB/ECB, which in paragraph 3 sets forth that the weightings assigned to the NCBs are subject to the of Statute the of Article 29 with compliance in established key allocation the with accordance in fixed are which shares on depend Subscriptions ECB. the of capital the to subscribers sole the are banks central national ESCB the ESCB/ECB, the of Statute the of Article 28 to Pursuant 1 January 2019: on effect took key capital the to adjustment following the key, capital ECB’s the of adjustment five-yearly 2019 the calculating for basis the as used data statistical the of revision the Following in compositionoftheESCBnationalcentralbanks. 14. • NOTE 8• a provisionagainstlossesinmonetarypolicyoperations(Note 19). impairment tests to the CSPP portfolio, the Governing Council deemed it appropriate to establish ofresult a As shares. key capital ECB prevailing the to proportion in NCBs, Eurosystem the by full in shared are materialise, to were they if CSPP, the of holdings from losses ESCB/ECB, the of Statute the of Article 32.4 under taken Council Governing the of decision the with accordance In other securitiesheldunderCBPP,CBPP2andCBPP3. the of respect in recorded were losses impairment no Furthermore, issuer. this from securities no holds Portugal de Banco securities. these of respect in year-end the at recorded were losses of changes to the estimated future cash flows on the securities held, and therefore no impairment considered that, based on the information available on 31 December 2019, there was no evidence Council Governing The of 2019. course in the difficulties financial faced that institution credit a by issued securities to relating indicator, impairment one identified Council Governing the CBPP3, the under purchased securities the on 2019 of end the at conducted test impairment the to As future cashflowsonthesesecuritiesareexpectedtobereceived. all and observed was indicator impairment no that decided Council Governing the NCBs, the by With regard to the impairment tests conducted on the SMP and PSPP portfolios of securities held these tests,impairmentindicatorsareassessedseparatelyforeachprogramme. on an annual basis, using data as at the year-end and are approved by the Governing Council. In held under these programmes. As referred to in Point 1.2(f) of Note 1, impairment tests are conducted securities the with associated risks financial the basis regular a on assesses Council Governing The

The capitalkeyisalsoadjustedasaresultofth e accessionofnewMemberStatestotheEU. Participating interestintheECB INTRA-EUROSYSTEM CLAIMSANDLIABILITIES 14 or whenever there is a change a is there whenever or decreased from2.4767%on 31 December 2018 to2.3510%on31 December 2019. Banco de Portugal’s share in the ECB’s capital, subscribed and paid up by the NCBs of the Eurosystem, accumulated reservesadjustment, valuedat€14,976 thousand. capital alsoledtotheannulmentofsharecorresponding toadditionalpaid-incapitaldue on 31 December 2018 to €177,173 thousand on 31 December 2019. This decrease in the subscribed decreased from 1.7434% to 1.6367%, and the value of that share decreased from €188,723 thousand ECB the of capital subscribed the in share Portugal’s de Banco 1 January 2019, on Consequently, Nationale BankvanBelgië/BanquedeBelgique Deutsche Bundesbank Eesti Pank Banc CeannaisnahÉireann/CentralBankofIreland Banque deFrance Banco deEspaña Bank ofGreece Česká národníbanka Българска народнабанка/BulgarianNationalBank Suomen Pankki–FinlandsBank Národná bankaSlovenska Banka Slovenije Banco dePortugal Oesterreichische Nationalbank De NederlandscheBank Bank Ċentralita’Malta/CentralofMalta Banque centraleduLuxembourg Lietuvos bankas Latvijas Banka Central BankofCyprus Banca d’Italia Hrvatska narodnabanka Danmarks Nationalbank Bank ofEngland Sveriges Riksbank Banca NaţionalăaRomâniei Narodowy BankPolski Magyar NemzetiBank NCB Non-euro areaNCBs Euro areaNCBs The Netherlands United Kingdom Czech Republic Luxembourg Country Denmark Lithuania Germany Romania Hungary Portugal Slovenia Bulgaria Belgium Slovakia Sweden Estonia Finland Greece Croatia Austria Ireland Cyprus Poland France Latvia Spain Malta Italy Key forsubscriptionoftheECB’scapital From 1Jan.2019 100.0000% 69.6176% 30.3824% 18.3670% 11.8023% 14.2061% 14.3374% 2.5280% 0.1968% 8.3391% 1.7292% 1.1754% 0.8511% 1.2708% 0.8004% 0.3361% 1.6367% 2.0325% 4.0677% 0.0732% 0.4059% 0.2731% 0.1503% 0.2270% 1.4986% 1.6172% 0.5673% 2.5222% 2.4470% 5.2068% 1.3348% 141 Financial Statements and Notes 142 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 of theGoverningCouncil(Note 25). the SMP, CBPP3, ABSPP and PSPP portfolios, also settled on 31 January 2020, following a decision the early distribution of 2019 ECB’s income relating to the securities purchased by the ECB under 31 January 2020 (Note 26); and also (iii) the amount receivable of €33,641 thousand in respect of on settled both (net), €396 thousand totalling years, previous to relating method calculation income monetary the to adjustments negative (ii) the (Note 26); €117,787 thousand totalling method, calculation income monetary 2019 the of result (i) the to: referred €151,033 thousand, of amount the to claims, intra-Eurosystem Other item the of balance the 31 December 2019 On the marginalinterestrateusedbyEurosystemforMROs. this central bank (Note 13). The asset position of the adjustment to circulation is remunerated at by circulation from withdrawn banknotes and circulation into put banknotes between difference the to relating position asset Portugal’s de Banco in rise a and 2018) from up (5% Eurosystem the in circulation overall in rise a of combination the to due was €47,916,880 thousand), to €45,332,211 thousand (from 31 December 2018 with compared position, asset this in increase The from 2.2785%on31 December 2018to2.163%31 December 2019. declined key allocation banknote the in share Portugal’s de Banco above, described key, capital ECB’s the of adjustment the of result a As Note 1). of (j) and (Points 1.2(i) Eurosystem the within banknotes euro of allocation the to relating claims Portugal’s de Banco of consists item This 2018 to€948,485 thousandon31 December 2019. decrease in the capital key share, this position declined from €1,010,318 thousand on 31 December the reflect To ECB. the to Portugal de Banco from reserves foreign of transfer the to equivalent claims in adjustment an implied also 1 January 2019 on keys capital ECB’s the of adjustment The rate fortheEurosystem’sMROs,adjustedtoreflectazeroreturnongoldcomponent. prevailing on the transfer date and are remunerated daily at the latest available marginal interest rate exchange the at euro into converted were claims These ECB. the to NCBs participating Eurosystem from assets reserve foreign of transfer the from arising claims represents item This by theEurosystemforMROs. used rate interest marginal the at calculated is position this on Interest €82,769,710 thousand). (Point 1.2(h) of Note 1) showed a credit position of €76,976,192 thousand (on 31 December 2018: (net) ECB the to accounts TARGET of balances from arising liabilities Net 31 December 2019 On • • • •

Other intra-Eurosystemclaims/liabilities Net claimsrelatedtotheallocationofeurobanknoteswithinEurosystem Foreign reservestransferredtotheECB Net liabilitiesarisingfrombalancesofTARGETaccounts Accumulated depreciationandamortisation Tangible fixedassetsandintangibleunderconstruction Intangible assets Leased assets Intangible assets Tangible fixedassets In 2018and2019movementsinthisitemwereasfollows: Tangible fixedassets NOTE 9• under construction and intangibleassets Tangible fixedassets Amortisation ofintangibleassets Depreciation ofleasedassets Depreciation oftangiblefixedassets Other intangibleassets Computer software Buildings andotherconstructions Museum andartcollections Equipment Premises Buildings andotherconstructions Computer software Land Land Other intangibleassets Advances – Projects Fixed assetsunderconstruction Museum andartcollections Equipment Premises Buildings andotherconstructions Total grosstangiblefixedassetsandintangible Total nettangiblefixedassetsandintangible TANGIBLE FIXEDASSETSANDINTANGIBLE

31 Dec.2017 Net balance 116,121 100,504 11,697 11,570 13,281 15,775 53,212 3,921 8,840 3,921 9,396 127 - Additions 58,518 46,937 42,018 7,395 4,186 3,930 3,842 7,395 891 256 86 99 - Disposals 31 Dec.2019 4,694 4,250 4,250 (290,099) (223,950) 443 124 224 158,268 448,367 360,250 103,881 109,172 (63,643) 96 72,945 72,558 86,832 50,762 (2,506) ------6,202 8,970 8,970 9,602 388 and amortisation Depreciation for theyear 15,254 9,550 5,704 5,681 4,945 2,977 1,628 24 - - - - - 31 Dec.2018 (274,852) (216,856) 154,692 429,544 354,303 101,905 107,847 (57,996) 68,175 67,787 84,294 50,762 7,066 9,495 31 Dec.2018 Net balance 388 154,692 137,447 - - - 10,179 12,053 13,690 51,446 50,762 7,066 9,495 9,819 7,066 359 - 143 Financial Statements and Notes 144 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 retrospective approach,therefore thecomparativeinformationwasnotrestated. under this standard have been recognised according to Point 1.2(e) of Note 1, using the modified fall that agreements lease 1 January 2019, of as effective Leases, – IFRS 16 of adoption the With to lease agreements under Supplies and services from third parties (Note 29) over their duration. relating expenses the recorded Portugal de Banco 2018, of end the until that noted be should It depreciation ofassetsrelatingtorightsuserealestate , whichwerenotrecognisedin2018. the to due is €2,506 thousand, to amounting depreciation, annual the in increase the of Part settled infullatthetimeitwassigned,noleaseliabilitywasrecognisedfor(Note 18). a durationofmorethan12 months,totalling€8,970 thousand. Sinceoneofthosecontractswas recognised in assets the right-of-use assets for which the Bank concluded lease agreements with Following the adoption as of 1 January 2019 of IFRS 16 (Point 1.2(e) of Note 1), Banco de Portugal buildings ofBancodePortugal. various in facilities and equipment and systems IT the to related projects to due chiefly is 2019 December 31 on construction under assets intangible and assets fixed tangible of level high The online, aswellvarioussystemssupportingtheareasofstatisticsandsupervision. software licensing and the go-live of IT systems, namely the statistics website BPstat – Estatísticas server with associated essentially were assets Intangible to relating 2019 in acquisitions The and ITsystemsinfrastructure,aswellcashhandlingequipment. The increase in spending on Equipment was mainly driven by acquisitions of computer hardware areas in the Porto Branch and to the installation of a new data centre in the Carregado Complex. office of restructuring the to related mostly are Facilities and Buildings items in increases The Tangible fixedassets under construction and intangibleassets Tangible fixedassets Intangible assets Leased assets Land Buildings andotherconstructions Advances – Projects Fixed assetsunderconstruction Computer software constructions Buildings andother Premises Other intangibleassets Equipment Museum andartcollections

31 Dec.2018 Net balance 154,692 137,447 10,179 50,762 51,446 13,690 12,053 7,066 7,066 9,819 9,495 359 - - - Additions 29,447 4,771 8,970 9,344 6,363 1,325 8,970 6,363 4,771 2,589 5,323 106 - - - Disposals 7,623 7,227 7,227 397 377 19 ------and amortisation Depreciation for theyear 18,247 10,095 5,647 2,506 1,604 2,506 2,988 5,608 5,502 39 - - - - - 31 Dec.2019 Net balance 158,268 136,299 50,762 51,168 13,272 11,496 9,303 6,464 6,202 6,202 6,464 8,982 9,602 321 - as follows: down broken are 2018 and 31 December 2019 at as interests participating Portugal’s de Banco and theheld-to-maturitysecuritiesportfolio. interests participating Portugal’s de Banco includes essentially assets financial Other item The Other assets Held-to-maturity securitiesportfolio Participating interestineuroarearesidententities Participating interestinnon-euroarearesidententities NOTE 10• Participating interestinnon-euroarearesidententities this portfoliobytypeoffinancialinstrumentisasfollows: of breakdown The recorded. therefore was loss impairment no and flows, cash future estimated the to changes of found was evidence no and tests impairment to subject are assets These impairment losses. composed of securities denominated in euro and is valued at amortised cost less potential portfolio, given its characteristics, is included in Other financial assets. This portfolio is exclusively securities held-to-maturity the management, fund own Portugal’s de Banco of scope the Within accordance withtheaccountingpolicyoutlinedinPoint 1.2(e)ofNote 1. in cost, acquisition at recorded and 0.25%) and 0.01% (1.57%, residual are shares respective the as EUROPAFI, and SWIFT BIS, in interests participating to applied not was procedure This to 31 December 2019, which, according to those entities, gave values fairly close to the final ones. statements of the entities in which it has a participating interest to value these interests with reference financial interim used Portugal de Banco (Note 27). account loss and Profit the in recognised directly being differences valuation the of counterpart the with method, valuation Value Asset Net the of use the from chiefly resulted Valora and SGFPBP in interests participating the of value the in Changes The marketvalueofthisportfolio ispresentedinNote 33,forinformationpurposes. Held-to-maturity securitiesportfolio Participating interestineuroarearesidententities Bank forInternationalSettlements(BIS) Paragovernmental andsupranational Government debt Swift EUROPAFI Valora, S. A. SGFPBP, S. A. OTHER FINANCIALASSETS 100.00% % share 97.90% 1.57% 0.01% 0.25% 31 Dec.2019 31 Dec.2019 4,800,314 4,744,009 31 Dec.2019 34,248 21,650 4,744,009 4,744,009 407 Contract 34,248 21,650 30,524 3,374 - 349 1 100.00% % share 97.87% 1.57% 0.25% 0.01% 31 Dec.2018 31 Dec.2018 31 Dec.2018 5,495,805 5,439,739 5,439,739 5,389,771 34,124 21,650 49,968 293 Contract 34,124 30,418 21,650 3,356 349 1 145 Financial Statements and Notes 146 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Prepaid expenses 2018. and 2019 in assets tax deferred of amount the of description detailed more a presents Note 30 against adeductionintheassets referringtoLendingemployees(Note 12). rates, totalling €6,572 thousand (2018: €7,624 thousand). The equivalent to this value is recorded according to Collective Labour Agreements ( applicable rate interest the at employees, its to lending Bank on receivable interest to related The Other prepaid expenses item includes the updated value of the difference between cash flows securities portfolios(€4,060 thousandin2019and€11,874 thou sand in2018). held-to-maturity and (ii) trading and 2018) in €8,558 thousand and 2019 in (€23,194 thousand purposes policy monetary for held (i) securities on interest is 31 December 2019 at as item this in values the among Key securities. the of sale or coupons respective the of maturity upon Portugal de Banco by received be will which and acquisition at counterparty the to paid interest securities portfolio, and portfolio of securities held for monetary policy purposes) of outstanding interest on securities held in Banco de Portugal’s portfolios (i.e. trading portfolio, held-to-maturity The item Prepaid expenses relating to central bank operations chiefly consists of accrued coupon (€81,156 thousand –Note 27).Thisamountwassettledon9 January 2020. deposit guarantee scheme in Portugal according to Decree-Law No 106/2019 of 12 August 2019 single a of creation the to due fund, that to contributions Portugal’s de Banco of return (FGCAM) Fund’s Guarantee Credit Agricultural Mutual the of recognition the includes accruals Other 2019 In for monetarypolicypurposes,amountingto€708,478 thousand(2018:€742,753 thousand). held securities from receivable interest accrued outstanding essentially include operations bank central from receivable income other and Interest to relating accruals 31 December 2019 at As Accruals NOTE 11• Other prepaidexpenses Deferred taxassets Prepaid expensesfromcentralbankoperations Other accruals Interest andotherincomereceivablefromcentralbankoperations Other Other Current accountsofcreditinstitutions-excessreserves Held-to-maturity securitiesportfolio Trading portfoliodenominatedineuroandforeigncurrency Gold investments Securities heldformonetarypolicypurposes ACCRUALS ANDPREPAIDEXPENSES Convenções Coletivas de Trabalho) and market interest 31 Dec.2019 936,046 873,045 708,478 790,764 63,002 26,373 27,254 82,281 44,900 20,769 14,253 9,375 2,195 168 31 Dec.2018 905,235 841,783 742,753 840,630 63,452 31,109 20,432 11,911 51,864 35,479 1,153 2,620 7,063 852 Impairment ofrecoverableamounts Other reducedvalueaccounts Other centralbankclaims Billing tothirdparties Corporate IncomeTaxrecoverable payment onaccount Corporate IncomeTax–Paymentsonaccountandadditional Sundry debtors counterparties ascollateralfor foreignexchangeforwardtransactions. from received amounts regards claims bank central Other in 2018 in recognised value The 2019 (Note 27). in settled was which tax, referred the of return the from income in €18,436 thousand recorded and (2) Article 23(1) of terms the under write-down, said on deduction tax the to as Portugal de Banco with agreed Authority Customs and Tax Portuguese the 2018 December In matter. this clarify to taxed. Banco de Portugal asked the Portuguese Tax and Customs Authority for a binding ruling taxable profit on account of the specific circumstances and uncertainty about how they should be Annex to the BP/Finangeste Arrangement. Such losses, recorded in 2016, were not computed as the following 2016 in recognised write-downs in €62.5 million to due recoverable, Tax Income Corporate of account on €18,436 thousand assets under recorded Portugal de Banco 2018 In the estimateforincometaxesthatyearsinceitamounts,overall,toanetliability(Note 18). with together sundry – liabilities Other under shown now are Code) Tax Income Corporate the of 104-A and Articles 104 of provisions the (under 2019 in account on payments as paid amounts The valued atmarketprice,onthatdate(Note 32). value of the participation units of this Fund earmarked for Banco de Portugal on 31 December 2019, the reflected account Reserve – plan Defined-contribution – Fund Pension the concerning position The resulting fromthefactthatthisFundondatehadafundingratioabove100%(Note 32). The item Pension Fund – Defined-benefit plan relates to this Fund’s surplus on 31 December 2019, total valueofthisassetwasrecognised(Notes 19and30). the for impairment An instalment. annual an of calculation the through Bank the to transferred Finangeste, by recovered claims of amount nominal the to related 2019 in recorded reduction and represents an asset worth €837 thousand on 31 December 2019 (2018: €841 thousand). The 2016, in added was annex an which to 9 January 1995, of Arrangement BP/Finangeste the under The value recorded under Special credit situations – BP/Finangeste Arrangement relates to amounts Lending toemployeescorrespondsmostlymortgageloansemployees. Pension Fund–Defined-contributionplanReserveaccount Pension Fund–Defined-benefitplan Other specialcreditsituations Special creditsituations–BP/FinangesteArrangement Lending toemployees NOTE 12• (l) of the Portuguese Corporate Income Tax Code. Thus, in 2018, Banco de Portugal de Banco 2018, in Thus, Code. Tax Income Corporate Portuguese the of OTHER ASSETS–SUNDRY 31 Dec.2019 330,055 331,303 128,562 164,017 (1,248) 22,831 4,233 2,552 7,871 400 837 - - - 31 Dec.2018 569,558 570,819 233,817 101,084 163,503 (1,260) 17,190 18,436 22,520 4,628 7,668 723 409 841 147 Financial Statements and Notes 148 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 the pre-specifiedratesfortheseoperations. Banco de Portugal, used as a means to access the Eurosystem’s liquidity-absorbing operations at with institutions credit domestic of deposits overnight to corresponding 31 December 2018), on €5,000 thousand and 31 December 2019 on (€5,900 thousand date this on outstanding As at December 2019 as in 2018, this item also included the balance on deposit facility operations be remuneratedatthelowerofeither0%ordepositfacilit y rate. is recognisedagainstanassetrecordedinOtherintra-Eurosystemclaims(Note 8). which Eurosystem, the in circulation to Adjustments in increase the for account combined effects These 2018. from rising balance, debtor a 31 December 2019, on again, recorded circulation of the ECB. The difference between banknotes put into circulation and banknotes withdrawn from €27,962,009 on 31 December 2019, due to the reduction in Banco de Portugal’s share in the capital to 2018 December 31 on €28,051,388 thousand from decreased circulation in banknotes of value aggregate Portugal’s de Banco 1 January 2019, on updated key allocation the to According 5%. by increased Eurosystem the in circulation in banknotes euro of value total the 2019 In 15. requirements. reserve minimum institution’s an on 6 of multiple a as determined was – tier exempt the – rate facility deposit the from year-end at exempt was that requirements reserve minimum of excess in holdings the deposit facility rate. This part is remunerated at the annual rate of 0%. The volume of reserve reserve holdings in excess of minimum reserve requirements) from negative remuneration at (i.e. holdings liquidity excess institutions’ credit of part exempts which remuneration, reserve for system two-tier a introduced ECB the of Council Governing the 30 October 2019, on Starting excess reserves(ECB/2014/23). of holdings and balances deposits, of remuneration the on 5 June 2014 of ECB the of Decision the of 2 and Articles 1 with accordance in remunerated is reserves minimum in amount The funds aredepositedforcompliancewithminimumreserverequirements. accounts serve a two-fold purpose: they are current/settlement accounts and accounts where These (€19,207,122 thousand). Portugal de Banco with institutions credit of accounts current monetary policy operations denominated in euro (€19,213,022 thousand) reflected chiefly the to related institutions credit area euro to Liabilities on balance the 31 December 2019 at As DENOMINATED INEURO INSTITUTIONS –MONETARYPOLICYOPERATIONS NOTE 14• Banknotes incirculation euro banknotesincirculationtheEurosystem(Point 1.2(i)ofNote 1). Euro banknotes in circulation on 31 December 2019 consist of Banco de Portugal’s share in total NOTE 13• Adjustments tocirculationintheEurosystem Banknotes putintocirculation(net)

The multipliermaybeadjustedbytheGovern ing Councilovertimeinlinewithchanginglevels o LIABILITIES TOEUROAREACREDIT BANKNOTES INCIRCULATION 15 The non-exempt tier of excess liquidity holdings continues to continues holdings liquidity excess of tier non-exempt The 31 Dec.2019 (19,954,870) 27,962,009 47,916,880 f excessliquidityholdings. 31 Dec.2018 (17,280,823) 28,051,388 45,332,211 Other liabilities Accruals Income collectedinadvance NOTE 17• central banksandofinternationalorganisations(excludingtheIMF). several of accounts current of (ii) balances and (Note 5) €5,048,558 thousand of amount the to investments gold with related loans collateralised with liabilities (i) temporary included: euro in denominated residents area non-euro to Liabilities item the on balance the 31 December 2019 On DENOMINATED INEURO NOTE 16• from theMutualAgriculturalCreditGuaranteeFundandDepositFund. The current accounts of autonomous funds in 2019 relate to balances held at Banco de Portugal, of deposits,balancesandholdingsexcessreserves(ECB/2014/23). remuneration the on 5 June 2014 of ECB the of Decision the of Article 4(3) to subject is balances ( Portugal to Programme Assistance Financial and Economic the under (EU) Union European the from funds of management the to relate essentially IGCP) – Pública Dívida da e Tesouraria da Gestão de (Agência Agency Management Debt and Treasury Portuguese the from Deposits Liabilities toothereuroarearesidentsdenominatedin DENOMINATED INEURO NOTE 15• Programa deAssistênciaEconómicaeFinanceiraaPortugal Other accruals Accruals fromcentralbankoperations Deferred taxliabilities Other incomecollectedinadvance General government Current accountsofGeneralgovernmentforSICOIguarantees Current accountsoftheautonomousfunds Current accountsofotherentities Current accountsinthePortugueseTreasuryandDebtManagementAgency(IGCP) European FinancialStabilityFacility(EFSF) European FinancialStabilisationMechanism(EFSM) ACCRUALS ANDINCOMECOLLECTED INADVANCE LIABILITIES TONON-EUROAREARESIDENTS LIABILITIES TOOTHEREUROAREARESIDENTS 31 Dec.2019 31 Dec.2019 163,710 163,392 139,541 7,418,234 6,694,769 5,675,968 23,851 – PAEF). The remuneration of these of remuneration The PAEF). – 723,466 812,823 205,978 415,470 307,996 319 316 3 31 Dec.2018 31 Dec.2018 9,744,612 139,172 9,226,187 138,842 113,952 8,187,274 24,889 518,425 812,931 225,982 376,384 142,041 330 327 3 149 Financial Statements and Notes 150 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Other accountsofreducedindividualvalue Other centralbankliabilities on accountandwithholdingsatsource Corporate IncomeTax–Paymentsonaccount,additionalpayment Estimate forincometaxes onuses Liabilities relatingtothepaymentemployeesofsenioritybonuses Third parties as collateralforforeignexchangetransactions. The value recognised in Other central bank liabilities regards amounts received from counterparties tax estimate,toanetliability(Note 12). payments on account and additional payments on account, since they amount, together with the of amount the included also item this 2019 In Note 30. in out set is tax income for estimate The under Otherexpenses. Point 1.2(m) of Note 1. In 2019 actuarial gains/losses were negative (Note 32) and were recognised 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. by out carried valuation actuarial an in computed service, of years for liabilities of value present the reflected The item Liabilities relating to the payment to employees of seniority bonuses as at 31 December 2019 with adurationofmorethan12 monthsunderThirdparties. agreements lease of liabilities future to relating liabilities lease in €6,117 thousand recognised Following the adoption as of 1 January 2019 of IFRS 16 (Point 1.2(e) of Note 1), Banco de Portugal can beexchanged. holders of banknotes denominated in Portuguese escudos (legacy currency), for as long as these the to liability Portugal’s de Banco represented circulation from withdrawn Banknotes item The Banknotes withdrawnfromcirculation NOTE 18• supplies andservicesfromthirdpartiespayable(€5,183 thousand). accrued and (€18,667 thousand) costs staff accrued above-mentioned the reflected accruals Other TLTRO-III). and (TLTRO-II operations refinancing longer-term targeted of series new the under operations to related that especially noteworthy, was (€137,714 thousand) institutions credit to lending on payable interest accrued operations, bank central from Accruals in recorded amount the Of OTHER LIABILITIES–SUNDRY 31 Dec.2019 (315,302) 701,619 543,410 341,963 14,740 20,356 95,709 744 31 Dec.2018 510,315 351,583 28,960 13,392 19,429 96,269 681 - Provisions Provisions as at 31 December 2018 to an amount of €89,388 thousand as at 31 at as €89,388 thousand of amount an to 31 December 2018 at as €161,075 thousand of amount total a from provision the reduce to decided and 2018, in created provision, this of volume the of appropriateness the reviewed ECB the of Council Governing the portfolio, CSPP the of on thesecurities tests impairment of result occurred. Asa impairment initial the Member States (NCBs) in proportion to their subscribed capital key shares in the ECB prevailing when participating of banks central national the between allocated is operations policy monetary in risks credit against provision the ESCB/ECB, the of Statute the of Article 32.4 with accordance In Impairment ofassets Impairment ofassets be summarisedasfollows: Accounting movements in the items Impairment and Provisions in the years 2018 and 2019 may RISK PROVISION NOTE 19• monetary policyoperations Provision forEurosystem recoverable amounts Adjustments forother Provisions forlitigation credit situations Adjustments forotherspecial credit situations Adjustments forotherspecial recoverable amounts Adjustments forother monetary policyoperations Provision forEurosystem Arrangement situations –BP/Finangeste Adjustments forSpecialcredit Arrangement situations –BP/Finangeste Adjustments forSpecialcredit institutions to reorganisationofcredit Adjustments forclaimsrelated IMPAIRMENT, PROVISIONSANDGENERAL 31 Dec.2018 31 Dec.2017 Balance Balance 1,260 3,989 3,989 3,581 1,706 2,211 as at as at 409 409 841 948 11 14 -

Increase Increase 3,989 75 75 ------Transfer Transfer ------2019 2018 Decrease Decrease (1,775) (2,321) (1,775) (1,706) (2,211) (107) (12) (9) (3) (3) - - - Net value Net value (1,700) (1,775) (2,321) (2,211) 2,284 (107) (12) December 75 (9) (3) (3) - - 31 Dec.2019 31 Dec.2018

Balance Balance as at as at 1,248 2,289 2,214 3,989 1,260 400 837 409 841 2019. 11 75 11 -

151 Financial Statements and Notes 152 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Securities revaluationdifferences Foreign currencyrevaluationdifferences €12,610 thousand respectively (2018:€32,767and€12,753 thousandrespectively). and €48,372 to amounting euro, in and currency foreign in denominated securities regarded 31 December 2019 at as securities of price the in fluctuations from resulting gains Potential respectively (€60,694thousandand€21,622in 2018 respectively). denominated in US dollar and Special Drawing Rights at €75,148 thousand and €24,227 thousand As at 31 December 2019 Foreign currency revaluation differences largely concerned investments from theriseingoldpriceeuro(Note 2). resulting gains potential in increase the of result a as €2,867,297 thousand, by increased Gold Gold revaluationdifferences NOTE 20• no significantvariationin2019andareestimatedtoremainstablethenextfewyears. showed programme this to unrelated Risks term. medium the over increase to estimated is risk this therefore growing, continue to expected is portfolio this of volume the However, Portugal. de Banco by applied and level Eurosystem at developed methodology assessment risk the with In 2019 despite the increase in PSPP volume, the corresponding risk did not increase, in accordance from decisionstakenbytheGoverningCouncil,withanimpactonBancodePortugal’saccounts. resulting those including losses, potential of necessary, if coverage, the allowing levels at ratio closing the accounts, a medium-term strategic risk coverage goal, suitable for holding the capital when year every defines, Directors of Board the assessment, risk and projection income term medium- the factors, other among consideration, into Note 1.Taking Point 1.2(q)of in described as made are movements Such Portugal. de Banco of Statute the of Article 5(2) with accordance in Directors, of Board the by upon decided are provision risk General the in Movements ECB AccountingGuideline. triggered. The Governing Council formally recommends this provision policy in Article 8 of the was crisis financial latest the since expression greater a gained having intervention, bank central for need the with associated risks the in developments with line in level, Eurosystem at followed beenhas provision risk General Portugal’s de Banco as such provisions of establishment The projection forsubsequentperiods. risk the and income future estimated factors, other among consideration, into takes use its The goal of the General risk provision is to cover potential medium-term risks and in each period In 2019theGeneralriskprovisionwasnotused(2018:-€50 million). de Portugaltheresultingincomeamountedto€1,775 thousand in2019(Note 26). adjustments are reflected in the Eurosystem NCBs’ profit and loss accounts. In the case of Banco respective The provision. total the of 2.467% i.e. 31 December 2019, on €2,214 thousand to Banco de Portugal’s share in this provision decreased from €3,989 thousand on 31 December 2018 REVALUATION ACCOUNTS Revaluation accounts 31 Dec.2019 13,785,913 13,621,564 103,367 60,982 31 Dec.2018 10,882,105 10,754,267 45,520 82,319 Interest expense Interest income NOTE 22• deferred taxes,recognisedon31 December 2019(Notes 30and32). in equity, refer to actuarial gains/losses of the liabilities related to the Pension Fund, as well as to In 2019 movements in non-distributable retained earnings, recorded in the Statement of changes to otherreserves,andthedistributionofdividendsState,totalling€644,550 thousand. year 2018 gave rise to the transfer of €80,569 thousand to the legal reserve and an equal amount the for profit Net Directors. of Board the of proposal a on Finance, and State of Minister the by Board of Directorsthe by and the decided remainder to be the to State, as reserves dividends, other or to to other 10% reserves, as reserve, approved legal the to 10% follows: as distributed be shall year the for profit Net Portugal, de Banco of Statute the of Article 53(2) with accordance In of theMinisterStateandFinance. incorporation of reserves, pursuant to a decision by of the namely Board of raised, Directors and be upon authorisation may and €1,000 thousand to amounts Portugal de Banco of capital The Movements inEquityfor2019and2018aresetouttheStatementofchangesequity. NOTE 21• Off-balance-sheet instruments Longer-term refinancingoperations International MonetaryFund Trading portfoliodenominatedineuro Other liabilitiestoeuroarearesidentsdenominatedin General government 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 portfoliodenominatedineuro Trading portfoliodenominatedinforeigncurrency Gold Balances withbanks,depositsandothermoneymarkets Securities Other investments Balances withbanks,depositsandothermoneymarkets Securities NET INTERESTINCOME EQUITY Net interestincome 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 10,124 25,578 35,702 22,772 2,473 9,904 2,335 2,207 9,535 2,077 2,077 599 1 1 31 Dec.2018 1,065,123 1,117,573 886,398 52,450 39,134 42,976 40,122 90,154 10,877 12,024 39,544 51,568 13,003 9,010 3,842 1,977 7,836 8,248 2,661 4,066 4,066 464 654 9 - 153 Financial Statements and Notes 154 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Transactions intheportfolioformonetarypolicypurposes Interest ratefutures Unrealised lossesoneurooperations Medium andlong-terminvestments Financial operationsineuro Other financialoperationsinforeigncurrency Unrealised lossesoninvestmentsinforeign currency Unrealised exchangeratelosses AND POSITIONS NOTE 24• interest rateriskassociatedwiththetradingportfolios. hedging of purpose the for undertaken are operations these as purposes, management for 2019, after posting gains in 2018. These results are analysed together with in those of losses related recorded assets futures rate Interest sold. were investments long-term and medium no and transactions exchange foreign from gains in decline substantial a was there 2018, to Compared operations denominatedineuroandforeigncurrency(whichtogetherrecordedlosses2018). financial from gains realised Portugal de Banco Furthermore, 2018. with compared significantly programme rules, recorded under Transactions in the portfolio for monetary policy purposes, rising 2018. In 2019 Realised gains/losses were mostly driven by the sale of PSPP securities to comply with Realised gains/losses arising from financial operations were positive in 2019, though lower than in Foreign exchangetransactions FINANCIAL OPERATIONS NOTE 23• to interestingeneralatBancodePortugal. on whether they are positive or negative in value. For reasons of consistency, this decision extends operations is presented at its net value under either Interest income or Interest expense, depending policy monetary on interest negative and positive Eurosystem, the across way standardised a In assets intheportfolio. due to the nature of these assets, presents much higher yields than most of the interest-bearing which, PSPP, mostly APP, the of volume in rise the of result a as purposes, policy monetary for held Securities from interest in rise the by offset partly was income interest Net in decrease This and held-to-maturitysecuritiesportfolios,duetothedeclineinyields. -0.4%). There was also a decrease in some of the main interest assets, in particular in the trading at interest accrued had operations these (as 2017 and 2016 for interest to adjustments positive to leading (-0.235%), 2018 in set only were rates interest TLTRO-II because institutions), credit to lending on interest as (recorded 2018 in profits net posted which (LTRO), operations refinancing longer-term for paid interest by caused largely was 2019 in income interest Net in decrease The UNREALISED LOSSESONFINANCIAL ASSETS REALISED GAINS/LOSSESARISINGFROM 31 Dec.2019 31 Dec.2019 49,848 39,414 12,580 (9,927) 4,867 3,644 1,210 4,739 3,042 14 - 31 Dec.2018 31 Dec.2018 (11,550) 12,199 80,208 14,349 55,861 10,517 3,596 1,077 7,525 6,778 4,253 and theliabilitybase(see followingtable). The remuneration rates presented are applied to the items comprising these earmarkable assets components ofasetliabilities–theliabilitybase. on paid) or (accrued interest less – assets earmarkable – assets of set a from income annual The amount of each Eurosystem NCB’s monetary income is determined by measuring the effective rates correspondingto2016and2017,totalling€43,858 thousan d. TLTRO-II the update to adjustments negative recorded also item this 2018 In -€396 thousand. totalling 2018, and 2017 to corresponding 2019, in made adjustments recorded also item This central bankscontinuedtobeobserved. nationalEurosystem other from receivable amount an therefore, key, capital adjusted its below The share of Banco de Portugal’s net contributions in the Eurosystem’s total contributions remained contributions. net Eurosystem’s the in contributions net Portugal’s de Banco in decrease proportional the from method the of result the on effect positive the offset than more which 1 Jan. 2019, on adjustment key capital the following 2.35%, to 2.48% from key capital the to adjustment yearly five- the reflects 2018 from decrease The €119,133 thousand). (2018: €117,787 thousand to This item recorded the net result of the pooling of monetary income method for the year, amounting INCOME NOTE 26• €2,433 thousand). (2018: €2,573 thousand of amount the to (BIS), Settlements International for Bank the (ii) in and €7,109 thousand); (2018: €9,511 thousand of amount the to ECB, the (i) in chiefly: 2018, in interestsparticipating Portugal’s de Banco for received dividends included also item this 2019 In amount receivedbyBancodePortugal. recognised as an asset resulting from all previous ECB’s capital key adjustments (Note 8) and the the ESCB/ECB (€25,940 thousand), corresponding to the surplus between the amount previously of Statute the in for provided key capital ECB’s the of adjustment five-yearly the under reserves Furthermore, in 2019 this €29,507 thousand). (2018: item year included an amount for ECB’s net that from securities from income of portion aforementioned the to relating €33,641 thousand of amount the included item this 2019 In relate. they which to year financial the in Council Governingthe by decided otherwise unless NCBs, the to full in income this distributes ECB The PSPP. and ABSPP CBPP3, SMP, the under purchased securities from arising income ECB’s (ii) the and ECB; the to allocated banknotes euro of share 8% the from arises which income (i) seigniorage of distribution the on year each decides ECB the of Council Governing The AND PARTICIPATINGINTERESTS NOTE 25• denominated ineuroandforeigncurrency. portfolio trading the in securities in decreases price from losses to related mainly was 2019 in recognised amount the positions, and assets financial on losses Unrealised item the Regarding NET RESULTOFPOOLINGMONETARY INCOME FROMEQUITYSHARES

155 Financial Statements and Notes 156 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 F E =C-D H =E+F+G G D C =AxB B A (€119,167 thousand). with a net effect of €1,775 thousand (Note 19), gave the Net result of pooling of monetary income Eurosystem, the of operations policy monetary in losses for provision the of impact (ii) the and -€396 thousand, of amount the to 2018 and 2017 regarding year this made (i) adjustments less and the income allocation under the aforementioned capital key, amounting to €265,683 thousand, thousand, €147,896 to amounting contribution, net Portugal’s de Banco between difference The were readjustedaccordingly. one of the securities reaching maturity that year, the provisions made in 2018 (-€3,989 thousand) participant inthatprogramme.Astheestimatedimpairmentlossdropped2019,partlydueto active an being not Portugal de Banco of account on portfolio, Portugal’s de Banco in included being not despite level, Eurosystem at risk shared a is which (Note 19), CSPP the under NCB, losses in monetary policy operations (€1,775 thousand), related to securities held by a Eurosystem for provision the to adjustment the of share Portugal’s de Banco included also item this 2019 In accordance withthesubscribedandpaid-upsharesincapitalkey. in Eurosystem the in NCBs all to allocated are NCBs Eurosystem all from contributions net Total income andthegapistermednetcontribution. and 2019, this difference is added to the monetary income to be pooled. The sum of the monetary 2018 in Portugal de Banco for case the was as base, liability its of value the of short falls assets earmarkable the of value the i.e. negative, is gap the When pooled. be to income monetary the from deducted is MROs, Eurosystem’s the for rate available latest the at calculated gap’), ‘the (called When the value of an NCB’s earmarkable assets exceeds the value of its liability base, the difference key in proportiontoeachNCB'scapital Amount ofgoldholdings gold) foreign reservestotheECB(except Claims equivalenttothetransferof in euro policy operationsdenominated institutions relatedtomonetary Lending toeuroareacredit monetary policyoperationswith Accrued interestrelatingtoregular the Eurosystem euro banknoteswithin Claims relatedtotheallocationof portfolio SMP, CBPP3andPSPP-SUPRA portfolio CBPP, CBPP2andPSPP-GOV a maturityofover1year Earmarkable assets previous years Eurosystem adjustmentstotheresultof themethodrelatingtopreviousyears Result ofthemethod Net resultofpoolingmonetaryincome Eurosystem provisions Total effectivecontributionfromBancodePortugal Total reallocationtoBancodePortugal Paid-up capitalkey Total contributionfromallEurosystemNCBs

0% operations rate Main refinancing rate Real remuneration operations rate Main refinancing rate Real remuneration operations rate Main refinancing Not applicable Applicable rates Banknotes incirculation denominated ineuro related tomonetarypolicyoperations Liabilities toeuroareacreditinstitutions of TARGETaccounts Net liabilitiesarisingfrombalances Liability base 31 Dec.2019 11,300,936 2.3510% 117,787 119,167 265,683 147,896 1,775 (396)

Not applicable rate Real remuneration operations rate Main refinancing Applicable rates 31 Dec.2018 12,206,559 2.4767% 119,133 302,322 183,189 (43,858) 72,991 (2,284) Other staffcosts Voluntary socialcharges Compulsory socialcharges Employees' salaries Other expenses €4,003 thousand, asexpenditure withearlyretirementsgrew(Note 32). by increased charges social Voluntary (-€3,850 thousand). plan Defined-benefit – Fund Pension theto transfer annual the in decline a of account on decreased charges social Compulsory line withthatdefinedbythePortugueseBankingAssociation for2019. in rate, growth salary the of revision the following update salary 0.8% a by caused was rise This In 2019Staffcostscameto€138,538 thousand,a€320 thousand increasefrom2018(+0.2%). and BoardofAuditors Remuneration ofthemembersBoardDirectors NOTE 28• of Note 1andNote 10(€105 thousand€17 thousand,respectively). SGFPBP, due to the implementation of the Net Asset Value method, as explained in Point 1.2(e) and S. A. Valora, in interests participating Portugal’s de Banco of value the of adjustment the from resulting profit (ii) the and 2019; in paid actually tax the and year financial 2018 the for tax relating to an overestimation of Corporate Income Tax, due to the difference between the estimated (i) €2,231 thousand others, among includes, also item This 2019. August 12 of No 106/2019 Law Credit Guarantee Fund (FGCAM) of Banco de Portugal’s initial contributions, according to Decree- Agricultural Mutual the by return the concerning €81,156 thousand included income Sundry Banco de Portugal through the BPNet portal, totalling €3,371 thousand (2018: €2,805 thousand). by provided services to related largely was parties third to services of supply and Sales item The Other income NOTE 27• Sundry expenses Previous fiscalyearsexpenses Capital lossesontangibleandintangiblefixedassets Sundry income Capital gainsontangibleandintangiblefixedassets Sales andsupplyofservicestothirdparties Previous fiscalyearsincome STAFF COSTS OTHER INCOMEANDEXPENSES

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 31 Dec.2018 31 Dec.2018 138,217 93,477 96,049 92,108 17,127 34,216 83,982 2,572 1,996 3,635 1,526 1,366 502 271 73 35 157 Financial Statements and Notes 158 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Other suppliesandservicesfromthirdparties Training Software licensingandmaintenance Specialised work Rentals Maintenance andrepairs Litigation andnotaryservices Travel, accommodationandothertransport NOTE 29• Estimated incometaxonprofitfortheyear As at31 December 2019and2018,incometaxliabilitieswere brokendownasfollows: there willbenosignificantadditionalpaymentsregarding previousfinancialperiods. that believes firmly Portugal de Banco of Directors of Board the However, payments. additional tax situation. Therefore, as a result of different interpretations of tax legislation, there may be Portugal’s de Banco revise can they which during period four-year a allowed are authorities Tax and autonomoustaxes. corporate municipal corresponding the to and tax income corporate to subject is Portugal de Banco NOTE 30• and training(€113 thousand). interns (€322 thousand), specialised support services (€277 thousand), security (€255 thousand) with costs (€339 thousand), accommodation and travel (€309 thousand), technologies and systems This decline was partly offset by higher costs of outsourcing and other expenses related to information recognised underRentalsarenowrecordedasdepreciationfortheyear(Note 9). resulting from the adoption of IFRS 16 (Point 1.2(e) of Note 1), which meant that amounts previously decrease €2,506 thousand a recorded parties third from services and Supplies addition, In S. A. Santo, Espírito Banco on measure resolution the to advice financial and legal of provision the to mainly related thousand) (€1,526 decrease significant a posted services notary and Litigation profits than costs, contrary to 2018 when it went live (this decrease amounted to €2,554 thousand). more generates now system (T2S) Target2-Securities the since (€2,043 thousand) maintenance and licensing Software in decrease a by driven mostly was decline This 2018. from decrease €4,255 thousand a €47,319 thousand, to came parties third from services and Supplies 2019 In Electricity, fuelandwater Estimated incometaxonretainedearnings Income taxrecoverable Payments onaccountandadditional payments onaccount Withholdings atsource Other specialisedwork Remuneration ofSGFP Use ofdatabanks IT Surveillance andsecurity SUPPLIES ANDSERVICESFROMTHIRDPARTIES INCOME TAX 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 2,986 622 (315,309) 349,028 26,648 (7,065) 2019 (7) - 31 Dec.2018 51,574 4,688 1,053 9,168 3,691 2,919 2,683 2,781 4,124 3,059 5,027 6,171 3,044 3,166 (233,817) 358,297 (18,436) 99,323 (6,714) 2018 (7) Other Other –Effectofratechange Tax burden and otherpost-employmentorlong-termbenefits Expenses fromseverancebenefits,retirementbenefits Autonomous taxation Net jobcreation Tax benefits Deferred tax Adjustments frompreviousperiods Definitive differencestobeadded Depreciation andamortisationnotdeductibleascosts Other Charges notfullydocumented Accounting capitalgains/losses 16. Income beforetaxes follows: as is above, presented rates, tax effective and nominal the between reconciliation The Current tax well asthetaxburden,measuredthroughratiooftotalincometoincomebeforetaxes: Presented below are the expense/income items comprising income tax on profit for the year, as treatment ofactuarialgainsandlossesfromthePensionFund–Defined-benefitplan. accounting the to change 2011 the of result the was earnings retained on tax income 2019 In or long-termbenefits benefits, retirementbenefitsandotherpost-employment Payment orplacementatdisposalofbeneficiariesseverance Net AssetValue Definitive differencestobededucted Tax calculatedatnominalrate Other Pension Fund Tax gains/losses Restoration ofnon-deductibletaxandestimatesurplus

Autonomous taxation Municipal corporatetaxandstatesurtax For theyear fund’s transitionalregimeshouldberecognised againstequity. pension the to relating tax deferred and current the Thus, years. tax nine next the and year tax 2012 the for profit taxable of formation the in parts equal in included are they rather, Code, Tax Income Corporate the of Article 43 in established limits deductibility the in included not are years, tax recognition of liabilities from pensions and other defined-benefit post-employment benefits, in relation to contributions made in that year or in prior sheet variations recorded in the 2011 tax year arising from the change in accounting treatment of actuarial gains and losses resulting from the Law No 64-B/2011 was published on 30 December 2011 approving the State Budget for 2012, and lays down in Article 183 that the negative balance Income beforetaxes Total incometax 31.39% Rate 31.36% 1,105,601 (0.01%) (0.08%) (0.26%) (0.06%) 0.00% 0.36% 0.02% 0.02% 0.00% 0.01% 0.00% 0.01% 0.00% 0.00% 0.04% 0.00% 347,067 349,028 112,813 236,045 31.39% 2019 (1,961) 170 2019 1,105,601 347,067 346,669 Tax (2,925) 4,005 (834) (703) 170 177 103 439 (83) (39) (16) (28) 50 27 57 (2) 30.82% Rate 31.36% (0.07%) (0.01%) (0.50%) (0.29%) (0.04%) 0.00% 0.01% 0.01% 0.28% 0.03% 0.00% 0.00% 0.03% 0.00% 0.00% 0.00% 1,164,669 358,982 358,297 116,022 242,131 30.82% 2018 2018 685 143 1,164,669 16 358,982 365,276 Tax (5,807) (3,349) 3,312 (834) (515) 143 117 381 366 (98) (12) (31) 22 12 (2) - 159 Financial Statements and Notes 160 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 (reinvestment ofcapitalgains) Depreciation surplus Liabilities (reinvestment ofcapitalgains) Depreciation surplus Liabilities Staff benefits dates. expiry no have differences temporary that noted be should it taxes, deferred to regard with Also The rateusedtocalculatedeferred taxin2019and2018was31.36%. sheet date. differences are to be reversed, i.e. rates approved or substantially decreed rates as at thetemporary balancethe date the on force in be to expected rates tax on based calculated are They liabilities andtheirtaxablebasis,usedintheprofit calculation. 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 Staff benefits and impairments Temporarily non-deductibleprovisions Assets and impairments Temporarily non-deductibleprovisions Assets as follows: down broken are liabilities and assets tax deferred to related movements the 2019, and 2018 In Early retirements Early retirements Seniority bonus Pension fund-transitionalregime Seniority bonus Pension fund-transitionalregime

31 Dec.2018 31 Dec.2017 30,782 38,127 38,465 31,109 26,715 20,055 6,380 6,465 4,255 4,199 1,115 (338) (327) (338) (327) 389 (6,686) Equity Equity (6,660) (6,660) (6,686) (6,660) (6,686) ------Change in Change in 2019 2018 Profit/loss Profit/loss 1,961 1,949 1,528 (685) (696) (726) 423 (56) 11 11 85 11 11 (1) - - 31 Dec.2019 31 Dec.2018 26,057 30,782 31,109 26,373 20,055 13,370 6,465 4,199 7,993 4,622 (327) (316) (327) (316) 389 388 Interest ratefutures Currency swaps Currency forwards and liabilities,asfollows: derivative financial instruments designed essentially to manage risks associated with their assets at the year-end. As at 31 December 2019 and 31 December 2018, these positions related only to outstanding still but contract under are that operations financial in positions open recorded item This models commonly used. | (d) The value of accrued interest corresponds to interest valuation income the and and expense conditions plus market open current positions account until into the taking balance positions, sheet open date. 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 of closing potential the with associated expenses or income to corresponds value market The (b) | contract. the of value notional or Theoretical (a) Notes: Contracted financialoperations NOTE 31• Arrangements toBorrow(NAB). New the under IMF the to granted line credit a for (€966,761 thousand) 783,500 thousand SDR of amount the and system financial Portuguese the of lines credit intraday the on limit the for As at 31 December 2019 the item Irrevocable credit lines recorded the amount of €2,133,600 thousand operations withotherNCBs,undertheCCBM(€5,611,886 thousand ). policy monetary in collateral as Portugal de Banco by custody in held securities and thousand) (€19,171,500 State Portuguese the by owned securities comprised essentially custody in held Items respective haircuts. less rates, market at valued is collateral This (CCBM). Model Banking Central Correspondent the via used collateral including 31 December 2019), on thousand (€60,612,743 Eurosystem the ofoperations policy monetary the to related collateral included principally received Collateral under Article III,Section 4oftheIMF’sArticlesAgreement. IMF, the of favour in Portugal de Banco by issued note promissory the included given Collateral to thirdparties Irrevocable creditlines Items heldincustody Collateral received Collateral given Collateral given,collateralreceived,itemsheldincustodyandothercommitments Contracted financialoperations OFF-BALANCE-SHEET INSTRUMENTS 1,026,115 Purchases 471,390 5,420 Contract value (1,026,115) (a) Sales (23,200) (5,420) Market value 31 Dec.2019 6,306 (144) Net - (b) Profit/loss interest 6,556 (140) Net 31 Dec.2019 25,567,851 60,617,501 - (3,100,361) (1,471,623) (c) 448,190 interest Accrued (251) Net (4) - (d) Purchases 21,934 13,416 31 Dec.2018 31 Dec.2018 25,806,183 59,103,322 (3,152,366) (1,457,574) (1,328,200) Contract value - (1,328,200) (a)

(21,934) (13,416) Sales 161 Financial Statements and Notes 162 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 registered in Caixa de Abono de Família dos Empregados Bancários (CAFEB) Bancários Empregados dos Família de Abono de Caixa in registered employeesactive Portugal’s de Banco 2011, January 1 from that, down laid 3 January 2011 of enshrined in the collective labour regulations for the banking sector. Decree-Law No 1-A/2011 3 March 2009, who were covered by a substitutive social security scheme for bank employees, the retirement and survivor pensions of staff (and their dependents) hired by the Bank before Until 31 December 2010 Banco de Portugal was the sole entity responsible for the payment of 17. • charges duetoSAMS(socialandhealthassistanceservice forbankingsectoremployees). namely pensions, to related charges of sponsor the by settlement the as well as grants, death and benefits supplementary of payment the including pensions, survivor pensions, retirement early pensions, disability security), social by paid those to supplement a (as retirement statutory members/ of pensions old-age include schemes Fund Pension the with associated benefits The Healthcare PlanisopenforallstaffofBancodePortugal. working in the banking sector after 2 March 2009 (Decree-Law No 54/2009 of 2 March 2009). The employees and pensioners. The three schemes of the Pension Plan are closed to staff that started retired the for expenses funeral and costs healthcare of payment the for scheme benefit one only operating Plan, Healthcare the and schemes, benefit three operating Plan, Pension the plans: benefit two existing the include to amended was plan Defined-benefit – Fund Pension the establishing contract the Fund, Pension the to Portugal de Banco 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 responsibility aswell. Fund’s theunder totally remained grants death and disability of payment The regulations. internal are based on the applicable labour agreements for the banking sector and on Banco de Portugal’s which plans, pension respective the in defined benefits the and scheme security social general the under calculated benefits the between difference the for up make to intended supplement the of payment the covers only Fund Pension the 1 January 2011, After 31 December 2010. 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, pensions. retirementstatutory to respect with scheme security social general the in integrated now are allowance fund for bank employees, and covered by the Pension Fund – Defined-benefit plan, PENSIONS ANDOTHERBENEFITS NOTE 32• Pension FundofBancodePortugal–Defined-benefitplan

Dissolved bythisDecree-Law. Overview LIABILITIES RELATEDTORETIREMENT 17 , the family the , Pensioners The numberofmemberscoveredbythepensionplanisasfollows: Pensioners Retired members Active members pension planisasfollows: Fund’s the of beneficiaries and members scheme for expectancy life average assumed The Retired members Active members • mitigated byusingasset/liabilitymanagement. are 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 to thegeneralsocialsecurityscheme Risk ofregulatorychanges Health risk Disability risk Longevity risk the HealthcarePlan: The table below shows the most significant risks among those arising from the Pension Plan and

– Pension FundPlans – (a) Pension plan Risk sub-category Scheme members Average lifeexpectancy(years) Number ofschememembers

movements. Risk ofreductionthefundingratioarisingfromadverseinterestrate of adversemovementsinhistoricaland/orexpectedinflationrates. Risk ofareductioninthefundingratioarisingfrommaterialisation of thePensionFund–Definedbenefitplan. assumed inactuarialvaluations,resultinganincreaseofliabilities Risk ofanincreaseinmedicalservicescostsandhigherinflationthan security scheme,impactingonthePensionFund–Definedbenefitplan. Risk attachedtotheoccurrenceofregulatorychangesgeneralsocial Fund –Definedbenefitplan. in actuarialvaluations,resultinganincreaseoftheliabilitiesPension Risk oftake-upsubsidisedclinicalservicesbeinghigherthanassumed of thePensionFund–Definedbenefitplan. that assumedinactuarialvaluations,resultinganincreaseoftheliabilities Risk attachedtopotentialdeviationinthedisabilityrate,comparedwith of theliabilitiesPensionFund–Definedbenefitplan. compared withthatassumedinactuarialvaluations,resultinginanincrease Potential riskattachedtoincreasinglifeexpectancyofthepopulation, 31 Dec.2019 31 Dec.2019 Risk definition 3,516 2,070 586 860 12 15 34 31 Dec.2018 31 Dec.2018 3,562 2,012 590 960 13 15 34

163 Financial Statements and Notes 164 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Retired membersandpensioners The mainactuarialandfinancialassumptionsadoptedareasfollows: laid downinIAS 19. principles the with accordance in Method, Credit Unit Projected the using (SGFPBP), Portugal de Banco do Pensões de Fundos dos Gestora Sociedade by basis actuarial an on calculated were Liabilities arising from the pension plan funded through the Pension Fund – Defined-benefit plan The numberofmemberscoveredbythehealthcareplan is showninthetablebelow: Percentage ofmarriedmembers Age differencebetweenspouses Active members calculated byconsideringtheaforementionedfundingneeds. that below is accounts Portugal’s de Banco in considered liabilities Fund’s the of value the Thus, issues ofhigheraveragequality. bond on rates interest on based rate, discount lower a prudence, of matter a as uses, SGFPBP plan, Defined-benefit – Fund Pension the of needs funding the establishing of purpose the For the PensionFund’sliabilities. of structure term the for adequate are maturity and denomination whose issues, bond private high-quality on rates interest using calculated was table above the in shown rate discount The Discount rate Wage growth Expected returnontheFund'sassets Pension FundofBancodePortugal Statutory retirementageunderthe Femalepopulation Tables used Pensions growthrate general socialsecurityscheme(1 Statutory retirementageunderthe Subsequent years Subsequent years 1 - Turnover - Disability - Mortality–Malepopulation 1 – st st year year – (b) (a) Healthcare plan Scheme members Methodology, assumptionsandaccountingpolicy Number ofschememembers st year) 1978 –S.O.A.Trans.Male(US) 31 Dec.2019 TV 88/90adjustedby4years TV 88/90adjustedby1year T-1 CrockerSarason(US) 0.750% 1.750% 1.013% 1.296% 2.296% 66 yearsand5months n/a 65 years 3 years Actuarial andfinancialassumptionsused 80% 1 Jan.2019 31 Dec.2019 1.506% 2.506% 1.652% 1.652% 1.543% 2.543% 4,381 2,606 1,775 1978 –S.O.A.Trans.Male(US) TV 88/90adjustedby4years 31 Dec.2018 TV 88/90adjustedby1year T-1 CrockerSarason(US) 66 yearsand5months 1.506% 2.506% 1.652% 1.543% 2.543% n/a 65 years 3 years 80% 31 Dec.2018 4,301 2,550 1,751 1 Jan.2018 0.750% 1.750% 1.803% 1.803% 1.786% 2.786% general socialsecurityscheme(1 Statutory retirementageunderthe Percentage ofmarriedmembers Age differencebetweenspouses according toIAS19.Thefollowingstandout: The actuarial and financial assumptions used in the calculation of these liabilities are established Pension FundofBancodePortugal Statutory retirementageunderthe Healthcare Death grants charges toSAMS Pensions’ inherent survivors benefits Retirement and Fund liabilities ofthePension Total pastservice • Expected returnontheFund'sassets Discount rate Pensioners Retired members Active members The assumedaveragelifeexpectancyforschememembersandbeneficiariesisasfollows: expenses Growth rateoftheaverage/annual Femalepopulation Tables used

- Turnover - Disability - Mortality–Malepopulation Changes inassetsandliabilitiesofthePensionFund Disability pensions Other (b) Methodology, assumptionsandaccountingpolicy Average lifeexpectancy(years) and pensioners members 1,263,172 1,140,626 Retired st 55,529 63,669 year) 3,348 31 Dec.2019 members 1978 –S.O.A.Trans.Male(US) TV 88/90adjustedby4years 31 Dec.2019 TV 88/90adjustedby1year 630,229 572,903 Active T-1 CrockerSarason(US) 26,466 29,080 1,779 66 yearsand5months 1.013% 5.060% 4.030% n/a 65 years 3 years Actuarial andfinancialassumptionsused 80% 1,893,401 1,713,529 81,995 Total 92,749 5,127 1 Jan.2019 31 Dec.2019 1.652% 1.652% 5.278% 4.248% and pensioners 12 15 43 members 1,159,301 1,044,619 Retired 60,004 52,088 2,590 1978 –S.O.A.Trans.Male(US) TV 88/90adjustedby4years 31 Dec.2018 TV 88/90adjustedby1year T-1 CrockerSarason(US) 66 yearsand5months 31 Dec.2018 1.652% 5.278% 4.248% n/a members 655,586 601,348 65 years 3 years Active 28,097 24,859 80% 1,281 31 Dec.2018 13 15 41 1 Jan.2018 1.803% 1.803% 5.635% 4.198% 1,645,967 1,814,887 Total 88,101 76,947 3,871 165 Financial Statements and Notes 166 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Past-service cost Increase inliabilitiesarisingfromearlyretirements Actuarial gains/losses Net incomeoftheFund Benefits andinherentchargespaidbytheFund Interest cost funding ratio Impact on the Pension Fund’s Benefits payable(expectedvalue) Contributions paidonaccountofearlyretirements liabilities Impact on the Pension Fund’s Current servicecost Value atthebeginningofyear Current contributionspaidtotheFund Value atthebeginningofyear aggregates, stoodat-2.3 years(2018:-4.6). modified duration of liabilities, adjusted to incorporate the differences in size between these two the and side assets the on portfolio bond the of duration modified the between difference the and 15.5) (2018: 15.6 years at stood liabilities of duration modified the 31 December 2019 On in theFund’sassets. comprised bonds inflation-linked of price the in increase resulting a with inflation, in increase an from results rate growth pensions and wages the that assumption the on based is assets Fund’s the on impact The Plan). Healthcare the of that not (and liabilities Plan’s Pension the of value the affects only rate growth pensions and wages The (b) | presented. that from different be will rate discount in reduction b.p. 10 a of financing the and assets Fund’s the on impact the vary, rates the between spread this Should debt. sovereign and private on rates interest between spread stable a Assuming (a) Notes: assets Impact on the Pension Fund’s assumptions adopted: the in changes to liabilities and assets Fund’s the of sensitivity the shows below table The rate andtheofincreasesalariespensions. relevant due to their impact on the value of liabilities are those relating to longevity, the discount most the liabilities, Fund’s the of valuation the in adopted assumptions various the Among which maybemitigatedbyfinancialinstruments,withtheaimofmaintainingfundinglevel. liabilities, assumed in implicit risks the hedging towards geared is management financial Fund’s The 2018: The table below presents the evolution of past-service liabilities of the Pension Fund in 2019 and On accountoftheemployees On accountoftheBank Sensitivity asat 31 Dec.2019

Past-service liabilities Fund’s assets One-year increase in lifeexpectancy -4.4% 4.4% 0.0% Value attheendofyear Value attheendofyear

10 b.p.reduction in discountrate -0.3% 1.3% 1.6% (a) (a)

1,893,401 2,021,963 1,814,887 1,915,971 154,666 (78,231) (73,157) 2019 2019 15,864 92,864 29,982 15,270 12,960 12,424 14,286 and pensionsgrowthrates 1,863 10 b.p.increaseinwages - -0.3% 1.4% 1.1% 1,814,887 1,915,971 1,898,147 1,939,124 (15,473) (59,362) (74,022) (70,157) 2018 2018 11,777 34,224 23,995 11,777 15,732 13,192 15,098 1,906 (b)

Financial gainsandlosses Other Cash andbankdeposits Actuarial gains/losses follows: as down broken be can 2018 and 2019 in calculated losses and gains actuarial of value The scenario) of103.7%. prudent (most needs funding the calculate to used scenario the of that above 106.8%, at stood At the end of 2019, the funding level of Banco de Portugal’s Pension Fund – Defined-benefit plan Fixed incomesecurities Variable incomesecurities in 2019atavalueof€33,821 thousand. Land and buildings includes the Castilho Building, used by Banco de Portugal, which was recorded Fixed incomesecurities Variable incomesecurities Land andbuildings The Fund’sassetscanbebrokendownasfollows: Gains andlossesinexpectedincomeof theFund Gains andlossesinpaidpensions Indexation ofassumptions: Other gainsandlosses Adjustments to the model Adjustments tothemodel Change inaveragehealthcareexpenses Increase inpensions Wage growth Technical gainsandlosses Population movements Government debt Participation units–Investmentfunds Discount rate Change inaveragehealthcareexpenses Future increaseinpensions Future wagegrowth Securities portfoliooftheFund Fund's investments 31 Dec.2019 31 Dec.2019 31 Dec.2019 (174,144) (92,864) 117,941 123,015 2,021,963 1,776,088 1,659,402 1,659,402 25,077 38,413 33,220 12,945 (5,074) (1,394) (2,267) (8,988) 116,686 116,686 229,575 5,450 1,199 2,702 9,862 6,437 - 31 Dec.2018 31 Dec.2018 31 Dec.2018 (14,833) (10,968) (41,006) 1,915,971 1,693,399 1,596,233 1,596,233 44,529 59,362 21,597 30,239 23,889 18,239 (3,866) (6,478) 197,322 5,316 8,083 (450) 16,501 97,166 97,166 (67) 8,749 - 167 Financial Statements and Notes 168 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Actuarial gains/losses Interest cost Current servicecost Seniority bonusespaid The tablebelowshowsthemostrelevantrisks: (2018: 10.1). On 31 December 2019 the modified duration of liabilities with seniority bonuses stood at 10.7 years Value atthebeginningofyear Changes inpast-serviceliabilitieswereasfollows: assumptions. The risks from the undervaluation of salary increases are mitigated by defining prudent actuarial of wagegrowthrate Risk ofundervaluation Interest raterisk Note: (a)Excludescostsbornebystaffandotherentities. Staff costs summarised asfollows: The amounts recognised in staff costs relating to the Pension Fund – Defined-benefit plan can be Portugal. General Social Security Scheme, considering developments in recent years, disclosed by Statistics theunder age retirement the establish to year every consideration into taken expectancy life average in rise the for adopted assumption the of revision the and index, support social the of increase the Remuneration, Monthly Guaranteed Minimum the in increase the of effect net the from resulting gains actuarial of value the recognises basically losses and gains Other item The (see thetableofassumptions),resultedina€174,144 thousandincreaseFund’sliabilities. year the of end the at calculated that and rate this for value initial the between difference the Actuarial gains and losses in 2019 recorded a loss associated with the discount rate, arising from Seniority bonuses Expected returnontheFund'sassets Interest cost Increase inliabilitiesarisingfromearlyretirements Current servicecost Risk sub-category Past-service liabilities (a)

Value attheendofyear valuations, resultinginanincreaseoftheliabilitiesarisingfromthesebenefits. Risk ofcareerprogressandinflationbeinghigherthanassumedinactuarial arising fromthesebenefits. Risk ofadverseinterestratemovements,resultinginanincreasetheliabilities Risk definition 14,740 13,392 (1,267) 2019 1,300 1,132 182 (31,652) 24,797 29,982 10,603 15,864 2019 13,392 13,583 (1,096) 2018 1,163 (441) (34,962) 184 24,404 34,224 13,366 11,777 2018 and financialconstraintsinconnection withthereducedamountundermanagement. this Reserve account was increased by €20 million with a view to addressing the Fund’s operational 2016In Sponsor. the of Account Reserve called name, its in account reserve a constituted which When this Pension Fund was set up, Banco de Portugal made an initial contribution of €5 million, 930 members (2018:815). covered Fund Pension this through funded plan pension supplementary the 2019, of end the At be changedannuallyontheemployees’initiative. and are also able to choose an investment profile for their contributions. The funding vehicle can naturesimilar a of another or Fund this join can Employees it. join to wish who employees its for Banco dePortugalsetupaclosedpensionfundinorder to createanalternativefundingvehicle 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 (Point 1.2(l) ofNote 1).Thisplanwascreatedin2010,backdatedto23 June 2009. 2 March 2009of No 54/2009 Decree-Law of virtue by scheme security social general the by covered are and 3 March 2009 after sector banking the in working started who staff Portugal de Banco regards as staff, its and Bank the from contributions through funded plan, pension Banco de Portugal’s company-level agreements provide for a supplementary defined-contribution The valuerecognisedin2019forthisinsurance,underStaffcosts,wasof€24 thousand. On 31 December 2019thisinsuranceschemecoveredapopulationof14 members. of BancodePortugal–Defined-benefitplan. collected, on a voluntary basis, under a group life insurance scheme, and not by the Pension Fund are salary complementary their with associated contributions pension workers, of group a For Discount rate following: the are liabilities these of calculation the in used assumptions financial and actuarial main The general socialsecurityscheme(1 Statutory retirementageunderthe Pension FundofBancodePortugal Statutory retirementageunderthe Wage growth Femalepopulation Tables used Pension FundofBancodePortugal–Defined-contributionplan Group LifeInsurance–Defined-benefitplan - Turnover - Disability - Mortality–Malepopulation Subsequent years 1 st year st year) 1978 –S.O.A.Trans.Male(US) TV 88/90adjustedby4years 31 Dec.2019 TV 88/90adjustedby1year T-1 CrockerSarason(US) 1.750% 0.691% 2.188% 66 yearsand5months 65 years Actuarial andfinancialassumptionsused 1 Jan.2019 2.506% 1.361% 2.209% 1978 –S.O.A.Trans.Male(US) TV 88/90adjustedby4years TV 88/90adjustedby1year 31 Dec.2018 T-1 CrockerSarason(US) 66 yearsand5months 2.506% 1.361% 2.209% 65 years 1 Jan.2018 1.750% 1.354% 2.575% 169 Financial Statements and Notes 170 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Members’ individualaccounts Revaluation oftheperiod(Note27) Transfer ofrightstomembers–contributionstheyear and thepriceofgold. rates exchange prices, asset financial of fluctuations the as well as issuers, and counterparties by default from resulting losses the comprise and Eurosystem the of policy monetary the in participation the from and assets own of management the in arise primarily risks Financial • monitoring, controlandmitigationofcompliancerisk. identification, coordination, the managing and conduct, and ethics monitoring and advising for responsible is who Officer, Compliance the by managed is Portugal de Banco at risk Compliance Banco dePortugal. of Directors of Board the and Auditors of Board the by monitored being departments, other Portugal’s de Banco and Committee Risk the with articulation in Department, Management Risk The integrated management of strategic financial and non-financial risk, is the responsibility of the of DirectorsBancodePortugalandislaiddownintheriskappetitestatement. risk management policy that reflects the risk profile and degree of tolerance defined by the Board prudent and strict a pursues and defined has Portugal de Banco Therefore, Eurosystem. the in participation effective its guaranteeing and independence its safeguarding itself, Portugal de Banco Risk management in Banco de Portugal is designed to ensure the sustainability and profitability of NOTE 33• annual revaluationarerecognisedintheProfitandlossaccountofBancodePortugal: the of results the Sponsor; the of Account Reserve the in movements shows below table The its membersbytheamountscorrespondingto: of accounts individual the to monthly transferred are account reserve this of units Participation Reserve account(Note12) as follows: down broken €26,907 thousand, to amounted Fund the of assets the 31 December 2019 at As

– Financial RiskManagement – Risk managementpolicies (ii) The contributions from the active members (by withholding each month these amounts (i) when salariesareprocessed). The contributionsfromBancodePortugal;and Reserve accountofthesponsor Participation units(invalue) RISK MANAGEMENT Value atthebeginningofyear Value attheendofyear 31 Dec.2019 26,907 22,831 22,520 22,831 2019 4,076 1,075 (764) 31 Dec.2018 25,692 22,520 23,806 22,520 2018 3,172 (634) (652) assets measuredatamortisedcoston31 December 2019 and2018isasfollows: financial main the of value sheet balance the and value market the between comparison The Securities heldformonetarypolicypurposes(Note7) the Generalriskprovisionistobeused(Note 19). how determine to account into taken also is exercise This buffers. financial Portugal’s de Banco by levels coverage risk the of assessment the also but liabilities, and assets in developments risks for the medium term, which allows for not only the monitoring of these risks against expected sheet balance and statements financial the of projection of exercise an runs Portugal de Banco 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 from theoperationswhoseriskisdirectlyassumedbyBancodePortugal. andkey, capital its to according Portugal, de Banco to attributable exposure global Eurosystem’s The exposure to credit risk arising from monetary policy operations results from the share of the used tocalculateVaRandexpectedshortfallforcreditriskmarketrisk. commercial software and an integrated financial risk model developed by the Eurosystem are also State-of-the-art measures. risk main and positions the of monitoring the and operations the of settlement cash the ensures also system This Eurosystem. the of NCBs most by and ECB the by through an information system for the management of reserves and assets, similar to the one used allocation andcontroloflimitsrestrictionsinassetmanagementoperationsisperformed performance assessment, valuation, The duration. modified the as such measures, risk-sensitivity rate interest in developments monitoring and positions, currency foreign to limits setting by as well as VaR, to limits of application the through controlled is risk Market indicators. market of use rating agencies and incorporate a qualitative assessment of all information available, including the by assigned ratings on based are limits and criteria said the risk, credit of case the In Portugal. de Banco of Directors of Board the by endorsed assets investment own Portugal’s de Banco of management the to relating Guidelines the in out set are which limits and criteria eligibility of number a of imposition the on based is operations management asset in risk of control The management andservesasabasisforsettingtheallowedassetdeviationmargin. period of one year and which may be object of a mid-term review – plays a major role in guiding asset the for force – in benchmark The portfolios. efficient determine to exercises optimisation various of undertaking the and variables financial and economic main the for forecasts and scenarios of discussion the reflects benchmark strategic This risk-profitability. of terms in Portugal de Banco of Directors of Board the of preferences the reflecting benchmark, strategic a on based Department, Banco de Portugal’s own investment assets are managed by the Markets and Reserve Management regular sensitivityanalysisandstresstesting. through as well as basis, daily a on disclosed and produced are which others, among indicators, shortfall expected and (VaR) Risk at Value using by monitored and followed-up are risks These Held-to-maturity securitiesportfolio(Note 10) – – Fair value 58,222,614 53,478,605 Amortised 4,744,009 cost 31 Dec.2019 63,979,424 59,014,754 4,964,671 Market value 56,648,092 51,208,353 Amortised 5,439,739 cost 31 Dec.2018 59,305,248 53,670,342 5,634,906 Market value 171 Financial Statements and Notes 172 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 the policiesandpracticescommonlyfollowedbycommunityofcentralbanks. specific aspects of Banco de Portugal, and take into account the international standards, as well as framework for operational risk management endorsed at Eurosystem/ESCB level, adjusted for the thefollow broadly methodology and policy management risk operational Portugal’s de Banco Portugal’s activityandassets. de Banco on impact negative material a have may that requirements other from and Mechanism and goals arising from legislation, from its participation in the Eurosystem/ESCB/Single Supervisory mission Portugal’s de Banco of pursuance the jeopardise may that projects and operations tasks, The scope of the operational risk management process includes all processes, activities, functions, from failures,inadequateinternalprocesses,staff,systems,orthird-partyactions. arising losses to related is risk operational management, risk non-financial of scope the Within of thecontrolsimplemented. risks identified are in areas compatible with the tolerance level in force, reflecting the effectiveness strategic nature faced by Banco de Portugal. The results of this assessment suggest that the main financial and non-financial risks, in particular the identification and assessment of the top risks of a Banco de Portugal is equipped with tools that provide a comprehensive and consistent outlook on form of the transfer of most of BES’s activity and assets, liabilities and off-balance-sheet items to a the taking “BES”), (hereinafter A. S. Santo, Espírito Banco of process resolution the nature, its By • of theproceedingsinquestion,ispresentedbelow: judicial proceedings, considering both the significant amount of lawsuits pending and the nature relevant most the in position current Portugal’s de Banco of assessment Directors’ of Board The from theexerciseofBoard’slegalpowers. these do not have a direct impact on the financial statements of Banco de Portugal, as they result companies, financial and institutions credit of proceedings winding-up judicial the and proceedings offence administrative monitors regularly Portugal de Banco of Directors of Board the Although related tolabourdisputes. proceedings of monitoring and companies financial and institutions credit of winding-up judicial of monitoring phase), (judicial proceedings offence administrative injunctions, interim lawsuits, The litigation currently pending falls under the following categories: common lawsuits, administrative certain cases,externallawyers,dulycoordinatedbythisDepartment. in and, Department Services Legal its by undertaken work legal and technical with Portugal, de Banco of Directors of Board the by regularly monitored are proceedings these in Developments As at31 December 2019variouslegalproceedingswerependingagainstBancodePortugal. NOTE 34• • recognised onthefinancialstatements(Point 1.2(f)ofNote 1). assets financial the of value market the assess to used also are markets active from Quotations previously presented. as securities, the of value market the assess to used were markets active from Quotations

Strategic RiskandNon-financialManagement Resolution measureappliedto BancoEspíritoSanto,S. A.(“BES”) PENDING LEGALPROCEEDINGS not be ordered to pay any amount as compensation for damages, aside possibly from legal from possibly aside damages, for compensation as amount any pay to ordered be not would it as Portugal, de Banco for risk financial any carry not do lawsuits aforementioned The (which setsthislimitforrequesting theannulmentofadministrativeacts). Banco de Portugal, in compliance with Article 58(1) of Directors of Board the of decisions the of publication following limit three-month the within 29 December 2015, are pending at the administrative courts. These lawsuits were mostly brought Portugal regarding the BES resolution measure, chiefly the decisions of 3 and 11 August 2014 and de Banco of Directors of Board the of decisions the of legality the challenging Proceedings these proceedings. sums (aside from legal costs), hence there is no financial risk for Banco de Portugal connected to pecuniary of payment the time any at involve not will which certificates, issue and information provideto have only will Portugal de Banco judicata, res of force the has that judgement a by convicted is Portugal de Banco if proceedings, of types these in that noted be should it Lastly, further developmentsintheseproceedings. (Lei de Acesso aos Documentos Administrativos Documents Administrative to Access for Law the of Article 6(6) 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, these all contested Portugal de Banco to make available, in an integral manner, documentation related to that very administrative process. resolution measure applied to BES. In these proceedings, Banco de Portugal is being summoned Most of these proceedings were finalised in 2019 and those still pending are associated with the 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 the decision. the provisions of Article 145-H(1) of RGICSF, in accordance with the criteria defined in Annex 2 to of purposes the for and terms the under Banco, Novo to transferred were BES of management Directors of 11 August 2014 (5pm), the assets, of liabilities, off-balance-sheet itemsBoard and assets under same the of decision the by amended as (8pm), 3 August 2014 of Portugal de Banco of Directors of Board the of decision the of point second the by determined as regard, this In and (3) Banco de Portugal’s application of a resolution measure to BES, under the terms of Article 145-C(1) following established was Banco”) “Novo (hereinafter S.A. Banco, Novo RGICSF, of Article 145-G(5) to pursuant 3 August 2014, of Portugal de Banco of Directors of Board the of decision by sector,financial Portuguese the of authority resolution as powers Portugal’s de Banco Within 31 December 1992. of No 298/92 Decree-Law by approved RGICSF), – Instituições deCréditoeSociedades Financeiras Statute and the Legal Framework of Credit Institutions and Financial Companies (Regime Geraldas its to pursuant adopted as authority resolution national as decisions its of virtue by specifically courts national administrative) and (civil in Portugal de Banco against brought proceedings with bridge bank, Novo Banco, S. A. (hereinafter “Novo Banco”), led to a significant increase in litigation, (ii) Requestsforcancellationoftheresolutionmeasureapplied (i) (c) ofRGICSF. Court orderproceedingsfortheprovisionofinformationandissuancecertificates (b) of the Administrative Courts Procedure Code – LADA). Banco de Portugal is awaiting is Portugal de Banco LADA). – 173 Financial Statements and Notes 174 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Article 48 of the CPTA. In some of these proceedings the suspension decision was appealed against. 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 actions those of some suspend to decided have courts The conducted. and scheduled be to yet are phases hearing trial or pre-trial the 29 December 2015), of Portugal de Banco of Directors of Board the of (decision Decision Retransfer the challenging actions annulment the to relation In for theremainderofsuspendedlitigation. Banco de Portugal awaits the following developments of the pilot proceedings and their consequences Lisbon District,underArticle 48(8)oftheCPTA. appeal, which was unanimously rendered by all judges in office at the Administrative Court of the underjudgement comprehensive the unobjectionable as considering and rejected be should Court Administrative Supreme the to appeals direct two these that arguing opinion an delivered Office Prosecutor’s Public the 11 November 2019 on Meanwhile, Court. Administrative Supreme the to directly judgement that against appealed proceedings pilot two the of applicants The as welltothepriordeliberationonprudentialprovisioning,wererejectedinbulk. 3 August, of decision referred the to attributed illegalities or unconstitutionalities of allegations multipleThus, measure. resolution the of legality full and resolution bank on framework legal the of constitutionality the confirming judges, its of twenty by judgement, unanimous a rendered District Lisbon the of Court Administrative the 19 March 2019 on proceedings, pilot to regard In procedural developmentsinregardtotheformer. await will which 24 proceedings, another suspended and proceedings, pilot as 2808/14.0BELSB The order in question specified the selection of the proceedings numbered 2586/14.3BELSB and proceedings. related remaining the of suspension with proceedings) (pilot actions two of selection the for provided which Code), Procedural Courts Administrative – nos TribunaisAdministrativos ( CPTA the of Article 48 in for provided mechanism procedural the of application the requiring District Lisbon the of Court Administrative the of President the by October 2018 in down handed was order an 11 August 2014), and 3 of Portugal de Banco of Directors of Board Regarding theannulmentactionschallenginginitialBESresolutionmeasure(decisionsof there isahigherprobabilityofdecisioninfavourBancodePortugal. present,at available information procedural and legal the given which, to relation in Portugal, de Banco against filed claims tort any from arise may that that from distinct is compensation this 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 financial support to the resolution measure and to its implementation. For the sake of consistency, provides that entity the is Fund Resolution the that is version, current the in and No 23-A/2015 Law of publication to prior version the in both regime, resolution the behind rationale The RGICSF. the of 153-C Article per as authority resolution the by adopted measures resolution the of application the to assistance financial provide to is which Fund, Resolution the of purpose the to given be must consideration due stake, at risk financial the assess to order in Indeed, claims totheResolutionFund. compensation any for responsibility awards resolution BES’s of time the at force in framework legalthe since present, at Portugal de Banco for risks financial present not do proceedings those that counsel, legal external and internal its of opinion the by supported believes, Portugal de Banco claims, annulment these In well-founded. be to judged be claims the should costs, Código de Processo Código de Processo reporting purposes,asatthe closingdateoftheaccounts. for obligation, financial any of value likely the accurately estimate to impossible is it uncertainty, inherent abovementioned the given Furthermore, Portugal. de Banco of favour in decision a of probabilityhigher a is there that belief the refute to evidence no is there present, at available informationprocedural and legal the and proceedings, legal these in date to developments favourable the given However, Courts. the by delivered be to decisions the of tendency the predict and involve considerable legal complexity, it is impossible at present for Banco de Portugal to As the contentious matters subject to these proceedings have no doctrinal or case-law precedent expected tobefinalisedin2020takingintoaccountthe developments referredabove. aredozens other some and 2018), in finalised 229 proceedings the to addition (in finalised planned, as were, 44 proceedings of total a 2019 in lawsuits, of category this to regard With administrative) competenttosettlethissortoflitigation. or (civil jurisdiction the is which to as continue discussions legal Thus, courts. higher in appealed were which decisions – jurisdiction lacking as themselves declared latter the courts, civil before Banco dePortugalthecivilcourtsweredeemedashavingjurisdiction.Inallothercasespending against brought lawsuit one only in Importantly, Fund. Resolution the against brought where The Conflicts Court has deemed the civil courts as having jurisdiction to resolve civil law disputes, – broughtagainsttheResolutionFundbeingtransferredtotheConflictsCourtanew. themselves without jurisdiction also, by reason of the subject matter, which led to those proceedings There have been cases where the administrative courts received remitted proceedings and deemed lodged, whichareattheendofinitialproceduralphaseorawaitingpre-trialhearingphase. were suits new or courts administrative the to remitted were lawsuits matter, subject the of reason In the other pending proceedings, where the civil courts deemed themselves without jurisdiction by SGFTC, S. A., in its capacity as management company of FRC – INQ – Papel Comercial and Rio Forte. – PATRIS and customers BES former between agreement the following withdrawn were lawsuits pending various in damages on claims financial addition, In Fund. Resolution the and Portugal de Banco of favour in down handed been have decisions of number considerable a Fund, Resolution Following defence based on inadmissibility grounds presented by Banco de Portugal and/or the alleged depositsinBESandformoraldamages. from arising damages for compensation financial pay to Fund Resolution the and/or Portugal Pending both at the civil courts and administrative courts are proceedings pleading for Banco de to refutethebeliefthatthereisahigherprobabilityofdecisioninfavourBancoPortugal. other cases, given the legal and procedural information available at present, there is no evidence the In sough. not is amount pecuniary a of Portugal de Banco by payment whenever Portugal, de Banco for risk financial of type any raise not does question in decisions the of Annulment delivered bytheCourts. be to decisions the of tendency the predict to precedents, case-law and doctrinal few are there as Portugal, de Banco for present at impossible is it District, Lisbon the of Court Administrative theby rendered judgement the by established precedent case-law important the Despite Forte, andthereforethoseactionsareexpectedtobedefinitivelyconcludedin2020. the of exception on legal empowerment of acceptance FRC the – INQ – Papel Comercial ESI e Rio Lastly, some other pending lawsuits were subject to withdrawal requests in 2019, as a result of (iii) Requestsforreimbursementofsumstransferredand/orcompensation 175 Financial Statements and Notes 176 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 intended to defend the legality and effectiveness of the decisions on the BES resolution measure measure resolution BES the on decisions the of effectiveness and legality the defend to intended Portugal de Banco branch. Spanish the to relating and Banco Novo of sale the of context the in Fund Resolution the and Portugal de Banco of interventions three also were there Finally, precautionary retentionoftheclaimsheldbytheminBES. the contesting BES of Directors of Board the of members the of lawsuits the also are There now beenconcludedand(iv)theinteriminjunctionsareancilla ry tothemainlawsuits. provisional decisions on interim injunctions were rejected, (iii) the sale process of Novo Banco has in the interim injunctions identified have already been ruled in favour of Banco de Portugal, (ii) the indicate that there is no financial risk for Banco de Portugal in this regard: (i) six decisions on merit factors following the However, Courts. the by delivered be to decisions the of outcome the As these matters have no doctrinal or case-law precedent, Banco de Portugal is unable to predict rejecting theinteriminjunctionisyettoberendered. judgement the on lodged appeal the on Court Central Administrative South the by decision the proceedings, pending three these of last the regarding Finally, matter. this on submitted injunction a judgement rendered by the South Administrative Central Court, which has also rejected the interim this action is expected to be concluded in 2020. The same is true with regard to the proceedings with (ii) acceptance of the exception on the investment funds’ procedural illegitimacy to seek action. Thus, (i) the non-application of the Portuguese Procurement Code to the sale process of Novo Banco, and aspects: two on mainly decision its basing proceedings, the of one in Fund Resolution the of and Portugal de Banco of favour in totally ruled Court Administrative Supreme the 13 March 2019, On award decision to that entity and the consequent prohibition from concluding the definitive contract. the of suspension the was injunctions interim these of request main The Star. Lone to Banco Novo of process sale the to relating pending, were proceedings injunction interim three 2019, During appeal withinaninteriminjunction. pre-trial or trial hearing phases. Only a lawsuit is suspended, which is still awaiting decision of an the awaiting still are lawsuits these of Most 31 March 2017. on Portugal de Banco of Directors of Board the by issued Star, Lone to Banco Novo of process sale the award to decision the of invalidity of declaration a seek which pending, are lawsuits several courts, administrative the In Banco de Portugal, as payment by Banco de Portugal of a specified pecuniary amount is not sought. for risk financial of type any trigger not does question in decisions the of annulment said, This occur. developments procedural further until possible not is assessment adequate an Therefore 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 an existingpreliminarymatter. of reason by CPTA), the of Article 48 in down laid mechanism the of application the (arisingfrom proceedings pilot aforementioned the of developments procedural the await thereafter would which proceedings, suspending of possibility the considering is Court the lawsuits, pending the of one In The nextstageoftheselawsuitsistheschedulingtrialhearings. 15 September and29 December 2015. annulment of the decisions of the Board of Directors of Banco de Portugal of 22 December 2014, Sachs, Oak Finance and the Guardians of the New Zealand Superannuation Fund, which seek the Goldman by brought lawsuits are District Lisbon the of Court Administrative the at Pending (v) (iv) Guardians oftheNewZealandSuperannuation Fundandothers) Other requestsrelatedtotheresolutionmeasureappliedBES Oak FOak Finance (including the proceedings filed by Goldman Sachs, Oak Finance, Oak Sachs, Goldman by filed proceedings the (including Finance FOak Oak

Article 145-E(2) of purposes the for and to according fail, to likely or failing is “BANIF that declaring of consisted stability of the financial system with fewer costs for the public purse”. The resolution measure the safeguarding BANIF, by provided services financial essential the of continuity ensure to and on 19 and 20 December 2015, as it deemed that this was “the only solution to protect depositors S. A.”) “Banif, (hereinafter A. S. Funchal, do Internacional Banco – Banif to measure resolution a the Statute of Banco de Portugal and Articles 145-E and 146 of RGICSF, Banco de Portugal applied Within the exercise of its powers as national resolution authority, and pursuant to Article 17-A of • Portugal, taking into account the fact that they involve disputes where Banco de Portugal is not a party. de Banco to risks financial no present cases (iv) those Courts; Spanish the before such as recognised defend the legality and effectiveness of the decisions on BES resolution measure and the need of being to intended and voluntary was Portugal de Banco of intervention procedural (iii) the Fund; Resolution the and Portugal de Banco of interests the of favour in ruled Court Supreme (ii) the accepted; been has Fund Resolution the and Portugal de Banco both of intervention (i) the highlighted: be must following the result a as However, Courts. Spanish the by delivered be to decisions the of tendency the predict to unable is Portugal de Banco precedent, case-law or doctrinal no have matters these As refer thecaseforpreliminaryrulingtoECJasitwaspreviouslyconsidered. to not decided instance first of court the and accepted already was intervention this intervene, to requested Fund Resolution the and Portugal de Banco where case recent most the in Finally, the EuropeanCourtofJustice(ECJ). to ruling preliminary a for case the refer to decided Court Supreme Spanish the accepted, been has Fund Resolution the of and Portugal de Banco of intervention the after lawsuit, another In prevent no the resolution measureadoptedbyBancodePortugalfrombeingrecognised. not would responsibility (iii) such that also and Portugal, de Banco by adopted measure resolution the under Banco Novo of sphere the from excluded was liability relevant the as branches), its (and Banco Novo to responsibility the of transfer the justify not would this behaviour, alleged the of regardless (ii) that, 4 April 2001; of Council the of and Parliament European the of 2001/24/EC Directive and legislation Portuguese the in for provided and possible was adoption whose solution a as resolution banking (i) the thereby: acknowledging decision, favourable a delivered Court Supreme the 7 June 2019, On ineffective. and invalid as ruled being Portugal de Banco by sale contracts, the Resolution Fund may bear financial liabilities as a result of the decisions issued that (ii) in accordance with the Neutralisation Decision of 29 December and with the Novo Banco and decisions; its of interpretation the in interest had authority, resolution national as Portugal, first lawsuit in which they requested to intervene. The Supreme Court has ruled that: (i) Banco de the in parties as accepted both were Fund Resolution the and Portugal de Banco April 2019 In proceedings attheUK’sSupremeCourt). before the Spanish Courts (similarly to the previous intervention on the Goldman Sachs International 101/16.3BEFUN, 102/16.1BEFUN and 197/16.8BEFUN to the proceeding numbered 98/16.0BEFUN 98/16.0BEFUN numbered proceeding the to 197/16.8BEFUN and 102/16.1BEFUN 101/16.3BEFUN, 100/16.5BEFUN,99/16.8BEFUN, numbered proceedings the join to decision the Following lawsuits werewithdrawn;therefore, theyareexpectedtobefinalisedin2020. these of Two phase. hearing pre-trial the of scheduling await and phase procedural initial the of Currently there are 17 administrative lawsuits contesting these decisions, which are all at the end was soldtoBancoSantanderTotta,S. A.,inaccordancewith thedecisionof20 December 2015. BANIF, with Banco Popular Español, S. A., and Banco Santander Totta, S. A.”. Subsequently, Banif, S. A.

Resolution measureappliedtoBanif–BancoInternacionaldoFunchal,S. A.(“Banif,S. A.”) (a) of RGICSF” and taking “the steps required towards the sale of the business of business the of sale the towards required steps “the taking and RGICSF” of 177 Financial Statements and Notes 178 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 compensation amountsresulting therefrom. the estimationofpossiblein thisphaseand recognition ofactualrisksforBancodePortugal the combined with the general procedural dynamic and the vicissitudes of legal proceedings, impede factors,These tendency. decisions’ the only even or decisions, courts’ the of prediction any precludes complexity legal considerable involve and precedent legal no have proceedings these that fact The proceedings. these in Portugal de Banco to risk financial of possibility the is There founded, thereforerepealingtheappealeddecisioninso far asitwascontested. Court considered the appeals lodged by Banco de Portugal and the Deposit Guarantee Fund well therefore, the defendants were acquitted, and in another lawsuit the North Administrative Central and, valid considered were requests withdrawal parties’ the where delivered were judgements In most of these lawsuits, the initial phase has come to an end. By way of example, in four lawsuits Guarantee Fundtopaycompensationforbalancesonaccounts openedwithBPP,S. A. Deposit the or Portugal de Banco for pleading mostly court, in pending 18 lawsuits are There • probability ofadecisioninfavourBancodePortugal. relation to which, given the in legal and Portugal, procedural information de available Banco at present, against there filed is a claims higher tort any from arise may that compensation of sorts for the continuation of the resolution measure. However, this compensation is distinct from other should remain in force, then it shall be the Resolution Fund that settles any compensation payable deems that, for public interest and financial stability reasons, theeffects of the measure resolution were to be annulled by a judgement that has the force of res judicata and the resolution authority resolution measure and to its implementation. For the sake of consistency, if a resolution measure the to support financial provides that entity the is Fund Resolution the that is version, current the in and No 23-A/2015 Law of publication to prior version the in both regime, resolution the implementation of resolution measures adopted by the resolution authority. The rationale behind the to assistance financial provide to RGICSF, of Article 153-C under is, which consideration, into taken be must Fund Resolution the of purpose the lawsuits, these of risk the analyse to order In probability ofadecisioninfavourBancodePortugal. higher a is there that belief the refute to evidence no is there present, at available information procedural and legal the considering However, therefrom. resulting amounts compensation the estimationofpossiblein thisphaseand recognition ofactualrisksforBancodePortugal the combined with the general procedural dynamic and the vicissitudes of legal proceedings, impede factors,These tendency. decisions’ the even or decisions, courts’ the of prediction any precludes The fact that these proceedings have no legal precedent and involve considerable legal complexity are expectedtocomeanendin2020. parties. Given these favourable procedural developments, the majority of these civil proceedings the by action of lack by proceedings two file to decided Court The withdraw. to requests presented have lodged appeals relating to some of those decisions. In other proceedings, the plaintiffs have plaintiffs The them. settle to jurisdiction of deprived themselves deemed which Courts, Civil the from investments made in Banif, S. A. Decisions have already been handed down in these suits by arising damages moral and losses for compensation financial pay to Fund Resolution the and/or There are also 14 civil lawsuits pending at the Lisbon District Court, requesting Banco de Portugal judgement tobedelivered. a await parties the then, Since submitted. were statements written final hearing, the of end the (main proceeding), the trial hearing was held from October to December 2018. In June 2019, following

Judicial winding-upproceedingsofBancoPrivadoPortuguês,S. A.(“BPP,S. A.”) the mostunfavourablescenarioineventBancodePortugalisunsuccessfulparty(Note 19). to corresponds which and requested amount total the to equal taken, been has provision a of up setting- the for decision a case, this of nature executive the account into taking and context, this In act awardingacertaincontract. in the appeal against the favourable decision rendered by the first instance – of the administrative amount that may be agreed between the parties. This case is based on the annulment – as decided another or (€75 thousand) requested amount the for plaintiff the to paid being compensation to lead may which No 2870/14.6BELSB, Case the within 2019 in lodged was order executive for As to general litigation, and for the purposes of this Note, it should be referred that a request risks forBancodePortugalwhicharenotcoveredbyspecificprovisions. (Point 1.2(q) of Note 1), movements of which are decided upon by the Board of Directors, to cover In compliance with its Statute, Banco de Portugal has established, in turn, a General risk provision provision recognisedforthependinglawsuitsasat31 December 2019. specificno is there therefore and Portugal, de Banco for outcome unfavourable an have not will de Portugal, taking as a basis the information available, believes that the ruling on these lawsuits and the reasoned opinion of the internal and external legal counsel, the Board of Directors of Banco legislation applicable the given and above, summarised facts the on based However, risk. financial or legal associated any of assessment prudent a make to precedent case-law of criterion the use to favourable tendency for Banco de Portugal and the Resolution Fund – it has been deemed impossible generally a indicate delivered been have that judgements few those although, – judgements of Lastly, as the lawsuits relating to the resolution measures have not yet come to a meaningful number Given theirnatureandcomplexity,theymayresultinadditionalorcomplementarylegalproceedings. in progress at different procedural phases, and are thus expected to be pending over several years. are above described lawsuits of majority The court. in representation and workload legal of terms in needs considerable Portugal’s de Banco to respond to services, legal external of engagement the additional allocation in 2019 of specialised internal resources to the Legal Services Department and the warrant to continued has litigation the of developments procedural and complexity The Committees of the Resolution Fund, the Deposit Guarantee Fund and the Mutual Agricultural Mutual the and Fund Guarantee Deposit the Fund, Resolution the of Committees Some of the members of the Board of Directors of Banco de Portugal form part of the Management independent entitiesincomparable operations. to apply normally would that those to similar essentially conditions or terms under conducted and accepted contracted, are parties related and Portugal de Banco between transactions All Banco dePortugalwasontheBoardofDirectorsSGFPBP andofValora. and 100% in Valora, S. A. (Note 10). On 31 December 2019 a member of the Board of Directors of (SGFPBP) S. A. Portugal, de Banco do Pensões de Fundos dos Gestora Sociedade in 97.90% was equity parties’s related its in interest participating Portugal’s de Banco 31 December 2019 On NOTE 35• • • there isahigherprobabilityofdecisioninfavourBancodePortugal. that belief the refute to evidence no is there present, at available information procedural and legal the and proceedings, legal these in date to developments favourable the given However,

Executive administrativelitigation Overall assessmentoftheBoardDirectorsBancodePortugal RELATED PARTIES 179 Financial Statements and Notes 180 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 Eesti Pank Deutsche Bundesbank Nationale BankvanBelgië/BanquedeBelgique The tablebelowshowsthenewcapitalkey: 1 February 2020. from effect with adjusted were capital ECB’s the to subscription for key the in withdrawal of the Bank of England from the ESCB, the weightings assigned to the consequent remaining NCBsand Union European the from Kingdom United the of departure the of result a As NOTE 36• proposal oftheBoardDirectors. a on Finance, and State of Minister the by approved as reserves, other to or dividends, as State, reserve, 10% to other reserves to be decided by the Board of Directors and the remainder to the legal the to 10% follows: as distributed be shall year the for profit Net Portugal, de Banco of The Portuguese State is the owner of Banco de Portugal’s equity. In accordance with Article 53(2) these Funds’activity. managing for responsible bodies the are Committees Management The Fund. Guarantee Credit Central BankofCyprus Banca d’Italia Banque deFrance Banco deEspaña Bank ofGreece Banc CeannaisnahÉireann/CentralBankofIreland Lietuvos bankas Latvijas Banka Česká národníbanka Българска народнабанка/BulgarianNationalBank Suomen Pankki–FinlandsBank Národná bankaSlovenska Banka Slovenije Banco dePortugal Oesterreichische Nationalbank De NederlandscheBank Bank Ċentralita’Malta/CentralofMalta Banque centraleduLuxembourg Danmarks Nationalbank Bank ofEngland Sveriges riksbank Banca NaţionalăaRomâniei Narodowy BankPolski Magyar NemzetiBank Hrvatska narodnabanka POST-BALANCE-SHEET EVENTS NCB Non-euro areaNCBs Euro areaNCBs The Netherlands United Kingdom Czech Republic Luxembourg Country Lithuania Denmark Germany Romania Hungary Portugal Slovenia Bulgaria Belgium Slovakia Sweden Estonia Finland Greece Croatia Austria Ireland Cyprus Poland France Latvia Spain Malta Italy 1 Feb.2020 100.0000% 81.3286% 18.6714% 21.4394% 13.8165% 16.6108% 2.9630% 9.6981% 2.0117% 1.3772% 0.2291% 0.1750% 0.3169% 1.4939% 0.9832% 0.9314% 0.3916% 1.9035% 2.3804% 4.7662% 0.0853% 0.2679% 0.4707% 1.8794% 0.0000% 2.9790% 2.8289% 1.5488% 6.0335% 0.6595% 1.7591% from Capital key 31 Jan.2020 100.0000% 69.6176% 30.3824% 18.3670% 11.8023% 14.2061% 14.3374% 2.5280% 8.3391% 1.7292% 1.1754% 0.1968% 0.2731% 0.1503% 1.2708% 0.8511% 0.8004% 0.3361% 1.6367% 2.0325% 4.0677% 0.0732% 0.2270% 0.4059% 1.6172% 2.5222% 2.4470% 5.2068% 1.3348% 0.5673% 1.4986% until

assets by€4,233 thousand,whichwasrepaidtheECBon3 February 2020. these of decrease minor a in resulted This adjusted. marginally was transfer this to equivalent claim the level, current the at remain will NCBs area euro the by transferred 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 (ii) a and ESCB the from withdrawal England’s of transferred foreign reserve assets to the ECB) in the ECB’s subscribed capital resulting from Bank have (which NCBs area euro the of weighting the in increase (i) the Following capital. subscribed ECB’s the in share their to proportion in fixed are ECB the to assets reserve foreign of transfer the to NCBs the of contributions the ESCB/ECB, the of Statute the of Article 30.2 to Pursuant €323 thousand in2020,€14,279 thousand2021and€14,279 thousand2022. ECB the to transfer will Portugal de Banco purpose, that For instalments. annual two in ESCB the from withdrawal England’s of Bank following capital ECB the to subscriptions increased their full in up pay then will NCBs area Euro €58,211 thousand. of capital paid-up England’s of Bank withdrawn the cover will NCBs remaining the as 2020, in i.e. EU, the from departure Kingdom’s United the of year the in €7,659 million at unchanged remain also will capital paid-up ECB’s The As a result, Banco de Portugal’s share in the subscribed capital of the ECB increased by 0.2668%. 14.3%, was reallocated among both the euro area NCBs and the remaining non-euro area NCBs. at stood which capital, subscribed ECB’s the in England of Bank the of share The ESCB. the from The ECB kept its subscribed capital unchanged at €10,825 million after Bank of England’s withdrawal 181 Financial Statements and Notes .

including anet sheet We have audited the Opinion REPORTON THE - - - - - for the Portugal year then ended in accordance thewith accounting principles included in the financial position of In ourIn opinion, the accompanying financial statements the significant accounting Management is responsible for Responsibilities opinion. We believe the audit that evidence we have obtained is sufficient appropriate and to provide basis a for our with the Ordem dos Revisores Oficiais de code Contas of ethics Banco deBanco Portugal “Auditor’s r Statutory Auditorsof Institute ethicaland standards guidelines and issued as by Ordem dos Revisores (the OficiaisContas Portuguese de We conducted our audit in accordance with International Standards onAuditing further and (ISAs) technical Basi

3 ExternalAuditors’ Report

(Free t s s the adoption ofaccounting statements that are free from material designing and maintaining appropriatean internal control system to enablethe preparation of financial preparatio the the preparation of financial statements that Banco deBanco Portugal position financial and performance in accordance matters may that cast significant its about doubt assessing as at at as for year , which are described in Note 1 of the accompanying notes to the financial statements

ranslation of reporta originallyissued in language: Portuguese ofdoubt Incase thePortuguese opinion esponsibilities theaudit ofthe for financialstatements 31 then ended December December Banco de Portugal’s profit of m AUDIT OF

in accordan in n ofthe annual of accompanying financial statementsBanco ofde Portugal ; anagement for the financial statements , and the accompanying no Banco de Portugal as 758, 2019 (showing totalof a policies (Amounts expressed(Amounts in thousands of Euro 533 ) THE ce withthe law we and : . t.euros) policies and Our responsibilities those under standards are further described in the . .

report report FINANCIAL STATEMENTS ability to profit and loss, theand profit version will prevail) always of misstatement, whether 2019 in accordance with principles appropriate in in appropriate principles continue going asa concern at at AUDIT REPORTAUDIT 31 December December 31 give a true a givea tes to the financial statements, including of asummary 159, with abilityto continue asa going concern. have fulfilled otherethical requirements in accordance

give a give 785 , the principles included in of the Chart Accounts of 115 account and account the statement ofchanges in equity true and nd 2019 . .

t.euros fair view of Banco de Portugal ” section

and of itsand financial performancefor the due to fraud or error; applicable l applicable the circumstances; and – fair t.euros) and equityand of 2, the Chart ofAccounts the Chart ofBanco de and disclosing,, and view below , which comprise th , in all materialof respects, and regulat and aws . We are independent from 326,

as applicable, the the applicable, 659

. ’s t.euros financial io e balance ns ; ; , 183 External Auditors’ Report 184 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 ur resonsiilit also

- - - - seticis trougout te audit art As o auditan in accordance it e ee As stateents reasonal e eected toinluence te econoic decisions ousers taen o arisecan ro raud or error are and considered aterial i indiiduall or in te aggregate te could conducted in accordance it ill A alas detect aterial a isstateent en it eists isstateents our oinioneasonale assurance is ig a leel o assurance ut is not guaranteea an tat audit ro aterial isstateents eter due toraud or error to and ur resonsiilit is tootain responsibilities Auditor’s - -

conditions cast a tat signiicant doutBanco on de Portugal ased onte audit eidence otained eter aterial a uncertaint eists related toeents or conclude on the appropriateness of management’s use of the going concern basis of accounting and, estiates related and disclosures ade anageent ealuate te aroriateness o accounting olicies used t and eectieness de o Banco Portugal are aroriatetat in tecircustances utnotor te urose oeressing oinion an onte otain understanding an o internal control releant toteaud isstat is suicient aroriate and toroide asis a or our oinion eris o not detecting aaterial or error eror design and audit rocedures resonsie totose riss otain and audit eidence tat identi assess teand riss o aterial isstateent o te control e tat identi during our audit tiingand o te audit and signiicant audit indings including signiicantan deiciencies in internal counicate it tose carged it goernance regarding aong ot anner tat aciees air resentation disclosures eter and te inancial stateents reresent teunderling transactions eents and in a ealuate te oerall resentation structure conten and collusion orger intentional oissions isreresentations or te oerride o internal control going concern reort oeer uture or eents conditions cause a odi our oinion ur conclusions are ased onte audit eidence otainedte date oour uto reort tote related in disclosures teinancial stateents or i sucdisclosures are inadeuate to e conclude tat ateriala uncertaint eists eare reuired todra attentionour in is consistent it te inancial stateents eent resulting ro raud is iger or tan one resulting ro error raud as a inole includes te eriication

or te udit te innil o stteents reasonale assurance

and eand also

’s internal control;

tat te inorationtat contained in te rcise roessional udgentaintain roessional on eter te inancial stateents

t ote inancial stateents including te Banco deBanco Portugal

inancial stateents eter due toraud it in order to design audit rocedures issue a ’s abi e reasonaleness oaccounting

lit to continue going as a concern n auditor’s n te asis o tese inancial er atters te lanned scoe to cease to continue asa anageent reort includes tat as a ole are ree ree ole are a as auditor’s reort reort

o audited financial statements haing and, regard to our noledge

isbo identifiedmaterial an misstatements n A AA (This report is a translation of a report originally issued in Portuguese. in Portuguese. issued originally a of report a is translation report (This epresented eloitte ssociados, language version prevails.) version language SROC S.A. internal procedures, the report isnot to be signed. In the event of discrepancies, thePortuguese t is t

te te our opinion that the information included in the n, n, arch neent report o b oo arlos enriues omes erreira

management ,

report of of Thereforeaccording to Deloitte & Associados, anco de anco ortugal, e hae not

is consistentith t he he 185 External Auditors’ Report

4 which issueditsopinionon10 March 2020 withoutanyqualificationoremphasisofmatter. audit work carried out by Deloitte & Associados – Sociedade de Revisores Oficiais de Contas S. A., of the Board of Directors held on 03 March 2020 – and discussed the conclusions of the external meeting the in approved – 31 December 2019 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 on particular in focusing adopted, The Board of Auditors also monitored compliance with the accounting policies and practices whenever necessaryorconvenient. information on subjects being monitored, in particular, situations deemed to have significant risk, additional for (iii) requests and services relevant the of charge in those with meetings (ii) regular activities, respective their of performance the in involved or for responsible Portugal, de Banco of units structural and departments other and Department Audit the Department, Management Risk the Department, Accounting the by produced information and reports of number a of auditing, and (iv) internal auditing. Monitoring was essentially focused on (i) review and discussion (iii) external reporting, (ii) financial compliance, and control internal management, (i) risk by The Board of Auditors monitored with particular attention the functions and activities performed the regulatoryframeworkinforce. regular monitoring of Banco de Portugal’s functions and activities, which fall within its remit under (iii) the and Issues Staff-related and Administrative for Committee Executive the and Directors of the meetings of the Board of Directors, (ii) the review of the minutes of the meetings of the Board in rights, voting without participation, members’ (i) its through Portugal de Banco of activity the During the course of 2019, the Board of Auditors, in use of the above-mentioned powers, monitored issues itsopinionontheAnnualReportpresentedbyBoardofDirectors. functions, other among and, thereto applicable regulations and laws the of observance the and Portugal de Banco of business the monitors Auditors of Board the 31 January 1998, of No 5/98 Decree-Law by approved Portugal, de Banco of Statute the of Article 43 of terms the Under of theBoard ofAuditors Report andOpinion Board ofAuditors Report andOpinionoftheBoardAuditors 2019 187 Report and Opinion of the Board of Auditors 188 Banco de Portugal • Annual Report • Activities and Financial Statements 2019 by the Government and to developments in the economy in general and in the financial and financial the in and general in economy the in developments to and Government the by decisions policy extraordinary to Bank, Central European the by decisions policy to exposed is activity Portugal’s de Banco operates, it which in framework regulatory and legal European and Portuguese the Within sector. banking the in uncertainty and risk of level the increased the COVID-19 pandemic and the political and economic decisions to mitigate it have significantly days, few past the in especially and weeks, few past the In particular. in economy Portuguese the on and general in economies European and global the on have will it impact negative the assess to early too still is It outbreak. COVID-19 the by marked was year financial 2020 the of beginning The event. supervening following the highlight to wishes Auditors of Board The above. mentioned profit of distribution the for proposal the to nor Portugal, de Banco of Statements In light of the above, the Board of Auditors raises no objection to the approval of the 2019 Financial distribution ofprofit: Statute of Banco de Portugal, will submit to the Minister of Finance the following proposal for the the of Article 53(2) with accordance in Directors, of Board The €758,533,467.78. of amount the In addition, the Board of Auditors analysed the proposal for the distribution of profit for 2019, to recorded apositiveeffecttotheamountof€50 millionin2018. provision this as 2019, for provision risk General of level the maintain to decision Directors’ of Board (iii) the and fund, that to contributions Portugal’s de Banco of return (FGCAM) Fund’s (ii) non-recurrent profits amounting to €81 million, from thepurposes, Mutual Agriculturalpolicy Creditmonetary Guarantee for held Securities of yield lower a to due 2019), in €998 million to was mostly driven by (i) a €67 million decrease in the interest margin (from €1,065 million in 2018 Net profit for the year 2019 totalled €759 million, a €47 million decrease from 2018. This decrease the year)increasedby€3,043 millionin2019,largelyduetotherisegoldprices. for profit Net and Equity provision, risk General accounts, Revaluation items the includes (which funds Own Portugal’s de Banco operations. policy monetary to due institutions credit area euro to liabilities in increase €5,117 million (v) the and Portugal, de Banco to assigned circulation in €2,499 million increase in Intra-Eurosystem claims arising from the adjustment to euro banknotes (iv) the purposes, policy monetary for held Securities of volume in rise €2,270 million (iii) the positive developments in its price, (ii) the €1,418 million decrease in Lending to credit institutions, in aggregate terms from 2018, driven by (i) the €2,868 million increase in the value of gold due to In this regard, the Board of Auditors paid special attention to assets, which grew by €1,832 million – – – – – – Dividends totheState 10% tootherreserves 10% tothelegalreserve ...... €606,826,774.22 €75,853,346.78 €75,853,346.78 Lisbon, 26March2020 staff ofBancodePortugalitsappreciationfortheircooperation. entire the and Directors of Board the Governor, the to express to wishes Auditors of Board The Portugal’s activityandfinancialsituation,itssizedurationareuncertainatthistime. de Banco on impact significant a have thus may exposure This particular. in sector banking Nuno GraciasFernandes The BoardofAuditors Óscar Figueiredo Margarida Abreu [illegible signature] [illegible signature] [illegible signature] 189 Board of Auditors